Luvu Brands, Inc 10-Q for FY2022 Q3

Luvu Brands, Inc. (LUVU)

10-Q 2022-05-16 For: 2022-03-31

Added on April 06, 2026

About this 10-Q

Luvu Brands, Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q3).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.75M; up 9.3% from $6.18M a year earlier
Net income: $452K; down 3.6% from net income of $469K a year earlier
Diluted EPS: $0.01; unchanged from $0.01 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	☐

	PART I – FINANCIAL INFORMATION

		Page Number
ITEM 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets – At March 31, 2022 (unaudited) and June 30, 2021	4

	Condensed Consolidated Statements of Operations – For the Three and Nine Months Ended March 31, 2022 and March 31, 2021 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity – For the Nine Months Ended March 31, 2022 and March 31, 2021 (unaudited) For the Three Months Ended March 31, 2022 and March 31, 2021 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows – For the Nine Months Ended March 31, 2022 and March 31, 2021 (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

	March 31,
	2022			June 30,
	(unaudited)			2021
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	935		$	977
Accounts receivable, net		1,351			1,134
Inventories, net		3,807			3,391
Prepaid expenses		175			145
Total current assets		6,268			5,647

Equipment and leasehold improvements, net		2,083			1,934
Finance lease assets		49			27
Operating lease assets		2,334			2,554
Other assets		100			84
Total assets	$	10,834		$	10,246

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	2,579		$	2,669
Current debt		1,534			1,599
Other accrued liabilities		617			694
Operating lease liability		310			250
Total current liabilities		5,040			5,212

Noncurrent liabilities:
Long-term debt		1,444			1,288
Long-term operating lease liability		2,164			2,423
Total noncurrent liabilities		3,608			3,711
Total liabilities		8,648			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 March 31, 2022 and June 30, 2021		—			—
Common stock, $0.01 par value, 175,000,000 shares authorized, 75,941,860 and 75,037,890 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively		759			750
Additional paid-in capital		6,174			6,166
Accumulated deficit		(4,747	)		(5,593	)
Total stockholders’ equity		2,186			1,323
Total liabilities and stockholders’ equity	$	10,834		$	10,246

	Three Months Ended March 31,						Nine Months Ended March 31,
	2022			2021			2022			2021
	(in thousands, except share data)
Net Sales	$	6,753		$	6,181		$	20,164		$	17,262
Cost of goods sold		4,959			4,435			15,294			12,462
Gross profit		1,794			1,746			4,870			4,800
Operating expenses
Advertising and promotion		132			180			419			369
Other selling and marketing		299			260			880			797
General and administrative		751			689			2,237			2,021
Depreciation and amortization		79			54			227			157
Total operating expenses		1,261			1,183			3,763			3,344
Income from operations		533			563			1,107			1,456
Other Income (Expense):
Gain on forgiveness of SBA loan		—			—			—			1,096
Interest expense and financing costs		(81	)		(94	)		(261	)		(289	)
Total Other Income (Expense)		(81	)		(94	)		(261	)		807
Income before income taxes		452			469			846			2,263
Provision for income taxes		—			—			—			—
Net income	$	452		$	469		$	846		$	2,263
Net income per share:
Basic	$	0.01		$	0.01		$	0.01		$	0.03
Diluted	$	0.01		$	0.01		$	0.01		$	0.03

Shares used in computing net income per share:
Basic		75,639,004			75,037,890			75,269,935			74,050,524
Diluted		76,383,078			76,286,902			76,047,099			75,264,336

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

Balance, June 30, 2020		4,300,000	$	—		73,452,596	$	735	$	6,147		$	(8,156	)	$	(1,274	)
Stock-based compensation expense		—		—		—		—		12			—			12
Stock option exercises		—		—		1,585,294		15		4			—			19
Net income for the nine months ended March 31, 2021		—		—		—		—		—			2,263			2,263
Balance, March 31, 2021 (unaudited)		4,300,000	$	—		75,037,890	$	750	$	6,163		$	(5,893	)	$	1,020

Balance, June 30, 2021		4,300,000	$	—		75,037,890	$	750	$	6,166		$	(5,593	)	$	1,323
Stock-based compensation expense		—		—		—		—		14			—			14
Stock option exercises		—		—		903,970		9		(6	)		—			3
Net income for the nine months ended March 31, 2022		—		—		—		—		—			846			846
Balance, March 31, 2022 (unaudited)		4,300,000	$	—		75,941,860	$	759	$	6,174		$	(4,747	)	$	2,186

	Nine Months Ended
	March 31,
	2022			2021
OPERATING ACTIVITIES:	(in thousands)
Net income	$	846		$	2,263
Adjustments to reconcile net income to net cash provided by operating activities:
Forgiveness of SBA Loan		—			(1,096	)
Depreciation and amortization		227			157
Stock based compensation expense		14			12
Provision for bad debt		1			1
Amortization of operating lease asset		220			226
Changes in operating assets and liabilities:
Accounts receivable		(218	)		(24	)
Inventories		(417	)		(936	)
Prepaid expenses and other assets		(45	)		(103	)
Accounts payable		(89	)		212
Accrued compensation		(90	)		(87	)
Accrued expenses and interest		14			29
Operating lease liability		(200	)		(149	)
Net cash provided by operating activities		263			505

INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(50	)		(164	)
Net cash used in investing activities		(50	)		(164	)

FINANCING ACTIVITIES:
Proceeds from unsecured notes payable		200			—
Repayment of unsecured notes payable		(200	)		(289	)
Proceeds from secured notes payable		—			200
Net cash provided by (repaid to) line of credit		103			245
Repayment of credit card advance		—			(56	)
Repayments of secured notes payable		(152	)		(195	)
Repayment of unsecured line of credit		(9	)		(8	)
Proceeds from exercise of stock options		3			9
Payments on equipment notes		(192	)		(123	)
Principal payments on leases payable		(8	)		(6	)
Net cash used in financing activities		(255	)		(223	)
Net (decrease) increase in cash and cash equivalents		(42	)		118
Cash and cash equivalents at beginning of period		977			1,152
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	935		$	1,270

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash item:
Purchases of equipment with equipment notes	$	326		$	788
Finance lease asset obligation in exchange for lease payable	$	23		$	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	$	259		$	286
Income taxes	$	—		$	—

	March 31, 2022			June 30, 2021
	(unaudited)
	(in thousands)
Accounts receivable	$	1,358		$	1,189
Allowance for doubtful accounts		(1	)		(1	)
Allowance for discounts and returns		(6	)		(54	)
Total accounts receivable, net	$	1,351		$	1,134

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,755	$	2,004		(12	)%
Wholesale	$	4,832	$	4,023		20	%
Other	$	166	$	154		8	%
Total Net Sales	$	6,753	$	6,181		9	%

	Three Months Ended March 31, 2022			Margin %			Three Months Ended March 31, 2021			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	823			47	%	$	1,005			50	%		(18	)%
Wholesale	$	1,261			26	%	$	1,009			27	%		25	%
Other	$	(290	)		-	%	$	(358	)		-	%		19	%
Total Gross Profit	$	1,794			27	%	$	1,746			28	%		3	%

	Nine Months Ended March 31, 2022		Nine Months Ended March 31, 2021		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	5,675	$	5,371		6	%
Wholesale	$	13,976	$	11,476		22	%
Other	$	513	$	415		24	%
Total Net Sales	$	20,164	$	17,262		17	%

	Nine Months Ended March 31, 2022			Margin %			Nine Months Ended March 31, 2021			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	2,638			46	%	$	2,706			50	%		(3	)%
Wholesale	$	3,224			23	%	$	3,047			27	%		6	%
Other	$	(992	)	-		%	$	(953	)	-		%		(4	)%
Total Gross Profit	$	4,870			24	%	$	4,800			28	%		1	%

	March 31, 2022			June 30, 2021
	(unaudited)
	(in thousands)
Raw materials	$	1,936		$	1,637
Work in process		498			396
Finished goods		1,546			1,531
Total inventories		3,980			3,564
Allowance for inventory reserves		(173	)		(173	)
Total inventories, net of allowance	$	3,807		$	3,391

	March 31, 2022			June 30, 2021			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	3,828		$	3,567		2-10 years
Computer equipment and software		1,167			1,146		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		307			222
Subtotal		5,987			5,620
Accumulated depreciation		(3,904	)		(3,686	)
Equipment and leasehold improvements, net	$	2,083		$	1,934

	March 31, 2022		June 30, 2021
	(unaudited)
	(in thousands)

Accrued compensation	$	419	$	509
Accrued expenses and interest		198		185
Other accrued liabilities	$	617	$	694

(1)	Unsecured note payable for $100,000 to an individual 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, 2023. Personally guaranteed by principal stockholder.

(2)	Unsecured note payable for $200,000 to an individual with interest payable monthly at 20%, principal originally due in full on May 1, 2013, extended to May 1, 2019, then extended to May 1, 2021. This note was repaid in full on April 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on May 1, 2023. Personally guaranteed by principal stockholder.

(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, 2023. Personally guaranteed by principal stockholder.

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	2,334

Current lease liabilities	Operating lease liabilities	$	310
Non-current lease liabilities	Long-term operating lease liabilities		2,164
Total lease liabilities		$	2,474

Payments	(in thousands)
2022	$	156
2023		642
2024		680
2025		721
2026 and thereafter		1,290
Total undiscounted lease payments		3,489
Less: Present value discount		(1,015	)
Total lease liability balance	$	2,474

Years ending June 30,	*(in thousands)*
2022	$	99
2023		382
2024		361
2025		316
2026		198
2027		37
Future Minimum Note Payable Payments		1,393
Less Amount Representing Interest		(187	)
Present Value of Minimum Note Payable Payments		1,206
Less Current Portion		(306	)
Long-Term Obligations under Equipment Notes Payable	$	900

	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	$	0.04	$	974,300
Granted		50,000			4.6	$	0.30		-
Exercised		(1,050,000	)			$	0.03		-
Forfeited or expired		(150,000	)		2.9	$	0.03		-
Options outstanding as of March 31, 2022		1,350,000			1.9	$	0.06	$	179,615
Options exercisable as of March 31, 2022		875,000			1.2	$	0.03	$	138,765

	Nine Months Ended March 31, 2022			Nine Months Ended March 31, 2021
Exercise Price:	$	0.30		$0.13 - $0.17
Volatility:		500	%	469% - 489		%
Risk Free Rate:		0.65	%	0.25% - 0.49		%
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		1,050,000		1.4	$	0.03		850,000	$	0.03
$	.05		50,000		1.3	$	0.05		–	$	–
$	.13 to $.17		200,000		4.0	$	0.15		25,000	$	0.13
$	.30		50,000		4.6	$	0.30		–		–
Total stock options			1,350,000		1.9	$	0.06		875,000	$	0.03

	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
	($ in thousands)
Cost of Goods Sold	$	1	$		$	2	$
Other Selling and Marketing		2		1		6		3
General and Administrative		1		3		6		9
Total Stock-based Compensation Expense	$	4	$	4	$	14	$	12

	March 31,
	2022
Shares of common stock reserved for issuance under the 2015 Plan		2,350,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000
Total shares of common stock equivalents		6,650,000

	Three Months Ended
	(unaudited)
	March 31, 2022			March 31, 2021
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		73.4	%		71.8	%
Gross Margin		26.6	%		28.2	%
Operating Expenses		18.7	%		19.1	%
Income from operations		7.9	%		9.1	%

	Three Months Ended (unaudited)
(Dollars in thousands)	March 31, 2022				March 31, 2021
Net Sales:
Liberator	$	3,257	48	%	$	2,830	46	%
Jaxx		1,906	28	%		1,476	24	%
Avana		735	11	%		1,010	16	%
Products purchased for resale		431	7	%		532	9	%
Other		424	6	%		333	5	%
Total Net Sales	$	6,753	100	%	$	6,181	100	%

	Nine Months Ended (unaudited)
(Dollars in thousands)		March 31, 2022			March 31, 2021
Net Sales:
Liberator	$	9,254	46	%	$	7,300	42	%
Jaxx		6,132	30	%		4,903	29	%
Avana		2,266	11	%		2,803	16	%
Products purchased for resale		1,349	7	%		1,327	8	%
Other		1,163	6	%		929	5	%
Total Net Sales	$	20,164	100	%	$	17,262	100	%

The following table summarizes our cash flows:
	Nine Months Ended
	March 31,
(Dollars in thousands)	2022			2021
	(Unaudited)
Cash flow data:
Cash provided by operating activities	$	263		$	505
Cash used in investing activities	$	(50	)	$	(164	)
Cash used in financing activities	$	(255	)	$	(223	)

(Dollars in thousands)	Nine months ended March 31,
	2022		2021
Net income	$	846	$	2,263
Plus interest expense, net		261		289
Plus depreciation and amortization expense		227		157
Plus stock-based compensation		14		12
Adjusted EBITDA	$	1,348	$	2,721

		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)

May 16, 2022	By:	/s/ Louis S. Friedman
(Date)		Louis S. Friedman
		President and Chief Executive Officer (Principal Executive Officer)

May 16, 2022	By:	/s/ Alexander A. Sannikov
(Date)		Alexander A. Sannikov
		Chief Financial Officer (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
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	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: May 16, 2022		/s/ Alexander A. Sannikov
		Alexander A. Sannikov
		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.