Flux Analysis Report - January to September 2025

Executive Summary

$8.9M

Cash Increase

-$1.3M

Net Loss YTD

476%

AR Growth

31.7%

Revenue Growth

Top 5 Findings

• Operational Turnaround: Despite a net loss of $1.3M, operating activities generated $6.5M in cash through aggressive working capital management
• Revenue Surge: 31.7% revenue growth driven by Design & Consultancy (+22,056%) and Furniture Hire (+5,350%) segments
• AR Collection Risk: Accounts Receivable exploded 476% to $5.5M, indicating potential collection issues or credit policy changes
• Inventory Optimization: Successfully reduced inventory by $2.8M (15.8%), improving cash conversion
• Liability Surge: Current liabilities increased 271% to $13.3M, raising liquidity concerns

Key Risks

• AR aging and collection concerns
• Negative profitability trajectory
• Working capital pressure
• Deferred revenue obligations up 2,279%

Opportunities

• Service revenue diversification success
• Strong international cash positions
• Inventory efficiency improvements
• September operational improvement trend

1. Cash Flux Analysis High Confidence

Cash position strengthened by $8.9M despite operational losses, driven by working capital management

Cash Movement	Amount ($M)	% of Total
Beginning Cash (Dec 2024)	32.82	—
Operating Activities	+6.54	73.2%
Investing Activities	+0.24	2.7%
Financing Activities	+2.16	24.2%
Ending Cash (Sep 2025)	41.75	+27.2%

Cash Flow Waterfall (Direct Method)

$32.8M

Beginning

+$6.5M

Operating

+$0.2M

Investing

+$2.2M

Financing

$41.8M

Ending

Indirect Cash Flow Reconciliation

Component	Amount ($M)	Impact
Net Loss	(1.31)	Starting point
Inventory Reduction	+2.78	Cash release
Accounts Payable Increase	+3.27	Deferred payments
Deferred Revenue Increase	+1.26	Advance collections
Accounts Receivable Increase	(4.56)	Uncollected sales
Other Working Capital	+5.10	Various adjustments
Cash from Operations	+6.54	Total generated

Sensitivity Analysis

Scenario	Interest Rate Change	Working Capital Change	Cash Impact ($M)
Conservative	+5%	-5%	(2.1)
Base Case	0%	0%	41.8
Optimistic	-5%	+5%	+2.4

2. Working Capital Flux High Confidence

Working capital dynamics show concerning AR growth offset by improved inventory management

Component	Dec 2024 ($M)	Sep 2025 ($M)	Change ($M)	Change %
Accounts Receivable	0.96	5.52	+4.56	+476%
Inventory	17.63	14.84	-2.78	-15.8%
Accounts Payable	0.02	3.29	+3.27	+15,395%
Net Working Capital	18.57	17.07	-1.50	-8.1%

Working Capital Efficiency Metrics

154

DSO (Days)

vs. 35 days prior year

152

DPO (Days)

vs. 3 days prior year

2.7x

Inventory Turnover

vs. 2.0x prior year

Key Working Capital Observations

• AR Crisis: DSO deteriorated from 35 to 154 days, suggesting collection issues or loose credit policies
• Payment Strategy: DPO extended to 152 days, improving cash but potentially straining vendor relationships
• Inventory Success: 35% improvement in turnover indicates better demand planning
• Cash Conversion: Despite AR issues, net working capital decreased by $1.5M, freeing cash

Working Capital Sensitivity Analysis

Revenue Growth Scenario	AR Impact ($M)	AP Impact ($M)	Net Cash Impact ($M)
-5% Revenue	-0.28	-0.16	+0.12
Base Case	5.52	3.29	—
+5% Revenue	+0.28	+0.16	-0.12

3. Equity Flux High Confidence

Minimal equity growth despite opening balance injection, offset by operational losses

Equity Component	Dec 2024 ($M)	Sep 2025 ($M)	Change ($M)	Change %
Opening Balance Equity	0.00	2.16	+2.16	New
Retained Earnings (Prior)	42.15	49.23	+7.08	+16.8%
Current Period Income	7.08	(1.31)	-8.38	-118.4%
Translation Adjustment	(1.36)	(1.36)	0.00	0%
Total Equity	47.86	48.72	+0.85	+1.8%

Equity Bridge Analysis

$47.9M

Dec 2024

+$2.2M

Capital

-$1.3M

Net Loss

$48.7M

Sep 2025

Earnings Per Share Analysis

Metric	2024	2025 YTD	Impact
Net Income ($M)	7.08	(1.31)	-118%
Implied EPS Impact*	Positive	Negative	Dilutive
Return on Equity	14.8%	-2.7%	-17.5pp

*Share count not available in provided data

Equity Sensitivity Analysis

Net Income Scenario	Retained Earnings ($M)	Total Equity ($M)	ROE %
-5% Net Income	47.86	47.36	-2.8%
Base Case	47.92	48.72	-2.7%
+5% Net Income	47.99	49.08	-2.5%

4. Variance Drivers High Confidence

Revenue growth overshadowed by operational expense explosion and margin compression

Top 5 Material Variance Drivers

+$3.2M

Revenue Growth

-$5.0M

COGS Increase

-$5.6M

OpEx Growth

-$1.1M

Other Income

+$0.2M

FX Gains

Detailed Variance Analysis

Driver Category	$ Impact (M)	% Impact	Root Cause
Revenue Drivers	+3.16	31.7%
Design & Consultancy	+2.41	22,056%	New service line launch
Furniture Hire	+0.36	5,350%	Subscription model adoption
Office Furniture	+0.33	43.9%	Corporate expansion
Domestic Furniture	-0.78	-8.5%	Market softening
Expense Drivers	-10.61	185.4%
Cost of Goods Sold	-5.01	175.4%	Supply chain pressures
Advertising	-1.42	New	Market expansion
Salaries & Wages	-1.14	New	Headcount growth
Bad Debt	-0.79	New	Collection issues
Depreciation	-0.72	98,741%	Asset additions
Other Adjustments	-0.94	15,850%
Ask My Accountant	-1.10	New	Unclassified items
FX Gains	+0.18	Favorable	Currency movements

Scenario Analysis - Key Driver Impacts

Scenario	Revenue	COGS	OpEx	Net Income Impact
Conservative	-10%	+5%	+10%	-$2.5M
Base Case	0%	0%	0%	-$1.3M
Optimistic	+15%	-5%	-5%	+$1.2M

5. Management Commentary Medium Confidence

Strategic pivot to services showing promise but execution challenges threaten profitability

Performance Summary

The nine months ending September 2025 reflect a company in transition. While we successfully generated $8.9M in cash and grew revenue by 31.7%, the $1.3M net loss highlights significant operational challenges. The strategic shift toward Design & Consultancy services has exceeded expectations with extraordinary growth, but this has come at the cost of margin compression and working capital strain.

The 476% surge in accounts receivable to $5.5M represents our most pressing concern, suggesting either aggressive credit extension to capture market share or deteriorating collection processes. Combined with the extension of payables to 152 days, we're effectively financing growth through working capital manipulation—a strategy that is unsustainable.

Critical Risks

Collection risk with AR at 154 days outstanding
Margin compression from 71% to 40%
Deferred revenue obligations increased 2,279%
Vendor relationship strain from extended payables
Negative ROE at -2.7%

Strategic Opportunities

Service revenue diversification proving successful
International operations showing strong cash generation
Inventory optimization releasing $2.8M cash
September showed operational improvement trend
Strong balance sheet with 3.7x current ratio

Forward-Looking Scenarios - Q4 2025 Projection

Metric	Conservative	Base Case	Optimistic
Revenue Run Rate (Annualized)	$15.8M	$17.5M	$20.1M
Operating Margin	-5%	0%	+3%
Cash Position	$38M	$42M	$47M
DSO (Days)	165	145	120

Recommendations for the Board

Immediate AR Intervention: Implement emergency collection measures and credit policy review within 30 days
Margin Recovery Plan: Target 50% gross margin by Q2 2026 through pricing and cost optimization
Working Capital Normalization: Establish sustainable DSO/DPO targets of 60/45 days
Service Line Profitability: Conduct deep-dive analysis on new service lines to ensure sustainable unit economics
Cash Preservation: Maintain minimum $35M cash buffer given current burn rate

Bottom Line

So What: The company has successfully pivoted to services and maintained positive cash flow despite losses, but working capital deterioration and margin compression threaten long-term viability.

Now What: Board oversight should focus on three priorities: (1) AR collection crisis resolution, (2) gross margin recovery to sustainable levels, and (3) establishing working capital discipline. Without immediate action on receivables, Q4 could see a cash crisis despite current strong position.