Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Luvu Brands, Inc.Financial_Report.xls
EX-32.1 - SECTION 906 CERTIFICATION BY THE CORPORATION'S PRINCIPAL EXECUTIVE OFFICER - Luvu Brands, Inc.exhibit_32-1.htm
EX-32.2 - SECTION 906 CERTIFICATION BY THE CORPORATION'S PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - Luvu Brands, Inc.exhibit_32-2.htm
EX-31.1 - SECTION 302 CERTIFICATION BY THE CORPORATION'S PRINCIPAL EXECUTIVE OFFICER - Luvu Brands, Inc.exhibit_31-1.htm
EX-31.2 - SECTION 302 CERTIFICATION BY THE CORPORATION'S PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - Luvu Brands, Inc.exhibit_31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

X  

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2013

 

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission File Number: 000-53314

 

Liberator, Inc.

(Exact name of registrant as specified in this charter)

     

Florida

(State or other jurisdiction

of incorporation or organization)

 

59-3581576

(I.R.S. Employer

Identification No.)

 

2745 Bankers Industrial Drive, Atlanta, Georgia 30360

(Address of principal executive offices and zip code)

 

(770) 246-6400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer,” accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐   Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company x
       

(Do not check if a smaller reporting company)

 

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐  No x

 

As of February 14, 2014 there were 70,702,596 shares of the registrant’s common stock outstanding.


 
 

LIBERATOR, INC.

TABLE OF CONTENTS

    Page Number
  PART I – FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets –  
  At December 31, 2013 (unaudited) and June 30, 2013 3
     
  Condensed Consolidated Statements of Operations –  
  For the Three and Six Months Ended December 31, 2013 and December 31, 2012 (unaudited)                   4
     
  Condensed Consolidated Statements of Cash Flows –  
  For the Six Months Ended December 31, 2013 and December 31, 2012 (unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 6
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 25
     
ITEM 4. Controls and Procedures 25
     
  PART II – OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 26
     
ITEM 1A. Risk Factors 26
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
ITEM 3. Defaults Upon Senior Securities 26
     
ITEM 4. Mine Safety Disclosures 26
     
ITEM 5. Other Information 26
     
ITEM 6. Exhibits 26
     
SIGNATURES   27

 

 

 

 

2


 
 

PART I   FINANCIAL INFORMATION

 

ITEM 1.                        FINANCIAL STATEMENTS

 

LIBERATOR, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

ASSETS 
Current assets:
  December 31,
2013
(unaudited)
  June 30,
2013
   Cash and cash equivalents  $755,824   $397,860 
   Accounts receivable, net   861,822    522,900 
   Inventories, net   1,330,647    1,409,703 
   Prepaid expenses   86,222    76,932 
       Total current assets   3,034,515    2,407,395 
Equipment and leasehold improvements, net   685,384    756,990 
Other assets   4,479    4,479 
       Total assets  $3,724,378   $3,168,864 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
   Accounts payable  $1,749,048   $1,607,765 
   Accrued compensation   252,669    214,110 
   Accrued expenses and interest   212,667    232,714 
   Line of credit   896,918    366,196 
   Current portion of leases payable   22,631    21,422 
Current portion of deferred rent payable   73,948    67,963 
Merchant cash advance (net of discount)   102,899    349,952 
   Short-term unsecured notes payable   698,149    664,625 
   Convertible notes payable - shareholder   625,000    —   
   Notes payable - related party   116,000    116,000 
       Total current liabilities   4,749,929    3,640,747 
Long-term liabilities:          
   Leases payable   53,426    40,927 
Deferred rent payable   88,579    125,553 
Unsecured note payable   300,000    300,000 
Unsecured lines of credit   4,459    12,535 
   Convertible notes payable - shareholder   —      625,000 
       Total long-term liabilities   446,464    1,104,015 
       Total liabilities   5,196,393    4,744,762 
Commitments and contingencies (Note 14)   —      —   
Stockholders’ deficit:          
Preferred stock, 5,700,000 shares authorized, $0.0001 par value none issued and outstanding   —      —   
Series A Convertible Preferred stock, 4,300,000 shares authorized $0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $1,000,000 as of December 31, 2013 and June 30, 2013   430    430 
Common stock of $0.01 par value, 175,000,000 shares authorized; 70,702,596 shares issued and outstanding at December 31, 2013 and at June 30, 2013   707,026    707,026 
Additional paid-in capital   5,800,044    5,764,331 
Accumulated deficit   (7,979,515)   (8,047,685)
Total stockholders’ deficit   (1,472,015)   (1,575,898)
Total liabilities and stockholders’ deficit  $3,724,378   $3,168,864 

See accompanying notes to unaudited interim financial statements.

3


 
 

LIBERATOR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

   Three Months Ended
December 31,
  Six Months Ended
December 31,
   2013  2012  2013  2012
       
Net Sales  $4,157,313   $3,980,856   $7,501,030   $7,191,031 
Cost of goods sold   3,035,481    2,800,113    5,325,131    5,001,513 
Gross profit   1,121,832    1,180,743    2,175,899    2,189,518 
Operating expenses                    
Advertising and promotion   126,800    162,736    212,627    264,364 
Other selling and marketing   263,888    381,342    663,682    697,831 
General and administrative   487,491    400,932    917,357    856,356 
Depreciation and amortization   57,121    45,156    114,970    88,963 
Total operating expenses   935,300    990,166    1,908,636    1,907,514 
Income from operations   186,532    190,577    267,263    282,004 
 
Other Income (Expense):
                    
Interest income   50    215    112    312 
Interest (expense) and financing costs   (91,470)   (84,284)   (199,205)   (169,331)
Loss on disposal of assets   —      (2,801)   —      (2,801)
Total Other Expense   (91,420)   (86,870)   (199,093)   (171,820)
Income from before income taxes   95,112    103,707    68,170    110,184 
Provision for income taxes   —      —      —      —   
Net income  $95,112   $103,707   $68,170   $110,184 
Net income per share                    
         Basic  $0.00   $0.00   $0.00   $0.00 
         Diluted  $0.00   $0.00   $0.00   $0.00 
                     
Shares used in computing net income (loss) per share                    
         Basic   70,702,596    70,702,596    70,702,596    70,702,596 
         Diluted   70,702,596    70,702,596    70,702,596    70,702,596 
                     

 

 

See accompanying notes to unaudited interim financial statements.

4


 
 

 

LIBERATOR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   Six Months Ended
   December 31,
   2013  2012
OPERATING ACTIVITIES:      
Net income   $68,170   $110,184 
Adjustments to reconcile net income to net cash
provided by operating activities:
     
Depreciation and amortization   114,970    88,963 
Amortization of debt discount   —      14,400 
Stock based compensation expense   35,713    19,609 
Loss on disposal of fixed asset   —      2,801 
Provision for bad debt   1,523    9,240 
Deferred rent payable   (30,989)   (25,669)
Changes in operating assets and liabilities:          
Accounts receivable   (340,445)   (123,873)
Inventories   79,056    (217,166)
Prepaid expenses and other assets   (9,290)   9,220 
Accounts payable   141,283    210,161 
Accrued compensation   38,559    (8,031)
Accrued expenses and interest   (20,047)   (14,324)
Net cash provided by operating activities   78,503    75,515 
 
INVESTING ACTIVITIES:
          
             Investment in equipment and leasehold improvements   (12,385)   (196,483)
Net cash used in investing activities   (12,385)   (196,483)
           
FINANCING ACTIVITIES:          
 Net cash provided by (used in) line of credit   530,722    (40,857)
 Net (repayment) borrowing of credit card cash advance   (247,053)   282,277 
 Repayment of unsecured line of credit   (8,076)   (12,869)
 Proceeds from issuance of debt   —      250,000 
 Net proceeds (repayment) of short-term debt   33,524    (203,613)
 Principal payments on equipment note payable and capital leases   (17,271)   (18,720)
Net cash provided by financing activities   291,846    256,218 
           
Net increase in cash and cash equivalents   357,964    135,250 
Cash and cash equivalents at beginning of period   397,860    494,420 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $755,824   $629,670 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Non cash item:          
Additions to capital leases  $30,979   $23,850 
Cash paid during the period for:          
Interest  $185,988   $196,114 
Income taxes  $—     $—   

 

See accompanying notes to unaudited interim financial statements.

5


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

 

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

 

Liberator, Inc. (the “Company” or “Liberator”) was incorporated in the State of Florida on February 25, 1999. References to the “Company” in these notes include the Company and its wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”).

 

The Company is a designer and manufacturer of various specialty furnishings for the sexual wellness market.  The Company has also become an online retailer of products for the sexual wellness market.  The Company’s sales and manufacturing operation are located in the same facility in Atlanta, Georgia.  Sales are generated through internet and print advertisements.  We have a diversified customer base with no particular concentration of credit risk in one economic sector.  For the three months and six months ended December 31, 2013, sales to Customer A accounted for 12% and 13% of our total sales, respectively. Foreign operations and foreign net sales are not material. Our business is seasonal and as a result we typically experience higher sales in our second and third quarters.

 

The accompanying unaudited condensed consolidated interim financial statements of Liberator, Inc. and all of its wholly-owned subsidiaries (collectively, the "Company" “we” or "Liberator") included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The year-end condensed balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the six months ended December 31, 2013 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2013.

 

Going Concern - The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. As of December 31, 2013, the Company has an accumulated deficit of $7,979,515 and a working capital deficit of $1,715,414. This raises substantial doubt about to its ability to continue as a going concern.

 

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations.  Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

 

These actions include an ongoing initiative to increase gross profit margins through improved production controls and reporting. We also plan to manage discretionary expense levels to be better aligned with current and expected revenue levels.  Furthermore, our plan of operation for the next twelve months continues a strategy for growth within our existing lines of business with an on-going focus on growing domestic sales. We estimate that the operational growth plans we have identified will require approximately $300,000 of funding. We expect to invest approximately $150,000 on sales and marketing programs, primarily sexual wellness advertising in magazines, on the internet and on cable television. We will also be exploring the opportunity to acquire other compatible businesses.

 

We plan to finance the required $300,000 with a combination of anticipated cash flows from operations over the next twelve months as well as cash on hand and cash we will seek to obtain through equity and debt financings.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations.  However, management cannot provide any assurances that the Company will be successful in accomplishing these plans.  The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

6


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

These condensed consolidated financial statements include the accounts and operations of our wholly owned operating subsidiaries, OneUp Innovations, Inc. and Foam Labs, Inc. Intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  These condensed consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s report on Form 10-K for the year ended June 30, 2013 filed on September 30, 2013.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the period reported.  Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary.  Actual results could differ from those estimates and assumptions.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Significant estimates in these condensed consolidated financial statements include estimates of: asset impairment; income taxes; tax valuation reserves; allowances for doubtful accounts; share-based compensation; and useful lives for depreciation and amortization.  Actual results could differ materially from these estimates.

 

Revenue Recognition   

 

We recognize revenues as goods are shipped to customers and title is transferred. The criteria for recognition of revenue are when persuasive evidence that an arrangement exists and both title and risk of loss have passed to the customer, the price is fixed or determinable, and collectability is reasonably assured. Sales returns and allowances are estimated and recorded as a reduction to sales in the period in which sales are recorded.

 

The Company records product sales net of estimated product returns and discounts from the list prices for its products. The amounts of product returns and the discount amounts have not been material to date. The Company includes shipping and handling costs in cost of product sales.

 

Cash and Cash Equivalents

 

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.

 

 

7


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

Allowance for Doubtful Accounts

 

The allowance for doubtful accounts reflects management's best estimate of probable credit losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, specifically identified nonpaying accounts and other currently available evidence. The Company reviews its allowance for doubtful accounts monthly with a focus on significant individual past due balances over 90 days. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

 

The following is a summary of Accounts Receivable as of December 31, 2013 and June 30, 2013.

 

   December 31,
2013
  June 30,
2013
Accounts receivable  $875,468   $555,628 
Allowance for doubtful accounts   (2,248)   (4,986)
Allowance for discounts and returns   (11,398)   (27,742)
Total accounts receivable, net  $861,822   $522,900 

 

Inventories and Inventory Reserves

 

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Market is defined as sales price less cost to dispose and a normal profit margin.  Inventory costs include materials, labor, depreciation and overhead.

 

Concentration of Credit Risk

 

The Company maintains its cash accounts with banks located in Georgia.  The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per bank.  The Company had bank balances on deposit at December 31, 2013 that exceeded the balance insured by the FDIC by $591,248.  Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.

 

During the six month ended December 31, 2013, we purchased 27% and 19% of total inventory purchases from two vendors.

 

During the fiscal year ended June 30, 2013, we purchased 30% and 18% of total inventory purchases from two vendors.

 

As of December 31, 2013 one of the Company’s customers represents 23% of the total accounts receivables.

 

Fair Value of Financial and Derivative Instruments

 

At December 31, 2013, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, and other long-term debt.

 

The fair values of these financial instruments approximated their carrying values based on either their short maturity or current terms for similar instruments.

 

The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

 

8


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

  

ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

 

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

 

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and

 

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.

 

The valuation techniques that may be used to measure fair value are as follows:

 

A. Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

B. Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method.

 

C. Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

 

Advertising Costs

 

Advertising costs are expensed in the period when the advertisements are first aired or distributed to the public. Prepaid advertising (included in prepaid expenses) was $35,746 at December 31, 2013 and $16,709 at June 30, 2013. Advertising expense for the three months ended December 31, 2013 and 2012 was $126,800 and $162,736, respectively. Advertising expense for the six months ended December 31, 2013 and 2012 was $212,627 and $264,364, respectively.

 

Research and Development

 

Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $26,958 and $27,471 for the three months ended December 31, 2013 and 2012, respectively. Expenses for new product development totaled $50,712 and $53,197 for the six months ended December 31, 2013 and 2012, respectively. Research and development costs are included in general and administrative expense.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated service lives for financial reporting purposes of 2-10 years.

 

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. When properties are disposed of, the related costs and accumulated depreciation are removed from the respective accounts, and any gain or loss is recognized currently.

 

9


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

Impairment or Disposal of Long Lived Assets

 

Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as required by FASB ASC Topic No. 360, Property, Plant, and Equipment. The Company has determined that there was no impairment at December 31, 2013.

 

Operating Leases

 

The Company leases its facility under a ten year operating lease that was signed in September 2005 and expires December 31, 2015. The lease is on an escalating schedule with the final year on the lease at $34,358 per month. The liability for this difference in the monthly payments is accounted for as a deferred rent liability,and the balance in this account at December 31, 2013 was $162,527. The rent expense under this lease for the six months ended December 31, 2013 and 2012 was $80,931. The Company also leases certain equipment under operating leases, as more fully described in Note 14 - Commitments and Contingencies.

 

Segment Information

 

We have identified three reportable sales channels:  Direct, Wholesale and Other.  Direct includes product sales through our three e-commerce sites and our single retail store. Wholesale includes Liberator branded products sold to distributors and retailers, non-Liberator products sold to retailers, and private label items sold to other resellers. The Wholesale category also includes contract manufacturing services, which consists of specialty items that are manufactured in small quantities for certain customers, and which, to date, has not been a material part of our business. Other consists principally of shipping and handling fees and costs derived from our Direct business and fulfillment service fees. For the three months and six months ended December 31, 2013, sales to Customer A accounted for 12% and 13% of our total sales, respectively.

 

The following is a summary of sales results for the Direct, Wholesale, and Other channels.

 

             
   Three Months Ended
(unaudited)
  Six Months Ended
(unaudited)
   December 31,
2013
  December 31,
2012
  December 31,
2013
  December 31,
2012
Net Sales:            
Direct  $1,820,242   $1,419,607   $3,171,729   $2,602,484 
Wholesale   2,185,584    2,269,280    4,043,492    4,078,063 
Other   151,487    291,969    285,809    510,484 
Total Net Sales  $4,157,313   $3,980,856   $7,501,030   $7,191,031 
                     
Gross Margin:                    
Direct  $900,914   $702,395   $1,564,919   $1,304,594 
Wholesale   324,470    497,694    799,084    917,118 
Other   (103,552)   (19,346)   (188,104)   (32,194)
Total Gross Margin  $1,121,832   $1,180,743   $2,175,899   $2,189,518 

 

 

10


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

Recently Adopted Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC, did not, or are not believed by management, to have a material impact on the Company’s present or future financial statements.

 

 

Net Income Per Share

 

Basic net income per common share was determined by dividing net income applicable to common stockholders by the weighted average common shares outstanding during the period plus the effect of stock options using The Treasury Stock Method. 

 

   December 31,
   2013  2012
Common stock options   4,986,500    4,234,500 
Common stock warrants   2,462,393    2,462,393 
Convertible preferred stock   4,300,000    4,300,000 
Convertible notes   7,545,455    4,375,000 
 Total   19,294,348    15,371,893 

 

Income Taxes

 

We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.  

 

Stock Based Compensation

 

We account for stock-based compensation in accordance with FASB ASC 718, Compensation - Stock Compensation. We measure the cost of each stock option at its fair value on the grant date. Each award vests over the subsequent period during which the recipient is required to provide service in exchange for the award (the vesting period). The cost of each award is recognized as expense in the financial statements over the respective vesting period. All of the Company’s stock options are service-based awards.

 

Stock Issued for Services to other than Employees

 

Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, as required by FASB ASC 505, which is measured as of the date required by FASB ASC 505, “Equity – Based Payments to Non-Employees”. In accordance with FASB ASC 505, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the “valuation date”, which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

 

11


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

NOTE 3. STOCK-BASED COMPENSATION

 

Options

 

At December 31, 2013, the Company had the 2009 Stock Option Plan (the “Plan”), which is shareholder-approved and under which 5,000,000 shares are reserved for issuance until the Plan terminates on October 20, 2019.

 

Under the Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company’s common stock. The shares issuable under the Plan will either be shares of the Company’s authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. As of December 31, 2013, the number of shares available for issuance under the Plan was 413,500.

 

The following table summarizes the Company’s stock option activities during the six months ended December 31, 2013:

   Number of Shares
Underlying
Outstanding
Options
  Weighted
Average
Remaining
Contractual
Life (Years)
  Weighted
Average
Exercise
Price
  Intrinsic
Value
Options outstanding as of June 30, 2013   3,583,500    3.8   $.10   $—   
Granted   2,026,000    4.6   $.05   $—   
Exercised   —      —     $—     $—   
Forfeited or expired   (623,000)   2.4   $.07   $—   
Options outstanding as of December 31, 2013   4,986,500    4.0   $.09   $—   
Options exercisable as of December 31, 2013   1,516,625    3.1   $.12   $—   

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of $.045 for such day. 

 

There were 2,026,000 stock options granted during the six months ended December 31, 2013 and 2,444,000 stock options granted during the six months ended December 31, 2012. The value assumptions related to options granted during the six months ended December 31, 2013 and 2012, respectively, were as follows:

 

 

   

Six Months 
Ended December 31, 2013

 

Six Months 
Ended December 31, 2012

 
Exercise Price:   $.045-$.051   $.06-$.10  
Volatility:   231%-251%   40%-47%  
Risk Free Rate:   .99%-1.04%   .43%-.60%  
Vesting Period:   Immediate to 4 years   4 years  
Forfeiture Rate:   0%   0%  
Expected Life   4.1-4.5 years   4.5 years  
Dividend Rate   0%   0%  

 

12


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

The following table summarizes the weighted average characteristics of outstanding stock options as of

December 31, 2013:

    Outstanding Options     Exercisable Options  

Exercise Prices

 

Number

of Shares

   

Remaining
Life 
(Years)

   

Weighted

Average 
Price

   

Number of

Shares

   

Weighted

Average
 Price

 
$ .05 to .09     3,785,000       4.2     $ .07       778,000     $ .06  
$ .15 to .16     947,500       2.6     $ .16      

548,125

    $ .16  
$ .20 to $.25    

254,000

      0.8      $ .25      

190,500

    $ .25  
Total stock options    

4,986,500

      3.8     $ .10      

1,516,625

    $ .12  

 

Stock-based compensation

 

We account for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. We measure the cost of each stock option and at its fair value on the grant date. Each award vests over the subsequent period during which the recipient is required to provide service in exchange for the award (the vesting period). The cost of each award is recognized as expense in the financial statements over the respective vesting period.

 

Stock option-based compensation expense recognized in the condensed consolidated statements of operations for the six month period ended December 31, 2013 and 2012 are based on awards ultimately expected to vest, and is reduced for estimated forfeitures.

 

The following table summarizes stock option-based compensation expense by line item in the Condensed Consolidated Statements of Operations, all relating to the Plan:

 

   

Three Months 
Ended December 31,

 

Six Months 
Ended December 31,

 
   

2013

 

2012

 

2013

 

2012

 
Cost of Goods Sold   $ 3,106   $ 3,168   $ 7,705   $ 6,142  
Other Selling and Marketing   1,723   893   3,951   1,827  
General and Administrative  

6,557

 

4,973

 

24,057

 

11,640

 
Total Stock-based Compensation Expense   $

11,386

  $

9,034

  $

35,713

  $

19,609

 

 

 As of December 31, 2013, the Company’s total unrecognized compensation cost was $136,680, which will be recognized over the weighted average vesting period of 3 years.

 

NOTE 4. INVENTORIES, NET

 

Inventories are stated at the lower of cost (which approximates first-in, first-out) or market. Market is defined as sales price less cost to dispose and a normal profit margin.  Inventories consisted of the following:

 

   December 31, 2013  June 30, 2013
Raw materials  $487,226   $528,771 
Work in process   139,573    138,240 
Finished goods   703,848    742,692 
 Inventories, net  $1,330,647   $1,409,703 

 

13


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

 

Equipment and leasehold improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives for equipment and furniture and fixtures, or the shorter of the remaining lease term or estimated useful lives for leasehold improvements.

 

Equipment and leasehold improvements consisted of the following:

December 31,

2013

 

June 30,

2013

 

Estimated

Useful Life 

Factory Equipment   $ 1,737,357     $ 1,693,993   2-10 years
Computer Equipment and Software     867,677       867,677   5-7 years
Office Equipment and Furniture     166,996       166,996   5-7 years
Leasehold Improvements    

343,120

     

343,120

  10 years
Subtotal     3,115,150       3,071,786    
Accumulated Depreciation    

(2,429,766

)    

(2,314,796

)  
Total equipment and leasehold improvements, net   $

685,384

    $

756,990

   

 

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset’s fair value. Management has determined no asset impairment occurred during the six months ended December 31, 2013.

 

NOTE 6. NOTES PAYABLE

 

Notes payable consisted of the following:

 

December 31, 2013

   

June 30, 2013

 
Unsecured note payable for $250,000 to an individual shareholder with interest at 20%, principal and interest paid bi-weekly, maturing December 6, 2013.  Secured by personal guarantee of majority stockholder.     -       121,584  
Unsecured note payable for $250,000 to an individual shareholder with interest at 20%, principal and interest paid bi-weekly, maturing January 10, 2014.  Secured by personal guarantee of majority stockholder.     10,564       140,784  
Unsecured note payable for $130,000 to an individual shareholder with interest at 20%, principal and interest paid bi-weekly, maturing April 4, 2014. Secured by personal guarantee of majority stockholder.     37,585       102,256  
Unsecured note payable for $100,000 to an individual, with interest at 20% payable monthly; principal due in full on October 31, 2014.  Secured by personal guarantee of majority stockholder.     100,000       -  
Unsecured note payable for $250,000to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing December 19, 2014. Secured by personal guarantee of majority stockholder.     250,000       -  
Unsecured note payable for $100,000 to an individual, with interest at 20% payable monthly; principal due in full on July 31, 2012. Subsequent to June 30, 2012, the due date on this note was extended to July 31, 2013. Subsequent to June 30, 2013, the due date on this note was extended to July 31, 2015. Secured by personal guarantee of majority stockholder.     100,000       100,000  
Unsecured note payable for $300,000 to an individual, with interest at 20%, principal and interest originally due in full on January 3, 2012; extended to January 3, 2013, then extended to January 3, 2014, with interest payable monthly and principal due on maturity.  Secured by personal guarantee of majority stockholder.     300,000       300,000  
Unsecured note payable for $200,000 to an individual, with interest at 16%, principal and interest originally due on January 3, 2011, extended to May 1, 2013. Beginning May 31, 2011, the interest rate was increased to 20%, with interest payable monthly, and the principal due in full on May 1, 2013. Effective April 30, 2013, the due date on this note was extended to May 1, 2015. Secured by personal guarantee of majority stockholder.    

200,000

     

200,000

 
Total unsecured notes payable     998,149       964,624  
Less: current portion    

(698,149

)    

(664,624

)
Long-term unsecured notes payable   $

300,000

    $

300,000

 

 

14


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

NOTE 7. SHORT TERM NOTES PAYABLE-RELATED PARTY 

   

December 31,
2013

   

June 30,
2013

Unsecured note payable to an officer, with interest at 3.25%, due on demand   $ 40,000     $ 40,000
Unsecured note payable to an officer, with interest at 3.25%, due on demand    

76,000

     

76,000

Total unsecured notes payable   $

116,000

    $

116,000

 

NOTE 8. LINE OF CREDIT

 

 On May 24, 2011, the Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs entered into a credit facility with a finance company, Advance Financial Corporation, to provide it with an asset based line of credit of up to $750,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital.  The term of the agreement was one year, renewable for additional one-year terms unless either party provides written notice of non-renewal at least 90 days prior to the end of the current financing period. The credit facility was secured by our accounts receivable and other rights to payment, general intangibles, inventory and equipment, and are subject to eligibility requirements for current accounts receivable. Advances under the agreement were charged interest at a rate of 2.5% over the lenders Index Rate.  In addition there was a Monthly Service Fee (as defined in the agreement) of up to 1.25% per month.  

 

On September 4, 2013, the credit agreement with Advance Financial Corporation was amended and restated to increase the asset based line of credit to $1,000,000 to include an Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $300,000 or 75% of the eligible accounts receivable loan. In addition, the amended and restated agreement changed the interest calculation to prime rate plus 3% (as of December 31, 2013, the interest rate was 6.25%) and the Monthly Service Fee was changed to .5% per month.

 

The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the facility.  In addition, Liberator has provided its corporate guarantee of the credit facility.  On December 31, 2013, the balance owed under this line of credit was $896,918.  On December 31, 2013, we were current and in compliance with all terms and conditions of this line of credit.

 

Management believes cash flows generated from operations, along with current cash and investments as well as borrowing capacity under the line of credit should be sufficient to finance capital requirements required by operations. If new business opportunities do arise, additional outside funding may be required.

 

NOTE 9. CREDIT CARD ADVANCE

 

On October 4, 2012, the Company entered into an agreement with Credit Cash NJ, LLC whereby Credit Cash agreed to loan OneUp and Foam Labs a total of $400,000. The loan is secured by OneUp’s and Foam Lab’s existing and future credit card collections. Terms of the loan call for a repayment of $448,000, which includes a one-time finance charge of $48,000, approximately ten months after the funding date. On May 14, 2013, the loan was renewed for $400,000 and the remaining balance of $126,518 on the prior loan was repaid from the net proceeds of the renewal. At the time of the renewal, the Company had a balance of $14,400 in unamortized discount which was charged to interest expense during the fourth quarter. Terms of the renewal loan call for a repayment of $448,000, which includes a one-time finance charge of $48,000, approximately ten months after May 14, 2013. This will be accomplished by Credit Cash withholding a fixed amount each business day of $2,074 from OneUp’s credit card receipts until full repayment is made. The loan is guaranteed by the Company and is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman. As of December 31, 2013, the principle amount is $112,499, net of a discount of $9,600.

 

NOTE 10. UNSECURED LINES OF CREDIT

 

The Company has drawn cash advances on two unsecured lines of credit that are in the name of the Company and Louis S. Friedman. The terms of these unsecured lines of credit call for monthly payments of principal and interest, with interest rates ranging from 7% to 18%. The aggregate amount owed on the two unsecured lines of credit was $4,459 at December 31, 2013 and $12,535 at June 30, 2013.

 

15


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

NOTE 11. CONVERTIBLE NOTES PAYABLE - SHAREHOLDER

 

On June 24, 2009, the Company issued a 3% convertible note payable to Hope Capital with a face amount of $375,000. Hope Capital is a shareholder of the Company and was the majority shareholder of the Company before the merger with OneUp.  The note was convertible, at the holder’s option or the Company’s option, into common stock at $.25 per share and could be converted at any time prior to the maturity date of August 15, 2012. Effective August 15, 2012, the note was amended to reduce the per share conversion price to $0.20 and extend the maturity date to August 15, 2013. Effective August 15, 2013, the note was amended again to reduce the per share conversion price to $0.125 and extend the maturity date to August 15, 2014. There was no beneficial conversion on the date of amendment as the face value was equal to the conversion price. Upon maturity, the Company has the option to either repay the note plus accrued interest in cash or issue the equivalent number of shares of common stock at $.125 per share, unless such conversion would force the holders’ total ownership of common stock of the Company to exceed 9.9% of the total shares outstanding. As of December 31, 2013, the principle balance was $375,000 and accrued interest was $50,733.

 

On September 2, 2009, the Company issued a 3% convertible note payable to Hope Capital, Inc. with a face amount of $250,000. The note was convertible, at the holder’s option, into common stock at $.25 per share and could be converted at any time prior to the maturity date of September 2, 2012. Effective September 2, 2012, the note was amended to reduce the per share conversion price to $0.10 and extend the maturity date to September 2, 2013. Effective September 2, 2013, the note was amended again to reduce the per share conversion price to $0.055 and extend the maturity date to September 2, 2014. There was no beneficial conversion on the date of amendment as the face value was equal to the conversion price. Upon maturity, the Company has the option to either repay the note plus accrued interest in cash or issue the equivalent number of shares of common stock at $.055 per share, unless such conversion would force the holders’ total ownership of common stock of the Company to exceed 9.9% of the total shares outstanding. As of December 31, 2013, the principle balance was $250,000 and the accrued interest was $32,486.

 

 

NOTE 12. STOCKHOLDERS’ EQUITY

 

Common Stock- The Company’s authorized common stock was 175,000,000 shares at December 31, 2013 and June 30, 2013.  Common shareholders are entitled to dividends if and when declared by the Company’s Board of Directors, subject to preferred stockholder dividend rights. At December 31, 2013, the Company had reserved the following shares of common stock for issuance:

    December 31,
   

2013

Shares of common stock subject to outstanding warrants     2,462,393
Shares of common stock reserved for issuance under the 2009 Stock Option Plan     5,000,000
Shares of common stock issuable upon conversion of the Preferred Stock     4,300,000
Shares of common stock issuable upon conversion of Convertible Notes    

7,545,455

Total shares of common stock equivalents    

19,307,848

         

 

Preferred Stock - On February 18, 2011, the Company filed an amendment to its Articles of Incorporation, effective February 9, 2011, authorizing the issuance of preferred stock and the Company now has 10,000,000 authorized shares of preferred stock, par value $.0001 per share, of which 4,300,000 shares have been designated and issued as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into one share of common stock and has a liquidation preference of $.2325 ($1,000,000 in the aggregate). Liquidation payments to the preferred holders have priority and are made in preference to any payments to the holders of common stock. In addition, each share of Series A Convertible Preferred Stock is entitled to the number of votes equal to the result of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01; divided by (ii) the total number of Series A Convertible Preferred Shares issued and outstanding at the time of such vote. At each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration, including the election of directors, holders of Series A Convertible Preferred Shares shall vote together with the holders of common shares as a single class.

16


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

Stock Purchase Warrants - As of December 31, 2013, the following share purchase warrants were outstanding:

                   

Number of Warrants

     

Exercise

Prices

 

Expiration

Dates

292,479     $ .50   June 26, 2014
1,292,479     $ .75   June 26, 2014

877,435

    $ 1.00   June 26, 2014

2,462,393

           
                   

 

The following table summarizes the continuity of the Company’s share purchase warrants:

  Shares   Weighted Average
Exercise Prices
Balance June 30, 2013     2,462,393     $ .81  
Expired     —         —    
Balance December 31, 2013     2,462,393     $ .81  

 

NOTE 13. RELATED PARTIES

 

The Company has a subordinated note payable to the majority shareholder’s wife in the amount of $76,000. Interest on the note during the six months ended December 31, 2013 was accrued by the Company at the prevailing prime rate (which is currently 3.25%) and totaled $1,245. The accrued interest on the note as of December 31, 2013 was $11,296. This note is subordinate to all other credit facilities currently in place.

 

On June 24, 2009, the Company issued a 3% convertible note payable to Hope Capital with a face amount of $375,000. Hope Capital is a shareholder of the Company and was the majority shareholder of the Company before the merger with OneUp Innovations.  The note was convertible, at the holder’s option or the Company’s option, into common stock at $.25 per share and could be converted at any time prior to the maturity date of August 15, 2012. Effective August 15, 2012, the note was amended to reduce the per share conversion price to $0.20 and extend the maturity date to August 15, 2013. On August 15, 2013, the note was further amended to reduce the per share conversion price to $.125 and extend the maturity date to August 15, 2014. Upon maturity, the Company has the option to either repay the note plus accrued interest in cash or issue the equivalent number of shares of common stock at $.125 per share, unless such conversion would force the holders’ total ownership of common stock of the Company to exceed 9.9% of the total shares outstanding. There was no beneficial conversion on the date of amendment as the face value was equal to the conversion price. As of December 31, 2013, the principle balance was $375,000 and accrued interest was $50,733.

 

On September 2, 2009, the Company issued a 3% convertible note payable to Hope Capital.  The note was convertible, at the holder’s option, into common stock at $.25 per share and could be converted at any time prior to the maturity date of September 2, 2012. Effective September 2, 2012, the note was amended to reduce the per share conversion price to $0.10 and extend the maturity date to September 2, 2013. Effective September 2, 2013, the note was amended again to reduce the per share conversion price to $0.055 and extend the maturity date to September 2, 2014. There was no beneficial conversion on the date of amendment as the face value was equal to the conversion price. As of December 31, 2013, the principle balance was $250,000 and the accrued interest was $32,486.

 

On October 30, 2010, Mr. Friedman, loaned the Company $40,000. Interest on the loan during the six months ended December 31, 2013 was accrued by the Company at the prevailing prime rate (which was 3.25% on December 31, 2013) and totaled $655. The accrued interest on the note as of December 31, 2013 was $4,184. This note is subordinate to all other credit facilities currently in place.

 

17


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

On January 3, 2011, an individual loaned the Company $300,000 with an interest rate of 20%. Interest on the loan is being paid monthly, with the principal due in full on January 3, 2012; extended to January 3, 2013; then extended to January 2, 2015 with interest payable monthly and principle due on maturity. Louis Friedman, the Company’s CEO, personally guaranteed the repayment of the loan obligation.

 

The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 8 – Line of Credit).  In addition, Liberator has provided its corporate guarantees of the credit facility.  On December 31, 2013, the balance owed under this line of credit was $896,918.

 

On July 20, 2011, the Company issued an unsecured promissory note to an individual for $100,000. Terms of the promissory note call for monthly interest payments of $1,667 (equal to interest at 20% per annum), with the principal amount due in full on July 31, 2012. On July 31, 2012, the note was extended to July 31, 2013 under the same terms. Prior to June 30, 2013, the note was extended to July 31, 2015 under the same terms. Repayment of the promissory note is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.

 

On December 10, 2012, the Company issued an unsecured promissory note to two individual shareholders for $250,000. Terms of the note call for bi-weekly principal and interest payments of $10,646 with the note due in full on December 6, 2013. This note was paid in full on December 6, 2013.

 

On January 14, 2013, the Company issued an unsecured promissory note to two individual shareholders for $250,000. Terms of the note call for bi-weekly principal and interest payments of $10,646 with the note due in full on January 10, 2014. Mr. Friedman has personally guaranteed the repayment of the loan obligation. This note was paid in full on January 10, 2014.

 

On October 31, 2013, the Company issued an unsecured promissory note to an individual for $100,000. Terms of the promissory note call for monthly interest payments of $1,667 (equal to interest at 20% per annum) beginning on November 30, 2013, with the principal amount due in full on or before October 31, 2014. Repayment of the promissory note is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.

 

On December 19, 2013, the Company issued an unsecured promissory note to two individual shareholders for $250,000. Terms of the note call for bi-weekly principal and interest payments of $10,646 with the note due in full on December 19, 2014. Mr. Friedman has personally guaranteed the repayment of the loan obligation.

 

The loan from Credit Cash (see Note 9 – Credit Card Advance) is guaranteed by the Company (including OneUp and Foam Labs) and is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.  

 

NOTE 14. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company leases its facility under a ten year operating lease that was signed in September 2005 and expires December 31, 2015. Lease payments are on an escalating schedule with the final year on the lease at $34,358 per month. The liability for this difference in the monthly payments is accounted for as a deferred rent liability, and the balance in this account at December 31, 2013 was $162,527 and $193,516 at June 30, 2013. The rent expense under this lease for the three months ended December 31, 2013 and 2012 was $80,931.

 

The Company also leases certain postage equipment under an operating lease.  The monthly lease is $104 per month and expires January 2017.

 

The Company entered into an operating lease for certain material handling equipment in September 2010.  The monthly lease amount is $1,587 per month and expires in September 2015.

 

18


 
 

LIBERATOR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED)

 

 

Future minimum lease payments under non-cancelable operating leases at December 31, 2013 are as follows:

 

Years ending June 30,  
2014 (six months)   $ 208,980  
2015     425,274  
2016     210,569  
Thereafter through 2017     1,038  
Total minimum lease payments   $ 845,861  

 

Capital Leases

 

The Company has acquired equipment under the provisions of long-term leases. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The leased properties under these capital leases have a total cost of $349,205. These assets are included in the fixed assets listed in Note 5 - Equipment and Leasehold Improvements and include computers, software, furniture, and equipment. The capital leases have stated or imputed interest rates ranging from 7% to 21%.

 

The following is an analysis of the minimum future lease payments subsequent to December 31, 2013:

 

Years ending June 30, 
2014 (six months)  $16,471 
2015   31,407 
2016   30,311 
2017   18,885 
Thereafter through 2018   440 
Total minimum lease payments   97,514 
Less amount representing interest   (21,457)
Present value of net minimum lease payments   76,057 
Less current portion   (22,631)
Long-term obligations under leases payable  $53,426 

 

 Legal Proceedings

 

As of the date of this Quarterly Report on Form 10-Q, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

NOTE 15. SUBSEQUENT EVENT

 

On January 24, 2014, the Company issued an unsecured promissory note to two individual shareholders for $250,000. Terms of the note call for bi-weekly principal and interest payments of $10,646 with the note due in full on January 23, 2015. Mr. Friedman has personally guaranteed the repayment of the loan obligation.

 

 

 

19


 
 

 

 

ITEM 2.                        Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

   Three Months Ended
   (unaudited)
   December 31, 2013  December 31, 2012
Net Sales   100.0%   100.0%
Cost Of Goods Sold   73.0%   70.3%
Gross Margin   27.0%   29.7%
Selling, General and Administrative Expenses   22.5%   24.8%
Income From Operations   4.5%   4.9%

 

   Six Months Ended
   (unaudited)
   December 31, 2013  December 31, 2012
Net Sales   100.0%   100.0%
Cost Of Goods Sold   71.0%   69.6%
Gross Margin   29.0%   30.4%
Selling, General and Administrative Expenses   25.3%   26.5%
Income From Operations   3.7%   3.9%

 

 

  The following table represents percentage of net sales by product type:

             
   Three Months Ended
(unaudited)
  Six Months Ended
(unaudited)
   December 31,
2013
  December 31,
2012
  December 31,
2013
  December 31,
2012
Net Sales:                    
Liberator   45.9%   47.2%   44.8%   46.7%
Jaxx   18.3%   15.6%   16.9%   12.4%
Resale   27.8%   26.9%   29.7%   30.8%
Other   8.0%   10.4%   8.6%   10.1%
             Total Net Sales   100.0%   100.0%   100.0%   100.0%

 

Liberator- Liberator products consist of items that are manufactured by us and are intended for sale in the sexual health and wellness market. Liberator products are sold to distributors and retailers as well as directly through our e-commerce sites and single retail store. Total dollar sales of Liberator products increased 2% during the three month period ended December 31, 2013 from the comparable year earlier period and less than 1% for the six month period ended December 31, 2013 from the same period in the prior year. This increase is primarily related to higher sales of Liberator retail products, products in our Décor line and sales of our larger Liberator furniture products.

 

Jaxx- Jaxx products are casual and contemporary furniture products manufactured by us and sold under the Jaxx brand. Jaxx products are sold to e-merchants and retailers as well as directly through our e-commerce site. Net dollar sales of Jaxx products increased 23% during the three month period ended December 31, 2013 compared to the prior year period and accounted for 18% of total net sales. This increase is primarily due to an increase in sales to certain wholesale customers and, to a lessor extent, sales through our JaxxLiving website. Net sales increased 42% during the six month period ended December 31, 2013 compared to the prior year period and accounted for 17% of total net sales. This increase is primarily due to an increase in sales to certain wholesale customers.

 

20


 
 

Resale- Resale products are non-Liberator branded products (including Tenga) that we purchase from others at wholesale or distributor prices and resell through our sales channels to retailers, distributors, or through one of our e-commerce sites and single retail store. Net sales of resale products increased 8% during the three month period ending December 31, 2013 from the comparable prior year period and accounted for 28% of total net sales due to higher sales of non-Tenga products to certain customers. Sales of Tenga products accounted for approximately 18% in each of the three month periods ended December 31, 2013 and 2012, respectively, and approximately 13% of the gross profit in each of those same periods. Net sales of resale products increased less than1% during the six month period ending December 31, 2013 from the comparable prior year period and accounted for 30% of total net sales due to lower sales of non-Tenga products to certain customers. Sales of Tenga products accounted for approximately 20% and 19% in each of the six month periods ended December 31, 2013 and 2012, respectively, and approximately 16% and 14% of the gross profit in those same periods, respectively.

 

Other- Other products include sales from contract manufacturing and fulfillment services. Net sales of these products and services during the three month period ended December 31, 2013 decreased 19% compared to the three month periods in the prior year and accounted for 8% of total net sales. This decrease is due to a decrease in the number of contract manufacturing projects and fulfillment contracts during fiscal year 2014 from the prior fiscal year. Contract manufacturing projects are typically short-term in nature and there can be no assurance that such projects will either continue or increase in future periods. Net sales of these products and services during the six month period ended December 31, 2013 decreased 11% compared to the three month periods in the prior year and accounted for 9% of total net sales. This decrease is due to a decrease in the number of contract manufacturing projects and fulfillment contracts during fiscal year 2014 from the prior fiscal year.

 

Three Months Ended December 31, 2013 Compared to Three Months Ended December 31, 2012

 

Net sales. The Company achieved record net sales for the three months ended December 31, 2013 of $4,157,313, an increase from the comparable prior year period by $176,457, or 4.4%.  The increase in net sales was primarily due to higher sales in the Direct channel which was due to higher sales through Liberator.com and JaxxLiving.com. Sales through the Direct channel, which included Liberator.com and JaxxLiving.com, increased 28% during the three months ended December 31, 2013 from the comparable prior year period. Sales through the Wholesale channel decreased by 4% during the three months ended December 31, 2013 from the comparable year earlier period. The Wholesale channel includes Liberator branded products sold to distributors and retailers, non-Liberator products sold to retailers, and private label items sold to other resellers. The Wholesale channel also includes contract manufacturing services, which consists of specialty items that are manufactured in small quantities for certain customers, and which, during the three months ended December 31, 2013, accounted for approximately 3.5% of net sales. The Other sales channel consists principally of shipping and handling fees derived from our Direct sales channel.  The Other sales channel decreased 48% to $151,487 in the three months ended December 31, 2013, primarily as a result of lower shipping and handling charges on sales through the Direct channel.  We expect Other revenue to continue to decline in future periods as “free” or reduced-cost shipping and handling continues to be the trend in the e-commerce industry.

 

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 decreased to $1,121,832 for the three months ended December 31, 2013 from $1,180,743 in the comparable prior year period (a decrease of 5%) and primarily resulted from the decrease in margin from the Wholesale sale channel and was partially offset by an increase in gross profit from the Direct channel.

 

Operating expenses. Total operating expenses for the three months ended December 31, 2013 were 22.5% of net sales, or $935,300, compared to 24.8% of net sales, or $990,166, for the same period in the prior year.  The slight decrease in operating expenses was primarily the result of decreased selling and marketing expense. Selling and marketing expense decreased by $117,454 from the prior year quarter, primarily as a result of decreased travel and trade show expenses.

 

Other income (expense). Other income (expense) during the second quarter increased from expense of ($86,870) in fiscal 2013 to expense of ($91,420) in fiscal 2014. Interest expense increased from $84,284 in the prior year first quarter to $91,470 in the current year quarter as a result of the higher average debt balances.

 

21


 
 

Six Months Ended December 31, 2013 Compared to Six Months Ended December 31, 2012

Net sales. Net sales for the six months ended December 31, 2013 increased from the comparable prior year period by $309,999, or 4.3%.  The increase in net sales was primarily due to higher sales in the Direct channel, offset by lower sales through the Wholesale and Other channels. The Direct channel (which includes product sales through our three e-commerce sites and our single retail store) increased by 21.8%, or $569,245 during the six months ended December 31, 2013, from the comparable year earlier period. The Wholesale channel (which consists principally of distributors and retailers) decreased by less than 1%, or $34,571, compared to the prior year. The increases was partially offset by a decrease of $224,675, or 44%, in the Other channel which consists primarily of shipping and handling fees and costs derived from our Direct business and fulfillment service fees.

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.  Total gross profit for the six months ended December 31, 2013 decreased to $2,175,899 from $2,189,518 (a decrease of less than 1%) in the comparable prior year period. Gross profit as a percentage of sales decreased to 29.0% for the six months ended December 31, 2013 from 30.4% in the comparable prior year period.

Operating expenses. Total operating expenses for the six months ended December 31, 2013 were 25.3% of net sales, or $1,908,636, compared to 26.5% of net sales, or $1,907,514, for the same period in the prior year and represents an increase of less than 1%.  The increase in operating expenses was primarily the result of higher general and administrative costs. General and administrative expense increased from $856,356 to $917,357, or 7% as the Company incurred higher personnel related expenses.

Other income (expense). Other income (expense) increased from an expense of ($171,820) in fiscal 2013 to an expense of ($199,093) in fiscal 2014.   Interest expense increased from $169,311 in the six months of the prior fiscal year to $199,205 in the current comparable year period due to higher borrowing balances.

Variability of Results

 

We have experienced significant quarterly fluctuations in operating results and anticipate that these fluctuations may continue in future periods. Operating results have fluctuated as a result of changes in sales levels to consumers and wholesalers, competition, seasonality costs associated with new product introductions, and increases in raw material costs. In addition, future operating results may fluctuate as a result of factors beyond our control such as foreign exchange fluctuation, changes in government regulations, and economic changes in the regions in which we operate and sell. A portion of our operating expenses are relatively fixed and the timing of increases in expense levels is based in large part on forecasts of future sales. Therefore, if net sales are below expectations in any given period, the adverse impact on results of operations may be magnified by our inability to meaningfully adjust spending in certain areas, or the inability to adjust spending quickly enough, as in personnel and administrative costs, to compensate for a sales shortfall. We may also choose to increase spending in response to market conditions, and these decisions may have a material adverse effect on financial condition and results of operations.

 

Liquidity and Capital Resources

 

The following table summarizes our cash flows:      
   Six Months Ended
   December 31,
   2013  2012
   (Unaudited)
Cash flow data:      
Cash provided by operating activities  $78,503   $75,515 
Cash used in investing activities   (12,385)   (196,483)
Cash provided by financing activities   291,846    256,218 

    

As of December 31, 2013, our cash and cash equivalents totaled $755,824, compared to $629,670 in cash and cash equivalents as of December 31, 2012.

 

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. Our principal sources of liquidity are our cash flow that we generate from our operations, availability of borrowings under our line of credit and cash raised through equity and debt financings.

 

22


 
 

Operating Activities

 

  Net cash provided by operating activities from continuing operations primarily consists of net income adjusted for certain non-cash items, including depreciation, stock-based compensation, and the effect of changes in working capital. Net cash provided by operating activities was $78,503 in the six months ended December 31, 2013 compared to $75,515 in the six months ended December 31, 2012.  The primary reasons for the increase in cash provided by operating activities is an increase in accrued compensation of $38,559, as well as the decrease in inventory on hand of $79,056.

 

Investing Activities

 

Cash used in investing activities in the six months ended December 31, 2013 was $12,385 and related to the purchase of incidental office and production equipment. Investing activities in the six months ended December 31, 2012 were $196,483 and was primarily attributable to the costs associated with the new e-commerce platform. The new e-commerce platform became operational on February 1, 2013.

 

Financing Activities

 

Cash provided by financing activities during the six months ended December 31, 2013 of $291,846 was primarily attributable to the borrowings under the line of credit offset by repayments of debt obligations.

 

Cash provided by financing activities during the six months ended December 31, 2012 of $256,218 was primarily attributable to the borrowings of debt obligations, partially offset by repayments under the line of credit and credit card advance.

Inflation

 

We cannot determine the precise effects of inflation; however, inflation continues to have an influence on the cost of materials, salaries, and transportation costs.  We attempt to offset the effects of inflation through increased selling prices, productivity improvements, and reduction of costs.

 

Sufficiency of Liquidity

 

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. We had a net income of $68,170 for the six months ended December 31, 2013 and a net loss of $288,485 for the year ended June 30, 2013. As of December 31, 2013, we have an accumulated deficit of $7,979,515 and a working capital deficit of $1,715,414.

 

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon our ability to meet our financing requirements, and the success of our future operations. Management believes that actions presently being taken to revise our operating and financial requirements provide the opportunity for the Company to continue as a going concern.

 

These actions include an ongoing initiative to increase gross profit margins through improved production controls and reporting. We also plan to manage discretionary expense levels to be better aligned with current and expected revenue levels.  Furthermore, our plan of operation in the next twelve months continues a strategy for growth within our existing lines of business with an on-going focus on growing domestic sales. We estimate that the operational growth plans we have identified will require approximately $300,000 of funding, primarily for working capital. We expect to invest approximately $150,000 on sales and marketing programs, primarily sexual wellness advertising in magazines, on the internet, and on cable television. We will also be exploring the opportunity to acquire other compatible and related businesses.

 

23


 
 

We plan to finance the required $300,000 with a combination of anticipated cash flows from operations over the next twelve months as well as cash on hand and cash we are able to obtain through equity and debt financings. We cannot provide any assurances that required financing will be obtained or that terms of such required financings will be on reasonable terms to our company.

 

Capital Resources

 

We do not currently have any material commitments for capital expenditures. We expect total capital expenditures for the remainder of fiscal 2014 to be under $100,000 and to be funded by capital leases and, to a lesser extent, anticipated operating cash flows and borrowings under the line of credit. This includes capital expenditures that we may incur in conjunction with initiatives to further upgrade our e-commerce platform, our computer network infrastructure or our production capabilities and capacity.

 

If our business plans and cost estimates are inaccurate and our operations require additional cash or if we deviate from our current plans, we could be required to seek additional debt financing for particular projects or for ongoing operational needs.  This indebtedness could harm our business if we are unable to obtain additional financing on reasonable terms.  In addition, any indebtedness we incur in the future could subject us to restrictive covenants limiting our flexibility in planning for, or reacting to changes in, our business.  If we do not comply with such covenants, our lenders could accelerate repayment of our debt or restrict our access to further borrowings, which in turn could restrict our operating flexibility and endanger our ability to continue operations.

 

At December 31, 2013, we had $896,918 outstanding on our accounts receivable and inventory line of credit, compared to an outstanding balance of $366,196 on our accounts receivable line of credit at June 30, 2013. On September 4, 2013, the credit agreement with Advance Financial Corporation was amended and restated to increase the asset based line of credit to $1,000,000 and include an Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $300,000 or 75% of the eligible accounts receivable loan. In addition, the amended and restated agreement changed the interest calculation to prime rate plus 3% (as of December 31, 2013, the interest rate was 6.25%) and the Monthly Service Fee was changed to 0.5% per month.

 

 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

 

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include certain forward-looking statements. Those statements include, but may not be limited to, all statements regarding management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as believe,” anticipate,” expect,” will,” may,” should,” intend,” plan,” estimate,” predict,” potential,” continue,” likely” and similar expressions are intended to identify forward-looking statements.

 

In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

 

 

Non-GAAP Financial Measures

 

Reconciliation of net income to Adjusted EBITDA income for the six months ended December 31, 2013 and 2012: 

 

   Six months ended December 31,
   2013  2012
Net income  $68,170   $110,184 
Less interest income   (112)   (312)
Plus interest expense   199,205    169,331 
Plus depreciation and amortization expense   114,970    88,963 
Plus stock-based compensation   35,713    19,609 
Adjusted EBITDA income  $417,946   $387,775 

 

24


 
 

As used herein, Adjusted EBITDA represents net income before interest income, interest expense, income taxes, depreciation, amortization, amortization of debt issuance costs and stock-based compensation expense. We have excluded the non-cash expense, stock-based compensation, as it does not reflect the cash-based operations of the Company. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income of the Company or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and amortization and non-cash charges for stock-based compensation expense.

 

ITEM 3.                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We do not enter into any transactions using derivative financial instruments or derivative commodity instruments and believe that our exposure to market risk associated with other financial instruments is not material.

 

ITEM 4.                        CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosures. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer (Chief Executive Officer) and principal financial officer (Chief Financial Officer), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in United States Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to the management, including CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

25


 
 

 

PART II                        OTHER INFORMATION

 

ITEM 1.                        LEGAL PROCEEDINGS

 

We are not currently subject to any material legal proceedings, nor, to our knowledge, is there any legal proceeding threatened against us. However, from time to time, we may become a party to certain legal proceedings in the ordinary course of business.

 

ITEM 1A.                    RISK FACTORS

 

This item is not required for a smaller reporting company.

 

ITEM 2.                        UNREGISTERED SALES OF EQUITY SECURITIES

 

None.

 

ITEM 3.                        DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.                        MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.                        OTHER INFORMATION

 

No events occurred during the quarter covered by this report that would require a response to this item.

 

ITEM 6.                        EXHIBITS

 

The following exhibits are furnished with this report:

 

Exh. No.   Description
     
31.1   Section 302 Certification by the Corporation’s Principal Executive Officer
31.2   Section 302 Certification by the Corporation’s Principal Financial and Accounting Officer
32.1   Section 906 Certification by the Corporation’s Principal Executive Officer
32.2   Section 906 Certification by the Corporation’s Principal Financial and Accounting Officer
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

*

 

 

 

 

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except to the extent expressly set forth by specific reference in such filing.

 

   

 

 

26


 
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      LIBERATOR, INC.
      (Registrant)
       
       
February 14, 2014   By:   /s/ Louis S. Friedman
(Date)     Louis S. Friedman
     

President and Chief Executive Officer

(Principal Executive Officer)

       
       
February 14, 2014   By:   /s/ Ronald P. Scott
(Date)     Ronald P. Scott
     

Chief Financial Officer and Secretary

(Principal Financial & Accounting Officer)

       

 

 

 

 

 

 

 

27