Luvu Brands, Inc 10-Q for FY2023 Q2

Luvu Brands, Inc. (LUVU)

10-Q 2023-02-17 For: 2022-12-31

Added on April 06, 2026

About this 10-Q

Luvu Brands, Inc filed this 10-Q on February 17, 2023, covering the quarter ended December 31, 2022 (FY2023 Q2).

Headline figures

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

Revenue: $8.14M; up 13.2% from $7.19M a year earlier
Net income: $695K; up 316.2% from net income of $167K a year earlier
Diluted EPS: $0.01; compared with $0.00 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

ITEM 1.	Financial Statements	Page Number

	Consolidated Balance Sheets – At December 31, 2022 (unaudited) and June 30, 2022	4

	Consolidated Statements of Operations – For the Three and Six Months Ended December 31, 2022 and December 31, 2021 (unaudited)	5

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

	Consolidated Statements of Cash Flows – For the Six Months Ended December 31, 2022 and December 31, 2021 (unaudited)	7

	Condensed Notes to 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


OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	December 31,
	2022			June 30,
	(unaudited)			2022
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	1,875		$	859
Accounts receivable, net (1)		1053			1,192
Inventories, net		3,931			3,817
Prepaid expenses		175			165
Total current assets		7,034			6,033

Equipment and leasehold improvements, net		1,963			2,029
Finance lease assets		32			47
Operating lease right-of-use assets, net		2,090			2,255
Other assets		99			100
Total assets	$	11,218		$	10,464

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	2,619		$	2,680
Current debt		1,780			1,618
Other accrued liabilities (1)		675			630
Operating lease liabilities		368			331
Total current liabilities		5,442			5,259

Noncurrent liabilities:
Long-term debt		727			1,183
Long-term operating lease liabilities		1,874			2,068
Total noncurrent liabilities		2,601			3,251
Total liabilities		8,043			8,510
Commitments and contingencies (See Note 13)		-			-
Stockholders’ equity:
Preferred stock, 5,700,000 shares authorized, $0.0001 par value none issued and outstanding		-			-
Series A Convertible Preferred stock, 4,300,000 shares authorized $0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $1,000 at December 31, 2022 and June 30, 2022		-			-
Common stock, $0.01 par value, 175,000,000 shares authorized, 76,511,005 and 76,046,249 shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively		765			760
Additional paid-in capital		6,211			6,183
Accumulated deficit		(3,801	)		(4,989	)
Total stockholders’ equity		3,175			1,954
Total liabilities and stockholders’ equity	$	11,218		$	10,464

	Three Months Ended December 31,						Six Months Ended December 31,
	2022			2021			2022			2021
	(in thousands, except share data)
Net Sales	$	8,135		$	7,186		$	16,195		$	13,411
Cost of goods sold		5,876			5,609			11,963			10,335
Gross profit		2,259			1,577			4,232			3,076
Operating expenses
Advertising and promotion		200			155			386			287
Other selling and marketing		343			321			708			581
General and administrative		845			772			1,604			1,485
Depreciation and amortization		88			78			175			149
Total operating expenses		1,476			1,326			2,873			2,502
Income from operations		783			251			1,359			574
Other Income (Expense):
Interest expense and financing costs		(88	)		(84	)		(171	)		(180	)
Total Other Income (Expense)		(88	)		(84	)		(171	)		(180	)
Income before income taxes		695			167			1,188			394
Provision for income taxes		-			-			-			-
Net income	$	695		$	167		$	1,188		$	394
Net income per share:
Basic	$	0.01		$	0.00		$	0.02		$	0.01
Diluted	$	0.01		$	0.00		$	0.02		$	0.01

Shares used in computing net income per share:
Basic		76,232,012			73,682,551			76,139,131			75,088,425
Diluted		76,481,239			74,050,847			76,371,111			76,594,991

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

Balance, June 30, 2021		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

Balance, June 30, 2022		4,300,000	$	-		76,046,249	$	760	$	6,183	$	(4,989	)	$	1,954
Stock-based compensation expense		-		-		-		-		22		-			22
Stock option exercises		-		-		464,756		5		6		-			11
Net income for the six months ended December 31, 2022		-		-		-		-		-		1,188			1,188
Balance, December 31, 2022 (unaudited)		4,300,000	$	-		76,511,005	$	765	$	6,211	$	(3,801	)	$	3,175

	Six Months Ended
	December 31,
	2022			2021
OPERATING ACTIVITIES:	(in thousands)
Net income	$	1,188		$	394
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		175			149
Stock based compensation expense		22			10
Provision for bad debt		1			1
Amortization of operating lease right-of-use assets		165			144
Changes in operating assets and liabilities:
Accounts receivable (1)		54			128
Inventories		(114	)		(65	)
Prepaid expenses and other assets		(9	)		(38	)
Accounts payable		(61	)		71
Accrued compensation		(16	)		(204	)
Accrued expenses and interest (1)		155			124
Operating leases liability		(158	)		(128	)
Net cash provided by operating activities		1,402			444

INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(54	)		(46	)
Net cash used in investing activities		(54	)		(46	)

FINANCING ACTIVITIES:
Repayment of unsecured notes payable		-			(200	)
Proceeds from unsecured notes payable		-			200
Net cash provided by (repaid to) line of credit		(165	)		(49	)
Repayments of secured notes payable		-			(117	)
Repayment of unsecured line of credit		(6	)		(6	)
Proceeds from exercise of stock options		2			3
Payments on equipment notes		(156	)		(121	)
Principal payments on leases payable		(7	)		(4	)
Net cash used in financing activities		(332	)		(294	)
Net increase (decrease) in cash and cash equivalents		1,016			104
Cash and cash equivalents at beginning of period		859			977
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,875		$	1,081

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash item:
Purchases of equipment with equipment notes	$	40		$	28
Cash paid during the period for:
Interest	$	-		$	179
Income taxes	$	-		$	-

	December 31, 2022			June 30, 2022
	(unaudited)
	(in thousands)
Accounts receivable (1)	$	1,104		$	1,199
Allowance for doubtful accounts		(1	)		(1	)
Allowance for discounts and returns		(50	)		(6	)
Total accounts receivable, net	$	947		$	1,192

	Three Months Ended December 31, 2022		Three Months Ended December 31, 2021		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	2,645	$	2,174		22	%
Wholesale	$	5,287	$	4,827		10	%
Other	$	204	$	185		10	%
Total Net Sales	$	8,136	$	7,186		13	%

	Three Months Ended December 31, 2022			Margin %			Three Months Ended December 31, 2021			Margin %			$ % Change
Gross Profit by Channel:	(in thousands)						(in thousands)
Direct	$	1,242			47	%	$	990			46	%		25	%
Wholesale	$	1,545			29	%	$	987			20	%		57	%
Other	$	(528	)		—	%	$	(400	)		—	%		(32	)%
Total Gross Profit	$	2,259			28	%	$	1,577			22	%		43	%

	Six Months Ended December 31, 2022		Six Months Ended December 31, 2021		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	4,911	$	3,921		25	%
Wholesale	$	10,885	$	9,143		19	%
Other	$	398	$	347		15	%
Total Net Sales	$	16,194	$	13,411		21	%

	December 31, 2022			June 30, 2022
	(unaudited)
	(in thousands)
Raw materials	$	2,158		$	1,893
Work in process		561			440
Finished goods		1,388			1,660
Total inventories		4,107			3,993
Allowance for slow moving inventory		(176	)		(176	)
Total inventories, net of allowance	$	3,931		$	3,817

	December 31, 2022			June 30, 2022			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	4,275		$	3,840		2-10 years
Computer equipment and software		1,170			1,167		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		-			318
Subtotal		6,130			6,010
Accumulated depreciation and amortization		(4,167	)		(3,981	)
Equipment and leasehold improvements, net	$	1,963		$	2,029

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	2,090

Current lease liabilities	Operating lease liabilities	$	368
Non-current lease liabilities	Long-term operating lease liabilities		1,874
Total lease liabilities		$	2,242

Payments	(in thousands)
2023	$	330
2024		680
2025		721
2026		762
2027 and thereafter		528
Total undiscounted lease payments		3,021
Less: Present value discount		(779	)
Total lease liabilities balance	$	2,242

Years ending June 30,	*(in thousands)*
2023	$	199
2024		379
2025		333
2026		215
2027		41
Future Minimum Note Payable Payments		1,167
Less Amount Representing Interest		(132)
Present Value of Minimum Note Payable Payments	1035
Less Current Portion		(325)
Long-Term Obligations under Equipment Notes Payable	$	710

Year ending June 30,	(in thousands)
2023		8
2024		17
2025		6
2026		3
Future Minimum Finance Lease Payable Payments	$	34
Less Amount Representing Interest		(2)
Present Value of Minimum Finance Lease Payable Payments		32
Less Current Portion		(15)
Long-Term Obligations under Finance Lease Payable	$	17

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2022		1,975,000			3.0	$	0.10	$	107,500
Granted		-			-		-		-
Exercised		(475,000	)		0.0	$	0.03		-
Forfeited or expired		(50,000	)		0.0	$	0.03		-
Options outstanding as of December 31, 2022		1,450,000			2.7	$	0.13	$	92,200
Options exercisable as of December 31, 2022		362,500			1.7	$	0.05	$	52,451

		Outstanding Options						Exercisable Options
Exercise Prices		Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$	.02 to $.03		400,000		1.8	$	0.03		275,000	$	0.03
$	.05		50,000		0.5	$	0.05		50,000	$	0.05
$	.16 to $.20		950,000		3.1	$	0.17		25,000	$	0.17
$	.30		50,000		3.6	$	0.30		25,000	$	0.30
Total stock options			1,450,000		2.7	$	0.13		375,000	$	0.05

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	($ in thousands)
Cost of Goods Sold	$	1	$	1	$	2	$	1
Other Selling and Marketing		3		2		7		4
General and Administrative		6		3		13		5
Total Stock-based Compensation Expense	$	10	$	6	$	22	$	10

	December 31,
	2022
Shares of common stock reserved for issuance under the 2015 Plan		1,450,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000
Total Shares of common stock equivalents		5,750,000

	Three Months Ended
	(unaudited)
	December 31, 2022			December 31, 2021
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		72.2	%		78.0	%
Gross Margin		27.8	%		22.0	%
Operating Expenses		18.1	%		18.5	%
Income from operations		9.6	%		3.5	%

	Three Months Ended (unaudited)
(Dollars in thousands)	December 31, 2022				December 31, 2021
Net Sales:
Liberator	$	4,856	60	%	$	3,256	45	%
Jaxx		2,088	26	%		2,346	33	%
Avana		542	7	%		787	11	%
Products purchased for resale		370	4	%		490	7	%
Other		279	3	%		307	4	%
Total Net Sales	$	8,135	100	%	$	7,186	100	%

	Six Months Ended (unaudited)
(Dollars in thousands)	December 31, 2022				December 31, 2021
Net Sales:
Liberator	$	9,964	62	%	$	5,997	45	%
Jaxx		3,869	24	%		4,226	32	%
Avana		1,096	7	%		1,531	11	%
Products purchased for resale		685	4	%		918	7	%
Other		581	3	%		739	5	%
Total Net Sales	$	16,195	100	%	$	13,411	100	%

The following table summarizes our cash flows:
	Six Months Ended
	December 31,
(Dollars in thousands)	2022			2021
	(Unaudited)
Cash flow data:
Cash provided by operating activities	$	1,402		$	444
Cash used in investing activities	$	(54	)	$	(46	)
Cash used in financing activities	$	(332	)	$	(294	)

(Dollars in thousands)	Six months ended December 31,
	2022		2021
Net income	$	1,188	$	394
Plus interest expense, net		172		180
Plus depreciation and amortization expense		175		149
Plus stock-based compensation		22		10
Adjusted EBITDA	$	1,557	$	733

		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, 2023	By:	/s/ Louis S. Friedman
(Date)		Louis S. Friedman
		President and Chief Executive Officer (Principal Executive Officer)

February 17, 2023	By:	/s/ Alexander A. Sannikov
(Date)		Alexander A. Sannikov
		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, 2023		/s/ Louis S. Friedman
		Louis S. Friedman
		Chief Executive Officer (Principal Executive 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.