What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-20 compared with 2023-11-20 · 187 added, 159 removed, 491 unchanged (41% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share data)

7 unchanged sentences

Finance lease assets

Right of use assets

Operating lease assets

Deferred tax asset, net

12 unchanged sentences

Stockholders’ equity:

Preferred stock, 0.0001 par value, 5,700,000 shares authorized 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, 2023 and June 30, 2023

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,547,672 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively

Preferred stock, 5,700,000 shares authorized, $ 0.0001 par value none issued and outstanding

Series A Convertible Preferred stock, 4,300,000 shares authorized $ 0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $ 1,000 at December 31, 2023 and June 30, 2023

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,547,672 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders’ equity

See accompanying condensed notes to unaudited consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC.

1 unchanged sentence

Consolidated Statements of Operations

Three Months Ended September 30,

Three Months Ended

Six Months Ended

(in thousands, except share data)

4 unchanged sentences

General and administrative

Depreciation and amortization

Total operating expenses

Income / (loss) from operations

Income from operations

Other Income (Expense):

3 unchanged sentences

Provision for income taxes

Net (loss) income

Net income / (loss) per share:

Shares used in computing net (loss) income per share:

Net income / (loss)

Net income per share:

Shares used in computing net income per share:

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months ended September 30, 2023 and September 30, 2022 (unaudited)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Six Months ended December 31, 2023 and December 31, 2022 (unaudited)

Series A Preferred

1 unchanged sentence

(in thousands, except share data)

Balance, June 30, 2022 (unaudited)

Balance, June 30, 2022

Stock-based compensation expense

Net income for the three months ended September 30, 2022

Stock option exercises

Net income for the six months ended December 31, 2022

Balance, December 31, 2022 (unaudited)

Balance, June 30, 2023

Stock-based compensation expense

Net loss for the six months ended December 31, 2023

Balance, December 31, 2023 (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, 2022 (unaudited)

Balance, June 30, 2023 (unaudited)

Stock-based compensation expense

Net loss for the three months ended September 30, 2023

Stock option exercises

Net income for the three months ended December 31, 2022

Balance, December 31, 2022 (unaudited)

Balance, September 30, 2023 (unaudited)

See accompanying condensed notes to unaudited consolidated financial statements.

Stock-based compensation expense

Net income for the three months ended December 31, 2023

Balance, December 31, 2023 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

September 30,

Six Months Ended

OPERATING ACTIVITIES:

( in thousands )

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income / (loss)

Adjustments to reconcile net income / (loss) to net cash provided by operating activities:

Depreciation and amortization

Stock based compensation expense

Bad debt expense

Provision for bad debt

Amortization of operating lease asset

13 unchanged sentences

Repayment of unsecured notes payable

Proceeds from secured notes payable

Net cash provided by (repaid to) line of credit

Repayment of unsecured line of credit

Proceeds from exercise of stock options

Payments on equipment notes

Principal payments on leases payable

Net cash used in financing activities

Net 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:

Purchases of equipment with equipment notes

Cash paid during the period for:

See accompanying condensed notes to unaudited consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

ORGANIZATION AND NATURE OF BUSINESS

13 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 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").

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.

1 unchanged sentence

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, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year.

These 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, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2023 (the “2023 10-K”).

The results of operations for the three and six months ended December 31, 2023 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, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2023 (the “2023 10-K”).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

Intercompany accounts and transactions have been eliminated in consolidation.

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

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.

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.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

These consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2023 10-K.

These consolidated condensed financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2023 10-K.

Use of Estimates

2 unchanged sentences

income taxes;

tax valuation allowance;

tax valuation reserves;

allowances for doubtful accounts;

inventory valuation and allowance;

inventory valuation and reserves;

share-based compensation;

4 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

17 unchanged sentences

We review and update these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified.

In assessing whether collection of consideration from a customer is probable, we consider the customers ability and intent to pay that amount of consideration when it is due.

In assessing whether collection of consideration from a customer is probable, we consider the customer's ability and intent to pay that amount of consideration when it is due.

Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer.

5 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 September 30, 2023 was $ 18,754 and was included in “Other accrued liabilities” on our consolidated balance sheets.

The deferred revenue balance as of September 30, 2022 was $ 137,821 .

Our total deferred revenue as of December 31, 2023 was $ 19,054 and was included in “Other accrued liabilities” on our consolidated balance sheets.

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

Cost of Goods Sold

Cost of goods sold includes raw materials, labor, manufacturing overhead, depreciation and royalty expense.

Cost of goods sold includes raw materials, labor, manufacturing overhead, and royalty expense.

Cash and Cash Equivalents

3 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts on estimated losses to reflect our estimate of current and past due receivable balances that may not be collected.

The allowance for doubtful accounts is based upon our assessment of the collectability of specific customer accounts, the aging of accounts receivable, our history of bad debts and a forecast of projected credit losses.

We believe that the allowance for doubtful accounts is adequate to cover anticipated losses in the receivable balance under current conditions.

Allowance for Credit Loss

We maintain an allowance for credit loss to reflect our estimate of current and past due receivable balances that may not be collected.

The allowance for credit loss is based upon our assessment of the collectability of specific customer accounts, the aging of accounts receivable and our history of bad debts.

We believe that the allowance for credit loss is adequate to cover anticipated losses in the receivable balance under current conditions.

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, 2023 and June 30, 2023.

September 30,

The following is a summary of Accounts Receivable as of December 31, 2023 and June 30, 2023.

(in thousands)

Accounts receivable

Allowance for doubtful accounts

Allowance for credit loss

Allowance for discounts and returns

Total accounts receivable, net

Inventories and Allowance for Excess and Obsolete Inventory

During the six months ended December 31, 2023 and 2022 the Company recoded bad debt expense of $ 1 .

Inventories and Inventory Reserves

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

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

Concentration of Credit Risk

1 unchanged sentence

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, 2023 that exceeded the balance insured by the FDIC by $ 926,492 .

The Company had bank balances on deposit at December 31, 2023 that exceeded the balance insured by the FDIC by $ 957,833 .

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 2023, we purchased 35 % of total inventory purchases from one vendor.

During the six months ended December, 31 2023, we purchased 33 % of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2023, we purchased 35 % of total inventory purchases from one vendor.

As of September 30, 2023, two of the Company’s customers represents 48 % and 13 % of the total accounts receivables, respectively.

As of December 31, 2023, two of the Company’s customers represents 40 % and 20 % of the total accounts receivables, respectively.

As of June 30, 2023, two of the Company’s customers represents 35 % and 12 % of the total accounts receivables, respectively.

For the three months ended September 30, 2023, sales to and through Amazon accounted for 37 % of our net sales.

For the three and six months ended December 31, 2023, sales to and through Amazon accounted for 35 % and 37 %, respectively of our net sales.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

ENDED DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

At September 30, 2023 and June 30, 2023, 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 term maturity or current terms for similar instruments.

At December 31, 2023 and June 30, 2023, 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.

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.

11 unchanged sentences

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

Advertising and Promotion Costs

Advertising Costs

Advertising costs are expensed in the period when the advertisements are first aired or distributed to the public.

There was no Prepaid advertising at September 30, 2023 and at June 30, 2023.

Advertising expense for the three months ended September 30, 2023 and 2022 was $ 268,544 and $ 186,994 , respectively.

Prepaid Advertising (included in prepaid expenses) was $ 833 at December 31, 2023 and $ 687 at December 31, 2022.

Advertising expense for the three and six months ended December 31, 2023 and 2022 was $ 276,330 , $ 541,874 , $ 199,504 and $ 386,498 , respectively.

Research and Development

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

Expenses for new product development totaled $ 32,722 and $ 30,950 for the three months ended September 30, 2023 and 2022, respectively.

Expenses for new product development totaled $ 3,501 and $ 5,525 for the six months ended December 31, 2023 and 2022, respectively.

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

2 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equipment and Leasehold Improvements

Property and Equipment

Property and equipment are stated at cost.

7 unchanged sentences

360, Property, Plant, and Equipment .

The Company has determined that there was no impairment at September 30, 2023.

The Company has determined that there was no impairment at December 31, 2023.

Operating Leases

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

The lease includes two months of rent abatement totaling $ 103,230 .

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

Under the lease, the monthly rent on the facility is $ 51,615 with annual escalations of 3 % with the final two months of rent at $ 61,605 .

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

The rent expense for the three months ended September 30, 2023 and 2022 was $ 163,188 and $ 163,188 , respectively.

The rent expense for the six months ended December 31, 2023 and 2022 was $ 328,338 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.

12 unchanged sentences

See Note 13 for details.

Under prior guidance ASC 840, rent expense and lease incentives from operating leases were recognized on a straight-line basis over the lease term.

The difference between rent expense recognized and rental payments was recorded as deferred rent in the accompanying consolidated balance sheets.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

7 unchanged sentences

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

September 30,

Three Months Ended

(in thousands)

1 unchanged sentence

Total Net Sales

September 30,

Three Months Ended

Gross Profit by Channel:

(in thousands)

Total Gross Profit

(in thousands)

Net Sales by Channel:

Total Net Sales

(in thousands)

Gross Profit by Channel:

2 unchanged sentences

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.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements”, which replaces the existing “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

Under the CECL model, the Company is required to present certain financial assets carried at amortized cost, such as accounts receivable, at the net amount expected to be collected.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company adopted this standard in the consolidated financial statements on July 1, 2023.

The change had no impact on the Company’s financial statements.

ASU 2016-13 Current Expected Credit Loss (ASC326)

In December 2021, the FASB issued an update to ASU No.

2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures.

This guidance was adopted on January 1, 2023, with no effect to the financial statements.

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

2 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income / (Loss) Per Share

Net Income Per Share

In accordance with ASC 260, “Earnings Per Share”, basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period.

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.

For the three months ended September 30, 2023, common stock equivalent shares are excluded from the computation of net loss per share as their effect is anti-dilutive.

For the three months ended September 30, 2022, the common stock equivalents did not have any effect on net income per share.

September 30,

As of December 31, 2023 and 2022, the common stock equivalents did not have any effect on net income per share.

Common stock options – 2015 Plan

6 unchanged sentences

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.

During the six months ended December 31, 2023 the Company received a notice from the Internal Revenue Service of Taxes and Penalties due of approximately $ 125,000 .

The Company believes once Net Operating Losses and tax credit are applied the penalties and interest will be reduced to approximately $ 38,000 therefore the Company has accrued $ 38,000 for estimated penalties and interests as of December 31, 2023.

During the six months ended December 31, 2023 the Company received a notice from the Georgia Department of Revenue of Taxes and Penalties due of approximately $ 102,000 .

The Company believes once Net Operating Losses and tax credit are applied the liability will be reduced to penalties and interest will reduced to approximately $ 6,000 therefore the Company has accrued $ 6,000 for estimated penalties and interest as of December 31, 2023.

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

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 (UNAUDITED)

IMPAIRMENT OF LONG-LIVED ASSETS

5 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 September 30, 2023 or June 30, 2023.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

There was no impairment as of December 31, 2023 or June 30, 2023.

INVENTORIES, NET

2 unchanged sentences

Inventories consisted of the following:

September 30,

(in thousands)

3 unchanged sentences

Total inventories

Allowance for excess and obsolete inventory

Allowance for inventory reserves

Total inventories, net of allowance

3 unchanged sentences

Equipment and leasehold improvements consisted of the following:

September 30,

Estimated Useful Life

(in thousands)

4 unchanged sentences

Project in process

Accumulated depreciation and amortization

Accumulated depreciation

Equipment and leasehold improvements, net

Depreciation and amortization expense was $ 99,222 and $ 86,856 for the three months ended September 30, 2023 and 2022, respectively.

Depreciation expense was $ 202,992 and $ 174,873 for the six months ended December 31, 2023 and 2022, 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, 2023.

Management has determined no asset impairment occurred during the six months ended December 31, 2023.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

OTHER ACCRUED LIABILITIES

Other accrued liabilities at September 30, 2023 and June 30, 2023:

September 30,

Other accrued liabilities at December 31, 2023 and June 30, 2023:

(in thousands)

3 unchanged sentences

CURRENT AND LONG-TERM DEBT SUMMARY

Current and long-term debt at September 30, 2023 and June 30, 2023 consisted of the following:

September 30,

Current and long-term debt at December 31, 2023 and June 30, 2023 consisted of the following:

Current debt:

10 unchanged sentences

Equipment notes payable (Note 12)

Notes payable – related party (Note 9)

Notes payable – related party

Total long-term debt

2 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

UNSECURED NOTES PAYABLE

Unsecured notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

September 30,

Unsecured notes payable at December 31, 2023 and June 30, 2023 consisted of the following:

Current unsecured notes payable:

11 unchanged sentences

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.

This note was repaid in full on September 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 October 31, 2025.

Personally guaranteed by principal stockholder.

This note was repaid in full on October 1, 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 October 31, 2025.

Personally guaranteed by the Company’s President, Chief Executive Officer (CEO), and majority shareholder, Louis Friedman.

(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.

1 unchanged sentence

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.

Personally guaranteed by the Company’s President, CEO, and majority shareholder, Louis Friedman.

(3) Unsecured note payable for $ 100,000 to an individual with interest payable monthly at 20 %, principal originally due in full on July 31, 2013, extended to July 31, 2019, then extended to July 31, 2021.

1 unchanged sentence

This note was repaid in full on July 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 July 31, 2025.

Personally guaranteed by principal stockholder.

Personally guaranteed by the Company’s President, CEO, and majority shareholder, Louis Friedman.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 (UNAUDITED)

NOTES PAYABLE - RELATED PARTY

Related party notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

September 30,

June 30, 2023

Related party notes payable at December 31, 2023 and June 30, 2023 consisted of the following:

(in thousands)

4 unchanged sentences

Long-term unsecured notes payable

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (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, Chief Executive Officer (CEO), and majority shareholder, Louis Friedman, has personally guaranteed the repayment of the facility.

The Company’s President, 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 September 30, 2023 and June 30, 2023, the balance owed under this line of credit were $ 1,102,122 and $ 1,039,013 , respectively.

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

On December 31, 2023, the balance owed under this line of credit was $ 1,090,884 .

As of December 31, 2023, 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 $ 9,608 at September 30, 2023 and $ 12,806 at June 30, 2023.

The aggregate amount owed on the unsecured line of credit was $ 6,307 at December 31, 2023 and $ 12,806 at June 30, 2023.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (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 September 30, 2023, the weighted average remaining lease term for the lease renewal is 4 years and the weighted average discount rate is 14.49 %.

Supplemental balance sheet information related to leases at September 30, 2023 is as follows:

At December 31, 2023, the weighted average remaining lease term for the lease renewal is 4 years and the weighted average discount rate is 14.49 %.

Supplemental balance sheet information related to leases at December 31, 2023 is as follows:

Operating leases

8 unchanged sentences

Total lease liabilities

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

Maturities of lease liabilities at December 31, 2023 are as follows:

(in thousands)

9 unchanged sentences

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

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

The following is an analysis of the minimum future equipment note payable payments subsequent to December 31, 2023:

Years ending June 30,

(in thousands)

Future Minimum Note Payable Payments

6 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (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, 2023:

The following is an analysis of the minimum finance lease payable payments subsequent to December 31, 2023:

Year ending June 30,

10 unchanged sentences

Friedman for up to nine months at his current salary.

As of September 30, 2023 the Company has not accrued a liability as it is not probable.

As of December 31, 2023 the Company has not accrued a liability as it is not probable.

Legal Proceedings

2 unchanged sentences

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, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50 %) and totaled $ 1,615 .

The accrued interest on the note as of September 30, 2023 was $ 36,210 .

Interest on the note during the three months ended December 31, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50 %) and totaled $ 1,628 .

The accrued interest on the note as of December 31, 2023 was $ 37,839 .

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

1 unchanged sentence

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

Interest on the note during the three months ended September 30, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50 %) and totaled $ 850 .

The accrued interest on the note as of September 30, 2023 was $ 4,948 and included in Other Current Liabilities on the consolidated balance sheet.

Interest on the note during the three months ended December 31, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50 %) and totaled $ 857 .

The accrued interest on the note as of December 31, 2023 was $ 5,805 .

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

2 unchanged sentences

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

RELATED PARTY TRANSACTIONS (continued)

1 unchanged sentence

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

On September 30, 2023, the balance owed under this line of credit was $ 1,102,122 .

On December 31, 2023, the balance owed under this line of credit was $ 1,090,884 .

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

14 unchanged sentences

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

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 $ 9,608 at September 30, 2023 (see Note 11).

The aggregate amount owed on the unsecured line of credit was $ 6,307 at December 31, 2023 (see Note 11).

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

STOCKHOLDERS’ EQUITY

At September 30, 2023, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is 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.

At December 31, 2023, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is 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, 2023, the number of shares available for issuance under the 2015 Plan was 200,000 .

As of December 31, 2023, the number of shares available for issuance under the 2015 Plan was 150,000 .

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (UNAUDITED)

STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the Company’s stock option activities during the three months ended September 30, 2023:

The following table summarizes the Company’s stock option activities during the nine months ended December 31, 2023:

Number of Shares

Options outstanding as of June 30, 2023

Forfeited or expired

Options outstanding as of

September 30, 2023

Options exercisable as of September 30, 2023

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 for such day.

There were no stock options exercised during the three months ended September 30, 2023 and the three months ended September 30, 2022.

On September 1, 2023, 200,000 stock options were granted to a new employee of the Company under the 2015 Plan with exercise price of $ 0.081 .

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

The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 2023:

Options outstanding as of December 31, 2023

Options exercisable as of December 31, 2023

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price options 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 for such day.

There were no stock options exercised during the six months ended December 31, 2023 and the six months ended December 31, 2022.

There were 200,000 stock options granted during the six months ended December 31, 2023.

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

The following table summarizes the weighted average characteristics of outstanding stock options as of December 31, 2023:

Outstanding Options

10 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 months ended September 30, 2023 and 2022 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 six months ended December 31, 2023 and 2022 are based on awards ultimately expected to vest, and is reduced for estimated forfeitures.

LUVU BRANDS, INC.

1 unchanged sentence

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

DECEMBER 31, 2023 (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:

Ended September 30,

Ended December 31,

($ in thousands)

3 unchanged sentences

Total Stock-based Compensation Expense

(1) Reflects 250,000 forfeited stock options.

On September 1, 250,000 stock options were forfeited by an affiliate of the Company resulting in reversal of stock option-based compensation expense in the amount of $ 15,625 which was recognized in prior periods.

As of September 30, 2023, the Company’s total unrecognized compensation cost was $ 89,662 which will be recognized over the weighted average vesting period of approximately twenty-seven months.

As of September 30, 2023 and 2022, there were no warrants outstanding.

The Company’s authorized common stock was 175,000,000 shares at September 30, 2023 and June 30, 2023.

As of December 31, 2023, the Company’s total unrecognized compensation cost was $ 78,388 which will be recognized over the weighted average vesting period of approximately twenty-seven months.

As of December 31, 2023 and 2022, there were no warrants outstanding.

The Company’s authorized common stock was 175,000,000 shares at December 31, 2023 and June 30, 2023.

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, 2023, the Company had reserved the following shares of common stock for issuance:

September 30,

At December 31, 2023, the Company had reserved the following shares of common stock for issuance:

Shares of common stock reserved for issuance under the 2015 Plan

2 unchanged sentences

Preferred Stock

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 $.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).

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).

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.

LUVU BRANDS, INC.

AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 (UNAUDITED)

SUBSEQUENT EVENTS

On January 15, 2024, the Company notified Martin Scott, Chief Financial Officer of the Company, that the Company would retain a full time on site Chief Financial Officer effective following the filing of the Company’s Form 10-Q Quarterly Report for the period ended December 31, 2023 (the “Effective Date”).

On January 15, 2024, the Company engaged Chris Knauf to serve as Chief Financial Officer and Controller of the Company commencing on the Effective Date.

Knauf receives an annual salary of $ 150,000 increasing to $ 160,000 upon the Effective Date.

Knauf with receive 200,000 stock option will be granted on April 1, 2024 and an additional 200,000 will be granted on July 1,2024.

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