What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2022-02-18 · 37 added, 39 removed, 82 unchanged (48% of the section changed)

7 unchanged sentences

Income from operations

Six Months Ended

Nine Months Ended

Cost Of Goods Sold

4 unchanged sentences

(Dollars in thousands)

December 31, 2021

December 31, 2020

March 31, 2022

March 31, 2021

Products purchased for resale

Total Net Sales

Six Months Ended

Nine Months Ended

(Dollars in thousands)

December 31, 2021

December 31, 2020

March 31, 2022

March 31, 2021

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.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Sales for the three months ended March 31, 2022 were approximately $6,753,000, a 9% 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 $427,000, or 15%, 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.

Jaxx sales – Jaxx product sales increased 29% from the prior year third quarter to $1,906,000, 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 27% during the quarter from the comparable prior year quarter to $735,000.

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.

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 decreased by 19%, or $101,000, from the prior year third quarter due to lower 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 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.

As a result of ongoing labor and raw material cost increases, the gross profit margin, as a percentage of sales, decreased to 27% from 28% in the prior year third quarter.

Despite the increased net sales, gross profit increased only slightly to $1,794,000 from $1,746,000 in the prior year third quarter.

Operating expenses .

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.

Total operating expenses for the three months ended March 31, 2022 were approximately 19% of net sales, or approximately $1,261,000, compared to 19% of net sales, or approximately $1,183,000, for the same period in the prior year.

Other income (expense) .

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.

Interest expense during the third quarter decreased slightly from approximately ($94,000) in fiscal 2021 to approximately ($81,000) during the third quarter of fiscal 2022.

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.

Nine Months Ended March 31, 2022 Compared to Nine Months Ended March 31, 2021

Sales for the nine months ended March 31, 2022 were approximately $20,164,000, a 17% increase from the $17,262,000 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.

Liberator sales - Sales of Liberator branded products increased $1,954,000, or 27%, during the nine 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 $1,229,000 or 25%, from the prior year nine months, 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 $537,000, or (19%), to $2,266,000 during the nine months from the comparable prior year period.

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.

Products purchased for resale – This product category increased by $22,000, or 2%, from the prior year first nine months 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.

As a result of ongoing labor and raw material cost increases, the gross profit margin, as a percentage of sales, decreased to 24% from 28% in the prior year nine months.

Despite the increased net sales, gross profit increased only 1% to $4,870,000 from $4,800,000 in the prior year nine 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.

Total operating expenses for the nine months ended March 31, 2022 were 19% of net sales, or approximately $3,344,000, compared to 19% of net sales, or approximately $3,763,000, for the same period in the prior year.

Of the $419,000 increase, approximately $260,000 was due to higher rent and building occupancy costs, $50,000 was due to higher advertising expense, $70,000 was due to higher depreciation 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.

Interest expense during the nine months decreased from expense of approximately ($289,000) in fiscal 2021 to expense of approximately ($261,000) during the nine months of fiscal 2022.

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

10 unchanged sentences

The following table summarizes our cash flows:

Six Months Ended

December 31 ,

Nine Months Ended

(Dollars in thousands)

3 unchanged sentences

Cash used in financing activities

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.

As of March 31, 2022, our cash and cash equivalents totaled $935,110, compared to $1,269,711 in cash and cash equivalents as of March 31, 2021.

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 $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.

Net cash provided by operating activities was $263,000 during the nine months ended March 31, 2022 compared to $505,000 net cash provided by operating activities in the nine months ended March 31, 2021.

The primary components of the cash provided by operating activities in the current year is the net income of $846,000, offset in part by an increase in accounts receivable of $218,000, increase in inventory of $417,000, a decrease in accounts payable of $89,000 and an increase in accrued compensation of $90,000.

Investing Activities

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.

Cash used in investing activities in the nine months ended March 31, 2022 was $50,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

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.

These cost pressures have not stabilized and we anticipate they will continue to increase throughout fiscal 2022.

Cash used by financing activities during the nine months ended March 31, 2022 of $255,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

Since fiscal 2020 we continue to experience increases in various raw material costs and increases in labor and transportation costs.

These cost pressures have not stabilized and we anticipate they will continue to increase throughout the remainder of fiscal 2022.

These inflationary cost increases will harm our profit margins and profitability if we are unable to increase prices or improve productivity enough to offset the effects of such increases in our cost base.

1 unchanged sentence

Non-GAAP Financial Measures

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

Reconciliation of net income to Adjusted EBITDA for the nine months ended March 31, 2022 and 2021:

(Dollars in thousands)

Six months ended December 31,

Nine months ended March 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 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.

As of March 31, 2022, 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