What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-09-30 compared with 2023-10-16 · 160 added, 192 removed, 573 unchanged (38% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

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

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

Consolidated Balance Sheets as of June 30, 2024 and 2023

3 unchanged sentences

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

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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).

and subsidiaries (the “Company”), as of June 30, 2024, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended June 30, 2024, 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, 2024 and the results of its operations and its cash flows for the year ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

1 unchanged sentence

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.

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

Our responsibility is to express an opinion on the Company’s consolidated 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 regulators 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.

These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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.

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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.

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

The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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 consolidated 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 consolidated 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.

Atlanta, Georgia

September 30, 2024

We have served as the Company’s auditor since 2024.

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

To the Board of Directors and Stockholders of 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, 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).

(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.

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

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

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

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

We conducted our audits 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

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 audits, 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.

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

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 audits 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 audits provide a reasonable basis for our opinion.

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

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

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

Valuation of inventory and inventory reserves

As described in Notes 2 and 4 to the financial statements, the Company has inventories, net totaled to approximately $3.82 million as of June 30, 2022.

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

Cost is determined using the first-in, first-out (FIFO) method.

The Company establishes reserves for excess and obsolete inventory for each accounting period and records any potential adjustments needed for the reserves.

Auditing management’s estimates of the net realizable value of inventories, including inventory reserves was highly judgmental due to the degree of subjectivity involved in assessing the inventory reserves which are based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory.

To test the estimates for the net realizable value of inventories, including inventory reserves, we performed audit procedures that included, among others, evaluating the reasonableness of the inputs used in management’s inventory reserve calculation and analyzing the reserve calculations to determine whether management identified any evidence of slow-moving inventory or any obsolescence due to existing and potential changes in marketability which may impact the reserves.

/s/ Liggett & Webb, P.A.

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

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

Boynton Beach, Florida

Margate, Florida

October 13, 2023

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Accounts receivable, net of allowance for doubtful accounts and allowance for discounts and returns of $ 11 in 2024 and $ 55 in 2023

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

Inventories, net of allowance for inventory reserve of $ 188 in 2024 and $ 252 in 2023

Other current assets

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Equipment, property and leasehold improvements, net

Finance lease assets

Operating lease assets

Finance lease assets, net

Operating lease assets, net

Deferred tax asset, net

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Noncurrent liabilities:

Deferred Tax Liability

Long-term debt

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Other income (expense):

Interest expense and financing costs

Interest income (expense) and financing costs

Total other income (expense)

Income from operations before income taxes

Benefit for income taxes

Income/(loss) from operations before income taxes

Provision for income taxes

Net income (loss)

Net income per share:

Shares used in calculation of net income per share:

Shares used in the calculation of net income per share:

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

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For the years ended June 30, 2024 and June 30, 2023

Series A Preferred

Stockholders’

Series A Preferred Stock

Total Stockholders’ Equity

(in thousands, except share data)

Balance, June 30, 2021

Ending balance, June 30, 2022

Stock-based compensation expense

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

Deferred Income Taxes

Depreciation and amortization

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Provision for bad debt

Provision for slow moving or obsolete inventory

Change in deferred tax assets

Amortization of operating lease asset

Provision for inventory reserve

Change in operating assets and liabilities:

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Accrued expenses and interest

Operating lease liability

Accrued payroll and related

Operating lease liability

Amortization of operating lease asset

Net cash provided by operating activities

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Repayment of unsecured line of credit

Repayments under secured note payable

Proceeds from unsecured notes payable

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

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

ORGANIZATION AND NATURE OF BUSINESS

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(“Foam Labs”).

All operations of the Company are currently conducted by OneUp Innovations, Inc.

All operations of the Company are currently conducted by OneUp.

The Company is an Atlanta, Georgia based designer, manufacturer and marketer of a portfolio of consumer lifestyle brands including:

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The impact of this policy election is insignificant as it aligns with our current practice.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

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

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Revenue is recognized at the point in time that control of the ordered products is transferred to the customer.

Generally, this occurs when the product is delivered, or in some cases, picked up from one of our distribution centers by the customer.

Generally, this occurs when the product is shipped from the distribution center, or in some cases, picked up from one of our distribution centers by the customer.

Deferred revenues

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The Company determines the allowance based on historical experience, specifically identified nonpaying accounts, and other currently available evidence.

The Company reviews its allowance for doubtful accounts monthly with a focus on significant individual past due balances over 90 days.

The Company reviews its allowance for doubtful accounts monthly, focusing on significant individual past due balances over 90 days.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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The following is a summary of Accounts Receivable as of June 30, 2024 and June 30, 2023.

June 30, 2023

June 30, 2022

(in thousands)

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Total accounts receivable, net

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories and Allowance for Excess and Obsolete Inventory

Inventories and Inventory Reserves

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

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Inventory costs include materials, labor, depreciation and overhead.

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 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.

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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.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

4 unchanged sentences

Advertising Costs

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

Prepaid advertising (included in prepaid expenses) was $ 0 at June 30, 2023 and $ 1,050 at June 30, 2022.

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

Prepaid advertising (included in prepaid expenses) was $ 836 on June 30, 2024, and $ 0 on June 30, 2023.

Advertising expense for the years ended June 30, 2024, and 2023 was $ 1,028,267 and $ 790,757 , respectively.

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

Research and Development

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

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.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The rent expense for the years ended June 30, 2024 and June 30, 2023 was $ 652,752 and $ 652,752 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.

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property taxes, insurance, etc.) Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

Although separation of lease and non-lease components is required, the Company elected the practical expedient to not separate lease and non-lease components.

The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense.

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.

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

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Total Net Sales

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

June 30, 2024

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Recent accounting pronouncements

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.

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

Net Income Per Share

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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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

The total potential dilutive securities as of June 30, 2024 and 2023 are as follows:

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We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income.

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 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.

We consider projected future taxable income and ongoing tax planning strategies in determining 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, 2024, we carried a valuation allowance of $ 1.4 million against our 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

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Equipment, property and leasehold improvements at June 30, 2024 and 2023 consisted of the following:

(in thousands)

Factory equipment

6 unchanged sentences

Depreciation expense was $ 412,172 and $ 353,840 for the years ended June 30, 2024 and 2023, 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 12)

Current portion of finance leases payable (Note 13)

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Total long-term debt

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

UNSECURED NOTES PAYABLE

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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.

Personally guaranteed by principal stockholder.

This note was extended in full on September 30, 2023 with the same lender with interest payable monthly at 13.5 %, principal due in full on October 31, 2025.

Personally guaranteed by Louis Friedman, the Company’s CEO and principal stockholder.

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.

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.

This note was extended in full on April 30, 2023 with the same lender with interest payable monthly at 13.5 %, principal due in full on May 1, 2025.

Personally guaranteed by the Company’s CEO and principal stockholder.

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 .

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.

Personally guaranteed by principal stockholder.

This note was extended in full on July 30, 2023 with the same lender with interest payable monthly at 13.5 %, principal due in full on July 31, 2025.

Personally guaranteed by the Company’s CEO and principal stockholder.

NOTES PAYABLE - RELATED PARTY

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Long-term unsecured notes payable

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

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 Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs, have 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.

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

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 .

On June 30, 2024, the balance owed under this line of credit was $ 1,044,222 .

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

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SECURED NOTE PAYABLE

On February 17, 2021, the Company entered into an agreement with Amazon, whereby Amazon agreed to loan OneUp Innovations a total of $ 200,000 .

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

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

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

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

At June 30, 2024, the weighted average remaining lease term for the lease renewal is 2.75 years and the weighted average discount rate is 14.49 %.

In addition to the rent payment, The Company pays a proportionate share of operating costs, taxes, and insurance costs.

The annual cost for these additional rent expenses ending June 30 2024 and 2023 were $ 221,000 and $ 231,000 respectively.

Supplemental balance sheet information related to leases at June 30, 2024 is as follows:

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

The equipment acquired with these equipment notes has a total cost of approximately $ 2,147,504 .

These assets are included in the fixed assets listed in Note 5 - Equipment and Leasehold Improvements and include production equipment.

The equipment acquired with these equipment notes has a total cost of approximately $ 2,451,838 These assets are included in the fixed assets listed in Note 5 - Equipment and Leasehold Improvements and include production equipment.

The equipment notes have stated or imputed interest rates ranging from 7.10 % to 13.5 %.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

COMMITMENTS AND CONTINGENCIES (continued)

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(in thousands)

Future Minimum Note Payable Payments

Less Amount Representing Interest

Present Value of Minimum Note Payable Payments

Minimum Note Payable Payments

Less current portion

Long-Term Obligations under Equipment Notes Payable

Long-Tern Obligations under Equipment Notes Payable

Finance Leases Payable

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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 %.

On March 15, 2024, the Company entered into a finance lease agreement with Canon Solutions in the amount of $ 63,948 with monthly payments of $ 1,325 with 60 -month term at an imputed rate of 8.90 %.

On June 3, 2024, the Company entered into a finance lease agreement with Raymond in the amount of $ 39,972 with monthly payments of $ 807 with 60 month term at an imputed rate of 7.80 %.

At June 30, 2024, the weighted average remaining lease term is 4.7 years, and the weighted average discount rate is 8.1 %

The following is an analysis of the minimum finance lease payable payments subsequent to June 30, 2024:

1 unchanged sentence

(in thousands)

2029 and thereafter

Future Minimum Finance Lease Payable Payments

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Long-Term Obligations under Finance Lease Payable

COMMITMENTS AND CONTINGENCIES (continued)

Employment Agreements

3 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)

On January 15, 2024, the Company, through OneUp, engaged Chris Knauf to serve as Chief Financial Officer and Controller of the Company.

The Company shall pay Mr.

Knauf an annual salary of $ 160,000 and Mr.

Knauf received options to purchase 200,000 shares of the Company’s common stock, exercisable at $ 0.08 per share on the date of the agreement and subsequently on July 1, 2024, an additional option to purchase an additional 200,000 shares of common stock exercisable at $ 0.08 per share.

Legal Proceedings

As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to the Company or properties to which the Company is a party, and to the Company’s knowledge there are no material proceedings to which any of its directors, executive officers or affiliates are a party adverse to the Company or which have a material interest adverse to the Company.

As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to the Company or properties to which the Company is a party.

To the Company’s knowledge, there are no material proceedings to which any of its directors, executive officers or affiliates are a party adverse to the Company or which have a material interest adverse 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 year ended June 30, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.25 %) and totaled $ 5,336 .

The accrued interest on the note as of June 30, 2023 was $ 34,596 .

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 principal shareholder in the amount of $ 76,000 (see Note 9).

Interest on the note during the years ended June 30, 2024 and 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.5 %) and totaled $ 6,464 .

The accrued interest on the note as of June 30, 2024 and 2023 was $ 41,060 and $ 34,596 , respectively.

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 year ended June 30, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.25 %) and totaled $ 2,808 .

The accrued interest on the note as of June 30, 2023 was $ 4,098 .

Interest on the note during the years ended June 30, 2024 and 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.5 %) and totaled $ 3,402 and $ 2,808 .

The accrued interest on the note as of June 30, 2024 and 2023 was $ 7,500 and $ 1,289 respectively.

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

1 unchanged sentence

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

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

On June 30, 2024 and 2023, the balance owed under this line of credit was $ 1,044,222 and $ 994,374 respectively.

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

2 unchanged sentences

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.

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

This note was extended on July 30, 2023 with the same lender with interest payable monthly at 13.5 %, principal due in full on July 31, 2025 .

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

On October 31, 2013, the Company issued an unsecured promissory note to an individual for $ 100,000 .

1 unchanged sentence

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

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

RELATED PARTY TRANSACTIONS (continued).

1, 2023, this note was extended through October 31, 2025 at the same interest rate of 13.5 %.

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

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

7 unchanged sentences

The aggregate amount owed on the unsecured line of credit was $ 116 at June 30, 2024 and $ 12,806 at June 30, 2023 (see Note 11).

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

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

STOCKHOLDERS’ EQUITY

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.

At June 30, 2024, the Company had the 2015 Equity Incentive Plan (the “2015 Plan”), which is shareholder-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.

3 unchanged sentences

Option Activity

Weighted Average

Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Outstanding at June 30, 2022

( 1,175,000 )

Forfeited or Expired

4 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 $ 0.08 , $ 0.10 , and $ 0.14 at June 30, 2024, 2023 and 2022, respectively.

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.

STOCKHOLDERS’ EQUITY (continued)

The range of fair value assumptions related to options granted during the years ended June 30, 2024 and 2023 were as follows:

Exercise Price:

$ 0.16 - $ 0.30

500 % - 519 %

Risk Free Rate:

4 unchanged sentences

Dividend Rate:

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

STOCKHOLDERS’ EQUITY (continued)

There were 400,000 stock options granted during the year ended June 30, 2024 and no stock options granted during the year ended June 30, 2023.

During the year ended June 30, 2024, no stock options were exercised;

during the year ended June 30, 2023 the Company’s proceeds from stock options exercise under 2015 Plan were $ 2,100 .

The following table summarizes the weighted average characteristics of outstanding stock options as of June 30, 2024:

11 unchanged sentences

No option can have a life in excess of ten (10) years.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using

the Black-Scholes option-pricing model.

The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield.

1 unchanged sentence

The Company has no awards with market or performance conditions.

STOCKHOLDERS’ EQUITY (continued).

Stock-based compensation expense recognized in the consolidated statements of operations for each of the fiscal years ended June 30, 2024 and 2023 is based on awards ultimately expected to vest.

7 unchanged sentences

An assumed dividend yield of zero reflects the fact that the Company has never paid cash dividends and has no intentions to pay dividends in the foreseeable future.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2023 and 2022

STOCKHOLDERS’ EQUITY (continued)

The following table summarizes stock-based compensation expense by line item in the consolidated statements of operations, all relating to employee stock plans:

13 unchanged sentences

Total shares of common stock equivalents

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.

During fiscal year 2024 and fiscal year 2023 the Company issued zero and 501,423 shares of common stock respectively for stock option exercises under 2015 Equity Incentive Plan.

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 $ 0.2325 ($ 1,000,000 in the aggregate).

Each share of Series A Convertible Preferred Stock is convertible into one share of common stock and has a liquidation

preference of $.2325 ($ 1,000,000 in the aggregate).

Liquidation payments to the preferred holders have priority and are made in preference to any payments to the holders of common stock.

3 unchanged sentences

At each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration, including the election of directors, holders of Series A Convertible Preferred Shares shall vote together with the holders of common shares as a single class.

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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, 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.

As of June 30, 2024 and 2023, 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.

The components of deferred tax assets and liabilities at June 30, 2024 and 2023 are approximately as follows:

(in thousands)

Deferred tax assets:

6 unchanged sentences

Book to tax depreciation difference - Liability

Net deferred tax assets

Net deferred tax asset (liability)

The income tax provision differs from the amount of income tax determined by applying the U.S.

federal and state income tax rates of 25.75 % to pretax (income) loss from operations for the years ended June 30, 2024 and 2023 due to the following:

Permanent differences and change in tax rate estimate

Income taxes at federal rate

State income taxes, net of federal income taxes

Permanent differences

Other adjustments

Valuation allowance

Net tax benefit

Income tax provision

Our income tax provision consisted of the following for the years ended June 30, 2024 and 2023:

Current provision

Deferred provision

Income tax provision

At June 30, 2024, the Company had net operating loss (NOL) carryforwards of approximately $ 5.3 million that may be offset against future taxable income.

During 2024 and 2023, the total change in the valuation allowance was approximately $ 376,000 and $ 317,000 , respectively.

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

Luvu Brands, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

The Company has not filed its Federal or State tax returns for 2017 through 2022 but expects to file these returns before the end of calendar year 2023.

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.

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 $5.3 million can be carried forward indefinitely, but are limited to 80 % of taxable income in any one year.

The tax years that remain subject to examination by major taxing jurisdictions are those from June 30, 2013 through 2024.

On November 27, 2023, the Company received a notice from the Internal Revenue Service regarding Taxes and Penalties due of approximately $ 125,000 .

The Company believes that once Net Operating Losses and tax credits are applied, the penalties and interest will be reduced to approximately $ 38,000 .

Therefore, the Company has accrued $ 38,000 for estimated penalties and interest as of June 30, 2024.

On January 22, 2024, the Company received a notice from the Georgia Department of Revenue for Tax and Penalties due of approximately $ 104,000 .

The Company believes once Net Operating Losses and tax credit are applied the liability will be reduced to penalties and interest of approximately $ 6,000 .

Therefore, the Company has accrued $ 6,000 for estimated penalties and interest as of June 30, 2024.

– SUBSEQUENT EVENTS

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.

On July 1, 2024, the Company issued Christopher Knauf, Chief Financial Officer and Controller of the Company, options to purchase 200,000 shares of common stock.

These stock options are exercisable at $ 0.08 per share.

On August 8, 2024, the Company issued an employee of the Company 94,956 shares of common stock pursuant to the exercise of an option on a cashless basis at an exercise price of $ 0.03 per share.

On September 17, 2024, the Company issued an employee of the Company 191,429 shares of common stock pursuant to the exercise of an option on a cashless basis at an exercise price of $ 0.03 per share.

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

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

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain certain disclosure controls and procedures as defined under the Securities Exchange Act of 1934.

They are designed to help ensure that material information is:

(1) gathered and communicated to our management, including our principal executive and financial officers, in a manner that allows for timely decisions regarding required disclosures;

and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934 and within the time periods specified by the SEC.

Controls and Procedures (continued).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2024.

For this purpose, internal control over financial reporting refers to a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are

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