What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-10-16 compared with 2022-10-14 · 115 added, 180 removed, 650 unchanged (31% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm Auditor Firm ID (PCAOB Number 287 )

Reports of Independent Registered Public Accounting Firms Auditor Firm ID (PCAOB Number 287 )

Consolidated Balance Sheets as of June 30, 2023 and 2022

Consolidated Statements of Operations for the years ended June 30, 2023 and 2022

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended June 30, 2022 and June 30, 2021

Consolidated Statements of Changes in Stockholders’ Equity for the years ended June 30, 2023 and June 30, 2022

Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022

3 unchanged sentences

Luvu Brands, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Luvu Brands, Inc.

(the Company) as of June 30, 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended June 30, 2023, and the related notes (collectively referred to as the financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and the results of its operations and its cash flows for the year ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

We did not identify any critical audit matters that need to be communicated.

We have served as the Company’s auditor since 2022.

Margate, Florida

October 13, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Luvu Brands, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Luvu Brands, Inc.

(the Company) as of June 30, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended June 30, 2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Luvu Brands, Inc.

(the Company) as of June 30, 2022 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and the results of its operations and its cash flows for the year ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

35 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts and allowance for discounts and returns of $ 55 in 2023 and $ 7 in 2022

Inventories, net of allowance for inventory reserve of $ 176 in 2022 and $ 173 in 2021

Prepaid expenses

Inventories, net of allowance for excess or absolete inventory of $ 252 in 2023 and $ 176 in 2022

Other current assets

Total current assets

2 unchanged sentences

Operating lease assets

Liabilities and stockholders’ equity (deficit):

Deferred tax asset, net

Liabilities and stockholders’ equity:

Current liabilities:

15 unchanged sentences

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

(in thousands, except share data)

Cost of goods sold

Cost of goods sold (excl.

depreciation expense presented below)

Operating expenses:

5 unchanged sentences

Other income (expense):

Gain on forgiveness of PPP loan

Interest expense and financing costs

1 unchanged sentence

Income from operations before income taxes

Provision for income taxes

Benefit for income taxes

Net income per share:

3 unchanged sentences

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended June 30, 2022 and June 30, 2023

1 unchanged sentence

Stockholders’

Equity (Deficit)

(in thousands, except share data)

2 unchanged sentences

Stock option exercises

balance, June 30, 2021

Ending balance, June 30, 2022

Stock-based compensation expense

Stock option exercises

balance, June 30, 2022

Ending balance, June 30, 2023

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

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

Forgiveness of PPP Loan

Depreciation and amortization

1 unchanged sentence

Provision for bad debt

Provision for inventory reserve

Provision for slow moving or obsolete inventory

Change in deferred tax assets

Amortization of operating lease asset

8 unchanged sentences

INVESTING ACTIVITIES:

Investment in equipment, software development and leasehold improvements

Investment in equipment, software and leasehold improvements

Net cash used in investing activities

2 unchanged sentences

Repayment of unsecured line of credit

Repayment of credit card advance

Borrowings under secured note payable

Repayments under secured note payable

5 unchanged sentences

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

4 unchanged sentences

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

Finance lease asset obligation in exchange for lease payable

Cash paid during the year for:

3 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

ORGANIZATION AND NATURE OF BUSINESS

44 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation.

26 unchanged sentences

The following is a summary of Accounts Receivable as of June 30, 2023 and June 30, 2022.

June 30, 2023

June 30, 2022

(in thousands)

6 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories and Inventory Reserves

Inventories and Allowance for Excess and Obsolete Inventory

Inventories are stated at the lower of cost or net realizable value.

2 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.

19 unchanged sentences

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

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

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

Luvu Brands, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

6 unchanged sentences

Advertising expense for the years ended June 30, 2023 and 2022 was $ 790,757 and $ 574,146 , respectively.

Which is included in general and administrative expenses in the consolidated statements of operations.

Research and Development

13 unchanged sentences

The rent expense for the year ended June 30, 2023 and June 30, 2022 was $ 652,752 and $ 652,752 respectively.

Which is included in general and administrative expenses in the consolidated statements of operations.

Luvu Brands, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

15 unchanged sentences

The Company also leases certain equipment under operating leases, as more fully described in NOTE 13 - Commitments and Contingencies .

Segment Information

Sales Channel Information

We have identified three reportable sales channels:

13 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

7 unchanged sentences

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.

Adopted during the year ended June 30, 2021

Fair Value Measurement

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

The new standard eliminates, adds and modifies certain disclosure requirements for fair value measurement as part of the FASB’s disclosure framework project.

Under the new standard, the amount and reason for a transfer between Level 1 and Level 2 of the fair value hierarchy are no longer required to be disclosed, but public companies are required to disclose a range and weighted average of significant unobservable inputs for Level 3 fair value measurements.

The Company adopted the new standard on July 1, 2020;

however, it did not have a significant impact on the Company’s financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 .

The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer.

The new standard also precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction.

The guidance amends Topic 808 to refer to the unit-of-account guidance in Topic 606 and requires it to be used only when assessing whether a transaction is in the scope of Topic 606.

The Company adopted the new standard on July 1, 2020;

however, it did not have a significant impact on the Company’s financial statements.

Adopted effective July 1, 2021

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The new standard requires that financial assets measured at amortized cost be presented at the net amount expected to be collected and separately measure an allowance for credit losses that is deducted from the amortized cost basis of those financial assets.

The Company early adopted the new standard on July 1, 2021;

however, it did not have a significant impact on the Company’s financial statements.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The new standard includes several provisions that simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements.

The Company adopted the new standard on July 1, 2021;

however, it did not have a significant impact on the Company’s financial statements.

Investments – Equity Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging

In January 2020, the FASB issued ASU No.

2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 .

The new standard addresses interactions between the guidance to account for certain equity securities under ASC Topic 321, the guidance to account for investments under the equity method of accounting in ASC Topic 323 and the guidance in ASC Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with ASC Topic 825, Financial Instruments .

These amendments improve current U.S.

GAAP by reducing diversity in practice and increasing comparability of the accounting for any such interactions.

The Company adopted the new standard on July 1, 2021;

however, it did not have a significant impact on the Company’s financial statements.

Net Income Per Share

5 unchanged sentences

Stock options – 2015 Plan

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

We utilize the asset and liability method of accounting for income taxes.

2 unchanged sentences

We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable.

We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period.

If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination.

We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.

At June 30, 2022, we carried a valuation allowance of $ 1.4 million against our net deferred tax assets.

We have recorded and continue to carry a valuation allowance against our gross deferred tax assets we have determined won’t be utilized.

At June 30, 2023, we has a deferred tax asset of $ 10 thousands we carried a valuation allowance of $ 1.1 million against our remaining net deferred tax assets.

Stock Based Compensation

3 unchanged sentences

The cost of each award is recognized as expense in the financial statements over the respective vesting period.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

IMPAIRMENT OF LONG-LIVED ASSETS

15 unchanged sentences

Total inventories, net of allowance

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

EQUIPMENT, PROPERTY AND LEASEHOLD IMPROVEMENTS, NET

9 unchanged sentences

Depreciation expense was $ 353,840 and $ 305,643 for the years ended June 30, 2023 and 2022, respectively.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

OTHER ACCRUED LIABILITIES

12 unchanged sentences

Current portion of equipment notes payable (Note 13)

Current portion secured notes payable (Note 13)

Current portion of finance leases payable (Note 13)

Credit card advance (net of discount) (Note 10)

Total current debt

8 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

UNSECURED NOTES PAYABLE

2 unchanged sentences

(in thousands)

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

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

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

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

Total current debt

1 unchanged sentence

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

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

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

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

13.5% Unsecured note, interest only, due May 1, 2025 (2)

Total long-term debt

5 unchanged sentences

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.

This note was repaid in full on April 30, 2023 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, 2025.

Personally guaranteed by principal stockholder.

13 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

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 calls for a repayment of $ 290,000 , which includes 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, Louis S.

Friedman (see Note 16).

June 30, 2023 and 2022

LINE OF CREDIT

6 unchanged sentences

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

On June 30, 2022, the balance owed under this line of credit was $ 1,070,069 .

On June 30, 2023, and June 30, 2022, respectively the balance owed under this line of credit was $ 1,039,013 and $ 1,070,369 .

As of June 30, 2023, we were current and in compliance with all terms and conditions of this line of credit.

10 unchanged sentences

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

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

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

Luvu Brands, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

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 is being administered by Ameris Bank.

The PPP Loan has a two-year term and bears interest at a rate of 1.0 % per annum.

Monthly principal and interest payments are deferred for six months.

Beginning November 26, 2020, seven months from the date of the PPP Note, the Company is 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.

For the loan to be forgiven, the Company is required to formally apply for forgiveness, and potentially, required to pass an audit that it met the eligibility qualifications of the loan.

Within 150 days from the application, the Company will be notified whether or not the loan is forgiven.

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 and recorded it as Other Income, as the forgiveness was certain.

June 30, 2023 and 2022

COMMITMENTS AND CONTINGENCIES

16 unchanged sentences

Total lease liabilities

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

COMMITMENTS AND CONTINGENCIES (continued)

Maturities of operating lease liabilities at June 30, 2023 are as follows:

10 unchanged sentences

The equipment notes have stated or imputed interest rates ranging from 7.29 % to 11.3 %.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

COMMITMENTS AND CONTINGENCIES (continued)

The following is an analysis of the minimum future equipment note payable payments subsequent to June 30, 2023:

11 unchanged sentences

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 %.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

COMMITMENTS AND CONTINGENCIES (continued)

On July 1, 2020 the Company entered into finance lease agreement with Wells Fargo in the amount of $ 35,000 with monthly payment of $ 850 with 48-month term at an imputed interest rate of 8.09 %.

On January 5, 2022 the Company entered into finance lease agreement with Raymond in the amount of $ 23,000 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 June 30, 2023:

11 unchanged sentences

Friedman for up to nine months at his current salary.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

COMMITMENTS AND CONTINGENCIES (continued)

Legal Proceedings

13 unchanged sentences

On June 30, 2023, the balance owed under this line of credit was $ 1,039,013 .

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

RELATED PARTY TRANSACTIONS (continued)

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

11 unchanged sentences

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 .

This note was repaid in full on April 30, 2023 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, 2025.

Friedman has personally guaranteed the repayment of the loan obligation.

The loans from Power Up Lending Group, Ltd.

(see Note 10) were guaranteed by the Company (including OneUp and Foam Labs) and were personally guaranteed by the Company’s CEO and majority shareholder, Louis S.

Power Up Lending Group, Ltd.

is controlled by Curt Kramer, who also controls HCI.

As last reported to us, HCI owns 7.1% of our common stock.

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

2 unchanged sentences

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

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

STOCKHOLDERS’ EQUITY

At June 30, 2022, the Company had the 2015 Equity Incentive Plan (the “2015 Plan”), which is shareholder-approved and under which 2,225,000 shares are reserved for issuance under the 2015 Plan until that Plan terminates on August 31, 2025.

At June 30, 2023, the Company had the 2015 Equity Incentive Plan (the “2015 Plan”), which is stockholder-approved and under which 1,700,000 shares are reserved for issuance under the 2015 Plan until that 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.

1 unchanged sentence

As of June 30, 2023, the number of shares available for issuance under the 2015 Plan was 300,000 .

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

STOCKHOLDERS’ EQUITY (continued)

A summary of option activity under the Company’s stock plan for the years ended June 30, 2023 and 2022 is presented below:

6 unchanged sentences

Outstanding at June 30, 2022

( 1,175,000 )

Forfeited or Expired

2 unchanged sentences

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 $ 0.10 , $ 0.14 , and $ 0.43 at June 30, 2023, 2022 and 2021, respectively.

There were 900,000 stock options granted during the year ended June 30, 2022 and 350,000 stock options granted during the year ended June 30, 2021.

There were no stock options granted during the year ended June 30, 2023 and 900,000 stock options granted during the year ended June 30, 2022.

During the year ended June 30, 2023 and June 30, 2022 the Company’s proceeds from stock options exercise under 2015 Plan were $ 2,100 and $ 3,000 respectively.

3 unchanged sentences

500 % - 519 %

469 % - 489 %

Risk Free Rate:

0.65 % - 2.90 %

0.25 % - 0.49 %

Vesting Period:

5 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

STOCKHOLDERS’ EQUITY (continued)

28 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

STOCKHOLDERS’ EQUITY (continued)

14 unchanged sentences

Total shares of common stock equivalents

During fiscal year 2022 and fiscal year 2021 the Company issued 1,008,359 and 1,585,294 common shares respectively for stock option exercises under 2015 Equity Incentive Plan.

During fiscal year 2023 and fiscal year 2022 the Company issued 501,423 and 1,008,359 shares of common stock respectively for stock option exercises under 2015 Equity Incentive Plan.

Preferred Stock

9 unchanged sentences

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

June 30, 2023 and 2022

Deferred tax assets and liabilities are computed by applying the effective U.S.

4 unchanged sentences

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

As of June 30, 2022 and 2021, the Company believed it was more likely than not that future tax benefits from net operating loss carryforwards and other deferred tax assets would not be realizable through generation of future taxable income;

therefore, they were fully reserved.

As of June 30, 2023 and 2022, the Company believed it was more likely than not that future tax benefits from all future net operating loss carryforwards and other deferred tax assets would not be realizable through generation of future taxable income;

therefore, they were partially reserved.

The components of deferred tax assets and liabilities at June 30, 2023 and 2022 are approximately as follows:

(in thousands)

Deferred tax assets:

5 unchanged sentences

Valuation allowance

Book to tax depreciation difference - Liability

Net deferred tax assets

1 unchanged sentence

federal and state income tax rates of 25% to pretax (income) loss from operations for the years ended June 30, 2023 and 2022 due to the following:

Net (income) loss

Permanent differences and change in tax rate estimate

3 unchanged sentences

During 2023 and 2022, the total change in the valuation allowance was approximately $ 317,000 and $ 156,000 , respectively.

The Company’s ability to use its NOL carryforwards may be substantially limited due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions.

These ownership changes may limit the amount of NOL that can be utilized annually to offset future taxable income and tax, respectively.

In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50.0 % of the outstanding stock of a company by certain stockholders or public groups.

The majority of the Company’s NOL’Sbegin to expire in the year 2030.

Luvu Brands, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

For the years ended June 30, 2022 and 2021

INCOME TAXES (continued)

The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company became a “loss corporation” under the definition of Section 382.

If the Company has experienced an ownership change, utilization of the NOL carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the NOL carryforwards before utilization.

Further, until a study is completed and any limitation known, no positions related to limitations are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit.

Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations or financial position of the Company.

The NOL carryforwards of approximately $4.7 million can be carried forward indefinitely, but are limited to 80 % of taxable income in any one year.

June 30, 2023 and 2022

The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended June 30, 2013 through 2023.

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– SUBSEQUENT EVENTS

There are no events required to be disclosed under this Item.

On July 28, 2023 a promissory note dated July 29, 2021 for the amount of $ 100,000 with an interest rate of 13.5% paid monthly, with the principal due in full on July 31, 2023, was amended and extended with a new promissory note with an interest rate of 13.5 %, with the principal due in full on July 31, 2025 .

Friedman has personally guaranteed the repayment of the loan obligation.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data