What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-17 compared with 2022-11-14 · 52 added, 28 removed, 62 unchanged (56% of the section changed)

1 unchanged sentence

Results of Operations

The following table sets forth, for the periods indicated, information derived from our Interim Unaudited Condensed Consolidated Financial Statements, expressed as a percentage of net sales.

The discussion that follows the table should be read in conjunction with our Interim Unaudited Condensed Consolidated Financial Statements.

The following table sets forth, for the periods indicated, information derived from our Unaudited Consolidated Financial Statements, expressed as a percentage of net sales.

The discussion that follows the table should be read in conjunction with our Unaudited Consolidated Financial Statements.

Three Months Ended

September 30,

Cost Of Goods Sold

1 unchanged sentence

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, 2022

September 30, 2021

December 31, 202 2

December 31, 202 1

Products purchased for resale

Total Net Sales

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.

Six Months Ended

(Dollars in thousands)

December 31, 2022

December 31, 2021

Products purchased for resale

Total Net Sales

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

Sales for the three months ended December 31, 2022 were approximately $8,135,000, a 13.2% 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 $1,601,000, or 49%, 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.

Jaxx sales – Jaxx product sales decreased 11% from the prior year second quarter to $2,088,000, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products.

Avana sales – Net sales of Avana products decreased 31% during the quarter from the comparable prior year quarter to $542,000.

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 26%, or $113,000, from the prior year first quarter due to lower sales of certain products through our e-commerce website, Liberator.com.

Products purchased for resale – This product category decreased by 24%, or $120,000, from the prior year second 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.

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.

Gross profit margin, as a percentage of sales, increased to 28% from 22% in the prior year second quarter.

Gross profit increased to $2,259,000 from $1,577,000 in the prior year second quarter.

Operating expenses .

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.

Total operating expenses for the three months ended December 31, 2022 were approximately 18% of net sales, or approximately $1,476,000, compared to 19% of net sales, or approximately $1,326,000, for the same period in the prior year.

Other income (expense) .

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.

Interest expense during the second quarter increased slightly from approximately ($84,000) in fiscal 2021 to approximately ($88,000) during the second quarter of fiscal 2022.

The increase was primarily due to higher average borrowing balances.

Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

Sales for the six months ended December 31, 2022 were approximately $16,195,000, a 21% increase from the $13,411,000 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 $3,967,000, or 66%, 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 decreased $358,000, or 8%, from the prior year first half, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products;

Avana sales – Net sales of Avana products decreased $435,000, or 28%, to $1,096,000 during the first six months from the comparable prior year period.

Products purchased for resale – This product category decreased by $233,000, or 25%, from the prior year first half 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 and depreciation.

Gross profit margin, as a percentage of sales, increased to 26% from 23% in the prior year first half.

Gross profit increased by 38% to $4,232,000 from $3,076,000 in the prior year first six months.

Operating expenses .

Total operating expenses for the six months ended December 31, 2022 were 18% of net sales, or approximately $2,873,000, compared to 19% of net sales, or approximately $2,502,000, for the same period in the prior year.

Of the $370,000 increase, approximately $126,000 was due to higher advertising expense.

Other income (expense) .

Interest expense during the first six month decreased from expense of approximately ($180,000) in fiscal 2021 to expense of approximately ($171,000) during the first half of fiscal 2022.

Variability of Results

7 unchanged sentences

The following table summarizes our cash flows:

Three Months Ended

September 30,

Six Months Ended

(Dollars in thousands)

2 unchanged sentences

Cash used in investing activities

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.

Cash used in financing activities

As of December 31, 2022, our cash and cash equivalents totaled $1,875,371, compared to $1,080,564 in cash and cash equivalents as of December 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 $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.

Net cash provided by operating activities was $1,402,000 during the six months ended December 31, 2022 compared to $444,000 net cash provided by operating activities in the six months ended December 31, 2021.

The primary components of the cash provided by operating activities in the current year is the net income of $1,188,000, a decrease in accounts receivable of $159,000, offset in part by an increase in inventory of $114,000, and a decrease in accounts payable of $61,000.

Investing Activities

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.

Cash used in investing activities in the six months ended December 31, 2022 was $54,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

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.

Cash used in financing activities during the six months ended December 31, 2022 of $332,000 was primarily attributable to the repayment of the line of credit 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.

These cost pressures have not stabilized and we anticipate they will continue to increase throughout 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 three months ended September 30, 2022 and 2021:

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

(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, 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 December 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

2 unchanged sentences

The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances and impairment of long-lived assets.

We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing in this report.

We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements appearing in this report.

Recent accounting pronouncements

3 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