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 Number 001-37649 FIEE, INC. (Exact Name of Registrant as Specified in its Charter) | Delaware | 04-2621506 | | --- | --- | | ...

[Corporate Information & Filing Details](index=1&type=section&id=Corporate%20Information%20%26%20Filing%20Details) This section provides details on the SEC filing, company overview, and fleet profile of Euroseas Ltd [SEC Filing Information](index=1&type=section&id=SEC%20Filing%20Information) This section details the SEC filing, identifying the document as a Form 6-K report for August 2025 by Euroseas Ltd., incorporating a press release regarding its Q2 and H1 2025 results - Report is a Form 6-K for August 2025, filed by Euroseas Ltd. (Commission File Number: 001-33283)[1](index=1&type=chunk)[2](index=2&type=chunk) - It includes a press release issued on August 13, 2025, reporting results for the six-month period and quarter ended June 30, 2025[4](index=4&type=chunk)[10](index=10&type=chunk) [Company Overview](index=16&type=section&id=Company%20Overview) Euroseas Ltd. is a Marshall Islands-registered owner and operator of container carrier vessels, trading on NASDAQ under ESEA, managing its fleet through Eurobulk Ltd - Euroseas Ltd. (NASDAQ: ESEA) is a container carrier vessel owner and operator, managed by Eurobulk Ltd[10](index=10&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) Euroseas Ltd. Fleet Profile (as of August 13, 2025) | Metric | Current Fleet | Future Fleet (by Q4 2027) | | :----- | :------------ | :-------------------------- | | Number of Vessels | 22 | 24 | | Feeder Containerships | 15 | - | | Intermediate Containerships | 7 | - | | Total Cargo Capacity (TEU) | 67,494 | 76,094 | [Financial Highlights](index=3&type=section&id=Financial%20Highlights) This section presents key financial performance metrics for Euroseas Ltd. for the second quarter and first half of 2025 [Second Quarter 2025 Financial Highlights](index=3&type=section&id=Second%20Quarter%202025%20Financial%20Highlights) Euroseas Ltd. reported total net revenues of $57.2 million and net income of $29.9 million for Q2 2025, with an Adjusted EBITDA of $39.3 million Second Quarter 2025 Financial Highlights | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------------------- | :---------- | :---------- | :----------- | | Total Net Revenues | $57.2 million | $58.7 million | -2.5% | | Net Income | $29.9 million | $40.7 million | -26.5% | | Basic EPS | $4.32 | $5.89 | -26.7% | | Diluted EPS | $4.29 | $5.84 | -26.5% | | Adjusted Net Income | $29.2 million | $34.3 million | -14.8% | | Adjusted Basic EPS | $4.23 | $4.95 | -14.6% | | Adjusted Diluted EPS | $4.20 | $4.92 | -14.6% | | Adjusted EBITDA | $39.3 million | $42.3 million | -7.1% | | Average Vessels Operated | 22.0 | 21.26 | +3.5% | | Average TCE Rate | $29,420/day | $31,639/day | -7.0% | | Quarterly Dividend per Share | $0.70 | $0.65 (implied from $0.05 increase) | +7.7% | - The company repurchased **463,074 common shares** for approximately **$10.5 million** since May 2022, as part of a **$20 million** share repurchase plan[14](index=14&type=chunk) - Published its 2024 Sustainability/ESG Report[14](index=14&type=chunk) [First Half 2025 Financial Highlights](index=3&type=section&id=First%20Half%202025%20Financial%20Highlights) For the first half of 2025, Euroseas Ltd. reported total net revenues of $113.6 million and net income of $66.8 million, with an Adjusted EBITDA of $76.4 million First Half 2025 Financial Highlights | Metric | H1 2025 | H1 2024 | Change (YoY) | | :-------------------------------- | :---------- | :---------- | :----------- | | Total Net Revenues | $113.6 million | $105.4 million | +7.7% | | Net Income | $66.8 million | $60.8 million | +9.9% | | Basic EPS | $9.63 | $8.77 | +9.8% | | Diluted EPS | $9.60 | $8.71 | +10.2% | | Adjusted Net Income | $55.4 million | $52.8 million | +4.9% | | Adjusted Basic EPS | $7.99 | $7.63 | +4.7% | | Adjusted Diluted EPS | $7.97 | $7.57 | +5.3% | | Adjusted EBITDA | $76.4 million | $66.9 million | +14.2% | | Average Vessels Operated | 22.83 | 20.43 | +11.7% | | Average TCE Rate | $28,468/day | $29,836/day | -4.7% | [Management Commentary](index=4&type=section&id=Management%20Commentary) This section provides insights from the Chairman, CEO, and CFO on market conditions, company performance, and financial position [Chairman and CEO Comments](index=4&type=section&id=Chairman%20and%20CEO%20Comments) The CEO highlighted the strong containership market in Q2 2025, the company's profitability, strategic fleet positioning, and commitment to shareholder returns - Containership market continued upward climb in Q2 2025, exceeding 2024 peak levels, primarily due to lack of vessels[15](index=15&type=chunk) - Company achieved one of its best quarterly results in five years (adjusted EPS) due to highly profitable charter rates and almost **90% charter coverage** for the next 12 months[15](index=15&type=chunk) - Anticipates potential rate pressures in late 2026/2027 due to overall supply growth (**30% orderbook**), but sees an advantage in feeder and intermediate segments (where Euroseas operates) due to low orderbook and aged fleet profile[16](index=16&type=chunk) - Committed to fleet modernization, accretive investments, and shareholder returns; increased quarterly dividend by **$0.05** to **$0.70 per share** and continues share buyback program[17](index=17&type=chunk) [Chief Financial Officer Comments](index=4&type=section&id=Chief%20Financial%20Officer%20Comments) The CFO detailed Q2 2025 revenue and expense changes, attributing shifts to TCE rates, operating costs, and administrative expenses, while outlining debt and cash positions - Q2 2025 revenues slightly lower than Q2 2024 due to a **7.0% decrease** in average TCE rate, despite more vessels[17](index=17&type=chunk) - Daily vessel operating expenses increased to **$6,700/day** (from $6,612/day in Q2 2024) due to falling USD value and inflation adjustment to daily vessel management fee (**810 Euros to 840 Euros**)[18](index=18&type=chunk) - General and administrative expenses increased to **$694/day** (from $581/day in Q2 2024) due to higher professional fees and stock incentive plan costs[19](index=19&type=chunk) Key Financial Metrics (CFO Commentary) | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Net Revenues | $57.3 million | $58.7 million | -2.4% | | Adjusted EBITDA | $39.3 million | $42.3 million | -7.1% | | Outstanding Debt (as of Jun 30, 2025) | $229.4 million | - | - | | Cash (as of Jun 30, 2025) | $112.7 million | - | - | | Scheduled Debt Repayments (next 12 months) | $21.2 million | - | - | [Detailed Financial Results](index=5&type=section&id=Detailed%20Financial%20Results) This section provides a comprehensive breakdown of Euroseas Ltd.'s financial performance for the second quarter and first half of 2025 [Second Quarter 2025 Detailed Results](index=5&type=section&id=Second%20Quarter%202025%20Detailed%20Results) Q2 2025 results show decreased net revenues and net income, influenced by lower time charter rates and the absence of a vessel sale gain, alongside increased operating and interest expenses [Revenue and Net Income](index=5&type=section&id=Revenue%20and%20Net%20Income_Q2) This subsection details the revenue and net income performance for Q2 2025, including average vessels operated and TCE rates Q2 2025 Revenue and Net Income | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Total Net Revenues | $57.2 million | $58.7 million | -2.5% | | Net Income | $29.9 million | $40.7 million | -26.5% | | Average Vessels Operated | 22.0 | 21.26 | +3.5% | | Average TCE Rate | $29,420/day | $31,639/day | -7.0% | [Operating Expenses](index=5&type=section&id=Operating%20Expenses_Q2) This subsection outlines the various operating expenses incurred during Q2 2025, including voyage, vessel operating, depreciation, and administrative costs Q2 2025 Operating Expenses | Expense Category | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------------- | :---------- | :---------- | :----------- | | Voyage Expenses, net | $0.3 million | -$0.3 million (gain) | N/A | | Vessel Operating Expenses | $11.5 million | $11.1 million | +3.6% | | Depreciation Expense | $7.3 million | $6.8 million | +7.4% | | Related Party Management Fees | $1.9 million | $1.7 million | +11.8% | | General & Administrative Expenses | $1.4 million | $1.1 million | +27.3% | | Drydocking Costs | $1.7 million | $1.6 million | +6.3% | [Other Expenses and Income](index=5&type=section&id=Other%20Expenses%20and%20Income_Q2) This subsection presents other financial items for Q2 2025, including interest costs, capitalized interest, derivative gains/losses, and vessel sale gains Q2 2025 Other Expenses and Income | Category | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------------- | :---------- | :---------- | :----------- | | Interest & Other Financing Costs | $4.0 million | $2.1 million | +90.5% | | Capitalized Interest (newbuilding) | Nil | $1.4 million | -100% | | Net Gain/(Loss) on Derivative | -$0.06 million (loss) | $0.12 million (gain) | N/A | | Gain on Sale of Vessel | Nil | $5.7 million | -100% | [Earnings Per Share](index=5&type=section&id=Earnings%20Per%20Share_Q2) This subsection provides basic, diluted, and adjusted earnings per share figures for Q2 2025 Q2 2025 Earnings Per Share | EPS Type | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Basic EPS | $4.32 | $5.89 | -26.7% | | Diluted EPS | $4.29 | $5.84 | -26.5% | | Adjusted Basic EPS | $4.23 | $4.95 | -14.6% | | Adjusted Diluted EPS | $4.20 | $4.92 | -14.6% | [First Half 2025 Detailed Results](index=5&type=section&id=First%20Half%202025%20Detailed%20Results) H1 2025 results show increased net revenues and net income, driven by fleet expansion and a vessel sale gain, with varied changes in operating and interest expenses [Revenue and Net Income](index=5&type=section&id=Revenue%20and%20Net%20Income_H1) This subsection details the revenue and net income performance for H1 2025, including average vessels operated and TCE rates H1 2025 Revenue and Net Income | Metric | H1 2025 | H1 2024 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Total Net Revenues | $113.6 million | $105.4 million | +7.7% | | Net Income | $66.8 million | $60.8 million | +9.9% | | Average Vessels Operated | 22.83 | 20.43 | +11.7% | | Average TCE Rate | $28,468/day | $29,836/day | -4.7% | [Operating Expenses](index=6&type=section&id=Operating%20Expenses_H1) This subsection outlines the various operating expenses incurred during H1 2025, including voyage, vessel operating, depreciation, and administrative costs H1 2025 Operating Expenses | Expense Category | H1 2025 | H1 2024 | Change (YoY) | | :-------------------------- | :---------- | :---------- | :----------- | | Voyage Expenses, net | $0.5 million | $0.8 million | -37.5% | | Vessel Operating Expenses | $23.7 million | $22.5 million | +5.3% | | Depreciation Expense | $15.3 million | $12.3 million | +24.4% | | Related Party Management Fees | $3.9 million | $3.3 million | +18.2% | | General & Administrative Expenses | $3.2 million | $2.4 million | +33.3% | | Drydocking Costs | $3.5 million | $7.2 million | -51.4% | | Gain on Sale of Vessel | $10.2 million | $5.7 million | +78.9% | [Other Expenses and Income](index=6&type=section&id=Other%20Expenses%20and%20Income_H1) This subsection presents other financial items for H1 2025, including interest costs, capitalized interest, derivative gains/losses, and Adjusted EBITDA H1 2025 Other Expenses and Income | Category | H1 2025 | H1 2024 | Change (YoY) | | :-------------------------- | :---------- | :---------- | :----------- | | Interest & Other Financing Costs | $7.9 million | $3.9 million | +102.6% | | Capitalized Interest (newbuilding) | $0.1 million | $2.7 million | -96.3% | | Net Gain/(Loss) on Derivative | -$0.2 million (loss) | $1.0 million (gain) | N/A | | Adjusted EBITDA | $76.4 million | $66.9 million | +14.2% | [Earnings Per Share](index=6&type=section&id=Earnings%20Per%20Share_H1) This subsection provides basic, diluted, and adjusted earnings per share figures for H1 2025 H1 2025 Earnings Per Share | EPS Type | H1 2025 | H1 2024 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Basic EPS | $9.63 | $8.77 | +9.8% | | Diluted EPS | $9.60 | $8.71 | +10.2% | | Adjusted Basic EPS | $7.99 | $7.63 | +4.7% | | Adjusted Diluted EPS | $7.97 | $7.57 | +5.3% | [Fleet Information](index=7&type=section&id=Fleet%20Information) This section provides a detailed overview of Euroseas Ltd.'s current and future fleet, including operational data and key performance indicator definitions [Fleet Profile](index=7&type=section&id=Fleet%20Profile) As of August 13, 2025, Euroseas Ltd. operates 22 container carriers with plans to expand to 24 by Q4 2027, with most vessels under time charter agreements Euroseas Ltd. Fleet Profile (as of August 13, 2025) | Category | Number of Vessels | Dwt | TEU | | :------------------------ | :---------------- | :-------- | :-------- | | Container Carriers (on water) | 22 | 859,330 | 67,494 | | Intermediate | 7 | - | - | | Feeder | 15 | - | - | | Vessels under construction | 2 | 110,400 | 8,600 | | Total (current + under construction) | 24 | 969,730 | 76,094 | - Vessels under construction (ELENA, NIKITAS G) are Intermediate type, **55,200 Dwt**, **4,300 TEU** each, to be delivered in Q4 2027[42](index=42&type=chunk) - Most vessels are under time charter (TC) agreements, with rates ranging from **$15,000 to $48,000 per day**[42](index=42&type=chunk) [Summary Fleet Data & Definitions](index=8&type=section&id=Summary%20Fleet%20Data%20%26%20Definitions) This section presents detailed fleet operational data for Q2 and H1 2025, along with definitions for key performance indicators like TCE rate and fleet utilization Summary Fleet Data | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Average number of vessels | 22.00 | 21.26 | 22.83 | 20.43 | | Calendar days for fleet | 2,002.0 | 1,936.0 | 4,133.0 | 3,720.0 | | Scheduled off-hire days | 10.0 | 20.7 | 29.8 | 99.3 | | Available days for fleet | 1,992.0 | 1,915.3 | 4,103.2 | 3,620.7 | | Voyage days for fleet | 1,990.1 | 1,913.6 | 4,085.3 | 3,613.1 | | Fleet utilization | 99.9% | 99.9% | 99.6% | 99.8% | | Time charter equivalent rate ($/day) | 29,420 | 31,639 | 28,468 | 29,836 | | Vessel operating expenses excl. drydocking ($/day) | 6,700 | 6,612 | 6,688 | 6,926 | | General and administrative expenses ($/day) | 694 | 581 | 766 | 637 | | Drydocking expenses ($/day) | 826 | 819 | 838 | 1,943 | - TCE (Time Charter Equivalent) rate is a non-GAAP measure of average daily net revenue performance, calculated by dividing net time/voyage charter revenue by voyage days[53](index=53&type=chunk) - Fleet utilization measures efficiency in finding employment and minimizing off-hire days, calculated as voyage days divided by available days[50](index=50&type=chunk) [Financial Statements](index=11&type=section&id=Financial%20Statements) This section presents the unaudited consolidated condensed statements of operations, balance sheets, and cash flows for Euroseas Ltd [Unaudited Consolidated Condensed Statements of Operations](index=11&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Operations) The statements show Q2 2025 net income decreased to $29.9 million, while H1 2025 net income increased to $66.8 million, reflecting varied revenue and expense trends Consolidated Condensed Statements of Operations Summary | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | | Net Revenues | $57,233,719 | $58,724,586 | $113,579,814 | $105,442,960 | | Operating Income | $33,378,481 | $42,337,326 | $73,862,684 | $62,727,262 | | Net Income | $29,861,518 | $40,748,559 | $66,776,511 | $60,750,732 | | Basic EPS | $4.32 | $5.89 | $9.63 | $8.77 | | Diluted EPS | $4.29 | $5.84 | $9.60 | $8.71 | - Q2 2025 operating income decreased to **$33.4 million** from **$42.3 million** in Q2 2024, while H1 2025 operating income increased to **$73.9 million** from **$62.7 million** in H1 2024[63](index=63&type=chunk) [Unaudited Consolidated Condensed Balance Sheets](index=12&type=section&id=Unaudited%20Consolidated%20Condensed%20Balance%20Sheets) As of June 30, 2025, total assets increased to $662.1 million, driven by higher cash and vessels, with corresponding increases in total liabilities and shareholders' equity Consolidated Condensed Balance Sheets Summary | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :-------------- | :---------------- | :------- | | Total Current Assets | $160,431,358 | $84,706,760 | +89.4% | | Cash and cash equivalents | $100,506,369 | $73,739,504 | +36.3% | | Vessels, net | $477,285,311 | $443,386,898 | +7.6% | | Total Assets | $662,108,899 | $591,218,957 | +11.9% | | Total Current Liabilities | $50,020,482 | $57,169,609 | -12.5% | | Long-term debt, current portion | $20,848,844 | $36,930,532 | -43.6% | | Total Long-term Liabilities | $209,108,379 | $171,099,516 | +22.2% | | Total Liabilities | $259,128,861 | $228,269,125 | +13.5% | | Total Shareholders' Equity | $402,980,038 | $362,949,832 | +11.0% | [Unaudited Consolidated Condensed Statements of Cash Flows](index=13&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) H1 2025 saw increased cash from operations, significantly reduced cash used in investing, and decreased cash from financing, leading to a substantial increase in cash and equivalents Consolidated Condensed Statements of Cash Flows Summary | Cash Flow Category | H1 2025 | H1 2024 | Change | | :-------------------------------- | :---------- | :---------- | :------- | | Net cash provided by operating activities | $68,458,904 | $59,396,331 | +15.3% | | Net cash used in investing activities | ($39,176,562) | ($114,922,837) | -65.9% | | Net cash provided by financing activities | $2,732,906 | $67,523,299 | -95.9% | | Net increase in cash, cash equivalents and restricted cash | $32,015,248 | $11,996,793 | +166.9% | | Cash, cash equivalents and restricted cash at end of period | $112,681,575 | $76,313,091 | +47.6% | - Cash paid for vessels under construction decreased from **$122.0 million** in H1 2024 to **$56.6 million** in H1 2025[65](index=65&type=chunk) - Proceeds from long-term debt decreased from **$94.0 million** in H1 2024 to **$52.0 million** in H1 2025[65](index=65&type=chunk) [Non-GAAP Reconciliations](index=14&type=section&id=Non-GAAP%20Reconciliations) This section provides reconciliations for non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS, to their GAAP equivalents [Adjusted EBITDA Reconciliation](index=14&type=section&id=Adjusted%20EBITDA%20Reconciliation) This section reconciles Adjusted EBITDA to Net Income, detailing adjustments for interest, depreciation, derivative gains/losses, vessel sales, and amortization of time charters Adjusted EBITDA Reconciliation | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | | Net Income | $29,861,518 | $40,748,559 | $66,776,511 | $60,750,732 | | Interest & other financing costs, net | $3,374,826 | $1,722,793 | $6,772,677 | $2,975,554 | | Vessel depreciation | $7,258,954 | $6,820,674 | $15,304,021 | $12,262,011 | | Gain on sale of vessel | - | ($5,690,794) | ($10,230,210) | ($5,690,794) | | Net (Gain)/Loss on derivative | $56,548 | ($117,701) | $229,934 | ($980,707) | | Amortization of below market time charters acquired | ($1,231,776) | ($1,231,776) | ($2,450,015) | ($2,463,552) | | **Adjusted EBITDA** | **$39,320,070** | **$42,251,755** | **$76,402,918** | **$66,853,244** | - Adjusted EBITDA is a non-GAAP measure used to assess financial performance by excluding financial costs, derivative gains/losses, vessel sale gains, depreciation, and amortization of below market time charters[68](index=68&type=chunk) [Adjusted Net Income and EPS Reconciliation](index=15&type=section&id=Adjusted%20Net%20Income%20and%20EPS%20Reconciliation) This section reconciles Adjusted Net Income and Adjusted EPS to their GAAP equivalents. Adjusted Net Income for Q2 2025 was $29.2 million (vs. $34.3 million in Q2 2024), and for H1 2025 it was $55.4 million (vs. $52.8 million in H1 2024) Adjusted Net Income and EPS Reconciliation | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | | Net Income | $29,861,518 | $40,748,559 | $66,776,511 | $60,750,732 | | Unrealized (gain)/loss on derivative | $103,653 | ($19,679) | $342,084 | ($783,029) | | Amortization of below market time charters acquired | ($1,231,776) | ($1,231,776) | ($2,450,015) | ($2,463,552) | | Gain on sale of vessel | - | ($5,690,794) | ($10,230,210) | ($5,690,794) | | Vessel depreciation on portion of consideration of vessels acquired with attached time charters allocated to below market time charters | $497,062 | $497,062 | $994,124 | $994,124 | | **Adjusted Net Income** | **$29,230,457** | **$34,303,372** | **$55,432,494** | **$52,807,481** | | Adjusted Basic EPS | $4.23 | $4.95 | $7.99 | $7.63 | | Adjusted Diluted EPS | $4.20 | $4.92 | $7.97 | $7.57 | - Adjusted Net Income and Adjusted EPS are non-GAAP measures that exclude unrealized derivative gains/losses, vessel sale gains, amortization of below market time charters, and specific vessel depreciation to enhance comparability of fundamental performance[70](index=70&type=chunk)[71](index=71&type=chunk) [Additional Information](index=10&type=section&id=Additional%20Information) This section includes details on the conference call, forward-looking statements disclaimer, and company contact information [Conference Call and Webcast](index=10&type=section&id=Conference%20Call%20and%20Webcast) Euroseas Ltd. hosted a conference call and webcast on August 13, 2025, to discuss Q2 and H1 2025 results, with participation details provided - Conference call and webcast held on August 13, 2025, at **9:00 a.m. ET** to discuss results[58](index=58&type=chunk) - Participants could dial in or use a "call me" option; slides were available in PDF format on the company's website[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) [Forward-Looking Statements](index=16&type=section&id=Forward-Looking%20Statements) This section contains a standard disclaimer regarding forward-looking statements, emphasizing inherent risks and the company's non-obligation to update them - Press release contains forward-looking statements about future events, growth strategy, vessel acquisitions, and time charters[75](index=75&type=chunk) - Statements involve known and unknown risks, uncertainties, and contingencies, many beyond company control, and actual results may differ materially[75](index=75&type=chunk) - Company disclaims any obligation to publicly update or revise forward-looking statements[75](index=75&type=chunk) [Contact Information](index=16&type=section&id=Contact%20Information) This section provides contact details for Euroseas Ltd.'s CFO and for investor relations through Capital Link, Inc - Contact information for Tasos Aslidis (CFO, Euroseas Ltd.) and Nicolas Bornozis / Markella Kara (Capital Link, Inc. for Investor Relations)[76](index=76&type=chunk)

WASHINGTON, DC 20549 ______________________________________________________________________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): August 13, 2025 ______________________________________________________________________________ AIR T, INC. (Exact Name of Registrant as Specified in Charter) ______________________________________________________________________________ UNITED STATES SECURITIES AND E ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 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: 001-34499 GULF RESOURCES, INC. (Exact name of registrant as specified in its charter) Nevada 13-3637458 (State or other jur ...

FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides Luminar's basic identification, securities registration, filing status, and outstanding share details - Luminar Technologies, Inc. is incorporated in Delaware and its Class A common stock (LAZR) is listed on The Nasdaq Stock Market LLC[3](index=3&type=chunk) - The registrant is classified as a **non-accelerated filer** and a **smaller reporting company**[4](index=4&type=chunk) **Shares Outstanding** | Class of Stock | Shares Outstanding (as of Aug 8, 2025) | | :--------------- | :------------------------------------- | | Class A Common | 63,891,880 | | Class B Common | 4,872,578 | Table of Contents Cautionary Note Regarding Forward-Looking Statements [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) The company outlines forward-looking statements and cautions investors about risks that could cause actual results to differ - Forward-looking statements cover topics such as **restructuring plans (2024 and 2025)**, product plans, future growth, sales estimates, market opportunities, and liquidity[8](index=8&type=chunk) - Key risk factors include a history of losses, significant R&D costs, challenges in LiDAR product adoption by OEMs, lengthy implementation periods for commercial wins, and the inability to control input costs or reduce manufacturing expenses[9](index=9&type=chunk) - Other risks include general economic conditions (inflation, recession), market competition, ability to manage growth, supply chain disruptions, cybersecurity risks, and the **large amount of outstanding indebtedness**[9](index=9&type=chunk)[10](index=10&type=chunk) Website and Social Media Disclosure [Company Communication Channels](index=4&type=section&id=Company%20Communication%20Channels) Luminar uses its website and social media channels for material information disclosure, which investors should monitor - Luminar uses its website (luminartech.com) and social media (X, YouTube, LinkedIn) for disclosing company and product information[13](index=13&type=chunk) - Information posted on these channels may be considered **material**, and investors should monitor them alongside SEC filings[13](index=13&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements.](index=5&type=section&id=Item%201.%20Financial%20Statements.) The company presents its unaudited condensed consolidated financial statements, reflecting a reduced net loss, lower operating expenses, and changes in liquidity and debt structure [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) The company's balance sheet shows decreased total assets and liabilities, driven by lower cash and debt, while the stockholders' deficit increased **Condensed Consolidated Balance Sheets (Unaudited)** | Metric (in thousands) | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------- | :----------- | :----------- | :----- | | **Assets** | | | | | Cash & Cash Equivalents | $82,840 | $48,166 | $(34,674) | | Marketable Securities | $99,827 | $59,465 | $(40,362) | | Total Current Assets | $245,227 | $167,328 | $(77,899) | | Total Assets | $365,213 | $265,487 | $(99,726) | | **Liabilities** | | | | | Total Current Liabilities | $60,588 | $69,187 | $8,599 | | Debt | $500,516 | $429,679 | $(70,837) | | Total Liabilities | $586,002 | $513,456 | $(72,546) | | **Equity** | | | | | Total Stockholders' Deficit | $(220,789) | $(272,179) | $(51,390) | [Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20(Unaudited)) The company reports a significantly improved net loss for the six months ended June 30, 2025, driven by a substantial reduction in operating expenses **Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)** | Metric (in thousands, except per share) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $15,634 | $16,451 | $34,520 | $37,419 | | Total Cost of Sales | $28,061 | $30,131 | $55,047 | $61,554 | | Gross Loss | $(12,427) | $(13,680) | $(20,527) | $(24,135) | | Research and Development | $39,328 | $65,850 | $77,616 | $133,600 | | Sales and Marketing | $5,297 | $12,140 | $10,201 | $26,655 | | General and Administrative | $(18,753) | $29,790 | $2,163 | $62,839 | | Total Operating Expenses | $27,052 | $114,042 | $91,224 | $229,356 | | Loss from Operations | $(39,479) | $(127,722) | $(111,751) | $(253,491) | | Total Other Income (Expense), net | $16,730 | $(3,451) | $8,458 | $(2,809) | | Net Loss | $(22,899) | $(130,607) | $(103,590) | $(256,321) | | Net Loss per Share (Basic & Diluted) | $(0.62) | $(4.32) | $(2.44) | $(8.76) | [Condensed Consolidated Statements of Preferred Stock and Stockholders' Deficit (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Preferred%20Stock%20and%20Stockholders'%20Deficit%20(Unaudited)) The company's stockholders' deficit increased, influenced by the net loss and a deemed dividend on new Series A preferred stock **Changes in Stockholders' Deficit (in thousands)** | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------------------- | :----------- | :----------- | :----- | | Series A Preferred Stock | $0 | $24,210 | $24,210 | | Additional Paid-in Capital | $2,204,814 | $2,257,171 | $52,357 | | Accumulated Deficit | $(2,112,835) | $(2,216,425) | $(103,590) | | Total Stockholders' Deficit | $(220,789) | $(272,179) | $(51,390) | - Issuance of Series A preferred stock, net of costs and discount, contributed **$29.4 million**[22](index=22&type=chunk)[25](index=25&type=chunk) - Deemed dividend on Series A preferred stock was **$7.6 million** for the six months ended June 30, 2025, impacting the calculation of net loss attributable to common stockholders[22](index=22&type=chunk)[25](index=25&type=chunk)[159](index=159&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash used in operations decreased significantly, while financing activities included proceeds from preferred stock and equity offerings offset by debt repurchases **Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)** | Cash Flow Activity | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Net Cash Used in Operating Activities | $(97,954) | $(158,936) | $60,982 | | Net Cash Provided by Investing Activities | $41,417 | $35,511 | $5,906 | | Net Cash Provided by Financing Activities | $22,721 | $36,894 | $(14,173) | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(33,816) | $(86,531) | $52,715 | | Ending Cash, Cash Equivalents and Restricted Cash | $50,906 | $54,093 | $(3,187) | - Cash used in operations decreased due to a lower net loss and non-cash adjustments including a **$22.1 million gain on extinguishment of debt** and a **$5.3 million change in fair value of derivatives**[28](index=28&type=chunk)[309](index=309&type=chunk) - Financing activities included **$31.4 million** from Series A Preferred Stock issuance and **$21.5 million** from the Equity Financing Program, partially offset by **$30.3 million** for 2026 Convertible Senior Notes repurchase[28](index=28&type=chunk)[311](index=311&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes provide detailed disclosures on accounting policies, financial statement components, debt, equity, and other material items providing context to the financial statements [Note 1. Organization and Description of Business](index=10&type=section&id=Note%201.%20Organization%20and%20Description%20of%20Business) Luminar specializes in LiDAR hardware and software for autonomous vehicles and retroactively adjusted share data for a 1-for-15 reverse stock split - Luminar specializes in advanced Light Detection and Ranging (LiDAR) hardware and software solutions for the world's safest and smartest vehicles[30](index=30&type=chunk) - A **1-for-15 reverse stock split** was effected in November 2024, with all prior share and per share data retroactively adjusted[31](index=31&type=chunk) [Note 2. Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) The company continues to incur operating losses and relies on financing programs, which are expected to provide sufficient liquidity for at least 12 months - The company has an accumulated deficit of **$2.2 billion** as of June 30, 2025, and expects to continue incurring operating losses due to investments in product and software development, customer relations, and manufacturing capabilities[34](index=34&type=chunk) **Liquidity Position (in thousands)** | Metric | Jun 30, 2025 | Dec 31, 2024 | | :---------------------- | :----------- | :----------- | | Cash and Cash Equivalents | $48,166 | $82,840 | | Marketable Securities | $59,465 | $99,827 | | Total Liquidity | $107,631 | $182,667 | - The company early adopted ASU 2024-04 as of January 1, 2025, recognizing a **$21.5 million gain on extinguishment of debt** related to the 2026 Convertible Senior Notes[46](index=46&type=chunk) - The company's business is organized into two operating segments: **Autonomy Solutions** (LiDAR sensors, NRE services, software) and **Advanced Technologies and Services (ATS)** (photonic components, sub-systems, ASICs, pixel-based sensors)[39](index=39&type=chunk)[40](index=40&type=chunk) [Note 3. Business Combinations and Acquisitions](index=12&type=section&id=Note%203.%20Business%20Combinations%20and%20Acquisitions) The acquisition of EM4 in March 2024 resulted in a gain due to the purchase price being lower than the fair value of net assets acquired - Acquired EM4, a designer and manufacturer of packaged photonic components, on March 18, 2024, for approximately **$4.2 million in cash** and up to **$6.75 million in contingent future payments**[50](index=50&type=chunk)[51](index=51&type=chunk) - Recognized a **$1.5 million gain** from the acquisition of EM4, as the consideration paid was lower than the estimated fair value of net assets acquired due to EM4's historical losses and program cancellations[52](index=52&type=chunk) [Note 4. Revenue](index=14&type=section&id=Note%204.%20Revenue) Total revenue decreased for the three and six-month periods, with varied performance between the Autonomy Solutions and ATS segments **Revenue Disaggregation (in thousands)** | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $15,634 | $16,451 | $34,520 | $37,419 | | Autonomy Solutions Revenue | $10,305 | $9,981 | $24,062 | $26,301 | | ATS Revenue | $5,329 | $6,470 | $10,458 | $11,118 | | North America Revenue | $13,612 (87%) | $15,764 (96%) | $28,604 (83%) | $36,101 (97%) | | Recognized at a point in time | $11,967 (77%) | $15,808 (96%) | $24,939 (72%) | $31,112 (83%) | - For the three months ended June 30, 2025, Autonomy Solutions revenue increased by **$0.3 million (3%)** due to a $4.2 million increase in service revenue, offset by a $3.9 million decrease in product revenue[273](index=273&type=chunk) - Three customers (customer C, customer B, and customer A) accounted for **34%**, **22%**, and **10%** of the Company's accounts receivable as of June 30, 2025, respectively[42](index=42&type=chunk) [Note 5. Restructuring](index=15&type=section&id=Note%205.%20Restructuring) The company initiated a new restructuring plan in May 2025, resulting in further workforce reductions and severance costs - The 2025 Restructuring Plan, initiated in May 2025, resulted in the termination of **257 employees** by June 30, 2025[62](index=62&type=chunk) **Restructuring Charges (in thousands)** | Metric | 3 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2025 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Restructuring Costs (P&L) | $1,180 | $1,244 | | Severance Expense (Balance as of Dec 31, 2024) | N/A | $772 | | Restructuring Charges (Balance Sheet) | N/A | $1,244 | | Cash Payments | N/A | $(1,715) | | Balance Payable and Accrued Liabilities (Jun 30, 2025) | N/A | $258 | [Note 6. Investments](index=16&type=section&id=Note%206.%20Investments) The company's debt securities portfolio decreased significantly, while an impairment charge on an equity investment was followed by a gain on its repurchase **Debt Securities (in thousands)** | Type | Dec 31, 2024 Fair Value | Jun 30, 2025 Fair Value | Change | | :---------------- | :---------------------- | :---------------------- | :----- | | U.S. Treasury Securities | $10,955 | $15,363 | $4,408 | | Commercial Paper | $19,074 | $9,899 | $(9,175) | | Corporate Bonds | $81,357 | $37,431 | $(43,926) | | Total Debt Securities | $112,947 | $62,693 | $(50,254) | **Equity Investments (in thousands)** | Type | Dec 31, 2024 | Jun 30, 2025 | | :---------------------------- | :----------- | :----------- | | Money Market Funds | $17,730 | $18,451 | | Marketable Equity Investments | $3,165 | $3,075 | | Investment in Non-Marketable Securities (Forterra) | $10,000 | $10,000 | | Total Equity Investments | $30,895 | $31,526 | - An additional impairment charge of **$4.0 million** was recorded on the investment in Forterra in Q2 2024, and a **$2.9 million gain** was recognized from the repurchase of these units in May 2025[70](index=70&type=chunk)[72](index=72&type=chunk) [Note 7. Financial Statement Components](index=17&type=section&id=Note%207.%20Financial%20Statement%20Components) This note details changes in key balance sheet accounts, including a decrease in cash and equipment, an increase in inventory, and accelerated depreciation charges **Key Financial Components (in thousands)** | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :------------------------------ | :----------- | :----------- | :----- | | Cash and Cash Equivalents | $82,840 | $48,166 | $(34,674) | | Inventory, net | $14,908 | $18,047 | $3,139 | | Property and Equipment, net | $52,281 | $46,643 | $(5,638) | | Intangible Assets, net | $15,556 | $13,493 | $(2,063) | | Accrued and Other Current Liabilities | $31,567 | $31,901 | $334 | - Inventory write-downs were **$3.4 million** for the six months ended June 30, 2025, primarily due to obsolescence from product design changes and lower of cost or market assessments[74](index=74&type=chunk) - Accelerated depreciation charges of **$0.3 million** for the six months ended June 30, 2025, resulted from a change in sourcing strategy for certain sub-assemblies and components[79](index=79&type=chunk) [Note 8. Debt](index=20&type=section&id=Note%208.%20Debt) Total debt decreased following exchange and repurchase transactions of convertible notes, resulting in a significant gain on debt extinguishment **Debt Carrying Amounts (in thousands)** | Debt Type | Dec 31, 2024 Net Carrying Amount | Jun 30, 2025 Net Carrying Amount | Change | | :------------------------ | :------------------------------- | :------------------------------- | :----- | | 2026 Convertible Senior Notes | $201,015 | $133,857 | $(67,158) | | Senior Notes | $95,499 | $95,946 | $447 | | 2030 Convertible Notes (Series 1) | $41,445 | $42,369 | $924 | | 2030 Convertible Notes (Series 2) | $153,147 | $153,486 | $339 | | Total Debt | $491,106 | $425,658 | $(65,448) | - For the six months ended June 30, 2025, the company recognized a **$21.5 million gain on debt extinguishment** from March and May 2025 exchange and repurchase transactions of 2026 Convertible Senior Notes[102](index=102&type=chunk) - The 2030 Convertible Notes have conversion options accounted for as bifurcated derivative liabilities, with a fair value of **$4.0 million** at June 30, 2025, and a **$5.3 million decrease in fair value** for the six months ended June 30, 2025[120](index=120&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - The company has a **$50.0 million non-recourse Credit Facility**, which was undrawn as of June 30, 2025[133](index=133&type=chunk)[135](index=135&type=chunk) [Note 9. Fair Value Measurements](index=26&type=section&id=Note%209.%20Fair%20Value%20Measurements) The company details the fair value hierarchy for its financial instruments, with derivative liabilities classified as Level 3 and certain notes as Level 2 or 3 **Fair Value Measurements (in thousands)** | Asset/Liability (Jun 30, 2025) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :----------------------------- | :------ | :------ | :------ | :--------------- | | Cash Equivalents | $19,750 | $5,004 | $0 | $24,754 | | Marketable Investments | $17,139 | $42,326 | $0 | $59,465 | | Derivative Liability | $0 | $0 | $(4,021) | $(4,021) | - The estimated fair value of the 2026 Convertible Senior Notes was **$85.1 million (Level 2)** at June 30, 2025[146](index=146&type=chunk) - The estimated fair value of the Senior Notes was **$98.9 million (Level 3)** and the 2030 Convertible Notes (excluding bifurcated derivative liabilities) was **$106.1 million (Level 3)** at June 30, 2025[147](index=147&type=chunk) [Note 10. Earnings (Loss) Per Share](index=28&type=section&id=Note%2010.%20Earnings%20(Loss)%20Per%20Share) Net loss per share improved significantly compared to the prior year, with the calculation including a deemed dividend on Series A preferred stock **Net Loss Per Share Attributable to Common Stockholders** | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss Attributable to Common Stockholders (in thousands) | $(30,501) | $(130,607) | $(111,192) | $(256,321) | | Weighted Average Shares Outstanding (Basic & Diluted) | 49,087,995 | 30,242,540 | 45,608,362 | 29,274,792 | | Net Loss Per Share (Basic & Diluted) | $(0.62) | $(4.32) | $(2.44) | $(8.76) | - A deemed dividend of **$7.6 million** on Series A preferred stock reduced earnings available to common stockholders for the six months ended June 30, 2025[150](index=150&type=chunk) - As of June 30, 2025, **26.9 million potential common shares** were excluded from diluted EPS calculation as their effect would have been antidilutive due to the net loss[152](index=152&type=chunk) [Note 11. Preferred Stock](index=29&type=section&id=Note%2011.%20Preferred%20Stock) The company issued Series A Preferred Stock in May 2025, raising capital and resulting in a deemed dividend due to its variable conversion feature - Issued 35,000 shares of newly designated Series A Convertible Preferred Stock in May 2025 for net proceeds of **$33.6 million**[153](index=153&type=chunk) - The Series A Preferred Stock is convertible into Class A common stock at a conversion price equal to the lesser of a fixed price of **$4.752** and **95% of the lowest VWAP** over five trading days, subject to a floor price of **$0.792**[159](index=159&type=chunk) - Holders converted 12,000 shares of Series A Preferred Stock into **4,087,889 shares of Class A common stock** by June 30, 2025[154](index=154&type=chunk) [Note 12. Stockholders' Equity](index=31&type=section&id=Note%2012.%20Stockholders'%20Equity) The company utilized its Equity Financing Program and a Stock-in-lieu of Cash Program to issue additional Class A common shares **Common Stock Outstanding (as of June 30, 2025)** | Class | Shares Issued | Shares Outstanding | | :---------- | :------------ | :----------------- | | Class A | 54,830,075 | 53,372,512 | | Class B | 4,872,578 | 4,872,578 | - The Equity Financing Program was expanded by an additional **$75.0 million** in March 2025, with **$187.4 million** available for sale as of June 30, 2025[179](index=179&type=chunk)[180](index=180&type=chunk) - Issued **6,247,076 shares** of Class A common stock under the Equity Financing Program for net proceeds of **$21.5 million** during the six months ended June 30, 2025[180](index=180&type=chunk) - Issued **1,000,000 shares** of Class A common stock to TPK Holding Co, Ltd under the Stock-in-lieu of Cash Program during the six months ended June 30, 2025[184](index=184&type=chunk) [Note 13. Stock-based Compensation](index=33&type=section&id=Note%2013.%20Stock-based%20Compensation) Stock-based compensation expense reversed significantly due to the forfeiture of awards related to the termination of the former CEO **Stock-based Compensation Expense (in thousands)** | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stock-based Compensation Expense | $(20,657) | $38,491 | $(1,277) | $82,956 | | G&A Stock-based Compensation | $(28,908) | $16,846 | $(18,274) | $38,209 | - A **$34.7 million reversal** of share-based compensation expense was recorded in general and administrative expenses due to the termination of the former CEO during the six months ended June 30, 2025[197](index=197&type=chunk) - **1,922,492 time-based RSUs** were granted during the six months ended June 30, 2025[193](index=193&type=chunk) [Note 14. Income Taxes](index=35&type=section&id=Note%2014.%20Income%20Taxes) The company's effective tax rate differs from the statutory rate primarily due to its valuation allowance and taxes on foreign earnings **Income Tax Provision (in thousands)** | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for (benefit from) Income Taxes | $150 | $(566) | $297 | $21 | | Effective Tax Rate | (0.7)% | 0.4% | (0.3)% | —% | - The effective tax rate differs significantly from the statutory tax rate of 21% primarily due to the company's **valuation allowance movement** and taxes on foreign earnings[199](index=199&type=chunk) [Note 15. Leases](index=36&type=section&id=Note%2015.%20Leases) Operating lease assets and liabilities decreased, with a significant loss recorded from the termination of a lease in Sunnyvale, California **Lease Information (in thousands)** | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------------------- | :----------- | :----------- | :----- | | Operating Lease Right-of-Use Assets | $31,479 | $20,127 | $(11,352) | | Operating Lease Liabilities, Current | $10,049 | $7,572 | $(2,477) | | Operating Lease Liabilities, Non-Current | $24,083 | $14,406 | $(9,677) | | Total Operating Lease Liabilities | $34,132 | $21,978 | $(12,154) | - Termination of a non-cancellable operating lease in Sunnyvale, California, in April 2025 resulted in an **$8.3 million loss on lease termination**[202](index=202&type=chunk) - Weighted average remaining lease term is **3.88 years** as of June 30, 2025, with a weighted average discount rate of **6.66%**[203](index=203&type=chunk)[204](index=204&type=chunk) [Note 16. Commitments and Contingencies](index=37&type=section&id=Note%2016.%20Commitments%20and%20Contingencies) The company has significant purchase obligations and is involved in several legal proceedings, which it intends to vigorously defend - Purchase obligations totaled **$93.7 million** as of June 30, 2025, primarily for inventory, R&D, and general and administrative activities[205](index=205&type=chunk) - The company is defending against multiple class action and shareholder derivative lawsuits, including **Johnson v. Luminar Technologies, Inc., et al.** and **Yskollari v. Luminar Technologies, Inc., et al.**, but does not expect a material adverse impact on financial results[207](index=207&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) [Note 17. Segment and Customer Concentration Information](index=38&type=section&id=Note%2017.%20Segment%20and%20Customer%20Concentration%20Information) Operating losses for both the Autonomy Solutions and ATS segments decreased, while revenue concentration with key customers remains high **Segment Operating Loss (in thousands)** | Segment | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Autonomy Solutions | $(35,150) | $(118,949) | $(102,630) | $(243,967) | | ATS | $(4,329) | $(8,773) | $(9,121) | $(9,524) | - Autonomy Solutions operating loss decreased significantly due to reductions in personnel-related costs, stock-based compensation expense, purchased materials, and supplies expenses[288](index=288&type=chunk) - Two customers, customer A and customer B of the Autonomy Solutions segment, accounted for **38%** and **21%**, respectively, of the Company's revenue for the six months ended June 30, 2025[229](index=229&type=chunk) [Note 18. Subsequent Events](index=42&type=section&id=Note%2018.%20Subsequent%20Events) Subsequent to the quarter end, the company saw further preferred stock conversions and common stock issuances under its financing programs - In July 2025, holders of Series A Preferred Stock converted an additional 16,000 shares into **6,104,645 shares of Class A common stock**[233](index=233&type=chunk) - In July 2025, the company issued **2,345,520 shares of Class A common stock** under the Equity Financing Program for net proceeds of **$6.9 million**[234](index=234&type=chunk) - In July 2025, **1,600,000 shares of Class A common stock** were issued to TPK Holding Co, Ltd for services[235](index=235&type=chunk) - Preliminary analysis suggests the One, Big, Beautiful, Bill (OBBB) Act's impact on deferred taxes will not be significant due to the company's **valuation allowance**[230](index=230&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=44&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses financial results, strategic updates, liquidity management, and efforts to reduce operating losses while managing debt and securing capital [Overview](index=44&type=section&id=Overview) Luminar is a technology company developing advanced LiDAR hardware and software to enable vehicle safety and autonomy - Luminar specializes in advanced LiDAR hardware and software solutions to enable next-generation safety and autonomous capabilities for passenger and commercial vehicles[237](index=237&type=chunk) - The product portfolio includes proprietary LiDAR hardware, core semiconductor components, and in-development software capabilities such as perception and high-definition '3D' mapping[238](index=238&type=chunk) [Industrialization Update](index=44&type=section&id=Industrialization%20Update) The company is executing its industrialization plan, achieving Start of Production for Volvo and optimizing its manufacturing and supply chain processes - Achieved **Start of Production (SOP)** for Volvo Cars at the manufacturing facility in Mexico in 2024 and began shipping production LiDAR sensors for the Volvo EX90[240](index=240&type=chunk) - The transition to new suppliers for certain sub-assemblies and components has essentially been completed, as part of ongoing manufacturing and product design optimization[241](index=241&type=chunk) [Business Updates](index=44&type=section&id=Business%20Updates) The company is winding down non-core businesses, expanding OEM partnerships, and executing restructuring and financing activities to manage liquidity - Initiated the wind-down of data and insurance businesses, expecting a **$16.0 million reduction in total revenue** and a **$23.0 million reduction in operating expenses** on a full-year run-rate basis[242](index=242&type=chunk)[243](index=243&type=chunk) - LiDAR technology will be equipped in the new **Volvo ES90**, marking the second Volvo model to feature Luminar's technology, and a collaboration with **Caterpillar Inc.** for autonomous solutions was announced[244](index=244&type=chunk)[245](index=245&type=chunk) - Incurred **$11.0 million in total charges** associated with employee severance and related costs from the 2024 and 2025 restructuring plans[248](index=248&type=chunk) - Completed March and May 2025 exchange transactions and a repurchase transaction for 2026 Convertible Senior Notes, issuing Class A common stock and repurchasing notes for cash[249](index=249&type=chunk)[250](index=250&type=chunk) - Closed an initial offering for 35,000 shares of Series A Preferred Stock for **$33.6 million net proceeds** in May 2025[251](index=251&type=chunk) [Basis of Presentation](index=45&type=section&id=Basis%20of%20Presentation) The condensed consolidated financial statements include Luminar and its wholly-owned subsidiaries, with intercompany transactions eliminated - The condensed consolidated financial statements include the accounts of Luminar and its wholly-owned subsidiaries, with intercompany accounts and transactions eliminated[254](index=254&type=chunk) [Components of Results of Operations](index=46&type=section&id=Components%20of%20Results%20of%20Operations) The company's operations are divided into Autonomy Solutions and ATS segments, with significant ongoing investment in R&D for product and software development - The **Autonomy Solutions** segment designs, manufactures, and sells LiDAR sensors and provides non-recurring engineering (NRE) services and data licensing[256](index=256&type=chunk) - The **ATS** segment provides advanced semiconductors, components, and design/testing services to both Autonomy Solutions and third-party customers, including government agencies[257](index=257&type=chunk) - R&D costs are expensed as incurred and are expected to remain elevated due to continued investment in product roadmap and integrated software solutions[263](index=263&type=chunk)[265](index=265&type=chunk) - Gross loss is expected to temporarily increase as the company transitions from prototype to series production, with lower average selling prices, until cost reduction and efficiency measures are realized[262](index=262&type=chunk) [Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024](index=48&type=section&id=Results%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) The company's loss from operations improved significantly, driven by a 60% reduction in operating expenses due to lower R&D, S&M, and G&A costs **Key Financial Performance (in thousands)** | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total Revenue | $34,520 | $37,419 | $(2,899) | (8)% | | Gross Loss | $(20,527) | $(24,135) | $3,608 | (15)% | | Research and Development | $77,616 | $133,600 | $(55,984) | (42)% | | Sales and Marketing | $10,201 | $26,655 | $(16,454) | (62)% | | General and Administrative | $2,163 | $62,839 | $(60,676) | (97)% | | Total Operating Expenses | $91,224 | $229,356 | $(138,132) | (60)% | | Loss from Operations | $(111,751) | $(253,491) | $141,740 | (56)% | | Net Loss | $(103,590) | $(256,321) | $152,731 | (60)% | - Autonomy Solutions revenue decreased by **$2.2 million (9%)** for the six months ended June 30, 2025, primarily due to an $8.2 million decrease in product revenue, partially offset by a $6.0 million increase in service revenue[274](index=274&type=chunk) - Cost of sales decreased by **$6.5 million (11%)** for the six months ended June 30, 2025, due to cost reduction initiatives and decreased costs associated with a terminated Iris+ development contract[276](index=276&type=chunk) - General and administrative expenses decreased by **$60.7 million (97%)** for the six months ended June 30, 2025, largely due to a **$34.7 million stock-based compensation expense reversal** from the former CEO's termination and headcount reduction[283](index=283&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) The company relies on debt and equity financing to fund its operations and believes existing liquidity sources are sufficient for at least the next 12 months **Liquidity Position (in thousands)** | Metric | Jun 30, 2025 | | :---------------------- | :----------- | | Cash and Cash Equivalents | $48,166 | | Marketable Securities | $59,465 | | Total Liquidity | $107,631 | - Net cash used in operating activities was **$98.0 million** for the six months ended June 30, 2025[305](index=305&type=chunk) - The company relies on proceeds from debt and equity issuances, including the Equity Financing Program (with **$187.4 million available** as of June 30, 2025) and Series A Preferred Stock Financing, to fund operations and strategic initiatives[295](index=295&type=chunk)[297](index=297&type=chunk)[306](index=306&type=chunk) - Management believes existing liquidity sources will be sufficient for at least 12 months, contingent on continued access to the Equity Financing Program and Series A Preferred Stock Financing Program[306](index=306&type=chunk) [Cash Flow Summary](index=53&type=section&id=Cash%20Flow%20Summary) Cash used in operations decreased due to a lower net loss, while investing activities provided cash from marketable securities and financing activities provided cash from equity issuances **Cash Flow Summary (in thousands)** | Cash Flow Activity | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | | Operating Activities | $(97,954) | $(158,936) | | Investing Activities | $41,417 | $35,511 | | Financing Activities | $22,721 | $36,894 | - Net cash used in operating activities decreased by **$60.9 million**, primarily due to a lower net loss and non-cash adjustments like debt extinguishment gains and derivative fair value changes[309](index=309&type=chunk) - Investing activities were primarily driven by **$80.8 million** of proceeds from maturities of marketable securities and **$14.5 million** from sales and redemptions of marketable securities[310](index=310&type=chunk) - Financing activities included **$31.4 million** from Series A Preferred Stock issuance and **$21.5 million** from the Equity Financing Program, partially offset by **$30.3 million** paid for the repurchase of 2026 Convertible Senior Notes[311](index=311&type=chunk) [Critical Accounting Policies and Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies and estimates remained unchanged during the period - No significant changes to critical accounting policies and estimates occurred during the three and six months ended June 30, 2025[314](index=314&type=chunk) [Smaller Reporting Company Status](index=53&type=section&id=Smaller%20Reporting%20Company%20Status) Luminar qualifies as a smaller reporting company and utilizes reduced disclosure requirements - Luminar is a smaller reporting company and takes advantage of certain reduced disclosure requirements[315](index=315&type=chunk) [Recent Accounting Pronouncements](index=53&type=section&id=Recent%20Accounting%20Pronouncements) Details on recent accounting pronouncements are available in Note 2 of the financial statements - Information on recent accounting pronouncements is provided in Note 2 of the notes to condensed consolidated financial statements[316](index=316&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, Luminar is not required to provide these disclosures - As a smaller reporting company, Luminar is not required to provide quantitative and qualitative disclosures about market risk[317](index=317&type=chunk) [Item 4. Controls and Procedures.](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management evaluated and concluded that the company's disclosure controls and procedures were effective as of the end of the quarter - The effectiveness of disclosure controls and procedures was evaluated and concluded to be **effective** as of June 30, 2025[319](index=319&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended June 30, 2025[320](index=320&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings.](index=55&type=section&id=Item%201.%20Legal%20Proceedings.) Information regarding legal proceedings is provided in Note 16 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 16 to the condensed consolidated financial statements[323](index=323&type=chunk) [Item 1A. Risk Factors.](index=55&type=section&id=Item%201A.%20Risk%20Factors.) The company updates its risk factors, emphasizing dependence on external capital, potential for stockholder dilution, and the influence of its largest stockholder [Risk Factor Summary](index=55&type=section&id=Risk%20Factor%20Summary) The company's ability to access capital is a key risk, as unfavorable terms or substantial dilution to stockholders could result - A key risk factor is the company's ability to access sources of capital to pay indebtedness and finance operations and growth, which may not be available on favorable terms or without **substantial dilution** to stockholders[325](index=325&type=chunk) [Risks Related to Ownership of Our Class A Shares](index=55&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Shares) Luminar's dependency on financing, potential for dilution from future issuances, and the significant voting power of its largest stockholder pose risks to shareholders - The company is dependent on proceeds from its Equity Financing Program, Series A Preferred Stock Financing, and debt financing to meet financial obligations and fund operations[326](index=326&type=chunk) - Any future equity securities or convertible/exchangeable securities issued may have rights, preferences, and privileges more favorable than Class A common stock and would **further dilute existing stockholders**[328](index=328&type=chunk) - Austin Russell, through his ownership of Class B common stock, controls approximately **47.7% of the voting power**, giving him significant influence over corporate actions[329](index=329&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued Class A common stock in exchange for convertible notes in an unregistered transaction - On May 22, 2025, the company issued **3,050,750 shares of Class A common stock** in exchange for **$6.2 million** aggregate principal amount of 2026 Convertible Senior Notes[330](index=330&type=chunk) - These exchange transactions were conducted pursuant to an exemption from registration under **Section 4(a)(2) of the Securities Act**[331](index=331&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=56&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) No defaults upon senior securities occurred during the reported period - There were no defaults upon senior securities[332](index=332&type=chunk) [Item 4. Mine Safety Disclosures.](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Mine Safety Disclosures are not applicable[333](index=333&type=chunk) [Item 5. Other Information.](index=56&type=section&id=Item%205.%20Other%20Information.) No officers or directors adopted or terminated Rule 10b5-1 trading arrangements during the quarter - None of the company's Section 16 officers or directors adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the fiscal quarter ended June 30, 2025[334](index=334&type=chunk) [Item 6. Exhibits.](index=57&type=section&id=Item%206.%20Exhibits.) This section lists the various exhibits filed with the Form 10-Q, including corporate governance documents and key agreements - The section lists various exhibits filed, including corporate governance documents (e.g., Certificate of Designations of Series A Preferred Stock), key agreements (e.g., Securities Purchase Agreement), and certifications[335](index=335&type=chunk)[337](index=337&type=chunk) Signatures [Report Signatures](index=58&type=section&id=Report%20Signatures) The report was duly signed by the Chief Executive Officer and Chief Financial Officer on behalf of the company - The report was signed on August 13, 2025, by **Paul Ricci, Chief Executive Officer**, and **Thomas J. Fennimore, Chief Financial Officer**[340](index=340&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-42617 CRANE HARBOR ACQUISITION CORP. (Exact Name of Registrant as Specified in Its Charter) Cayman Islands 98-1830736 (State or other jurisd ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-42617 CRANE HARBOR ACQUISITION CORP. (Exact Name of Registrant as Specified in Its Charter) Cayman Islands 98-1830736 (State or other jurisd ...

[Executive Summary](index=1&type=section&id=Executive%20Summary) Global Water Resources reported **5.4% revenue growth** to **$14.2 million** in Q2 2025, with net income at **$1.6 million**, alongside operational expansion, strategic investments, and regulatory successes [Q2 2025 Financial Highlights](index=1&type=section&id=Q2%202025%20Financial%20Highlights) Global Water Resources reported a 5.4% increase in total revenue to $14.2 million for Q2 2025, driven by organic connection growth, increased consumption, and higher rates, though net income decreased to $1.6 million ($0.06 per share) due to increased depreciation expense, while Adjusted EBITDA saw a modest increase of 2.1% to $6.9 million Q2 2025 Financial Performance | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (%) | | :------------------- | :------------------ | :------------------ | :--------- | | Total Revenue | $14.2 | $13.5 | 5.4% | | Net Income | $1.6 | $1.7 | -5.9% | | EPS | $0.06 | $0.07 | -14.3% | | Adjusted EBITDA | $6.9 | $6.8 | 2.1% | - The decline in **net income** was primarily due to **increased depreciation expense** resulting from the company's **capital improvement plan**[5](index=5&type=chunk) [Q2 2025 Operational Highlights](index=1&type=section&id=Q2%202025%20Operational%20Highlights) The company experienced significant operational growth in Q2 2025, with active service connections increasing by 3.8% and water consumption rising by 8.2%, alongside substantial investments in infrastructure projects to support existing utilities and future growth Q2 2025 Operational Metrics | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--------------------------- | :----------- | :----------- | :--------- | | Total Active Service Connections | 65,639 | 63,256 | 3.8% | | Water Consumption | 1.2 billion gallons | 1.1 billion gallons | 8.2% | - Invested **$20.2 million** in infrastructure projects to support existing utilities and continued growth[5](index=5&type=chunk) [Other Key Highlights](index=1&type=section&id=Other%20Highlights) Global Water Resources extended its revolving credit facility to May 2027 and increased its borrowing capacity to $20 million, declared monthly cash dividends of $0.02533 per share, secured key regulatory approvals for GW-Farmers expected to generate an additional $1.1 million in annual revenue, and completed a significant acquisition of seven water systems from Tucson Water projected to add $1.5 million in annual revenue - Extended maturity date of revolving credit facility to **May 18, 2027**, and increased principal amount available for borrowing from **$15 million to $20 million**[5](index=5&type=chunk) - Declared three monthly cash dividends of **$0.02533 per common share**, totaling **$0.30396 per common share** on an annualized basis[5](index=5&type=chunk) - The Arizona Corporation Commission (ACC) issued Decision No. 80695 for GW-Farmers, with new rates expected to generate approximately **$1.1 million in increased annual revenue**, phased in starting **May 1, 2025**[5](index=5&type=chunk) - Completed the acquisition of seven water systems from Tucson Water in July, valued at approximately **$7.7 million**, expected to generate approximately **$1.5 million in annual revenue**[5](index=5&type=chunk) - The City of Maricopa was estimated by the U.S. Census Bureau to be the **6th fastest growing large city** in the country, with a **7.4% population increase in 2024**[5](index=5&type=chunk) [Management Commentary & Strategic Outlook](index=2&type=section&id=Management%20Commentary) Management attributes Q2 growth to organic connections and rate cases, details strategic initiatives and regulatory progress, and underscores Arizona's robust economic outlook as a key growth driver [Q2 Performance Drivers](index=2&type=section&id=Q2%20Performance%20Drivers) Global Water Resources' Q2 top-line growth was primarily fueled by organic connection growth, increased water consumption, and a successful rate case strategy, including the approval of the GW-Farmers general rate case - Top-line growth in Q2 was primarily driven by **organic connection growth**, **increased consumption**, and **successful rate case strategy**[6](index=6&type=chunk) - Received approval for the GW-Farmers general rate case, with **50% of the approved rate increase effective May 1, 2025**, supporting improvements for customers and the Sahuarita community[6](index=6&type=chunk) [Strategic Initiatives & Regulatory Updates](index=2&type=section&id=Strategic%20Initiatives%20%26%20Regulatory%20Updates) The company anticipates significant regional growth catalysts, including the Arizona Department of Transportation's plan for State Route 347 improvements and the new 'ag-to-urban' bill (Senate Bill 1611), which is expected to support water management and development, while the general rate case for GW-Santa Cruz and GW-Palo Verde is progressing, aiming for approximately $6.5 million in additional net annual revenue to maintain high-quality services - Arizona Department of Transportation's inclusion of State Route 347 improvements in its **$11.6 billion five-year plan** is seen as a major milestone and catalyst for sustainable growth, potentially driving increased demand for water services[7](index=7&type=chunk) - Arizona's Senate Bill 1611, the new 'ag-to-urban' bill, effective **September 26, 2025**, is expected to support water management, economic development, and housing accessibility, with up to **384,000 acres eligible for conversion**[8](index=8&type=chunk) - The general rate case for GW-Santa Cruz and GW-Palo Verde is proceeding, with testimony and a hearing expected in **Q4 2025**, seeking approximately **$6.5 million in additional net annual revenue**[9](index=9&type=chunk) - The company expects appropriate rates to capture **2025 capital investments** upon the anticipated completion of the Pinal County utilities' rate case around **mid-2026**[10](index=10&type=chunk) [Arizona Growth & Economic Outlook](index=2&type=section&id=Arizona%20Growth%20%26%20Economic%20Outlook) Arizona's robust economic outlook, characterized by strong job growth and unprecedented investment commitments from major industry leaders, is expected to drive organic connection growth for Global Water Resources, particularly in the Metro Phoenix area - Arizona's strong economic outlook, with employment expected to rise by **478,000 jobs through 2032** (**1.4% annual growth**), is anticipated to support organic connection growth[11](index=11&type=chunk) - The state received **$50 billion in investment commitments last year**, including TSMC's **$165 billion planned investment** in Metro Phoenix and Apple's multi-billion dollar plans, significantly reshaping the region[11](index=11&type=chunk) [Financial Performance Analysis](index=2&type=section&id=Financial%20Summary) This section details a **5.4% revenue increase** to **$14.2 million**, an **8.5% rise** in operating expenses, and a **6.8% decrease** in net income to **$1.6 million**, while Adjusted EBITDA grew by **2.1%** [Revenue Analysis](index=2&type=section&id=Revenue) Total regulated revenue increased by 5.4% to $14.2 million in Q2 2025, primarily driven by organic growth in active water and wastewater connections, increased consumption, and higher rates from recent general rate cases for GW-Saguaro and GW-Farmers Three Months Ended June 30, Revenue (in thousands) | Service Type | 2025 | 2024 | Change ($) | Change (%) | | :----------------------------- | :------ | :------ | :--------- | :--------- | | Water service | $7,368 | $6,668 | $700 | 10.5% | | Wastewater and recycled water service | $6,873 | $6,842 | $31 | 0.5% | | Total regulated revenue | $14,241 | $13,510 | $731 | 5.4% | | Total revenue | $14,241 | $13,510 | $731 | 5.4% | - Revenue increase was primarily attributable to **organic growth in active water and wastewater connections**, **increased water and recycled water consumption**, and **higher rates** for GW-Saguaro (effective July 2024 and January 2025) and GW-Farmers (effective May 1, 2025)[12](index=12&type=chunk)[13](index=13&type=chunk) [Operating Expenses Analysis](index=3&type=section&id=Operating%20Expenses) Total operating expenses increased by 8.5% to $11.6 million in Q2 2025, mainly due to higher personnel costs, increased IT service provider contracts, one-time wastewater disposal costs, and higher depreciation and amortization Three Months Ended June 30, Operating Expenses (in thousands) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------- | :------ | :------ | :--------- | :--------- | | Personnel costs - operations and maintenance | $1,356 | $1,184 | ($172) | (14.5)% | | Utilities, chemicals and repairs | $1,183 | $1,084 | ($99) | (9.1)% | | Other operations and maintenance expenses | $1,378 | $1,217 | ($161) | (13.2)% | | Total operations and maintenance expense | $3,917 | $3,485 | ($432) | (12.4)% | | Personnel costs - general and administrative | $2,236 | $2,185 | ($51) | (2.3)% | | Professional fees | $441 | $482 | $41 | 8.5% | | Other general and administrative expenses | $1,710 | $1,565 | ($145) | (9.3)% | | Total general and administrative expense | $4,387 | $4,232 | ($155) | (3.7)% | | Depreciation and amortization | $3,317 | $2,996 | ($321) | (10.7)% | | Total operating expenses | $11,621 | $10,713 | ($908) | (8.5)% | [Operations and Maintenance](index=3&type=section&id=Operations%20and%20Maintenance) Higher operations and maintenance costs were primarily due to increased salaries and wages from filling vacant positions, higher medical costs, additional IT service provider contracts, and one-time wastewater disposal costs - Higher personnel costs were attributable to **increased salaries and wages** from filling vacant positions and **increased medical costs**[15](index=15&type=chunk) - Other operations and maintenance expenses increased due to **additional contracts with IT service providers** and **one-time wastewater disposal costs**[15](index=15&type=chunk) [General and Administrative](index=3&type=section&id=General%20and%20Administrative) The increase in general and administrative expenses was mainly driven by higher costs associated with various service providers - Increase in other general and administrative expenses was primarily due to **higher costs associated with various service providers**[16](index=16&type=chunk) [Depreciation and Amortization](index=3&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization expenses rose due to an increase in depreciable fixed assets and additional amortization from a new office lease in Pima County - Increase in depreciation and amortization was substantially attributable to an **increase in depreciable fixed assets** and **additional amortization from a new office lease** in Pima County in December 2024[17](index=17&type=chunk) [Other Income (Expense)](index=3&type=section&id=Other%20Expense) Other expense decreased to $0.4 million in Q2 2025 from $0.5 million in the prior year, primarily due to higher income from Buckeye growth premiums resulting from an increase in new meter connections - Other expense decreased by **$0.1 million**, primarily due to **higher income associated with Buckeye growth premiums** from increased new meter connections[18](index=18&type=chunk) [Net Income & Adjusted EBITDA](index=3&type=section&id=Net%20Income) Net income for Q2 2025 decreased by 6.8% to $1.6 million, or $0.06 per share, compared to $1.7 million, or $0.07 per share, in Q2 2024, while Adjusted EBITDA, however, increased by 2.1% to $6.9 million Q2 2025 Net Income and Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------- | :------ | :------ | :--------- | :--------- | | Net Income | $1,612 | $1,730 | ($118) | -6.8% | | EPS | $0.06 | $0.07 | ($0.01) | -14.3% | | Adjusted EBITDA | $6,935 | $6,793 | $142 | 2.1% | [Business Operations & Strategy](index=4&type=section&id=Business%20Strategy) The company's strategy focuses on increasing service connections, improving efficiencies, and securing rate increases, supported by a consistent dividend policy and favorable regional growth trends [Dividend Policy](index=4&type=section&id=Dividend%20Policy) Global Water Resources recently declared a monthly cash dividend of $0.02533 per common share, which translates to an annualized dividend of $0.30396 per share - Declared a monthly cash dividend of **$0.02533 per common share**, payable on **August 29, 2025**, to holders of record on **August 15, 2025**, equivalent to **$0.30396 per share** on an annualized basis[21](index=21&type=chunk) [Business Strategy](index=4&type=section&id=Business%20Strategy) The company's near-term growth strategy focuses on increasing service connections, improving operating efficiencies, and securing utility rate increases, while long-term, Global Water plans to continue aggregating water and wastewater utilities through strategic acquisitions and consolidation to realize benefits of regionalization and environmental stewardship - Near-term growth strategy involves **increasing service connections**, **improving operating efficiencies**, and **increasing utility rates** as approved by the ACC[22](index=22&type=chunk) - Plans to continue **aggregating water and wastewater utilities** through strategic acquisitions and entity consolidation to achieve benefits of consolidation, regionalization, and environmental stewardship[22](index=22&type=chunk) [Connection Rates & Growth Trends](index=4&type=section&id=Connection%20Rates) Active service connections increased by 3.8% year-over-year, primarily driven by organic growth in the company's service areas, supported by the Phoenix metropolitan area's significant population increase and lower housing costs in areas like the City of Maricopa, despite a recent decrease in housing permits Active Service Connections | Date | Active Service Connections | | :----------- | :------------------------- | | June 30, 2025 | 65,639 | | June 30, 2024 | 63,256 | | Change | +2,383 (3.8%) | - The Phoenix MSA is the **10th largest MSA in the U.S.** with an estimated population of **5.2 million in 2024**, a **7.0% increase since 2020**, and is projected to reach **5.8 million by 2030** and **6.5 million by 2040**[24](index=24&type=chunk) - Organic growth is heavily influenced by the nearly **30% lower median home sales price** in the City of Maricopa compared to the City of Phoenix as of June 2025[25](index=25&type=chunk) - Despite a decrease in single-family and multi-family permits in **H1 2025** due to macroeconomic challenges, management believes the company is well-positioned for long-term growth in the Phoenix MSA due to available lots and existing infrastructure[26](index=26&type=chunk) [Company Information & Financial Statements](index=4&type=section&id=Company%20Information%20%26%20Financial%20Statements) This section provides an overview of Global Water Resources' operations and Total Water Management approach, defines non-GAAP measures, includes cautionary notes on forward-looking statements, and presents condensed consolidated financial statements [About Global Water Resources](index=5&type=section&id=About%20Global%20Water%20Resources) Global Water Resources is a leading water resource management company operating 39 systems providing water, wastewater, and recycled water services primarily in growth corridors around metropolitan Phoenix and Tucson, recognized for its Total Water Management (TWM) approach which integrates the entire water cycle to maximize beneficial use of recycled water and promote conservation - Global Water Resources owns and operates **39 systems** providing water, wastewater, and recycled water service, primarily in growth corridors around metropolitan Phoenix and Tucson[29](index=29&type=chunk) - The company implements **Total Water Management (TWM)**, an integrated approach to managing the entire water cycle, maximizing recycled water use, and enabling smart water management programs for conservation[30](index=30&type=chunk) - Received national recognition as a **'Utility of the Future Today'** for superior water reuse practices and Cityworks' Excellence in Departmental Practice Award for public asset management[31](index=31&type=chunk) [Use of Non-GAAP Measures](index=5&type=section&id=Use%20of%20Non-GAAP%20Measures) This section defines non-GAAP financial measures such as EBITDA, Adjusted EBITDA, and Adjusted Net Income, which management uses as supplemental indicators of operating performance and overall corporate performance, while cautioning investors that these should not replace GAAP measures - **EBITDA** is defined as net income before interest, income taxes, depreciation, and amortization[33](index=33&type=chunk) - **Adjusted EBITDA** excludes gains/losses related to nonrecurring events, restricted stock expense, and disposal of assets[33](index=33&type=chunk) - **Adjusted Net Income** reflects net income excluding amortization related to ICFA intangible assets and their tax effect[33](index=33&type=chunk) - Management believes these non-GAAP measures provide useful supplemental information for investors but should not be construed as alternatives to GAAP measures[34](index=34&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=6&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section provides a standard disclaimer regarding forward-looking statements, highlighting that they involve assumptions, risks, and uncertainties that could cause actual results to differ materially from expectations, and investors are cautioned not to place undue reliance on these statements, which are subject to various political, economic, business, market, and regulatory factors - Forward-looking statements reflect the company's expectations regarding future events and involve assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially[35](index=35&type=chunk) - These statements are based on current beliefs and are subject to political, economic, business, market, regulatory, and other factors, as detailed in SEC filings[35](index=35&type=chunk) [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows an increase in total assets to $449.4 million as of June 30, 2025, from $405.1 million at December 31, 2024, primarily driven by an increase in net utility plant, with total shareholders' equity also increasing significantly to $76.7 million Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------- | :------------ | :---------------- | | Net utility plant | $401,749 | $359,379 | | Total Assets | $449,382 | $405,137 | | Total shareholders' equity | $76,740 | $47,604 | | Long-term debt, net | $116,803 | $118,518 | | Total Capitalization | $193,543 | $166,122 | | Total current liabilities | $20,006 | $22,258 | | Total other liabilities | $235,833 | $216,757 | | Total Capitalization and Liabilities | $449,382 | $405,137 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2025, total revenue increased to $14.2 million, while operating income slightly decreased to $2.6 million, with net income at $1.6 million, resulting in basic and diluted EPS of $0.06 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | | Total revenue | $14,241 | $13,510 | | Total operating expenses | $11,621 | $10,713 | | Operating Income | $2,620 | $2,797 | | Income Before Income Taxes | $2,229 | $2,328 | | Net Income | $1,612 | $1,730 | | Basic earnings per common share | $0.06 | $0.07 | | Diluted earnings per common share | $0.06 | $0.07 | | Dividends declared per common share | $0.08 | $0.08 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash provided by operating activities was $8.8 million, a decrease from $13.6 million in the prior year, while net cash used in investing activities significantly increased to $35.4 million due to higher capital expenditures, and net cash provided by financing activities was $27.8 million, largely due to the issuance of common stock Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $8,827 | $13,571 | | Net cash used in investing activities | ($35,395) | ($12,211) | | Net cash provided by financing activities | $27,788 | $13,573 | | Increase in cash, cash equivalents, and restricted cash | $1,220 | $14,933 | | Cash, cash equivalents, and restricted cash — End of period | $12,376 | $19,696 | [Reconciliation of Non-GAAP Measures](index=10&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) The reconciliation shows that Adjusted EBITDA increased to $6.9 million in Q2 2025 from $6.8 million in Q2 2024, and Adjusted Net Income remained consistent with Net Income in Q2 2025, as there were no ICFA intangible amortization expenses or related tax effects Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | | Net Income | $1,612 | $1,730 | | Income tax expense | $617 | $598 | | Interest income | ($216) | ($266) | | Interest expense | $1,496 | $1,507 | | Depreciation and amortization | $3,317 | $2,996 | | EBITDA | $6,826 | $6,565 | | EBITDA adjustments | $109 | $228 | | Adjusted EBITDA | $6,935 | $6,793 | Reconciliation of Net Income to Adjusted Net Income (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | | Net Income | $1,612 | $1,730 | | ICFA intangible amortization expense | — | $81 | | Income tax effect of items above | — | ($20) | | Adjusted Net Income | $1,612 | $1,791 | [Conference Call & Contact Information](index=4&type=section&id=Conference%20Call) Global Water Resources will host a conference call on August 14, 2025, to discuss its Q2 2025 results, with details provided for dial-in and webcast access, and contact information for the company's CFO and Investor Relations is also included - Conference call to discuss Q2 2025 results scheduled for **Thursday, August 14, 2025, at 1:00 p.m. Eastern time**[27](index=27&type=chunk) - Dial-in numbers: Toll-free **1-833-816-1435**, International **1-412-317-0527**, Conference ID: **10201420**, Webcast available via **www.gwresources.com**[27](index=27&type=chunk) - Company Contact: Michael J. Liebman, CFO and SVP, Tel **(480) 999-5104**, Investor Relations: Ron Both or Grant Stude, Encore Investor Relations, Tel **(949) 432-7450**[36](index=36&type=chunk)

PART I: FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) Pelthos Therapeutics Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, cash flows, and comprehensive notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a significant decrease in total assets and a substantial increase in total liabilities from December 31, 2024, to June 30, 2025, leading to a larger stockholders' deficit | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :----------------------------- | :------------------------ | :------------------ | | Cash | $59,172 | $513,443 | | Total Current Assets | $822,850 | $1,369,143 | | Total Assets | $822,850 | $1,369,143 | | Total Current Liabilities | $7,317,145 | $4,083,197 | | Total Liabilities | $7,317,145 | $4,083,197 | | Total Stockholders' Deficit | $(6,494,295) | $(2,714,054) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported increased net losses for both the three and six months ended June 30, 2025, compared to the same periods in 2024, driven primarily by higher operating expenses, particularly research and development and professional fees | 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 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative expenses | $1,110,084 | $1,209,874 | $2,200,133 | $1,997,435 | | Research and development | $514,814 | $12,955 | $709,112 | $479,561 | | Professional fees | $1,605,525 | $541,257 | $2,155,155 | $1,221,072 | | Total operating expenses | $3,230,423 | $1,764,086 | $5,064,400 | $3,698,068 | | Net loss from operations | $(3,230,423) | $(1,764,086) | $(5,064,400) | $(3,698,068) | | Total other expense | $(218,516) | $(7,533) | $(352,150) | $(635,881) | | NET LOSS | $(3,448,939) | $(1,771,619) | $(5,416,550) | $(4,333,949) | | Net loss per common share - basic and diluted | $(5.38) | $(3.07) | $(8.64) | $(8.28) | [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Deficit) The statements reflect a significant increase in accumulated deficit and a corresponding increase in total stockholders' deficit from December 31, 2024, to June 30, 2025, primarily due to net losses and various equity-related transactions | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------- | :------------------ | :------------------ | | Common stock, par value $0.0001 | $61 | $67 | | Additional paid in capital | $18,760,872 | $20,397,175 | | Accumulated deficit | $(21,474,987) | $(26,891,537) | | Total Stockholders' Deficit | $(2,714,054) | $(6,494,295) | - The accumulated deficit increased by approximately **$5.4 million** from December 31, 2024, to June 30, 2025, primarily due to the net loss incurred during the period[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, the company experienced a net cash outflow from operating activities and a reduced cash inflow from financing activities compared to the prior year, resulting in a significant net decrease in cash | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(5,416,550) | $(4,333,949) | | Net Cash Used In Operating Activities | $(1,079,271) | $(4,944,308) | | Net Cash Provided By Financing Activities | $625,000 | $7,253,015 | | NET CHANGE IN CASH | $(454,271) | $2,308,707 | | CASH AT END OF YEAR | $59,172 | $2,405,098 | - Net cash used in operating activities decreased by **$3,865,037 (78%)** for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to changes in accounts payable and accrued expenses[18](index=18&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk) - Net cash provided by financing activities decreased by **$6,628,015 (91%)** for the six months ended June 30, 2025, compared to the same period in 2024, mainly due to lower proceeds from common stock issued for cash[18](index=18&type=chunk)[243](index=243&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context for the financial statements, detailing the company's organization, accounting policies, liquidity, related party transactions, debt, equity, and subsequent events [NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS](index=8&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20NATURE%20OF%20BUSINESS) Pelthos Therapeutics Inc. is a clinical-stage biotech focused on NaV1.7 pain therapeutics, which completed an IPO in February 2024 and underwent a significant merger in July 2025, changing its name and business focus - Pelthos Therapeutics Inc. is a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain, specifically targeting the NaV1.7 sodium ion-channel[23](index=23&type=chunk) - The company completed its Initial Public Offering (IPO) on February 21, 2024, issuing **110,000 shares** of Common Stock at **$60.00 per share**, generating approximately **$5.7 million** in net proceeds[25](index=25&type=chunk) - On July 1, 2025, Channel Therapeutics Corporation consummated a merger, changed its name to Pelthos Therapeutics Inc., and effected a 10-for-1 reverse stock split[27](index=27&type=chunk) [NOTE 2 – LIQUIDITY AND GOING CONCERN](index=9&type=section&id=NOTE%202%20%E2%80%93%20LIQUIDITY%20AND%20GOING%20CONCERN) With a **$5.4 million** net loss and **$6.5 million** working capital deficit, management has substantial doubt about the company's going concern ability, despite a **$50.1 million** post-period equity offering, as significant future costs require further fundraising | Metric | June 30, 2025 | | :-------------------- | :-------------- | | Net Loss (6 months) | $(5.4) million | | Cash | $0.1 million | | Working Capital Deficit | $(6.5) million | - Management believes there is substantial doubt about the company's ability to continue as a going concern for at least the next twelve months[31](index=31&type=chunk) - A **$50.1 million** equity offering was completed subsequent to the reporting period, but significant costs for Zelsuvmi's commercial launch, potential acquisitions, and clinical trials will require additional funds[31](index=31&type=chunk) [NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%203%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's significant accounting policies, covering U.S. GAAP basis, emerging growth company status, estimates, R&D expense, stock-based compensation, income tax, and recently issued accounting pronouncements - The company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[35](index=35&type=chunk)[36](index=36&type=chunk) - Research and development costs are expensed as incurred unless they qualify for capitalization[40](index=40&type=chunk) | R&D Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Consultant | $107,408 | $107,357 | $195,663 | $137,390 | | Lab Materials | $457 | $1,452 | $1,062 | $1,452 | | Lab Cell Storage | $15,795 | $27,272 | $31,223 | $51,398 | | Chemistry Manufacturing and Controls ("CMC") | $388,629 | $(133,780) | $470,799 | $169,617 | | IP Services | $2,525 | $10,654 | $10,365 | $119,704 | | Total R&D | $514,814 | $12,955 | $709,112 | $479,561 | - The company recognized stock-based compensation expense related to option vesting amortization of **$341,576** and **$745,497** for the three and six months ended June 30, 2025, respectively[93](index=93&type=chunk) [NOTE 4 – RELATED PARTY TRANSACTIONS](index=13&type=section&id=NOTE%204%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) The company has a **$40,400** asset due from Chromocell Holdings for reimbursed expenses. A related party promissory note for **$131,868**, controlled by the CFO, was in default as of June 30, 2025, accruing interest at **6.86%** after December 15, 2024 - As of June 30, 2025, the Company had a **$40,400** asset due from Chromocell Holdings for reimbursed expenses[55](index=55&type=chunk) - A related party promissory note for **$131,868**, controlled by the Company's CFO, was in default as of June 30, 2025, accruing interest at **6.86%** per annum after December 15, 2024[56](index=56&type=chunk) [NOTE 5 – NOTES PAYABLE](index=14&type=section&id=NOTE%205%20%E2%80%93%20NOTES%20PAYABLE) The company has several outstanding promissory notes, including a May Promissory Note (**$1.46 million** principal, in default), a Convertible Note (fully converted by June 30, 2025), and three Bridge Notes (February, May, June) totaling **$812,500** in principal. Interest expenses and debt discount amortizations were recognized for these notes - The May Promissory Note, with an outstanding principal of **$1,455,416**, was in default as of June 30, 2025, accruing interest at **6.86%** per annum[58](index=58&type=chunk) - The July Convertible Note, initially **$750,000**, was fully converted into common stock by June 30, 2025, at a conversion price of **$15.06 per share**[59](index=59&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) | Loan Payable | Outstanding Principal (June 30, 2025) | Outstanding Principal, net of Debt Discount (June 30, 2025) | | :--------------------- | :------------------------------------ | :---------------------------------------------------------- | | May Promissory Note | $1,455,416 | $1,455,416 | | February Bridge Note | $325,000 | $321,267 | | May Bridge Note | $325,000 | $272,260 | | June Bridge Note | $162,500 | $123,876 | | Total | $2,267,916 | $2,172,819 | [NOTE 6 – STOCKHOLDERS' EQUITY](index=17&type=section&id=NOTE%206%20%E2%80%93%20STOCKHOLDERS%27%20EQUITY) This section details significant changes in stockholders' equity, including the IPO, reverse stock splits, equity incentive plan amendments, equity issuances, a committed equity financing facility, a stock repurchase plan, PIPE financing, and activity for stock options, warrants, and RSUs - The company completed its IPO on February 21, 2024, issuing **110,000 shares** of Common Stock at **$60.00 per share**, generating approximately **$5.9 million** in net proceeds[72](index=72&type=chunk) - The 2023 Equity Incentive Plan was amended multiple times, increasing authorized shares for issuance to **2,400,000** by April 16, 2025[74](index=74&type=chunk) - A PIPE Financing closed on July 1, 2025, raising approximately **$50.1 million** gross proceeds through the issuance of **50,100 shares** of Series A Convertible Preferred Stock, with **23,810 shares** subsequently converted into **2,381,000 shares** of Common Stock[81](index=81&type=chunk)[86](index=86&type=chunk) | Stock Options Activity | Number of Shares (June 30, 2025) | Weighted Average Exercise Price (June 30, 2025) | | :--------------------- | :------------------------------- | :---------------------------------------------- | | Outstanding Dec 31, 2024 | 87,049 | $58.50 | | Granted | 7,899 | $13.50 | | Outstanding June 30, 2025 | 94,948 | $54.73 | | Exercisable June 30, 2025 | 50,913 | $86.50 | | RSU Activity | RSUs (June 30, 2025) | Weighted Average Exercise Price (June 30, 2025) | | :--------------------- | :------------------- | :---------------------------------------------- | | Non-vested Dec 31, 2024 | 29,219 | $10.80 | | Vested | (9,270) | $(11.82) | | Non-vested June 30, 2025 | 19,949 | $10.67 | [NOTE 7 – SEGMENT DISCLOSURE](index=23&type=section&id=NOTE%207%20%E2%80%93%20SEGMENT%20DISCLOSURE) The company operates as a single reportable segment: clinical-stage biotech, focused on developing pain therapeutics. This segment is currently pre-revenue, and the chief operating decision maker allocates resources and evaluates performance based on consolidated net loss - The company has one reportable segment: clinical-stage biotech, focused on developing and commercializing new therapeutics to alleviate pain[101](index=101&type=chunk)[104](index=104&type=chunk) - This segment is currently pre-revenue, and the chief operating decision maker assesses performance and allocates resources based on net loss[101](index=101&type=chunk)[103](index=103&type=chunk) [NOTE 8 – SUBSEQUENT EVENTS](index=23&type=section&id=NOTE%208%20%E2%80%93%20SUBSEQUENT%20EVENTS) Significant subsequent events include a July 1, 2025 merger changing the company's name and focus to Zelsuvmi commercialization, a 10-for-1 reverse stock split, a **$50.1 million** PIPE financing, new royalty agreements, board changes, and legal judgments - On July 1, 2025, the company consummated a merger, changed its name to Pelthos Therapeutics Inc., and its business focus became primarily the commercialization of Zelsuvmi[105](index=105&type=chunk)[106](index=106&type=chunk)[123](index=123&type=chunk) - A 10-for-1 reverse stock split became effective on July 1, 2025, and the company's common stock began trading under the ticker symbol 'PTHS' on July 2, 2025[109](index=109&type=chunk)[125](index=125&type=chunk) - A PIPE Financing raised approximately **$50.1 million** gross proceeds, with **23,810 shares** of Series A Preferred Stock converted into **2,381,000 shares** of Common Stock immediately after closing[110](index=110&type=chunk)[115](index=115&type=chunk) - New royalty agreements were established for ZELSUVMI (**1.5% to 1.2%** royalty on net sales to NRV) and Channel Covered Products (various royalties to NRV, Ligand, and Madison)[121](index=121&type=chunk)[122](index=122&type=chunk) - The company was awarded a default judgment in the Kopfli matter on July 25, 2025, for damages totaling **$17,950,205.38** against Mr. Kopfli and Chromocell Holdings, plus an additional **$348,461** against Mr. Kopfli[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, including forward-looking statements, business overview, historical background, financial performance analysis, liquidity, cash flows, critical accounting estimates, and segment reporting [Cautionary Notice Regarding Forward Looking Statements](index=29&type=section&id=Cautionary%20Notice%20Regarding%20Forward%20Looking%20Statements) This section serves as a disclaimer, highlighting that the report contains forward-looking statements about future events and conditions, which are subject to risks and uncertainties that could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them - The report contains forward-looking statements regarding future operations, business strategies, cash flows, and financial results, which are subject to risks and uncertainties[140](index=140&type=chunk)[141](index=141&type=chunk) - Factors outside the company's control, such as market conditions, liquidity, and the need for additional financing, could cause actual results to differ materially from projections[141](index=141&type=chunk) [Overview](index=29&type=section&id=Overview) Pelthos Therapeutics Inc. transitioned from NaV1.7 pain therapeutics to Zelsuvmi commercialization post-merger, with a pre-merger pipeline including CT2000 for eye pain, CT3000 for post-operative pain, CC8464 for neuropathic pain, and licensed Benuvia Spray Formulations - Prior to the merger, the company focused on developing NaV1.7-targeting therapeutics for pain; post-merger, the focus shifted to commercializing Zelsuvmi[143](index=143&type=chunk)[144](index=144&type=chunk) - The CT2000 Eye Pain program showed significant reduction in paw wipes (a surrogate for eye pain) in animal studies, with plans for human proof-of-concept studies in Australia[148](index=148&type=chunk)[153](index=153&type=chunk) - The CT3000 Depot Program for post-operative pain demonstrated material improvement over bupivacaine in efficacy and duration in pre-clinical nerve block models, with a depot effect exceeding four days[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - CC8464 for neuropathic pain completed four Phase 1 trials with good tolerability but potential for skin rashes; a slow dose escalation study and pilot efficacy study in EM patients are planned[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) - The company licensed Benuvia Spray Formulations (Diclofenac, Rizatriptan, Ondansetron) to diversify its non-opioid pain pipeline, with preliminary data suggesting faster onset for Diclofenac spray[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Background](index=35&type=section&id=Background) This section outlines the company's corporate history, including its incorporation, reincorporation merger, acquisition of Chromocell Holdings' therapeutic business, and the completion of its IPO in February 2024. It also details various equity transactions and conversions that occurred in connection with the IPO, as well as a significant share transfer to AWI due to a default judgment - Channel Therapeutics Corporation was incorporated in Delaware in March 2021 and reincorporated in Nevada in November 2024[178](index=178&type=chunk) - The company acquired Chromocell Holdings' therapeutic business, including patents and clinical data for CC8464, in August 2022[179](index=179&type=chunk) - The IPO on February 21, 2024, generated approximately **$5.7 million** in net proceeds and triggered several equity conversions and issuances, including a 9-for-1 reverse stock split[181](index=181&type=chunk)[182](index=182&type=chunk) - On December 18, 2024, **74,719 shares** of Common Stock and **2,600 shares** of Series C Preferred Stock held by Chromocell Holdings were transferred to Alexandra Wood (Canada) Inc. (AWI) due to a default judgment[185](index=185&type=chunk) [Trends and Other Factors Affecting Our Business](index=36&type=section&id=Trends%20and%20Other%20Factors%20Affecting%20Our%20Business) The company entered an exclusive licensing agreement with Benuvia in December 2023 for three spray formulations to diversify its non-opioid pain pipeline, granting Pelthos worldwide commercialization rights with a **6.5%** royalty to Benuvia, though specific development plans are pending - The company entered an exclusive licensing agreement with Benuvia in December 2023 for Diclofenac, Rizatriptan, and Ondansetron spray formulations, diversifying its non-opioid pain pipeline[186](index=186&type=chunk) - Under the agreement, Pelthos has exclusive worldwide rights to develop, commercialize, and distribute the Spray Formulations, paying Benuvia a **6.5%** royalty on net sales for up to 15 years[186](index=186&type=chunk)[187](index=187&type=chunk) - As of the report date, the company does not have specific strategy and development plans for the Benuvia Spray Formulations[188](index=188&type=chunk) [Merger Transactions](index=37&type=section&id=Merger%20Transactions) On July 1, 2025, Channel Therapeutics merged with LNHC, Inc., becoming Pelthos Therapeutics Inc., effecting a 10-for-1 reverse stock split, and commencing NYSE American trading. Ligand invested **$18 million** in a **$50.1 million** equity raise, securing a **13%** royalty on ZELSUVMI net sales - On July 1, 2025, Channel Therapeutics Corporation merged with LNHC, Inc., changed its name to Pelthos Therapeutics Inc., and effected a 10-for-1 Reverse Stock Split[189](index=189&type=chunk) - Pelthos commenced trading on the NYSE American under 'PTHS' on July 2, 2025, and Ligand invested **$18 million** as part of a **$50.1 million** equity raise, securing a **13%** royalty on ZELSUVMI net sales[191](index=191&type=chunk) - The merger and associated financing mark the initiation of the commercial launch for ZELSUVMI in July 2025[191](index=191&type=chunk) [Securities Purchase Agreement](index=37&type=section&id=Securities%20Purchase%20Agreement) The company entered a Securities Purchase Agreement with PIPE Investors for a **$50.1 million** PIPE Financing, issuing **50,100 shares** of Series A Convertible Preferred Stock at **$1,000** per share, with **23,810 shares** converted into **2,381,000** common shares post-closing - The company entered a Securities Purchase Agreement with PIPE Investors for a **$50.1 million** PIPE Financing, issuing **50,100 shares** of Series A Convertible Preferred Stock[192](index=192&type=chunk) - The gross proceeds from the PIPE Financing were approximately **$50.1 million**, consisting of **$50.0 million** in cash and **$0.1 million** from convertible note conversion[192](index=192&type=chunk) - Immediately after the PIPE Financing closing on July 1, 2025, PIPE Investors converted **23,810 shares** of Series A Preferred Stock into an aggregate of **2,381,000 shares** of the company's Common Stock (post-Reverse Stock Split)[197](index=197&type=chunk) [Going Concern](index=38&type=section&id=Going%20Concern) With net losses of **$5.4 million** and **$4.3 million**, management has substantial doubt about the company's going concern ability, as significant future costs for Zelsuvmi's commercial launch and clinical trials necessitate further fundraising despite a recent **$50.1 million** equity offering | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(5.4) million | $(4.3) million | - Management believes there is substantial doubt about the company's ability to continue as a going concern and fund operations for at least the next twelve months[199](index=199&type=chunk) - Despite a **$50.1 million** equity offering post-period, significant costs for Zelsuvmi's commercial launch, potential acquisitions, and clinical trials will require additional funds, with no assurance of availability or terms[199](index=199&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) The company experienced a significant increase in net loss for both the three and six months ended June 30, 2025, compared to the prior year, primarily driven by substantial increases in research and development expenses (due to CMC fees) and professional fees (due to merger-related legal and accounting costs). General and administrative expenses saw a slight decrease for the three-month period but an increase for the six-month period [Comparison of the Three Months Ended June 30, 2025 and 2024](index=38&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) For the three months ended June 30, 2025, the net loss increased by **95%** to **$3.45 million**, primarily due to a **3,874%** increase in R&D expenses (driven by CMC fees) and a **197%** increase in professional fees (due to merger-related legal and accounting costs). General and administrative expenses decreased by **8%** | Operating Expense | 2025 (3 months) | 2024 (3 months) | $ Change | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | :------- | | General and administrative | $1,110,084 | $1,209,874 | $(99,790) | (8)% | | Research and development | $514,814 | $12,955 | $501,859 | 3,874% | | Professional fees | $1,605,525 | $541,257 | $1,064,268 | 197% | | Total operating expenses | $3,230,423 | $1,764,086 | $1,466,337 | 83% | | Net loss | $(3,448,939) | $(1,771,619) | $(1,677,320) | (95)% | - Research and development expenses increased by **$501,859 (3,874%)** primarily due to an increase in Chemistry Manufacturing and Controls (CMC) fees[203](index=203&type=chunk) - Professional fees increased by **$1,064,268 (197%)** due to increased legal and accounting fees related to the company's merger[204](index=204&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=39&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) For the six months ended June 30, 2025, the net loss increased by **25%** to **$5.42 million**. This was driven by a **48%** increase in R&D expenses (due to CMC) and a **76%** increase in professional fees (due to merger-related costs). General and administrative expenses also increased by **10%**, mainly from higher compensation and stock compensation | Operating Expense | 2025 (6 months) | 2024 (6 months) | $ Change | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | :------- | | General and administrative | $2,200,133 | $1,997,435 | $202,698 | 10% | | Research and development | $709,112 | $479,561 | $229,551 | 48% | | Professional fees | $2,155,155 | $1,221,072 | $934,083 | 76% | | Total operating expenses | $5,064,400 | $3,698,068 | $1,366,332 | 37% | | Net loss | $(5,416,550) | $(4,333,949) | $(1,082,601) | (25)% | - General and administrative expenses increased by **$202,698 (10%)** primarily due to increases in compensation expenses and stock compensation[208](index=208&type=chunk) - Research and development expenses increased by **$229,551 (48%)** mainly due to an increase in Chemistry Manufacturing and Controls (CMC) costs[209](index=209&type=chunk) - Professional fees increased by **$934,083 (76%)** as a result of increased legal and accounting fees related to the company's merger[210](index=210&type=chunk) [Liquidity](index=41&type=section&id=Liquidity) The company, pre-revenue, faces significant liquidity challenges with **$0.1 million** cash and a **$6.5 million** working capital deficit. Despite a **$50.1 million** equity offering, substantial doubt about its going concern ability remains due to high future costs requiring further funding - The company is in early stages of development, without established sales or earnings, and does not expect revenue from product sales for several years[212](index=212&type=chunk) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Cash | $0.1 million | $0.5 million | | Accumulated Deficit | $(26.9) million | $(21.5) million | | Working Capital Deficit | $(6.5) million | $(2.7) million | - Management believes there is substantial doubt about the company's ability to continue as a going concern and fund operations for at least the next twelve months, despite a **$50.1 million** equity offering post-period[199](index=199&type=chunk) [Sources of Liquidity and Capital](index=41&type=section&id=Sources%20of%20Liquidity%20and%20Capital) Historically funded by advances, licensing, notes, and grants, recent financing includes a **$5.7 million** IPO, a **$30 million** committed equity facility, and a **$50.1 million** PIPE financing, alongside a lapsed stock repurchase plan and 2025 bridge notes - Historically, operations were funded by cash advances from Chromocell Holdings, licensing, bridge/note issuances, and NIH grants[214](index=214&type=chunk) - The IPO on February 21, 2024, generated approximately **$5.7 million** in net proceeds[217](index=217&type=chunk) - A Committed Equity Financing (CEF) facility with Tikkun Capital LLC provides for up to **$30 million** in common stock purchases[220](index=220&type=chunk) - A stock repurchase plan, initially for **$250,000** and later increased to **$750,000**, expired on June 30, 2025, with no shares repurchased in Q2 2025[221](index=221&type=chunk)[274](index=274&type=chunk) - The company issued several unsecured promissory notes in 2025 (February, May, June Bridge Notes) totaling **$812,500** in aggregate principal[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - A PIPE Financing, concurrent with the merger, raised approximately **$50.1 million** gross proceeds through the issuance of Series A Preferred Stock[228](index=228&type=chunk) [Future Funding Requirements](index=44&type=section&id=Future%20Funding%20Requirements) The company anticipates significant and increasing operating losses and negative cash flows due to ongoing clinical development, research and development, and public company overhead. It will require additional funding through various means, and a lack of such funding on acceptable terms could curtail development plans, leading to substantial doubt about its ability to continue as a going concern - Primary cash use is for clinical development, operating expenses, and repaying accrued liabilities[234](index=234&type=chunk) - Significant and increasing expenses are expected from research and development and management overhead, including public company costs[235](index=235&type=chunk)[236](index=236&type=chunk) - Additional funding is required through strategic relationships, equity/debt financings, credit facilities, or grants; lack of funding could delay or eliminate planned development[237](index=237&type=chunk) - There is substantial doubt about the company's ability to continue as a going concern[238](index=238&type=chunk) [Cash Flows](index=44&type=section&id=Cash%20Flows) For the six months ended June 30, 2025, net cash used in operating activities significantly decreased to **$1.08 million**, primarily due to a large increase in accounts payable and accrued expenses. However, net cash provided by financing activities substantially decreased to **$0.63 million**, leading to a net change in cash of negative **$0.45 million**, a **120%** decrease compared to the prior year | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Net cash used in operating activities | $(1,079,271) | $(4,944,308) | $(3,865,037) | (78)% | | Net cash provided by financing activities | $625,000 | $7,253,015 | $(6,628,015) | (91)% | | Net change in cash | $(454,271) | $2,308,707 | $(2,762,978) | (120)% | - Net cash used in operating activities decreased by **$3,865,037 (78%)** for the six months ended June 30, 2025, primarily due to a **$3,102,476** change in accounts payable and accrued expenses[239](index=239&type=chunk)[240](index=240&type=chunk) - Net cash provided by financing activities decreased by **$6,628,015 (91%)** for the six months ended June 30, 2025, mainly due to lower proceeds from common stock issued for cash in the prior year[239](index=239&type=chunk)[243](index=243&type=chunk) [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements during the six months ended June 30, 2025 and 2024, and currently does not have any - The company did not have any off-balance sheet arrangements during the six months ended June 30, 2025 and 2024, and currently has none[244](index=244&type=chunk) [Critical Accounting Estimates](index=45&type=section&id=Critical%20Accounting%20Estimates) The preparation of financial statements requires management to make significant estimates and judgments, particularly concerning income taxes. The company uses an asset and liability approach for deferred income taxes, providing a full valuation allowance against net deferred tax assets due to cumulative losses, indicating uncertainty about their realization. Changes in tax laws or interpretations could materially impact financial results - Significant judgment is required in determining income tax expense, deferred taxes, and uncertain tax positions[248](index=248&type=chunk) - A full valuation allowance is recorded against deferred tax assets due to cumulative losses since inception, indicating that realization is not more likely than not[248](index=248&type=chunk) - Changes in tax laws or interpretations could significantly impact the amounts provided for income taxes[249](index=249&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=46&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) The company is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Income Statement Expenses), which require disaggregated tax and expense information, respectively, with other pronouncements not expected to have a material impact - ASU 2023-09 (Income Taxes), effective after December 15, 2024, requires disaggregated information about effective tax rate reconciliation and income taxes paid[252](index=252&type=chunk) - ASU 2024-03 (Disaggregation of Income Statement Expenses), effective after December 15, 2026, requires disclosures of certain disaggregated income statement expense captions[253](index=253&type=chunk) - The company is currently evaluating the impact of both ASUs on its condensed consolidated financial statements[252](index=252&type=chunk)[253](index=253&type=chunk) [Segment Reporting](index=46&type=section&id=Segment%20Reporting) Pelthos Therapeutics Inc. operates as a single reportable segment: clinical-stage biotech, focused on developing pain therapeutics. This segment is pre-revenue, and the chief operating decision maker, who also serves as CEO and CFO, uses consolidated net loss to evaluate performance and allocate resources - The company has one reportable segment: clinical-stage biotech, focused on developing new therapeutics to alleviate pain[254](index=254&type=chunk)[257](index=257&type=chunk) - This segment is currently pre-revenue, and its accounting policies are consistent with the summary of significant accounting policies[254](index=254&type=chunk)[255](index=255&type=chunk) - The chief operating decision maker, who is also the CEO and CFO, uses net loss to evaluate spending and allocate funds for research and development[257](index=257&type=chunk)[258](index=258&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Pelthos Therapeutics Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk as it is a smaller reporting company[259](index=259&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective as of June 30, 2025, due to material weaknesses in accounting resources, financial reporting review, and IT infrastructure, with no material changes in internal control during the quarter [Evaluation of Disclosure Controls and Procedures](index=47&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2025, the company's disclosure controls and procedures were deemed ineffective by management, including the CEO and CFO, due to identified material weaknesses - As of June 30, 2025, the company's disclosure controls and procedures were concluded to be not effective by management[261](index=261&type=chunk) - Material weaknesses identified include a lack of necessary corporate accounting resources for adequate segregation of duties, inability to provide multiple levels of review in financial reporting, and inadequate internal IT infrastructure[263](index=263&type=chunk) [Changes in Internal Controls](index=47&type=section&id=Changes%20in%20Internal%20Controls) There have been no changes during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[262](index=262&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business. However, it is involved in the Kopfli matter, where it was awarded a default judgment of over **$18 million** against Mr. Kopfli and Chromocell Holdings. A demand letter was also received from Parexel International (IRL) Limited for allegedly unpaid principal and interest, which the company denies liability for - The company is not presently a party to any legal proceedings that would have a material adverse effect on its business[265](index=265&type=chunk) - A default judgment was awarded to the company in the Kopfli matter on October 3, 2024, with damages totaling **$17,950,205.38** against Mr. Kopfli and Chromocell Holdings, plus an additional **$348,461** against Mr. Kopfli, as of July 25, 2025[268](index=268&type=chunk) - The company received a demand letter from Parexel International (IRL) Limited for over **$859,000** in allegedly unpaid principal and interest, but the company denies liability[266](index=266&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Pelthos Therapeutics Inc. is not required to include the disclosure of risk factors - The company is not required to include risk factor disclosures as it is a smaller reporting company[269](index=269&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued **2,500 shares** of Common Stock to a vendor in January 2025, exempt from registration under Section 4(a)(2) of the Securities Act. The previously authorized stock repurchase plan, which aimed to repurchase up to **$750,000** of common stock, expired on June 30, 2025, with no shares repurchased during the second quarter of the fiscal year - On January 23, 2025, the company issued **2,500 shares** of Common Stock to a vendor for services, exempt from registration under Section 4(a)(2) of the Securities Act[270](index=270&type=chunk)[271](index=271&type=chunk) - The stock repurchase plan, which allowed for repurchases up to **$750,000**, expired on June 30, 2025, and no shares were repurchased during the second quarter of the fiscal year[273](index=273&type=chunk)[274](index=274&type=chunk) [Item 3. Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - The company reported no defaults upon senior securities[275](index=275&type=chunk) [Item 4. Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[275](index=275&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - The company reported no other information for this item[276](index=276&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, merger-related agreements, employment agreements, and certifications, many incorporated by reference from previous SEC filings - The exhibits include corporate governance documents (e.g., Certificate of Amendment to Articles of Incorporation, Bylaws), merger-related agreements (e.g., Agreement and Plan of Merger, Securities Purchase Agreement), and employment agreements[277](index=277&type=chunk)[278](index=278&type=chunk) - Many exhibits are incorporated by reference from previous Current Reports on Form 8-K[277](index=277&type=chunk)[278](index=278&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer are included pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[279](index=279&type=chunk) SIGNATURES

[Membership Interest Purchase Agreement Overview](index=1&type=section&id=Membership%20Interest%20Purchase%20Agreement) This agreement outlines the sale of PEAK EXPLORATION & PRODUCTION, LLC's membership interests to EPSILON ENERGY USA, INC. [Parties to the Agreement](index=1&type=section&id=Parties%20to%20the%20Agreement) This section identifies the key parties to the agreement, including Sellers, Purchaser, and their respective parent entities - The agreement details the sale of **all issued and outstanding interests** of PEAK EXPLORATION & PRODUCTION, LLC[14](index=14&type=chunk) Key Parties in the Transaction | Role | Entity Name | | :--- | :--- | | **Sellers** | Various entities and individuals listed in Annex I | | **Company Being Sold** | PEAK EXPLORATION & PRODUCTION, LLC | | **Purchaser** | EPSILON ENERGY USA, INC. | | **Purchaser Parent** | EPSILON ENERGY LTD. | | **Sellers' Representative** | YORKTOWN ENERGY PARTNERS XI, L.P. | [ARTICLE 1: DEFINITIONS AND INTERPRETATION](index=8&type=section&id=ARTICLE%201%20DEFINITIONS%20AND%20INTERPRETATION) This article establishes the definitions for capitalized terms and provides rules for agreement interpretation [Section 1.1: Defined Terms](index=8&type=section&id=Section%201.1%20Defined%20Terms) This section specifies that capitalized terms are **primarily defined in Appendix A** and apply consistently throughout the document - Capitalized terms used in the agreement are **primarily defined in Appendix A**[17](index=17&type=chunk) [Section 1.2: References and Rules of Construction](index=8&type=section&id=Section%201.2%20References%20and%20Rules%20of%20Construction) This section provides guidelines for interpreting the agreement, covering references, common terms, and accounting principles - All references to Exhibits, Annexes, Schedules, and Appendices are incorporated into the agreement[19](index=19&type=chunk) - The term "made available to Purchaser" means documents were posted to the Data Room **at least two business days before the Execution Date**[19](index=19&type=chunk) [ARTICLE 2: PURCHASE AND SALE](index=9&type=section&id=ARTICLE%202%20PURCHASE%20AND%20SALE) This article details the core transaction of selling Company Interests and establishes the financial effective time [Section 2.1: Purchase and Sale](index=9&type=section&id=Section%202.1%20Purchase%20and%20Sale) This section outlines the core transaction where Sellers transfer Company Interests to Purchaser **free and clear of encumbrances** - Sellers agree to sell the Company Interests to the Purchaser, and the Purchaser agrees to buy them at Closing[21](index=21&type=chunk) [Section 2.2: Effective Time](index=9&type=section&id=Section%202.2%20Effective%20Time) This section establishes the financial effective time for asset transfer as **12:01 a.m., Mountain Time, on January 1, 2025** - The financial effective time of the transaction is set for **12:01 a.m., Mountain Time, on January 1, 2025**[22](index=22&type=chunk) [ARTICLE 3: PURCHASE PRICE](index=9&type=section&id=ARTICLE%203%20PURCHASE%20PRICE) This article defines the purchase price, its allocation for tax purposes, and various adjustments [Section 3.1: Purchase Price](index=9&type=section&id=Section%203.1%20Purchase%20Price) The purchase price is **5,800,000 common shares** of Purchaser Parent, subject to **proportionate adjustment** Unadjusted Purchase Price | Consideration Type | Amount | | :--- | :--- | | Purchaser Parent Common Stock | 5,800,000 shares | - The number of shares is subject to **proportionate adjustment** for events like stock splits, dividends, or mergers involving Purchaser Parent stock before closing[24](index=24&type=chunk)[25](index=25&type=chunk) [Section 3.2: Allocation of Purchase Price](index=10&type=section&id=Section%203.2%20Allocation%20of%20Purchase%20Price) This section details the purchase price allocation for tax purposes, based on the **60-day volume-weighted average price (VWAP)** of Purchaser Parent stock - The purchase price will be allocated among the assets according to the methodologies in Schedule 3.2 and **IRS Code Section 1060**[26](index=26&type=chunk) - For tax purposes, the Purchaser Parent Common Stock will be valued using the **60-day volume-weighted average price (VWAP)** prior to the Closing Date[26](index=26&type=chunk) [Section 3.3: Adjustments to Purchase Price](index=10&type=section&id=Section%203.3%20Adjustments%20to%20Purchase%20Price) This section outlines upward and downward adjustments to the purchase price, converted into Purchaser Parent shares - The Unadjusted Purchase Price will be adjusted upward for the **appraised value of the Durango Building**[29](index=29&type=chunk) - Downward adjustments include reductions for title/environmental defects, suspense funds, leakage, company transaction expenses exceeding the Fee Cap, and the value of Purchaser's non-oil and gas real estate in Pennsylvania[29](index=29&type=chunk) - All dollar-based adjustments will be converted to an equivalent number of Purchaser Parent shares using the **60-day VWAP** prior to closing[28](index=28&type=chunk) [Section 3.4: Allocated Values](index=11&type=section&id=Section%203.4%20Allocated%20Values) This section specifies "Allocated Values" for assets, used for defect thresholds but not for purchase price adjustments - Allocated Values for assets are listed in Schedule 3.4 and are used to determine if the **Individual Defect Threshold** and **Aggregate Defect Deductible** are met[30](index=30&type=chunk)[31](index=31&type=chunk) - Sellers do not represent or warrant the accuracy of the Allocated Values[31](index=31&type=chunk) [ARTICLE 4: TITLE AND ENVIRONMENTAL MATTERS](index=12&type=section&id=ARTICLE%204%20TITLE%20AND%20ENVIRONMENTAL%20MATTERS) This article outlines the processes for identifying, notifying, and adjusting for title and environmental defects [Section 4.1: Sellers' and the Company Group's Title](index=12&type=section&id=Section%204.1%20Sellers'%20and%20the%20Company%20Group's%20Title) This section disclaims Sellers' title warranties, limiting Purchaser's **sole remedy** to the adjustment process or special warranty - Sellers expressly disclaim any representation or warranty regarding title to the assets, except for the special warranty in Section 6.25[32](index=32&type=chunk) - Purchaser's **sole remedy** for title defects is the adjustment process defined in this Article 4 before the Claim Date, and the special warranty thereafter[32](index=32&type=chunk) [Section 4.2: Notice of Title Defects; Title Defect Adjustments](index=13&type=section&id=Section%204.2%20Notice%20of%20Title%20Defects%3B%20Title%20Defect%20Adjustments) This section details the procedure for Purchaser to claim Title Defects, including notice, cure rights, and adjustment - Purchaser must deliver a Title Defect Notice to Sellers' Representative no later than **5:00 p.m. Mountain Time, 45 days after the Execution Date (the "Claim Date")**[35](index=35&type=chunk) - Sellers have a "**Cure Period**" ending **two business days before the Closing Date** to attempt to cure any asserted Title Defects at their own expense[36](index=36&type=chunk) - The "**Title Defect Amount**" is calculated based on specific methodologies, such as the cost to remove a lien or a formula based on the reduction in Net Revenue Interest or Net Mineral Acres[42](index=42&type=chunk)[43](index=43&type=chunk) [Section 4.3: Title Benefits](index=15&type=section&id=Section%204.3%20Title%20Benefits) This section allows Sellers to assert Title Benefits, which offset downward purchase price adjustments from Title Defects - Sellers can assert **Title Benefits** by delivering a **Title Benefit Notice** on or before the Claim Date[44](index=44&type=chunk) - Title Benefit Amounts are used only as an **offset against Title Defect Amounts** and do not result in an upward adjustment to the Unadjusted Purchase Price[46](index=46&type=chunk) [Section 4.4: Notice of Environmental Defects; Environmental Defect Adjustments](index=17&type=section&id=Section%204.4%20Notice%20of%20Environmental%20Defects%3B%20Environmental%20Defect%20Adjustments) This section outlines the process for addressing Environmental Defects, including notice, cure rights, and Purchaser's disclaimers - Purchaser must deliver an **Environmental Defect Notice** by the Claim Date, detailing the alleged defect, affected assets, and a calculation of the **Remediation Amount**[50](index=50&type=chunk) - The remedy for an uncured Environmental Defect is a reduction in the Unadjusted Purchase Price by the **Remediation Amount**, subject to applicable thresholds[56](index=56&type=chunk) - Purchaser acknowledges the assets have been used for **oil and gas operations** and may contain hazardous substances like **NORM and asbestos**, waiving claims except as provided in this article[59](index=59&type=chunk) [Section 4.5: Limitations on Applicability](index=20&type=section&id=Section%204.5%20Limitations%20on%20Applicability) This section establishes financial thresholds for Title and Environmental Defect claims, including **individual and aggregate deductibles** Defect Claim Thresholds | Threshold Type | Amount | Description | | :--- | :--- | :--- | | **Individual Defect Threshold** | **$75,000** | No adjustment for any single Title or Environmental Defect below this amount | | **Aggregate Defect Deductible** | **$1,000,000** | No adjustments unless the total of all qualifying defects exceeds this amount. Purchaser is then entitled to adjustments only for the amount in excess of the deductible | [Section 4.6: Title and Environmental Disputes](index=20&type=section&id=Section%204.6%20Title%20and%20Environmental%20Disputes) This section provides an **exclusive dispute resolution mechanism** for title and environmental disagreements via a **neutral Consultant** - Disputes over title or environmental matters that cannot be resolved by the parties before Closing will be submitted to a **neutral Consultant** for a final and binding resolution[64](index=64&type=chunk) - The Consultant will be an experienced attorney for title disputes or an environmental attorney for environmental disputes[66](index=66&type=chunk) - The dispute resolution process is **not intended to delay the Closing**; adjustments for disputed matters will be made post-Closing based on the Consultant's decision[72](index=72&type=chunk) [Section 4.7: Casualty or Condemnation Loss](index=22&type=section&id=Section%204.7%20Casualty%20or%20Condemnation%20Loss) This section addresses **Casualty Losses**, requiring Purchaser to close without price reduction and receive related **insurance proceeds and condemnation awards** - If a **Casualty Loss** occurs before Closing, the Purchaser must still close the transaction with **no reduction to the purchase price**[73](index=73&type=chunk) - Upon Closing, Purchaser becomes entitled to all **insurance proceeds and condemnation awards** related to the **Casualty Loss**[73](index=73&type=chunk) [ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF SELLERS](index=22&type=section&id=ARTICLE%205%20REPRESENTATIONS%20AND%20WARRANTIES%20OF%20SELLERS) This article contains the Sellers' fundamental representations and warranties regarding their legal standing and the transaction [Sections 5.2-5.5: Existence, Power, Authorization, and Conflicts](index=23&type=section&id=Section%205.2%20-%205.5) These sections contain Sellers' representations that they are **duly formed and validly existing entities**, authorized, and the transaction has no conflicts - Each Seller warrants it is a **duly formed and validly existing entity**[76](index=76&type=chunk) - Sellers confirm they have the necessary power and authority to execute the agreement and that it is a **legally enforceable obligation**[77](index=77&type=chunk)[78](index=78&type=chunk) - The execution of the agreement will not conflict with Sellers' organizational documents, material contracts, or laws, except as disclosed in Schedule 5.5[79](index=79&type=chunk) [Section 5.6: Capitalization](index=24&type=section&id=Section%205.6%20Capitalization) Each Seller represents ownership of Company Interests **free of encumbrances**, transferring **good and valid title** to Purchaser at Closing - Each Seller warrants ownership of the Company Interests as detailed in Schedule 5.6, **free of encumbrances**[80](index=80&type=chunk) - At Closing, Purchaser will receive **good and valid title** to the Company Interests[81](index=81&type=chunk) [Sections 5.7-5.10: Brokers' Fees, Litigation, Bankruptcy, and Credit Support](index=24&type=section&id=Section%205.7%20-%205.10) These sections provide Sellers' warranties regarding brokerage fees, absence of litigation or bankruptcy, and credit support - Sellers are **responsible for their own brokerage or finder's fees**[82](index=82&type=chunk) - There are **no pending or threatened bankruptcy proceedings** against any Seller[83](index=83&type=chunk) - Schedule 5.10 provides a **complete list of all credit support** (bonds, letters of credit, etc.) posted by Sellers or their Affiliates for the Company Group[84](index=84&type=chunk) [ARTICLE 6: REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY GROUP AND THE ASSETS](index=24&type=section&id=ARTICLE%206%20REPRESENTATIONS%20AND%20WARRANTIES%20REGARDING%20THE%20COMPANY%20GROUP%20AND%20THE%20ASSETS) This article details the Company Group's representations and warranties concerning its operations, assets, and financial condition [Sections 6.2-6.5: Company Existence, Power, Authorization, and Conflicts](index=25&type=section&id=Section%206.2%20-%206.5) The Company represents its **validly existing LLC in good standing under Delaware law**, power, proper authorization, and absence of conflicts with its obligations - The Company is a **validly existing LLC in good standing under Delaware law**[86](index=86&type=chunk) - The agreement is a **valid and binding obligation of the Company**, duly authorized by all necessary company action[88](index=88&type=chunk) [Section 6.6: Capitalization](index=26&type=section&id=Section%206.6%20Capitalization) This section details the Company's capital structure, confirming **Sellers own all issued and outstanding Interests of the Company** Company Interests as of Execution Date | Interest Type | Amount | | :--- | :--- | | Common Units | **2,325,510** | | Preferred Units | **958,864** | | Tier I Profits Units | **0 outstanding** | | Tier II Profits Units | **0 outstanding** | - **Sellers own all issued and outstanding Interests of the Company**[91](index=91&type=chunk) - Except as listed in Schedule 6.6(c), there are **no outstanding options, warrants, or other rights** to acquire Company Interests[92](index=92&type=chunk) [Section 6.9: Taxes and Assessments](index=27&type=section&id=Section%206.9%20Taxes%20and%20Assessments) The Company represents **all material Tax Returns** are filed and paid, with **no pending or threatened tax audits or deficiencies** - **All material Tax Returns** for the Company Group have been **timely filed and are accurate, and all material Taxes have been paid**[98](index=98&type=chunk) - There are **no pending or threatened tax audits or deficiencies** against the Company Group, except as disclosed in Schedule 6.9[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company has always been **classified as a partnership for federal income tax purposes**, and its **subsidiaries as disregarded entities**[106](index=106&type=chunk) [Section 6.12: Material Contracts](index=29&type=section&id=Section%206.12%20Material%20Contracts) This section defines and lists the Company's **Material Contracts**, warranting their validity and absence of default - Schedule 6.12 lists all **Material Contracts**, which include those with payments or revenues over **$100,000/year**, hydrocarbon sales agreements, and joint operating agreements[117](index=117&type=chunk)[118](index=118&type=chunk) - The Company warrants that there are **no material defaults under any Material Contract** by the Company Group or, to its knowledge, any other party[120](index=120&type=chunk) [Section 6.17: Environmental Matters](index=32&type=section&id=Section%206.17%20Environmental%20Matters) The Company represents **material compliance with Environmental Laws** and absence of **material Environmental Claims** - The Company Group and its assets are in **compliance with Environmental Laws in all material respects**[125](index=125&type=chunk) - There are **no pending or, to the Company's knowledge, threatened material Environmental Claims** against the Company Group or its assets[125](index=125&type=chunk) [Section 6.28: Employment Matters](index=35&type=section&id=Section%206.28%20Employment%20Matters) This section provides representations regarding Company employees, labor law compliance, and absence of labor agreements - Schedule 6.28(a)(i) **lists all Employees**, and Schedule 6.28(a)(ii) **lists all Contingent Workers**[138](index=138&type=chunk) - **No Employees are represented by a labor union**, and there are **no labor agreements in place**[139](index=139&type=chunk)[140](index=140&type=chunk) - The Company Group is in **material compliance with all applicable labor and employment laws**[141](index=141&type=chunk) [Section 6.39: Financial Statements](index=41&type=section&id=Section%206.39%20Financial%20Statements) The Company represents its financial statements are true, complete, **prepared in accordance with GAAP and fairly present the Company Group's financial condition** - Schedule 6.39 contains the Company Group's **audited annual financial statements for 2022, 2023, and 2024**, and **unaudited interim statements as of June 30, 2025**[169](index=169&type=chunk) - The financial statements were **prepared in accordance with GAAP and fairly present the Company Group's financial condition**[169](index=169&type=chunk) [ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF PURCHASER](index=41&type=section&id=ARTICLE%207%20REPRESENTATIONS%20AND%20WARRANTIES%20OF%20PURCHASER) This article outlines the Purchaser's representations and warranties regarding its legal standing, financial capacity, and independent evaluation [Sections 7.2-7.5: Existence, Power, Authorization, and Conflicts](index=41&type=section&id=Section%207.2%20-%207.5) Purchaser and Purchaser Parent represent they are **validly existing corporations in good standing**, power, authorization, and absence of conflicts - Purchaser and Purchaser Parent are **validly existing corporations in good standing**[172](index=172&type=chunk)[173](index=173&type=chunk) - The agreement has been duly authorized and is a **valid and binding obligation of the Purchaser and Purchaser Parent**[175](index=175&type=chunk) [Section 7.8: Independent Evaluation](index=43&type=section&id=Section%207.8%20Independent%20Evaluation) Purchaser acknowledges **independent due diligence** and relies **solely on express representations** in Articles 5 and 6 - Purchaser acknowledges it is a **sophisticated party capable of evaluating the assets** and has **relied solely on its own independent due diligence**[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - Purchaser **explicitly disclaims reliance on any representation or statement other than those expressly contained in Articles 5 and 6** of the agreement[182](index=182&type=chunk) [Section 7.12: Capitalization](index=44&type=section&id=Section%207.12%20Capitalization) Purchaser Parent represents its capital structure and warrants that shares issued as purchase price will be **validly issued, fully paid, and nonassessable** Purchaser Parent Capitalization | Security Type | Amount Issued & Outstanding | | :--- | :--- | | Common Shares | **22,058,574** | | Preferred Shares | **0** | - The shares issued to Sellers as part of the purchase price will be **validly issued, fully paid, and nonassessable**[191](index=191&type=chunk) [Section 7.14: SEC Documents; Financial Statements; No Liabilities](index=46&type=section&id=Section%207.14%20SEC%20Documents%3B%20Financial%20Statements%3B%20No%20Liabilities) Purchaser Parent warrants **timely filed all required SEC documents since December 31, 2024**, compliance, and **GAAP-compliant financial statements fairly presenting its financial condition** - Purchaser Parent has **timely filed all required SEC documents since December 31, 2024**, which **complied with applicable regulations**[200](index=200&type=chunk) - The Purchaser Parent's financial statements were **prepared according to GAAP and fairly present its financial condition**[200](index=200&type=chunk) [ARTICLE 8: COVENANTS OF THE PARTIES](index=47&type=section&id=ARTICLE%208%20COVENANTS%20OF%20THE%20PARTIES) This article details the ongoing obligations and restrictions on the parties between signing and closing [Section 8.1: Access](index=47&type=section&id=Section%208.1%20Access) This section grants Purchaser **reasonable access to assets and records for due diligence**, prohibits **invasive environmental testing** without consent, and requires **Purchaser indemnification** - Sellers will provide Purchaser with **reasonable access to assets and records for due diligence** before closing[206](index=206&type=chunk) - **Invasive environmental testing (e.g., soil or water sampling) is not permitted without Sellers' consent**[207](index=207&type=chunk) - Purchaser must **indemnify and hold harmless the Sellers Group from any damages arising from its due diligence activities**[216](index=216&type=chunk) [Section 8.2: Operation of Business](index=49&type=section&id=Section%208.2%20Operation%20of%20Business) This section requires the Company Group to operate in the **Ordinary Course of Business** and restricts certain actions without consent - From signing to closing, the Company must conduct its business in the **Ordinary Course of Business**[217](index=217&type=chunk) - The Company is restricted from taking certain actions without Purchaser's consent, including: **proposing new capital expenditures over $50,000**, **entering into new material contracts**, **selling assets, or issuing any new interests**[218](index=218&type=chunk)[219](index=219&type=chunk) [Section 8.6: R&W Insurance Policy](index=53&type=section&id=Section%208.6%20R%26W%20Insurance%20Policy) This section confirms Purchaser's **R&W Insurance Policy**, requiring a **waiver of subrogation** and prohibiting **materially adverse amendments** - Purchaser has **procured a conditional binder for an R&W Insurance Policy**, attached as Exhibit E[227](index=227&type=chunk) - The **R&W Insurance Policy** must contain a **waiver of subrogation** against the Sellers Group, except in cases of **Fraud**[228](index=228&type=chunk) - Purchaser covenants **not to amend, modify, or terminate the policy in a manner that is materially adverse to the Sellers Group**[228](index=228&type=chunk)[229](index=229&type=chunk) [Section 8.7: Directors and Officers](index=54&type=section&id=Section%208.7%20Directors%20and%20Officers) This section ensures **All existing rights to indemnification and exculpation** for D&O for **at least six years** post-closing and requires a **six-year "D&O Tail Policy"** - **All existing rights to indemnification and exculpation** for the Company Group's directors and officers will **survive the Closing for at least six years**[231](index=231&type=chunk) - Prior to Closing, the Company Group must obtain and pay for a **six-year "D&O Tail Policy"** to cover claims arising from pre-closing events[235](index=235&type=chunk) [Section 8.13: Board Representation at Purchaser Parent](index=58&type=section&id=Section%208.13%20Board%20Representation%20at%20Purchaser%20Parent) This section grants Sellers the right to **appoint two designees to the Purchaser Parent's Board of Directors** at Closing - At Closing, Sellers will **appoint two designees to the Purchaser Parent's Board of Directors**[249](index=249&type=chunk) - These designees will be **nominated for re-election at the 2026 annual stockholders' meeting**[250](index=250&type=chunk) [ARTICLE 9: CONDITIONS TO CLOSING](index=60&type=section&id=ARTICLE%209%20CONDITIONS%20TO%20CLOSING) This article specifies the conditions that must be satisfied or waived by each party for the transaction to close [Section 9.1: Sellers' Conditions to Closing](index=60&type=section&id=Section%209.1%20Sellers'%20Conditions%20to%20Closing) This section lists Sellers' closing conditions, including **Purchaser's representations and warranties must be true and correct**, covenants, and **20% of the Unadjusted Purchase Price** impairment thresholds - **Purchaser's representations and warranties must be true and correct**[260](index=260&type=chunk) - **Purchaser must have performed its covenants in all material respects**[260](index=260&type=chunk) - The **total value of impairments (Title/Environmental Defects and Casualty Losses) must not exceed 20% of the Unadjusted Purchase Price**[261](index=261&type=chunk) - **Purchaser Parent must have received shareholder consent for the transaction**[261](index=261&type=chunk) [Section 9.2: Purchaser's Conditions to Closing](index=62&type=section&id=Section%209.2%20Purchaser's%20Conditions%20to%20Closing) This section lists Purchaser's closing conditions, mirroring Sellers' regarding **Sellers' and Company's representations and warranties must be true and correct**, covenants, and **20% of the Unadjusted Purchase Price** impairment thresholds - **Sellers' and Company's representations and warranties must be true and correct**[263](index=263&type=chunk) - **Sellers must have performed their covenants in all material respects**[263](index=263&type=chunk) - The **total value of impairments (Title/Environmental Defects and Casualty Losses) must not exceed 20% of the Unadjusted Purchase Price**[263](index=263&type=chunk) [ARTICLE 10: CLOSING](index=63&type=section&id=ARTICLE%2010%20CLOSING) This article outlines the procedures, deliverables, and settlement process for the transaction's closing [Section 10.1: Time and Place of Closing](index=63&type=section&id=Section%2010.1%20Time%20and%20Place%20of%20Closing) This section sets the time and place for the electronic closing of the transaction, contingent on condition fulfillment - The Closing will take place on the **later of October 27, 2025, or two business days after all conditions in Article 9 are satisfied or waived**[267](index=267&type=chunk) [Section 10.2: Obligations of Sellers' Representative at Closing](index=63&type=section&id=Section%2010.2%20Obligations%20of%20Sellers'%20Representative%20at%20Closing) This section lists the documents and actions Sellers' Representative must deliver at Closing, including agreements and certificates - **Deliver executed Assignment Agreements and Registration Rights Agreement**[267](index=267&type=chunk)[268](index=268&type=chunk) - **Provide a certificate confirming that Sellers' representations are true and covenants have been performed**[267](index=267&type=chunk) - **Deliver written resignations of officers and directors listed in Schedule 10.2(e)**[267](index=267&type=chunk) [Section 10.3: Obligations of Purchaser at Closing](index=64&type=section&id=Section%2010.3%20Obligations%20of%20Purchaser%20at%20Closing) This section lists Purchaser's obligations at Closing, primarily **Deliver the Adjusted Purchase Price via issuance of the Purchaser Parent Common Stock to Sellers** and confirming conditions - **Deliver the Adjusted Purchase Price via issuance of the Purchaser Parent Common Stock to Sellers**[269](index=269&type=chunk) - **Provide evidence that the Company's Existing Secured Credit Facility has been paid off**[269](index=269&type=chunk) - **Deliver a certificate confirming that Purchaser's representations are true and covenants have been performed**[269](index=269&type=chunk) [Section 10.4: Settlement Statement](index=65&type=section&id=Section%2010.4%20Settlement%20Statement) This section describes the process for finalizing purchase price adjustments via a Settlement Statement and dispute resolution - **Sellers' Representative will prepare a draft Settlement Statement calculating the Adjusted Purchase Price five business days before Closing**[272](index=272&type=chunk) - **If there are disputes over the adjustments, they will be submitted to an Independent Accountant for a binding resolution**[273](index=273&type=chunk) [ARTICLE 11: TERMINATION](index=66&type=section&id=ARTICLE%2011%20TERMINATION) This article defines the conditions under which the agreement can be terminated and the consequences of such termination [Section 11.1: Termination](index=66&type=section&id=Section%2011.1%20Termination) This section outlines conditions for agreement termination, including **mutual written consent of the parties**, legal prohibition, **material, uncured breach by the other party**, or **Outside Date** - The agreement can be terminated by **mutual written consent of the parties**[278](index=278&type=chunk) - Either party can terminate if there is a **material, uncured breach by the other party**[278](index=278&type=chunk) - Any party can terminate if the Closing does not occur by the **Outside Date, which is 180 days after the Execution Date**[278](index=278&type=chunk) [Section 11.2: Effect of Termination](index=67&type=section&id=Section%2011.2%20Effect%20of%20Termination) This section details termination consequences, specifying **exclusive remedies** for breach and a **Termination Fee of $750,000** for lack of consent - Upon termination, the **agreement becomes void, except for certain specified surviving sections**[280](index=280&type=chunk) - In the event of a failure to close due to a breach, the **non-breaching party's exclusive remedies are to either seek specific performance or terminate the agreement**[281](index=281&type=chunk)[282](index=282&type=chunk) - If Sellers' Representative terminates because Purchaser Parent fails to get shareholder approval, **Sellers' sole remedy is to receive a Termination Fee of $750,000**[283](index=283&type=chunk)[491](index=491&type=chunk) [ARTICLE 12: INDEMNIFICATION](index=68&type=section&id=ARTICLE%2012%20INDEMNIFICATION) This article establishes the post-closing indemnification obligations and procedures for claims between the parties [Section 12.1: Indemnification](index=68&type=section&id=Section%2012.1%20Indemnification) This section establishes post-closing indemnification, with the **R&W Insurance Policy** as the primary remedy, except for **Fraud** - **Purchaser indemnifies Sellers for breaches of Purchaser's covenants and warranties**[287](index=287&type=chunk) - **Sellers indemnify Purchaser for breaches of Sellers' covenants**[288](index=288&type=chunk) - This article provides the **sole and exclusive remedy for the parties post-closing, except for claims of Fraud and rights under the R&W Insurance Policy**[288](index=288&type=chunk) [Section 12.2: Indemnification Actions](index=69&type=section&id=Section%2012.2%20Indemnification%20Actions) This section sets forth procedures for making and resolving indemnification claims, including **Claim Notice** and defense control - An indemnification claim is initiated by the Indemnified Person sending a **Claim Notice** to the Indemnifying Person[292](index=292&type=chunk) - For third-party claims, the **Indemnifying Person has the right to control the defense if it admits its obligation to indemnify**[294](index=294&type=chunk) [Section 12.3: Limitations on Actions](index=71&type=section&id=Section%2012.3%20Limitations%20on%20Actions) This section establishes survival periods for representations and covenants, limiting Purchaser's recourse post-closing - **Sellers' and Company's representations and warranties terminate at the Closing Date**; **Purchaser's recourse is through the R&W Insurance Policy**[299](index=299&type=chunk) - **Purchaser's representations and warranties survive for twelve months following the Closing Date**[299](index=299&type=chunk) - **Purchaser explicitly waives all rights and claims against Sellers relating to the subject matter of the agreement, except for Fraud and indemnification for covenant breaches**[301](index=301&type=chunk) [ARTICLE 13: TAX MATTERS](index=74&type=section&id=ARTICLE%2013%20TAX%20MATTERS) This article addresses tax filing responsibilities and the agreed-upon tax treatment of the transaction [Section 13.1: Tax Filings](index=74&type=section&id=Section%2013.1%20Tax%20Filings) This section designates **Sellers' Representative will prepare all Pass-Through Tax Returns for pre-closing periods that are filed after Closing** and allocates **Deal-Generated Deductions** - **Sellers' Representative will prepare all Pass-Through Tax Returns for pre-closing periods that are filed after Closing**[313](index=313&type=chunk) - **Deal-Generated Deductions are to be allocated to the Pre-Closing Tax Period to the extent permitted by law**[313](index=313&type=chunk) [Section 13.5: Tax Treatment](index=75&type=section&id=Section%2013.5%20Tax%20Treatment) The parties agree on the U.S. federal income tax treatment, consistent with **IRS Revenue Ruling 99-6, Situation 2** - The transaction will be treated in a manner consistent with **IRS Revenue Ruling 99-6, Situation 2**[317](index=317&type=chunk) - For Sellers, the **transaction is a taxable sale of their Company Interests**[317](index=317&type=chunk) - For Purchaser, the **transaction is a purchase of all of the Company's Assets**[317](index=317&type=chunk) [ARTICLE 14: MISCELLANEOUS](index=76&type=section&id=ARTICLE%2014%20MISCELLANEOUS) This article covers general legal provisions, including governing law, dispute resolution, and limitations on damages [Section 14.4: Governing Law; Jurisdiction](index=77&type=section&id=Section%2014.4%20Governing%20Law%3B%20Jurisdiction) This section establishes **Texas law**, grants exclusive jurisdiction to **Harris County, Texas** courts, and includes a **trial by jury** waiver - The agreement is governed by the laws of the **State of Texas**[325](index=325&type=chunk) - Exclusive jurisdiction for disputes is granted to the federal or state courts in **Harris County, Texas**[326](index=326&type=chunk) - All parties waive their right to a **trial by jury** for any disputes related to the agreement[328](index=328&type=chunk) [Section 14.11: Limitation on Damages](index=79&type=section&id=Section%2014.11%20Limitation%20on%20Damages) This section limits damages, excluding **consequential, special, indirect, punitive, or exemplary damages**, with waivers - **Parties are not entitled to consequential, special, indirect, punitive, or exemplary damages from each other in connection with this agreement**[336](index=336&type=chunk) [Section 14.16: Specific Performance](index=80&type=section&id=Section%2014.16%20Specific%20Performance) This section grants **specific performance** rights, but **Sellers explicitly waive any right to specific performance to compel the Purchaser to close the transaction** - Parties are entitled to seek **specific performance** and injunctive relief for breaches of the agreement, as **monetary damages are considered inadequate**[341](index=341&type=chunk) - **Sellers explicitly waive any right to specific performance to compel the Purchaser to close the transaction**[341](index=341&type=chunk) [Section 14.20: Sellers' Representative](index=82&type=section&id=Section%2014.20%20Sellers'%20Representative) This section appoints **Yorktown Energy Partners XI, L.P.** as Sellers' Representative with **full authority to act on behalf of all Sellers**, which is **irrevocable** - **Yorktown Energy Partners XI, L.P.** is appointed as the Sellers' Representative with **full authority to act on behalf of all Sellers**[347](index=347&type=chunk)[348](index=348&type=chunk) - The **Representative's authority is irrevocable** and includes negotiating claims, executing amendments, and giving/receiving notices[348](index=348&type=chunk)[351](index=351&type=chunk) - **Purchaser is entitled to rely on all actions taken by the Sellers' Representative as binding on all Sellers**[350](index=350&type=chunk) [Appendices, Annexes, Exhibits, and Schedules](index=6&type=section&id=Appendices%2C%20Annexes%2C%20Exhibits%2C%20and%20Schedules) This section describes the supplementary documents providing detailed information and forms for the agreement [Ancillary Documents](index=6&type=section&id=Ancillary%20Documents) The agreement is supplemented by appendices, annexes, exhibits, and schedules providing detailed information and forms - **Appendix A contains the definitions** for capitalized terms used throughout the agreement[7](index=7&type=chunk) - **Annex I provides a complete schedule of all entities and individuals defined as "Sellers"**[7](index=7&type=chunk) - **Exhibits provide forms for critical legal documents**, including the Assignment Agreement (Exhibit B), Lock-Up Agreement (Exhibit C), and Registration Rights Agreement (Exhibit D)[9](index=9&type=chunk) - **Numerous Schedules provide detailed disclosures qualifying the representations and warranties** made in Articles 5, 6, and 7[9](index=9&type=chunk)[10](index=10&type=chunk)