[Q2 2025 Earnings Release](index=1&type=section&id=TEAM%2C%20INC.%20REPORTS%20SECOND%20QUARTER%202025%20RESULTS) [Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) Team, Inc. reported strong Q2 2025 growth with **8.5% revenue increase to $248.0 million** and **12.4% Adjusted EBITDA rise to $24.5 million**, despite a net loss Q2 2025 Key Financial Metrics (in millions) | Metric | Q2 2025 | Q2 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $248.0 | $228.6 | +$19.4 | +8.5% | | Gross Margin | $68.1 | $63.6 | +$4.5 | +7.1% | | Net Loss | ($4.3) | ($2.8) | -$1.5 | -53.6% | | Adjusted EBITDA | $24.5 | $21.8 | +$2.7 | +12.4% | | Adjusted EBITDA Margin | 9.9% | 9.5% | +40 bps | N/A | - Adjusted Selling, General and Administrative (SG&A) expenses improved as a percentage of revenue, decreasing to **18.9% in Q2 2025** from **19.8% in Q2 2024**[5](index=5&type=chunk)[8](index=8&type=chunk) [Management Commentary and Business Outlook](index=1&type=section&id=Management%20Commentary%20and%20Business%20Outlook) Management is pleased with the transformation, noting strong IHT segment performance and a **$10 million annualized cost optimization program**, projecting continued top-line growth and **15% YoY Adjusted EBITDA growth** - A cost optimization program is expected to generate approximately **$10 million in annualized SG&A and other cost savings**, with about **$6 million** to be realized in the second half of 2025[4](index=4&type=chunk) - Dan Dolson has been appointed to lead the transformation program to accelerate revenue growth and margin improvement[6](index=6&type=chunk) - The company projects second-half top-line growth over the prior year for both segments and maintains its full-year guidance for at least **15% YoY growth in Adjusted EBITDA**[7](index=7&type=chunk) [Consolidated Financial Performance](index=2&type=section&id=Consolidated%20Financial%20Performance) Q2 2025 consolidated revenues grew **8.5% to $248.0 million**, driven by IHT and U.S. MS, with gross margin rate at **27.5%** and a net loss of **$4.3 million** - Q2 revenue growth was primarily driven by a **$17.2 million (15.2%) increase** in the Inspection and Heat Treating (IHT) segment[7](index=7&type=chunk) - Consolidated gross margin was **$68.1 million (27.5% of revenue)**, compared to **$63.6 million (27.8% of revenue)** in the prior year period[7](index=7&type=chunk) - SG&A expenses were **$56.0 million**, up from **$52.4 million** in Q2 2024 Adjusted SG&A was **$46.8 million**, up slightly from the prior year[8](index=8&type=chunk) - Net loss for Q2 2025 was **$4.3 million ($0.95 per share)**, compared to a net loss of **$2.8 million ($0.63 per share)** in Q2 2024[9](index=9&type=chunk) [Segment Performance](index=3&type=section&id=Segment%20Results) IHT segment showed strong Q2 and H1 2025 revenue and operating income growth, while MS segment saw modest Q2 revenue increase but H1 decline due to international weakness [Three Months Ended June 30, 2025](index=3&type=section&id=Segment%20Results%20Three%20Months%20Ended) Q2 2025 IHT revenue grew **15.2% to $130.4 million** with **26.7% operating income surge**, while MS revenue rose **1.9% to $117.6 million** but operating income declined **4.7%** Q2 2025 Segment Performance (in thousands) | Segment | Revenue | % Change YoY | Operating Income | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | IHT | $130,396 | 15.2% | $15,780 | 26.7% | | MS | $117,630 | 1.9% | $10,137 | (4.7)% | - IHT revenue growth was driven by a **$13.3 million (13.4%) increase** in the U.S. and a **$3.6 million increase** in Canada[12](index=12&type=chunk) - MS revenue performance was mixed, with a **$4.5 million (6.6%) increase** in U.S. turnaround activities offset by a **$2.3 million decrease** in Canada and other international locations[12](index=12&type=chunk) [Six Months Ended June 30, 2025](index=4&type=section&id=Segment%20Results%20Six%20Months%20Ended) H1 2025 IHT revenue grew **11.3% to $236.6 million** with **38.7% operating income growth**, while MS revenue declined **2.5% to $210.1 million** and operating income fell **38.7%** Six Months 2025 Segment Performance (in thousands) | Segment | Revenue | % Change YoY | Operating Income | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | IHT | $236,611 | 11.3% | $24,473 | 38.7% | | MS | $210,070 | (2.5)% | $9,026 | (38.7)% | - IHT's six-month revenue growth was led by a **$21.1 million (11.3%) increase** in the U.S. from turnaround, nested, callout, and laboratory services[15](index=15&type=chunk) - MS's six-month revenue decrease was due to short-term weakness in its international business, which offset a modest **$1.1 million revenue increase** in the U.S[15](index=15&type=chunk) [Balance Sheet and Liquidity](index=4&type=section&id=Balance%20Sheet%20and%20Liquidity) As of June 30, 2025, total liquidity was **$49.3 million**, with total debt increasing to **$370.2 million** due to refinancing and working capital needs, resulting in **$349.5 million** net debt - Total liquidity was **$49.3 million**, consisting of **$16.6 million in cash** (excluding restricted cash) and **$32.7 million available under credit facilities**[17](index=17&type=chunk) - Total debt was **$370.2 million** as of June 30, 2025, an increase from **$325.1 million** at the end of fiscal 2024[19](index=19&type=chunk) - The increase in debt is attributed to a refinancing in March 2025 and higher borrowings to fund seasonal working capital demands[19](index=19&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) Unaudited financial statements for Q2 and H1 2025 show increased revenues but wider net loss, higher total assets and long-term debt, and negative operating/investing cash flow [Consolidated Operating Results](index=7&type=section&id=SUMMARY%20OF%20CONSOLIDATED%20OPERATING%20RESULTS) H1 2025 revenues grew to **$446.7 million**, but a **$11.9 million loss on debt extinguishment** led to a net loss of **$34.0 million**, up from **$20.0 million** in H1 2024 Consolidated Operating Results (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Revenues | $446,681 | $428,218 | | Gross Margin | $115,355 | $112,285 | | Operating Income | $6,100 | $4,773 | | Loss on debt extinguishment | ($11,853) | $0 | | Net Loss | ($33,984) | ($19,958) | | Loss Per Share (Basic & Diluted) | ($7.56) | ($4.52) | [Consolidated Balance Sheet](index=8&type=section&id=SUMMARY%20CONSOLIDATED%20BALANCE%20SHEET%20INFORMATION) As of June 30, 2025, total assets were **$548.4 million**, long-term debt increased to **$366.4 million**, and shareholders' equity became a deficit of **$22.9 million** Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,709 | $35,545 | | Total assets | $548,361 | $528,365 | | Long-term debt and finance lease obligations | $366,381 | $318,626 | | Shareholders' equity (deficit) | ($22,924) | $1,738 | [Consolidated Cash Flow](index=9&type=section&id=SUMMARY%20CONSOLIDATED%20CASH%20FLOW%20INFORMATION) H1 2025 saw **$32.0 million** net cash used in operations, **$4.3 million** in investing, and **$21.2 million** net cash provided by financing activities Consolidated Cash Flow (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($32,005) | ($4,466) | | Net cash used in investing activities | ($4,316) | ($5,620) | | Net cash provided by (used in) financing activities | $21,161 | ($2,500) | | Net change in cash and cash equivalents | ($14,836) | ($12,966) | [Non-GAAP Financial Measures and Reconciliations](index=11&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP measures, including Adjusted Net Loss and Adjusted EBITDA, provide insight into core operations, with Q2 2025 Consolidated Adjusted EBITDA at **$24.5 million** and Adjusted Net Loss at **$0.9 million** - Management uses non-GAAP measures like Adjusted EBITDA to evaluate performance, benchmark between periods, and analyze operating results excluding items not indicative of core operations[33](index=33&type=chunk)[35](index=35&type=chunk) Reconciliation of Net Loss to Consolidated Adjusted EBITDA (Q2, in thousands) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net loss | ($4,266) | ($2,763) | | Adjustments (Taxes, Interest, D&A, etc.) | $28,737 | $24,576 | | **Consolidated Adjusted EBITDA** | **$24,471** | **$21,813** | Reconciliation of Net Loss to Adjusted Net Loss (Q2, in thousands) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net loss | ($4,266) | ($2,763) | | Adjustments (Professional fees, legal, severance, etc.) | $3,385 | $756 | | **Adjusted Net Loss** | **($881)** | **($2,007)** |

Inclusive of $0.2 million, or $0.01 per weighted-average common share, of capital gains-based incentive fees reversed during the three months ended June 30, 2025 and $2.1 million, or $0.06 per weighted-average common share, of capital gains-based incentive fees accrued during the three months ended March 31, 2025, respectively. These fees were accrued in accordance with United States generally accepted accounting principles ("U.S. GAAP"), where such amounts were not contractually due under the terms of the ...

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 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: 001-00100 TherapeuticsMD, Inc. (Exact name of Registrant as specified in its Charter) Nevada 87-0233535 (State or other jurisdiction ...

PART I—FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for TEAM, Inc. as of June 30, 2025, and for the three and six months ended June 30, 2025 and 2024 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets reached **$548.4 million**, liabilities **$571.3 million**, leading to a **$22.9 million** shareholders' deficit by June 30, 2025 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$548,361** | **$528,365** | | Total current assets | $326,496 | $305,103 | | **Total Liabilities** | **$571,285** | **$526,627** | | Long-term debt and finance lease obligations | $366,381 | $318,626 | | **Total shareholders' equity (deficit)** | **($22,924)** | **$1,738** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenues grew to **$248.0 million**, net loss widened to **$4.3 million**; six-month net loss reached **$34.0 million** due to debt extinguishment Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenues | $248,026 | $228,618 | | Gross Margin | $68,089 | $63,554 | | Operating Income | $12,103 | $11,159 | | Net Loss | ($4,266) | ($2,763) | | Loss per Share (Basic & Diluted) | ($0.95) | ($0.63) | Six Months Ended June 30 Performance (in thousands, except per share data) | Metric | 6M 2025 | 6M 2024 | | :--- | :--- | :--- | | Revenues | $446,681 | $428,218 | | Operating Income | $6,100 | $4,773 | | Loss on debt extinguishment | ($11,853) | $0 | | Net Loss | ($33,984) | ($19,958) | | Loss per Share (Basic & Diluted) | ($7.56) | ($4.52) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to **$32.0 million** for six months, resulting in a **$14.8 million** overall cash decrease Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($32,005) | ($4,466) | | Net cash used in investing activities | ($4,316) | ($5,620) | | Net cash provided by (used) in financing activities | $21,161 | ($2,500) | | **Net decrease in cash and cash equivalents** | **($14,836)** | **($12,966)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed explanations of financial statements, covering business segments, debt refinancing, and significant legal contingencies - The company operates in two segments: **Inspection and Heat Treating (IHT)** and **Mechanical Services (MS)**, providing specialized industrial services to heavy industries[24](index=24&type=chunk) - In March 2025, the company undertook significant debt refinancing, entering into a new **First Lien Term Loan Agreement** and a **Second Amended and Restated Second Lien Term Loan Credit Agreement**, using the proceeds to repay several existing loans[55](index=55&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - The **Kelli Most litigation case** was re-filed in U.S. District Court in March 2025. The company has accrued a liability of **$39.0 million**, which it expects to be fully covered by insurance[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and six-month financial performance, including segment results, liquidity, and non-GAAP reconciliations [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q2 2025 revenues grew **8.5%** to **$248.0 million** driven by IHT; six-month revenues increased **4.3%** to **$446.7 million**, but net loss widened to **$34.0 million** Q2 2025 vs Q2 2024 Revenue by Segment (in thousands) | Segment | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | IHT | $130,396 | $113,234 | $17,162 | 15.2% | | MS | $117,630 | $115,384 | $2,246 | 1.9% | | **Total** | **$248,026** | **$228,618** | **$19,408** | **8.5%** | Six Months 2025 vs 2024 Revenue by Segment (in thousands) | Segment | 6M 2025 | 6M 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | IHT | $236,611 | $212,682 | $23,929 | 11.3% | | MS | $210,070 | $215,536 | ($5,466) | (2.5)% | | **Total** | **$446,681** | **$428,218** | **$18,463** | **4.3%** | - A loss on debt extinguishment of **$11.9 million** was recognized in the first six months of 2025 due to debt refinancing transactions[121](index=121&type=chunk) [Non-GAAP Financial Measures and Reconciliations](index=29&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) Consolidated Adjusted EBITDA for Q2 2025 was **$24.5 million**, and **$29.8 million** for the six-month period, after various adjustments Reconciliation of Net Loss to Consolidated Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | ($4,266) | ($2,763) | ($33,984) | ($19,958) | | Adjustments (Taxes, Interest, D&A, Non-core items, etc.) | $28,737 | $24,576 | $63,765 | $48,278 | | **Consolidated Adjusted EBITDA** | **$24,471** | **$21,813** | **$29,781** | **$28,320** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, **$32.7 million** available borrowing capacity and debt covenant compliance were maintained, with cash used in operations increasing - As of June 30, 2025, the company had **$32.7 million** of available borrowing capacity, consisting of **$22.7 million** under Revolving Credit Loans and **$10.0 million** under the Second Lien Delayed Draw Term Loans[140](index=140&type=chunk) - The company was in compliance with its debt covenants as of June 30, 2025[141](index=141&type=chunk) - Net cash used in operating activities increased by **$27.5 million** to **$32.0 million** for the first six months of 2025 compared to the same period in 2024, primarily due to higher negative working capital impacts[148](index=148&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, TEAM, Inc. is not required to provide market risk disclosures - As a smaller reporting company, TEAM, Inc. is not required to provide quantitative and qualitative disclosures about market risk[156](index=156&type=chunk) [Controls and Procedures](index=34&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[157](index=157&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[158](index=158&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=35&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to Note 13 of the financial statements for details on ongoing legal proceedings - For details on legal proceedings, the report directs readers to Note 13 - Commitments and Contingencies in the financial statements[160](index=160&type=chunk) [Risk Factors](index=35&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported since its Annual Report on Form 10-K - No material changes in risk factors were reported since the company's Annual Report on Form 10-K[161](index=161&type=chunk) [Other Information](index=35&type=section&id=ITEM%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025[162](index=162&type=chunk) [Exhibits](index=36&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certificates and Sarbanes-Oxley Act certifications

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for ALT5 Sigma Corporation for the quarterly period ended June 28, 2025, including balance sheets, statements of operations, cash flows, and stockholders' equity, along with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and equity, as of June 28, 2025, and December 28, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2025 | December 28, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$94,686** | **$82,436** | | Total current assets | $33,748 | $35,001 | | Goodwill | $20,131 | $11,714 | | Intangible assets, net | $24,813 | $18,674 | | **Total Liabilities** | **$61,579** | **$53,769** | | Digital assets payable | $23,579 | $30,918 | | Notes payable (Current & Noncurrent) | $21,551 | $11,570 | | **Total Stockholders' Equity** | **$29,251** | **$24,811** | - Total assets increased to **$94.7 million** from **$82.4 million**, primarily driven by a significant rise in Goodwill and Intangible Assets resulting from recent acquisitions. Total liabilities also increased, mainly due to higher Notes Payable[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Presents the company's financial performance, including revenues, expenses, and net loss, for the quarterly and year-to-date periods ended June 28, 2025 Statement of Operations Summary (in thousands, except per-share amounts) | Metric | Q2 2025 (13 weeks) | Q2 2024 (13 weeks) | 26 Weeks 2025 | 26 Weeks 2024 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$6,378** | **$2,169** | **$11,892** | **$2,169** | | Gross Profit | $2,775 | $1,098 | $5,366 | $1,098 | | Operating Loss | $(2,095) | $(2,434) | $(3,725) | $(3,584) | | Net (Loss) Income from Continuing Operations | $(5,502) | $970 | $(7,823) | $(653) | | Net Loss from Discontinued Operations | $(3,613) | $(381) | $(4,153) | $(902) | | **Net (Loss) Income** | **$(9,115)** | **$589** | **$(11,976)** | **$(1,555)** | | Net (Loss) Income Per Share, Basic | $(0.49) | $0.07 | $(0.70) | $(0.18) | - Revenues for the 13 and 26 weeks ended June 28, 2025, increased significantly year-over-year, driven by acquisitions in the Fintech segment. However, the company reported a substantial net loss of **$9.1 million** for Q2 2025, compared to a net income of **$0.6 million** in Q2 2024, largely due to a realized loss on exchange transactions and losses from discontinued operations[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Details the company's cash inflows and outflows from operating, investing, and financing activities for the 26-week periods ended June 28, 2025 Cash Flow Summary (in thousands) | Cash Flow Activity | 26 Weeks Ended June 28, 2025 | 26 Weeks Ended June 29, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,727) | $(464) | | Net cash provided by investing activities | $122 | $5,853 | | Net cash provided by financing activities | $3,703 | $1,177 | | **Increase in Cash and Cash Equivalents** | **$2,383** | **$5,759** | | Cash and Cash Equivalents, end of period | $9,560 | $5,764 | - For the 26 weeks ended June 28, 2025, the company used **$6.7 million** in cash from operations. Cash from investing activities was minimal at **$0.1 million** from the Mswipe acquisition, a sharp decrease from the prior year's **$5.9 million** which included cash from the ALT-5 acquisition. Financing activities provided **$3.7 million**, primarily from the issuance of notes payable[15](index=15&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of the company's accounting policies, recent acquisitions, segment reporting, and other significant financial disclosures - The company changed its name from 'JanOne Inc.' to 'ALT5 Sigma Corporation' and its ticker from 'JAN' to 'ALTS' effective July 15, 2024[20](index=20&type=chunk) - The company operates in two segments: Fintech and Biotechnology. The Biotechnology segment is now presented as discontinued operations due to a planned spinoff of its subsidiary, Alyea Therapeutics Corporation[21](index=21&type=chunk) - The Fintech segment, which provides blockchain-powered technologies, is the company's core continuing operation. It includes platforms like 'ALT5 Pay' and 'ALT5 Prime' and was expanded through the acquisitions of ALT5 Subsidiary and Mswipe[22](index=22&type=chunk)[23](index=23&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance for the 13 and 26-week periods ending June 28, 2025, attributing significant revenue increases to acquisitions and covering segment results, Adjusted EBITDA reconciliation, and liquidity Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 (13 weeks) | Q2 2024 (13 weeks) | | :--- | :--- | :--- | | Revenue | $6,378 | $2,169 | | Gross Profit | $2,775 | $1,098 | | Net (Loss) Income | $(9,115) | $589 | | Total Adjusted EBITDA | $(1,291) | $(917) | - Revenue for Q2 2025 increased by approximately **$4.2 million** compared to Q2 2024, driven entirely by the acquisitions of ALT5 Subsidiary (May 2024) and Mswipe (May 2025) in the Fintech segment[178](index=178&type=chunk) - The company's cash on hand was **$9.6 million** as of June 28, 2025. Management states that the ability to continue as a going concern depends on future capital raises to fund operations and the development of its biotechnology asset, JAN 123[205](index=205&type=chunk)[206](index=206&type=chunk) Adjusted EBITDA Reconciliation Summary (in thousands) | Period | Net (Loss) Income | Adjusted EBITDA | | :--- | :--- | :--- | | **13 Weeks Ended** | | | | June 28, 2025 | $(9,115) | $(1,291) | | June 29, 2024 | $589 | $(917) | | **26 Weeks Ended** | | | | June 28, 2025 | $(11,976) | $(2,331) | | June 29, 2024 | $(1,555) | $(1,740) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that it does not believe there is any significant risk related to interest rate fluctuations on its fixed-rate debt and confirms no holdings of derivative financial instruments or securities for trading or speculative purposes - The company does not believe it has significant risk from interest rate fluctuations on its debt[211](index=211&type=chunk) - The company does not hold any derivative financial instruments or engage in speculative securities trading[212](index=212&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of June 28, 2025, the company's disclosure controls and procedures were not effective due to identified material weaknesses, specifically insufficient written documentation and resources for segregation of duties - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were not effective as of June 28, 2025[214](index=214&type=chunk) - Management identified two material weaknesses in internal control: (1) **Insufficient written documentation of internal control policies and procedures**, and (2) **Insufficient resources to maintain adequate segregation of duties**[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 15 of the financial statements for information on legal proceedings, including a settled SEC complaint and ongoing cases - Information regarding legal proceedings is detailed in Note 15 of the Consolidated Financial Statements[224](index=224&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, ALT5 Sigma is not required to provide this information but has chosen to supplement its previous disclosures from the 2024 Form 10-K, particularly in light of the SEC Complaint - The company is a smaller reporting company and is not required to provide risk factors, but has chosen to supplement its previous disclosures from the 2024 10-K[225](index=225&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported for the period[226](index=226&type=chunk)

PART I. FINANCIAL INFORMATION Presents Stratus Properties Inc.'s unaudited consolidated financial statements and management's discussion and analysis for periods ended June 30, 2025 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Stratus Properties Inc.'s unaudited consolidated financial statements and notes for periods ended June 30, 2025 [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This section presents the company's financial position, including assets, liabilities, and equity, as of specific dates - Total Assets increased by **$42.2 million (7.9%)** from **$532.6 million** at December 31, 2024, to **$574.8 million** at June 30, 2025[9](index=9&type=chunk) - Cash and cash equivalents increased significantly by **$39.2 million (194.2%)** from **$20.2 million** at December 31, 2024, to **$59.4 million** at June 30, 2025[9](index=9&type=chunk) - Real estate held for investment, net, increased by **$91.9 million (67.4%)** from **$136.3 million** at December 31, 2024, to **$228.1 million** at June 30, 2025, while real estate under development decreased by **$98.2 million (35.8%)**[9](index=9&type=chunk) - Total Equity increased by **$40.8 million (13.7%)** from **$297.6 million** at December 31, 2024, to **$338.3 million** at June 30, 2025, primarily driven by a **$43.5 million** increase in noncontrolling interests[9](index=9&type=chunk) Key Balance Sheet Figures (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :-------------- | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $59,386 | $20,178 | $39,208 | 194.3% | | Real estate under development | $175,916 | $274,105 | $(98,189) | -35.8% | | Real estate held for investment, net | $228,112 | $136,252 | $91,860 | 67.4% | | Total assets | $574,821 | $532,606 | $42,215 | 7.9% | | Debt | $199,434 | $194,853 | $4,581 | 2.4% | | Total liabilities | $236,497 | $235,039 | $1,458 | 0.6% | | Total stockholders' equity | $191,908 | $194,705 | $(2,797) | -1.4% | | Noncontrolling interests in subsidiaries | $146,416 | $102,862 | $43,554 | 42.3% | | Total equity | $338,324 | $297,567 | $40,757 | 13.7% | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) This section details the company's financial performance, including revenues, expenses, and net income or loss, for the reported periods - Total Revenues for the three months ended June 30, 2025, increased by **$3.1 million (36.7%)** to **$11.6 million**, while for the six months ended June 30, 2025, they decreased by **$18.4 million (52.6%)** to **$16.6 million**[10](index=10&type=chunk) - Operating loss improved from **$2.9 million** in Q2 2024 to **$0.8 million** in Q2 2025, but for the six months, it declined from an income of **$0.8 million** in 2024 to a loss of **$4.4 million** in 2025[10](index=10&type=chunk) - Net income attributable to common stockholders swung from a loss of **$1.7 million ($0.21** per diluted share) in Q2 2024 to an income of **$0.3 million ($0.03** per diluted share) in Q2 2025[10](index=10&type=chunk) - For the six months ended June 30, 2025, net loss attributable to common stockholders was **$2.6 million ($0.32** per diluted share), compared to a net income of **$2.8 million ($0.35** per diluted share) in the prior year[10](index=10&type=chunk) - A **$5.0 million** gain on the sale of assets was recognized in Q2 2025, contributing to the improved operating results for the quarter[10](index=10&type=chunk) Key Income Statement Figures (in Thousands, Except Per Share Amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Real estate operations revenue | $6,798 | $3,629 | $6,823 | $25,752 | | Leasing operations revenue | $4,807 | $4,861 | $9,825 | $9,245 | | Total revenues | $11,605 | $8,490 | $16,648 | $34,997 | | Total cost of sales | $13,807 | $7,568 | $18,594 | $25,925 | | General and administrative expenses | $3,557 | $3,842 | $7,608 | $8,307 | | Gain on sale of assets | $(5,000) | — | $(5,200) | — | | Operating (loss) income | $(759) | $(2,920) | $(4,354) | $765 | | Net (loss) income and total comprehensive (loss) income | $(2,295) | $(2,778) | $(6,052) | $919 | | Net income (loss) attributable to common stockholders | $260 | $(1,725) | $(2,615) | $2,827 | | Net income (loss) per share (basic and diluted) | $0.03 | $(0.21) | $(0.32) | $0.35 | [Consolidated Statements of Cash Flows (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the reported periods - Net cash used in operating activities increased significantly to **$15.2 million** for the first six months of 2025, compared to **$1.7 million** used in the same period of 2024, primarily due to higher purchases and development of real estate properties[13](index=13&type=chunk)[159](index=159&type=chunk) - Net cash provided by investing activities was **$5.8 million** for the first six months of 2025, a substantial improvement from **$16.5 million** used in 2024, driven by **$13.0 million** in proceeds from asset sales and **$0.4 million** in MUD reimbursements[13](index=13&type=chunk)[160](index=160&type=chunk) - Net cash provided by financing activities surged to **$48.6 million** for the first six months of 2025, compared to **$0.2 million** used in 2024, largely due to a **$47.8 million** noncontrolling interest contribution[13](index=13&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) - The net increase in cash, cash equivalents, and restricted cash was **$39.2 million** in 2025, resulting in an ending balance of **$60.4 million** at June 30, 2025[13](index=13&type=chunk) Key Cash Flow Figures (in Thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Net (loss) income | $(6,052) | $919 | $(6,971) | -758.5% | | Purchases and development of real estate properties | $(14,397) | $(16,317) | $1,920 | -11.8% | | Net cash used in operating activities | $(15,179) | $(1,716) | $(13,463) | 784.6% | | Capital expenditures | $(7,161) | $(16,142) | $8,981 | -55.6% | | Proceeds from sale of assets, net of fees | $12,979 | — | $12,979 | N/A | | Net cash provided by (used in) investing activities | $5,811 | $(16,542) | $22,353 | -135.1% | | Borrowings from project loans | $59,886 | $21,754 | $38,132 | 175.3% | | Noncontrolling interest contributions | $47,847 | — | $47,847 | N/A | | Net cash provided by (used in) financing activities | $48,597 | $(213) | $48,810 | -22915.5% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $39,229 | $(18,471) | $57,700 | -312.4% | | Cash, cash equivalents and restricted cash at end of period | $60,383 | $13,961 | $46,422 | 332.5% | [Consolidated Statements of Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Equity%20(Unaudited)) This section presents changes in the company's equity, including common stock, retained earnings, and noncontrolling interests, for the reported periods - Total Equity increased by **$40.8 million (13.7%)** from **$297.6 million** at December 31, 2024, to **$338.3 million** at June 30, 2025, primarily due to a significant noncontrolling interest contribution[15](index=15&type=chunk) - Noncontrolling Interests in Subsidiaries increased by **$43.5 million (42.3%)** to **$146.4 million** at June 30, 2025, largely driven by a **$47.8 million** contribution in Q2 2025[15](index=15&type=chunk) - Retained Earnings decreased by **$2.6 million (9.1%)** to **$26.0 million** at June 30, 2025, reflecting total comprehensive losses[15](index=15&type=chunk) - The company repurchased **$0.5 million** of common stock in the first six months of 2025[15](index=15&type=chunk) Key Equity Figures (in Thousands) | Metric | December 31, 2024 | June 30, 2025 | Change (Absolute) | Change (%) | | :------------------------------------ | :---------------- | :-------------- | :---------------- | :--------- | | Common Stock (At Par Value) | $97 | $98 | $1 | 1.0% | | Capital in Excess of Par Value | $200,972 | $201,651 | $679 | 0.3% | | Retained Earnings | $28,601 | $25,986 | $(2,615) | -9.1% | | Common Stock Held in Treasury (Cost) | $(34,965) | $(35,827) | $(862) | 2.5% | | Total Stockholders' Equity | $194,705 | $191,908 | $(2,797) | -1.4% | | Noncontrolling Interests in Subsidiaries | $102,862 | $146,416 | $43,554 | 42.3% | | Total Equity | $297,567 | $338,324 | $40,757 | 13.7% | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the consolidated financial statements [1. GENERAL](index=8&type=section&id=1.%20GENERAL) This note provides general information about the company and its significant accounting policies - Stratus' President and CEO's son was employed by the company, receiving standard benefits and incentive awards. He resigned in September 2024, forfeiting outstanding Profit Participation Incentive Plan (PPIP) awards[21](index=21&type=chunk) [2. EARNINGS PER SHARE](index=8&type=section&id=2.%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share for the reported periods - Basic and Diluted EPS increased to **$0.03** in Q2 2025 from **$(0.21)** in Q2 2024[22](index=22&type=chunk) - Basic and Diluted EPS decreased to **$(0.32)** for the first six months of 2025 from **$0.35** in the same period of 2024[22](index=22&type=chunk) - Weighted-average shares outstanding (basic) increased slightly from **8,072 thousand** in Q2 2024 to **8,082 thousand** in Q2 2025[22](index=22&type=chunk) [3. LIMITED PARTNERSHIPS](index=9&type=section&id=3.%20LIMITED%20PARTNERSHIPS) This note describes the company's interests in and transactions with various limited partnerships - Holden Hills Phase 2, L.P. was formed in Q2 2025 for a **570-acre** mixed-use development. Stratus contributed land valued at **$95.7 million**, and an unaffiliated equity investor contributed **$47.8 million** cash, which was then distributed to Stratus. Stratus holds a **50%** equity interest and consolidates the partnership[24](index=24&type=chunk) - The Holden Hills Phase 2 partnership is establishing a separate revolving credit facility for future operating costs and to reimburse Stratus for initial project costs[28](index=28&type=chunk) - Stratus made a **$1.5 million** operating loan to Stratus Block 150, L.P. in Q1 2025, bringing the total outstanding to **$7.2 million** as of June 30, 2025[30](index=30&type=chunk) - Stratus and the Class B limited partner in The Saint June partnership have made operating loans totaling **$962 thousand** and **$493 thousand**, respectively, as of June 30, 2025, to support construction loan interest payments[31](index=31&type=chunk) Stratus' Indirect Equity Interests in Limited Partnerships | Partnership | Indirect Equity Interest | | :-------------------------- | :----------------------- | | Holden Hills, L.P. | 50.00 % | | Holden Hills Phase 2, L.P. | 50.00 % | | Stratus Block 150, L.P. | 31.00 % | | Stratus Kingwood Place, L.P. | 60.00 % | | The Saint George Apartments, L.P. | 10.00 % | | The Saint June, L.P. | 34.13 % | Consolidated Partnership Assets and Liabilities (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Total assets | $364,825 | $276,756 | | Total liabilities | $158,529 | $151,433 | | Net assets | $206,296 | $125,323 | [4. ASSET SALES](index=11&type=section&id=4.%20ASSET%20SALES) This note provides details on significant asset sales completed during the reporting periods - Stratus completed the sale of the West Killeen Market retail project in Q2 2025 for **$13.3 million**, generating approximately **$7.8 million** in pre-tax net cash proceeds and a **$5.0 million** pre-tax gain[37](index=37&type=chunk) - Two Amarra Villas homes were sold in Q2 2025 for a total of **$6.8 million**, leading to the repayment and termination of the **$1.7 million** Amarra Villas credit facility[38](index=38&type=chunk) - A **$0.2 million** portion of the previously deferred gain related to The Oaks at Lakeway was recognized in Q1 2025, with **$1.3 million** remaining deferred at June 30, 2025[36](index=36&type=chunk) - In Q1 2024, Stratus sold **47 acres** of undeveloped land at Magnolia Place for **$14.5 million**, which included the repayment of an **$8.8 million** construction loan[39](index=39&type=chunk) [5. FAIR VALUE MEASUREMENTS](index=12&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENTS) This note explains the fair value measurements of financial instruments and their classification within the fair value hierarchy - Stratus Kingwood Place, L.P. and College Station 1892 Properties, L.L.C. entered into interest rate cap agreements in November 2024 and March 2025, respectively, to manage variable interest rate risk[42](index=42&type=chunk) - The fair value of Stratus' debt approximates its carrying value due to variable interest rates and is classified within Level 2 of the fair value hierarchy[44](index=44&type=chunk) Fair Value of Interest Rate Caps (in Thousands) | Metric | June 30, 2025 (Carrying Value) | June 30, 2025 (Fair Value) | December 31, 2024 (Carrying Value) | December 31, 2024 (Fair Value) | | :----------------- | :------------------------------- | :----------------------- | :------------------------------- | :----------------------- | | Interest rate caps | $1 | $1 | $19 | $19 | [6. DEBT AND EQUITY](index=13&type=section&id=6.%20DEBT%20AND%20EQUITY) This note provides detailed information on the company's debt obligations and equity structure, including recent changes and financing arrangements - Total debt increased to **$199.4 million** at June 30, 2025, from **$194.9 million** at December 31, 2024[45](index=45&type=chunk) - The Comerica Bank revolving credit facility's maturity was extended to March 27, 2027, and the interest rate was lowered in March 2025. Its borrowing base was reduced by **$24.8 million** in June 2025[46](index=46&type=chunk)[48](index=48&type=chunk) - The Lantana Place construction loan was refinanced in January 2025 with a **$29.8 million**, four-year term loan, generating **$3.0 million** in net cash proceeds[51](index=51&type=chunk) - The Jones Crossing loan was refinanced in March 2025 with a **$24.0 million**, three-year term loan, generating **$1.2 million** in net cash proceeds[52](index=52&type=chunk) - The Annie B land loan's maturity was extended to September 1, 2027, in July 2025, with new monthly principal payments[53](index=53&type=chunk) - The Amarra Villas credit facility was fully repaid and terminated in June 2025, and the West Killeen Market construction loan was repaid in May 2025[54](index=54&type=chunk)[55](index=55&type=chunk) - The share repurchase program was increased from **$5.0 million** to **$25.0 million** in June 2025. As of August 8, 2025, **$3.0 million** has been repurchased, with **$22.0 million** remaining available[60](index=60&type=chunk) Debt Components (in Thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Kingwood Place loan | $32,502 | $32,408 | | Lantana Place loan | $29,425 | $25,509 | | Jones Crossing loan | $23,588 | $22,428 | | The Annie B land loan | $11,962 | $12,568 | | The Saint George (Construction) | $51,502 | $47,741 | | The Saint June (Construction) | $31,925 | $32,109 | | Holden Hills Phase 1 (Construction) | $18,530 | $15,265 | | West Killeen Market (Construction) | — | $5,194 | | Amarra Villas credit facility | — | $1,631 | | **Total debt** | **$199,434** | **$194,853** | [7. PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN](index=15&type=section&id=7.%20PROFIT%20PARTICIPATION%20INCENTIVE%20PLAN%20AND%20LONG-TERM%20INCENTIVE%20PLAN) This note describes the company's incentive compensation plans and related accrued liabilities - The accrued liability for the PPIP and LTIP totaled **$2.0 million** at June 30, 2025, up from **$1.9 million** at December 31, 2024[64](index=64&type=chunk) - Outstanding awards under PPIP include Amarra Villas, Jones Crossing – Retail, Magnolia Place, and The Saint June, while The Saint George is under LTIP[64](index=64&type=chunk) PPIP/LTIP Costs (in Thousands) | 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 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Charged to general and administrative expense | $30 | $76 | $98 | $159 | | Capitalized to project development costs | $8 | $2 | $16 | $113 | | **Total PPIP/LTIP costs** | **$38** | **$78** | **$114** | **$272** | [8. INCOME TAXES](index=15&type=section&id=8.%20INCOME%20TAXES) This note details the company's income tax provisions, deferred tax assets, and effective tax rates - Stratus maintains a full valuation allowance against its U.S. Federal net deferred tax assets as of June 30, 2025, and December 31, 2024[66](index=66&type=chunk) - A deferred tax asset of **$153 thousand** is recorded for state income taxes at both periods[66](index=66&type=chunk) - The consolidated effective income tax rate was **(9)%** for the first six months of 2025, compared to **14%** for the same period in 2024, primarily due to state income taxes, noncontrolling interests, the valuation allowance, the Holden Hills Phase 2 transaction, and executive compensation limitations[69](index=69&type=chunk) [9. BUSINESS SEGMENTS](index=16&type=section&id=9.%20BUSINESS%20SEGMENTS) This note presents financial information by the company's reportable operating segments: Real Estate Operations and Leasing Operations - Stratus operates in two reportable segments: Real Estate Operations and Leasing Operations[70](index=70&type=chunk) - Real Estate Operations focuses on entitlement, development, and sale of multi-family and single-family residential and residential-centric mixed-use properties[70](index=70&type=chunk)[101](index=101&type=chunk) - Leasing Operations comprises real estate assets held for investment that are leased or available for lease, including The Saint George (completed Q2 2025), The Saint June, Kingwood Place, Lantana Place retail, and Jones Crossing retail[72](index=72&type=chunk)[102](index=102&type=chunk) Segment Profit (Loss) (Three Months Ended June 30, 2025, in Thousands) | Segment | Revenue | Segment (Loss) Profit | | :-------------------- | :------ | :-------------------- | | Real Estate Operations | $6,798 | $(3,536) | | Leasing Operations | $4,807 | $6,334 | | **Total** | **$11,605** | **$2,798** | Segment Profit (Loss) (Six Months Ended June 30, 2025, in Thousands) | Segment | Revenue | Segment (Loss) Profit | | :-------------------- | :------ | :-------------------- | | Real Estate Operations | $6,823 | $(5,038) | | Leasing Operations | $9,825 | $8,292 | | **Total** | **$16,648** | **$3,254** | Total Assets by Segment (in Thousands) | Segment | June 30, 2025 | June 30, 2024 | | :-------------------- | :-------------- | :-------------- | | Real Estate Operations | $271,985 | $342,089 | | Leasing Operations | $246,214 | $159,314 | | Corporate and other | $56,622 | $12,613 | | **Total assets** | **$574,821** | **$514,016** | [10. SUBSEQUENT EVENTS](index=21&type=section&id=10.%20SUBSEQUENT%20EVENTS) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - The One Big Beautiful Bill Act (OBBB) was enacted after June 30, 2025, extending certain tax provisions and reinstating immediate expensing. Stratus is evaluating its impact but does not expect a material effect on its financial statements[81](index=81&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of Stratus Properties Inc.'s financial condition, operations, and cash flows for periods ended June 30, 2025 [OVERVIEW](index=22&type=section&id=OVERVIEW) This section provides a general description of Stratus Properties Inc.'s business, development portfolio, and primary revenue sources - Stratus is a residential and retail-focused real estate company primarily engaged in entitlement, development, management, leasing, and sale of properties in Austin, Texas, and other select Texas markets[84](index=84&type=chunk) - The development portfolio consists of approximately **1,500 acres** of commercial, multi-family, and single-family residential projects under development or held for future use[84](index=84&type=chunk) - Main revenue sources include sales of developed and undeveloped properties, lease of retail, mixed-use, and multi-family properties, and development and asset management fees[84](index=84&type=chunk) [BUSINESS STRATEGY](index=22&type=section&id=BUSINESS%20STRATEGY) This section outlines the company's core objectives, investment focus, capital allocation, and financing approach for property development - The primary business objective is to create stockholder value by methodically developing and enhancing properties, then selling or holding them for lease when market conditions are favorable[86](index=86&type=chunk) - Investment strategy focuses on pure residential and residential-centric mixed-use projects in Austin and other attractive Texas markets[86](index=86&type=chunk) - The Board may return capital to stockholders through special cash dividends or share repurchases, with a **$25.0 million** share repurchase program approved in June 2025[87](index=87&type=chunk) - Properties are developed using project-level debt and third-party equity capital through joint ventures, aiming for increased returns above relative equity interest upon achieving negotiated hurdles[88](index=88&type=chunk) - Anticipates making future operating loans to The Annie B totaling up to **$2.8 million** and a capital contribution to The Saint George of **$430 thousand** over the next **12 months**[91](index=91&type=chunk) - As of June 30, 2025, Stratus had **$59.4 million** in consolidated cash and **$17.7 million** available under its revolving credit facility[92](index=92&type=chunk) - Despite difficult real estate conditions with elevated costs, interest rates generally declined in late 2024 and early 2025, enabling the refinancing or amendment of several project loans[93](index=93&type=chunk)[94](index=94&type=chunk) - During the first six months of 2025, Stratus received a **$47.8 million** cash distribution from the Holden Hills Phase 2 partnership, sold West Killeen Market for **$13.3 million**, and two Amarra Villas homes for **$6.8 million**[96](index=96&type=chunk)[97](index=97&type=chunk) [OVERVIEW OF FINANCIAL RESULTS](index=24&type=section&id=OVERVIEW%20OF%20FINANCIAL%20RESULTS) This section summarizes the key financial performance indicators, including revenues, net income, and cash position, for the reported periods - Total revenues for Q2 2025 were **$11.6 million**, up from **$8.5 million** in Q2 2024, primarily due to increased Amarra Villas home sales[103](index=103&type=chunk) - Total revenues for the first six months of 2025 were **$16.6 million**, down from **$35.0 million** in the same period of 2024, mainly due to fewer Amarra Villas sales and no undeveloped land sales compared to 2024[103](index=103&type=chunk) - A **$5.0 million** pre-tax gain was recorded from the sale of West Killeen Market in Q2 2025[104](index=104&type=chunk) - Net income attributable to common stockholders for Q2 2025 was **$0.3 million ($0.03** diluted EPS), a significant improvement from a **$1.7 million** loss (**$0.21** diluted EPS) in Q2 2024[105](index=105&type=chunk) - For the first six months of 2025, net loss attributable to common stockholders was **$2.6 million ($0.32** diluted EPS), compared to a **$2.8 million** income (**$0.35** diluted EPS) in the prior year[105](index=105&type=chunk) - Cash and cash equivalents substantially increased in Q2 2025, primarily due to a **$47.8 million** distribution from the newly-formed Holden Hills Phase 2 partnership[106](index=106&type=chunk) [RECENT DEVELOPMENT ACTIVITIES](index=25&type=section&id=RECENT%20DEVELOPMENT%20ACTIVITIES) This section details the progress and status of the company's ongoing and recently completed residential and commercial development projects [Recent Residential Activities](index=25&type=section&id=Recent%20Residential%20Activities) This section provides updates on the company's residential development projects, including sales, construction, and lease-up status - Construction on the last two Amarra Villas homes was completed in Q2 2025, and two homes were sold for **$6.8 million**. Three completed homes remain available for sale as of August 8, 2025[109](index=109&type=chunk) - The Saint June, a **182-unit** multi-family project, completed construction in Q4 2023 and achieved full lease-up during 2024[110](index=110&type=chunk) - Holden Hills Phase 1 road and utility infrastructure was substantially completed in Q2 2025. Development plans are being adjusted due to its removal from Austin's ETJ, with home building/site sales anticipated in late 2025[112](index=112&type=chunk) - The Holden Hills Phase 2 partnership was formed in June 2025 for a **570-acre** mixed-use project. Stratus contributed land valued at **$95.7 million** and received a **$47.8 million** cash distribution from the partner. Development plans are being adjusted for increased density due to ETJ removal[117](index=117&type=chunk) - The Saint George, a **316-unit** multi-family project, had its first units available in April 2025 and was completed in Q2 2025. Approximately **26%** of units were leased as of August 8, 2025[120](index=120&type=chunk) - A water leak at The Saint George in April 2025 resulted in **$1.9 million** in remediation and repair costs, with Stratus' estimated share of uncovered costs not exceeding **$1.0 million**[121](index=121&type=chunk) [Recent Commercial Activities](index=28&type=section&id=Recent%20Commercial%20Activities) This section provides updates on the company's commercial development projects, including leasing and sales activities - Holden Hills Phase 2 is envisioned to include a significant commercial component, with development plans being adjusted due to the ETJ process[129](index=129&type=chunk) - As of June 30, 2025, Stratus owned and operated stabilized retail projects including Jones Crossing, Lantana Place, and Kingwood Place, all with substantially all retail space leased[130](index=130&type=chunk) - The West Killeen Market retail project was sold in Q2 2025 for **$13.3 million**, generating **$7.8 million** in pre-tax net cash proceeds and a **$5.0 million** pre-tax gain[131](index=131&type=chunk) [Potential Development Projects and Pipeline](index=29&type=section&id=Potential%20Development%20Projects%20and%20Pipeline) This section discusses future development opportunities and the company's strategy for financing these projects - A lease agreement for a potential development project in Austin has a review period expiring September 1, 2025. Stratus may terminate the lease, potentially incurring a **$2.8 million** charge for previously capitalized fees[132](index=132&type=chunk) - For future significant development projects like The Annie B, The Saint Julia, and multi-family developments at Lakeway and College Station, Stratus intends to pursue project-level debt and third-party equity capital through joint ventures[133](index=133&type=chunk) - Stratus is working to establish a credit facility for Holden Hills Phase 2 and anticipates seeking additional debt to finance future development in Holden Hills Phase 1[133](index=133&type=chunk) [Market Conditions](index=29&type=section&id=Market%20Conditions) This section analyzes current real estate market trends, economic factors, and their potential impact on the company's operations - The industry is experiencing construction and labor cost increases, supply chain constraints, labor shortages, higher borrowing costs, and tightening bank credit[134](index=134&type=chunk) - The Federal Reserve lowered interest rates by **100 basis points** cumulatively between September and December 2024, following significant increases from March 2022 through July 2023[134](index=134&type=chunk) - Changes in U.S. tariffs and trade policies in the first six months of 2025 introduce additional uncertainties, potentially leading to higher construction costs, supply chain disruptions, and increased capital costs[134](index=134&type=chunk)[205](index=205&type=chunk) - Despite macroeconomic challenges, Stratus sees reasons for optimism in its Texas markets, citing strong rents at The Saint June, encouraging absorption of new downtown Austin multi-family units, and sales opportunities[136](index=136&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance across its operating segments and non-operating items [Real Estate Operations](index=31&type=section&id=Real%20Estate%20Operations) This section analyzes the revenue, costs, and operating results of the company's real estate development and sales segment - Total revenues for Real Estate Operations increased to **$6.8 million** in Q2 2025 from **$3.6 million** in Q2 2024, driven by sales of two Amarra Villas homes[143](index=143&type=chunk) - Total revenues for the first six months of 2025 decreased to **$6.8 million** from **$25.8 million** in the prior year, due to fewer Amarra Villas sales and no undeveloped property sales[143](index=143&type=chunk) - Operating loss for Real Estate Operations increased to **$(3.5) million** in Q2 2025 and **$(5.0) million** for the first six months of 2025[143](index=143&type=chunk) - A **$1.0 million** charge was recorded in Q2 2025 to write off receivables from previously sold properties[145](index=145&type=chunk) - Professional fees and allocated overhead costs increased in 2025 periods, primarily due to the formation of the Holden Hills Phase 2 partnership[147](index=147&type=chunk) Developed Property Sales (dollars in thousands) | Metric | Q2 2025 (Homes) | Q2 2025 (Revenues) | Q2 2024 (Homes) | Q2 2024 (Revenues) | 6M 2025 (Homes) | 6M 2025 (Revenues) | 6M 2024 (Homes) | 6M 2024 (Revenues) | | :-------------------- | :-------------- | :----------------- | :-------------- | :----------------- | :-------------- | :----------------- | :-------------- | :----------------- | | Amarra Villas homes | 2 | $6,760 | 1 | $3,625 | 2 | $6,760 | 3 | $11,248 | [Leasing Operations](index=32&type=section&id=Leasing%20Operations) This section analyzes the revenue, costs, and operating results of the company's property leasing segment - Rental revenue for Leasing Operations was **$4.8 million** in Q2 2025 and **$9.8 million** for the first six months of 2025, with the six-month increase primarily reflecting revenue from The Saint June[148](index=148&type=chunk) - Operating income for Leasing Operations increased significantly to **$6.3 million** in Q2 2025 and **$8.3 million** for the first six months of 2025[148](index=148&type=chunk) - A **$5.0 million** pre-tax gain was recognized from the sale of the West Killeen Market project in Q2 2025, and an additional **$0.2 million** deferred gain related to The Oaks at Lakeway was recognized in Q1 2025[150](index=150&type=chunk) [Non-Operating Results](index=32&type=section&id=Non-Operating%20Results) This section discusses financial items outside of core operations, including interest costs, other income/loss, and income taxes - Interest costs (before capitalization) totaled **$3.9 million** in Q2 2025 and **$7.6 million** for the first six months of 2025. All debt is variable-rate, with rates decreasing over the past year due to refinancings and overall market declines[151](index=151&type=chunk)[152](index=152&type=chunk) - Capitalized interest totaled **$3.6 million** in Q2 2025 and **$7.4 million** for the first six months of 2025, primarily related to development activities at Barton Creek properties (Holden Hills Phases 1 and 2) and The Saint George[153](index=153&type=chunk) - Other (loss) income, net, in both 2025 periods includes a **$1.0 million** charge for the estimated cost to repair water leak damage at The Saint George[154](index=154&type=chunk) - The provision for income taxes was **$457 thousand** in Q2 2025 and **$487 thousand** for the first six months of 2025, an increase from comparable 2024 periods[155](index=155&type=chunk) - Total comprehensive loss attributable to noncontrolling interests increased to **$2.6 million** in Q2 2025 and **$3.4 million** for the first six months of 2025, primarily due to initial operating expenses for The Saint George Apartments, L.P[156](index=156&type=chunk) Operating (Loss) Income (in Thousands) | 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 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Real Estate Operations | $(3,536) | $(839) | $(5,038) | $5,962 | | Leasing Operations | $6,334 | $1,761 | $8,292 | $3,110 | | General and administrative expenses | $(3,557) | $(3,842) | $(7,608) | $(8,307) | | **Operating (loss) income** | **$(759)** | **$(2,920)** | **$(4,354)** | **$765** | Net Income (Loss) Attributable to Common Stockholders (in Thousands) | 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 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) attributable to common stockholders | $260 | $(1,725) | $(2,615) | $2,827 | [CAPITAL RESOURCES AND LIQUIDITY](index=33&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) This section assesses the company's financial resources, cash flow, debt arrangements, and ability to meet its short-term and long-term obligations [Comparison of Cash Flows for the Six Months Ended June 30, 2025 and 2024](index=33&type=section&id=Comparison%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) This section compares the company's cash flow activities across operating, investing, and financing categories for the reported periods - Cash used in operating activities increased to **$15.2 million** for the first six months of 2025, compared to **$1.7 million** in 2024, mainly due to higher expenditures for real estate development[159](index=159&type=chunk) - Cash provided by investing activities was **$5.8 million** for the first six months of 2025, a shift from **$16.5 million** used in 2024, driven by **$13.0 million** from the sale of West Killeen Market and MUD reimbursements[160](index=160&type=chunk) - Cash provided by financing activities totaled **$48.6 million** for the first six months of 2025, significantly up from **$0.2 million** used in 2024, primarily due to a **$47.8 million** noncontrolling interest contribution for Holden Hills Phase 2[161](index=161&type=chunk)[162](index=162&type=chunk) - Stratus acquired **26,819 shares** of its common stock for **$0.5 million** under its share repurchase program in the first six months of 2025[164](index=164&type=chunk) [Revolving Credit Facility and Other Financing Arrangements](index=34&type=section&id=Revolving%20Credit%20Facility%20and%20Other%20Financing%20Arrangements) This section details the company's credit facilities, outstanding debt, and compliance with financial covenants - As of June 30, 2025, Stratus had **$59.4 million** in cash and cash equivalents, **$1.0 million** in restricted cash, and **$17.7 million** available under its revolving credit facility[165](index=165&type=chunk) - Total debt outstanding was **$201.3 million** at June 30, 2025, an increase from **$196.7 million** at December 31, 2024[166](index=166&type=chunk) - The Comerica Bank revolving credit facility's maximum borrowing amount was reduced to **$29.3 million**, with **$11.6 million** committed in letters of credit, and the Holden Hills Phase 2 property was removed from its borrowing base[166](index=166&type=chunk) - Operating loans outstanding to Stratus Block 150, L.P. totaled **$7.2 million** as of June 30, 2025, including a **$1.5 million** loan made in Q1 2025[168](index=168&type=chunk) - The Lantana Place construction loan was refinanced in January 2025 for **$29.8 million**, maturing February 2029, with a variable interest rate (SOFR + **2.35%**)[170](index=170&type=chunk) - The Jones Crossing loan was refinanced in March 2025 for **$24.0 million**, maturing April 2028, with a variable interest rate (SOFR + **1.95%**) and a required interest rate cap[171](index=171&type=chunk) - The Annie B land loan's maturity was extended to September 1, 2027, in July 2025[172](index=172&type=chunk) - Stratus was in compliance with all financial covenants as of June 30, 2025[174](index=174&type=chunk) - Stratus typically guarantees all or a significant portion of project loans, with specific limitations for Kingwood Place, Jones Crossing, Lantana Place, The Saint June (**50%**), and The Saint George (**25%**)[177](index=177&type=chunk) [Debt Maturities and Other Contractual Obligations](index=36&type=section&id=Debt%20Maturities%20and%20Other%20Contractual%20Obligations) This section outlines the schedule of the company's debt maturities and other significant contractual commitments - The Saint June construction loan matures on October 2, 2025, with an option for a **12-month** extension; Stratus is evaluating refinancing or extension options[180](index=180&type=chunk) Total Debt Maturities (in Thousands) | Year | Amount | | :--------- | :------- | | 2025 | $43,931 | | 2026 | $70,894 | | 2027 | $33,365 | | 2028 | $24,385 | | 2029 | $28,757 | | Thereafter | $0 | | **Total** | **$201,332** | Weighted-Average Interest Rates (Three Months Ended June 30, 2025) | Loan Type | Weighted-Average Interest Rate | | :-------------------------------- | :----------------------------- | | Comerica Bank revolving credit facility | 7.42 % | | Kingwood Place loan | 6.12 % | | Lantana Place loan | 6.67 % | | Jones Crossing loan | 6.27 % | | The Annie B land loan | 7.42 % | | The Saint George (Construction) | 6.77 % | | The Saint June (Construction) | 6.67 % | | Holden Hills Phase 1 (Construction) | 7.42 % | [Liquidity Outlook](index=37&type=section&id=Liquidity%20Outlook) This section provides management's expectations regarding the company's future cash position and ability to fund its operations and commitments - Firm commitments totaled approximately **$5.8 million** at June 30, 2025, primarily related to Holden Hills Phase 1 construction[183](index=183&type=chunk) - Stratus expects to make a **$430 thousand** capital contribution to The Saint George partnership and up to **$2.8 million** in operating loans to Stratus Block 150, L.P. over the next **12 months**[183](index=183&type=chunk) - Stabilized retail and multi-family properties are projected to generate sufficient cash flow to cover debt service over the next **12 months**[184](index=184&type=chunk) - Current cash (**$59.4 million**) and revolving credit facility availability (**$17.7 million**) are expected to be sufficient to fund projected cash requirements for the next **12 months**[184](index=184&type=chunk) - Stratus expects to successfully extend or refinance outstanding debt maturing in the next **12 months**[185](index=185&type=chunk) - Long-term liquidity depends on future operating and financial performance, including profitable property sales/leases and debt refinancing, subject to economic and market factors[187](index=187&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=38&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section discusses the significant accounting judgments and estimates that are crucial to the company's financial reporting - There have been no changes in critical accounting estimates from those discussed in the 2024 Form 10-K[189](index=189&type=chunk) [RECENT ACCOUNTING STANDARDS](index=38&type=section&id=RECENT%20ACCOUNTING%20STANDARDS) This section provides updates on newly issued accounting pronouncements and their potential impact on the company's financial statements - The FASB issued ASU No. **2024-03**, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses," effective for fiscal years beginning after December 15, 2026. Stratus is currently assessing its adoption timing and effect[191](index=191&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=38&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section describes the company's off-balance sheet activities and their potential financial implications - Stratus engages in certain off-balance sheet activities in the ordinary course of business, as discussed in "Capital Resources and Liquidity" and Note **9** to its consolidated financial statements in the 2024 Form 10-K[193](index=193&type=chunk) [CAUTIONARY STATEMENT](index=38&type=section&id=CAUTIONARY%20STATEMENT) This section provides important disclaimers regarding forward-looking statements and the inherent risks and uncertainties in the report - This Quarterly Report contains forward-looking statements regarding future performance, including plans, projections, and expectations related to market conditions, debt obligations, development projects, and financial performance[195](index=195&type=chunk) - Comerica Bank debt agreements restrict common stock repurchases exceeding **$1.0 million** or dividend payments without prior written consent, which was obtained for the current **$25.0 million** share repurchase program[196](index=196&type=chunk) - Actual results may differ materially from forward-looking statements due to various risk factors, including business strategy implementation, cost increases, inflation, interest rates, tariffs, debt repayment ability, market value declines, and regulatory changes[198](index=198&type=chunk) - Stratus cautions investors that it undertakes no obligation to update its forward-looking statements[199](index=199&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No quantitative or qualitative disclosures about market risk are applicable for the reported period - This item is not applicable to the registrant[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms effective disclosure controls and procedures as of June 30, 2025, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[202](index=202&type=chunk) - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2025[203](index=203&type=chunk) PART II. OTHER INFORMATION This part contains additional non-financial disclosures, including risk factors, equity sales, and exhibits [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) Supplements risk factors, focusing on potential adverse effects of changes in U.S. tariffs and trade policies on business - Changes in U.S. tariffs and trade policies could adversely affect Stratus' business[205](index=205&type=chunk) - Higher tariffs on construction materials (e.g., steel, lumber) are likely to disrupt supply chains and increase construction costs[205](index=205&type=chunk) - Uncertainties regarding future U.S. tariffs and trade policies could lead to higher inflation, interest rates, slower economic growth, increased capital costs, lower demand from real estate buyers, and higher tenant default rates[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no unregistered equity sales and summarizes common stock repurchases under the expanded $25.0 million program - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[206](index=206&type=chunk) - The Board approved an increase in the share repurchase program from **$5.0 million** to **$25.0 million** on June 13, 2025[207](index=207&type=chunk) - In June 2025, **6,125 shares** were repurchased at an average price of **$18.94** per share, with **$22.9 million** remaining available under the program as of June 30, 2025[207](index=207&type=chunk) - Through August 8, 2025, Stratus acquired **135,620 shares** for a total cost of **$3.0 million** at an average price of **$22.13** per share, with **$22.0 million** remaining available[207](index=207&type=chunk) Summary of Share Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | April 1, 2025 through April 30, 2025 | — | $— | — | $3,000,635 | | May 1, 2025 through May 31, 2025 | — | $— | — | $3,000,635 | | June 1, 2025 through June 30, 2025 | 6,125 | $18.94 | 6,125 | $22,884,598 | | **Total** | **6,125** | **$18.94** | **6,125** | **$22,884,598** | [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer of Stratus adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[208](index=208&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with Form 10-Q, including agreements, certifications, and XBRL documents - Key exhibits filed with this Form 10-Q include the Limited Partnership Agreement of Holden Hills Phase 2, L.P., the First Amendment to Amended and Restated Limited Partnership Agreement of Holden Hills, L.P., certifications of principal executive and financial officers, and various XBRL documents[209](index=209&type=chunk) [Signature](index=42&type=section&id=Signature) Official signature of Stratus Properties Inc. by its SVP and CFO, certifying the report filing on August 12, 2025 - The report was signed by Erin D. Pickens, Senior Vice President and Chief Financial Officer, on behalf of Stratus Properties Inc. on August 12, 2025[214](index=214&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-39202 Annovis Bio, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 26-25 ...

```markdown [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements for Citius Pharmaceuticals, Inc., covering balance sheets, operations, equity, and cash flows [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $127.68 million, driven by cash and inventory, while liabilities rose, decreasing equity Metric | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :-------------- | :----------------- | | Cash and cash equivalents | $6,089,126 | $3,251,880 | | Inventory | $17,208,967 | $8,268,766 | | Total Current Assets | $24,611,269 | $14,220,646 | | Total Assets | $127,676,859 | $116,651,751 | | Total Current Liabilities | $51,842,452 | $35,814,803 | | Total Liabilities | $60,115,929 | $42,549,921 | | Total Equity | $67,560,930 | $74,101,830 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) No revenues reported; operating losses decreased for three months but increased for nine months, with improved net loss per share Metric | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $0 | $0 | $0 | $0 | | Total Operating Expenses | $8,788,007 | $10,634,179 | $30,088,299 | $30,945,203 | | Operating Loss | $(8,788,007) | $(10,634,179) | $(30,088,299) | $(30,945,203) | | Net Loss | $(9,203,872) | $(10,573,336) | $(30,996,623) | $(28,348,675) | | Net Loss Per Share - Basic and Diluted | $(0.80) | $(1.57) | $(3.27) | $(4.37) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased from $70.08 million to $65.06 million due to net losses, partially offset by stock offerings Metric | Metric | September 30, 2024 | June 30, 2025 | | :----------------------------------- | :----------------- | :-------------- | | Common Stock Shares Outstanding | 7,247,243 | 14,475,029 | | Additional Paid-In Capital | $271,440,421 | $295,888,916 | | Accumulated Deficit | $(201,370,218) | $(230,844,841) | | Total Citius Pharmaceuticals, Inc. Stockholders' Equity | $70,077,450 | $65,058,550 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations decreased, while financing cash increased, resulting in a positive net change in cash Metric | Metric | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Used In Operating Activities | $(14,671,948) | $(22,288,687) | | Net Cash Provided By Financing Activities | $17,509,194 | $13,718,951 | | Net Change in Cash and Cash Equivalents | $2,837,246 | $(8,569,736) | | Cash and Cash Equivalents - End of Period | $6,089,126 | $17,911,192 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover business, accounting policies, going concern uncertainty, product license agreements, equity, and commitments - Citius Pharmaceuticals, Inc. is a late-stage biopharmaceutical company focused on oncology, anti-infectives, prescription products, and stem cell therapies, operating through its subsidiaries Leonard-Meron Biosciences, Inc., Citius Oncology, Inc., and NoveCite, Inc[28](index=28&type=chunk)[33](index=33&type=chunk) - The company faces substantial doubt about its ability to continue as a going concern beyond September 2025, due to negative cash flows from operations (**$14.67 million** for nine months ended June 30, 2025) and negative working capital of approximately **$27.2 million**[39](index=39&type=chunk)[40](index=40&type=chunk) - Citius Oncology received FDA approval for LYMPHIR in August 2024, triggering milestone payments of **$27.5 million** to Dr. Reddy's (with **$22.5 million** remaining due as of June 30, 2025) and **$5.9 million** to Eisai. Payment schedules have been amended for these obligations[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - A 1-for-25 reverse stock split was effective November 25, 2024, to regain Nasdaq compliance. The authorized common stock was increased from 16,000,000 to 250,000,000 shares on June 9, 2025[68](index=68&type=chunk)[69](index=69&type=chunk) Common Stock Offerings (Net Proceeds) | Offering Date | Net Proceeds | | :------------ | :----------- | | November 15, 2024 | $2,574,051 | | January 7, 2025 | $2,657,167 | | April 1, 2025 | $1,743,757 | | June 11, 2025 | $5,430,836 | | ATM Offering (Q1 2025) | $808,640 | | ATM Offering (Q2 2025) | $3,294,446 | - Total minimum purchase commitments under commercial manufacturing and supply agreements for LYMPHIR amount to approximately **$18.3 million** for drug substance (through 2026) and **$4.5 million** for finished drug products (through 2026)[107](index=107&type=chunk)[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, product development, and results, highlighting LYMPHIR commercialization and financing needs - Citius Pharmaceuticals is transitioning from a development-stage enterprise to a commercial organization, with preparations for the U.S. launch of FDA-approved LYMPHIR for CTCL nearing completion, anticipated in Q4 2025. Distribution agreements with Cardinal Health and Cencora have been executed[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) [Historical Background](index=27&type=section&id=Historical%20Background) Citius Pharmaceuticals, a biopharmaceutical company, focuses on product development and capital raising with no revenues to date - The company's in-process R&D assets include **$19.4 million** for Mino-Lok (amortized over 8 years post-revenue) and **$73.4 million** for LYMPHIR (amortized over 12 years post-revenue in 2025)[117](index=117&type=chunk) [Reverse Stock Split](index=27&type=section&id=Reverse%20Stock%20Split) A 1-for-25 reverse stock split was executed on November 25, 2024, to meet Nasdaq listing requirements - A 1-for-25 reverse stock split was effective November 25, 2024, to regain compliance with Nasdaq's minimum bid price requirement[119](index=119&type=chunk) [Patent and Technology License Agreements](index=28&type=section&id=Patent%20and%20Technology%20License%20Agreements) Details licensing agreements for key product candidates Mino-Lok, NoveCite, and LYMPHIR, outlining milestone payments, royalties, and obligations - Mino-Lok: Exclusive worldwide license with NAT, requiring annual maintenance fees (**$90,000**), low double-digit royalties on net sales (10-15%), and up to **$1.1 million** in regulatory/sales milestones[120](index=120&type=chunk) - NoveCite: Exclusive worldwide license with Eterna for stem cell therapy, requiring up to **$51 million** in regulatory/development milestones and mid-teens royalties on net sales[123](index=123&type=chunk) - LYMPHIR: Exclusive license (via Citius Oncology) from Dr. Reddy's and Eisai. Requires up to **$40 million** in CTCL development milestones, **$70 million** for additional indications, **$300 million** for commercial sales milestones, and low double-digit tiered royalties (10-15%)[126](index=126&type=chunk) - Following FDA approval of LYMPHIR, a **$27.5 million** milestone payment to Dr. Reddy's (with **$22.5 million** outstanding as of June 30, 2025) and a **$5.9 million** milestone payment to Eisai were triggered. Payment schedules have been agreed upon for these obligations[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [RESULTS OF OPERATIONS](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) No revenues reported; operating expenses decreased for three months but increased for nine months due to LYMPHIR R&D and G&A [Three months ended June 30, 2025 compared with the three months ended June 30, 2024](index=31&type=section&id=Three%20months%20ended%20June%2030%2C%202025%20compared%20with%20the%20three%20months%20ended%20June%2030%2C%202024) Net loss decreased by $1.37 million, driven by lower R&D and G&A expenses, partially offset by interest changes Metric | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Research and development | $1,621,325 | $2,763,865 | $(1,142,540) | -41.3% | | General and administrative | $4,447,008 | $4,808,551 | $(361,543) | -7.5% | | Stock-based compensation expense | $2,719,674 | $3,061,763 | $(342,089) | -11.2% | | Total Operating Expenses | $8,788,007 | $10,634,179 | $(1,846,172) | -17.4% | | Interest income | $20,637 | $204,843 | $(184,206) | -89.9% | | Interest expense | $(172,262) | $0 | $(172,262) | N/A | | Net Loss | $(9,203,872) | $(10,573,336) | $1,369,464 | -12.9% | - Mino-Lok R&D costs decreased by **$982,327** due to Phase 3 trial completion. Halo-Lido R&D costs decreased by **$25,602** due to Phase 2 study completion. LYMPHIR R&D costs decreased by **$128,370** due to reduced product validation studies[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Nine months ended June 30, 2025 compared with the nine months ended June 30, 2024](index=32&type=section&id=Nine%20months%20ended%20June%2030%2C%202025%20compared%20with%20the%20nine%20months%20ended%20June%2030%2C%202024) Net loss increased by $2.65 million, primarily due to higher G&A and decreased other income, offset by lower R&D and stock compensation Metric | Metric | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Research and development | $7,514,888 | $8,991,673 | $(1,476,785) | -16.4% | | General and administrative | $14,626,882 | $12,755,190 | $1,871,692 | 14.7% | | Stock-based compensation expense | $7,946,529 | $9,198,340 | $(1,251,811) | -13.6% | | Total Operating Expenses | $30,088,299 | $30,945,203 | $(856,904) | -2.8% | | Interest income | $56,658 | $640,686 | $(584,028) | -91.2% | | Gain on sale of NJ net operating losses | $0 | $2,387,842 | $(2,387,842) | -100% | | Interest expense | $(172,262) | $0 | $(172,262) | N/A | | Net Loss | $(30,996,623) | $(28,348,675) | $(2,647,948) | 9.3% | - Mino-Lok R&D costs decreased by **$3,044,652** due to Phase 3 trial completion. Halo-Lido R&D costs decreased by **$463,448** due to Phase 2 study completion. LYMPHIR R&D costs increased by **$2,007,269**, primarily due to the expense of a drug substance batch for pre-license inspection[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=35&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Significant operating losses and negative working capital raise going concern doubts; financing is crucial for operations and LYMPHIR commitments - Accumulated deficit of **$230,844,841** as of June 30, 2025, with net cash used in operations of **$14,671,948** for the nine months ended June 30, 2025[162](index=162&type=chunk) - Negative working capital of approximately **$27.2 million** at June 30, 2025. Cash and cash equivalents were **$6,089,126**[163](index=163&type=chunk) - Citius Oncology completed a public offering on July 17, 2025, raising approximately **$7.44 million** in net proceeds, which is expected to provide sufficient funds for Citius Pharma's operations through September 2025[165](index=165&type=chunk)[167](index=167&type=chunk) - Significant outstanding milestone payments for LYMPHIR include **$22.5 million** to Dr. Reddy's (as of June 30, 2025) and a structured payment plan to Eisai totaling over **$9 million** through December 2025[166](index=166&type=chunk)[172](index=172&type=chunk) - Commercial manufacturing commitments for LYMPHIR total approximately **$18.3 million** for drug substance and **$4.5 million** for finished drug products through 2026[172](index=172&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No applicable quantitative and qualitative disclosures about market risk are reported for the company [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[175](index=175&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[176](index=176&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) No legal proceedings were reported by the company - No legal proceedings were reported[179](index=179&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the last Annual Report on Form 10-K and Quarterly Report on Form 10-Q - No material changes to risk factors were reported since the last Annual Report on Form 10-K and Quarterly Report on Form 10-Q[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds were reported[181](index=181&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities were reported[182](index=182&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[183](index=183&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) No director or officer trading plan changes; Board approved a one-year extension for warrants, potentially generating $7.2 million - On August 7, 2025, the Board approved a one-year extension for Investor Warrants (156,863 shares at **$28.75/share**; 111,732 shares at **$19.25/share**) and Placement Agent Warrants (7,577 shares at **$39.8438/share**; 7,774 shares at **$27.9719/share**)[185](index=185&type=chunk) - If fully exercised, these extended warrants could generate approximately **$7.2 million** in cash proceeds for the company[185](index=185&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including amendments, warrants, securities purchase agreements, and certifications ```

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Stran & Company, Inc., including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, fair value measurements, and specific financial line items [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show an increase in total assets and liabilities, with a slight increase in stockholders' equity, reflecting growth in cash, accounts receivable, and inventory, alongside higher current and long-term liabilities Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | Percentage Change | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------------------ | | Cash and cash equivalents | $13,070 | $9,358 | $3,712 | 39.67% | | Investments | $4,997 | $8,856 | $(3,859) | -43.58% | | Accounts receivable, net | $22,063 | $18,092 | $3,971 | 21.95% | | Total current assets | $50,130 | $45,482 | $4,648 | 10.22% | | Total assets | $61,215 | $55,148 | $6,067 | 10.99% | | Total current liabilities | $26,622 | $22,195 | $4,427 | 19.95% | | Total long-term liabilities | $2,760 | $1,312 | $1,448 | 110.37% | | Total liabilities | $29,382 | $23,507 | $5,875 | 25.00% | | Total stockholders' equity | $31,833 | $31,641 | $192 | 0.61% | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported significant sales growth and a return to net income for both the three and six months ended June 30, 2025, compared to net losses in the prior year, driven by increased gross profit despite higher operating expenses Condensed Consolidated Statements of Operations (3 Months Ended June 30, in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Total Sales | $32,577 | $16,693 | $15,884 | 95.15% | | Total Cost of Sales | $22,708 | $11,226 | $11,482 | 102.28% | | Gross Profit | $9,869 | $5,467 | $4,402 | 80.52% | | Operating Expenses | $9,474 | $6,575 | $2,899 | 44.09% | | Income (Loss) from Operations | $395 | $(1,108) | $1,503 | 135.65% | | Net Income (Loss) | $643 | $(1,025) | $1,668 | 162.73% | | Basic EPS | $0.03 | $(0.06) | $0.09 | 150.00% | | Diluted EPS | $0.03 | $(0.06) | $0.09 | 150.00% | Condensed Consolidated Statements of Operations (6 Months Ended June 30, in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Total Sales | $61,271 | $35,520 | $25,751 | 72.49% | | Total Cost of Sales | $42,920 | $24,440 | $18,480 | 75.61% | | Gross Profit | $18,351 | $11,080 | $7,271 | 65.62% | | Operating Expenses | $18,491 | $12,857 | $5,634 | 43.82% | | Income (Loss) from Operations | $(140) | $(1,777) | $1,637 | 92.12% | | Net Income (Loss) | $250 | $(1,516) | $1,766 | 116.50% | | Basic EPS | $0.01 | $(0.08) | $0.09 | 112.50% | | Diluted EPS | $0.01 | $(0.08) | $0.09 | 112.50% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported comprehensive income for the three and six months ended June 30, 2025, a significant improvement from comprehensive losses in the prior year, primarily due to positive net income and unrealized gains on investments Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $643 | $(1,025) | $250 | $(1,516) | | Unrealized gain (loss) on investment, net of tax | $33 | $48 | $48 | $(19) | | Comprehensive income (loss) | $676 | $(977) | $298 | $(1,535) | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased slightly from December 31, 2024, to June 30, 2025, primarily due to net income and other comprehensive income, partially offset by stock repurchases and an increase in accumulated deficit in Q1 2025 Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balance, January 1, 2025 | Balance, June 30, 2025 | | :-------------------- | :----------------------- | :--------------------- | | Common Stock Value | $2 | $2 | | Additional Paid-in Capital | $38,391 | $38,285 | | Accumulated Other Comprehensive Income (Loss) | $(10) | $38 | | Accumulated Deficit | $(6,742) | $(6,492) | | Total Stockholders' Equity | $31,641 | $31,833 | - The company repurchased **110,293 ordinary shares** for **$146 thousand** during the six months ended June 30, 2025[21](index=21&type=chunk) - Stock-based compensation added **$40 thousand** to additional paid-in capital for the six months ended June 30, 2025[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased significantly, while net cash provided by investing activities increased substantially, primarily due to proceeds from investment sales. Net cash used in financing activities decreased Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Net cash provided by operating activities | $534 | $4,167 | $(3,633) | -87.18% | | Net cash provided by investing activities | $3,705 | $408 | $3,297 | 808.09% | | Net cash used in financing activities | $(527) | $(760) | $233 | -30.66% | | Net increase in cash | $3,712 | $3,815 | $(103) | -2.70% | | Cash and cash equivalents - Ending | $13,070 | $11,874 | $1,196 | 10.07% | - The decrease in operating cash flow was primarily due to an increase in accounts receivable and inventory due to sales growth, partially offset by higher earnings, increased accounts payable, accrued expenses, and rewards program liability[178](index=178&type=chunk) - The increase in investing cash flow was primarily driven by **$4.4 million** in proceeds from the sale of investments in 2025, compared to **$4.6 million** in 2024, and lower purchases of investments[24](index=24&type=chunk)[179](index=179&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's accounting policies, financial instrument valuations, asset and liability breakdowns, acquisition details, revenue recognition, and segment information, offering crucial context to the condensed financial statements [A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=A.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's corporate structure, business operations as an outsourced marketing solutions provider, and key accounting principles, including the Gander Group acquisition, revenue recognition, goodwill impairment, and recent accounting pronouncements - Stran & Company, Inc. re-incorporated in Nevada on May 24, 2021, and acquired Gander Group assets in August 2024, treated as a business combination[28](index=28&type=chunk)[29](index=29&type=chunk) - The company operates as an outsourced marketing solutions provider, selling branded products and offering e-commerce, creative, warehousing, and loyalty programs[29](index=29&type=chunk) - For the three and six months ended June 30, 2025, the company had no major customers accounting for more than **10% of revenues**, but one customer accounted for **16.7% of total accounts receivable** as of June 30, 2025[34](index=34&type=chunk) - The company adopted ASU 2024-01 (Compensation – Stock Compensation) on January 1, 2025, with no material impact, and is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation) for future impact[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) [B. FAIR VALUE MEASUREMENTS](index=20&type=section&id=B.%20FAIR%20VALUE%20MEASUREMENTS) The company's fair value measurements primarily involve Level 1 investments (money market, corporate bonds, mutual funds, US Treasury bills) and Level 3 earn-out liabilities, with no transfers between levels during the quarter Fair Value Measurements (in thousands) | Asset/Liability | Level | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------- | :---- | :--------------------------- | :------------------------------- | | Investments | 1 | $4,997 | $8,856 | | Earn-out liabilities | 3 | $560 | $711 | Investment Fair Value Breakdown (June 30, 2025, in thousands) | Investment Type (June 30, 2025) | Cost (in thousands) | Unrealized Gain (Loss) (in thousands) | Fair Value (in thousands) | | :------------------------------ | :------------------ | :------------------------------------ | :------------------------ | | Money market fund | $1,363 | $— | $1,363 | | Corporate bonds | $2,562 | $7 | $2,569 | | Mutual funds | $267 | $— | $267 | | US Treasury bills | $798 | $— | $798 | | **Total Investments** | **$4,990** | **$7** | **$4,997** | - Earn-out liabilities, associated with acquisitions, decreased from **$711 thousand** at December 31, 2024, to **$560 thousand** at June 30, 2025, after **$151 thousand** in payments[63](index=63&type=chunk)[66](index=66&type=chunk) [C. INVENTORY](index=21&type=section&id=C.%20INVENTORY) Inventory increased from December 31, 2024, to June 30, 2025, primarily driven by an increase in finished goods (branded products) Inventory (in thousands) | Inventory Type (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Finished goods (branded products) | $6,638 | $5,093 | | Goods in process (un-branded products) | $98 | $296 | | **Total Inventory** | **$6,736** | **$5,389** | [D. PROPERTY AND EQUIPMENT, NET](index=21&type=section&id=D.%20PROPERTY%20AND%20EQUIPMENT,%20NET) Net property and equipment slightly decreased, with an increase in gross assets offset by higher accumulated depreciation. Depreciation expense increased for both the three and six months ended June 30, 2025, compared to 2024 Property and Equipment, Net (in thousands) | Asset Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Leasehold improvements | $6 | $— | | Office furniture and equipment | $688 | $660 | | Software | $3,142 | $2,967 | | Transportation equipment | $62 | $62 | | **Gross Property and Equipment** | **$3,892** | **$3,695** | | Accumulated depreciation | $(2,274) | $(1,994) | | **Net Property and Equipment** | **$1,618** | **$1,701** | Depreciation Expense (in thousands) | Depreciation Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Depreciation expense | $143 | $126 | $285 | $170 | [E. GOODWILL AND INTANGIBLE ASSETS](index=22&type=section&id=E.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill remained stable at $2,321 thousand, primarily from the Gander Group acquisition. Net intangible assets, mainly customer lists, decreased due to amortization, with future amortization expenses projected Goodwill and Intangible Assets (in thousands) | Asset Category (in thousands) | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :---------------------------- | :-------------------------------- | :------------------------------------ | | Goodwill | $2,321 | $2,321 | | Customer lists, net | $3,934 | $4,170 | | Trade name | $654 | $654 | Amortization Expense (in thousands) | Amortization Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amortization expense | $106 | $85 | $236 | $171 | Estimated Future Amortization Expense (in thousands) | Fiscal Year | Estimated Amortization Expense (in thousands) | | :---------- | :-------------------------------------------- | | Remainder of 2025 | $246 | | 2026 | $488 | | 2027 | $488 | | 2028 | $488 | | 2029 | $488 | | Thereafter | $1,736 | | **Total** | **$3,934** | [F. ACQUISITIONS](index=22&type=section&id=F.%20ACQUISITIONS) The company completed the Gander Group Acquisition in August 2024 for $1,469 thousand, expanding its customer base in the promotional products sector. The acquisition resulted in significant goodwill and customer relationships - On August 23, 2024, Stran Loyalty Solutions acquired substantially all assets of Gander Group to expand its customer base to other industries[72](index=72&type=chunk) Acquisition Consideration (in thousands) | Consideration (in thousands) | Amount | | :--------------------------- | :----- | | Cash payments | $1,099 | | Gander release agreement payments | $370 | | **Total consideration** | **$1,469** | Purchase Price Allocation (in thousands) | Purchase Price Allocation (in thousands) | Amount | | :--------------------------------------- | :----- | | Accounts receivable | $1,717 | | Prepaid expenses and other assets | $946 | | Inventory | $939 | | Customer relationships | $1,458 | | Goodwill | $2,542 | | Trade name | $654 | | Other long-term assets | $58 | | Accounts payable and accrued expenses | $(4,698) | | Customer deposits | $(2,147) | | **Total consideration** | **$1,469** | [G. ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=24&type=section&id=G.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) Accounts payable and accrued expenses increased from December 31, 2024, to June 30, 2025, primarily due to higher inventory purchases Accounts Payable and Accrued Expenses (in thousands) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Inventory purchases | $7,514 | $6,363 | | Accrued expenses | $1,999 | $2,556 | | **Total** | **$9,513** | **$8,919** | [H. REWARD CARD PROGRAM LIABILITY](index=24&type=section&id=H.%20REWARD%20CARD%20PROGRAM%20LIABILITY) The company's reward card program liability increased significantly from December 31, 2024, to June 30, 2025, reflecting higher customer deposits Rewards Program Liability (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Rewards program liability | $9,000 | $6,000 | [I. INSTALLMENT PAYMENT LIABILITIES](index=24&type=section&id=I.%20INSTALLMENT%20PAYMENT%20LIABILITIES) Installment payment liabilities decreased from December 31, 2024, to June 30, 2025, due to payments made, partially offset by interest accretion Installment Payment Liabilities (in thousands) | Metric (in thousands) | Amount | | :-------------------- | :----- | | Balance as of December 31, 2024 | $790 | | Interest accretion | $23 | | Payments made | $(230) | | Balance as of June 30, 2025 | $583 | | Current portion | $158 | | Long-term portion | $425 | [J. REVENUE](index=25&type=section&id=J.%20REVENUE) Revenue significantly increased across most product categories for both the three and six months ended June 30, 2025, with the Casino continuity program being a new and substantial contributor. Unearned revenue also increased Revenue by Category (in thousands) | Revenue Category (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Promotional products - dropshipping | $11,953 | $8,128 | $21,138 | $16,538 | | Promotional products – bulk dropshipping | $3,584 | $3,123 | $9,915 | $8,889 | | Promotional products – Company owned inventory | $4,296 | $3,605 | $7,190 | $6,204 | | Casino continuity program | $10,197 | $— | $17,565 | $— | | Promotional products – third-party distributor | $2,102 | $1,402 | $4,697 | $3,076 | | Rewards program | $365 | $254 | $590 | $540 | | Additional services | $80 | $181 | $176 | $273 | | **Total Sales** | **$32,577** | **$16,693** | **$61,271** | **$35,520** | Unearned Revenue (in thousands) | Unearned Revenue (in thousands) | June 30, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------ | | Balance at January 1, | $4,423 | $1,116 | | Revenue recognized | $(4,920) | $(1,042) | | Amounts collected or invoiced | $5,314 | $780 | | **Unearned revenue (end of period)** | **$4,817** | **$854** | [K. COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=K.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is not involved in any material legal proceedings. It has several operating lease agreements for office and warehouse spaces, with new leases commencing in 2025, leading to increased operating lease expenses and future payment obligations - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position or results of operations[85](index=85&type=chunk) - New operating leases commenced in January and June 2025 for office spaces in Irvine, CA, and North Quincy, MA, respectively, contributing to an increase in right-of-use assets and lease liabilities[91](index=91&type=chunk)[92](index=92&type=chunk) Operating Lease Expenses (in thousands) | Operating Lease Expenses (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease expenses | $194 | $154 | $395 | $326 | Operating Lease Maturities (in thousands) | Operating Lease Maturities (in thousands) | Amount | | :---------------------------------------- | :----- | | Remainder of 2025 | $375 | | 2026 | $702 | | 2027 | $679 | | 2028 | $335 | | 2029 | $276 | | Thereafter | $693 | | **Total future non-cancelable minimum lease payments** | **$3,060** | [L. STOCKHOLDERS' EQUITY](index=28&type=section&id=L.%20STOCKHOLDERS%27%20EQUITY) The company has 300 million authorized common shares, with 18.5 million outstanding as of June 30, 2025. It has significant outstanding warrants from its IPO and PIPE offerings and actively repurchased shares under its authorized program during Q2 2025 - As of June 30, 2025, **18,546,461 common shares** were issued and outstanding[95](index=95&type=chunk) - The company has **10,074,195 warrants outstanding** as of June 30, 2025, with a weighted-average exercise price of **$4.91** and a remaining life of **2.5 years**[98](index=98&type=chunk) Stock Repurchase Program (2025) | Period (2025) | Total Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value of Shares that May Yet be Purchased (in thousands) | | :------------ | :--------------------- | :--------------------------- | :-------------------------------------------------------------------- | | April 1 - April 30 | — | $— | $6,617 | | May 1 - May 31 | 30,949 | $1.21 | $6,576 | | June 1 - June 30 | 79,344 | $1.37 | $6,472 | [M. STOCK-BASED COMPENSATION](index=29&type=section&id=M.%20STOCK-BASED%20COMPENSATION) Stock-based compensation expense increased for the three months ended June 30, 2025, but decreased for the six-month period, primarily due to changes in restricted stock awards. The 2021 Plan has 983,905 shares available for issuance - As of June 30, 2025, **983,905 shares** of common stock are available for issuance under the 2021 Equity Incentive Plan[103](index=103&type=chunk) Stock-based Compensation Expense (in thousands) | Compensation Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Stock options | $2 | $17 | $10 | $17 | | Restricted stock | $29 | $3 | $30 | $153 | | **Total Stock-based compensation** | **$31** | **$20** | **$40** | **$170** | Stock Option Activity (6 Months Ended June 30, 2025) | Stock Option Activity (6 Months Ended June 30, 2025) | Shares | Weighted Average Exercise Price | | :----------------------------------- | :---------- | :------------------------------ | | Outstanding at December 31, 2024 | 1,376,333 | $4.03 | | Granted | 45,000 | $1.34 | | Forfeited or expired and other adjustments | (17,167) | $3.72 | | **Outstanding at June 30, 2025** | **1,404,166** | **$3.91** | | Vested and exercisable at June 30, 2025 | 1,261,167 | $4.02 | [N. INCOME (LOSS) PER SHARE](index=30&type=section&id=N.%20INCOME%20%28LOSS%29%20PER%20SHARE) Basic and diluted net income per share were positive for the three and six months ended June 30, 2025, a reversal from losses in the prior year. Dilutive securities, primarily stock options, were included in the 2025 calculation, while all potentially dilutive securities were anti-dilutive in 2024 due to net losses Income (Loss) Per Share (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net income (in thousands) | $643 | $250 | | Weighted average number of shares of common stock outstanding (Basic) | 18,592,339 | 18,600,373 | | Basic net income per common share | $0.03 | $0.01 | | Weighted average number of shares of common stock outstanding (Diluted) | 18,596,826 | 18,603,432 | | Diluted net income per common share | $0.03 | $0.01 | - For the three and six months ended June 30, 2024, all warrants and stock options were excluded from diluted EPS calculation as their effect was anti-dilutive due to net losses[111](index=111&type=chunk) Potentially Dilutive Securities (Shares) | Potentially Dilutive Securities (Shares) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | 3 & 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :------------------------------- | | Warrants | 10,074,195 | 10,074,195 | 10,074,195 | | Stock options | 1,256,680 | 1,258,108 | 1,379,167 | | **Total** | **11,330,875** | **11,332,303** | **11,453,362** | [O. SEGMENTS](index=31&type=section&id=O.%20SEGMENTS) The company operates in two reportable segments: Stran (outsourced marketing solutions) and SLS (casino, gaming, and entertainment industries, primarily from the Gander Group acquisition). SLS significantly contributed to sales and gross profit in 2025, while Stran maintained consistent operations - The Stran segment focuses on outsourced marketing solutions and promotional products for various industries[114](index=114&type=chunk) - The SLS segment, formed after the August 2024 Gander Group acquisition, specializes in promotional products for the casino, gaming, and entertainment industries[116](index=116&type=chunk)[122](index=122&type=chunk) Segment Financials (Q2, in thousands) | Segment Financials (in thousands) | Stran (Q2 2025) | SLS (Q2 2025) | Total (Q2 2025) | Stran (Q2 2024) | SLS (Q2 2024) | Total (Q2 2024) | | :-------------------------------- | :-------------- | :------------ | :-------------- | :-------------- | :------------ | :-------------- | | Sales | $21,765 | $10,812 | $32,577 | $16,693 | $— | $16,693 | | Gross profit | $7,594 | $2,275 | $9,869 | $5,467 | $— | $5,467 | | Operating income (loss) | $166 | $229 | $395 | $(1,108) | $— | $(1,108) | Segment Financials (YTD, in thousands) | Segment Financials (in thousands) | Stran (YTD 2025) | SLS (YTD 2025) | Total (YTD 2025) | Stran (YTD 2024) | SLS (YTD 2024) | Total (YTD 2024) | | :-------------------------------- | :--------------- | :------------- | :--------------- | :--------------- | :------------- | :--------------- | | Sales | $42,700 | $18,571 | $61,271 | $35,520 | $— | $35,520 | | Gross profit | $14,385 | $3,966 | $18,351 | $11,080 | $— | $11,080 | | Operating income (loss) | $93 | $(233) | $(140) | $(1,777) | $— | $(1,777) | [P. CREDIT LOSSES](index=34&type=section&id=P.%20CREDIT%20LOSSES) The company's allowance for credit losses increased significantly for the six months ended June 30, 2025, reflecting changes in expected credit losses - The company assesses creditworthiness through credit reviews, financial statement analysis, and considers economic conditions to determine the allowance for credit losses[124](index=124&type=chunk) Allowance for Credit Losses (in thousands) | Allowance for Credit Losses (in thousands) | June 30, 2025 | June 30, 2024 | | :--------------------------------------- | :------------ | :------------ | | Balance, beginning of period | $(791) | $(317) | | Current period change | $238 | $167 | | Current period change for expected credit losses | $(598) | $(288) | | **Balance, end of period** | **$(1,151)** | **$(438)** | [Q. RELATED PARTY TRANSACTIONS](index=34&type=section&id=Q.%20RELATED%20PARTY%20TRANSACTIONS) The company has an outstanding accounts receivable balance from Innovative Genetics, a related party, and made payments to Engage & Excel Enterprises Inc. for consulting services Related Party Transactions (in thousands) | Related Party | Relationship | Nature | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------- | :----------- | :----- | :--------------------------- | :------------------------------- | | Innovative Genetics, Inc. | Former board member's company | License for logos/trademarks on products | $402 | $573 | - The company paid Engage & Excel Enterprises Inc., a company led by a board member, approximately **$5 thousand** for consulting services as of June 30, 2025, down from **$26 thousand** as of December 31, 2024[128](index=128&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=35&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 performance, condition, and future outlook, highlighting significant increases in sales and gross profit, a return to net income, and the impact of the Gander Group acquisition. It also discusses liquidity, capital resources, and critical accounting estimates [Use of Terms](index=35&type=section&id=Use%20of%20Terms) This section defines key terms used throughout the report, clarifying references to 'we,' 'us,' 'our,' 'Company,' 'Stran,' 'Stran Loyalty Solutions,' and 'Gander Group Louisiana' to ensure consistent understanding - References to 'we,' 'us,' 'our,' and the 'Company' refer to Stran & Company, Inc. and its consolidated subsidiaries[130](index=130&type=chunk) - 'Stran Loyalty Solutions' or 'SLS' refers to Stran Loyalty Solutions, LLC, a wholly-owned subsidiary[130](index=130&type=chunk) - 'Gander Group Louisiana' refers to Gander Group Louisiana, LLC, a wholly-owned subsidiary of Stran Loyalty Solutions[130](index=130&type=chunk) [Special Note Regarding Forward-Looking Statements](index=35&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements based on management's beliefs and assumptions, which involve known and unknown risks and uncertainties that could cause actual results to differ materially. It lists various factors that could impact future performance, including trade matters and competition - The report contains forward-looking statements about future events, financial performance, and business development, which are subject to known and unknown risks and uncertainties[131](index=131&type=chunk)[132](index=132&type=chunk) - Factors that may cause actual results to differ include evolving trade matters (e.g., tariffs on Chinese imports), competition, and the ability to acquire/retain customers[134](index=134&type=chunk)[141](index=141&type=chunk) - The company has historically imported many goods from China, and tariffs have led to price increases and efforts to shift suppliers, but cost-effective mitigation is limited due to market conditions and tariff uncertainties[141](index=141&type=chunk) [Overview](index=37&type=section&id=Overview) Stran & Company, Inc. is an outsourced marketing solutions provider specializing in branded products and comprehensive services. The company experienced significant sales growth in Q2 and YTD 2025, largely due to the Gander Group acquisition and increased client spending, while navigating challenges from evolving trade tariffs - The company is an outsourced marketing solutions provider, offering branded products, e-commerce solutions, creative services, warehousing, and loyalty programs[137](index=137&type=chunk)[138](index=138&type=chunk) - Program clients accounted for **80.2% of total revenue** for the three months and **81.8%** for the six months ended June 30, 2025, indicating a focus on longer-lasting relationships[140](index=140&type=chunk) Total Sales and YoY Growth (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Sales | $32.6 million | $16.7 million | $61.3 million | $35.5 million | | YoY Growth | 95.2% | - | 72.5% | - | - Sales growth was attributed to higher spending from existing clients, new customers, and the acquisition of Gander Group assets in August 2024[142](index=142&type=chunk) [Emerging Growth Company and Smaller Reporting Company Status](index=38&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company%20Status) The company qualifies as an 'emerging growth company' and 'smaller reporting company,' allowing it to rely on exemptions from certain disclosure requirements, including auditor attestation, scaled executive compensation disclosures, and delayed adoption of new accounting standards - As an emerging growth company, the company is exempt from auditor reports on internal control, presenting three years of audited financial statements (can present two), and certain executive compensation disclosures[144](index=144&type=chunk)[147](index=147&type=chunk) - The company has elected to use the extended transition period for complying with new or revised financial accounting standards, potentially making its financial statements not comparable to other companies[144](index=144&type=chunk) - The company will remain an emerging growth company until the earliest of five years post-IPO, **$1.07 billion** in annual gross revenues, becoming a large accelerated filer, or issuing over **$1.0 billion** in non-convertible debt[145](index=145&type=chunk) [Principal Factors Affecting Our Financial Performance](index=38&type=section&id=Principal%20Factors%20Affecting%20Our%20Financial%20Performance) The company's financial performance is primarily influenced by its ability to acquire and retain customers, competitive pricing, product offerings, industry demand, competition, technology leverage, employee talent, and successful acquisitions and integrations - Key factors include the ability to acquire and retain customers, offer competitive product pricing, and broaden product offerings[148](index=148&type=chunk) - Industry demand, competition, leveraging technology, attracting and retaining talented employees, and successful acquisitions are also critical[148](index=148&type=chunk)[152](index=152&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) The company achieved substantial sales growth and a return to net income for both the three and six months ended June 30, 2025, compared to the prior year, primarily driven by the Gander Group acquisition and increased activity in the Stran segment. Gross profit increased, though gross profit margin slightly decreased due to the lower margin profile of the acquired business [Comparison of Three Months Ended June 30, 2025 and 2024](index=40&type=section&id=Comparison%20of%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) Total sales increased by 95.2% to $32.6 million, driven by the Gander Group acquisition (SLS segment) and higher spending from existing Stran clients. Gross profit increased by 80.5% to $9.9 million, but the gross profit margin decreased to 30.3% due to the lower margin of the SLS segment. The company achieved a net income of $0.6 million, a significant improvement from a net loss of $(1.0) million in the prior year Sales by Segment (3 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Sales | $32,577 | $16,693 | $15,884 | 95.2% | | Stran Sales | $21,765 | $16,693 | $5,072 | 30.4% | | SLS Sales | $10,812 | $— | $10,812 | 100.0% | Cost of Sales and Gross Profit (3 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Cost of Sales | $22,708 | $11,226 | $11,482 | 102.3% | | Total Gross Profit | $9,869 | $5,467 | $4,402 | 80.5% | | Total Gross Profit Margin | 30.3% | 32.8% | -2.5 pp | -7.6% | | Stran Gross Profit Margin | 34.9% | 32.8% | +2.1 pp | 6.4% | | SLS Gross Profit Margin | 21.0% | — | - | - | Operating Expenses and Net Income (3 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Operating Expenses | $9,474 | $6,575 | $2,899 | 44.1% | | Total Operating Expenses (% of sales) | 29.1% | 39.4% | -10.3 pp | -26.1% | | Net Income (Loss) | $643 | $(1,025) | $1,668 | 162.7% | [Comparison of Six Months Ended June 30, 2025 and 2024](index=44&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) Total sales increased by 72.5% to $61.3 million, primarily due to the Gander Group acquisition (SLS segment) and increased client activity in the Stran segment. Gross profit increased by 65.6% to $18.4 million, with the overall gross profit margin decreasing to 30.0% due to the lower margin profile of the SLS segment. The company reported a net income of $0.3 million, a significant improvement from a net loss of $(1.5) million in the prior year Sales by Segment (6 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Sales | $61,271 | $35,520 | $25,751 | 72.5% | | Stran Sales | $42,700 | $35,520 | $7,180 | 20.2% | | SLS Sales | $18,571 | $— | $18,571 | 100.0% | Cost of Sales and Gross Profit (6 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Cost of Sales | $42,920 | $24,440 | $18,480 | 75.6% | | Total Gross Profit | $18,351 | $11,080 | $7,271 | 65.6% | | Total Gross Profit Margin | 30.0% | 31.2% | -1.2 pp | -3.8% | | Stran Gross Profit Margin | 33.7% | 31.2% | +2.5 pp | 8.0% | | SLS Gross Profit Margin | 21.4% | — | - | - | Operating Expenses and Net Income (6 Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Operating Expenses | $18,491 | $12,857 | $5,634 | 43.8% | | Total Operating Expenses (% of sales) | 30.2% | 36.2% | -6.0 pp | -16.6% | | Net Income (Loss) | $250 | $(1,516) | $1,766 | 116.5% | [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash and cash equivalents increased to $13.1 million, with operations primarily financed through prior equity offerings and current operations. While current cash levels are deemed sufficient for the next 12 months, the company may seek additional financing for future growth or acquisitions. The revolving line of credit with Salem Five Cents was terminated in 2024, and a factoring arrangement for Stran Loyalty Solutions was terminated in February 2025 Cash and Investments (in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Cash and cash equivalents | $13,070 | $11,874 | | Investments | $4,997 | $8,856 | - The company believes current cash levels are sufficient for anticipated needs for the next 12 months and long-term, but may require additional financing for expansion or acquisitions[176](index=176&type=chunk) - The **$7.0 million** Revolving Demand Line of Credit with Salem Five Cents was terminated in September 2024 due to a policy conflict regarding a factoring arrangement for Stran Loyalty Solutions, which itself was terminated in February 2025[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Contractual Obligations](index=51&type=section&id=Contractual%20Obligations) The company has significant future minimum lease payments for property leases, totaling $3.06 million, with new leases commencing in 2025. It also manages reward card programs with associated liabilities - New seven-year lease for office space in North Quincy, MA, commenced June 1, 2025, and a 36-month lease for office space in Irvine, CA, commenced January 1, 2025[201](index=201&type=chunk)[202](index=202&type=chunk) Total Future Non-Cancelable Minimum Lease Payments (in thousands) | Fiscal Year | Total Future Non-Cancelable Minimum Lease Payments (in thousands) | | :---------- | :---------------------------------------------------------------- | | Remainder of 2025 | $375 | | 2026 | $702 | | 2027 | $679 | | 2028 | $335 | | 2029 | $276 | | Thereafter | $693 | | **Total** | **$3,060** | - The company manages reward card programs for clients, with net deposits totaling approximately **$0.4 million** as of June 30, 2025[204](index=204&type=chunk) [Critical Accounting Estimates](index=51&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates involve the valuation of goodwill and intangible assets, which require significant judgment and assumptions about future financial performance, market conditions, and discount rates. Impairment reviews are conducted annually or when circumstances indicate potential impairment - The valuation of goodwill and intangible assets is considered a critical accounting policy due to the significant estimates and assumptions involved[206](index=206&type=chunk)[207](index=207&type=chunk) - Goodwill impairment tests involve qualitative assessments and quantitative testing using income and market approaches, requiring assumptions about future revenue growth, operating expenses, and discount rates[207](index=207&type=chunk)[208](index=208&type=chunk) - Impairment of long-lived assets is assessed when events or changes in circumstances indicate that carrying values may not be recoverable, involving assumptions about future business prospects and cash flows[209](index=209&type=chunk) [Recent Accounting Pronouncements](index=53&type=section&id=Recent%20Accounting%20Pronouncements) For a discussion of recently adopted and not yet adopted accounting pronouncements, refer to Note A.19 to the unaudited condensed consolidated financial statements - Refer to Note A.19 for details on recently adopted and not yet adopted accounting pronouncements[210](index=210&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](index=53&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company has no quantitative and qualitative disclosures about market risk to report[211](index=211&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=53&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting, particularly concerning complex accounting transactions, income tax provision, accounts receivable, unearned revenue, freight charges, inventory, cost of sales, related party transactions, and IT general controls. Remediation efforts are ongoing [Evaluation of Disclosure Controls and Procedures](index=53&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting, including issues with complex accounting transactions, income tax provision, accounts receivable, unearned revenue, freight charges, inventory, cost of sales, related party transactions, and IT general controls - Disclosure controls and procedures were deemed not effective as of June 30, 2025[212](index=212&type=chunk) - Material weaknesses were identified in internal controls related to the proper design and implementation of control over formal review, approval, and evaluation of complex accounting transactions associated with business combinations[212](index=212&type=chunk) - Additional material weaknesses included deficiencies in management's formal review process for accounts and reconciliations, income tax provision review, controls over accounts receivable, unearned revenue, freight charges, inventory, cost of sales, related party transactions, and certain information technology general controls[216](index=216&type=chunk) [Changes in Internal Control Over Financial Reporting](index=54&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Remediation actions for identified material weaknesses are ongoing, including utilizing external consultants for technical accounting, expanding and improving review processes, hiring additional accounting staff, and implementing enhancements related to the NetSuite ERP system. These weaknesses will not be considered fully remediated until controls operate effectively for a sufficient period - Remediation actions include utilizing external consultants for non-routine/technical accounting issues and expanding the review process for complex accounting transactions by enhancing access to literature, engaging third-party professionals, and hiring additional staff[216](index=216&type=chunk) - Management is performing an evaluation of processes and procedures, internal control design gaps, and recommending enhancements, including implementing improvements related to the January 2025 launch of the NetSuite ERP system[216](index=216&type=chunk) - The material weaknesses will not be considered fully remediated until additional controls and procedures have operated effectively for a sufficient period and management concludes their effectiveness through testing[213](index=213&type=chunk) [Inherent Limitation on the Effectiveness of Internal Control](index=54&type=section&id=Inherent%20Limitation%20on%20the%20Effectiveness%20of%20Internal%20Control) The effectiveness of any internal control system is subject to inherent limitations, including judgment in design and operation, and the inability to completely eliminate misconduct. Therefore, internal controls can only provide reasonable, not absolute, assurance, and their effectiveness may deteriorate over time due to changing conditions or compliance issues - Internal control systems are subject to inherent limitations, including the exercise of judgment and the inability to eliminate misconduct completely, providing only reasonable assurance[215](index=215&type=chunk) - Projections of effectiveness to future periods are subject to risks that controls may become inadequate due to changing conditions or deteriorating compliance[215](index=215&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other required disclosures and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=55&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or operating results - The company is not currently aware of any legal proceedings or claims that are believed to have a material adverse effect on its business, financial condition, or operating results[218](index=218&type=chunk) [ITEM 1A. RISK FACTORS](index=55&type=section&id=ITEM%201A.%20RISK%20FACTORS) There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors previously disclosed in Item 1A of the Annual Report on Form 10-K for the year ending December 31, 2024[219](index=219&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=55&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company did not engage in any unregistered sales of equity securities during the reporting period. It continued its stock repurchase program, repurchasing shares in May and June 2025 under Rule 10b-18 and Rule 10b5-1 plans - No unregistered sales of equity securities occurred during the period covered by this report[220](index=220&type=chunk) Stock Repurchase Program (2025) | Period (2025) | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Approximate Dollar Value of Shares that May Yet be Purchased | | :------------ | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | | April 1 - April 30 | — | $— | $6,617,594 | | May 1 - May 31 | 30,949 | $1.21 | $6,575,864 | | June 1 - June 30 | 79,344 | $1.37 | $6,471,760 | - The company adopted broker repurchase instructions pursuant to Rule 10b-18 and Rule 10b5-1 on May 15, 2025, and June 30, 2025, respectively, under its authorized stock repurchase program[222](index=222&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=55&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[223](index=223&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=55&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine safety disclosures are not applicable to the company[224](index=224&type=chunk) [ITEM 5. OTHER INFORMATION](index=57&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company has no information to disclose that was required but not reported in a Current Report on Form 8-K. There have been no material changes to director nomination procedures, and no directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter - No information required to be disclosed in a Current Report on Form 8-K was left unreported[226](index=226&type=chunk) - No material changes to the procedures for security holders to recommend director nominees[226](index=226&type=chunk) - No directors or officers adopted or terminated a Rule 10b5-1 trading plan or arrangement during the fiscal quarter ended June 30, 2025[227](index=227&type=chunk) [ITEM 6. EXHIBITS](index=57&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including articles of incorporation, bylaws, director separation agreements, certifications, and XBRL-related documents - Exhibits include Articles of Incorporation, Amended and Restated Bylaws, Director Separation and Indemnification Agreements, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[228](index=228&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-39914 Affinity Bancshares, Inc. (Exact Name of Registrant as Specified in Its Charter) Maryland 82-1147778 (State or Other Jurisdiction of Incorporatio ...