2025 Skala Industries Annual Letter to Our Clients, Community, and Investors.

Transformation, Discipline, and the Long game.

Section I: The State of Skala Industries

To our Clients, Community, and Investors:

2025 was a year of consequence. It was the year Skala Industries transitioned from a proof of concept into a disciplined operating company. We did not simply grow this year; we evolved. We confronted the hard realities of scaling a logistics and retail business, we made difficult decisions regarding capital allocation, and we fundamentally altered our business model to ensure long-term viability.

When we began 2025, we were primarily a vending machine operator. By the time we closed our books in December, we had pivoted from vending to micro markets. This was not an accident; it was a strategic pivot born from data. We recognized early in the year that the traditional vending model is decaying—largely due to mechanical obsolescence and capped revenue potential. Conversely, the Micro Market model offers higher customer satisfaction, significantly higher average transaction values, and a more durable competitive moat. We acted on this conviction aggressively, liquidating our vending assets and reinvesting capital into modern, open-market infrastructure.

This transformation required more than just new equipment; it required a new level of commitment. On July 4th, 2025, I stepped into the role of CEO on a full-time basis. This decision was not made lightly. It was a declaration of my absolute belief in our business model and the opportunities within the Las Vegas market. A responsible CEO cannot manage a war from the sidelines, and 2025 was a year of operational warfare—fighting for local market share, fighting for efficiency, and fighting to establish our standard of service.

We end the year having tested the limits of our operational capacity. We faced distinct challenges in the fourth quarter regarding liquidity and leverage—challenges that were self-inflicted by aggressive growth. However, we identified these risks early and corrected them with speed. In November and December, we shifted our focus from "growth at any cost" to building a "Fortress Balance Sheet." We sacrificed short-term expansion to pay down debt and build cash reserves.

We enter 2026 not just larger, but leaner, smarter, and battle-tested. We have proven that our model works, we have proven that we can fix our mistakes, and we have proven that we have the discipline to prioritize long-term survival over short-term vanity metrics. Skala Industries is strong, and we are just getting started.

2025 by the Numbers

• Pivot Execution: Successfully began liquidating vending assets.

• Unit Economics: Increased Average Transaction Value (ATV) from $2.15 to above $2.91.

• Customer Satisfaction: Maintained a perfect 5-Star Rating on Google.

• Liquidity: Transitioned Q4 focus to debt reduction and cash reserve accumulation.

Section II: Strategic Review, The Evolution of Our Business Model

Our strategy in 2025 was defined by a single, overarching realization: The traditional vending machine is a decaying asset.

For decades, the vending industry has operated on a scarcity model—limited selection, limited access, and limited trust. In 2025, we challenged that model. We found that when you remove the glass barrier and treat the customer with dignity, they reward you with loyalty and significantly higher spending. This is the thesis behind our aggressive and swift pivot to the Micro Market model, and the data from this year unequivocally validates that decision.

The Economics of "Open Air"

The most critical metric we track is Average Transaction Value (ATV). In the first quarter of 2025, operating primarily as a vending business, our ATV hovered around $2.15. By December, after converting key locations to Micro Markets and refining our product mix, our ATV climbed to over $2.91.

This 35% increase is not due to inflation; it is due to psychology. In a Micro Market, a customer can pick up a product, read the label, and purchase multiple items in a single transaction. They are not buying a "snack"; they are buying a bundle, an energy drink, and a treat. We effectively unlocked share-of-wallet that was previously inaccessible to us.

Execution Under Pressure

Transitioning a business model while operating it is equivalent to changing an engine mid-flight. We executed vending-to-market conversions at major client sites. In these instances, we replaced legacy machinery with open-market technology. The result was immediate: we eliminated the mechanical failure points of vending machines and replaced them with the scalable, cloud-based infrastructure of self-checkout kiosks.

However, operational excellence is not just about installing technology; it is about how you respond when that technology—or the environment—fails.

We faced real operational fires this year. We dealt with supply chain volatility, technical outages, and even a facility-level outage at a client's place of business. In every instance, we adhered to a simple principle: Radical Transparency. When a client's facility issue threatened our inventory standards in December, we did not wait for a customer complaint. We voluntarily suspended service at their location, discarded potentially compromised inventory at our own cost, and established the a new protocol—a new standard for onboarding future clients.

We do not hide from problems. We fix them, we learn and create new procedures from them, and we move forward. This resilience is what separates a vendor from a partner, and it is why we continue to maintain a 5-star reputation in this industry.

Section III: Financial Discipline, Building the "Fortress Balance Sheet"

In the excitement of a startup environment, it is easy to become intoxicated by top-line growth. In 2025, we achieved the six-figure revenue milestone—a significant achievement for a company that started in 2022 with a mere $8,000 investment. However, revenue is vanity; cash flow is sanity.

As we entered the fourth quarter, I conducted a hard review of our financial position. While our sales were growing, our leverage had grown with them. We used debt to finance our expansion across Las Vegas and to acquire the technology that drives our competitive advantage. This was the correct decision for the growth phase, but it created a balance sheet that was too thin for my comfort.

I operate on a simple principle: We do not run this company for optimistic scenarios; we run it to survive the pessimistic ones.

In October and November, we made the deliberate decision to temporarily pause expansion and pivot to a "Fortress Balance Sheet" mentality. We temporarily halted capital expenditures. We successfully liquidated under-performing legacy assets—selling off older vending machines to raise non-dilutive capital and grow our cash reserves.

We end 2025 with a managed debt load with a structure that is gradually improving and supported by reliable cash flow. We are not yet debt-free, nor is that the immediate goal for a capital-intensive logistics business. However, we have stopped the trend of expanding leverage and begun the discipline of reducing it. This ensures that in 2026, our cash flow can be reinvested into the business rather than servicing interest.

Alignment of Interests

Financial discipline starts at the top. When I took over as full-time CEO in July, I did so without a guaranteed base salary. For the majority of 2025, I relied on my own accumulated reserves- but I was in fact issued performance-based commissions generated from securing new business for Skala Industries. I was willing to take this personal financial risk because I believe in the asset value we are building, and I do believe the long-term incentive for both myself and the company will be well-worth-it.

I am pleased to report that Skala Industries has now reached a level of maturity and cash flow stability that allows the company to support a standard executive salary structure beginning in January 2026. This is a milestone that signifies the business is no longer a subsidized venture, but a self-sustaining company.

We are entering the new year with our eyes wide open. We will continue to invest in growth, but never at the expense of our solvency.

Section IV: Our Culture & Community

A balance sheet can tell you if a business is solvent, but it cannot tell you if a business is durable. Durability comes from culture, and it comes from the depth of the relationships you build with your clients, customers, team, and community.

From Vendors to Partners

In our industry, the standard relationship between a provider and a client is transactional. The provider installs a micro market, stocks the inventory, and vanishes until an issue arises. In 2025, we rejected that status quo. We operate with the belief that every service visit is a deposit into the relationship bank account.

This philosophy is not just a slogan; it is a growth driver. The clearest evidence of this is our expanding partnership with a local property management company that manages a wide portfolio of residential/apartment communities. We did not earn multiple contracts for their communities within 3 months time because we were the cheapest option or because we made the loudest sales pitch. We earned it because of our incredible execution at the first community they awarded us a contract with. We delivered on our promises, maintained the highest standards of cleanliness, and responded to issues with urgency. When you do the small things with excellence, the big opportunities follow. This "land and expand" strategy—growing deeper with existing trusted clients rather than solely burning through cold leads—will be a cornerstone of our commercial strategy in 2026.

The "Owner-Operator" Standard

Technology facilitates the transaction, but people deliver the service. I want to specifically acknowledge the operational dedication of our team, particularly my father Patrick, who has been instrumental in maintaining our logistics on the ground.

We have instilled a culture of "Owner-Operators" at Skala Industries. This means we do not walk past a problem. If a shelf is dusty, we clean it. If an item's logo is not facing the customer, we fix it. If a client has feedback, we take it seriously. This level of detail is rare in our sector, and it is the primary reason we have maintained a perfect 5-star rating on Google across our footprint throughout the year.

A Las Vegas Company

Finally, we are proud to be a local business rooted in the Las Vegas valley. We started here, we live here, and we invest here. While we do have plans to expand beyond the Las Vegas valley in the future, we are betting on this community because we believe in its long-term potential.

Section V: The Macro View, The Las Vegas Economy

Skala Industries does not operate in a vacuum. We are a Las Vegas company, and our performance is inextricably linked to the economic health of Southern Nevada. In 2025, the local economy began a distinct transition—moving from a pure tourism-dependent model to a diversified service and professional hub. Our data reflects this shift.

The "Real" Las Vegas

The "Real" Las Vegas While headlines often focus on the Las Vegas Strip, our business is built on the backbone of the real Las Vegas—the offices, medical centers, logistics hubs, and residential communities where locals live and work.

We have observed a distinct trend in 2025: the "Flight to Quality." In the commercial real estate sector, vacancy rates in older, Class B office buildings have softened, while Class A properties remain in high demand. Employers are realizing that if they want teams to return to the office, the environment must be compelling.

This trend is an opportunity for Skala Industries. A vending machine is a Class B amenity; a Micro Market is a Class A amenity. As companies look to upgrade their facilities to retain top talent, they view our services not as a utility, but as an employee benefit. We are effectively selling "office culture" in a box.

Navigating Inflation

Inflation remained a persistent reality in 2025. The Consumer Price Index (CPI) for the Western region hovered near 3.0%, with specific pressure on food and beverage costs. For a micro market business, this presents an interesting choice: absorb the cost and watch margins erode, or pass it on and risk customer pushback.

We chose the latter, but we did so strategically. We did not simply raise prices on the same stale products. We upgraded the product mix—introducing premium energy drinks, fresh meals at select locations, and higher-quality snacks—while simultaneously adjusting our pricing structure.

The result was a stress test of our pricing power. We found that our customers are less sensitive to price than they are to value. By aligning our inventory with consumer inflation psychology, we protected our margins without sacrificing volume or our reputation with out every day customers.

The Healthcare Hedge

Finally, our expansion into the healthcare sector (specifically medical centers) has provided us with a unique economic barometer. By servicing the staff who run these critical centers, we have anchored our business in a recession-resistant sector. Whether the economy booms or slows, the healthcare sector in Las Vegas continues to hire and operate 24/7- as the healthcare sector would in any city in the United States.

Section VI: Looking Ahead, The 2026 Roadmap

If 2025 was the year of "Proof of Concept," 2026 will be the year of "Infrastructure."

We have successfully validated that our Micro Market model generates superior returns. Now, we must build the physical and financial platform required to support that model at scale. We are no longer a company that can operate out of a small office or the back of a personal vehicle. To serve high-grade clients in a sustainable way, we must invest in high-grade infrastructure.

Investments in Physical Infrastructure

In the coming year, Skala Industries will make two significant capital investments to professionalize our logistics:

1. A Dedicated Facility: We have outgrown our current capabilities. We intend to secure a dedicated warehouse and office space that will serve as the nerve center for our inventory management. This will allow us to work with commercial wholesalers, reducing our Cost of Goods Sold (COGS), and provide a professional environment for our growing team.
   

2. Fleet Expansion: We will begin growing a fleet of company vehicles. This is not about aesthetics; it is about reliability and capacity. A purpose-built fleet ensures we can service our routes efficiently and present a professional face to our partners.

Modern Treasury Management

Building a "Fortress Balance Sheet" requires more than just paying down debt; it requires intelligent capital allocation. In an environment of persistent monetary inflation, holding 100% of our treasury in fiat currency is a guaranteed way to lose purchasing power over time.

Therefore, in 2026, we will begin a measured strategy of allocating a percentage of our excess free cash flow into Bitcoin. We view this not as a speculative trade, but as a long-term treasury reserve asset—a digital store of value that aligns with our philosophy of forward-thinking and financial sovereignty. This allocation will be executed with extreme discipline, ensuring it never compromises our operational liquidity.

The "Solvency First" Mandate

Finally, our budgeting philosophy for 2026 remains unchanged from the discipline we established in Q4 of 2025. We have built a "Survivable Budget." We are planning our year based on conservative revenue estimates, not optimistic growth targets. Our goal is to reach a point of complete financial independence, where our operational cash flow covers all fixed costs, all variable costs, and all debt service, with a healthy margin for error.

We will grow in 2026, but we will not grow for the sake of size. We will grow for the sake of value.

Section VII: Final Thoughts

Building a business is an exercise in relentless problem-solving. It requires the humility to admit when a strategy isn't working, the courage to change course, and the stamina to endure the quiet, unglamorous days of execution. 2025 was a test of all three. We passed, but we are under no illusions that the road gets easier from here. It simply gets more consequential.

I want to be transparent about where this road leads.

While we are currently laser-focused on Micro Markets, Skala Industries is not defined by the products we sell today. We are defined by a philosophy of value creation. Our long-term vision—looking toward 2030 and beyond my own lifetime—is to evolve Skala Industries into a diversified Holdings Company.

We are building this micro market business to be our first "engine"—a reliable generator of free cash flow. As we mature, our objective is to take that cash flow and allocate it intelligently into other durable assets and businesses, whether that be real estate, technology, or other service-based operating companies. We are not simply building a micro market route; we are building a platform for capital allocation.

This is a big ambition. It requires us to be excellent operators today so that we can be excellent allocators tomorrow. It demands that we treat every dollar of capital—whether from a sold vending machine or an investment—with the utmost respect and stewardship.

To Our Investors:

Thank you for your patience and your trust. You have backed us during a year of transition, and we are committed to rewarding that faith with compounding returns.

To Our Partners and Clients:

Thank you for allowing us into your spaces. We view your places of business as our showrooms, and we will continue to earn your business every single day.

We are building something here that is meant to last. We are not interested in the quick exit or the short-term flip. We are interested in the magic of compounding—of relationships, of reputation, and of capital.

2025 was the year we built the foundation. 2026 is the year we start building the skyscraper.

Your friend,

Nate Skala

Founder & Chief Executive Officer, Skala Industries