Operating income for the Direct segment improved to $1.0 million for the second quarter 2012, compared to Direct segment operating loss of $1.0 million for the second quarter 2011. This improvement reflects stronger sales as well as a 290 basis point reduction in Direct selling and marketing expense as a percentage of sales. Gross margin for the Direct business was 55.1% for the second quarter of 2012, an increase of 510 basis points compared to the second quarter of last year.

Net sales for the Retail segment were $14.0 million in the second quarter 2012, an increase of 22.9% compared to the second quarter last year. As previously disclosed, in the first half of 2012, the Company took certain steps to stabilize declining gross margins in its Retail business. These steps included a price increase for the back half of 2012, which resulted in some Retail customers accelerating a portion of their purchases into the second quarter compared to their typical buying patterns.

Operating income for the Retail segment was $1.1 million, a 24.8% increase over the same quarter last year mainly attributable to higher sales. Retail gross margin was 19.2% in the second quarter of 2012, a decrease of 250 basis points from the same quarter a year ago.

For further information, see "Segment Information" attached hereto.

Balance Sheet

As of June 30, 2012, the Company had cash and cash equivalents of $16.1 million and no debt, compared to cash and cash equivalents of $17.4 million and $5.6 million of debt at year end 2011. Working capital was $16.8 million, compared to $19.4 million at year end 2011; the decline in working capital was mainly the result of paying off the $5.6 million of debt during March of this year. Inventory as of June 30, 2012 was $12.6 million, compared to $11.6 million as of December 31, 2011. The Company believes it has adequate inventory to support current demand levels.

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