UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

☐

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

For the ~~quarterly~~transition period ~~ended December 31, 2017~~from to

Commission File ~~Number:~~Number 000-53314

~~Luvu Brands, Inc.~~

~~(Exact name of registrant as specified in this charter)~~

~~Florida~~		~~59-3581576~~ Luvu Brands, Inc.
(Exact name of registrant as specified in its charter)

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

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

~~2745 Bankers Industrial Drive, Atlanta, Georgia 30360~~(770) 246-6400

(~~Address of principal executive offices and zip~~Registrant’s telephone number, including area code)

~~Company's telephone number:~~~~(770) 246-6400~~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)~~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. Yesx ☒ Noo ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T ~~(§232.405 of this chapter)~~ during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesx ☒ Noo ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See ~~definition~~definitions of ~~large~~“large accelerated filer,” ~~accelerated filer”~~“accelerated filer,” “smaller reporting company” and ~~smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act (Check one):

Large accelerated filero	☐	Accelerated filero	☐
Non-accelerated filer	☒	Smaller reporting companyx	☒
~~Non-accelerated filer~~ o		Emerging growth companyo	☐
~~(Do not check if a smaller reporting company)~~

If an emerging growth company, indicate by ~~checkmark~~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. o[ __ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange ~~Act.)~~Act). Yeso ☐ Nox ☒

As of ~~February 13, 2018~~May 22, 2023, there were ~~73,452,596~~76,547,672 shares of ~~the registrant’s~~ common stock outstanding.

~~LUVU BRANDS, INC.~~

~~TABLE OF CONTENTS~~

LUVU BRANDS, INC.

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements		Page Number

	~~Condensed~~ Consolidated Balance Sheets –
	At ~~December~~March 31, ~~2017~~2023 (unaudited) and June 30, ~~2017~~2022	3	4

	~~Condensed~~ Consolidated Statements of Operations –
	For the Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2017~~2023 and ~~December~~March 31, ~~2016~~2022 (unaudited)	4	5

	~~Condensed~~ Consolidated Statements of Stockholders’ Equity – For the Nine Months Ended March 31, 2023 and March 31, 2022 (unaudited) For the Three Months Ended March 31, 2023 and March 31, 2022 (unaudited)		6

	Consolidated Statements of Cash Flows – For the Nine Months Ended March 31, 2023 and March 31, 2022 (unaudited)		7
	~~For the Six Months Ended December 31, 2017 and December 31, 2016 (unaudited)~~	5

	Condensed Notes to ~~Condensed~~ Consolidated Financial Statements (unaudited)	6	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

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 our wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). Our corporate website is www.LuvuBrands.com. There we make available copies of Luvu Brands documents, news releases and our filings with the U.S. Securities and Exchange Commission including financial statements.

Unless specifically set forth to the contrary, the information that appears on our websites or our various social media platforms is not part of this report.


~~ITEM 4.~~	~~Mine Safety Disclosures~~	302

Table of Contents

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, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


~~ITEM 5.~~	~~Other Information~~	303

~~ITEM 6.~~	~~Exhibits~~	30Table of Contents

~~SIGNATURES~~		31

PART IFINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

LUVU BRANDS, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Balance Sheets

December 31,
2017 June 30,
(unaudited) 2017
Assets: (in thousands, except share data)
Current assets:
Cash and cash equivalents $ 567 $ 742
Accounts receivable, net 708 631
Inventories, net 1,567 1,545
Prepaid expenses 54 80
Total current assets 2,896 2,998

Equipment and leasehold improvements, net 851 869
Other assets 12 9
Total assets $ 3,759 $ 3,876

Liabilities and stockholders’ deficit:
Current liabilities:
Accounts payable $ 2,393 $ 2,177
Current debt 1,866 2,115
Other accrued liabilities 502 535
Total current liabilities 4,761 4,827

Noncurrent liabilities:
Long-term debt 1,096 1,094
Deferred rent payable 126 147
Total noncurrent liabilities 1,222 1,241
Total liabilities 5,983 6,068
Commitments and contingencies (See Note 15) —   —
Stockholders’ deficit:
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, 2017 and June 30, 2017 —   —
Common stock, $0.01 par value, 175,000,000 shares authorized, 73,452,596 shares issued and outstanding  at December 31, 2017 and June 30, 2017 735 735
Additional paid-in capital 6,091 6,079
Accumulated deficit (9,050 ) (9,006 )
Total stockholders’ deficit (2,224 ) (2,192 )
Total liabilities and stockholders’ deficit $ 3,759 $ 3,876

	March 31,
	2023			June 30,
	(unaudited)			2022
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	1,353		$	859
Accounts receivable, net (1)		1,367			1,192
Inventories, net		4,442			3,817
Prepaid expenses		108			165
Total current assets		7,270			6,033

Property, plant and equipment, net		2,270			2,029
Finance lease assets		28			47
Equipment and leasehold improvements, net		2,298			2,076
Operating lease right-of-use assets, net		2,003			2,255
Other assets		100			100
Total assets	$	11,671		$	10,464
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	2,336		$	2,680
Current debt		1,940			1,618
Other accrued liabilities (1)		828			630
Operating lease liabilities		381			331
Total current liabilities		5,485			5,259

Noncurrent liabilities:
Long-term debt		933			1,183
Long-term operating lease liabilities		1,773			2,068
Total noncurrent liabilities		2,706			3,251
Total liabilities		8,191			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 March 31, 2023 and June 30, 2022		—			—
Common stock, $0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,046,249 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively		765			760
Additional paid-in capital		6,223			6,183
Accumulated deficit		(3,508	)		(4,989	)
Total stockholders’ equity		3,480			1,954
Total liabilities and stockholders’ equity	$	11,671		$	10,464

(1)

During the nine months ending March 31, 2023 we reclassified credit balances in accounts receivable of $142,123 to deferred revenue. For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by $85,000 for comparability only. Consolidated Statement of Cash Flows was adjusted accordingly to reflect these reclassifications.

See accompanying condensed notes to unaudited ~~condensed~~ consolidated financial statements.

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Operations

(unaudited)

Three Months Ended
December 31, Six Months Ended
December 31,
2017 2016 2017 2016
(in thousands, except share data)
Net Sales $ 4,635 $ 5,134 $ 8,258 $ 9,239
Cost of goods sold 3,277 3,593 5,921 6,721
Gross profit 1,358 1,541 2,337 2,518
Operating expenses
Advertising and promotion 126 124 219 206
Other selling and marketing 273 281 558 566
General and administrative 622 563 1,231 1,147
Depreciation and amortization 54 52 106 103
Total operating expenses 1,075 1,020 2,114 2,022
Income from operations 283 521 223 496
Other Income (Expense):
Loss on disposal of assets —   (1 ) —   (1 )
Interest expense and financing costs (134 ) (121 ) (267 ) (273 )
Total Other (Expense) (134 ) (122 ) (267 ) (274 )
Income (loss) before income taxes 149 399 (44 ) 222
Provision for income taxes —   —   —   —
Net income (loss) $ 149 $ 399 $ (44 ) $ 222
Net income (loss) per share:
         Basic $ 0.00 $ 0.01 $ (0.00 ) $ 0.00
         Diluted $ 0.00 $ 0.01 $ (0.00 ) $ 0.00

Shares used in computing net income (loss) per share
         Basic 73,452,596 72,496,074 73,452,596 71,974,335
         Diluted 74,641,659 72,922,615 73,452,596 72,352,420

	Three Months Ended March 31,						Nine Months Ended March 31,
	2023			2022			2023			2022
	(in thousands, except share data)
Net Sales	$	6,903		$	6,753		$	23,098		$	20,164
Cost of goods sold (excl. of depreciation shown separately Below)		5,134			4,959			17,097			15,294
Gross profit		1,769			1,794			6,001			4,870
Operating expenses
Advertising and promotion		171			132			557			419
Other selling and marketing		342			299			1,050			880
General and administrative		784			751			2,388			2,237
Depreciation and amortization		89			79			264			227
Total operating expenses		1,386			1,261			4,259			3,763
Income from operations		383			533			1,742			1,107
Other Income (Expense):
Interest expense and financing costs		(90	)		(81	)		(262	)		(261	)
Total Other Income (Expense)		(90	)		(81	)		(262	)		(261	)
Income before income taxes		293			452			1,480			846
Provision for income taxes		-			-			-			-
Net income	$	293		$	452		$	1,480		$	846
Net income per share:
Basic	$	0.00		$	0.01		$	0.02		$	0.01
Diluted	$	0.00		$	0.01		$	0.02		$	0.01

Shares used in computing net income per share:
Basic		76,514,264			75,639,004			76,262,350			75,269,935
Diluted		76,740,653			76,383,078			76,471,988			76,047,099

See accompanying condensed notes to unaudited ~~condensed~~ consolidated financial statements.

Table of Contents

Luvu Brands, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months ended March 31, 2023 and March 31, 2022 (unaudited)

	Series A Preferred								Additional						Total
	Stocks				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		—		—		—		—		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		4,300,000	$	—		75,941,860	$	759	$	6,174		$	(4,747	)	$	2,186

Balance, June 30, 2022		4,300,000	$	—		76,046,249	$	760	$	6,183		$	(4,989	)	$	1,954
Stock-based compensation expense		—		—		—		—		34			—			34
Stock option exercises		—		—		501,423		5		6			—			11
Net income for the nine months ended March 31, 2023		—		—		—		—		—			1,480			1,480
Balance, March 31, 2023		4,300,000	$	—		76,547,672	$	765	$	6,223		$	(3,508	)	$	3,480

For the Three Months ended March 31, 2023 and March 31, 2022 (unaudited)

	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, December 31, 2021		4,300,000	$	—		75,260,433	$	752	$	6,177		$	(5,199	)	$	1,730
Stock-based compensation expense		—		—		—		—		4			—			4
Stock option exercises		—		—		681,427		7		(7	)		—			—
Net income for the three months ended March 31, 2022		—		—		—		—		—			452			452
Balance, March 31, 2022		4,300,000	$	—		75,941,860	$	759	$	6,174		$	(4,747	)	$	2,186

Balance, December 31, 2022		4,300,000	$	—		76,511,005	$	765	$	6,211		$	(3,801	)	$	3,175
Stock-based compensation expense		—		—		—		—		12			—			12
Stock option exercises		—		—		36,667		—		—			—			—
Net income for the three months ended March 31, 2023		—		—		—		—		—			293			293
Balance, March 31, 2023		4,300,000	$	—		76,547,672	$	765	$	6,223		$	(3,508	)	$	3,480

See accompanying condensed notes to unaudited consolidated financial statements.

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Statements of Cash Flows

(unaudited)

Six Months Ended

December 31,

2017

2016

(in thousands)
OPERATING ACTIVITIES:
Net (loss) income $ (44 ) $ 222
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:

Depreciation and amortization 106 103
Stock based compensation expense 12 14
Loss on disposal of assets - 1
Provision for bad debt (5 ) 4
Provision for inventory reserves 32 30
Deferred rent payable (17 ) (11 )
Changes in operating assets and liabilities:
Accounts receivable (72 ) (329 )
Inventories (53 ) (216 )
Prepaid expenses and other assets 23 17
Accounts payable 217 196
Accrued compensation (6 ) 46
Accrued expenses and interest
(33
)
(13
)
Net cash provided by operating activities
160

64

INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements
(18
)
(47
)
Net cash used in investing activities
(18
)
(47
)

FINANCING ACTIVITIES:
Sale of common stock - 100
Repayment of term note-shareholder (74 ) (62 )
Proceeds from unsecured note payable 550 -
Net cash provided by line of credit 56 241
Proceeds from credit card advance - 550
Repayment of credit card advance (342 ) (448 )
Repayment of unsecured line of credit 24 (6 )
Payments on equipment notes (45 ) (32 )
Repayment of short-term unsecured notes payable (465 ) (303 )
Principal payments on capital leases
(21
)
(32
)
Net cash (used in) provided by financing activities
(317)

8

Net (decrease) increase in cash and cash equivalents (175 ) 25
Cash and cash equivalents at beginning of period
742

545

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
567

$
570

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non cash item:
Purchases of equipment with equipment notes $ 70 $ 138
Cash paid during the period for:
Interest $ 264 $ 250
Income taxes $ - $ -

	Nine Months Ended
	March 31,
	2023			2022
OPERATING ACTIVITIES:	(in thousands)
Net income	$	1,480		$	846
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		264			227
Stock based compensation expense		34			14
Provision for bad debt		1			1
Amortization of operating lease right-of-use assets		252			220
Changes in operating assets and liabilities:
Accounts receivable (1)		(262	)		(218	)
Inventories		(624	)		(417	)
Prepaid expenses and other assets		57			(45	)
Accounts payable		(344	)		(89	)
Accrued compensation		133			(90	)
Accrued expenses and interest (1)		160			14
Operating leases liability		(245	)		(200	)
Net cash provided by operating activities		906			263

INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(113	)		(50	)
Net cash used in investing activities		(113	)		(50	)

FINANCING ACTIVITIES:
Repayment of unsecured notes payable		(200	)		(200	)
Proceeds from unsecured notes payable		200			200
Net cash provided by (repaid to) line of credit		(71	)		103
Repayments of secured notes payable		-			(152	)
Repayment of unsecured line of credit		(9	)		(9	)
Proceeds from exercise of stock options		2			3
Payments on equipment notes		(210	)		(192	)
Principal payments on leases payable		(11	)		(8	)
Net cash used in financing activities		(299	)		(255	)
Net increase (decrease) in cash and cash equivalents		494			(42	)
Cash and cash equivalents at beginning of period		859			977
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,353		$	935

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash item:
Purchases of equipment with equipment notes	$	373		$	326
Finance lease asset obligation in exchange for lease payable	$	—		$	23
Cash paid during the period for:
Interest	$	261		$	259
Income taxes	$	—		$	—

(1)

During the nine months ending March 31, 2023 we reclassified credit balances in accounts receivable of $142,123 to deferred revenue. For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by $85,000 for comparability only. Consolidated Statements of Cash Flows was adjusted accordingly to reflect these reclassifications.

See accompanying condensed notes to unaudited ~~condensed~~ consolidated financial statements.

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

Luvu Brands, Inc. (the “Company” or ~~“Luvu Brands”~~“Luvu”) was incorporated in the State of Florida on February 25, 1999. References to the ~~“Company”~~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 Innovations, Inc.~~OneUp.

The Company is an Atlanta, Georgia based designer, manufacturer and ~~brand based~~ marketer of a portfolio of consumer lifestyle brands including: Liberator^®, a brand category of iconic products ~~that offers~~for enhancing sexual performance; Avana^® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux, surgery recovery and chronic pain; and Jaxx^®, a ~~growing number~~diverse range of ~~product categories including: Liberator® sexual positioning furniture, Avana™ top-of-bed comfort pillows and Jaxx®~~ casual fashion ~~furniture, child, teen~~daybeds, sofas and ~~adult~~ beanbags ~~outdoor loungers, loveseats,~~made from polyurethane foam and ~~daybeds.~~repurposed polyurethane foam trim. These products are sold through the Company’s websites, ~~concept factory store,~~ online mass merchants and retail stores worldwide. Many of our products are offered flat-packed and either roll or vacuum compressed to save on shipping and reduce our carbon footprint.

Sales are generated through internet and print ~~advertisements.~~advertisements and social marketing. We have a diversified customer base with only one customer accounting for 10% or more of consolidated net sales in the current and prior fiscal year and no particular concentration of credit risk in one economic sector. Foreign operations and foreign net sales are not material. Our business is seasonal and as a result we typically experience higher sales in ~~the~~our second and third fiscal quarters.

The accompanying unaudited ~~condensed~~ consolidated financial statements of ~~Luvu Brands, Inc.~~the Company and all of its wholly-owned subsidiaries ~~(collectively, the "Company" “we” or "Luvu Brands")~~ included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the ~~"SEC"~~“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"~~(“GAAP”) have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments (including those, which are normal and recurring) considered necessary for fair presentation have been included. The year-end condensed 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 ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 are not necessarily indicative of the results to be expected for the entire fiscal year. These condensed 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, ~~2017.~~2022 as filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2022 (the “2022 10-K”).

NOTE 2. ~~GOING CONCERN~~

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. As of December 31, 2017, the Company has an accumulated deficit of approximately $9,050,000 and a working capital deficit of approximately $1,865,000. This raises substantial doubt about our ability to continue as a going concern.

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

These actions include an ongoing initiative to increase sales, gross profits and our gross profit margin. To that end, at the end of fiscal 2016, we evaluated various options for increasing the throughput of our compressed foam products and during the first quarter of fiscal 2017, we purchased new foam compression equipment for installation during the second quarter of fiscal 2017. This action has yielded higher factory throughput at a lower cost of goods sold. We also plan to continue to manage discretionary expense levels to be better aligned with current and expected revenue levels. We estimate that the operational and strategic growth plans we have identified over the next twelve months will require approximately $250,000 of funding, of which we estimate will be provided by debt financing and, to a lesser extent, cash flow from operations as well as cash on hand.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. However, management cannot provide any assurances that the Company will be successful in accomplishing these plans. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

~~NOTE 3.~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements include the accounts and operations of our 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 ~~condensed~~ financial statements have been prepared in accordance with ~~accounting principles generally accepted in the United States of America~~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 ~~condensed~~ financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s ~~report on Form 10-K for the year ended June 30, 2017 filed on October 4, 2017.~~2022 10-K.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the period reported. Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Use of Estimates

The preparation of the consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States~~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; deferred tax ~~valuation reserves;~~allowance; allowances for doubtful accounts; inventory valuation and ~~reserves,~~allowances; share-based compensation; and useful lives for depreciation and amortization. Actual results could differ materially from these estimates.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

We ~~recognize revenues as goods are shipped to customers and title is transferred. The criteria for recognition of~~record revenue ~~are when persuasive evidence that an arrangement exists and both title and risk of loss have passed~~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 ~~customer,~~performance obligations; and (5) recognizing revenue when the ~~price~~performance obligations are satisfied. Substantially all of our revenue is ~~fixed~~generated by fulfilling orders for the purchase of manufactured products and product purchased for resale to retailers, wholesalers, or ~~determinable,~~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 ~~collectability~~handling activities for which we are 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 our promise to transfer the goods and are expensed when revenue is ~~reasonably assured. Sales~~recognized. The impact of this policy election is insignificant as it aligns with our current practice.

Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation. We have 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 our 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 ~~allowances~~early payment discounts. Such estimates are ~~estimated~~calculated using historical averages adjusted for any expected changes due to current business conditions and ~~recorded as a reduction to sales~~experience. We review and update 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, we consider 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 ~~sales are recorded.~~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 delivered, or in some cases, picked up from one of our distribution centers by the customer.

The Company records product sales net of estimated product returns and discounts from the list prices for its products. The amounts of product returns and the discount amounts have not been material to date. The Company includes shipping and handling costs in cost of product sales.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. During the nine months ending March 31, 2023, we reclassified credit balances in accounts receivable of $142,123 to deferred revenue.

Our total deferred revenue as of June 30, 2022 was $243,944 and was included in “Other accrued liabilities” in the consolidated balance sheets. The deferred revenue balance as of March 31, 2023 was $18,272.

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.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts to reflect our estimate of current and past due receivable balances that may not be collected. The allowance for doubtful accounts ~~reflects management's best estimate~~is based upon our assessment of ~~probable credit losses inherent in~~ the collectability of specific customer accounts, the aging of accounts receivable ~~balance. The Company determines~~and our history of bad debts. We believe that the ~~allowance based on historical experience, specifically identified nonpaying accounts and other currently available evidence. The Company reviews its~~ allowance for doubtful accounts ~~monthly with a focus on~~is adequate to cover anticipated losses in the receivable balance under current conditions. However, significant ~~individual past due balances over 90 days. Account balances are charged off against~~deterioration in the financial condition of our customers, resulting in an impairment of their ability to make payments, could materially change these expectations and an additional 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.~~may be required.

The following is a summary of Accounts Receivable as of ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017.~~2022.

	December 31, 2017			June 30, 2017			March 31, 2023			June 30, 2022
	(in thousands)						(unaudited)
Accounts receivable	$	722		$	646
							(in thousands)
Accounts receivable (1)							$	1,408		$	1,199
Allowance for doubtful accounts		(5	)		(7	)		(1	)		(1	)
Allowance for discounts and returns		(9	)		(8	)		(40	)		(6	)
Total accounts receivable, net	$	708		$	631		$	1,367		$	1,192

(1) During the nine months ending March 31, 2023 we reclassified credit balances in accounts receivable of $142,123 to deferred revenue. For the period ending June 30, 2022, accounts receivable and deferred revenue were adjusted by $85,000 for comparability only. Consolidated Statement of Cash Flow was adjusted accordingly to reflect these reclassifications.

Inventories and Inventory ~~Reserves~~Allowances

Inventories are stated at the lower of cost or ~~market.~~net realizable value. Cost is determined using the first-in, first-out (FIFO) method. ~~Market~~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~~Company establishes ~~reserves~~allowances 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~~allowances required to record inventory at lower of cost or ~~market~~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 total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per bank. The Company had bank balances on deposit at ~~December~~March 31, ~~2017~~2023 that exceeded the balance insured by the FDIC by ~~$399,078.~~ $1,174,029. Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.

During the ~~six month~~three and nine months ended ~~December~~March 31, ~~2017,~~2023, we purchased ~~14%~~32% and 35% respectively, of total inventory purchases from one vendor.

During the fiscal year ended June 30, ~~2017,~~2022, we purchased ~~13% and 10%~~34% of total inventory purchases from ~~two vendors.~~one vendor.

As of ~~December~~March 31, ~~2017 one~~2023, two of the Company’s customers ~~(Amazon)~~ represents ~~62%~~49% and 11% of the total accounts receivables, ~~compared to 41% as~~respectively. As of June ~~2017.~~30, 2022, two of the Company’s customers represents 21% and 13% of the total accounts receivables, respectively. For the three and nine months ended March 31, 2023, sales to and through Amazon accounted for 34% and 36% of our net sales, respectively.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial ~~and Derivative~~ Instruments

At ~~December~~March 31, ~~2017,~~2023 and June 30, 2022, our 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.

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

The Company measures the fair value of its assets and liabilities under the guidance of~~ASC~~Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.

The valuation techniques that may be used to measure fair value are as follows:

A. Market approach- Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

B. Income approach- Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method.

C. Cost approach- Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

Advertising Costs

Advertising costs are expensed in the period when the advertisements are first aired or distributed to the public. Prepaid advertising (included in prepaid expenses) was ~~$4,450~~$525 at ~~December~~March 31, ~~2017~~2023 and ~~$18,055~~$1,050 at June 30, ~~2017.~~2022. Advertising expense for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 was ~~$126,540~~$170,616 and ~~$123,660 ,~~$132,647, respectively. Advertising expense for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 was ~~$219,183~~$557,114 and ~~$205,669,~~$419,233, respectively.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled ~~$36,154~~$32,958 and ~~$38,812~~$26,591 for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively. Expenses for new product development totaled ~~$72,789~~$100,326 and ~~$90,741~~$87,396 for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively. Research and development costs are included in general and administrative expense.

~~Property~~Equipment and ~~Equipment~~Leasehold Improvements

~~Property~~Equipment and ~~equipment~~Leasehold Improvements are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated service lives for financial reporting purposes of 2-10 years.

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.~~

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~at that time.

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 ~~FASB~~Financial Accounting Standards Board (“FASB”) ASC Topic No. 360, Property, Plant, and ~~Equipment.~~Equipment. The Company has determined that there was no impairment at ~~December~~March 31, ~~2017.~~2023.

Operating Leases

On ~~July 23, 2014,~~November 2, 2020, the Company entered into an agreement with its landlord ~~to extend the facilities~~on a new lease by five years. The previous ten year lease was to expire on December 31, 2015. The agreement amended the lease to expire on December 31, 2020. The lease amendment was effective August 1, 2014 and included a four-month rental abatement in the amount of $117,660. In exchange for the ~~rental abatement, the Company agreed to make improvements to the facility totaling $123,505 within~~current facilities for six years and two months, beginning January 1, 2021. The new lease includes two months of ~~August 1, 2014. As of December 31, 2017, the Company has completed $96,120 of the leasehold improvements.~~rent abatement totaling $103,230. Under the new lease, ~~amendment,~~ the monthly rent on the facility ~~was $29,415 per month, beginning on December 1, 2014. Beginning January 1, 2015, the monthly rent increases annually~~is $51,615 with annual escalations of 3% with the final ~~year~~two months of rent at $61,605. In addition, the ~~lease at $35,123 per month.~~Company will pay the landlord a 2% property management fee. The rent expense ~~under this lease~~ for the ~~six~~three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 was ~~$176,239~~$163,188 and ~~$176,239,~~$163,188 respectively. The rent expense for the nine months ended March 31, 2023 and 2022 was $489,564 and $489,564 respectively.

Under ASC 842, which was adopted July 1, 2019, 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 ~~also~~elected not to recognize leases ~~certain equipment under operating leases, as more fully described~~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 ~~Note 15 -~~~~Commitments and Contingencies~~.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 ASU 2016-02, 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 16 for details.

Under prior guidance ASC 840, rent expense and lease incentives from operating leases were recognized on a straight-line basis over the lease term. The difference between rent expense recognized and rental payments was recorded as deferred rent in the accompanying consolidated balance sheets.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Segment Information

We have identified three reportable sales channels: Direct, Wholesale andOther. Direct includes product sales through our five e-commerce ~~sites and our single retail store.~~sites. Wholesale includes Liberator, Jaxx, and Avana branded products sold to ~~retailers~~distributors and ~~distributors, and~~retailers, purchased products sold to retailers, and ~~mass merchants.~~private label items sold to other resellers. TheWholesale 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 our business.Other consists principally of shipping and handling fees and costs derived from ourDirect business and fulfillment service fees. ~~For the three and six months ending December 31, 2017, sales to and through Amazon accounted for 31% and 36% of our net sales, respectively.~~

The following is a summary of sales results for the Direct, Wholesale, and Other ~~channels (dollars in thousands).~~ channels.

Three Months Ended
(unaudited) Six Months Ended
(unaudited)
December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016

Net Sales:
Direct $ 1,595 $ 1,608 $ 2,708 $ 2,882
Wholesale 2,936 3,400 5,322 6,144
Other 104 126 228 213
Total Net Sales $ 4,635 $ 5,134 $ 8,258 $ 9,239

Gross Margin:
Direct $ 734 $ 830 $ 1,248 $ 1,443
Wholesale 803 877 1,396 1,378
Other (179 ) (166 ) (307 ) (303 )
Total Gross Margin $ 1,358 $ 1,541 $ 2,337 $ 2,518

	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,913	$	1,755		9	%
Wholesale	$	4,819	$	4,832		0	%
Other	$	171	$	166		2	%
Total Net Sales	$	6,903	$	6,753		2	%

	Three Months Ended			Margin			Three Months Ended			Margin			$ %
	March 31, 2023			%			March31,2022			%			Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	923			48	%		823			47	%		12	%
Wholesale	$	1,216			25	%	$	1,261			26	%		(4	)%
Other	$	(369	)		—	%	$	(290	)		—	%		(27	)%
Total Gross Profit	$	1,769			26	%	$	1,794			27	%		(1	)%

	Nine Months Ended March 31, 2023		Nine Months Ended March 31, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	6,824	$	5,675		20	%
Wholesale	$	15,705	$	13,976		12	%
Other	$	569	$	513		11	%
Total Net Sales	$	23,098	$	20,164		15	%

	Nine Months Ended			Margin			Nine Months Ended			Margin			%
	March 31, 2023			%			March 31, 2022			%			Change
	(in thousands)									(in thousands)
Gross Profit by Channel:
Direct	$	3,178			47	%	$	2,638			46	%		20	%
Wholesale	$	4,074			26	%	$	3,224			23	%		26	%
Other	$	(1,251	)		—	%	$	(992	)		—	%		(26	)%
Total Gross Profit	$	6,001			26	%	$	4,870			24	%		23	%

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

~~Recent Accounting Pronouncements~~NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~In February 2016, theFinancial Accounting Standards Board (“FASB”)issued ASU 2016-02,~~ ~~Leases~~~~, which will amend current lease~~Recent accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine of there will be any impact on our results of operations, cash flows or financial condition.pronouncements

~~In April 2016,~~From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the ~~FASB issued ASU 2016–10,~~~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~~~. The amendments in this Update do not change the core principle~~Company as of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgment necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

~~In May 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-09,~~ ~~Compensation - Stock Compensation (Topic718) Clarifying share-based payment modification guidance~~. The amendments in this update clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance isspecified effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date, with early adoption permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.date.

All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

Net Income ~~(Loss)~~ Per Share

~~Basic~~

In accordance with ASC 260, “Earnings Per Share”, basic net income ~~(loss)~~ 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 ~~was determined~~is computed by dividing net income ~~(loss) applicable~~available to common stockholders by the weighted average number of common ~~shares outstanding during the period,~~ and ~~diluted net income per share was determined by dividing net income applicable to~~ common ~~stockholders by the weighted average common~~equivalent shares outstanding during the period plus the effect of stock options using the treasury stock method. As of ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, the common stock equivalents did not have any effect on net income per share.

December 31,
2017 2016
Common stock options – 2009 Plan 1,469,000 2,876,000
Common stock options – 2015 Plan 4,775,000 2,550,000
Convertible preferred stock
4,300,000

4,300,000

Total 10,544,000 9,726,000

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

	March 31,
	2023		2022
Common stock options – 2015 Plan		1,400,000		1,350,000
Convertible preferred stock		4,300,000		4,300,000
Total		5,700,000		5,650,000

Income Taxes

We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.

Stock Based Compensation

We account for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. We measure 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 expense in the financial statements over the respective vesting period.

~~Stock Issued for Services to other than Employees~~

Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, as required by FASB ASC 505, which is measured as of the date required by FASB ASC 505, “Equity – Based Payments to Non-Employees”. In accordance with FASB ASC 505, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the “valuation date”, which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

NOTE 4.3. IMPAIRMENT OF LONG-LIVED ASSETS

We follow ~~Financial Accounting Standards Board Accounting Standards Codification (“~~FASB ~~ASC”)~~ASC 360, Property, Plant, and Equipment, regarding impairment of our other long-lived assets (property, plant and equipment). Our policy is to assess our long-lived assets for impairment annually in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and is measured as the excess of its carrying value over its fair value. The carrying amount of a long-lived asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of a long-lived asset.

Assets to be disposed of and related liabilities would be separately presented in the consolidated balance sheet. Assets to be disposed of would be reported at the lower of the carrying value or fair value less costs to sell and would not be depreciated. There was no impairment as of ~~December~~March 31, ~~2017~~2023 or June 30, ~~2017.~~2022.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE 5.4. INVENTORIES, NET

Inventories are stated at the lower of cost (which approximates first-in, first-out) or ~~market. Market~~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:

							March 31, 2023			June 30, 2022
	December 31, 2017			June 30, 2017			(unaudited)
	(in thousands)						(in thousands)
Raw materials	$	728		$	723		$	2,213		$	1,893
Work in process		182			208			650			440
Finished goods		715			704			1,755			1,660
Total inventories		1,625			1,635			4,618			3,993
Allowance for inventory reserves		(58	)		(90	)
Allowance for slow moving inventory								(176	)		(176	)
Total inventories, net of allowance	$	1,567		$	1,545		$	4,442		$	3,817

NOTE 6.5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives for equipment and furniture and fixtures, or the shorter of the remaining lease term or estimated useful lives for leasehold improvements. Equipment and leasehold improvements consisted of the following:

December 31, 2017

June 30, 2017

Estimated Useful Life
(in thousands)
Factory equipment $ 2,457 $ 2,405 2-10 years
Computer equipment and software   1,048 1,047 5-7 years
Office equipment and furniture   205 187 5-7 years
Leasehold improvements
440

422
10 years
Subtotal
4,150

4,061

Accumulated depreciation
( 3,299
)
(3,192
)
Equipment and leasehold improvements, net $   851 $ 869

	March 31, 2023			June 30, 2022			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	4,326		$	3,898		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		373			318
Subtotal		6,554			6,068
Accumulated depreciation and amortization		(4,256	)		(3,992	)
Equipment and leasehold improvements, net	$	2,298		$	2,076

Depreciation and amortization expense was $88,902 and $79,542 for the three months ended March 31, 2023 and 2022, respectively. For the nine months ended March 31, 2023 and 2022, depreciation and amortization expense was $263,775 and $227,055, respectively.

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset’s fair value. Management has determined no asset impairment occurred during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2023.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 7.6. OTHER ACCRUED LIABILITIES

Other accrued liabilities at ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017:~~2022:

					March 31, 2023		June 30, 2022
	December 31, 2017		June 30, 2017		(unaudited)
	(in thousands)				(in thousands)

Accrued compensation	$	346	$	352	$	476	$	344
Accrued expenses and interest	111		144
Current portion of deferred rent payable	45		39
Accrued expenses and interest (1)						352		286
Other accrued liabilities	$	502	$	535	$	828	$	630

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

NOTE 8.7. CURRENT AND LONG-TERM DEBT SUMMARY

Current and long-term debt at ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017~~2022 consisted of the following:

December 31,
2017

June 30,
2017
Current debt: (in thousands)
Unsecured lines of credit (Note 14) $ 39 $ 15
Line of credit (Note 13) 690 634
Short-term unsecured notes payable (Note 9) 524 538
Current portion of term note payable – shareholder (Note 11) 171 156
Current portion of equipment notes payable (Note 15) 100 82
Current portion of leases payable (Note 15) 34 40
Credit card advance (net of discount) (Note 12) 192 534
Notes payable – related party (Note 10)
116

116

Total current debt
1,866

2,115

Long-term debt:
Leases payable (Note 15) 21 36
Unsecured notes payable (Note 9) 700 600
Equipment note payable (Note 15) 229 223
Term note payable – shareholder (Note 11)
146

235

Total long-term debt $
1,096
$
1,094

	March 31, 2023		June 30, 2022
	(unaudited)
Current debt:	(in thousands)
Unsecured lines of credit (Note 11)	$	16	$	25
Line of credit (Note 10)		999		1,070
Short-term unsecured notes payable (Note 8)		400		200
Current portion of equipment notes payable (Note 13)		394		308
Current portion secured notes payable (Note 12)		-		-
Current portion of finance leases payable (Note 13)		15		15
Current portion of notes payable – related party (Note 9)		116		-
Total current debt		1,940		1,618
Long-term debt:
Unsecured notes payable (Note 8)		-		200
Finance leases payable (Note 13)		13		25
Equipment notes payable (Note 13)		920		842
Notes Payable - related party (Note 9)		-		116
Total long-term debt	$	933	$	1,183

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE 9.8. UNSECURED NOTES PAYABLE

Unsecured notes payable at ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017~~2022 consisted of the following:

December 31,
2017

June 30,
2017
Current debt: (in thousands)
20% Unsecured note, bi-weekly principal and interest, due April 20, 2018(1) $ 99 $ 246
20% Unsecured note, interest only, due October 31, 2017(2) ̶ 100
20% Unsecured note, bi-weekly principal and interest, due September 7, 2018(3) 178 ̶
20% Unsecured note, bi-weekly principal and interest, due October 26, 2018(4)
247

192

Total current debt 524 538

Long-term debt:

20% Unsecured note, interest only, due October 31, 2019(2) 100 100
20% Unsecured note, interest only, due July 31, 2019(5) 100 ̶
20% Unsecured note, interest only, due January 2, 2019(6) 300 300
20% Unsecured note, interest only, due May 1, 2019(7) 200 200
Total long-term debt
700

600

Total unsecured notes payable $
1,234
$
1,138

	March 31, 2023		June 30, 2022
	(unaudited)
Current unsecured notes payable:	(in thousands)

13.5% Unsecured note, interest only, due May 1, 2023 (2)	$	200	$	200
13.5% Unsecured note, interest only, due July 31, 2023 (3)		100		-
13.5% Unsecured note, interest only, due October 31, 2023 (1)		100		-
Total current unsecured notes payable		400		200

Long-term unsecured notes payable:
13.5% Unsecured note, interest only, due October 31, 2023 (1)		-		100
13.5% Unsecured note, interest only, due July 31, 2023 (3)		-		100
Total long-term unsecured notes payable		-		200
Total unsecured notes payable	$	-	$	400

(1) Unsecured note payable for $300,000 to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing April 20, 2018. $75,125 of the proceeds from this note was used to retire the balance of the unsecured note issued on June 29, 2016. Personally guaranteed by principal stockholder.

~~(2)~~ Unsecured note payable for $100,000 to an individual with interest payable monthly at 20% ~~payable monthly;~~, principal originally due in full on October 31, ~~2014;~~2014, extended to October 31, ~~2015. Subsequent to September 30, 2015, the due date on this note was~~2019, then extended ~~by the holder~~ to October 31, ~~2017. On October 20, 2017, the due date on this~~2021. This note was ~~extended~~repaid in full on October 1, 2021 and replaced with a new note from an entity controlled by the ~~holder to October 31, 2019~~same lender with interest payable monthly ~~and~~at 13.5%, principal due in full on ~~maturity.~~October 31, 2023. Personally guaranteed by principal stockholder.

(3) Unsecured note payable for $250,000 to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing September 7, 2018. Personally guaranteed by principal stockholder.

(4) Unsecured note payable for $300,000 to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing October 26, 2018. $98,750 from the proceeds of this unsecured note payable was used to retire the balance of the unsecured note maturing on February 9, 2018. Personally guaranteed by principal stockholder.

(5) Unsecured note payable for $100,000 to an individual, with interest at 20% payable monthly; principal due in full on July 31, 2013. On July 31, 2017, the due date on this note was extended by the holder to July 31, 2019. Personally guaranteed by principal stockholder.

(6) Unsecured note payable for $300,000 to an individual, with interest at 20%, principal and interest originally due in full on January 3, 2013; extended to January 4, 2016 with interest payable monthly and principal due on maturity. Subsequent to June 30, 2017, the due date on the note was extended by the holder to January 2, 2019. Personally guaranteed by principal stockholder.

~~(7)~~(2) Unsecured note payable for $200,000 to an individual with interest payable monthly at 20%, ~~the~~ principal ~~was~~originally due in full on May 1, ~~2013;~~2013, extended to May 1, ~~2015,~~2019, then ~~further~~ extended to April 30, 2021. This note was repaid in full on April 30, 2021 and replaced with a new note from an entity controlled by the ~~holder to~~same lender with interest payable monthly at 13.5%, principal due in full on May 1, ~~2017. Subsequent to May 1, 2017, the due date on this note was extended by the holder to May 1, 2019.~~2023. Personally guaranteed by principal stockholder.

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER~~(3) Unsecured note payable for $100,000 to an individual with interest payable monthly at 20%, principal originally due in full on July 31, ~~2017 AND DECEMBER~~2013, extended to July 31, ~~2016 (UNAUDITED)~~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.

NOTE ~~10.~~9. NOTES PAYABLE - RELATED PARTY

Related party notes payable at ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017~~2022 consisted of the following:

	December 31, 2017			June 30, 2017			March 31, 2023		June 30, 2022
	(in thousands)						(unaudited)
							(in thousands)
Unsecured note payable to an officer, with interest at 4.25%, due on demand	$	40		$	40
Unsecured note payable to an officer, with interest at 4.25%, due on demand		76			76

Unsecured note payable to an officer, with interest at 3.25%, due on July 1, 2023							$	40	$	40
Unsecured note payable to an officer, with interest at 3.25%, due on July 1, 2023								76		76
Total unsecured notes payable		116			116			116		116
Less: current portion		(116	)		(116	)
Long-term unsecured notes payable	$	—		$	—		$	-	$	116

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE ~~11. TERM NOTES PAYABLE - SHAREHOLDER~~

On September 5, 2014, the Company amended and restated its outstanding 3% Convertible Note in the original principal amount of $375,000 issued by the Company to Hope Capital, Inc. (“HCI”) on June 24, 2009, as amended (the “June 2009 Note”), and the 3% Convertible Note in the original principal amount of $250,000 issued by the Company to HCI on September 2, 2009, as amended (the “September 2009 Note”), the June 2009 Note and September 2009 Note collectively referred to as the “Original Notes”, to provide for a 3% unsecured promissory note in the principal amount of $700,000 (the “Note”) to HCI. The Note is due on or before August 31, 2019 and bears interest at the rate of 3% per annum. Principal and interest payments under the Note shall be made on a monthly basis, starting on October 1, 2014 and continuing on the first day of each month thereafter for 60 monthly payments. The first 12 payments are $9,405.60 each and increase 15% each year, with 12 payments of $16,450.45 during year five. In the event the Company fails to make a monthly payment under the Note or the Company is subject to a bankruptcy event (as defined under the Note), subject to the Company’s ability to cure such default, HCI may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable under the Note into shares of our common stock at a conversion price equal to $0.10 per share. Conversion is subject to HCI not being able to beneficially own more than 9.99% of our outstanding common stock upon any conversion, subject to waiver by HCI. The Company has the right to prepay the Note, in whole or in part, subject to notice to HCI, without penalty. As of December 31, 2017 the principal balance under this Note was $317,066.10. LINE OF CREDIT

The principal payments required at maturity under the Company’s outstanding short term notes, secured line of credit, unsecured line of credit, credit card loans, short term related party notes and term note payable at December 31, 2017 are as follows:

Fiscal Years Ending June 30, (in thousands)
2018 (six months) $ 1,808
2019 473
2020
349

Total $
2,630

~~NOTE 12. CREDIT CARD ADVANCES~~

On June 1, 2017, the Company entered into an agreement with Power Up Lending Group, Ltd. (“Power Up”) whereby Power Up agreed to loan OneUp and Foam Labs a total of $150,000. The loan is secured by OneUp’s and Foam Lab’s existing and future credit card collections. The loan calls for a repayment of $168,000, which includes a one-time finance charge of $18,000, approximately ten months after the funding date. This loan is guaranteed by the Company and is personally guaranteed by the Company’s CEO and controlling shareholder, Louis S. Friedman (see Note 16).

On June 29, 2017, the Company borrowed an additional amount of $400,000 from Power Up. The loan calls for a repayment of $452,000, which includes a one-time finance charge of $52,000, approximately ten months after the funding date. The balance of the September 22, 2016 credit card loan was deducted from this loan and the Company received net proceeds of approximately $374,173. This loan is guaranteed by the Company and is personally guaranteed by the Company’s CEO and controlling shareholder, Louis S. Friedman (see Note 16).

~~As of December 31, 2017, the principle amount of the credit card advances totaled $191,835, net of a discount of $26,200.~~

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

~~NOTE 13. LINE OF CREDIT~~

~~On May 24, 2011, 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 ~~$750,000~~$1,200,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working ~~capital.~~capital and includes an Inventory Advance (as defined in the agreement) of up to the lesser of $500,000 or 125% of the eligible accounts receivable loan. The term of the agreement was one year, renewable for additional ~~one-year~~one year terms unless either party provides written notice of ~~non-renewal~~nonrenewal at least 90 days prior to the end of the current financing period. The current agreement term ends on September 4, 2023. The credit facility ~~was~~is secured by our accounts receivable and other rights to payment, general intangibles, inventory and equipment, and are subject to eligibility requirements for current accounts receivable. Advances under the agreement ~~were~~are currently charged interest at a rate of ~~2.5%~~prime rate plus 2% over the lenders Index Rate. In addition, there ~~was~~is a Monthly Service Fee (as defined in the agreement) of ~~up to 1.25%~~currently 0.05 % per month.

On September 4, 2013, the credit agreement with Advance Financial Corporation was amended and restated to increase the asset based line of credit to $1,000,000 to include an Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $300,000 or 75% of the eligible accounts receivable loan. In addition, the amended and restated agreement changed the interest calculation to prime rate plus 3% (as of December 31, 2017, the interest rate was 7.5%) and the Monthly Service Fee was changed to .5% per month.

On December 9, 2015, the credit agreement with Advance Financial Corporation was amended to increase the asset based line of credit to $1,200,000 to include an Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $300,000 or 75% of the eligible accounts receivable loan. All other terms of the credit facility remain the same.

The Company’s ~~CEO,~~President, Chief Executive Officer (CEO), and majority shareholder. Louis Friedman, has personally guaranteed the repayment of the facility. In addition, ~~Luvu Brands~~the Company has provided its corporate guarantee of the credit facility (see Note ~~16)~~14). On ~~December~~March 31, ~~2017,~~2023, the balance owed under this line of credit was ~~$690,461.~~$998,671. As of ~~December~~March 31, ~~2017,~~2023, we were current and in compliance with all terms and conditions of this line of credit.

Management believes cash flows generated from operations, along with current cash and investments as well as borrowing capacity under the line of credit should be sufficient to finance capital requirements required by operations. If new business opportunities do arise, additional outside funding may be required.

NOTE ~~14.~~11. UNSECURED ~~LINES~~LINE OF CREDIT

The Company has drawn a cash advance on ~~one~~an unsecured line of credit with maximum credit limit of $55,500 that is in the name of the Company and Louis S. Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8%12.25%. The aggregate amount owed on the unsecured line of credit was ~~$38,587~~$15,909 at ~~December~~March 31, ~~2017~~2023 and ~~$14,690~~$24,879 at June 30, ~~2017.~~

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~2022.

NOTE ~~15. COMMITMENTS AND CONTINGENCIES~~

~~Operating Leases~~12. SECURED NOTE PAYABLE

On ~~July 23, 2014,~~February 17, 2021, the Company entered into an agreement with its landlord to extend the facilities lease by five years. The previous ten year lease was to expire on December 31, 2015. The agreement amends the lease to expire on December 31, 2020. The lease amendment was effective August 1, 2014 and included a four month rental abatement in the amount of $117,660. In exchange for the rental abatement, the CompanyAmazon, whereby Amazon agreed to ~~make improvements to the facility totaling $123,505 within six months~~loan OneUp a total of ~~August 1, 2014. As~~$200,000. Repayment of ~~December~~this note is by 12 monthly payments of $17,675, which includes interest at 10.99%. This loan was repaid in full on February 17, 2022.

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2017, the Company has completed $96,120 of the leasehold improvements. In addition, the monthly rent on the facility decreased from the current rent of $33,139 to $29,415 per month, beginning on December 1, 2014. Beginning January 1, 2015, the monthly rent is on an escalating schedule with the final year of the lease at $35,123 per month. The rent expense under this lease for the six months ended December 31, 2017 and 2016 was $176,239 and $176,239, respectively.2023 (UNAUDITED)

NOTE 13. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company ~~also~~ leases ~~certain postage equipment under an operating lease. The monthly lease is $102 per month and expires January 2023.~~

~~Future minimum lease payments~~it facilities under non-cancelable operating leases 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 ~~December~~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 March 31, ~~2017 are~~2023, the weighted average remaining lease term for the lease renewal is 5 years and the weighted average discount rate is 14.49%. Supplemental balance sheet information related to leases at March 31, 2023 is as follows:

Years ending June 30, (in thousands)
2018 (six months) $ 199
2019 404
2020 417
2021 212
Thereafter through 2022 2
Total minimum lease payments $ 1,234

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	2,003

Current lease liabilities	Operating lease liabilities	$	381
Non-current lease liabilities	Long-term operating lease liabilities		1,773
Total lease liabilities		$	2,154

~~Capital Leases~~Maturities of lease liabilities at March 31, 2023 are as follows:

The Company has acquired equipment under the provisions of long-term leases. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The leased properties under these capital leases have a total cost of $175,267. These assets are included in the fixed assets listed in Note 6 -~~Equipment and Leasehold Improvements~~ ~~and include computers, software, furniture, and equipment. The capital leases have stated or imputed interest rates ranging from 7% to 21%.~~

Payments	(in thousands)
2023	$	165
2024		680
2025		721
2026		762
2027 and thereafter		528
Total undiscounted lease payments		2,856
Less: Present value discount		(702	)
Total lease liabilities balance	$	2,154

~~The following is an analysis of the minimum future capital lease payments subsequent to December 31, 2017:~~

Years ending June 30, (in thousands)
2018 (six months) $ 22
2019 29
2020 8
Future Minimum Lease Payments 59
Less Amount Representing Interest (4 )
Present Value of Minimum Lease Payments 55
Less Current Portion (34 )
Long-Term Obligations under Leases Payable $ 21

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 ~~$490,754.~~$2,512,783. These assets are included in the fixed assets listed in Note 65 -Equipment and Leasehold Improvements and include production equipment. The equipment notes have stated or imputed interest rates ranging from ~~8.9%~~8.5% to 11.3%.

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

The following is an analysis of the minimum future equipment note payable payments subsequent to ~~December~~March 31, ~~2017:~~2023:

Years ending June 30,	(in thousands)			*(in thousands)*
2018 (six months)		64
2019		126
2020		115
2021		61
2022		20
2023				$	122
2024					473
2025					427
2026					309
2027					130
2028					39
Future Minimum Note Payable Payments	$	386			1,500
Less Amount Representing Interest		(57	)		(187	)
Present Value of Minimum Note Payable Payments		329			1,313
Less Current Portion		(100	)		(393	)
Long-Term Obligations under Equipment Notes Payable	$	229		$	920

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)

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 $58,152. These assets are included in the finance lease and include production equipment.

On June 22, 2020 the Company entered into finance lease agreement with Wells Fargo in the amount of $34,761 with monthly payment of $850 with 48-month term at an imputed interest rate of 8.09%.

On February 1, 2022 the Company entered into finance lease agreement with Raymond in the amount of $22,862 with monthly payment of $514 with 48-month term at an imputed interest rate of 3.75%.

The following is an analysis of the minimum finance lease payable payments subsequent to March 31, 2023:

Year ending June 30,

(in thousands)

2023

4

2024

16

2025

6

2026

3

Future Minimum Finance Lease Payable Payments

$ 30

Less Amount Representing Interest

(2 )
Present Value of Minimum Finance Lease Payable Payments

28

Less Current Portion

(15 )
Long-Term Obligations under Finance Lease Payable

$ 13

Employment ~~Agreements~~Agreement

The Company has entered into an employment agreement with Louis Friedman, President and Chief Executive ~~Officer.~~Officer (CEO). The agreement provides for an annual base salary of ~~$150,000~~$155,000 and eligibility to receive a bonus. In certain termination situations, the Company is liable to pay severance compensation to Mr. Friedman for up to nine months at his current salary.

Legal Proceedings

As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to ~~our company~~the Company or properties to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material ~~interest~~ adverse effect to ~~us.~~the company.

NOTE ~~16.~~14. 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 (Louis Friedman) and majority shareholder in the amount of ~~$76,000.~~$76,000 (see Note 9). Interest on the note during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 was accrued by the Company at the prevailing prime rate (which is currently ~~4.5%~~8.0%) and totaled ~~$1,637.~~$1,452. The accrued interest on the note as of ~~December~~March 31, ~~2017~~2023 was ~~$22,033.~~$33,050. This note is subordinate to all other credit facilities currently in place.

On October 30, 2010, Mr. Friedman, loaned the Company ~~$40,000.~~$40,000 (see Note 9). Interest on the note during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 was accrued by the Company at the prevailing prime rate (which is currently ~~4.5%~~8.0%) and totaled ~~$862.~~$764. The accrued interest on the note as of ~~December~~March 31, ~~2017~~2023 was ~~$5,651.~~$3,284. This note is subordinate to all other credit facilities currently in place.

Table of Contents

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

On January 3, 2011, an individual loaned the Company $300,000 with an interest rate of 20%. Interest on the loan is being paid monthly, with the principal due in full on January 3, 2012; extended to January 3, 2013; then extended to January 3, 2016; then extended to January 2, 2017; then extended to January 2, 2019 with the principle due on maturity (see Note 9). Mr. Friedman personally guaranteed the repayment of the loan obligation.NOTE 14. RELATED PARTY TRANSACTIONS (continued)

The Company’s CEO ~~Louis Friedman,~~ has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 1311 – Line of Credit). In addition, Luvu Brands has provided its corporate guarantees of the credit facility. On ~~December~~March 31, ~~2017,~~2023, the balance owed under this line of credit was ~~$690,461.~~

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

~~NOTE 16. RELATED PARTY TRANSACTIONS (continued)~~$998,671.

On July 20, 2011, the Company issued an unsecured promissory note to an individual for $100,000. Terms of the promissory note call for monthly interest payments of $1,667 (equal to interest at 20% per annum), with the principal amount due in full on July 31, 2012. On July 31, 2012, the note was extended to July 31, 2013 under the same terms. Prior to June 30, 2013, the note was extended to July 31, 2016 under the same terms. Subsequent to June 30, 2016, the note was extended to July 31, 2017 under the same terms. On July 31, 2017, the due date on this note was2012; extended by the holder to July 31, ~~2019~~2021 under the same terms (see Note 9)8). This note was repaid in full on July 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on July 31, 2023. Repayment of ~~the~~this promissory note is personally guaranteed by the Company’s CEO, ~~and controlling shareholder,~~ Louis S. Friedman.

On October 31, 2013, the Company issued an unsecured promissory note to an individual for $100,000. Terms of the promissory note call for monthly interest payments of $1,667 (equal to interest at 20% per annum) beginning on November 30, 2013, with the principal amount due in full on or before October 31, ~~2014. Prior to October 31,~~ 2014 the note was extended to October 31, 2016 under the same terms. Prior to October 31, 2016, the note was extended to October 31, 2017 under the same terms. On October 20, 2017, the due date on this note was extended by the holder to October 31, ~~2019~~2021 (see Note 8). This note was repaid in full on October 31,2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly ~~and~~at 13.5%, principal due in full on ~~maturity (see Note 9).~~October 31, 2023. Repayment of the promissory note is personally guaranteed by the Company’s CEO, ~~and majority shareholder,~~ Louis S. Friedman.

On May 1, 2012, an individual loaned the Company $200,000 with an interest rate of 20%. Interest on the loan is being paid monthly, with the principal due in full on May 1, ~~2013;~~2013; then extended to May 1, ~~2016; then extended to~~2021 (see Note 8). This note was repaid in full on April 30, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on May 1, ~~2017; then extended to May 1, 2019 with the principle due on maturity (see Note 9).~~2023. Mr. Friedman has personally guaranteed the repayment of the loan obligation.

The loans from Power Up Lending Group, Ltd. (see Note 12) are guaranteed by the Company (including OneUp and Foam Labs) and are personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman. Power Up Lending Group, Ltd. is controlled by Curt Kramer, who also controls HCI. As last reported to us, HCI, Inc. owns 7.5% of our common stock.

On April 21, 2017, the Company borrowed $300,000 from two individual shareholders with interest at 20% on an unsecured note payable, principal and interest paid bi-weekly with the final payment due April 20, 2018. A portion of the note proceeds were used to satisfy the balance due on the June 29, 2016 note payable and the remaining proceeds of $224,875 are for working capital purposes. At December 31, 2017, the principal balance of this note was $98,750.This note payable is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.

On September 7, 2017, the Company borrowed $250,000 from two individual shareholders with interest at 20% on an unsecured note payment, principal and interest paid bi-weekly with the final payment due September 7, 2018. The balance due on the $150,000 unsecured note payable due December 14, 2017 was paid in full and the Company received net proceeds of $227,049 after the repayment of the December 12, 2016 loan. At December 31, 2017, the principal balance of this note was $178,311. The loan is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.

On October 26, 2017, the Company borrowed $300,000 from two individual shareholders with interest at 20% on an unsecured note payable, principal and interest paid bi-weekly with the final payment due October 26, 2018. A portion of the note proceeds were used to satisfy the balance due on the February 14, 2017 note payable and the remaining proceeds of $201,250 are for working capital purposes. At December 31, 2017, the principal balance of this note was $246,852. The loan is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.

The Company has drawn a cash advance on one unsecured ~~lines~~line of credit that is in the name of the Company and Louis S. Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8%12.25%. The aggregate amount owed on the unsecured line of credit was ~~$38,587~~$15,909 at ~~December~~March 31, ~~2017 and $14,690 at June 30, 2017.~~2023 (see Note 11). The loan is personally guaranteed by the Company’s CEO, ~~and majority shareholder,~~ Louis S. Friedman.

~~LUVU BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)~~

NOTE ~~16. RELATED PARTY TRANSACTIONS (continued)~~15. STOCKHOLDERS’ EQUITY

On September 5, 2014, the Company amended and restated its HCI Original Notes, to provide for a 3% unsecured promissory note in the principal amount of $700,000 (the “Note”) to HCI. The Note is due on or before August 31, 2019 and bears interest at the rate of 3% per annum. Principal and interest payments under the Note shall be made on a monthly basis, starting on October 1, 2014 and continuing on the first day of each month thereafter for 60 monthly payments. The first 12 payments are $9,405.60 each and increase 15% every year, with 12 payments of $16,450.45 during year five. In the event the Company fails to make a monthly payment under the Note or the Company is subject to a bankruptcy event (as defined under the Note), subject to the Company’s ability to cure such default, HCI may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable under the Note into shares of our common stock at a conversion price equal to $0.10 per share. Conversion is subject to HCI not being able to beneficially own more than 9.99% of our outstanding common stock upon any conversion, subject to waiver by HCI. The Company has the right to prepay the Note, in whole or in part, subject to notice to HCI, without penalty. At December 31, 2017, the principal balance under the Note was $317,066.

~~NOTE 17. STOCKHOLDERS’ EQUITY~~

Options

At ~~December~~March 31, ~~2017,~~2023, the Company had the ~~2009 and~~ 2015 Stock Option ~~Plans~~Plan (the ~~“Plans”~~“2015 Plan”), which ~~are~~is a shareholder-approved and under which ~~2,790,000 shares are reserved for issuance under the 2009 Plan until that Plan terminates on October 20, 2019 and 5,000,000~~1,450,000 shares are reserved for issuance under the 2015 Plan until ~~that~~such Plan terminates on August 31, 2025.

Under the ~~Plans,~~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 ~~December~~March 31, ~~2017,~~2023, the number of shares available for issuance under the 2015 Plan was ~~225,000. There are no shares available for issuance under the 2009 Plan, other than the 1,469,000 stock options that have already been granted.~~362,500.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

NOTE 15. STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the Company’s stock option activities during the ~~six~~nine months ended ~~December~~March 31, ~~2017:~~2023:

Number of Shares
Underlying
Outstanding
Options Weighted
Average
Remaining
Contractual
Life (Years) Weighted
Average
Exercise
Price Intrinsic
Value
Options outstanding as of June 30, 2017 6,975,000 2.7 $ .03 $ —
Granted 1,000,000 4.9 $ .03 $ —
Exercised —   —   $ —   $ —
Forfeited or expired (1,731,000 ) (.6 ) $ .04 $ —
Options outstanding as of December 31, 2017 6,244,000 3.1 $ .03 $ —
Options exercisable as of December 31, 2017 2,456,500 1.9 $ .03 $ 33,091

	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		(525,000	)		0.0	$	0.03	̶
Forfeited or expired		(50,000	)		0.0	$	0.03	̶
Options outstanding as of March 31, 2023		1,400,000			3.3	$	0.14	$	63,000
Options exercisable as of March 31, 2023		312,500			1.7	$	0.05	$	39,250

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 ~~$.04~~$0.17 for such day.

There were ~~1,000,000~~525,000 stock options exercised during the nine months ended March 31, 2023 and a total of 1,050,000 during the nine months ended March 31, 2022 in exchange for various consideration including cash, accrued interest and on a cashless basis.

There were no stock options granted during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~250,000~~50,000 stock options granted during the ~~six~~nine months ended ~~December~~March 31, ~~2016. The value assumptions related to options granted during the six months ended December 31, 2017 and 2016, were as follows:~~2022.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

Six Months
Ended December 31, 2017 Six Months
Ended December 31, 2016
Exercise Price: $.03 $.02
Volatility: 409% 236%
Risk Free Rate: 2.06% 1.05%
Vesting Period: 4 years 4 years
Forfeiture Rate: 0% 0%
Expected Life 4.1 years 4.1 years
Dividend Rate 0% 0%

NOTE 15. STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the weighted average characteristics of outstanding stock options as of

~~December~~ March 31, ~~2017:~~

Outstanding Options Exercisable Options
Exercise Prices Number
of Shares Remaining
Life
(Years) Weighted
Average
Price Number of
Shares Weighted
Average
Price
$.01 to 03 5,175,000 3.6 $ .02 1,387,500 $.02
$.05 to 09 1,069,000 .6 $ .05 1,069,000 $.05
Total stock options 6,244,000 3.1 $ .03 2,456,500 $.03

2023:

		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		1.5	$	0.03		275,000	$	0.03
$	.16 to $.20		950,000		2.9	$	0.17		25,000	$	0.17
$	.30		50,000		3.4	$	0.30		12,500	$	0.30
Total stock options			1,400,000		2.5	$	0.14		312,500	$	0.05

Stock-based compensation

We account for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock ~~Compensation.~~Compensation. We measure 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 condensed consolidated statements of operations for the three and ~~six~~nine month periods ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 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 Condensed Consolidated Statements of Operations, all relating to the Plans:

Three Months
Ended December 31, Six Months
Ended December 31,
2017 2016 2017 2016
(in thousands)
Cost of Goods Sold $ — $ 1 $ 1 $ 2
Other Selling and Marketing 1 2 3 4
General and Administrative 4 4 8 8
Total Stock-based Compensation Expense $ 5 $ 7 $ 12 $ 14

	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
	($ in thousands)
Cost of Goods Sold	$	1	$	1	$	3	$	2
Other Selling and Marketing		4		2		11		6
General and Administrative		7		1		20		6
Total Stock-based Compensation Expense	$	12	$	4	$	34	$	14

As of ~~December~~March 31, ~~2017,~~2023, the Company’s total unrecognized compensation cost was ~~$78,189~~$128,937 which will be recognized over the weighted average vesting period of ~~three~~approximately 2.9 years.

Share Purchase Warrants

As of ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, there were no ~~share purchase~~ warrants outstanding.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017 AND DECEMBER 31, 2016~~2023 (UNAUDITED)

NOTE 15. STOCKHOLDERS’ EQUITY (continued)

Common Stock

The Company’s authorized common stock was 175,000,000 shares at ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017.~~2022. Common shareholders are entitled to dividends if and when declared by the Company’s Board of Directors, subject to preferred stockholder dividend rights. At ~~December~~March 31, ~~2017,~~2023, the Company had reserved the following shares of common stock for issuance:

	~~December 31,~~
	~~2017~~	March 31,
~~Shares of common stock reserved for issuance under the 2009 Stock Option Plan~~	2023		~~1,469,000~~
Shares of common stock reserved for issuance under the 2015 ~~Stock Option~~ Plan		~~5,000,000~~1,400,000
Shares of common stock issuable upon conversion of the Preferred Stock		~~4,300,000~~		4,300,000
Total ~~shares~~Shares of common stock equivalents		~~10,769,000~~5,700,000

Preferred Stock

On February 18, 2011, the Company filed an amendment to its Articles of Incorporation, effective February 9, 2011, authorizing the issuance of preferred stock and the Company now has 10,000,000 authorized shares of preferred stock, par value $.0001 per share, of which 4,300,000 shares have been designated and issued as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into one share of common stock and has a liquidation preference of $.2325 ($1,000,000 in the aggregate). Liquidation payments to the preferred holders have priority and are made in preference to any payments to the holders of common stock. In addition, each share of Series A Convertible Preferred Stock is entitled to the number of votes equal to the result of: (i) the number of shares of common stock of the Company issued and outstanding at the time of such vote multiplied by 1.01; divided by (ii) the total number of Series A Convertible Preferred Shares issued and outstanding at the time of such vote. At each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration, including the election of directors, holders of Series A Convertible Preferred Shares shall vote together with the holders of common shares as a single class.

NOTE ~~18.~~16. – SUBSEQUENT EVENTS

~~None.~~On April 25, 2023 a promissory note dated May 26, 2021 for the amount of $200,000 with an interest rate of 13.5% paid monthly, with the principal due in full on May 1, 2023, was amended and extended with a new promissory note, with the principal due in full on May 1, 2025. Mr. Friedman has personally guaranteed the repayment of the loan obligation.

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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 our ~~Interim~~ Unaudited ~~Condensed~~ Consolidated Financial Statements, expressed as a percentage of net sales. The discussion that follows the table should be read in conjunction with our ~~Interim~~ Unaudited ~~Condensed~~ Consolidated Financial Statements.

	Three Months Ended						Three Months Ended
	(unaudited)						(unaudited)
	December 31, 2017			December 31, 2016			March 31, 2023			March 31, 2022
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost Of Goods Sold		70.7	%		70.0	%		74.4	%		73.4	%
Gross Margin		29.3	%		30.0	%		25.6	%		26.6	%
Selling, General and Administrative Expenses		23.2	%		19.9	%
Income From Operations		6.1	%		10.1	%
	Six Months Ended
	(unaudited)
	December 31, 2017			December 31, 2016
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		71.7	%		72.7	%
Gross Margin		28.3	%		27.3	%
Selling, General and Administrative Expenses		25.6	%		21.9	%
Income From Operations		2.7	%		5.4	%
Operating Expenses								20.1	%		18.7	%
Income from operations								5.5	%		7.9	%

	Nine Months Ended
	(unaudited)
	March 31, 2023			March 31, 2022
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		74.0	%		75.9	%
Gross Margin		26.0	%		24.1	%
Operating Expenses		18.4	%		18.7	%
Income from operations		7.5	%		5.5	%

The following table represents the net sales and percentage of net sales by product type:

Three Months Ended
(unaudited)
(Dollars in thousands)
December 31, 2017

December 31, 2016
Net Sales:
Liberator $ 2,048 44 % $ 2,181 42 %
Jaxx 1,126 24 % 869 17 %
Avana 510 11 % 405 8 %
Products purchased for resale 753 16 % 1,433 28 %
Other
198

5
%

246

5
%
Total Net Sales $ 4,635 100 % $ 5,134 100 %


	Six Months Ended (unaudited)								Three Months Ended (unaudited)
(Dollars in thousands)	December 31, 2017				December 31, 2016				March 31, 2023				March 31, 2022
Net Sales:
Liberator	$	3,685	45	%	$	4,043	44	%	$	4,488	65	%	$	3,257	48	%
Jaxx		1,925	23	%		1,497	16	%		1,220	18	%		1,906	28	%
Avana		955	11	%		661	7	%		646	9	%		735	11	%
Products purchased for resale		1,301	16	%		2,597	28	%		272	4	%		431	7	%
Other		392	5	%		441	5	%		276	4	%		424	6	%
Total Net Sales	$	8,258	100	%	$	9,239	100	%	$	6,903	100	%	$	6,753	100	%

	Nine Months Ended (unaudited)
(Dollars in thousands)	March 31, 2023						March 31, 2022
Net Sales:
Liberator	$	14,452	63	%	$	9,254		46	%
Jaxx		5,089	22	%		6,132		30	%
Avana		1,742	7	%		2,266		11	%
Products purchased for resale		957	4	%		1,349		7	%
Other		858	4	%		1,163		6	%
Total Net Sales	$	23,098	100	%	$	20,164		100	%

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Three Months Ended ~~December~~March 31, ~~2017~~2023 Compared to Three Months Ended ~~December~~March 31, ~~2016~~2022

Net sales. Sales for the three months ended ~~December~~March 31, ~~2017~~2023 were ~~$4,635,160,~~approximately $6,903,000, a ~~10% decrease~~2.2% increase 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 $133,000 (or 6%)~~increased $1,230,000, or 38%, during the quarter from the comparable prior year period, due primarily to ~~lower~~higher sales through ~~certain e-merchant customers, including~~the Company’s e-commerce site, Liberator.com, and higher sales through Amazon.

Jaxx sales –Jaxx product sales ~~increased 30%~~decreased 36% from the prior year ~~second~~third quarter to $1,220,000, primarily due to ~~an expanded product offering of outdoor~~reallocating our production resources to fulfill increased demand for the Liberator products and ~~greater sales through e-merchants, including Amazon.~~overall market demand for outdoor furniture products.

Avana sales – Net sales of Avana products ~~increased 26%~~decreased 12% during the quarter from the comparable prior year ~~quarter. This~~quarter to $646,000. Sales of this product line ~~of top-of-bed comfort~~have been impacted by lower-priced competitive products ~~continues to sell well~~in the marketplace, production constraints which resulted in longer delivery lead times which resulted in lower sales through ~~e-merchant~~drop ship channels ~~with broad consumer reach~~ including Amazon, ~~Brookstone~~Overstock and ~~others.~~Wayfair.

Products purchased for resale –This product category ~~declined~~decreased by ~~$680,000~~37%, or $89,000, from the prior year ~~second~~third quarter due to lower sales of certain products through our e-commerce website, Liberator.com.

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, was 26% compared to 27% in the prior year third quarter. Gross profit decreased to $1,769,000 from $1,794,000 in the prior year third quarter.

Operating expenses. Total operating expenses for the three months ended March 31, 2023 were approximately 20% of net sales, or approximately $1,386,000, compared to 19% of net sales, or approximately $1,261,000, for the same period in the prior year.

Other income (expense). Interest expense during the third quarter increased slightly from approximately ($81,000) in fiscal 2022 to approximately ($90,000) during the third quarter of fiscal 2023. The increase was primarily due to higher average borrowing balances.

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Net sales. Sales for the nine months ended March 31, 2023 were approximately $23,098,000, a 15% increase from the $20,164,000 recorded in the comparable prior year period. The major components of net sales, by product, are as follows:

Liberator sales - Sales of Liberator branded products increased $5,198,000, or 56%, during the nine months from the comparable prior year period, due primarily to greater sales through the company’s Liberator.com website and ~~was driven~~through Amazon.com;

Jaxx sales – Jaxx product sales decreased $1,043,000, or 17%, from the prior year nine months, primarily due to reallocating our production resources to fulfill increased demand for the Liberator products and decrease market demand for outdoor furniture products;

Avana sales – Net sales of Avana products decreased $524,000, or 23%, to $1,742,000 during the nine months from the comparable prior year period. Sales of this product line have been impacted by ~~a $894,000 decrease~~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 $392,000, or 29%, from the prior year nine months due to lower sales of ~~Tenga~~certain products ~~as we have terminated~~through our ~~relationship with Tenga to focus our efforts on sales~~e-commerce website, Liberator.com.

Table of ~~our own branded products.~~Contents

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 and depreciation. Gross profit margin, as a percentage of sales, ~~decreased slightly~~increased to ~~29%~~26% from ~~30%~~24% in the prior year ~~period, primarily due~~nine months. Gross profit increased by 23% to ~~an increase~~$6,001,000 from $4,870,000 in ~~production labor costs.~~the prior year nine months.

Operating expenses. Total operating expenses for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2023 were ~~23%~~18% of net sales, or approximately ~~$1,075,000,~~$4,259,000, compared to ~~20%~~19% of net sales, or approximately ~~$1,020,000,~~$3,763,000, for the same period in the prior year. ~~The~~Of the $496,000 increase, approximately $138,000 was ~~primarily~~ due to higher ~~General and administrative expense, which resulted primarily from higher business insurance expense and personnel costs.~~advertising expense.

Other income (expense). ~~Other income (expense)~~ Interest expense during the ~~second quarter~~nine months increased from expense of approximately ($~~122,000)~~261,000) in fiscal ~~2017~~2022 to expense of approximately ($~~134,000)~~262,000) during the ~~second quarter~~nine months of fiscal ~~2018.~~2023.

~~Six Months Ended December 31, 2017 Compared to Six Months Ended December 31, 2016~~

~~Net sales~~. Net sales for the six months ended December 31, 2017 decreased to $8,258,082 from the comparable prior year period by $980,936, or 11%. The major components of net sales, by product, are as follows:

~~Liberator sales -~~Sales of Liberator branded products decreased $358,000 (or 9%) during the six months from the comparable prior year period, due primarily to lower sales through certain e-merchant customers, including Amazon.

~~Jaxx sales –~~~~Jaxx product sales increased 29% from the prior year first half, primarily due to an expanded product offering of outdoor products and greater sales through e-merchants, including Amazon.~~

~~Avana sales –~~ Net sales of Avana products increased 44% during the first six month from the comparable prior year quarter. This line of top-of-bed comfort products continues to sell well through e-merchant channels with broad consumer reach including Amazon, Brookstone and others.

~~Products purchased for resale –~~~~This product category declined by $1,296,000 from the prior year second quarter and was driven by a $1,661,000 decrease in the sales of Tenga products.~~

~~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 and depreciation. Total gross profit for the six months ended December 31, 2017 decreased to $2,336,945 from $2,517,950 (a decrease of approximately 7%) in the comparable prior year period. Gross profit as a percentage of net sales increased to 28.3% for the six months ended December 31, 2017 from 27.3% in the comparable prior year period. This increase in gross profit as a percentage of net sales is a result of the shift in net sales to higher margin manufactured products from the lower margin products purchased for resale.

~~Operating expenses~~. Total operating expenses for the six months ended December 31, 2017 were 25.6% of net sales, or $2,114,120, compared to 21.9% of net sales, or $2,022,018, for the same period in the prior year. General and administrative expense increased by 7.3% and was primarily the result of higher business insurance expense, personnel costs, and costs related to providing employee health benefits mandated by the Affordable Care Act.

~~Other income (expense)~~. Other income (expense) decreased from an expense of ($274,202) in fiscal 2017 to an expense of ($266,615) in fiscal 2018. The decrease was primarily due to lower interest expense on lower average loan balances.

Variability of Results

We have 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 our control such as foreign exchange fluctuation, changes in government regulations, and economic changes in the regions in which we operate and sell. A portion of our 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 our 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. We 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 our cash flows:
Six Months Ended
December 31,
(Dollars in thousands) 2017 2016
(Unaudited)
Cash flow data:
Cash provided by operating activities $ 160 $ 64
Cash used in investing activities $ (18 ) $ (47 )
Cash provided by (used in) financing activities $ (317 ) $ 8

The following table summarizes our cash flows:

	Nine Months Ended
	March 31,
(Dollars in thousands)	2023			2022
	(Unaudited)
Cash flow data:
Cash provided by operating activities	$	906		$	263
Cash used in investing activities	$	(113	)	$	(50	)
Cash used in financing activities	$	(299	)	$	(255	)

As of ~~December~~March 31, ~~2017,~~2023, our cash and cash equivalents totaled ~~$566,925,~~$1,352,619, compared to ~~$569,939~~$935,110 in cash and cash equivalents as of ~~December~~March 31, ~~2016.~~2022.

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. Our principal sources of liquidity are our cash flow that we generate from our operations, availability of borrowings under our line of credit and cash raised through equity and debt financings.

Operating Activities

Net cash provided by operating activities was ~~$160,336 in~~$906,000 during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 compared to ~~$64,022 of~~$263,000 net cash provided by operating activities in the ~~six~~nine months ended ~~December~~March 31, ~~2016.~~2022. The primary components of the cash provided by operating activities in the current year is the ~~increase in accounts payable~~net income of ~~$217,040,~~$1,480,000, and a decrease in ~~the inventory reserve~~accrued expenses and payroll of ~~$31,732 and depreciation expense of $106,117,~~$293,000, offset in part by an increase in accounts receivable of ~~$72,360 and an~~$262,000, increase in inventory of ~~$53,509.~~$624,000, and a decrease in accounts payable of $344,000.

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Investing Activities

Cash used in investing activities in the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 was ~~$18,343~~$113,000 and related to the purchase and installation of certain production equipment ~~and leasehold improvements~~ during the ~~first and second quarter.~~period.

Financing Activities

~~Financing Activities~~

Cash used in financing activities during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 of ~~$317,261~~$299,000 was primarily attributable to the repayment of the ~~credit card advance and unsecured notes payable, offset in part by the proceeds for borrowing on an unsecured note payable.~~

~~Cash provided by financing activities during the six months ended December 31, 2016 of $8,234 was primarily attributable to the increase of borrowings under the credit card advance, the revolving~~ line of credit and ~~the sale of common stock, offset by repayments of unsecured notes payable, repayment of term note-shareholder and~~ payments made on equipment ~~notes and capital leases.~~

~~Inflation~~notes.

~~We cannot determine the precise effects of inflation; however, inflation continues to have an influence on the cost of materials, salaries,~~Inflation

During fiscal 2022, we experienced increases in various raw material costs and increases in labor and transportation costs. ~~We attempt~~These cost pressures have not stabilized and we anticipate they will continue to ~~offset the effects~~increase throughout fiscal 2023, although there is no assurance this will occur. Furthermore, if our customers reduce their levels of ~~inflation through increased selling~~spending in response to increases in retail prices ~~productivity improvements,~~and/or we are unable to pass such cost increases to our customers, our revenues and ~~reduction of costs.~~our profit margins may decrease.

~~Sufficiency of Liquidity~~

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. We incurred a net loss of approximately $43,790 for the six months ended December 31, 2017 and net income of approximately $203,000 for the year ended June 30, 2017. As of December 31, 2017, we have an accumulated deficit of approximately $9,050,000 and a working capital deficit of approximately $1,865,000. This raises substantial doubt about our ability to continue as a going concern.

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon our ability to meet our financing requirements, and the success of our future operations. Management believes that actions presently being taken to revise our operating and financial requirements provide the opportunity for the Company to continue as a going concern.

These actions include an ongoing initiative to increase sales, gross profits and our gross profit margin. To that end, we continued to make improvements to our e-commerce sites during 2017. At the end of fiscal 2016 we ordered new equipment to increase our fabric cutting capacity; this equipment was delivered and installed during the first quarter of fiscal 2017. At the end of fiscal 2017, we evaluated various options for increasing the throughput of our compressed foam products and during the first quarter of fiscal 2017, we purchased new equipment for installation during the second quarter of fiscal 2017. These actions should yield higher sales at a lower cost of goods sold. We also plan to continue to manage discretionary expense levels to be better aligned with current and expected revenue levels. We estimate that the operational and strategic growth plans we have identified over the next twelve months will require approximately $250,000 of funding, of which we estimate will be provided by debt financing and, to a lesser extent, cash flow from operations as well as cash on hand.

~~CAUTIONARY STATEMENT OF FORWARD LOOKING INFORMATION~~

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include certain forward-looking statements. Those statements include, but may not be limited to, all statements regarding management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as believe,” anticipate,” expect,” will,” may,” should,” intend,” plan,” estimate,” predict,” potential,” continue,” likely” and similar expressions are intended to identify forward-looking statements.

In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

Non-GAAP Financial Measures

Reconciliation of net income to Adjusted EBITDA ~~income~~ for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016:~~2022:

(Dollars in thousands)	Six months ended December 31,					Nine months ended March 31,
	2017			2016		2023		2022
Net (loss) income	$	(44	)	$	222
Less interest income		—			—
Net income						$	1,480	$	846
Plus interest expense, net		267			273		262		261
Plus depreciation and amortization expense		106			103		264		227
Plus stock-based compensation		12			14		34		14
Adjusted EBITDA income	$	341		$	612
Adjusted EBITDA						$	2,040	$	1,348

As used herein, Adjusted EBITDA ~~income~~ represents net income before interest income, interest expense, income taxes, depreciation, amortization, and stock-based compensation expense. We have 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 (Generally Accepted Accounting Principles).~~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 ~~loss~~income of the Company or net cash ~~used in~~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 we believe 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

We do not use off-balance sheet arrangements with unconsolidated entities or related parties, nor do we use other forms of off-balance sheet arrangements. Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of March 31, 2023, we 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. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements appearing in this report.

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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 condensed consolidated accompanying financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not enter into any transactions using derivative financial instruments or derivative commodity instruments and believe that our exposure to market risk associated with other financial instruments is not material.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that we file or submit 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 our management, including our principal executive officer (Chief Executive Officer) and principal financial officer (Chief Financial Officer), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our 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 we file or submit 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 we file or submit 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 our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

~~PART II~~~~OTHER INFORMATION~~ITEM 1. LEGAL PROCEEDINGS

~~ITEM 1.~~~~LEGAL PROCEEDINGS~~

~~We are~~The Company is not currently subject to any material legal proceedings, nor, to our knowledge, is there any legal proceeding threatened against ~~us.~~the Company. However, from time to time, we 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.

~~ITEM 6.~~~~EXHIBITS~~

~~The following exhibits are furnished with this report:~~

~~Exh. No.~~		~~Description~~

~~31.1~~		~~Section 302 Certification by the Corporation’s Principal Executive Officer~~30
~~31.2~~		~~Section 302 Certification by the Corporation’s Principal Financial and Accounting Officer~~
~~32.1~~		~~Section 906 Certification by the Corporation’s Principal Executive Officer~~Table of Contents
~~32.2~~		~~Section 906 Certification by the Corporation’s Principal Financial and Accounting Officer~~
~~101.INS~~		~~XBRL Instance Document~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

ITEM 6. EXHIBITS

		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

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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)

May 22, 2023	By:
~~February 13, 2018~~	~~By:~~	/s/ Louis S. Friedman
(Date)		Louis S. Friedman
			President and Chief Executive Officer (Principal Executive Officer)

May 22, 2023	By:	/s/ Alexander A. Sannikov
~~February 13, 2018~~ (Date)	~~By:~~	~~/s/ Ronald P. Scott~~ Alexander A. Sannikov
~~(Date)~~		~~Ronald P. Scott~~
			Chief Financial Officer and Secretary (Principal Financial & Accounting Officer)


			32

	December 31,
	2017			June 30,
	(unaudited)			2017
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	567		$	742
Accounts receivable, net		708			631
Inventories, net		1,567			1,545
Prepaid expenses		54			80
Total current assets		2,896			2,998

Equipment and leasehold improvements, net		851			869
Other assets		12			9
Total assets	$	3,759		$	3,876

Liabilities and stockholders’ deficit:
Current liabilities:
Accounts payable	$	2,393		$	2,177
Current debt		1,866			2,115
Other accrued liabilities		502			535
Total current liabilities		4,761			4,827

Noncurrent liabilities:
Long-term debt		1,096			1,094
Deferred rent payable		126			147
Total noncurrent liabilities		1,222			1,241
Total liabilities		5,983			6,068
Commitments and contingencies (See Note 15)		—			—
Stockholders’ deficit:
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, 2017 and June 30, 2017		—			—
Common stock, $0.01 par value, 175,000,000 shares authorized, 73,452,596 shares issued and outstanding at December 31, 2017 and June 30, 2017		735			735
Additional paid-in capital		6,091			6,079
Accumulated deficit		(9,050	)		(9,006	)
Total stockholders’ deficit		(2,224	)		(2,192	)
Total liabilities and stockholders’ deficit	$	3,759		$	3,876

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
	(in thousands, except share data)
Net Sales	$	4,635		$	5,134		$	8,258		$	9,239
Cost of goods sold		3,277			3,593			5,921			6,721
Gross profit		1,358			1,541			2,337			2,518
Operating expenses
Advertising and promotion		126			124			219			206
Other selling and marketing		273			281			558			566
General and administrative		622			563			1,231			1,147
Depreciation and amortization		54			52			106			103
Total operating expenses		1,075			1,020			2,114			2,022
Income from operations		283			521			223			496
Other Income (Expense):
Loss on disposal of assets		—			(1	)		—			(1	)
Interest expense and financing costs		(134	)		(121	)		(267	)		(273	)
Total Other (Expense)		(134	)		(122	)		(267	)		(274	)
Income (loss) before income taxes		149			399			(44	)		222
Provision for income taxes		—			—			—			—
Net income (loss)	$	149		$	399		$	(44	)	$	222
Net income (loss) per share:
Basic	$	0.00		$	0.01		$	(0.00	)	$	0.00
Diluted	$	0.00		$	0.01		$	(0.00	)	$	0.00

Shares used in computing net income (loss) per share
Basic		73,452,596			72,496,074			73,452,596			71,974,335
Diluted		74,641,659			72,922,615			73,452,596			72,352,420


	Three Months Ended (unaudited)						Six Months Ended (unaudited)
	December 31, 2017			December 31, 2016			December 31, 2017			December 31, 2016

Net Sales:
Direct	$	1,595		$	1,608		$	2,708		$	2,882
Wholesale		2,936			3,400			5,322			6,144
Other		104			126			228			213
Total Net Sales	$	4,635		$	5,134		$	8,258		$	9,239

Gross Margin:
Direct	$	734		$	830		$	1,248		$	1,443
Wholesale		803			877			1,396			1,378
Other		(179	)		(166	)		(307	)		(303	)
Total Gross Margin	$	1,358		$	1,541		$	2,337		$	2,518

	December 31, 2017			June 30, 2017			Estimated Useful Life
	(in thousands)
Factory equipment	$	2,457		$	2,405		2-10 years
Computer equipment and software		1,048			1,047		5-7 years
Office equipment and furniture		205			187		5-7 years
Leasehold improvements		440			422		10 years
Subtotal		4,150			4,061
Accumulated depreciation		( 3,299	)		(3,192	)
Equipment and leasehold improvements, net	$	851		$	869

Fiscal Years Ending June 30,	*(in thousands)*
2018 (six months)	$	1,808
2019		473
2020		349
Total	$	2,630

Year ending June 30,	(in thousands)
2023		4
2024		16
2025		6
2026		3
Future Minimum Finance Lease Payable Payments	$	30
Less Amount Representing Interest		(2	)
Present Value of Minimum Finance Lease Payable Payments		28
Less Current Portion		(15	)
Long-Term Obligations under Finance Lease Payable	$	13

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)			Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2017		6,975,000			2.7		$	.03	$	—
Granted		1,000,000			4.9		$	.03	$	—
Exercised		—			—		$	—	$	—
Forfeited or expired		(1,731,000	)		(.6	)	$	.04	$	—
Options outstanding as of December 31, 2017		6,244,000			3.1		$	.03	$	—
Options exercisable as of December 31, 2017		2,456,500			1.9		$	.03	$	33,091

	Six Months Ended December 31, 2017	Six Months Ended December 31, 2016
Exercise Price:	$.03	$.02
Volatility:	409%	236%
Risk Free Rate:	2.06%	1.05%
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
$.01 to 03		5,175,000		3.6	$	.02		1,387,500	$.02
$.05 to 09		1,069,000		.6	$	.05		1,069,000	$.05
Total stock options		6,244,000		3.1	$	.03		2,456,500	$.03

	Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016
	(in thousands)
Cost of Goods Sold	$	—	$	1	$	1	$	2
Other Selling and Marketing		1		2		3		4
General and Administrative		4		4		8		8
Total Stock-based Compensation Expense	$	5	$	7	$	12	$	14