What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-05-16 · 26 added, 55 removed, 64 unchanged (56% of the section changed)

4 unchanged sentences

Three Months Ended

Cost Of Goods Sold

Operating Expenses

Income from operations

Nine Months Ended

September 30,

Cost Of Goods Sold

4 unchanged sentences

(Dollars in thousands)

March 31, 2022

March 31, 2021

Products purchased for resale

Total Net Sales

Nine Months Ended

(Dollars in thousands)

March 31, 2022

March 31, 2021

September 30, 2022

September 30, 2021

Products purchased for resale

Total Net Sales

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.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Sales for the three months ended September 30, 2022 were approximately $8,059,000, a 29% 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 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.

Liberator sales - Sales of Liberator branded products increased $2,741,000, or 86%, 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.

Jaxx sales – Jaxx product sales decreased 5% from the prior year first quarter to $1,781,000, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products.

Avana sales – Net sales of Avana products decreased 25% during the quarter from the comparable prior year quarter to $554,000.

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.

Products purchased for resale – This product category decreased by 26%, or $113,000, from the prior year first 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 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.

Gross profit margin, as a percentage of sales, increased to 24.5% from 24.1% in the prior year first quarter.

Gross profit increased to $1,973,000 from $1,499,000 in the prior year first quarter.

Operating expenses .

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.

Total operating expenses for the three months ended September 30, 2022 were approximately 17% of net sales, or approximately $1,397,000, compared to 19% of net sales, or approximately $1,176,000, for the same period in the prior year.

Other income (expense) .

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.

Interest expense during the first quarter decreased slightly from approximately ($96,000) in fiscal 2022 to approximately ($84,000) in fiscal 2023.

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

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 $1,954,000, 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 $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 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 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 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.

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:

Nine Months Ended

Three Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Cash used in investing activities

Cash used in financing activities

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.

Cash provided by financing activities

As of September 30, 2022, our cash and cash equivalents totaled $1,347,790, compared to $960,635 in cash and cash equivalents as of September 30, 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 $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.

Net cash provided by operating activities was $617,000 during the three months ended September 30, 2022 compared to $169,000 net cash provided by operating activities in the three months ended September 30, 2021.

The primary components of the cash provided by operating activities in the current year is the net income of $492,000, decrease in Inventory of $158,000 and increase in Accrued Compensation of $110,000, offset in part by an increase in accounts receivable of $290,000.

Investing Activities

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.

Cash used in investing activities in the three months ended September 30, 2022 was $21,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

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.

Cash used by financing activities during the three months ended September 30, 2022 of $107,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

During fiscal 2022, 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 the fiscal 2023, although there is no assurance this will occur.

Furthermore, if our customers reduce their levels of spending in response to increases in retail prices and/or we are unable to pass such cost increases to our customers, our revenues and our profit margins may decrease.

Non-GAAP Financial Measures

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

Reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2022 and 2021:

(Dollars in thousands)

Nine months ended March 31,

Three months ended September 30,

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 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.

As of September 30, 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