LUVU 10-Q
Luvu Brands, Inc. (LUVU)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE QUARTERLY PERIOD ENDED
| OR |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission File Number
(Exact name of registrant as specified in its charter) |
|
| |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
| ||
(Address of principal executive offices) |
| (Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
None |
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2024, there were
LUVU BRANDS, INC.
TABLE OF CONTENTS
|
| |
|
|
|
Page Number | ||
|
|
|
| Consolidated Balance Sheets – At September 30, 2024 (unaudited) and June 30, 2024 | 4 |
|
|
|
| 5 | |
|
|
|
| 6 | |
|
|
|
| 7 | |
|
|
|
| 8 | |
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
|
|
|
28 | ||
|
|
|
29 | ||
|
|
|
|
| |
|
|
|
30 | ||
|
|
|
30 | ||
|
|
|
30 | ||
|
|
|
30 | ||
|
|
|
30 | ||
|
|
|
30 | ||
|
|
|
31 | ||
|
|
|
32 | ||
| 2 |
| Table of Contents |
Unless the context otherwise indicates, when used in this report, the terms the “Company,” “LUVU”, “we,” “us, “our” and similar terms refer to LUVU Brands, Inc. and the Company’s wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). The Company’s corporate website is www.LuvuBrands.com. Certain of the Company’s documents, its news releases and the Company’s filings with the U.S. Securities and Exchange Commission including financial statements are available on the Company’s corporate website.
Unless specifically set forth to the contrary, the information that appears on the Company’s websites or its various social media platforms is not part of this report.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This report may contain forward-looking statements, which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plan,” “believes,” “predicts”, “estimates” or similar expressions. In addition, any statement concerning future financial performance, ongoing business strategies or prospects and possible future actions are also forward-looking statements. Forward-looking statements are based upon current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning the Company, the performance of the industry in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance. You should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this report. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
| 3 |
| Table of Contents |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUVU BRANDS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
|
| September 30, |
|
|
| |||
|
| 2024 |
|
| June 30, |
| ||
|
| (unaudited) |
|
| 2024 |
| ||
Assets: |
| (in thousands, except share data) |
| |||||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Accounts receivable, net of allowance for doubtful accounts and allowance for discounts and returns of $ |
|
|
|
|
|
| ||
Inventories, net of allowance for inventory reserve of $ |
|
|
|
|
|
| ||
Other current assets |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Equipment, property and leasehold improvements, net |
|
|
|
|
|
| ||
Finance lease assets |
|
|
|
|
|
| ||
Operating lease assets |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ |
|
| $ |
| ||
Current debt |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
Operating lease liability |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
Deferred Tax Liability |
|
|
|
|
|
| ||
Long-term debt |
|
|
|
|
|
| ||
Long-term operating lease liability |
|
|
|
|
|
| ||
Total noncurrent liabilities |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
Commitments and contingencies (See Note 12) |
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
Preferred stock, |
|
|
|
|
|
| ||
Series A Convertible Preferred stock, |
|
|
|
|
|
| ||
Common stock, $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total stockholders’ equity |
|
|
|
|
|
| ||
Total liabilities and stockholders’ equity |
| $ |
|
| $ |
| ||
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 |
| |||||
|
| September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands, except share data) |
| |||||
|
|
|
|
|
|
| ||
Net Sales |
| $ |
|
| $ |
| ||
Cost of goods sold (excluding depreciation expense presented below) |
|
|
|
|
|
| ||
Gross profit |
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
Advertising and promotion |
|
|
|
|
|
| ||
Other selling and marketing |
|
|
|
|
|
| ||
General and administrative |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
Operating loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense and financing costs, net |
|
| ( | ) |
|
| ( | ) |
|
|
| (88 | ) |
|
| (94 | ) |
Loss from operations before income taxes |
|
| ( | ) |
|
| ( | ) |
Provision for income taxes |
|
|
|
|
|
| ||
|
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic |
| $ | ( | ) |
| $ | ( | ) |
Diluted |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Shares used in calculation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
| ||
Diluted |
|
|
|
|
|
| ||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
| Table of Contents |
Luvu Brands, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three Months ended September 30, 2024 and September 30, 2023 (unaudited)
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||||||||||
|
| Series A Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Stockholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital | Deficit | Equity |
| |||||||||||
|
| (in thousands, except share data) |
| |||||||||||||||||||||||||
Balance, June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
| $ | ( |
|
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Stock option exercises |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Balance, September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| ($ |
|
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| ($ |
|
| $ |
| |||||||
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stock option exercises |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Balance, September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| ($ |
|
| $ |
| |||||||
See accompanying notes to unaudited consolidated financial statements.
| 6 |
| Table of Contents |
LUVU BRANDS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Stock-based compensation expense |
|
|
|
|
| ( | ) | |
Provision for bad debt |
|
|
|
|
|
| ||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Inventory |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
| ( | ) |
|
| ( | ) |
Accounts payable |
|
| ( | ) |
|
|
| |
Accrued expenses and interest |
|
|
|
|
|
| ||
Operating lease liability |
|
| ( | ) |
|
| ( | ) |
Operating lease asset |
|
|
|
|
|
| ||
Net cash provided by operating activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Investment in equipment, software and leasehold improvements |
|
| ( | ) |
|
| ( | ) |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
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 |
|
| ( | ) |
|
| ( | ) |
Principal payments on capital leases |
|
| ( | ) |
|
| ( | ) |
Net cash used in financing activities |
|
| ( | ) |
|
| ( | ) |
Net decrease in cash and cash equivalents |
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of year |
|
|
|
|
|
| ||
Cash and cash equivalents at end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
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: Liberator®, a brand category of iconic products for enhancing sexual performance; Avana®, Top-of-Bed Comfort products and 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. These products are sold through the Company’s websites, online mass merchants and retail stores worldwide. Many of the Company’s products are offered flat-packed and either roll or vacuum compressed to save on shipping and reduce the Company’s carbon footprint.
Sales are generated through internet and print advertisements and social marketing. The Company has a diversified customer base with only one customer accounting for
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 months ended September 30, 2024 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, 2024 as filed with the Securities and Exchange Commission (the “SEC”) on September 30, 2024 (the “2024 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 2024 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 |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 September 30, 2024 was $
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.
| 9 |
| Table of Contents |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
The following is a summary of Accounts Receivable as of September 30, 2024 and June 30, 2024.
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
|
| (unaudited) |
|
|
| |||
|
| (in thousands) |
| |||||
Accounts receivable |
| $ |
|
| $ |
| ||
Allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Allowance for discounts and returns |
|
|
|
|
|
| ||
Total accounts receivable, net |
| $ |
|
| $ |
| ||
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 $
During the three months ended September 30, 2024, the Company purchased
During the three months ended September 30, 2023, the Company purchased
As of September 30, 2024, two of the Company’s customers represents
| 10 |
| Table of Contents |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
At September 30, 2024 and June 30, 2024, 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. There were $
Research and Development
Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $
| 11 |
| Table of Contents |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated service lives for financial reporting purposes of
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 September 30, 2024.
Operating Leases
On November 2, 2020, the Company entered into an agreement with its landlord on a new lease for the current facilities for six years and two months, beginning January 1, 2021. The new lease includes two months of rent abatement totaling $
Under ASC 842, 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.
| 12 |
| Table of Contents |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment Information
The Company have identified three reportable sales channels: Direct, Wholesale and Other. Direct 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 the Company’s business. Other consists principally of shipping and handling fees and costs derived from the Company’s Direct business.
The following is a summary of sales results for the Direct, Wholesale, and Other channels.
|
| Three Months Ended September 30, 2024 |
|
| Three Months Ended September 30, 2023 |
|
| % Change |
| |||
|
| (in thousands) |
|
|
| |||||||
Net Sales by Channel: |
|
|
|
|
|
|
|
|
| |||
Direct |
| $ |
|
| $ |
|
|
| % | |||
Wholesale |
| $ |
|
| $ |
|
|
| - | % | ||
Other |
| $ |
|
| $ |
|
|
| - | % | ||
Total Net Sales |
| $ |
|
| $ |
|
|
| - | % | ||
|
| Three Months Ended |
|
| Margin |
|
| Three Months Ended |
|
| Margin |
|
| % |
| |||||
|
| September 30, 2024 |
|
| % |
|
| September 30, 2023 |
|
| % |
|
| Change |
| |||||
|
| (in thousands) |
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||
Gross Profit by Channel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Direct |
| $ |
|
|
| % |
| $ |
|
|
| % |
|
| - | % | ||||
Wholesale |
| $ |
|
|
| % |
| $ |
|
|
| % |
|
| % | |||||
Other |
| $ | ( | ) |
|
| - | % |
| $ | ( | ) |
|
| - | % |
|
| - | % |
Total Gross Profit |
| $ |
|
|
| % |
| $ |
|
|
| % |
|
| - | % | ||||
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which provides improvements to reportable segment disclosure requirements, primarily through enhanced disclosures around segment expenses. ASU 2023-07 requires the Company to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. ASU 2023-07 also requires that the Company disclose an amount for other segment items by reportable segment, a description of their composition and provide all annual disclosures about a reportable segment’s profit or loss and assets pursuant to Topic 280 during interim periods. The Company must also disclose the CODM’s title and position, as well as certain information around the measures used by the CODM and an explanation of how the CODM uses the reported measures in assessing segment performance and deciding how to allocate resources. For public entities with a single reportable segment, the entity must provide all the disclosures required pursuant to ASU 2023-07 and all existing segment disclosures under Topic 280. The amendments of ASU 2023-07 are effective for the Company for annual periods beginning July 1, 2024, and effective for interim periods beginning January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will evaluate the impact of ASU 2023-07 on its financial statements.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
| 13 |
| Table of Contents |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Loss Per Share
In accordance with ASC 260, “Earnings Per Share”, basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income available to common stockholders by the weighted average number of common and common equivalent shares outstanding during the period plus the effect of stock options using the treasury stock method. As of September 30, 2024 and 2023, the common stock equivalents did not have any effect on net loss per share.
|
| September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Common stock options – 2015 Plan |
|
|
|
|
|
| ||
Convertible preferred stock |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
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.
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 September 30, 2024 or June 30, 2024.
| 14 |
| Table of Contents |
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:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
|
| (unaudited) |
| |||||
|
| (in thousands) |
| |||||
Raw materials |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Total inventories |
|
|
|
|
|
| ||
Allowance for inventory reserves |
|
| ( | ) |
|
| ( | ) |
| Total inventories, net of allowance |
| $ |
|
| $ |
| ||
NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, property and leasehold improvements at September 30, 2024 and June 30, 2024 consisted of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
|
| Estimated Useful Life | |||
|
| (unaudited) |
|
|
| ||||||
|
| (in thousands) |
|
|
| ||||||
Factory equipment |
| $ |
|
| $ |
|
| ||||
Computer equipment and software |
|
|
|
|
|
|
| ||||
Office equipment and furniture |
|
|
|
|
|
|
| ||||
Leasehold improvements |
|
|
|
|
|
|
| ||||
Subtotal |
|
|
|
|
|
|
|
| |||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
| |
Equipment and leasehold improvements, net |
| $ |
|
| $ |
|
|
| |||
Depreciation expense was $
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 ended September 30, 2024.
NOTE 6. OTHER ACCRUED LIABILITIES
Other accrued liabilities at September 30, 2024 and June 30, 2024:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
|
| (unaudited) |
|
|
| |||
|
| (in thousands) |
| |||||
|
|
|
|
| ||||
Accrued compensation |
| $ |
|
| $ |
| ||
Accrued expenses and interest |
|
|
|
|
|
| ||
Other accrued liabilities |
| $ |
|
| $ |
| ||
| 15 |
| Table of Contents |
NOTE 7. CURRENT AND LONG-TERM DEBT SUMMARY
Current and long-term debt at September 30, 2024 and June 30, 2024 consisted of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
|
| (unaudited) |
|
|
| |||
Current debt: |
| (in thousands) |
| |||||
Unsecured lines of credit (Note 11) |
| $ |
|
| $ |
| ||
Line of credit (Note 10) |
|
|
|
|
|
| ||
Short-term unsecured notes payable (Note 8) |
|
|
|
|
|
| ||
Current portion of equipment notes payable (Note 12) |
|
|
|
|
|
| ||
Notes payable – related party |
|
|
|
|
|
| ||
Current portion of finance leases payable (Note 12) |
|
|
|
|
|
| ||
Total current debt |
|
|
|
|
|
| ||
Long-term debt: |
|
|
|
|
|
|
|
|
Unsecured notes payable (Note 8) |
|
|
|
|
|
| ||
Finance leases payable (Note 12) |
|
|
|
|
|
| ||
Equipment notes payable (Note 12) |
|
|
|
|
|
| ||
Notes payable – related party |
|
|
|
|
|
| ||
Total long-term debt |
| $ |
|
| $ |
| ||
| 16 |
| Table of Contents |
NOTE 8. UNSECURED NOTES PAYABLE
Unsecured notes payable at September 30, 2024 and June 30, 2024 consisted of the following:
|
| September 30, |
|
| June 30, |
| ||
|
| 2024 |
|
| 2024 |
| ||
Current debt: |
| (in thousands) |
| |||||
|
|
|
|
|
|
| ||
13.5% Unsecured note, interest only, due May 1, 2025 (2) |
| $ |
|
| $ |
| ||
13.5% Unsecured note, interest only, due July 31, 2025(3) |
|
|
|
|
|
| ||
Total current debt |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
13.5% Unsecured note, interest only, due July 31, 2025(3) |
| $ |
|
| $ |
| ||
13.5% Unsecured note, interest only, due October 31, 2025(1) |
|
|
|
|
|
| ||
Total long-term debt |
|
|
|
|
|
| ||
Total unsecured notes payable |
| $ |
|
| $ |
| ||
(1) Unsecured note payable for $
(2) Unsecured note payable for $
(3) Unsecured note payable for $
| 17 |
| Table of Contents |
NOTE 9. NOTES PAYABLE - RELATED PARTY
Related party notes payable at September 30, 2024 and June 30, 2024 consisted of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
|
| (unaudited) |
| |||||
|
| (in thousands) |
| |||||
|
|
|
|
|
|
| ||
Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025 |
| $ |
|
| $ |
| ||
Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025 |
|
|
|
|
|
| ||
Total unsecured notes payable |
|
|
|
|
|
| ||
Less: current portion |
|
| ( | ) |
|
|
| |
Long-term unsecured notes payable |
| $ |
|
| $ |
| ||
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 $
The Company’s President, Chief Executive Officer (CEO), and majority shareholder, Louis Friedman, has personally guaranteed the repayment of the facility. In addition, the Company has provided its corporate guarantee of the credit facility (see Note 13). On September 30, 2024, the balance owed under this line of credit was $
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.
| 18 |
| Table of Contents |
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
NOTE 12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities under a non-cancelable operating lease which now expires February 28, 2027. 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 which is November 2, 2020 based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available. At September 30, 2024, the weighted average remaining lease term for the lease renewal is
Operating leases |
| Balance Sheet Classification |
| (in thousands) |
| |
Right-of-use assets |
| Operating lease right-of-use assets, net |
| $ |
| |
|
|
|
|
|
|
|
Current lease liabilities |
| Operating lease liabilities |
| $ |
| |
Non-current lease liabilities |
| Long-term operating lease liabilities |
|
|
| |
Total lease liabilities |
|
|
| $ |
| |
Maturities of lease liabilities at September 30, 2024 are as follows:
Payments |
| (in thousands) |
| |
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
Total undiscounted lease payment |
| $ |
| |
Less: Present value discount |
|
| ( | ) |
Total lease liability balance |
| $ |
| |
| 19 |
| Table of Contents |
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
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 has a total cost of $
The following is an analysis of the minimum future equipment note payable payments subsequent to September 30, 2024:
Years ending September 30, |
| (in thousands) |
| |
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
Future Minimum Note Payable Payments |
| $ |
| |
Less Current Portion |
|
| ( | ) |
Long-Term Obligations under Equipment Notes Payable |
| $ |
| |
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 $
On July 1, 2020 the Company entered into finance lease agreement in the amount of $
On January 5, 2022 the Company entered into finance lease agreement in the amount of $
On March 15, 2024, the Company entered into a finance lease agreement in the amount of $
On June 3, 2024, the Company entered into a finance lease agreement in the amount of $
At September 30, 2024, the weighted average remaining lease term is
| 20 |
| Table of Contents |
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
The following is an analysis of the minimum finance lease payable payments subsequent to September 30, 2024:
Year ending September 30, |
| (in thousands) |
| |
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 and thereafter |
|
|
| |
Future Minimum Finance Lease Payable Payments |
| $ |
| |
Less Amount Representing Interest |
|
| ( | ) |
Present Value of Minimum Finance Lease Payable Payments |
|
|
| |
Less Current Portion |
|
| ( | ) |
Long-Term Obligations under Finance Lease Payable |
| $ |
| |
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 $
On January 15, 2024, the Company, through OneUp, engaged Chris Knauf to serve as Chief Financial Officer and Controller of the Company. The Company shall pay Mr. Knauf an annual salary of $
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 $
On October 30, 2010, The Company’s CEO, loaned the Company $
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 September 30, 2024, the balance owed under this line of credit was $
| 21 |
| Table of Contents |
On July 20, 2011, the Company issued an unsecured promissory note to an individual for $
On October 31, 2013, the Company issued an unsecured promissory note to an individual for $
On May 1, 2012, an individual loaned the Company $
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
NOTE 15. STOCKHOLDERS’ EQUITY
Options
At September 30, 2024, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is shareholder-approved and under which
Under the 2015 Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company’s common stock. The shares issuable under the 2015 Plan will either be shares of the Company’s authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. As of September 30, 2024, the number of shares available for issuance under the 2015 Plan was
The following table summarizes the Company’s stock option activities during the three months ended September 30, 2024:
|
| Number of shares of underlying outstanding option |
|
| Weighted Average Remaining Contract Life |
|
| Weighted Average Exercise Price |
|
| Aggregated Intrinsic Value |
| ||||
Option Outstanding as of June 30, 2024 |
|
|
|
|
|
|
| $ |
|
| $ |
| ||||
Granted |
|
|
|
|
| - |
|
|
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
|
| - |
|
|
|
|
|
| ( | ) | |
Forfeited or expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
Options Outstanding as of September 30, 2024 |
|
|
|
|
|
|
| $ |
|
| $ |
| ||||
Options Exercisable as of September 30, 2024 |
|
|
|
|
|
|
| $ |
|
| $ |
| ||||
| 22 |
| Table of Contents |
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 $
There were
There were
The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 2024:
|
|
| 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 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||
$0.05 to $0.10 |
|
|
|
|
|
|
|
| $ |
|
|
| - |
|
|
| - |
| ||||
$0.15 to $0.20 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||
$0.30 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||
Total stock options |
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||
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 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 months ended September 30, 2024 and 2023 are 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 Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| ($ in thousands) |
| |||||
Cost of Goods Sold |
| $ |
|
| $ |
| ||
Other Selling and Marketing |
|
|
|
|
|
| ||
General and Administrative |
|
|
|
|
| ( | ) | |
Total Stock-based Compensation Expense |
| $ |
|
| $ | ( | ) | |
As of September 30, 2024, the Company’s total unrecognized compensation cost was $
Warrants
As of September 30, 2024 and 2023, there were no warrants outstanding.
| 23 |
| Table of Contents |
Common Stock
The Company’s authorized common stock was
|
| September 30, |
| |
|
| 2024 |
| |
Shares of common stock reserved for issuance under the 2015 Plan |
|
| 1,250,000 |
|
Shares of common stock issuable upon conversion of the Preferred Stock |
|
|
| |
Total shares of common stock equivalents |
|
|
| |
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
| 24 |
| Table of Contents |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, information derived from the Company’s Interim Unaudited Consolidated Financial Statements, expressed as a percentage of net sales. The discussion that follows the table should be read in conjunction with the Company’s Interim Unaudited Consolidated Financial Statements.
|
| Three Months Ended |
| |||||
|
| (unaudited) |
| |||||
|
| September 30, 2024 |
| September 30, 2023 | ||||
Net sales |
|
| 100 | % |
|
| 100 | % |
Cost of goods sold |
|
| 74 | % |
|
| 74 | % |
Gross profit |
|
| 26 | % |
|
| 26 | % |
Operating Expenses |
|
| 28 | % |
|
| 26 | % |
Income from operations |
|
| (2 | )% |
|
| 0 | % |
The following table represents the net sales and percentage of net sales by product type:
|
| Three Months Ended (unaudited) |
| |||||||||||||
(Dollars in thousands) |
| September 30, 2024 |
|
| September 30, 2023 |
| ||||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liberator |
| $ | 3,110 |
|
|
| 54 | % |
| $ | 3,324 |
|
|
| 54 | % |
Jaxx |
|
| 1,820 |
|
|
| 32 | % |
|
| 1,799 |
|
|
| 29 | % |
Avana |
|
| 485 |
|
|
| 8 | % |
|
| 531 |
|
|
| 9 | % |
Products purchased for resale |
|
| 210 |
|
|
| 4 | % |
|
| 249 |
|
|
| 4 | % |
Other |
|
| 131 |
|
|
| 2 | % |
|
| 224 |
|
|
| 4 | % |
Total Net Sales |
| $ | 5,756 |
|
|
| 100 | % |
| $ | 6,126 |
|
|
| 100 | % |
| 25 |
| Table of Contents |
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Net sales. Sales for the three months ended September 30, 2024, were approximately $5,756,000, a 6% decrease from the comparable prior year period. The major components of net sales, by product, are as follows:
| · | Liberator sales - Sales of Liberator branded products decreased $214,000, or 6%, during the quarter from the comparable prior year period, due primarily to lower sales through our wholesale channels. Weaker consumer sentiment continues to drag the sector. |
| · | Jaxx sales – Jaxx product sales increased 1% from the prior year first quarter to $1,820,000. We continue to develop our marketing efforts into the special education market, which offsets the decline in the competitive online market place. |
| · | Avana sales – Net sales of Avana products decreased 9% during the quarter from the comparable prior year quarter to $485,000. Sales of this product line have been impacted by lower-priced competitive products in the marketplace, production constraints which resulted in longer delivery lead times which resulted in lower sales through drop ship channels including Amazon, Overstock and Wayfair. |
| · | Products purchased for resale – This product category decreased by 16%, or $39,000, from the prior year first quarter due to lower sales of certain products through our e-commerce website, Liberator.com. We believe our focus on expanding our online third party drop ship business will return this channel to growth. |
Gross margin. Gross profit, derived from net sales less the cost of goods sold, includes the cost of materials, direct labor, manufacturing overhead, freight costs, royalties and depreciation. Gross profit margin, as a percentage of sales, increased to 26% from 26% in the prior year first quarter. Gross profit decreased to $1,517,000 from $1,582,000 in the prior year first quarter.
Operating expenses. Total operating expenses for the three months ended September 30, 2024 were approximately 28% of net sales, or approximately $1,639,000, compared to 26% of net sales, or approximately $1,614,000, for the same period in the prior year.
Other income (expense). Interest expense during the first quarter decreased from approximately ($96,000) in the first quarter of fiscal 2024 to approximately ($89,000) in the first quarter of fiscal 2025. The decrease was primarily due to the reduction in notes payable.
Net Loss. For the three months ended September 30, 2024, we had a net loss of $210,000 as compared to a net loss of $126,000 for the three months ended September 30, 2023. The increase in net loss was primarily due to the decrease in Liberator product sales.
| 26 |
| Table of Contents |
Variability of Results
The Company has experienced significant quarterly fluctuations in operating results and anticipate that these fluctuations may continue in future periods. Operating results have fluctuated as a result of changes in sales levels to consumers and wholesalers, competition, seasonality costs associated with new product introductions, and increases in raw material costs. In addition, future operating results may fluctuate as a result of factors beyond the Company’s control such as foreign exchange fluctuation, changes in government regulations, and economic changes in the regions in which it operates and sells. A portion of the Company’s operating expenses are relatively fixed and the timing of increases in expense levels is based in large part on forecasts of future sales. Therefore, if net sales are below expectations in any given period, the adverse impact on results of operations may be magnified by the Company’s inability to meaningfully adjust spending in certain areas, or the inability to adjust spending quickly enough, as in personnel and administrative costs, to compensate for a sales shortfall. The Company may also choose to increase spending in response to market conditions, and these decisions may have a material adverse effect on financial condition and results of operations.
Liquidity and Capital Resources
The following table summarizes the Company’s cash flows:
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
Cash flow data: |
| 2024 |
|
|
| 2023 |
| |
|
| (Unaudited) |
| |||||
|
| (Dollars in thousands) |
| |||||
Cash provided by operating activities |
| $ | 132 |
|
| $ | 171 |
|
Cash used in investing activities |
| $ | (1 | ) |
| $ | (32 | ) |
Cash provided by financing activities |
| $ | (91 | ) |
| $ | (43 | ) |
As of September 30, 2024, the Company’s cash and cash equivalents totaled $1,067,862, compared to $1,132,317 in cash and cash equivalents as of September 30, 2023.
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. The Company’s principal sources of liquidity are the Company’s cash flow that the Company generates from its operations, availability of borrowings under its line of credit and cash raised through debt financings.
Operating Activities
Net cash provided by operating activities was $132,000 during the three months ended September 30, 2024 compared to $171,000 net cash provided by operating activities in the three months ended September 30, 2023. The primary components of the cash provided by operating activities in the current year is the decrease in Inventory of $283,000 offset in part by an increase in accounts receivable of $137,000.
Investing Activities
Cash used in investing activities in the three months ended September 30, 2024 and September 30, 2023 was $1,000 and $32,000, respectively, related to the purchase of computer equipment and the installation of certain production equipment during the periods.
Financing Activities
Cash used by financing activities during the three months ended September 30, 2024 and September 30, 2023 of $91,000 and $43,000 respectively, primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.
| 27 |
| Table of Contents |
Non-GAAP Financial Measures
Reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2024 and 2023:
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Net loss |
| $ | (210 | ) |
| $ | (126 | ) |
Plus interest expense, financing costs and income tax |
|
| 89 |
|
|
| 96 |
|
Plus depreciation and amortization expense |
|
| 109 |
|
|
| 99 |
|
Plus stock-based compensation expense |
|
| 9 |
|
|
| (6 | ) |
Adjusted EBITDA |
| $ | (3 | ) |
| $ | 63 |
|
As used herein, Adjusted EBITDA represents net income before interest income, interest expense, income taxes, depreciation, amortization, and stock-based compensation expense. The Company has excluded the non-cash expenses and stock-based compensation, as they do not reflect the cash-based operations of the Company. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income of the Company or net cash provided by operating activities.
Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because the Company believes it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and non-cash charges for stock-based compensation expense.
Off-Balance Sheet Arrangements
The Company does not use off-balance sheet arrangements with unconsolidated entities or related parties, nor does it use other forms of off-balance sheet arrangements. Accordingly, the Company’s liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of September 30, 2024, the Company did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical accounting policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances and impairment of long-lived assets. The Company also has adopted other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding the Company’s results, which are described in Note 2 to its unaudited consolidated financial statements appearing in this report.
Recent accounting pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the unaudited consolidated accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into any transactions using derivative financial instruments or derivative commodity instruments and believe that the Company’s exposure to market risk associated with other financial instruments is not material.
| 28 |
| Table of Contents |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosures. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its principal executive officer (Chief Executive Officer) and principal financial officer (Chief Financial Officer), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s CEO and CFO concluded that its disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in United States Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the management, including CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 29 |
| Table of Contents |
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings, nor, to its knowledge, is there any legal proceeding threatened against us. However, from time to time, the Company may become a party to certain legal proceedings in the ordinary course of business.
ITEM 1A. RISK FACTORS
This item is not required for a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
| 30 |
| Table of Contents |
ITEM 6. EXHIBITS
|
|
|
|
|
|
|
|
|
| Filed or |
|
|
|
| Incorporated by Reference |
| Furnished | ||||
No. |
| Description |
| Form |
| Date Filed |
| Number |
| Herewith |
|
| 8-K
|
| 10/22/09 |
| 2.1 |
|
| ||
|
| 8-K/A |
| 3/24/10 |
| 2.2 |
|
| ||
| Amendment No. 1 to Stock Purchase and Recapitalization Agreement, dated June 22, 2009 |
| 8-K/A |
| 3/24/10 |
| 2.3 |
|
| |
|
| SB-2 |
| 3/2/07 |
| 3i |
|
| ||
|
| SB-2 |
| 3/2/07 |
| 3ii |
|
| ||
| Articles of Amendment to the Amended and Restated Articles of Incorporation |
| 8-K |
| 2/23/11 |
| 3.1 |
|
| |
|
| 8-K |
| 3/3/11 |
| 3.1 |
|
| ||
|
| 8-K |
| 11/5/15 |
| 3.5 |
|
| ||
| Designation of Rights and Preferences of Series A Convertible Preferred Stock. |
| 8-K |
| 2/23/11 |
| 4.1 |
|
| |
|
|
|
|
|
| Filed |
|
| ||
|
|
|
|
|
| Filed |
|
| ||
|
|
|
|
|
| Filed |
|
| ||
|
|
|
|
|
| Filed |
|
| ||
|
|
|
|
|
| *Furnished |
|
| ||
|
|
|
|
|
| *Furnished |
|
| ||
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 |
|
|
*This Exhibit is being Furnished rather than Filed and shall not be deemed incorporated by reference into any Filing, in accordance with Item 601 of Regulation S-K.
| 31 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| LUVU BRANDS, INC. |
|
|
|
| (Registrant) |
|
|
|
|
|
|
November 14, 2024 |
| By: | /s/ Louis S. Friedman |
|
(Date) |
|
| Louis S. Friedman |
|
|
|
| President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
November 14, 2024 |
| By: | /s/ Christopher Knauf |
|
(Date) |
|
| Christopher Knauf |
|
|
|
| Chief Financial Officer (Principal Financial & Accounting Officer) |
|
| 32 |