Luvu Brands, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS LUVU BRANDS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, June 30, 2025 2025 (unaudited) Assets: (in thousands, except share data) Current assets: Cash and cash equivalents $ 1,086 $ 735 Accounts receivable, net of allowance for doubtful accounts and allowance for discounts and returns of $ 18 on December 31 2025 and $ 35 on June 30, 2025 1,483 1,600 Inventories, net of allowance for inventory reserve of $ 232 on December 31, 2025 and $ 232 on June 30, 2025 3,352 3,585 Other current assets 106 108 Total current assets 6,027 6,028 Equipment, property and leasehold improvements, net 1,368 1,476 Finance lease assets, net 77 104 Operating lease assets 3,584 1,057 Other assets 85 96 Total assets $ 11,141 $ 8,761 Liabilities and stockholders’ equity: Current liabilities: Accounts payable $ 1,696 $ 1,858 Current debt 1,923 1,949 Other accrued liabilities 657 553 Operating lease liability 595 646 Total current liabilities 4,871 5,006 Noncurrent liabilities: Deferred Tax Liability 932 119 Long-term debt 766 704 Long-term operating lease liability 3,033 514 Total noncurrent liabilities 4,731 1,337 Total liabilities 9,602 6,343 Commitments and contingencies (See Note 13) — — 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 December 31, 2025 and June 30, 2025 — — Common stock, $ 0.01 par value, 175,000,000 shares authorized, 76,834,057 and 76,834,057 shares issued and outstanding as of December 31, 2025 and June 30, 2025, respectively 766 766 Additional paid-in capital 6,307 6,289 Accumulated deficit ( 5,534 ) ( 4,637 ) Total stockholders’ equity 1,539 2,418 Total liabilities and stockholders’ equity $ 11,141 $ 8,761 See accompanying notes to unaudited consolidated financial statements. 4 Table of Contents LUVU BRANDS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Three Months Ended Six Months Ended December 31, December 31, 2025 2024 2025 2024 (in thousands, except share data) (in thousands, except share data) Net Sales $ 6,882 $ 7,186 $ 12,723 $ 12,941 Cost of goods sold (excluding depreciation expense presented below) 5,084 5,204 9,269 9,444 Gross profit 1,798 1,982 3,454 3,497 Operating expenses: Advertising and promotion 255 247 505 478 Other selling and marketing 457 437 878 851 General and administrative 805 899 1,719 1,783 Depreciation 97 108 184 217 Total operating expenses 1,614 1,691 3,286 3,329 Operating income 184 291 168 168 Other income (expense): Interest expense and financing costs ( 136 ) ( 98 ) ( 252 ) ( 186 ) Total other expense ( 136 ) ( 98 ) ( 252 ) ( 186 ) Income (Loss) from operations before income taxes 48 193 ( 175 ) ( 18 ) Provision for income taxes ( 813 ) 0 ( 813 ) 0 Net loss $ ( 765 ) $ 193 $ ( 897 ) $ ( 18 ) Net loss per share: Basic $ ( 0.01 ) $ 0.00 $ ( 0.01 ) $ ( 0.00 ) Diluted $ ( 0.01 ) $ 0.00 $ ( 0.01 ) $ ( 0.00 ) Shares used in calculation of net (loss) income per share: Basic 76,834,057 76,834,057 76,834,057 76,834,057 Diluted 76,834,057 76,834,057 76,834,057 76,834,057 See accompanying notes to unaudited consolidated financial statements. 5 Table of Contents Luvu Brands, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity For the Three and Six Months ended December 31, 2025 and December 31, 2024 (unaudited) For the three months ended December 31, 2024 and December 31, 2025 (unaudited) Series A Preferred Stock Common Stock Additional Paid- Accumulated Total Stockholders' Equity Shares Amount Shares Amount in Capital Deficit (Deficit) (in thousands, except share data) Ending balance, September 30, 2024 4,300,000 $ 0 76,834,057 $ 766 $ 6,261 ($ 4,398 ) $ 2,628 Stock-based compensation expense - - - - 9 - 9 Stock option exercises - - - - - - - Net income - - - - - 193 193 Ending balance, December 31, 2024 4,300,000 $ 0 76,834,057 $ 766 $ 6,270 ($ 4,205 ) $ 2,830 Ending balance, September 30, 2025 4,300,000 $ 0 76,834,057 $ 766 $ 6,298 ($ 4,769 ) $ 2,295 Stock-based compensation expense - - - - $ 9 - 9 Stock option exercises - - - - - - - Net income - - - - - ( 765 ) ( 765 ) Ending balance, December 31, 2025 4,300,000 $ 0 76,834,057 $ 766 $ 6,307 ($ 5,534 ) $ 1,539 For the six months ended December 31, 2024 and December 31, 2025 (unaudited) Series A Preferred Stock Common Stock Additional Paid- Accumulated Total Stockholders' Equity Shares Amount Shares Amount in Capital Deficit (Deficit) (in thousands, except share data) Ending balance, June 30, 2024 4,300,000 $ 0 76,547,672 $ 765 $ 6,253 ($ 4,188 ) $ 2,830 Stock-based compensation expense - - - - 17 - 17 Stock option exercises - - 286,385 1 - - - Net income - - - - - ( 17 ) ( 17 ) Ending balance, December 31, 2024 4,300,000 $ 0 76,834,057 766 $ 6,270 ($ 4,205 ) $ 2,830 Ending balance, June 30, 2025 4,300,000 $ 0 76,834,057 $ 766 $ 6,289 ($ 4,637 ) $ 2,418 Stock-based compensation expense - - - - $ 18 - 18 Stock option exercises - - - - - - - Net income - - - - - ( 897 ) ( 897 ) Ending balance, December 31, 2025 4,300,000 $ 0 76,834,057 $ 766 $ 6,307 ($ 5,534 ) $ 1,539 See accompanying notes to unaudited consolidated financial statements. 6 Table of Contents LUVU BRANDS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended December 31, 2025 2024 (in thousands) OPERATING ACTIVITIES: Net loss $ ( 897 ) $ ( 17 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 184 217 Deferred tax expense 813 0 Stock-based compensation expense 18 18 Loss on sale of fixed asset 0 7 Change in operating assets and liabilities: Accounts receivable 117 ( 550 ) Inventory 233 45 Operating lease liability ( 1,310 ) ( 260 ) Amortization of operating lease asset 1,253 248 Prepaid expenses and other current assets 2 2 Other Assets 11 - Accounts payable ( 162 ) 541 Other current liabilities 104 112 Net cash provided by operating activities $ 365 $ 363 INVESTING ACTIVITIES: Investment in equipment, software and leasehold improvements $ ( 49 ) $ ( 3 ) Net cash used in investing activities $ ( 49 ) $ ( 3 ) FINANCING ACTIVITIES: Borrowing under revolving line of credit $ 141 $ 160 Repayment of unsecured line of credit ( 3 ) ( 1 ) Proceeds from secured notes payable 250 - Repayment of secured notes payable ( 221 ) - Proceeds from equipment notes 49 - Payments on equipment notes ( 168 ) ( 187 ) Principal payments on capital leases ( 12 ) ( 11 ) Net cash used in financing activities $ 35 $ ( 39 ) Net increase in cash and cash equivalents 352 321 Cash and cash equivalents at beginning of period $ 735 $ 1,028 Cash and cash equivalents at end of period $ 1,086 $ 1,349 Supplemental Disclosure of Cash Flow Information: Non cash item: New operating lease liability $ 3,780 $ - Cash paid during the year for: Interest $ 210 $ 176 Income taxes - - See accompanying notes to unaudited consolidated financial statements. 7 Table of Contents NOTE 1. ORGANIZATION AND NATURE OF BUSINESS Luvu Brands, Inc. (the “Company” or “Luvu”) was incorporated in the State of Florida on February 25, 1999. References to the Company in these notes include the Company and its wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). 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: · 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 and social marketing. We have a diversified customer base with only one customer accounting for 37 % or more of consolidated net sales in the current and prior fiscal year and no particular concentration of credit risk in one customer type. The accompanying unaudited consolidated financial statements of the Company and all of its wholly-owned subsidiaries included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been or omitted pursuant to applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included. The year-end balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the three and six months ended December 31, 2025 are not necessarily indicative of the results to be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2025 as filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2025 (the “2025 10-K”). NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These consolidated financial statements include the accounts and operations of the Company’s wholly owned operating subsidiaries, OneUp and Foam Labs. Intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation. The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2025 10-K. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates in these consolidated financial statements include estimates of: income taxes; tax valuation reserves; allowances for doubtful accounts; inventory valuation and reserves; share-based compensation; and useful lives for depreciation and amortization. Actual results could differ materially from these estimates 8 Table of Contents Revenue Recognition The Company records revenue based on the five-step model which includes: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when the performance obligations are satisfied. Substantially all of the Company’s revenue is generated by fulfilling orders for the purchase of manufactured products and product purchased for resale to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders may be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which the Company is responsible under the terms and conditions of the order are not accounted for as performance obligations but as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the goods and are expensed when revenue is recognized. The impact of this policy election is insignificant as it aligns with the Company’s current practice. Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation. The Company has elected to exclude sales, use and similar taxes from the measurement of the transaction price. The impact of this policy election is insignificant, as it aligns with the Company’s current practice. The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, which includes costs for trade promotion programs, coupons, returns and early payment discounts. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company reviews and updates these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. 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 shipped from the distribution center, or in some cases, picked up from one of the Company’s distribution centers by the customer. Deferred Revenues Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. Deferred revenues primarily relate to gift cards purchased, but not used, prior to the end of the fiscal period. The Company’s total deferred revenue as of December 31, 2025 was $ 1,650 and was included in “Other accrued liabilities” on the Company’s consolidated balance sheets. The deferred revenue balance as of June 30, 2025 was $ 1,700 . Cost of Goods Sold Cost of goods sold includes raw materials, labor, manufacturing overhead, and royalty expense. Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Allowance for Doubtful Accounts The allowance for doubtful accounts reflects management's best estimate of probable credit losses inherent in the accounts receivable balance. 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, 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. The Company does not have any off-balance sheet credit exposure related to its customers. 9 Table of Contents The following is a summary of Accounts Receivable as of December 31, 2025 and June 30, 2025. December 31, 2025 June 30, 2025 (unaudited) (in thousands) Accounts receivable $ 1,501 $ 1,635 Allowance for doubtful accounts ( 18 ) ( 35 ) Allowance for discounts and returns - - Total accounts receivable, net $ 1,483 $ 1,600 The Company estimates expected credit losses on trade receivables and contract assets in accordance with ASC 326, Financial Instruments – Credit Losses . Effective July 1, 2025, the Company adopted Accounting Standards Update (ASU) 2025-05, Financial Instruments—Credit Losses (Topic 326): Practical Expedient and Accounting Policy Election for Estimating Expected Credit Losses , and elected the practical expedient permitted therein. Under this expedient, the Company assumes that current economic conditions as of the balance sheet date remain unchanged over the life of the financial assets. This approach simplifies the estimation of expected credit losses by removing the requirement to forecast future economic conditions for assets with contractual maturities of one year or less. As of December 31, 2025, the Company had net accounts receivable totaling $ 1.50 million. Based on historical loss experience and current conditions, the Company had an allowance for credit losses of $ 18,000 . The Company believes this estimate reasonably reflects expected losses given the short-term nature of the asset and the stability of current economic conditions. The Company will continue to monitor credit risk and adjust its allowance methodology as necessary. No significant changes to the allowance methodology were made during the quarter. Inventories and Inventory Reserves Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Net realizable value is defined as sales price less cost to dispose and a normal profit margin. Inventory costs include materials, labor, depreciation and overhead. The Company establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or net realizable value may be adjusted in response to changing conditions. Concentration of Credit Risk The Company maintains its cash accounts with banks located in Georgia. The Federal Deposit Insurance Corporation (“FDIC”) insures the total cash balances up to $ 250,000 per bank. On December 31, 2025, the Company had bank balances on deposit that exceeded the balance insured by the FDIC by $ 544,492 . Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe. During the three and six month period ended December 31, 2025, the Company purchased 22 % and 24 % of total inventory purchases from one vendor, respectively. During the three and six month period ended December 31, 2024, the Company purchased 20 % and 22 %of total inventory purchases from one vendor, respectively. As of December 31, 2025, three of the Company’s customers represent 44 %, 12 % and 6 % of the total accounts receivable. For the three and six months ended December 31, 2024, two customers represented 40 % and 12 % of the total accounts receivable. For the three and six months ended December 31, 2025 sales to and through Amazon accounted for 36 % and 37 %. For the three and six months ended December 31, 2024 sales to and through Amazon were 37 % and 39 %, respectively, of the Company’s net sales. 10 Table of Contents Fair Value of Financial Instruments At December 31, 2025 and June 30, 2025, the Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and other long-term debt. The fair values of these financial instruments approximated their carrying values based on either their short maturity or current terms for similar instruments. The Company measures the fair value of its assets and liabilities under the guidance of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement. ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows: Level 1 : Observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and Level 3 : Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities. The valuation techniques that may be used to measure fair value are as follows: A. Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. B. Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models, and excess earnings method. C. Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Advertising Costs Advertising costs are expensed in the period when the advertisements are first aired or distributed to the public. Prepaid advertising as of December 31, 2025 and June 30, 2025 was $ 0 and $ 0 . Advertising expense for the three months ended December 31, 2025, and December 31, 2024, was $ 255,420 and $ 247,057 , respectively. Research and Development Research and development expenses for new products are expensed as they are incurred. For the three months ended December 31, 2025 and 2024, expenses for new product development totaled $ 41,426 Dand $ 42,430 , respectively. Research and development costs are included in general and administrative expenses. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated service lives of 2 - 10 years for financial reporting purposes. 11 Table of Contents Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. When properties are disposed of, the related costs and accumulated depreciation are removed from the respective accounts, and any gain or loss is recognized currently. Impairment or Disposal of Long Lived Assets Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as required by Financial Accounting Standards Board (“ FASB”) ASC Topic No. 360, Property, Plant, and Equipment . The Company has determined that there was no impairment at December 31, 2025 and June 30, 2025. Operating Leases On November 7, 2025, the Company entered into an agreement with its landlord on a lease for its then current facilities for 56 months, beginning November 7, 2025. The lease includes four months of rent abatement totaling $ 333,000 beginning March 1, 2027. Under the lease, the monthly rent on the facility will be $ 58,053 with annual escalations of 3 % to February 2027 at $ 61,605 . From March 1, 2027, the rent monthly rent will increase to $83,250 with 3.5% annual increases with the final 4 months of the lease ending at $92,241. In addition, the Company will pay the landlord proportional share of project expenses and taxes estimated at $23,421 per month . The rent expense for the three and six months ended December 31, 2025 was $ 218,605 and $ 381,793 , respectively. The rent expense for the three and six months ended December 31, 2024 was $ 163,188 and $ 326,376 , respectively. Under ASC 842 Leases, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company elected not to recognize leases with a term less than one year on its balance sheet. Operating lease right-of-use (ROU) assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. 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. 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. See Note 12 for details. Segment Information As of December 31, 2025, the Company was comprised of two reportable segments: Direct to Consumer and Wholesale. The Company takes into account whether two or more operating segments can be aggregated together as one reportable segment, as well as the type of discrete financial information that is available and regularly reviewed by its Chief Operating Decision Maker (“CODM”). The CODM is the Company’s Chief Executive Officer. The CODM evaluates segment performance and determines how to allocate resources based on the Company’s key financial measure of adjusted operating income (“AOI”), a non-GAAP financial measure. The Company defines AOI as operating income excluding: (i) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets, (ii) amortization for capitalized costs, (iii) share-based compensation expense, and (iv) gains or losses on sales or dispositions of assets. 12 Table of Contents The CODM uses AOI for each segment predominantly throughout the annual budget and forecasting process. Additionally, the CODM considers year-over-year variances in AOI, at least quarterly, when making decisions about allocating operating and capital resources to each segment. Management believes AOI is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance, and evaluates management’s effectiveness with specific reference to these indicators. AOI should be viewed as a supplement to and not a substitute for operating (loss) income, net loss, cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating (loss) income, the most directly comparable GAAP financial measure, to AOI. Information as to the operations of the Company’s reportable segments is set forth below. Three Months Ended Three Months Ended December 31, 2025 December 31, 2024 (in thousands) Direct to Consumer Wholesale Corporate Total Direct to Consumer Wholesale Corporate Total Revenues $ 2,477 $ 4,404 $ 0 $ 6,882 $ 2,456 $ 4,730 $ 0 $ 7,186 Cost of Goods Sold 1,375 3,709 0 5,084 1,479 3,725 0 5,204 Other direct operating expenses (a) 317 330 0 647 301 315 0 616 Overhead expenses(b) 0 0 967 967 1,075 1,075 Operating (loss) income 785 365 ( 967 ) 184 676 689 ( 1,075 ) 290 Interest income 0 0 ( 1 ) ( 1 ) 0 0 ( 1 ) ( 1 ) Interest expense 0 0 134 134 0 0 92 92 Other expense, net 0 0 0 0 0 0 7 7 Loss from operations before income taxes 785 365 ( 1,100 ) 51 676 689 ( 1,172 ) 193 Reconciliation of operating (loss) income to adjusted operating income: Operating (loss) income 785 365 ( 967 ) 184 676 689 ( 1,075 ) 290 Adjustments: Share-based compensation expense 0 0 8 8 0 0 9 9 Depreciation and amortization 0 0 97 97 0 0 108 108 Adjusted operating income $ 785 $ 365 ($ 862 ) $ 289 $ 676 $ 689 ($ 958 ) $ 407 13 Table of Contents Six Months Ended Six Months Ended December 31, 2025 December 31, 2024 (in thousands) Direct to Consumer Wholesale Corporate Total Direct to Consumer Wholesale Corporate Total Revenues $ 4,361 $ 8,362 $ 0 $ 12,723 $ 4,152 $ 8,790 $ 0 $ 12,941 Cost of Goods Sold 2,425 6,844 0 9,269 2,606 6,838 0 9,444 Other direct operating expenses (a) 592 644 0 1,237 598 599 0 1,196 Overhead expenses(b) 0 0 3,284 2,139 0 0 2,134 2,134 Operating (loss) income 1,344 874 ( 3,284 ) 78 947 1,354 ( 2,134 ) 167 Interest income 0 0 ( 2 ) ( 2 ) 0 0 ( 3 ) ( 3 ) Interest expense 0 0 254 254 0 0 181 181 Other expense, net 0 0 0 0 0 0 7 7 Loss from operations before income taxes 1,344 874 ( 3,537 ) ( 174 ) 947 1,354 ( 2,319 ) ( 18 ) Reconciliation of operating (loss) income to adjusted operating income: Operating (loss) income 1,344 874 ( 3,284 ) ( 1,067 ) 947 1,354 ( 2,134 ) 167 Adjustments: Share-based compensation expense 0 0 17 17 0 0 18 Depreciation and amortization 0 0 184 184 0 0 217 Adjusted operating income $ 1,344 $ 874 ($ 3,083 ) ($ 866 ) $ 947 $ 1,354 ($ 2,134 ) $ 403 (a) Other direct operating expenses are directly attributable to the business segment, such as marketing, salaries, customer relationship expenses, and travel and entertainment expenses. (b) Overhead expenses are all non-direct expenses related to the operation of the business segment. It includes G&A, unallocated marketing expenses, facilities, and product development. 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. The Company has adopted ASU 2023-07 regarding business segmentation reporting and ASU2023-09 and 2024-03. The Company has adopted ASU 2025-05 regarding practical expedient for expected credit loss. Net Income (Loss) Per Share In accordance with ASC 260, “Earnings Per Share”, basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (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 plus the effect of stock options using the treasury stock method. As of December 31, 2025 and 2024, the common stock equivalents did not have any effect on net income (loss) per share. 14 Table of Contents December 31, 2025 2024 Common stock options – 2015 Plan 1,200,000 1,150,000 Convertible preferred stock 4,300,000 4,300,000 Total 5,500,000 5,450,000 Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. The Company recognizes deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. The Company regularly assesses the likelihood that its deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset the Company’s deferred tax assets that will not be recoverable. The Company has recorded and continues to carry a full valuation allowance against its gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If the Company determines in the future that it is more likely than not that it will realize all or a portion of its deferred tax assets, the Company will adjust its valuation allowance in the period it makes the determination. The Company expects to provide a full valuation allowance on its future tax benefits until it can sustain a level of profitability that demonstrates the Company’s ability to realize these assets. During the three months ended December 31, 2025, the Company recognized $ 813,000 of income tax expense, which was primarily attributable to the tax effects associated with the new operating lease executed on November 7, 2025. The lease resulted in book‑to‑tax differences related to the recognition of the right‑of‑use asset and corresponding lease liability under ASC 842, giving rise to the tax expense recorded for the period. Stock Based Compensation The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. The Company measures the cost of each stock option and restricted stock award at its fair value on the grant date. Each award vests over the subsequent period during which the recipient is required to provide service in exchange for the award (the vesting period). The cost of each award is recognized as an expense in the financial statements over the respective vesting period. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS The Company follows FASB ASC 360, Property, Plant, and Equipment , regarding impairment of the Company’s other long-lived assets (property, plant and equipment). The Company’s policy is to assess the Company’s long-lived assets for impairment annually in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and is measured as the excess of its carrying value over its fair value. The carrying amount of a long-lived asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of a long-lived asset. Assets to be disposed of and related liabilities would be separately presented in the consolidated balance sheet. Assets to be disposed of would be reported at the lower of the carrying value or fair value less costs to sell and would not be depreciated. There was no impairment as of December 31, 2025 or June 30, 2025. NOTE 4. INVENTORIES, NET Inventories are stated at the lower of cost (which approximates first-in, first-out) or net realizable value. Net realizable value is defined as sales price less cost to dispose and a normal profit margin. Inventories consisted of the following: December 31, 2025 June 30, 2025 (unaudited) (in thousands) Raw materials $ 1,315 $ 1,407 Work in process 501 366 Finished goods 1,768 2,044 Total inventories 3,584 3,817 Allowance for inventory reserves ( 232 ) ( 232 ) Total inventories, net of allowance $ 3,352 $ 3,585 15 Table of Contents NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment, property and leasehold improvements at December 31, 2025 and June 30, 2025 consisted of the following: December 31, 2025 June 30, 2025 Estimated Useful Life (unaudited) (in thousands) Factory equipment $ 4,450 $ 4,465 2 - 10 years Computer equipment and software 828 764 5 - 7 years Office equipment and furniture 181 181 5 - 7 years Leasehold improvements 475 475 6 years Subtotal 5,934 5,885 Accumulated depreciation ( 4,489 ) ( 4,305 ) Equipment and leasehold improvements, net $ 1,445 $ 1,580 Depreciation expense was $ 96,616 and $ 108,243 , respectively, for the three months ended December 31, 2025 and 2024 and for six months ended December 31, 2025 and 2024 depreciation expense was $ 183,941 and $ 217,464 respectively Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset’s fair value. Management has determined no asset impairment occurred during the three months and six months ended December 31, 2025 and 2024. NOTE 6. OTHER ACCRUED LIABILITIES Other accrued liabilities at December 31, 2025 and June 30, 2025: December 31, 2025 June 30, 2025 (unaudited) (in thousands) Accrued compensation $ 445 $ 383 Accrued expenses and interest 211 170 Other accrued liabilities $ 656 $ 553 16 Table of Contents NOTE 7. CURRENT AND LONG-TERM DEBT SUMMARY Current and long-term debt at December 31, 2025 and June 30, 2025 consisted of the following: December 31, 2025 June 30, 2025 (unaudited) Current debt: (in thousands) Line of credit (Note 10) $ 1,237 $ 1,096 Unsecured notes payable (Note 8) - 200 Secured notes payable (Note 8A) 456 344 Current portion of equipment notes payable (Note 12) 210 286 Current portion of finance leases payable (Note 12) 20 23 Total current debt $ 1,923 $ 1,949 Long-term debt: Unsecured notes payable (Note 8) $ 400 $ 200 Secured notes payable (Note 8A) 25 109 Finance leases payable (Note 12) 58 66 Equipment notes payable (Note 12) 105 159 Unsecured lines of credit (Note 11) 57 52 Notes payable – related party (Note 9) 120 116 Total long-term debt $ 765 $ 702 NOTE 8. UNSECURED NOTES PAYABLE Unsecured notes payable at December 31, 2025 and June 30, 2025 consisted of the following: December 31, June 30, 2025 2025 (unaudited) Current debt: 13.5% Unsecured note, interest only, due July 31, 2025(3) $ - $ 100 13.5% Unsecured note, interest only, due October 31, 2025(1) - 100 Total current debt $ - $ 200 Long-term debt: 13.5% Unsecured note, interest only, due July 31, 2027 (3) $ 100 $ - 13.5% Unsecured note, interest only, due October 31, 2027 (1) 100 - 13.5% Unsecured note, interest only, due April 30, 2027 (2) 200 200 Total long-term debt $ 400 $ 200 Total unsecured notes payable $ 400 $ 400 17 Table of Contents (1) Unsecured note payable for $ 100,000 to a third-party with interest payable monthly at 20 %, principal originally due in full on October 31, 2014, extended to October 31, 2019, then extended to October 31, 2021 . 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, 2024. This note was extended in full on October 31, 2024 with the same lender with interest payable monthly at 13.5%, principal due in full on October 31, 2025. On October 28, 2025, this note was extended in full with the same lender with interest payable monthly at 13.5%, principal is due in full on October 31, 2027 . Personally guaranteed by Louis Friedman, the Company’s CEO and principal shareholder. (2) Unsecured note payable for $ 200,000 to a third-party 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, 2024. This note was extended in full on April 30, 2024 with the same lender with interest payable monthly at 13.5%, principal due in full on May 1, 2025. This note was again extended in full on May 1, 2025 with the same lender with interest payable monthly at 13.5%, principal due April 30, 2027 . Personally guaranteed by Louis Friedman, the Company’s CEO and principal shareholder. (3) Unsecured note payable for $ 100,000 to an individual with interest payable monthly at 20 %, principal originally due in full on July 31, 2013, extended to July 31, 2019, then extended to July 31, 2021 . 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, 2024. This note was extended in full on July 30, 2024 with the same lender with interest payable monthly at 13.5%, principal due in full on July 31, 2025. On August 20, 2025, this note was extended with the same lender with interest payable monthly at 13.5%, principal due in full on July 31, 2027 . Personally guaranteed by the Company’s CEO and principal shareholder. NOTE 8A. SECURED NOTES PAYABLE Secured notes payable at December 31, 2025 and June 30, 2025 consisted of the following: December 31, 2025 June 30, 2025 (unaudited) (in thousands) Secured notes payable to third party, with 18% interest, due February 1, 2027 (1) 132 121 Secured notes payable to third party, with 19.2% interest, due July 3, 2026 (2) 128 223 Secured notes payable to third party, with 19.2% interest, due October 23, 2026 (3) 196 - Total current secured notes payable $ 456 $ 344 Secured notes payable to third party, with 18% interest, due February 1, 2027 (1) 25 93 Secured notes payable to third party, with 19.2% interest, due July 3, 2026 (2) - 16 Secured notes payable to third party, with 19.2% interest, due October 23, 2026 (3) - - Total long-term secured notes payable $ 25 $ 109 Total secured notes payable $ 481 $ 453 (1) On March 25 2025, the Company entered into a secured note payable in the amount of $ 250,000 with a monthly payment of $ 12,485 with 24 -months term at an imputed monthly interest rate of 1.5 %. (2) On June 4, 2025, the Company entered into a secured note payable in the amount of $ 250,000 with a lender. The note is paid back on a weekly basis in the amount of $ 5,366 for fifty six payments concluding on July 3, 2026 . The note is personally guaranteed by the Company’s CEO and principal shareholder. (3) On September 26, 2025, the Company entered into a secured note payable in the amount of $ 250,000 with a lender. The note is paid back on a weekly basis in the amount of $ 5,366 for fifty six payments concluding on October 23, 2026 . The note is personally guaranteed by the Company’s CEO and principal shareholder. 18 Table of Contents NOTE 9. NOTES PAYABLE - RELATED PARTY Related party notes payable at December 31, 2025 and June 30, 2025 consisted of the following: December 31, 2025 June 30, 2025 (unaudited) (in thousands) Unsecured note payable to an officer, with interest at 7.25%, due on July 1, 2027 $ 40 $ 40 Unsecured note payable to an officer, with interest at 7.25%, due on July 1, 2027 76 76 Total unsecured notes payable 116 116 Less: current portion - - Long-term unsecured notes payable $ 116 $ 116 NOTE 10. LINE OF CREDIT The Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs, has entered into a credit facility with a finance company, Advance Financial Corporation dated May 24, 2011, as amended, to provide it with an asset based line of credit of up to $ 1,200,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital and includes an Inventory Advance (as defined in the agreement) of up to the lesser of $ 500,000 or 125 % of the eligible accounts receivable loan. The term of the agreement was one year, renewable for additional one-year terms unless either party provides written notice of non-renewal at least 90 days prior to the end of the current financing period. The credit facility is secured by the Company’s accounts receivable and other rights to payment, general intangibles, inventory and equipment, and are subject to eligibility requirements for current accounts receivable. Advances under the agreement are currently charged interest at a rate of prime rate plus 2 % over the lenders Index Rate. In addition, there is a Monthly Service Fee (as defined in the agreement) of currently 0.05 % per month. The Company’s CEO and principal shareholder, Louis Friedman, has personally guaranteed the repayment of the facility. In addition, the Company has provided its corporate guarantee of the credit facility (see Note 13). On December 31, 2025 and June 30, 2025, the balance owed under this line of credit was $ 1,237,002 and $ 1,096,403 . As of December 31, 2025, the Company was current and in compliance with all terms and conditions of this line of credit. Management believes cash flows generated from operations, along with current cash and investments as well as borrowing capacity under the line of credit should be sufficient to finance capital requirements required by operations. If new business opportunities do arise, additional outside funding may be required. NOTE 11. UNSECURED LINE OF CREDIT The Company has drawn a cash advance on one unsecured line of credit that is in the name of the Company and Louis Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 12 % as of December 31, 2025 and was 13.2 % as of June 30, 2025. The aggregate amount owed on the unsecured line of credit was $ 49,250 at December 31, 2025 and $ 52,144 at June 30, 2025. 19 Table of Contents NOTE 12. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases its facilities under a non-cancelable operating lease, which now expires June 30, 2030. Right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities for the lease renewal were recognized at the inception date of November 7, 2025, based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available. At December 31, 2025, the weighted average remaining lease term for the lease renewal is 4.5 years, and the weighted average discount rate is 3.7 %. In addition to the rent payment, the Company pays a proportionate share of operating costs, taxes, and insurance costs. The cost for these additional rent expenses for the three and six months ending December 31, 2025 and 2024 were $ 72,623 and $ 143,829 , $52,992 and $ 105,983 , respectively. Supplemental balance sheet information related to leases as of December 31, 2025 is as follows: Operating leases Balance Sheet Classification (in thousands) Right-of-use assets Operating lease right-of-use assets, net $ 3,584 Current lease liabilities Operating lease liabilities $ 595 Non-current lease liabilities Long-term operating lease liabilities 3,033 Total lease liabilities $ 3,628 Maturities of lease liabilities at December 31, 2025 are as follows: Payments (in thousands) 2026 $ 718 2027 623 2028 1,028 2029 1,064 2030 547 Total undiscounted lease payment $ 3,979 Less: Present value discount ( 351 ) Total lease liability balance $ 3,628 Equipment Notes Payable The Company has acquired equipment under the provisions of long-term equipment notes. For financial reporting purposes, minimum note payments relating to the equipment have been capitalized. The equipment acquired with these equipment notes have a total cost of $ 1,725,849 . 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 5.9 % to 13.2 %. 20 Table of Contents The following is an analysis of the minimum future equipment note payable payments subsequent to December 31, 2025: Years ending December 31, (in thousands) 2026 $ 210 2027 94 2028 26 Future Minimum Note Payable Payments $ 330 Less Current Portion ( 210 ) Long-Term Obligations under Equipment Notes Payable $ 120 Finance Leases Payable The Company has lease obligations for equipment under the provisions of long-term finance leases. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The equipment acquired with these leases has a total cost of approximately $ 126,782 These assets are included in the finance lease and include production equipment. On January 5, 2022, the Company entered into finance lease agreement in the amount of $ 22,862 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 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 in the amount of $ 39,972 with monthly payments of $ 807 with 60 -month term at an imputed rate of 7.80 %. At December 31, 2025, the weighted average remaining lease term is 3.4 years, and the weighted average discount rate is 8.5 % The following is an analysis of the minimum finance lease payable payments subsequent to December 31, 2025: Year ending December 30, (in thousands) 2026 28 2027 28 2028 28 2029 11 Future Minimum Finance Lease Payable Payments $ 93 Less Amount Representing Interest ( 16 ) Present Value of Minimum Finance Lease Payable Payments 77 Less Current Portion ( 20 ) Long-Term Obligations under Finance Lease Payable $ 58 Employment Agreements The Company has entered into an employment agreement with Louis Friedman, President and CEO of the Company. The agreement provides for an annual base salary of $ 160,000 and eligibility to receive a bonus. In certain termination situations, the Company is liable to pay severance compensation to Mr. Friedman for up to nine months at his current salary. On January 15, 2024, the Company, through OneUp, engaged Christopher 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. 21 Table of Contents Legal Proceedings As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to the Company or properties to which the Company is a party, and to the Company’s knowledge there are no material proceedings to which any of the Company’s directors, executive officers or affiliates are a party adverse to the Company or which have a material interest adverse to the Company. NOTE 13. 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 and principal shareholder in the amount of $ 76,000 (see Note 9). Interest on the note during the three and six months ended December 31, 2025 was accrued by the Company at the prevailing prime rate (currently 7.25 %) and totaled $ 1,325 and $ 2,746 and for the three and six months ending December 31, 2024 was accrued by the Company at the prevailing prime rate (currently 7.5 %) and totaled $ 1,500 and $ 3,128 . The accrued interest on the note as of December 31, 2025 and June 30, 2025, was $ 49,761 and $ 47,015 , respectively. This note is subordinate to all other credit facilities currently in place. On October 30, 2010, the Company’s CEO loaned the Company $ 40,000 (see Note 9). The Company accrued interest on the note during the three and six months ending December 31, 2025, at the prevailing prime rate (currently 6.75 %) and totaled $ 697 and $ 1,445 for the three and six months ending December 31, 2024 at the prevailing prime rate (currently 6.75%) and totaled $ 790 and $ 1,647 . The accrued interest on the note as of December 31, 2025, and June 30, 2025, was $ 12,080 Amand $ 10,634 , respectively. This note is subordinate to all other credit facilities currently in place. The Company’s CEO has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 10 – Line of Credit). In addition, Luvu Brands has provided its corporate guarantees of the credit facility. On December 31, 2025, the balance owed under this line of credit was $ 1,237,002 . On July 20, 2011, the Company issued an unsecured promissory note to an individual for $ 100,000 . Terms of the promissory note call for monthly interest payments of $ 1,667 (equal to interest at 20 % per annum), with the principal amount due in full on July 31, 2012; extended by the holder to July 31, 2021 under the same terms (see Note 8). 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, 2024. This note was extended on July 30, 2024 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. On October 31, 2013, the Company issued an unsecured promissory note to an individual for $ 100,000 . Terms of the promissory note call for monthly interest payments of $ 1,667 (equal to interest at 20 % per annum) beginning on November 30, 2013, with the principal amount due in full on or before October 31, 2014 extended by the holder to October 31, 2021 (see Note 8). 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, 2024. On October 1, 2024, this note was extended through October 31, 2025 at the same interest rate of 13.5%. On October 28, 2025, this note was extended in full with the same lender with interest payable monthly at 13.5 %, principal due in full on October 31, 2027 . Repayment of the promissory note is personally guaranteed by the Company’s CEO. On May 1, 2012, an individual loaned the Company $ 200,000 with an interest rate of 20 %. Interest on the loan is being paid monthly, with the principal due in full on May 1, 2013; then extended to May 1, 2021 (see Note 8). 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, 2024. This note was repaid in full on April 30, 2024 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 again extended in full on May 1, 2025 with the same lender with interest payable monthly at 13.5 %, principal due April 30, 2027 . Personally guaranteed by Louis Friedman, the Company’s CEO and principal shareholder. The Company has drawn a cash advance on one unsecured lines of credit that is in the name of the Company and Louis S. Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8 %. The aggregate amount owed on the unsecured line of credit was $ 49,250 at December 31, 2025 and $ 52,144 at June 30, 2025 (see Note 11). The loan is personally guaranteed by the Company’s CEO. 22 Table of Contents NOTE 14. STOCKHOLDERS’ EQUITY Options At December 31, 2025, the Company’s 2015 Stock Option Plan (the “2015 Plan”), which was shareholder-approved and under which 1,700,000 shares were reserved for issuance under the 2015 Plan terminated on August 31, 2025. The shares issued under the 2015 Plan will either be shares of the Company’s authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. The following table summarizes the Company’s stock option activities during the three months ended December 31, 2024 and 2025: Number of shares of underlying outstanding option Weighted Average Remaining Contract Life Weighted Average Exercise Price Intrinsic Value Option Outstanding as of June 30, 2024 1,350,000 3 .0 $ 0.12 $ 21,000 Granted 200,000 - 0.08 - Exercised ( 300,000 ) - 0.03 ( 15,000 ) Forfeited or expired ( 100,000 ) - 0.02 $ ( 6,000 ) Options Outstanding as of December 31. 2024 1,150,000 2.7 $ 0.14 $ - Option Outstanding as of June 30, 2025 1,200,000 2.3 $ 0.14 $ - Granted - - - - Exercised - - - - Forfeited or expired - - - - Options Outstanding as of December 31,2025 1,200,000 1.5 $ 0.14 $ - Options Exercisable as of December 31, 2025 851,042 1.5 $ 0.16 $ - The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price that 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 $ 0.04 for such day. There were no stock options exercised during the three months ended December 31, 2025 and 300,000 options exercised during the three and six months ended December 31, 2024. The 300,000 options exercised were a cashless exercise which resulted in a net exercise amount 286,385 stock options during the three and six months ended December 31, 2024. During the three and six months ending December 31, 2025, no options expired. There were no options that expired during the three and six months ending December 31, 2024. There were no stock options granted during the three and six months ended December 31, 2025. There were 200,000 stock options granted during the three months ended December 31, 2024. 23 Table of Contents The following table summarizes the weighted average characteristics of outstanding stock options as of December 31, 2025: Outstanding Options Exercisable Exercise Prices Number of Shares Remaining Life (Years) Weighted Average Price Options Number of Shares Weighted Average Price $0.02 to $0.03 - - - - - $0.04 to $0.10 450,000 3.5 $ 0.08 138,542 $ 0.08 $0.15 to $0.20 700,000 1.2 $ 0.16 662,500 $ 0.16 $0.30 50,000 0.6 $ 0.30 50,000 $ 0.30 Total stock options 1,200,000 2.0 $ 0.14 851,042 $ 0.16 Stock-based compensation The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation . The Company measures the cost of each stock option and at its fair value on the grant date. Each award vests over the subsequent period during which the recipient is required to provide service in exchange for the award (the vesting period). The cost of each award is recognized as an expense in the financial statements over the respective vesting period. Stock option-based compensation expense recognized in the consolidated statements of operations for the three and six months ended December 31, 2025 and 2024 is based on awards ultimately expected to vest and is reduced for estimated forfeitures. The following table summarizes stock option-based compensation expense by line item in the Consolidated Statements of Operations, all relating to the Plans: Three Months Six Months Ending December 31, Ending December 31, 2025 2024 2025 2024 ($ in thousands) ($ in thousands) Cost of Goods Sold $ 1 $ 1 $ 1 $ 2 Other Selling and Marketing 4 5 8 10 General and Administrative 4 3 9 6 Total Stock-based Compensation Expense $ 9 $ 9 $ 18 $ 18 As of December 31, 2025, the Company’s total unrecognized compensation cost was $ 29,208 which will be recognized over the weighted average vesting period of approximately twenty-four months. Warrants As of December 31, 2025 and 2024, there were no warrants outstanding. Common Stock The Company’s authorized common stock was 175,000,000 shares at December 31, 2025 and June 30, 2025. Common shareholders are entitled to dividends if and when declared Iby the Company’s Board of Directors, subject to preferred shareholder dividend rights. The Company does not intend to authorize any dividends at this time. At December 31, 2025, the Company had reserved the following shares of common stock for issuance: December 31, 2025 Shares of common stock reserved for issuance under the 2015 Plan 1,200,000 Shares of common stock issuable upon conversion of the Preferred Stock 4,300,000 Total shares of common stock equivalents 5,500,000 Preferred Stock On February 18, 2011, the Company filed an amendment to its Articles of Incorporation, effective February 9, 2011, authorizing the issuance of preferred stock and the Company now has 10,000,000 authorized shares of preferred stock, par value $.0001 per share, of which 4,300,000 shares have been designated and issued as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into one share of common stock and has a liquidation preference of $.2325 ($ 1,000,000 in the aggregate). Liquidation payments to the preferred holders have priority and are made in preference to any payments to the holders of common stock. In addition, each share of Series A Convertible Preferred Stock is entitled to the number of votes equal to the result of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01; divided by (ii) the total number of Series A Convertible Preferred Shares issued and outstanding at the time of such vote. 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. 24 Table of Contents