Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________ FORM 10-Q ________________________________________________________________________________________________________________________________ ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE A ...

PART I. FINANCIAL INFORMATION This section presents Avalon Holdings Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2025, and 2024 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Avalon Holdings Corporation's unaudited condensed consolidated financial statements, including statements of operations, balance sheets, statements of shareholders' equity, and cash flows for the periods ended June 30, 2025, and 2024, along with accompanying notes detailing business description, accounting policies, revenue recognition, debt, leases, and segment information [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details Avalon Holdings Corporation's revenues, operating income, and net income (loss) for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | 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 operating revenues | $20,252 | $23,057 | $36,320 | $41,915 | | Operating income (loss) | $750 | $1,448 | $(401) | $934 | | Income (loss) before income taxes | $240 | $927 | $(1,421) | $(87) | | Net income (loss) attributable to Avalon Holdings Corporation common shareholders | $274 | $954 | $(1,225) | $(25) | | Basic and diluted net income (loss) per share | $0.07 | $0.24 | $(0.31) | $(0.01) | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of Avalon Holdings Corporation's assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total current assets | $17,255 | $14,556 | | Total assets | $88,055 | $86,186 | | Total current liabilities | $18,907 | $15,463 | | Total equity | $35,577 | $37,052 | | Total liabilities and equity | $88,055 | $86,186 | [Condensed Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement outlines changes in Avalon Holdings Corporation's total shareholders' equity for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | June 30, 2025 (3 months) | June 30, 2024 (3 months) | June 30, 2025 (6 months) | June 30, 2024 (6 months) | | :-------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Total Avalon Holdings Corporation Shareholders' Equity | $36,809 | $36,691 | $36,809 | $36,691 | | Total equity | $35,577 | $35,929 | $35,577 | $35,929 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes Avalon Holdings Corporation's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $2,052 | $3,610 | | Net cash used in investing activities | $(682) | $(696) | | Net cash used in financing activities | $(446) | $(375) | | Increase in cash, cash equivalents and restricted cash | $924 | $2,539 | | Cash, cash equivalents and restricted cash at end of period | $12,685 | $13,991 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [Note 1. Description of Business](index=8&type=section&id=Note%201.%20Description%20of%20Business) This note describes Avalon Holdings Corporation's primary business activities, including waste management services and golf/hospitality operations - Avalon Holdings Corporation provides waste management services (hazardous/nonhazardous waste brokerage, landfill management, salt water injection wells) and owns/operates a hotel, four golf courses, country clubs, and a multipurpose recreation center[14](index=14&type=chunk) [Note 2. Basis of Presentation](index=8&type=section&id=Note%202.%20Basis%20of%20Presentation) This note explains the accounting principles and consolidation policies used in preparing the unaudited condensed financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules, omitting certain GAAP disclosures, and include accounts of Avalon, its wholly-owned subsidiaries, and companies under managerial control[15](index=15&type=chunk)[16](index=16&type=chunk) [Note 3. Recent Accounting Pronouncements](index=8&type=section&id=Note%203.%20Recent%20Accounting%20Pronouncements) This note discusses the potential impact of recently issued accounting standards on the Company's financial reporting - The Company is evaluating ASU 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024, and does not expect a material impact[19](index=19&type=chunk) - The Company is evaluating ASU 2024-03 (Disaggregation of Income Statement Expenses) effective for annual periods beginning after December 15, 2026, and has not yet determined its effect[20](index=20&type=chunk) [Note 4. Cash, Cash Equivalents and Restricted Cash](index=9&type=section&id=Note%204.%20Cash,%20Cash%20Equivalents%20and%20Restricted%20Cash) This note provides details on the composition of cash, cash equivalents, and restricted cash balances - Restricted cash of **$8.971 million** (June 30, 2025) and **$8.958 million** (December 31, 2024) consists of loan proceeds for the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle[22](index=22&type=chunk)[23](index=23&type=chunk) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Cash and cash equivalents | $3,714 | $2,803 | | Restricted cash | $8,971 | $8,958 | | Total | $12,685 | $11,761 | [Note 5. Revenues](index=9&type=section&id=Note%205.%20Revenues) This note details the Company's revenue recognition policies and disaggregation of revenue by source [Revenue Recognition](index=9&type=section&id=Revenue%20Recognition) This section outlines the principles and timing for recognizing revenue from customer contracts - Revenue is recognized when performance obligations are satisfied, typically with the transfer of control of goods or services to the customer, and is measured as the expected consideration[24](index=24&type=chunk) [Waste Management Services](index=9&type=section&id=Waste%20Management%20Services) This section describes the types of waste management services offered and their revenue contribution - Waste management services include hazardous/nonhazardous waste brokerage, captive landfill management, and salt water injection wells, primarily in the northeastern and midwestern U.S[25](index=25&type=chunk) - Salt water injection well operations were suspended due to a Chief's order, resulting in no operating revenues for the three and six months ended June 30, 2025 and 2024[28](index=28&type=chunk) | Period | Waste Management Services Revenue % of Total | | :----- | :----------------------------------------- | | Q2 2025 | 48% | | Q2 2024 | 53% | | H1 2025 | 53% | | H1 2024 | 59% | [Golf and Related Operations](index=10&type=section&id=Golf%20and%20Related%20Operations) This section details the revenue streams from golf courses, clubs, and hospitality services - Golf and related operations include four golf courses, clubhouses, recreation/fitness centers, a dermatology center, salon/spa, dining/banquet facilities, and a hotel[35](index=35&type=chunk) - Membership dues are recognized on a straight-line basis over the one-year non-cancellable membership term, representing a "stand ready obligation" to provide facility access[38](index=38&type=chunk)[40](index=40&type=chunk) | Period | Golf and Related Operations Revenue % of Total | | :----- | :--------------------------------------------- | | Q2 2025 | 52% | | Q2 2024 | 47% | | H1 2025 | 47% | | H1 2024 | 41% | [Revenue Disaggregation](index=11&type=section&id=Revenue%20Disaggregation) This section provides a detailed breakdown of net operating revenues by various service categories | Revenue Source (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :---------------------------- | :------ | :------ | :------ | :------ | | Waste management and brokerage services | $8,889 | $11,437 | $17,664 | $23,224 | | Captive landfill management operations | $853 | $783 | $1,755 | $1,466 | | Food, beverage and merchandise sales | $3,760 | $3,996 | $5,784 | $6,007 | | Membership dues revenue | $1,829 | $1,839 | $3,662 | $3,813 | | Room rental revenue | $2,018 | $2,052 | $3,104 | $3,047 | | Greens fees and cart rental revenue | $1,060 | $1,169 | $1,119 | $1,238 | | Salon and spa services | $1,025 | $991 | $1,929 | $1,790 | | Fitness and tennis lesson revenue | $69 | $79 | $109 | $188 | | Other revenue | $749 | $711 | $1,194 | $1,142 | | Total net operating revenues | $20,252 | $23,057 | $36,320 | $41,915 | [Receivables, Net](index=12&type=section&id=Receivables,%20Net) This section details the composition of accounts receivable and the allowance for credit losses - Accounts receivable, net, for golf and related operations increased to approximately **$2.4 million** at June 30, 2025, from **$1.1 million** at December 31, 2024, while waste management services receivables remained at **$7.5 million**[45](index=45&type=chunk) | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Allowance for credit losses (Beginning of Period) | $249 | $257 | $260 | $260 | | Provision for Credit Losses | $38 | $8 | $45 | $15 | | Write-offs less Recoveries | $(27) | $(11) | $(45) | $(21) | | Allowance for credit losses (End of Period) | $260 | $254 | $260 | $254 | [Contract Assets](index=12&type=section&id=Contract%20Assets) This section explains the nature and changes in unbilled membership dues receivable - Unbilled membership dues receivable increased to approximately **$1.0 million** at June 30, 2025, from **$0.6 million** at December 31, 2024, due to the timing of annual membership renewals and monthly billing[48](index=48&type=chunk) | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Unbilled membership dues receivable (Beginning of Period) | $733 | $790 | $582 | $567 | | Membership Dues | $769 | $858 | $1,383 | $1,528 | | Billings | $(465) | $(538) | $(928) | $(985) | | Unbilled membership dues receivable (End of Period) | $1,037 | $1,110 | $1,037 | $1,110 | [Contract Liabilities](index=13&type=section&id=Contract%20Liabilities) This section details deferred membership dues revenue and customer advance deposits - Deferred membership dues revenue increased to approximately **$5.7 million** at June 30, 2025, from **$3.5 million** at December 31, 2024, primarily due to the timing of annual membership renewals[50](index=50&type=chunk) - Customer advance deposits remained stable at approximately **$1.6 million** at both June 30, 2025, and December 31, 2024[51](index=51&type=chunk) | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Deferred membership dues revenue (Beginning of Period) | $5,134 | $5,158 | $3,524 | $3,443 | | Billings | $2,429 | $2,544 | $5,872 | $6,233 | | Revenue Recognized | $(1,829)| $(1,839)| $(3,662)| $(3,813)| | Deferred membership dues revenue (End of Period) | $5,734 | $5,863 | $5,734 | $5,863 | | Customer advance deposits (Beginning of Period) | $1,647 | $1,311 | $1,565 | $1,223 | | Billings | $117 | $726 | $622 | $1,209 | | Revenue Recognized | $(115) | $(725) | $(538) | $(1,120)| | Customer advance deposits (End of Period) | $1,649 | $1,312 | $1,649 | $1,312 | [Note 6. Property and Equipment](index=13&type=section&id=Note%206.%20Property%20and%20Equipment) This note provides information on the Company's property and equipment, including depreciation policies and net book values - Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives ranging from 3 to 50 years[53](index=53&type=chunk) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Land and land improvements | $17,071 | $17,071 | | Buildings and improvements | $54,752 | $54,673 | | Machinery and equipment | $10,402 | $9,866 | | Office furniture and fixtures | $10,630 | $10,568 | | Vehicles | $1,125 | $1,065 | | Construction in progress | $1,382 | $1,136 | | Total | $95,362 | $94,379 | | Less accumulated depreciation and amortization | $(40,779) | $(38,797) | | Property and equipment, net | $54,583 | $55,582 | - No significant fixed contractual commitments for construction projects existed at June 30, 2025, and no triggering events for impairment of long-lived assets were present during the first six months of 2025 and 2024[56](index=56&type=chunk)[57](index=57&type=chunk) [Note 7. Leases](index=14&type=section&id=Note%207.%20Leases) This note details the Company's operating and finance lease arrangements, including right-of-use assets and lease obligations [Operating Leases](index=14&type=section&id=Operating%20Leases) This section describes the Company's operating lease agreements and associated financial impacts - Operating leases for golf carts, landfill equipment, furniture, and office copiers have remaining terms from less than 1 year to 3.5 years, with a weighted average of **3.1 years** at June 30, 2025[58](index=58&type=chunk) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $1,269 | $1,383 | | Current portion of obligations under operating leases | $364 | $365 | | Long-term portion of obligations under operating leases | $905 | $1,018 | | Total obligations under operating leases | $1,269 | $1,383 | [Finance Leases](index=14&type=section&id=Finance%20Leases) This section details the Company's finance lease arrangements and related financial obligations - Avalon leases Squaw Creek Country Club facilities under a finance lease with approximately **28.3 years** remaining at June 30, 2025, and also has finance leases for vehicles and equipment[60](index=60&type=chunk)[61](index=61&type=chunk) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Leased property under finance leases, net | $5,924 | $5,647 | | Current portion of obligations under finance leases | $278 | $201 | | Long-term portion of obligations under finance leases | $1,022 | $707 | | Total obligations under finance leases | $1,300 | $908 | | Lease Expense (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--------------------------- | :------ | :------ | :------ | :------ | | Operating lease cost: Rental expense | $175 | $155 | $226 | $223 | | Finance lease cost: Depreciation expense | $121 | $133 | $268 | $270 | | Finance lease cost: Interest expense | $19 | $9 | $33 | $29 | | Total finance lease cost | $140 | $142 | $301 | $299 | | Future Lease Commitments (in thousands) | Finance | Operating | Total | | :-------------------------------------- | :------ | :-------- | :---- | | 2026 | $362 | $438 | $800 | | 2027 | $337 | $395 | $732 | | 2028 | $296 | $292 | $588 | | 2029 | $231 | $201 | $432 | | 2030 | $115 | $109 | $224 | | Thereafter | $344 | $- | $344 | | Total lease payments | $1,685 | $1,435 | $3,120| | Less: imputed interest | $385 | $166 | $551 | | Total | $1,300 | $1,269 | $2,569| [Note 8. Basic and Diluted Net Income (Loss) per Share](index=17&type=section&id=Note%208.%20Basic%20and%20Diluted%20Net%20Income%20(Loss)%20per%20Share) This note explains the calculation of basic and diluted earnings per share, including common shares outstanding and potential dilutive instruments - Basic and diluted net income (loss) per share are calculated using a weighted average of **3,899,431 common shares** outstanding for all periods presented[64](index=64&type=chunk) - No outstanding stock options existed for the three and six months ended June 30, 2025 and 2024, resulting in no dilution[66](index=66&type=chunk) [Note 9. Term Loans and Line of Credit Agreements](index=17&type=section&id=Note%209.%20Term%20Loans%20and%20Line%20of%20Credit%20Agreements) This note provides details on the Company's term loan and line of credit agreements, including terms, interest rates, and compliance with covenants - The 2022 Term Loan Agreement, totaling **$31.0 million**, refinanced previous debt and allocated **$10.4 million** to a project fund for renovations, with **$9.0 million** remaining as restricted cash[67](index=67&type=chunk) - The term loan bears a fixed interest rate of **6.00%** until August 5, 2029, after which it resets based on the three-year treasury rate plus **3.40%**, not exceeding **8.50%**[68](index=68&type=chunk) - A Line of Credit Agreement provides up to **$5.0 million**, extended to July 31, 2026, with **$3.2 million** outstanding and **$1.8 million** available at June 30, 2025, bearing interest at Prime Rate plus **0.25%** (**7.75%** at June 30, 2025)[72](index=72&type=chunk)[73](index=73&type=chunk) - Avalon was in compliance with the Fixed Charge Coverage Ratio (at least **1.20**) and other covenants for both the 2022 Term Loan Agreement and the Line of Credit Agreement at June 30, 2025, and December 31, 2024[70](index=70&type=chunk)[74](index=74&type=chunk) | Debt Obligations (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Term Loan Agreement (Gross Amount) | $29,347 | $29,660 | | Debt Issuance Costs | $(409) | $(439) | | Term Loan Agreement (Net Amount) | $28,938 | $29,221 | | Current portion of long-term debt | $594 | $575 | | Long-term debt | $28,344 | $28,646 | | Future Maturities of Long-Term Debt (in thousands) | Amount | | :------------------------------------------------- | :----- | | 2026 | $654 | | 2027 | $3,894 | | 2028 | $737 | | 2029 | $782 | | 2030 | $831 | | Thereafter | $25,649| | Total | $32,547| [Note 10. Income Taxes](index=19&type=section&id=Note%2010.%20Income%20Taxes) This note discusses the Company's income tax provisions, effective tax rates, and deferred tax assets and liabilities - Avalon recorded a state income tax provision for waste management and brokerage operations, but the overall effective tax rate reflects a full valuation allowance against federal and most state net deferred tax assets[76](index=76&type=chunk) - The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, is not expected to materially impact the Company's financial position, results of operations, or disclosures[77](index=77&type=chunk) [Note 11. Long-Term Incentive Plan](index=20&type=section&id=Note%2011.%20Long-Term%20Incentive%20Plan) This note describes the Company's long-term incentive plan, including stock option grants and vesting conditions - The Plan, approved in 2019, provides **1,300,000 shares** of Class A Common Stock for stock options to employees and non-employee directors, aiming to improve performance and align interests with shareholders[79](index=79&type=chunk)[80](index=80&type=chunk) - Stock options vest ratably over five years and require the Class A Common Stock price to reach a predetermined vesting price within three years post-vesting to be exercisable[83](index=83&type=chunk)[89](index=89&type=chunk) - All previously granted options were cancelled by March 31, 2024, as they did not meet the predetermined stock price, and no options were outstanding at June 30, 2025, or 2024[88](index=88&type=chunk)[91](index=91&type=chunk) [Note 12. Legal Matters](index=21&type=section&id=Note%2012.%20Legal%20Matters) This note provides an overview of the Company's involvement in various legal and administrative proceedings - Avalon is involved in various lawsuits and administrative proceedings, including environmental matters, but management does not believe any uninsured liabilities will have a material adverse effect on its liquidity, financial position, or results of operations[92](index=92&type=chunk) [Note 13. Business Segment Information](index=21&type=section&id=Note%2013.%20Business%20Segment%20Information) This note presents financial information disaggregated by the Company's two reportable business segments - Avalon operates in two reportable segments: waste management services (brokerage, landfill management, salt water injection wells) and golf and related operations (golf courses, hotel, recreation centers, med spa, dermatology)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Segment profit is measured as income (loss) before income taxes, and no single customer accounted for more than **10%** of consolidated net operating revenues for the periods presented[95](index=95&type=chunk)[96](index=96&type=chunk) | Segment Performance (Income (loss) before income taxes, in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------------------------ | :------ | :------ | :------ | :------ | | Waste Management Services | $1,022 | $1,311 | $1,813 | $2,456 | | Golf and Related Operations | $561 | $967 | $(711) | $(13) | | Corporate | $(1,343)| $(1,351)| $(2,523)| $(2,530)| | Total | $240 | $927 | $(1,421)| $(87) | | Identifiable Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Waste management services | $36,567 | $35,100 | | Golf and related operations | $63,637 | $62,500 | | Corporate | $62,962 | $64,247 | | Subtotal | $163,166 | $161,847 | | Elimination of intersegment receivables | $(75,111) | $(75,661) | | Total | $88,055 | $86,186 | [Note 14. Certain Relationships and Related Transactions](index=23&type=section&id=Note%2014.%20Certain%20Relationships%20and%20Related%20Transactions) This note details transactions and relationships with affiliated entities, including variable interest entities [AWMS Holdings, LLC](index=23&type=section&id=AWMS%20Holdings,%20LLC) This section describes Avalon's ownership and consolidation of AWMS Holdings, LLC - Avalon owns approximately **47%** of AWMS Holdings, LLC, a variable interest entity (VIE) that operates salt water injection wells, but maintains managerial control, leading to consolidation[100](index=100&type=chunk)[102](index=102&type=chunk) | Net Loss Attributable to Non-Controlling Interest in AWMS Holdings, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net Loss | $22 | $11 | $90 | $37 | [Avalon Med Spa, LLC](index=25&type=section&id=Avalon%20Med%20Spa,%20LLC) This section describes Avalon's ownership and consolidation of Avalon Med Spa, LLC - Avalon is the majority owner (**50.1%**) of Avalon Med Spa, LLC, a VIE providing aesthetic services, and its financial statements are consolidated[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) | Net Loss Attributable to Non-Controlling Interest in Avalon Med Spa, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------------------------------------------ | :------ | :------ | :------ | :------ | | Net Loss | $4 | $36 | $67 | $85 | [Avalon Dermatology, LLC](index=25&type=section&id=Avalon%20Dermatology,%20LLC) This section describes Avalon's ownership and consolidation of Avalon Dermatology, LLC - Avalon is the majority owner (**50.1%**) of Avalon Dermatology, LLC, a VIE providing dermatology services, and its financial statements are consolidated[106](index=106&type=chunk)[107](index=107&type=chunk) | Net Loss Attributable to Non-Controlling Interest in Avalon Dermatology, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :---------------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net Loss | $37 | $24 | $93 | $24 | [Note 15. Injection Wells Suspension](index=26&type=section&id=Note%2015.%20Injection%20Wells%20Suspension) This note provides an update on the suspension of salt water injection well operations and related legal proceedings - Operations of Avalon's AWMS 2 salt water injection well remain suspended since September 2014 due to seismic activity concerns and ongoing legal appeals with the Ohio Division of Oil and Gas Resources Management[108](index=108&type=chunk)[115](index=115&type=chunk)[122](index=122&type=chunk) - The Supreme Court of Ohio remanded a case to the 11th Appellate District Court to determine if the Company suffered a total or partial regulatory taking due to the well suspension[119](index=119&type=chunk) - The 11th Appellate District Court denied the categorical regulatory takings claim but found for a partial regulatory takings claim, which the Company has appealed to the Supreme Court of Ohio, with oral arguments scheduled for August 20, 2025[120](index=120&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Avalon's financial condition and operational results, highlighting liquidity, capital resources, growth strategies, and performance for the three and six months ended June 30, 2025, compared to 2024, along with key trends and uncertainties impacting the business [Introduction](index=28&type=section&id=Introduction) This introduction outlines the scope of management's discussion and analysis, including forward-looking statements - This discussion covers Avalon Holdings Corporation, its wholly-owned subsidiaries, and variable interest entities where Avalon is the primary beneficiary[123](index=123&type=chunk) - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[124](index=124&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Avalon's ability to generate and manage cash, including debt agreements and capital expenditures [2022 Term Loan Agreement](index=28&type=section&id=2022%20Term%20Loan%20Agreement) This section details the terms, conditions, and compliance status of the Company's primary term loan - A **$31.0 million** term loan, entered into on August 5, 2022, refinanced **$20.2 million** of prior debt and allocated **$10.4 million** to a project fund for renovations, with **$9.0 million** remaining as restricted cash[126](index=126&type=chunk) - The loan is payable in 119 monthly installments with a balloon payment on August 5, 2032, bearing a fixed interest rate of **6.00%** until August 5, 2029, then resetting to a rate between **6.00%** and **8.50%**[127](index=127&type=chunk) - Avalon was in compliance with all covenants, including a Fixed Charge Coverage Ratio of at least **1.20**, at June 30, 2025, and December 31, 2024[129](index=129&type=chunk) [Line of Credit Agreement](index=29&type=section&id=Line%20of%20Credit%20Agreement) This section describes the Company's revolving line of credit, including available amounts and interest rates - The line of credit, extended to July 31, 2026, provides up to **$5.0 million**, with **$3.2 million** outstanding and **$1.8 million** available at June 30, 2025, bearing interest at Prime Rate plus **0.25%** (**7.75%** at June 30, 2025)[131](index=131&type=chunk)[132](index=132&type=chunk) - The agreement includes a Fixed Charge Coverage Ratio requirement of at least **1.20**, and Avalon was in compliance with all covenants at June 30, 2025, and December 31, 2024[133](index=133&type=chunk) [Squaw Creek Country Club Lease Agreement](index=29&type=section&id=Squaw%20Creek%20Country%20Club%20Lease%20Agreement) This section outlines the terms of the long-term lease for the Squaw Creek Country Club facilities - Avalon leases and operates Squaw Creek Country Club facilities under a long-term agreement, with an initial 10-year term and four 10-year renewal options, requiring **$15,000** in annual rent and **$150,000** in annual leasehold improvements[135](index=135&type=chunk) [Capital Expenditures](index=29&type=section&id=Capital%20Expenditures) This section reports on the Company's investments in property and equipment and future spending plans - Capital expenditures for the first six months of 2025 and 2024 were **$0.7 million**, primarily for remodeling The Grand Resort and Avalon Dermatology, LLC[136](index=136&type=chunk) - Aggregate capital expenditures for 2025 are projected to be **$2.5 million to $3.5 million**, funded by the project fund account and cash from operations, focusing on hotel room remodeling and building improvements[137](index=137&type=chunk) [Working Capital](index=29&type=section&id=Working%20Capital) This section analyzes the Company's short-term liquidity position and changes in current assets and liabilities - Avalon reported a working capital deficit of approximately **$1.7 million** at June 30, 2025, compared to **$0.9 million** at December 31, 2024, primarily due to increased deferred membership dues, accounts payable, and accrued payroll[138](index=138&type=chunk) - Accounts receivable for golf operations increased by **$1.3 million**, unbilled membership dues by **$0.4 million**, and inventory by **$0.2 million**, while accounts payable increased by **$0.6 million** and deferred membership dues by **$2.2 million**[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) - Management anticipates future operations will generate sufficient cash to meet operating needs and debt obligations, with the existing line of credit available for additional funding if necessary[145](index=145&type=chunk) [Growth Strategy](index=30&type=section&id=Growth%20Strategy) This section outlines Avalon's strategic initiatives for expanding its business segments and enhancing shareholder value [Waste Management Services Segment](index=30&type=section&id=Waste%20Management%20Services%20Segment%20Growth%20Strategy) This section details the strategies for increasing revenue and market share in waste management services - The growth strategy focuses on increasing revenue, market share, and shareholder value through internal growth, leveraging extensive management and sales staff experience[146](index=146&type=chunk) - Key activities include retaining existing customers, acquiring new business through tailored sales and marketing, and identifying opportunities for integrated service provision and bidding on specialized projects[146](index=146&type=chunk)[148](index=148&type=chunk) [Golf and Related Operations Segment](index=31&type=section&id=Golf%20and%20Related%20Operations%20Segment%20Growth%20Strategy) This section describes the strategies for enhancing the golf and hospitality business, including acquisitions and amenity expansion - The acquisition of The Grand Resort in 2014 aimed to provide a self-contained vacation experience, offering golf packages and access to amenities, expecting to increase Avalon Golf and Country Club memberships[149](index=149&type=chunk) - Avalon continues to consider attractive investment opportunities, particularly among private country clubs experiencing economic difficulties in northeast Ohio[149](index=149&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of Avalon's financial performance for the reported periods [Performance in the second quarter of 2025 compared with the second quarter of 2024](index=31&type=section&id=Performance%20in%20the%20second%20quarter%20of%202025%20compared%20with%20the%20second%20quarter%20of%202024) This section analyzes Avalon's financial performance for the second quarter of 2025 against the same period in 2024 [Overall Performance](index=31&type=section&id=Overall%20Performance%20Q2) This section summarizes the key financial results and drivers for the second quarter - Net operating revenues decreased by **$2.8 million** (**12.2%**) to **$20.3 million** in Q2 2025, primarily due to a decrease in waste management event work projects and adverse weather impacting golf and related operations[151](index=151&type=chunk) - Total cost of operations for waste management decreased by **$2.0 million** (**21.1%**) to **$7.5 million**, while golf and related operations costs increased by **$0.2 million** (**2.4%**) to **$8.6 million** due to higher utility and operating expenditures[152](index=152&type=chunk)[153](index=153&type=chunk) - Net income attributable to common shareholders decreased by **$0.7 million** (**73.7%**) to **$0.3 million**, or **$0.07 per share**, in Q2 2025, compared to **$1.0 million**, or **$0.24 per share**, in Q2 2024[155](index=155&type=chunk) [Segment Performance](index=32&type=section&id=Segment%20Performance%20Q2) This section analyzes the financial performance of Avalon's individual business segments for the second quarter [Waste Management Services Segment](index=32&type=section&id=Waste%20Management%20Services%20Segment%20Q2) This section details the revenue and income performance of the waste management services segment for the second quarter - Net operating revenues decreased by **$2.5 million** (**20.5%**) to **$9.7 million** in Q2 2025, driven by a **$2.9 million** decrease in event work projects, partially offset by a **$0.4 million** increase in continuous work[157](index=157&type=chunk)[158](index=158&type=chunk) - Income before income taxes decreased by **$0.3 million** (**22.9%**) to **$1.0 million** in Q2 2025, primarily due to lower net operating revenues[161](index=161&type=chunk) - Gross margin percentage for waste brokerage and management services increased to approximately **23%** in Q2 2025 from **22%** in Q2 2024, attributed to higher gross profit from event work projects[160](index=160&type=chunk) [Golf and Related Operations Segment](index=32&type=section&id=Golf%20and%20Related%20Operations%20Segment%20Q2) This section details the revenue and income performance of the golf and related operations segment for the second quarter - Net operating revenues decreased by **$0.3 million** (**2.8%**) to **$10.5 million** in Q2 2025, mainly due to decreased business activity at The Grand Resort and country clubs, and fewer rounds played due to poor weather[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Income before income taxes decreased by **$0.4 million** (**40.0%**) to **$0.6 million** in Q2 2025, primarily due to decreased business activity from adverse weather conditions[166](index=166&type=chunk) - Cost of food, beverage, and merchandise sales increased to **46%** of associated revenue in Q2 2025 from **42%** in Q2 2024[165](index=165&type=chunk) [General Corporate Expenses](index=33&type=section&id=General%20Corporate%20Expenses%20Q2) This section discusses the trends and changes in general corporate overhead expenses for the second quarter - General corporate expenses remained stable at approximately **$0.9 million** in both Q2 2025 and Q2 2024, attributed to lower corporate overhead[167](index=167&type=chunk) [Interest Expense](index=33&type=section&id=Interest%20Expense%20Q2) This section analyzes the Company's interest expense for the second quarter, including weighted average interest rates - Interest expense remained stable at approximately **$0.5 million** in both Q2 2025 and Q2 2024, with weighted average interest rates of **6.17%** and **6.26%**, respectively[168](index=168&type=chunk) [Net Income](index=33&type=section&id=Net%20Income%20Q2) This section summarizes the net income attributable to common shareholders for the second quarter - Net income attributable to Avalon Holdings Corporation common shareholders decreased to **$0.3 million** in Q2 2025 from **$1.0 million** in Q2 2024[169](index=169&type=chunk) - A state income tax provision was recorded for waste management operations, but a full valuation allowance against federal net deferred tax assets impacted the overall effective tax rate[169](index=169&type=chunk) [Performance in the first six months of 2025 compared with the first six months of 2024](index=33&type=section&id=Performance%20in%20the%20first%20six%20months%20of%202025%20compared%20with%20the%20first%20six%20months%20of%202024) This section analyzes Avalon's financial performance for the first six months of 2025 against the same period in 2024 [Overall Performance](index=33&type=section&id=Overall%20Performance%20H1) This section summarizes the key financial results and drivers for the first six months - Net operating revenues decreased by **$5.6 million** (**13.4%**) to **$36.3 million** in H1 2025, primarily due to a decrease in waste management event work and adverse weather affecting golf operations[170](index=170&type=chunk) - Total cost of operations for waste management decreased by **$4.3 million** (**22.2%**) to **$15.1 million**, while golf and related operations costs increased by **$0.4 million** (**2.8%**) to **$14.7 million** due to higher utility and operating expenditures[171](index=171&type=chunk)[172](index=172&type=chunk) - Net loss attributable to common shareholders increased significantly to **$1.2 million**, or **$0.31 per share**, in H1 2025, compared to a net loss of **$25 thousand**, or **$0.01 per share**, in H1 2024[175](index=175&type=chunk) [Segment Performance](index=34&type=section&id=Segment%20Performance%20H1) This section analyzes the financial performance of Avalon's individual business segments for the first six months [Waste Management Services Segment](index=34&type=section&id=Waste%20Management%20Services%20Segment%20H1) This section details the revenue and income performance of the waste management services segment for the first six months - Net operating revenues decreased by **$5.3 million** (**21.5%**) to **$19.4 million** in H1 2025, primarily due to a **$5.1 million** decrease in event work projects, with continuous work also decreasing by **$0.4 million**[177](index=177&type=chunk)[178](index=178&type=chunk) - Income before income taxes decreased by **$0.7 million** (**28.0%**) to **$1.8 million** in H1 2025, mainly due to the reduction in event work projects[181](index=181&type=chunk) - Gross margin percentage for waste brokerage and management services increased to approximately **22%** in H1 2025 from **21%** in H1 2024, driven by increased gross profit from continuous work[180](index=180&type=chunk) [Golf and Related Operations Segment](index=35&type=section&id=Golf%20and%20Related%20Operations%20Segment%20H1) This section details the revenue and income performance of the golf and related operations segment for the first six months - Net operating revenues decreased by **$0.3 million** (**1.7%**) to **$16.9 million** in H1 2025, attributed to decreased food, beverage, and merchandise sales, lower membership dues, and fewer greens fees due to poor weather[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - Net loss before income taxes increased significantly to **$0.7 million** in H1 2025, compared to a **$13 thousand** loss in H1 2024, due to decreased revenues and increased utility and operating costs[186](index=186&type=chunk) - The cost of food, beverage, and merchandise sales increased to **47%** of associated revenue in H1 2025 from **45%** in H1 2024[185](index=185&type=chunk) [General Corporate Expenses](index=36&type=section&id=General%20Corporate%20Expenses%20H1) This section discusses the trends and changes in general corporate overhead expenses for the first six months - General corporate expenses remained stable at approximately **$1.5 million** in both H1 2025 and H1 2024, due to lower corporate overhead[187](index=187&type=chunk) [Interest Expense](index=36&type=section&id=Interest%20Expense%20H1) This section analyzes the Company's interest expense for the first six months, including weighted average interest rates - Interest expense remained stable at approximately **$1.0 million** in both H1 2025 and H1 2024, with weighted average interest rates of **6.17%** and **6.27%**, respectively[188](index=188&type=chunk) [Net Loss](index=36&type=section&id=Net%20Loss%20H1) This section summarizes the net loss attributable to common shareholders for the first six months - Net loss attributable to Avalon Holdings Corporation common shareholders increased to **$1.2 million** in H1 2025 from **$25 thousand** in H1 2024[189](index=189&type=chunk) - A state income tax provision was recorded for waste management operations, but a full valuation allowance against federal net deferred tax assets impacted the overall effective tax rate[189](index=189&type=chunk) [Trends and Uncertainties](index=36&type=section&id=Trends%20and%20Uncertainties) This section identifies key factors and potential challenges that could impact Avalon's future financial performance [Government regulations](index=36&type=section&id=Government%20regulations) This section discusses the potential impact of regulatory changes on Avalon's waste management services - Laws or regulations restricting waste transportation or acceptance of out-of-state waste could negatively impact Avalon's waste brokerage and management services[190](index=190&type=chunk) [Legal matters](index=36&type=section&id=Legal%20matters) This section addresses the potential financial implications of ongoing lawsuits and administrative proceedings - Ongoing lawsuits and administrative proceedings, including environmental matters, could result in fines or penalties, but management does not anticipate a material adverse effect on liquidity or financial position[191](index=191&type=chunk) [Credit and collections](index=36&type=section&id=Credit%20and%20collections) This section discusses the risks associated with customer payment defaults and their impact on financial performance - Economic challenges in served industries could lead to customer payment defaults, which, if significant, would materially adversely impact Avalon's future financial performance[192](index=192&type=chunk) [Competitive pressures](index=36&type=section&id=Competitive%20pressures) This section addresses the impact of industry consolidation and pricing pressures on Avalon's business - Consolidation in the solid waste industry may increase disposal pricing, which Avalon's waste brokerage business may not be able to pass on to customers, potentially impacting financial performance[193](index=193&type=chunk) [Unfavorable general economic conditions](index=37&type=section&id=Unfavorable%20general%20economic%20conditions) This section discusses how economic downturns and inflation could affect Avalon's business and consumer spending - Economic downturns, inflation, and decreased consumer spending could adversely affect Avalon's business, particularly its discretionary golf and related operations, impacting financial performance[194](index=194&type=chunk)[195](index=195&type=chunk) [Challenges with respect to labor](index=37&type=section&id=Challenges%20with%20respect%20to%20labor) This section addresses the risks associated with recruiting and retaining qualified employees - Difficulty in recruiting, motivating, and retaining qualified employees in a competitive labor market, especially for specialized waste management roles and senior management, could negatively impact operating margins and profitability[196](index=196&type=chunk)[197](index=197&type=chunk) [Changes in commodity and other operating costs](index=37&type=section&id=Changes%20in%20commodity%20and%20other%20operating%20costs) This section discusses the impact of fluctuating commodity prices and labor costs on operating results - Volatility in commodity prices (food, supplies, fuel, utilities) and labor costs could adversely affect the operating results and profitability of the golf and related operations segment[198](index=198&type=chunk) [Effective succession planning](index=37&type=section&id=Effective%20succession%20planning) This section highlights the importance of succession planning for key personnel and potential business disruptions - Failure to effectively identify, develop, and retain key personnel, particularly as senior management approaches retirement, could disrupt business and adversely affect results[199](index=199&type=chunk) [Majority of business not subject to long-term contracts](index=37&type=section&id=Majority%20of%20business%20not%20subject%20to%20long-term%20contracts) This section discusses the risks associated with a lack of long-term contracts for a significant portion of the business - A significant portion of waste management services and golf operations (membership renewals) are not under long-term contracts, posing a risk if current customers are not retained or replaced[200](index=200&type=chunk)[202](index=202&type=chunk) [Avalon's captive landfill management business](index=38&type=section&id=Avalon's%20captive%20landfill%20management%20business) This section highlights the risk of dependence on a single customer for the captive landfill management business - The captive landfill management business is solely dependent on a single customer, and losing this customer would adversely impact future financial performance[201](index=201&type=chunk) [Avalon's loan and security agreement](index=38&type=section&id=Avalon's%20loan%20and%20security%20agreement) This section discusses the risks of non-compliance with debt covenants and potential early debt repayment - Failure to comply with financial or other covenants in the loan and security agreement could lead to the lender requiring early debt repayment, and there's no assurance of available refinancing[203](index=203&type=chunk) [Saltwater disposal wells](index=38&type=section&id=Saltwater%20disposal%20wells) This section addresses the risks associated with regulatory changes, environmental events, and seismic activity impacting well operations - Increased regulation, environmental events, or seismic activity could lead to higher operating costs, suspension, or termination of saltwater disposal well operations, adversely affecting financial results[204](index=204&type=chunk)[205](index=205&type=chunk) - Operations of AWMS 2 well remain suspended since 2014 due to seismic concerns, with ongoing legal appeals and a Supreme Court of Ohio remand to determine regulatory taking damages[206](index=206&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) [Golf memberships and liquor licenses](index=40&type=section&id=Golf%20memberships%20and%20liquor%20licenses) This section discusses the dependence on membership retention and the risk of losing liquor licenses for golf operations - The golf and related operations' financial performance is highly dependent on retaining and attracting new members for the Avalon Golf and Country Club, a continuous challenge[221](index=221&type=chunk) - Loss of liquor licenses for any of Avalon's golf course operations, The Grand Resort, or recreation center facilities would adversely affect the financial performance of the golf and related operations[222](index=222&type=chunk) [Seasonality](index=40&type=section&id=Seasonality) This section highlights the impact of seasonal operations and adverse weather conditions on financial performance - Avalon's operations, particularly golf courses in northeast Ohio and western Pennsylvania, are seasonal and significantly affected by adverse weather conditions, negatively impacting financial performance[223](index=223&type=chunk) [Inflation](index=41&type=section&id=Inflation) This section discusses the potential adverse effects of inflation on operating costs, consumer spending, and profitability - Elevated interest rates and high consumer goods pricing due to inflation can impact disposable income and spending habits, potentially pressuring Avalon's business and operating performance[224](index=224&type=chunk) - While management believes rising costs from inflation can generally be passed to customers, competitive conditions may require Avalon to absorb some increases, affecting financial performance[224](index=224&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Avalon Holdings Corporation has limited exposure to changing interest rates, with its term loan having a fixed rate until 2029 and its line of credit bearing interest at Prime Rate plus 0.25%. The company does not use derivative financial instruments for interest rate risk management - Avalon has limited exposure to changing interest rates, as its 2022 Term Loan Agreement bears a fixed interest rate of **6.00%** until August 5, 2029[225](index=225&type=chunk)[226](index=226&type=chunk) - The Line of Credit Agreement bears interest at Prime Rate plus **0.25%** (**7.75%** at June 30, 2025), with approximately **$3.2 million** outstanding[227](index=227&type=chunk) - Avalon does not undertake specific actions to cover interest rate risk exposure and does not hold derivative financial instruments[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, under the supervision of the CEO and CFO, evaluated the effectiveness of Avalon's disclosure controls and procedures as of June 30, 2025, concluding they were effective at a reasonable assurance level. No material changes in internal controls over financial reporting occurred during the quarter - As of June 30, 2025, Avalon's disclosure controls and procedures were deemed effective at a reasonable assurance level by management, including the CEO and CFO[228](index=228&type=chunk) - There were no material changes in internal controls over financial reporting during the fiscal quarter ended June 30, 2025[229](index=229&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, changes in securities, defaults, mine safety, other information, exhibits, and the report's signature [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the description of legal proceedings detailed in Avalon's Annual Report on Form 10-K for the year ended December 31, 2024 - For a description of legal proceedings, refer to Avalon's Annual Report on Form 10-K for the year ended December 31, 2024[231](index=231&type=chunk) [Item 2. Changes in Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Changes%20in%20Securities%20and%20Use%20of%20Proceeds) There were no changes in securities or use of proceeds to report for the period - No changes in securities and use of proceeds to report[232](index=232&type=chunk) [Item 3. Defaults upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There were no defaults upon senior securities for the period - No defaults upon senior securities to report[232](index=232&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There were no mine safety disclosures for the period - No mine safety disclosures to report[232](index=232&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - No other information to report[232](index=232&type=chunk) [Item 6. Exhibits and Reports on Form 8-K](index=42&type=section&id=Item%206.%20Exhibits%20and%20Reports%20on%20Form%208-K) This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and notes the voting results from the Annual Meeting reported on May 8, 2025 - Exhibits include Section 302 and 906 certifications, Inline XBRL documents, and a report on voting results from the Annual Meeting held on May 7, 2025[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) [SIGNATURE](index=43&type=section&id=SIGNATURE) The report was duly signed on behalf of Avalon Holdings Corporation by Michael J. Havalo, Chief Financial Officer and Treasurer, on August 8, 2025 - The report was signed by Michael J. Havalo, Chief Financial Officer and Treasurer, on August 8, 2025[237](index=237&type=chunk)

[Front Matter](index=1&type=section&id=Front%20Matter) This section provides key identifying information for Simpson Manufacturing Co., Inc.'s Form 10-Q quarterly report - This report is Simpson Manufacturing Co., Inc.'s Form 10-Q quarterly report as of June 30, 2025[2](index=2&type=chunk) - The company's stock ticker is **SSD**, listed on the New York Stock Exchange, and identified as a large accelerated filer[3](index=3&type=chunk)[6](index=6&type=chunk) - As of August 6, 2025, the company had **41,617,298** shares of common stock outstanding[6](index=6&type=chunk) [Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This section presents Simpson Manufacturing Co., Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of earnings and comprehensive income, statements of stockholders' equity, and cash flows, along with detailed notes [Item 1 - Financial Statements](index=4&type=section&id=Item%201%20-%20Financial%20Statements) This section contains Simpson Manufacturing Co., Inc. and its subsidiaries' unaudited condensed consolidated financial statements, including balance sheets, statements of earnings and comprehensive income, statements of stockholders' equity, and cash flows, accompanied by detailed notes explaining accounting policies, revenue recognition, and various financial accounts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets Key Data (in thousands of US dollars) | Indicator | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :--------------------- | :------------- | :------------- | :-------------- | | **Total Assets** | $2,964,403 | $2,773,361 | $2,736,168 | | **Total Liabilities** | $1,024,626 | $1,008,560 | $923,034 | | **Total Stockholders' Equity** | $1,930,040 | $1,764,801 | $1,805,348 | [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) This section presents the company's financial performance over specific periods, including net sales, gross profit, operating income, and net income Condensed Consolidated Statements of Earnings and Comprehensive Income Key Data (in thousands of US dollars, except per share amounts) | Indicator | 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** | $631,055 | $596,978 | $1,169,950 | $1,127,557 | | **Cost of Sales** | $336,605 | $318,431 | $623,460 | $604,456 | | **Gross Profit** | $294,450 | $278,547 | $546,490 | $523,101 | | **Operating Income** | $140,244 | $132,186 | $242,563 | $228,281 | | **Income Tax Provision** | $35,914 | $34,859 | $62,510 | $57,847 | | **Net Income** | $103,541 | $97,831 | $181,425 | $173,258 | | **Diluted Net Income Per Share** | $2.47 | $2.31 | $4.33 | $4.07 | | **Cash Dividends Declared Per Common Share** | $0.29 | $0.28 | $0.57 | $0.55 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity over specific periods, reflecting net income, other comprehensive income, share repurchases, and dividends Condensed Consolidated Statements of Stockholders' Equity Key Data (in thousands of US dollars) | Indicator | 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** | $103,541 | $97,831 | $181,425 | $173,258 | | **Translation Adjustments and Other (Net of Tax)** | $46,432 | $(2,268) | $64,258 | $(21,911) | | **Repurchase of Common Stock (Including Excise Tax)** | $(35,352) | $(50,257) | $(60,457) | $(50,257) | | **Cash Dividends Declared on Common Stock** | $(12,130) | $(11,804) | $(23,889) | $(23,260) | | **Total Stockholders' Equity, End of Period** | $1,930,040 | $1,764,801 | $1,930,040 | $1,764,801 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Key Data (in thousands of US dollars) | Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------------------- | :------------------------- | | **Net Cash Provided by Operating Activities** | $132,778 | $119,086 | | **Net Cash Used in Investing Activities** | $(90,568) | $(95,686) | | **Net Cash Used in Financing Activities** | $(95,617) | $(93,113) | | **Cash and Cash Equivalents, End of Period** | $190,400 | $354,851 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, clarifying accounting policies and significant transactions [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the basis of presentation for the financial statements, including significant accounting policies and recent accounting pronouncements - Effective January 1, 2025, the company changed its depreciation method for machinery and equipment from accelerated to straight-line, resulting in a **$1.8 million decrease in depreciation expense** and a **$1.3 million increase in net income** (approximately **$0.03 per basic and diluted share**) for the second quarter of 2025, and a **$3.6 million decrease in depreciation expense** and a **$2.7 million increase in net income** (approximately **$0.06 per basic and diluted share**) for the six months ended June 30, 2025[22](index=22&type=chunk) Allowance for Doubtful Accounts Changes (in thousands of US dollars) | Indicator | December 31, 2024 | June 30, 2025 | | :----------------- | :------------- | :------------- | | Allowance for Doubtful Accounts Balance | $2,998 | $3,834 | | Credit Loss Expense | $837 | - | Fair Value Measurements of Financial Assets and Liabilities (in thousands of US dollars) | Item | June 30, 2025 (Level 1) | June 30, 2025 (Level 2) | June 30, 2025 (Level 3) | | :--------------------------- | :----------------------- | :----------------------- | :----------------------- | | Cash Equivalents | $35,788 | — | — | | Derivative Instruments - Assets | — | $16,608 | — | | Deferred Compensation Plan Investments | $1,313 | — | — | | Term Loan Due 2027 | — | $376,875 | — | | Derivative Instruments - Liabilities | — | $98,495 | — | | Deferred Compensation Plan Liabilities | $2,792 | — | — | | Contingent Consideration | — | — | $5,400 | - The company reclassified **$9.7 million** of equity balance related to "non-qualified deferred compensation plan share awards" to mezzanine equity, presented in combination with share-based compensation expense[36](index=36&type=chunk) - The company adopted ASU 2023-07, which aligns interim segment disclosure requirements with existing annual requirements and enhances disclosures for significant segment expenses regularly provided to the chief operating decision maker, with no impact on the consolidated financial statements[48](index=48&type=chunk) [Note 2. Revenue from Contracts with Customers](index=13&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies and disaggregates revenue by product type and geographic region - Wood construction product revenue accounted for **85.1%** and **85.3%** of total net sales for the six months ended June 30, 2025, and 2024, respectively[53](index=53&type=chunk) - Concrete construction product revenue accounted for **14.7%** and **14.6%** of total net sales for the six months ended June 30, 2025, and 2024, respectively[54](index=54&type=chunk) - As of June 30, 2025, the company's contract liabilities were **$6 million**, compared to immaterial as of June 30, 2024; **$2.7 million** in revenue was recognized in the first half of 2025[58](index=58&type=chunk) [Note 3. Net Income per Share](index=15&type=section&id=Note%203.%20Net%20Income%20per%20Share) This note provides a breakdown of basic and diluted net income per share, including the calculation of weighted-average shares outstanding Net Income Per Share and Weighted-Average Shares (in thousands of shares, except per share amounts) | Indicator | 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 Attributable to Common Stockholders** | $103,541 | $97,831 | $181,425 | $173,258 | | **Basic Weighted-Average Shares** | 41,705 | 42,251 | 41,775 | 42,319 | | **Dilutive Effect** | 133 | 167 | 151 | 215 | | **Diluted Weighted-Average Shares** | 41,838 | 42,418 | 41,926 | 42,534 | | **Basic Net Income Per Share** | $2.48 | $2.32 | $4.34 | $4.09 | | **Diluted Net Income Per Share** | $2.47 | $2.31 | $4.33 | $4.07 | [Note 4. Stock-Based Compensation](index=15&type=section&id=Note%204.%20Stock-Based%20Compensation) This note describes the company's stock-based compensation plans and the related expense recognized in the financial statements Stock-Based Compensation Expense (in thousands of US dollars) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Stock-Based Compensation Expense | $6,400 | $5,100 | $12,900 | $10,400 | - As of June 30, 2025, total unrecognized stock-based compensation expense was approximately **$33.1 million**, expected to be recognized over a weighted-average period of **2.3 years**[65](index=65&type=chunk) - In the first half of 2025, the company granted a total of **117,279 RSUs and PSUs** to employees, with an estimated weighted-average fair value of **$170.10 per share**[63](index=63&type=chunk) [Note 5. Trade Accounts Receivable, net](index=17&type=section&id=Note%205.%20Trade%20Accounts%20Receivable,%20net) This note provides a detailed breakdown of trade accounts receivable, net of allowances for doubtful accounts and sales discounts Trade Accounts Receivable, Net Composition (in thousands of US dollars) | Indicator | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :--------------------------- | :------------- | :------------- | :-------------- | | Trade Accounts Receivable | $424,346 | $384,655 | $291,480 | | Allowance for Doubtful Accounts | $(3,837) | $(2,165) | $(2,998) | | Allowance for Sales Discounts and Returns | $(4,583) | $(4,906) | $(4,090) | | **Trade Accounts Receivable, Net** | **$415,926** | **$377,584** | **$284,392** | [Note 6. Inventories](index=17&type=section&id=Note%206.%20Inventories) This note details the composition of the company's inventories, including raw materials, work-in-process, and finished goods Inventories Composition (in thousands of US dollars) | Indicator | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :----------------- | :------------- | :------------- | :-------------- | | Raw Materials | $170,953 | $145,844 | $207,818 | | Work-in-Process | $59,766 | $56,466 | $57,627 | | Finished Goods | $355,904 | $331,315 | $327,730 | | **Total Inventories** | **$586,623** | **$533,625** | **$593,175** | [Note 7. Derivative Instruments](index=18&type=section&id=Note%207.%20Derivative%20Instruments) This note describes the company's use of derivative instruments to manage exposure to interest rate and foreign currency risks - As of June 30, 2025, the total notional amounts outstanding for the company's interest rate contracts, cross-currency swap contracts, Euro forward contracts, and net investment hedges were **$376.9 million**, **$395.1 million**, **$321.7 million**, and **$557.2 million**, respectively[69](index=69&type=chunk) - In May 2025, the company entered into a cross-currency swap contract maturing in May 2032 to hedge against adverse foreign exchange rate fluctuations in its European operations, qualifying for net investment hedge accounting[70](index=70&type=chunk) Impact of Cash Flow Hedge Accounting on Statements of Earnings and Comprehensive Income (in thousands of US dollars) | Cash Flow Hedge Relationship | Gains (Losses) Recognized in OCI for Six Months Ended June 30, 2025 | Gains (Losses) Recognized in OCI for Six Months Ended June 30, 2024 | Gains (Losses) Reclassified from OCI to Earnings for Six Months Ended June 30, 2025 | Gains (Losses) Reclassified from OCI to Earnings for Six Months Ended June 30, 2024 | | :---------------------- | :----------------------------------- | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Interest Rate Contracts | $(2,124) | $9,173 | $3,917 | $6,235 | | Cross-Currency Contracts | $(49,217) | $16,333 | $1,539 | $2,535 | | Forward Contracts | — | — | $(49,880) | $14,484 | | **Total** | **$(51,341)** | **$25,506** | **$(44,424)** | **$23,066** | - As of June 30, 2025, the total fair value of the company's derivative instruments included **$16.6 million in assets** (**$14.6 million** in other current assets and **$2 million** in other non-current assets) and **$98.5 million in non-current liabilities**[74](index=74&type=chunk) [Note 8. Property, Plant and Equipment, net](index=19&type=section&id=Note%208.%20Property,%20Plant%20and%20Equipment,%20net) This note provides a breakdown of the company's property, plant, and equipment, net of accumulated depreciation and amortization Property, Plant and Equipment, Net Composition (in thousands of US dollars) | Indicator | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :--------------------------- | :------------- | :------------- | :-------------- | | Land | $61,349 | $61,305 | $61,054 | | Buildings and Site Improvements | $256,412 | $244,450 | $246,138 | | Leasehold Improvements | $13,422 | $9,712 | $11,313 | | Machinery and Equipment | $601,552 | $537,935 | $567,322 | | Less: Accumulated Depreciation and Amortization | $(549,913) | $(497,400) | $(516,320) | | Construction in Progress | $214,714 | $103,295 | $162,148 | | **Total** | **$597,536** | **$459,297** | **$531,655** | - In January 2025, the company decided to sell undeveloped land in Stockton, California, with a carrying value of approximately **$2.4 million**, classified as held for sale and expected to be sold in the first quarter of 2026[76](index=76&type=chunk) [Note 9. Goodwill and Intangible Assets, net](index=21&type=section&id=Note%209.%20Goodwill%20and%20Intangible%20Assets,%20net) This note details the company's goodwill and intangible assets, including their allocation by segment and amortization schedules Goodwill by Segment (in thousands of US dollars) | Segment | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :----------- | :------------- | :------------- | :-------------- | | North America | $134,289 | $109,949 | $134,148 | | Europe | $425,098 | $386,768 | $377,049 | | Asia-Pacific | $1,246 | $1,273 | $1,186 | | **Total** | **$560,633** | **$497,990** | **$512,383** | - As of June 30, 2025, the weighted-average amortization period for amortizable intangible assets was **7.0 years**[80](index=80&type=chunk) Estimated Future Amortization of Amortizable Intangible Assets (in thousands of US dollars) | Period | Amount | | :------------------------ | :------- | | Remaining Six Months of 2025 | $13,035 | | 2026 | $25,383 | | 2027 | $25,636 | | 2028 | $25,119 | | 2029 | $24,279 | | 2030 | $23,375 | | Thereafter | $150,468 | | **Total** | **$287,295** | - As of June 30, 2025, indefinite-lived intangible assets (primarily trade names) totaled **$112.1 million**, compared to **$91.6 million** and **$105.7 million** as of June 30, 2024, and December 31, 2024, respectively[81](index=81&type=chunk) [Note 10. Leases](index=23&type=section&id=Note%2010.%20Leases) This note provides information on the company's operating lease assets and liabilities, including lease costs and weighted-average lease terms Operating Lease Assets and Liabilities (in thousands of US dollars) | Indicator | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :----------------------- | :------------- | :------------- | :-------------- | | Operating Lease Right-of-Use Assets | $100,649 | $84,305 | $93,933 | | Total Operating Lease Liabilities | $102,698 | $85,896 | $95,599 | Operating Lease Costs (in thousands of US dollars) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------- | :--------------------- | :--------------------- | | Operating Lease Costs | $6,489 | $4,801 | - As of June 30, 2025, the weighted-average remaining lease term was **6.5 years**, and the weighted-average discount rate was **5.2%**[86](index=86&type=chunk) [Note 11. Debt](index=24&type=section&id=Note%2011.%20Debt) This note details the company's debt obligations, including outstanding amounts under credit facilities and compliance with financial covenants - As of June 30, 2025, the company had **$376.9 million** in outstanding debt (excluding deferred financing costs) under its amended and restated credit agreement[87](index=87&type=chunk) - As of June 30, 2025, the company's credit facilities provided a total available borrowing capacity of **$456.6 million**[88](index=88&type=chunk) Remaining Term Loan Facility Maturity Schedule (in thousands of US dollars) | Period | Amount | | :------------------------ | :------- | | Remaining Six Months of 2025 | $11,250 | | 2026 | $22,500 | | 2027 | $343,125 | | **Total Loans** | **$376,875** | - As of June 30, 2025, the company was in compliance with the financial covenants under its amended and restated credit agreement[88](index=88&type=chunk) [Note 12. Commitments and Contingencies](index=25&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note outlines the company's commitments and contingent liabilities, including environmental liabilities and legal proceedings - The company's policy for environmental liabilities is to accrue future environmental assessment and remediation costs when information indicates that the company is probably liable for any related claims and assessments, and the amount of liability can be reasonably estimated; the company does not believe any such matters will have a material adverse effect on its financial condition, cash flows, or results of operations[89](index=89&type=chunk) - The company is involved in various legal proceedings and other matters arising in the normal course of business from time to time, but currently anticipates no litigation or claims will have a material adverse effect on its financial condition, cash flows, or results of operations[90](index=90&type=chunk)[91](index=91&type=chunk) [Note 13. Segment Information](index=25&type=section&id=Note%2013.%20Segment%20Information) This note provides financial information by the company's operating segments: North America, Europe, and Asia-Pacific - The company operates in three reportable segments: North America, Europe, and Asia-Pacific, with segment performance primarily measured by net sales, gross margin, and operating margin[92](index=92&type=chunk)[93](index=93&type=chunk) Net Sales by Segment (in thousands of US dollars) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Year-over-Year Change (%) | | :----------- | :------------- | :------------- | :----------- | | North America | $913,386 | $869,771 | 5.0% | | Europe | $247,258 | $249,814 | (1.0)% | | Asia-Pacific | $9,306 | $7,972 | 16.7% | | **Total** | **$1,169,950** | **$1,127,557** | **3.8%** | Gross Profit by Segment (in thousands of US dollars) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Year-over-Year Change (%) | | :----------- | :------------- | :------------- | :----------- | | North America | $456,346 | $432,117 | 5.6% | | Europe | $88,297 | $89,761 | (1.6)% | | Asia-Pacific | $3,260 | $2,162 | 50.8% | | **Total** | **$546,490** | **$523,101** | **4.5%** | Net Sales by Product Group (in thousands of US dollars) | Product Group | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Year-over-Year Change (%) | | :--------------------------- | :------------- | :------------- | :----------- | | Wood Construction Products | $995,844 | $961,867 | 3.5% | | Concrete Construction Products | $172,087 | $165,177 | 4.2% | | Other | $2,019 | $513 | 293.6% | | **Total** | **$1,169,950** | **$1,127,557** | **3.8%** | - As of June 30, 2025, **$82 million** (**43.0%** of total cash and cash equivalents) of the company's cash and cash equivalents were held in accounts of foreign operating entities outside the United States, which may be subject to additional taxes if repatriated[97](index=97&type=chunk) [Note 14. Subsequent Events](index=28&type=section&id=Note%2014.%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On July 24, 2025, the Board of Directors declared a quarterly cash dividend of **$0.29 per common share**, totaling approximately **$12.1 million**, payable on October 23, 2025[100](index=100&type=chunk) - On July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) was enacted in the United States, including permanent extensions of certain expiring provisions of the Tax Cuts and Jobs Act of 2021, modifications to the international tax framework, and restoration of favorable tax treatment for certain business provisions; the company cannot reasonably estimate the full impact on its consolidated financial statements at this time[101](index=101&type=chunk) - In July 2025, the company sold its existing facility in Gallatin, Tennessee, for approximately **$18.2 million in net proceeds**, expected to generate a **$12.9 million gain** on the disposal of property, plant, and equipment; the company leased back the facility for approximately five months for temporary transition[102](index=102&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202%20-%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 operating performance, including business overview, factors affecting results, segment information, business outlook, and liquidity [Overview](index=30&type=section&id=Overview) This section provides a high-level summary of the company's business, strategic initiatives, and recent operational highlights - The company designs, manufactures, and sells high-quality, high-performance, easy-to-use, and cost-effective building products, operating in three geographic regions: North America, Europe, and Asia-Pacific[110](index=110&type=chunk) - The company is committed to organic growth by expanding its product lines, leveraging engineering expertise, deep relationships with top builders, engineers, contractors, code officials, and distributors, and continuous testing, research, and innovation[111](index=111&type=chunk) - Since 2021, the company has made significant progress on key growth initiatives, including adding approximately **$1 billion in revenue** and **$200 million in operating profit**, realigning its sales force, and making significant investments in manufacturing and warehousing facilities, such as the new Gallatin, Tennessee plant[112](index=112&type=chunk) - The company expects North American volume growth to outpace the U.S. housing starts market in fiscal year 2025 and beyond[112](index=112&type=chunk) - On June 2, 2025, the company increased prices on certain wood connectors, fasteners, and mechanical anchors in the U.S. to partially offset increases in non-material costs such as labor, energy, freight, and equipment[114](index=114&type=chunk)[116](index=116&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and explains the company's use of non-GAAP financial measures, such as Adjusted EBITDA, for performance evaluation - The company uses Adjusted EBITDA as a non-GAAP financial measure to assess the ongoing operating performance of its business, defined as net income (loss) before income taxes, and adjusted to exclude depreciation and amortization, integration, acquisition, and restructuring costs, non-qualified deferred compensation adjustments, goodwill impairment, bargain purchase gains, net gain or loss on asset disposals, interest income or expense, and foreign exchange and other expenses (income)[117](index=117&type=chunk) [Factors Affecting Our Results of Operations](index=31&type=section&id=Factors%20Affecting%20Our%20Results%20of%20Operations) This section discusses key external and internal factors that could significantly impact the company's financial performance - The company's business, financial condition, and results of operations are highly dependent on U.S. housing starts and residential construction activity, with overall U.S. housing starts declining for the twelve months ended June 30, 2025[118](index=118&type=chunk) - The company closely monitors tariff and trade policy actions taken by U.S. and foreign governments, expecting proposed tariffs to primarily impact the North America segment as the company sources fasteners and a small number of other products from tariff-affected countries[120](index=120&type=chunk) - The company's sales and revenue have historically been lower in the first and fourth quarters compared to the second and third quarters, but the seasonality of sales is diminishing due to diversification of geographic footprint, product mix, and market paths[121](index=121&type=chunk) - Fluctuations in raw material costs, such as steel, can impact inventory levels and potentially negatively affect gross profit and operating margins, depending on the timing of raw material purchases and the ability to raise sales prices to offset cost increases[121](index=121&type=chunk)[176](index=176&type=chunk) [Business Segment Information](index=32&type=section&id=Business%20Segment%20Information) This section provides a detailed analysis of the financial performance and key trends within each of the company's operating segments - North America segment net sales increased in the first half of 2025, primarily due to 2024 acquisitions and price increases effective June 2025, partially offset by lower volumes and negative foreign currency translation impacts; wood construction product net sales grew by **4.6%**, and concrete construction product net sales grew by **6.2%**[123](index=123&type=chunk) - North America segment operating income increased by **4.5% to $241.3 million**, primarily due to higher gross profit, partially offset by increased personnel costs and variable compensation[124](index=124&type=chunk) - Europe segment net sales decreased by **1.0%** in the first half of 2025, primarily due to lower volumes, partially offset by positive foreign currency translation impacts; wood construction product net sales decreased by **0.9%**, and concrete construction product net sales decreased by **1.6%**[126](index=126&type=chunk) - Europe segment operating income increased by **$4.6 million**, with operating margin rising from **8.2% to 10.1%**, primarily due to lower operating and integration expenses[126](index=126&type=chunk) - The company expects European performance in 2025 to be impacted by economic headwinds but remains confident in the long-term potential given ongoing housing shortages and new environmental regulations in Europe[126](index=126&type=chunk) [Business Outlook](index=32&type=section&id=Business%20Outlook) This section provides the company's forward-looking statements regarding expected financial performance and key operational metrics for the upcoming fiscal year - The company expects a consolidated operating margin between **18.5% and 20.5%** for fiscal year 2025, reflecting declining U.S. housing starts and the current trade environment, and including **$12 million to $13 million in gains** from the sale of its former Gallatin, Tennessee facility[128](index=128&type=chunk) - The effective tax rate for fiscal year 2025 is expected to be between **25.5% and 26.5%**[128](index=128&type=chunk) - Capital expenditures for fiscal year 2025 are projected to be between **$140 million and $160 million**, with approximately **$70 million to $75 million** allocated to the Columbus, Ohio facility expansion and the new Gallatin, Tennessee facility construction[128](index=128&type=chunk) [Results of Operations for the Three Months Ended June 30, 2025, Compared with the Three Months Ended June 30, 2024](index=33&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202025,%20Compared%20with%20the%20Three%20Months%20Ended%20June%2030,%202024) This section compares the company's operating results for the three months ended June 30, 2025, against the same period in 2024, highlighting key financial changes - Net sales increased by **5.7% to $631.1 million**, with wood construction product sales accounting for **84.9%** and concrete construction product sales for **15.0%** of total sales[130](index=130&type=chunk) - Gross profit increased by **5.7% to $294.5 million**, with gross margin remaining flat at **46.7%**; wood construction product gross margin decreased from **47.2% to 47.1%**, and concrete construction product gross margin decreased from **47.5% to 45.0%**[131](index=131&type=chunk) - Selling expenses increased by **3.6% to $56.4 million**, primarily due to a **$1.9 million increase in personnel costs**; general and administrative expenses increased by **9.4% to $77.2 million**, mainly due to higher variable compensation, personnel costs, and computer and software expenses[132](index=132&type=chunk)[133](index=133&type=chunk) - Consolidated net income was **$103.5 million**, with diluted earnings per share of **$2.47**; Adjusted EBITDA increased by **4.8% to $159.9 million**[135](index=135&type=chunk)[136](index=136&type=chunk) Net Sales by Segment (in thousands of US dollars) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Increase | Percentage Increase | | :----------- | :--------------------- | :--------------------- | :------- | :----------- | | North America | $463,022 | $492,687 | $29,665 | 6.4% | | Europe | $129,877 | $133,398 | $3,521 | 2.7% | | Asia-Pacific | $4,079 | $4,970 | $891 | 21.8% | | **Total** | **$596,978** | **$631,055** | **$34,077** | **5.7%** | [Results of Operations for the Six Months Ended June 30, 2025, Compared with the Six Months Ended June 30, 2024](index=36&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202025,%20Compared%20with%20the%20Six%20Months%20Ended%20June%2030,%202024) This section compares the company's operating results for the six months ended June 30, 2025, against the same period in 2024, detailing significant financial performance changes - Net sales increased by **3.8% to $1.17 billion**, primarily driven by 2024 acquisitions and price increases effective June 2025, partially offset by an overall decrease in volumes[144](index=144&type=chunk) - Gross profit increased by **4.5% to $546.5 million**, with gross margin rising from **46.4% to 46.7%**, primarily due to lower overall material costs[145](index=145&type=chunk) - Research and development and engineering expenses increased by **3.6% to $40.6 million**, mainly due to higher computer and software costs; selling expenses increased to **$110.6 million**, primarily due to higher personnel costs and variable compensation[146](index=146&type=chunk)[147](index=147&type=chunk) - Consolidated net income was **$181.4 million**, with diluted earnings per share of **$4.33**; Adjusted EBITDA increased by **4.4% to $281.7 million**[150](index=150&type=chunk)[151](index=151&type=chunk) Net Sales by Segment (in thousands of US dollars) | Segment | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Increase (Decrease) | Percentage Increase (Decrease) | | :----------- | :--------------------- | :--------------------- | :--------------- | :----------------------- | | North America | $869,771 | $913,386 | $43,615 | 5.0% | | Europe | $249,814 | $247,258 | $(2,556) | (1.0)% | | Asia-Pacific | $7,972 | $9,306 | $1,334 | 16.7% | | **Total** | **$1,127,557** | **$1,169,950** | **$42,393** | **3.8%** | [Effect of New Accounting Standards](index=38&type=section&id=Effect%20of%20New%20Accounting%20Standards) This section refers to specific notes for information on the impact of recently adopted and unadopted accounting standards - Please refer to "Note 1. Basis of Presentation — Accounting Standards Adopted" and "Note 1. Basis of Presentation — Accounting Standards Not Yet Adopted" for additional information[156](index=156&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash, including sources of liquidity and capital expenditure plans - The company meets its capital requirements through cash flow from operations and credit facilities; as of June 30, 2025, the company had **$376.9 million** in outstanding debt under its term loan facility, no borrowings under its revolving credit facility, and **$450 million** in available borrowing capacity[158](index=158&type=chunk) - As of June 30, 2025, **$82 million** (**43.0%** of total cash and cash equivalents) of the company's cash and cash equivalents were held in accounts of foreign operating entities outside the United States, which may be subject to additional taxes if repatriated[159](index=159&type=chunk) - The company believes its cash and cash equivalents balance, cash flow from operations, and credit facilities are sufficient to meet its liquidity and capital needs for the next 12 months and beyond[161](index=161&type=chunk) Major Categories of Cash Flows (in thousands of US dollars) | Cash Flow Category | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------- | :------------- | | Net Cash Provided by Operating Activities | $132,778 | $119,086 | | Net Cash Used in Investing Activities | $(90,568) | $(95,686) | | Net Cash Used in Financing Activities | $(95,617) | $(93,113) | - In the first half of 2025, operating activities provided **$132.8 million** in cash, investing activities used **$90.6 million** in cash (primarily for facility expansion and machinery and equipment purchases), and financing activities used **$95.6 million** in cash (primarily for **$60 million** in stock repurchases and **$23.5 million** in dividend payments)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - From early 2022 through June 30, 2025, the company returned **$447.7 million** to shareholders, representing **51.0%** of free cash flow from operations during the period, and repurchased over **2 million shares** of common stock (approximately **4.8%** of shares outstanding at the beginning of 2022)[166](index=166&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=41&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides a reconciliation of non-GAAP financial measures, such as Adjusted EBITDA, to the most directly comparable GAAP financial measures Reconciliation of Net Income to Adjusted EBITDA (in thousands of US dollars) | Indicator | 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** | $103,541 | $97,831 | $181,425 | $173,258 | | Income Tax Provision | $35,914 | $34,859 | $62,510 | $57,847 | | Interest (Income) Expense, Net and Other Financing Costs | $(895) | $(2,092) | $(1,998) | $(2,443) | | Depreciation and Amortization | $20,995 | $19,370 | $40,517 | $38,559 | | Other* | $333 | $2,603 | $(804) | $2,629 | | **Adjusted EBITDA** | **$159,888** | **$152,571** | **$281,650** | **$269,850** | [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses any off-balance sheet arrangements that could have a material effect on the company's financial condition - As of June 30, 2025, the company had no off-balance sheet arrangements[169](index=169&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures about Market Risk](index=41&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discloses the market risks the company faces in its ordinary course of business, primarily foreign exchange, interest rate, and commodity price risks, and outlines strategies to manage them [Foreign Exchange Risk](index=41&type=section&id=Foreign%20Exchange%20Risk) This section describes the company's exposure to foreign exchange rate fluctuations and its strategies for managing this risk - The company faces foreign exchange rate risk in its international operations and through procurement from foreign suppliers; the company manages transactional risk by entering into foreign currency forward contracts and cross-currency swap contracts to hedge against fluctuations in forecasted foreign currency transactions and cash flows for future periods[171](index=171&type=chunk)[172](index=172&type=chunk) [Interest Rate Risk](index=41&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to interest rate fluctuations, particularly from floating-rate debt, and its hedging strategies - The company's primary interest rate risk arises from floating-rate borrowings under its credit agreement, with **$376.9 million** in outstanding debt subject to interest rate fluctuations as of June 30, 2025[173](index=173&type=chunk) - The company has entered into interest rate swap agreements to convert floating interest rates on outstanding balances under its credit agreement to fixed rates, eliminating cash flow variability associated with floating-rate borrowings, and designated them as cash flow hedges[174](index=174&type=chunk)[175](index=175&type=chunk) [Commodity Price Risk](index=42&type=section&id=Commodity%20Price%20Risk) This section addresses the company's exposure to commodity price fluctuations, particularly for steel, and its approach to managing this risk - The company faces market risk in procuring steel, a significant raw material; steel prices stabilized in late 2024 but increased again in the latter half of the first half of 2025; the company does not use any derivative or hedging instruments to manage steel price risk and has historically mitigated cost increases through price adjustments, though future success in mitigating these costs is uncertain[176](index=176&type=chunk) [Item 4 - Controls and Procedures](index=42&type=section&id=Item%204%20-%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and states that no significant changes in internal control occurred during the reporting period [Disclosure Controls and Procedures](index=42&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - As of June 30, 2025, the company's Chief Executive Officer and Chief Financial Officer evaluated and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[177](index=177&type=chunk) [Changes in Internal Control over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any changes in the company's internal control over financial reporting during the reporting period - For the three months ended June 30, 2025, management's assessment found no changes that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[179](index=179&type=chunk) [Part II - Other Information](index=43&type=section&id=Part%20II%20-%20Other%20Information) This section contains additional information not covered in Part I, including legal proceedings, risk factors, equity security sales, and exhibits [Item 1 - Legal Proceedings](index=43&type=section&id=Item%201%20-%20Legal%20Proceedings) This section discloses legal proceedings involving the company in the normal course of business, stating no current litigation is expected to have a material adverse effect - The company is involved in various legal proceedings and other matters arising in the normal course of business from time to time[180](index=180&type=chunk) - The company currently anticipates no legal proceedings that will have a material adverse effect on its financial condition, cash flows, or results of operations[181](index=181&type=chunk) [Item 1A - Risk Factors](index=43&type=section&id=Item%201A%20-%20Risk%20Factors) This section states that there have been no material changes to risk factors since the company's last annual report, nor have any new risk factors been identified - There have been no material changes to the company's risk factors since the filing of its Form 10-K annual report for the year ended December 31, 2024, nor have any new risk factors been identified[182](index=182&type=chunk) [Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202%20-%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's common stock repurchases during the second quarter of 2025, including quantities, average prices, and remaining repurchase authorization Common Stock Repurchases in Q2 2025 (in thousands of US dollars) | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Plans or Programs | | :----------------------- | :------------- | :--------------- | :------------------------------------------- | :----------------------------------- | | April 1 - April 30, 2025 | — | $— | — | $75,000 | | May 1 - May 31, 2025 | 154,323 | $162.08 | 154,242 | $50,000 | | June 1 - June 30, 2025 | 62,403 | $160.25 | 62,403 | $40,000 | | **Total** | **216,726** | | | | - On October 23, 2024, the Board of Directors authorized the company to repurchase up to **$100 million** of its common stock between January 1, 2025, and December 31, 2025[184](index=184&type=chunk) [Item 3 - Defaults Upon Senior Securities](index=43&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) This section states that the company has not experienced any defaults upon senior securities - No defaults upon senior securities[185](index=185&type=chunk) [Item 4 - Mine Safety Disclosures](index=43&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Not applicable[186](index=186&type=chunk) [Item 5 - Other Information](index=44&type=section&id=Item%205%20-%20Other%20Information) This section states that no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by company directors or officers during the fiscal quarter ended June 30, 2024 - During the fiscal quarter ended June 30, 2024, no Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors or officers[187](index=187&type=chunk) [Item 6 - Exhibits](index=45&type=section&id=Item%206%20-%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q report, including articles of incorporation, certifications, and XBRL data files - Exhibits include the company's articles of incorporation, amended and restated bylaws, certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL instance documents[188](index=188&type=chunk)[191](index=191&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The unaudited interim financial statements highlight the reclassification of the Canadian NGL business as discontinued operations [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (in millions) | Balance Sheet Highlights (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $4,688 | $4,802 | | Property and equipment, net | $14,177 | $13,446 | | **Total assets** | **$27,155** | **$26,562** | | Total current liabilities | $4,679 | $4,950 | | Senior notes, net | $8,133 | $7,141 | | **Total liabilities** | **$14,206** | **$13,466** | | **Total partners' capital** | **$12,949** | **$13,096** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Income Statement Highlights (in millions, except per unit data) | Income Statement Highlights (in millions, except per unit data) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $10,642 | $12,757 | $22,119 | $24,396 | | Operating Income | $239 | $332 | $594 | $688 | | Income from Continuing Operations | $227 | $298 | $607 | $639 | | Income from Discontinued Operations | $70 | $32 | $206 | $42 | | **Net Income Attributable to PAA** | **$210** | **$250** | **$653** | **$515** | | **Basic and diluted net income per common unit** | **$0.21** | **$0.26** | **$0.70** | **$0.55** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Highlights (in millions) | Cash Flow Highlights (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,333 | $1,072 | | Net cash used in investing activities | ($1,423) | ($418) | | Net cash provided by/(used in) financing activities | $182 | ($545) | | **Net increase in cash and cash equivalents** | **$111** | **$103** | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Detailed disclosures cover the pending CAD$5.15 billion sale of the Canadian NGL business, recent acquisitions, and increased debt levels - On June 17, 2025, PAA entered into a definitive agreement to sell its Canadian NGL Business to Keyera Corp for approximately **CAD$5.15 billion** (about $3.75 billion)[31](index=31&type=chunk)[32](index=32&type=chunk) - Income from discontinued operations for the six months ended June 30, 2025, was **$206 million**, a significant increase from $42 million in the same period of 2024[40](index=40&type=chunk) - Total debt increased to **$8.68 billion** from $7.62 billion at year-end 2024, primarily due to a new **$1.0 billion senior notes offering** in January 2025[57](index=57&type=chunk)[58](index=58&type=chunk) - On January 31, 2025, the company repurchased approximately 12.7 million of its Series A preferred units for about **$333 million**[62](index=62&type=chunk) - The company entered into a forward currency instrument to hedge the proceeds from the Canadian NGL sale, recognizing a **$49 million loss** in Q2 2025[80](index=80&type=chunk) - The estimated aggregate total cost for the May 2015 Line 901 incident is approximately **$870 million**[100](index=100&type=chunk) - During the first half of 2025, the company completed several acquisitions, including Ironwood Midstream for approximately **$481 million** and Medallion Midstream for **$163 million**[117](index=117&type=chunk)[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, the strategic sale of the Canadian NGL business, and the company's strong liquidity position [Results of Operations](index=42&type=section&id=Results%20of%20Operations) - Net income attributable to PAA for the six months ended June 30, 2025, was **$653 million**, compared to $515 million for the same period in 2024[129](index=129&type=chunk)[131](index=131&type=chunk) - The decrease in product sales revenues for H1 2025 compared to H1 2024 was primarily due to **lower commodity prices**, partially offset by higher crude oil sales volumes[134](index=134&type=chunk) - Crude Oil Segment Adjusted EBITDA for H1 2025 was stable compared to H1 2024, as the benefit from **higher tariff volumes** and acquisitions was largely offset by fewer market-based opportunities and higher operating expenses[160](index=160&type=chunk) Non-GAAP Performance (in millions) | Non-GAAP Performance (in millions) | H1 2025 | H1 2024 | Variance % | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $1,693 | $1,654 | 2% | | Adjusted EBITDA attributable to PAA | $1,426 | $1,391 | 3% | | Implied DCF | $1,043 | $1,001 | 4% | [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2025, the company had approximately **$2.7 billion of available liquidity**, including cash and available capacity under its credit facilities[172](index=172&type=chunk) - Net cash from operating activities increased to **$1.33 billion** in H1 2025 from $1.07 billion in H1 2024[175](index=175&type=chunk) - Projected capital expenditures for the full year 2025 include approximately **$580 million** for investment capital and **$250 million** for maintenance capital[180](index=180&type=chunk) - In January 2025, the company issued **$1.0 billion of 5.95% senior notes** due 2035, using the proceeds to fund acquisitions, repurchase preferred units, and repay other borrowings[188](index=188&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages commodity, interest rate, and currency risks using derivatives, with significant exposure to USD/CAD exchange rate fluctuations - The company uses derivative instruments to manage exposure to commodity price risk (crude oil, power), interest rate risk, and currency exchange rate risk[206](index=206&type=chunk) - A **10% change in crude oil prices** would result in a **$6-7 million change** in the fair value of the company's crude oil derivatives[208](index=208&type=chunk) - A **10% change in the USD-to-CAD exchange rate** would result in a **$334 million change** in the fair value of the company's foreign currency derivatives, highlighting the significance of the hedge on the pending Canadian NGL business sale[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2025[213](index=213&type=chunk) - There were **no material changes** in internal control over financial reporting during the second quarter of 2025[214](index=214&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) This section incorporates by reference the detailed discussion of legal matters from Note 10 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 10 to the Condensed Consolidated Financial Statements[217](index=217&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20RISK%20FACTORS) This section refers to the comprehensive risk factor discussion in the 2024 Annual Report, noting no material changes - A full discussion of risk factors is available in Item 1A of the company's 2024 Annual Report on Form 10-K[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company repurchased approximately $8 million of its common units under its existing equity repurchase program during the quarter Common Unit Repurchases | Period | Total Units Purchased | Average Price Paid | Value of Remaining Authorization | | :--- | :--- | :--- | :--- | | April 1-30, 2025 | 476,695 | $15.74 | $190,043,261 | [Other Items (3, 4, 5)](index=64&type=section&id=Other%20Items%20(3,%204,%205)) The report confirms no defaults on senior securities, no mine safety disclosures, and no new insider trading arrangements - There were no defaults on senior securities, no mine safety disclosures to report, and no new Rule 10b5-1 trading arrangements for directors or officers during the quarter ended June 30, 2025[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20EXHIBITS) This section lists filed exhibits, including the Share Purchase Agreement for the sale of the Canadian NGL business - A key exhibit filed with this report is the Share Purchase Agreement dated June 17, 2025, for the sale of the Canadian NGL business to Keyera Corp[224](index=224&type=chunk)

[PART I: FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) The company reports H1 2025 revenue of $30.8 million and a net loss of $25.5 million, citing substantial doubt about its going concern status [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Key Balance Sheet Metrics | Financial Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $39,220 | $55,699 | | Marketable securities | $23,731 | $46,361 | | Total current assets | $72,942 | $112,175 | | Total assets | $105,168 | $146,447 | | Total current liabilities | $22,896 | $32,877 | | Long-term debt, net | $75,841 | $75,425 | | Warrant liability | $283 | $13,755 | | Total liabilities | $101,197 | $124,298 | | Total stockholders' equity | $3,971 | $22,149 | [Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) Statements of Operations | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,973 | $563 | $30,780 | $563 | | Research and development | $18,352 | $20,914 | $36,865 | $40,768 | | Selling, general and administrative | $9,527 | $13,278 | $24,548 | $30,713 | | Gain on sale of non-financial asset | $0 | $(105,000) | $0 | $(105,000) | | (Loss) income from operations | $(26,232) | $71,103 | $(35,675) | $33,814 | | Net (loss) income | $(25,741) | $90,833 | $(25,459) | $39,067 | | Net (loss) income per share: basic | $(3.47) | $13.59 | $(3.59) | $5.85 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,269) | $(63,874) | | Net cash provided by investing activities | $19,974 | $91,540 | | Net cash provided by financing activities | $5,631 | $20,159 | | Net decrease in cash, cash equivalents and restricted cash | $(16,453) | $47,748 | | Cash, cash equivalents and restricted cash at end of period | $40,022 | $147,996 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - Management has concluded there is **substantial doubt about the Company's ability to continue as a going concern** due to significant operating losses and potential debt covenant violations[38](index=38&type=chunk)[39](index=39&type=chunk) - The company executed a **1-for-30 reverse stock split** on April 28, 2025, with all share and per-share amounts retroactively adjusted[9](index=9&type=chunk)[45](index=45&type=chunk)[125](index=125&type=chunk) - A license agreement with Norgine resulted in the recognition of **$27.6 million in license revenue** and **$0.5 million for R&D services** in H1 2025[72](index=72&type=chunk)[81](index=81&type=chunk)[86](index=86&type=chunk) - The company anticipates it will not meet the **$15.0 million minimum cash covenant** required by its loan agreement, risking loan acceleration[39](index=39&type=chunk)[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The company discusses the commercial launch of XOLREMDI, a strategic restructuring, and a going concern risk due to insufficient cash reserves [Overview](index=34&type=section&id=Overview) - The U.S. FDA approved **XOLREMDI (mavorixafor)** on April 29, 2024, for patients aged 12 and older with WHIM syndrome[166](index=166&type=chunk) - A strategic restructuring in February 2025 involved a **30% workforce reduction** to decrease annual spending by **$30-35 million**[173](index=173&type=chunk) - The company is progressing a global, pivotal **Phase 3 clinical trial (4WARD study)** for mavorixafor in people with chronic neutropenia[172](index=172&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Comparison of Six Months Ended June 30, 2025 and 2024 | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $30.8 | $0.6 | $30.2 | | Research and development | $36.9 | $40.7 | $(3.8) | | Selling, general and administrative | $24.6 | $30.7 | $(6.1) | | Gain on sale of non-financial asset | $0.0 | $(105.0) | $105.0 | | Net (loss) income | $(25.5) | $39.1 | $(64.6) | - The significant increase in revenue for H1 2025 was primarily due to recognizing **$27.6 million** from a license delivery under the Norgine Agreement[179](index=179&type=chunk)[180](index=180&type=chunk) - R&D expenses decreased by **$3.8 million** in H1 2025, mainly due to the strategic restructuring and lower spending on non-clinical programs[185](index=185&type=chunk) - SG&A expenses decreased by **$6.1 million** in H1 2025, driven by lower stock appreciation rights compensation, reduced launch costs, and lower headcount[187](index=187&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - The company has concluded there is **substantial doubt about its ability to continue as a going concern**, as its **$63.0 million** in cash is insufficient for the next 12 months[196](index=196&type=chunk)[203](index=203&type=chunk) - The company is at risk of violating the **Minimum Cash Covenant and Performance Covenant** of its Hercules Loan Agreement, which could accelerate its outstanding loans[197](index=197&type=chunk)[198](index=198&type=chunk) - Net cash used in operating activities was **$42.3 million** for H1 2025, a decrease from **$63.9 million** for the same period in 2024[199](index=199&type=chunk)[200](index=200&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, it is not required to provide information on market risk - As a smaller reporting company, the company is **not required to provide** quantitative and qualitative disclosures about market risk[210](index=210&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal controls - Management concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2025[212](index=212&type=chunk) - There were **no material changes** in internal control over financial reporting during the three months ended June 30, 2025[213](index=213&type=chunk) [PART II: OTHER INFORMATION](index=42&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any material legal proceedings - The company is **not currently a party** to any material legal proceedings[215](index=215&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20RISK%20FACTORS) Key risks include going concern uncertainty, reliance on a single product, and various operational, regulatory, and financial challenges [Risks Related to Our Financial Position and Need for Additional Capital](index=42&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) - The company's history of recurring losses raises **substantial doubt about its ability to continue as a going concern** and requires substantial additional funding[218](index=218&type=chunk) - The company anticipates it will **not be able to maintain the minimum cash required** to satisfy its debt covenant with Hercules for at least the next 12 months[223](index=223&type=chunk) - The company has an accumulated deficit of **$540.8 million** as of June 30, 2025, and expects to continue incurring losses[225](index=225&type=chunk) [Risks Related to Development of Our Product Candidates](index=46&type=section&id=Risks%20Related%20to%20Development%20of%20Our%20Product%20Candidates) - The company's business depends almost entirely on the successful development and commercialization of its lead product, **mavorixafor (XOLREMDI)**[241](index=241&type=chunk) - The commercial opportunity for mavorixafor in WHIM syndrome may be **smaller than anticipated**, which could adversely affect future revenue[239](index=239&type=chunk) - **Disruptions at the FDA** and other agencies could hinder the ability to develop or commercialize new products in a timely manner[246](index=246&type=chunk)[250](index=250&type=chunk) [Risks Related to the Marketing and Commercialization of Our Product Candidates](index=54&type=section&id=Risks%20Related%20to%20the%20Marketing%20and%20Commercialization%20of%20Our%20Product%20Candidates) - Approved products like XOLREMDI are subject to **extensive post-approval regulatory requirements** and could face marketing restrictions or withdrawal[277](index=277&type=chunk) - Commercial success is dependent on achieving **significant market acceptance** and securing adequate reimbursement from payors[285](index=285&type=chunk)[305](index=305&type=chunk) - The company faces **substantial competition** from major pharmaceutical and biotech companies with greater financial resources[292](index=292&type=chunk)[296](index=296&type=chunk) [Risks Related to Our Dependence on Third Parties](index=63&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) - The company is dependent on a **single third-party manufacturer** for both the API and finished drug product of mavorixafor, posing a significant supply chain risk[324](index=324&type=chunk) - Reliance on third-party CROs for clinical trials means that **if these CROs fail to perform**, regulatory approval and commercialization could be harmed[328](index=328&type=chunk) [Risks Related to Our Intellectual Property](index=66&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - Recent changes in U.S. patent laws create uncertainty and may **weaken the company's ability to obtain and enforce patents**[337](index=337&type=chunk)[338](index=338&type=chunk) - The company's competitive position could be harmed if it is **unable to maintain patent protection** for its technology and products[342](index=342&type=chunk)[345](index=345&type=chunk) - The company may become involved in **expensive and time-consuming lawsuits** to protect its intellectual property or defend against infringement claims[351](index=351&type=chunk)[359](index=359&type=chunk) [Risks Related to Our Business Operations, Employee Matters and Managing Growth](index=71&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations%2C%20Employee%20Matters%20and%20Managing%20Growth) - The company's success depends on its ability to **retain key executives and personnel**, which may be challenging following the recent restructuring[373](index=373&type=chunk)[376](index=376&type=chunk) - The February 2025 restructuring, which **reduced headcount by 30%**, creates challenges in managing the scaled-down organization[377](index=377&type=chunk) - Internal IT systems are **vulnerable to cyber-attacks and data breaches**, which could lead to significant liabilities and operational disruption[380](index=380&type=chunk) [Risks Related to Ownership of Our Common Stock](index=74&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) - Failure to maintain compliance with Nasdaq's minimum bid price requirement could lead to **delisting**[390](index=390&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk) - The company's stock price is likely to **remain volatile**, and trading is subject to SEC "penny stock" rules which can limit liquidity[395](index=395&type=chunk)[398](index=398&type=chunk) - Provisions in the company's corporate charter and Delaware law could **make a potential acquisition more difficult**[412](index=412&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reports no unregistered sales of equity securities during the period - **None reported**[417](index=417&type=chunk) [Item 3. Defaults Upon Senior Securities](index=79&type=section&id=Item%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon senior securities - **None reported**[418](index=418&type=chunk) [Item 4. Mine Safety Disclosures](index=79&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - **Not applicable**[419](index=419&type=chunk) [Item 5. Other Information](index=79&type=section&id=Item%205.%20OTHER%20INFORMATION) No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter - During the three months ended June 30, 2025, **no directors or officers adopted, materially modified, or terminated** any Rule 10b5-1 trading plans[420](index=420&type=chunk) [Item 6. Exhibits](index=80&type=section&id=Item%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including corporate documents and required officer certifications - The report includes a list of filed exhibits, such as the Certificate of Incorporation, By-laws, a Purchase Agreement, and required **CEO/CFO certifications**[421](index=421&type=chunk)

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements and their accompanying notes, detailing the company's financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 | December 31, 2024 | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | | Cash and cash equivalents | $16,087,281 | $17,964,184 | -10.45% | | Total current assets | $31,205,329 | $36,452,158 | -14.39% | | Total assets | $67,907,149 | $75,583,410 | -10.16% | | Total current liabilities | $23,972,140 | $31,621,729 | -24.20% | | Total liabilities | $40,228,222 | $53,037,433 | -24.15% | | Total shareholders' equity | $27,989,795 | $22,853,494 | +22.40% | | Total equity | $27,678,927 | $22,545,977 | +22.77% | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance for the three and six months ended June 30, 2025 and 2024 Three Months Ended June 30 (YoY Comparison) | Metric | 2025 | 2024 | Change (%) | | :----- | :------------ | :------------ | :--------- | | Net revenues | $10,837,363 | $9,848,849 | +10.03% | | Total costs and expenses | $11,584,841 | $10,875,537 | +6.52% | | Operating income (loss) | $(747,478) | $(1,026,688) | +27.21% | | Net income (loss) | $(735,207) | $(1,102,637) | +33.32% | | Basic EPS | $(0.05) | $(0.08) | +37.50% | Six Months Ended June 30 (YoY Comparison) | Metric | 2025 | 2024 | Change (%) | | :----- | :------------ | :------------ | :--------- | | Net revenues | $22,550,418 | $18,346,550 | +22.91% | | Total costs and expenses | $22,005,949 | $21,242,488 | +3.59% | | Operating income (loss) | $544,469 | $(2,895,938) | +118.80% |\ | Net income (loss) | $512,977 | $(3,005,109) | +117.07% | | Basic EPS | $0.03 | $(0.21) | +114.29% | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Six Months Ended June 30 (YoY Comparison) | Cash Flow Activity | 2025 | 2024 | Change ($) | | :----------------- | :------------ | :------------ | :--------- | | Operating activities | $4,742,318 | $(2,992,307) | +$7,734,625 |\ | Investing activities | $(942,322) | $(104,990) | -$837,332 |\ | Financing activities | $(5,676,899) | $2,112,119 | -$7,789,018 |\ | Net decrease in cash and cash equivalents | $(1,876,903) | $(985,178) | -$891,725 | [Condensed Consolidated Statements of Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This section presents changes in shareholders' equity for the six months ended June 30, 2025 Equity Changes (December 31, 2024 to June 30, 2025) | Metric | December 31, 2024 | June 30, 2025 | Change ($) | | :-------------------------- | :---------------- | :------------ | :--------- | | Common stock (Amount) | $46,821,425 | $51,441,398 | +$4,619,973 |\ | Accumulated deficit | $(23,967,931) | $(23,451,603) | +$516,328 |\ | Noncontrolling interests | $(307,517) | $(310,868) | -$3,351 |\ | Total equity | $22,545,977 | $27,678,927 | +$5,132,950 | - Share issuances contributed **$4,715,950** to common stock during the six months ended March 31, 2025, while share repurchases reduced common stock by **$243,704** in the same period and **$7,170** in the subsequent quarter. Share-based compensation added **$74,212** and **$80,685** respectively[16](index=16&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [(1) Organization and Basis of Presentation](index=8&type=section&id=%281%29%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business, operating segment, and the basis for preparing its interim financial statements - Cumberland Pharmaceuticals Inc. is a specialty pharmaceutical company focused on branded prescription pharmaceuticals for hospital acute care, gastroenterology, and oncology markets[19](index=19&type=chunk)[20](index=20&type=chunk) - The company operates as a single operating segment, with substantially all assets and revenues attributable to U.S. customers[28](index=28&type=chunk) - Recent accounting guidance ASU 2023-07 (Segment Reporting) had no material impact due to the company's single segment. ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation) are effective in 2025 and 2026/2027 respectively, and their impact is currently being assessed[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - The company applies Current Expected Credit Losses (CECL) to financial instruments, primarily trade and notes receivables, pooling assets based on similar risk characteristics. Historically, there have been virtually no write-downs of receivables due to reliable payments from large pharmaceutical, healthcare, or government customers[29](index=29&type=chunk)[31](index=31&type=chunk) [(2) Earnings (Loss) Per Share](index=11&type=section&id=%282%29%20EARNINGS%20%28LOSS%29%20PER%20SHARE) This note reconciles the numerator and denominator for basic and diluted earnings per share calculations EPS Reconciliation (Three Months Ended June 30) | Metric | 2025 | 2024 | | :----------------------------------- | :------------ | :------------ | | Net loss attributable to common shareholders | $(740,740) | $(1,085,612) | | Weighted-average shares outstanding – basic | 14,960,596 | 14,118,091 | | Weighted-average shares outstanding – diluted | 14,960,596 | 14,118,091 | EPS Reconciliation (Six Months Ended June 30) | Metric | 2025 | 2024 | | :----------------------------------- | :------------ | :------------ | | Net income (loss) attributable to common shareholders | $516,328 | $(3,031,875) | | Weighted-average shares outstanding – basic | 14,951,609 | 14,107,852 | | Dilutive effect of other securities | 322,525 | — | | Weighted-average shares outstanding – diluted | 15,274,134 | 14,107,852 | - As of June 30, 2025, **753,089** restricted stock awards and options were outstanding but excluded from diluted EPS calculation due to their antidilutive effect, except for the six months ended June 30, 2025, where a dilutive effect of **322,525** shares was recognized[33](index=33&type=chunk) [(3) Revenues](index=12&type=section&id=%283%29%20REVENUES) This note details the company's net revenues by product and other sources for the reported periods Net Revenues by Product (Three Months Ended June 30) | Product | 2025 | 2024 | Change ($) | Change (%) | | :-------- | :------------ | :------------ | :------------ | :--------- | | Kristalose | $2,754,299 | $4,107,834 | $(1,353,535) | -32.95% | | Sancuso | $3,119,110 | $2,188,776 | $930,334 | +42.49% | | Vibativ | $2,701,854 | $2,454,481 | $247,373 | +10.08% | | Caldolor | $1,588,293 | $844,248 | $744,045 | +88.13% | | Acetadote | $193,546 | $43,396 | $150,150 | +346.00% | | Vaprisol | $(14,621) | $(1,581) | $(13,040) | -824.79% | | Other revenue | $492,390 | $213,792 | $278,598 | +130.31% | | **Total Net Revenues** | **$10,837,363** | **$9,848,849** | **$988,514** | **+10.03%** | Net Revenues by Product (Six Months Ended June 30) | Product | 2025 | 2024 | Change ($) | Change (%) | | :-------- | :------------ | :------------ | :------------ | :--------- | | Kristalose | $6,238,609 | $7,303,444 | $(1,064,835) | -14.58% | | Sancuso | $5,375,405 | $4,016,544 | $1,358,861 | +33.83% | | Vibativ | $4,079,920 | $4,059,970 | $19,950 | +0.49% | | Caldolor | $2,895,733 | $2,314,947 | $580,786 | +25.09% | | Acetadote | $345,195 | $123,599 | $221,596 | +179.29% | | Vaprisol | $(15,221) | $7,081 | $(22,302) | -314.95% | | Other revenue | $3,634,019 | $489,121 | $3,144,898 | +642.96% | | **Total Net Revenues** | **$22,550,418** | **$18,346,550** | **$4,203,868** | **+22.91%** | - Other revenues for the six months ended June 30, 2025, included a **$3.0 million** milestone payment for Vibativ's approval in the Chinese market and **$0.2 million** in development funding for a new product[41](index=41&type=chunk)[42](index=42&type=chunk) - Omeclamox-Pak sales were discontinued in late 2023 due to packaging issues, and Vaprisol sales were impacted by a manufacturing transition awaiting FDA approval[35](index=35&type=chunk)[36](index=36&type=chunk) [(4) Inventories](index=14&type=section&id=%284%29%20INVENTORIES) This note provides a breakdown of inventory composition and valuation, including current and non-current classifications Inventory Composition | Inventory Type | June 30, 2025 | December 31, 2024 | | :----------------------- | :-------------- | :---------------- | | Raw materials and work in process | $10,376,276 | $11,982,045 | | Consigned inventory | $114,045 | $126,090 | | Finished goods | $2,258,673 | $2,897,359 | | **Total inventories** | **$12,748,994** | **$15,005,494** | | Less non-current inventories | $(9,526,122) | $(11,005,499) | | **Total inventories classified as current** | **$3,222,872** | **$3,999,995** | Non-Current Inventories by Product | Product Raw Materials/Finished Goods | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Vibativ Raw Materials | $4,981,627 | $6,180,347 | | Kristalose Raw Materials | $2,576,128 | $2,672,720 | | Vaprisol Raw Materials | $1,172,849 | $1,172,849 | | Sancuso Raw Materials | $326,124 | $458,684 | | Caldolor Raw Materials | $13,971 | — | | Acetadote Raw Materials | — | $23,915 | | Ifetroban Raw Materials | $65,270 | $166,923 | | Vibativ Finished Goods | $157,645 | $183,057 | | Caldolor Finished Goods | $162,886 | $77,382 | | Omeclamox | $69,622 | $69,622 | | **Total non-current inventories** | **$9,526,122** | **$11,005,499** | - The company continually evaluates inventory for obsolescence, with no cumulative net realizable value charges necessary at June 30, 2025, or December 31, 2024[44](index=44&type=chunk) [(5) Leases](index=15&type=section&id=%285%29%20LEASES) This note details the company's operating lease arrangements, including right-of-use assets and lease liabilities Lease Assets and Liabilities | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Operating lease right-of-use assets | $7,125,408 | $6,176,923 | | Operating lease current liabilities | $386,077 | $356,508 | | Operating lease non-current liabilities | $4,714,183 | $4,939,739 | | **Total lease liabilities** | **$5,100,260** | **$5,296,247** | - The weighted-average remaining lease term for the Broadwest and Gateway Leases is **9.2 years** at June 30, 2025, with a weighted-average incremental borrowing rate of **9.37%**[52](index=52&type=chunk) Rent Expense and Sublease Income (Three and Six Months Ended June 30) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------- | :------------ | :------------ | :------------ | :------------ | | Rent expense | $363,583 | $344,418 | $718,335 | $699,482 | | Sublease income | $162,797 | $123,230 | $321,426 | $287,913 | [(6) Shareholders' Equity and Debt](index=18&type=section&id=%286%29%20SHAREHOLDERS%27%20EQUITY%20AND%20DEBT) This note outlines changes in shareholders' equity, share repurchase programs, and debt obligations - The company has a **$10 million** share repurchase program, with approximately **$2.2 million** available as of June 30, 2025. During the six months ended June 30, 2025, **55,637** shares were repurchased for **$0.3 million**[55](index=55&type=chunk) - In February 2025, the company issued **1,000,000** shares through an ATM offering for **$5.5 million**, and subsequently increased the maximum gross sales price under the ATM program to **$10 million**[57](index=57&type=chunk) - Share-based compensation expense was **$0.2 million** for both the six months ended June 30, 2025 and 2024[59](index=59&type=chunk) - As of June 30, 2025, the company had **$5.2 million** in borrowings outstanding under its **$25 million** revolving credit facility with Pinnacle Bank, at an interest rate of **7.125%**[60](index=60&type=chunk)[62](index=62&type=chunk) [(7) Income Taxes](index=19&type=section&id=%287%29%20INCOME%20TAXES) This note discusses the company's net operating loss carryforwards and the impact of recent tax legislation - As of June 30, 2025, the company has approximately **$51.9 million** in federal net operating loss carryforwards, including **$44.1 million** from nonqualified stock options, which are expected to minimize future income tax obligations[64](index=64&type=chunk) - The recently enacted One Big Beautiful Bill Act (OBBBA) in the U.S. includes significant tax provisions, and the company is currently assessing its impact on financial statements[65](index=65&type=chunk) [(8) Collaborative Agreements](index=19&type=section&id=%288%29%20COLLABORATIVE%20AGREEMENTS) This note describes the company's collaborative arrangements and their accounting treatment - Collaborative agreements with research institutions are primarily funded by SBIR/STTR programs and grants[66](index=66&type=chunk) - Most collaborative agreements do not meet ASC Topic 808 criteria, with expenses included in R&D and grant funding in net revenues[66](index=66&type=chunk) [(9) Commitments and Contingencies](index=19&type=section&id=%289%29%20COMMITMENTS%20AND%20CONTINGENCIES) This note addresses the company's involvement in litigation and its expected financial impact - The company is involved in normal course litigation but does not expect a material adverse effect on its business or financial condition[67](index=67&type=chunk) [(10) Product Acquisitions and Return of Product Rights](index=20&type=section&id=%2810%29%20PRODUCT%20ACQUISITIONS%20AND%20RETURN%20OF%20PRODUCT%20RIGHTS) This note details the accounting for product acquisitions and the return of product rights, including contingent consideration - Vibativ was acquired in November 2018, including global rights, for an upfront payment of **$20 million** and a **$5 million** milestone payment, with ongoing royalties up to **20%** of net sales[68](index=68&type=chunk)[69](index=69&type=chunk) Vibativ Contingent Consideration Liability | Metric | Amount ($) | | :---------------------------------------------------- | :--------- | | Balance at December 31, 2024 | 3,242,999 | | Cash payment of royalty during the period | (273,028) | | Change in fair value of contingent consideration included in operating expenses | 201,431 | | Contingent consideration earned and accrued in operating expenses | 230,484 | | **Balance at June 30, 2025** | **3,401,886** | - Sancuso U.S. rights were acquired in January 2022 for a **$13.5 million** upfront payment and up to **$3.5 million** in milestone payments, with ongoing royalties up to **10%** of net sales[73](index=73&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk) Sancuso Contingent Consideration Liability | Metric | Amount ($) | | :---------------------------------------------------- | :--------- | | Balance at December 31, 2024 | 1,516,000 | | Cash payment of milestones and royalty during the period | (381,729) | | Change in fair value of contingent consideration included in operating expenses | (117,853) | | Contingent consideration earned and accrued in operating expenses | 289,582 | | **Balance at June 30, 2025** | **1,306,000** | - The company returned all U.S. rights to RediTrex to Nordic Group B.V. effective June 30, 2023, and will receive a long-term royalty on future sales[81](index=81&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and future outlook [Disclosure regarding forward-looking statements](index=22&type=section&id=Disclosure%20regarding%20forward-looking%20statements) This section cautions that the discussion contains forward-looking statements subject to inherent risks and uncertainties - The discussion contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially. The company does not undertake to publicly update or revise these statements[82](index=82&type=chunk) [Overview of Business](index=23&type=section&id=OVERVIEW) This section provides a general description of the company's specialty pharmaceutical business and product portfolio - Cumberland Pharmaceuticals Inc. is a specialty pharmaceutical company focused on acquiring, developing, and commercializing branded prescription pharmaceuticals, targeting hospital acute care, gastroenterology, and oncology[84](index=84&type=chunk)[85](index=85&type=chunk) - The company's portfolio includes six FDA-approved commercial brands: Acetadote, Caldolor, Kristalose, Sancuso, Vaprisol, and Vibativ[90](index=90&type=chunk) - Cumberland has ongoing Phase II clinical programs for ifetroban in Duchenne muscular dystrophy (DMD), Systemic Sclerosis (SSc), and Idiopathic Pulmonary Fibrosis (IPF)[86](index=86&type=chunk)[87](index=87&type=chunk) [Growth Strategy](index=24&type=section&id=GROWTH%20STRATEGY) This section outlines the company's strategic initiatives for maximizing existing brands and expanding its product pipeline - The growth strategy focuses on maximizing existing brands, building a differentiated product portfolio through acquisitions, progressing clinical pipelines (e.g., ifetroban), leveraging infrastructure via co-promotion, expanding international presence, and maintaining financial discipline[91](index=91&type=chunk)[92](index=92&type=chunk) - Key initiatives include expanding product labeling (Acetadote, Caldolor), acquiring under-promoted FDA-approved drugs or late-stage development candidates (e.g., Vibativ, Sancuso), and incubating early-stage products through Cumberland Emerging Technologies (CET)[92](index=92&type=chunk) [Recent Developments](index=25&type=section&id=RECENT%20DEVELOPMENTS) This section highlights key recent events, including clinical trial progress, product approvals, and strategic partnerships - Breakthrough findings from the Phase II FIGHT DMD trial for ifetroban showed a **5.4%** improvement in cardiac function in DMD patients, positioning it as a potential treatment for DMD cardiomyopathy. An end-of-Phase 2 meeting with the FDA is scheduled for Fall 2025[93](index=93&type=chunk)[94](index=94&type=chunk) - Enrollment for the Phase II ifetroban study in Systemic Sclerosis (scleroderma) is complete, with top-line findings expected later this year. Patient enrollment is also underway for the FIGHTING FIBROSIS™ trial in Idiopathic Pulmonary Fibrosis (IPF)[95](index=95&type=chunk)[96](index=96&type=chunk) - The Vibativ 4-Vial Starter Pak is now available to Vizient Inc. healthcare providers, expanding access to the product. A new pharmacokinetic analysis reinforces optimized dosing strategies for Vibativ[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - A study published in Clinical Therapeutics demonstrated Caldolor's safety and efficacy for managing post-operative pain in older patients (60+), showing a **24%** reduction in pain at rest and a **23.2%** reduction in morphine requirement compared to placebo[101](index=101&type=chunk)[102](index=102&type=chunk) - Cumberland partnered with Qureight Ltd. to use AI-enhanced image analytics for the FIGHTING FIBROSIS™ trial, aiming for deeper insights into treatment efficacy and disease progression in IPF[104](index=104&type=chunk)[105](index=105&type=chunk) - Vibativ received regulatory approval in China, and Tabuk Pharmaceutical has obtained final approvals to commercialize Vibativ in Saudi Arabia, with shipments and training completed in late 2024[106](index=106&type=chunk)[107](index=107&type=chunk) [Competition](index=27&type=section&id=Competition) This section discusses the competitive landscape within the pharmaceutical industry and specific product competition - The pharmaceutical industry is highly competitive, with competition from other branded products, generics, and alternate medical treatments[108](index=108&type=chunk) - Kristalose faces competition from branded prescription products like Amitiza, Movantik, Linzess, and Vibrant, hundreds of OTC products (e.g., MiraLax), and other lactulose products including generics. A new generic crystalline lactulose product became available in Q2 2025[109](index=109&type=chunk) [Tariffs](index=27&type=section&id=Tariffs) This section addresses potential impacts of trade policies and tariffs on pharmaceutical imports - The U.S. Department of Commerce initiated a Section 232 investigation into pharmaceutical imports, which could lead to additional tariffs. A trade deal with the EU in July 2025 imposed a **15%** tariff on imported medicines from Europe into the U.S[111](index=111&type=chunk)[112](index=112&type=chunk) [Summary](index=27&type=section&id=Summary) This section provides a concise overview of the company's anticipated future performance and strategic focus - The company anticipates continued momentum driven by growth from approved brands, expanded international partnerships, progress in clinical development programs, and potential acquisitions, while remaining focused on its mission[113](index=113&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=29&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGMENTS%20AND%20ESTIMATES) This section outlines the key accounting policies and estimates that require significant management judgment - Key estimates include allowances for chargebacks, rebates, product returns, obsolescent inventory, and valuation of contingent consideration liabilities associated with business combinations[116](index=116&type=chunk) [Results of Operations (Three Months Ended June 30, 2025 vs. 2024)](index=30&type=section&id=RESULTS%20OF%20OPERATIONS%20%28Three%20months%20ended%20June%2030,%202025%20compared%20to%20the%20three%20months%20ended%20June%2030,%202024%29) This section analyzes the company's financial performance for the three months ended June 30, 2025, compared to the prior year Key Financials (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :------------ | :--------- | | Net revenues | $10,837,363 | $9,848,849 | $988,514 | +10.03% | | Cost of products sold | $2,011,389 | $1,710,944 | $300,445 | +17.56% | | Selling and marketing | $4,223,647 | $4,248,401 | $(24,754) | -0.58% | | Research and development | $1,468,399 | $1,059,187 | $409,212 | +38.63% | | General and administrative | $2,874,922 | $2,757,148 | $117,774 | +4.27% | | Amortization | $1,006,484 | $1,099,857 | $(93,373) | -8.49% | | Operating loss | $(747,478) | $(1,026,688) | $279,210 | +27.21% | | Net loss | $(735,207) | $(1,102,637) | $367,430 | +33.32% | - Net revenues increased primarily due to higher sales volumes for Sancuso (+$0.9M), Caldolor (+$0.7M, driven by international sales), Vibativ (+$0.2M), and Acetadote (+$0.2M), partially offset by a decrease in Kristalose sales (-$1.4M)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - Cost of products sold increased by **17.56%**, and as a percentage of net revenues, rose from **17.4%** to **18.6%**, primarily due to higher international sales which typically incur higher cost of goods sold relative to revenue[123](index=123&type=chunk) - Research and development costs increased by **38.63%** due to variable costs associated with ongoing clinical initiatives for pipeline product candidates[125](index=125&type=chunk) Vibativ and Sancuso Contribution (Three Months Ended June 30) | Metric | Vibativ 2025 | Vibativ 2024 | Sancuso 2025 | Sancuso 2024 | | :------------------------ | :----------- | :----------- | :----------- | :----------- | | Net revenue | $2,701,854 | $2,454,481 | $3,119,110 | $2,188,776 | | Cost of products sold | $640,676 | $549,583 | $153,728 | $299,547 | | Royalty and operating expenses | $673,693 | $600,007 | $1,010,904 | $1,002,354 | | Contribution | $1,387,485 | $1,304,891 | $1,954,478 | $886,875 | [Results of Operations (Six Months Ended June 30, 2025 vs. 2024)](index=33&type=section&id=RESULTS%20OF%20OPERATIONS%20%28Six%20months%20ended%20June%2030,%202025%20compared%20to%20the%20six%20months%20ended%20June%2030,%202024%29) This section analyzes the company's financial performance for the six months ended June 30, 2025, compared to the prior year Key Financials (Six Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :------------ | :--------- | | Net revenues | $22,550,418 | $18,346,550 | $4,203,868 | +22.91% | | Cost of products sold | $3,437,103 | $3,286,486 | $150,617 | +4.58% | | Selling and marketing | $8,455,627 | $8,402,989 | $52,638 | +0.63% | | Research and development | $2,763,475 | $2,217,440 | $546,035 | +24.62% | | General and administrative | $5,337,930 | $5,125,055 | $212,875 | +4.15% | | Amortization | $2,011,814 | $2,210,518 | $(198,704) | -8.99% | | Operating income (loss) | $544,469 | $(2,895,938) | $3,440,407 | +118.80% | | Net income (loss) | $512,977 | $(3,005,109) | $3,518,086 | +117.07% | - Net revenues increased significantly, driven by a **$3.0 million** milestone payment in 'Other revenue' and increased sales of Sancuso (+$1.4M) and Caldolor (+$0.6M), partially offset by decreased Kristalose sales (-$1.1M)[131](index=131&type=chunk)[133](index=133&type=chunk)[135](index=135&type=chunk) - Research and development costs increased by **24.62%** due to continued funding of ongoing clinical initiatives for pipeline product candidates[137](index=137&type=chunk) - Amortization expense decreased by **8.99%** due to a reduction in the valuation of the Acetadote intangible asset recognized in December 2024[139](index=139&type=chunk) Vibativ and Sancuso Contribution (Six Months Ended June 30) | Metric | Vibativ 2025 | Vibativ 2024 | Sancuso 2025 | Sancuso 2024 | | :------------------------ | :----------- | :----------- | :----------- | :----------- | | Net revenue | $7,054,920 | $4,059,970 | $5,375,405 | $4,016,544 | | Cost of products sold | $889,117 | $826,646 | $297,704 | $556,125 | | Royalty and operating expenses | $1,184,369 | $1,078,480 | $1,940,721 | $1,530,051 | | Contribution | $4,981,434 | $2,154,844 | $3,136,980 | $1,930,368 | [Liquidity and Capital Resources](index=36&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's sources of liquidity, working capital, and capital expenditure plans - Primary liquidity sources are cash equivalents, cash flows from operations, and a revolving line of credit. Management believes these sources are adequate for future growth, business development, and capital expenditures[142](index=142&type=chunk) Liquidity and Working Capital | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $16,087,281 | $17,964,184 | | Working capital | $7,233,189 | $4,830,429 | | Current ratio | 1.3 | 1.2 | | Revolving line of credit availability | $14,759,267 | $4,723,830 | - Net cash provided by operating activities was **$4.7 million** for the six months ended June 30, 2025, a significant improvement from a net cash used of **$3.0 million** in the prior year[143](index=143&type=chunk)[144](index=144&type=chunk) - Cash used in financing activities totaled **$5.7 million**, primarily due to **$10.0 million** in line of credit payments and **$0.7 million** for contingent consideration, partially offset by **$5.3 million** from ATM offering proceeds[146](index=146&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section confirms the absence of any off-balance sheet arrangements during the reported periods - The company did not engage in any off-balance sheet arrangements during the six months ended June 30, 2025 and 2024[149](index=149&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section assesses the company's exposure to market risks, including interest rate and foreign currency exchange risks - The company is exposed to interest rate risk on cash in money market accounts and its revolving credit facility but does not use derivative financial instruments to manage this exposure[150](index=150&type=chunk) - The interest rate on the revolving credit facility was **7.125%** at June 30, 2025, with **$5.2 million** outstanding. The company believes its interest rate risk is not material[152](index=152&type=chunk) - Foreign currency exchange risk is considered minimal, with immaterial gains and losses for the six months ended June 30, 2025 and 2024[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and internal control over financial reporting - The company's disclosure controls and procedures were evaluated as effective as of June 30, 2025[154](index=154&type=chunk) - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2025[155](index=155&type=chunk) [PART II – OTHER INFORMATION](index=38&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal, risk, and equity matters [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to disclosures regarding legal proceedings, indicating no material adverse effects are anticipated - Information on legal proceedings is incorporated by reference from Note 9 of the Financial Statements[157](index=157&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section directs investors to the company's Annual Report for a comprehensive discussion of risk factors - Risk factors are incorporated by reference from the company's Annual Report on Form 10-K for the year ended December 31, 2024[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase program and any unregistered sales of equity securities - The company has a **$10 million** share repurchase program, with approximately **$2.2 million** remaining available[159](index=159&type=chunk) Share Repurchase Activity (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----- | :------------------------------- | :--------------------------- | | April | — | $— | | May | — | — | | June | 1,800 | $5.26 | | **Total** | **1,800** | | [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or modified by insiders - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the three months ended June 30, 2025[161](index=161&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1) and INLINE XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[162](index=162&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on August 8, 2025, by John Hamm, Chief Financial Officer and Duly Authorized Officer of Cumberland Pharmaceuticals Inc[167](index=167&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR San Diego, California 92111 (Address of principal executive offices) (Zip Code) ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact Name of Registrant as Specified in its Charter) _______________ (State or other jurisdiction of incorpor ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number: 001-13101 Outdoor Holding Company (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Outdoor Holding Company, including the balance sheets, statements of operations, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, discontinued operations, and other financial disclosures for the period ended June 30, 2025 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets from **$297.3 million** to **$269.5 million** and a significant reduction in total liabilities from **$75.3 million** to **$47.0 million** between March 31, 2025, and June 30, 2025. Shareholders' equity slightly increased to **$222.5 million** Table: Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (Unaudited) | March 31, 2025 | | :-------------------------------- | :------------------------ | :------------- | | **ASSETS** | | | | Cash and cash equivalents | $63,363,812 | $30,227,796 | | Total Current Assets | $74,486,175 | $72,148,138 | | Total Assets | $269,467,322 | $297,329,629 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total Current Liabilities | $22,725,627 | $62,092,917 | | Total Liabilities | $46,961,667 | $75,303,066 | | Total Shareholders' Equity | $222,505,655 | $222,026,563 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2025, the company reported a net loss attributable to common stock shareholders of **$7.2 million**, a significant improvement from **$15.5 million** in the prior year. Net revenues slightly decreased, but the loss from continuing operations was nearly halved due to the absence of a large income tax provision seen in 2024 Table: Condensed Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net revenues | $11,857,376 | $12,281,991 | | Gross Profit | $10,334,978 | $10,537,201 | | Loss from Operations | $(6,010,675) | $(6,235,365) | | Net loss from continuing operations | $(5,862,693) | $(11,997,025) | | Net loss attributable to common stock shareholders | $(7,232,459) | $(15,534,107) | | Total basic loss per share of common stock | $(0.06) | $(0.13) | | Total diluted loss per share of common stock | $(0.06) | $(0.13) | [Condensed Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased slightly from **$222.0 million** at March 31, 2025, to **$222.5 million** at June 30, 2025, primarily driven by increases in additional paid-in capital from stock-based compensation and warrants issued for legal settlement, partially offset by net loss and preferred stock dividends Table: Condensed Consolidated Statements of Shareholders' Equity | Metric | March 31, 2025 | June 30, 2025 | | :-------------------------------- | :------------- | :------------- | | Preferred Stock Par Value | $1,400 | $1,400 | | Common Shares Par Value | $116,816 | $117,113 | | Additional Paid-In Capital | $434,335,782 | $442,047,037 | | Accumulated Deficit | $(203,862,034) | $(211,094,494) | | Treasury Stock | $(8,565,401) | $(8,565,401) | | Total Shareholders' Equity | $222,026,563 | $222,505,655 | **Changes during Q1 2025:** * Stock based compensation: **$787,399** increase in Additional Paid-In Capital * Warrants issued for legal settlement: **$7,094,926** increase in Additional Paid-In Capital * Net loss: **$(6,458,327)** decrease in Accumulated Deficit * Preferred stock dividends: **$(638,022)** decrease in Accumulated Deficit [Condensed Consolidated Statements of Cash Flow](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flow) Cash and cash equivalents significantly increased by **$33.1 million** to **$63.4 million** at June 30, 2025, primarily driven by **$42.9 million** in proceeds from the sale of the Ammunition business, partially offset by net cash used in operating activities (**$6.7 million**) and financing activities (**$0.8 million**) Table: Cash Flow Activity | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by/(used in) operating activities | $(6,673,464) | $889,653 | | Net cash provided by/(used in) investing activities | $42,057,105 | $(802,396) | | Net cash used in financing activities | $(809,222) | $(2,821,709) | | Net cash used in discontinued operations | $(1,438,403) | $(2,097,419) | | Net increase/(decrease) in cash | $33,136,016 | $(4,831,871) | | Cash, end of period | $63,363,812 | $50,754,570 | - Sale of ammunition business assets generated **$42,946,905** in cash from investing activities for the three months ended June 30, 2025[17](index=17&type=chunk) Table: Non-cash investing and financing activities (Q2 2025) | Activity | Amount | | :---------------------------------------------------- | :------------- | | Issuance of notes payable - related party in DE Litigation settlement | $51,000,000 | | Discount on notes payable - related party in DE Litigation settlement | $(28,891,590) | | Warrant issued for legal settlement - related party in DE Litigation settlement | $7,094,926 | | Dividends accumulated on preferred stock | $136,111 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements, covering the company's organization, significant accounting policies, discontinued operations, capital structure, related party transactions, and contingencies [NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY](index=8&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20BUSINESS%20ACTIVITY) Outdoor Holding Company, formerly AMMO, Inc., transitioned from a dual-segment business (Ammunition and Marketplace) to solely operating its GunBroker e-commerce Marketplace after selling its Ammunition manufacturing business in April 2025 - Company changed its name from AMMO, Inc. to **Outdoor Holding Company** on April 21, 2025[24](index=24&type=chunk) - The company sold its Ammunition manufacturing business in April 2025, transitioning to focus solely on the **GunBroker e-commerce Marketplace** segment[23](index=23&type=chunk) - The Marketplace segment, GunBroker, supports the lawful sale of firearms, ammunition, and hunting/shooting accessories, connecting buyers with sellers and federally licensed firearm dealers[22](index=22&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's key accounting policies, including principles of consolidation, U.S. GAAP basis, use of estimates, and specific treatments for discontinued operations, goodwill, accounts receivable, cash, long-lived assets, revenue recognition, leases, and stock-based compensation, also mentioning the adoption of ASU 2023-09 for income tax disclosures - The company's Ammunition segment was classified as held for sale and its results are presented as **discontinued operations** for all periods, following the sale completion on April 18, 2025[33](index=33&type=chunk) - Revenue is generated from marketplace fees (listing, final value, compliance, advertising, shipping) and recognized when performance obligations are satisfied, typically at the point of transaction processing or service delivery[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - The company is evaluating the impact of **ASU 2023-09**, 'Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024[59](index=59&type=chunk) [NOTE 3 – INCOME (LOSS) PER COMMON SHARE](index=13&type=section&id=NOTE%203%20%E2%80%93%20INCOME%20%28LOSS%29%20PER%20COMMON%20SHARE) Basic and diluted loss per share from continuing operations improved to **$(0.06)** for the three months ended June 30, 2025, from **$(0.11)** in the prior year. A significant number of common stock options, non-vested stock awards, and warrants were excluded from diluted EPS calculation due to their anti-dilutive effect Table: Income (Loss) Per Common Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net loss from continuing operations | $(5,862,693) | $(11,997,025) | | Net loss attributable to common stockholders | $(7,232,459) | $(15,534,107) | | Basic loss per share (Continuing operations) | $(0.06) | $(0.11) | | Diluted loss per share (Continuing operations) | $(0.06) | $(0.11) | | Weighted average shares outstanding (Basic/Diluted) | 116,841,148 | 119,105,502 | Table: Shares Excluded from Diluted Net Loss Per Share | Instrument | 2025 | 2024 | | :---------------------------------------------------- | :------- | :--------- | | Common stock options | 400,000 | 200,000 | | Non-vested stock awards | - | 1,032,191 | | Warrants | 8,720,345 | 1,731,370 | | Total shares excluded | 9,120,345 | 2,963,561 | [NOTE 4- DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE](index=14&type=section&id=NOTE%204-%20DISCONTINUED%20OPERATIONS%20AND%20ASSETS%20HELD%20FOR%20SALE) The Ammunition segment was sold to Olin Winchester, LLC on April 18, 2025, for approximately **$42.9 million** net proceeds. The segment's operations for the three months ended June 30, 2025 (April 1-18) resulted in a net loss of **$0.6 million**, a significant reduction from **$2.8 million** in the prior year, reflecting the divestiture - The Ammunition Manufacturing Business was sold to Olin Winchester, LLC for a gross purchase price of **$75.0 million**, with net proceeds of approximately **$42.9 million** after adjustments. The transaction closed on April 18, 2025[66](index=66&type=chunk) Table: Financial Information of Discontinued Operations (Ammunition Segment) | Metric | Three Months Ended June 30, 2025 (April 1-18) | Three Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------------ | :------------------------------- | | Net revenues | $752,762 | $18,671,559 | | Gross profit | $(846,440) | $(759,900) | | Loss from operations | $(1,178,865) | $(4,172,829) | | Loss from discontinued operations, net of tax | $(595,634) | $(2,762,950) | Table: Ammunition Segment Assets and Liabilities (March 31, 2025) | Category | Amount | | :-------------------------------- | :------------- | | Total assets of discontinued operations | $57,890,362 | | Total liabilities of discontinued operations | $16,644,998 | [NOTE 5 – SUPPLEMENTAL BALANCE SHEET INFORMATION](index=15&type=section&id=NOTE%205%20%E2%80%93%20SUPPLEMENTAL%20BALANCE%20SHEET%20INFORMATION) This note provides detailed breakdowns of accounts receivable, property and equipment, and accrued liabilities. Net accounts receivable decreased to **$8.9 million**, while net property and equipment increased to **$6.9 million**. Accrued liabilities significantly decreased to **$5.7 million**, primarily due to the resolution of an accrued contingency Table: Accounts Receivable, Net | Metric | June 30, 2025 | March 31, 2025 | | :------------------------ | :------------ | :------------- | | Accounts receivable | $12,544,721 | $13,994,499 | | Less: allowance for credit losses | $(3,596,273) | $(3,805,488) | | Accounts receivable, net | $8,948,448 | $10,189,011 | Table: Net Property and Equipment | Metric | June 30, 2025 | March 31, 2025 | | :----------------------- | :------------ | :------------- | | Total property and equipment | $11,238,698 | $10,562,538 | | Less accumulated depreciation | $(4,352,985) | $(4,084,854) | | Net property and equipment | $6,885,713 | $6,477,684 | Depreciation expense for the three months ended June 30, 2025, was **$479,663**, up from **$315,445** in 2024 Table: Accrued Liabilities | Metric | June 30, 2025 | March 31, 2025 | | :------------------ | :------------ | :------------- | | Accrued bonus program | $627,017 | $1,831,250 | | Accrued professional fees | $1,977,999 | $4,682,183 | | Accrued contingency | — | $29,067,229 | | Accrued liabilities | $5,708,093 | $37,413,636 | [NOTE 6 – LEASES](index=17&type=section&id=NOTE%206%20%E2%80%93%20LEASES) The company leases office space under operating leases, with a weighted average remaining lease term of **3.0 years** and a discount rate of **10.0%** as of June 30, 2025. Total lease expense for the three months ended June 30, 2025, was **$149,659** - Consolidated lease expense for the three months ended June 30, 2025, was **$149,659**, including **$135,734** of operating lease expense[77](index=77&type=chunk) - As of June 30, 2025, the weighted average remaining lease term for operating leases was **3.0 years**, and the weighted average discount rate was **10.0%**[78](index=78&type=chunk) Table: Future Minimum Lease Payments (as of June 30, 2025) | Years Ended March 31, | Amount | | :-------------------- | :------------- | | 2026 | $412,507 | | 2027 | $564,681 | | 2028 | $360,055 | | 2029 | $242,595 | | Total Lease Payments | $1,579,838 | | Present Value of Lease Liabilities | $1,357,412 | [NOTE 7 – PREFERRED STOCK](index=17&type=section&id=NOTE%207%20%E2%80%93%20PREFERRED%20STOCK) The company has Series A Cumulative Redeemable Perpetual Preferred Stock with an **8.75%** annual dividend rate, payable quarterly. Dividends paid for the quarter ended June 30, 2025, totaled **$765,625**, with **$136,111** accumulated as of that date - Series A Preferred Stock has an **8.75%** annual cumulative cash dividend rate (**$2.1875** per year), payable quarterly[80](index=80&type=chunk) - The Series A Preferred Stock is generally not redeemable by the Company prior to May 18, 2026, except under specific change of control or de-listing events[81](index=81&type=chunk) Table: Preferred Stock Dividends Paid | Period | Dividend Amount (2025) | Per Share Amount (2025) | Dividend Amount (2024) | Per Share Amount (2024) | | :----------------------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | March 15 - June 14 | $765,625 | $0.54687500 | $782,634 | $0.55902778 | Preferred dividends accumulated as of June 30, 2025, were **$136,111** [NOTE 8 – CAPITAL STOCK](index=18&type=section&id=NOTE%208%20%E2%80%93%20CAPITAL%20STOCK) The company has **200 million** authorized common shares. The 2017 Equity Incentive Plan has **1.8 million** shares available. As of June 30, 2025, **8.7 million** warrants were outstanding, including **7.0 million** issued in May 2025 as part of a legal settlement. Stock options are fully vested, and no unvested stock awards remain - The company has **200,000,000** authorized shares of common stock with a par value of **$0.001** per share[84](index=84&type=chunk) - As of June 30, 2025, there were **1,797,164** shares available to be issued under the 2017 Equity Incentive Plan[85](index=85&type=chunk) Table: Warrants Outstanding at June 30, 2025 | Metric | Value | | :-------------------------- | :-------- | | Number of Shares | 8,720,345 | | Weighted Average Exercise Price | $1.85 | | Weighted Average Life Remaining (Years) | 4.04 | Includes **7,000,000** warrants issued on May 30, 2025, at an exercise price of **$1.81** with a 5-year term, as part of a legal settlement - Stock options to purchase **400,000** shares were fully vested on May 30, 2025, upon the former CEO's separation agreement. No unrecognized compensation expense remains for unvested stock options or stock awards as of June 30, 2025[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [NOTE 9 – GOODWILL AND INTANGIBLE ASSETS](index=20&type=section&id=NOTE%209%20%E2%80%93%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill remained stable at **$90.9 million**. Net intangible assets decreased to **$95.9 million** from **$98.9 million** due to amortization. Amortization expense for the three months ended June 30, 2025, was **$3.0 million** - Goodwill carrying value remained at **$90,870,094** as of June 30, 2025, and March 31, 2025[90](index=90&type=chunk) - Amortization expense for intangible assets was **$3,030,358** for the three months ended June 30, 2025, compared to **$3,201,411** in the prior year[90](index=90&type=chunk) Table: Intangible Assets (Net) | Asset Type | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Tradename | $76,532,389 | $76,532,389 | | Customer List | $65,252,802 | $65,252,802 | | Intellectual Property | $4,224,442 | $4,224,442 | | Other Intangible Assets | $357,747 | $357,747 | | Gross Intangibles Assets | $146,367,380 | $146,367,380 | | Accumulated Amortization | $(50,505,971) | $(47,475,613) | | Net Intangible Assets | $95,861,409 | $98,891,767 | [NOTE 10 – SEGMENTS](index=22&type=section&id=NOTE%2010%20%E2%80%93%20SEGMENTS) The company's Chief Operating Decision Maker (CODM) assesses performance and allocates resources based on consolidated EBITDA. For the three months ended June 30, 2025, consolidated EBITDA was a loss of **$2.5 million**, an improvement from a **$2.9 million** loss in the prior year - The CODM (Chief Executive Officer) reviews consolidated EBITDA to analyze performance and allocate resources[92](index=92&type=chunk) Table: Consolidated EBITDA | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net revenues | $11,857,376 | $12,281,991 | | Cost of revenues | $1,522,398 | $1,744,790 | | Selling and marketing | $56,531 | $83,404 | | Corporate and administrative | $7,337,936 | $8,632,953 | | Employee salaries and related expenses | $5,441,165 | $4,710,406 | | Consolidated EBITDA | $(2,500,654) | $(2,889,562) | [NOTE 11 – INCOME TAXES](index=22&type=section&id=NOTE%2011%20%E2%80%93%20INCOME%20TAXES) The effective tax rate for the three months ended June 30, 2025, was **0.0%** due to a full valuation allowance against U.S. federal and state deferred tax assets, indicating that the company concluded it is more likely than not that these assets will not be realized - The income tax provision effective tax rate was **0.0%** for the three months ended June 30, 2025, compared to **(99.0%)** for the same period in 2024[94](index=94&type=chunk) - The **0.0%** effective tax rate in 2025 was primarily due to recording a full valuation allowance against U.S. federal and state deferred tax assets, as it was concluded that the net deferred tax assets are more likely than not to not be realized[94](index=94&type=chunk) [NOTE 12 – RELATED PARTY TRANSACTIONS](index=22&type=section&id=NOTE%2012%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions include **$201,646** in accounts receivable from entities owned by Mr. Urvan. As part of the Delaware Litigation settlement, the company issued a warrant to purchase **7.0 million** common shares and two unsecured promissory notes totaling **$51.0 million** to an affiliated designee of Mr. Urvan - Accounts receivable from entities owned by Mr. Urvan (Chairman and CEO) totaled **$201,646** as of June 30, 2025, and March 31, 2025[96](index=96&type=chunk) - A warrant to purchase **7.0 million** shares of common stock at an exercise price of **$1.81** with a 5-year term was issued to an affiliated designee of Mr. Urvan as partial consideration for the Delaware Litigation settlement. The warrant was valued at **$7,094,926**[97](index=97&type=chunk)[100](index=100&type=chunk) - Two unsecured promissory notes were issued to an affiliated designee of Mr. Urvan: Note 1 for **$12.0 million** (**6.50%** interest, due May 2037) and Note 2 for **$39.0 million** (**4.62%** interest, due May 2035). Both notes require annual prepayments and were recorded at fair value with significant debt discounts[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[107](index=107&type=chunk) [NOTE 13 – REVOLVING LOAN](index=26&type=section&id=NOTE%2013%20%E2%80%93%20REVOLVING%20LOAN) The company's revolving loan agreement with Sunflower Bank was amended in April and May 2025. The Second Amendment reduced the available amount to zero dollars and released collateral upon the Ammunition Manufacturing Business sale. As of June 30, 2025, there was no outstanding balance on the Revolving Loan - The Loan and Security Agreement with Sunflower Bank, N.A. (Revolving Loan) was amended on April 18, 2025, to reduce the available amount to **zero dollars** and release collateral upon the sale of the Ammunition Manufacturing Business[112](index=112&type=chunk) - A Third Amendment on May 13, 2025, updated company name definitions within the agreement[114](index=114&type=chunk) - As of June 30, 2025, the company did not have an outstanding balance on the Revolving Loan[114](index=114&type=chunk) [NOTE 14 – CONTINGENCIES](index=26&type=section&id=NOTE%2014%20%E2%80%93%20CONTINGENCIES) The Delaware Litigation was settled on May 30, 2025, involving the issuance of warrants and promissory notes to a related party. The MN Action, a breach of contract lawsuit seeking **$100 million** in damages, is ongoing with a trial expected in 2026. The company also faces an inestimable loss contingency from an ongoing SEC investigation into various accounting and disclosure practices - The Delaware Litigation, involving claims by and against Mr. Urvan related to the GunBroker.com acquisition, was settled on May 30, 2025, with all claims dismissed. The settlement included the issuance of a warrant and two unsecured promissory notes to an affiliate of Mr. Urvan[121](index=121&type=chunk) - The MN Action, a breach of contract lawsuit filed by Digital Cash Processing against GunBroker.com, alleges **$100 million** in damages. The company denies the allegations and expects the matter to be scheduled for trial in 2026[122](index=122&type=chunk) - The company is subject to an ongoing SEC investigation concerning valuation of share-based compensation, capitalization of share issuance costs, disclosure of perquisites and executive compensation, related party transactions, and Adjusted EBITDA calculation. The potential loss is currently inestimable[123](index=123&type=chunk) [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=29&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that the document contains forward-looking statements based on management's current beliefs and expectations, which are subject to inherent uncertainties, risks, and changes in circumstances. Readers are cautioned not to rely on these statements, and the company does not undertake to update them unless required by law - Forward-looking statements relate to estimated or anticipated results, future events, business strategy, operating results, cash flow, and other non-historical facts[127](index=127&type=chunk) - These statements are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of the company's control[128](index=128&type=chunk) - The company does not undertake any obligation to update or revise forward-looking statements, except as required by law[129](index=129&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION](index=30&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATION) This section provides management's perspective on the company's financial condition, results of operations, and liquidity for the three months ended June 30, 2025, covering the transition to a single Marketplace segment, the impact of the Delaware Litigation settlement, and key financial performance metrics [Overview](index=30&type=section&id=Overview) Outdoor Holding Company operates the GunBroker Marketplace, a leading online platform for firearms and shooting sports, generating revenue from marketplace fees. Key strategic initiatives for fiscal year 2026 include enhancing payment processing, share repurchases, business streamlining, and platform user experience improvements - Outdoor Holding Company owns the GunBroker Marketplace, an online platform for firearms and shooting sports, serving over **8.5 million** users and facilitating compliance through **32,000** federally licensed firearms dealers[132](index=132&type=chunk) - Revenue is generated from marketplace fees, including listing, compliance, advertising, and shipping revenue[132](index=132&type=chunk) - Strategic initiatives for FY2026 include launching universal payment processing, repurchasing shares, streamlining the business to reduce costs, and implementing user enhancements to the platform[132](index=132&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) The company completed the sale of its Ammunition segment on April 18, 2025, for approximately **$42.9 million** net proceeds, and subsequently changed its name to Outdoor Holding Company. The Delaware Litigation was settled on May 30, 2025, resulting in leadership changes, including Steven F. Urvan's appointment as CEO and Chairman, and the issuance of warrants and promissory notes as part of the settlement - The Ammunition segment was sold to Olin Winchester, LLC on April 18, 2025, for net proceeds of approximately **$42.9 million**, leading to its classification as discontinued operations[134](index=134&type=chunk)[135](index=135&type=chunk) - The company changed its name from AMMO, Inc. to **Outdoor Holding Company** on April 21, 2025[134](index=134&type=chunk) - The Delaware Litigation was settled on May 30, 2025, resulting in the appointment of **Steven F. Urvan** as CEO and Chairman of the Board, and the issuance of a warrant for **7.0 million** shares and two unsecured promissory notes totaling **$51.0 million** to an affiliated designee of Mr. Urvan[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Net revenues decreased by **3.5%** to **$11.9 million** for the three months ended June 30, 2025, primarily due to a decline in gross merchandise sales in the Marketplace. Gross margin improved to **87.2%** from **85.8%**. Operating expenses decreased by **$0.4 million**, largely due to a reduction in settlement contingencies and stock-based compensation, partially offset by increased employee salaries (including severance) and legal fees. The net loss from continuing operations significantly improved to **$(5.9) million** from **$(12.0) million** Table: Condensed Consolidated Statements of Operations (Continuing Operations) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net revenues | $11,857,376 | $12,281,991 | | Cost of revenues | $1,522,398 | $1,744,790 | | Gross profit | $10,334,978 | $10,537,201 | | Operating expenses | $16,345,653 | $16,772,566 | | Loss from operations | $(6,010,675) | $(6,235,365) | | Net loss from continuing operations | $(5,862,693) | $(11,997,025) | Table: Adjusted EBITDA Reconciliation | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net loss from continuing operations | $(5,862,693) | $(11,997,025) | | Provision for income taxes | — | $5,968,414 | | Depreciation and amortization | $3,510,021 | $3,345,804 | | Interest expense, net | $348,330 | $45,478 | | Stock based compensation | $787,826 | $1,436,038 | | Other income (expense), net | $(496,312) | $(252,232) | | Acquisitions and divestitures | $79,398 | — | | Special Committee Investigation and restatement | $1,304,908 | — | | SEC Investigation | $676,080 | $1,588,809 | | Delaware Litigation legal and professional fees | $1,354,864 | $679,119 | | Corporate restructuring costs | $1,435,693 | — | | Other nonrecurring expenses | — | $3,299,933 | | Adjusted EBITDA | $3,138,115 | $4,114,338 | - Net revenues decreased by **$0.4 million (3.5%)** YoY due to a decrease in gross merchandise sales from the Marketplace, partially offset by a minor increase in the take rate[148](index=148&type=chunk) - Gross margin increased to **87.2%** in Q2 2025 from **85.8%** in Q2 2024, driven by improved platform monetization and a higher mix of high-margin seller services[150](index=150&type=chunk) - Operating expenses decreased by approximately **$0.4 million**, primarily due to a **$3.2 million** reduction in settlement contingencies and a **$0.7 million** decrease in stock-based compensation, partially offset by a **$1.4 million** increase in severance costs and a **$1.9 million** increase in legal and professional fees[153](index=153&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents increased to **$63.4 million** as of June 30, 2025, primarily from **$42.9 million** in net proceeds from the Ammunition business sale. Working capital significantly improved to **$51.8 million**. The company expects existing working capital and cash flows to be adequate for the next 12 months, with ongoing funding from stock sales, bank financings, and related-party notes. The **$51.0 million** in promissory notes issued in the Delaware Litigation settlement require annual prepayments of **$2.95 million** starting May 2026. The revolving loan facility was reduced to zero and has no outstanding balance - Cash and cash equivalents increased by **$33.1 million** to **$63.4 million** as of June 30, 2025, primarily due to **$42.9 million** in net proceeds from the sale of the Ammunition manufacturing business[156](index=156&type=chunk) Table: Working Capital | Metric | June 30, 2025 | March 31, 2025 | | :-------------- | :------------ | :------------- | | Current assets | $74,486,175 | $72,148,138 | | Current liabilities | $22,725,627 | $62,092,917 | | Working Capital | $51,760,548 | $10,055,221 | - Net cash used in operations for Q2 2025 was **$6.7 million**, primarily due to reductions in accounts payable and accrued liabilities and increased prepaid expenses[158](index=158&type=chunk) - The company expects existing working capital and cash flows from operations to be adequate to fund operations over the next 12 months[163](index=163&type=chunk) - The **$51.0 million** aggregate principal amount of promissory notes issued in the Delaware Litigation settlement requires aggregate annual prepayments of **$2.95 million** beginning May 30, 2026[165](index=165&type=chunk) - The revolving loan facility with Sunflower Bank was reduced to **zero dollars** and had no outstanding balance as of June 30, 2025[170](index=170&type=chunk) [Off-Balance Sheet Arrangements](index=36&type=section&id=Of%20-Balance%20Sheet%20Arrangements) As of June 30, 2025, and March 31, 2025, the company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition or results of operations - The company did not have any off-balance sheet arrangements as of June 30, 2025, and March 31, 2025, that are material or reasonably likely to have a material effect on its financial condition or results of operations[171](index=171&type=chunk) [Critical Accounting Estimates](index=36&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates, which require significant management judgment, remain consistent with those disclosed in the Annual Report on Form 10-K for the year ended March 31, 2025, with no material changes - There have been no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for the year ended March 31, 2025[173](index=173&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](index=36&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) There have been no material changes to the quantitative and qualitative disclosures about market risk from those reported in the company's Annual Report on Form 10-K - There have been no material changes from the market risks disclosed in Part II, Item 7A of the Form 10-K[174](index=174&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=37&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to previously identified material weaknesses in internal control over financial reporting. The company is actively implementing remediation initiatives, including organizational enhancements, policy implementations, a new accounting system, and enhanced review procedures [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective at a reasonable assurance level due to continuing material weaknesses. These weaknesses include issues in the control environment, complex technical accounting (stock compensation, warrants, convertible notes), related party transactions and executive compensation, financial reporting, and segregation of duties - As of June 30, 2025, disclosure controls and procedures were deemed **not effective** at a reasonable assurance level[176](index=176&type=chunk) - Material weaknesses identified include deficiencies in the control environment, information and communication, monitoring activities, complex technical accounting (stock compensation, warrants, convertible notes), related party transactions and executive compensation, financial reporting, and segregation of duties[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) [Management's Remediation Initiatives for Existing Material Weaknesses](index=38&type=section&id=Management's%20Remediation%20Initiatives%20for%20Existing%20Material%20Weaknesses) The company has initiated and is focused on designing and implementing effective measures to strengthen internal controls. Remediation efforts include organizational enhancements (hiring a CFO and VP of Accounting), reinforcing compliance communications, improving processes for significant transactions, implementing related party transaction and perquisites policies, establishing a disclosure committee, implementing a new accounting system, and enhancing entity-wide review procedures - Remediation initiatives include organizational enhancements (hiring a CFO and VP of Accounting), executive communications to reinforce compliance, improved processes for significant and unusual transactions, and implementation of Related Party Transaction and Perquisites Policies[181](index=181&type=chunk)[182](index=182&type=chunk) - A formal disclosure committee was established in fiscal year 2025 to coordinate disclosures and ensure completeness and accuracy of information[182](index=182&type=chunk)[183](index=183&type=chunk) - Control activities remediation includes implementing a new accounting system for improved IT and automated controls, and enhancing existing entity-wide controls around financial reporting processes, including additional staff training and improved evidence of review[187](index=187&type=chunk) [Changes in Internal Control Over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Other than the ongoing remediation activities described, there have been no material changes in the company's internal control over financial reporting during the three months ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025, other than the described remediation efforts[186](index=186&type=chunk) [PART II - OTHER INFORMATION](index=40&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=40&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section provides updates on legal proceedings, noting the settlement of the Delaware Litigation on May 30, 2025, and the ongoing MN Action, a breach of contract lawsuit against GunBroker.com seeking **$100 million** in damages, with a trial expected in 2026 - The Delaware Litigation was settled on May 30, 2025, with all claims dismissed, as partial consideration for which the company issued a warrant and two unsecured promissory notes to an affiliate of Mr. Urvan[189](index=189&type=chunk) - The MN Action, a civil action alleging breach of contract and seeking **$100 million** in damages against GunBroker.com, is ongoing, with the company denying allegations and expecting a trial in 2026[190](index=190&type=chunk) [ITEM 1A. RISK FACTORS](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS) There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended March 31, 2025 - No material changes to the risk factors disclosed in Part I, Item 1A of the Form 10-K for the year ended March 31, 2025[191](index=191&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report during the period - None[192](index=192&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report during the period - None[193](index=193&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURE](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURE) This item is not applicable to the company's operations - Not applicable[194](index=194&type=chunk) [ITEM 5. OTHER INFORMATION](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) There was no other information to disclose under this item - None[195](index=195&type=chunk) [ITEM 6. EXHIBITS](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including merger agreements, asset purchase agreements, corporate governance documents, warrant forms, executive separation agreements, loan amendments, and settlement agreements - The exhibits include various agreements such as the Asset Purchase Agreement for the Ammunition segment sale, forms of warrants and promissory notes related to the Delaware Litigation settlement, and amendments to the Loan and Security Agreement[197](index=197&type=chunk) - Also included are executive separation agreements and certifications pursuant to the Sarbanes-Oxley Act of 2002[197](index=197&type=chunk)[198](index=198&type=chunk) [SIGNATURES](index=44&type=section&id=SIGNATURES) The report is signed by Steven F. Urvan, Chief Executive Officer, and Paul Kasowski, Chief Financial Officer, on behalf of Outdoor Holding Company, certifying its submission in accordance with the Exchange Act of 1934 - The report was signed by **Steven F. Urvan**, Chief Executive Officer, and **Paul Kasowski**, Chief Financial Officer, on August 8, 2025[205](index=205&type=chunk)

OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission file number: 001-32508 Camber Energy, Inc. ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2025 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or or ...