What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-20 compared with 2023-11-20 · 58 added, 26 removed, 69 unchanged (55% of the section changed)

3 unchanged sentences

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

Dollar amounts below are reflected in thousands.

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, 2023

September 30, 2022

December 31, 2023

December 31, 2022

Products purchased for resale

Total Net Sales

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.

Six Months Ended

(Dollars in thousands)

December 31, 2023

December 31, 2022

Products purchased for resale

Total Net Sales

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

Sales for the three months ended December 31, 2023 were approximately $6,786, a 17% 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 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.

Liberator sales - Sales of Liberator branded products decreased $1,067 or 21%, during the quarter from the comparable prior year period, due primarily to lower sales through the Company’s e-commerce site, Liberator.com, and Amazon.

The decrease was a result of the increased revenues for the three months ended December 31, 2022, from the Netflix series “How to Build a Sex Room” - 7 part series began July 2022.

Despite increased expenses in advertising and promotion we were not successful in maintaining that growth.

Jaxx sales – Jaxx product sales decreased $322 or 15% from the prior year first quarter to $1,799.

The decrease was a result of increased competition.

Avana sales – Net sales of Avana products decreased $89,000 or 24% during the quarter from the comparable prior year quarter to $531.

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 21%, or $66,000, 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 remained the same from the prior year second

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 24.2 from 23.4% in the prior year first quarter.

Gross profit margin, as a percentage of sales, decreased to 26.8% from 27.8% in the prior year first quarter.

Gross profit decreased to $1,818 from $2,259 in the prior year first quarter.

Operating expenses .

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.

Total operating expenses for the three months ended December 31, 2023 were approximately 24% of net sales, or approximately $1,664 compared to 18% of net sales, or approximately $1,476, for the same period in the prior year.

The increase was due to additional spending on advertising, marketing, promotions and well as higher labor costs.

Other income (expense) .

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The decrease was primarily due to higher average borrowing balances.

Six Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022

Sales for the Six months ended December 31, 2023 were approximately $12,912, a 20% 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 decreased $2,879, or 29%, during the quarter from the comparable prior year period, due primarily to lower sales through the Company’s e-commerce site, Liberator.com, and Amazon.

The decrease was a result of the increased revenues for the six months ended December 31, 2022, from the Netflix series “How to Build a Sex Room” - 7 part series began July 2022.

Despite increased expenses in advertising and promotion we were not successful in maintaining that growth.

Jaxx sales – Jaxx product sales decreased $318 or 8% from the prior year first quarter to $1,799 The decrease was a result of increased competition.

Avana sales – Net sales of Avana products decreased $101 or 9% during the quarter from the comparable prior year quarter to $531.

Products purchased for resale – This product category decreased by 6%, or $33, from the prior year six 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, royalties and depreciation.

Gross profit margin, as a percentage of sales, decreased to 26.3% from 26.1% in the prior year first quarter.

Gross profit decreased to $3,400 from $4,232 in the prior year first quarter.

Operating expenses .

Total operating expenses for the six months ended December 31, 2023 were approximately 25% of net sales, or approximately $3,278 compared to 18% of net sales, or approximately $2,873 for the same period in the prior year.

The increase was due to additional spending on advertising, marketing, promotions and well as higher labor costs.

Other income (expense) .

Interest expense during the six months increased slightly from approximately ($171) in fiscal 2023 to approximately ($188) 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:

Three Months Ended

September 30 ,

Six Months Ended

(Dollars in thousands)

3 unchanged sentences

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.

As of December 31, 2023, our cash and cash equivalents totaled $1,213 compared to $1,875 in cash and cash equivalents as of December 31, 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.

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Operating Activities

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.

Net cash provided by operating activities was $370,000 during the Six months ended December 31, 2023 compared to $1,402,000 net cash provided by operating activities in the six months ended December 31, 2022.

The primary components of the cash provided by operating activities in the current year is the decrease in Inventory of $709,000 and increase in Accrued Compensation of $4,000, offset in part by a net loss of 125,000 an increase in accounts receivable of $227,000 decrease accounts payable of $258,000.

Investing Activities

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.

Cash used in investing activities in the Six months ended December 31, 2023 was $39 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, 2023 of $43,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

Cash used by financing activities during the Six months ended December 31, 2023 of $159 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.

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Non-GAAP Financial Measures

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

Reconciliation of net income to Adjusted EBITDA for the six months ended December 31, 2023 and 2022:

(Dollars in thousands)

Three months ended

September 30,

Six months ended December 31,

Net income (loss)

12 unchanged sentences

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

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.

As of December 31, 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

4 unchanged sentences

Recent accounting pronouncements

ASU 2016-13 Current Expected Credit Loss (ASC326)

In December 2021, the FASB issued an update to ASU No.

2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures.

This guidance was adopted on January 1, 2023, with no effect to the financial statements.

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the unaudited condensed consolidated accompanying financial statements.

2 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