CRITICAL ACCOUNTING POLICIES AND ESTIMATES





Deferred Income Taxes

Deferred income taxes are recognized for the expected tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts, based upon exacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The Company accounts for income taxes under Topic 740 - Income Tax in the Accounting Standards Codification. A valuation allowance is used to reduce deferred tax assets to the net amount expected to be recovered in future periods. The estimates for deferred tax assets and the corresponding valuation allowance require us to exercise complex judgments. We periodically review and adjust those estimates based upon the most current information available. We had a valuation allowance of $144,619 as of June 30, 2020. We had no valuation allowance as of June 30, 2021.





Results of Operations

Comparison of Fiscal 2021 and 2020.

During fiscal 2021 and 2020, our results of operations related solely to the operations of AMERX. Net sales during fiscal 2021 were approximately $4,720,000 as compared to approximately $4,334,000 in fiscal 2020, an increase of approximately $386,000 or 9%. Sales grew through continued sales of core brands combined with growth in new product brand sales.

Cost of sales were approximately $1,331,000 in fiscal 2021, as compared to approximately $1,135,000 in fiscal 2020, an increase of approximately $196,000 or 17%. Cost of sales in fiscal 2021, as a percentage of net sales, increased to 28%, from 26% in the previous fiscal year ending 2020.

Gross profit increased to approximately $3,389,000 during fiscal 2021, as compared to approximately $3,199,000 during fiscal 2020, an increase of about $189,000, or 6%. As a percentage of net sales, gross profit was approximately 72% in fiscal 2021 as compared to 74% in fiscal 2020.

Operating expenses during fiscal 2021 were approximately $3,162,000, consisting of approximately $1,832,000 in salaries and benefits and $1,330,000 in selling, general and administrative expenses. Operating expenses in fiscal 2020 were approximately $3,046,000 and consisted of approximately $1,730,000 in salaries and benefits and approximately $1,317,000 in selling, general and administrative expenses. This represents an increase in expenses of approximately $116,000 in fiscal 2021 over the operating expenses in fiscal 2020. As a percentage of net sales, operating expenses during fiscal 2021 were 67% as compared to 70% during fiscal 2020; as gross profit increased approximately $189,000 for the year on an approximately $116,000 increase in operating expenses. Salaries and Benefits increased slightly. Selling, General and Administrative expenses increased primarily due to shipping expense increases from increased sales.


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Income from operations finished at approximately $227,000 in 2021, as compared to approximately $153,000 in fiscal 2020. Income before income taxes finished at approximately $734,000 in 2021, as compared to income of approximately $160,000 in 2020. Net income (after dividend requirements for Preferred Shares) was approximately $678,000 during fiscal 2021, compared to approximately $95,000 of net income during fiscal 2020. The Company recorded approximately $39,000 of income tax expense when determining the net income available to common shares in fiscal 2021, compared to $48,000 in fiscal 2020.

Management believes it is more likely than not that the tax benefit of approximately $446,000 of NOL carryforwards will be realized. Therefore, management did not provided valuation allowance. Management will continue to evaluate its operating results each reporting period and assess whether it will be able to utilize all available NOL carryforwards before expiration.

Liquidity and Capital Resources

Historically, we have financed our operations through revenues from operations. As of June 30, 2021, our principal sources of liquidity included inventories of approximately $591,000, net accounts receivable of approximately $497,000, cash of approximately $1,227,000, and certificates of deposit of approximately $280,000. We had net working capital of approximately $2,136,000 at June 30, 2021.

Operating activities provided cash of approximately $280,000 during fiscal 2021, and approximately $199,000 during fiscal 2020, consisting primarily of an increase in net income of approximately $694,000, in fiscal 2021 and an decrease in inventory, in fiscal 2020. Cash provided by investing activities during fiscal 2021 was approximately $480,000 as compared to cash used by investing activities in fiscal 2020 of approximately $24,000, respectively. Cash used in financing activities during fiscal 2021 was $199,000 compared cash provided by financing activities of $201,000 during fiscal 2020, respectively.

During fiscal 2021, no holder of shares of Preferred Stock converted its shares to Common Stock.

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