What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-20 compared with 2023-05-22 · 34 added, 57 removed, 61 unchanged (60% of the section changed)

1 unchanged sentence

Results of Operations

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.

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.

Three Months Ended

March 31, 2023

March 31, 2022

Cost Of Goods Sold

Operating Expenses

Income from operations

Nine Months Ended

March 31, 2023

March 31, 2022

September 30,

Cost Of Goods Sold

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(Dollars in thousands)

March 31, 2023

March 31, 2022

Products purchased for resale

Total Net Sales

Nine Months Ended

(Dollars in thousands)

March 31, 2023

March 31, 2022

September 30, 2023

September 30, 2022

Products purchased for resale

Total Net Sales

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Sales for the three months ended March 31, 2023 were approximately $6,903,000, a 2.2% increase from the comparable prior year period.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Sales for the three months ended September 30, 2023 were approximately $6,126,000, a 24% decrease 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 $1,230,000, or 38%, 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 36% from the prior year third quarter to $1,220,000, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products and overall market demand for outdoor furniture products.

Liberator sales - Sales of Liberator branded products decreased $1,784,000, or 35%, during the quarter from the comparable prior year period, due primarily to lower sales through the Company’s e-commerce sites including:

Liberator.com, Amazon and third-party e-tailers.

Note that the 2022 sales of Liberator products increased largely due to product placement and exposure on the popular Netflix show How to Build a Sex Room”.

Jaxx sales – Jaxx product sales increased 1% from the prior year first quarter to $1,799,000

Avana sales – Net sales of Avana products decreased 4% during the quarter from the comparable prior year quarter to $531,000.

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 37%, or $89,000, 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 21%, or $66,000, 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.

Gross profit margin, as a percentage of sales, was 26% compared to 27% in the prior year third quarter.

Gross profit decreased to $1,769,000 from $1,794,000 in the prior year third quarter.

Operating expenses .

Total operating expenses for the three months ended March 31, 2023 were approximately 20% of net sales, or approximately $1,386,000, compared to 19% of net sales, or approximately $1,261,000, for the same period in the prior year.

Other income (expense) .

Interest expense during the third quarter increased slightly from approximately ($81,000) in fiscal 2022 to approximately ($90,000) during the third quarter of fiscal 2023.

The increase was primarily due to higher average borrowing balances.

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Sales for the nine months ended March 31, 2023 were approximately $23,098,000, a 15% increase from the $20,164,000 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 $5,198,000, or 56%, 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 decreased $1,043,000, or 17%, from the prior year nine months, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products and decrease market demand for outdoor furniture products;

Avana sales – Net sales of Avana products decreased $524,000, or 23%, to $1,742,000 during the nine months from the comparable prior year period.

Products purchased for resale – This product category decreased by $392,000, or 29%, from the prior year nine months 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 24% in the prior year nine months.

Gross profit increased by 23% to $6,001,000 from $4,870,000 in the prior year nine months.

Gross profit margin, as a percentage of sales, increased to 24.2 from 23.4% in the prior year first quarter.

Gross profit decreased to $1,483,000 from $1,886,000 in the prior year first quarter.

Operating expenses .

Total operating expenses for the nine months ended March 31, 2023 were 18% of net sales, or approximately $4,259,000, compared to 19% of net sales, or approximately $3,763,000, for the same period in the prior year.

Of the $496,000 increase, approximately $138,000 was due to higher advertising expense.

Total operating expenses for the three months ended September 30, 2023 were approximately 24.7% of net sales, or approximately $1,515,000, compared to 16% of net sales, or approximately $1,310,000, for the same period in the prior year.

The change was a primary the result of higher than expected operating expenses.

Other income (expense) .

Interest expense during the nine months increased from expense of approximately ($261,000) in fiscal 2022 to expense of approximately ($262,000) during the nine months of fiscal 2023.

Interest expense during the first quarter increased slightly from approximately ($84,000) in fiscal 2023 to approximately ($96,000) in fiscal 2024.

The decrease was primarily due to higher average borrowing balances.

Variability of Results

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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, 2023, our cash and cash equivalents totaled $1,352,619, compared to $935,110 in cash and cash equivalents as of March 31, 2022.

Cash provided by financing activities

As of September 30, 2023, our cash and cash equivalents totaled $1,137,581, compared to $1,347,790 in cash and cash equivalents as of September 30, 2022.

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 $906,000 during the nine months ended March 31, 2023 compared to $263,000 net cash provided by operating activities in the nine months ended March 31, 2022.

The primary components of the cash provided by operating activities in the current year is the net income of $1,480,000, and a decrease in accrued expenses and payroll of $293,000, offset in part by an increase in accounts receivable of $262,000, increase in inventory of $624,000, and a decrease in accounts payable of $344,000.

Net cash provided by operating activities was $171,000 during the three months ended September 30, 2023 compared to $617,000 net cash provided by operating activities in the three months ended September 30, 2022.

The primary components of the cash provided by operating activities in the current year is the decrease in Inventory of $146,000 and increase in Accrued Compensation of $155,000, offset in part by a net loss of 125,000 an increase in accounts receivable of $119,000.

Investing Activities

Cash used in investing activities in the nine months ended March 31, 2023 was $113,000 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, 2023 was $32,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

Cash used in financing activities during the nine months ended March 31, 2023 of $299,000 was primarily attributable to the repayment of the line of credit and payments made on equipment notes.

Cash used by financing activities during the three months ended September 30, 2023 of $43,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

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

These cost pressures have not stabilized and we anticipate they will continue to increase throughout the fiscal 2024, 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, 2023 and 2022:

Reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2023 and 2022:

(Dollars in thousands)

Nine months ended March 31,

Three months ended

September 30,

Net income (loss)

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, 2023, 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, 2023, 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 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 condensed 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