PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201%20Financial%20Statements%20(unaudited)) This section presents TransAct Technologies Inc.'s unaudited condensed consolidated financial statements and detailed explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $17,746 | $14,394 | | Accounts receivable, net | $7,805 | $6,507 | | Inventories | $12,968 | $16,161 | | Total current assets | $39,688 | $38,362 | | Total assets | $44,549 | $44,034 | | Revolving loan payable | $3,000 | $3,000 | | Total current liabilities | $12,885 | $12,884 | | Total liabilities | $13,264 | $13,401 | | Total shareholders' equity | $31,285 | $30,633 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (In thousands, except per share data) | 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 sales | $13,798 | $11,599 | $26,851 | $22,286 | | Gross profit | $6,652 | $6,110 | $13,011 | $11,734 | | Operating loss | $(258) | $(438) | $(273) | $(1,739) | | Loss before income taxes | $(103) | $(405) | $(33) | $(1,718) | | Net loss | $(143) | $(319) | $(124) | $(1,355) | | Basic net loss per common share | $(0.01) | $(0.03) | $(0.01) | $(0.14) | | Diluted net loss per common share | $(0.01) | $(0.03) | $(0.01) | $(0.14) | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (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 loss | $(143) | $(319) | $(124) | $(1,355) | | Foreign currency translation adjustment, net of tax | $37 | $(3) | $53 | $(4) | | Comprehensive loss | $(106) | $(322) | $(71) | $(1,359) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $3,434 | $(854) | | Net cash used in investing activities | $(29) | $(243) | | Net cash used in financing activities | $(50) | $(71) | | Increase (decrease) in cash and cash equivalents | $3,352 | $(1,187) | | Cash and cash equivalents, end of period | $17,746 | $11,134 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Condensed Consolidated Statements of Changes in Shareholders' Equity (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Equity beginning balance | $30,633 | $39,414 | | Share-based compensation expense | $773 | $544 | | Net loss | $(124) | $(1,355) | | Foreign currency translation adjustment, net of tax | $53 | $(4) | | Equity ending balance | $31,285 | $38,528 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Basis of presentation](index=9&type=section&id=Note%201.%20Basis%20of%20presentation) The unaudited interim financial statements follow U.S. GAAP, with management affirming sufficient liquidity for **12 months** despite market slowdowns - The financial statements are unaudited and prepared under U.S. GAAP for interim reporting, not including all full-year disclosures[16](index=16&type=chunk) - Management believes the company has sufficient liquidity to fund operations, capital spending, and working capital for at least **12 months**, combining net cash from operations, cash and cash equivalents, and revolving credit facility availability[18](index=18&type=chunk) - A temporary slowdown in demand in the casino and gaming market, observed in **late 2023 and throughout 2024** due to customer excess inventory, impacted results[18](index=18&type=chunk) [Note 2. Significant accounting policies](index=10&type=section&id=Note%202.%20Significant%20accounting%20policies) Significant accounting policies are unchanged, and new accounting pronouncements are not expected to materially impact financial statements, though additional disclosures will result - No changes to significant accounting policies since the **2024 Form 10-K**[21](index=21&type=chunk) - ASU 2023-09 (Income Taxes) requires consistent categories and greater disaggregation in tax rate reconciliations and income taxes paid disclosures, effective for fiscal years beginning after **December 15, 2024**. The company does not expect a material impact[22](index=22&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures) requires footnote disclosures on disaggregated information about specific income statement expense categories, effective for fiscal years beginning after **December 15, 2026**. Adoption is expected to result in additional disclosure but no impact on financial position, results of operations, or cash flows[23](index=23&type=chunk) [Note 3. Revenue](index=10&type=section&id=Note%203.%20Revenue) Revenue disaggregation shows growth in Food Service Technology and Casino and Gaming, with contract liabilities increasing and remaining performance obligations at **$6.4 million** Net Sales by Market Type and Geography (In thousands) | Market Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Food service technology | $4,761 | $4,178 | $9,669 | $7,478 | | POS automation | $590 | $1,151 | $1,208 | $1,802 | | Casino and gaming | $7,629 | $5,359 | $14,348 | $11,055 | | TransAct Services Group | $818 | $911 | $1,626 | $1,951 | | **Total net sales** | **$13,798** | **$11,599** | **$26,851** | **$22,286** | | United States | $11,482 | $8,819 | $22,228 | $16,584 | | International | $2,316 | $2,780 | $4,623 | $5,702 | Total Net Contract Liabilities (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Unbilled receivables, current | $59 | $106 | | Unbilled receivables, net of current portion | $10 | $32 | | Customer pre-payments | $(339) | $(164) | | Deferred revenue, current | $(1,162) | $(1,107) | | Deferred revenue, net of current portion | $(333) | $(246) | | **Total net contract liabilities**| **$(1,765)** | **$(1,379)** | - As of **June 30, 2025**, remaining performance obligations totaled **$6.4 million**, with **$6.1 million** expected to be recognized within the next **12 months**[30](index=30&type=chunk) [Note 4. Inventories](index=11&type=section&id=Note%204.%20Inventories) Inventory primarily comprises raw materials and finished goods, totaling **$12.97 million** as of **June 30, 2025** Components of Inventories (In thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Raw materials and purchased component parts | $6,353 | $8,413 | | Finished goods | $6,615 | $7,748 | | **Total inventories** | **$12,968** | **$16,161** | [Note 5. Borrowings](index=12&type=section&id=Note%205.%20Borrowings) The Siena Credit Facility provides a **$10.0 million** revolving credit line, with **$3.0 million** outstanding and **$1.6 million** available, and the company is in compliance - The Siena Credit Facility provides a revolving credit line of up to **$10.0 million**, secured by company assets[32](index=32&type=chunk) - As of **June 30, 2025**, outstanding borrowings were **$3.0 million** at an interest rate of **9.25%**, with **$1.6 million** of net borrowing capacity available[35](index=35&type=chunk) - The company has remained in compliance with its excess availability covenant (**$750 thousand minimum**) through **June 30, 2025**[33](index=33&type=chunk) [Note 6. Segment reporting](index=12&type=section&id=Note%206.%20Segment%20reporting) TransAct operates as a single segment, focusing on software-driven technology and printing solutions, with performance assessed using consolidated financial measures - TransAct operates as a single operating and reportable segment: design, development, and marketing of software-driven technology and printing solutions[36](index=36&type=chunk) - Key performance measures used by management include sales, gross margin percentage, net income, EBITDA, and adjusted EBITDA[38](index=38&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (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 loss | $(143) | $(319) | $(124) | $(1,355) | | Interest income, net | $(40) | $(26) | $(62) | $(74) | | Income tax expense (benefit)| $40 | $(86) | $91 | $(363) | | Depreciation and amortization | $171 | $241 | $344 | $636 | | **EBITDA** | **$28** | **$(190)** | **$249** | **$(1,156)** | | Share-based compensation | $450 | $279 | $773 | $544 | | **Adjusted EBITDA** | **$478** | **$89** | **$1,022** | **$(612)** | [Note 7. Earnings per share](index=14&type=section&id=Note%207.%20Earnings%20per%20share) Basic and diluted net loss per share improved to **$(0.01)** for both periods, with anti-dilutive stock awards excluded due to net losses Net Loss Per Common Share (In thousands, except per share data) | 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 loss | $(143) | $(319) | $(124) | $(1,355) | | Basic EPS | $(0.01) | $(0.03) | $(0.01) | $(0.14) | | Diluted EPS | $(0.01) | $(0.03) | $(0.01) | $(0.14) | | Basic shares outstanding | 10,085 | 9,997 | 10,064 | 9,985 | | Diluted shares outstanding | 10,085 | 9,997 | 10,064 | 9,985 | - **1.8 million** and **1.7 million** anti-dilutive stock awards were excluded from EPS computation for the three and six months ended **June 30, 2025**, respectively, due to net losses[45](index=45&type=chunk) [Note 8. Leases](index=14&type=section&id=Note%208.%20Leases) Operating lease expense was **$518 thousand** for H1 2025, with lease liabilities decreasing to **$703 thousand** and a weighted average term of **0.8 years** - Operating lease expense for the six months ended **June 30, 2025**, was **$518 thousand**, reported across cost of sales and operating expenses[47](index=47&type=chunk) Operating Lease Information (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Weighted average remaining lease term (in years) | **0.8** | **1.2** | | Weighted average discount rate | **8.2%** | **7.7%** | | Total lease liabilities | **$703** | **$1,186** | Operating Cash Outflows from Leases (In thousands) | Period | Operating Cash Outflows | | :-------------------- | :---------------------- | | Six Months Ended June 30, 2025 | **$526** | | Six Months Ended June 30, 2024 | **$510** | [Note 9. Income taxes](index=15&type=section&id=Note%209.%20Income%20taxes) Income tax expense was **$40 thousand** for Q2 and **$91 thousand** for H1 2025, with high effective rates due to near-breakeven losses and a full valuation allowance Income Tax Expense (Benefit) and Effective Tax Rate | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :-------------------------------- | :--------------------------- | :----------------- | | Three Months Ended June 30, 2025 | **$40 thousand** | **38.8%** | | Three Months Ended June 30, 2024 | **$86 thousand** (benefit) | **(21.2%)** | | Six Months Ended June 30, 2025 | **$91 thousand** | **275.8%** | | Six Months Ended June 30, 2024 | **$363 thousand** (benefit) | **(21.1%)** | - The unusually high effective tax rates are due to near-breakeven pre-tax losses and tax expense only from UK earnings and minimum required U.S. state taxes[51](index=51&type=chunk) - A full valuation allowance of **$8.3 million** was maintained against net deferred income tax assets as of **June 30, 2025**, first recognized in **Q4 2024**[52](index=52&type=chunk)[53](index=53&type=chunk) [Note 10. Subsequent events](index=16&type=section&id=Note%2010.%20Subsequent%20events) Subsequent events include new tax laws, a **19%** U.S. tariff on Thai goods, and the acquisition of the BOHA! software source code for **$2.55 million** plus transition fees - The U.S. President signed the One Big Beautiful Bill Act (OBBBA) on **July 4, 2025**, introducing federal tax law changes, which the company does not anticipate will have a material impact due to its current tax positions[55](index=55&type=chunk)[56](index=56&type=chunk) - A U.S. tariff of **19%** on goods imported from Thailand was announced on **July 30, 2025**, effective **August 7, 2025**, which is expected to impact certain goods assembled by the company's manufacturer in Thailand[57](index=57&type=chunk) - On **August 6, 2025**, the company acquired a perpetual, royalty-free license to the BOHA! software source code for **$2.55 million**, plus approximately **$1.0 million** in professional services fees for transition, with hosting expected to go live in **early 2027**[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and operations, covering key drivers, market trends, the BOHA! software acquisition, tariff impacts, and detailed revenue and expense analysis [Forward-Looking Statements](index=17&type=section&id=Forward-Looking%20Statements) This section cautions on forward-looking statements, detailing risks like economic conditions, supply chain disruptions, inflation, and market competition - Forward-looking statements are subject to risks and uncertainties, including adverse economic conditions, supply chain disruptions, inflation, and geopolitical conflicts[60](index=60&type=chunk)[62](index=62&type=chunk) - Other significant factors include difficulties in manufacturing, price increases, decreased availability of components, ability to develop new products, and risks associated with the BOHA! software acquisition and foreign operations[62](index=62&type=chunk) [Overview](index=18&type=section&id=Overview) TransAct leads in software-driven technology and printing solutions for food service, POS automation, and casino/gaming, operating as a single segment with global product sales - TransAct is a global leader in software-driven technology and printing solutions for food service technology, POS automation, and casino and gaming markets[63](index=63&type=chunk) - The company's BOHA! products automate back-of-house operations in food service, while thermal printers generate labels, coupons, and transaction records[63](index=63&type=chunk) - TransAct operates in a single reportable segment, with its chief operating decision-makers using a consolidated approach to assess performance and allocate resources[63](index=63&type=chunk) [Recent Developments](index=18&type=section&id=Recent%20Developments) TransAct acquired a perpetual, royalty-free license to the BOHA! software source code for **$2.55 million** plus **$1.0 million** in transition fees, enabling independent hosting by **early 2027** - On **August 6, 2025**, TransAct acquired a perpetual and royalty-free license to the BOHA! software source code from Avery Dennison[65](index=65&type=chunk) - Total consideration for the acquisition was **$2.55 million**, plus approximately **$1.0 million** in professional services fees for transition services[65](index=65&type=chunk) - TransAct will host the code in its own environment, expected to go live in **early 2027**, allowing for independent use, modification, and distribution[65](index=65&type=chunk) [Current Business and Economic Trends](index=18&type=section&id=Current%20Business%20and%20Economic%20Trends) Casino and gaming sales are normalizing in **2025**, but new **19%** U.S. tariffs on Thai goods, effective **August 7, 2025**, will impact results, with price increases planned for mitigation - The casino and gaming market is expected to return to more normalized sales levels in **2025**, as significant domestic customers have sold through excess inventory[66](index=66&type=chunk) - A U.S. tariff of **19%** on goods imported from Thailand will be effective **August 7, 2025**, impacting products assembled by the company's manufacturer[68](index=68&type=chunk)[69](index=69&type=chunk) - The company plans to mitigate tariff impacts by raising prices to customers, but cannot assure all costs will be passed on[69](index=69&type=chunk) [Balance Sheet, Cash Flow and Liquidity](index=19&type=section&id=Balance%20Sheet,%20Cash%20Flow%20and%20Liquidity) Cost reduction initiatives are expected to yield **$2 million** in **2025** savings, with inventory reduction benefiting cash flow; management deems resources sufficient for **12 months** despite uncertainties - A cost reduction initiative in **Q2 2024** is expected to yield approximately **$2 million** in annualized savings in **2025**[72](index=72&type=chunk) - Inventory levels were reduced by approximately **$3.2 million** in the first half of **2025**, benefiting cash flow and liquidity[72](index=72&type=chunk) - Management believes current cost-cutting efforts and liquidity measures will be sufficient, but acknowledges the uncertain ultimate impact of global economic conditions[73](index=73&type=chunk) [Critical Accounting Estimates](index=19&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates, including revenue recognition, accounts receivable, and deferred tax assets, remain materially unchanged since the **2024 Form 10-K** - Critical accounting estimates include revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, valuation of deferred tax assets and liabilities, and share-based compensation[74](index=74&type=chunk) - There have been no material changes in critical accounting estimates from the information presented in the **2024 Form 10-K**[74](index=74&type=chunk) [Results of Operations: Three months ended June 30, 2025 compared to three months ended June 30, 2024](index=20&type=section&id=Results%20of%20Operations:%20Three%20months%20ended%20June%2030,%202025%20compared%20to%20three%20months%20ended%20June%2030,%202024) Net sales increased **19%** to **$13.8 million**, driven by FST and Casino/Gaming; gross margin declined to **48%**, but operating loss narrowed, and net loss decreased to **$(143) thousand** [Net Sales](index=20&type=section&id=Net%20Sales_Q2) Net Sales by Market (Three Months Ended June 30, In thousands) | Market | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :---------------------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Food service technology | $4,761 | **34.5%** | $4,178 | **36.0%** | $583 | **14.0%** | | POS automation | $590 | **4.3%** | $1,151 | **9.9%** | $(561) | **(48.7%)** | | Casino and gaming | $7,629 | **55.3%** | $5,359 | **46.2%** | $2,270 | **42.4%** | | TransAct Services Group | $818 | **5.9%** | $911 | **7.9%** | $(93) | **(10.2%)** | | **Total net sales** | **$13,798** | **100.0%** | **$11,599** | **100.0%** | **$2,199** | **19.0%** | | International | $2,316 | **16.8%** | $2,780 | **24.0%** | $(464) | **(16.7%)** | - Printer, terminal, and other hardware unit sales volume increased **21%** to approximately **26,300 units**, driven by **40% growth** in casino and gaming and **41%** in FST hardware[76](index=76&type=chunk) - The average selling price of hardware increased **5%** due to increased costs from U.S. tariffs passed on to customers[76](index=76&type=chunk) [Food service technology ("FST")](index=20&type=section&id=Food%20service%20technology%20(%22FST%22)_Q2) FST Sales by Type (Three Months Ended June 30, In thousands) | FST Sales Type | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------------ | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Hardware | $1,802 | **37.8%** | $1,402 | **33.6%** | $400 | **28.5%** | | Software, labels and other recurring revenue | $2,959 | **62.2%** | $2,776 | **66.4%** | $183 | **6.6%** | | **Total FST sales** | **$4,761** | **100.0%** | **$4,178** | **100.0%** | **$583** | **14.0%** | - Domestic hardware sales increased **28.5%**, driven by Workstation sales to a new sushi customer and BOHA! Terminal 2 sales to existing customers[79](index=79&type=chunk) - Despite the loss of a significant customer (approx. **$300k** in **Q2 2024** sales), FST software, labels, and other recurring revenue increased **6.6%**, primarily due to label sales to the new sushi customer[79](index=79&type=chunk)[80](index=80&type=chunk) [POS automation](index=21&type=section&id=POS%20automation_Q2) POS Automation Sales (Three Months Ended June 30, In thousands) | POS Automation Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :--------------------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $585 | **99.2%** | $1,151 | **100.0%** | $(566) | **(49.2%)** | | International | $5 | **0.8%** | $0 | **0.0%** | $5 | - | | **Total POS automation sales** | **$590** | **100.0%** | **$1,151** | **100.0%** | **$(561)** | **(48.7%)**| - The **49% decline** in POS automation sales was largely due to competitive pressure and a reduction in average selling prices[83](index=83&type=chunk) [Casino and gaming](index=22&type=section&id=Casino%20and%20gaming_Q2) Casino and Gaming Sales (Three Months Ended June 30, In thousands) | Casino and Gaming Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------ | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $5,959 | **78.1%** | $3,178 | **59.3%** | $2,781 | **87.5%** | | International | $1,670 | **21.9%** | $2,181 | **40.7%** | $(511) | **(23.4%)** | | **Total casino and gaming sales** | **$7,629** | **100.0%** | **$5,359** | **100.0%** | **$2,270** | **42.4%** | - Domestic sales increased **88%** as major customers normalized ordering after working through excess inventory accumulated during the supply chain crisis[85](index=85&type=chunk) - Sales also benefited from a new OEM customer for charitable gaming establishments[85](index=85&type=chunk) - International sales decreased **23%** due to a significant European OEM still working down overstocked inventory[86](index=86&type=chunk) [TransAct Services Group ("TSG")](index=22&type=section&id=TransAct%20Services%20Group%20(%22TSG%22)_Q2) TSG Sales (Three Months Ended June 30, In thousands) | TSG Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :---------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $584 | **71.4%** | $711 | **78.0%** | $(127) | **(17.9%)** | | International | $234 | **28.6%** | $200 | **22.0%** | $34 | **17.0%** | | **Total TSG sales** | **$818** | **100.0%** | **$911** | **100.0%** | **$(93)** | **(10.2%)**| - Domestic revenue decreased due to lower sales of legacy replacement parts for lottery printers and legacy consumables[87](index=87&type=chunk) - The company expects TSG sales to be lower in **2025**, with plans to cease selling all remaining legacy consumable products by the end of **2025**[88](index=88&type=chunk) [Gross Profit](index=23&type=section&id=Gross%20Profit_Q2) Gross Profit (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :--------- | :--- | :--- | :------- | :-------------- | :-------------- | | Gross profit | $6,652 | $6,110 | **8.9%** | **48.2%** | **52.7%** | - Gross margin declined **450 basis points** to **48%** due to higher sales of lower-margin BOHA! hardware products, increased overhead costs, inflation, and competitive pricing in POS automation[89](index=89&type=chunk) - Gross margin for **2025** is expected to remain in the **mid-to high-40s range**[90](index=90&type=chunk) [Operating Expenses - Engineering, Design and Product Development](index=23&type=section&id=Operating%20Expenses%20-%20Engineering,%20Design%20and%20Product%20Development_Q2) Engineering, Design and Product Development Expenses (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :---------------------------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | Engineering, design and product development | $1,725 | $1,799 | **(4.1%)** | **12.5%** | **15.5%** | - Expenses decreased **4%** due to cost reduction initiatives from **Q2 2024**, including reduced contracted software development, partially offset by higher incentive compensation[90](index=90&type=chunk) [Operating Expenses - Selling and Marketing](index=23&type=section&id=Operating%20Expenses%20-%20Selling%20and%20Marketing_Q2) Selling and Marketing Expenses (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :-------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | Selling and marketing | $2,103 | $2,197 | **(4.3%)** | **15.2%** | **18.9%** | - Expenses decreased **4%** due to cost reduction initiatives (reduced headcount, trade show, marketing), partially offset by higher go-to-market strategy costs and incentive compensation[91](index=91&type=chunk) [Operating Expenses - General and Administrative](index=24&type=section&id=Operating%20Expenses%20-%20General%20and%20Administrative_Q2) General and Administrative Expenses (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :-------------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | General and administrative | $3,082 | $2,552 | **20.8%** | **22.3%** | **22.0%** | - Expenses increased **21%** primarily due to higher incentive and stock-based compensation, partially offset by cost reduction initiatives[92](index=92&type=chunk) [Operating Loss](index=24&type=section&id=Operating%20Loss_Q2) Operating Loss (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :------------- | :--- | :--- | :------- | :-------------- | :-------------- | | Operating loss | $(258) | $(438) | **41.1%** | **(1.9%)** | **(3.8%)** | - Operating loss decreased by **$180 thousand**, driven by a **19% increase** in sales and a **$542 thousand increase** in gross profit, despite a **6% increase** in operating expenses[93](index=93&type=chunk) [Interest, net](index=24&type=section&id=Interest,%20net_Q2) - Net interest income increased to **$40 thousand** from **$26 thousand**, primarily due to higher levels of invested cash[94](index=94&type=chunk) - Minimum outstanding borrowings under the credit facility were **$3 million** in **Q2 2025**, up from **$2.25 million** in **Q2 2024**[94](index=94&type=chunk) [Other, net](index=24&type=section&id=Other,%20net_Q2) - Other net income increased significantly to **$115 thousand** from **$7 thousand**, primarily due to foreign exchange gains[95](index=95&type=chunk) [Income Taxes](index=24&type=section&id=Income%20Taxes_Q2) - Income tax expense was **$40 thousand** (**38.8%** effective rate) in **Q2 2025**, compared to a benefit of **$86 thousand** (**-21.2%** effective rate) in **Q2 2024**[96](index=96&type=chunk) - The high effective tax rate is due to near-breakeven pre-tax losses and a full valuation allowance against U.S. deferred taxes, meaning no U.S. federal tax benefits were recorded for losses[96](index=96&type=chunk) [Net Loss](index=24&type=section&id=Net%20Loss_Q2) - Net loss decreased to **$(143) thousand**, or **$(0.01)** per diluted share, from **$(319) thousand**, or **$(0.03)** per diluted share, in the prior year[97](index=97&type=chunk) [Results of Operations: Six Months Ended June 30, 2025 compared to six months ended June 30, 2024](index=25&type=section&id=Results%20of%20Operations:%20Six%20Months%20Ended%20June%2030,%202025%20compared%20to%20six%20months%20ended%20June%2030,%202024) Net sales increased **21%** to **$26.9 million**, driven by FST and Casino/Gaming; gross margin declined to **49%**, but operating loss significantly narrowed by **84%**, and net loss decreased to **$(124) thousand** [Net Sales](index=25&type=section&id=Net%20Sales_H1) Net Sales by Market (Six Months Ended June 30, In thousands) | Market | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :---------------------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | FST | $9,669 | **36.0%** | $7,478 | **33.5%** | $2,191 | **29.3%** | | POS automation | $1,208 | **4.5%** | $1,802 | **8.1%** | $(594) | **(33.0%)** | | Casino and gaming | $14,348 | **53.4%** | $11,055 | **49.6%** | $3,293 | **29.8%** | | TSG | $1,626 | **6.1%** | $1,951 | **8.8%** | $(325) | **(16.7%)** | | **Total net sales** | **$26,851** | **100.0%** | **$22,286** | **100.0%** | **$4,565** | **20.5%** | | International | $4,623 | **17.2%** | $5,702 | **25.6%** | $(1,079) | **(18.9%)** | - Printer, terminal, and other hardware sales unit volume increased **24%** to approximately **51,000 units**, driven by **32% growth** in casino and gaming and **82%** in FST[99](index=99&type=chunk) - The average selling price of hardware increased **5%** due to increased costs from U.S. tariffs passed on to customers[99](index=99&type=chunk) [Food service technology](index=25&type=section&id=Food%20service%20technology_H1) FST Sales by Type (Six Months Ended June 30, In thousands) | FST Sales Type | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------------ | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Hardware | $4,054 | **41.9%** | $2,295 | **30.7%** | $1,759 | **76.6%** | | Software, labels and other recurring revenue | $5,615 | **58.1%** | $5,183 | **69.3%** | $432 | **8.3%** | | **Total FST sales** | **$9,669** | **100.0%** | **$7,478** | **100.0%** | **$2,191** | **29.3%** | - Hardware sales increased **77%**, driven by Workstation sales to a new sushi customer and BOHA! Terminal 2 sales to existing customers[100](index=100&type=chunk) - Despite the loss of a significant customer (approx. **$600k** in **H1 2024** sales), FST labels and other recurring revenue increased **8.3%**, primarily due to label sales to the new sushi customer[100](index=100&type=chunk)[101](index=101&type=chunk) [POS automation](index=26&type=section&id=POS%20automation_H1) POS Automation Sales (Six Months Ended June 30, In thousands) | POS Automation Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :--------------------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $1,203 | **99.6%** | $1,802 | **100.0%** | $(599) | **(33.2%)** | | International | $5 | **0.4%** | $0 | **0.0%** | $5 | - | | **Total POS automation sales** | **$1,208** | **100.0%** | **$1,802** | **100.0%** | **$(594)** | **(33.0%)**| - Sales decreased **33%** due to competitive pressure and a reduction in average selling prices[102](index=102&type=chunk) [Casino and gaming](index=26&type=section&id=Casino%20and%20gaming_H1) Casino and Gaming Sales (Six Months Ended June 30, In thousands) | Casino and Gaming Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------ | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $10,781 | **75.1%** | $6,416 | **58.0%** | $4,365 | **68.0%** | | International | $3,567 | **24.9%** | $4,639 | **42.0%** | $(1,072) | **(23.1%)** | | **Total casino and gaming sales** | **$14,348** | **100.0%** | **$11,055** | **100.0%** | **$3,293** | **29.8%** | - Domestic sales increased **68%** as major customers normalized ordering after working through excess inventory[103](index=103&type=chunk) - Sales also benefited from a new OEM customer for charitable gaming establishments[103](index=103&type=chunk) - International sales decreased **23%** due to a significant European OEM still working down overstocked inventory, expected to resume ordering late **H2 2025**[104](index=104&type=chunk) [TSG](index=26&type=section&id=TSG_H1) TSG Sales (Six Months Ended June 30, In thousands) | TSG Sales | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :---------- | :----------- | :-------------- | :----------- | :-------------- | :------- | :------- | | Domestic | $1,268 | **78.0%** | $1,564 | **80.2%** | $(296) | **(18.9%)** | | International | $358 | **22.0%** | $387 | **19.8%** | $(29) | **(7.5%)** | | **Total TSG sales** | **$1,626** | **100.0%** | **$1,951** | **100.0%** | **$(325)** | **(16.7%)**| - Domestic revenue decreased due to lower sales of legacy replacement parts for lottery printers and legacy consumables[105](index=105&type=chunk) - The company expects TSG sales to be lower in **2025**, with plans to cease selling all remaining legacy consumable products by the end of **2025**[106](index=106&type=chunk) [Gross Profit](index=27&type=section&id=Gross%20Profit_H1) Gross Profit (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :--------- | :---- | :---- | :------- | :-------------- | :-------------- | | Gross profit | $13,011 | $11,734 | **10.9%** | **48.5%** | **52.7%** | - Gross margin declined **420 basis points** to **49%** due to higher sales of lower-margin BOHA! hardware products, increased overhead costs, inflation, and competitive pricing in POS automation[107](index=107&type=chunk) - Gross margin for **2025** is expected to remain in the **mid-to high-40s range**[108](index=108&type=chunk) [Operating Expenses - Engineering, Design and Product Development](index=27&type=section&id=Operating%20Expenses%20-%20Engineering,%20Design%20and%20Product%20Development_H1) Engineering, Design and Product Development Expenses (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :---------------------------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | Engineering, design and product development | $3,360 | $3,765 | **(10.8%)** | **12.5%** | **16.9%** | - Expenses decreased **11%** due to cost reduction initiatives from **Q2 2024**, including reduced contracted software development, partially offset by higher incentive compensation[108](index=108&type=chunk) [Operating Expenses - Selling and Marketing](index=27&type=section&id=Operating%20Expenses%20-%20Selling%20and%20Marketing_H1) Selling and Marketing Expenses (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :-------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | Selling and marketing | $4,188 | $4,280 | **(2.1%)** | **15.6%** | **19.2%** | - Expenses decreased **2%** due to cost reduction initiatives (reduced headcount, trade show, marketing), partially offset by higher go-to-market strategy costs and incentive compensation[109](index=109&type=chunk) [Operating Expenses - General and Administrative](index=27&type=section&id=Operating%20Expenses%20-%20General%20and%20Administrative_H1) General and Administrative Expenses (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :-------------------------- | :--- | :--- | :------- | :-------------- | :-------------- | | General and administrative | $5,736 | $5,428 | **5.7%** | **21.4%** | **24.4%** | - Expenses increased **6%** primarily due to higher incentive and stock-based compensation, partially offset by cost reduction initiatives[110](index=110&type=chunk) [Operating Loss](index=27&type=section&id=Operating%20Loss_H1) Operating Loss (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | % Change | 2025 % of Sales | 2024 % of Sales | | :------------- | :---- | :---- | :------- | :-------------- | :-------------- | | Operating loss | $(273) | $(1,739) | **84.3%** | **(1.0%)** | **(7.8%)** | - Operating loss decreased by **$1.5 million**, or **84%**, driven by a **21% increase** in sales and a **$1.3 million increase** in gross profit, alongside a **1% decrease** in operating expenses[111](index=111&type=chunk) [Interest, net](index=29&type=section&id=Interest,%20net_H1) - Net interest income decreased to **$62 thousand** from **$74 thousand**, despite higher invested cash, due to increased interest expense on higher minimum required borrowings (**$3 million** in **H1 2025** vs **$2.25 million** in **H1 2024**)[112](index=112&type=chunk) [Other, net](index=29&type=section&id=Other,%20net_H1) - Other net income shifted to **$178 thousand** from an expense of **$(53) thousand**, primarily due to foreign exchange gains[113](index=113&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes_H1) - Income tax expense was **$91 thousand** (**275.8%** effective rate) in **H1 2025**, compared to a benefit of **$363 thousand** (**-21.1%** effective rate) in **H1 2024**[114](index=114&type=chunk) - The high effective tax rate is due to near-breakeven pre-tax losses and a full valuation allowance against U.S. deferred taxes, meaning no U.S. federal tax benefits were recorded for losses[114](index=114&type=chunk) [Net Loss](index=29&type=section&id=Net%20Loss_H1) - Net loss decreased to **$(124) thousand**, or **$(0.01)** per diluted share, from **$(1.4 million)**, or **$(0.14)** per diluted share, in the prior year[115](index=115&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents increased by **$3.4 million** to **$17.7 million**, driven by operations and inventory reduction; management believes liquidity is sufficient for **12 months** despite uncertainties [Cash Flow](index=29&type=section&id=Cash%20Flow) - Cash and cash equivalents increased by **$3.4 million** (**23%**) to **$17.7 million** as of **June 30, 2025**[116](index=116&type=chunk) - Cash provided by operating activities was **$3.4 million** in **H1 2025**, a significant improvement from **$0.9 million** used in **H1 2024**[117](index=117&type=chunk) - Operating cash flow benefited from a **$3.4 million decrease** in inventories, partially offset by a **$1.2 million increase** in accounts receivable[119](index=119&type=chunk) [Resource Sufficiency](index=30&type=section&id=Resource%20Sufficiency) - Management believes that cash and cash equivalents, expected cash flows from operating activities, and available borrowings under the credit facility will provide sufficient resources for the next **twelve months**[121](index=121&type=chunk) - The company continues to monitor cash generation, usage, and preservation, including working capital management, given uncertainties related to tariffs and general economic conditions[120](index=120&type=chunk) [Credit Facility](index=30&type=section&id=Credit%20Facility) - The Siena Credit Facility provides a revolving credit line of up to **$10.0 million**, with **$3.0 million** outstanding at an interest rate of **9.25%** as of **June 30, 2025**[122](index=122&type=chunk)[125](index=125&type=chunk) - The company had **$1.6 million** of net borrowing capacity available under the facility and remained in compliance with its excess availability covenant through **June 30, 2025**[123](index=123&type=chunk)[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, TransAct Technologies Inc. is exempt from detailed market risk disclosures - TransAct is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of **June 30, 2025**, with no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of **June 30, 2025**[127](index=127&type=chunk) - It was concluded that disclosure controls and procedures were effective at the reasonable assurance level[127](index=127&type=chunk) [Changes in Internal Control Over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended **June 30, 2025**[128](index=128&type=chunk) PART II - Other Information [Item 1. Legal Proceedings](index=31&type=section&id=Item%201%20Legal%20Proceedings) No material pending or contemplated legal proceedings are known as of **June 30, 2025** - As of **June 30, 2025**, the company is unaware of any material pending legal proceedings or any material legal proceedings contemplated by government authorities[129](index=129&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A%20Risk%20Factors) Updated risk factors include challenges with the BOHA! software source code acquisition, dependence on a **single manufacturer in Thailand**, and increased costs from new U.S. tariffs - New risks include potential difficulties in realizing expected benefits from the BOHA! source code acquisition, including challenges in timely delivery, transition services, and potential defects in the code[131](index=131&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - The company remains dependent on a **single manufacturer in Thailand** for substantially all printer and terminal manufacturing and assembly[139](index=139&type=chunk)[140](index=140&type=chunk) - A **19%** U.S. tariff on goods imported from Thailand, effective **August 7, 2025**, poses risks of increased costs, pricing pressures, and supply chain disruptions[141](index=141&type=chunk)[142](index=142&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&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 - No unregistered sales of equity securities or use of proceeds to report[145](index=145&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities to report[145](index=145&type=chunk) [Item 4. Mine Safety Disclosures](index=33&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[145](index=145&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205%20Other%20Information) No other material information to report, including no **Rule 10b5-1 trading arrangements** adopted or terminated by directors or officers - No director or officer adopted or terminated a "**Rule 10b5-1 trading arrangement**" or a "**non-Rule 10b5-1 trading arrangement**" during the three months ended **June 30, 2025**[146](index=146&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate documents and key agreements - Exhibits include the Certificate of Incorporation, Amended and Restated By-Laws, Source Code Purchase and Perpetual License Agreement, and certifications by the CEO and CFO[147](index=147&type=chunk) [SIGNATURES](index=36&type=section&id=SIGNATURES) The report is duly signed by Steven A. DeMartino (President, CFO) and William J. DeFrances (VP, Chief Accounting Officer) - The report is signed by Steven A. DeMartino (President, CFO, Treasurer, and Secretary) and William J. DeFrances (VP and Chief Accounting Officer) on **August 11, 2025**[152](index=152&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-40770 FOCUS UNIVERSAL INC. (Exact Name of Small Business Issuer as specified in its charter) (State or other jurisdiction (IRS Employer File Number) of incorporat ...

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: 001-35633 Sound Financial Bancorp, Inc. (Exact name of registrant as specified in its charter) | Maryland | 45-5188530 | | --- | --- ...

FORM 10-Q Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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: 001-41378 CARTESIAN GROWTH CORPORATION II (Exact name of registrant as specified in its charter) Cayman Islands N/ ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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: 001-41378 CARTESIAN GROWTH CORPORATION II Washington, D.C. 20549 (Exact name of registrant as specified in its charter) 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 (212)461-6363 (Re ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items for the periods ended June 30, 2025, and December 31, 2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (amounts in thousands) | Item | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | **ASSETS** | | | | | | Cash and cash equivalents | $16,419 | $13,271 | $3,148 | 23.7% | | Total current assets | $54,469 | $50,536 | $3,933 | 7.8% | | Property and equipment, net | $9,404 | $12,335 | $(2,931) | -23.8% | | Total assets | $76,542 | $74,924 | $1,618 | 2.2% | | **LIABILITIES & EQUITY** | | | | | | Total current liabilities | $11,141 | $9,886 | $1,255 | 12.7% | | Total stockholders' equity | $57,225 | $57,153 | $72 | 0.1% | | Total liabilities and stockholders' equity | $76,542 | $74,924 | $1,618 | 2.2% | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Condensed Consolidated Statements of Operations and Comprehensive Income (amounts in thousands, except per share data) | Item | 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 sales | $17,773 | $17,286 | $36,809 | $36,561 | | Gross profit | $10,573 | $10,018 | $21,291 | $20,938 | | Income from operations | $66 | $63 | $328 | $712 | | Gain on disposal of headquarter | $- | $- | $17,676 | $- | | Net income (loss) | $(199) | $101 | $12,477 | $626 | | Basic EPS | $(0.02) | $0.01 | $0.06 | $0.07 | | Diluted EPS | $(0.02) | $0.01 | $0.06 | $0.07 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (amounts in thousands) for the Six Months Ended June 30 | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :----- | :----- | | Net cash (used in) provided by operating activities | $(4,501) | $572 | | Net cash provided by (used in) investing activities | $20,240 | $(1,428) | | Net cash used in financing activities | $(12,921) | $(1) | | Net increase (decrease) in cash and cash equivalents | $3,148 | $(628) | | Cash and cash equivalents, end of period | $16,419 | $11,531 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased slightly from **$57,153 thousand** at December 31, 2024, to **$57,225 thousand** at June 30, 2025. This was influenced by net income of **$12,676 thousand** (for the period ending March 31, 2025) and **$118 thousand** in stock-based compensation expense, offset by **$12,745 thousand** in dividends paid and a net loss of **$199 thousand** (for the period ending June 30, 2025)[14](index=14&type=chunk) [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)](index=8&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) [1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20CERTAIN%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Tandy Leather Factory, Inc. is a specialty retailer of leather and leathercraft-related items, founded in 1919. The company differentiates itself through high brand awareness, strong brand equity, a network of retail stores (**101 globally as of June 30, 2025**, with **91 in the U.S., 9 in Canada, and 1 in Spain**), and a 100-year heritage[17](index=17&type=chunk)[18](index=18&type=chunk)[20](index=20&type=chunk) - Revenue is recognized when control of merchandise is transferred to the customer, primarily through company-owned stores, global websites, and a commercial division. Sales tax is excluded from net sales, while shipping charges to customers are included[19](index=19&type=chunk)[26](index=26&type=chunk) - Inventory is valued at the lower of FIFO cost or net realizable value, with regular reviews for damaged goods, slow-moving items, and pricing adjustments. The majority of inventory purchases are in U.S. dollars to limit foreign currency exposure[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Finished goods held for sale | $32,476 | $31,022 | | Raw materials and work in process | $1,125 | $1,819 | | Inventory in transit | $2,598 | $2,715 | | **TOTAL** | **$36,199** | **$35,556** | - The Company leases real estate for its offices, distribution center, and retail stores. Right-of-use (ROU) assets and lease liabilities are recognized at commencement, based on the present value of lease payments. Short-term leases (**12 months or less**) are not recorded on the balance sheet[40](index=40&type=chunk)[41](index=41&type=chunk) - Long-lived assets, including ROU lease assets and property and equipment, are evaluated quarterly for impairment based on estimated undiscounted future net cash flows, primarily at the individual store level[45](index=45&type=chunk) - The Company's principal financial instruments include T-Bills (Level 1 fair value hierarchy) and accounts receivable/payable (Level 3 fair value hierarchy). Carrying values approximated fair values as of June 30, 2025, and December 31, 2024[47](index=47&type=chunk) - Income taxes are estimated for each jurisdiction, assessing current tax exposure and temporary differences. Deferred tax assets are evaluated for recoverability, and a valuation allowance is recorded if realization is not more-likely-than-not. Uncertain tax positions are recognized when it is more-likely-than-not that the position will be sustained[48](index=48&type=chunk)[51](index=51&type=chunk) - Stock-based compensation primarily relates to Restricted Stock Unit (RSU) awards. Compensation expense for service-based awards is recognized straight-line over the service period, while performance-based awards are recognized when achievement of conditions is probable[54](index=54&type=chunk)[55](index=55&type=chunk) [2. NOTES PAYABLE AND LONG-TERM DEBT](index=14&type=section&id=2.%20NOTES%20PAYABLE%20AND%20LONG-TERM%20DEBT) - The Company has a credit facility of up to **$5.0 million** with JPMorgan Chase Bank, N.A., renewed through October 31, 2025. The interest rate is CME term SOFR + **210 basis points**. No funds have been borrowed under this facility as of the filing date, and the Company is in compliance with all covenants[60](index=60&type=chunk)[61](index=61&type=chunk) [3. INCOME TAX](index=14&type=section&id=3.%20INCOME%20TAX) Effective Income Tax Rates | Period | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Three Months Ended | (10.8%) | 25.2% | | Six Months Ended | 32.7% | 27.0% | - The effective tax rate for the three months ended June 30, 2025, was **(10.8%)**, primarily due to tax benefits from the sale of corporate property, partially offset by forecasted income tax losses from 2025 operations and foreign/state obligations. For the six months ended June 30, 2025, the rate was **32.7%**[62](index=62&type=chunk) [4. STOCK-BASED COMPENSATION](index=15&type=section&id=4.%20STOCK-BASED%20COMPENSATION) - The Company operates under the 2023 Incentive Stock Plan, which reserved **800,000 shares** for equity awards. In February 2025, **100,000 RSUs** were granted to the new CEO, Johan Hedberg, vesting in February 2026, and **900,000 performance-based RSUs** were granted, contingent on achieving certain targets. Stockholders approved an additional **900,000 shares** for these performance-based grants in June 2025[64](index=64&type=chunk) RSU Activity (in thousands, except share price) | Item | Shares | Weighted Average Share Price | | :-------------------- | :----- | :--------------------------- | | Balance, January 1, 2025 | 409 | $4.32 | | Granted | 1,018 | $4.58 | | Forfeited | (355) | $4.32 | | Vested | (19) | $4.39 | | Balance, June 30, 2025 | 1,053 | $3.96 | Unrecognized Compensation Cost for Non-Vested RSUs (in thousands) | Year | Unrecognized Expense | | :--- | :------------------- | | 2025 | $252 | | 2026 | $172 | | 2027 | $36 | | 2028 | $17 | | 2029 | $6 | | **Total** | **$483** | [5. EARNINGS PER SHARE](index=16&type=section&id=5.%20EARNINGS%20PER%20SHARE) Net Income (Loss) Per Common Share (in thousands, except share data) | Item | 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) | $(199) | $101 | $12,477 | $626 | | Basic weighted-average common shares outstanding | 8,494,546 | 8,415,795 | 8,497,857 | 8,406,156 | | Diluted weighted-average common shares outstanding | 8,494,546 | 8,505,068 | 8,497,857 | 8,467,156 | | Basic earnings (loss) per share | $(0.02) | $0.01 | $0.06 | $0.07 | | Diluted earnings (loss) per share | $(0.02) | $0.01 | $0.06 | $0.07 | [6. COMMITMENTS AND CONTINGENCIES](index=17&type=section&id=6.%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company is periodically involved in litigation but does not expect any pending matters to have a material impact on its financial position or operating results[70](index=70&type=chunk) [7. SHARE REPURCHASE PROGRAM AND SHARE REPURCHASES](index=17&type=section&id=7.%20SHARE%20REPURCHASE%20PROGRAM%20AND%20SHARE%20REPURCHASES) - The Board of Directors approved a renewal of the stock repurchase plan on September 17, 2024, authorizing the repurchase of up to **$5.0 million** of common stock until September 30, 2026. As of June 30, 2025, the full **$5.0 million** remained available under this new program[72](index=72&type=chunk) [8. SALES OF CORPORATE HEADQUARTERS & NEW CEO EMPLOYMENT](index=17&type=section&id=8.%20SALES%20OF%20CORPORATE%20HEADQUARTERS%20%26%20NEW%20CEO%20EMPLOYMENT) - On January 22, 2025, the Company finalized the sale of its corporate headquarters and distribution facilities for net proceeds of **$24.9 million**, resulting in a gain of **$17.7 million**. This gain is recorded in 'Other income' on the consolidated statements of operations[74](index=74&type=chunk) Sales and Disposal of Headquarter (in thousands) | Item | Amount | | :------------------------ | :----- | | Net Proceeds | $24,897 | | NBV of Headquarter Assets | $7,221 | | Net Gain | $17,676 | - The Company signed a **10-year lease** for new corporate headquarters and distribution facilities in Benbrook, Texas, effective September 1, 2025. Johan Hedberg was hired as the new CEO on January 6, 2025, succeeding Janet Carr[75](index=75&type=chunk)[76](index=76&type=chunk) [9. SUBSEQUENT EVENTS](index=18&type=section&id=9.%20SUBSEQUENT%20EVENTS) - On June 17, 2025, the Company agreed to purchase **430,897 shares** from former CEO Janet Carr at **$3.00 per share**, totaling **$1,292,691**. This transaction was completed on July 18, 2025, and is not reflected in the June 30, 2025 balance sheet[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance drivers, strategic initiatives, and liquidity. It covers the business strategy, detailed results for the three and six months ended June 30, 2025 and 2024, and an analysis of capital resources and cash flows [The Business and Strategy](index=18&type=section&id=The%20Business%20and%20Strategy) - Tandy Leather Factory, Inc. is a leading specialty retailer of leather and leathercraft items, operating **101 retail stores** (**91 U.S., 9 Canada, 1 Spain**) and global websites. The company's strategy focuses on improving financial sustainability and profitability by managing operating expenses and gross margin, while selectively investing in profitable sales growth[78](index=78&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk) - Key competitive advantages include high brand awareness, strong brand loyalty, a network of retail stores offering customer service and community hubs, and a 100-year heritage. The Commercial Division caters to businesses with dedicated representatives, bulk pricing, and production services[80](index=80&type=chunk)[83](index=83&type=chunk) - The Company sold its corporate headquarters and distribution facilities in Fort Worth, Texas, on January 22, 2025, for **$26.5 million** (gross sale), and subsequently signed a **10-year lease** for new facilities in Benbrook, Texas, effective September 1, 2025. Johan Hedberg was appointed CEO on January 6, 2025[85](index=85&type=chunk)[86](index=86&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) [Three Months Ended June 30, 2025 and 2024](index=20&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20and%202024) Financial Performance (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | $ Change | % Change | | :-------------------- | :----- | :----- | :------- | :------- | | Net Sales | $17,773 | $17,286 | $487 | 2.8% | | Gross Profit | $10,573 | $10,018 | $555 | 5.5% | | Gross Margin Percentage | 59.5% | 58.0% | 1.5% | | | Operating Expenses | $10,507 | $9,955 | $552 | 5.5% | | Income from Operations | $66 | $63 | $3 | 4.8% | - Net sales increased by **$0.5 million (2.8%)** due to successful sales campaigns. Gross profit rose by **$0.6 million (5.5%)**, with gross margin improving by **150 basis points**, driven by inventory cost adjustments and pricing changes to balance tariffs[89](index=89&type=chunk)[90](index=90&type=chunk) - Operating expenses increased by **$0.6 million (5.5%)**, primarily due to a **$0.4 million** increase in occupancy costs (rent for previously owned corporate offices), a **$0.3 million** increase in salaries (due to key management hires and relocation costs), partially offset by a **$0.1 million** decrease in contract labor[91](index=91&type=chunk) - The effective income tax rate for the three months ended June 30, 2025, was **(10.8%)**, compared to **25.2%** in the prior year, mainly due to tax benefits from the corporate property sale, offset by forecasted operational losses and foreign/state tax obligations[92](index=92&type=chunk) [Six Months Ended June 30, 2025 and 2024](index=21&type=section&id=Six%20Months%20Ended%20June%2030,%202025%20and%202024) Financial Performance (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | $ Change | % Change | | :-------------------- | :----- | :----- | :------- | :------- | | Net Sales | $36,809 | $36,561 | $248 | 0.7% | | Gross Profit | $21,291 | $20,938 | $353 | 1.7% | | Gross Margin Percentage | 57.8% | 57.3% | 0.5% | | | Operating Expenses | $20,963 | $20,226 | $737 | 3.6% | | Income from Operations | $328 | $712 | $(384) | -53.9% | - Consolidated net sales increased by **$0.2 million (0.7%)** for the six months, driven by increased sales campaigns in Q2, partially offset by global political and economic uncertainties. The store footprint decreased from **103 stores** in June 2024 to **101 stores** in June 2025[94](index=94&type=chunk)[95](index=95&type=chunk) - Gross profit increased by **$0.4 million (1.7%)**, with gross margin percentage improving by **50 basis points** year-over-year. Operating expenses rose by **$0.7 million (3.6%)**, mainly due to a **$0.5 million** increase in occupancy costs and a **$0.4 million** increase in salaries, partially offset by a **$0.2 million** decrease in depreciation due to the corporate office sale[96](index=96&type=chunk)[97](index=97&type=chunk) - The effective income tax rate for the six months ended June 30, 2025, was **25.2%**, compared to **27.0%** in the prior year, primarily due to tax benefits from the corporate property sale, offset by forecasted operational losses and foreign/state tax obligations[98](index=98&type=chunk) [Capital Resources, Liquidity and Financial Condition](index=22&type=section&id=Capital%20Resources,%20Liquidity%20and%20Financial%20Condition) - The Company's cash balance as of June 30, 2025, was **$16.4 million**. Operating and liquidity needs are expected to be funded by current cash balances and cash generated from operating activities. The **$5.0 million** credit facility with JPMorgan Chase Bank, N.A., remains undrawn[99](index=99&type=chunk)[100](index=100&type=chunk) - The Board renewed the stock repurchase plan on September 17, 2024, authorizing up to **$5.0 million** in common stock repurchases until September 30, 2026. As of June 30, 2025, the entire **$5.0 million** remained available[102](index=102&type=chunk) Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :----- | :----- | | Net cash (used in) provided by operating activities | $(4,501) | $572 | | Net cash provided by (used in) investing activities | $20,240 | $(1,428) | | Net cash used in financing activities | $(12,921) | $(1) | | Net increase (decrease) in cash and cash equivalents | $3,148 | $(628) | - For the six months ended June 30, 2025, cash used in operations was **$4.5 million**, while cash provided by investing activities was **$20.2 million**, primarily from the **$24.9 million** net proceeds of the headquarters sale, offset by **$4.7 million** in asset purchases for the new facility. Cash used in financing activities was **$12.9 million**, including **$12.8 million** in dividends paid[104](index=104&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the participation of the CEO, evaluated the effectiveness of the Company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[106](index=106&type=chunk) - There were no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[107](index=107&type=chunk) [PART II. OTHER INFORMATION](index=24&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the information regarding legal proceedings from Note 6 to the Consolidated Financial Statements, indicating no material impact is expected from current litigation - The Company is periodically involved in litigation that arises in the ordinary course of business, but no matters are pending that are expected to have a material impact on its financial position or operating results[70](index=70&type=chunk)[108](index=108&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) This section highlights additional risk factors beyond those in the annual report, specifically focusing on the potential negative impacts of recent changes to U.S. tariff rates and increased expenses from renting new headquarters facilities - New risk factors include potential negative impacts from increased U.S. tariff rates, particularly on products imported from China and Brazil, which could raise costs, force price increases, and reduce sales. Retaliatory tariffs on intercompany sales to Canadian stores are also a concern[109](index=109&type=chunk) - Increased expenses from renting new headquarters and flagship store facilities (expected to exceed **$1.5 million annually** starting in 2026) pose a risk if the Company cannot generate additional sales and profits to offset these costs[110](index=110&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on purchases of equity securities by the issuer, indicating no shares were purchased under publicly announced plans or programs during the quarter ended June 30, 2025, with $5.0 million remaining available for repurchase Purchases of Equity Securities by the Issuer (Quarter 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 | Maximum value of shares that may yet be purchased under the plans or programs | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :---------------------------------------------------------------- | | April 1 – April 30, 2025 | — | — | — | $5,000,000 | | May 1 – May 31, 2025 | — | — | — | $5,000,000 | | June 1 – June 30, 2025 | — | — | — | $5,000,000 | | **Total** | **—** | **—** | **—** | | [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, stock plans, employment agreements, and certifications, many of which are incorporated by reference from previous SEC filings - The exhibits include the Certificate of Incorporation, Bylaws, various stock plans (2013 Restricted Stock Plan, 2023 Incentive Stock Plan), employment agreements (e.g., with Janet Carr and Johan Hedberg), and certifications (13a-14(a) and 18 U.S.C. Section 1350)[115](index=115&type=chunk)[116](index=116&type=chunk) [SIGNATURES](index=29&type=section&id=SIGNATURES) This section confirms the official signing and submission of the Form 10-Q report by the registrant's authorized officer - The report was signed on August 11, 2025, by Johan Hedberg, Chief Executive Officer (principal executive officer and principal financial officer) of Tandy Leather Factory, Inc[120](index=120&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited interim financial statements, showing decreased assets, NAV per share, and net investment income [Statements of Assets and Liabilities](index=4&type=section&id=Statements%20of%20Assets%20and%20Liabilities) Total assets and net assets decreased to **$274.8 million** and **$157.4 million**, with NAV per share at **$2.06** Statements of Assets and Liabilities Summary (in thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Investments (at fair value) | $241,507 | $260,853 | | Total Assets | $274,847 | $299,731 | | Total Liabilities | $117,424 | $139,065 | | **Total Net Assets** | **$157,423** | **$160,665** | | **Net Asset Value per Share** | **$2.06** | **$2.30** | [Schedule of Investments](index=5&type=section&id=Schedule%20of%20Investments) The **$241.5 million** investment portfolio was primarily Senior Secured Notes (**60.8%**) and CLO Equity (**37.0%**) Portfolio Composition by Asset Class (at Fair Value) | Asset Class | June 30, 2025 (Fair Value) | % of Total | Dec 31, 2024 (Fair Value) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Senior Secured Notes | $146.8M | 60.8% | $150.7M | 57.8% | | CLO Equity | $89.3M | 37.0% | $104.6M | 40.1% | | Equity and Other Investments | $5.3M | 2.2% | $5.6M | 2.1% | | **Total** | **$241.5M** | **100.0%** | **$260.9M** | **100.0%** | - As of June 30, 2025, the company's qualifying assets under Section 55(a) of the 1940 Act represented **67.6%** of its total assets, which is below the required **70%** threshold for acquiring new non-qualifying assets[28](index=28&type=chunk) [Statements of Operations](index=31&type=section&id=Statements%20of%20Operations) Total investment income decreased to **$19.7 million**, leading to a **$3.7 million** net decrease in net assets from operations Key Operational Results (Unaudited, in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Investment Income | $19,683 | $22,123 | | Total Expenses | $8,080 | $7,863 | | **Net Investment Income** | **$11,603** | **$14,259** | | Net Realized Losses | ($14,526) | ($38,535) | | Net Change in Unrealized (Depreciation)/Appreciation | ($814) | $27,766 | | **Net (Decrease)/Increase in Net Assets from Operations** | **($3,736)** | **$3,491** | | Net Investment Income per Share | $0.16 | $0.24 | | Net (Decrease)/Increase in Net Assets per Share | ($0.05) | $0.06 | [Statements of Changes in Net Assets](index=33&type=section&id=Statements%20of%20Changes%20in%20Net%20Assets) Net assets decreased by **$3.2 million** due to operational losses and distributions, partially offset by capital share transactions Reconciliation of Net Assets (Six Months Ended June 30, 2025, in thousands) | Item | Amount | | :--- | :--- | | Net Assets at Beginning of Period | $160,665 | | Net (Decrease) in Net Assets from Operations | ($3,736) | | Distributions to Stockholders | ($15,058) | | Net Increase from Capital Share Transactions | $15,552 | | **Net Assets at End of Period** | **$157,423** | [Statements of Cash Flows](index=34&type=section&id=Statements%20of%20Cash%20Flows) Net cash from operating activities was **$4.3 million**, financing used **$9.5 million**, resulting in a **$5.1 million** net cash decrease Summary of Cash Flows (Six Months Ended, in thousands) | Cash Flow Activity | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $4,329 | $26,661 | | Net Cash from Financing Activities | ($9,461) | ($2,387) | | **Net (Decrease)/Increase in Cash** | **($5,132)** | **$24,274** | | Cash at End of Period | $29,794 | $30,014 | [Notes to Financial Statements](index=35&type=section&id=Notes%20to%20Financial%20Statements) Details accounting policies, Level 3 investment valuation, borrowings, and subsequent events, with a **235%** asset coverage ratio - The company's investment portfolio is valued using Level 3 inputs due to the general illiquidity of the market for its investments[77](index=77&type=chunk)[78](index=78&type=chunk) - The Board of Directors determines the fair value quarterly, with assistance from management and third-party valuation firms[77](index=77&type=chunk)[78](index=78&type=chunk) - As of June 30, 2025, the company's asset coverage ratio for borrowed amounts was **235%**, well above the **150%** minimum required by the 1940 Act[139](index=139&type=chunk) - Subsequent to quarter-end, the company redeemed an additional **$10.0 million** of its **6.25%** Unsecured Notes on July 18, 2025[217](index=217&type=chunk) - The company completed a public offering of approximately **$65.0 million** of **7.75%** Unsecured Notes due 2030 on August 7, 2025[218](index=218&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting a **$241.5 million** portfolio, decreased investment income, and an improved **2.2** credit grade [Portfolio Composition and Investment Activity](index=70&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) The investment portfolio's fair value decreased to **$241.5 million** due to losses and repayments, with a **14.46%** weighted average debt yield Reconciliation of Investment Portfolio (in millions) | Description | Six Months Ended June 30, 2025 | | :--- | :--- | | Beginning Portfolio Value | $260.9 | | Portfolio Investments Acquired | $16.0 | | Debt Repayments & Sales | ($19.6) | | Net Realized Losses | ($14.5) | | Net Change in Unrealized Depreciation | ($0.8) | | Other (PIK, Accretion, etc.) | ($1.5) | | **Ending Portfolio Value** | **$241.5** | - The weighted average annualized yield on debt investments was approximately **14.46%** as of June 30, 2025[227](index=227&type=chunk) [Portfolio Grading](index=72&type=section&id=Portfolio%20Grading) The debt portfolio's weighted average grade improved to **2.2**, with **82.6%** of investments rated Grade 2 for full repayment Debt Portfolio Grading by Fair Value (June 30, 2025) | Grade | Summary Description | Fair Value | % of Debt Portfolio | | :--- | :--- | :--- | :--- | | 1 | Outperforming expectations | $0M | 0.0% | | 2 | Full repayment expected | $121.3M | 82.6% | | 3 | Closer monitoring required | $25.5M | 17.4% | | 4 | Loss of interest expected | $0M | 0.0% | | 5 | Loss of principal expected | $0M | 0.0% | [Results of Operations](index=73&type=section&id=Results%20of%20Operations) Total investment income decreased to **$19.7 million**, leading to a **$3.7 million** net decrease in net assets from operations - The decrease in total investment income for the six months ended June 30, 2025, was primarily due to a decrease in interest income from debt investments[259](index=259&type=chunk) - For the six months ended June 30, 2025, the company recognized net realized losses on investments of approximately **$14.5 million**[274](index=274&type=chunk) - The company also recognized a net change in unrealized depreciation of approximately **$0.8 million** for the six months ended June 30, 2025[275](index=275&type=chunk) [Liquidity and Capital Resources](index=77&type=section&id=Liquidity%20and%20Capital%20Resources) The company held **$29.8 million** in cash, sourced liquidity from operations and ATM proceeds, maintaining a **235%** asset coverage ratio - Cash and cash equivalents stood at approximately **$29.8 million** as of June 30, 2025[282](index=282&type=chunk) - The company raised a net total of approximately **$15.1 million** during the first six months of 2025 through its At-the-Market (ATM) stock offering program[286](index=286&type=chunk) Contractual Obligations (as of June 30, 2025, in millions) | Obligation | Principal Amount | Less than 1 year | 1 – 3 years | 3 – 5 years | | :--- | :--- | :--- | :--- | :--- | | 6.25% Unsecured Notes | $34.8 | $34.8 | $— | $— | | 5.50% Unsecured Notes | $80.5 | $— | $— | $80.5 | | **Total** | **$115.3** | **$34.8** | **$—** | **$80.5** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk, with a **100 basis point** rate change impacting annual investment income by **4.8%** Hypothetical Interest Rate Change Impact on Investment Income | Hypothetical Change in Base Rates | Estimated Percentage Change in Investment Income | | :--- | :--- | | Up 300 basis points | 14.4% | | Up 100 basis points | 4.8% | | Down 100 basis points | (4.8)% | | Down 300 basis points | (14.2)% | [Item 4. Controls and Procedures](index=84&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures as of June 30, 2025, with no material internal control changes - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[314](index=314&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[316](index=316&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=86&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - As of the reporting date, the company is not a party to any material legal proceedings[318](index=318&type=chunk) [Item 1A. Risk Factors](index=86&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported for the six months ended June 30, 2025 - No material changes to risk factors were reported for the six months ended June 30, 2025[319](index=319&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued **106,066** unregistered shares valued at **$238,263** via its distribution reinvestment plan in Q2 2025 - In Q2 2025, **106,066** shares were issued via the distribution reinvestment plan, valued at approximately **$238,263**[320](index=320&type=chunk) [Item 3. Defaults Upon Senior Securities](index=86&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported [Item 4. Mine Safety Disclosures](index=86&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company [Item 5. Other Information](index=86&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading plans during Q2 2025 [Item 6. Exhibits](index=87&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the report, including CEO and CFO certifications

Part I [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements show a significant increase in total assets to $109.3 million, driven by growth in financial services activities, with a net income of $17.7 million for Q2 2025 and a net loss of $14.8 million for the six-month period, while cash flow from operations turned positive [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets more than doubled to $109.3 million from $47.1 million at year-end 2024, primarily fueled by increases in marketable securities, receivables from clearing brokers, and long-term equity investments, while total liabilities rose to $20.7 million and stockholders' equity significantly increased to $88.6 million Condensed Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$109,338** | **$47,125** | | Cash and cash equivalents | $9,469 | $4,079 | | Marketable securities | $18,772 | $5,773 | | Receivable from clearing brokers | $30,986 | $17,279 | | Long term equity investments | $43,744 | $12,282 | | **Total Liabilities** | **$20,738** | **$7,272** | | Accrued commissions | $13,005 | $2,057 | | **Total Stockholders' Equity** | **$88,600** | **$39,853** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter of 2025, the company achieved a significant turnaround, posting a net income of $17.7 million compared to a $6.1 million net loss in Q2 2024, driven by a substantial revenue increase to $34.1 million and $37.1 million in other income, primarily from a $31.7 million change in fair value of investments, while the six-month period recorded a net loss of $14.8 million due to increased general and administrative expenses Consolidated Statement of Operations Summary ($ in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$34,095** | **$6,174** | **$42,206** | **$7,541** | | General and administrative | $53,521 | $8,910 | $93,642 | $13,082 | | Loss from operations | $(19,426) | $(2,736) | $(51,436) | $(5,541) | | Total other income (expenses) | $37,086 | $(3,384) | $36,608 | $(6,020) | | **Net income (loss)** | **$17,660** | **$(6,120)** | **$(14,828)** | **$(11,561)** | | Net income (loss) per share | $1.12 | $(1.01) | $(1.24) | $(1.92) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity grew from $39.9 million at the end of 2024 to $88.6 million by June 30, 2025, primarily driven by **$33.9 million** in stock-based compensation, **$13.5 million** from common stock issuance, **$2.3 million** from warrant exercises, and **$20.9 million** from shares issued under advisory agreements, partially offset by a net loss and **$7.1 million** in dividends paid[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash provided by operating activities was **$0.9 million**, a significant improvement from a **$7.2 million** use of cash in the same period of 2024, while investing activities used **$4.3 million** and financing activities provided **$8.8 million**, resulting in a net increase in cash and cash equivalents of **$5.4 million** Summary of Cash Flows ($ in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $882 | $(7,185) | | Net cash (used in) provided by investing activities | $(4,268) | $10,154 | | Net cash provided by financing activities | $8,776 | $0 | | **Net increase in cash and cash equivalents** | **$5,390** | **$2,969** | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's strategic shift from biotechnology to financial services, including the acquisition of Dominari Securities and the formation of new investment and insurance ventures, with key disclosures on a significant increase in long-term investment value driven by a stake in American Bitcoin Corp., a **$13.5 million** equity financing, substantial stock-based compensation, and strong revenue growth from financial services, alongside a noted legal proceeding against a subsidiary - The company has shifted its primary operating focus from biotechnology to the fintech and financial services industries through its subsidiary Dominari Financial Inc., which acquired broker-dealer Dominari Securities LLC[19](index=19&type=chunk) - The company believes it has adequate cash, marketable securities, and anticipated cash flow to fund operations for at least the next twelve months[26](index=26&type=chunk) Long-Term Equity Investments ($ in thousands) | Investment | Carrying Value (June 30, 2025) | Carrying Value (Dec 31, 2024) | | :--- | :--- | :--- | | Investment in American Bitcoin Corp. | $32,000 | - | | Other Investments | $11,744 | $12,282 | | **Total** | **$43,744** | **$12,282** | - In February 2025, the company raised net proceeds of approximately **$13.5 million** through direct offerings and private placements of common stock and warrants[70](index=70&type=chunk) Revenue by Type ($ in thousands) | Revenue Type | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Underwriting | $14,954 | $4,057 | $20,560 | $4,723 | | Commissions | $8,021 | $1,775 | $10,212 | $2,085 | | Carried interest fees | $10,500 | - | $10,500 | - | | **Total** | **$34,095** | **$6,174** | **$42,206** | **$7,541** | - The company operates in two segments: Dominari Financial and Legacy AIkido, with Dominari Financial generating all **$34.1 million** of revenue and a net gain of **$8.0 million** in Q2 2025, while Legacy AIkido had no revenue but a net gain of **$9.7 million** primarily from investment value changes[104](index=104&type=chunk)[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the significant improvement in Q2 2025 financial performance to the company's successful expansion in the financial services industry, with revenue surging to **$34.1 million** from **$6.2 million** year-over-year, leading to a net income of **$16.6 million** compared to a **$6.1 million** loss, driven by strong underwriting and commission revenues coupled with a **$31.7 million** unrealized gain on long-term investments, notably American Bitcoin Corp., offsetting a substantial increase in general and administrative costs, including **$26 million** in stock-based compensation, while confirming sufficient liquidity for the next 12 months [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Comparing Q2 2025 to Q2 2024, revenue increased by **$27.9 million**, and the company swung from a **$6.1 million** net loss to a **$16.6 million** net income, primarily driven by increased commissions and underwriting revenue from Dominari Securities and a significant markup in the value of the American Bitcoin Corp investment, despite a large increase in G&A expenses mainly from stock-based compensation and higher commission payouts, while for the six-month period, the net loss widened to **$15.9 million** from **$11.6 million** due to one-time stock-based compensation charges Q2 Performance Comparison (2025 vs 2024) | Metric ($ in millions) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $34.1 | $6.2 | +$27.9 | | Net Income (Loss) | $16.6 | $(6.1) | +$22.7 | - The positive change in net income was primarily driven by increased revenues and a **$31.7 million** increase in the carrying value of long-term investments, offset by a **$26 million** increase in stock-based compensation expense and a **$15 million** increase in commissions expense[121](index=121&type=chunk)[124](index=124&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital stood at approximately **$43.8 million** as of June 30, 2025, with management asserting that current cash, marketable securities, and anticipated cash flow from operations are sufficient to meet capital requirements for at least the next 12 months, as cash from operations was a positive **$0.9 million** for the first six months of 2025, compared to a **$7.2 million** use of cash in the prior year period, while financing activities provided **$8.8 million** - The company had working capital of approximately **$43.8 million** as of June 30, 2025, and believes its liquidity is sufficient for at least the next 12 months[127](index=127&type=chunk) Net Cash Flow Summary for Six Months Ended June 30 ($ in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Operating activities | $882 | $(7,185) | | Investing activities | $(4,268) | $10,154 | | Financing activities | $8,776 | - | [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company - As a smaller reporting company, this disclosure is not required[135](index=135&type=chunk) [Controls and Procedures](index=31&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, based on a previously identified material weakness in internal controls over financial reporting, stemming from staffing constraints, lack of timely and accurate book-closing procedures, insufficient review of fair value accounting, and inadequate segregation of duties - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness[137](index=137&type=chunk) - The material weakness is attributed to staffing constraints, leading to delays in closing books, lack of proper review over certain fair value accounting, inadequate segregation of duties, and IT control deficiencies[139](index=139&type=chunk) Part II [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company's subsidiary, Dominari Securities, is involved in a legal action initiated in March 2024 concerning the hiring of new registered representatives from a former employer, with the company disputing the claims and intending to defend itself vigorously, but the outcome and any potential loss cannot be reasonably estimated at this time - In March 2024, a legal action was filed against the company's subsidiary, Dominari Securities, related to the hiring of new registered representatives, and the company cannot predict the outcome or estimate any potential loss[144](index=144&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Dominari Holdings is not required to provide risk factor disclosures in its Form 10-Q, referring to the risk factors set forth in its Annual Report on Form 10-K filed on April 15, 2025 - The company is not required to provide this information as a "smaller reporting company" and refers to its most recent Form 10-K for a discussion of risk factors[145](index=145&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or specific uses of proceeds to report for the period - None[146](index=146&type=chunk) [Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[147](index=147&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[148](index=148&type=chunk) [Other Information](index=32&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - None[149](index=149&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) The report includes standard exhibits, such as the CEO and CFO certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL data files - Exhibits filed include: - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 - Inline XBRL Instance Document and related taxonomy files[150](index=150&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Financial statements for the nine months ended June 30, 2025, reflect significant asset growth, slight revenue decline, and a widened net loss driven by increased expenses [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets surged to $107.3 million, driven by cash and short-term investments, with stockholders' equity increasing significantly from stock issuances Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | September 30, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $32,893 | $14,566 | | Short term investment | $52,616 | $15,940 | | Total current assets | $88,851 | $33,046 | | Total assets | $107,329 | $42,651 | | **Liabilities & Equity** | | | | Total current liabilities | $739 | $455 | | Total liabilities | $1,378 | $913 | | Total stockholders' equity | $105,951 | $41,738 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For the nine months ended June 30, 2025, revenue slightly decreased, gross profit improved, but a significant surge in general and administrative expenses led to a widened net loss of $12.2 million Statement of Operations Summary (in thousands) | Metric | Nine Months ended June 30, 2025 | Nine Months ended June 30, 2024 | | :--- | :--- | :--- | | Revenue, net | $3,601 | $3,715 | | Gross profit | $2,723 | $2,304 | | Total operating expenses | $16,067 | $6,407 | | Loss from operations | $(13,344) | $(4,103) | | Net loss attributable to the Company | $(12,160) | $(5,181) | | Basic and diluted net loss per share | $(0.11) | $(0.07) | Quarterly Statement of Operations Summary (in thousands) | Metric | Three Months ended June 30, 2025 | Three Months ended June 30, 2024 | | :--- | :--- | :--- | | Revenue, net | $1,177 | $1,443 | | Gross profit | $876 | $1,014 | | Loss from operations | $(4,507) | $(895) | | Net loss attributable to the Company | $(4,063) | $(1,313) | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended June 30, 2025, cash and cash equivalents increased by $18.3 million, primarily driven by $71.1 million from financing activities, offsetting operational and investing outflows Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $(11,197) | $(2,121) | | Net cash used in investing activities | $(41,532) | $135 | | Net cash used in financing activities | $71,056 | $10,754 | | **Net change in cash and cash equivalents** | **$18,327** | **$8,768** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's service robotic solutions business, key accounting policies including RaaS revenue recognition, and successful At-The-Market (ATM) offerings raising significant capital - The company provides service robotic solutions, including delivery, cleaning, and food & beverage services, deployed in over **80 U.S. cities**[29](index=29&type=chunk) - The company executed an At-The-Market (ATM) offering, issuing **23,682,395 shares** of Class B common stock for net proceeds of approximately **$50.8 million**[48](index=48&type=chunk)[51](index=51&type=chunk) - Revenue from Robots-as-a-Service (RaaS) is recognized over time on a monthly basis as services are provided[55](index=55&type=chunk) - Subsequent to quarter end, as of August 11, 2025, the company issued an additional **11,226,521 shares** under the ATM program, receiving net proceeds of approximately **$21.8 million**[70](index=70&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes revenue decline to a RaaS model shift, explains widened net loss by increased G&A expenses, and highlights improved liquidity from successful stock offerings [Overview and Recent Developments](index=17&type=section&id=Overview%20and%20Recent%20Developments) Recent developments include joining the NVIDIA Connect program, purchasing a new 20,000 sq. ft. headquarters for $4.1 million, and inclusion in the Russell 2000® and 3000® Indexes - In July 2025, the company joined the NVIDIA Connect program, gaining access to developer resources and training[73](index=73&type=chunk) - On May 15, 2025, the company purchased a new **20,000 sq. ft.** property in Las Vegas for **$4.1 million** to serve as its new headquarters and expand assembly operations[75](index=75&type=chunk) - The company was added to the FTSE Russell 2000® and Russell 3000® Indexes in June 2025[76](index=76&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) For the nine months ended June 30, 2025, revenue decreased due to a RaaS model shift, gross profit increased, but surging G&A expenses led to significant operating and net losses - The year-over-year revenue decrease is attributed to a strategic shift to a Robots-as-a-Service (RaaS) model, focusing on recurring revenue over one-time sales[82](index=82&type=chunk) Revenue Breakdown (in thousands) | Revenue Stream | Nine Months ended June 30, 2025 | Nine Months ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Product revenue | $1,567 | $1,252 | $315 | | Service/rental revenue | $1,151 | $1,510 | $(359) | | Leasing revenue | $380 | $604 | $(224) | | **Total Revenue** | **$3,601** | **$3,715** | **$(114)** | - Cost of revenue for the nine-month period decreased by **37.7%** year-over-year, primarily due to capitalizing robot costs under the leasing model instead of expensing them as COGS[88](index=88&type=chunk) - General and administrative expenses for the nine-month period increased by **$10.1 million (268.7%)** year-over-year, driven by higher personnel costs, professional fees, and new office costs[99](index=99&type=chunk)[106](index=106&type=chunk) - Investment income of **$1.1 million** was generated in the first nine months of fiscal 2025, compared to zero in the prior year, due to investing proceeds from stock issuances in short-term CDs and U.S. Treasury bills[103](index=103&type=chunk)[104](index=104&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, liquidity significantly improved, with cash and cash equivalents totaling $32.9 million, primarily due to $48.6 million from stock issuances and $9.2 million from warrant exercises Cash and Cash Equivalents (in millions) | Date | Amount | | :--- | :--- | | June 30, 2025 | $32.9 | | September 30, 2024 | $14.6 | - The increase in cash was driven by **$71.1 million** in net cash from financing activities, partially offset by **$11.2 million** used in operations and **$41.5 million** used in investing[109](index=109&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Richtech Robotics Inc. is not required to provide this disclosure - Disclosure is not required for smaller reporting companies[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The company's Certifying Officers concluded that disclosure controls and procedures were effective as of June 30, 2025[118](index=118&type=chunk) - No material changes occurred during the fiscal quarter ended June 30, 2025, affecting internal control over financial reporting[120](index=120&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) A civil action was filed against the company in June 2025, seeking over $600,000 for breach of contract and fraud, which management believes is without merit - A civil lawsuit was filed against the company in June 2025, seeking damages in excess of **$600,000** for claims including breach of contract and fraud[123](index=123&type=chunk) - Management believes the claims lack merit and does not anticipate a material adverse impact on the company's financials[124](index=124&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, this section is not required, and no material changes to previously disclosed risk factors have occurred - As a smaller reporting company, disclosure of risk factors in the 10-Q is not required, and no material changes to previously disclosed risk factors have occurred[125](index=125&type=chunk) [Other Items (Items 2, 3, 4, 5)](index=25&type=section&id=Other%20Items%20(Items%202,%203,%204,%205)) The company reported no unregistered sales of equity securities, no defaults upon senior securities, no mine safety disclosures, and no Rule 10b5-1 trading arrangement changes - Item 2: No unregistered sales of equity securities[126](index=126&type=chunk) - Item 3: No defaults upon senior securities[127](index=127&type=chunk) - Item 5: No directors or Section 16 officers adopted or terminated a Rule 10b5-1 trading arrangement[129](index=129&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including agreements for property purchase, ATM offering, product sales, and officer certifications - Exhibits filed include the At The Market Offering Agreement, a Purchase and Sale Agreement for property, and officer certifications required by the Sarbanes-Oxley Act[132](index=132&type=chunk)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements reflecting the merger with Queen Casino & Entertainment, Inc [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects significant growth in assets, liabilities, and equity following the merger with Queen Financial Metric Comparison | Financial Metric | June 30, 2025 (Successor) | December 31, 2024 (Predecessor) | | :--- | :--- | :--- | | **Total Current Assets** | $489,977 thousand | $447,873 thousand | | **Total Assets** | $7,794,257 thousand | $5,860,137 thousand | | **Total Current Liabilities** | $993,911 thousand | $677,808 thousand | | **Total Liabilities** | $7,151,818 thousand | $5,829,235 thousand | | **Total Stockholders' Equity** | $642,439 thousand | $30,902 thousand | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported higher revenue but a significantly larger net loss for Q2 2025 compared to the prior year, driven by a large tax provision Quarterly Operational Performance | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 (Successor) | Three Months Ended June 30, 2024 (Predecessor) | | :--- | :--- | :--- | | **Total Revenue** | $657,534 | $621,657 | | **(Loss) income from operations** | $(2,437) | $5,573 | | **Net loss** | $(228,436) | $(60,196) | | **Basic loss per share** | $(3.76) | $(1.24) | | **Diluted loss per share** | $(3.76) | $(1.24) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow analysis shows significant use of cash in operations and investing, funded by financing activities Cash Flow Activity Summary | Cash Flow Activity (in thousands) | Period from Feb 8 to Jun 30, 2025 (Successor) | Period from Jan 1 to Feb 7, 2025 (Predecessor) | Six Months Ended Jun 30, 2024 (Predecessor) | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | $58,799 | $(80,186) | $39,699 | | **Net cash used in investing activities** | $(163,552) | $(17,697) | $(87,602) | | **Net cash provided by financing activities** | $119,695 | $97,988 | $59,802 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the accounting for the Queen merger, segment performance, and the subsequent sale of the International Interactive business - On February 7, 2025, the company completed its merger with The Queen Casino & Entertainment, Inc, accounted for as a **merger between entities under common control**[34](index=34&type=chunk)[41](index=41&type=chunk) - Subsequent to the quarter end, the company agreed to **sell its International Interactive business to Intralot S.A.** for approximately **€2.7 billion**[203](index=203&type=chunk) - The company has significant capital expenditure commitments, including approximately **$965.7 million remaining for the Bally's Chicago resort** and **$42.0 million for its Rhode Island properties**[178](index=178&type=chunk)[179](index=179&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial results, liquidity, and capital projects, focusing on the Queen merger and the planned Intralot sale - **Total revenue for Q2 2025 increased 6% year-over-year to $657.5 million**, driven by a 14.7% increase in the Casinos & Resorts segment from the Queen acquisition[241](index=241&type=chunk) - The company will use proceeds from the **€2.7 billion sale of its International Interactive business** to pay down secured debt and enhance liquidity[222](index=222&type=chunk) - Major capital projects, including Bally's Chicago, are advancing, with future funding expected through an agreement with **Gaming and Leisure Properties, Inc (GLPI)**[295](index=295&type=chunk) [Results of Operations](index=56&type=section&id=Results%20of%20Operations) Q2 2025 revenue grew due to the Casinos & Resorts segment, while net loss widened significantly due to a large income tax provision Q2 2025 vs Q2 2024 Performance | Metric (in millions) | Q2 2025 (Successor) | Q2 2024 (Predecessor) | | :--- | :--- | :--- | | **Total Revenue** | $657.5 | $621.7 | | **(Loss) from operations** | $(2.4) | $5.6 | | **Net loss** | $(228.4) | $(60.2) | - Segment Revenue Performance (Q2 2025 vs Q2 2024): * **Casinos & Resorts:** Revenue **increased by 14.7%** ($50.3 million), mainly due to the contribution from the Queen acquisition * **International Interactive:** Revenue **decreased by 10.2%** ($23.3 million), primarily due to the sale of the Asia business in late 2024 * **North America Interactive:** Revenue **increased by 21.5%** ($10.0 million), driven by iGaming expansion and optimized marketing[241](index=241&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by its credit facility and new debt, funding capital expenditures and investments Six-Month Cash Flow Summary | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2025 (Combined) | Six Months Ended June 30, 2024 (Predecessor) | | :--- | :--- | :--- | | **Net cash from operating activities** | $(21,387) | $39,699 | | **Net cash used in investing activities** | $(181,249) | $(87,602) | | **Net cash provided by financing activities** | $217,683 | $59,802 | - In connection with the Queen merger, the company issued **$500 million in 11.00% Senior Secured Notes due 2028**[144](index=144&type=chunk)[279](index=279&type=chunk) - The company has significant capital commitments, with **$965.7 million remaining for the Bally's Chicago project** and **$42.0 million for Bally's Twin River**[294](index=294&type=chunk)[295](index=295&type=chunk)[297](index=297&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate fluctuations on its variable-rate debt and foreign currency exposure from UK operations - The company is exposed to interest rate risk with **$2.13 billion of variable rate debt outstanding**; a hypothetical 1% rate increase would raise annual interest expense by approximately **$21.3 million**[302](index=302&type=chunk) - The company faces foreign currency risk from its UK operations, where revenues are primarily in **British Pound Sterling (GBP)**, and uses derivatives to manage this exposure[305](index=305&type=chunk) [Item 4. Controls and Procedures](index=69&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness in the International Interactive segment, with remediation underway - Management concluded that the company's disclosure controls and procedures were **not effective as of June 30, 2025**[306](index=306&type=chunk) - The ineffectiveness is due to a **material weakness** in the International Interactive segment concerning a lack of segregation of duties over journal entries[307](index=307&type=chunk) - Remediation efforts are underway, including the implementation of a **new ERP system in Q1 2025** to enforce proper segregation of duties[310](index=310&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=71&type=section&id=ITEM%201.%20Legal%20Proceedings) Ongoing legal proceedings from the ordinary course of business are not expected to have a material adverse effect on the company's financials - The company is party to various legal proceedings but does not expect them to have a **material impact** on its financial statements[314](index=314&type=chunk) [Item 1A. Risk Factors](index=71&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to risk factors were reported since the company's latest Annual Report on Form 10-K - **No material changes** to the company's risk factors were reported since the last Annual Report on Form 10-K[315](index=315&type=chunk) [Item 5. Other Information](index=71&type=section&id=ITEM%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2025 - No officers or directors adopted or terminated any **Rule 10b5-1 trading plans** during the three months ended June 30, 2025[316](index=316&type=chunk) [Item 6. Exhibits](index=72&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including key agreements and required certifications