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Item 8. Financial Statements and Supplementary Data

2025-10-14 compared with 2024-09-30 · 165 added, 185 removed, 548 unchanged (39% of the section changed)

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Consolidated Financial Statements:

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

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

Consolidated Balance Sheets as of June 30, 2025 and 2024

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Opinion on the Consolidated Financial Statements

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

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.

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

and subsidiaries (the “Company”), as of June 30, 2025 and 2024, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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.

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.

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.

Accordingly, we express no such opinion.

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

Our audits 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 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.

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

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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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

Basis for Opinion

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

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

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

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

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

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

Accordingly, we express no such opinion.

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

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

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

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

Critical Audit Matters

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

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

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

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

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

Margate, Florida

EC Barrott, LLC

Atlanta, Georgia

October 14, 2025

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Cash and cash equivalents

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 inventory reserve of $ 188 in 2024 and $ 252 in 2023

Accounts receivable, net of allowance for doubtful accounts and allowance for discounts and returns of $ 34 on June 30, 2025 and $ 11 on June 30, 2024

Inventories, net of allowance for inventory reserve of $ 232 on June 30, 2025 and $ 214 on June 30, 2024

Other current assets

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Equipment, property and leasehold improvements, net

Finance lease assets, net

Operating lease assets, net

Deferred tax asset, net

Finance lease assets

Operating lease assets

Liabilities and stockholders’ equity:

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Commitments and contingencies (See Note 13)

Stockholders’ equity (deficit):

Stockholders’ equity:

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 as of June 30, 2024 and 2023

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,547,672 shares issued and outstanding as of June 30, 2024 and 2023, respectively

Series A Convertible Preferred stock, 4,300,000 shares authorized $ 0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $ 1,000 as of June 30, 2025 and June 30, 2024

Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,834,057 and 76,547,672 shares issued and outstanding as of June 30, 2025 and June 30, 2024, respectively

Additional paid-in capital

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Total liabilities and stockholders’ equity

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

Luvu Brands, Inc.

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(in thousands, except share data)

Cost of goods sold (excl.

depreciation expense presented below)

Cost of goods sold (excluding depreciation expense presented below)

Operating expenses:

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General and administrative

Depreciation and amortization

Total operating expenses

Operating income

Other income (expense):

Interest income (expense) and financing costs

Total other income (expense)

Income/(loss) from operations before income taxes

Operating income/(loss)

Other expense:

Interest expense and financing costs

Disposal of fixed asset

Total other expense

Loss from operations before income taxes

Provision for income taxes

Net income (loss)

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.

Net loss per share:

Shares used in calculation of net loss per share:

Luvu Brands, Inc.

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For the Years Ended June 30, 2025 and June 30, 2024

Series A Preferred Stock

Total Stockholders’ Equity

Preferred Stock

Stockholders'

(in thousands, except share data)

Ending balance, June 30, 2022

Balance, June 30, 2023

Stock-based compensation expense

Stock option exercises

Ending balance, June 30, 2023

Balance, June 30, 2024

Stock-based compensation expense

Stock option exercises

Ending balance, June 30, 2024

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

Balance, June 30, 2025

Luvu Brands, Inc.

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OPERATING ACTIVITIES:

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

Deferred Income Taxes

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

Depreciation and amortization

Deferred Income Taxes

Stock-based compensation expense

Provision for bad debt

Provision for inventory reserve

Inventory reserves

Loss on disposal of fixed asset

Change in operating assets and liabilities:

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Amortization of operating lease asset

Net cash provided by operating activities

Net cash (used in) provided by operating activities

INVESTING ACTIVITIES:

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FINANCING ACTIVITIES:

Borrowing (repayment) under revolving line of credit

Borrowing under revolving line of credit

Repayment of unsecured line of credit

Proceeds from unsecured notes payable

Repayment of unsecured notes payable

Payments on equipment notes

Proceeds from exercise of stock options

Principal payments on capital leases

Net cash used in financing activities

Net increase (decrease ) in cash and cash equivalents

Proceeds from unsecured notes payable

Proceeds from unsecured line of credit

Principal payments on equipment notes

Principal payments on finance leases

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Non cash items:

Purchases of equipment with equipment notes

Finance lease asset obligation in exchange for lease payable

Cash paid during the year for:

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

ORGANIZATION AND NATURE OF BUSINESS.

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

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

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

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

JAXX-a diverse range of convertible daybeds, headboard panels, outdoor soft seating and bean bags made from repurposed polyurethane foam trim.

AVANA-products for yoga exercise, sleep comfort and inclined bed therapy.

LIBERATOR-transformable chaises and specially designed pillows and props for enhancing sexual performance.

FOAMLABS-private label Jaxx products and contract manufacturing for hospitality, school, furniture mass market and beyond.

These products are sold through the Company’s websites, online mass merchants and retail stores worldwide.

Many of our products are offered flat-packed and either roll or vacuum compressed to save on shipping and reduce our carbon footprint.

Sales are generated through internet and print advertisements.

We have a diversified customer base with only one customer accounting for 30 % or more of consolidated net sales in the current and prior fiscal year and no particular concentration of credit risk in one economic sector.

Foreign operations and foreign net sales are not material.

Sales are generated through internet, print advertisements, and social marketing.

We have a diversified customer base with only one customer accounting for 34 % in fiscal 2025 and 36 % in fiscal 2024 of consolidated net and no particular concentration of credit risk in one customer type.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

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

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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The Company does not have any off-balance sheet credit exposure related to its customers.

Our retailer customer, Nogin who operated the retail locations of Brookstone, had been operating under a Chapter 11 bankruptcy agreement since December 5, 2023.

On April 25, 2025.

Nogin agreed to settle their outstanding balance of $ 24,516 for $ 5,000 .

The balance of $ 19,516 was charged to the Allowance for Doubtful Accounts.

Payment of the $ 5,000 was received on July 14, 2025.

The following is a summary of Accounts Receivable as of June 30, 2025 and June 30, 2024.

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Total accounts receivable, net

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories and Inventory Reserves

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Concentration of Credit Risk

The Company maintains its cash accounts with banks located in Georgia.

The Company maintains its cash accounts with two banks located in Georgia.

The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 per bank.

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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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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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.

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

Sales Channel Information

We have identified three reportable sales channels:

Direct, Wholesale and Other .

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

Segmentation Information

The Company has identified two reportable sales segmentations:

Direct to Consumer and Wholesale .

Direct to Consumer includes product sales through the Company’s four e-commerce sites.

Wholesale includes Liberator, Jaxx, and Avana branded products sold to distributors and retailers, purchased products sold to retailers, and private label items sold to other resellers.

The Wholesale category also includes contract manufacturing services, which consists of specialty items that are manufactured in small quantities for certain customers, and which, to date, has not been a material part of our business.

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

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

June 30, 2024

June 30, 2023

(in thousands)

Net Sales by Channel:

Total Net Sales

Information as to the operations of the Company’s reportable segments is set forth below.

June 30, 2025

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(in thousands)

Gross Profit by Channel:

Total Gross Profit

Cost of Goods Sold

Other direct operating expenses (a)

Overhead expenses(b)

Operating (loss) income

Interest income

Interest expense

Other expense, net

Loss from operations before income taxes

Reconciliation of operating (loss) income to adjusted operating income:

Operating (loss) income

Share-based compensation expense

Depreciation and amortization

Adjusted operating income

Other direct operating expenses are directly attributable to the business segment, such as marketing, salaries, customer relationship expenses, and travel and entertainment expenses.

Overhead expenses are all non-direct expenses related to the operation of the business segment.

It includes G&A, unallocated marketing expenses, facilities, product development, and depreciation.

Recent accounting pronouncements

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

The Company has adopted ASU 2023-07 regarding business segmentation reporting and will be adopting ASU2023-09 and 2024-03 in future filings.

Net Loss Per Share

In accordance with FASB Accounting Standards Codification No.

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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

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

Diluted net loss 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.

The total potential dilutive securities as of June 30, 2025 and 2024 are as follows:

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Leasehold improvements

Projects in process

Accumulated depreciation

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(in thousands)

Unsecured lines of credit (Note 11)

Line of credit (Note 10)

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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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Long-term debt:

Unsecured lines of credit (Note 11)

Unsecured notes payable (Note 8)

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Unsecured notes payable at June 30, 2025 and 2024 consisted of the following:

Current debt:

(in thousands)

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

Current debt:

13.5% Unsecured note, interest only, due April 30, 2025 (2)

13.5% Unsecured note, interest only, due July 31, 2025(3)

13.5% Unsecured note, interest only, due October 31, 2025 (1)

18.0% Unsecured note, due March 25, 2027 (4)

19.2% Unsecured note, due July 3, 2026 (5)

Total current debt

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13.5% Unsecured note, interest only, due October 31, 2025 (1)

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

13.5% Unsecured note, interest only, due April 30, 2027 (2)

18.0% Unsecured note, due March 25, 2027 (4)

19.2% Unsecured note, due July 3, 2026 (5)

Total long-term debt

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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 .

This note was extended in full on April 8, 2025 with the same lender with interest payable monthly at 13.5 %, principal due in full on April 30, 2027.

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

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

This note was extended in full on August 20, 2025 with the same lender with interest payable monthly of 13.5 % and principal due in full on July 31, 2027.

(4) Unsecured note payable for $ 250,000 to a lending company with monthly payments of $ 12,485 was signed on March 25, 2025.

The note payable is for 24 monthly payments till March 25, 2027 .

The note is personally guaranteed by the Company’s CEO and principal.

(5) Unsecured note payable for $ 250,000 to a lending company with weekly payments of $ 5,366 was signed on June 4, 2025.

The note payable is for 56 weeks till July 3, 2026 .

The note is personally guaranteed by the Company’s CEO and principal

NOTES PAYABLE - RELATED PARTY

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(in thousands)

Unsecured note payable to an officer, with interest at 8.5 %, due July 1, 2025

Unsecured note payable to an officer, with interest at 7.5%, due June 30, 2027

Total unsecured notes payable

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On June 30, 2025, the balance owed under this line of credit was $ 1,096,403 .

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

As of June 30, 2025, we were current and in compliance with all terms and conditions of this line of credit.

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UNSECURED LINES OF CREDIT

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

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

Friedman (see Note 14).

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 13.2 %.

The terms of this unsecured line of credit call for monthly payments of principal and interest, with interest at 13.2 %.

The aggregate amount owed on the unsecured line of credit was $ 52,144 at June 30, 2025 and $ 116 at June 30, 2024.

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(in thousands)

2027 and thereafter

Total undiscounted lease payments

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The equipment notes have stated or imputed interest rates ranging from 5.9 % to 13.2 %.

COMMITMENTS AND CONTINGENCIES (continued)

The following is an analysis of the minimum future equipment note payable payments subsequent to June 30, 2025:

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

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

On January 5, 2022 the Company entered into finance lease agreement with Raymond in the amount of $ 23,000 with monthly payment of $ 514 with 48 -month term at an imputed interest rate of 3.75 %.

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 %.

On January 5, 2022, the Company entered into a finance lease agreement with Raymond in the amount of $ 22,862 with monthly payments of $ 514 with a 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 a 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 a 60 month term at an imputed rate of 7.80 %.

At June 30, 2025, the weighted average remaining lease term is 3.9 years, and the weighted average discount rate is 8.5 %

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(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

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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 .

Interest on the note during the years ended June 30, 2025 and 2024 was accrued by the Company at the prevailing prime rate (which is currently 7.5 %) and totaled $ 5,955 and $ 6,464 respectively.

The accrued interest on the note as of June 30, 2025 and 2024 was $ 47,015 and $ 41,060 , respectively.

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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 .

This note was extended in full on August 20, 2025 with the same lender with interest payable monthly at 13.5%, principal is due in full on July 31, 2027 .

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

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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.

RELATED PARTY TRANSACTIONS (continued).

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

On October 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.

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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 .

This note was extended in full on April 8, 2025 with the same lender with interest payable monthly at 13.5 %, principal due in full on April 30, 2027 .

Friedman has personally guaranteed the repayment of the loan obligation.

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

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

The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8 %.

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

On March 25, 2025, the Company obtained an unsecured note payable for $ 250,000 from a lending company.

The note payable is being paid back through monthly payments of $ 12,485 .

The note payable term is 24 monthly payments ending on March 25, 2027 .

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

On June 4, 2025, the Company obtained an unsecured note payable in the amount of $ 250,000 from a lending company.

The note payable is being paid back through weekly payments of $ 5,366 .

The term of the note is 56 weeks ending on July 3, 2026 .

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

STOCKHOLDERS’ EQUITY.

At June 30, 2025, 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.

As of October 14, 2025, the Company will expire the 2015 Plan and any unissued stock options will be terminated.

Under the 2015 Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company’s common stock.

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Option Activity

Weighted Average

Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Contractual Term

Outstanding at June 30, 2023

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Forfeited or expired

Outstanding at June 30, 2024

Exercisable at June 30, 2024

Options Outstanding as of June 30, 2025

Options Exercisable as of June 30, 2025

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 $ 0.05 , $ 0.08 , and $ 0.10 at June 30, 2025, 2024 and 2023, respectively.

STOCKHOLDERS’ EQUITY (continued)

The range of fair value assumptions related to options granted during the years ended June 30, 2025 and 2024 were as follows:

Exercise Price:

$ 0.04 -$ 0.08

Risk Free Rate:

4.01 %- 4.38 %

4.23 %- 4.38 %

Vesting Period:

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Dividend Rate:

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 .

There were 250,000 stock options granted during the year ended June 30, 2025 and 400,000 stock options granted during the year ended June 30, 2024.

During the year ended June 30, 2025, 300,000 stock options were exercised;

during the year ended June 30, 2025 the Company’s proceeds from stock options exercise under the 2015 Plan were $ 0 .

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

During fiscal year 2025 and fiscal year 2024 the Company issued 286,385 and zero shares of common stock respectively for stock option exercises under 2015 Equity Incentive Plan.

The following table summarizes the weighted average characteristics of outstanding stock options as of June 30, 2025:

Outstanding Options

Exercisable Options

Exercise Prices

Number of Shares

Remaining Life (Years)

Weighted Average Price

Options Number of Shares

Weighted Average Price

$0.04 to $0.10

$0.15 to $0.20

Total stock options

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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.

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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, 2025 and 2024 is based on awards ultimately expected to vest.

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Treasury yield curve rates at the date of grant corresponding to the expected life of the stock option.

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.

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

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

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The Company’s authorized common stock was 175,000,000 shares at June 30, 2025 and 2024.

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

At June 30, 2024, the Company had reserved the following shares of common stock for issuance:

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

As of June 30, 2025, the Company had reserved the following shares of common stock for issuance:

June 30, 2025

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Total shares of common stock equivalents

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 $ 0.0001 per share, of which 4,300,000 shares have been designated and issued as Series A Convertible Preferred Stock.

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

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

Each share of Series A Convertible Preferred Stock is convertible into one share of common stock and has a liquidation preference of $ 0.2325 ($ 1,000,000 in the aggregate).

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

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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.

INCOME TAXES.

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

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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, 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;

As of June 30, 2025 and 2024, 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 the generation of future taxable income;

therefore, they were fully reserved.

The components of deferred tax assets and liabilities at June 30, 2025 and 2024 are approximately as follows:

(in thousands)

Deferred tax assets:

Inventory reserves

Allowance for doubtful accounts

Deferred income tax assets and liabilities:

Lease liability

Inventory reserve

Stock based compensation

Net operating loss carry-forwards

Net operating loss carryforward

Total gross deferred tax assets

Valuation allowance

Book to tax depreciation difference - Liability

Net deferred tax asset (liability)

Less valuation allowance

Deferred tax liability - fixed assets

Deferred tax liability – Right of Use Asset

Net deferred tax 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:

federal and state income tax rates of 25.75 % to pretax loss from operations for the years ended June 30, 2025 and 2024 due to the following:

Income taxes at federal rate

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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.

As of June 30, 2025, the Company had net operating loss (NOL) carryforwards of approximately $ 4.4 million that may be offset against future taxable income.

During 2025 and 2024, the total change in the valuation allowance was approximately $ 91,000 and $ 376,000 , respectively.

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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.

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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.

Therefore, the Company has accrued $ 38,000 for estimated penalties and interest as of June 30, 2025 and 2024.

The Company has continued to work with the IRS to resolve this matter.

All requested documentation has been submitted to the IRS for review.

As of October 14, 2025, no resolution has been reached by the IRS.

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.

Therefore, the Company has accrued $ 6,000 for estimated penalties and interest as of June 30, 2025 and 2024.

The Company has continued to work with the Georgia Department of Revenue and Tax to resolve this matter.

All requested documentation has been submitted to for review.

As of October 14, 2025, no resolution has been reached.

– SUBSEQUENT EVENTS

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.

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

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