Dogness(DOGZ) - 2025 Q4 - Annual Report

Financial Performance - For the fiscal year ended June 30, 2025, revenues increased to $20.71 million, up 39% from $14.85 million in 2024[46] - Gross profit for the fiscal year 2025 was $5.03 million, representing a gross margin of approximately 24.2%[46] - The net loss for the fiscal year 2025 was $5.10 million, a decrease from a net loss of $6.06 million in 2024, indicating an improvement in financial performance[46] - Total assets as of June 30, 2025, were $116.85 million, an increase from $99.20 million in 2024[47] - Current liabilities decreased to $6.11 million in 2025 from $8.54 million in 2024, reflecting improved liquidity[47] - Total equity increased to $97.75 million in 2025 from $76.41 million in 2024, indicating a stronger financial position[47] Cash Flow and Dividends - Dogness transferred $6.0 million to HK Dogness for working capital in fiscal 2025, primarily sourced from equity financing[48] - The company has not paid dividends to shareholders and does not expect to do so in the foreseeable future due to retained earnings for operational support[40] - The company anticipates continued reliance on its subsidiaries for cash flow, with potential restrictions on dividend payments due to PRC regulations[41] - The company relies on dividends from its mainland China subsidiaries for cash requirements, which may be restricted by PRC regulations[58] Market and Competition - The Chinese market for pet products is rapidly growing, with increasing consumer spending, but competition is intensifying, posing challenges for market presence[66] - The company is experiencing challenges in the U.S. market due to inflation affecting consumer spending, which could impact sales and profitability[65] - The company's revenues from smart products were approximately $6.3 million, $4.4 million, and $7.4 million for the years ended June 30, 2025, 2024, and 2023, respectively, indicating fluctuating consumer acceptance[73] Regulatory Environment - The mainland China legal system presents uncertainties that may limit legal protections available to the company, potentially affecting its operations[58] - The company may be classified as a "Resident Enterprise" under the Enterprise Income Tax Law, leading to unfavorable tax consequences[58] - Recent regulatory changes may impose additional criteria on emerging market companies, potentially affecting the company's NASDAQ listing[128] - The regulatory environment in China remains uncertain, with potential future requirements for obtaining government permission for U.S. listings, which could adversely affect operations[191] - The Chinese government has implemented the Listing Records Rules effective March 31, 2023, requiring companies to file for overseas offerings and listings, which may significantly impact the ability to offer Class A Common Shares[186] Legal and Compliance Risks - The company faces significant risks from disruptions in international supply chains, which could adversely impact its business and profitability[60] - The company faces enforcement risks for shareholder liabilities due to the majority of its assets and management being located in mainland China[58] - The company may face penalties for underreporting social security and housing fund contributions for employees in mainland China[113] - The company has identified material weaknesses in internal control over financial reporting, which could impact investor confidence and market price[125] - The company may face liabilities for content distributed on its platform that violates PRC laws, which could materially affect its financial condition[198] Intellectual Property and Technology - The company owns 120 patents and 174 trademarks in China, and 89 patents and 51 trademarks outside China, which are crucial for maintaining market share[86] - The company has faced challenges in protecting its intellectual property rights, which could lead to potential losses in market share if patents expire or are circumvented[89] - The company is developing next-generation smart collars and harnesses to operate on 5G technology, but sales are expected to remain nominal until fully brought to market[76] Financing and Investment - The company may require additional financing in the future, which could impose restrictions on operations and limit flexibility in business planning[102] - The company has a 10% interest in Dogness Network, which is developing the Dogness smartphone App for smart collars, expected to generate subscription revenue in the near future[78] Operational Challenges - The company relies on third-party logistics providers for shipping products from China, which poses risks of service failures and could harm its reputation[85] - The primary raw materials are subject to price volatility, and increases in raw material costs could adversely impact financial results[82] - The company is dependent on third-party application stores for timely updates and product uploads, which could affect product functionality and customer satisfaction[81] - The company’s plan to vertically integrate production may not yield the expected cost control benefits, potentially making products less competitive[84] Shareholder and Governance Issues - As of October 16, 2025, the CEO holds approximately 94.67% of the voting power due to the dual-class share structure, limiting shareholder influence[116] - The company is subject to less stringent reporting obligations as a foreign private issuer, which may affect the information available to investors[119] - The trading price of the company's Class A Common Shares has fluctuated between $2.86 and $174.80 since listing, with the last reported price at $14.38[151] Data Security and Privacy - The PRC Data Security Law imposes obligations on entities regarding data security and privacy, which could affect the company's operations[180] - The company must comply with the Personal Information Protection Law when providing services to individuals located in China[205] - Regulatory requirements regarding cybersecurity and data privacy are subject to change, creating uncertainties about the company's responsibilities[206] Foreign Exchange and Taxation - The company may be subject to filing obligations under SAFE regulations for offshore investments, which could restrict its ability to distribute profits from its subsidiaries[232] - The evolving nature of foreign exchange regulations may impose stricter review processes, impacting the company's financial operations and acquisition strategies[235] - The PRC tax reporting obligations for indirect transfers of stock may impose significant compliance costs and risks for the company[227]