Leslie's, Inc.: Form 10-Q for the period ended Jul 4, 2026

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025, elsewhere in this Quarterly Report on Form 10-Q, and in our other filings with the SEC.

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended July 4, 2026 and June 28, 2025 refer to the 13 weeks ended July 4, 2026 and June 28, 2025. References to the nine months ended July 4, 2026 and June 28, 2025 refer to the 39 weeks ended July 4, 2026 and June 28, 2025.

Our Company

Founded in 1963 by Phil Leslie Jr. in Southern California, the Company today known simply as “Leslie’s” has over six decades of disruptive retail innovation in the $15 billion U.S. pool and spa care industry. Today, we are the largest and most trusted direct-to-consumer brand in our segment, serving residential consumers and pool professionals, and many of the largest commercial property operators in the country. With over 900 retail locations, an integrated, digitally forward omnichannel strategy, and a horizontally integrated, nationwide ecosystem under the Leslie’s and In the Swim® brands, among others, we have built a market-leading share of residential aftermarket product spend, based on 2024 industry analyst reports, and a physical network larger than the sum of our 20 largest competitors. We offer an extensive assortment of professional-grade products, the majority of which are exclusive to Leslie’s, manufacturer certified installation and repair services, and in some markets, weekly pool maintenance services. Our dedicated, knowledgeable team of associates, pool and spa care experts, and experienced service technicians, are passionate about empowering every single Leslie’s customer with the knowledge, products, and solutions necessary to confidently maintain and thoroughly enjoy their pools and spas. The considerable scale of our integrated marketing and distribution ecosystem, which is powered by our direct-to-consumer network, uniquely enables us to efficiently reach and service nearly every pool and spa in the continental United States.

We operate primarily in the pool and spa aftermarket industry, a fundamentally attractive category in retail, given its scale, historical predictability, and growth outlook. A majority of our product assortment is comprised of products essential to the care of residential and commercial pools and spas. This includes chemicals, new and replacement parts, cleaning and maintenance equipment, safety, recreational, and fitness-related products. We also offer important essential services, such as equipment installation and repair for residential and commercial customers. We have relationships with professional pool operators from major hotel and apartment owners to municipal, county and state governments, all the way to sole proprietors. In addition to a strong consumer and commercial retail and service presence, we operate a wholesale specialty pool and spa parts distribution business, giving us unique access to hard-to-find specialty parts; an integrated manufacturing plant, giving us vertical scale and competitive cost on parts of our chemical assortment; and a regionally located, hub-and-spoke distribution system throughout the continental United States.

We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue® system, leading to increased consumer engagement, conversion, basket size, and loyalty, resulting in higher lifetime value. Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the recreational pool and spa industry. We then brought AccuBlue® direct to pool owners’ backyards with AccuBlue Home®, a pioneering app-enabled water testing device. These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us.

Key Factors and Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“SG&A”), impairment, and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings (loss) per share.

Sales

We offer a broad range of products that consists of regularly purchased, essential pool and spa maintenance items such as chemicals, equipment, cleaning accessories and parts, as well as installation and repair services for pool and spa equipment. Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers and encouraging repeat visits from our existing consumers. Revenue from merchandise sales at retail locations is recognized at the point of sale, revenue from services is recognized when the services are rendered, and revenue from e-commerce merchandise sales is generally recognized upon shipment of the merchandise. Revenue is recorded net of related discounts and sales tax. Payment from retail customers is generally at the point of sale and payment terms for professional pool operator customers are based on our credit requirements and generally have terms of less than 60 days. When we receive payment from a consumer before the consumer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue or as a customer deposit until the sale or service is complete. Sales are impacted by weather, seasonality, product mix and availability, promotional and competitive activities, and the spending habits of our consumers, as well as inflation and interest rates. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.

Comparable Sales and Comparable Sales Growth

We measure comparable sales growth as the increase or decrease in sales recorded by the comparable base in any reporting period, compared to sales recorded by the comparable base in the prior reporting period. The comparable base includes sales through our locations and through our e-commerce websites and third-party marketplaces. Comparable sales growth is a key measure used by management and our board of directors to assess our financial performance.

We consider a new or acquired location comparable in the first full month after it has completed one year of sales. Closed locations become non-comparable during their last partial month of operation. Locations that are relocated are considered comparable at the time the relocation is complete. Comparable sales is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies.

The number of new locations reflects the number of locations opened during a particular reporting period. New locations require an initial capital investment in location buildouts, fixtures, and equipment, which we amortize over time as well as cash required for inventory.

As of July 4, 2026, we operated 943 locations in 38 states across the United States. We owned 27 locations and leased the remainder of our locations. Our initial lease terms are typically five years with options to renew for multiple successive five-year periods. We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review the performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability. Our limited investment costs in individual locations and our ability to transfer sales to our extensive network of remaining locations and e-commerce websites allows us to improve profitability as a result of any strategic closures.

Gross Profit and Gross Margin

Gross profit is equal to our sales less our cost of merchandise and services sold. Cost of merchandise and services sold reflects the direct cost of purchased merchandise, costs to package certain chemical products, including direct materials and labor, costs to provide services, including labor and materials, as well as distribution and occupancy costs. The direct cost of purchased merchandise includes vendor rebates. We recognize vendor rebates based on an estimated recognition pattern using historical data. Distribution costs include warehousing and transportation expenses, including costs associated with third-party fulfillment centers used to ship merchandise to our e-commerce consumers. Occupancy costs include the rent, common area maintenance, real estate taxes, and depreciation and amortization costs of all retail locations. These costs are significant and are expected to continue to increase proportionate to our growth.

Gross margin is gross profit as a percentage of our sales. Gross margin is impacted by merchandise costs, pricing and promotions, product mix and availability, inflation, and service costs, which can vary. Our proprietary brands, custom-formulated products, and vertical integration provide us with cost savings, as well as greater control over product availability and quality as compared to other companies in the industry. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in sales. The components of our cost of merchandise and services sold may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

Selling, General, and Administrative Expenses

Our SG&A includes selling and operating expenses across our retail locations and digital platform, and our corporate-level general and administrative expenses. Selling and operating expenses at retail locations include payroll, bonus and benefit costs for personnel, supplies, and credit and debit card processing costs. Corporate expenses include payroll, bonus, and benefit costs for our corporate and field support functions, equity-based compensation, marketing and advertising, insurance, utilities, occupancy costs related to our corporate office facilities, professional services, and depreciation and amortization for all assets, except those related to our retail locations and distribution operations, which are included in cost of merchandise and services sold. Selling and operating expenses generally vary proportionately with sales and the change in the number of locations. In contrast, general and administrative expenses are generally not directly proportional to sales and the change in the number of locations but may increase over time to support our growth and public company obligations. The components of our SG&A may not be comparable to the components of similar measures of other companies.

Impairment

Impairment is non-cash charges resulting from a decline in our operating results and store performance. These charges were due to the carrying value of our store assets being greater than the fair value in the case of asset impairment.

Operating Income (Loss)

Operating income (loss) is gross profit less SG&A and impairment. Operating income (loss) excludes interest expense and income tax expense (benefit). We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest (including amortization of debt issuance costs), taxes, depreciation and amortization, equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, and other non-recurring, non-cash, or discrete items. Adjusted EBITDA is a key measure used by management and our board of directors to assess our financial performance. Adjusted EBITDA is also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other companies using similar measures.

Adjusted EBITDA is not a recognized measure of financial performance under GAAP but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance in isolation from, or as a substitute for, net loss, cash flows from operations or cash flow data, all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share

Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings (loss) per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

Factors Affecting the Comparability of our Results of Operations

Our reported results have been affected by, among other events, the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.

Impact of Macroeconomic Events and Uncertainties

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts (including the ongoing conflict in Ukraine, the conflicts in the Middle East, and the related impacts on commodity prices, including the price of oil), tariffs, supply chain disruptions, labor market constraints, high rates of inflation, high interest rates, general economic slowdown, and potential failures among financial institutions. New or increased tariffs and other barriers to trade, especially in light of comments and executive orders made by the U.S. presidential administration, could further impact or exacerbate these conditions. The United States has announced tariffs on imports from most countries, including significant tariffs on imports from Canada, Mexico and China. In response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. There is substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended, and the impacts of such actions on the Company’s business. Significant disruption to our supply chain for products we sell or increased costs (including in the cost of oil), as a result of geopolitical conflict, tariffs or trade policies or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation, tariffs, and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high-ticket items, which can result in corresponding declines in sales and/or gross profit.

Additional uncertainties that can impact our results of operations are consumer purchasing patterns and consumer cost-consciousness. In the past, we believe some customers stockpiled chemicals, resulting in unexpected changes in demand. As a result of such behavior, our revenue may be higher than normal during the periods of stockpiling and may be lower than normal during the periods after stockpiling has occurred.

Reverse Stock Split

On September 10, 2025, our shareholders approved a series of amendments to our Seventh Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”). On September 26, 2025, we filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect a reverse stock split of our common stock at a ratio of 1-for-20 (the “Reverse Stock Split”) and proportionately decrease the number of authorized shares of the Company’s common stock, which became effective upon filing (the “Effective Time”). The Company’s common stock began trading on a Reverse Stock Split-adjusted basis on Nasdaq as of the open of trading on September 29, 2025 under the existing ticker symbol “LESL”. The Company’s common stock is now represented by a new CUSIP number, 527064 208.

As a result of the Reverse Stock Split, every 20 shares of our common stock issued and outstanding as of the Effective Time of the Reverse Stock Split was automatically converted into one share of common stock. No fractional shares were issued as a result of the Reverse Stock Split. The Company’s transfer agent aggregated all fractional shares of common stock that would otherwise have been issuable as a result of the Reverse Stock Split and sold them at the then prevailing prices on the open market on behalf of those shareholders who would otherwise be entitled to receive such fractional shares. Shareholders who otherwise would be entitled to receive fractional shares received their respective pro rata share of the total proceeds of such sale.

In addition, as of the Effective Time and as a result of the Reverse Stock Split, proportionate adjustments were made in accordance with the terms of the Company’s 2020 Omnibus Incentive Plan (the “Incentive Plan”), with respect to the number of shares of common stock issuable under outstanding stock options, restricted stock units and performance units, and any other equity-based awards, the per-share exercise price with respect to such awards, and the number of shares of common stock reserved for future issuance under the Incentive Plan.

All share and per share amounts presented herein have been retroactively adjusted to reflect the Reverse Stock Split for all periods.

Results of Operations

We derived our consolidated statements of operations for the three and nine months ended July 4, 2026 and June 28, 2025 from our consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts and percentages):

(1) Components may not add to totals due to rounding.

(2) See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors and Measures We Use to Evaluate Our Business.”

(3) The tables below provide a reconciliation from our net income (loss) to Adjusted EBITDA and net income (loss) to Adjusted net income (loss) for the three and nine months ended July 4, 2026 and June 28, 2025 (in thousands). Adjusted net income (loss) reported for the three and nine months ended June 28, 2025 reflects a correction of a calculation error in the “tax effects of these adjustments” amounts reported in the prior period. Additionally, the prior period comparative reconciliation has been updated to conform to the current period presentation.

(1) Represents non-cash charges related to asset write offs for certain underperforming stores and certain inventory related to the store and distribution center closings.

(2) Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and SG&A in our consolidated statements of operations.

(3) Represents charges related to equity-based compensation and our related payroll tax expense, which are reported in SG&A in our consolidated statements of operations.

(4) Represents non-recurring costs, such as third-party consulting costs related to first-generation technology initiatives, replacements of systems that are no longer supported by our vendors, investment in and development of new products outside of the course of continuing operations, or other discrete strategic projects that are infrequent or unusual in nature and potentially distortive to continuing operations. Also included are costs related to the closure of the 80 stores and one distribution center announced, and substantially completed, in the first quarter of 2026. These items are reported in SG&A in our consolidated statements of operations.

(5) In June 2026, the Company entered into a settlement agreement to resolve certain credit card interchange fee litigation matters in which we were a plaintiff. As a result of this settlement, we recorded a gain of $17.5 million, net of legal fees. Amounts are reported in SG&A in our consolidated statements of operations.

(6) Includes certain senior executive transition costs and severance associated with completed corporate restructuring activities across the organization, losses on asset dispositions, merger and acquisition costs, and other non-recurring, non-cash, or discrete items as determined by management. Amounts are reported in SG&A in our consolidated statements of operations.

(7) Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax expense (benefit) in our consolidated statements of operations. The prior period amounts have been corrected for a calculation error reported for the three and nine months ended June 28, 2025.

(8) The prior period comparative reconciliation has been updated to conform to the current period presentation.

Selected Financial Information

Sales

Sales were $458.5 million for the three months ended July 4, 2026 compared to $500.3 million in the prior year period, a decrease of $41.9 million, or 8.4%. The decrease was driven by softness in our retail business due to a slower summer pool season as well as the loss of sales from the closure of underperforming stores. Comparable sales for the three months ended July 4, 2026 decreased $30.4 million or 6.2% compared to the prior year period.

Sales were $790.4 million for the nine months ended July 4, 2026, compared to $852.7 million in the prior year period, a decrease of $62.3 million, or 7.3%. The decrease was primarily driven by lower traffic and transactions in our stores due to overall softness in the summer pool season and lower sales resulting from the closure of underperforming stores during the period. Additionally, first-quarter revenue faced headwinds as the Company cycled against elevated demand in the prior-year period, which had been driven by an active hurricane season and the liquidation of certain products. Comparable sales for the nine months ended July 4, 2026 decreased $45.9 million or 5.5% compared to the prior year period.

Gross Profit and Gross Margin

Gross profit for the three months ended July 4, 2026 was $167.1 million compared to $197.9 million in the prior year period, representing a decrease of $30.8 million, or 15.5%. Gross margin decreased to 36.5% compared to 39.6% in the prior year period, a decrease of approximately 310 basis points. The decrease was driven by an approximately 195 basis point impact due to a decrease in volume of high margin products sold and mix and an approximately 115 basis point impact due to distribution center and manufacturing costs.

Gross profit for the nine months ended July 4, 2026 was $247.5 million compared to $289.6 million in the prior year period, a decrease of $42.0 million, or 14.5%. Gross margin decreased to 31.3% compared to 34.0% in the prior year period, a decrease of approximately 265 basis points. A negative impact of approximately 70 basis points was due to an inventory impairment charge of $5.4 million relating to store and DC closures during the nine month period. The remaining approximately 195 basis points decline was due to an approximately 145 basis point impact due to a decrease in volume of high margin products sold and mix, and an approximately 50 basis point impact due to occupancy, distribution center, and manufacturing costs.

Selling, General and Administrative Expenses

SG&A for the three months ended July 4, 2026 was $106.4 million compared to $129.6 million in the prior year period, a decrease of $23.2 million, or 17.9%. As a percentage of sales SG&A was 23.2% compared to 25.9%, down 270 basis points from the prior year period. The decrease in SG&A was primarily related to a one-time gain for a credit card interchange fee settlement of $17.5 million, net of legal fees. Additionally, SG&A decreased due to decreases of $3.4 million in direct store and other operating expenses, $2.1 million in merchant fees, $1.2 million in labor and fringe costs, and $0.4 million in marketing fees. Partially offsetting the decrease was an increase of $1.4 million in technology costs.

SG&A for the nine months ended July 4, 2026 was $284.2 million compared to $309.3 million in the prior year period, a decrease of $25.1 million, or 8.1%. As a percentage of sales SG&A was 36.0% compared to 36.3%, a decrease of 30 basis points from the prior year. The decrease in SG&A was primarily related to a one-time gain for a credit card interchange fee settlement of $17.5 million, net of legal fees. Additionally, SG&A decreased due to decreases of $5.2 million in direct store and other operating expenses, $3.9 million in labor and fringe costs, and $3.6 million in merchant fees. Partially offsetting the decrease were increases of $3.3 million in technology costs and $1.9 million in marketing fees.

Impairment

Non-cash impairment for the three months ended July 4, 2026 was $(0.7) million, which was comprised of non-cash lease gains due to lease terminations on stores that were closed and impaired during the first quarter of 2026. For the nine months ended July 4, 2026 impairment was $8.3 million, which was comprised of $5.4 million of property and equipment impairment, $4.8 million right-of-use asset impairment, and $(1.9) million non-cash lease gains all relating to the store and distribution center closures that occurred during the first quarter of 2026. There was no impairment during either period in the prior year.

Interest Expense

Interest expense for the three months ended July 4, 2026 was $14.1 million compared to $15.8 million in the prior year period, a decrease of $1.6 million. Interest expense for the nine months ended July 4, 2026 was $42.0 million compared to $47.4 million in the prior year period, a decrease of $5.4 million. The decrease in both periods was driven by lower interest rates on our Term Loan.

Income Tax

Income tax benefit was $0.5 million for the three months ended July 4, 2026 compared to an expense of $30.8 million in the prior year period, an increase of $31.3 million. Income tax expense was $0.7 million for the nine months ended July 4, 2026 compared to $7.0 million in the prior year period, a decrease of $6.3 million. The changes were primarily attributable to the change in valuation allowance and use of the discrete effective tax rate method in the prior year periods.

The effective income tax rate was (1.0)% and (0.8)% for the three and nine months ended July 4, 2026, and included net income tax expenses attributable to state taxes and the change in valuation allowance. The effective income tax rate was 58.7% and (10.4)% for the three and nine months ended June 28, 2025, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance.

Net Income (Loss) and Diluted Earnings (Loss) per Share

Net income for the three months ended July 4, 2026 was $47.8 million compared to $21.7 million in the prior year period, an increase of $26.1 million. The change was primarily due to the change in valuation allowance in the prior year period as well as savings in SG&A in the current year period. This increase was partially offset by decreases in gross profit due to lower sales. Net loss for the nine months ended July 4, 2026 was $(87.7) million compared to $(74.2) million in the prior year period, an increase of $13.5 million. The change was primarily due to decreases in gross profit due to lower sales and impairment charges in the current year period. Partially offsetting the decrease was savings in SG&A during the current year period.

Diluted earnings per share was $5.01 for the three months ended July 4, 2026 compared to $2.34 in the prior year period. Diluted loss per share was $(9.40) for the nine months ended July 4, 2026 compared to $(8.01) in the prior year period.

Adjusted net income for the three months ended July 4, 2026 was $37.8 million compared to $25.2 million in the prior year period, an increase of $12.6 million. Adjusted net loss for the nine months ended July 4, 2026 was $(79.7) million compared to $(66.0) million in the prior year period, an increase of $13.7 million.

Adjusted diluted earnings per share was $3.96 for the three months ended July 4, 2026 compared to $2.72 in the prior year period. Adjusted diluted loss per share was $(8.55) for the nine months ended July 4, 2026 compared to $(7.13) in the prior year period.

Adjusted EBITDA

Adjusted EBITDA for the three months ended July 4, 2026 was $55.7 million compared to $81.6 million in the prior year period, a decrease of $25.9 million. Adjusted EBITDA for the nine months ended July 4, 2026 was $(11.4) million compared to $16.2 million in the prior year period, a decrease of $27.6 million. The decreases in Adjusted EBITDA during the three months ended July 4, 2026 and nine months ended July 4, 2026 were primarily due to decreases in gross profit due to lower sales partially offset by savings in SG&A.

Seasonality and Quarterly Fluctuations

Our business is highly seasonal. Sales and earnings are highest during the third and fourth fiscal quarters, which include April through September, and represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters when we typically generate net losses and we realize negative operating cash flows. We have a long track record of investing in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to new locations and other growth initiatives. While these investments drive performance during the primary selling season in our third and fourth fiscal quarters, they have a negative impact on our earnings and cash flow during our first and second fiscal quarters.

We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season. We negotiate extended payment terms with certain of our primary suppliers as we receive merchandise in December through March, and we pay for merchandise in April through July.

The principal external factor affecting our business is weather. Hot weather can increase purchases of chemicals and other essential products as well as purchases of discretionary products and can drive increased purchases of installation and repair services. Unseasonably cool weather or significant amounts of rainfall during the peak pool sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services. In addition, unseasonably early or late warming trends can increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales. Further, we generally close locations after our peak selling season ends.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility. Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $45.9 million as of July 4, 2026, $64.3 million as of October 4, 2025, and $42.7 million as of June 28, 2025. Outstanding borrowings on our Revolving Credit Facility were $30.0 million as of July 4, 2026, and $20.0 million as of June 28, 2025. We had no amounts outstanding on our Revolving Credit Facility as of October 4, 2025.

As of July 4, 2026, outstanding standby letters of credit totaled $11.1 million. After considering borrowing base restrictions, we had $207.1 million of availability from cash on hand and available borrowing capacity under the terms of the Revolving Credit Facility. As of July 4, 2026, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan.

During the quarter ended January 3, 2026, the Company received downgraded credit rating from Standard and Poor’s (“S&P”) Global Ratings (CCC from CCC+). A lower credit rating could increase the cost of, and reduce our access to, any future financing, including any refinancing of our Term Loan prior to its maturity on March 9, 2028, and could adversely affect our ability to access the capital markets.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, other facility costs, distribution costs, and general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by seasonality and the timing of inventory purchases.

Our capital expenditures are primarily related to infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems, ongoing location improvements, expenditures related to our distribution centers, and new location openings.

Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand and through our Revolving Credit Facility. Macroeconomic softness, persistent inflationary pressures on the consumer – including the growing bifurcation of household income and wealth – combined with the uncertainty around our ability to continue to drive customer traffic, has negatively impacted our business and liquidity. Although we continue to pursue our strategic initiatives, including ongoing cost optimization efforts, the timing and realization of our strategy cannot guarantee sufficient cash flow will be generated to meet the Company’s debt obligations and operating costs. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address our more immediate challenges may include the following:

• execute the Company’s strategic initiatives on pricing strategy, reactivating customers, enhancing our store operations and experience, continuing our cost optimization, and improving our asset utilization to reignite growth and increase financial resilience; and
• actively engage with our lenders and other financial stakeholders to explore strategic alternatives to satisfy our existing debt obligations while meeting our long-term liquidity requirements. Such strategic alternatives may include but are not limited to a deleveraging transaction, potentially combined with one or more financing transactions. Our Term Loan matures on March 9, 2028, and we expect that we will need to seek to refinance, restructure, extend or if necessary, seek relief under applicable reorganization laws prior to maturity. The Company has not set a timetable for the conclusion of its exploration of strategic alternatives, and there can be no assurance that the process will result in any transaction.

There can be no assurance of the Company’s ability to realize these plans, and as a result, the Company has concluded that management’s plans do not alleviate the substantial doubt about the Company’s ability to continue as a going concern.

In addition, our Term Loan matures on March 9, 2028, and we continue to actively engage with our lenders, however, in order to satisfy our existing debt obligations and meet our long-term liquidity requirements, we expect that we will need to seek to refinance, restructure, extend or otherwise address this indebtedness prior to maturity, and there can be no assurance that we will be able to do so on acceptable terms, or at all. If we are unsuccessful in refinancing or otherwise restructuring our indebtedness, or we are unsuccessful in seeking additional sources of capital, we may not have sufficient liquidity and capital resources to repay our indebtedness when it matures or otherwise meet our long-term cash requirements.

If we are unable to execute on our growth and cost optimization strategies, including our strategic pricing transformation, and any restructuring and refinancing efforts, our liquidity, results of operations and financial position may be materially adversely impacted.

Given macroeconomic softness and the uncertainty around the company’s ability to continue to drive consumer behavior, we have withdrawn our prior full year fiscal 2026 outlook and are not updating it at this time. We do not undertake, and expressly disclaim, any obligation to provide or update any outlook or guidance, and investors should not rely on our previously issued outlook.

Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table (in thousands):

Cash Used in Operating Activities

Net cash used in operating activities was $37.6 million for the nine months ended July 4, 2026, compared to $39.4 million in the prior year period, a decrease of $1.8 million. The decrease was driven by changes in working capital primarily relating to inventory and accounts payable.

Cash Used in Investing Activities

Net cash used in investing activities was $10.4 million for the nine months ended July 4, 2026, compared to $18.9 million in the prior year period, a decrease of $8.5 million. This decrease was driven by lower investments in purchases of property and equipment.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the nine months ended July 4, 2026, was $29.6 million compared to net cash used in financing activities of $7.5 million in the prior year period, an increase of $37.1 million. This increase was due to a $27.0 million principal payment made during the prior year period as well as $10.0 million in additional borrowing on the Revolving Credit Facility in the current year period.

Contractual Obligations and Other Commitments

There have been no material changes to our contractual obligations and other commitments during the nine months ended July 4, 2026, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025 except as disclosed in Note 10—Leases and Note 12—Commitments & Contingencies in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025. We base these estimates on historical results and various other assumptions we believe to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

There have been no material changes to our critical accounting estimates during the nine months ended July 4, 2026, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Rate Risk

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

Impact of Inflation and Deflation

There have been no material changes in our exposure to inflation or deflation from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

Management’s Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the appropriate time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer and Treasurer, have evaluated the effectiveness of our disclosure controls and procedures as of July 4, 2026. Based on that evaluation, our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer and Treasurer (Principal Financial Officer) have concluded that our disclosure controls and procedures were not effective as the material weaknesses in our internal control over financial reporting disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025 were not yet remediated as of July 4, 2026.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended July 4, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

Ongoing Remediation Efforts

As previously disclosed in Part II, Item 9A, “Controls and Procedures” of our Annual Reports on Form 10-K for the fiscal years ended October 4, 2025, September 28, 2024, and September 30, 2023, we identified material weaknesses in the Company’s internal control over financial reporting related to the validation of inventory levels and the completeness and accuracy of data used in validating the appropriateness of inventory costing for a subset of the Company’s inventories and inventory reserves. In addition, as previously disclosed in Part II, Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended October 4, 2025, we also identified a material weakness in the Company’s internal control over financial reporting related to the design and operation of controls over the goodwill and other long-lived asset impairments. We are in the process of implementing a plan to address these material weaknesses in internal control over financial reporting. We have devoted and intend to continue to devote significant time and resources to enhance the design and implementation of our existing controls and procedures and to create new complementary and compensating controls as needed.

With respect to inventory controls, the following remediation activities have taken place as of July 4, 2026:

• examined and enhanced the procedures regarding the completeness and accuracy of data utilized in calculating the cutoff of inventory in-transit from vendors, and
• examined and enhanced the precision of review of capitalized costs into inventory.

We are further enhancing the execution of existing inventory controls as follows:

• assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards.

With respect to asset impairments, no goodwill remained on the Company’s books as of October 4, 2025, and as a result, the extent to which the goodwill portion of the deficiency currently could lead to a material misstatement in our financial statements is not present.

We are further enhancing the design and execution of existing controls and creating new controls as needed regarding asset impairments as follows:

• enhancing management review controls to adequately document management’s review of the completeness and accuracy of the key financial and non-financial data utilized in the assessment and recognition of asset impairments;
• implementing and enhancing controls, policies and procedures related to the key financial data used in the management reviews when evaluating assets for impairment under the applicable accounting literature; and
• assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards.

The actions we are taking are subject to continued senior management review as well as audit committee oversight. We intend to remediate these material weaknesses as soon as possible, and we believe the measures described above will help remediate the material weakness and strengthen our internal control over financial reporting. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We anticipate that our remediation activities will be completed during fiscal year 2026. We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of our remediation measures as described above or as described in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended October 4, 2025, other than as noted below.

Risks Related to Our Business Strategy

Our operating results have been harmed, and may continue to be harmed, if we are unable to effectively manage and sustain our future growth or scale our operations.

We experienced a decline in sales, and thus profitability, beginning the fiscal year ending September 30, 2023. The current declines in our revenue and operating margins means our revenue and margin growth may be less than expected. In addition, historically, we have primarily relied on cash generated from operating activities to fund our day-to-day operations and service our debt. However, we cannot guarantee that we will be able to generate sufficient cash flow to meet our debt obligations and operating costs. These conditions and events raise substantial doubt about our ability to continue as a going concern. If we are unable to scale our operations efficiently or maintain pricing power and competitive pricing, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results and our ability to continue as a going concern. Diminished growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance. We have experienced negative impacts on our cash reserves, and it may be necessary for us to obtain additional financing, which could increase indebtedness or result in dilution to shareholders. Further, we may not be able to obtain additional financing on acceptable terms, if at all.

If we are unable to streamline our operations effectively, our business, financial condition and results of operations may be adversely affected.

Some of our locations have not achieved the growth and profitability we anticipated, and, from time to time, we may determine to close certain locations based on a variety of factors, including, but not limited to, geographic proximity to other stores, operating cost increases, labor costs, profitability, leases and other strategic decisions. Our business strategy depends in part on our ability to streamline our operations and improve long-term profitability, including the effective implementation of our announced closure of approximately 80 to 90 underperforming U.S. locations by the end of the first fiscal quarter of 2026. Our ability to successfully close those locations, or other future locations as appropriate to operate efficiently, depends on a number of factors beyond our control, including without limitation, general economic conditions, prevailing conditions in the commercial real estate market, success in amending or terminating existing leases on acceptable terms, availability of suitable alternative locations and other factors. If we are unable to optimize our location base by closing the number of underperforming locations we expect, on the timeline we expect, or if we are unable to transfer these existing store customers to our other sales channels or if we announce additional store closures in the future, our business, financial condition and results of operations may be adversely affected.

In addition, we expect to incur costs associated with the closure of underperforming locations, including charges for the impairment of long-lived assets and inventory write-offs. These costs may turn out to be greater than we expect and may adversely impact our financial condition.

Our financial condition raises substantial doubt as to our ability to continue as a going concern, we have commenced an exploration of strategic alternatives, and our stockholders could lose all or a substantial part of their investment.

Historically, we have primarily relied on cash generated from operating activities to fund our day-to-day operations and service our debt. Although we continue to pursue our strategic initiatives, including ongoing cost optimization efforts, we cannot assure you that these initiatives will be realized on the anticipated timeline, or at all, or that they will generate cash flow sufficient to meet the Company’s debt obligations and operating costs. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans to address our more immediate challenges may include the following:

• execute the Company’s strategic initiatives on pricing strategy, reactivating customers, enhancing our store operations and experience, continuing our cost optimization, and improving our asset utilization to reignite growth and increase financial resilience; and
• actively engage with our lenders and other financial stakeholders to explore strategic alternatives to satisfy our existing debt obligations while meeting our long-term liquidity requirements. Such strategic alternatives may include but are not limited to a deleveraging transaction, potentially combined with one or more financing transactions. Our Term Loan matures on March 9, 2028, and we expect that we will need to seek to refinance, restructure, extend or if necessary, seek relief under applicable reorganization laws prior to maturity. The Company has not set a timetable for the conclusion of its exploration of strategic alternatives, and there can be no assurance that the process will result in any transaction.

There can be no assurance of the Company’s ability to realize these plans, and as a result, the Company has concluded that management’s plans do not alleviate the substantial doubt about the Company’s ability to continue as a going concern.

Additional financing, whether in the form of equity or debt, may not be available to us on acceptable terms, on a timely basis, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business would be materially harmed. Furthermore, any new equity we issue will likely result in substantial dilution to our existing stockholders. Any strategic alternative we pursue, including any deleveraging transactions, is likely to be highly dilutive to, or eliminate the value of, our existing common stock, and holders of our common stock may receive little or no recovery. In addition, any such transaction could result in the cancellation or discharge of a portion of our indebtedness, which could give rise to taxable cancellation of indebtedness income or, if that income is excluded from taxable income (including in a case under the Bankruptcy Code or to the extent we are insolvent), a reduction in our net operating loss carryforwards and other tax attributes. Any such transaction could also result in an ownership change under Section 382 of the Internal Revenue Code and materially limit our ability to use any remaining net operating loss carryforwards and other tax attributes.

If we are unable to obtain a waiver or forbearance or other agreement from the lenders under the Term Loan, obtain additional financing, improve our results or liquidity or execute any operational improvements, we will be unable to continue to fund our operations, continue to sell our products, realize value from our assets, or discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment.

If we file to commence remedies under applicable restructuring or reorganization laws our operations and ability to develop and execute our business plan, and our ability to continue as a going concern, are subject to the risks and uncertainties associated with bankruptcy. As such, remedies under applicable restructuring or reorganization laws are likely to have a material adverse effect on our business, financial condition, results of operations and liquidity. During any such cases, our senior management would be required to spend a significant amount of time and effort attending to the restructuring of the business instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other employees necessary to the success and growth of our business. In addition, the exploration and negotiation of strategic alternatives will result in substantial advisory, legal and other transaction costs, whether or not any transaction is completed. Public disclosure of, or speculation concerning, the process may cause our suppliers to shorten or withdraw the extended payment terms we have negotiated with certain of our primary suppliers, or to require accelerated, prepaid or cash-on-delivery terms, and may adversely affect our ability to obtain or maintain letters of credit, surety bonds and insurance on acceptable terms. Any of these developments would reduce our available liquidity, potentially during periods of peak seasonal working capital need, and could further impair our ability to complete a transaction on acceptable terms, or at all.

Additionally, our financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Thus, our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Risks Related to Our Indebtedness

Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt agreements, and could divert our cash flow from operations to debt payments.

We have a substantial amount of indebtedness. As of July 4, 2026, our total borrowings under our Term Loan and our Revolving Credit Facility totaled $786.7 million. Subject to any restrictions in the agreements governing our existing debt, it is possible that we may incur additional debt.

Our indebtedness could have important consequences to our stockholders, including but not limited to the following:

• it may be difficult for us to satisfy our obligations, including debt service requirements under our existing or future debt agreements, resulting in possible defaults on and acceleration of such debt;
• our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other general corporate purposes may be impaired;
• a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, and acquisitions or for other purposes;
• we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;
• our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and restrictive covenants contained in the agreements governing our existing and any future debt;
• our ability to borrow additional funds or to refinance debt may be limited; and
• even if we satisfy our debt obligations and avoid a default or restructuring, the dedication of our cash flow to servicing our debt, in particular our Term Loan, may leave us with insufficient funds to pursue capital expenditures, acquisitions or new product development, or investment in improved sales volume initiatives we believe would be profitable, and market perceptions of our leverage and liquidity could depress the trading price of our common stock.

Our Term Loan matures on March 9, 2028, and we continue to actively engage with our lenders, however, in order to satisfy our existing debt obligations and meet our long-term liquidity requirements, we expect that we will need to seek to refinance, restructure, extend or otherwise address our indebtedness prior to maturity, and there can be no assurance that we will be able to do so on acceptable terms, or at all. If we are unsuccessful in refinancing or otherwise restructuring our indebtedness, or we are unsuccessful in seeking additional sources of capital, we may not have sufficient liquidity and capital resources to repay our indebtedness when it matures or otherwise meet our long-term cash requirements. Our debt obligations along with our financial condition raises substantial doubt as to our ability to continue as a going concern.

Our credit rating was recently downgraded to CCC from CCC+, and there is a risk of further downgrades in the future. Credit rating downgrades have and may continue to adversely affect our ability to access capital markets, increase our borrowing costs, limit our financing options, and reduce our financial flexibility. Lower credit ratings may also result in more stringent covenants in our debt agreements, require us to provide additional collateral for existing obligations, trigger early repayment obligations under certain of our debt instruments, or limit our ability to refinance existing debt on favorable terms. Given our substantial indebtedness, these impacts could further constrain our operational flexibility, intensify the risks associated with our leverage, exacerbate our vulnerability to economic downturns, and adversely affect our liquidity, financial condition, and ability to fund operations, capital expenditures, and strategic initiatives.

Furthermore, all of our debt under our Credit Facilities bears interest at variable rates. If these rates were to increase significantly, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify. In addition, as substantially all of our assets are pledged as collateral to secure our indebtedness, if we default or declare bankruptcy, after these obligations are met, there may not be sufficient funds or assets to satisfy our subordinate interests, including those of our stockholders.

Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we have been unable to generate sufficient cash flow to service our debt obligations.

Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our cash flows from operating activities have been negatively impacted by a range of factors, including efforts around prior customer reactivation and value perception, persistent inflationary pressures on the consumer – including the growing bifurcation of household income and wealth – combined with ongoing softness in the pool and spa care vertical. Our ability to make payments on, and to refinance, our debt while funding planned capital expenditures, depends on our ability to generate sufficient cash flow. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

However, the timing and realization of our strategy cannot guarantee sufficient cash flow will be generated to meet our debt obligations and operating costs. If we are unable to generate sufficient cash flow from operations to service our debt and meet our other commitments, we may need to refinance or restructure all or a portion of our debt specifically our Term Loan maturing March 9, 2028, sell material assets or operations, delay capital expenditures, or raise additional capital. We may not be able to effect any of these actions on a timely basis on commercially reasonable terms or at all, and even if successful, these actions may not be sufficient to meet our capital requirements. Our credit rating was recently downgraded to CCC from CCC+, and there is a risk of further downgrades in the future. Credit rating downgrades have and may continue to adversely affect our ability to access capital markets, increase our borrowing costs, limit our financing options, and reduce our financial flexibility. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.

Even if we satisfy our debt obligations and avoid a default or restructuring the dedication of our cash flow to servicing our debt, in particular our Term Loan, may leave us with insufficient funds to pursue capital expenditures, acquisitions or other initiatives we believe could prove profitable, and market perceptions of our leverage and liquidity could depress the trading price of our common stock.

Risks Related to Ownership of Our Common Stock

Our common stock may be delisted from The Nasdaq Global Select Market if we are unable to maintain compliance with Nasdaq's continued listing standards.

As previously disclosed, on February 11, 2026, we received notification from Nasdaq that our common stock was subject to potential delisting from The Nasdaq Global Select Market because we were not in compliance with Nasdaq Listing Rule 5450(b)(3)(C) because, for a period of 30 consecutive business days, we failed to maintain a minimum market value of publicly held shares (“MVPHS”) of our common stock of $15,000,000 (as calculated pursuant to Nasdaq Listing Rules). On May 29, 2026, we received a letter from Nasdaq notifying us that we had regained compliance with Nasdaq Listing Rule 5450(b)(3)(C) by maintaining MVPHS of $15,000,000 or greater for the period from May 14, 2026 to May 28, 2026.

However, there can be no assurance that we will be able to maintain compliance with Nasdaq’s continued listing standards. If we do not maintain compliance with these, our common stock may be delisted from Nasdaq. Any delisting of our common stock would likely adversely affect the market liquidity and market price of our common stock and our ability to obtain financing for the continuation of our operations. Consequently, stockholders may not be able to sell our common stock at prices equal to or greater than the price paid.