What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2022-02-18 · 147 added, 137 removed, 583 unchanged (33% of the section changed)

10 unchanged sentences

Total current assets

Equipment, property and leasehold improvements, net

Equipment and leasehold improvements, net

Finance lease assets

14 unchanged sentences

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 at December 31, 2021 and June 30, 2021

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 75,260,433 and 75,037,890 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively

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 at March 31, 2022 and June 30, 2021

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 75,941,860 and 75,037,890 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands, except share data)

19 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Six Months ended December 31, 2021 and December 31, 2020 (unaudited)

For the Nine Months ended March 31, 2022 and March 31, 2021 (unaudited)

Series A Preferred

Stockholders’

Equity (Deficit)

(in thousands, except share data)

Balance, June 30, 2020 (unaudited)

Balance, June 30, 2020

Stock-based compensation expense

Stock option exercises

Net income for the six months ended December 31, 2020

Balance, December 31, 2020 (unaudited)

Balance, June 30, 2021 (unaudited)

Net income for the nine months ended March 31, 2021

Balance, March 31, 2021 (unaudited)

Balance, June 30, 2021

Stock-based compensation expense

Stock option exercises

Net income for the six months ended December 31, 2021

Balance, December 31, 2021 (unaudited)

For the Three Months ended December 31, 2021 and December 31, 2020 (unaudited)

Net income for the nine months ended March 31, 2022

Balance, March 31, 2022 (unaudited)

For the Three Months ended March 31, 2022 and March 31, 2021 (unaudited)

Series A Preferred

1 unchanged sentence

(in thousands, except share data)

Balance, September 30, 2020 (unaudited)

Balance, December 31, 2020 (unaudited)

Stock-based compensation expense

Stock option exercises

Net income for the three months ended December 31, 2020

Net income for the three months ended March 31, 2021

Balance, March 31, 2021 (unaudited)

Balance, December 31, 2021 (unaudited)

Balance, September 30, 2021 (unaudited)

Stock-based compensation expense

Stock option exercises

Net income for the three months ended December 31, 2021

Balance, December 31, 2021 (unaudited)

Net income for the three months ended March 31, 2022

Balance, March 31, 2022 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

OPERATING ACTIVITIES:

18 unchanged sentences

FINANCING ACTIVITIES:

Repayment of unsecured notes payable

Proceeds from unsecured notes payable

Repayment of unsecured notes payable

Proceeds from secured notes payable

Net cash provided by (repaid to) line of credit

6 unchanged sentences

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

11 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

ORGANIZATION AND NATURE OF BUSINESS

19 unchanged sentences

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, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year.

The results of operations for the nine months ended March 31, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year.

These condensed consolidated 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, 2021 as filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2021 (the “2021 10-K”).

20 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

26 unchanged sentences

Our total deferred revenue as of June 30, 2021 was $ 16,965 and was included in “Other accrued liabilities” on our consolidated balance sheets.

The deferred revenue balance as of December 31, 2021 was $ 17,665 .

The deferred revenue balance as of March 31, 2022 was $ 17,815 .

Cost of Goods Sold

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

4 unchanged sentences

However, significant deterioration in the financial condition of our customers, resulting in an impairment of their ability to make payments, could materially change these expectations and an additional allowance may be required.

The following is a summary of Accounts Receivable as of December 31, 2021 and June 30, 2021.

The following is a summary of Accounts Receivable as of March 31, 2022 and June 30, 2021.

(in thousands)

13 unchanged sentences

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, 2021 that exceeded the balance insured by the FDIC by $ 1,134,840 .

The Company had bank balances on deposit at March 31, 2022 that exceeded the balance insured by the FDIC by $711,244.

Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.

During the three and six months ended December 31, 2021, we purchased 35 % and 36 % respectively, of total inventory purchases from one vendor.

During the three and nine months ended March 31, 2022, we purchased 39 % and 37 % respectively, of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2021, we purchased 34 % of total inventory purchases from one vendor.

As of December 31, 2021, two of the Company’s customers represents 30 % and 19 % of the total accounts receivables, respectively.

As of March 31, 2022, two of the Company’s customers represents 44 % and 11 % of the total accounts receivables, respectively.

As of June 30, 2021, two of the Company’s customers represents 40 % and 14 % of the total accounts receivables, respectively.

For the three and six months ended December 31, 2021, sales to and through Amazon accounted for 32 % and 31 % of our net sales, respectively.

For the three and nine months ended March 31, 2022, sales to and through Amazon accounted for 33 % and 31 % of our net sales, respectively.

Fair Value of Financial Instruments

At December 31, 2021 and June 30, 2021, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and other long-term debt.

At March 31, 2022 and June 30, 2021, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, 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.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11 unchanged sentences

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.

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

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 $ 1,050 at December 31, 2021 and $ 5,000 at June 30, 2021.

Advertising expense for the three months ended December 31, 2021 and 2020 was $ 154,876 and $ 120,455 , respectively.

Advertising expense for the six months ended December 31, 2021 and 2020 was $ 286,766 and $ 188,985 , respectively.

Prepaid advertising (included in prepaid expenses) was $ 1,050 at March 31, 2022 and $ 5,000 at June 30, 2021.

Advertising expense for the three months ended March 31, 2022 and 2021 was $ 132,467 and $ 180,128 , respectively.

Advertising expense for the nine months ended March 31, 2022 and 2021 was $ 419,233 and $ 369,113 , respectively.

Research and Development

Research and development expenses for new products are expensed as they are incurred.

Expenses for new product development totaled $ 32,482 and $ 27,294 for the three months ended December 31, 2021 and 2020, respectively.

Expenses for new product development totaled $ 60,805 and $ 56,519 for the six months ended December 31, 2021 and 2020, respectively.

Expenses for new product development totaled $ 26,591 and $ 24,236 for the three months ended March 31, 2022 and 2021, respectively.

Expenses for new product development totaled $ 87,396 and $ 80,754 for the nine months ended March 31, 2022 and 2021, respectively.

Research and development costs are included in general and administrative expense.

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3 unchanged sentences

360, Property, Plant, and Equipment .

The Company has determined that there was no impairment at December 31, 2021.

The Company has determined that there was no impairment at March 31, 2022.

Operating Leases

On July 23, 2014, the Company entered into an agreement with its landlord to extend the facilities lease by five years.

The previous ten year lease was to expire on December 31, 2015.

The agreement amended the lease to expire on December 31, 2020.

The rent expense under this lease for the three months ended December 31, 2020 was $ 88,120 .

The rent expense under this lease for the six months ended December 31, 2020 was $ 176,239 .

On November 2, 2020, the Company entered into an agreement with its landlord on a new lease for the current facilities for six years and two months, beginning January 1, 2021.

2 unchanged sentences

In addition, the Company will pay the landlord a 2% property management fee.

The rent expense for the three months ended December 31, 2021 was $ 163,188 .

The rent expense for the six months ended December 31, 2021 was $ 326,376 .

The rent expense for the three months ended March 31, 2022 was $ 163,188 .

The rent expense for the nine months ended March 31, 2022 was $ 489,564 .

The rent expense for the three and nine months ended March 31, 2021 was $ 162,053 and $ 338,292 respectively.

Under ASC 842, which was adopted July 1, 2019, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present.

17 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2 unchanged sentences

Direct, Wholesale and Other .

Direct includes product sales through our five e-commerce sites.

Direct includes product sales through our four e-commerce sites.

Wholesale includes Liberator, Jaxx, and Avana branded products sold to distributors and retailers, purchased 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.

Other consists principally of shipping and handling fees and costs derived from our Direct business.

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

Six Months Ended

December 31, 2021

Six Months Ended

December 31, 2020

(in thousands)

Net Sales by Channel:

Total Net Sales

Three Months Ended

March 31, 2022

Three Months Ended

March 31, 2021

(in thousands)

1 unchanged sentence

Total Net Sales

Three Months Ended

March 31, 2022

Three Months Ended

March 31, 2021

(in thousands)

2 unchanged sentences

Total Gross Profit

Nine Months Ended

March 31, 2022

Nine Months Ended

March 31, 2021

(in thousands)

Net Sales by Channel:

Total Net Sales

Nine Months Ended

March 31, 2022

Nine Months Ended

March 31, 2021

(in thousands)

Gross Profit by Channel:

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

20 unchanged sentences

Diluted net income per share is computed by dividing net income available to common stockholders by the weighted average number of common and common equivalent shares outstanding during the period plus the effect of stock options using the treasury stock method.

As of December 31, 2021 and 2020, the common stock equivalents did not have any effect on net income per share.

As of March 31, 2022 and 2021, the common stock equivalents did not have any effect on net income per share.

Common stock options – 2015 Plan

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11 unchanged sentences

Assets to be disposed of would be reported at the lower of the carrying value or fair value less costs to sell and would not be depreciated.

There was no impairment as of December 31, 2021 or June 30, 2021.

There was no impairment as of March 31, 2022 or June 30, 2021.

INVENTORIES, NET

2 unchanged sentences

Inventories consisted of the following:

March 31, 2022

June 30, 2021

(in thousands)

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

2 unchanged sentences

Equipment and leasehold improvements consisted of the following:

March 31, 2022

June 30, 2021

Estimated Useful Life

(in thousands)

6 unchanged sentences

Equipment and leasehold improvements, net

Depreciation expense was $ 77,825 and $ 51,024 for the three months ended December 31, 2021 and 2020, respectively.

For the six months ended December 31, 2021 and 2020, depreciation expense was $ 148,513 and $ 103,476 , respectively.

Depreciation expense was $ 74,443 and $ 53,618 for the three months ended March 31, 2022 and 2021, respectively.

For the nine months ended March 31, 2022 and 2021, depreciation expense was $ 222,956 and $ 153,313 , respectively.

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.

1 unchanged sentence

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, 2021.

Management has determined no asset impairment occurred during the nine months ended March 31, 2022.

OTHER ACCRUED LIABILITIES

Other accrued liabilities at December 31, 2021 and June 30, 2021:

Other accrued liabilities at March 31, 2022 and June 30, 2021:

(in thousands)

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

CURRENT AND LONG-TERM DEBT SUMMARY

Current and long-term debt at December 31, 2021 and June 30, 2021 consisted of the following:

Current and long-term debt at March 31, 2022 and June 30, 2021 consisted of the following:

Current debt:

14 unchanged sentences

UNSECURED NOTES PAYABLE

Unsecured notes payable at December 31, 2021 and June 30, 2021 consisted of the following:

Unsecured notes payable at March 31, 2022 and June 30, 2021 consisted of the following:

Current unsecured notes payable:

21 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

NOTES PAYABLE - RELATED PARTY

Related party notes payable at December 31, 2021 and June 30, 2021 consisted of the following:

Related party notes payable at March 31, 2022 and June 30, 2021 consisted of the following:

June 30, 2021

(in thousands)

11 unchanged sentences

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 Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs has entered into a credit facility with a finance company, Advance Financial Corporation dated May 24, 2011, as amended, to provide it with an asset based line of credit of up to $ 1,200,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital and includes an Inventory Advance (as defined in the agreement) of up to the lesser of $ 500,000 or 125 % of the eligible accounts receivable loan.

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% and the Monthly Service Fee was changed to .5 % per month.

On December 9, 2015, the credit agreement with Advance Financial Corporation was amended to increase the asset based line of credit to $ 1,200,000 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.

All other terms of the credit facility remain the same.

On November 27, 2018, the credit agreement with Advance Financial Corporation was amended to increase the Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $ 500,000 or 125% of the eligible accounts receivable loan.

All other terms of the credit facility remain the same.

On December 1, 2020, the credit agreement with Advance Financial Corporation was amended to reduce the interest calculation to prime rate plus 2 % and the Monthly Service Fee was unchanged at .5% per month.

As of December 31, 2021, the interest rate was 5.25 %.

All other terms of the credit facility remain the same.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

LINE OF CREDIT (continued)

The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the facility.

The credit facility is 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 are currently charged interest at a rate of prime rate plus 2 % over the lenders Index Rate.

In addition, there is a Monthly Service Fee (as defined in the agreement) of currently 0.05 % per month.

The Company’s President and Chief Executive Officer (CEO), Louis Friedman, has personally guaranteed the repayment of the facility.

In addition, the Company has provided its corporate guarantee of the credit facility (see Note 16).

On December 31, 2021, the balance owed under this line of credit was $ 1,034,072 .

As of December 31, 2021, we were current and in compliance with all terms and conditions of this line of credit.

On March 31, 2022, the balance owed under this line of credit was $ 1,185,837 .

As of March 31, 2022, 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.

1 unchanged sentence

UNSECURED LINE OF CREDIT

The Company has drawn a cash advance on one unsecured line of credit that is in the name of the Company and Louis S.

The Company has drawn a cash advance on one unsecured line of credit that is in the name of the Company and Louis Friedman.

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8 %.

The aggregate amount owed on the unsecured line of credit was $ 30,882 at December 31, 2021 and $ 36,680 at June 30, 2021.

The aggregate amount owed on the unsecured line of credit was $ 27,879 at March 31, 2022 and $ 36,680 at June 30, 2021.

SECURED NOTE PAYABLE

1 unchanged sentence

Repayment of this note is by 12 monthly payments of $ 17,675 , which includes interest at 10.99 %.

On December 31, 2021, the balance owed under this note payable was $ 34,871 .

On March 31, 2022, the balance owed under this note payable was $0.

The Company has granted Amazon a security interest in certain assets of the Company.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

On April 26, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $ 1,096,200 made to the Company under the Payroll Protection Plan ("PPP").

9 unchanged sentences

In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt , and ASC 450-30 Gain Contingency .

Accordingly, the Company derecognized the PPP Note liability of $ 1,096,200 and recorded it as Other Income, as forgiveness was certain.

Accordingly, the Company derecognized the PPP Note liability of $ 1,096,200 during the nine months ended March 31, 2021 and recorded it as Other Income, as forgiveness was certain.

LUVU BRANDS, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases it facilities under non-cancelable operating leases which now expires February 28, 2027.

The Company leases its facilities under a non-cancelable operating lease which now expires February 28, 2027.

Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

Right-of-use assets and liabilities for the lease renewal were recognized at the inception date which is November 2, 2020 based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available.

At December 31, 2021, the weighted average remaining lease term for the lease renewal is 6 years and the weighted average discount rate is 14.49 %.

Supplemental balance sheet information related to leases at December 31, 2021 is as follows:

At March 31, 2022, the weighted average remaining lease term for the lease renewal is 6 years and the weighted average discount rate is 14.49 %.

Supplemental balance sheet information related to leases at March 31, 2022 is as follows:

Operating leases

8 unchanged sentences

Total lease liabilities

Maturities of lease liabilities at December 31, 2021 are as follows:

Maturities of lease liabilities at March 31, 2022 are as follows:

(in thousands)

9 unchanged sentences

The equipment notes have stated or imputed interest rates ranging from 8.9 % to 11.3 %.

The following is an analysis of the minimum future equipment note payable payments subsequent to December 31, 2021:

The following is an analysis of the minimum future equipment note payable payments subsequent to March 31, 2022:

Years ending June 30,

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES (continued)

Employment Agreements

The Company has entered into an employment agreement with Louis Friedman, President and Chief Executive Officer (CEO).

The Company has entered into an employment agreement with Louis Friedman, President and CEO.

The agreement provides for an annual base salary of $ 150,000 and eligibility to receive a bonus.

5 unchanged sentences

The Company has a subordinated note payable to the wife of the Company’s CEO and majority shareholder in the amount of $ 76,000 .

Interest on the note during the three months ended December 31, 2021 was accrued by the Company at the prevailing prime rate (which is currently 3.25 %) and totaled $ 623 .

Interest on the note during the three months ended March 31, 2022 was accrued by the Company at the prevailing prime rate (which is currently 3.50 %) and totaled $ 617 .

On December 21, 2020, the note holder used $ 3,750 of the accrued interest to exercise stock options that were granted on December 29, 2015.

The accrued interest on the note as of December 31, 2021 was $ 31,394 .

The accrued interest on the note as of March 31, 2022 was $ 32,011 .

This note is subordinate to all other credit facilities currently in place.

On October 30, 2010, the Company’s CEO, loaned the Company $ 40,000 .

Interest on the note during the three months ended December 31, 2021 was accrued by the Company at the prevailing prime rate (which is currently 3.25 %) and totaled $ 328 .

Interest on the note during the three months ended March 31, 2022 was accrued by the Company at the prevailing prime rate (which is currently 3.50 %) and totaled $ 325 .

On December 21, 2020, the note holder used $ 6,875 of the accrued interest to exercise stock options that were granted on December 29, 2015.

The accrued interest on the note as of December 31, 2021 was $ 6,170 .

The accrued interest on the note as of March 31, 2022 was $ 6,495 .

This note is subordinate to all other credit facilities currently in place.

The Company’s CEO has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 11 – Line of Credit).

In addition, Luvu Brands has provided its corporate guarantees of the credit facility.

On December 31, 2021, the balance owed under this line of credit was $ 1,034,072 .

In addition, the Company has provided its corporate guarantees of the credit facility.

On March 31, 2022, the balance owed under this line of credit was $ 1,185,837 .

On July 20, 2011, the Company issued an unsecured promissory note to an individual for $ 100,000 .

13 unchanged sentences

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8 %.

The aggregate amount owed on the unsecured line of credit was $ 30,882 at December 31, 2021 and $ 36,680 at June 30, 2021.

The aggregate amount owed on the unsecured line of credit was $ 27,879 at March 31, 2022 and $ 36,680 at June 30, 2021.

The loan is personally guaranteed by the Company’s CEO.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY

At December 31, 2021, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is a shareholder-approved and under which 3,150,000 are reserved for issuance under the 2015 Plan until such Plan terminates on August 31, 2025.

At March 31, 2022, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is shareholder-approved and under which 2,350,000 shares are reserved for issuance under the 2015 Plan until such Plan terminates on August 31, 2025.

Under the 2015 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 2015 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, 2021, the number of shares available for issuance under the 2015 Plan was 1,000,000 .

The following table summarizes the Company’s stock option activities during the six months ended December 31, 2021:

As of March 31, 2022, the number of shares available for issuance under the 2015 Plan was 1,000,000.

The following table summarizes the Company’s stock option activities during the nine months ended March 31, 2022:

Number of Shares

Options outstanding as of June 30, 2021

( 1,050,000 )

Forfeited or expired

Options outstanding as of December 31, 2021

Options exercisable as of December 31, 2021

Options outstanding as of March 31, 2022

Options exercisable as of March 31, 2022

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 $0.19 for such day.

There were 250,000 stock options exercised during the six months ended December 31, 2021 and a total of 1,600,000 during the six months ended December 31, 2020 in exchange for various consideration including cash, accrued interest and on a cashless basis.

There were 50,000 stock options granted during the six months ended December 31, 2021 and 150,000 stock options granted during the six months ended December 31, 2020.

The value assumptions related to options granted during the six months ended December 31, 2020, were as follows:

There were 1,050,000 stock options exercised during the nine months ended March 31, 2022 and a total of 1,600,000 during the nine months ended March 31, 2020 in exchange for various consideration including cash, accrued interest and on a cashless basis.

There were 50,000 stock options granted during the nine months ended March 31, 2022 and 250,000 stock options granted during the nine months ended March 31, 2021.

The value assumptions related to options granted during the nine months ended March 31, 2022, were as follows:

Ended March 31, 2022

Ended March 31, 2021

Exercise Price:

$ 0.13 - $ 0.17

469 % - 470 %

Risk Free Rate:

0.25 % - 0.49

Vesting Period:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the weighted average characteristics of outstanding stock options as of December 31, 2021:

The following table summarizes the weighted average characteristics of outstanding stock options as of March 31, 2022:

Outstanding Options

9 unchanged sentences

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 three and six month periods ended December 31, 2021 and 2020 are based on awards ultimately expected to vest, and is reduced for estimated forfeitures.

Stock option-based compensation expense recognized in the condensed consolidated statements of operations for the three and nine month periods ended March 31, 2022 and 2021 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 Plans:

As of December 31, 2021, the Company’s total unrecognized compensation cost was $ 44,158 which will be recognized over the weighted average vesting period of approximately five months.

Ended December 31,

As of March 31, 2022, the Company’s total unrecognized compensation cost was $ 39,348 which will be recognized over the weighted average vesting period of approximately eleven months.

Ended March 31,

($ in thousands)

3 unchanged sentences

Total Stock-based Compensation Expense

Share Purchase Warrants

As of December 31, 2021 and 2020, there were no share purchase warrants outstanding.

As of March 31, 2022 and 2021, there were no warrants outstanding.

LUVU BRANDS, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

FOR THE NINE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

The Company’s authorized common stock was 175,000,000 shares at December 31, 2021 and June 30, 2021.

The Company’s authorized common stock was 175,000,000 shares at March 31, 2022 and June 30, 2021.

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, 2021, the Company had reserved the following shares of common stock for issuance:

At March 31, 2022, the Company had reserved the following shares of common stock for issuance:

Shares of common stock reserved for issuance under the 2015 Plan

Shares of common stock issuable upon conversion of the Preferred Stock

Total shares of common stock equivalents

Preferred Stock

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– SUBSEQUENT EVENTS

On February 10, 2022, 681,427 shares of common stock were issued for the exercise of 800,000 stock options by affiliates and a non-affiliate employee of the Company on a cashless basis at prices ranging from $ .03 per share to $ .033 per share.

These options were granted under the 2015 Plan on February 13, 2017 with an expiration date of February 12, 2022 .

Subsequent to December 31, 2021, the Company entered into an equipment finance agreement for the purchase of a new unit production system from a foreign supplier.

At a total cost of $ 297,500 , the equipment finance agreement calls for 60 payments of $ 5,915 to the finance company.

On April 26, 2022, the Company appointed Alexander A.

Sannikov Chief Financial Officer of the Company effective April 29, 2022.

Scott resigned as Company’s Chief Financial Officer and member of the board of directors on April 29, 2022.

On April 26, 2022, 104,839 shares of common stock were issued for the exercise of 125,000 stock options by an affiliate of the Company on a cashless basis at a price of $ 0.028 per share.

These options were granted under the 2015 Plan on December 11, 2017 with an expiration date of December 11, 2022 .

Subsequent to March 31, 2022, 250,000 stock options were granted to an affiliate of the Company under the 2015 Plan with exercise price of $ 0.20 .

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 1. Financial Statements