UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2023

For the quarterlytransition period ended December 31, 2017from            to           

Commission File Number:Number 000-53314

Luvu Brands, Inc.

(Exact name of registrant as specified in this charter)

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

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

Company's telephone number:(770) 246-6400Securities registered pursuant to Section 12(b) of the Act:

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 definitiondefinitions 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):

If an emerging growth company, indicate by checkmarkcheck 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, 201820, 2024, there were 73,452,59676,547,672 shares of the registrant’s common stock outstanding.

LUVU BRANDS, INC.

TABLE OF CONTENTS

LUVU BRANDS, INC.

TABLE OF CONTENTS

Unless the context otherwise indicates, when used in this report, the terms the “Company,” “LUVU”, “we,” “us, “our” and similar terms refer to LUVU Brands, Inc. and 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.

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.

PART IFINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

LUVU BRANDS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

See accompanying notes to unaudited condensed consolidated financial statements. 

LUVU BRANDS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC. AND SUBSIDIARIESLuvu Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

 (unaudited)

Changes in Stockholders’ Equity (Deficit)

For the Six Months ended December 31, 2023 and December 31, 2022 (unaudited)

For the Three Months ended December 31, 2022 and December 31, 2021 (unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONDENSEDTHE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 20162023 (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 offersfor enhancing sexual performance; Avana^® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux and surgery recovery; and Jaxx^®, a growing numberdiverse range of product categories including: Liberator® sexual positioning furniture, Avana™ top-of-bed comfort pillows and Jaxx® casual fashion furniture, child, teendaybeds, 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 experience higher sales in the 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"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included. The year-end 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 three and six months ended December 31, 20172023 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, 2017.2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2023 (the “2023 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 AmericaGAAP 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, 2017.2023 10-K.

The preparationUse 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.Estimates

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates in these consolidated financial statements include estimates of: income taxes; tax valuation reserves; allowances for doubtful accounts; inventory valuation and reserves,reserves; share-based compensation; and useful lives for depreciation and amortization. Actual results could differ materially from these estimates.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 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 ofrecord revenue are when persuasive evidence that an arrangement exists and both title and risk of loss have passedbased 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 priceperformance obligations are satisfied. Substantially all of our revenue is fixedgenerated 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 collectabilityhandling 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. Salesrecognized. 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 allowancesearly payment discounts. Such estimates are estimatedcalculated using historical averages adjusted for any expected changes due to current business conditions and recorded as a reduction to salesexperience. 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.

Our total deferred revenue as of December 31, 2023 was $19,054 and was included in “Other accrued liabilities” on our consolidated balance sheets. The deferred revenue balance as of December 31, 2022 was $17,888.

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.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONDENSEDTHE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 20162023 (UNAUDITED)

Allowance for Doubtful AccountsNOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Credit Loss

We maintain an allowance for credit loss to reflect our estimate of current and past due receivable balances that may not be collected. The allowance for doubtfulcredit loss is based upon our assessment of the collectability of specific customer accounts, reflects management's best estimatethe aging of probableaccounts receivable and our history of bad debts. We believe that the allowance for credit loss is adequate to cover anticipated losses inherent in the accounts receivable balance. The Company determinesbalance under current conditions. However, significant 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 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 significant individual past due balances over 90 days. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.may be required.

The following is a summary of Accounts Receivable as of December 31, 20172023 and June 30, 2017.2023.

During the six months ended December 31, 2023 and 2022 the Company recoded bad debt expense of $1.

Inventories and Inventory Reserves

Inventories are stated at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out (FIFO) method. MarketNet 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 companyCompany establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or marketnet 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 31, 20172023 that exceeded the balance insured by the FDIC by $399,078.  $957,833. Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.

During the six monthmonths ended December, 31 2017,2023, we purchased 14%33% of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2017,2023, we purchased 13% and 10%35% of total inventory purchases from two vendors.one vendor.

As of December 31, 2017 one2023, two of the Company’s customers (Amazon) represents 62%40% and 20% of the total accounts receivables, compared to 41% asrespectively. As of June 2017.30, 2023, two of the Company’s customers represents 35% and 12% of the total accounts receivables, respectively. For the three and six months ended December 31, 2023, sales to and through Amazon accounted for 35% and 37%, respectively of our net sales.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ENDED DECEMBER 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial and Derivative Instruments

At December 31, 2017,2023 and June 30, 2023, 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 ofASCAccounting 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 advertisingAdvertising (included in prepaid expenses) was $4,450$833 at December 31, 20172023 and $18,055$687 at June 30, 2017.December 31, 2022. Advertising expense for the three months ended December 31, 2017 and 2016 was $126,540 and $123,660 , respectively. Advertising expense for the six months ended December 31, 20172023 and 20162022 was $219,183 and $205,669,$276,330, $541,874, $199,504and  $386,498, respectively.

Research and Development

Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $36,154$3,501 and $38,812 for the three months ended December 31, 2017 and 2016, respectively. Expenses for new product development totaled $72,789 and $90,741$5,525 for the six months ended December 31, 20172023 and 2016,2022, respectively. Research and development costs are included in general and administrative expense.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated service lives for financial reporting purposes of 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)

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 FASBFinancial Accounting Standards Board (“FASB”) ASC Topic No. 360, Property, Plant, and Equipment.Equipment. The Company has determined that there was no impairment at December 31, 2017.2023.

Operating Leases

On July 23, 2014,November 2, 2020, the Company entered into an agreement with its landlord to extend theon a new lease for its existing facilities 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 Augustfor six years and two months, beginning January 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 six months of August 1, 2014. As of December 31, 2017, the Company has completed $96,120 of the leasehold improvements.2021. Under the 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 annuallyis $51,615 with annual escalations of 3% with the final yeartwo 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 months ended December 31, 20172023 and 20162022 was $176,239$328,338 and $176,239,$326,376, 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 alsoelected not to recognize leases certain equipment under operating leases, as more fully describedwith 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 13 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.

LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 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 fivefour e-commerce sites and our single retail store.sites. Wholesale includes Liberator, Jaxx, and Avana branded products sold to retailersdistributors and distributors, andretailers, 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. business.

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

LUVU BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016 (UNAUDITED)Recent accounting pronouncements

 Recent Accounting PronouncementsFrom time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.