UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number 001-38154 CODA OCTOPUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 34-2 ...

[Executive Summary](index=1&type=section&id=Executive%20Summary) Summarizes the CEO's strategic actions, Q4 and FY25 financial performance, and key cash flow and balance sheet metrics [CEO's Strategic Actions](index=1&type=section&id=CEO%27s%20Strategic%20Actions) Interim CEO Alison Lewis outlined a turnaround strategy focusing on cash optimization, deleveraging, sales stabilization, and profitability improvement - The company is taking decisive action to **optimize cash**, **delever the balance sheet**, **stabilize sales**, and **improve profitability**, acknowledging performance has not met expectations[2](index=2&type=chunk) - A leaner, more nimble regional operating model is being implemented, prioritizing speed, simplicity, and impact over global infrastructure[2](index=2&type=chunk) - The turnaround strategy is anchored on five actions: aggressively streamlining the portfolio, accelerating innovation, implementing pricing and revenue growth management, driving productivity and working capital efficiency, and enhancing digital capabilities[2](index=2&type=chunk) [Summary of Fiscal Fourth Quarter Results](index=1&type=section&id=Summary%20of%20Fiscal%20Fourth%20Quarter%20Results) Q4 FY25 saw significant declines in net sales and profitability, with a substantial net loss primarily due to impairment charges Fiscal Fourth Quarter 2025 Key Financial Highlights (YoY) | Metric | Q4 FY25 | Q4 FY24 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Net Sales (Millions USD) | $363 | $418.8 | -13% | | Organic Net Sales | - | - | -11% | | Gross Profit Margin | 20.5% | 23.4% | -290 bps | | Adjusted Gross Profit Margin | 20.5% | 23.4% | -290 bps | | Net Loss (Millions USD) | $(273) | $(3) | Significant increase | | Adjusted Net Loss (Millions USD) | $(2) | $11 (income) | Shift to loss | | Adjusted EBITDA (Millions USD) | $20 | $40 | -50% | | Loss per Diluted Share (USD) | $(3.06) | $(0.03) | Significant increase | | Adjusted Loss per Diluted Share (USD) | $(0.02) | $0.13 (EPS) | Shift to loss | - Net loss included pre-tax non-cash impairment charges of **$252 million** (**$248 million** after-tax) related to goodwill, certain intangible assets, and assets held for sale[5](index=5&type=chunk) [Summary of Fiscal Year 2025 Results](index=1&type=section&id=Summary%20of%20Fiscal%20Year%202025%20Results) Full fiscal year 2025 saw a **10% decline in net sales** and a substantial net loss, largely due to significant impairment charges Fiscal Year 2025 Key Financial Highlights (YoY) | Metric | FY25 | FY24 | Change (YoY) | | :----- | :--- | :--- | :----------- | | Net Sales (Millions USD) | $1,560 | $1,736.3 | -10% | | Organic Net Sales | - | - | -7% | | Gross Profit Margin | 21.4% | 21.9% | -50 bps | | Adjusted Gross Profit Margin | 21.5% | 22.4% | -90 bps | | Net Loss (Millions USD) | $(531) | $(75) | Significant increase | | Adjusted Net Income (Millions USD) | $8 | $30 | -73.3% | | Adjusted EBITDA (Millions USD) | $114 | $155 | -26.4% | | Loss per Diluted Share (USD) | $(5.89) | $(0.84) | Significant increase | | Adjusted EPS (USD) | $0.09 | $0.33 | -72.7% | - Net loss included pre-tax non-cash impairment charges of **$496 million** (**$486 million** after-tax) related to goodwill, certain intangible assets, and assets held for sale[9](index=9&type=chunk) [Cash Flow and Balance Sheet Highlights](index=2&type=section&id=Cash%20Flow%20and%20Balance%20Sheet%20Highlights) The company saw a shift to negative operating cash flow and free cash flow, while total debt and net debt decreased Cash Flow and Debt Metrics | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net cash (used in) provided by operating activities (Millions USD) | $(3) | $39 | $22 | $116 | | Free cash flow (Millions USD) | $(9) | $31 | $(3) | $83 | | Total debt (end of Q4, Millions USD) | $705 | $744 (beginning of FY) | - | - | | Net debt (end of Q4, Millions USD) | $650 | $690 (beginning of FY) | - | - | | Net secured leverage ratio (end of Q4) | 4.7x | - | - | - | [Segment Performance](index=2&type=section&id=SEGMENT%20HIGHLIGHTS) This section details the financial performance of the North America and International segments for Q4 and full fiscal year 2025 [North America Segment](index=2&type=section&id=North%20America) North America segment experienced significant organic net sales declines in Q4 and FY25, impacting gross profit and Adjusted EBITDA [Q4 FY25 Performance](index=2&type=section&id=North%20America%20Q4%20FY25%20Performance) Details the North America segment's financial performance for the fourth quarter of fiscal year 2025 North America Segment Q4 FY25 Performance (YoY) | Metric | Q4 FY25 | Q4 FY24 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Organic Net Sales Growth | -14% | - | - | | Segment Gross Profit (Millions USD) | $40 | $58.6 | -33% | | Adjusted Gross Profit (Millions USD) | $40 | $58.6 | -32.6% | | Gross Margin | 19.2% | 22.6% | -340 bps | | Adjusted Gross Margin | 19.2% | 22.6% | -340 bps | | Adjusted EBITDA (Millions USD) | $10 | $21 | -50.2% | | Adjusted EBITDA Margin | 5.1% | 8.0% | -290 bps | - The decrease in organic net sales was primarily driven by lower sales in **snacks** and, to a lesser extent, **meal prep**[9](index=9&type=chunk) - Decreases in margin and Adjusted EBITDA were primarily driven by lower volume/mix and higher trade spend, partially offset by productivity and reduced SG&A expenses[10](index=10&type=chunk) [FY25 Performance](index=3&type=section&id=North%20America%20FY25%20Performance) Details the North America segment's financial performance for the full fiscal year 2025 North America Segment FY25 Performance (YoY) | Metric | FY25 | FY24 | Change (YoY) | | :----- | :--- | :--- | :----------- | | Organic Net Sales Growth | -9% | - | - | | Segment Gross Profit (Millions USD) | $193 | $230.7 | -16% | | Adjusted Gross Profit (Millions USD) | $195 | $238.8 | -18.5% | | Gross Margin | 21.7% | 21.9% | -20 bps | | Adjusted Gross Margin | 21.9% | 22.6% | -70 bps | | Adjusted EBITDA (Millions USD) | $65 | $99 | -33.7% | | Adjusted EBITDA Margin | 7.4% | 9.4% | -200 bps | - Fiscal 2025 organic net sales decreased by **9%** year-over-year, primarily driven by lower sales in **snacks** and, to a lesser extent, **meal prep**[11](index=11&type=chunk) - Decreases in margin and Adjusted EBITDA were primarily driven by lower volume/mix, higher trade spend, and cost inflation, partially offset by productivity and reduced SG&A[12](index=12&type=chunk)[13](index=13&type=chunk) [International Segment](index=3&type=section&id=International) International segment experienced organic net sales declines in Q4 and FY25, impacting gross profit and Adjusted EBITDA [Q4 FY25 Performance](index=3&type=section&id=International%20Q4%20FY25%20Performance) Details the International segment's financial performance for the fourth quarter of fiscal year 2025 International Segment Q4 FY25 Performance (YoY) | Metric | Q4 FY25 | Q4 FY24 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Organic Net Sales Growth | -6% | - | - | | Segment Gross Profit (Millions USD) | $35 | $39.4 | -12% | | Adjusted Gross Profit (Millions USD) | $35 | $39.4 | -11.7% | | Gross Margin | 22.1% | 24.8% | -270 bps | | Adjusted Gross Margin | 22.1% | 24.8% | -270 bps | | Adjusted EBITDA (Millions USD) | $21 | $27 | -22.5% | | Adjusted EBITDA Margin | 13.3% | 17.0% | -370 bps | - Fiscal fourth quarter organic net sales decreased by **6%** year-over-year, primarily driven by lower sales in **meal prep** and **beverages**[14](index=14&type=chunk) - Decreases in margin and Adjusted EBITDA were primarily driven by cost inflation and lower volume/mix, partially offset by productivity and net pricing[15](index=15&type=chunk)[16](index=16&type=chunk) [FY25 Performance](index=3&type=section&id=International%20FY25%20Performance) Details the International segment's financial performance for the full fiscal year 2025 International Segment FY25 Performance (YoY) | Metric | FY25 | FY24 | Change (YoY) | | :----- | :--- | :--- | :----------- | | Organic Net Sales Growth | -3% | - | - | | Segment Gross Profit (Millions USD) | $141 | $150.1 | -6% | | Adjusted Gross Profit (Millions USD) | $141 | $150.9 | -6.5% | | Gross Margin | 21.0% | 22.1% | -110 bps | | Adjusted Gross Margin | 21.0% | 22.2% | -110 bps | | Adjusted EBITDA (Millions USD) | $86 | $95 | -9.4% | | Adjusted EBITDA Margin | 12.8% | 14.0% | -120 bps | - Fiscal 2025 organic net sales decreased by **3%** year-over-year, primarily driven by lower sales in **meal prep** and **beverages**[16](index=16&type=chunk) - Decreases in margin and Adjusted EBITDA were primarily driven by cost inflation and volume/mix softness, partially offset by productivity and pricing[17](index=17&type=chunk)[18](index=18&type=chunk) [Category Performance](index=3&type=section&id=CATEGORY%20HIGHLIGHTS) This section highlights the organic net sales performance across key product categories for Q4 and full fiscal year 2025 [Snacks Category](index=4&type=section&id=Snacks) Snacks category experienced significant organic net sales declines in Q4 and FY25 due to velocity challenges and distribution losses Snacks Category Organic Net Sales Decline | Period | Organic Net Sales Decline (YoY) | | :----- | :------------------------------ | | Q4 FY25 | -19% | | FY25 | -14% | - Declines were driven by **velocity challenges** and **distribution losses**[21](index=21&type=chunk) [Baby & Kids Category](index=4&type=section&id=Baby%20%26%20Kids) Baby & Kids category saw organic net sales declines in Q4 and FY25, mainly due to puree softness, partially offset by snack growth Baby & Kids Category Organic Net Sales Decline | Period | Organic Net Sales Decline (YoY) | | :----- | :------------------------------ | | Q4 FY25 | -9% | | FY25 | -5% | - Declines were driven by softness in **purees** in both North America (partially due to strategic SKU reductions) and International segments[22](index=22&type=chunk)[23](index=23&type=chunk) - The FY25 decline was partially offset by growth in **snacks** in both Earth's Best and Ella's Kitchen[23](index=23&type=chunk) [Beverages Category](index=4&type=section&id=Beverages) Beverages category experienced a **3% organic net sales decline** in Q4 and FY25, driven by softness in tea and non-dairy beverages Beverages Category Organic Net Sales Decline | Period | Organic Net Sales Decline (YoY) | | :----- | :------------------------------ | | Q4 FY25 | -3% | | FY25 | -3% | - Declines were driven by softness in **tea** in North America and **private label non-dairy beverages** in Europe[24](index=24&type=chunk) [Meal Prep Category](index=4&type=section&id=Meal%20Prep) Meal Prep category saw organic net sales declines in Q4 and FY25, mainly due to softness in oils, nut butters, and meat-free products Meal Prep Category Organic Net Sales Decline | Period | Organic Net Sales Decline (YoY) | | :----- | :------------------------------ | | Q4 FY25 | -8% | | FY25 | -4% | - Q4 decline was primarily driven by softness in **oils and nut butters** in North America and **meat-free products** in the UK, partially offset by continued growth in **yogurt** in North America[25](index=25&type=chunk) - FY25 decline was primarily driven by softness in **meat-free** and **private label spreads and drizzles** in the UK and **oils and nut butters** in North America, partially offset by growth in **soups** in the UK and **yogurt** in North America[26](index=26&type=chunk) [Personal Care Category](index=4&type=section&id=Personal%20Care) Personal Care category experienced significant reported net sales declines in Q4 and FY25, as it is held for sale Personal Care Category Reported Net Sales Decline | Period | Reported Net Sales Decline (YoY) | | :----- | :------------------------------- | | Q4 FY25 | -49% | | FY25 | -41% | - Personal Care is a **held for sale business**, and organic net sales data is not applicable[8](index=8&type=chunk)[20](index=20&type=chunk)[57](index=57&type=chunk) [Credit Agreement Amendment](index=4&type=section&id=CREDIT%20AGREEMENT%20AMENDMENT) This section outlines the recent amendment to the company's credit agreement, enhancing operational flexibility [Credit Agreement Amendment Details](index=4&type=section&id=Credit%20Agreement%20Amendment%20Details) The company amended its credit agreement to increase operational flexibility, setting a maximum net secured leverage ratio of **5.50x** - The company amended its credit agreement to provide for increased operational flexibility[27](index=27&type=chunk) - The amended credit agreement sets a maximum net secured leverage ratio of **5.50x** for the quarter ending September 30, 2025, and thereafter[27](index=27&type=chunk) [Company Information](index=5&type=section&id=Company%20Information) This section provides details on the conference call and an overview of The Hain Celestial Group [Conference Call and Webcast Information](index=5&type=section&id=Conference%20Call%20and%20Webcast%20Information) Hain Celestial hosted a conference call and webcast on September 15, 2025, to discuss financial results and business outlook - Hain Celestial hosted a conference call and webcast on **September 15, 2025**, at **8:00 AM ET** to discuss results and business outlook[28](index=28&type=chunk) - A replay of the call was available shortly after the conclusion of the live call through **Monday, September 22nd, 2025**[28](index=28&type=chunk) [About The Hain Celestial Group](index=5&type=section&id=About%20The%20Hain%20Celestial%20Group) The Hain Celestial Group is a global health and wellness company headquartered in Hoboken, N.J., marketing products in over 70 countries - Hain Celestial Group is a leading health and wellness company inspiring healthier living through better-for-you brands[29](index=29&type=chunk) - Headquartered in **Hoboken, N.J.**, Hain Celestial's products across snacks, baby/kids, beverages, and meal preparation are marketed and sold in over **70 countries** globally[29](index=29&type=chunk) - Leading brands include Garden Veggie Snacks™, Terra® chips, Earth's Best® Organic and Ella's Kitchen® baby and kids foods, Celestial Seasonings® teas, Joya® and Natumi® plant-based beverages, The Greek Gods® yogurt, Cully & Sully®, Yorkshire Provender®, New Covent Garden® and Imagine® soups, among others[29](index=29&type=chunk) [Legal and Non-GAAP Disclosures](index=5&type=section&id=Legal%20and%20Non-GAAP%20Disclosures) This section provides important disclosures regarding forward-looking statements and the company's use of non-GAAP financial measures [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section discusses forward-looking statements, highlighting risks such as competition, consumer preferences, and supply chain issues - This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, involving risks, uncertainties, and assumptions[30](index=30&type=chunk) - Risks and uncertainties that may cause actual results to differ materially include challenges from **competition**, changes to **consumer preferences**, ability to execute business strategy, **supply chain effectiveness**, **input cost inflation**, and compliance with the credit agreement[31](index=31&type=chunk) [Non-GAAP Financial Measures](index=6&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes various non-GAAP financial measures to supplement GAAP reporting, providing additional insights into operations and financial condition [Definitions of Non-GAAP Measures](index=6&type=section&id=Definitions%20of%20Non-GAAP%20Measures) This section provides clear definitions for the various non-GAAP financial measures used by the company - **Organic net sales** exclude the impact of acquisitions, divestitures, held for sale businesses, discontinued brands, exited product categories, and foreign exchange[34](index=34&type=chunk) - **Adjusted gross profit** and its related margin exclude plant closure related costs, net, warehouse and manufacturing consolidation and other costs, net, and other costs[34](index=34&type=chunk) - **Adjusted EBITDA** and its related margin exclude net interest expense, income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, and various other non-recurring or non-operational items[34](index=34&type=chunk)[35](index=35&type=chunk) - **Free cash flow** is defined as net cash (used in) provided by operating activities less purchases of property, plant, and equipment[37](index=37&type=chunk) - **Net debt** is defined as total debt less cash and cash equivalents[37](index=37&type=chunk) [Consolidated Financial Statements](index=8&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated statements of operations, balance sheets, and cash flows [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated statements of operations show significant net loss increases for Q4 and FY25, driven by impairment charges Consolidated Statements of Operations Summary (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net sales (Thousands USD) | $363,348 | $418,799 | $1,559,780 | $1,736,286 | | Cost of sales (Thousands USD) | 289,002 | 320,796 | 1,225,722 | 1,355,454 | | Gross profit (Thousands USD) | 74,346 | 98,003 | 334,058 | 380,832 | | Operating (loss) income (Thousands USD) | (251,678) | 12,012 | (461,603) | (18,948) | | Net loss (Thousands USD) | $(272,615) | $(2,937) | $(530,841) | $(75,042) | | Loss per diluted share (USD) | $(3.06) | $(0.03) | $(5.89) | $(0.84) | | Goodwill impairment (Thousands USD) | $227,364 | - | $428,882 | - | | Intangibles and long-lived asset impairment (Thousands USD) | $24,911 | $5,357 | $66,940 | $76,143 | [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) Consolidated balance sheets show decreased total assets, primarily from reduced goodwill, and a substantial reduction in stockholders' equity Consolidated Balance Sheets Summary (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :----- | :------------ | :------------ | | Total assets (Thousands USD) | $1,603,278 | $2,117,548 | | Goodwill (Thousands USD) | $500,961 | $929,304 | | Trademarks and other intangible assets, net (Thousands USD) | $210,905 | $244,799 | | Total liabilities (Thousands USD) | $1,128,273 | $1,174,635 | | Total stockholders' equity (Thousands USD) | $475,005 | $942,913 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated cash flows show a shift to net cash used in operating activities for Q4 FY25 and lower cash provided for FY25 Consolidated Statements of Cash Flows Summary (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net cash (used in) provided by operating activities (Thousands USD) | $(2,648) | $39,396 | $22,115 | $116,355 | | Net cash provided by (used in) investing activities (Thousands USD) | $3,973 | $(673) | $3,619 | $(23,922) | | Net cash used in financing activities (Thousands USD) | $(7,411) | $(33,629) | $(43,886) | $(89,729) | | Net increase in cash and cash equivalents (Thousands USD) | $9,930 | $4,758 | $48 | $943 | [Segment and Category Financial Details (Non-GAAP)](index=11&type=section&id=Segment%20and%20Category%20Financial%20Details%20%28Non-GAAP%29) This section provides detailed non-GAAP financial metrics for segments and categories, including reconciliations and organic net sales [Net Sales, Gross Profit and Adjusted EBITDA by Segment (Q4 FY25)](index=11&type=section&id=Net%20Sales%2C%20Gross%20Profit%20and%20Adjusted%20EBITDA%20by%20Segment%20Q4%20FY25) Detailed Q4 FY25 net sales, gross profit, and Adjusted EBITDA by segment, showing significant declines, especially in North America Net Sales, Gross Profit and Adjusted EBITDA by Segment (Q4 FY25, in thousands) | Metric | North America (Q4 FY25) | International (Q4 FY25) | Consolidated (Q4 FY25) | | :----- | :---------------------- | :---------------------- | :--------------------- | | Net Sales (Thousands USD) | $205,790 | $157,558 | $363,348 | | % change Y/Y | (20.8)% | (1.0)% | (13.2)% | | Gross profit (Thousands USD) | $39,522 | $34,824 | $74,346 | | Adjusted gross profit (Thousands USD) | $39,507 | $34,824 | $74,331 | | Gross margin | 19.2% | 22.1% | 20.5% | | Adjusted gross margin | 19.2% | 22.1% | 20.5% | | Adjusted EBITDA (Thousands USD) | $10,398 | $20,938 | $19,906 | | % change Y/Y | (50.2)% | (22.5)% | (49.7)% | | Adjusted EBITDA margin | 5.1% | 13.3% | 5.5% | [Net Sales, Gross Profit and Adjusted EBITDA by Segment (FY25 YTD)](index=12&type=section&id=Net%20Sales%2C%20Gross%20Profit%20and%20Adjusted%20EBITDA%20by%20Segment%20FY25%20YTD) Detailed FY25 year-to-date net sales, gross profit, and Adjusted EBITDA by segment, showing overall declines, especially in North America Net Sales, Gross Profit and Adjusted EBITDA by Segment (FY25 YTD, in thousands) | Metric | North America (FY25 YTD) | International (FY25 YTD) | Consolidated (FY25 YTD) | | :----- | :----------------------- | :----------------------- | :---------------------- | | Net Sales (Thousands USD) | $888,626 | $671,154 | $1,559,780 | | % change Y/Y | (15.8)% | (1.4)% | (10.2)% | | Gross profit (Thousands USD) | $192,910 | $141,148 | $334,058 | | Adjusted gross profit (Thousands USD) | $194,674 | $141,148 | $335,822 | | Gross margin | 21.7% | 21.0% | 21.4% | | Adjusted gross margin | 21.9% | 21.0% | 21.5% | | Adjusted EBITDA (Thousands USD) | $65,470 | $86,000 | $113,789 | | % change Y/Y | (33.7)% | (9.4)% | (26.4)% | | Adjusted EBITDA margin | 7.4% | 12.8% | 7.3% | [Adjusted Gross Profit and Adjusted Operating Income Reconciliations](index=13&type=section&id=Adjusted%20Gross%20Profit%20and%20Adjusted%20Operating%20Income) Reconciles GAAP gross profit and operating income to adjusted non-GAAP figures, detailing adjustments for various costs and charges Reconciliation of Gross Profit (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Gross profit, GAAP (Thousands USD) | $74,346 | $98,003 | $334,058 | $380,832 | | Adjustments to Cost of sales (Thousands USD) | (15) | (12) | 1,764 | 8,961 | | Gross profit, as adjusted (Thousands USD) | $74,331 | $97,991 | $335,822 | $389,793 | Reconciliation of Operating (Loss) Income (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Operating (loss) income, GAAP (Thousands USD) | $(251,678) | $12,012 | $(461,603) | $(18,948) | | Total Adjustments (Thousands USD) | $263,373 | $15,487 | $526,710 | $120,227 | | Operating income, as adjusted (Thousands USD) | $11,695 | $27,499 | $65,107 | $101,279 | [Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted Share Reconciliations](index=14&type=section&id=Adjusted%20Net%20%28Loss%29%20Income%20and%20Adjusted%20Net%20%28Loss%29%20Income%20per%20Diluted%20Share) Reconciles GAAP net loss to adjusted net (loss) income and diluted EPS, detailing the impact of non-GAAP adjustments Reconciliation of Net Loss to Adjusted Net (Loss) Income (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net loss, GAAP (Thousands USD) | $(272,615) | $(2,937) | $(530,841) | $(75,042) | | Total Adjustments (Thousands USD) | $270,931 | $14,269 | $538,910 | $105,015 | | Net (loss) income, as adjusted (Thousands USD) | $(1,684) | $11,332 | $8,069 | $29,973 | Diluted Net (Loss) Income per Common Share (Adjusted) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Diluted net loss per common share, GAAP (USD) | $(3.06) | $(0.03) | $(5.89) | $(0.84) | | Diluted net (loss) income per common share, as adjusted (USD) | $(0.02) | $0.13 | $0.09 | $0.33 | [Organic Net Sales Growth by Segment](index=15&type=section&id=Organic%20Net%20Sales%20Growth%20by%20Segment) Detailed organic net sales growth by segment for Q4 FY25 and FY25 YTD, showing impacts of divestitures and FX Organic Net Sales Growth by Segment (Q4 FY25, in thousands) | Metric | North America | International | Hain Consolidated | | :----- | :------------ | :------------ | :---------------- | | Net sales (Thousands USD) | $205,790 | $157,558 | $363,348 | | Less: Impact of divestitures, held for sale businesses, discontinued brands and exited product categories (Thousands USD) | 21,976 | 935 | 22,911 | | Less: Impact of foreign currency exchange (Thousands USD) | (224) | 8,353 | 8,129 | | Organic net sales (Thousands USD) | $184,038 | $148,270 | $332,308 | | Organic net sales decline | (14.4)% | (5.9)% | (10.8)% | Organic Net Sales Growth by Segment (FY25 YTD, in thousands) | Metric | North America | International | Hain Consolidated | | :----- | :------------ | :------------ | :---------------- | | Net sales (Thousands USD) | $888,626 | $671,154 | $1,559,780 | | Less: Impact of divestitures, held for sale businesses, discontinued brands and exited product categories (Thousands USD) | 101,789 | 2,771 | 104,560 | | Less: Impact of foreign currency exchange (Thousands USD) | (2,074) | 13,691 | 11,617 | | Organic net sales (Thousands USD) | $788,911 | $654,692 | $1,443,603 | | Organic net sales decline | (9.2)% | (3.2)% | (6.5)% | [Organic Net Sales Growth by Category](index=16&type=section&id=Organic%20Net%20Sales%20Growth%20by%20Category) Detailed organic net sales growth by product category for Q4 FY25 and FY25 YTD, illustrating adjusted performance Organic Net Sales Growth by Category (Q4 FY25, in thousands) | Category | Net sales (Thousands USD) | Organic net sales (Thousands USD) | Organic net sales decline | | :------- | :------------------------ | :-------------------------------- | :------------------------ | | Snacks | $93,324 | $92,881 | (19.1)% | | Baby & Kids | $59,327 | $57,852 | (9.3)% | | Beverages | $55,783 | $54,135 | (3.1)% | | Meal Prep | $140,196 | $127,440 | (7.6)% | | Personal Care | $14,718 | $- | n/a | | Consolidated | $363,348 | $332,308 | (10.8)% | Organic Net Sales Growth by Category (FY25 YTD, in thousands) | Category | Net sales (Thousands USD) | Organic net sales (Thousands USD) | Organic net sales decline | | :------- | :------------------------ | :-------------------------------- | :------------------------ | | Snacks | $371,012 | $367,460 | (13.6)% | | Baby & Kids | $241,552 | $238,742 | (4.8)% | | Beverages | $245,147 | $244,438 | (3.4)% | | Meal Prep | $639,507 | $592,963 | (3.7)% | | Personal Care | $62,562 | $- | n/a | | Consolidated | $1,559,780 | $1,443,603 | (6.5)% | [Adjusted EBITDA Reconciliation](index=17&type=section&id=Adjusted%20EBITDA) Detailed reconciliation of GAAP net loss to Adjusted EBITDA for Q4 FY25 and FY25 YTD, outlining specific adjustments Adjusted EBITDA Reconciliation (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net loss (Thousands USD) | $(272,615) | $(2,937) | $(530,841) | $(75,042) | | Depreciation and amortization (Thousands USD) | 11,357 | 10,305 | 44,259 | 44,665 | | Interest expense, net (Thousands USD) | 11,689 | 12,954 | 47,773 | 54,232 | | Provision (benefit) for income taxes (Thousands USD) | 9,551 | (3,292) | 15,297 | (7,820) | | Goodwill impairment (Thousands USD) | 227,364 | - | 428,882 | - | | Intangibles and long-lived asset impairment (Thousands USD) | 24,911 | 5,357 | 66,940 | 76,143 | | Other adjustments (net) (Thousands USD) | 7,649 | 16,857 | 40,279 | 52,344 | | Adjusted EBITDA (Thousands USD) | $19,906 | $39,544 | $113,789 | $154,522 | [Free Cash Flow](index=18&type=section&id=Free%20Cash%20Flow) Free cash flow was negative for Q4 FY25 and full fiscal year 2025, a significant decrease from prior periods Free Cash Flow (in thousands) | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :----- | :------ | :------ | :--- | :--- | | Net cash (used in) provided by operating activities (Thousands USD) | $(2,648) | $39,396 | $22,115 | $116,355 | | Purchases of property, plant and equipment (Thousands USD) | (6,224) | (8,692) | (25,284) | (33,461) | | Free cash flow (Thousands USD) | $(8,872) | $30,704 | $(3,169) | $82,894 | [Net Debt](index=20&type=section&id=Net%20Debt) Total debt and net debt decreased from June 30, 2024, to June 30, 2025, reflecting deleveraging efforts Net Debt (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :----- | :------------ | :------------ | | Total debt (Thousands USD) | $704,821 | $744,092 | | Less: Cash and cash equivalents (Thousands USD) | 54,355 | 54,307 | | Net debt (Thousands USD) | $650,466 | $689,785 |

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of even ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for InnSuites Hospitality Trust [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for InnSuites Hospitality Trust, including balance sheets, statements of operations, shareholders' equity, and cash flows, along with detailed notes explaining the company's operations, accounting policies, debt, equity, and significant events for the periods ended July 31, 2025, and January 31, 2025 [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 points in time | Metric | July 31, 2025 | January 31, 2025 | | :-------------------------------- | :------------ | :--------------- | | **Assets** | | | | Cash | $206,941 | $92,752 | | Total Current Assets | $1,690,994 | $1,720,455 | | Total Assets | $14,197,704 | $14,193,580 | | **Liabilities & Equity** | | | | Total Current Liabilities | $1,441,278 | $1,391,145 | | Total Liabilities | $13,999,091 | $13,548,102 | | Total Equity | $198,613 | $645,478 | - Cash increased significantly from **$92,752** at January 31, 2025, to **$206,941** at July 31, 2025[10](index=10&type=chunk) - Total Equity decreased from **$645,478** at January 31, 2025, to **$198,613** at July 31, 2025[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations (Six Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%E2%80%93%20Six%20Months%20Ended%20July%2031%2C%202025%20and%20July%2031%2C%202024) This section outlines the company's financial performance over a six-month period, detailing revenues, expenses, and net loss | Metric | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Total Revenue | $4,004,635 | $4,134,362 | | Total Operating Expenses | $4,020,939 | $4,249,872 | | Operating Loss | $(16,304) | $(115,510) | | Consolidated Net Loss | $(361,989) | $(331,387) | | Net Loss Attributable to Controlling Interests | $(512,212) | $(527,416) | | Net Loss Per Share – Basic & Diluted | $(0.06) | $(0.06) | - Total revenue decreased by **3.1%** from **$4,134,362** in 2024 to **$4,004,635** in 2025 for the six-month period[12](index=12&type=chunk) - Operating loss significantly improved from **$(115,510)** in 2024 to **$(16,304)** in 2025, an **85.9%** reduction[12](index=12&type=chunk) - Consolidated Net Loss increased by **9.2%** from **$(331,387)** in 2024 to **$(361,989)** in 2025[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations (Three Months)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%E2%80%93%20Three%20Months%20Ended%20July%2031%2C%202025%20and%20July%2031%2C%202024) This section details the company's financial performance over a three-month period, presenting revenues, expenses, and net loss | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Total Revenue | $1,798,872 | $1,840,392 | | Total Operating Expenses | $2,037,572 | $2,126,348 | | Operating Loss | $(238,700) | $(285,956) | | Consolidated Net Loss | $(401,019) | $(410,002) | | Net Loss Attributable to Controlling Interests | $(391,180) | $(370,883) | | Net Loss Per Share – Basic & Diluted | $(0.04) | $(0.04) | - Total revenue decreased by **2.3%** from **$1,840,392** in 2024 to **$1,798,872** in 2025 for the three-month period[14](index=14&type=chunk) - Operating loss improved by **16.5%** from **$(285,956)** in 2024 to **$(238,700)** in 2025[14](index=14&type=chunk) - Consolidated Net Loss improved by **2.2%** from **$(410,002)** in 2024 to **$(401,019)** in 2025[14](index=14&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity%20%E2%80%93%20Six%20Months%20Ended%20July%2031%2C%202025%20and%20July%2031%2C%202024) This section presents changes in the company's equity over time, including trust shareholders' equity and non-controlling interests | Metric | July 31, 2025 | July 31, 2024 | | :------------------------------------ | :------------ | :------------ | | Trust Shareholders' Equity | $3,965,460 | $5,503,977 | | Non-Controlling Interest | $(3,766,847) | $(3,545,148) | | Total Equity | $198,613 | $1,958,829 | | Shares of Beneficial Interest (Shares) | 8,791,300 | 8,763,485 | | Shares of Beneficial Interest (Amount) | $4,882,885 | $6,421,402 | - Total Equity decreased significantly from **$1,958,829** at July 31, 2024, to **$198,613** at July 31, 2025[15](index=15&type=chunk)[18](index=18&type=chunk) - Shares of Beneficial Interest increased slightly from **8,763,485** to **8,791,300**[15](index=15&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Six%20Months%20ended%20July%2031%2C%202025%20and%20July%2031%2C%202024) This section details the sources and uses of cash across operating, investing, and financing activities over a six-month period | Metric | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided By (Used In) Operating Activities | $126,863 | $(504,012) | | Net Cash Used In Investing Activities | $(415,091) | $(286,939) | | Net Cash Provided By (Used In) Financing Activities | $402,417 | $(116,384) | | Net Increase (Decrease) In Cash | $114,189 | $(907,335) | | Cash and Cash Equivalents at End of Period | $206,941 | $418,033 | - Operating activities generated cash of **$126,863** in 2025, a significant improvement from cash used of **$(504,012)** in 2024[20](index=20&type=chunk) - Investing activities used more cash in 2025 (**$(415,091)**) compared to 2024 (**$(286,939)**), primarily due to hotel property improvements[20](index=20&type=chunk) - Financing activities provided cash of **$402,417** in 2025, a reversal from cash used of **$(116,384)** in 2024, mainly due to related party borrowings[20](index=20&type=chunk) [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, covering operations, policies, and significant events [1. Nature of Operations and Basis of Presentation](index=9&type=section&id=1.%20NATURE%20OF%20OPERATIONS%20AND%20BASIS%20OF%20PRESENTATION) This note describes InnSuites Hospitality Trust's business, its ownership structure, and the accounting principles used in preparing the financial statements - InnSuites Hospitality Trust (IHT) is an Ohio REIT, publicly traded and taxed as a C corporation, owning interests in two hotels (Arizona and New Mexico) and holding investments in UniGen Power Inc. and managing IBC Hotels, LLC[22](index=22&type=chunk)[23](index=23&type=chunk) - The Trust owns a **75.89%** interest in RRF Limited Liability Limited Partnership, which manages the hotels and IBC Hotels, LLC[25](index=25&type=chunk)[26](index=26&type=chunk) - Both hotels are classified as operating assets but are available for sale, though not currently listed[27](index=27&type=chunk) - The Trust's liquidity relies on hotel revenues, RRF management fees, asset sales, and returns on diversification investments, with current cash and credit lines deemed sufficient for the next 12 months[31](index=31&type=chunk)[35](index=35&type=chunk) - Hotel operations are seasonal, with Tucson's highest occupancy in Q1/Q4 and Albuquerque's in Q2/Q3, providing some balance[43](index=43&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and methods applied in the preparation of the financial statements, including revenue recognition and asset valuation - The financial statements are prepared using GAAP, requiring management estimates for items like useful lives of assets and fair values[45](index=45&type=chunk)[46](index=46&type=chunk) - Revenue from hotel operations is recognized as services are rendered, bundling room nights with amenities like Wi-Fi and breakfast[53](index=53&type=chunk)[56](index=56&type=chunk) - The Trust holds a **$1 million** 6% convertible debenture in UniGen Power Inc., approximately **$668,750** in UniGen common stock, and warrants, potentially leading to **15-20%** fully diluted equity ownership[70](index=70&type=chunk)[72](index=72&type=chunk)[81](index=81&type=chunk) - UniGen's engineering is **61%** complete, and the company is focused on raising additional capital, with IHT potentially participating[82](index=82&type=chunk) - The UniGen investment is valued as a Level 3 fair value measurement due to the absence of active or similar observable markets[85](index=85&type=chunk) [3. Ownership Interests in Albuquerque and Tucson Subsidiaries](index=18&type=section&id=3.%20OWNERSHIP%20INTERESTS%20IN%20ALBQUERQUE%20AND%20TUCSON%20SUBSIDIARIES) This note details the Trust's ownership stakes in its Albuquerque and Tucson hotel subsidiaries and their financial obligations - The Trust has sold non-controlling interests in Albuquerque Suite Hospitality, LLC and Tucson Hospitality Properties, LLLP, maintaining at least **50.1%** ownership in one entity[87](index=87&type=chunk) - As of July 31, 2025, the Trust held a **21.90%** ownership in the Albuquerque entity and the Partnership held a **51.75%** ownership in the Tucson entity[91](index=91&type=chunk)[92](index=92&type=chunk) - Neither the Albuquerque nor Tucson entities made quarterly Priority Return payments for the six months ended July 31, 2025[91](index=91&type=chunk)[92](index=92&type=chunk) [4. Variable Interest Entities](index=20&type=section&id=4.%20VARIABLE%20INTEREST%20ENTITIES) This note explains the Trust's involvement with Variable Interest Entities, specifically the Albuquerque entity, and its role as the primary beneficiary - The Albuquerque entity is identified as a Variable Interest Entity (VIE) with the Trust as the primary beneficiary, exercising control through financial guarantees, majority ownership, and operational decision-making[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - The Trust and Partnership provided mortgage loan guarantees to secure financing on favorable terms for their properties[97](index=97&type=chunk) [5. Property and Equipment](index=20&type=section&id=5.%20PROPERTY%20AND%20EQUIPMENT) This note provides a breakdown of the Trust's property and equipment, including hotel properties and corporate assets, net of accumulated depreciation Hotel Segment | Hotel Segment | July 31, 2025 | January 31, 2025 | | :-------------------------- | :------------ | :--------------- | | Total hotel properties | $18,933,321 | $18,518,230 | | Less accumulated depreciation | $(12,099,254) | $(11,729,945) | | Hotel properties, net | $6,834,067 | $6,788,285 | Corporate PP&E | Corporate PP&E | July 31, 2025 | January 31, 2025 | | :-------------------------- | :------------ | :--------------- | | Total property, plant and equipment | $468,540 | $468,540 | | Less accumulated depreciation | $(446,472) | $(445,211) | | Property, Plant and Equipment, net | $22,068 | $23,329 | - Net hotel properties increased slightly from **$6,788,285** to **$6,834,067**, reflecting ongoing investments[98](index=98&type=chunk) [6. Mortgage Notes Payable](index=21&type=section&id=6.%20MORTGAGE%20NOTES%20PAYABLE) This note details the mortgage loans secured by the Trust's hotel properties, including their balances, interest rates, and guarantees - The Tucson Hospitality Properties LLLP has an **$8.4 million** loan at **4.99%** interest, with a balance of approximately **$7,764,000** as of July 31, 2025[100](index=100&type=chunk) - Albuquerque Suites Hospitality, LLC has a **$1.4 million** business loan at an initial **4.90%** interest, with a balance of approximately **$1,136,000** as of July 31, 2025[101](index=101&type=chunk) - Both mortgage loans are guaranteed by InnSuites Hospitality Trust and related parties[100](index=100&type=chunk)[101](index=101&type=chunk) [7. Notes Payable and Notes Receivable – Related Party](index=21&type=section&id=7.%20NOTES%20PAYABLE%20AND%20NOTES%20RECEIVABLE%20%E2%80%93%20RELATED%20PARTY) This note describes the Trust's financial arrangements with related parties, including a demand/revolving line of credit - The Trust has a Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC (a related party) with an amount payable of approximately **$1,718,000** as of July 31, 2025, up from **$1,151,000** at January 31, 2025[103](index=103&type=chunk) - The line of credit bears interest at **7.0%** per annum, with interest-only payments paused, and has a maximum borrowing capacity of **$2,000,000**[103](index=103&type=chunk) [8. Other Notes Payable](index=22&type=section&id=8.%20OTHER%20NOTES%20PAYABLE) This note outlines other unsecured notes payable held by the Trust, including their interest rates and maturity dates - The Trust has a **$200,000** unsecured note payable at **5%** interest, due in August 2025 or 90 days notice, which may be extended[104](index=104&type=chunk) - Another unsecured loan of **$270,000** at **5%** interest, entered into with the Partnership, has been extended to May 2026[105](index=105&type=chunk) [9. Notes Payable to Banks](index=23&type=section&id=9.%20NOTES%20PAYABLE%20TO%20BANKS) This note details the Trust's revolving lines of credit with Pima Federal Credit Union, including balances and maturity dates - The Trust has three revolving lines of credit with Pima Federal Credit Union totaling **$250,000**, with balances of **$25,000** (Trust), **$21,000** (Albuquerque Hotel), and **$33,000** (Tucson Hotel) as of July 31, 2025[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - These lines of credit have variable interest rates and maturity dates ranging from November 2025 to January 2027[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [10. Minimum Debt Payments](index=23&type=section&id=10.%20MINIMUM%20DEBT%20PAYMENTS) This note presents a schedule of the Trust's minimum debt payments for mortgages, other notes, bank notes, and related party notes across future fiscal years | Fiscal Year | Mortgages | Other Notes Payable | Notes Payable to Banks | Notes Payable - Related Party | Total | | :---------- | :-------- | :------------------ | :--------------------- | :---------------------------- | :---------- | | 2026 | $123,673 | $470,000 | $79,878 | $- | $673,551 | | 2027 | $260,999 | $- | $- | $1,715,750 | $1,976,749 | | 2028 | $263,125 | $- | $- | $- | $263,125 | | 2029 | $274,685 | $- | $- | $- | $274,685 | | 2030 | $1,164,262 | $- | $- | $- | $1,164,262 | | Thereafter | $6,813,552 | $- | $- | $- | $6,813,552 | | **Total** | **$8,900,296** | **$470,000** | **$79,878** | **$1,715,750** | **$11,165,924** | - Total minimum debt payments are approximately **$673,551** for Fiscal Year 2026 and **$1,976,749** for Fiscal Year 2027[111](index=111&type=chunk) [11. Description of Beneficial Interests](index=23&type=section&id=11.%20DESCRIPTION%20OF%20BENEFICIAL%20INTERESTS) This note describes the rights and characteristics of the Trust's Shares of Beneficial Interest, including dividend entitlements and voting rights - Holders of Shares of Beneficial Interest are entitled to dividends, share ratably in assets upon liquidation, and possess ordinary voting rights (one vote per share)[112](index=112&type=chunk) - The Trust repurchased **0** shares for the six months ended July 31, 2025, compared to **18,456** shares at an average price of **$1.38** in the prior year[113](index=113&type=chunk) [12. Related Party Transactions](index=24&type=section&id=12.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions and relationships between the Trust and its related parties, including ownership stakes and management agreements - Mr. Wirth and his affiliates held **22.51%** of Partnership units and **73.03%** of the Trust's Shares of Beneficial Interest as of July 31, 2025[114](index=114&type=chunk) - The Trust's subsidiary, RRF LLLP, manages the two hotels and IBC Hotels, LLC, under agreements with **5%** of room revenue and a **$2,000** monthly accounting fee per hotel[116](index=116&type=chunk) - An immediate family member of Mr. Wirth provides part-time IT support, earning up to approximately **$24,000** annually plus bonuses[117](index=117&type=chunk) [13. Statements of Cash Flows, Supplemental Disclosures](index=24&type=section&id=13.%20STATEMENTS%20OF%20CASH%20FLOWS%2C%20SUPPLEMENTAL%20DISCLOSURES) This note provides additional information on cash flow activities, specifically detailing cash paid for interest and taxes - Cash paid for interest was approximately **$245,000** for the six months ended July 31, 2025, compared to **$250,000** in the prior year[118](index=118&type=chunk) - No cash was paid for taxes during the six months ended July 31, 2025 and 2024[118](index=118&type=chunk) [14. Commitments and Contingencies](index=24&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the Trust's contractual obligations and potential liabilities, including escrow requirements, membership fees, and legal matters - The Trust is obligated to deposit **4%** of Tucson hotel room revenue into an escrow account for capital expenditures, but no cash balance existed as of July 31, 2025[119](index=119&type=chunk) - Fees paid to Best Western for membership and reservation systems were approximately **$112,000** for the six months ended July 31, 2025, an increase from **$92,000** in the prior year[120](index=120&type=chunk) - Management believes that current legal actions will not materially adversely affect the Trust's financial position, results of operations, or liquidity[121](index=121&type=chunk) [15. Leases](index=25&type=section&id=15.%20LEASES) This note details the Trust's operating leases, including its corporate offices and a non-cancelable ground lease for the Albuquerque Hotel - The Trust has operating leases for its corporate offices (month-to-month) and a non-cancelable ground lease for the Albuquerque Hotel, expiring in 2058[124](index=124&type=chunk)[125](index=125&type=chunk) | Metric | July 31, 2025 | | :------------------------------------ | :------------ | | Weighted average remaining lease term | 31 years | | Weighted average discount rate | 4.85% | | Total minimum lease payments | $4,463,211 | | Total present value of minimum payments | $2,216,563 | | Long term portion of operating lease liability | $2,196,084 | [16. Share-Based Payments](index=26&type=section&id=16.%20SHARE-BASED%20PAYMENTS) This note describes the Trust's share-based compensation program for non-employee Trustees, including restricted share grants and vesting terms - The Trust compensates its three non-employee Trustees with grants of **6,000** restricted shares each per year, vesting over one year[129](index=129&type=chunk) - On February 15, 2025, **18,000** restricted shares with an aggregate fair value of **$7,200** per grant were issued to the independent Trustees[129](index=129&type=chunk) [17. Notes Receivable (IBC)](index=27&type=section&id=17.%20NOTES%20RECEIVEABLE) This note details the secured promissory note held by the Trust from the sale of its technology subsidiary, IBC Hotels LLC, including its terms and security - The Trust holds a secured promissory note of **$1,925,000** from the sale of its technology subsidiary, IBC Hotels LLC, with interest accrued at **3.75%** per annum[131](index=131&type=chunk) - The note's maturity was extended to June 30, 2030, and the interest rate adjusted to **3.25%** payable at maturity, as RRF (IHT's management subsidiary) took over IBC management[135](index=135&type=chunk) - The note is secured by a pledge of the buyer's interest in IBC and a security interest in all IBC assets[136](index=136&type=chunk) [18. Income Taxes](index=28&type=section&id=18.%20INCOME%20TAXES) This note provides information on the Trust's income tax status as a C-Corporation, including deferred tax assets and valuation allowances - The Trust is taxed as a C-Corporation and has deferred tax assets of **$6.1 million**, including **$3.1 million** in net operating loss carryforwards and **$2.9 million** in syndications[137](index=137&type=chunk) - A valuation allowance of approximately **$4.3 million** has been determined against the net deferred tax asset[137](index=137&type=chunk) [19. COVID-19 Disclosure](index=28&type=section&id=19.%20COVID-19%20DISCLOSURE) This note discusses the impact of the COVID-19 pandemic on the Trust's business and the subsequent recovery and current financial outlook - COVID-19 had a material detrimental impact on the business in Fiscal Year 2021, but lodging demand and revenue levels have since recovered[138](index=138&type=chunk) - Fiscal Year 2025 showed a strong rebound, and Fiscal Year 2026 has stable revenue but reduced profits due to inflation and increased costs[139](index=139&type=chunk) [20. Employee Retention Tax Credit](index=28&type=section&id=20.%20EMPLOYEE%20RETENTION%20TAX%20CREDIT) This note details the anticipated and received Employee Retention Tax Credits under the CARES Act and Consolidated Appropriations Act - The Trust is anticipated to receive approximately **$2.7 million** in Employment Tax Refunds and Credits under the CARES Act and Consolidated Appropriations Act[141](index=141&type=chunk) - As of July 31, 2025, IHT has received approximately **$1.5 million** of these funds[141](index=141&type=chunk) [21. Going Concern](index=29&type=section&id=21.%20GOING%20CONCERN) This note addresses the Trust's ability to continue as a going concern, outlining management's strategies to improve profitability and cash flow - Fiscal Year 2025 was the Trust's first loss in four years, prompting a focus on cost-cutting, including a **$350,000** annual reduction in Tucson Hotel insurance costs for Fiscal Year 2026[143](index=143&type=chunk) - Management believes that improved operating profits, diversification opportunities, and NYSE-American listing provide positive equitable assets for continued success and positive cash flow[143](index=143&type=chunk) [22. Best Western Rewards Guest Voucher Expense](index=29&type=section&id=22.%20BEST%20WESTERN%20REWARDS%20GUEST%20VOUCHER%20EXPENSE) This note discloses the expense incurred by the Trust for Best Western Rewards Guest Vouchers, primarily for guest free night redemptions - The Trust recorded approximately **$66,000** in Best Western Rewards Guest Voucher Expense for the six months ended July 31, 2025, primarily for guest free night vouchers[144](index=144&type=chunk) [23. IBC Receivable](index=29&type=section&id=23.%20IBC%20RECEIVABLE) This note provides background on IBC Hotels, LLC, its sale to a related party, and the Trust's ongoing involvement through a management subsidiary - IHT founded IBC Hotels, LLC in 2014 to address the unfulfilled need for independent hotel reservation services, selling it in 2018[145](index=145&type=chunk) - On March 5, 2025, a related party purchased IBC Hotels, LLC, and RRF LLLP (IHT's subsidiary) was hired to manage its revitalization, obtaining a five-year option to purchase IBC at cost[147](index=147&type=chunk)[149](index=149&type=chunk) - This opportunity allows IHT to benefit from the significant global market for independent hotel reservations and branding[149](index=149&type=chunk) [24. Subsequent Events](index=29&type=section&id=24.%20SUBSEQUENT%20EVENTS) This note discloses significant events that occurred after the balance sheet date, including dividend policy, note extensions, and hotel operational performance - The Trust maintains a conservative dividend policy, paying two semi-annual dividends totaling **$0.02** per share per fiscal year since 1971[150](index=150&type=chunk) - The note payable to IHT from the sale of IBC Hotels, LLC was extended to June 30, 2030, with interest at **3.25%** payable at maturity, as RRF took over IBC management[152](index=152&type=chunk) - Hotel operations achieved record revenue and Gross Operating Profit in Fiscal Year 2025, with solid revenue expected for Fiscal Year 2026[153](index=153&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&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 Trust's financial condition, results of operations, and future outlook, including discussions on hotel performance, diversification investments, liquidity, and key accounting policies [General](index=31&type=section&id=GENERAL) This section provides context for the management discussion and analysis, advising it be read with the financial statements and prior annual report - This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes for the first two Fiscal Quarters of Fiscal 2026 and the audited consolidated Form 10-K for the fiscal year ended January 31, 2025[158](index=158&type=chunk) [Forward-Looking Statements](index=31&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights forward-looking statements within the report, outlining the inherent uncertainties and risk factors that could cause actual results to differ - The report contains forward-looking statements regarding dividends, hotel operations, financing, investments, UniGen expansion, hotel sales, and financial trends, subject to safe harbor provisions[159](index=159&type=chunk) - Uncertainties and factors that may cause actual results to differ materially include tariffs, investment risks (UniGen, IBC), inflation, economic recession, pandemics, political instability, labor costs, and competition[160](index=160&type=chunk)[161](index=161&type=chunk) [Overview](index=33&type=section&id=OVERVIEW) This section provides a general description of the Trust's business, including its hotel operations, diversification investments, and strategic objectives - The Trust owns and operates two moderate-service hotels in Tucson, Arizona, and Albuquerque, New Mexico, with **270** suites, branded as InnSuites and Best Western[163](index=163&type=chunk) - The Trust manages IBC Hotels, LLC, offering independent hotel reservation and branding services, with an option to purchase IBC at cost[165](index=165&type=chunk) - Diversification includes an investment in UniGen Power Inc., developing efficient clean energy generation[165](index=165&type=chunk) - Results are significantly affected by the economy, travel, occupancy, room rates, cost management, and inflationary increases in operating expenses[167](index=167&type=chunk) - The strategic plan includes selling the two hotels at market value within **36** months, expanding IBC, and benefiting from the UniGen investment[171](index=171&type=chunk) [Hotel Operations (Performance Metrics)](index=35&type=section&id=HOTEL%20OPERATIONS%20(Performance%20Metrics)) This section analyzes the performance metrics of the Trust's hotel operations, including occupancy, average daily rate, and revenue per available room - Hotel expenses primarily include property taxes, insurance, corporate overhead, interest on mortgage debt, professional fees, depreciation, payroll, supplies, marketing, and utilities[174](index=174&type=chunk) | Metric | July 31, 2025 | July 31, 2024 | Change | %-Incr/Decr | | :-------------------------- | :------------ | :------------ | :----- | :---------- | | **Albuquerque** | | | | | | Occupancy | 91.97% | 89.86% | 2.11% | 2.35% | | Average Daily Rate (ADR) | $99.55 | $101.88 | $(2.33) | -2.29% | | Revenue Per Available Room (REVPAR) | $91.55 | $91.55 | $- | 0.00% | | **Tucson** | | | | | | Occupancy | 73.11% | 77.42% | -4.31% | -5.57% | | Average Daily Rate (ADR) | $94.62 | $96.23 | $(1.61) | -1.67% | | Revenue Per Available Room (REVPAR) | $69.17 | $74.50 | $(5.33) | -7.15% | | **Combined** | | | | | | Occupancy | 80.96% | 82.58% | -1.62% | -1.96% | | Average Daily Rate (ADR) | $96.95 | $98.78 | $(1.83) | -1.85% | | Revenue Per Available Room (REVPAR) | $78.48 | $81.57 | $(3.09) | -3.79% | - Albuquerque saw increased occupancy but decreased ADR, while Tucson experienced declines in all three metrics (Occupancy, ADR, REVPAR)[175](index=175&type=chunk) [Results of Operations (Twelve Months Trailing)](index=35&type=section&id=RESULTS%20OF%20OPERATIONS%20FOR%20THE%20FISCAL%20TWELVE%20MONTH%20TRAILING%20ENDED%20JULY%2031%2C%202025%20COMPARED%20TO%20THE%20FISCAL%20TWELVE%20MONTH%20TRAILING%20ENDED%20JULY%2031%2C%202024.) This section compares the Trust's financial performance for the twelve months trailing July 31, 2025, against the prior year, focusing on revenues, expenses, and net loss | Metric | FY 2025/2026 | FY 2024/2025 | Change | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | Total Revenues | $7,463,789 | $7,691,676 | $(227,887) | (3%) | | Operating Expenses | $8,107,325 | $8,558,603 | $(451,278) | (5%) | | Operating Loss | $(643,536) | $(866,927) | $223,391 | 26% | | Consolidated Net Loss | $(1,422,234) | $(586,036) | $(836,198) | (143%) | - Total revenues decreased by **3%**, while operating expenses decreased by **5%**, leading to a **26%** improvement in operating loss[177](index=177&type=chunk) - Consolidated Net Loss significantly worsened by **143%** to **$(1,422,234)**, partly due to BW Rewards Guest Voucher Expense and the absence of Employee Retention Benefit[179](index=179&type=chunk) [Results of Operations (Six Months)](index=37&type=section&id=RESULTS%20OF%20OPERATIONS%20FOR%20THE%20SIX%20MONTHS%20ENDED%20JULY%2031%2C%202025%20COMPARED%20TO%20THE%20SIX%20MONTHS%20ENDED%20JULY%2031%2C%202024) This section analyzes the Trust's financial performance for the six months ended July 31, 2025, compared to the prior year, detailing revenue, expenses, and net loss | Metric | July 31, 2025 | July 31, 2024 | Change | % Change | | :------------------------------------------ | :------------ | :------------ | :------- | :------- | | Total Revenues | $4,004,635 | $4,134,362 | $(129,727) | (3%) | | Operating Expenses | $4,020,939 | $4,249,872 | $(228,933) | (5%) | | Operating Income (Loss) | $(16,304) | $(115,510) | $99,206 | 86% | | Consolidated Net Loss | $(361,989) | $(331,387) | $(30,602) | 9% | | Net Loss Attributable to Controlling Interests | $(512,212) | $(527,416) | $15,204 | 3% | | Net Loss Per Share – Basic & Diluted | $(0.06) | $(0.06) | $0.00 | 0% | - Total revenues decreased by **3%** due to a **4%** decrease in room revenues, despite prior refurbishments[183](index=183&type=chunk)[186](index=186&type=chunk) - Operating expenses decreased by **5%**, primarily due to cost cuts in corporate staffing and sales/marketing, leading to an **86%** improvement in operating loss[187](index=187&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - Consolidated Net Loss increased by **9%**, while Net Loss Attributable to Controlling Interests improved by **3%**[180](index=180&type=chunk)[184](index=184&type=chunk) [Results of Operations (Three Months)](index=39&type=section&id=RESULTS%20OF%20OPERATIONS%20FOR%20THE%20THREE%20MONTHS%20ENDED%20JULY%2031%2C%202025%20COMPARED%20TO%20THE%20THREE%20MONTHS%20ENDED%20JULY%2031%2C%202024) This section examines the Trust's financial performance for the three months ended July 31, 2025, compared to the prior year, focusing on revenue, expenses, and net loss | Metric | July 31, 2025 | July 31, 2024 | Change | % Change | | :------------------------------------------ | :------------ | :------------ | :------- | :------- | | Total Revenues | $1,798,872 | $1,840,392 | $(41,520) | (2%) | | Operating Expenses | $2,037,572 | $2,126,348 | $88,776 | 4% | | Operating Loss | $(238,700) | $(285,956) | $47,256 | 17% | | Consolidated Net Loss | $(401,019) | $(410,002) | $8,983 | 2% | | Net Loss Attributable to Controlling Interests | $(391,180) | $(370,883) | $(20,297) | (5%) | | Net Loss Per Share – Basic & Diluted | $(0.04) | $(0.04) | $0.00 | 0% | - Total revenues decreased by **2%**, primarily due to a **3%** decrease in room revenues[198](index=198&type=chunk)[201](index=201&type=chunk) - Operating expenses decreased by **4%**, leading to a **17%** improvement in operating loss[197](index=197&type=chunk)[202](index=202&type=chunk) - Consolidated Net Loss improved by **2%**, while Net Loss Attributable to Controlling Interests worsened by **5%**[197](index=197&type=chunk)[199](index=199&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the Trust's ability to meet its short-term and long-term financial obligations, detailing cash sources, credit lines, and cash flow activities - Primary cash sources are hotel management fees and distributions from hotel operations, supplemented by intercompany loan repayments, potential asset sales/refinancing, and diversified investment returns[211](index=211&type=chunk) - As of July 31, 2025, the Trust had approximately **$0.2 million** in cash, three bank lines of credit, and a **$300,000** related party line of credit, which management believes is sufficient for the next twelve months[213](index=213&type=chunk) - Net cash provided by operating activities was **$127,000** for the six months ended July 31, 2025, a significant improvement from cash used of **$504,000** in the prior year[217](index=217&type=chunk) - Net cash used in investing activities increased to **$415,000**, primarily due to improvements and additions to hotel properties[220](index=220&type=chunk) - Net cash provided by financing activities was **$402,000**, mainly due to borrowing on Notes Payable – Related Party[221](index=221&type=chunk)[224](index=224&type=chunk) [Competition in the Hotel Industry](index=42&type=section&id=COMPETITION%20IN%20THE%20HOTEL%20INDUSTRY) This section analyzes the competitive landscape of the hotel industry for the Trust's properties and its strategic response through diversification - The hotel industry is highly competitive, with both Tucson and Albuquerque hotels facing competition from other mid-market hotels and alternative lodging facilities like Airbnb[229](index=229&type=chunk) - Despite record Gross Operating Profit in Fiscal Year 2025, Fiscal Year 2026 is slightly down but stable, with stable room revenue expected for the remainder of the year[229](index=229&type=chunk)[231](index=231&type=chunk) - The Trust may diversify away from hotel investments into ventures like UniGen Power, Inc. and IBC Hotels, LLC, or pursue a reverse merger with a larger non-public entity[232](index=232&type=chunk) [Critical Accounting Policies and Estimates](index=43&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section identifies the most significant accounting policies and estimates that require management's judgment, particularly regarding asset valuation and revenue recognition - The most critical accounting policies relate to the valuation of hotel properties, including methods for recognizing and measuring asset impairment[234](index=234&type=chunk)[235](index=235&type=chunk) - Management believes the current market value of the hotels is significantly higher than their depreciated book value and plans to sell both hotels within **36** months[236](index=236&type=chunk) - Revenue recognition for hotel operations is based on services rendered, bundling room nights with amenities, and is recorded when rooms are occupied and food/beverage sales are delivered[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) [Compliance with Continued Listing Standards of NYSE American](index=44&type=section&id=COMPLIANCE%20WITH%20CONTINUED%20LISTING%20STANDARDS%20OF%20NYSE%20AMERICAN) This section confirms the Trust's compliance with the NYSE American's continued listing standards for equity requirements - The Trust's Management received communication from the NYSE-American on August 29, 2022, confirming full compliance with all Continued Listing Standards Equity Requirements[242](index=242&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section presents non-GAAP financial measures, Adjusted EBITDA and FFO, to provide additional insights into the Trust's operating and investment performance - Adjusted EBITDA and Funds From Operations (FFO) are presented as non-GAAP measures to evaluate operating performance, reflecting ongoing hotel real estate assets and investment performance[243](index=243&type=chunk)[244](index=244&type=chunk)[246](index=246&type=chunk) Six Months Ended | Metric | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Adjusted EBITDA | $140,000 | $35,000 | | FFO | $9,000 | $15,000 | Three Months Ended | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Adjusted EBITDA | $(73,000) | $(74,000) | | FFO | $(30,000) | $(64,000) | - Adjusted EBITDA significantly increased for the six-month period, while FFO decreased. For the three-month period, both Adjusted EBITDA and FFO showed improvement (less negative)[245](index=245&type=chunk)[247](index=247&type=chunk) [Future Positioning](index=45&type=section&id=FUTURE%20POSITIONING) This section outlines the Trust's strategic plans, including the sale of hotel properties and diversification into clean energy and independent hotel services - The Trust continues to seek buyers for its two remaining hotel properties (Tucson and Albuquerque) at market value, aiming to sell them within **36** months[248](index=248&type=chunk)[251](index=251&type=chunk) | Hotel Property | Book Value | Mortgage Balance | Estimated Market Asking Price | | :------------- | :--------- | :--------------- | :---------------------------- | | Albuquerque | $907,122 | $1,135,926 | $9,500,000 | | Tucson Oracle | $5,926,945 | $7,764,370 | $18,500,000 | | **Total** | **$6,834,067** | **$8,900,296** | **$28,000,000** | - The long-term strategic plan includes benefiting from UniGen Power, Inc. and IBC Hotels, and pursuing a reverse merger with a larger private entity to list on the NYSE AMERICAN Exchange[253](index=253&type=chunk) [Share Repurchase Program](index=47&type=section&id=SHARE%20REPURCHASE%20PROGRAM) This section details the Trust's share repurchase program, driven by management's belief that the company's share price is undervalued - The Trust intends to continue repurchasing Shares of Beneficial Interest, believing the share price does not fully recognize the Trust's value due to depreciated book values, hotel operations, and potential from UniGen and IBC investments[254](index=254&type=chunk)[288](index=288&type=chunk) - No shares were repurchased during the six months ended July 31, 2025, compared to **28,337** shares at an average price of **$1.59** in the prior year[288](index=288&type=chunk) [Off-Balance Sheet Arrangements](index=47&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section confirms that the Trust does not have any off-balance sheet financing arrangements or unconsolidated subsidiaries - The Trust does not have any off-balance sheet financing arrangements or liabilities, nor any majority-owned or controlled subsidiaries not included in consolidated financial statements[255](index=255&type=chunk) [Seasonality](index=47&type=section&id=SEASONALITY) This section discusses the seasonal nature of the Trust's hotel operations and its implications for business vulnerability - Hotel operations are seasonal, with Tucson's highest occupancy in Q1/Q4 and Albuquerque's in Q2/Q3, which balances the Trust's overall hotel business seasonality[256](index=256&type=chunk) - Seasonality increases vulnerability to risks such as travel disruptions, labor shortages, cash flow issues, and adverse events like pandemics or economic downturns[257](index=257&type=chunk) [Inflation](index=47&type=section&id=INFLATION) This section addresses the impact of inflation on the Trust's operations and its strategies to manage rising costs through revenue adjustments - The Trust relies on hotel performance and its ability to increase revenue to keep pace with inflation, though competitive pressures may limit rate increases[258](index=258&type=chunk) - During Fiscal Year 2025, rates generally increased to offset inflationary increases in labor and other expenses, and rates are stable in Fiscal Year 2026[258](index=258&type=chunk) [Investment in UniGen Power, Inc.](index=48&type=section&id=INVESTMENT%20IN%20UNIGEN%20POWER%2C%20INC.) This section details the Trust's diversification investment in UniGen Power Inc., a clean energy company, including its financial terms and development status - IHT made a **$1 million** diversification investment in UniGen Power Inc. in late Fiscal Year 2020/early Fiscal Year 2021, which is developing a patented efficient clean energy generation innovation[259](index=259&type=chunk) - The investment includes **$1 million** in convertible debentures (**6%** interest, convertible into **1 million** shares), approximately **575,000** shares of UniGen stock, and warrants, potentially leading to **15-20%** fully diluted equity ownership[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - UniGen is delinquent on principal and interest payments, currently seeking additional investors, and its engineering is **61%** complete for the prototype[261](index=261&type=chunk)[266](index=266&type=chunk) - The market for UniGen's product is strong, with projected doubling of U.S. electricity demand over the next five years due to data centers, electric vehicles, and AI[260](index=260&type=chunk)[267](index=267&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=49&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that quantitative and qualitative disclosures about market risk are not required for smaller reporting companies, which InnSuites Hospitality Trust is - Quantitative and Qualitative Disclosures About Market Risk are not required for smaller reporting companies[271](index=271&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=49&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the evaluation of the Trust's disclosure controls and procedures and internal control over financial reporting, concluding their effectiveness after remediation efforts [Evaluation of Disclosure Controls and Procedures](index=49&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section presents management's conclusion on the effectiveness of the Trust's disclosure controls and procedures as of July 31, 2025 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were fully effective as of July 31, 2025[272](index=272&type=chunk) - Control systems provide reasonable, not absolute, assurance against error or fraud due to inherent limitations and resource constraints[273](index=273&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=49&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) This section outlines management's responsibility for maintaining adequate internal control over financial reporting and acknowledges its inherent limitations - Management is responsible for establishing and maintaining adequate internal control over financial reporting to ensure reliability and GAAP compliance[274](index=274&type=chunk) - Internal control over financial reporting may not prevent or detect all misstatements due to inherent limitations[275](index=275&type=chunk) [Assessment of Internal Control over Financial Reporting](index=49&type=section&id=Assessment%20of%20Internal%20Control%20over%20Financial%20Reporting) This section details management's assessment of the effectiveness of internal control over financial reporting, concluding its full effectiveness as of July 31, 2025 - Management assessed the effectiveness of internal control over financial reporting as of January 31, 2025, using COSO criteria, and concluded it was fully effective as of July 31, 2025[276](index=276&type=chunk) [Management's Remediation Initiatives](index=49&type=section&id=Management%27s%20Remediation%20Initiatives) This section describes the actions taken by management to address past deficiencies and enhance the Trust's internal controls over financial reporting - The Trust increased technical accounting expertise by hiring a seasoned CFO and Senior Staff Accountants to address past deficiencies and enhance internal controls[277](index=277&type=chunk) - Remediation efforts included improving the control environment, increasing GAAP knowledge, implementing formal processes for non-standard transactions, and enhancing management oversight[278](index=278&type=chunk) - These measures are believed to strengthen internal control over financial reporting and remediate material weaknesses, with ongoing improvements throughout Fiscal Years 2025 and 2026[279](index=279&type=chunk) [Changes in Internal Control over Financial Reporting](index=50&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on positive changes in the Trust's internal control over financial reporting, attributing improvements to new staffing and ongoing efforts - Positive changes in internal control over financial reporting occurred during the three months ended July 31, 2025, with new staffing additions expected to assist with stability, technical accounting, and internal control issues[281](index=281&type=chunk) [PART II. OTHER INFORMATION](index=51&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional disclosures not covered in the financial information, including legal proceedings, risk factors, and exhibit listings [ITEM 1. LEGAL PROCEEDINGS](index=51&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that there are no legal proceedings to report for the Trust - There are no legal proceedings to report[284](index=284&type=chunk) [ITEM 1A. RISK FACTORS](index=51&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section outlines key risk factors affecting the Trust, including the lingering impact of COVID-19 on travel and the economy, and uncertainties related to tariffs - COVID-19 had a material detrimental impact on business, financial results, and liquidity in Fiscal Year 2021, though lodging demand and revenue have significantly recovered[285](index=285&type=chunk) - Uncertainty regarding tariffs in the current economy is a risk, though it is anticipated that tariff issues will be resolved, allowing travel to normalize[286](index=286&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=51&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the rights of holders of Shares of Beneficial Interest and the Trust's share repurchase activities, driven by management's belief in undervaluation - Holders of Shares of Beneficial Interest are entitled to dividends, share ratably in assets upon liquidation, and possess ordinary voting rights[287](index=287&type=chunk) - The Trust repurchased **0** shares for the six months ended July 31, 2025, compared to **28,337** shares at an average price of **$1.59** in the prior year[288](index=288&type=chunk) - Management believes the Trust's share price is undervalued due to depreciated book values, strong hotel operations, and the potential of UniGen and IBC investments, and intends to continue repurchasing shares[288](index=288&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=52&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section confirms that there have been no defaults upon senior securities - There have been no defaults upon senior securities[290](index=290&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=52&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that there are no mine safety disclosures to report - There are no mine safety disclosures to report[291](index=291&type=chunk) [ITEM 5. OTHER INFORMATION](index=52&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section indicates that there is no other information to report - There is no other information to report[292](index=292&type=chunk) [ITEM 6. EXHIBITS](index=52&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications by the Chief Executive Officer and Chief Financial Officer, and Inline XBRL exhibits | Exhibit No. | Exhibit | | :------------ | :--------------------------------------------------- | | 31.1 | Section 302 Certification by Chief Executive Officer | | 31.2 | Section 302 Certification by Chief Financial Officer | | 32.1 * | Section 906 Certification of Principal Executive Officer and Principal Financial Officer | | 101 | Inline XBRL Exhibits | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Schema Document | | 101.CAL | Inline XBRL Calculation Linkbase Document | | 101.LAB | Inline XBRL Labels Linkbase Document | | 101.PRE | Inline XBRL Presentation Linkbase Document | | 101.DEF | Inline XBRL Definition Linkbase Document | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the signatures of the registrant's authorized officers, certifying the report on September 12, 2025 - The report was signed by James F. Wirth, Chairman and Chief Executive Officer, and Sylvin R. Lange, Chief Financial Officer, on September 12, 2025[297](index=297&type=chunk)

[PART I – FINANCIAL INFORMATION](index=5&type=section&id=Part%20I.%20Financial%20Information) This section presents the unaudited condensed financial statements and related disclosures for A Paradise Acquisition Corp. [Item 1. Unaudited Condensed Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Condensed%20Financial%20Statements) This section presents the unaudited condensed financial statements for A Paradise Acquisition Corp., including the balance sheets, statements of operations, changes in shareholders' deficit, and cash flows for the periods ended June 30, 2025, and December 31, 2024. It also includes detailed notes explaining the company's organization, significant accounting policies, and specific financial transactions related to its IPO and related party activities. [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) Presents the company's financial position, detailing assets, liabilities, and shareholder's deficit as of June 30, 2025, and December 31, 2024. | Metric | June 30, 2025 (Unaudited) | December 31, 2024 (Audited) | | :----------------------------- | :-------------------------- | :-------------------------- | | **ASSETS** | | | | Prepaid expenses | $1,200 | $2,400 | | Deferred offering costs | $95,569 | $22,817 | | Total Assets | $96,769 | $25,217 | | **LIABILITIES** | | | | Accrued expenses | $32,171 | $30,070 | | Due to related party | $57,922 | — | | Promissory note - related party| $300,000 | $235,806 | | Total Liabilities | $390,093 | $265,876 | | **SHAREHOLDER'S DEFICIT** | | | | Additional paid-in capital | $25,000 | $25,000 | | Accumulated deficit | $(318,324) | $(265,659) | | Total Shareholder's Deficit | $(293,324) | $(240,659) | | Total Liabilities and Shareholder's Deficit | $96,769 | $25,217 | [Unaudited Condensed Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Statements%20of%20Operations) Details the company's financial performance, including general administrative expenses and net loss for the three and six months ended June 30, 2025, and 2024. | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General administrative expenses | $18,065 | $— | $52,665 | $8,000 | | Loss before tax expense | $(18,065) | $— | $(52,665) | $(8,000) | | Net loss | $(18,065) | $— | $(52,665) | $(8,000) | | Basic and diluted net loss per ordinary share | $(0.00) | $— | $(0.01) | $(0.00) | [Unaudited Condensed Statements of Changes in Shareholders' Deficit](index=7&type=section&id=Unaudited%20Condensed%20Statements%20of%20Changes%20in%20Shareholders'%20Deficit) Outlines changes in the company's shareholder's deficit, including net loss and share movements, for periods ended June 30, 2025, and 2024. | Metric | Balance as of Jan 1, 2025 ($) | Net Loss (Jan-Mar 2025) ($) | Balance as of Mar 31, 2025 ($) | Net Loss (Apr-Jun 2025) ($) | Balance as of Jun 30, 2025 ($) | | :----------------------------- | :------------------------ | :---------------------- | :------------------------- | :---------------------- | :------------------------- | | Class B Ordinary Shares (Shares) | 7,666,667 | — | 7,666,667 | — | 7,666,667 | | Class B Ordinary Shares (Amount) | $— | — | $— | — | $— | | Additional paid-in capital | $25,000 | — | $25,000 | — | $25,000 | | Accumulated deficit | $(265,659) | $(34,600) | $(300,259) | $(18,065) | $(318,324) | | Total Shareholder's Deficit | $(240,659) | $(34,600) | $(275,259) | $(18,065) | $(293,324) | | Metric | Balance as of Jan 1, 2024 ($) | Net Loss (Jan-Mar 2024) ($) | Balance as of Mar 31, 2024 ($) | Net Loss (Apr-Jun 2024) ($) | Balance as of Jun 30, 2024 ($) | | :----------------------------- | :------------------------ | :---------------------- | :------------------------- | :---------------------- | :------------------------- | | Class B Ordinary Shares (Shares) | 7,666,667 | — | 7,666,667 | — | 7,666,667 | | Class B Ordinary Shares (Amount) | $— | — | $— | — | $— | | Additional paid-in capital | $25,000 | — | $25,000 | — | $25,000 | | Accumulated deficit | $(190,097) | $(8,000) | $(198,097) | — | $(198,097) | | Total Shareholder's Deficit | $(165,097) | $(8,000) | $(173,097) | — | $(173,097) | [Unaudited Condensed Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Statements%20of%20Cash%20Flows) Provides an overview of cash inflows and outflows from operating and financing activities for the six months ended June 30, 2025, and 2024. | Cash Flow Activity | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :------------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(52,665) | $(8,000) | | Prepaid expenses (change) | $1,200 | $— | | Accrued expenses (change) | $2,101 | $8,000 | | Net cash used in operating activities | $(49,364) | $— | | Proceeds from promissory note - related party | $122,116 | $— | | Payment of deferred offering costs | $(72,752) | $— | | Net cash provided by financing activities | $49,364 | $— | | Net change in cash and cash equivalents | $— | $— | | Cash and cash equivalents at end of period | $— | $— | - Supplemental non-cash financing activities for the six months ended June 30, 2025, include **$64,194** in deferred offering costs paid under the promissory note issued to the Sponsor and **$8,558** in deferred offering costs paid under due to related party[21](index=21&type=chunk) [Notes to Unaudited Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements) Provides detailed explanations and disclosures supporting the unaudited condensed financial statements, covering accounting policies and specific transactions. [NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS](index=9&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20ORGANIZATION%20AND%20BUSINESS%20OPERATIONS) Describes the company's formation as a blank check company, its purpose, IPO details, and going concern considerations. - A Paradise Acquisition Corp. is a blank check company incorporated on November 9, 2022, in the British Virgin Islands, formed to effect a business combination, primarily targeting the leisure and entertainment sector[24](index=24&type=chunk) - As of June 30, 2025, the Company had not commenced operations, with efforts limited to organizational activities, IPO-related activities, and identifying a target for a business combination[25](index=25&type=chunk) **IPO Details (July 31, 2025):** | Item | Value ($) | | :-------------------------------- | :------------------- | | Units Sold | 20,000,000 | | Offering Price per Unit | $10.00 | | Gross Proceeds from IPO | $200,000,000 | | Private Placement Units | 600,000 | | Private Placement Price per Unit | $10.00 | | Gross Proceeds from Private Placement | $6,000,000 | | Total Transaction Costs | $12,645,418 | | Cash Underwriting Fee | $4,000,000 | | Deferred Underwriting Fee | $8,000,000 | | Other Offering Costs | $645,418 | | Funds in Trust Account | $200,000,000 | | Cash held outside Trust Account | $1,848,460 | - The Company must complete a business combination with a target having a fair market value of at least **80%** of the net balance in the Trust Account and acquire a controlling interest[31](index=31&type=chunk) - The Company has **24 months** from the IPO closing (July 31, 2025) to complete a business combination; otherwise, it will redeem public shares and liquidate[34](index=34&type=chunk) - As of June 30, 2025, the Company had no cash and a working capital deficit of **$388,893**, raising substantial doubt about its ability to continue as a going concern due to mandatory liquidation if a business combination is not completed[37](index=37&type=chunk)[39](index=39&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and policies applied in preparing the unaudited condensed financial statements. - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP for interim financial statements and Article 8 of Regulation S-X, with certain information condensed or omitted per SEC rules[42](index=42&type=chunk) - The Company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with other public companies[43](index=43&type=chunk)[44](index=44&type=chunk) - Deferred offering costs of **$95,569** as of June 30, 2025, and **$22,817** as of December 31, 2024, are directly related to the Proposed Public Offering[48](index=48&type=chunk) - Class A ordinary shares subject to redemption are classified as temporary equity, and changes in redemption value are recognized immediately[52](index=52&type=chunk)[54](index=54&type=chunk) - The Company's rights are classified as equity under ASC 815[57](index=57&type=chunk) - The Company is a British Virgin Islands business company and is not subject to income taxes in the British Virgin Islands or the United States, resulting in a zero tax provision[59](index=59&type=chunk)[60](index=60&type=chunk) [Note 3 — Initial Public Offering](index=16&type=section&id=Note%203%20%E2%80%94%20Initial%20Public%20Offering) Details the terms and proceeds of the company's initial public offering completed on July 31, 2025. - On July 31, 2025, the Company sold **20,000,000 Units** at **$10.00** per Unit, each consisting of one Class A ordinary share and one right to receive one-eighth of one Class A ordinary share upon business combination[65](index=65&type=chunk) [Note 4 — Private Placement](index=16&type=section&id=Note%204%20%E2%80%94%20Private%20Placement) Describes the private placement of units to the Sponsor and CCM, including proceeds and conditions. - Simultaneously with the IPO, the Sponsor and CCM purchased **600,000 Private Placement Units** at **$10.00** each, generating **$6,000,000**, with proceeds added to the Trust Account[66](index=66&type=chunk) - If a business combination is not completed, proceeds from Private Placement Units will fund public share redemption, and the Private Placement Units will expire worthless[66](index=66&type=chunk) [Note 5 — Related Party Transactions](index=16&type=section&id=Note%205%20%E2%80%94%20Related%20Party%20Transactions) Discloses transactions and financial arrangements between the company and its related parties, primarily the Sponsor. - The Sponsor acquired **7,666,667 Class B ordinary shares** (Founder Shares) for **$25,000** in May 2025, with up to **1,000,000 shares** subject to forfeiture[67](index=67&type=chunk) - As of June 30, 2025, **$57,922** was outstanding to the Sponsor for IPO transaction costs, unsecured, interest-free, and due on demand[69](index=69&type=chunk) - The Company borrowed **$300,000** from the Sponsor via a non-interest bearing, unsecured promissory note as of June 30, 2025, for IPO expenses, up from **$235,806** as of December 31, 2024[70](index=70&type=chunk) - The Sponsor or affiliates may provide Working Capital Loans up to **$1,500,000**, convertible into Private Placement Units, to finance transaction costs for a business combination[71](index=71&type=chunk) [Note 6 — Commitments and Contingencies](index=17&type=section&id=Note%206%20%E2%80%94%20Commitments%20and%20Contingencies) Details the company's contractual obligations, including registration rights and underwriting fees. - Holders of Founder Shares, Private Placement Units, and Working Capital Loan units are entitled to registration rights, allowing them to demand registration of their securities for resale, subject to lock-up periods[72](index=72&type=chunk) - Underwriters have a **45-day option** to purchase up to **3,000,000 additional Units** for over-allotments[74](index=74&type=chunk) - Underwriters received a **$4,000,000 cash underwriting discount** at IPO closing and are entitled to a deferred fee of up to **$8,000,000** (or **$9,200,000** if over-allotment exercised) upon completion of a Business Combination[75](index=75&type=chunk) [Note 7 — Shareholder's Deficit](index=18&type=section&id=Note%207%20%E2%80%94%20Shareholder's%20Deficit) Explains the components of shareholder's deficit, including ordinary shares and rights, and their associated terms. - As of June 30, 2025, and December 31, 2024, there were no Preferred Shares or Class A Ordinary Shares issued or outstanding[76](index=76&type=chunk) - As of June 30, 2025, and December 31, 2024, **7,666,667 Class B ordinary shares** were issued and outstanding, including up to **1,000,000 shares** subject to forfeiture[77](index=77&type=chunk) - Class B ordinary shares automatically convert to Class A ordinary shares upon initial Business Combination, subject to anti-dilution adjustments[78](index=78&type=chunk) - Prior to the initial Business Combination, only holders of Founder Shares vote on director elections; for other matters, Founder Shares and public shares vote together as a single class[79](index=79&type=chunk) - Each right entitles the holder to receive **one-eighth of one Class A ordinary share** upon consummation of the initial business combination, with no fractional shares issued[80](index=80&type=chunk) - If a Business Combination is not completed and the Trust Account is liquidated, holders of rights will not receive any funds and the rights will expire worthless[81](index=81&type=chunk) [Note 8 — Segment Information](index=19&type=section&id=Note%208%20%E2%80%94%20Segment%20Information) Confirms the company operates as a single reportable segment, with key metrics reviewed by management. - The Company has only one operating and reportable segment, as the Chief Executive Officer, Chief Financial Officer, and Chairman (CODM) review operating results for the Company as a whole[83](index=83&type=chunk) **Key Metrics Reviewed by CODM:** | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General administrative expenses | $18,065 | $— | $52,665 | $8,000 | | Net Loss | $(18,065) | $— | $(52,665) | $(8,000) | [Note 9 — Subsequent Events](index=19&type=section&id=Note%209%20%E2%80%94%20Subsequent%20Events) Reports significant events occurring after the balance sheet date, including the consummation of the IPO and related transactions. - On July 31, 2025, the Company consummated its IPO, selling **20,000,000 units** at **$10.00** each, generating **$200,000,000 gross proceeds**[86](index=86&type=chunk) - Simultaneously with the IPO, the Sponsor and CCM purchased **600,000 Private Placement Units** for **$6,000,000**, and the underwriters were granted a **45-day option** for up to **3,000,000 additional Units**[87](index=87&type=chunk) - Five institutional investors indirectly purchased **130,000 Non-Voting Private Placement Units** for **$1,300,000**, reflecting interests in **1,368,421 Founder Shares**[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and operational results, highlighting its status as a blank check company focused on a business combination. It details recent IPO and private placement activities, the resulting financial structure, and the Company's liquidity strategy, while also addressing the going concern considerations due to its pre-revenue status and reliance on completing a business combination. [Overview](index=21&type=section&id=Overview) Provides a general description of the company's nature as a blank check company and its objective to complete a business combination. - A Paradise Acquisition Corp. is a blank check company formed on November 9, 2022, to effect a business combination, utilizing IPO and private placement proceeds, debt, or other securities[91](index=91&type=chunk) - The Company expects to incur significant costs in pursuit of its initial business combination and cannot assure success in raising capital or completing the combination[92](index=92&type=chunk) [Recent Developments](index=22&type=section&id=Recent%20Developments) Highlights key events, including the IPO and private placement, and their financial impact on the company. - On July 31, 2025, the Company completed its IPO, selling **20,000,000 units** at **$10.00** each, generating **$200,000,000 gross proceeds**[93](index=93&type=chunk) - Simultaneously, the Sponsor and CCM purchased **600,000 Private Placement Units** for **$6,000,000**, and **130,000 Non-Voting Private Placement Units** were purchased by institutional investors[94](index=94&type=chunk)[95](index=95&type=chunk) - Following the IPO, **$200,000,000** was placed in a Trust Account, with **$1,848,460** held outside for working capital and expenses[96](index=96&type=chunk) - Transaction costs totaled **$12,645,418**, including a **$4,000,000 cash underwriting fee**, **$8,000,000 deferred underwriting fee**, and **$645,418** in other offering costs[97](index=97&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Discusses the company's financial performance, noting the absence of operating revenues and the incurrence of net losses. - The Company has not generated any operating revenues to date, with activities limited to organizational efforts and identifying a business combination target[98](index=98&type=chunk) - Non-operating income is expected from interest on marketable securities in the Trust Account[99](index=99&type=chunk) **Net Loss:** | Period | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 6 Months Ended June 30, 2025 ($) | 6 Months Ended June 30, 2024 ($) | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Loss | $(18,065) | $0 | $(52,665) | $(8,000) | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Examines the company's ability to meet its financial obligations, including its cash position, trust account, and going concern considerations. - Upon IPO and private placement closing on July 31, 2025, **$200,000,000** was deposited into the Trust Account, to be invested in U.S. government treasury obligations or money market funds[105](index=105&type=chunk) - As of June 30, 2025, the Company had no cash and a working capital deficit of **$388,893**, with liquidity needs previously met by Sponsor payments and loans[106](index=106&type=chunk) - The Sponsor or affiliates may provide Working Capital Loans to fund deficiencies or transaction costs, potentially convertible into Private Placement Units[107](index=107&type=chunk) - Management has determined that the Company's pre-revenue status and the mandatory liquidation if a business combination is not completed raise substantial doubt about its ability to continue as a going concern[109](index=109&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of any material off-balance sheet arrangements that could affect the company's financial position. - As of June 30, 2025, the Company has no off-balance sheet arrangements, such as unconsolidated entities, financial partnerships, or guaranteed debts[110](index=110&type=chunk) [Contractual obligations](index=24&type=section&id=Contractual%20obligations) Details the company's commitments, including registration rights and underwriting fees, and the absence of long-term debt. - The Company has no long-term debt, capital lease obligations, operating lease obligations, or long-term liabilities, other than those described in the report[111](index=111&type=chunk) - Holders of Founder Shares, Private Placement Units, and Working Capital Loans are entitled to registration rights, allowing them to demand registration of their securities for resale, subject to lock-up periods[112](index=112&type=chunk) - Underwriters have a **45-day option** to purchase up to **3,000,000 additional Units** for over-allotments and are entitled to a deferred fee of up to **$8,000,000** (or **$9,200,000** if over-allotment exercised) upon completion of a Business Combination[113](index=113&type=chunk)[114](index=114&type=chunk) [Critical Accounting Policies](index=25&type=section&id=Critical%20Accounting%20Policies) States that management has not identified any critical accounting estimates or policies. - Management has not identified any critical accounting estimates or policies[115](index=115&type=chunk) [Recent Accounting Standards](index=25&type=section&id=Recent%20Accounting%20Standards) Discusses the adoption of new accounting standards and their expected impact on the financial statements. - The Company adopted ASU 2023-09 (Income Taxes) on January 1, 2025, with no significant impact[116](index=116&type=chunk) - The Company adopted ASU No. 2023-07 (Segment Reporting) on January 1, 2024[117](index=117&type=chunk) - Management does not believe other recently issued, but not yet effective, accounting standards would materially affect the financial statements if currently adopted[118](index=118&type=chunk) [Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20Regarding%20Market%20Risk) As a smaller reporting company, A Paradise Acquisition Corp. is not required to provide quantitative and qualitative disclosures regarding market risk. - The Company, as a smaller reporting company, is exempt from making disclosures under this item[120](index=120&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness at a reasonable assurance level as of June 30, 2025. It also notes no material changes in internal control over financial reporting during the quarter and acknowledges the inherent limitations of any control system. - Management concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[122](index=122&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control during the quarter ended June 30, 2025[124](index=124&type=chunk) - Disclosure controls and procedures, due to inherent limitations and resource constraints, can only provide reasonable, not absolute, assurance[123](index=123&type=chunk)[125](index=125&type=chunk) [PART II – OTHER INFORMATION](index=27&type=section&id=Part%20II.%20Other%20Information) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits. [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) A Paradise Acquisition Corp. is not currently a party to any material litigation or legal proceedings and is unaware of any legal exposures that could have a material adverse effect on its business, financial condition, or results of operations. - The Company is not currently a party to any material litigation or other legal proceedings[128](index=128&type=chunk) - The Company is unaware of any legal proceeding, investigation, claim, or other legal exposure with a more than remote possibility of a material adverse effect[128](index=128&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, A Paradise Acquisition Corp. is not required to provide disclosures regarding risk factors in this quarterly report. - The Company, as a smaller reporting company, is not required to make disclosures under this item[129](index=129&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the unregistered sales of equity securities, specifically the private placement units issued to the Sponsor and underwriter, and the use of proceeds from both the IPO and private placement, which were primarily deposited into a Trust Account for the benefit of public shareholders. - On July 31, 2025, the Company consummated its IPO, selling **20,000,000 units** at **$10.00** per unit, generating gross proceeds of **$200,000,000**[130](index=130&type=chunk) - Simultaneously, **600,000 Private Placement Units** were sold to the Sponsor and underwriter at **$10.00** per unit, generating **$6,000,000**, which are not redeemable and have transfer restrictions[131](index=131&type=chunk) - A total of **$200,000,000** from the IPO and private placement proceeds was deposited into a Trust Account, to be invested in U.S. government treasury bills or money market funds[132](index=132&type=chunk) - Transaction costs amounted to **$12,645,418**, with **$1,848,460** held outside the Trust Account for working capital and expenses[133](index=133&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities. - There are no defaults upon senior securities[134](index=134&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company reported no mine safety disclosures. - There are no mine safety disclosures[134](index=134&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) The Company reported no other information. - No other information is provided in this section[135](index=135&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q, including key agreements and certifications. - Key exhibits include the Underwriting Agreement, Amended and Restated Memorandum and Articles of Association, Rights Agreement, Letter Agreement, Investment Management Trust Agreement, Registration Rights Agreement, Unit Subscription Agreements, Indemnity Agreement, and various certifications (CEO, CFO)[137](index=137&type=chunk) - Many exhibits were previously filed with the Current Report on Form 8-K on July 31, 2025, and are incorporated by reference[138](index=138&type=chunk)

First Quarter 2025 Earnings Announcement [Introduction and Overview](index=1&type=section&id=Introduction%20and%20Overview) National Beverage Corp. announced solid first-quarter results for August 2, 2025, driven by strong brands and price/mix improvements - National Beverage Corp. announced first-quarter results for August 2, 2025, on September 11, 2025[3](index=3&type=chunk) - The company reported solid operating performance in a challenging global environment, attributing success to strong brands and management strategy[4](index=4&type=chunk) - Net sales increased due to price/mix improvements, partially offset by a slight decline in case volume[4](index=4&type=chunk) - Interest income decreased by **$2.1 million** due to lower cash balances after a **$304 million** dividend payment in July 2024[4](index=4&type=chunk) - LaCroix, the most significant brand, achieved organic sales growth in the club channel, with new flavors showing impressive initial sales[4](index=4&type=chunk) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) National Beverage Corp. achieved record net sales of **$331 million**, gross profit of **$125 million**, and operating income of **$71 million** for the quarter First Quarter Financial Highlights | Metric | Amount (Millions USD) | | :----- | :-------------------- | | Net Sales | $331 | | Gross Profit | $125 | | Operating Income | $71 | | Earnings Per Share | $0.60 | | Operating Cash Flow | $59 | | Total Cash | $250 | Management Commentary and Strategic Outlook [Operational Performance and Brand Strength](index=2&type=section&id=Operational%20Performance%20and%20Brand%20Strength) The company emphasizes its commitment to innovation and brand integrity, with new product launches and a focus on developing new flavors - Innovation and brand trust are core to the company's strategy, with new product launches shaping the marketplace[6](index=6&type=chunk) - The company remains focused on developing new flavors and products that delight consumers, while safeguarding shareholder investments[6](index=6&type=chunk) [Innovation, Shareholder Value, and Future Confidence](index=2&type=section&id=Innovation%2C%20Shareholder%20Value%2C%20and%20Future%20Confidence) National Beverage Corp. reaffirms its commitment to shareholders, returning over **$1.5 billion** in dividends and growing revenue by **135%** over two decades - The company has returned more than **$1.5 billion** in dividends to shareholders over the past two decades[6](index=6&type=chunk) - Total revenue has grown by **135%** over the past two decades[6](index=6&type=chunk) - Despite global economic uncertainties, the company is confident its innovation and disciplined management will deliver strong results and long-term value[6](index=6&type=chunk) - The company will soon commemorate its 40th year as National Beverage Corp[6](index=6&type=chunk) Consolidated Financial Results [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three fiscal months ended August 2, 2025, net sales slightly increased to **$330.5 million**, while net income decreased to **$55.8 million** Consolidated Results for Three Fiscal Months Ended | Metric (in thousands, except per share amounts) | August 2, 2025 | July 27, 2024 | Change (YoY) | | :-------------------------------------------- | :------------- | :------------ | :----------- | | Net Sales | $330,515 | $329,473 | +$1,042 | | Net Income | $55,760 | $56,780 | -$1,020 | | Earnings Per Common Share - Basic | $0.60 | $0.61 | -$0.01 | | Earnings Per Common Share - Diluted | $0.60 | $0.61 | -$0.01 | | Average Common Shares Outstanding - Basic | 93,620 | 93,569 | +51 | | Average Common Shares Outstanding - Diluted | 93,699 | 93,667 | +32 | [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section provides a standard disclaimer for forward-looking statements, noting inherent risks and uncertainties detailed in SEC filings - The press release includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995[9](index=9&type=chunk) - Forward-looking statements involve risks, uncertainties, and factors described in SEC filings, which may cause actual results to differ[9](index=9&type=chunk) - The Company disclaims any obligation to update or announce revisions to any forward-looking statements[9](index=9&type=chunk)

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section provides important disclaimers regarding forward-looking statements in the report, highlighting inherent risks and uncertainties [Forward-Looking Statements Overview](index=3&type=section&id=Forward-Looking%20Statements%20Overview) This section highlights that the Quarterly Report contains forward-looking statements based on management's beliefs and assumptions, primarily found in the 'Management's Discussion and Analysis' section - Forward-looking statements are based on management's beliefs and assumptions and are primarily located in the 'Management's Discussion and Analysis of Financial Condition and Results of Operations' section[7](index=7&type=chunk) - These statements cover future results, business strategies, technology developments, financing plans, competitive position, and regulatory environment[7](index=7&type=chunk) [Important Factors and Risks](index=3&type=section&id=Important%20Factors%20and%20Risks) The company cautions that actual results may differ materially from forward-looking statements due to various known and unknown risks, and does not undertake to update these statements - Actual results may differ materially due to factors such as the ability to expand commercialization of the ASSURE WCD, maintain regulatory approvals, achieve market acceptance, secure reimbursement, scale manufacturing, and retain qualified personnel[8](index=8&type=chunk) - Other risks include intellectual property protection, clinical trial progress, regulatory landscape changes, financial performance, public company expenses, and competitive developments[8](index=8&type=chunk) - The company does not undertake any obligation to update forward-looking statements, which represent management's beliefs only as of the report date[9](index=9&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial performance [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Kestra Medical Technologies, Ltd. and its subsidiaries, including balance sheets, statements of operations, equity changes, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets provide a snapshot of the company's financial position as of July 31, 2025, and April 30, 2025, showing a decrease in total assets and shareholders' equity, while liabilities also decreased | Metric | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Cash and cash equivalents | $201,214 | $237,595 | | Total current assets | $220,691 | $255,328 | | Total assets | $266,296 | $295,744 | | Total current liabilities | $32,256 | $37,977 | | Total liabilities | $82,137 | $90,338 | | Total shareholders' equity | $184,159 | $205,406 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The condensed consolidated statements of operations and comprehensive loss show the company's financial performance for the three months ended July 31, 2025, and 2024, indicating increased revenue and gross profit but also a higher net loss due to significantly increased operating expenses | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Revenue | $19,371 | $12,782 | | Cost of revenue | $10,520 | $8,582 | | Gross profit | $8,851 | $4,200 | | Research and development | $4,001 | $3,404 | | Selling, general and administrative | $33,728 | $19,227 | | Total operating expenses | $37,729 | $22,631 | | Loss from operations | $(28,878) | $(18,431) | | Net loss and comprehensive loss | $(25,826) | $(20,323) | | Net loss attributable to common shareholders | $(25,826) | $(22,267) | | Net loss per share attributable to common shareholders, basic and diluted | $(0.50) | $(1.12) | [Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Preferred%20Stock%20and%20Shareholders'%20Equity%20(Deficit)) This statement details the changes in redeemable preferred stock and shareholders' equity (deficit) for the three months ended July 31, 2025, and the period from April 30, 2024, to July 31, 2024, showing the impact of share-based compensation and net loss on equity | Metric | Balances at April 30, 2025 (in thousands) | Share-based compensation expense (in thousands) | Net loss and comprehensive loss (in thousands) | Balances at July 31, 2025 (in thousands) | | :------------------------ | :---------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :--------------------------------------- | | Common Shares (Amount) | $51,349 | — | — | $51,349 | | Additional Paid In Capital| $674,306 | $4,579 | — | $678,885 | | Accumulated Deficit | $(520,249) | — | $(25,826) | $(546,075) | | Total Shareholders' Equity| $205,406 | $4,579 | $(25,826) | $184,159 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The condensed consolidated statements of cash flows illustrate the cash inflows and outflows from operating, investing, and financing activities for the three months ended July 31, 2025, and 2024, showing a significant decrease in cash from operating and investing activities in 2025, contrasting with cash provided by financing activities in 2024 | Cash Flow Activity | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash used in operating activities | $(26,274) | $(17,499) | | Net cash used in investing activities | $(8,232) | $(7,034) | | Net cash provided by (used in) financing activities | $(1,875) | $116,253 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(36,381) | $91,720 | | Cash, cash equivalents and restricted cash, End of period | $201,548 | $100,303 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering company background, significant accounting policies, specific asset and liability breakdowns, debt arrangements, equity changes, and other financial and operational details [1. The Company](index=9&type=section&id=1.%20The%20Company) Kestra Medical Technologies, Ltd. is a commercial-stage medical device company that generates revenue by leasing its FDA-approved ASSURE© System, a Wearable Cardioverter Defibrillator (WCD) - Kestra Medical Technologies, Ltd. is a commercial-stage medical device company primarily generating revenue from leasing its FDA-approved ASSURE© System (Wearable Cardioverter Defibrillator) to patients[23](index=23&type=chunk) - The company completed an Initial Public Offering (IPO) on March 7, 2025, issuing 11,882,352 common shares at $17.00 per share, raising **$215.8 million** in net proceeds after underwriting discounts and commissions[27](index=27&type=chunk)[33](index=33&type=chunk) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net loss | $(25,826) | $(20,323) | | Cash used in operating activities | $(26,274) | $(17,499) | | Accumulated deficit (as of July 31, 2025) | $(546,075) | N/A | | Cash and cash equivalents (as of July 31, 2025) | $201,214 | N/A | - Management believes existing cash and cash equivalents will be sufficient to fund operating expenses and capital expenditures for at least the next 12 months[33](index=33&type=chunk) [2. Significant Accounting Policies](index=11&type=section&id=2.%20Significant%20Accounting%20Policies) This section outlines the significant accounting policies, including the basis of presentation in accordance with US GAAP, the use of estimates in financial reporting, and specific policies for accounts receivable, cash and cash equivalents, revenue recognition for operating leases, and segment information - The unaudited interim condensed consolidated financial statements are prepared in accordance with SEC rules and US GAAP, with all intercompany accounts and transactions eliminated[35](index=35&type=chunk) - Key estimates include collectability of lease payments, useful lives of property and equipment, share-based compensation, fair value of warrants, and valuation allowance for deferred tax assets[38](index=38&type=chunk) - Revenue from ASSURE© System leases is recognized on a straight-line basis over the one-month contractual non-cancellable lease term when collectability is probable; otherwise, it's limited to collected payments[46](index=46&type=chunk) | Accounting Policy | Details | | :---------------- | :------ | | Accounts Receivable Reserve | $3,806 (July 31, 2025) vs. $3,193 (April 30, 2025) for estimated probable losses | | Cash & Cash Equivalents | Highly liquid investments with original maturity of three months or less. Restricted cash for office lease ($109k) and credit card collateralization ($225k) | | Segment Information | Operates as a single operating and reportable segment, with the CEO as chief operating decision maker. All long-lived assets and revenues are in the United States | [3. Prepaid Expenses and Other Current Assets](index=13&type=section&id=3.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This note details the composition of prepaid expenses and other current assets, which primarily include prepaid software fees and other miscellaneous current assets | Category | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :-------------------------- | :----------------------------- | :---------------------------- | | Prepaid software fees | $1,809 | $1,387 | | Other current assets | $1,620 | $1,693 | | Total prepaid expenses and other current assets | $3,429 | $3,080 | [4. Property and Equipment](index=13&type=section&id=4.%20Property%20and%20Equipment) This note provides a breakdown of property and equipment, net of accumulated depreciation, highlighting medical rental equipment as the largest component | Category | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :-------------------------- | :----------------------------- | :---------------------------- | | Medical rental equipment | $59,563 | $52,670 | | Total property and equipment| $66,104 | $58,785 | | Less: accumulated depreciation | $(25,728) | $(23,955) | | Property and equipment, net | $40,376 | $34,830 | - Depreciation expense for the three months ended July 31, 2025, was **$2,028 thousand**, compared to **$2,375 thousand** for the same period in 2024[55](index=55&type=chunk) [5. Leases](index=13&type=section&id=5.%20Leases) This note details the company's operating lease agreements, primarily for office space, including amendments for expanded space and extended terms - The company amended its office lease in October 2023 to expire in April 2029 and further expanded leased space in February 2025. A new office lease in Texas commenced in May 2025[56](index=56&type=chunk)[58](index=58&type=chunk) | Lease Expense Type | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :----------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating lease expense | $221 | $174 | | Variable lease expense | $165 | $153 | | Total operating lease expense | $386 | $327 | - Cash paid for operating leases was **$491 thousand** for the three months ended July 31, 2025, compared to **$165 thousand** for the same period in 2024[60](index=60&type=chunk) [6. Accrued Liabilities](index=14&type=section&id=6.%20Accrued%20Liabilities) This note provides a breakdown of accrued liabilities, which saw a slight decrease from April 30, 2025, to July 31, 2025, primarily driven by a reduction in bonuses and commissions | Category | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :------------------ | :----------------------------- | :---------------------------- | | Bonuses and commissions | $4,536 | $6,368 | | Other accrued liabilities | $5,068 | $3,547 | | Paid time off | $2,248 | $2,305 | | Professional services | $1,423 | $1,141 | | Payroll and payroll taxes | $375 | $468 | | Total accrued liabilities | $13,650 | $13,829 | [7. Long-Term Debt](index=14&type=section&id=7.%20Long-Term%20Debt) The company's long-term debt primarily consists of a $60.0 million Senior Secured Delayed Draw Term Loan Facility (Term Loan 2024) maturing in September 2028, with $45.0 million drawn - The company has a Senior Secured Delayed Draw Term Loan Facility (Term Loan 2024) of up to **$60.0 million**, maturing on September 29, 2028[62](index=62&type=chunk) - The initial **$45.0 million** was drawn on September 29, 2023. An amendment on February 25, 2025, adjusted revenue milestones and made an additional **$15.0 million** draw available through July 31, 2026, contingent on achieving **$60.0 million** in trailing twelve-month revenue[63](index=63&type=chunk)[66](index=66&type=chunk) | Metric | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :------------------------------------------ | :----------------------------- | :---------------------------- | | Term loan | $45,000 | $45,000 | | Accumulated paid-in-kind interest | $1,395 | $1,395 | | Less: unamortized debt issuance costs and debt discount | $(4,909) | $(5,297) | | Total long-term debt, net | $41,486 | $41,098 | | Expense Type | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Cash interest expense | $1,423 | $1,220 | | Amortization of facility fee and legal fees | $88 | $118 | | Amortization of debt discount (warrant) | $380 | $82 | | Interest expense paid-in-kind | — | $233 | | Total expense related to Term Loan 2024 | $1,891 | $1,653 | [8. Fair Value Measurement](index=15&type=section&id=8.%20Fair%20Value%20Measurement) This note presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis, with warrant liabilities classified as Level 3 due to significant unobservable inputs | Category | July 31, 2025 (in thousands) | April 30, 2025 (in thousands) | | :------------------ | :----------------------------- | :---------------------------- | | Cash and cash equivalents (Level 1) | $201,214 | $237,595 | | Restricted cash (Level 1) | $334 | $334 | | Warrant liabilities (Level 3) | $5,188 | $8,097 | - The fair value of long-term debt, net of discounts, approximated **$48,240 thousand** as of July 31, 2025, and **$47,330 thousand** as of April 30, 2025, classified as Level 2[71](index=71&type=chunk) - Warrant liabilities are valued using the Black-Scholes option-pricing model with Level 3 inputs, including fair value of common shares, remaining contractual term, risk-free interest rate, expected dividend yield, and expected volatility[73](index=73&type=chunk)[74](index=74&type=chunk) | Metric | July 31, 2025 | April 30, 2025 | | :-------------------------- | :------------ | :------------- | | Fair value of Level 3 liabilities | $5,188 | $8,097 | | Change in fair value of warrant liabilities | $(2,909) | N/A | [9. Common Shares](index=17&type=section&id=9.%20Common%20Shares) This note states that the company had 100,000,000 Common Shares authorized and 51,348,656 Common Shares issued and outstanding with a par value of $1.00 as of July 31, 2025, and April 30, 2025 - As of July 31, 2025, and April 30, 2025, the company had **100,000,000 Common Shares** authorized and **51,348,656 Common Shares** issued and outstanding, each with a par value of **$1.00**[76](index=76&type=chunk) [10. Redeemable Preferred Stock](index=17&type=section&id=10.%20Redeemable%20Preferred%20Stock) This note explains that Intermediate Holdings issued 103,400 shares of preferred stock for $103,400 thousand for the three months ended July 31, 2024, which were subsequently exchanged into Common Shares, with no preferred stock outstanding as of July 31, 2025, or April 30, 2025 - For the three months ended July 31, 2024, Intermediate Holdings issued **103,400 shares** of preferred stock for proceeds of **$103,400 thousand**[78](index=78&type=chunk) - Following the Organizational Transactions, all preferred stock was exchanged into Common Shares of Kestra Medical Technologies, Ltd., resulting in no preferred stock outstanding as of July 31, 2025, and April 30, 2025[78](index=78&type=chunk) - Preferred stock was non-voting and subject to a preferred dividend capped at **4.7%** (pre-April 30, 2023 issuances) and **6.0%** (on or after May 1, 2023 issuances). No dividends were declared for the three months ended July 31, 2025 and 2024[79](index=79&type=chunk) [11. Non-Controlling Interest](index=18&type=section&id=11.%20Non-Controlling%20Interest) This note describes a $17,100 thousand investment received by a subsidiary (DAC) from a third-party investor in July 2024, in exchange for Class A Redeemable Ordinary Shares, which were subsequently exchanged into common stock of Intermediate Holdings and then into common units of West Affum LP in connection with the IPO - In July 2024, West Affum Holdings Designated Activity Company (DAC), a subsidiary, received a **$17,100 thousand** investment from a third party for **171 Class A Redeemable Ordinary Shares**[81](index=81&type=chunk) - In connection with the IPO, all Class A Redeemable Ordinary Shares were exchanged for common stock of Intermediate Holdings, which were then exchanged for common units of West Affum LP[82](index=82&type=chunk) [12. Equity Incentive Plans](index=18&type=section&id=12.%20Equity%20Incentive%20Plans) This note details the company's equity incentive plans, including restricted common units, restricted shares, stock options, and restricted stock units (service-based, performance-based, and market-based) - The company has granted restricted common units, restricted Class A Common Units (exchanged into restricted Common Shares post-IPO), stock options, and various types of restricted stock units (service-based, performance-based, and market-based)[83](index=83&type=chunk)[84](index=84&type=chunk)[88](index=88&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk) | Equity Instrument | July 31, 2025 (Shares/Units) | Unrecognized Compensation Cost (in thousands) | Weighted-Average Recognition Period (Years) | | :-------------------------------- | :----------------------------- | :------------------------------------------ | :------------------------------------------ | | Stock Options (Outstanding) | 4,539,300 | $23,430 | 1.54 | | Restricted Stock Units (Outstanding) | 1,263,384 | $19,489 | 2.93 | | Performance-based Restricted Stock Units (Granted) | 395,589 | $5,755 | 0.75 | | Market-based Restricted Stock Units (Granted) | 197,794 | $3,645 | 1.96 | | Expense Category | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Research and development | $455 | $44 | | Selling, general and administrative | $4,124 | $333 | | Total share-based compensation expense | $4,579 | $377 | [13. Income Taxes](index=21&type=section&id=13.%20Income%20Taxes) This note details the provision for income taxes, which was minimal for both periods, primarily related to state tax liabilities in the United States, with a full valuation allowance provided against net deferred tax assets | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :---------------------- | :---------------------------------------------- | :---------------------------------------------- | | Provision for income taxes | $33 | $7 | | Effective tax rate | 0.13% | 0.04% | - The company is based in Bermuda, a tax resident of Ireland, and has subsidiaries in the Cayman Islands, Ireland, and the U.S., with no income tax in Bermuda and Cayman Islands[95](index=95&type=chunk) - A full valuation allowance has been provided against net deferred tax assets due to uncertainty of realization[96](index=96&type=chunk) [14. Commitments and Contingencies](index=21&type=section&id=14.%20Commitments%20and%20Contingencies) This note addresses potential legal proceedings and indemnification agreements, with the company not expecting any material adverse effect from ordinary course litigation - The company is involved in ordinary course legal proceedings but does not expect a material adverse effect on its results, financial position, or cash flows[97](index=97&type=chunk)[99](index=99&type=chunk) - Indemnification agreements with officers and directors exist, but no claims have been made as of July 31, 2025, and April 30, 2025[98](index=98&type=chunk) [15. Defined Contribution Plan](index=21&type=section&id=15.%20Defined%20Contribution%20Plan) This note outlines the company's 401(k) Plan for U.S. employees, which includes matching and discretionary contributions - The company sponsors a 401(k) Plan for its full-time U.S. employees, offering matching and discretionary contributions[100](index=100&type=chunk) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Company contributions (matching and discretionary) | $548 | $428 | [16. Net Loss Per Share Attributable to Common Shareholders](index=21&type=section&id=16.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Shareholders) This note details the calculation of basic and diluted net loss per share attributable to common shareholders, noting no dilutive effect from potentially dilutive securities due to net losses - The calculation of basic and diluted net loss per share retrospectively adjusts for the exchange of Intermediate Holdings common stock into Common Shares of Kestra Medical Technologies, Ltd. in connection with the Organizational Transactions[101](index=101&type=chunk) - For both periods presented, there is no difference between basic and diluted shares outstanding due to the company's net loss position, meaning potentially dilutive securities had an antidilutive impact[103](index=103&type=chunk) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | | Net loss attributable to common shareholders | $(25,826) | $(22,267) | | Weighted average shares of common share outstanding – basic and diluted | 51,304,599 | 19,885,382 | | Net loss per share attributable to common shareholders – basic and diluted | $(0.50) | $(1.12) | | Potentially Dilutive Securities | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Stock options | 4,539,300 | — | | Warrants to purchase Common Shares| 434,916 | — | | Restricted stock | 40,103 | 36,893 | | Restricted stock units | 1,263,384 | — | | Performance-based restricted stock units | 395,589 | — | | Market-based restricted stock units | 395,588 | — | | Total | 7,068,880 | 36,893 | [17. Subsequent Events](index=23&type=section&id=17.%20Subsequent%20Events) This note discloses a subsequent event where Perceptive Credit Holdings IV, LP exercised their warrant on September 4, 2025, resulting in the cashless issuance of 100,397 Common Shares at an exercise price of $11.54 - On September 4, 2025, Perceptive Credit Holdings IV, LP exercised their warrant on a cashless basis, resulting in the issuance of **100,397 Common Shares** at an exercise price of **$11.54**[105](index=105&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, offering an overview of the business, key factors affecting performance, detailed comparison of financial results, and an analysis of liquidity and capital resources [Overview](index=24&type=section&id=Overview) Kestra Medical Technologies is a commercial-stage medical device and digital healthcare company focused on cardiovascular disease, commercializing its Cardiac Recovery System platform, centered on the ASSURE WCD - Kestra Medical Technologies is a commercial-stage wearable medical device and digital healthcare company focused on cardiovascular disease, commercializing its Cardiac Recovery System platform, including the ASSURE WCD[107](index=107&type=chunk) - Revenue is primarily derived from direct billing of third-party payors (Medicare, Medicaid, private payors) for leasing the ASSURE WCD, with established reimbursement codes[108](index=108&type=chunk) | Metric | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $19.4 | $12.8 | | Gross profit | $8.9 | $4.2 | | Net loss | $(25.8) | $(20.3) | | Cash and cash equivalents (as of July 31, 2025) | $201.5 | N/A | | Accumulated deficit (as of July 31, 2025) | $(546.1) | N/A | - The company raised **$215.8 million** in net proceeds from its IPO in March 2025, which, along with existing cash, is expected to fund operations for at least the next 12 months[113](index=113&type=chunk)[114](index=114&type=chunk) [Key Factors Affecting Our Results of Operations and Performance](index=26&type=section&id=Key%20Factors%20Affecting%20Our%20Results%20of%20Operations%20and%20Performance) Several key factors impact the company's operating performance, including significant investments in its commercial organization, efforts to increase gross profit through cost management and improved reimbursement, effective payor coverage and revenue cycle management, and potential seasonality in billings and collections - Continued significant investments in recruiting, training, and retaining a direct sales force and supporting commercial infrastructure are crucial for growth[115](index=115&type=chunk) - Gross profit is expected to increase through more effective cost management, higher reimbursement realization due to improved market access, shifts to patients with longer wear duration, supply chain efficiencies, and manufacturing process improvements[115](index=115&type=chunk) - Revenue generation heavily depends on third-party payor coverage (Medicare, Medicaid, private payors) and effective revenue cycle management to collect cash[115](index=115&type=chunk) - Seasonality may impact billings and collections, particularly in January and February due to resetting annual patient healthcare insurance plan deductibles[115](index=115&type=chunk) [Key Components of Our Results of Operations](index=27&type=section&id=Key%20Components%20of%20Our%20Results%20of%20Operations) This section details the key components of the company's consolidated statement of operations, including revenue, cost of revenue, gross profit, research and development expenses, selling, general and administrative expenses, interest and other expense (income), and provision for income taxes, outlining their definitions and expected trends - Revenue is generated from leasing the ASSURE WCD on a month-to-month basis, recognized over the lease term when collectability is probable, and is expected to increase with patient growth[117](index=117&type=chunk) - Cost of revenue includes direct materials, labor, disposable components, depreciation of reusable equipment, shipping, and support costs, expected to increase with patient volume but decrease as a percentage of revenue long-term due to economies of scale[118](index=118&type=chunk) - Gross profit is expected to increase due to improved reimbursement, longer patient wear duration, supply chain efficiencies, and manufacturing improvements, but may be impacted by rising material, labor, and shipping costs[119](index=119&type=chunk) - Research and development expenses, consisting of personnel, prototype materials, and development costs, are expected to decrease as a percentage of revenue while continuing investment in new products and enhancements[120](index=120&type=chunk)[121](index=121&type=chunk) - Selling, general and administrative expenses, including personnel, marketing, and public company costs, are expected to increase in absolute terms to support growth but decrease as a percentage of revenue[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Interest and other expense (income) includes cash interest from borrowings and interest income, as well as non-cash components like amortization of debt discounts and warrant fair value adjustments[125](index=125&type=chunk) - Provision for income taxes is limited, with a full valuation allowance against net deferred tax assets due to uncertainty of future taxable income[126](index=126&type=chunk) [Results of Operations for the Three Months Ended July 31, 2025 and 2024](index=30&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20July%2031,%202025%20and%202024) This section provides a detailed comparison of the company's financial results for the three months ended July 31, 2025, versus the same period in 2024, highlighting significant increases in revenue, gross profit, and operating expenses, leading to a larger net loss | Metric (in thousands) | 2025 | 2024 | $ Change | % Change | | :------------------------------------------------ | :--- | :--- | :------- | :------- | | Revenue | $19,371 | $12,782 | $6,589 | 52% | | Cost of revenue | $10,520 | $8,582 | $1,938 | 23% | | Gross profit | $8,851 | $4,200 | $4,651 | 111% | | Research and development | $4,001 | $3,404 | $597 | 18% | | Selling, general and administrative | $33,728 | $19,227 | $14,501 | 75% | | Total operating expenses | $37,729 | $22,631 | $15,098 | 67% | | Loss from operations | $(28,878) | $(18,431) | $(10,447) | 57% | | Interest income | $(2,167) | $(37) | $(2,130) | NM | | Other expense (income) | $(2,830) | $48 | $(2,878) | NM | | Net loss attributable to common shareholders | $(25,826) | $(22,267) | $(3,559) | 16% | - Revenue increased by **$6.6 million (52%)** primarily due to a **54% increase** in patients using products and a **55% increase** in the revenue cycle management team for improved collections[129](index=129&type=chunk) - Cost of revenue increased by **$1.9 million (23%)** mainly due to higher disposable medical equipment supplies and reconditioning costs, reserve for lost equipment, and depreciation, partially offset by increased useful lives of components[130](index=130&type=chunk) - Gross profit increased by **$4.7 million (111%)** driven by revenue growth, improved collection efforts, and a **21% decrease** in cost of revenues per patient due to better utilization and manufacturing cost improvements[131](index=131&type=chunk) - Selling, general and administrative expenses increased by **$14.5 million (75%)** due to higher personnel expenses (including share-based compensation), public company-related professional fees, commercial support costs, travel, shipping, and software licensing fees[133](index=133&type=chunk) - Interest income increased by **$2.1 million** due to higher interest-bearing bank account balances, and other expense (income) decreased by **$2.9 million** primarily due to a decrease in the fair value of warrant liability[134](index=134&type=chunk)[135](index=135&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company has incurred significant operating losses and negative cash flows since inception, with an accumulated deficit of $546.1 million as of July 31, 2025 - The company has incurred net losses and negative operating cash flows since inception, with an accumulated deficit of **$546.1 million** as of July 31, 2025[137](index=137&type=chunk)[142](index=142&type=chunk) | Metric | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(25.8) | $(20.3) | | Negative operating cash flows | $(26.3) | $(17.5) | | Cash and cash equivalents (as of July 31, 2025) | $201.5 | N/A | - Management believes existing cash and cash equivalents, including IPO proceeds, will be sufficient to fund operating and capital needs for at least the next 12 months, but additional funding may be required for growth[138](index=138&type=chunk)[140](index=140&type=chunk) - The company has a **$60.0 million** Term Loan 2024, with **$45.0 million** outstanding principal as of July 31, 2025. An additional **$15.0 million** draw is available through July 2026, contingent on revenue milestones[141](index=141&type=chunk)[144](index=144&type=chunk)[146](index=146&type=chunk) [Cash Flows](index=34&type=section&id=Cash%20Flows) This section provides a summary of cash flows from operating, investing, and financing activities, highlighting significant cash usage in operating and investing activities for the three months ended July 31, 2025 | Cash Flow Activity | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash used in operating activities | $(26,274) | $(17,499) | | Net cash used in investing activities | $(8,232) | $(7,034) | | Net cash provided by (used in) financing activities | $(1,875) | $116,253 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(36,381) | $91,720 | - Cash used in operating activities for Q1 2025 was **$26.3 million**, primarily due to net loss and decreases in operating assets and liabilities, partially offset by non-cash charges like share-based compensation and depreciation[149](index=149&type=chunk) - Cash used in investing activities for Q1 2025 was **$8.2 million**, mainly for purchases of property and equipment (medical rental equipment, computer hardware, etc.) and deposits for medical rental equipment[151](index=151&type=chunk) - Cash used in financing activities for Q1 2025 was **$1.9 million**, primarily for IPO offering costs. In Q1 2024, cash provided by financing activities was **$116.2 million**, mainly from preferred stock issuance (**$103.4 million**) and non-controlling interest investment (**$17.1 million**)[153](index=153&type=chunk)[154](index=154&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) As of July 31, 2025, the company had two irrevocable standby letters of credit totaling $0.1 million related to office leases and a $0.2 million Cash Pledge Agreement for its credit card program - As of July 31, 2025, the company had **$0.1 million** in irrevocable standby letters of credit for office leases and a **$0.2 million** Cash Pledge Agreement for its credit card program[155](index=155&type=chunk) - The company does not have other off-balance sheet arrangements, including participation in transactions with unconsolidated entities or guarantees of other entities' debt[155](index=155&type=chunk) [Critical Accounting Policies and Significant Management Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Management%20Estimates) This section reiterates that the preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, and actual results may differ - Financial statements require management estimates and assumptions affecting reported assets, liabilities, costs, and expenses, based on historical experience and market-specific assumptions[156](index=156&type=chunk) - Actual results could differ materially from these estimates under different assumptions or conditions[156](index=156&type=chunk) - There have been no material changes in significant accounting policies and estimates since the Annual Report[157](index=157&type=chunk) [Emerging Growth Company and Smaller Reporting Company Status](index=35&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company%20Status) The company qualifies as an 'emerging growth company' and a 'smaller reporting company,' allowing it to take advantage of reduced regulatory and reporting requirements - The company is an 'emerging growth company' and a 'smaller reporting company,' which provides reduced regulatory and reporting requirements[158](index=158&type=chunk)[161](index=161&type=chunk) - Benefits include exemption from auditor attestation requirements of Sarbanes-Oxley Act Section 404(b) and reduced disclosure obligations regarding executive compensation[160](index=160&type=chunk)[161](index=161&type=chunk) - The company has elected to adopt new or revised accounting standards within the same time periods as private companies[159](index=159&type=chunk) [Recently Adopted and Issued Accounting Pronouncements](index=36&type=section&id=Recently%20Adopted%20and%20Issued%20Accounting%20Pronouncements) This section refers to Note 2 for details on recently issued accounting pronouncements, indicating that no new pronouncements were adopted during the three months ended July 31, 2025, and no material effect is expected from future adoptions - Recently issued accounting pronouncements are described in Note 2 to the unaudited interim condensed consolidated financial statements[162](index=162&type=chunk) - No new accounting pronouncements were adopted during the three months ended July 31, 2025, and no material effect is expected from future adoptions[53](index=53&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's market risk during the three months ended July 31, 2025, and refers to the Annual Report for a detailed discussion - There have been no material changes to the company's market risk during the three months ended July 31, 2025[163](index=163&type=chunk) - For a detailed discussion of market risk, refer to Part II, Item 7A of the Annual Report[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of July 31, 2025, due to material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of July 31, 2025, due to material weaknesses in internal control over financial reporting[164](index=164&type=chunk) - Material weaknesses include: (1) ineffective control environment due to insufficient resources in accounting, finance, and IT; (2) inadequate controls for proper presentation and classification of non-routine/complex transactions; (3) lack of effective controls to ensure independent review of manual journal entries and account reconciliations; and (4) ineffective IT general controls (program change management, user access, computer operations, program development)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) - Remediation plans are ongoing and include hiring additional personnel (financial planning, accounting, IT), engaging third parties for technical accounting and control implementation, designing controls for complex transactions, and enhancing IT governance processes[172](index=172&type=chunk) - The material weaknesses will not be considered remediated until controls are designed, implemented, and tested as effective over a sufficient period[174](index=174&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and a list of exhibits [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is occasionally involved in various lawsuits and claims arising in the ordinary course of business but does not anticipate any material adverse effect on its results of operations, financial position, or cash flows from these proceedings - The company is a party to various lawsuits, claims, and legal proceedings in the ordinary course of business[179](index=179&type=chunk) - The company does not expect any pending legal proceedings to have a material adverse effect on its results of operations, financial position, or cash flows[179](index=179&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Investing in the company's common shares involves a high degree of risk, with no material changes to previously disclosed risk factors, though additional unknown risks may emerge - Investing in the company's common shares involves a high degree of risk[180](index=180&type=chunk) - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[180](index=180&type=chunk) - Additional risk factors not presently known or currently deemed immaterial may also impair the business or results of operations[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[181](index=181&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities to report - No defaults upon senior securities to report[182](index=182&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[183](index=183&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) During the three months ended July 31, 2025, none of the company's directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - During the three months ended July 31, 2025, no directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[184](index=184&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibits include the Certificate of Incorporation, Memorandum of Association, Amended and Restated Bye-laws, Certificate of Deposit of Memorandum of Increase of Share Capital, certifications of principal executive and financial officers, and Inline XBRL documents[186](index=186&type=chunk) [Signatures](index=41&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers, certifying the Quarterly Report [Report Signatures](index=41&type=section&id=Report%20Signatures) The Quarterly Report is duly signed on behalf of Kestra Medical Technologies, Ltd. by Brian Webster, President and Chief Executive Officer, and Vaseem Mahboob, Chief Financial Officer, on September 12, 2025 - The report is signed by Brian Webster, President and Chief Executive Officer, and Vaseem Mahboob, Chief Financial Officer, on September 12, 2025[191](index=191&type=chunk)

[Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to risks and uncertainties, covering future financial performance, market expectations, and business plans - The report contains forward-looking statements regarding future periods, events, and financial performance, identified by words like "believe," "expect," "target," and conditional verbs; these statements are subject to various risks and uncertainties that could cause actual results to differ materially from projections[10](index=10&type=chunk)[11](index=11&type=chunk) - Key forward-looking statements include beliefs about non-GAAP operating income, expected benefits of solutions, market opportunities, customer and market expectations, sales cycles, financial metrics, AI automation in contact centers, business plans, technology changes (including AI), product development, competition, demand for solutions, customer composition, reliance on partnerships, cybersecurity risks, regulatory compliance, tax legislation effects, privacy laws, trade policies, intellectual property, capital resources, international operations, foreign currency fluctuations, inflation, and health epidemics[10](index=10&type=chunk) [Summary Risk Factors](index=7&type=section&id=Summary%20Risk%20Factors) The company faces numerous risks including operational unpredictability, SaaS model challenges, intense competition, and regulatory changes, which could impact its strategy and financial results - The company's business is exposed to numerous risks and uncertainties that could impact its strategy and financial results; key risks include the ability to manage business plans, improve solutions, innovate, execute sales and marketing, ensure customer acceptance, predict subscription renewals, adapt to new legislation, compete effectively, manage partnerships, obtain capital, manage growth, retain key personnel, protect intellectual property, and mitigate impacts from foreign currency fluctuations, inflation, global economic environment, trade policies, and public health pandemics[13](index=13&type=chunk)[14](index=14&type=chunk) - Specific operational risks highlighted are the inherent unpredictability of factors beyond control, risks associated with the SaaS business model, revenue and operating result fluctuations due to deferred revenue recognition, inability to accurately predict subscription renewal rates, lengthy and unpredictable sales cycles, dependence on a small number of key customers, intense competition in the customer engagement software market (including generative AI), and challenges in expanding sales and marketing[15](index=15&type=chunk) - Further risks include difficulties in customer product implementation, significant international operations exposure, unplanned system interruptions or capacity issues in third-party data centers, costly software errors, increased costs/liabilities from Service Level Agreements, dependence on broad market acceptance of applications and business model, inability to respond to rapid technological change, reliance on third-party technologies, and challenges in managing offshore product development and services[15](index=15&type=chunk) - Cybersecurity breaches, changes in privacy and data protection laws (e.g., GDPR), evolving regulations for cloud computing and AI, and changes in domestic and foreign trade policies (e.g., tariffs) also pose significant risks[16](index=16&type=chunk) [PART I](index=12&type=section&id=PART%20I) [ITEM 1. BUSINESS](index=12&type=section&id=ITEM%201.%20BUSINESS) eGain Corporation automates customer experience with an AI knowledge hub SaaS solution for enterprises, operating globally to enhance service and reduce costs through integrated AI Agent, AI Knowledge Hub, and Conversation Hub - eGain automates customer experience with an AI knowledge hub SaaS solution, aiming to improve customer experience and reduce costs for enterprises by synthesizing and delivering trusted answers[18](index=18&type=chunk) - The company's solution is structured into three main hubs: eGain AI Agent (for agent assistance), eGain AI Knowledge Hub (for centralized, guided knowledge), and eGain Conversation Hub (for omnichannel interaction management)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - eGain's solutions offer benefits such as enhanced customer experience, reduced operating costs through self-service automation and improved agent productivity, ensured compliance, and delivery of insights for service and product improvement[32](index=32&type=chunk) - The company primarily sells to large enterprises (over **$1 billion** in annual revenue or government organizations), which accounted for over **87%** of its annual recurring cloud revenue in fiscal year 2025; North America and EMEA collectively generated **78%** and **22%** of total revenue, respectively, in FY2025[37](index=37&type=chunk) - eGain competes with application software providers like LivePerson, NICE, and Verint, and occasionally with platform partners such as Five9, Genesys, Microsoft, Salesforce, and ServiceNow[39](index=39&type=chunk) - Growth strategies include advancing product and platform leadership (especially in AI), investing in direct sales and marketing, developing new partner relationships, and expanding within existing enterprise accounts[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - As of June 30, 2025, eGain had **446 employees** (**444 full-time**), with significant portions in product development (**173**) and services/support (**176**)[59](index=59&type=chunk) [ITEM 1A. RISK FACTORS](index=25&type=section&id=ITEM%201A.%20RISK%20FACTORS) eGain faces diverse risks from its business model, market competition, international operations, and technology, including revenue fluctuations, intense AI-driven competition, global operational exposure, cybersecurity threats, and evolving data privacy and AI regulations - The SaaS business model is subject to risks, including customer non-renewal or reduction of subscriptions, which can adversely affect operating and financial results; revenue recognition over time means downturns are not immediately reflected[68](index=68&type=chunk)[72](index=72&type=chunk)[74](index=74&type=chunk) - The market for customer engagement software, including generative AI, is highly competitive; failure to compete successfully against established and new entities with greater resources could adversely affect the business[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Significant international operations (**22%** of revenue from EMEA, **43%** of workforce in India) expose the company to risks like foreign currency fluctuations, changes in data privacy laws (e.g., GDPR), geopolitical conflicts, and increased compensation costs in regions like India[95](index=95&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) - Cybersecurity breaches, unauthorized access to data, and system interruptions at third-party data centers or PaaS providers could harm reputation, lead to customer attrition, and incur significant legal and financial liabilities[100](index=100&type=chunk)[101](index=101&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[136](index=136&type=chunk) - Evolving data privacy laws (e.g., GDPR, CCPA, CPRA, India's DPDP) and AI regulations (e.g., EU AI Act) increase compliance costs, create legal uncertainties, and may limit the use and adoption of eGain's solutions[137](index=137&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[150](index=150&type=chunk) - The development and use of AI technologies carry risks such as flawed algorithms, biased datasets, and potential for harmful content, which could lead to reputational harm, regulatory scrutiny, or legal liability[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Dependence on a relatively small number of customers for a substantial portion of revenue means the loss of any significant customer could materially and adversely affect financial condition and results of operations[81](index=81&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=58&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC regarding the company's filings - The company has no unresolved staff comments from the Securities and Exchange Commission[176](index=176&type=chunk) [ITEM 1C. CYBERSECURITY](index=58&type=section&id=ITEM%201C.%20CYBERSECURITY) eGain maintains a robust cybersecurity framework aligned with NIST and ISO27001, overseen by a CISO and the Audit Committee, conducting third-party evaluations and managing risks, with no material impact from past incidents - eGain has an enterprise cybersecurity risk mitigation and governance process, detailed in its Information Security Protection Program (Security Plan), which aligns with NIST and ISO27001 frameworks[177](index=177&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - The company engages third-party providers for security control evaluations, including penetration testing and independent audits, to test the design and operational effectiveness of its security controls[178](index=178&type=chunk) - A Third-Party Cyber Risk Management Plan ensures due diligence on third parties, including security and privacy clauses in contracts and regular reviews[181](index=181&type=chunk) - A Cyber Incident Response Plan outlines processes for detecting, identifying, prioritizing, and analyzing security events, involving the CISO, legal counsel, and business stakeholders for appropriate response and mitigation[182](index=182&type=chunk) - The CISO, with over **25 years** of experience in IT and security, leads the company's cybersecurity strategy and reports to the Chief Financial Officer; the Audit Committee of the board oversees data privacy and cybersecurity risks, receiving annual updates from the CISO[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk) - As of the report date, eGain is not aware of any material risks from cybersecurity threats or past incidents that have materially affected or are likely to materially affect its business strategy, financial condition, results of operations, or cash flows[184](index=184&type=chunk) [ITEM 2. PROPERTIES](index=60&type=section&id=ITEM%202.%20PROPERTIES) eGain leases all its facilities, including headquarters in Sunnyvale, California, and offices in Newbury, England, and Pune, India, which are considered adequate for current and near-future operations - eGain leases all its facilities, including corporate headquarters in Sunnyvale, California, and offices in Newbury, England, and Pune, India[188](index=188&type=chunk) - The company believes its current offices are adequate for its present and near-future operating needs[188](index=188&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=60&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) eGain is not a party to any material legal proceedings and is unaware of significant pending or threatened actions, though it evaluates claims including intellectual property infringement and indemnifies customers - eGain is not currently a party to any legal proceedings, nor is it aware of any pending or threatened legal proceedings that could have a material adverse effect on its business, consolidated operating results, or financial condition[189](index=189&type=chunk) - In the ordinary course of business, the company is involved in various legal proceedings and claims, including alleged infringement of third-party patents and other intellectual property rights, commercial, labor, and employment matters[189](index=189&type=chunk) - The company indemnifies its customers against third-party intellectual property infringement claims, which could increase costs in the event of an adverse ruling[190](index=190&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=60&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to eGain Corporation - The disclosure requirement for mine safety is not applicable to eGain Corporation[191](index=191&type=chunk) [PART II](index=62&type=section&id=PART%20II) [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=62&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) eGain's common stock trades on Nasdaq under 'EGAN', with approximately 120 stockholders as of June 30, 2025; the company has never paid cash dividends and has a $40.0 million stock repurchase program with $1.2 million remaining - eGain's common stock is traded on the Nasdaq Stock Market under the symbol "**EGAN**"[194](index=194&type=chunk) - As of June 30, 2025, there were approximately **120 stockholders of record**[195](index=195&type=chunk) - The company has never declared or paid any cash dividends on its common stock and does not intend to in the foreseeable future, planning to retain all available funds for business operations[196](index=196&type=chunk) - On May 31, 2024, the board authorized a **$20.0 million** increase in its stock repurchase program, bringing the aggregate amount to **$40.0 million**; as of June 30, 2025, approximately **$1.2 million** remained available[197](index=197&type=chunk) Stock Repurchase Activity (Q4 FY2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in thousands) | | :--- | :--- | :--- | :--- | | April 1, 2025 to April 30, 2025 | 183,906 | $5.38 | $3,962 | | May 1, 2025 to May 31, 2025 | 215,648 | $5.87 | $2,696 | | June 1, 2025 to June 30, 2025 | 230,858 | $6.53 | $1,188 | | **Total** | **630,412** | | | Cumulative Total Stockholder Return (FY2020-FY2025) | Index | 6/30/2020 | 6/30/2021 | 6/30/2022 | 6/30/2023 | 6/30/2024 | 6/30/2025 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | eGain Corporation | $100.00 | $103.33 | $87.76 | $67.42 | $56.80 | $56.26 | | Nasdaq Composite | $100.00 | $145.56 | $111.46 | $140.60 | $182.23 | $210.79 | | S&P Software & Services Select Industry Index | $100.00 | $154.47 | $100.40 | $120.90 | $137.30 | $172.80 | [ITEM 6. RESERVED](index=65&type=section&id=ITEM%206.%20RESERVED) This item is intentionally reserved and contains no information [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=65&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) eGain's total revenue decreased by **$4.4 million (4.7%)** to **$88.4 million** in FY2025, while net income significantly increased to **$32.3 million** due to a **$26.6 million** deferred tax valuation allowance release, with stable liquidity of **$62.9 million** in cash - eGain automates customer experience with an AI knowledge hub solution, selling its SaaS solution to enterprises to improve customer experience and reduce costs[210](index=210&type=chunk) Total Revenue (FY2025 vs. FY2024) | Revenue Category | FY2025 (in thousands) | FY2024 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | SaaS revenue | $81,921 | $85,082 | $(3,161) | (4)% | | Professional services | $6,510 | $7,721 | $(1,211) | (16)% | | **Total revenue** | **$88,431** | **$92,803** | **$(4,372)** | **(4.7)%** | Non-GAAP Operating Income (FY2025 vs. FY2024) | Metric | FY2025 (in thousands) | FY2024 (in thousands) | | :--- | :--- | :--- | | Income from operations (GAAP) | $4,433 | $5,971 | | Add: Stock-based compensation | $2,449 | $4,529 | | **Non-GAAP income from operations** | **$6,882** | **$10,500** | - Net income significantly increased to **$32.3 million** in FY2025 from **$7.8 million** in FY2024, primarily due to an income tax benefit of **$26.6 million** in FY2025 (compared to a provision of **$1.9 million** in FY2024) resulting from the release of a deferred tax valuation allowance[285](index=285&type=chunk)[319](index=319&type=chunk) - Total costs and operating expenses decreased by **$2.8 million** in FY2025, mainly due to decreases in personnel-related expenses, legal expenses, outside consulting costs, and credit loss expenses, partially offset by increases in cloud computing and lead generation costs[281](index=281&type=chunk) Key Financial Measures (FY2025 vs. FY2024) | Metric | FY2025 (in thousands) | FY2024 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Income from operations | $4,433 | $5,971 | $(1,538) | (26)% | | Operating margin | 5% | 6% | -1% | | | Interest income, net | $2,469 | $3,798 | $(1,329) | (35)% | | Other expense, net | $(1,265) | $(51) | $(1,214) | 2380% | | Income before income tax benefit (provision) | $5,637 | $9,718 | $(4,081) | (42)% | | Benefit from (provision for) income taxes | $26,617 | $(1,938) | $28,555 | -1473% | | Net income | $32,254 | $7,780 | $24,474 | 315% | | Basic EPS | $1.15 | $0.25 | $0.90 | 360% | | Diluted EPS | $1.13 | $0.25 | $0.88 | 352% | Liquidity and Capital Resources (FY2025 vs. FY2024) | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $62,909 | $70,003 | | Restricted cash | $8 | $8 | | Total liquidity sources | $95,700 | $101,700 | | Working capital | $38,400 | $44,500 | | Deferred revenue | $50,531 | $49,269 | Cash Flows (FY2025 vs. FY2024) | Cash Flow Activity | FY2025 (in thousands) | FY2024 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $5,263 | $12,454 | $(7,191) | | Net cash used in investing activities | $(565) | $(198) | $(367) | | Net cash used in financing activities | $(14,393) | $(15,391) | $998 | | Effect of exchange rate differences on cash and cash equivalents | $2,601 | $(62) | $2,663 | | Net decrease in cash, cash equivalents and restricted cash | $(7,094) | $(3,197) | $(3,897) | | Cash, cash equivalents and restricted cash at end of year | $62,917 | $70,011 | $(7,094) | [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=85&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) eGain faces market risks from foreign currency fluctuations, particularly USD, Euro, GBP, and INR, and interest rate changes, but does not use derivatives, with a 10% USD increase potentially decreasing foreign assets by **$2.6 million** - eGain is exposed to foreign currency exchange risk, principally from fluctuations between the U.S. Dollar, Euro, British Pound, and Indian Rupee, as international sales are made in local currencies[299](index=299&type=chunk) - As of June 30, 2025, identifiable assets denominated in foreign currency totaled approximately **$25.9 million**; a **10%** increase in the U.S. dollar's value relative to other currencies would decrease these assets by **$2.6 million**[299](index=299&type=chunk) - The company does not currently use derivative instruments to hedge against foreign exchange risk[299](index=299&type=chunk)[301](index=301&type=chunk) - eGain's exposure to interest rate risk relates primarily to interest earned on cash and cash equivalents; the company's investment policy focuses on short-term, low-risk investment-grade debt instruments[300](index=300&type=chunk) - A hypothetical **10%** change in market interest rates is not expected to have a material impact on the fair value of securities or cash flows/income[301](index=301&type=chunk) [PART III](index=141&type=section&id=PART%20III) [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=141&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on eGain's directors, executive officers, and corporate governance, including an insider trading policy, is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[477](index=477&type=chunk) - Specific information about executive officers is also provided in Part I, Item 1 of this report[478](index=478&type=chunk) - eGain has adopted an insider trading policy designed to promote compliance with insider trading laws, rules, and Nasdaq listing standards[479](index=479&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=141&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Executive compensation details are incorporated by reference from the Proxy Statement, with the company not granting equity awards in anticipation of material nonpublic information and historically limiting stock option grants to named executive officers - Information on executive compensation is incorporated by reference from the Proxy Statement[480](index=480&type=chunk) - eGain does not grant equity awards in anticipation of material nonpublic information, nor does it time the release of such information based on equity award grant dates[481](index=481&type=chunk) - Historically, including in fiscal year 2025, the compensation committee has not granted stock options, stock appreciation rights, or similar option-like instruments to named executive officers, except in certain circumstances like hiring or promotion[481](index=481&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=141&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Security ownership information is incorporated by reference from the Proxy Statement; as of June 30, 2025, eGain had **3,954,716** outstanding options and rights with a weighted-average exercise price of **$8.80**, and **2,089,443** shares available for future issuance - Information on security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement[482](index=482&type=chunk) Equity Compensation Plan Summary (as of June 30, 2025) | Plan Category | Number of securities to be issued upon exercise of outstanding options and rights (a) | Weighted-average exercise price of outstanding options and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders (2005 Stock Incentive Plan) | 3,477,199 | $9.67 | 2,089,443 | | Equity compensation plans not approved by security holders (2005 Management Stock Option Plan) | 477,517 | $2.49 | — | | **Total** | **3,954,716** | **$8.80** | **2,089,443** | [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE](index=142&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the Proxy Statement - Information on related party transactions, director independence, and board meetings/committees is incorporated by reference from the Proxy Statement[484](index=484&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES](index=142&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information concerning principal accounting fees and services is incorporated by reference from the Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[485](index=485&type=chunk) [PART IV](index=143&type=section&id=PART%20IV) [ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES](index=143&type=section&id=ITEM%2015.%20EXHIBIT%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section details the financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, a valuation and qualifying accounts schedule, and a comprehensive list of corporate documents and certifications - The report includes consolidated financial statements as of June 30, 2025 and 2024, and for the years ended June 30, 2025 and 2024, as listed in Item 8[488](index=488&type=chunk) Schedule II—Valuation and Qualifying Accounts (FY2025 vs. FY2024) | Provision for Credit Losses | Balance at Beginning of Period | Additions Charged to Expense | Written Off, Net of Recoveries | Balance at End of Period | | :--- | :--- | :--- | :--- | :--- | | Year ended June 30, 2025 | $59 | $63 | $(115) | $7 | | Year ended June 30, 2024 | $237 | $93 | $(271) | $59 | - A comprehensive list of exhibits is provided, including organizational documents, stock plans, lease agreements, insider trading policy, and various certifications[492](index=492&type=chunk)[493](index=493&type=chunk)[494](index=494&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=147&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable to the report - The Form 10-K Summary is not applicable[497](index=497&type=chunk) [SIGNATURES](index=148&type=section&id=SIGNATURES) The report is signed by eGain Corporation's CEO, Ashutosh Roy, and CFO, Eric N. Smit, along with other directors, as of September 12, 2025, granting power of attorney for amendments - The report is signed by Ashutosh Roy (Chief Executive Officer) and Eric N. Smit (Chief Financial Officer) on September 12, 2025[502](index=502&type=chunk)[505](index=505&type=chunk) - A power of attorney is granted to the Chief Executive Officer and Chief Financial Officer to sign and file any amendments to this annual report[503](index=503&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Trio Petroleum Corp [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, reflecting the company's financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets provide a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheet Highlights | Metric | July 31, 2025 (Unaudited) | October 31, 2024 | | :--------------------------------- | :-------------------------- | :----------------- | | **ASSETS** | | | | Cash | $584,365 | $285,945 | | Total current assets | $876,550 | $565,219 | | Oil and gas properties - not subject to amortization | $12,155,186 | $11,119,119 | | Total assets | $13,031,736 | $11,684,338 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $1,556,279 | $2,590,699 | | Total liabilities | $1,609,454 | $2,641,790 | | Total stockholders' equity | $11,422,282 | $9,042,548 | | Total liabilities and stockholders' equity | $13,031,736 | $11,684,338 | - Cash increased by **$298,420** from October 31, 2024, to July 31, 2025, reflecting improved liquidity[10](index=10&type=chunk) - Total current liabilities decreased significantly by **$1,034,420**, improving the company's short-term financial position[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations detail the company's revenues, expenses, and net loss over specific periods Condensed Consolidated Statements of Operations Highlights | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $192,395 | $63,052 | $226,485 | $135,975 | | Cost of goods sold | $98,489 | $- | $107,751 | $- | | Gross profit | $93,906 | $63,052 | $118,734 | $135,975 | | Total operating expenses | $768,932 | $1,573,242 | $2,879,196 | $5,045,353 | | Loss from operations | $(675,026) | $(1,510,190) | $(2,760,462) | $(4,909,378) | | Total other expenses | $711,697 | $668,381 | $1,805,538 | $3,017,176 | | Net loss | $(1,386,723) | $(2,178,571) | $(4,566,000) | $(7,926,554) | | Basic and Diluted Net Loss per Common Share | $(0.17) | $(0.87) | $(0.69) | $(3.84) | - Revenues for the three months ended July 31, 2025, increased by **205.1% to $192,395**, primarily due to sales from newly acquired Saskatchewan assets, offsetting the termination of McCool Ranch operations[12](index=12&type=chunk)[208](index=208&type=chunk) - Net loss significantly decreased by **36.3%** for the three months and **42.4%** for the nine months ended July 31, 2025, compared to the prior year, driven by reduced operating and other expenses[12](index=12&type=chunk)[207](index=207&type=chunk)[215](index=215&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines the changes in the company's equity accounts over the reporting period, reflecting share issuances and accumulated deficit Stockholders' Equity Changes (Nine Months Ended July 31, 2025) | Metric | October 31, 2024 | July 31, 2025 | | :--------------------------------- | :--------------- | :-------------- | | Common Stock Shares Outstanding | 3,203,068 | 8,399,839 | | Common Stock Amount | $320 | $840 | | Additional Paid-in Capital | $29,125,917 | $36,040,611 | | Accumulated Deficit | $(20,073,679) | $(24,639,679) | | Total Stockholders' Equity | $9,042,548 | $11,422,282 | - Total stockholders' equity increased by **$2,379,734** from October 31, 2024, to July 31, 2025, primarily due to significant issuances of common shares[13](index=13&type=chunk)[14](index=14&type=chunk) - Common shares outstanding increased from **3,203,068 to 8,399,839**, driven by issuances for ATM agreements, asset acquisitions, and debt conversions[13](index=13&type=chunk)[14](index=14&type=chunk)[33](index=33&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statements categorize cash movements into operating, investing, and financing activities, showing changes in liquidity Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended July 31) | Cash Flow Activity | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Net cash (used in)/provided by operating activities | $(2,015,896) | $118,642 | | Net cash used in investing activities | $(966,555) | $(1,138,561) | | Net cash provided by/(used in) financing activities | $3,250,351 | $(248,898) | | Net change in cash | $298,420 | $(1,268,817) | | Cash - End of period | $584,365 | $293,107 | - Operating activities used **$2,015,896** in cash for the nine months ended July 31, 2025, a significant shift from **$118,642** provided in the prior year, primarily due to the net loss[16](index=16&type=chunk)[225](index=225&type=chunk) - Financing activities provided **$3,250,351** in cash for the nine months ended July 31, 2025, mainly from common stock issuances via an ATM agreement and convertible debt, reversing a cash outflow in the prior year[16](index=16&type=chunk)[227](index=227&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential details and explanations supporting the financial statements, clarifying accounting policies and significant transactions [NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS](index=10&type=section&id=NOTE%201%20%E2%80%93%20NATURE%20OF%20THE%20ORGANIZATION%20AND%20BUSINESS) This note describes Trio Petroleum Corp's core business, operational locations, and key asset acquisitions - Trio Petroleum Corp, a Delaware-incorporated oil and gas exploration and development company, is headquartered in Malibu, CA, with operations in California, Utah, and Saskatchewan, Canada[18](index=18&type=chunk)[19](index=19&type=chunk) - The company commenced revenue-generating operations in February 2024 at McCool Ranch (now discontinued) and recognized initial revenues from Saskatchewan assets in Q2 2025, which have since improved[20](index=20&type=chunk) - Key acquisitions include an **85.775%** working interest in the South Salinas Project, interests in the Asphalt Ridge Project, and oil and gas assets in the Lloydminster, Saskatchewan heavy oil region via its wholly-owned subsidiary, Trio Petroleum Canada, Corp[19](index=19&type=chunk)[21](index=21&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) [NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202%20%E2%80%93SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the critical accounting principles and methods used in preparing the financial statements, ensuring transparency and consistency - The company's condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include its wholly-owned Canadian subsidiary, Trio Canada, with all significant intercompany transactions eliminated[27](index=27&type=chunk)[28](index=28&type=chunk) - Trio Petroleum applies the successful efforts method for oil and natural gas properties, capitalizing acquisition and successful drilling costs while expensing exploratory costs as incurred[42](index=42&type=chunk)[43](index=43&type=chunk) - Asset Retirement Obligations (ARO) are recorded at fair value for future plugging and abandonment expenses, with accretion expense recognized over time[50](index=50&type=chunk)[52](index=52&type=chunk) - Revenue from oil sales is recognized when control transfers to the customer at delivery, measured based on contract price, including adjustments for market differentials and downstream costs[55](index=55&type=chunk)[56](index=56&type=chunk) [NOTE 3 – GOING CONCERN AND MANAGEMENT'S LIQUIDITY PLANS](index=20&type=section&id=NOTE%203%20%E2%80%93%20GOING%20CONCERN%20AND%20MANAGEMENT'S%20LIQUIDITY%20PLANS) This note addresses the company's ability to continue operations, highlighting financial challenges and management's strategies to ensure liquidity - As of July 31, 2025, the company had a working capital deficit of **$679,729** and an accumulated deficit of **$24,639,679**, raising substantial doubt about its ability to continue as a going concern[76](index=76&type=chunk)[79](index=79&type=chunk) - The company has historically funded operations through equity and debt financings, including a recent **$1,020,000** convertible debt financing in August 2025[77](index=77&type=chunk)[78](index=78&type=chunk)[81](index=81&type=chunk) - Management plans to address liquidity by seeking additional capital through equity, debt, or strategic arrangements, but there is no assurance of future financing availability on acceptable terms[78](index=78&type=chunk) [NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS](index=20&type=section&id=NOTE%204%20%E2%80%93%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note details the company's revenue recognition policies and sources, primarily from oil sales, and factors influencing these revenues Revenue from Oil Sales | Period | July 31, 2025 (3 Months) | July 31, 2024 (3 Months) | July 31, 2025 (9 Months) | July 31, 2024 (9 Months) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Oil sales | $192,395 | $63,052 | $226,485 | $135,975 | - Revenue for the three months ended July 31, 2025, increased by **205.1%** year-over-year, primarily from oil sales in Saskatchewan, Canada[80](index=80&type=chunk)[208](index=208&type=chunk) - The company's revenue is concentrated in oil and gas sales from California, United States, and Saskatchewan, Canada, making it susceptible to regional regulations, market conditions, and commodity price fluctuations[82](index=82&type=chunk) [NOTE 5 – OIL AND NATURAL GAS PROPERTIES](index=21&type=section&id=NOTE%205%20%E2%80%93%20OIL%20AND%20NATURAL%20GAS%20PROPERTIES) This note provides information on the company's oil and natural gas assets, including acquisitions, abandonments, and related capitalized costs Oil and Gas Properties (Not Subject to Amortization) | Date | Balance | | :----------------------- | :-------------- | | July 31, 2025 | $12,155,186 | | October 31, 2024 | $11,119,119 | - Exploration costs for the three months ended July 31, 2025, showed a credit balance of **$(266)** due to the reversal of previously accrued costs for the abandoned McCool Ranch property[84](index=84&type=chunk)[209](index=209&type=chunk) - The company abandoned additional South Salinas Project leases and McCool Ranch Oil Field leases in fiscal 2025, expensing associated capitalized costs totaling **$111,149** and **$500,614**, respectively[87](index=87&type=chunk)[89](index=89&type=chunk) - Trio Canada acquired Novacor assets in Saskatchewan for **US$650,000** cash and **526,536** common shares, resulting in a total capitalized cost of **$1,406,081**[95](index=95&type=chunk)[96](index=96&type=chunk) - The option to acquire an additional **17.75%** interest in Asphalt Ridge leases expired unexercised, but the company retains its existing **2.25%** interest[93](index=93&type=chunk) [NOTE 6 – RELATED PARTY TRANSACTIONS](index=24&type=section&id=NOTE%206%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note details transactions between the company and its related parties, including joint ventures, debt, and stock-based compensation - Trio LLC operates the South Salinas Project, with the company holding an **85.775%** working interest and Trio LLC holding **3.8%**; the 'Due to Operators' balance decreased from **$103,146 to $29,740**[100](index=100&type=chunk) - The McCool Ranch Oil Field leases, previously acquired from Trio LLC, were terminated on May 27, 2025, resulting in a **$500,614** write-off of capitalized costs[101](index=101&type=chunk)[102](index=102&type=chunk) - Stock-based compensation for directors and executives includes RSUs and restricted shares, with significant awards to CEO Robin Ross (**100,000 RSUs**) and CFO Greg Overholtzer (**10,000 RSUs**) in fiscal 2025[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - The **$125,000** promissory note from former CEO Michael L. Peterson was fully paid off on November 25, 2024, for **$143,516**[110](index=110&type=chunk)[111](index=111&type=chunk) - The company provided a **$1,131,000** loan to its wholly-owned subsidiary, Trio Canada, with **$700,665** used for the Novacor acquisition and the remainder for operating costs[113](index=113&type=chunk)[114](index=114&type=chunk) [NOTE 7 – COMMITMENTS AND CONTINGENCIES](index=27&type=section&id=NOTE%207%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's contractual obligations, lease agreements, and potential legal or financial liabilities - The company is not currently subject to any material legal proceedings[116](index=116&type=chunk) - Unproved property leases in the South Salinas Project include an **8,417-acre** lease maintained by ongoing operations at the HV-3A well and a **160-acre** lease held by annual delay rental payments[117](index=117&type=chunk)[119](index=119&type=chunk) - All additional unproved leases in the South Salinas Project and all McCool Ranch leases were strategically terminated in fiscal 2025 due to economic viability concerns, with associated costs expensed[117](index=117&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk) - The option to acquire additional interest in Asphalt Ridge leases expired unexercised, but the company retains its existing **2.25%** interest[123](index=123&type=chunk) - The company acquired oil and gas lease rights for four proved properties totaling **320 net acres** in Saskatchewan, Canada, in April 2025, all held by production[124](index=124&type=chunk) - Non-employee directors receive an annual cash retainer of **$50,000** plus **$10,000** per committee, with total director compensation expense of **$80,007** and **$241,682** for the three and nine months ended July 31, 2025, respectively[125](index=125&type=chunk)[126](index=126&type=chunk) [NOTE 8 – NOTES PAYABLE](index=29&type=section&id=NOTE%208%20%E2%80%93%20NOTES%20PAYABLE) This note details the company's outstanding debt obligations, including promissory notes and convertible debt, and their settlement activities Notes Payable Summary | Note Type | July 31, 2025 | October 31, 2024 | | :-------------------------- | :------------ | :--------------- | | Promissory notes, net | $- | $742,852 | | Payable – related party | $- | $115,666 | | Convertible note, net | $865 | $- | | Note Payable, related party | $- | $135,000 | | Total Notes payable | $865 | $993,518 | - The March 2024 Investor Note (**$211,500** principal) was fully satisfied by November 30, 2024, through cash payments[131](index=131&type=chunk)[132](index=132&type=chunk) - The Peterson Note (**$125,000** principal) was paid off on November 25, 2024, for **$143,516**, including accrued interest[133](index=133&type=chunk)[135](index=135&type=chunk) - The June 2024 Convertible Debt (**$800,000** aggregate principal) was fully satisfied by January 7, 2025, through a combination of cash payments and common share conversions, resulting in recognized losses[136](index=136&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - The August 6, 2024 Financing note (**$255,225** principal) was extinguished on February 10, 2025, by exchanging **230,992** common shares, resulting in a **$141,534** loss on extinguishment[145](index=145&type=chunk)[147](index=147&type=chunk) - The April 2025 Convertible Note (**$712,941** aggregate principal) had an outstanding balance of **$865** as of July 31, 2025, after issuing **877,340** common shares for principal payments, leading to a **$528,054** recognized loss[150](index=150&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) [NOTE 9 – STOCKHOLDERS' EQUITY](index=33&type=section&id=NOTE%209%20%E2%80%93%20STOCKHOLDERS'%20EQUITY) This note provides details on changes in stockholders' equity, including common stock issuances, warrant activity, and amendments to authorized shares - The company issued **20,000** common shares for investor communications services (**$28,000** value) on January 1, 2025[154](index=154&type=chunk) - In February 2025, **230,992** common shares were issued to an investor to exchange an outstanding debt balance of **$285,852**, resulting in a **$141,534** loss on debt extinguishment[155](index=155&type=chunk) - **526,536** common shares were issued for **$747,681** in connection with the Novacor asset acquisition on April 11, 2025[156](index=156&type=chunk) - Between June 11 and June 23, 2025, **877,340** common shares were issued to an investor for convertible debt principal payments, resulting in a **$528,054** recognized loss[158](index=158&type=chunk) - Stockholders approved an amendment on July 30, 2025, to reduce authorized shares to **160,000,000** (**150,000,000** common, **10,000,000** preferred)[160](index=160&type=chunk) Warrant Activity (Nine Months Ended July 31, 2025) | Metric | Number of Warrants | Weighted Average Exercise Price | | :-------------------------- | :----------------- | :------------------------------ | | Outstanding, Nov 1, 2024 | 191,994 | $15.24 | | Expired | (20,000) | $30.00 | | Outstanding, July 31, 2025 | 171,994 | $13.52 | [NOTE 10 – SUBSEQUENT EVENTS](index=36&type=section&id=NOTE%2010%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued, impacting future financial position - Stanford Eschner resigned as Vice Chairman and director on August 1, 2025, and was engaged as a consultant, receiving **$4,267/month** and **15,000** common shares[169](index=169&type=chunk)[170](index=170&type=chunk) - CEO Robin Ross's annual base salary increased to **$400,000**, and he received a one-time award of **625,000** common shares and a **$150,000** cash bonus on August 1, 2025[171](index=171&type=chunk)[172](index=172&type=chunk) - CFO Gregory Overholtzer received a one-time award of **62,500** common shares on August 1, 2025[173](index=173&type=chunk) - Four non-employee board members received an aggregate of **850,000** common shares on August 1, 2025[174](index=174&type=chunk) - On August 15, 2025, the company completed a private placement of three unsecured convertible promissory notes for **$1,020,000** aggregate principal, with net proceeds of **$928,600** for working capital[175](index=175&type=chunk)[176](index=176&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three and nine months ended July 31, 2025, compared to the prior year [Overview](index=39&type=section&id=Overview) This overview introduces Trio Petroleum's business, strategic shifts, and current operational focus across its various projects - Trio Petroleum is an oil and gas exploration and development company with operations in California, Utah, and Saskatchewan, Canada[184](index=184&type=chunk) - The company has shifted its strategic focus from California to more economically viable opportunities in Canada and Utah due to rising drilling costs and negative profitability impacts in California[188](index=188&type=chunk) - Current focus is on aggressively growing Canadian assets through workovers and acquiring projects that generate immediate cash flow or offer transformative growth potential, such as the PR Spring option in Utah[186](index=186&type=chunk)[203](index=203&type=chunk) [South Salinas Project](index=40&type=section&id=South%20Salinas%20Project) This section details the progress and challenges at the South Salinas Project, including permitting, production testing, and new initiatives - Efforts are progressing to obtain conditional use permits and a full field development permit from Monterey County, and a water disposal project permit from CalGEM and California Water Boards[190](index=190&type=chunk)[203](index=203&type=chunk) - Production testing at the HV-3A discovery well in Presidents Field was restarted on March 22, 2024, but is currently idled pending assessment of increasing gross production rate and joint venture discussions[190](index=190&type=chunk)[203](index=203&type=chunk) - The company is taking initial steps to launch a Carbon Capture and Storage (CCS) project at the South Salinas Project, utilizing deep geologic zones and existing wells for CO2 injection[197](index=197&type=chunk) [McCool Ranch Oil Field](index=40&type=section&id=McCool%20Ranch%20Oil%20Field) This section explains the termination of operations at McCool Ranch due to economic unfeasibility and the resulting write-off of capitalized costs - Operations at the McCool Ranch Oil Field were terminated on May 27, 2025, and all related leases abandoned due to high natural gas prices and water disposal costs making cyclic-steam operations economically unfeasible[192](index=192&type=chunk) - Capitalized costs totaling **$500,614** related to the McCool Ranch acquisition, refurbishment, and production restart were written off and expensed in the statement of operations[192](index=192&type=chunk) [Asphalt Ridge Option Agreement and the Lafayette Energy Leasehold Acquisition and Development Option Agreement](index=40&type=section&id=Asphalt%20Ridge%20Option%20Agreement%20and%20the%20Lafayette%20Energy%20Leasehold%20Acquisition%20and%20Development%20Option%20Agreement) This section discusses the company's interest in the Asphalt Ridge leases, including the initial acquisition and the expiration of an additional option - The company acquired an initial **2.25%** working interest in the Asphalt Ridge leases for **$225,000**, with funds designated for infrastructure development[193](index=193&type=chunk)[194](index=194&type=chunk) - The option to acquire an additional **17.75%** working interest in the Asphalt Ridge leases expired unexercised, but the company retains its existing **2.25%** interest[194](index=194&type=chunk) [Novacor Asset Purchase Agreement](index=41&type=section&id=Novacor%20Asset%20Purchase%20Agreement) This section details the acquisition of oil and gas assets in Saskatchewan, Canada, and plans for increasing production from these new properties - On April 4, 2025, Trio Canada acquired oil and gas assets in the Lloydminster, Saskatchewan heavy oil region from Novacor for **US$650,000** cash and **526,536** common shares[195](index=195&type=chunk) - All five of the company's currently active wells are located in the newly acquired Novacor property, with plans to potentially double production through workovers[186](index=186&type=chunk)[195](index=195&type=chunk) [P.R. Spring Letter of Intent and Option](index=41&type=section&id=P.R.%20Spring%20Letter%20of%20Intent%20and%20Option) This section describes the non-binding letter of intent for a potential acquisition in Utah and the associated production conditions - The company entered a non-binding LOI on May 15, 2025, for the potential acquisition of **2,000 acres** at P.R. Spring, Utah, for **1,492,272** restricted shares and **$850,000** cash, subject to definitive agreements[196](index=196&type=chunk) - The LOI includes a condition requiring a minimum sustained production rate of **40 barrels per day** for **30 continuous days** from two wells at Asphalt Ridge by May 15, 2026[196](index=196&type=chunk) [Carbon Capture and Storage Project as part of Company's South Salinas Project](index=41&type=section&id=Carbon%20Capture%20and%20Storage%20Project%20as%20part%20of%20Company's%20South%20Salinas%20Project) This section outlines the company's initiative to develop a Carbon Capture and Storage (CCS) project at its South Salinas Project - The company is initiating a Carbon Capture and Storage (CCS) project at the South Salinas Project, leveraging deep geologic zones and existing wells for CO2 injection[197](index=197&type=chunk) - The project aims to reduce the company's carbon footprint and potentially establish a CO2 storage or Direct Air Capture (DAC) hub, with discussions ongoing with third parties[197](index=197&type=chunk) [Going Concern Considerations](index=41&type=section&id=Going%20Concern%20Considerations) This section addresses the company's financial viability, highlighting recurring losses and the need for additional capital to sustain operations - The company's recurring losses, accumulated deficit of **$24,639,679**, and working capital deficit of **$679,729** as of July 31, 2025, raise substantial doubt about its ability to continue as a going concern[198](index=198&type=chunk)[199](index=199&type=chunk) - Net losses for the three and nine months ended July 31, 2025, were **$1,386,723** and **$4,566,000**, respectively, with **$2,015,896** cash used in operating activities[198](index=198&type=chunk) - Future operations and development activities are dependent on securing additional capital through equity or debt financings, with no assurance of availability on favorable terms[199](index=199&type=chunk)[200](index=200&type=chunk) [Factors and Trends Affecting Our Business and Results of Operations](index=42&type=section&id=Factors%20and%20Trends%20Affecting%20Our%20Business%20and%20Results%20of%20Operations) This section discusses external and internal factors influencing the company's performance and outlines its primary business strategies - Global economic trends, commodity price fluctuations, political considerations, and tariffs can impact cash flow and profitability, though the company benefits from relatively low lift costs and cost management[202](index=202&type=chunk) - Primary business strategies include aggressive growth of Canadian assets, acquiring cash-flow-generating projects, and pursuing transformative growth opportunities like the PR Spring option in Utah[203](index=203&type=chunk) - At the South Salinas Project, the strategy is to seek a joint venture partner, secure water disposal permits to reduce operating costs, and pursue full field development permits[203](index=203&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, comparing revenues, expenses, and net loss across reporting periods Key Financial Results (Three Months Ended July 31) | Metric | 2025 | 2024 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenues | $192,395 | $63,052 | $129,343 | 205.1% | | Cost of goods sold | $98,489 | $- | $98,489 | 100.0% | | Gross profit | $93,906 | $63,052 | $30,854 | 48.9% | | Total operating expenses | $768,932 | $1,573,242 | $(804,310) | (51.1)% | | Loss from Operations | $(675,026) | $(1,510,190) | $835,164 | (55.3)% | | Net loss | $(1,386,723) | $(2,178,571) | $791,848 | (36.3)% | Key Financial Results (Nine Months Ended July 31) | Metric | 2025 | 2024 | Change | % Change | | :--------------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenues | $226,485 | $135,975 | $90,510 | 66.6% | | Cost of goods sold | $107,751 | $- | $107,751 | 100.0% | | Gross profit | $118,734 | $135,975 | $(17,241) | (12.7)% | | Total operating expenses | $2,879,196 | $5,045,353 | $(2,166,157) | (42.9)% | | Loss from Operations | $(2,760,462) | $(4,909,378) | $2,148,916 | (43.8)% | | Net loss | $(4,566,000) | $(7,926,554) | $3,360,554 | (42.4)% | - Revenues for the three months ended July 31, 2025, increased by **$129,343 (205.1%)** due to sales from newly acquired Saskatchewan assets, while nine-month revenues increased by **$90,510 (66.6%)** from the same source[208](index=208&type=chunk)[216](index=216&type=chunk) - General and administrative expenses decreased by approximately **$0.7 million** for the three months and **$1.6 million** for the nine months ended July 31, 2025, driven by reductions in consulting, legal, professional fees, and salaries[211](index=211&type=chunk)[219](index=219&type=chunk) - Other expenses, net, for the three months increased slightly due to losses on common share issuances for debt payments and oil and gas property abandonment, partially offset by reduced non-cash interest expense[214](index=214&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's ability to meet its short-term and long-term financial obligations, including working capital and cash flow Working Capital (Deficiency) | Metric | July 31, 2025 | October 31, 2024 | | :-------------------------- | :------------ | :--------------- | | Current assets | $876,550 | $565,219 | | Current liabilities | $1,556,279 | $2,590,699 | | Working capital (deficiency) | $(679,729) | $(2,025,480) | - Working capital deficiency improved significantly from **$(2,025,480)** to **$(679,729)**, primarily due to a **$3.4 million** increase in cash from ATM offerings and a reduction in promissory notes and related party payables[223](index=223&type=chunk) Cash Flows (Nine Months Ended July 31) | Cash Flow Activity | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(2,015,896) | $118,642 | | Net cash used in investing activities | $(966,555) | $(1,138,561) | | Net cash provided by (used in) financing activities | $3,250,351 | $(248,898) | | Net change in cash | $298,420 | $(1,268,817) | - Operating activities used **$2.0 million** in cash in 2025, compared to **$0.1 million** provided in 2024, mainly due to the net loss[225](index=225&type=chunk) - Financing activities provided **$3.3 million** in cash in 2025, primarily from ATM common share issuances and convertible debt, a reversal from **$0.2 million** used in 2024[227](index=227&type=chunk) - The company believes existing cash and cash flow will be sufficient for not more than six months and will require additional capital through equity or debt financing to fund future activities[228](index=228&type=chunk) [Contractual Obligations and Commitments](index=47&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details the company's ongoing contractual responsibilities, including lease agreements and director compensation - The company holds unproved property leases in the South Salinas Project, including an **8,417-acre** lease maintained by HV-3A well operations and a **160-acre** lease with annual delay rental payments[229](index=229&type=chunk) - All additional unproved leases in the South Salinas Project and all McCool Ranch leases were terminated in fiscal 2025 due to economic viability concerns[230](index=230&type=chunk)[231](index=231&type=chunk) - The option for additional interest in Asphalt Ridge leases expired unexercised, but the company retains its **2.25%** working interest[234](index=234&type=chunk) - The company acquired oil and gas lease rights for four proved properties in Saskatchewan, Canada, in April 2025, all held by production[235](index=235&type=chunk) - Non-employee directors receive an annual cash retainer of **$50,000** plus **$10,000** per committee, with compensation payments commencing after the April 2023 IPO[236](index=236&type=chunk) [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section describes the key accounting policies and significant management judgments that materially impact the financial statements - The company applies the successful efforts method for oil and natural gas properties, capitalizing acquisition and successful drilling costs while expensing exploratory costs as incurred[242](index=242&type=chunk)[243](index=243&type=chunk) - Unproved oil and natural gas properties are capitalized and assessed periodically for impairment based on lease terms, drilling results, or future development plans[245](index=245&type=chunk)[246](index=246&type=chunk) - Asset Retirement Obligations (ARO) are recorded at fair value for future plugging and abandonment expenses, with accretion expense recognized over time[250](index=250&type=chunk) - Fair value measurements for non-recurring items like asset acquisitions and impairment assessments use Level 3 inputs, relying on significant management judgments and estimates for reserves, commodity prices, and costs[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Trio Petroleum Corp is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[259](index=259&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the company's disclosure controls and procedures, concluding they were effective as of July 31, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were deemed effective as of July 31, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[260](index=260&type=chunk) - No material changes in internal control over financial reporting occurred during the third fiscal quarter ended July 31, 2025[261](index=261&type=chunk) [PART II. OTHER INFORMATION](index=53&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers additional information not included in the financial statements, such as legal proceedings, risk factors, equity sales, and corporate governance matters [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) Trio Petroleum Corp is not currently subject to any legal proceedings - The company is not currently involved in any legal proceedings[263](index=263&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Amendment No. 3 to its Annual Report on Form 10-K/A for the year ended October 31, 2024 - No material changes to the risk factors were identified from those set forth in the 2024 Annual Report on Form 10-K/A[264](index=264&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds occurred during the quarterly period, except as previously reported in Current Reports on Form 8-K - No unregistered sales of equity securities or use of proceeds occurred during the quarter, other than those reported in Current Reports on Form 8-K[265](index=265&type=chunk) [Item 3. Defaults Upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Trio Petroleum Corp reported no defaults upon senior securities during the period - There were no defaults upon senior securities[266](index=266&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to Trio Petroleum Corp - Mine safety disclosures are not applicable to the company[267](index=267&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) At the Annual Meeting of Stockholders on July 30, 2025, all proposals were approved, and no directors or officers adopted or terminated Rule 10b5-1 trading arrangements - Stockholders approved all proposals at the Annual Meeting on July 30, 2025, including director elections, amendments to the Certificate of Incorporation and the 2022 Plan, and auditor ratification[268](index=268&type=chunk) - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended July 31, 2025[269](index=269&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications - The report includes various exhibits such as the Certificate of Amendment of Amended and Restated Certificate of Incorporation, CEO and CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents[270](index=270&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited condensed consolidated financial statements and accompanying notes for the period [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | August 3, 2025 | February 2, 2025 | Change | |:---|:---|:---|:---| | Total Assets | $278,043 | $313,942 | $(35,899) | | Total Liabilities | $84,923 | $109,559 | $(24,636) | | Total Shareholders' Equity | $193,120 | $204,383 | $(11,263) | [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | Change | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | Change | |:---|:---|:---|:---|:---|:---|:---| | Net Sales | $82,149 | $95,081 | $(12,932) | $167,465 | $188,652 | $(21,187) | | Gross Profit | $16,837 | $20,922 | $(4,085) | $35,838 | $40,294 | $(4,456) | | Operating (Loss) / Income | $(4,401) | $(3,149) | $(1,252) | $(7,965) | $(8,169) | $204 | | Net (Loss) / Income | $(3,277) | $(1,951) | $(1,326) | $(6,329) | $(6,042) | $(287) | | Basic EPS | $(0.31) | $(0.19) | $(0.12) | $(0.60) | $(0.57) | $(0.03) | | Diluted EPS | $(0.31) | $(0.19) | $(0.12) | $(0.60) | $(0.57) | $(0.03) | [Condensed Consolidated Statements of Comprehensive (Loss) / Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20%2F%20Income) Condensed Consolidated Statements of Comprehensive (Loss) / Income (in thousands) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Net (loss) / income | $(3,277) | $(1,951) | $(6,329) | $(6,042) | | Actuarial adjustments (net of tax) | $(34) | $(45) | $(68) | $(90) | | Total comprehensive (loss) / income | $(3,311) | $(1,996) | $(6,397) | $(6,132) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | Change | |:---|:---|:---|:---| | Net cash provided by operating activities | $18,107 | $5,314 | $12,793 | | Net cash used in investing activities | $(2,021) | $(808) | $(1,213) | | Net cash used in financing activities | $(21,560) | $(5,615) | $(15,945) | | Net decrease in cash and cash equivalents | $(5,474) | $(1,109) | $(4,365) | | Cash and cash equivalents - end of quarter | $821 | $42,050 | $(41,229) | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Balance at Feb 2, 2025 | Net loss (26 weeks) | Cash dividends paid | Restricted stock compensation (net) | Balance at Aug 3, 2025 | |:---|:---|:---|:---|:---|:---| | Common Stock Amount | $50,474 | - | - | $356 | $50,619 | | Retained Earnings | $153,336 | $(6,329) | $(5,011) | - | $141,996 | | Accumulated Other Comprehensive Income | $573 | $(68) | - | - | $505 | | Total Shareholders' Equity | $204,383 | $(6,329) | $(5,011) | $356 | $193,120 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The financial statements are prepared in accordance with SEC rules and GAAP, with management's opinion that all necessary adjustments for fair statement are included[21](index=21&type=chunk) - Operating results for interim periods may not be indicative of full fiscal year results[21](index=21&type=chunk) - The company is evaluating the impact of new FASB ASUs 2023-09 (Income Taxes) and 2024-03 (Disaggregation of income statement expenses), effective for fiscal 2026 and 2028, respectively[23](index=23&type=chunk)[24](index=24&type=chunk) [1. Preparation of Interim Financial Statements](index=9&type=section&id=1.%20Preparation%20of%20Interim%20Financial%20Statements) [2. Recently Adopted Accounting Policies](index=9&type=section&id=2.%20Recently%20Adopted%20Accounting%20Policies) [3. Accounts Receivable](index=10&type=section&id=3.%20Accounts%20Receivable) Accounts Receivable (in thousands) | Metric | August 3, 2025 | February 2, 2025 | |:---|:---|:---| | Gross accounts receivable | $47,132 | $64,344 | | Customer allowances | $(1,084) | $(1,019) | | Allowance for doubtful accounts | $(4,732) | $(5,127) | | Trade accounts receivable | $41,316 | $58,198 | [4. Inventories](index=10&type=section&id=4.%20Inventories) Inventories (in thousands) | Metric | August 3, 2025 | February 2, 2025 | |:---|:---|:---| | Finished furniture | $70,745 | $82,635 | | Furniture in process | $1,588 | $1,524 | | Materials and supplies | $11,574 | $11,229 | | Inventories at FIFO | $83,907 | $95,388 | | Reduction to LIFO basis | $(25,375) | $(24,633) | | Inventories | $58,532 | $70,755 | [5. Property, Plant and Equipment](index=10&type=section&id=5.%20Property,%20Plant%20and%20Equipment) Property, Plant and Equipment, Net (in thousands) | Metric | August 3, 2025 | February 2, 2025 | |:---|:---|:---| | Total depreciable property, net | $23,857 | $25,163 | | Land | $1,077 | $1,077 | | Construction-in-progress | $3,288 | $1,955 | | Property, plant and equipment, net | $28,222 | $28,195 | [6. Cloud Computing Hosting Arrangement](index=10&type=section&id=6.%20Cloud%20Computing%20Hosting%20Arrangement) - The company capitalized **$287,000** in implementation costs and interest for ERP and supply chain planning software in Q2 FY26, down from **$1.2 million** in Q2 FY25[31](index=31&type=chunk) - Amortization expense for these costs was **$368,000** in Q2 FY26, up from **$292,000** in Q2 FY25[31](index=31&type=chunk) Capitalized Implementation Costs (in thousands) | Metric | August 3, 2025 (Gross carrying amount) | August 3, 2025 (Accumulated amortization) | February 2, 2025 (Gross carrying amount) | February 2, 2025 (Accumulated amortization) | |:---|:---|:---|:---|:---| | Implementation Costs | $17,210 | $(2,287) | $16,782 | $(1,561) | | Interest Expenses | $720 | $(36) | $596 | $(27) | [7. Fair Value Measurements](index=11&type=section&id=7.%20Fair%20Value%20Measurements) - Company-owned life insurance is measured at fair value on a recurring basis using **Level 2 inputs**, with changes reflected in income each reporting period[33](index=33&type=chunk) Assets Measured at Fair Value (in thousands) | Description | Fair value at August 3, 2025 (Level 2) | Fair value at February 2, 2025 (Level 2) | |:---|:---|:---| | Company-owned life insurance | $30,157 | $29,238 | [8. Intangible Assets](index=12&type=section&id=8.%20Intangible%20Assets) - Amortization expenses for intangible assets with definite lives were **$872,000** in Q2 FY26 and **$1.8 million** for H1 FY26, with an expected **$1.7 million** for the remainder of fiscal 2026[37](index=37&type=chunk) Intangible Assets (in thousands) | Metric | August 3, 2025 (Gross carrying amount) | August 3, 2025 (Accumulated Amortization) | February 2, 2025 (Gross carrying amount) | February 2, 2025 (Accumulated Amortization) | |:---|:---|:---|:---|:---| | Goodwill | $15,036 | - | $15,036 | - | | Trademarks and Trade names (indefinite) | $5,180 | - | $5,180 | - | | Customer Relationships | $38,001 | $(24,029) | $38,001 | $(22,349) | | Trademarks and Trade names (definite) | $2,334 | $(1,164) | $2,334 | $(1,062) | | Intangible assets, net | $45,515 | $(25,193) | $45,515 | $(23,411) | [9. Leases](index=12&type=section&id=9.%20Leases) - The company entered an agreement to terminate the Georgia warehouse lease by October 31, 2025, expected to reduce right-of-use assets by **$10.1 million**, lease liabilities by **$10.7 million**, and lease payments by **$13.4 million**[40](index=40&type=chunk) Lease Costs (in thousands) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Total operating lease cost | $2,639 | $2,699 | $5,318 | $5,447 | | Operating cash outflows | $2,601 | $2,554 | $5,213 | $5,163 | Operating Leases Right-of-Use Assets and Liabilities (in thousands) | Metric | August 3, 2025 | February 2, 2025 | |:---|:---|:---| | Total operating leases right-of-use assets | $41,797 | $45,575 | | Total operating lease liabilities | $44,901 | $48,575 | [10. Long-Term Debt](index=13&type=section&id=10.%20Long-Term%20Debt) - The company entered an Amended and Restated Loan Agreement on December 5, 2024, providing a revolving credit facility of up to **$70 million**, with an option to increase by **$30 million**[41](index=41&type=chunk)[42](index=42&type=chunk) - The facility is secured by a first priority security interest in substantially all of the Borrowers' assets, excluding real estate[47](index=47&type=chunk) - As of August 3, 2025, outstanding loans were **$5.6 million**, letters of credit were **$6.7 million**, and availability was **$57.7 million**[51](index=51&type=chunk) [11. Earnings Per Share](index=15&type=section&id=11.%20Earnings%20Per%20Share) - Due to net losses, approximately **106,000 shares** (Q2 FY26) and **115,000 shares** (H1 FY26) were excluded from diluted EPS calculation as they would have been antidilutive[56](index=56&type=chunk) Earnings Per Share Calculation (in thousands, except per share data) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Net (loss) / income | $(3,277) | $(1,951) | $(6,329) | $(6,042) | | (Loss) / Earnings available for common shareholders | $(3,306) | $(1,992) | $(6,391) | $(6,124) | | Weighted average shares outstanding (Basic & Diluted) | 10,612 | 10,521 | 10,587 | 10,509 | | Basic (loss) / earnings per share | $(0.31) | $(0.19) | $(0.60) | $(0.57) | | Diluted (loss) / earnings per share | $(0.31) | $(0.19) | $(0.60) | $(0.57) | [12. Income Taxes](index=17&type=section&id=12.%20Income%20Taxes) - The differences in effective tax rates reflect the impacts of favorable tax adjustments, specifically the cash surrender value gain of company-owned life insurance, over expected pretax income in fiscal 2025 as opposed to an expected pretax loss in fiscal 2026 under the annualization method[57](index=57&type=chunk) Income Tax (Benefit) / Expense and Effective Tax Rate | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Income tax (benefit) / expense (in thousands) | $(1,203) | $85 | $(1,967) | $(731) | | Effective tax rate | 26.9% | -4.5% | 23.7% | 10.8% | [13. Segment Information](index=17&type=section&id=13.%20Segment%20Information) - The company's segments are Hooker Branded, Home Meridian, Domestic Upholstery, and All Other, with H Contract sales now included in Hooker Branded and Domestic Upholstery[62](index=62&type=chunk) Segment Net Sales (in thousands) | Segment | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | % Change | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | % Change | |:---|:---|:---|:---|:---|:---|:---| | Hooker Branded | $36,250 | $35,785 | 1.3% | $73,359 | $72,593 | 1.1% | | Home Meridian | $16,932 | $30,516 | -44.5% | $35,742 | $56,940 | -37.2% | | Domestic Upholstery | $28,677 | $28,556 | 0.4% | $57,590 | $58,583 | -1.7% | | All Other | $290 | $224 | 29.5% | $774 | $536 | 44.4% | | **Consolidated** | **$82,149** | **$95,081** | **-13.6%** | **$167,465** | **$188,652** | **-11.2%** | Segment Operating (Loss) / Income (in thousands) | Segment | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | % Change | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | % Change | |:---|:---|:---|:---|:---|:---|:---| | Hooker Branded | $10 | $(329) | 103.0% | $37 | $(150) | 124.7% | | Home Meridian | $(3,916) | $(896) | -337.1% | $(6,754) | $(4,169) | -62.0% | | Domestic Upholstery | $(408) | $(1,285) | 68.2% | $(1,004) | $(2,593) | 61.3% | | All Other | $(87) | $(639) | 86.4% | $(244) | $(1,257) | 80.6% | | **Consolidated** | **$(4,401)** | **$(3,149)** | **-39.8%** | **$(7,965)** | **$(8,169)** | **2.5%** | [14. Subsequent Events](index=19&type=section&id=14.%20Subsequent%20Events) - On September 9, 2025, the board of directors declared a quarterly cash dividend of **$0.23 per share**, payable on September 30, 2025[68](index=68&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial performance, condition, liquidity, and future outlook for the period [Forward-Looking Statements](index=21&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially, including adverse political acts, general economic conditions, asset impairment, and industry cyclicality[70](index=70&type=chunk) - Key risks include challenges in international markets, macroeconomic uncertainties affecting consumer spending, and risks associated with cost reduction plans and the Home Meridian segment restructuring[70](index=70&type=chunk) - Other risks involve reliance on offshore sourcing, supply chain disruptions, information system security breaches, and the terms of the Amended and Restated Loan Agreement[71](index=71&type=chunk) [Quarterly Reporting](index=23&type=section&id=Quarterly%20Reporting) - This report covers the unaudited condensed consolidated financial statements for the 2026 fiscal year's thirteen-week and twenty-six-week periods ending August 3, 2025, compared to the corresponding periods in fiscal 2025[76](index=76&type=chunk) [Overview](index=23&type=section&id=Overview) - Hooker Furnishings Corporation is a designer, marketer, and importer of casegoods, leather, fabric-upholstered furniture, lighting, accessories, and home décor for residential, hospitality, and contract markets, also manufacturing premium domestic custom furniture[80](index=80&type=chunk)[81](index=81&type=chunk) [Orders and Backlog](index=25&type=section&id=Orders%20and%20Backlog) - Consolidated order backlog decreased by **2.8%** from fiscal year-end, driven by Home Meridian's decline due to macroeconomic pressures, tariff-related buying hesitancy, and a major customer's bankruptcy[84](index=84&type=chunk) - Domestic Upholstery backlog rose nearly **7%** compared to both year-end and prior-year quarter-end, while Hooker Branded's backlog increased nearly **20%** from year-end, supported by a **10.6%** rise in incoming orders[85](index=85&type=chunk) Order Backlog (in thousands) | Reporting Segment | August 3, 2025 | February 2, 2025 | July 28, 2024 | |:---|:---|:---|:---| | Hooker Branded | $15,701 | $13,109 | $15,895 | | Home Meridian | $16,138 | $21,002 | $43,918 | | Domestic Upholstery | $19,313 | $18,123 | $18,066 | | All Other | $- | $402 | $- | | **Consolidated** | **$51,152** | **$52,636** | **$77,879** | [Executive Summary](index=26&type=section&id=Executive%20Summary) - The home furnishings industry faced challenges in Q2 FY26 due to low existing home sales, elevated mortgage rates, and persistent inflation, leading to reduced consumer demand[86](index=86&type=chunk) - Home Meridian's net sales declined by **44.5%** in Q2 FY26, and gross margin decreased by **1,330 bps**, primarily due to macroeconomic pressures, tariff-related buying hesitancy, and the loss of a major customer[87](index=87&type=chunk) - Hooker Branded and Domestic Upholstery segments showed modest net sales recovery in Q2 FY26, though sales volumes remain historically low due to housing market weakness[88](index=88&type=chunk) - The company recorded a consolidated net loss of **$3.3 million** (or **$0.31 per diluted share**) for Q2 FY26, compared to a **$2.0 million** net loss (or **$0.19 per diluted share**) in the prior-year quarter[88](index=88&type=chunk) [Multi-Phased Cost Reduction Initiatives](index=26&type=section&id=Multi-Phased%20Cost%20Reduction%20Initiatives) - The company aims for approximately **$25 million** in annualized cost savings by fiscal year 2027 through a multi-phase cost reduction strategy[89](index=89&type=chunk) - In H1 FY26, **$3.7 million** in savings were achieved, despite **$1.7 million** in restructuring charges[89](index=89&type=chunk) - Phase 2 actions include closing the Savannah warehouse by October 31, 2025, and operating a new Vietnam warehouse, which has reduced direct container lead times from six months to four to six weeks[94](index=94&type=chunk) - Total fixed costs are expected to reduce by approximately **$25 million** (nearly **25%**), with **$11 million** from warehousing/distribution and **$14 million** from S&A expenses[92](index=92&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated Performance Metrics (% of Net Sales) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Net sales | 100% | 100% | 100% | 100% | | Cost of sales | 79.5% | 78.0% | 78.6% | 78.6% | | Gross profit | 20.5% | 22.0% | 21.4% | 21.4% | | Selling and administrative expenses | 24.8% | 24.3% | 25.1% | 24.7% | | Operating (loss)/income | (5.4)% | (3.3)% | (4.8)% | (4.3)% | | Net (loss)/income | (4.0)% | (2.1)% | (3.8)% | (3.2)% | [Consolidated Net Sales](index=28&type=section&id=Consolidated%20Net%20Sales) - Consolidated net sales decreased by **$12.9 million (13.6%)** in Q2 FY26 and **$21.2 million (11.2%)** for H1 FY26, mainly due to Home Meridian's decline[98](index=98&type=chunk) - Home Meridian's net sales decreased by **44.5%** in Q2 FY26, with **40%** from hospitality timing, **35%** from macroeconomic pressures/tariffs, and **25%** from a major customer's bankruptcy[101](index=101&type=chunk) - Consolidated average selling price (ASP) increased due to a favorable product mix shift, as lower-priced Home Meridian unit volume declined by **37.7%** in Q2 and **36.7%** for H1[99](index=99&type=chunk) [Consolidated Gross Profit](index=29&type=section&id=Consolidated%20Gross%20Profit) - Consolidated gross profit decreased by **$4.1 million** in Q2 FY26, and gross margin declined by **150 bps**, mainly due to Home Meridian's lower profitability[102](index=102&type=chunk) - Home Meridian's gross profit decreased by **$4.9 million** in Q2 FY26, and gross margin decreased by **1,330 bps** due to reduced sales, unfavorable product mix, increased warehousing/distribution expenses, and inventory liquidation losses[104](index=104&type=chunk) - Domestic Upholstery's gross profit increased by **$659,000** in Q2 FY26, with gross margin rising by **220 bps**, driven by consistent material costs and reduced labor/indirect costs[104](index=104&type=chunk) [Consolidated Selling and Administrative Expenses](index=30&type=section&id=Consolidated%20Selling%20and%20Administrative%20Expenses) - Consolidated S&A expenses decreased by **$2.8 million** in Q2 FY26 and **$4.6 million** in H1 FY26, driven by cost-reduction and restructuring plans across all segments[103](index=103&type=chunk) - As a percentage of net sales, S&A expenses increased in both periods due to the overall decline in net sales[103](index=103&type=chunk) - Home Meridian's S&A expenses decreased by **$1.9 million** in Q2 and **$3.0 million** in H1, but as a percentage of net sales, they increased by **610 bps** and **500 bps**, respectively, due to under-absorption from lower sales volumes[109](index=109&type=chunk) [Intangible Asset Amortization](index=31&type=section&id=Intangible%20Asset%20Amortization) - Intangible asset amortization decreased for Q2 FY26 and H1 FY26 compared to prior-year periods due to the full amortization of the Sam Moore trade name[106](index=106&type=chunk) [Consolidated Operating (Loss) / Profit](index=31&type=section&id=Consolidated%20Operating%20(Loss)%20%2F%20Profit) - The Q2 FY26 operating loss of **$4.4 million** was higher than the prior year's **$3.1 million** loss, driven by **$2.0 million** in restructuring costs and Home Meridian's weakness[107](index=107&type=chunk) - Domestic Upholstery significantly reduced its operating loss by **$877,000 (68%)** in Q2 FY26 despite **$152,000** in restructuring costs[88](index=88&type=chunk) Operating (Loss) / Income (in thousands) | Segment | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | % Change | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | % Change | |:---|:---|:---|:---|:---|:---|:---| | Hooker Branded | $10 | $(329) | 103.0% | $37 | $(150) | 124.7% | | Home Meridian | $(3,916) | $(896) | -337.1% | $(6,754) | $(4,169) | -62.0% | | Domestic Upholstery | $(408) | $(1,285) | 68.2% | $(1,004) | $(2,593) | 61.3% | | All Other | $(87) | $(639) | 86.4% | $(244) | $(1,257) | 80.6% | | **Consolidated** | **$(4,401)** | **$(3,149)** | **-39.8%** | **$(7,965)** | **$(8,169)** | **2.5%** | [Consolidated Income Taxes](index=31&type=section&id=Consolidated%20Income%20Taxes) - The differences in effective tax rates reflect the impacts of favorable tax adjustments, specifically the cash surrender value gain of company-owned life insurance, over expected pretax income in fiscal 2025 as opposed to an expected pretax loss in fiscal 2026 under the annualization method[110](index=110&type=chunk) Income Tax (Benefit) / Expense and Effective Tax Rate | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Income tax (benefit) / expense (in thousands) | $(1,203) | $85 | $(1,967) | $(731) | | Effective tax rate | 26.9% | -4.5% | 23.7% | 10.8% | [Consolidated Net (Loss) / Income](index=32&type=section&id=Consolidated%20Net%20(Loss)%20%2F%20Income) Net (Loss) / Income (in thousands, except per share data) | Metric | 13 Weeks Ended Aug 3, 2025 | 13 Weeks Ended Jul 28, 2024 | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---|:---|:---| | Net (loss) / income | $(3,277) | $(1,951) | $(6,329) | $(6,042) | | Diluted (loss) / earnings per share | $(0.31) | $(0.19) | $(0.60) | $(0.57) | [Outlook](index=32&type=section&id=Outlook) - The company is focused on scaling its cost structure for profitability, preparing for the October debut of the Margaritaville collection, and pursuing growth in hospitality, contract, and outdoor channels, supported by the new Vietnam warehouse[114](index=114&type=chunk) - Home Meridian's fixed cost structure is expected to be aligned by the end of Q3 FY25, positioning it for significantly enhanced performance by the end of the current fiscal year, barring disruptive events[113](index=113&type=chunk) - Hooker Legacy orders showed encouraging momentum in July, with Hooker Branded orders up nearly **11%** and Domestic Upholstery up **1.6%** for the quarter, despite industry headwinds[112](index=112&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=33&type=section&id=Financial%20Condition,%20Liquidity%20and%20Capital%20Resources) - Operating cash flow increased significantly due to **$17.1 million** from trade receivable collections and **$12.2 million** from inventory reductions, particularly in Hooker Branded and Home Meridian[118](index=118&type=chunk) - Financing activities used **$21.6 million**, primarily due to **$16.5 million** in repayments on the revolving credit facility[117](index=117&type=chunk) Cash Flow Summary (in thousands) | Metric | 26 Weeks Ended Aug 3, 2025 | 26 Weeks Ended Jul 28, 2024 | |:---|:---|:---| | Net cash provided by operating activities | $18,107 | $5,314 | | Net cash used in investing activities | $(2,021) | $(808) | | Net cash used in financing activities | $(21,560) | $(5,615) | | Net decrease in cash and cash equivalents | $(5,474) | $(1,109) | [Cash Flows – Operating, Investing and Financing Activities](index=33&type=section&id=Cash%20Flows%20%E2%80%93%20Operating,%20Investing%20and%20Financing%20Activities) [Liquidity, Financial Resources and Capital Expenditures](index=33&type=section&id=Liquidity,%20Financial%20Resources%20and%20Capital%20Expenditures) - The company's financial resources include available cash and cash equivalents, expected cash flow from operations, available lines of credit, and cash surrender value of Company-owned life insurance[119](index=119&type=chunk) - Short-term cash requirements primarily fund operations, quarterly dividend payments, and capital expenditures for ERP, showroom renovations, and system upgrades[121](index=121&type=chunk) [Loan Agreements and Revolving Credit Facility](index=35&type=section&id=Loan%20Agreements%20and%20Revolving%20Credit%20Facility) - The company entered an Amended and Restated Loan Agreement on December 5, 2024, providing a revolving credit facility of up to **$70 million**, with an option to increase by **$30 million**[122](index=122&type=chunk)[123](index=123&type=chunk) - The facility is secured by a first priority security interest in substantially all of the Borrowers' assets, excluding real estate[127](index=127&type=chunk) - As of August 3, 2025, outstanding loans were **$5.6 million**, letters of credit were **$6.7 million**, and availability was **$57.7 million**[131](index=131&type=chunk) [Capital Expenditures](index=36&type=section&id=Capital%20Expenditures) - The company expects to spend approximately **$1 to $2 million** in capital expenditures for the remainder of fiscal 2026 to maintain and enhance operating systems and facilities[132](index=132&type=chunk) [Enterprise Resource Planning Project](index=36&type=section&id=Enterprise%20Resource%20Planning%20Project) - The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023[133](index=133&type=chunk) [Dividends](index=36&type=section&id=Dividends_FinancialCondition) - On September 9, 2025, the board of directors declared a quarterly cash dividend of **$0.23 per share**, payable on September 30, 2025[134](index=134&type=chunk) [Critical Accounting Policies](index=36&type=section&id=Critical%20Accounting%20Policies) - There have been no material changes to the company's critical accounting policies and estimates from those provided in the 2025 Annual Report[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Outlines the company's exposure to interest rate, raw material price, and foreign currency risks - The company is exposed to interest rate risk on its variable-rate debt, raw materials price risk (wood, fabric, foam), and foreign currency risk for imported products[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) - A **1% increase** in the SOFR rate would result in an annual increase of approximately **$56,000** in interest expenses at current borrowing levels[137](index=137&type=chunk) - The company generally negotiates firm pricing in USD with foreign suppliers for at least one year and does not use derivative financial instruments to manage currency risk[139](index=139&type=chunk) [Interest Rate Risk](index=36&type=section&id=Interest%20Rate%20Risk) [Raw Materials Price Risk](index=37&type=section&id=Raw%20Materials%20Price%20Risk) [Currency Risk](index=37&type=section&id=Currency%20Risk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective and reported no material changes in internal control - Management concluded that disclosure controls and procedures were **effective** as of August 3, 2025[141](index=141&type=chunk) - **No material changes** in internal control over financial reporting occurred during the fiscal quarter ended August 3, 2025[142](index=142&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) PART II. OTHER INFORMATION [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) Confirms no director or officer trading arrangements were adopted, terminated, or modified during the quarter - No director or officer adopted, terminated, or modified a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended August 3, 2025[145](index=145&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including certifications and interactive data files - The exhibits include the company's Articles of Incorporation, Amended and Restated Bylaws, Rule 13a-14(a) and 13a-14(b) certifications, and Interactive Data Files (Inline XBRL)[145](index=145&type=chunk)