XPEL 10-K & 10-Q changes, risk factors and insider trading

Any continued reliance on contract manufacturers and suppliers exposes us to product quality and variable cost risks.

If we do not manage or control the quality of our products, we may be unable to meet customer demands and incur higher costs .

We are generally responsible for the quality of our products manufactured at third party manufacturers or our own facilities. We may have limited recourse to third party manufacturers for the costs of quality or we may incur higher costs if we do not control or manage quality issues in our own facilities.

Our results depend on the timely availability of raw materials, components, and commodities at acceptable prices.

Our results depend on the timely availability of raw materials, components, and commodities at acceptable prices. We source key inputs from a limited number of suppliers and, in some cases, from single‑source or sole‑source suppliers. Disruptions arising from supplier financial distress, capacity constraints, quality issues, labor shortages, geopolitical events, trade restrictions, sanctions, pandemics, natural disasters, or transportation bottlenecks may lead to shortages, extended lead times, production delays, and increased costs that we may not be able to pass through to customers. Volatility in prices for resins, chemicals, energy, and freight can compress margins, especially under fixed‑price or long‑term contracts. Changes in tariffs and trade policies affecting automotive parts and accessories, port congestion, container availability, and customs detentions can delay imports and increase costs. If a significant supplier is located in a region subject to political instability, export controls, or forced‑labor enforcement actions, our ability to source on expected timelines could be adversely affected.

Our planned investment in manufacturing and supply chain assets exposes us to execution risks.

Pursuant to our decision to invest in manufacturing and supply chain assets, our capital requirements and capital allocation decisions will fundamentally change which may introduce additional operational, environmental and other risks. In addition, the Company may lack the experience or appropriate personnel to manage these assets effectively.

We are subject to extensive environmental, health, and safety laws and regulations governing emissions, discharges, waste management, hazardous materials, chemical registration, and worker protection.

We are subject to extensive environmental, health, and safety laws and regulations governing emissions, discharges, waste management, hazardous materials, chemical registration, and worker protection. Compliance can require significant capital and operating expenditures and may become more costly as standards tighten. Past or future releases of hazardous substances at our sites or third‑party locations could result in investigations, cleanup obligations, fines, penalties, or third‑party claims. Workplace accidents or occupational exposure incidents could disrupt operations, lead to civil or criminal liabilities, increase insurance costs, and damage our reputation. We may also be subject to extended producer responsibility or take‑back obligations for products such as batteries, tires, and packaging.

Existing and potential new trade policies, such as tariffs, could adversely affect our operations, costs and business.

President Donald Trump has issued a series of executive orders since taking office in January 2025, including executive orders regarding tariffs. While the possibility exists for delays, reductions or exemptions of the automotive and reciprocal tariffs, the potential impacts of these tariffs remain uncertain and may cause a significant impact on the future demand for vehicles by consumers. To the extent any such tariffs remain in place for a sustained period of time, or in the event a global or domestic recession results therefrom, the disposable income of consumers could be significantly reduced, which may result in consumers deciding to delay vehicle purchases, or forego them entirely, or decide to delay or forego the addition of vehicle accessories, each of which could adversely affect our results of operations and financial condition.

Additional actions taken by the U.S. that restrict or could impact the economics of trade — including additional tariffs, trade barriers, and other similar measures — could have the potential to further disrupt existing supply chains and trigger retaliatory efforts by other countries, including the imposition of tariffs, raising taxation, setting foreign exchange or capital controls, or establishing embargoes, sanctions, or other import/export restrictions, thereby negatively impacting our business, both directly and indirectly. These developments, or the perception that more of them could occur, may materially create, or increase business uncertainty and could adversely affect the global economy and stability of global financial markets, potentially reducing trade and depressing economic activity, including demand for our products. Such changes in international trade policies may result in direct impacts to our business or indirectly to our customers or suppliers through increased costs, changes in business prospects or operating results, which could adversely affect our financial condition. The extent of such impacts cannot be predicted at this time.

Increased regulatory scrutiny of dealerships that inhibit or change their selling process or how they interface with consumers could impact our revenue.

Dealerships are subject to changes in regulatory rules, or requirements proposed or imposed by the Federal Trade Commission, Consumer Protection Agency or States Attorney Generals, that could change industry-accepted practices with regard to sales and/or offering of accessories to consumers. Such changes could impact the offering of our products as accessories or prohibit such offerings which could adversely impact our revenue.

With the completion of the China Acquisition, we are now subject to certain additional risks including:

Failure to meet the PRC government’s complex regulatory requirements on and significant oversight over our business operation could result in a material adverse change in our operations and the value of our securities.

We have a robust distribution network located in China. The PRC government has significant authority to influence and intervene in the China operations of an offshore holding company, such as XPEL, at any time. Accordingly, our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally.

The Chinese economy differs from the economies of most developed countries in many respects, including the degree of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures to underscore the importance of the utilization of market forces for economic reform, the divestment of state ownership in productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through strategically allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to selected industries or companies.

Fluctuation in the value of RMB may result in foreign currency exchange losses.

The conversion of the Renminbi (“RMB”) into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China (“PBOC”). Historically, the exchange rate between RMB and the U.S. dollar has showed higher volatility in certain years while staying within a narrow range in other years. The value of RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. It is difficult to predict how market forces or Chinese or U.S. government policy may impact the exchange rate between RMB and the U.S. dollar in the future.

Substantially all of our revenues and costs in China are denominated in RMB. As a holding company, we may rely on dividends and other fees paid to us by our subsidiaries in China. Any significant revaluation of the RMB may materially affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our Common Stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB-denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. Conversely, a significant depreciation of RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our Common Stock. If we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends and share repurchases of our Common Stock, strategic acquisitions or investments or other business purposes, the appreciation of the U.S. dollar against RMB would have a negative effect on U.S. dollar amounts available to us.

Risks Related to Our Majority but Not Wholly-Owned Subsidiary in China.

Our operations in China are conducted in part through a subsidiary in which we hold a majority, but not a 100%, ownership interest. This structure presents several risks that could materially and adversely affect our business, financial condition, and results of operations:

•Limited Control Over Minority Interests

Although we control the board and management of the subsidiary, the minority shareholders may have rights under PRC law or the subsidiary’s organizational documents that could limit our ability to direct certain actions, such as approving major transactions, amending governing documents, or distributing dividends. Disputes with minority shareholders could result in litigation, delays, or disruptions to our business.

•Dividend and Profit Distribution Risks

Dividends and other distributions from our Chinese subsidiary are subject to PRC regulations and approval processes. As a majority but not sole owner, we may not be able to unilaterally determine the timing or amount of distributions, and the minority shareholders may block or delay such actions. In addition, PRC law requires that a portion of after-tax profits be set aside as statutory reserves before dividends can be paid, further limiting the amount available for distribution.

•Potential Conflicts of Interest

The interests of the minority shareholders may not always align with ours. They may pursue business strategies or take actions that are inconsistent with our objectives, or they may have relationships with competitors, suppliers, or customers that could create conflicts of interest. We cannot assure you that any conflicts will be resolved in our favor.

•Increased Risk of Disputes and Litigation

Disagreements with minority shareholders regarding management, strategy, or profit allocation could lead to disputes or litigation. The PRC legal system is different from that of the United States and may not provide the same level of protection or predictability for foreign investors. Enforcement of our rights may be costly, time-consuming, and uncertain.

•Limitations on Exit or Sale

If we decide to sell our interest in the subsidiary, the minority shareholders may have rights of first refusal or other rights that could delay or prevent a sale or require us to sell on less favorable terms. In addition, PRC regulations may restrict the transfer of ownership interests in foreign-invested enterprises.

As a result of these and other risks, our ability to realize the full economic benefits of our majority-owned subsidiary in China may be limited, and our business, financial condition, and results of operations could be adversely affected

China’s Merger & Acquisition Rules and certain other regulations establish complex procedures for certain acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

A number of laws and regulations of mainland China have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time consuming and complex. In addition to the Anti-Monopoly Law itself, these include the M&A Rules, the Rules of the Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Security Review Rules, promulgated in 2011, and the Measures for the Security Review of Foreign Investment promulgated by NDRC and the Ministry of Commerce in December 2020 which came into force on January 18, 2021. These laws and regulations impose requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, pursuant to anti-monopoly laws and regulations, the State Administration for Market Regulation should be notified in advance of any concentration of undertaking if certain thresholds are triggered, and the State Administration for Market Regulation clearance is required to be obtained before completion of such transactions. In light of the uncertainties relating to the interpretation, implementation and enforcement of the PRC anti-monopoly laws and regulations, we cannot assure you that the anti-monopoly law enforcement agency will not deem our future acquisitions or investments to have triggered filing requirement for anti-monopoly review. Moreover, the Security Review Rules specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by NDRC and the Ministry of Commerce, and prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the regulations to complete such transactions could be time consuming, and any required approval processes, including clearance from the State Administration for Market Regulation and approval from the Ministry of Commerce or other PRC government authorities, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We are a US company conducting our operations in China primarily through our PRC subsidiaries. We may make additional capital contributions or loans to our PRC subsidiaries, which are treated as foreign invested enterprises under laws of mainland China. Any loans by us to our PRC subsidiaries are subject to regulations and foreign exchange loan registrations in mainland China. For example, with respect to the registration, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the PRC State Administration of Foreign Exchange, or SAFE, or filed with SAFE in its information system; with respect to the outstanding amounts of loans, (i) if the PRC subsidiaries adopt the traditional foreign exchange administration mechanism, the outstanding amount of loans shall not exceed the difference between the total investment and the registered capital of the PRC subsidiaries; and (ii) if the PRC subsidiaries adopt the relatively new foreign debt mechanism, the risk-weighted outstanding amount of loans shall not exceed 200% of the net asset of the PRC subsidiaries. We may also finance our PRC subsidiaries by means of capital contributions. These capital contributions must be registered with the State Administration for Market Regulation or its local counterparts, and shall be concurrently reported to the Ministry of Commerce through its information reporting and submission system. Pursuant to the Circular on the Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which became effective on June 1, 2015 and was last amended on December 30, 2019, and the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, which was promulgated in June 2016, foreign-invested enterprises may either continue to follow the current payment-based foreign currency settlement system or choose to follow the “conversion-at-will” system for foreign currency settlement. SAFE Circular 19 and SAFE Circular 16, therefore, have substantially lifted the restrictions on the use by a foreign-invested enterprise of its RMB registered capital, foreign debt and repatriated funds raised through overseas listing converted from foreign currencies. Nevertheless, SAFE Circular 19 and SAFE Circular 16 reiterate the principle that RMB converted from the foreign currency-denominated capital of a foreign invested company may not be directly or indirectly used for purposes beyond its business scope and prohibit foreign-invested companies from using such RMB fund to provide loans to persons other than affiliates unless otherwise permitted under their business scopes.

Under laws and regulations of mainland China, we are permitted to fund our PRC subsidiaries by making loans to or additional capital contributions to our PRC subsidiaries, subject to applicable government registration, statutory limitations on amount and approval requirements. These laws and regulations of mainland China may significantly limit our ability to use RMB converted from the net proceeds of any financing outside China to fund the establishment of new entities in China by our PRC subsidiaries, to invest in or acquire any other PRC companies through our PRC subsidiaries.

Operating activities. Cash flows provided by operations totaled approximately $66.9 million for the year ended December 31, 2025, compared to $47.8 million for the year ended December 31, 2024. The increase in operating cash flows for the year ended December 31, 2025 was mainly due to an increase in net income, reduced inventory purchases, and an increase in accounts payable and other accrued liabilities due to normal payment cycle timing offset by increased accounts receivable related to increased revenue and approximately $5.5 million resulting from a transition services agreement related to our China acquisition Investing activities. Cash flows used in investing activities totaled approximately $33.8 million during the year ended December 31, 2025 compared to cash used of $18.4 million for the year ended December 31, 2024. This increase in cash used was due primarily to an increase in acquisition activity primarily related to our China acquisition during the year ended December 31, 2025.

As of December 31, 2025 and December 31, 2024, the Company was in compliance with all debt covenants.

On May 15, 2026, XPEL, through Harvest Ventures Holding Company, a Texas corporation and wholly-owned subsidiary of the Company (“Harvest”), completed the acquisition of the real property and improvements constituting the Company’s current San Antonio, Texas storage, fabrication and warehouse facility and certain adjoining properties located at 3167 North PanAm Expressway, San Antonio, Texas, 3215 North PanAm Expressway, San Antonio, Texas, 3251 North PanAm Expressway, San Antonio, Texas and 3319 North PanAm Expressway, San Antonio, Texas. Separately, XPEL acquired a 75% interest in a manufacturing facility in China to support the Company's customers in China—where XPEL has invested significantly in its direct go-to-market presence in recent years, including the previously announced acquisition of the Company's Chinese aftermarket distributor in September 2025.

As a result of these transactions, the Company is currently manufacturing paint protection film, or PPF, in China and is preparing to manufacture paint protection film ("PPF") in San Antonio. Manufacturing PPF involves additional risks for the Company including the Risk Factors described below.

Manufacturing PPF in-house will subject us to significant operational, financial, and execution risks, and we may not realize the anticipated benefits of this strategy.

Capital Expenditures and Financial Commitment. Establishing in-house PPF manufacturing capabilities requires substantial capital investment in specialized equipment, facilities, raw material inventory, and personnel. These expenditures will increase our fixed cost base and could strain our liquidity and capital resources. If we are unable to achieve anticipated production volumes or cost efficiencies, or if the market for our products declines, we would likely not recoup these investments, which could materially impair our financial condition and results of operations.

Raw Material Sourcing and Supply Chain Risks. Manufacturing PPF requires access to specialized raw materials, including adhesives and other chemical compounds. We could face challenges in securing reliable supplies at favorable prices, and any disruption in the availability of key raw materials, whether due to supplier issues, geopolitical factors, logistics constraints, or otherwise, could interrupt our production and harm our business.

Regulatory and Environmental Compliance. The manufacturing of PPF involves the use and handling of chemicals and industrial processes that are subject to extensive environmental, health, and safety regulations at the federal, state, and local levels. We will be required to obtain and maintain various permits and licenses to operate our manufacturing facilities both in the U.S. and China. Compliance with these regulations could require significant expenditures and management attention, and any failure to comply could result in fines, penalties, production shutdowns, or reputational harm. Changes in applicable regulations or the discovery of previously unknown environmental conditions at our facilities could impose additional costs and liabilities.

Our manufacturing operations may expose employees, contractors, and nearby communities to health and safety risks. PPF manufacturing involves chemical handling, coating, lamination, drying, curing, cutting, packaging, warehousing, and logistics operations, all of which are occupational concerns Our operations may also involve fire, explosion, toxicity, corrosion, inhalation, dermal exposure, equipment, heat, and mechanical hazards. If we fail to maintain effective health and safety controls, we may experience workplace injuries, occupational illness claims, fires, explosions, chemical releases, regulatory investigations, production interruptions, community complaints, or litigation. We may be required to install ventilation, vapor capture, explosion protection, fire suppression, monitoring systems, containment systems, personal protective equipment, emergency response systems, and medical surveillance programs. These measures may require significant capital and operating expenditures. Any serious incident could also result in regulatory penalties, facility shutdowns, criminal liability for responsible personnel, loss of customer confidence, higher insurance costs, and material adverse effects on our business and reputation.

Rising costs and changes in China’s manufacturing environment may reduce the expected benefits of manufacturing in China. China has historically offered supply chain depth, infrastructure, manufacturing scale, and cost advantages. However, companies operating in China face rising labor and operating costs, increased regulatory scrutiny, geopolitical uncertainty, and supply chain concentration risks. China’s labor costs have risen rapidly compared with other emerging markets in recent years. Manufacturers in China may also face increased costs related to energy, environmental controls, waste management, audits, compliance, taxes, and labor regulation. These pressures may reduce the cost savings that justified locating production in China.

If our China operations require higher-than-expected spending on wages, utilities, compliance, environmental controls, permits, insurance, testing, logistics, or quality systems, our margins may decline. We may also need to invest in automation, additional training, supplier development, or redundant production capacity to maintain quality and continuity. If lower-cost or lower-risk manufacturing locations become more attractive, competitors with diversified supply chains may achieve better margins or offer more reliable delivery into export markets. We may be unable to relocate production quickly or cost-effectively if our China manufacturing becomes less competitive.

Transition and Execution Risks.

During the transition period from third-party to in-house manufacturing, we could experience production shortfalls, quality inconsistencies, or supply disruptions as we ramp up our capabilities.

If our products fail in the field, we may be required to replace film, reimburse installers, pay labor costs, provide credits, defend claims, or compensate customers. Product failures could also harm relationships with distributors, installers, fleets, dealers, and automotive original equipment manufacturers. Any sustained quality problem could impair our brand, reduce demand, increase warranty reserves, and adversely affect our margins. We could also face challenges in managing parallel operations or in phasing out relationships with existing third-party manufacturers. Any disruption in our ability to supply PPF products to our customers during this period could result in lost sales, customer attrition, and competitive harm.

In May 2026 we purchased a four-building site totaling 431,525 square feet in San Antonio, Texas (the "Properties") in which the Company was a substantial tenant for $60.4 million which will serve as the centerpiece of the Company's North American manufacturing and operations footprint. In addition, we acquired a manufacturing facility in China to augment the Company's growing presence in the region.

Product Revenue. Product revenue for the six months ended June 30, 2026 increased 15.5% over the six months ended June 30, 2025. Product revenue represented 77.0% of our total revenue compared to 75.9% in the six months ended June 30, 2025. Revenue from our paint protection film product line increased 14.6% over the six months ended June 30, 2025. Paint protection film sales represented 52.4% and 52.1% of our total consolidated revenues for the six months ended June 30, 2026 and 2025, respectively. The total increase in paint protection film sales was due to increased demand for our film products across multiple regions and the recognition of incremental direct revenues following the acquisition of our China distributor, completed late in the third quarter of 2025.

Revenue from our window film product line grew 19.6% for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. Window film sales represented 21.4% and 20.4% of our total consolidated revenues for the six months ended June 30, 2026 and 2025, respectively. This increase was driven by continued demand resulting from increased product adoption in multiple regions for automotive window film led by our China and APAC regions resulting primarily from increasing our direct presence in these regions.

Geographically, we experienced continued growth in all of our regions during the six months ended June 30, 2026 including 74.8%, 18.9%, 10.9% in China, Asia-Other, and in the United States, respectively. The increase in China revenue was driven primarily by higher customer demand and the recognition of incremental direct revenues following the acquisition of our China distributor, completed late in the third quarter of 2025. The increases in Asia-Other and the United States were driven primarily by increased product adoption and increased demand.

Service revenue grew 4.9% over the three months ended June 30, 2025. Installation labor revenue increased 12.8% over the three months ended June 30, 2025 due mainly to increased demand across our dealership services and OEM networks. Cutbank credit revenue declined due primarily to a reduction in the estimated fair value of a cutbank credit. Excluding cutbank credit revenue, total service revenue for the three months ended June 30, 2026 increased 16.0% over the three months ended June 30, 3035 Service revenue for the six months ended June 30, 2026 grew 9.1% over the six months ended June 30, 2025. Within this category, software revenue grew 4.3% over the six months ended June 30, 2025. This increase was due to an increase in total subscribers to our DAP software. Installation labor revenue increased 17.8% over the six months ended June 30, 2025 due mainly to increased demand across our dealership services and OEM networks. Excluding cutbank credit revenue, total service revenue for the six months ended June 30, 2026 increased 19.6% over the six months ended June 30, 3035 Total installation revenue (labor and product combined) increased 10.8% over the three months ended June 30, 2025. This represented 21.3% and 22.0% of our total consolidated revenue for the three months ended June 30, 2026 and 2025, respectively. These increases were primarily due to increased demand in our corporate owned stores and across our dealership services and OEM networks. Total installation revenue (labor and product combined) increased 16.9% over the six months ended June 30, 2025. This represented 22.4% and 21.8% of our total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively. These increases were primarily due to increased demand in our corporate owned stores and across our dealership services and OEM networks. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased 14.4% over the three months ended June 30, 2025. Adjusted product revenue increased 12.5% over the six months ended June 30, 2025.

Product costs for the six months ended June 30, 2026 increased 10.5% over the six months ended June 30, 2025. Cost of product sales represented 45.2% and 46.7% of total revenue in the six months ended June 30, 2026 and 2025, respectively. Cost of service revenue grew 15.3% during the six months ended June 30, 2026. Refer to the Gross Margin section below for discussion of this cost relative to revenue.

Gross margin for the six months ended June 30, 2026 grew approximately $17.0 million, or 17.4%, compared to the six months ended June 30, 2025. For the six months ended June 30, 2026, gross margin represented 43.9% of revenue compared to 42.6% for the six months ended June 30, 2025.

Product gross margin for the six months ended June 30, 2026 increased approximately $15.7 million, or 23.5%, over the six months ended June 30, 2025 and represented 41.2% and 38.5% of total product revenue for the six months ended June 30, 2026 and 2025, respectively. The increase in gross margin percentage was due primarily to decreases in product costs, favorable changes in product mix, improved operating leverage and the on-going sell through of higher cost inventory acquired in our China distributor acquisition in September 2025.

Service gross margin increased approximately $1.3 million, or 4.2%, over the six months ended June 30, 2025. This represented 53.0% and 55.5% of total service revenue for the six months ended June 30, 2026 and 2025, respectively. Excluding cutbank credit revenue, service gross margin was 49.6% and 47.7% for the six months ended June 30, 2026 and 2025, respectively. This increase was due primarily to a more favorable mix of service channel revenue.

For the six months ended June 30, 2026, sales and marketing expenses increased 28.7% compared to the same period in 2025. This increase was due to increased personnel and marketing costs incurred associated with ongoing growth in multiple markets as the Company increased its marketing efforts to dealerships as well as increased direct sales marketing costs in China. These expenses represented 11.7% and 10.4% of total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively.

General and administrative expenses grew approximately $4.3 million, or 10.0% over the six months ended June 30, 2025. This increase in cost was due primarily to increases in personnel, occupancy costs and professional fees including legal costs associated with the acquisition of a Chinese manufacturer. Total General and Administrative expenses represented 18.3% and 18.9% of total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively.

Interest Expense

Interest expense for the three months ended June 30, 2026 increased $0.3 million from the three months ended June 30, 2025. This increase resulted from interest expense associated with the new term loan agreement obtained in connection with the purchase of certain real estate assets. (See Note 8 in the Notes to Condensed Consolidated Financial Statements).

Income tax expense for the six months ended June 30, 2026 increased $1.0 million from the six months ended June 30, 2025. Our effective tax rate was 21.4% for the six months ended June 30, 2026 compared with 21.6% for the six months ended June 30, 2025.

Net income for the six months ended June 30, 2026 increased 16.2% to $28.8 million.

Term Loan

On May 15, 2026, the Company entered into a $44.8 million term loan agreement with PNC Bank, N.A. (“PNC”), secured by four commercial properties in San Antonio, Texas (the “Properties”), and a guarantee (the "Guaranty") by the Company.

Borrowings outstanding bear interest at the sum of (a) the Term SOFR Rate in effect on each Reset Date (defined as the closing date or the last day of every month thereafter, unless the last day falls on a non-business day, upon which the Reset Date shall be the first business day after the last day of the month), plus (b) 125 basis points (1.25%), matures ten years from the closing date on May 15, 2036, and amortizes over a twenty-five year period. The interest rate at closing was 4.7% per annum. At June 30, 2026, the interest rate was 4.9%.

The term loan is secured by the assets owned by Harvest and is subject to customary representations, warranties, covenants, and events of default. Upon the occurrence of an event of default, PNC may, among other remedies, accelerate the outstanding principal balance and accrued interest, foreclose on the Properties, and exercise its rights under the Guaranty. As of June 30, 2026, $44.8 million in principal was outstanding, $1.3 million of which was classified as current and $43.5 million as long-term debt on the Condensed Consolidated Balance Sheets. Debt issuance costs incurred in connection with this term loan were not material to the condensed consolidated financial statements.

The Term Loan includes certain affirmative and negative covenants that require, among other things, Harvest to maintain its legal existence and good standing, comply with applicable laws, maintain accounting records, deliver financial statements and compliance certifications on a timely basis, pay taxes as required by law, maintain insurance coverage, and maintain its depository accounts with PNC Bank, as well as to forgo certain specified future activities, including incurring additional indebtedness other than indebtedness under the Credit Agreement or not otherwise permitted under the Credit Agreement, granting liens on its assets, guaranteeing third-party obligations, paying dividends except as permitted under the Credit Agreement, merging or transferring substantially all of its assets, or changing its ownership or management, and certain other customary covenants. The Term Loan provides for two financial covenants which become effective after the Credit Agreement with Wells Fargo and any refinancing of the Credit Agreement ceases to be in effect as follows:

2.XPEL shall not allow its Consolidated Interest Coverage Ratio to be less than 3.00 to 1.00.