What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-10-14 compared with 2024-09-30 · 94 added, 5 removed, 86 unchanged (54% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion summarizes the significant factors affecting the results of operations and financial condition of the Company during the fiscal years ended June 30, 2025, and 2024 and should be read in conjunction with our financial statements and accompanying notes thereto included elsewhere herein.

Certain information contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is “forward-looking statements.” Statements that are not historical and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements.

These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed.

Our actual results may differ materially from the results discussed in this section because of various factors, including those set forth elsewhere herein.

See “Forward-Looking Statements” included in this report.

Results of Operations

The following table sets forth, for the periods indicated, information derived from our Consolidated Financial Statements, expressed as a percentage of net sales.

The discussion that follows the table should be read in conjunction with our Consolidated Financial Statements.

Cost of goods sold

Operating Expenses

Income from operations

Fiscal Year ended June 30, 2025 Compared to the Fiscal Year Ended June 30, 2024

Net sales remained nearly flat in fiscal 2025 compared to fiscal 2024.

Our Direct to Consumer segment rose by $1.1 million, or 16%, compared to FY2024, while our Wholesale segment declined by $1 million.

The direct sales channel includes consumer sales via our three websites.

The growth in this segment was driven by new marketing efforts on social media and influencer promotions on Liberator.com, along with higher sales through Jaxxbeanbags.com.

The decrease in wholesale sales was due to weaker demand from our brick-and-mortar customers and aggressive, low-price products from Chinese manufacturers sold via Amazon.

Gross profit.

Gross profit, derived from net sales less than product sales, includes the cost of materials, direct labor, manufacturing overhead, and depreciation.

Total gross profit as a percentage of sales for the year ended June 30, 2025, decreased to 26% from 27% in the prior year.

Gross profit dollars decreased to $6,469,682 from $6,526,367 in the prior year, representing a 1% decrease.

The Company increased the Inventory Reserve by $18,056 to $232,278 which impacted the Gross Profit for the year.

The Company also continued to implement cost reduction strategies such as sourcing more raw materials from China and India, reducing warehouse and production headcounts, and system improvements to better forecast inventory requirements.

The impact of import tariffs on raw materials may offset some of the savings from lower cost manufacturers and may impact our gross margin in the future.

Operating expenses.

Excluding depreciation expense, total operating expenses for the year ended June 30, 2025, were 25% of net sales, or $6,114,497, compared to 24% of net sales, or $5,940,238, for the year ended June 30, 2024.

The 3% increase in operating expenses from the prior year was primarily due to higher non-capitalizable facilities and equipment repairs, as well as personnel-related costs.

Other income (expense).

Other expense decreased to ($378,696) from expense of ($411,165) in the prior fiscal year.

Income tax expense.

Income tax expenses were $0 compared to an expense of ($162,000) in the prior fiscal year.

Net Income/ (Loss).

We had a net loss from operations of $448,659 or $(0.01) per diluted share, for the year ended June 30, 2025 compared with net loss from operations of $398,602 or $(0.01) per diluted share, for the year ended June 30, 2024 due to decrease in net sales and increase in operating expenses related to facilities and equipment repairs, as well as administrative headcount related costs.

Financial Information about Our Business Segmentation

We conduct our business through two segments:

Direct (consisting of our Internet websites) and Wholesale (consisting of our stocking resellers, drop-ship accounts, contract manufacturing, and distributor accounts).

During the last two years, substantially all of our revenue has been generated within North America, and all of our long-lived assets are located in the United States.

The following is a summary of our business segments:

Twelve Months Ended

June 30, 2025

June 30, 2024

(in thousands)

Cost of Goods Sold

Other direct operating expenses (a)

Overhead expenses(b)

Operating (loss) income

Interest income

Interest expense

Other expense, net

Loss from operations before income taxes

Reconciliation of operating (loss) income to adjusted operating income:

Operating (loss) income

Share-based compensation expense

Depreciation and amortization

Adjusted operating income

Other direct operating expenses are directly attributable to the business segment, such as marketing, salaries, customer relationship expenses, and travel and entertainment expenses.

Overhead expenses are all non-direct expenses related to the operation of the business segment.

It includes G&A, unallocated marketing expenses, facilities, product development, and depreciation.

Variability of Results

We have experienced significant quarterly fluctuations in operating results and anticipate that these fluctuations may continue in future periods.

Operating results have fluctuated due to changes in sales levels to consumers and wholesalers, competition, seasonality costs associated with new product introductions, and increases in raw material costs due to changing import tariffs.

In addition, future operating results may fluctuate due to factors beyond our control, such as increases in raw material costs, labor cost increases, foreign exchange fluctuations, changes in government regulations, and economic changes in the region where we operate and sell.

A portion of our operating expenses are relatively fixed and the timing of expense level increases is largely based on future sales forecasts.

Therefore, if net sales are below expectations in any given period, the adverse impact on the results of operations may be magnified by our inability to adjust spending in certain areas meaningfully or the inability to adjust spending quickly enough, as in personnel and administrative costs, to compensate for a sales shortfall.

We may also choose to increase spending in response to market conditions, and these decisions may adversely affect the financial condition and results of operations.

Liquidity and Capital Resources

The following table summarizes our cash flows:

(in thousands)

Cash flow data from continuing operations:

Cash provided/(used) by operating activities

Cash used in investing activities

Cash provided/(used) in financing activities

As of June 30, 2025, our cash and cash equivalents totaled $734,911 compared to $1,028,448 in cash and cash equivalents as of June 30, 2024.

Operating Activities

Net cash used by operating activities primarily consists of the purchase of inventories and the effect of changes in operating assets and liabilities.

Net cash used by operating activities decreased from the prior year due to the increase in accounts receivable.

Investing Activities

Cash used in investing activities in the year ended June 30, 2025, was primarily for a replacement database server purchased in the period.

In the year ended June 30, 2024, cash used from investing activities was related to the purchase of a forklift and commercial printer.

Financing Activities

Cash provided by financing activities in the year ended June 30, 2025, was due to the addition of two unsecured notes payable totaling $500,000, offset partially by the repayment of unsecured notes payable and equipment loans.

Cash used by financing activities in the year ended June 30, 2024, was from the repayment of equipment notes payable and the unsecured line of credit.

Capital Resources

We expect total capital expenditures for fiscal 2026 to be less than $100,000, funded primarily by equipment loans and, to a lesser extent, anticipated operating cash flows and borrowings under the line of credit with Advance Financial Corporation.

This includes capital expenditures supporting our usual operations.

If our business plans and cost estimates are inaccurate, or if our operations require additional cash, or if we deviate from our current plans, we might need to seek additional debt financing for specific projects or ongoing operational needs.

Such debt could harm our business if we cannot secure further financing on acceptable terms.

Additionally, any debt we take on in the future could come with restrictive covenants that limit our flexibility in planning for or responding to changes in our business.

If we fail to comply with these covenants, our lenders could accelerate the repayment of our debt or restrict our access to more borrowings, which could limit our operational flexibility and threaten our ability to continue operations.

Off-Balance Sheet Arrangements

52 unchanged sentences

Finished goods and goods in process include a provision for manufacturing overhead, including depreciation.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).

Accounting for Income Taxes

12 unchanged sentences

If the estimated fair value is less than the book value, the asset is written down to the estimated fair value, and an impairment loss is recognized.

In fiscal years 2023 and 2024, we generated positive cash flows from operations.

However, if our long-term future results do not continue to yield positive cash flows in excess of the carrying amount of our long-lived assets, we would anticipate possible future impairments of those assets.

In fiscal year 2025, we generated negative cash flow from operations, and in fiscal year 2024, we generated positive cash flow from operations.

If our long-term future results do not yield positive cash flows in excess of the carrying amount of our long-lived assets, we would anticipate possible future impairments of those assets.

Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets, including operating and macroeconomic factors that may affect them.

2 unchanged sentences

Reconciliation of net loss to Adjusted EBITDA for the years ended June 30, 2025 and 2024:

Year ended June 30,

Twelve Months Ended

(in thousands)

13 unchanged sentences

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 7. Management’s Discussion and Analysis