Luvu Brands, Inc 10-Q for FY2022 Q2

Luvu Brands, Inc. (LUVU)

10-Q 2022-02-18 For: 2021-12-31

Added on April 06, 2026

About this 10-Q

Luvu Brands, Inc filed this 10-Q on February 18, 2022, covering the quarter ended December 31, 2021 (FY2022 Q2).

Headline figures

Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $7.19M; up 25.8% from $5.71M a year earlier
Net income: $167K; down 88.6% from net income of $1.47M a year earlier
Diluted EPS: $0.00; compared with $0.02 a year earlier

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Florida		59-3581576
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2745 Bankers Industrial Drive, Atlanta, GA		30360
(Address of principal executive offices)		(Zip code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

		Page Number
PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets – At December 31, 2021 (unaudited) and June 30, 2021	4

	Condensed Consolidated Statements of Operations – For the Three and Six Months Ended December 31, 2021 and December 31, 2020 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity – For the Six Months Ended December 31, 2021 and December 31, 2020 (unaudited) For the Three Months Ended December 31, 2021 and December 31, 2020 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows – For the Six Months Ended December 31, 2021 and December 31, 2020 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	29

ITEM 4.	Controls and Procedures	29

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

ITEM 3.	Defaults Upon Senior Securities	30

ITEM 4.	Mine Safety Disclosures	30

ITEM 5.	Other Information	30

ITEM 6.	Exhibits	31

SIGNATURES		32

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	December 31,
	2021			June 30,
	(unaudited)			2021
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	1,081		$	977
Accounts receivable, net		920			1,134
Inventories, net		3,456			3,391
Prepaid expenses		168			145
Total current assets		5,625			5,647

Equipment, property and leasehold improvements, net		1,863			1,934
Finance lease assets		23			27
Operating lease assets		2,409			2,554
Other assets		100			84
Total assets	$	10,020		$	10,246

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	2,597		$	2,669
Current debt		1,361			1,599
Other accrued liabilities		528			694
Operating lease liability		290			250
Total current liabilities		4,776			5,212

Noncurrent liabilities:
Long-term debt		1,258			1,288
Long-term operating lease liability		2,256			2,423
Total noncurrent liabilities		3,514			3,711
Total liabilities		8,290			8,923
Commitments and contingencies (See Note 15)		-			-
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 at December 31, 2021 and June 30, 2021		-			-
Common stock, $0.01 par value, 175,000,000 shares authorized, 75,260,433 and 75,037,890 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively		752			750
Additional paid-in capital		6,177			6,166
Accumulated deficit		(5,199	)		(5,593	)
Total stockholders’ equity		1,730			1,323
Total liabilities and stockholders’ equity	$	10,020		$	10,246

	Three Months Ended December 31,						Six Months Ended December 31,
	2021			2020			2021			2020
	(in thousands, except share data)
Net Sales	$	7,186		$	5,714		$	13,411		$	11,081
Cost of goods sold		5,609			4,148			10,335			8,027
Gross profit		1,577			1,566			3,076			3,054
Operating expenses
Advertising and promotion		155			120			287			189
Other selling and marketing		321			270			581			537
General and administrative		772			668			1,485			1,332
Depreciation and amortization		78			51			149			103
Total operating expenses		1,326			1,109			2,502			2,161
Income from operations		251			457			574			893
Other Income (Expense):
Gain on forgiveness of SBA loan		-			1,096			-			1,096
Interest expense and financing costs		(84	)		(88	)		(180	)		(195	)
Total Other Income (Expense)		(84	)		1,008			(180	)		901
Income before income taxes		167			1,465			394			1,794
Provision for income taxes		-			-			-			-
Net income	$	167		$	1,465		$	394		$	1,794
Net income per share:
Basic	$	0.00		$	0.02		$	0.01		$	0.02
Diluted	$	0.00		$	0.02		$	0.01		$	0.02

Shares used in computing net income per share:
Basic		75,139,516			73,682,551			75,088,425			73,567,574
Diluted		76,613,472			74,050,847			76,594,991			74,550,249

	Series A Preferred								Additional					Total Stockholders’
	Stock				Common Stock				Paid-in		Accumulated			Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)
	(in thousands, except share data)

Balance, June 30, 2020 (unaudited)		4,300,000	$	-		73,452,596	$	735	$	6,147	$	(8,156	)	$	(1,274	)
Stock-based compensation expense										8		-			8
Stock option exercises		-		-		1,585,294		15		4		-			19
Net income for the six months ended December 31, 2020										-		1,794			1,794
Balance, December 31, 2020 (unaudited)		4,300,000	$	-		75,037,890	$	750	$	6,159	$	(6,362	)	$	547

Balance, June 30, 2021 (unaudited)		4,300,000	$	-		75,037,890	$	750	$	6,166	$	(5,593	)	$	1,323
Stock-based compensation expense										10		-			10
Stock option exercises		-		-		222,543		2		1		-			3
Net income for the six months ended December 31, 2021										-		394			394
Balance, December 31, 2021 (unaudited)		4,300,000	$	-		75,260,433	$	752	$	6,177	$	(5,199	)	$	1,730

	Six Months Ended
	December 31,
	2021			2020
OPERATING ACTIVITIES:	(in thousands)
Net income	$	394		$	1,794
Adjustments to reconcile net income to net cash provided by operating activities:
Forgiveness of SBA Loan		-			(1,096	)
Depreciation and amortization		149			103
Stock based compensation expense		10			8
Provision for bad debt		1			1
Amortization of operating lease asset		144			164
Changes in operating assets and liabilities:
Accounts receivable		213			219
Inventories		(65	)		(505	)
Prepaid expenses and other assets		(38	)		(39	)
Accounts payable		(71	)		90
Accrued compensation		(204	)		(190	)
Accrued expenses and interest		39			46
Operating lease liability		(128	)		(199	)
Net cash provided by operating activities		444			396

INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(46	)		(81	)
Net cash used in investing activities		(46	)		(81	)

FINANCING ACTIVITIES:
Repayment of unsecured notes payable		(200	)		(239	)
Proceeds from unsecured notes payable		200			-
Net cash provided by (repaid to) line of credit		(49	)		63
Repayment of credit card advance		-			(56	)
Repayments of secured notes payable		(117	)		(151	)
Repayment of unsecured line of credit		(6	)		(5	)
Proceeds from exercise of stock options		3			9
Payments on equipment notes		(121	)		(69	)
Principal payments on leases payable		(4	)		(4	)
Net cash used in financing activities		(294	)		(452	)
Net increase (decrease) in cash and cash equivalents		104			(137	)
Cash and cash equivalents at beginning of period		977			1,152
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,081		$	1,015

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash item:
Purchases of equipment with equipment notes	$	28		$	357
Finance lease asset obligation in exchange for lease payable	$	-		$	35
Accrued interest converted for exercise of options	$	-		$	10
Operating lease asset obtained in exchange for operating lease liability	$	-		$	2,684
Cash paid during the period for:
Interest	$	179		$	193
Income taxes	$	-		$	-

	December 31, 2021			June 30, 2021
	(unaudited)
	(in thousands)
Accounts receivable	$	956		$	1,189
Allowance for doubtful accounts		(1	)		(1	)
Allowance for discounts and returns		(35	)		(54	)
Total accounts receivable, net	$	920		$	1,134

	Six Months Ended December 31, 2021		Six Months Ended December 31, 2020		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	3,921	$	3,367		16	%
Wholesale	$	9,143	$	7,454		23	%
Other	$	347	$	260		33	%
Total Net Sales	$	13,411	$	11,081		21	%

	Three Months Ended December 31, 2021		Three Months Ended December 31, 2020		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	2,174	$	1,910		14	%
Wholesale	$	4,827	$	3,670		32	%
Other	$	185	$	134		38	%
Total Net Sales	$	7,186	$	5,714		26	%

	Three Months Ended December 31, 2021			Margin %			Three Months Ended December 31, 2020			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	990			46	%	$	940			49	%		5	%
Wholesale	$	987			20	%	$	967			26	%		2	%
Other	$	(400	)		—	%	$	(341	)		—	%		(17	)%
Total Gross Profit	$	1,577			22	%	$	1,566			27	%		1	%

	Six Months Ended December 31, 2021			Margin %			Six Months Ended December 31, 2020			Margin%			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	1,815			46	%	$	1,700			50	%		7	%
Wholesale	$	1,963			21	%	$	1,949			26	%		1	%
Other	$	(702	)		(202	)%	$	(595	)		(228	)%		(18	)%
Total Gross Profit	$	3,076			23	%	$	3,054			28	%		1	%

	December 31, 2021			June 30, 2021
	(unaudited)
	(in thousands)
Raw materials	$	1,833		$	1,637
Work in process		425			396
Finished goods		1,371			1,531
Total inventories		3,629			3,564
Allowance for inventory reserves		(173	)		(173	)
Total inventories, net of allowance	$	3,456		$	3,391

	December 31, 2021			June 30, 2021			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	3,837		$	3,567		2-10 years
Computer equipment and software		1,166			1,146		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		10			222
Subtotal		5,698			5,620
Accumulated depreciation		(3,835	)		(3,686	)
Equipment and leasehold improvements, net	$	1,863		$	1,934

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	2,409

Current lease liabilities	Operating lease liabilities	$	290
Non-current lease liabilities	Long-term operating lease liabilities		2,256
Total lease liabilities		$	2,546

Payments	(in thousands)
2022	$	312
2023		642
2024		680
2025		721
2026 and thereafter		1,290
Total undiscounted lease payments		3,645
Less: Present value discount		(1,099	)
Total lease liability balance	$	2,546

Years ending June 30,	*(in thousands)*
2022	$	163
2023		311
2024		290
2025		245
2026		127
Future Minimum Note Payable Payments		1,136
Less Amount Representing Interest		(156	)
Present Value of Minimum Note Payable Payments		980
Less Current Portion		(252	)
Long-Term Obligations under Equipment Notes Payable	$	728

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2021		2,500,000			1.9	$	.04	$	974,300
Granted		50,000			4.6	$	.30		̶
Exercised		(250,000	)			$	.04		̶
Forfeited or expired		(150,000	)		3.1	$	.03		̶
Options outstanding as of December 31, 2021		2,150,000			1.4	$	.05	$	565,200
Options exercisable as of December 31, 2021		1,625,000			.75	$	.03	$	456,300

	Six Months Ended December 31, 2021	Six Months Ended December 31, 2020
Exercise Price:	$.30	$.15 - $.17
Volatility:	500%	469% - 470%
Risk Free Rate:	.65%	.25%
Vesting Period:	4 years	4 years
Forfeiture Rate:	0%	0%
Expected Life	4.1 years	4.1 years
Dividend Rate	0%	0%

	Outstanding Options						Exercisable Options
Exercise Prices	Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$ .028 to $.03		1,850,000		1.0	$	.03		1,625,000	$	.03
$.05		50,000		1.5	$	.05		–	$	–
$ .13 to $.17		200,000		4.5	$	.15		–	$	–
$.30		50,000		4.6	$	.30		–		–
Total stock options		2,150,000		1.4	$	.05		1,625,000	$	.03

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021		2020
	($ in thousands)
Cost of Goods Sold	$	1	$	-	$	1	$	-
Other Selling and Marketing		2		1		4		2
General and Administrative		3		1		5		6
Total Stock-based Compensation Expense	$	6	$	2	$	10	$	8

	December 31,
	2021
Shares of common stock reserved for issuance under the 2015 Plan		3,150,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000

	Three Months Ended
	(unaudited)
	December 31, 2021			December 31, 2020
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		78.0	%		72.6	%
Gross Margin		22.0	%		27.4	%
Operating Expenses		18.5	%		19.4	%
Income from operations		3.5	%		8.0	%

	Six Months Ended
	(unaudited)
	December 31, 2021			December 31, 2020
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		77.1	%		72.4	%
Gross Margin		22.9	%		27.6	%
Operating Expenses		18.7	%		19.5	%
Income from operations		4.2	%		8.1	%

	Three Months Ended (unaudited)
(Dollars in thousands)	December 31, 2021				December 31, 2020
Net Sales:
Liberator	$	3,256	45	%	$	2,457	43	%
Jaxx		2,346	33	%		1,713	30	%
Avana		787	11	%		833	15	%
Products purchased for resale		489	7	%		458	8	%
Other		308	4	%		253	4	%
Total Net Sales	$	7,186	100	%	$	5,714	100	%

	Six Months Ended (unaudited)
(Dollars in thousands)	December 31, 2021				December 31, 2020
Net Sales:
Liberator	$	5,997	45	%	$	4,470	41	%
Jaxx		4,226	32	%		3,427	31	%
Avana		1,531	11	%		1,793	16	%
Products purchased for resale		918	7	%		795	7	%
Other		739	5	%		596	5	%
Total Net Sales	$	13,411	100	%	$	11,081	100	%

	Six Months Ended
	December 31,
(Dollars in thousands)	2021			2020
	(Unaudited)
Cash flow data:
Cash provided by operating activities	$	444		$	396
Cash used in investing activities	$	(46	)	$	(81	)
Cash used in financing activities	$	(294	)	$	(452	)

(Dollars in thousands)	Six months ended December 31,
	2021		2020
Net income	$	394	$	1,794
Plus interest expense, net		180		195
Plus depreciation and amortization expense		149		103
Plus stock-based compensation		10		8
Adjusted EBITDA	$	733	$	2,100

		Incorporated by Reference			Filed or Furnished
No.	Exhibit Description	Form	Date Filed	Number	Herewith
2.1	Merger and Capitalization Agreement	8-K	10/22/09	2.1
2.2	Stock Purchase and Recapitalization Agreement	8-K/A	3/24/10	2.2
2.3	Amendment No. 1 to the Stock Purchase and Recapitalization Agreement	8-K/A	3/24/10	2.3
3.1	Amended and Restated Articles of Incorporation	SB-2	3/2/07	3(i)
3.2	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	2/23/11	3.1
3.3	Designation of Rights and Preferences of Series A Convertible Preferred Stock	8-K	2/23/11	4.1
3.4	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	3/3/11	3.1
3.5	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	11/5/15	3.5
3.6	Bylaws	SB-2	3/2/07	3(ii)
31.1	Section 302 Certification by the Corporation’s Principal Executive Officer				Filed
31.2	Section 302 Certification by the Corporation’s Principal Financial and Accounting Officer				Filed
32.1	Section 906 Certification by the Corporation’s Principal Executive Officer				Filed
32.2	Section 906 Certification by the Corporation’s Principal Financial and Accounting Officer				Filed
101.INS	XBRL Instance Document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document				Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

	LUVU BRANDS, INC.
	(Registrant)

February 17, 2022	By:	/s/ Louis S. Friedman
(Date)		Louis S. Friedman
		President and Chief Executive Officer (Principal Executive Officer)

February 17, 2022	By:	/s/ Ronald P. Scott
(Date)		Ronald P. Scott
		Chief Financial Officer and Secretary (Principal Financial & Accounting Officer)

1.		I have reviewed this quarterly report on Form 10-Q of Luvu Brands, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2022		/s/ Ronald P. Scott
		Ronald P. Scott
		Chief Financial Officer (Principal Financial and Accounting Officer)

	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.