Annual Report for Fiscal Year Ending 06-30, 2026 (Form 10-K)

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, 2026, and 2025 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

Overview

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.

		Year Ended
		June 30,
		2026				2025
Net sales			100.0	%			100	%
Cost of goods sold			68.5	%			70.5	%
Gross profit			31.5	%			29.5	%
Operating Expenses			28.3	%			29.8	%
Income from operations			3.2	%			(0.3	)%

Fiscal Year ended June 30, 2026 Compared to the Fiscal Year Ended June 30, 2025

Net Sales. Net sales grew 5.8% in fiscal 2026 compared to fiscal 2025. Our Direct to Consumer segment rose by $0.1 million, or 2%, compared to fiscal 2025, while our Wholesale segment rose by $1.3 million or 8%. Wholesale increase was related to the continued increase in our dropship network. The direct sales channel includes consumer sales via our three websites. The increase in this segment was driven by new marketing efforts from social media influencers and pay per click. The increase in wholesale sales was due to higher demand from our International and new customers. Fiscal 2025 net sales have been increased by $1,163,648 for third-party marketplace fulfillment fees now recorded in selling expense, as described in Note 2, and the growth rates above are presented on that comparable basis.

Gross profit. Gross profit, derived from net sales less the cost of 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, 2026, increased to 31.5% from 29.5% in the prior year. Gross profit dollars increased to $8,613,562 from $7,633,516 in the prior year, representing a 12.8% increase. Fiscal 2025 gross profit and gross margin as presented reflect the $1,163,648 revision described in Note 2, and both years are presented on a comparable basis. The Company increased the Inventory Reserve by $68,598 to $300,877 which negatively 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. Gross margin during fiscal 2026 was also negatively affected by higher fuel, freight and raw material costs arising from the armed conflict involving Iran, which began during our third fiscal quarter and disrupted shipping through the Middle East. Benchmark crude oil prices rose sharply during that period and have remained volatile through the date of this report. The cost reduction initiatives described above, offset these higher input costs during fiscal 2026, and gross margin improved notwithstanding the cost pressure. Because a substantial portion of our raw materials is sourced from Asia, a prolonged conflict, further disruption to Middle East shipping lanes, or a sustained increase in fuel prices could raise our inbound freight and raw material costs faster than we are able to offset them and could adversely affect our gross margin, operating results and liquidity in fiscal 2027.

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Operating expenses. Excluding depreciation expense, total operating expenses for the year ended June 30, 2026, were 27% of net sales, or $7,386,273, compared to 28% of net sales, or $7,274,981 for the year ended June 30, 2025. The 1.5% increase in operating expenses from the prior year was primarily due to higher selling expenses related increased payroll costs, partially offset by tighter cost controls for G&A expenses. Fiscal 2025 operating expenses include $1,163,648 of third-party marketplace fulfillment fees reclassified from net sales, as described in Note 2, so both years are presented on a comparable basis.

Other income (expense). Other expense increased to ($446,861) from expense of ($378,696) in the prior fiscal year. Increase was due to short term loan interest expense.

Income tax expense. Income tax expense was $674,636 for the fiscal year ended June 30, 2026, compared to $0 in the prior fiscal year. Fiscal 2026 income tax expense consisted of a deferred tax provision of approximately $719,000, partially offset by the reversal of approximately $44,000 of prior tax accruals after the Internal Revenue Service and the Georgia Department of Revenue accepted the related amended returns. The deferred tax provision principally reflects deferred tax liabilities associated with right-of-use assets, including those arising from the November 7, 2025 renewal of the operating lease for our manufacturing facility, and with property and equipment. Significant items in the reconciliation of income tax expense to the U.S. federal statutory rate included an increase in the valuation allowance of approximately $382,000, state and local income taxes of approximately $101,000, and a prior-period deferred tax adjustment of approximately $137,000. There was no current income tax provision in either fiscal yeart.

Net Income/ (Loss). We had a net loss from operations of ($245,718) or ($0.00) per diluted share, for the year ended June 30, 2026 compared with net loss from operations of ($448,659) or $0.00 per diluted share, for the year ended June 30, 2025. The decrease in loss is due to flat operating expenses and increased gross profit, which was mostly offset by the tax impact of the new operating lease for the facility.

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												Twelve Months Ended
		June 30, 2026												June 30, 2025
(in thousands)		Direct to Consumer				Wholesale				Total				Direct to Consumer				Wholesale				Total
Revenues		$	8,304			$	19,060			$	27,364			$	8,155			$	17,700			$	25,855
Cost of Goods Sold			4,720				14,030				18,750				5,739				12,482				18,221
Other direct operating expenses (a)			1,251				2,706				3,957				1,203				2,569				3,772
Overhead expenses(b)											3,429												3,503
Operating income before depreciation			2,333				2,324				1,228				1,213				2,649				359
Interest income											(4	)											(5	)
Interest expense											451												377
Depreciation and amortization											352												428
Other expense, net											-												7
Income/(loss) from operations before income taxes			2,333				2,324				429				1,213				2,649				(448	)
Reconciliation of operating income to adjusted operating income:
Operating income			2,333				2,324				1,225				1,213				2,649				359
Adjustments:
Share-based compensation expense											28												37
Adjusted operating income		$	2,333			$	2,324			$	1,253			$	1,213			$	2,649			$	396

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

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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

		Year ended
The following table summarizes our cash flows:		June 30,
		2026				2025
		(in thousands)
Cash flow data from continuing operations:
Cash provided/(used) by operating activities		$	773			$	(410	)
Cash used in investing activities		$	(29	)		$	(41	)
Cash provided/(used) in financing activities		$	(280	)		$	158

As of June 30, 2026, our cash and cash equivalents totaled $1,199,011 compared to $734,911 in cash and cash equivalents as of June 30, 2025.

Operating Activities

Net cash provided by operating activities was $773,000 for the year ended June 30, 2026 compared to cash used in operating activities of $410,000 in the prior year. The improvement was primarily attributable to increase in net sales, expansion of the gross margin, deferred tax expense and a reduction in inventory.

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Investing Activities

Net cash used in investing activities was ($29,000) for the year ended June 30, 2026, compared to ($41,000) in the prior year. Cash used in investing activities was for expansion of the woodworking equipment. To expand the woodworking capabilities, a glue machine $5,000, joiner and planer $22,000.

Financing Activities

Net cash used in financing activities was ($280,000) for the year ended June 30, 2026, compared to net cash provided by financing activities of $158,000 in the prior year. Cash used in financing activities was primarily attributable to repayments of secured notes payable and equipment notes, partially offset by borrowings under the revolving line of credit and proceeds from a $250,000 secured note payable entered into in September 2025.

Capital Resources

We expect total capital expenditures for fiscal 2027 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 expenditure supporting our usual operations.

At June 30, 2026, the Company had working capital of $1,865,702, compared to $1,022,459 at June 30, 2025, an increase of $843,243. The Company believes that it has sufficient working capital to meet financial needs over the next twelve months.

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

We do not use off-balance sheet arrangements with unconsolidated entities or related parties, nor do we use other forms of off-balance sheet arrangements. Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of June 30, 2026, we did not have any material off-balance-sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

Effect of Recently Issued Accounting Standards and Estimates

We do not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on our consolidated financial position, results of operations, or cash flows.

Application of Critical Accounting Policies and Estimates

Our consolidated financial statements included under Item 8 in this report have been prepared in accordance with GAAP. Our significant accounting policies are described in the notes to our consolidated financial statements. Preparing financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies that we believe are important to the portrayal of our financial condition and results of operations. These policies require the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in such estimates or assumptions. Our critical accounting policies include those listed below.

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Revenue Recognition

We record revenue based on the five-step model which includes: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when the performance obligations are satisfied. Substantially all of our revenue is generated by fulfilling orders for the purchase of manufactured products and product purchased for resale to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders may be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which we are responsible under the terms and conditions of the order are not accounted for as performance obligations but as fulfillment costs. These activities are required to fulfill our promise to transfer the goods and are expensed when revenue is recognized. The impact of this policy election is insignificant as it aligns with our current practice.

Revenue is measured as the net amount of consideration expected to be received to fulfill a performance obligation. We have elected to exclude sales, use and similar taxes from the measurement of the transaction price. The impact of this policy election is insignificant, as it aligns with our current practice. The amount of consideration expected to be received and revenue recognized includes variable consideration estimates, including costs for trade promotion programs, coupons, returns, and early payment discounts. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. We review and update these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Revenue is recognized at the point in time that control of the ordered products is transferred to the customer. Generally, this occurs at the time of the shipment from our warehouse. or in some cases, picked up from one of our distribution centers by the customer.

Allowance for Credit Losses

We sell certain products directly to consumers through third-party online marketplaces, including Amazon. We have evaluated these arrangements and determined that we are the principal, as we control the products before they are transferred to the customer, are primarily responsible for fulfilling the promise to provide the products, bear inventory risk, and have discretion in establishing pricing. Accordingly, revenue from these sales is recognized on a gross basis. Marketplace, referral, commission, fulfillment, shipping, and related fees associated with certain online sales, which were previously recorded as a reduction of net sales, are included in other sales and marketing expenses. Prior period amounts have been reclassified to conform to the current period presentation. The reclassification had no impact on operating income (loss), net income (loss), or cash flows.

Inventories

We value inventory at the lower of cost or net realizable value on an item-by-item basis and establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the net realizable value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve amount in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or net realizable value, management considers such factors as the amount of inventory on-hand, the estimated time required to sell such inventory, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer demand or other factors differ from expectations. Finished goods and goods in process include a provision for manufacturing overhead, including depreciation.

Accounting for Income Taxes

We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets. At June 30, 2026, we carried a valuation allowance of $1.9 million against our gross deferred tax assets.

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Impairment of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. 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 year 2026, we generated positive cash flow from operations compared to negative cash flow from operations in fiscal year 2025. 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. We use historical financial information, internal plans and projections, and industry information to make such estimates.

Non-GAAP Financial Measures

Reconciliation of net loss to Adjusted EBITDA for the years ended June 30, 2026 and 2025:

		Year Ended
		Jun-30
		2026				2025
		(in thousands)
Net income (loss)		$	(246	)		$	(448	)
Plus interest expense and financing costs			447				379
Plus depreciation and amortization expense			352				428
Plus stock-based compensation expense			28				36
Plus income tax provision			675				0
Adjusted EBITDA		$	1,256			$	395

As used herein, Adjusted EBITDA represents net income before interest income, interest expense and financing costs, depreciation, stock-based compensation and income taxes expense. We have excluded depreciation and stock-based compensation expenses because they are non-cash expenses that do not reflect the cash-based operations of the Company, and we have excluded interest income, interest expense and financing costs, and income taxes because they reflect our capital structure and tax position rather than our core operating performance. Adjusted EBITDA is a non-GAAP financial measure that is not required by or defined under GAAP. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income of the Company or net cash provided by operating activities.

Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company's net income as determined in accordance with GAAP and are not a substitute for or a measure of the Company's profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and because it is less susceptible to variances in actual performance resulting from depreciation and amortization and non-cash charges for stock-based compensation expense and loss on disposal of assets.