What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-18 compared with 2021-11-15 · 56 added, 25 removed, 65 unchanged (55% of the section changed)

4 unchanged sentences

Three Months Ended

September 30,

Cost Of Goods Sold

Total operating expenses

Operating Expenses

Income from operations

Six Months Ended

Cost Of Goods Sold

Operating Expenses

Income from operations

The following table represents the net sales and percentage of net sales by product type:

1 unchanged sentence

(Dollars in thousands)

September 30,

December 31, 2021

December 31, 2020

Products purchased for resale

Total Net Sales

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Sales for the three months ended September 30, 2021 were $6,224,000, a 16% increase from the comparable prior year period.

Six Months Ended

(Dollars in thousands)

December 31, 2021

December 31, 2020

Products purchased for resale

Total Net Sales

Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020

Sales for the three months ended December 31, 2021 were approximately $7,186,000, a 26% increase from the comparable prior year period.

The major components of net sales, by product, are as follows:

Liberator sales - Sales of Liberator branded products increased $728,000, or 36%, during the quarter from the comparable prior year period, due primarily to higher sales through the Company’s e-commerce site, Liberator.com and higher sales through Amazon and brick-and-mortar retail customers.

Jaxx sales – Jaxx product sales increased 10% from the prior year first quarter, primarily due to an expanded product offering and greater sales through e-merchants, including Amazon and Wayfair.

Avana sales – Net sales of Avana products decreased 23% during the quarter from the comparable prior year quarter to $744,000 and is due largely to increased competition of these products, including lower priced “copycat” products from China.

Intimacy products purchased for resale – This product category increased by $91,000, or 27%, from the prior year first quarter due to higher sales of certain products through our e-commerce website, Liberator.com.

Liberator sales - Sales of Liberator branded products increased $799,000, or 33%, during the quarter from the comparable prior year period, due primarily to higher sales through the Company’s e-commerce site, Liberator.com, and higher sales through Amazon, partially offset by lower sales through brick-and-mortar retail customers.

Jaxx sales – Jaxx product sales increased 37% from the prior year second quarter to $2,346,000, primarily due to an expanded product offering and greater sales through e-merchants, including Amazon and Wayfair.

Avana sales – Net sales of Avana products decreased 6% during the quarter from the comparable prior year quarter to $787,000.

The decrease in sales of our top-of-bed comfort products was due to a lack of inventory, as production resources were focused on producing time-sensitive gift items in the Jaxx and Liberator lines.

Products purchased for resale – This product category increased by 7%, or $31,000, from the prior year second quarter due to higher sales of certain products through our e-commerce website, Liberator.com.

Gross margin .

Gross profit, derived from net sales less the cost of goods sold, includes the cost of materials, direct labor, manufacturing overhead, freight costs, royalties and depreciation.

As a result of raw material and labor cost increases on many products, the gross profit margin, as a percentage of sales, decreased to 24.1% from 27.7% in the prior year first quarter.

Despite the increased net sales, gross profit remained essentially unchanged at $1,499,000, up slightly from $1,488,000 in the prior year first quarter.

As a result of ongoing labor and raw material cost increases, the gross profit margin, as a percentage of sales, decreased to 22% from 27% in the prior year second quarter.

Despite the increased net sales, gross profit increased only slightly to $1,577,000 from $1,566,000 in the prior year second quarter.

Operating expenses .

Total operating expenses for the three months ended September 30, 2021 were approximately 19% of net sales, or approximately $1,176,000, compared to 20% of net sales, or approximately $1,052,000, for the same period in the prior year.

Total operating expenses for the three months ended December 31, 2021 were approximately 19% of net sales, or approximately $1,326,000, compared to 19% of net sales, or approximately $1,109,000, for the same period in the prior year.

Other income (expense) .

Interest expense decreased from approximately ($107,000) in the three months ended September 30, 2020 to approximately ($96,000) during the three months ended September 30, 2021.

Interest expense during the second quarter decreased slightly from approximately ($88,000) in fiscal 2020 to approximately ($84,000) during the second quarter of fiscal 2021.

The decrease was primarily due to lower average borrowing balances and reduced interest expense on those lower balances.

The PPP loan forgiveness by the Small Business Administration resulted in Other Income of approximately $1,096,000 in the prior year second quarter.

Six Months Ended December 31, 2021 Compared to Six Months Ended December 31, 2020

Sales for the six months ended December 31, 2021 were approximately $13,411,000, a 21% increase from the $11,081,000 recorded in the comparable prior year period.

The major components of net sales, by product, are as follows:

Liberator sales - Sales of Liberator branded products increased $1,527,000, or 34%, during the first six months from the comparable prior year period, due primarily to greater sales through the company’s Liberator.com website and through Amazon.com;

Jaxx sales – Jaxx product sales increased $799,000, or 23%, from the prior year first half, primarily due to an expanded product offering of outdoor and indoor products and greater sales through e-merchants, including Amazon and Wayfair;

Avana sales – Net sales of Avana products decreased $262,000, or (15%), to $1,531,000 during the first six months from the comparable prior year period.

Sales of this product line have been impacted by lower-priced competitive products in the marketplace, production constraints which resulted in longer delivery lead times which resulted in lower sales through drop ship channels including Amazon, Overstock and Wayfair;

Products purchased for resale – This product category increased by $123,000, or 15%, from the prior year first half due to greater sales of certain products through our e-commerce website, Liberator.com.

Gross margin .

Gross profit, derived from net sales less the cost of goods sold, includes the cost of materials, direct labor, manufacturing overhead, freight costs and depreciation.

As a result of ongoing labor and raw material cost increases, the gross profit margin, as a percentage of sales, decreased to 23% from 28% in the prior year first half.

Despite the increased net sales, gross profit increased less than 1% to $3,076,000 from $3,054,000 in the prior year first six months.

The Company continues to raise product selling prices, but may not be able to raise prices quickly enough to offset ongoing raw material and labor cost increases.

Operating expenses .

Total operating expenses for the six months ended December 31, 2021 were 19% of net sales, or approximately $2,502,000, compared to 20% of net sales, or approximately $2,161,000, for the same period in the prior year.

Of the $341,000 increase, approximately $235,000 was due to higher rent and building occupancy costs, $98,000 was due to higher advertising expense.

Other income (expense) .

Interest expense during the first six month decreased from expense of approximately ($195,000) in fiscal 2021 to expense of approximately ($180,000) during the first half of fiscal 2022.

The decrease was primarily due to lower average borrowing balances and reduced interest expense on those higher balances.

The PPP Note forgiveness by the U.S.

Small Business Administration resulted in Other Income of approximately $1,096,000 during fiscal 2021.

Variability of Results

7 unchanged sentences

The following table summarizes our cash flows:

Three Months Ended

September 30,

Six Months Ended

December 31 ,

(Dollars in thousands)

3 unchanged sentences

Cash used in financing activities

As of September 30, 2021, our cash and cash equivalents totaled $960,635, compared to $931,741 in cash and cash equivalents as of September 30, 2020.

As of December 31, 2021, our cash and cash equivalents totaled $1,080,564, compared to $1,014,736 in cash and cash equivalents as of December 31, 2020.

For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

1 unchanged sentence

Operating Activities

Net cash provided by operating activities was $169,000 during the three months ended September 30, 2021 compared to $130,000 net cash provided by operating activities in the three months ended September 30, 2020.

The primary components of the cash provided by operating activities in the current year is the net income of $227,000, an increase in accounts payable of $58,000 and a decrease in accounts receivable of $47,000, offset in part by an increase in inventory of $113,000 and an increase in accrued compensation of $105,000.

Net cash provided by operating activities was $444,000 during the six months ended December 31, 2021 compared to $396,000 net cash provided by operating activities in the six months ended December 31, 2020.

The primary components of the cash provided by operating activities in the current year is the net income of $394,000, a decrease in accounts receivable of $213,000, offset in part by an increase in inventory of $65,000, a decrease in accounts payable of $71,000 and an increase in accrued compensation of $204,000.

Investing Activities

Cash used in investing activities in the three months ended September 30, 2021 was $50,000 and related to the purchase and installation of certain production equipment and computer software during the quarter.

Cash used in investing activities in the six months ended December 31, 2021 was $46,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

Cash used in financing activities during the three months ended September 30, 2021 of $135,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes, offset in part by borrowings from the unsecured note payable.

Cash used in financing activities during the six months ended December 31, 2021 of $294,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes, offset in part by borrowings from the unsecured note payable.

During fiscal 2020 and 2021, we experienced increases in various raw material costs and increases in labor and transportation costs.

3 unchanged sentences

Non-GAAP Financial Measures

Reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2021 and 2020:

Reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2021 and 2020:

(Dollars in thousands)

Three months ended September 30,

Six months ended December 31,

Plus interest expense, net

11 unchanged sentences

Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities.

As of September 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

As of December 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical accounting policies

8 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-Q

Item 2. Management’s Discussion and Analysis