Full Year Financial Statement And Dividend Announcement 2025

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Condensed Consolidated Interim Statements of Profit or Loss:

Condensed Consolidated and Company Statements of Financial Position as at:

Review of Performance

Overview

The natural diamond polishing industry, from which the Group still derives most of its revenues, has been negatively impacted by the loss of significant market share, primarily in the key U.S. market, to lab-grown diamonds (LGD). Weak consumer demand in China also persists. The LGD segment is itself experiencing destabilising issues, stemming from oversupply driving an ongoing decline in wholesale prices. This, coupled with intensifying competition among retailers, has driven down retail LGD prices. The "devaluation" of LGD jewellery has led some consumers to reassess their perception of this product and has also driven retailers to seek means by which to differentiate their offerings from others', especially for those retailers selling very high-end LGD jewellery.

The Group has made progress in executing its strategic initiatives, albeit not to the point of compensating for the slowdown in the Group’s traditional business, driven by the ongoing industry challenges. The expansion of our Most Valuable Plan™ (MVP) for optimising the planning of natural rough diamonds to additional stone sizes and the opening of a GCAL by Sarine lab in India have expanded our portfolio, attracting new customers and generating new recurring revenue streams. These initiatives also bolster our strategic position for future growth, particularly as the MVP continues to expand into larger carat-plus natural rough diamonds and GCAL's higher-end reports (the 8X and Signature versions) gain recognition as the best available tool to differentiate higher-end LGD products from the commoditised ones.

The Group reported revenues of US$ 14.3 million in H2 2025, a loss from operations of US$ 2.0 million and a net loss of US$ 3.7 million, as compared to revenues of US$ 17.3 million, a loss from operations of US$ 1.5 million and a net profit of US$ 0.1 million in H2 2024. The Group recorded negative EBITDA for H2 2025 in the amount of US$ 0.4 million, as compared to a positive EBITDA of US$ 0.8 million in H2 2024. For the year ended December 31, 2025, the Group recorded revenues of US$ 29.6 million, a loss from operations of 1.9 million and a net loss of US$ 3.9 million, as compared to revenues of US$ 39.2 million, loss from operations of nil and net profit of US$ 1.1 million for the year ended December 31, 2024. The Group recorded positive EBITDA for the year ended December 31, 2025 in the amount of US$ 1.2 million, as compared to US$ 4.1 million for the year ended December 31,2024.

The decreased profitability for H2 2025 compared to H2 2024, derived from lower sales significantly further impacted by non-cash tax expenses in respect of previous years in the amount of US$ 1.4 million. Further factors affecting our profitability were no further development costs being capitalised, due to the Group achieving commercialisation of the relevant product, the lack of a positive adjustment of US$ 1.1 million in the valuation of GCAL Put / Call options, which were realized in H2 2024, offset by a benefit of US$ 0.6 million due to an early lease termination.

In accordance with our strategy of recent years, the Group’s business continues to pivot to deriving mostly recurring revenues from its proprietary services, including the Gal3D inclusion mapping software (which processes the Galaxy® platforms’ output) the MVP rough diamond planning cloud-based solution, LGD rough planning solutions, GCAL's diamond and jewellery grading reports and other pay-per-use services such as light performance and traceability reports, These service-based revenues now constitute most of the Group’s revenues.

Balance Sheet and Cash Flow Highlights

As at December 31, 2025, cash, cash equivalents and short-term investments (bank deposits) (“Cash Balances”) decreased to US$ 22.0 million as compared to US$ 26.3 million as of December 31, 2024. The decrease in Cash Balances was primarily due to US$ 6.7 million invested in and loaned to Kitov a.i, as noted above, offset by US$ 4.5 million cash generated by operating activities.

Revenues

Revenues for H2 2025 of US$ 14.3 million, decreased by 18%, as compared to revenues of US$ 17.3 million reported in H2 2024. The decrease in revenues, across most geographies, pertained both to capital equipment sales and recurring revenues. Revenues for the year ended December 31, 2025 of US$ 29.6 million, declined by 25%, as compared to US$ 39.2 million for the year ended December 31, 2024. The overall decline in sales resulted from the ongoing challenging business conditions in the entire diamond jewellery value chain.

Cost of sales and gross profit

Cost of sales for H2 2025 of US$ 6.5 million decreased by 20%, as compared to US$8.2 million reported in H2 2024 (on a decrease in revenues of 18%), with a gross profit margin of 54% in H2 2025 compared to 53% in H2 2024. The increase in gross profit was primarily due to decreased overall sales and operational expenses saved by the transfer of our manufacturing to our subsidiary in India.

Cost of sales for the year ended December 31, 2025 of US$ 13.2 million, decreased by 19% (on a decrease in revenues of 25%), as compared to US$ 16.2 million for the year ended December 31, 2024, with a gross profit margin of 55% for the year ended December 31, 2025 compared to 59% in the year ended December 31, 2024. The decrease in gross profit in year ended December 31, 2025 and the corresponding decrease in gross profit margin was primarily due to lower sales, which was somewhat off-set by the decrease in operational expenses achieved by the transfer of our manufacturing operations to the subsidiary in India and the Group cost-savings initiatives.

Research and development expenses

Due to the Group achieving commercialisation of previously capitalised LGD grading related development costs, the Group ceased Research and Development expenses capitalisation as of H2 2025. As a result, Research and Development expenses for H2 2025 totalled US$ 3.2 million and increased by 12% as compared to US$ 2.8 million in H2 2024. Research and development expenses for the year ended December 31, 2025 of $6.0 million decreased by 10% as compared to US$ 6.7 million for the year ended December 31, 2024, mainly due to the Group cost-savings initiatives.

Sales and marketing expenses

Sales and marketing expenses for H2 2025 of US$4.6 million decreased by 14% as compared to US$ 5.4 million in H2 2024. Sales and marketing expenses for the year ended December 31, 2025 of US$ 9.1 million decreased by 17% as compared to US$ 11.0 million in year ended December 31, 2024. The decrease in Sales and marketing expenses is attributed primary to lower sales commissions as a result from lower capital equipment sales.

General and administrative expenses

General and administrative expenses for H2 2025 of US$ 2.0 million decreased by 20%, as compared to US$ 2.4 million in H2 2024. General and administrative expenses for the year ended December 31, 2025 of US$ 3.8 million, decreased by 29%, as compared to US$ 5.3 million for the year ended December 31, 2024. The decrease General and administrative expenses was mainly due to the Group cost-savings initiatives and a one-off Goodwill write off reported in H2 2024.

Gain from lease termination

The Group reported a one-time US$0.6 million cost savings windfall from an office lease reduction for the year ended December 31, 2025.

Loss from operations

The Group reported a loss from operations of US$ 2.0 million in H2 2025 compared to a loss of US$1.5 million in H2 2024, and a US$ 1.9 million loss from operations for the year ended December 31, 2025, as compared to zero for the year ended December 31, 2024. The decrease in sales and in gross profit was partly offset by operational cost reductions as a result of the Group cost-savings initiatives, a one-off Goodwill write off reported in H2 2024, and a windfall gain from the lease reduction.

Net finance income

Net finance expense for H2 2025 was US$ 0.1 million, as compared to US$ 1.4 million income in H2 2024. Net finance expense for the year ended December 31, 2025 was US$ 0.1 million as compared to US$ 1.5 million income for the year ended December 31, 2025. The decrease in net finance income was mainly due to a US$0.1 million expense in H2 2025 for the fair value adjustment of the Call option related to the GCAL acquisition, as compared to an income of US$1.2 million from fair value adjustment in H2 2024 related to those same Call and Put options related to GCAL acquisition, along with a US$0.2 million expense for H2 2025 and a US$0.4 million expense for the year ended December 31, 2025 due to the decline in the US$ to NIS conversion rate.

Income tax expense

The Group recorded an income tax expense of US$ 1.3 million for H2 2025, as compared to an income tax benefit of US$ 0.1 million in H2 2024. The Group recorded an income tax expense of US$ 1.6 million for the year ended December 31, 2025, as compared to US$ 0.4 million for the year ended December 31, 2024. The increase in income tax expense was primarily due to the non-cash tax expenses in respect of previous years in the amount of US$ 1.4 million, as noted above, as well as by the profitability being realised in various entities of the Group, each subject to different jurisdictions and applicable incentives, along with income tax loss carryforwards.

Profit (Loss) for the period

The Group reported a net - loss of US$ 3.7 million in H2 2025 compared to a net profit of US$0.1 million in H2 2024 and a net loss of US$ 3.9 million for the year ended December 31, 2025 as compared to a net profit of US$ 1.1 million for the year ended December 31, 2024, as the Group cost-savings initiatives and the lease reduction windful could not compensate for lower operational profitability due to the lower sales, further impacted by the non-cash tax expenses in respect of previous years, all as detailed above.

Commentary

We expect the following industry trends to continue influencing our business (also refer to section 6 above’s Overview commentary):

1. Demand for natural diamonds is anticipated to remain stable at current reduced levels. In February 2026, the US and India reached an Interim Trade Agreement, that includes a provision to eventually eliminate tariffs completely on loose natural diamonds and gemstones imported from India. Though the initial reduction and eventual elimination of U.S. tariffs on natural diamonds is expected to streamline the pipeline between the Indian suppliers and US wholesalers and retailers, and has contributed to a more positive mood in India, an immediate significant rebound in manufacturing in India is not anticipated, as prior to the implementation of tariffs very significant quantities of polished goods were shipped to the U.S. These stockpiled inventories enabled U.S. retailers to continue selling natural diamonds, despite the high tariffs that were introduced on imports from India.
   
   
2. The decline in retail prices for LGD is expected to continue, albeit at a slower pace. The reduction in LGD retail prices and hence their perceived value (or lack thereof), is accelerating the segmentation and differentiation between rare natural stones and commoditised LGD. Furthermore, there is an evolving differentiation between premium LGD and mainstream lower-quality products, with the former clearly attaining higher retail prices and the latter being denigrated to fashion jewellery. This is expected to create significant opportunities for GCAL's more-esteemed 8X and Signature reports in 2026, as we are already experiencing, also in light of the GIA, previously considered the supplier of higher-end reports, discontinuing its grading of LGD in accordance with the conventional 4Cs nomenclature.
   
   
3. The adoption of and derived revenues from our revolutionary cloud-based MVP solution for optimising natural rough diamond utilisation continued to grow in 2025. We expect the adoption to significantly accelerate in 2026 with the introduction of more advanced optimisation capabilities for the existing domain of rough stones mostly under one carat in weight and, more importantly, as we progress with the adaptation of MVP's functionality to larger sized stones, where the value-proposition is significantly higher.
   
   
4. Rappaport has launched its “GreenSource” initiative, aiming to identify diamonds that are ethically sourced, responsibly mined and traceable to their origin. GreenSource is governed by the “Rapaport Traceability Standard,” which aligns closely with the principles behind Sarine’s traceability approach -- relying on actual verifiable scans captured at multiple points along the pipeline, rather than declarations. Together with our cooperation with De Beers’ Tracr, this development positions Sarine’s “Diamond Journey” at the forefront of industry traceability solutions.
   
   
5. In order to further diversify away from our dependence on midstream natural diamond polishing volumes, we continue to explore and evaluate possible opportunities. Among these:
   • Our jewellery evaluation and documentation services in GCAL's New York office have increased due to work being done for large U.S. retailers, for jewellery containing both natural stones and LGD. We are currently working on establishing a dedicated facility in India to serve the growing demand for these services;
   • We are at the very preliminary stages of exploring additional opportunities related to industrial applications (e.g., electronics) for LGD;
   • We are also looking into potential synergies with financial entities for supporting their extension of credit to the diamond and gemstone industry based on actual collateral verification and valuation.