What changed in this filing

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Item 1. Financial Statements

2023-02-17 compared with 2022-11-14 · 202 added, 186 removed, 489 unchanged (44% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share data)

7 unchanged sentences

Finance lease assets

Operating lease assets

Operating lease right-of-use assets, net

Liabilities and stockholders’ equity:

2 unchanged sentences

Other accrued liabilities (1)

Operating lease liability

Operating lease liabilities

Total current liabilities

1 unchanged sentence

Long-term debt

Long-term operating lease liability

Long-term operating lease liabilities

Total noncurrent liabilities

3 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 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

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, 2022 and June 30, 2022

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,511,005 and 76,046,249 shares issued and outstanding at December 31, 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.

(1) During the six months ending December 31, 2022 we reclassified credit balances in accounts receivable of ($106,000) 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.

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

See accompanying condensed notes to unaudited consolidated financial statements.

LUVU BRANDS, INC.

2 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

(in thousands, except share data)

14 unchanged sentences

Shares used in computing net income per share:

See accompanying notes to unaudited condensed consolidated financial statements.

See accompanying condensed notes to unaudited consolidated financial statements.

Luvu Brands, Inc.

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

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

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months ended December 31, 2022 and December 31, 2021 (unaudited)

Series A Preferred

1 unchanged sentence

(in thousands, except share data)

Balance, June 30, 2021 (unaudited)

Balance, June 30, 2021

Stock-based compensation expense

Net income for the three months ended September 30, 2021

Stock option exercises

Net income for the six months ended December 31, 2021

Balance, December 31, 2021 (unaudited)

Balance, June 30, 2022

Stock-based compensation expense

Stock option exercises

Net income for the six months ended December 31, 2022

Balance, December 31, 2022 (unaudited)

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

Series A Preferred

Stockholders’

(in thousands, except share data)

Balance, September 30, 2021 (unaudited)

Balance, June 30, 2022 (unaudited)

Stock-based compensation expense

Stock option exercises

Net income for the three months ended September 30, 2022

Net income for the three months ended December 31, 2021

Balance, December 31, 2021 (unaudited)

Balance, September 30, 2022 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Stock-based compensation expense

Stock option exercises

Net income for the three months ended December 31, 2022

Balance, December 31, 2022 (unaudited)

See accompanying condensed notes to unaudited consolidated financial statements.

LUVU BRANDS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

September 30,

Six Months Ended

OPERATING ACTIVITIES:

4 unchanged sentences

Provision for bad debt

Amortization of operating lease asset

Amortization of operating lease right-of-use assets

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued expenses and interest (1)

Operating lease liability

Operating leases liability

Net cash provided by operating activities

INVESTING ACTIVITIES:

Investment in purchase of equipment and leasehold improvements

Investment in equipment and leasehold improvements

Net cash used in investing activities

FINANCING ACTIVITIES:

Proceeds from unsecured notes payable

Repayment of unsecured notes payable

Proceeds from secured notes payable

Proceeds from unsecured notes payable

Net cash provided by (repaid to) line of credit

Repayment of credit card advance

Repayments of secured notes payable

3 unchanged sentences

Principal payments on leases payable

Net cash provided by financing activities

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

2 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non cash item:

Purchases of equipment with equipment notes

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.

(1) During the six months ending December 31, 2022 we reclassified credit balances in accounts receivable of ($106,000) 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.

See accompanying condensed notes to unaudited consolidated financial statements.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 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 and surgery recovery;

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

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.

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”).

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 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 normal recurring adjustments considered necessary for fair presentation have been included.

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 three months ended September 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year.

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

4 unchanged sentences

Certain prior period amounts have been reclassified to conform to the current year presentation.

The accompanying consolidated condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X.

The accompanying consolidated financial statements have been prepared in accordance with GAAP 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 consolidated condensed financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2022 10-K.

These consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2022 10-K.

Use of Estimates

2 unchanged sentences

income taxes;

tax valuation reserves;

deferred tax allowance;

allowances for doubtful accounts;

inventory valuation and reserves;

inventory valuation and allowances;

share-based compensation;

3 unchanged sentences

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 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.

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 .

During the six months ending December 31, 2022, we reclassified credit balances in accounts receivable of ($ 106,000 ) to deferred revenue.

Our total deferred revenue as of June 30, 2022 was $ 243,944 and was included in “Other accrued liabilities” in the consolidated balance sheets.

The deferred revenue balance as of December 31, 2022 was $ 17,888 .

Cost of Goods Sold

4 unchanged sentences

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 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 September 30, 2022 and June 30, 2022.

September 30,

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

(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.

(1) During the six months ending December 31, 2022 we reclassified credit balances in accounts receivable of ($106,000) to deferred revenue.

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

5 unchanged sentences

Inventory costs include materials, labor, depreciation and overhead.

The Company establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory.

The Company establishes allowances for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory.

The reserve required to record inventory at lower of cost or net realizable value may be adjusted in response to changing conditions.

2 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 September 30, 2022 that exceeded the balance insured by the FDIC by $ 1,241,667 .

The Company had bank balances on deposit at December 31, 2022 that exceeded the balance insured by the FDIC by $ 1,837,756 .

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

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

During the three and six months ended December 31, 2022, we purchased 35 % and 35 % respectively, 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 September 30, 2022, two of the Company’s customers represents 41 % and 12 % of the total accounts receivables, respectively.

As of December 31, 2022, two of the Company’s customers represents 35 % and 18 % 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 months ended September 30, 2022, sales to and through Amazon accounted for 38 % of our net sales.

For the three and six months ended December 31, 2022, sales to and through Amazon accounted for 34 % and 36 % of our net sales, respectively.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

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.

At December 31, 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.

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)

The Company measures the fair value of its assets and liabilities under the guidance of Accounting Standards Codification (“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.

13 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 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.

Prepaid advertising (included in prepaid expenses) was $ 687 at December 31, 2022 and $ 1,050 at June 30, 2022.

Advertising expense for the three months ended December 31, 2022 and 2021 was $ 199,504 and $ 154,876 , respectively.

Advertising expense for the six months ended December 31, 2022 and 2021 was $ 386,498 and $ 286,766 , respectively.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

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

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

Expenses for new product development totaled $ 36,418 and $ 32,482 for the three months ended December 31, 2022 and 2021, respectively.

Expenses for new product development totaled $ 67,368 and $ 60,805 for the six months ended December 31, 2022 and 2021, respectively.

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

Property and Equipment

Property and equipment are stated at cost.

Equipment and leasehold Improvements

Equipment and Leasehold Improvements 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.

1 unchanged sentence

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.

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)

When properties are disposed of, the related costs and accumulated depreciation are removed from the respective accounts, and any gain or loss is recognized that time.

Impairment or Disposal of Long Lived Assets

2 unchanged sentences

360, Property, Plant, and Equipment .

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

The Company has determined that there was no impairment at December 31, 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 September 30, 2022 and 2021 was $ 163,188 and $ 163,188 , respectively.

The rent expense for the three months ended December 31, 2022 and 2021 was $ 163,188 and $ 163,188 respectively.

The rent expense for the six months ended December 31, 2022 and 2021 was $ 326,376 and $ 326,376 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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2 unchanged sentences

Direct, Wholesale and Other .

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

Direct includes product sales through our five 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.

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

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

Three Months Ended

September 30, 2022

December 31 ,

Three Months Ended

September 30, 2021

December 31 ,

(in thousands)

1 unchanged sentence

Total Net Sales

Three Months Ended

September 30, 2022

September 30, 2021

Three Months Ended December 31,

Gross Profit by Channel:

(in thousands)

Total Gross Profit

Six Months Ended

(in thousands)

Net Sales by Channel:

Total Net Sales

Six Months Ended

(in thousands)

Gross Profit by Channel:

Total Gross Profit

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.

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)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 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.

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

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

September 30,

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

Common stock options – 2015 Plan

17 unchanged sentences

The carrying amount of a long-lived asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of a long-lived asset.

Assets to be disposed of and related liabilities would be separately presented in the consolidated balance sheet.

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 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)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

Assets to be disposed of and related liabilities would be separately presented in the consolidated balance sheet.

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, 2022 or June 30, 2022.

INVENTORIES, NET

2 unchanged sentences

Inventories consisted of the following:

September 30, 2022

June 30, 2022

(in thousands)

3 unchanged sentences

Total inventories

Allowance for inventory reserves

Allowance for slow moving inventory

Total inventories, net of allowance

3 unchanged sentences

Equipment and leasehold improvements consisted of the following:

September 30, 2022

June 30, 2022

Estimated Useful Life

(in thousands)

4 unchanged sentences

Project in process

Accumulated depreciation

Accumulated depreciation and amortization

Equipment and leasehold improvements, net

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

Depreciation and amortization expense was $ 88,017 and $ 77,825 for the three months ended December 31, 2022 and 2021, respectively.

For the six months ended December 31, 2022 and 2021, depreciation and amortization expense was $ 174,873 and $ 148,513 , 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 three months ended September 30, 2022.

Management has determined no asset impairment occurred during the six months ended December 31, 2022.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

OTHER ACCRUED LIABILITIES

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

September 30, 2022

June 30, 2022

Other accrued liabilities at December 31, 2022 and June 30, 2022:

(in thousands)

2 unchanged sentences

Other accrued liabilities

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

(1) During the six months ending December 31, 2022 we reclassified credit balances in accounts receivable of ($ 106,000 ) to deferred revenue.

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

1 unchanged sentence

CURRENT AND LONG-TERM DEBT SUMMARY

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

September 30, 2022

June 30, 2022

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

Current debt:

5 unchanged sentences

Current portion secured notes payable (Note 12)

Current portion of finance leases payable

Current portion of notes payable – related party

Current portion of finance leases payable (Note 13)

Current portion of notes payable – related party (Note 9)

Total current debt

6 unchanged sentences

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

UNSECURED NOTES PAYABLE

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

September 30,

June 30, 2022

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

Current unsecured notes payable:

2 unchanged sentences

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

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

Total current unsecured notes payable

7 unchanged sentences

Personally guaranteed by principal stockholder.

(2) Unsecured note payable for $ 200,000 to an individual with interest payable monthly at 20 %, principal originally due in full on May 1, 2013, extended to May 1, 2019, 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 .

4 unchanged sentences

NOTES PAYABLE - RELATED PARTY

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

September 30,

June 30, 2022

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

(in thousands)

6 unchanged sentences

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

LINE OF CREDIT

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 term of the agreement was one year, renewable for additional one year terms unless either party provides written notice of nonrenewal at least 90 days prior to the end of the current financing period.

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.

4 unchanged sentences

In addition, the Company has provided its corporate guarantee of the credit facility (see Note 14).

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.

On December 31, 2022, the balance owed under this line of credit was $ 905,410 .

As of December 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 Friedman.

The Company has drawn a cash advance on an unsecured line 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 12.25 %.

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

The aggregate amount owed on the unsecured line of credit was $ 18,942 at December 31, 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 %.

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

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

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES

Operating Leases

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

The Company leases it facilities under non-cancelable operating leases 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 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:

At December 31, 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 December 31, 2022 is as follows:

Operating leases

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Total lease liabilities

Maturities of lease liabilities at September 30, 2022 are as follows:

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

(in thousands)

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Present value discount

Total lease liability balance

Total lease liabilities balance

Equipment Notes Payable

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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 September 30, 2022:

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

Years ending June 30,

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AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

COMMITMENTS AND CONTINGENCIES (continued)

6 unchanged sentences

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:

The following is an analysis of the minimum finance lease payable payments subsequent to December 31, 2022:

Year ending June 30,

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Long-Term Obligations under Finance Lease Payable

Employment Agreements

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

Employment Agreement

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

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

2 unchanged sentences

Legal Proceedings

As of the date of this Quarterly Report, 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.

As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to the 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 adverse effect to the company.

RELATED PARTY TRANSACTIONS

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 .

Interest on the note during the six months ended December 31, 2022 was accrued by the Company at the prevailing prime rate (which is currently 7.50 %) and totaled $ 1,310 .

The accrued interest on the note as of December 31, 2022 was $ 31,598 .

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

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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 .

Interest on the note during the six months ended December 31, 2022 was accrued by the Company at the prevailing prime rate (which is currently 7.50 %) and totaled $ 689 .

The accrued interest on the note as of December 31, 2022 was $ 2,520 .

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

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 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).

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

On December 31, 2022, the balance owed under this line of credit was $ 905,410 .

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 terms (see Note 8).

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 terms (see Note 8).

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 .

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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 (see Note 8).

Interest on the loan is being paid monthly, with the principal due in full on May 1, 2013; 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 Company has drawn a cash advance on one unsecured line 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 $ 21,916 at September 30, 2022 (see Note 11).

The aggregate amount owed on the unsecured line of credit was $ 18,942 at December 31, 2022 (see Note 11).

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

STOCKHOLDERS’ EQUITY

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.

At December 31, 2022, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is a shareholder-approved and under which 1,450,000 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 September 30, 2022, the number of shares available for issuance under the 2015 Plan was 250,000 .

As of December 31, 2022, the number of shares available for issuance under the 2015 Plan was 362,500 .

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

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

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

Number of Shares

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Forfeited or expired

Options outstanding as of September 30, 2022

Options exercisable as of September 30, 2022

Options outstanding as of December 31, 2022

Options exercisable as of December 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 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:

There were 475,000 stock options exercised during the six months ended December 31, 2022 and a total of 250,000 during the six months ended December 31, 2021 in exchange for various consideration including cash, accrued interest and on a cashless basis.

There were no stock options granted during the six months ended December 31, 2022 and 50,000 stock options granted during the six months ended December 31, 2021.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

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

Outstanding Options

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Exercise Prices

Number of Shares

Remaining Life

Weighted Average

Number of Shares

Weighted Average

$ .02 to $.03

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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 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)

Stock option-based compensation expense recognized in the condensed consolidated statements of operations for the three and six month periods ended December 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:

Ended September 30,

Ended December 31,

($ in thousands)

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Total Stock-based Compensation Expense

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.

As of December 31, 2022, the Company’s total unrecognized compensation cost was $ 140,562 which will be recognized over the weighted average vesting period of approximately 3.1 years.

Share Purchase Warrants

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

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

The Company’s authorized common stock was 175,000,000 shares at December 31, 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 September 30, 2022, the Company had reserved the following shares of common stock for issuance:

September 30,

At December 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

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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 $ 0.2325 ($ 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.

4 unchanged sentences

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