What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2025-02-10 · 46 added, 45 removed, 78 unchanged (54% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

4 unchanged sentences

(Dollars in thousands)

December 31, 2024

December 31, 2023

Products purchased for resale

1 Total Net Sales

Six Months Ended

Nine Months Ended

(Dollars in thousands)

December 31, 2024

December 31, 2023

Products purchased for resale

Total Net Sales

Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023

Sales for the three months ended December 31, 2024, were approximately $7,186,000, a 6% increase from the comparable prior year period.

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Sales for the three months ended March 31, 2025, were approximately $5,846,000, a 1% 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 $427,000, or 12%, during the quarter from the comparable prior year period, due primarily to stronger sales through our liberator.com website.

Jaxx sales – Jaxx product sales increased 12% from the prior year second quarter to $2,023,000.

We continue to develop our marketing efforts into the special education market and expand our product assortment.

Avana sales – Net sales of Avana products decreased 20% during the quarter from the comparable prior year second quarter to $548,000.

Jaxx sales —Jaxx product sales decreased 19% from the prior year's third quarter to $1,145,000.

Increased competition from low-cost international manufacturers eroded our sales at several online retailers.

We are increasing our sourcing efforts to reduce our raw materials costs from new vendors.

Avana sales – Net sales of Avana products decreased 24% during the quarter from the comparable prior year third quarter to $518,000.

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.

Products purchased for resale – This product category decreased by 15%, or $44,000, from the prior year second quarter due to lower sales of certain products through our e-commerce website, Liberator.com.

We have reduced marketing spend on this brand as it was not profitable and reallocated those funds to support the Liberator and Jaxx brands.

Products purchased for resale – This product category decreased by 13%, to $225,000, from the prior year third quarter due to lower sales of certain products through our e-commerce website, Liberator.com.

We believe our focus on expanding our online third party drop ship business will return this channel to growth.

1 unchanged sentence

Gross profit, derived from net sales less the cost of goods sold, includes the cost of materials, direct labor, manufacturing overhead, freight costs, and royalties.

For the three months ending December 31, 2024 gross profit margin, as a percentage of sales, increased to 28% from 27% in the same period in the prior year.

Gross profit increased to $1,982,000 from $1,818,000 in the prior year second quarter.

For the three months ending March 31, 2025 gross profit margin, as a percentage of sales, decreased to 27% from 28% in the same period in the prior year.

Gross profit decreased to $1,603,000 from $1,639,000 for the previous year's third quarter.

Operating expenses .

Total operating expenses for the three months ended December 31, 2024 were approximately 24% of net sales, or approximately $1,691,000, compared to 25% of net sales, or approximately $1,664,000, for the same period in the prior year.

Total operating expenses for the three months ended March 31, 2025 were approximately 27% of net sales, or approximately $1,604,000, compared to 27% of net sales, or approximately $1,600,000, for the same period in the prior year.

Other income (expense) .

Interest expense during the second quarter decreased from approximately ($98,000) in the second quarter of fiscal 2024 to approximately ($94000) in the second quarter of fiscal 2025.

Interest expense during the third quarter decreased to approximately ($87,000) in the third quarter of fiscal 2025 from approximately ($133,000) in the third quarter of fiscal 2024.

The decrease was primarily due to the reduction in notes payable.

For the three months ended December 31, 2024, we had a net profit of $193,000 as compared to a net profit of $29,000 for the three months ended December 31, 2023.

The increase in net income was due to the increase in sales and the reduction in production costs which provided an increase in the gross margin for the period.

Six Months Ended December 31, 2024 Compared to the Six Months Ended December 31, 2023

Sales for the six months ended December 31, 2024, were approximately $12,941,000, a 0.2% increase from the comparable prior year period.

For the three months ended March 31, 2025, we had a net loss of ($88,000) as compared to a net loss of ($94,000) for the three months ended March 31, 2024.

The reduction in net loss was due to the decrease in interest expense for the period.

Nine months Ended March 31, 2025 Compared to the Nine months Ended March 31, 2024

Sales for the nine months ended March 31, 2025, were approximately $18,787,000, a 0.3% 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 $131,000, or 2%, during the six month from the comparable prior year period, due primarily to stronger sales through our liberator.com website but were slightly offset by a decline in our wholesale accounts.

Jaxx sales – Jaxx product sales increased 6% from the prior year six month to $3,842,000.

Liberator sales - Sales of Liberator branded products increased $558,000, or 5%, during the nine months from the comparable prior year period, due primarily to stronger sales through our liberator.com website but were slightly offset by a decline in our wholesale accounts.

Jaxx sales – Jaxx product sales decreased 1% from the prior year's nine period to $4,987,000.

We continue to develop our marketing efforts into the special education market and expand our product assortment.

Avana sales – Net sales of Avana products decreased 15% during the six months from the comparable prior year period to $1,032,000.

Avana sales – Net sales of Avana products decreased 18% during the nine months from the comparable prior year period to $1,551,000.

Products purchased for resale – This product category decreased by 15%, or $82,000, from the prior year six months due to lower sales of certain products through our e-commerce website, Liberator.com.

Products purchased for resale – This product category decreased by 15%, or $116,000, 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 royalties.

For the six months ending December 31, 2024 gross profit margin, as a percentage of sales, increased to 27% from 26% in the same period in the prior year.

Gross profit increased to $3,497,000 from $3,400,000 in the prior year comparable six month period.

For the nine months ending March 31, 2025 gross profit margin, as a percentage of sales, increased to 27% from 27% in the same period in the prior year.

Gross profit increased to $5,100,000 from $5,039,000 in the prior year comparable nine month period.

Operating expenses .

Total operating expenses for the six months ended December 31, 2024 were approximately 26% of net sales, or approximately $3,329,000, compared to 25% of net sales, or approximately $3,278,000, for the same period in the prior year.

Reduction in advertising expense was offset by an increase in personnel related expenses.

Total operating expenses for the nine months ended March 31, 2025 were approximately 26% of net sales, or approximately $4,933,000, compared to 26% of net sales, or approximately $4,878,000, for the same period in the prior year.

Increases in facilities expenses and equipment repairs accounted for the majority of the additional expenses.

Other income (expense) .

Interest expense during the six months ended December 31, 2024 decreased to approximately ($185000) from approximately ($188,000) in the same period from the prior year.

Interest expense during the nine months ended March 31, 2025 decreased to approximately ($272,000) from approximately ($322,000) in the same period from the prior year.

The decrease was primarily due to the reduction in notes payable.

For the six months ended December 31, 2024, we had a net loss of $17,000 as compared to a net loss of $97,000 for the six months ended December 31, 2023.

The reduction in net loss was due to the increase in sales and the reduction in production costs which provided an increase in the gross margin for the period.

For the nine months ended March 31, 2025, we had a net loss of $105,000 as compared to a net loss of $191,000 for the nine months ended March 31, 2024.

The reduction in net loss was due to the decrease in sales and an increase in equipment maintenance costs..

Variability of Results

7 unchanged sentences

The following table summarizes the Company’s cash flows:

Six Months Ended

December 31 ,

Nine months Ended

Cash flow data:

3 unchanged sentences

Cash used in financing activities

As of December 31, 2024, the Company’s cash and cash equivalents totaled $1,349,285, compared to $1,213,068 in cash and cash equivalents as of December 31, 2023.

As of March 31, 2025, the Company’s cash and cash equivalents totaled $1,110,268, compared to $1,072,772 in cash and cash equivalents as of March 31, 2024.

The impact of increased tariffs for raw materials and finished goods may have an adverse effect on the future cash position of the Company.

Our direct exposure to tariff fees is limited, and we are sourcing goods and materials from lower tariff countries.

However, indirectly, the goods and materials we purchase domestically may increase prices to us as tariffs impact them.

Therefore, we may need to raise prices and offset this increase in the future.

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 $363,000 during the six months ended December 31, 2024 compared to $370,000 net cash provided by operating activities in the three months ended December 31, 2023.

The primary components of the cash provided by operating activities in the current year is the increase in Accrued expenses and payroll of $107,000 and a reduction in operation lease costs of $151,000.

Inventory reserves were reduced by $49,000 for the period.

Net cash provided by operating activities was $202,980 during the nine months ended March 31, 2025 compared to $333,193 net cash provided by operating activities in the nine months ended March 31, 2024.

The primary components of the cash provided by operating activities in the current year are the increase in accounts payable of $312,000 and a increase in accounts receivables of $359,000.

Accounts receivable increase was due to the merchant service provider establishing a $200,000 reserve on our credit card transactions.

Investing Activities

Cash used in investing activities in the six months ended December 31, 2024 was $3,000 compared to a use of $39,000 during the six months ended December 31, 2023.

This is due to the disposal of a forklift during the six months ended December 31, 2024.

Cash used in investing activities in the nine months ended March 31, 2025 was $34,308 compared to a use of $52,212 during the nine months ended March 31, 2024.

This is due to the disposal of a forklift during the nine months ended March 31, 2025.

No replacement forklift is needed at this time.

A replacement database server was purchased in March 2025 for approximately $29,000.

Financing Activities

Cash used by financing activities during the three months ended December 31, 2024 and December 31, 2023 of $39,000 and $159,000 respectively, 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 nine months ended March 31, 2025 and March 31, 2024 of $86,853 and $249,519 respectively, primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

Non-GAAP Financial Measures

Reconciliation of net income to Adjusted EBITDA for the three and six months ended December 31, 2024 and 2023:

Reconciliation of net income to Adjusted EBITDA for the three and nine months ended March 31, 2025 and 2024:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

Net income (loss)

Plus interest expense, financing costs, and income tax

11 unchanged sentences

Accordingly, the Company’s liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities.

As of December 31, 2024, the Company 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, 2025, the Company did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical accounting policies

6 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not enter into any transactions using derivative financial instruments or derivative commodity instruments and believe that the Company’s exposure to market risk associated with other financial instruments is not material.

The Company does not enter into any transactions using derivative financial instruments or derivative commodity instruments, and believes that the Company’s exposure to market risk associated with other financial instruments is not material.

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