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Item 1A. Risk Factors

2025-12-23 compared with 2024-07-01 · 145 added, 83 removed, 328 unchanged (41% of the section changed)

The risks and uncertainties set forth below, as well as other risks and uncertainties described elsewhere in this Annual Report on Form 10-K including in our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or in other filings by BNED with the SEC, could adversely affect our business, financial condition, results of operations and the trading price of our common stock.

The risks and uncertainties set forth below, as well as other risks and uncertainties described elsewhere in this Annual Report on Form 10-K (this "Form 10-K") including in our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or in other filings by BNED with the SEC, could adversely affect our business, financial condition, results of operations and the trading price of our common stock.

Additional risks and uncertainties that are not currently known to us or that are not currently believed by us to be material may also harm our business operations and financial results.

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We must have sufficient sources of liquidity to fund working capital requirements.

The combination of cash-on-hand, cash flow received from operations, funds available under our credit agreements and short-term vendor financing must be sufficient to meet our normal working capital and debt service requirements for at least the next twelve months.

If these sources of liquidity do not satisfy our requirements, we may not operate as a going concern and will need to seek additional financing, such as recently completed Transactions detailed in Part II - Item 8.

Financial Statements and Supplementary Data - Note 17.

Subsequent Events .

In addition, we may require additional capital in the future to sustain or grow our business, including implementation of our strategic initiatives.

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Financial Statements and Supplementary Data - Note 2.

Summary of Significant Accounting Policies.

Basis of Presentation and Summary of Significant Accounting Policies.

We face significant competition for our products and services, and we expect such competition to increase.

We operate within a competitive and rapidly changing business environment, in general, and each of our lines of business faces competition for the products and services they offer.

We face competition from other college bookstore operators and educational content providers, including Follett Corporation, a contract operator of campus bookstores;

Textbook Brokers, a bookstore management and operations provider;

and BBA Solutions, a college textbook retailer.

Our online/virtual course material store operations also face competition from eCampus, an online provider of course materials, and Akademos, a virtual bookstore and marketplace for academic institutions, and on occasion, Ambassador Educational Solutions.

We also face competition from other third-party sellers and local bookstores, as well as direct-to-student platforms including, bn.com, the e-commerce platform of Barnes & Noble, Inc.;

We face competition from other college bookstore operators and educational content providers, including Follett Corporation, eCampus, University Gear Shop, Valor Campus, Textbook Brokers, Slingshot, and BibliU.

Our online/virtual course material store operations also face competition from providers including eCampus, Akademos, and Ambassador Educational Solutions.

We also face competition from other third-party sellers and local bookstores, as well as direct-to-student platforms including, Amazon, bn.com, the e-commerce platform of Barnes & Noble, Inc.;

Chegg.com, an online textbook rental company;

publishers, including Cengage Learning, Pearson Education and McGraw-Hill Education, which bypass the traditional retail distribution channel by selling directly to students and institutions.

and publishers, including Cengage Learning, Pearson Education and McGraw-Hill Education, which bypass the traditional retail distribution channel by selling directly to students and institutions.

We face competition from e-Textbook/digital content providers, VitalSource Technologies, Inc., and Red-Shelf.

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As a consequence, in addition to being competitive in the services we provide to our customers, our textbook business faces significant price competition.

Some of our competitors have adopted, and may continue

Some of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems development.

In addition, a variety of business models are being pursued for the provision of print and digital textbooks, some of which may be more profitable or successful than our

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to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems development.

In addition, a variety of business models are being pursued for the provision of print and digital textbooks, some of which may be more profitable or successful than our business model, including our BNC First Day equitable and include access models.

business model, including our BNC First Day ® affordable access course material models.

Furthermore, the market for course materials is diluted from counterfeiting and piracy of digital and print copies or illegal copies of selected chapters made by students or others;

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The retail price charged to the consumer for textbooks is set by our contracts with colleges and universities to be a maximum markup based on the publishers’ costs and as colleges continue to focus on affordability those prices have been reduced, which has negatively impacted our revenue and margin and further reductions could continue to have a negative impact.

In addition, we may face significant competition in retaining existing physical and virtual store contracts and when renewing those contracts as they expire.

Our physical bookstore contracts are typically for five years with renewal options, and most contracts are cancellable by either party without penalty with 90 to 120 days notice.

In addition, we may face significant competition in retaining existing physical and virtual store contracts when renewing those contracts as they expire.

Our physical bookstore contracts are typically for five years with renewal options, and most contracts are cancellable by either party without penalty upon advance notice ranging from 90 to 180 days depending on contract.

Our virtual bookstore contracts are typically for three to five years, and most are cancellable without penalty with notice.

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The products that we sell originate from a wide variety of domestic and international vendors.

During Fiscal 2024, our four largest retail suppliers, excluding our wholesale business which fulfills orders for all our physical and virtual bookstores, accounted for approximately 28% of our merchandise purchased, with the largest supplier accounting for approximately 7% of our merchandise purchased.

Our wholesale business sources over 95% of its inventory from two primary channels, approximately 55% from third-party suppliers and approximately 40% from retail bookstores (including our retail bookstores).

During Fiscal 2025, our four largest suppliers accounted for approximately 54% of our merchandise purchased, with the largest supplier accounting for approximately 45% of our merchandise purchased.

While we believe that our relationships with our suppliers are good, suppliers may modify the terms of these relationships due to general economic conditions or otherwise or, especially with respect to wholesale inventory, publishers could terminate distribution to wholesalers, including our wholesale business.

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If our current suppliers were to stop selling merchandise, content or services to us on acceptable terms, including as a result of one or more supplier bankruptcies due to poor economic conditions or refusal by such suppliers to ship products to us due to delayed or extended payment windows as a result of our own liquidity constraints, we may be unable to procure the same merchandise, content or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

Additionally, delayed or incomplete publisher shipments of physical textbook orders, or delays in receiving digital courseware access codes, could have an adverse impact on sales, including our BNC First Day Complete equitable access program, which relies upon timely receipt of inventory in advance of class start dates each academic term.

Additionally, delayed or incomplete publisher shipments of physical textbook orders, or delays in receiving digital courseware access codes, could have an adverse impact on sales, including our BNC First Day ® Complete affordable access course material programs, which relies upon timely receipt of inventory in advance of class start dates each academic term.

Furthermore, certain of our merchandise is sourced indirectly from outside the United States.

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Some textbook publishers rent textbooks on consignment terms directly to students.

Accordingly, we have entered into agreements with a number of textbook publishers to administer their consignment rental programs with distributors and their direct to student textbook consignment rental programs.

Accordingly, we have entered into agreements with certain textbook publishers to administer their consignment rental programs with distributors and their direct to student textbook consignment rental programs.

These programs, if successful, will result in a substantial decrease in the supply of those titles from the used textbook inventory supply, which impacts our wholesale business.

Our wholesale business is a national distributor for rental textbooks offered through McGraw-Hill Educations consignment rental program (which includes approximately 1,292 titles) and Pearson Education’s consignment rental program (which includes approximately 998 titles).

Through its centrally located, advanced distribution center, our wholesale business offers the seamless integration of these consignment rental programs and centralized administration and distribution to approximately 1,450 stores, including our Retail Segment stores.

These consignment rental programs are available to our wholesale customers, including institutionally run and contract-managed campus bookstores, as well as our physical and virtual bookstores.

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In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively affected by natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), geopolitical events and security issues, labor or trade disputes, and similar events.

We currently rely on a limited number of third-party global providers to deliver inventory to us and deliver completed orders to our customer.

If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers’ experience.

Furthermore, changes to the terms of our shipping arrangements or the imposition of surcharges or surge pricing have in the past and may in the future adversely impact our margins and profitability.

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To the extent we are unable to attract new students or students spend less generally, our business could be adversely affected.

Tariffs or other restrictions placed on imports, and any ensuing trade wars may have a material adverse impact on our financial condition and results of operations.

Many of our products are sourced and manufactured abroad.

The Trump administration announced a series of tariffs throughout 2025 on most products originating from countries worldwide, including potential higher tariffs on most products of Chinese origin.

The Trump administration has since reduced or temporarily paused some of the tariffs and has reached agreement on tariffs with certain countries.

We cannot predict whether such reductions will remain in place or pauses will be extended, whether the Trump administration will continue to increase tariffs, or whether the Trump administration will enter into agreements with other countries to reduce tariffs.

If these or other incremental tariffs go into effect, it could have a material adverse effect on our business, financial condition and results of operations.

Our business is seasonal.

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Given the growth of BNC First Day ® programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized.

When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution’s drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.

As a higher percentage of our sales shift to BNC First Day equitable and

When a school adopts our BNC First Day ® affordable access course material

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inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors and cash inflows from collections from schools.

As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the customer accesses the digital content compared to:

programs, cash collection from the school generally occurs after the institution’s drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.

As a higher percentage of our sales shift to BNC First Day ® affordable access course material programs, we are focused on efforts to better align the timing of our cash outflows to course material vendors and cash inflows from collections from schools.

As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the digital content is made available to the customer compared to:

(i) the rental of physical textbook where revenue is recognized over the rental period, and (ii) a la carte courseware sales where revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores.

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A failure to comply with applicable laws and regulations could result in regulatory enforcement actions, as well as substantial civil and criminal penalties assessed against us and our employees.

The impact of public health crises, epidemics, and pandemics, could have a material adverse effect on our business, financial condition, results of operations, stock price, and liquidity.

Public health crises, epidemics, and pandemics, related governmental reactions and economic conditions may have a negative impact on our business, liquidity, results of operations, and stock price due to the occurrence of some, or all, of the following events or circumstances:

• the closing or limited operations of our campus retail stores;

• reductions in government funding of education could negatively impact the budgets of public educational institutions and K-12 schools, which could impact the demand for our products and services;

• our inability to realize our expected return on textbooks in our print textbook library as educators transition to online curriculums and the lack of supply of used textbooks as a result of limited on-campus buyback opportunities;

• disruptions to the operations of our logistics and distribution suppliers, which could impact our ability to timely deliver our print textbooks to students;

• our vendors’ inability to fill our textbook or general merchandise orders due to disruptions to their operations, supply chains or overwhelming demand from their own customers;

• system interruptions that slow our website or make our website unavailable as our third-party software and service providers experience increased usage;

• a significant reduction in U.S.

economic activity and increased unemployment, which could lead to decreased enrollment and consumer spending;

• the potential negative impact on the health of our employees, particularly if a significant number of them are impacted, could affect our ability to ensure business continuity during the period of disruption related to the pandemic;

• governmental orders have forced many of our on-site and management office employees to work remotely, which may adversely impact our ability to effectively manage our business and maintain our financial reporting processes and related controls, as well as introduce operational risk, including an increased vulnerability to potential cyber security attacks.

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Risks Relating to our Strategic Plan

Our results also depend on the successful implementation of our strategic initiatives, including implementation of our BNC First Day equitable and inclusive access course material models.

Our results also depend on the successful implementation of our strategic initiatives, including implementation of our BNC First Day ® affordable access course material models.

We may not be able to implement this strategy successfully, on a timely basis, or at all.

In response to our changing business environment and to adapt to industry trends, we are focused on offering course materials sales through our equitable and inclusive access First Day Complete and First Day models to meet the market demands of reducing costs to students and contributing to improved student outcomes, while increasing our market share, revenue and relative gross profits of course materials sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales.

In response to our changing business environment and to adapt to industry trends, we are focused on offering course materials sales through our affordable access First Day Complete and First Day models to meet the market demands of reducing costs to students and contributing to improved student outcomes, while increasing our market share, revenue and relative gross profits of course materials sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales.

These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted.

We are moving quickly to accelerate our First Day Complete strategy.

Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.

Many institutions adopted First Day Complete in Fiscal 2025, and we continue to scale the number of schools adopting First Day Complete .

We cannot guarantee that we will be able to achieve these plans within these timeframes or at all.

While we believe we have the capital resources, experience, management resources and internal systems to successfully implement our BNC First Day equitable and inclusive access models across our client portfolio, we may not be successful in implementing this strategy.

While we believe we have the capital resources, experience, management resources and internal systems to successfully implement our BNC First Day ® affordable access models across our client portfolio, we may not be successful in implementing this strategy.

The implementation of this strategy is a complex process and relies on leveraging our services and relationships to help accelerate the adoption of our First Day Complete strategy.

The success of our future operating results will be dependent upon rapid customer adoption of BNC First Day equitable and inclusive access models and our ability to scale our business to meet customer demand appropriately.

If colleges and universities, faculty and students are not receptive to our BNC First Day equitable and inclusive access models or these models do not meet the expectations of these constituencies, there could be a negative impact on the implementation of our strategy.

The success of our future operating results will be dependent upon customer adoption of BNC First Day ® affordable access models and our ability to scale our business to meet customer demand appropriately.

If colleges and universities, faculty and students are not receptive to our BNC First Day ® affordable access models or these models do not meet the expectations of these constituencies, there could be a negative impact on the implementation of our strategy.

To successfully execute this strategy, we need to continue to further evolve the focus of our organization towards the delivery of cost effective and unique solutions for our customers.

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(“VST”) and with the F/L Relationship which may not be successful.

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As part of our strategy, we will continue to seek, and may, in the future acquire, businesses or business operations, or enter into other business transactions to grow our business and expand our product and service offerings.

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In the future, we may invest in new products and services and other initiatives to generate revenues, but there is no guarantee these approaches will be successful.

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new markets, integration into our existing business, legal and regulatory compliance, evolution in sales and marketing methods, and maintenance and protection of intellectual property and proprietary rights.

Development of new products and services create integration risk, while development of new products and services and enhancements to existing products and services involve significant time, labor and expense, and are also subject to risks and challenges, including managing the length of the development cycle, entry into new markets, integration into our existing business, legal and regulatory compliance, evolution in sales and marketing methods, and maintenance and protection of intellectual property and proprietary rights.

If we are not successful with our new products and services, we may not be able to maintain or increase our revenues as anticipated or recover any associated development costs, and our financial results could be adversely affected.

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Department of Education could require a client to suspend our access to their student information.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a

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target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

A party that is able to circumvent our security measures could misappropriate our proprietary information or our customers' and employees' personal information, and cause interruption in our operations.

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Such a security breach or data loss could lead to negative publicity, damage to our reputation, exposure to litigation and liability, theft, modification or destruction of proprietary information and personal data, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions and remediation and other significant costs, which could adversely affect our reputation, financial condition and results of operations.

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Computer malware, viruses, hacking and phishing attacks could harm our business and results of operations.

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Amazon Web Services (“AWS”) and other third-party web service providers provide a distributed computing infrastructure platform for business operations, or what is commonly referred to as a “cloud” computing service.

We have architected our software and computer systems so as to utilize data processing, storage capabilities, and other services provided by AWS and other providers.

We have architected our

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software and computer systems so as to utilize data processing, storage capabilities, and other services provided by AWS and other providers.

We rely on third-party software and service providers, including AWS, to provide systems, storage and services, including user log in authentication, for our website.

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states pertaining directly or indirectly to commercial email regulate unsolicited commercial emails, create civil and criminal penalties for emails containing fraudulent headers and control other abusive online marketing practices;

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Federal Trade Commission (the “FTC”) has guidelines that impose responsibilities on companies with respect to communications with consumers and impose fines and liability for failure to comply with rules with respect to advertising or marketing or sales practices they may deem misleading or deceptive;

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• In the absence of a federal comprehensive data privacy law, 20 U.S.

states have enacted comprehensive consumer privacy laws as of April 29, 2024, e.g., the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, with enforcement commencing on July 1, 2020.

states have enacted comprehensive consumer privacy laws as of May 3, 2025, including California with the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, with enforcement commencing on July 1, 2020.

CCPA, as amended, provides California consumers the right to know what personal data companies collect, how it is used, and the right to access, delete and opt out of sale of their personal information to third parties.

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CPRA amends and adds to CCPA by strengthening rights of California consumers, further restricting business use of consumer personal information, and establishing a new government agency for enforcement.

Other states enacting comprehensive consumer privacy laws include Colorado, Connecticut, Delaware, Indiana, Iowa, Kentucky, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Tennessee, Texas, Utah and Virginia.

Other states enacting comprehensive consumer privacy laws include Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Kentucky, Maryland, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Texas, Utah and Virginia.

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Even if no applicable laws or regulations are further enacted, we may discontinue use or support of these activities if we become concerned that consumers deem them intrusive, or they otherwise adversely affect our goodwill and brand.

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For example, changes in federal and state minimum wage laws could raise the wage requirements for certain of our employees at our retail locations, which would increase our selling costs and may cause us to reexamine our wage structure for such employees.

Recent actual and proposed federal policy changes and enforcement practices could negatively impact college students, and our client educational institutions.

In 2025, there have been numerous actions and proposals by the federal government that have created uncertainty for public and private college institutions, as well as their students.

Should any of these actions and policies move forward they, or even the threat of these actions, could negatively impact student enrollment at U.S.

colleges and universities, decrease operating budgets, and adversely affect our business and operating results and financial condition.

Among these proposed or actual policies are:

• Restrictions on issuances of student visas, and deportation of foreign students.

In 2025, there have been high profile instances of students with traditionally protective immigration status being arrested, deported, or having their student visas revoked.

There have also been proposals to expand the scope of bans on visa issuances.

In addition, an executive order was recently issued that bans travelers from 19 countries from entering the U.S.

Changes in U.S.

immigration regulations or other laws, practices and frequency or methods of enforcement which discourage immigration or international study could adversely affect our future growth.

Reduced or disrupted international study patterns are likely to reduce enrollment and harm our operating results.

• Reduced government funding .

Actual or threatened withholdings of federal funding to colleges and universities could negatively impact our results of operations.

While some schools reached agreement with the U.S.

government to allow for funding to continue in whole or in part - subject to specified conditions - others have not, and unreconciled instances continue to create uncertainty.

Changes at the federal level regarding education policy could impact state funding for higher education.

This could result in financial uncertainty for public universities that rely on state support, potentially constraining budgetary.

Any reduction in federal funding could adversely affect our college client’s financial stability, leading to diminished operational budgets, fewer student services, and declines in enrollment, which could reduce the demand for our services and negatively impact our operating results.

• Reductions to, or elimination of, student loan programs and the U.S.

Department of Education .

Changes in student loan regulations or a reduction in U.S.

government support for loan programs - particularly for international study - could make the cost of attending college prohibitively expensive for families, leading to decreased enrollment.

This could also deter prospective students from enrolling.

We have historically, and expect to continue to, process U.S.

student loan payments and a loss of these payment flows or a reduction in the number of students enrolling in higher education institutions that accept U.S.

student loan payments could have a material adverse effect on our results of operations and business.

Changes in tax laws and regulations might adversely impact our businesses or financial performance.

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While management believes that the financial statements included elsewhere in this Form 10-K reflect management’s best current estimate of any potential additional sales tax liability based on current discussions with taxing authorities, we cannot assure you that the outcome of any discussions with any taxing authority will not result in the payment of sales taxes for prior periods or otherwise, or that the amount of any such payments will not be materially in excess of any liability currently recorded.

In the future, our businesses may be subject to claims for not collecting sales tax on the products and services we currently sell for which sales tax is not collected.

In the future, our businesses may be subject to claims for not collecting sales tax on the products and services we currently sell for

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which sales tax is not collected.

In addition, our provision for income taxes and our obligation to pay income tax is based on existing federal, state and local tax laws.

Changes to these laws, in particular as they relate to depreciation, amortization and cost of goods sold, could have a significant impact on our income tax provision, our projected cash tax liability, or both.

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Risks Relating to Intellectual Property

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We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business.

If we were found to have infringed the intellectual property rights of a third party, we could be liable to that party for license fees, royalty payments, lost profits or other damages, and the owner of the intellectual property might be able to obtain injunctive relief to prevent us from using the

If we were found to have infringed the

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technology or software in the future.

intellectual property rights of a third party, we could be liable to that party for license fees, royalty payments, lost profits or other damages, and the owner of the intellectual property might be able to obtain injunctive relief to prevent us from using the technology or software in the future.

If the amounts of these payments were significant or we were prevented from incorporating certain technology or software into our products, our business could be significantly harmed.

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to maintain the licensed trademarks.

Risks Relating to our Common Stock and the Securities Market

We are not in compliance with the NYSE’s minimum share price requirement and thus are at risk of the NYSE delisting shares of our Common Stock, which would have an adverse impact on the trading volume, liquidity and market price of shares of our Common Stock.

On February 27, 2024, we received a letter from NYSE notifying us that, for the last 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements of Rule 802.01C of the NYSE Listed Company Manual.

Pursuant to Rule 802.01C of the NYSE Listed Company Manual, a company will be considered to be below compliance standards if the average closing price of a security fell below $1.00 over a period of 30 consecutive trading days.

A company can regain compliance with the minimum share price requirement at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, the company has (i) a closing share price of at least $1.00 and (ii) an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month.

In the event that at the expiration of the six-month cure period, both a $1.00 closing share price on the last trading day of the cure period and a $1.00 average closing share price over the 30 trading-day period ending on the last trading day of the cure period are not attained, the NYSE will commence suspension and delisting procedures.

We have taken remedial actions to cure such deficiency.

On June 11, 2024, we completed a reverse stock split of the Company’s outstanding shares of common stock at a ratio of 1-for-100 (the “Reverse Stock Split”), which was previously approved by stockholders at a special meeting held on June 5, 2024.

In connection with the Reverse Stock Split, every 100 shares of the common stock issued and outstanding was converted into one share of the Company’s common stock.

However, we cannot assure you that we will be able to cure this deficiency or comply with other NYSE continued listing standards.

A delisting of shares of our Common Stock from the NYSE could negatively impact us as it would

Risks Related to Controls and Procedures and the Investigation

We have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of May 3, 2025 due to material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and could have a material adverse impact on our business and financial condition.

We are required to evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

As described in Part II - Item 9A.

Controls and Procedures of this Annual Report on Form 10-K, we have identified material weaknesses in internal controls over financial reporting.

As a result of these material weaknesses, our management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of May 3, 2025.

We are engaged in developing and implementing a remediation plan, as described in Part II - Item 9A.

Controls and Procedures of this Form 10-K, designed to address the material weaknesses, but our remediation efforts are not complete and are ongoing.

Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully developed, when it will be fully implemented, or the aggregate cost of implementation.

Until our remediation plan is fully implemented, our management will continue to devote time and attention to these efforts.

If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected.

If we are unable to report our results in a timely and accurate manner, our stock may be delisted from the New York Stock Exchange (the “NYSE”) and we will not be able to comply with the applicable covenants in our financing arrangements, including our credit agreement, as

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likely reduce the liquidity and market price of shares of our Common Stock, reduce the number of investors willing to hold or acquire shares of our Common Stock, and negatively impact our ability to access equity markets and obtain financing.

Three of our stockholders collectively own over 72% of the Company’s outstanding shares, and their interests could differ from the interests of our other stockholders.

As of June 10, 2024, Immersion Corporation (“Immersion”), Fanatics and VitalSource respectively own 42.0%, 17.1% and 12.3% of the Company’s outstanding shares of Common Stock.

Based on the foregoing, Immersion, TopLids and Vital have considerable influence or collective veto control regarding the outcome of any transaction or action that requires stockholder approval, including the election of our Board of Directors, mergers, acquisitions, amendments to our charter and various corporate governance actions.

Our Board of Directors is composed of seven members, four of whom are executives and members of the Board of Directors of Immersion Corporation.

described in Risks Related to our Business and Industry, “We are dependent upon access to the capital markets, bank credit facilities and short-term vendor financing for liquidity needs.” In addition, we could be subject to regulatory investigations and penalties or stockholder litigation.

Any of these risks could have a material adverse impact on our business and financial condition.

If we fail to maintain proper and effective internal controls, our business and financial condition could be materially adversely impacted.

We cannot assure you that we will not discover additional deficiencies in our internal control over financial reporting.

Moreover, as discussed in the following risk factor, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all.

Prior to May 3, 2025, we had been a non-accelerated filer under the Exchange Act and were not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).

Therefore, our internal controls over financial reporting for the prior periods did not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements.

Further and continued determinations that there are deficiencies in the effectiveness of the Company’s internal control over financial reporting could result in another restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties or stockholder litigation, and materially adversely impact our business, financial condition, results of operations and cash flows.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors, theft and fraud, or in informing management of all material information in a timely manner.

Management does not expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all errors or fraud.

A control system is designed to give reasonable, but not absolute, assurance that the objectives of the control system are met.

In addition, any control system reflects resource constraints and the benefits of controls must be considered relative to their costs.

Inherent limitations of a control system may include:

judgments in decision making may be faulty, breakdowns can occur simply because of error or mistake and controls can be circumvented by collusion or management override.

Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Matters relating to or arising from the subject of the Investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.

We have incurred, and may continue to incur, significant expenses related to legal, accounting and other professional services in connection with matters relating to or arising from the subject of the Investigation in fiscal years 2025 and 2026.

To the extent steps we take to remediate deficiencies in our internal controls over financial reporting are not successfully identified and implemented, we may incur significant additional time and expense.

In addition, we elected to self-report the Investigation to the Securities and Exchange Commission (the “SEC”).

If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or other remedies.

We can provide no assurances as to the outcome of any governmental inquiry or investigation.

Further, we, our officers and members of our Board of Directors could be named as defendants in lawsuits asserting claims arising out of the subject matter of the Investigation.

As a result of any legal proceedings and any related indemnification requirements to our officers and directors, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors.

All of these expenses, and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows.

We may incur additional substantial costs in connection with remediation efforts following the restatement, which could adversely affect our results of operations.

We are undertaking significant efforts to remediate material weaknesses in our internal control over financial reporting and to enhance our disclosure controls and procedures.

These efforts have required and will continue to require significant management time and financial resources.

We may incur substantial costs in connection with these remediation activities,

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including consulting fees, audit and professional service fees, and upgrades to our financial reporting systems and controls.

These additional expenses could materially adversely affect our results of operations and financial condition.

We may be required to indemnify our current and former directors, officers and employees in connection with litigation and other actions which could result in significant legal expenses and other costs to us.

Our corporate governance documents and applicable indemnification agreements require us to defend and indemnify our current and former directors and officers, and certain employees and contractors against enumerated liabilities and expenses incurred as a result of legal proceedings and investigations, including any potential regulatory actions or litigation arising out of the matters related to the investigation and restatement.

As a result, we may be obligated to advance and ultimately pay substantial legal costs, settlement amounts, or judgments on behalf of these individuals.

These indemnification obligations could significantly increase our legal expenses and could materially adversely affect our financial condition and cash flows.

It may be difficult or costly to obtain director and officer insurance coverage in the future as a result of the Restatement.

As a result of the Restatement, the investigation and related risks, our current directors’ and officers’ liability insurance (“D&O Insurance”) providers may seek to increase premiums significantly, impose additional exclusions, or refuse to renew coverage altogether.

In addition, we may face challenges in obtaining comparable coverage from alternative insurance carriers on commercially reasonable terms, or at all.

A reduction in the scope or amount of D&O Insurance coverage could adversely affect our ability to attract and retain qualified directors and officers, and expose us to greater potential liability, which could have a material adverse effect on our financial condition, governance, and ability to operate our business.

We have not been in compliance with SEC reporting requirements and NYSE continued listing rules.

If we are unable to return to or remain in compliance with SEC reporting requirements and NYSE continued listing rules, there may be a material adverse effect on the Company and our stockholders.

Due to the delays in filing our periodic reports with the SEC, as a result of the investigation and the Restatement, we failed to timely file our Annual report on Form 10-K for the fiscal year ended May 3, 2025, and our Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2025.

As a result, we have not been in compliance with the reporting requirements of the Exchange Act, and have received notice of noncompliance from the NYSE regarding our failure to comply with the NYSE continued listing requirements.

Although we are actively working to regain compliance through the filing of our restated financial statements and other delayed reports, there is no assurance that we will timely regain and maintain compliance.

If we are unable to maintain our listing on the NYSE, it could materially adversely affect the liquidity and trading price of our Common Stock, reduce our access to the capital markets, and impair our ability to attract and retain employees, customers, and suppliers.

Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital, may impact our ability to obtain alternative financing, and could have negative consequences under the terms of our existing credit agreements.

Our failure to timely file our periodic reports with the SEC restricts our ability to use a registration statement on Form S-3, which limits our ability to access the public markets quickly and efficiently.

It may also restrict our ability to raise capital through traditional private placements, as potential investors may be reluctant to invest in a company that is not current or has a history of not being current in its SEC filings.

In addition, our failure to file periodic reports could constitute a default under certain covenants in existing or future credit facilities, which could lead to the acceleration of outstanding indebtedness or other adverse consequences.

The combined effect of these factors could materially and adversely affect our liquidity, financial condition, and results of operations.

Risks Relating to our Common Stock and the Securities Market

Three of our stockholders collectively own close to a majority of the Company’s outstanding shares, and their interests could differ from the interests of our other stockholders.

As of May 3, 2025, Immersion Corporation (“Immersion”), VitalSource, and Fanatics, respectively, own 32.9%, 9.5% and 4.9%, of the Company’s outstanding shares of Common Stock.

Based on the foregoing, Immersion, VitalSource and Fanatics have considerable influence or effective control regarding the outcome of any transaction or action that requires stockholder approval, including the election of our Board of Directors, mergers, acquisitions, amendments to our charter and various corporate governance actions.

Our Board of Directors is composed of seven members, four of whom are members of the Board of Directors of Immersion Corporation, two of whom are also executives of Immersion Corporation.

Immersion has agreed to maintain at least three directors on our Board of Directors that satisfy the independence standard under NYSE rules applicable to audit committee members.

However, Immersion through its stock ownership may have significant influence over the election of all Board members, inclusive of the independent directors.

Each of Immersion, TopLids and Vital may have interests different than those of other stockholders.

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Each of Immersion, VitalSource and Fanatics may have interests different than those of other stockholders.

For example, they may delay or prevent a change of control of us, even if such a change of control would benefit other stockholders, or pursue strategies that are different from the wishes of other investors.

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Our Amended and Restated Certificate of Incorporation and our Amended and Restated By-laws contain provisions which, together with applicable Delaware law, may discourage, delay or prevent a merger or acquisition that our stockholders consider favorable, including provisions that:

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• authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive;

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These provisions may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of the Company, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their Common Stock at a price above the prevailing market price.

Our stockholder rights plan, or “poison pill,” includes terms and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.

In order to provide the Board with time to make informed decisions that are in the best long-term interests of the Company and its stockholders, on April 16, 2024, our Board adopted a stockholders rights plan, such plan which could discourage, delay or prevent an acquisition of the Company at a premium price.

The rights plan provides for preferred stock purchase rights attached to each share of our Common Stock, which will cause substantial dilution to a person or group acquiring 10% or more of our stock if the acquisition is not approved by our Board of Directors.

As a result, the overall effect of the rights plan may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving our Company that is not approved by the Board of Directors even if the offer may be considered beneficial by some stockholders.

The Rights will expire no later than January 31, 2025.

Our Amended and Restated By-laws designate courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Our Amended and Restated By-laws provide that, subject to limited exceptions, the state and federal courts of the State of Delaware are the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL, our Amended and Restated Certificate of Incorporation or our Amended and Restated By-laws or (d) any other action asserting a claim that is governed by the internal affairs doctrine.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors