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EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Luvu Brands, Inc.luvu_ex311.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Luvu Brands, Inc.luvu_ex312.htm
EX-32.2 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Luvu Brands, Inc.luvu_ex322.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Luvu Brands, Inc.luvu_ex321.htm
 

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, 2021
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
 
Commission File Number 000-53314
 
Luvu Brands, Inc.
(Exact name of registrant as specified in its charter)
 
 Florida
 
 59-3581576
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
2745 Bankers Industrial Drive, Atlanta, GA
 
30360
(Address of principal executive offices)
 
(Zip code)
 
(770) 246-6400
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No___
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No____
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ __ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No   
 
As of May 14, 2021, there were 75,037,890 shares of common stock outstanding. 
 

 
 
 
LUVU BRANDS, INC.
 
TABLE OF CONTENTS
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Financial Statements
Page Number 
 
 
 
 
Condensed Consolidated Balance Sheets –
4
 
At March 31, 2021 (unaudited) and June 30, 2020
 
 
 
 
 
Condensed Consolidated Statements of Operations –

 
For the Three and Nine Months Ended March 31, 2021 and March 31, 2020 (unaudited)                  
 5
 
 
 
 
Condensed Consolidated Statements of Stockholders’ Deficit –
For the Nine Months Ended March 31, 2021 and March 31, 2020 (unaudited)
For the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)
 6
 
 
 
 
Condensed Consolidated Statements of Cash Flows –

 
For the Nine Months Ended March 31, 2021 and March 31, 2020 (unaudited)
 7
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
 
 
 
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
 
 
 
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
32
 
 
 
ITEM 4.
Controls and Procedures
33
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
ITEM 1.
Legal Proceedings
33
 
 
 
ITEM 1A.
Risk Factors
33
 
 
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
 
 
 
ITEM 3.
Defaults Upon Senior Securities
33
 
 
 
ITEM 4.
Mine Safety Disclosures
33
 
 
 
ITEM 5.
Other Information
33
 
 
 
ITEM 6.
Exhibits
34
 
 
 
SIGNATURES  
35
 
 
  
 
2
 
 
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.
 
 
 
3
 
 
PART I   FINANCIAL INFORMATION
  
ITEM 1.                        FINANCIAL STATEMENTS
 
LUVU BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
 
 
March 31,
 
 
 
 
 
 
2021
 
 
June 30,
 
 
 
(unaudited)
 
 
2020
 
Assets:
 
(in thousands, except share data)
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $1,270 
 $1,152 
Accounts receivable, net
  1,158 
  1,135 
Inventories, net
  2,920 
  1,985 
Prepaid expenses
  91 
  55 
Total current assets
  5,439 
  4,327 
 
    
    
Equipment, property and leasehold improvements, net
  1,739 
  938 
Finance lease assets
  29 
   
Operating lease assets
  2,622 
  165 
Other assets
  85 
  17 
Total assets
 $9,914 
 $5,447 
 
    
    
Liabilities and stockholders’ equity (deficit):
    
    
Current liabilities:
    
    
Accounts payable
 $2,647 
 $2,435 
Current debt
  2,204 
  2,007 
Current portion of PPP loan
   
  482 
Other accrued liabilities
  555 
  623 
Operating lease liability
  229 
  199 
Total current liabilities
  5,635 
  5,746 
 
    
    
Noncurrent liabilities:
    
    
Long-term debt
  754 
  361 
PPP loan
   
  614 
Long-term operating lease liability
  2,505 
   
Total noncurrent liabilities
  3,259 
  975 
Total liabilities
  8,894 
  6,721 
 Commitments and contingencies (See Note 16)
   
   
 Stockholders’ equity (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 March 31, 2021 and June 30, 2020
   
   
Common stock, $0.01 par value, 175,000,000 shares authorized, 75,037,890 and 73,452,596 shares issued and outstanding at March 31, 2021 and June 30, 2020, respectively
  750 
  735 
Additional paid-in capital
  6,163 
  6,147 
Accumulated deficit
  (5,893)
  (8,156)
Total stockholders’ equity (deficit)
  1,020 
  (1,274)
Total liabilities and stockholders’ equity (deficit)
 $9,914 
 $5,447 
 
See accompanying notes to unaudited condensed consolidated financial statements. 
 
 
4
 
 
LUVU BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
 (unaudited)
 
 
 
Three Months EndedMarch 31,
 
 
Nine Months EndedMarch 31,
 
 
 
2021
 
 
2020
 
 
2021
 
 
2020
 
 
 
(in thousands, except share data)
 
Net Sales
 $6,181 
 $4,032 
 $17,262 
 $12,906 
Cost of goods sold
  4,435 
  2,964 
  12,462 
  9,182 
Gross profit
  1,746 
  1,068 
  4,800 
  3,724 
Operating expenses
    
    
    
    
Advertising and promotion
  180 
  117 
  369 
  313 
Other selling and marketing
  260 
  324 
  797 
  957 
General and administrative
  689 
  588 
  2,021 
  1,808 
Depreciation and amortization
  54 
  38 
  157 
  117 
Total operating expenses
  1,183 
  1,067 
  3,344 
  3,195 
Income from operations
  563 
  1 
  1,456 
  529 
Other Income (Expense):
    
    
    
    
Gain on forgiveness of PPP loan
   
   
  1,096 
   
Interest expense and financing costs
  (94)
  (149)
  (289)
  (465)
Total Other Income (Expense)
  (94)
  (149)
  807 
  (465)
Income before income taxes
  469 
  (148)
  2,263 
  64 
Provision for income taxes
   
   
   
   
Net income (loss)
 $469 
 $(148)
 $2,263 
 $64 
Net income (loss) per share:
    
    
    
    
         Basic
 $0.01 
 $(0.00)
 $0.03 
 $0.00 
         Diluted
 $0.01 
 $(0.00)
 $0.03 
 $0.00 
 
    
    
    
    
Shares used in computing net income (loss) per share
    
    
    
    
         Basic
  75,037,890 
  73,452,596 
  74,050,524 
  73,452,596 
         Diluted
  76,286,902 
  73,452,596 
  75,264,336 
  74,395,294 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5
 
 
Luvu Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
 
 For the Nine Months ended March 31, 2020 and March 31, 2021 (unaudited)
 
 
 
Series A Preferred
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
 
 
Stock
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity (Deficit)
 
 
 
(in thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2019
  4,300,000 
 $ 
  73,452,596 
 $735 
 $6,126 
 $(9,016)
 $(2,155)
Stock-based compensation expense
   
   
   
   
  15 
   
  15 
Net loss for the nine months ended March 31, 2020
   
   
   
   
   
  64  
  64  
Balance, March 31, 2020 (unaudited)
  4,300,000 
 $ 
  73,452,596 
 $735 
 $6,141 
 $(8,952)
 $(2,076)
 
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
Balance, June 30, 2020
  4,300,000 
 $ 
  73,452,596 
 $735 
 $6,147 
 $(8,156)
 $(1,274)
Stock-based compensation expense
   
   
   
   
  12 
   
  12 
Stock option exercises
   
   
  1,585,294 
  15 
  4 
   
  19 
Net income for the nine months ended March 31, 2021
   
   
   
   
   
  2,263  
  2,263  
Balance, March 31, 2021 (unaudited)
  4,300,000 
 $ 
  75,037,890 
 $750 
 $6,163 
 $(5,893)
 $1,020 
 
 
 
For the Three Months ended March 31, 2020 and March 31, 2021 (unaudited)
 
 
 
Series A Preferred
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
 
 
Stock
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity (Deficit)
 
 
 
(in thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019 (unaudited)
  4,300,000 
 $ 
  73,452,596 
 $735 
 $6,137 
 $(8,804)
 $(1,932)
Stock-based compensation expense
   
   
   
   
  4 
   
  4 
Net income for the three months ended March 31, 2020
   
   
   
   
   
  (148 )
  (148 )
Balance, March 31, 2020 (unaudited)
  4,300,000 
 $ 
  73,452,596 
 $735 
 $6,141 
 $(8,952)
 $(2,076)
 
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
Balance, December 31, 2020 (unaudited)
  4,300,000 
 $ 
  75,037,890 
 $750 
 $6,159 
 $(6,362)
 $547 
Stock-based compensation expense
   
   
   
   
  4 
   
  4 
Net income for the three months ended March 31, 2021
   
   
   
   
   
  469  
  469  
Balance, March 31, 2021 (unaudited)
  4,300,000 
 $ 
  75,037,890 
 $750 
 $6,163 
 $(5,893)
 $1,020 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6
 
 
LUVU BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
 
Nine Months Ended
 
 
 
March 31,
 
 
 
2021
 
 
2020
 
OPERATING ACTIVITIES:
 
(in thousands)
 
Net income
 $2,263 
 $64 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    
    
Forgiveness of PPP Loan
  (1,096)
   
Depreciation and amortization
  157 
  117 
Stock based compensation expense
  12 
  15 
Provision for bad debt
  1 
  (2)
Amortization of operating lease asset
  226 
  209 
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (24)
  88 
Inventories
  (936)
  (234)
Prepaid expenses and other assets
  (103)
  (31)
Accounts payable
  212 
  191 
Accrued compensation
  (87)
  (85)
Accrued expenses and interest
  29 
  (49)
Operating lease liability
  (149)
  (254)
Net cash provided by operating activities
  505 
  29 
 
    
    
INVESTING ACTIVITIES:
    
    
             Investment in equipment and leasehold improvements
  (164)
  (35)
Net cash used in investing activities
  (164)
  (35)
 
    
    
FINANCING ACTIVITIES:
    
    
Repayment of term note-shareholder
   
  (49)
Repayment of unsecured note payable
  (289)
  (662)
Proceeds from unsecured note payable
   
  600 
Net cash provided by line of credit
  245 
  (1)
Borrowings of credit card advance
   
  450 
Repayment of credit card advance
  (56)
  (442)
Proceeds from secured notes payable
  200 
  233 
Repayments of secured notes payable
  (195)
  (348)
Repayment of unsecured line of credit
  (8)
  25 
Proceeds from exercise of stock options
  9 
   
Payments on equipment notes
  (123)
  (100)
Principal payments on leases payable
  (6)
  (8)
Net cash used in financing activities
  (223)
  (302)
Net increase (decrease) in cash and cash equivalents
  118 
  (308)
Cash and cash equivalents at beginning of period
  1,152 
  649 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $1,270 
 $341 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    
    
Non cash item:
    
    
Purchases of equipment with equipment notes
 $788 
 $ 
Finance lease asset obligation in exchange for lease payable
 $35 
 $ 
Accrued interest converted for exercise of options
 $10 
 $ 
Operating lease asset obtained in exchange for operating lease liability
 $2,684 
 $448 
Cash paid during the period for:
    
    
Interest
 $286 
 $461 
Income taxes
 $ 
   
  
See accompanying notes to unaudited condensed consolidated financial statements. 
 
 
7
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
 
 Luvu Brands, Inc. (the “Company” or “Luvu”) was incorporated in the State of Florida on February 25, 1999. References to the Company in these notes include the Company and its wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). All operations of the Company are currently conducted by OneUp.
 
The Company is an Atlanta, Georgia based designer, manufacturer and marketer of a portfolio of consumer lifestyle brands including: Liberator®, a brand category of iconic products for enhancing sexual performance; Avana® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux, surgery recovery and chronic pain; and Jaxx®, a diverse range of casual fashion daybeds, sofas and beanbags made from polyurethane foam and repurposed polyurethane foam trim. These products are sold through the Company’s websites, online mass merchants and retail stores worldwide. Many of 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 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 our second and third fiscal quarters.
 
The accompanying unaudited condensed consolidated financial statements of the Company and all of its wholly-owned subsidiaries included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all 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 nine months ended March 31, 2021 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, 2020 as filed with the Securities and Exchange Commission (the “SEC”) on October 1, 2020 (the “2020 10-K”).
 
NOTE 2. GOING CONCERN
 
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. As of March 31, 2021 the Company has an accumulated deficit of approximately $5.9 million and a working capital deficit of approximately $196,000. This raises doubt about its ability to continue as a going concern.
 
In view of these matters, realization of a major portion of the assets in the accompanying consolidated 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, we evaluated various options for increasing the throughput of our compressed foam products and during the second quarter of fiscal 2021, we purchased new foam contouring equipment for installation during the third quarter of fiscal 2021. We also placed an order for a larger roll compression machine which should be operational during the fourth quarter of fiscal 2021. These actions should yield higher factory throughput at a lower cost of goods sold. However, these operational improvements may be more than offset by rising wages, rising raw material costs and shortages. We have increased prices on certain products and plan to raise our selling prices on additional products to offset some of the labor and raw material cost increases. We estimate that the operational and strategic growth plans we have identified over the next twelve months will, at a minimum, require approximately $250,000 of funding, which we estimate will be provided by debt financing and, to a lesser extent, cash flow from operations as well as cash on hand.
 
 
8
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
NOTE 2. GOING CONCERN (continued)
 
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.
 
Although we have three separate brands with diverse channels of distribution, the continued COVID-19 pandemic may negatively impact our business operations and the operations of our suppliers and customers as a result of quarantines, facility closures and travel and logistics restrictions. There is substantial uncertainty regarding the duration and degree of COVID-19’s continued effects over time. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic or recurrence thereof, timing of development and deployment of an effective vaccine, governmental, business and individuals' actions in response to the pandemic and the impact on economic activity including the possibility of recession or financial market instability.
 
 
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 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 2020 10-K.
 
Use of Estimates
 
 The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Significant estimates in these consolidated financial statements include estimates of: income taxes; tax valuation reserves; allowances for doubtful accounts; inventory valuation and reserves; share-based compensation; and useful lives for depreciation and amortization.  Actual results could differ materially from these estimates.   
 
Revenue Recognition   
 
We record revenue based on the five-step model which includes: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when the performance obligations are satisfied. Substantially all of our revenue is generated by fulfilling orders for the purchase of manufactured products and product purchased for resale to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders may be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which 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 recognized. The impact of this policy election is insignificant as it aligns with our current practice.
 
 
9
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
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 early payment discounts.  Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and 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 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. 
 
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 June 30, 2020 was $14,898 and was included in “Other accrued liabilities” on our consolidated balance sheets. The deferred revenue balance as of March 31, 2021 was $16,854.
 
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.
 
 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 is based upon our assessment of the collectability of specific customer accounts, the aging of accounts receivable and our history of bad debts. We believe that the allowance for doubtful accounts is adequate to cover anticipated losses in the receivable balance 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 may be required.
 
The following is a summary of Accounts Receivable as of March 31, 2021 and June 30, 2020.
 
 
 
March 31,2021
 
 
June 30,2020
 
 
 
 (unaudited)
 
 
 
 
 
 
(in thousands)
 
Accounts receivable
 $1,187 
 $1,135 
Allowance for doubtful accounts
  (1)
   
Allowance for discounts and returns
  (28)
   
Total accounts receivable, net
 $1,158 
 $1,135 
 
 
10
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Inventories and Inventory Reserves
 
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Net realizable value is defined as sales price less cost to dispose and a normal profit margin.  Inventory costs include materials, labor, depreciation and overhead. The Company establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or net realizable value may be adjusted in response to changing conditions.
 
Concentration of Credit Risk
 
The Company maintains its cash accounts with banks located in Georgia.  The 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 March 31, 2021 that exceeded the balance insured by the FDIC by $1,093,900. Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.
 
During the three and nine months ended March 31, 2021, we purchased 33% and 33% respectively, of total inventory purchases from one vendor.
 
During the fiscal year ended June 30, 2020, we purchased 33 % of total inventory purchases from one vendor.
 
As of March 31, 2021, one of the Company’s customers represents 55% of the total accounts receivables, respectively. As of June 30, 2020, three of the Company’s customers represents 38%, 16% and 16% of the total accounts receivables, respectively. For the three and nine months ended March 31, 2021, sales to and through Amazon accounted for 33% and 30% of our net sales, respectively.
 
Fair Value of Financial Instruments
 
At March 31, 2021 and June 30, 2020, 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.
 
The Company measures the fair value of its assets and liabilities under the guidance of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
 
ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
 
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;
 
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and
 
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.
 
 
11
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
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 $6,900 at March 31, 2021 and $5,000 at June 30, 2020. Advertising expense for the three months ended March 31, 2021 and 2020 was $180,128 and $117,449, respectively. Advertising expense for the nine months ended March 31, 2021 and 2020 was $369,113 and $313,132, respectively.
 
Research and Development
 
Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $24,236 and $26,501 for the three months ended March 31, 2021 and 2020, respectively. Expenses for new product development totaled $80,754 and $81,353 for the nine months ended March 31, 2021 and 2020, respectively. Research and development costs are included in general and administrative expense.
 
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.
 
Impairment or Disposal of Long Lived Assets
 
Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as required by Financial Accounting Standards Board (“FASB”) ASC Topic No. 360, Property, Plant, and Equipment. The Company has determined that there was no impairment at March 31, 2021.
 
 
 
12
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Operating Leases
 
On July 23, 2014, 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 amended the lease to expire on December 31, 2020. The rent expense under this lease for the three months ended March 31, 2020 was $88,120. The rent expense under this lease for the nine months ended March 31, 2020 was $264,359.
 
On November 2, 2020, the Company entered into an agreement with its landlord on a new lease for the current facilities for six years and two months, beginning January 1, 2021. The new lease includes two months of rent abatement totaling $103,230. Under the new lease, the monthly rent on the facility is $51,615 with annual escalations of 3% with the final two months of rent at $61,605. In addition, the Company will pay the landlord a 2% property management fee. The rent expense for the three months ended March 31, 2021 was $162,053. The rent expense for the nine months ended March 31, 2021 (under the previous lease and the new lease) was $338,292.
 
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 elected not to recognize leases with a term less than one year on its balance sheet. Operating lease right-of-use (ROU) assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.
 
In accordance with the guidance in 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.
 
Segment Information
 
We have identified three reportable sales channels:  Direct, Wholesale and Other.   Direct includes product sales through our five e-commerce sites. Wholesale includes Liberator, Jaxx, and Avana branded products sold to distributors and retailers, purchased products sold to retailers, and private label items sold to other resellers. The Wholesale category also includes contract manufacturing services, which consists of specialty items that are manufactured in small quantities for certain customers, and which, to date, has not been a material part of our business. Other consists principally of shipping and handling fees and costs derived from our Direct business and fulfillment service fees.
 
The following is a summary of sales results for the Direct, Wholesale, and Other channels. 
 
 
 
Three Months Ended March 31, 2021

 
Three Months Ended March 31, 2020
 
 
%Change
 
 
 
(in thousands)
 
 
 
 
Net Sales by Channel:
 
 
 
 
 
 
 
 
 
Direct
 $2,004 
 $1,068 
  88%
Wholesale
 $4,023 
 $2,889 
  39%
Other
 $154 
 $75 
  105%
Total Net Sales
 $6,181 
 $4,032 
  53%
 
 
13
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 
 
Three Months Ended
 
 
Margin
 
 
Three Months Ended
 
 
Margin
 
 
%
 
 
 
March 31, 2021
 
 
%
 
 
March 31, 2020
 
 
%
 
 
Change
 
 
 
(in thousands)
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
Gross Profit by Channel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct
 $1,005 
  50%
 $482 
  45%
  109%
Wholesale
 $1,099 
  27%
 $775 
  27%
  42%
Other
 $(358)
  %
 $(189)
  %
  89%
Total Gross Profit
 $1,746 
  28%
 $1,068 
  26%
  63%
  
 
 
Nine Months Ended March 31, 2021
 
 
Nine Months Ended March 31, 2020
 
 
% Change
 
 
 
(in thousands)
 
 
 
 
 
 
 
Net Sales by Channel:
 
 
 
 
 
 
 
 
 
Direct
 $5,371 
 $3,489 
  54%
Wholesale
 $11,476 
 $9,185 
  25%
Other
 $415 
 $232 
  79%
Total Net Sales
 $17,262 
 $12,906 
  34%
 
 
 
Nine Months Ended
 
 
Margin
 
 
Nine Months Ended
 
 
Margin
 
 
%
 
 
 
March 31, 2021
 
 
%
 
 
March 31, 2020
 
 
%
 
 
Change
 
 
 
(in thousands)
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
Gross Profit by Channel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct
 $2,706 
  50%
 $1,684 
  48%
  61%
Wholesale
 $3,047 
  27%
 $2,596 
  28%
  17%
Other
 $(953)
  %
  (556)
  %
  71%
Total Gross Profit
 $4,800 
  28%
 $3,724 
  29%
  29%
 
Recent accounting pronouncements
 
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.
 
Recently adopted 
 
In August 2018, the FASB issued updated guidance (ASU 2018-13) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (the Company’s fiscal 2021), with early adoption permitted. We adopted ASU 2018-13 effective July 1, 2020. The impact of adoption of this standard on our condensed consolidated financial statements was not material.
 
 
14
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Not yet adopted
 
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 including recognizing deferred taxes for investments, performing intra-period allocations and calculating taxes in interim periods. ASU 2019-12 also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The standard is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company plans to adopt the standard as of July 1, 2021 and is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
 
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
 
Net Income (Loss) Per Share
 
In accordance with ASC 260, “Earnings Per Share”, basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common and common equivalent shares outstanding during the period plus the effect of stock options using the treasury stock method. As of March 31, 2021 and 2020, the common stock equivalents did not have any effect on net income (loss) per share.
 
 
 
March 31,
 
 
 
2021
 
 
2020
 
Common stock options – 2015 Plan
  2,400,000 
  4,000,000 
Convertible preferred stock
  4,300,000  
  4,300,000  
  Total
  6,700,000 
  8,300,000 
 
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.
 
 
15
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
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.
 
NOTE 4. IMPAIRMENT OF LONG-LIVED ASSETS
 
We follow FASB 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 March 31, 2021 or June 30, 2020.
  
NOTE 5. INVENTORIES, NET
 
Inventories are stated at the lower of cost (which approximates first-in, first-out) or net realizable value. Net realizable value is defined as sales price less cost to dispose and a normal profit margin.  Inventories consisted of the following: 
 
 
 
March 31, 2021
 
 
June 30, 2020
 
 
 
 (unaudited)
 
 
 
 
 
 
(in thousands)
 
Raw materials
 $1,502 
 $992 
Work in process
  367 
  234 
Finished goods
  1,192  
  900  
 Total inventories
  3,061 
  2,126 
Allowance for inventory reserves
  (141 )
  (141 )
Total inventories, net of allowance
 $2,920 
 $1,985 
 
 
16
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 6. 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:
 
 
 
March 31, 2021
 
 
June 30, 2020
 
Estimated Useful Life
 
 
 (unaudited)
 
 
 
 
 
 
 
 (in thousands)
 
 
Factory equipment
 $3,125 
 $2,646 
2-10 years
Computer equipment and software
  1,143 
  1,087 
5-7 years
Office equipment and furniture
  205 
  205 
5-7 years
Leasehold improvements
  467 
  463 
6 years
Project in process
  421 
  3 
 
Subtotal
  5,361 
  4,404 
 
Accumulated depreciation
  (3,622 )
  (3,466 )
 
 Equipment and leasehold improvements, net
 $1,739 
 $938 
 
 
 
Depreciation expense was $53,618 and $38,206 for the three months ended March 31, 2021 and 2020, respectively. For the nine months ended March 31, 2021 and 2020, depreciation expense was $153,313 and $117,258, 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 nine months ended March 31, 2021.
 
NOTE 7. OTHER ACCRUED LIABILITIES
 
Other accrued liabilities at March 31, 2021 and June 30, 2020:  
 
 
 
March 31, 2021
 
 
June 30, 2020
 
 
 
(unaudited)
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
Accrued compensation
 $382 
 $468 
Accrued expenses and interest
  173  
  155  
 Other accrued liabilities
 $555 
 $623 
 
 
17
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 8. CURRENT AND LONG-TERM DEBT SUMMARY
 
 Current and long-term debt at March 31, 2021 and June 30, 2020 consisted of the following: 
 
 
 
March 31, 2021
 
 
June 30, 2020
 
 
 
(unaudited)
 
 
 
 
Current debt:
 
(in thousands)
 
Unsecured lines of credit (Note 13)
 $40 
 $48 
Line of credit (Note 12)
  1,250 
  1,005 
Short-term unsecured notes payable (Note  9)
  400 
  489 
Current portion of equipment notes payable (Note 16)
  195 
  102 
Current portion secured notes payable (Note 14)
  195 
  191 
Current portion of leases payable
  8 
   
Credit card advance (net of discount) (Note 11)
   
  56 
Notes payable – related party (Note 10)
  116  
  116  
Total current debt
  2,204 
  2,007 
Long-term debt:
    
    
Unsecured notes payable (Note 9)
   
  200 
Equipment lease payable
  21 
   
Equipment notes payable (Note 16)
  733  
  161  
 Total long-term debt
 $754 
 $361 
 
 NOTE 9. UNSECURED NOTES PAYABLE 
 
Unsecured notes payable at March 31, 2021 and June 30, 2020 consisted of the following:  
 
 
 
March 31, 2021
 
 
June 30, 2020
 
 
 
(unaudited)
 
 
 
 
Current debt:
 
(in thousands)
 
20% Unsecured note, bi-weekly principal and interest, due September 18, 2020 (1)
 $ 
 $75 
20% Unsecured note, bi-weekly principal and interest, due February 19, 2021 (2)
   
  214 
20% Unsecured note, interest only, due May 1, 2021 (3)
  200 
  200 
20% Unsecured note, interest only, due July 31, 2021 (5)
  100 
   
20% Unsecured note, interest only, due October 31, 2021 (4)
  100  
   
Total current debt
  400 
  489 
 Long-term debt:
    
    
20% Unsecured note, interest only, due October 31, 2021 (4)
   
  100 
20% Unsecured note, interest only, due July 31, 2021 (5)
   
  100  
Total long-term debt
   
  200  
Total unsecured notes payable
 $400  
 $689  
 
(1) Unsecured note payable for $300,000 to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing September 18, 2020. This note was repaid in full on September 18, 2020. Personally guaranteed by principal stockholder.
 
(2) Unsecured note payable for $300,000 to two individual shareholders with interest at 20%, principal and interest paid bi-weekly, maturing February 19, 2021. $12,678 from the proceeds of this unsecured note payable was used to retire the balance of the unsecured note maturing on February 28, 2020. This note was repaid in full in February 19, 2021. Personally guaranteed by principal stockholder.
 
(3) Unsecured note payable for $200,000 to an individual with interest payable monthly at 20%, principal originally due in full on May 1, 2013, extended to May 1, 2019, then extended to May 1, 2021. This note was repaid in full on May 1, 2021. Personally guaranteed by principal stockholder.
 
(4) Unsecured note payable for $100,000 to an individual with interest payable monthly at 20%, principal originally due in full on October 31, 2014, extended to October 31, 2019, then extended to October 31, 2021. 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; extended to July 31, 2019; then extended by the holder to July 31, 2021. Personally guaranteed by principal stockholder.
 
 
18
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 10. NOTES PAYABLE - RELATED PARTY
 
Related party notes payable at March 31, 2021 and June 30, 2020 consisted of the following:
 
 
 
March 31, 2021
 
 
June 30, 2020
 
 
 
 (unaudited)
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
Unsecured note payable to an officer, with interest at 3.25%, due on demand
 $40 
 $40 
Unsecured note payable to an officer, with interest at 3.25%, due on demand
  76  
  76  
Total unsecured notes payable
  116 
  116 
Less: current portion
  (116 )
  (116 )
Long-term unsecured notes payable
 $- 
 $- 
 
NOTE 11. CREDIT CARD ADVANCES
 
On August 28, 2019, the Company borrowed an additional $250,000 from Power Up against its future credit card receivables. Terms for this loan calls for a repayment of $290,000 which includes a one-time finance charge of $40,000, approximately ten months after the funding date. A 1% loan origination fee was deducted, and the Company received net proceeds of $247,500. This loan was repaid in full on September 16, 2020. This loan was guaranteed by the Company and was personally guaranteed by the Company’s CEO and controlling shareholder (see Note 17).
 
NOTE 12. LINE OF CREDIT
 
On May 24, 2011, the Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs entered into a credit facility with a finance company, Advance Financial Corporation, to provide it with an asset based line of credit of up to $750,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital.  The term of the agreement was one year, renewable for additional one-year terms unless either party provides written notice of non-renewal at least 90 days prior to the end of the current financing period. The credit facility was 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 charged interest at a rate of 2.5% over the lenders Index Rate.  In addition there was a Monthly Service Fee (as defined in the agreement) of up to 1.25% 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% 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.
 
On November 27, 2018, the credit agreement with Advance Financial Corporation was amended to increase the Inventory Advance (as defined in the amended and restated receivable financing agreement) of up to the lesser of $500,000 or 125% of the eligible accounts receivable loan. All other terms of the credit facility remain the same.
 
On December 1, 2020, the credit agreement with Advance Financial Corporation was amended to reduce the interest calculation to prime rate plus 2% and the Monthly Service Fee was unchanged at .5% per month. As of March 31, 2021, the interest rate was 5.25%. All other terms of the credit facility remain the same. 
 
 
19
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 12. LINE OF CREDIT (continued)
 
The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the facility.  In addition, the Company has provided its corporate guarantee of the credit facility (see Note 17).  On March 31, 2021, the balance owed under this line of credit was $1,249,913.  As of March 31, 2021, 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 13. UNSECURED LINES OF CREDIT 
 
The Company has drawn a cash advance on one unsecured line of credit that is in the name of the Company and Louis S. Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8%. The aggregate amount owed on the unsecured line of credit was $39,501 at March 31, 2021 and $47,619 at June 30, 2020.
 
NOTE 14. SECURED NOTE PAYABLE
 
On June 11, 2019, the Company entered into an agreement with a secured lender, whereby the lender agreed to loan OneUp a total of $150,000. After partial repayment of this loan, in November, 2019 the Company borrowed an additional $33,000. Repayment of this note is by 78 weekly payments of $2,298, beginning November 13, 2019. On March 31, 2021, the balance owed under this note payable was $11,319. This note payable is guaranteed by the Company and is personally guaranteed by the Company’s CEO and controlling shareholder, Louis S. Friedman.
 
On June 28, 2019, the Company entered into an agreement with Amazon.com, Inc. (“Amazon”), whereby Amazon agreed to loan OneUp a total of $302,000. Repayment of this note is by 12 monthly payments of $26,301, which includes interest at 8.22%. This loan was repaid in full on August 3, 2020. The Company had granted Amazon a security interest in certain assets of the Company.
 
On November 27, 2019 the Company entered into an agreement with OnDeck, whereby OnDeck agreed to loan OneUp a total of $200,000. Terms for this loan calls for a repayment of $234,000 which includes a one-time finance charge of $34,000, approximately nine months after the funding date. A 1% loan origination fee was deducted, and the Company received net proceeds of $198,000. This note payable was fully paid in August 2020. This loan is guaranteed by the Company and is personally guaranteed by the Company’s CEO and controlling shareholder.
 
On February 17, 2021, the Company entered into an agreement with Amazon, whereby Amazon agreed to loan OneUp a total of $200,000. Repayment of this note is by 12 monthly payments of $17,675, which includes interest at 10.99%. On March 31, 2021, the balance owed under this note payable was $184,156. The Company has granted Amazon a security interest in certain assets of the Company. 
  
 
20
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 15. PPP LOAN
 
On April 26, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $1,096,200 made to the Company under the Payroll Protection Plan ("PPP"). The PPP is a liquidity facility program established by the U.S. government as part of the CARES Act in response to the negative economic impact of the COVID-19 outbreak. The PPP Loan to the Company was being administered by Ameris Bank. The PPP Loan had a two-year term with interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred for six months. Beginning November 26, 2020, seven months from the date of the PPP Note, the Company was required to make monthly payments of principal and interest in the amount of $61,691.
 
The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage interest, rent, and utility costs over a 24-week measurement period (as amended) following loan funding. For the loan to be forgiven, the Company is required to formally apply for forgiveness, and potentially, required to pass an audit that it met the eligibility qualifications of the loan. Within 150 days from the application, the Company will be notified whether or not the loan is forgiven.
 
On December 18, 2020, the Company was informed by Ameris Bank that the PPP Note had been forgiven by the U.S. Small Business Administration.
 
In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt, and ASC 450-30 Gain contingency. Accordingly, the Company derecognized the PPP Note liability of $1,096,200 and recorded it as Other Income, as forgiveness was certain.
 
NOTE 16. COMMITMENTS AND CONTINGENCIES
 
Operating Leases
 
The Company leases 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 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, 2021, the weighted average remaining lease term for the lease renewal is 6 years and the weighted average discount rate is 14.49%. Supplemental balance sheet information related to leases at March 31, 2021 is as follows:
 
Operating leases
 
Balance Sheet Classification
 
(in thousands)
 
Right-of-use assets
 
Operating lease right-of-use assets, net
 $2,625 
 
 
 
    
Current lease liabilities
 
Operating lease liabilities
 $229 
Non-current lease liabilities
 
Long-term operating lease liabilities
  2,505 
Total lease liabilities
 
 
 $2,734 
 
Maturities of lease liabilities at March 31, 2021 are as follows: 
 
Payments
 
(in thousands)
 
2021 (three months)
 $146 
2022
  604 
2023
  642 
2024
  680 
2025 and thereafter
  2,011  
Total undiscounted lease payments
  4,083 
         Less: present value discount
  (1,349 )
Total operating lease liability balance
 $2,734 
 
 
21
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 16. COMMITMENTS AND CONTINGENCIES (continued)
 
Equipment Notes Payable
 
The Company has acquired equipment under the provisions of long-term equipment notes. For financial reporting purposes, minimum note payments relating to the equipment have been capitalized. The equipment acquired with these equipment notes has a total cost of $1,318,419. These assets are included in the fixed assets listed in Note 6 - Equipment and Leasehold Improvements and include production equipment. The equipment notes have stated or imputed interest rates ranging from 5% to 13.2%.
 
The following is an analysis of the minimum future equipment note payable payments subsequent to March 31, 2021:  
 
Years ending June 30,
 
(in thousands)
 
2021 (three months)
 $77 
2022
  272 
2023
  251 
2024
  230 
2025
  184 
2026
  76  
Future Minimum Note Payable Payments
 $1,090 
Less Amount Representing Interest
  (162 )
Present Value of Minimum Note Payable Payments
  928 
Less Current Portion
  (195 )
Long-Term Obligations under Equipment Notes Payable
 $733 
 
Employment Agreements
 
The Company has entered into an employment agreement with Louis Friedman, President and Chief Executive Officer. The agreement provides for an annual base salary of $150,000 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 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 to us.
 
NOTE 17. RELATED PARTY TRANSACTIONS
 
The Company has a subordinated note payable to the wife of the Company’s CEO (Louis Friedman) and majority shareholder in the amount of $76,000. Interest on the note during the three months ended March 31, 2021 was accrued by the Company at the prevailing prime rate (which is currently 3.25%) and totaled $609. On December 21, 2020, the note holder used $3,750 of the accrued interest to exercise stock options that were granted on December 29, 2015. The accrued interest on the note as of March 31, 2021 was $29,533. This note is subordinate to all other credit facilities currently in place.
 
On October 30, 2010, Mr. Friedman, loaned the Company $40,000. Interest on the note during the three months ended March 31, 2021 was accrued by the Company at the prevailing prime rate (which is currently 3.25%) and totaled $321. On December 21, 2020, the note holder used $6,875 of the accrued interest to exercise stock options that were granted on December 29, 2015. The accrued interest on the note as of March 31, 2021 was $5,191. This note is subordinate to all other credit facilities currently in place.
 
The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 12 – Line of Credit).  In addition, Luvu Brands has provided its corporate guarantees of the credit facility.  On March 31, 2021, the balance owed under this line of credit was $1,249,913.
 
 
22
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 17. RELATED PARTY TRANSACTIONS (continued)
 
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; extended by the holder to July 31, 2021 under the same terms (see Note 9). Repayment of the 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 extended by the holder to October 31, 2021 (see Note 9). 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; then extended to May 1, 2021 (see Note 9). This loan was repaid in full on May 1, 2021. Mr. Friedman personally guaranteed the repayment of the loan obligation.
 
The loans from Power Up (see Note 11) to OneUp were guaranteed by the Company (including OneUp and Foam Labs) and were personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman. Power Up is controlled by Curt Kramer, who also controls Hope Capital, Inc.(“HCI”). As last reported to us, HCI owns 7.5% of our common stock.
 
The Company has drawn a cash advance on one unsecured lines of credit that is in the name of the Company and Louis S. Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 8%. The aggregate amount owed on the unsecured line of credit was $39,501 at March 31, 2021 and $47,619 at June 30, 2020. The loan is personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.
 
On June 11, 2019, the Company entered into an agreement with a secured lender, whereby the lender agreed to loan OneUp a total of $150,000. After partial repayment of this loan, in November, 2019 the Company borrowed an additional $33,000. Repayment of this note is by 78 weekly payments of $2,298, beginning November 13, 2019. On March 31, 2021, the balance owed under this note payable was $11,319. This note payable is guaranteed by the Company and is personally guaranteed by the Company’s CEO and controlling shareholder, Louis S. Friedman.
 
On September 23, 2019, 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 September 18, 2020. This loan was repaid in full September 18, 2020. The loan was personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.
 
On November 27, 2019 the Company entered into an agreement with OnDeck, whereby OnDeck agreed to loan OneUp a total of $200,000. Terms for this loan calls for a repayment of $234,000 which includes a one-time finance charge of $34,000, approximately nine months after the funding date. A 1% loan origination fee was deducted, and the Company received net proceeds of $198,000. This note payable was fully paid in August 2020. This loan was guaranteed by the Company and was personally guaranteed by the Company’s CEO and controlling shareholder.
 
On February 21, 2020, 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 February 19, 2021. The lenders deducted an original issue discount of 2% and the balance due on the March 1, 2019 note payable of $12,677 and the remaining proceeds of $281,323 are for working capital purposes. This note payable was fully repaid on February 19, 2021. The loan was personally guaranteed by the Company’s CEO and majority shareholder, Louis S. Friedman.
 
 
23
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 18. STOCKHOLDERS’ EQUITY
 
Options
 
At March 31, 2021, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is a shareholder-approved and under which 3,400,000 shares are reserved for issuance under the 2015 Plan until such Plan terminates on August 31, 2025.
 
Under the 2015 Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company’s common stock. The shares issuable under the 2015 Plan will either be shares of the Company’s authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. As of March 31, 2021, the number of shares available for issuance under the 2015 Plan was 1,000,000.
 
The following table summarizes the Company’s stock option activities during the nine months ended March 31, 2021:
 
 
 
Number of Shares Underlying Outstanding Options
 
 
Weighted Average Remaining Contractual Life (Years)
 
 
Weighted Average Exercise Price
 
 
Intrinsic Value
 
Options outstanding as of June 30, 2020
  4,250,000 
 
1.7 years
 
 $.02 
 $624,700 
Granted
  250,000 
 
4.5 years
 
  .16 
  - 
Exercised
  (1,600,000)
  - 
  .01 
  - 
Forfeited or expired
  (500,000 )
  -  
  -  
  -  
Options outstanding as of March 31, 2021
  2,400,000  
 
2.0 years
 
  .04  
 $277,300  
Options exercisable as of March 31, 2021
  1,625,000  
 
1.4 years
 
  .03  
 $194,625  
 
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 $0.15 for such day. 
 
During the nine months ended March 31, 2021, a total of 1,600,000 stock options were exercised in exchange for various consideration including cash, accrued interest and on a cashless basis.
 
There were 250,000 stock options granted during the nine months ended March 31, 2021 and 300,000 stock options granted during the nine months ended March 31, 2020. The value assumptions related to options granted during the nine months ended March 31, 2021, were as follows:
 
 
 
Nine Months Ended 
March 31, 2021
 
 
Nine Months Ended 
March 31, 2020
 
Exercise Price:
 $.13 - $.17 
 $.02 - $.03 
Volatility:
  469% - 489% 
  405% - 407% 
Risk Free Rate:
  .25% - .49% 
  1.6% - 1.81% 
Vesting Period:
  4 years 
  4 years 
Forfeiture Rate:
  0%
  0%
Expected Life
  4.1 years 
  4.1 years 
Dividend Rate
  0%
  0%
  
 
24
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 18. STOCKHOLDERS’ EQUITY (continued)
 
 The following table summarizes the weighted average characteristics of outstanding stock options as of March 31, 2021:
 
 
 
 
 
Outstanding Options
 
 
Exercisable Options
 
 
Exercise Prices
 
 
Numberof Shares
 
 
RemainingLife (Years)
 
 
WeightedAverage Price
 
 
Number ofShares
 
 
WeightedAverage Price
 
 $.02 to .03 
  2,100,000 
  1.8 
 $.03 
  1,525,000 
 $.03 
 $.05 
  200,000 
  2.3 
 $.05 
  100,000 
 $.05 
 
  100,000  
  4.9 
 $.13  
   
 $ 
 
  2,400,000 
  2.0 
 $.04 
  1,625,000 
 $.03 
 
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 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 nine month periods ended March 31, 2021 and 2020 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: 
 
As of March 31, 2021, the Company’s total unrecognized compensation cost was $28,987 which will be recognized over the weighted average vesting period of two years.
 
 
 
Three Months Ended March 31,
 
 
Nine Months Ended March 31,
 
 
 
2021
 
 
2020
 
 
2021
 
 
2020
 
 
 
($ in thousands)
 
Other Selling and Marketing
  1 
  1 
  3 
  12 
General and Administrative
  3  
  3  
  9  
  3  
Total Stock-based Compensation Expense
  4 
  4 
  12 
  15 
 
Share Purchase Warrants
 
As of March 31, 2021 and 2020, there were no share purchase warrants outstanding.
 
Common Stock
 
The Company’s authorized common stock was 175,000,000 shares at March 31, 2021 and June 30, 2020.  Common shareholders are entitled to dividends if and when declared by the Company’s Board of Directors, subject to preferred stockholder dividend rights. At March 31, 2021, the Company had reserved the following shares of common stock for issuance:
 
 
 
March 31,
 
 
 
2021
 
Shares of common stock reserved for issuance under the 2015 Plan
  3,400,000 
Shares of common stock issuable upon conversion of the Preferred Stock
  4,300,000  
Total shares of common stock equivalents
  7,700,000 
 
 
25
LUVU BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)
 
NOTE 18. STOCKHOLDERS’ EQUITY (continued)
 
During the nine months ended March 31, 2021, 1,585,294 shares of common stock were issued for the exercise of 1.6 million stock options by affiliates and non-affiliate employees of the Company in exchange for various consideration including cash, accrued interest and a cashless basis at prices ranging from $.0125 per share to $.01375 per share. These options were granted under the 2015 Plan on December 29, 2015 with an expiration date of December 29, 2020.
 
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 19. – SUBSEQUENT EVENTS
 
On May 1, 2021, the unsecured note payable for $200,000 was repaid in full.
 
On May 10, 2021, the Company entered into an equipment finance agreement for the purchase of a new fabric cutting machine and cutting table from a European supplier. At a total cost of $210,828, the equipment finance agreement calls for 60 payments of $4,256 to the finance company.
 
 
26
 
 
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
 
 
 
(unaudited)
 
 
 
March 31, 2021
 
 
March 31, 2020
 
Net Sales
  100%
  100%
Cost Of Goods Sold
  71.8 %
  73.5 %
Gross Margin
  28.2%
  26.5%
Operating Expenses
  19.1 %
  26.5 %
Income from operations
  9.1 %
  0.0 %
 
 
 
Nine Months Ended
 
 
 
(unaudited)
 
 
 
March 31, 2021
 
 
March 31, 2020
 
Net Sales
  100%
  100%
Cost Of Goods Sold
  72.2 %
  71.1 %
Gross Margin
  27.8%
  28.9%
Operating Expenses
  19.4 %
  24.8 %
Income from operations
  8.4 %
  4.1 %
 
            The following table represents the net sales and percentage of net sales by product type:
 
 
 
 Three Months Ended
(unaudited)
 
(Dollars in thousands)
 
March 31, 2021
 
 
March 31, 2020
 
Net Sales:
 
 
 
 
 
 
 
 
 
 
 
 
Liberator
 $2,830 
  46%
 $1,672 
  41%
Jaxx
  1,476 
  24%
  841 
  21%
Avana
  1,010 
  16%
  990 
  24%
Intimacy products purchased for resale
  532 
  9%
  347 
  9%
Other / Contract Manufacturing
  333  
  5 %
  212  
  5 %
             Total Net Sales
 $6,181 
  100%
 $4,032 
  100%
 
 
 
Nine Months Ended
(unaudited)
 
(Dollars in thousands)
 
March 31, 2021
 
 
March 31, 2020
 
Net Sales:
 
 
 
 
 
 
 
 
 
 
 
 
Liberator
 $7,300 
  42%
 $5,123 
  40%
Jaxx
  4,903 
  29%
  3,158 
  24%
Avana
  2,803 
  16%
  2,871 
  22%
Intimacy products purchased for resale
  1,327 
  8%
  1,124 
  9%
Other / Contract Manufacturing
  929  
  5 %
  630  
  5 %
             Total Net Sales
 $17,262 
  100%
 $12,906 
  100%
 
 
27
 
 
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
 
Net sales. Sales for the three months ended March 31, 2021 were $6,181,000, a 53% 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 increased $1,158,000, or 69%, during the quarter from the comparable prior year period, due primarily to higher sales through the Company’s e-commerce site, Liberator.com and higher sales through Amazon and brick-and-mortar retail customers. The March, 2020 quarter was the beginning of the COVID-19 pandemic and many of our brick-and-mortar retail customers were closed, resulting in lower sales to those customers.
 
Jaxx sales – Jaxx product sales increased 76% from the prior year third quarter, primarily due to an expanded product offering and greater sales through e-merchants, including Amazon and Wayfair;
 
Avana sales – Net sales of Avana products increased 2% during the quarter from the comparable prior year quarter to $1,010,000 and represents a slight increase in sales of our top-of-bed comfort products;
 
Intimacy products purchased for resale – This product category increased by $185,000, or 53%, from the prior year third quarter due to higher sales of certain products through our e-commerce website, Liberator.com and through Amazon.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.  As a result of selling price increases on certain products, the gross profit margin, as a percentage of sales, increased to 28.2% from 26.5% in the prior year third quarter. With the increased net sales, gross profit increased to $1,746,000 from $1,068,000 in the prior year third quarter.
 
Operating expenses. Total operating expenses for the three months ended March 31, 2021 were approximately 19% of net sales, or approximately $1,183,000, compared to 26% of net sales, or approximately $1,067,000, for the same period in the prior year.  
 
Other income (expense). Interest expense decreased from approximately ($149,000) in the three months ended March 31, 2020 to approximately ($94,000) during the three months ended March 31, 2021. The decrease was primarily due to lower average borrowing balances and reduced interest expense on those lower balances.
 
Nine Months Ended March 31, 2021 Compared to Nine Months Ended March 31, 2020
 
Net sales. Sales for the nine months ended March 31, 2021 were $17,262,000, a 34% 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 increased $2,177,000, or 42%, during the first nine months from the comparable prior year period, due primarily to greater sales through the Company’s Liberator.com website and through Amazon.com;
 
Jaxx sales – Jaxx product sales increased $1,745,000, or 55%, from the prior year first nine months, primarily due to an expanded product offering of outdoor and indoor products and greater sales through e-merchants, including Amazon and Wayfair;
 
Avana sales – Net sales of Avana products decreased $68,000 (or 2%) during the first nine months from the comparable prior year period. Sales of this product line have been impacted by lower-priced competitive products in the market place, and longer delivery lead times which resulted in lower sales through drop ship channels including Amazon, Overstock and Wayfair; and
 
Intimacy products purchased for resale – This product category increased by $203,000, or 18%, from the prior year nine months due to greater sales of certain products through our e-commerce website, Liberator.com and Amazon.com.
  
 
28
 
 
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.  As a result of labor and raw material cost increases, the gross profit margin, as a percentage of sales, decreased to 27.8% from 28.9% in the prior year nine months. With the increased net sales, gross profit increased to $4,800,000 from $3,724,000, a 29% increase.
 
Operating expenses. Total operating expenses for the nine months ended March 31, 2021 were 19% of net sales, or approximately $3,344,000, compared to 25% of net sales, or approximately $3,195,000, for the same period in the prior year.  Of the $149,000 increase, approximately $221,000 was due to higher insurance, computer software and administrative salaries, offset in part by lower sales and marketing salaries and personnel costs ($139,000). 
 
Other income (expense). Interest expense during the first nine month decreased from expense of approximately ($465,000) in fiscal 2020 to expense of approximately ($289,000) during the first nine months of fiscal 2021. The decrease was primarily due to lower average borrowing balances and reduced interest expense on those higher balances. The PPP Note forgiveness by the U.S. Small Business Administration resulted in Other Income of approximately $1,096,000.
 
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:
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
March 31,
 
(Dollars in thousands)
 
2021
 
 
2020
 
 
 
(Unaudited)
 
Cash flow data:
 
 
 
 
 
 
Cash provided by operating activities
 $505 
 $29 
Cash used in investing activities
 $(164)
 $(35)
Cash (used in) financing activities
 $(223)
 $(302)
    
As of March 31, 2021, our cash and cash equivalents totaled $1,269,711, compared to $341,019 in cash and cash equivalents as of March 31, 2020.
 
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 $505,000 in the nine months ended March 31, 2021 compared to $29,000 net cash provided by operating activities in the nine months ended March 31, 2020.  The primary components of the cash provided by operating activities in the current year is the net income of $2,263,000 (which includes the PPP Note forgiveness of $1,096,000), an increase in accounts payable of $212,000, offset in part by an increase in inventory of $936,000.
 
Investing Activities
 
Cash used in investing activities in the nine months ended March 31, 2021 was $164,000 and related to the purchase and installation of certain production equipment and computer software during the first nine months.
 
 
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Financing Activities
 
Cash used in financing activities during the nine months ended March 31, 2021 of $223,000 was primarily attributable to the repayment of the unsecured notes payable, secured notes payable, the credit card advance and payments made on equipment notes, offset in part by net borrowings under the revolving line of credit and secured note payable.
 
Cash used in financing activities during the nine months ended March 31, 2020 of $302,000 was primarily attributable to the repayment of the unsecured notes payable and credit card advance offset in part by the proceeds from the unsecured notes payable and borrowings from the credit card advance and secured notes payable.
 
Inflation
 
During fiscal 2020 and 2021, we experienced increases in various raw material costs and increases in labor costs and government mandated employee benefits. These pricing pressures have not stabilized and will continue to increase throughout fiscal 2021. Inflation and import tariffs can harm our margins and profitability if we are unable to increase prices or improve productivity enough to offset the effects of inflation in our cost base. Furthermore, if our customers reduce their levels of spending in response to increases in retail prices and/or we are unable to pass such cost increases to our customers, our revenues and our profit margins may decrease. 
 
Sufficiency of Liquidity
 
The accompanying consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. We recorded net income of approximately $2,263,000 for the nine months ended March 31, 2021 and net income of approximately $860,000 for the year ended June 30, 2020. As of March 31, 2021, however, we have an accumulated deficit of approximately $5,893,000 and a working capital deficit of approximately $196,000. This raises 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 consolidated 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, we evaluated various options for increasing the throughput of our compressed foam products and during the second quarter of fiscal 2021, we purchased new foam contouring equipment for installation during the third quarter of fiscal 2021. We also placed an order for a larger roll compression machine which should be operational during the fourth quarter of fiscal 2021. These actions should yield higher factory throughput at a lower cost of goods sold. However, these operational improvements have been more than offset by rising wages and raw material costs. We plan to raise our selling prices to offset some of the labor and raw material cost increases. We estimate that the operational and strategic growth plans we have identified over the next twelve months will, at a minimum, 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.
 
Non-GAAP Financial Measures
 
Reconciliation of net income to Adjusted EBITDA for the nine months ended March 31, 2021 and 2020: 
 
 (Dollars in thousands)
 
Nine months ended March 31,
 
 
 
2021
 
 
2020
 
Net income
 $2,263 
 $64 
Plus interest expense, net
  289 
  465 
Plus depreciation and amortization expense
  157 
  117 
Plus stock-based compensation
  12  
  15  
Adjusted EBITDA
 $2,721 
 $661 
 
As used herein, Adjusted EBITDA 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. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income of the Company or net cash provided by operating activities.
 
 
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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, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
 
We have entered into operating leases primarily for certain equipment and our facilities in the normal course of business. These arrangements are often referred to as a form of off-balance-sheet financing. Future minimum lease payments under our operating leases as of March 31, 2021 are detailed in the section entitled “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements.
 
Application of Critical Accounting Policies and Estimates
 
Our unaudited condensed consolidated financial statements included in this report have been prepared in accordance with GAAP. Our significant accounting policies are described in the notes to our unaudited condensed consolidated financial statements. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies that we believe are important to the portrayal of our financial condition and results of operations. These policies require the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in such estimates or assumptions. Our critical accounting policies include those listed below.  
 
Revenue Recognition 
 
  We record revenue based on the five-step model which includes: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when the performance obligations are satisfied. Substantially all of our revenue is generated by fulfilling orders for the purchase of manufactured products and product purchased for resale to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders may be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which 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 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 early payment discounts.  Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and 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 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. 
 
 
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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 is based upon our assessment of the collectability of specific customer accounts, the aging of accounts receivable and our history of bad debts. We believe that the allowance for doubtful accounts is adequate to cover anticipated losses in the receivable balance 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 may be required.
 
Inventories
 
We value inventory at the lower of cost or net realizable value on an item-by-item basis and establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the net realizable value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve amount in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or net realizable value, management considers such factors as the amount of inventory on-hand, the estimated time required to sell such inventory, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer demand or other factors differ from expectations.   Finished goods and goods in process include a provision for manufacturing overhead, including depreciation.  
 
Accounting for 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. At March 31, 2021, we carried a valuation allowance of $1.9 million against our net deferred tax assets.
 
Impairment of Long-Lived Assets
 
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
 
In fiscal year 2019 and 2020 and the first nine months of fiscal 2021, we did generate positive cash flows from operations. However, if our long-term future results do not continue to yield positive cash flows in excess of the carrying amount of our long-lived assets, we would anticipate possible future impairments of those assets.
 
Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets, including the operating and macroeconomic factors that may affect them. We use historical financial information, internal plans and projections and industry information in making such estimates.
 
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.
 
 
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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.
 
PART II      OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
We are not currently subject to any material legal proceedings, nor, to our knowledge, is there any legal proceeding threatened against us. 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
 
On May 1, 2021, the unsecured note payable for $200,000 was repaid in full.
 
On May 10, 2021, the Company entered into an equipment finance agreement for the purchase of a new fabric cutting machine and cutting table from a European supplier. At a total cost of $210,828, the equipment finance agreement calls for 60 payments of $4,256 to the finance company.
  
 
33
 
 
ITEM 6.                        EXHIBITS
 
 
 
 
 
Incorporated by Reference
 
Filed
or Furnished
No.
   
Exhibit Description
   
Form
   
Date Filed
   
Number
   
Herewith
 
Merger and Capitalization Agreement
 
8-K
 
10/22/09
 
2.1
 
 
 
Stock Purchase and Recapitalization Agreement
 
8-K/A
 
3/24/10
 
2.2
 
 
 
Amended and Restated Articles of Incorporation
 
SB-2
 
3/2/07
 
3(i)
 
 
 
Articles of Amendment to the Amended and Restated Articles of Incorporation
 
8-K
 
2/23/11
 
3.1
 
 
 
Articles of Amendment to the Amended and Restated Articles of Incorporation
 
8-K
 
3/3/11
 
3.1
 
 
 
Articles of Amendment to the Amended and Restated Articles of Incorporation
 
8-K
 
11/5/15
 
3.5
 
 
 
Bylaws
 
SB-2
 
3/2/07
 
3(ii)
 
 
 
Section 302 Certification by the Corporation’s Principal Executive Officer
 
 
 
 
 
 
 
Filed
 
Section 302 Certification by the Corporation’s Principal Financial and Accounting Officer
 
 
 
 
 
 
 
Filed
 
Section 906 Certification by the Corporation’s Principal Executive Officer
 
 
 
 
 
 
 
Filed
 
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
 
 
34

 
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 14, 2021
 
By:  
/s/ Louis S. Friedman
(Date)
 
 
Louis S. Friedman
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
 
 
 
May 14, 2021
 
By:  
/s/ Ronald P. Scott
(Date)
 
 
Ronald P. Scott
 
 
 
Chief Financial Officer and Secretary
(Principal Financial & Accounting Officer)
 
 
 
 
 
 
 
 
 
35