What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-05-16 · 200 added, 255 removed, 475 unchanged (49% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

Consolidated Balance Sheets

September 30,

(in thousands, except share data)

22 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 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

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 September 30, 2022 and June 30, 2022

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,046,249 and 76,046,249 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders’ equity

(1) During the three months ending September 30, 2022 we reclassified credit balances in accounts receivable of ($ 120,000 ) to deferred revenue.

For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by ($ 85,000 ) for comparability only.

Consolidated Statement of Cash Flow was adjusted accordingly to reflect these reclassifications.

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except share data)

8 unchanged sentences

Other Income (Expense):

Gain on forgiveness of SBA loan

Interest expense and financing costs

7 unchanged sentences

and Subsidiaries

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

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

Stock-based compensation expense

Stock option exercises

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 nine months ended March 31, 2022

Balance, March 31, 2022 (unaudited)

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

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Three Months ended September 30, 2022 and September 30, 2021 (unaudited)

Series A Preferred

1 unchanged sentence

(in thousands, except share data)

Balance, December 31, 2020 (unaudited)

Balance, June 30, 2021 (unaudited)

Stock-based compensation expense

Net income for the three months ended March 31, 2021

Balance, March 31, 2021 (unaudited)

Balance, December 31, 2021 (unaudited)

Net income for the three months ended September 30, 2021

Balance, September 30, 2021 (unaudited)

Balance, June 30, 2022 (unaudited)

Stock-based compensation expense

Stock option exercises

Net income for the three months ended March 31, 2022

Balance, March 31, 2022 (unaudited)

Net income for the three months ended September 30, 2022

Balance, September 30, 2022 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

Consolidated Statements of Cash Flows

Three Months Ended

September 30,

OPERATING ACTIVITIES:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Forgiveness of SBA Loan

Depreciation and amortization

11 unchanged sentences

INVESTING ACTIVITIES:

Investment in equipment and leasehold improvements

Investment in purchase of equipment and leasehold improvements

Net cash used in investing activities

10 unchanged sentences

Principal payments on leases payable

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non cash item:

Purchases of equipment with equipment notes

Finance lease asset obligation in exchange for lease payable

Accrued interest converted for exercise of options

Operating lease asset obtained in exchange for operating lease liability

Cash paid during the period for:

(1) During the three months ending September 30, 2022 we reclassified credit balances in accounts receivable of ($120,000) to deferred revenue.

For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by ($85,000) for comparability only.

Consolidated Statement of Cash Flow was adjusted accordingly to reflect these reclassifications.

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

ORGANIZATION AND NATURE OF BUSINESS

7 unchanged sentences

Liberator ® , a brand category of iconic products for enhancing sexual performance;

Avana ® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux, surgery recovery and chronic pain;

Avana ® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux and surgery recovery;

and Jaxx ® , a diverse range of casual fashion daybeds, sofas and beanbags made from polyurethane foam and repurposed polyurethane foam trim.

3 unchanged sentences

We have a diversified customer base with only one customer accounting for 10 % or more of consolidated net sales in the current and prior fiscal year and no particular concentration of credit risk in one economic sector.

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 fiscal quarters.

The accompanying unaudited condensed consolidated financial statements of the Company and all of its wholly-owned subsidiaries 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.

In the opinion of management, all normal recurring 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 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”).

The results of operations for the three months ended September 30, 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, 2022 as filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2022 (the “2022 10-K”).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

18 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

25 unchanged sentences

Deferred revenues primarily relate to gift cards purchased, but not used, prior to the end of the fiscal period.

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 March 31, 2022 was $ 17,815 .

During the three months ending September 30, 2022, we reclassified credit balances in accounts receivable of ($120,000) to deferred revenue.

Our total deferred revenue as of September 30, 2022 was $ 137,821 and was included in “Other accrued liabilities” on our consolidated balance sheets.

The deferred revenue balance as of September 30, 2021 was $ 17,015 .

Cost of Goods Sold

4 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 March 31, 2022 and June 30, 2021.

The following is a summary of Accounts Receivable as of September 30, 2022 and June 30, 2022.

September 30,

(in thousands)

3 unchanged sentences

Total accounts receivable, net

(1) During the three months ending September 30, 2022 we reclassified credit balances in accounts receivable of ($ 120,000 ) to deferred revenue.

For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by ($ 85,000 ) for comparability only.

Consolidated Statement of Cash Flow was adjusted accordingly to reflect these reclassifications.

Inventories and Inventory Reserves

8 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 March 31, 2022 that exceeded the balance insured by the FDIC by $711,244.

The Company had bank balances on deposit at September 30, 2022 that exceeded the balance insured by the FDIC by $ 1,241,667 .

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

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 three months ended September, 30 2022, we purchased 35 % of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2022, we purchased 34 % of total inventory purchases from one vendor.

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

As of September 30, 2022, two of the Company’s customers represents 41 % and 12 % of the total accounts receivables, respectively.

As of June 30, 2022, two of the Company’s customers represents 21 % and 13 % of the total accounts receivables, 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.

For the three months ended September 30, 2022, sales to and through Amazon accounted for 38 % of our net sales.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

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.

At September 30, 2022 and June 30, 2022, 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.

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

14 unchanged sentences

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 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.

Prepaid advertising (included in prepaid expenses) was $ 1,050 at September 30, 2022 and $ 1,050 at June 30, 2022.

Advertising expense for the three months ended September 30, 2022 and 2021 was $ 186,994 and $ 131,890 , respectively.

Research and Development

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

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.

Expenses for new product development totaled $ 30,950 and $ 28,323 for the three months ended September 30, 2022 and 2021, respectively.

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

7 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 March 31, 2022.

The Company has determined that there was no impairment at September 30, 2022.

Operating Leases

3 unchanged sentences

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

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.

The rent expense for the three months ended September 30, 2022 and 2021 was $ 163,188 and $ 163,188 , 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.

16 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

8 unchanged sentences

Three Months Ended

March 31, 2022

September 30, 2022

Three Months Ended

March 31, 2021

September 30, 2021

(in thousands)

2 unchanged sentences

Three Months Ended

March 31, 2022

Three Months Ended

March 31, 2021

(in thousands)

Gross Profit by Channel:

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

September 30, 2022

September 30, 2021

(in thousands)

2 unchanged sentences

Total Gross Profit

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.

Recently adopted

In August 2018, the FASB issued updated guidance (ASU 2018-13) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements.

The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (the Company’s fiscal 2021), with early adoption permitted.

We adopted ASU 2018-13 effective July 1, 2020.

The impact of adoption of this standard on our condensed consolidated financial statements was not material.

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes" .

The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 including recognizing deferred taxes for investments, performing intra-period allocations and calculating taxes in interim periods.

ASU 2019-12 also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

The standard is effective for fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The Company adopted the standard as of July 1, 2021.

The impact of adoption of this standard on our condensed consolidated financial statements was not material.

All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income Per Share

1 unchanged sentence

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

As of September 30, 2022 and 2021, the common stock equivalents did not have any effect on net income per share.

September 30,

Common stock options – 2015 Plan

7 unchanged sentences

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.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Based Compensation

10 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 March 31, 2022 or June 30, 2021.

There was no impairment as of September 30, 2022 or June 30, 2022.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

INVENTORIES, NET

2 unchanged sentences

Inventories consisted of the following:

March 31, 2022

September 30, 2022

June 30, 2022

6 unchanged sentences

Total inventories, net of allowance

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2022

June 30, 2022

8 unchanged sentences

Equipment and leasehold improvements, net

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.

Depreciation expense was $ 86,856 and $ 70,688 for the three months ended September 30, 2022 and 2021, 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 nine months ended March 31, 2022.

Management has determined no asset impairment occurred during the three months ended September 30, 2022.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

OTHER ACCRUED LIABILITIES

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

Other accrued liabilities at September 30, 2022 and June 30, 2022:

September 30, 2022

June 30, 2022

(in thousands)

2 unchanged sentences

Other accrued liabilities

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(1) During the three months ending September 30, 2022 we reclassified credit balances in accounts receivable of ($ 120,000 ) to deferred revenue.

For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by ($ 85,000 ) for comparability only.

Audited accounts receivable and deferred revenue balances, reported on Form 10-K for the fiscal year ended June 30, 2022, did not change.

CURRENT AND LONG-TERM DEBT SUMMARY

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

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

September 30, 2022

June 30, 2022

Current debt:

5 unchanged sentences

Current portion secured notes payable (Note 12)

Current portion of leases payable

Current portion of finance leases payable

Current portion of notes payable – related party

Total current debt

1 unchanged sentence

Unsecured notes payable (Note 8)

Leases payable

Finance leases payable (Note 13)

Equipment notes payable (Note 13)

Notes payable – related party (Note 9)

Total long-term debt

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

UNSECURED NOTES PAYABLE

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

Unsecured notes payable at September 30, 2022 and June 30, 2022 consisted of the following:

September 30,

June 30, 2022

Current unsecured notes payable:

(in thousands)

20% Unsecured note, interest only, due October 31, 2021 (1)

Total current unsecured notes payable

Long-term unsecured notes payable:

13.5 % Unsecured note, interest only, due May 1, 2023 (2)

13.5 % Unsecured note, interest only, due July 31, 2023 (3)

Total current unsecured notes payable

Long-term unsecured notes payable:

13.5% Unsecured note, interest only, due October 31, 2023 (1)

11 unchanged sentences

Personally guaranteed by principal stockholder.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTES PAYABLE - RELATED PARTY

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

Related party notes payable at September 30, 2022 and June 30, 2022 consisted of the following:

September 30,

June 30, 2022

5 unchanged sentences

Long-term unsecured notes payable

CREDIT CARD ADVANCES

On August 28, 2019, the Company borrowed $ 250,000 from Power Up against its future credit card receivables.

Terms for this loan called for a repayment of $ 290,000 which included a one-time finance charge of $ 40,000 , approximately ten months after the funding date.

A 1 % loan origination fee was deducted, and the Company received net proceeds of $ 247,500 .

This loan was repaid in full on September 16, 2020.

This loan was guaranteed by the Company and was personally guaranteed by the Company’s CEO and controlling shareholder.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

LINE OF CREDIT

4 unchanged sentences

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.

The Company’s President, Chief Executive Officer (CEO), and majority shareholder.

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 14).

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.

On September 30, 2022, the balance owed under this line of credit was $ 1,045,384 .

As of September 30, 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.

3 unchanged sentences

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 11 %.

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 aggregate amount owed on the unsecured line of credit was $ 21,916 at September 30, 2022 and $ 24,879 at June 30, 2022.

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 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").

The PPP is a liquidity facility program established by the U.S.

government as part of the CARES Act in response to the negative economic impact of the COVID-19 outbreak.

The PPP Loan to the Company was being administered by Ameris Bank.

The PPP Loan had a two-year term with interest at a rate of 1 .0% per annum.

Monthly principal and interest payments were deferred for six months.

Beginning November 26, 2020, seven months from the date of the PPP Note, the Company was required to make monthly payments of principal and interest in the amount of $ 61,691 .

The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage interest, rent, and utility costs over a 24-week measurement period (as amended) following loan funding.

On December 18, 2020, the Company was informed by Ameris Bank that the PPP Note had been forgiven by the U.S.

Small Business Administration.

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 during the nine months ended March 31, 2021 and recorded it as Other Income, as forgiveness was certain.

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

This loan was repaid in full on February 17, 2022.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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 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:

At September 30, 2022, the weighted average remaining lease term for the lease renewal is 5 years and the weighted average discount rate is 14.49 %.

Supplemental balance sheet information related to leases at September 30, 2022 is as follows:

Operating leases

8 unchanged sentences

Total lease liabilities

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

Maturities of lease liabilities at September 30, 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 March 31, 2022:

The following is an analysis of the minimum future equipment note payable payments subsequent to September 30, 2022:

Years ending June 30,

7 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES (continued)

Finance Leases Payable

The Company has lease obligations for equipment under the provisions of long-term finance leases.

For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized.

The equipment acquired with these leases has a total cost of approximately $ 58,152 .

These assets are included in the finance lease and include production equipment.

On June 22, 2020 the Company entered into finance lease agreement with Wells Fargo in the amount of $ 34,761 with monthly payment of $ 850 with 48-month term at an imputed interest rate of 8.09 %.

On February 1, 2022 the Company entered into finance lease agreement with Raymond in the amount of $ 22,862 with monthly payment of $ 514 with 48-month term at an imputed interest rate of 3.75 %.

The following is an analysis of the minimum finance lease payable payments subsequent to September 30, 2022:

Year ending June 30,

(in thousands)

Future Minimum Finance Lease Payable Payments

Less Amount Representing Interest

Present Value of Minimum Finance Lease Payable Payments

Less Current Portion

Long-Term Obligations under Finance Lease Payable

Employment Agreements

6 unchanged sentences

RELATED PARTY TRANSACTIONS

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 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 March 31, 2022 was $ 32,011 .

The Company has a subordinated note payable to an officer of the Company who is also the wife of the Company’s CEO (Louis Friedman) and majority shareholder in the amount of $ 76,000 (see Note 9).

Interest on the note during the three months ended September 30, 2022 was accrued by the Company at the prevailing prime rate (which is currently 6.25 %) and totaled $ 1,029 .

The accrued interest on the note as of September 30, 2022 was $ 33,788 .

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 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 March 31, 2022 was $ 6,495 .

On October 30, 2010, Mr.

Friedman, loaned the Company $ 40,000 (see Note 9).

Interest on the note during the three months ended September 30, 2022 was accrued by the Company at the prevailing prime rate (which is currently 6.25 %) and totaled $ 541 .

The accrued interest on the note as of September 30, 2022 was $ 7,431 .

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, 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 .

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

RELATED PARTY TRANSACTIONS (continued)

The Company’s CEO, Louis Friedman, 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 September 30, 2022, the balance owed under this line of credit was $ 1,045,384 .

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;

extended by the holder to July 31, 2021 under the same.

This note was repaid in full on July 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on July 31, 2023 terms (see Note 8).

Repayment of the promissory note is personally guaranteed by the Company’s CEO.

extended by the holder to July 31, 2021 under the same terms (see Note 8).

Repayment of this promissory note is personally guaranteed by the Company’s CEO, Louis S.

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 extended by the holder to October 31, 2021 This note was repaid in full on October 1, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on October 31, 2023 (see Note 8).

Repayment of the promissory note is personally guaranteed by the Company’s CEO.

This note was repaid in full on October 31,2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on October 31, 2023 .

Repayment of the promissory note is personally guaranteed by the Company’s CEO, Louis S.

On May 1, 2012, an individual loaned the Company $ 200,000 with an interest rate of 20 %.

Interest on the loan is being paid monthly, with the principal due in full on May 1, 2013;

then extended to May 1, 2021 .

This note was repaid in full on April 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on May 1, 2023 (see Note 8).

The Company’s CEO personally guaranteed the repayment of the loan obligation.

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

then extended to May 1, 2021 (see Note 8).

This note was repaid in full on April 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on May 1, 2023 .

Friedman has personally guaranteed the repayment of the loan obligation.

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

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 11 %.

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.

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The aggregate amount owed on the unsecured line of credit was $ 21,916 at September 30, 2022 (see Note 11).

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

STOCKHOLDERS’ EQUITY

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.

At September 30, 2022, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is shareholder-approved and under which 2,225,000 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 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:

As of September 30, 2022, the number of shares available for issuance under the 2015 Plan was 250,000 .

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the Company’s stock option activities during the nine months ended September 30, 2022:

Number of Shares

Options outstanding as of June 30, 2022

( 1,050,000 )

Forfeited or expired

Options outstanding as of March 31, 2022

Options exercisable as of March 31, 2022

Options outstanding as of September 30, 2022

Options exercisable as of September 30, 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 $ 0.09 for such day.

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

Risk Free Rate:

0.25 % - 0.49

Vesting Period:

Forfeiture Rate:

Expected Life

Dividend Rate

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 March 31, 2022:

There were no stock options exercised during the three months ended September 30, 2022 and the three months ended September 30, 2021.

There were no stock options granted during the three months ended September 30, 2022 and the three months ended September 30, 2021.

The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 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 nine month periods ended March 31, 2022 and 2021 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 months ended September 30, 2022 and 2021 are based on awards ultimately expected to vest, and is reduced for estimated forfeitures.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

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 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,

Ended September 30,

($ in thousands)

3 unchanged sentences

Total Stock-based Compensation Expense

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

LUVU BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

STOCKHOLDERS’ EQUITY (continued)

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

As of September 30, 2022, the Company’s total unrecognized compensation cost was $ 152,562 which will be recognized over the weighted average vesting period of approximately eleven months.

As of September 30, 2022 and 2021, there were no warrants outstanding.

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

Common shareholders are entitled to dividends if and when declared by the Company’s Board of Directors, subject to preferred stockholder dividend rights.

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

At September 30, 2022, the Company had reserved the following shares of common stock for issuance:

September 30,

Shares of common stock reserved for issuance under the 2015 Plan

3 unchanged sentences

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 $ 0.0001 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).

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.

3 unchanged sentences

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.

– SUBSEQUENT EVENTS

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