UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
|
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended June 30, 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)
|
|
(IRS
Employer Identification No.)
|
|
2745
Bankers Industrial Drive, Atlanta, Georgia
|
30360
|
|
(Address of
principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (770)
246-6400
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
Trading
Symbol(s)
|
Name of
each exchange on which registered
|
|
None
|
|
|
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.01 par value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. ☐ YES
☑ NO
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. ☐ YES ☑ NO
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 twelve 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, a smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer,"
“non-accelerated filer,” "smaller reporting company"
and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ☐
|
|
Accelerated
filer ☐
|
|
Non-accelerated
filer ☑
|
|
Smaller
reporting company ☑
|
|
|
|
Emerging
growth company ☐
|
If an
emerging growth company, indicate by checkmark 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.
☐
Indicated
by check mark whether the registrant has filed a report on or
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). ☐ YES
☑ NO
The
aggregate market value of the voting and non-voting common equity
held by non−affiliates computed by reference to the price at
which the common equity was last sold, or the average of the bid
and asked price of such common equity, on December 31, 2020, the
last trading day of the registrant’s most recently completed
second fiscal quarter, was $5,237,829.
The
number of shares of Common Stock, $.01 par value, outstanding as of
the close of business on September 24, 2021 was
75,037,890.
DOCUMENTS INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security
holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
None.
Luvu Brands, Inc.
Index to Annual Report on Form 10-K
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual
Report”) for Luvu Brands, Inc. (“Luvu Brands” the
“Company” “we” “our” or
“us”) 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, presentation
or filing in which they are made. Except to the extent required by
federal securities laws, the Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Our
forward-looking statements in this report include, but are not
limited to:
|
●
Statements relating to our business strategy;
|
|
●
Statements relating to our business objectives; and
|
|
●
Expectations concerning future operations, profitability, liquidity
and financial resources.
|
These
forward-looking statements are subject to risks, uncertainties and
assumptions about us and our operations that are subject to change
based on various important factors, some of which are beyond our
control. The following factors, among others, could cause our
financial performance to differ significantly from the goals,
plans, objectives, intentions and expectations expressed in our
forward-looking statements:
●
the ongoing impact of
COVID-19 on our business, sales, results of operations and
financial condition ;
●
competition from
other websites including Amazon, mass market and specialty
e-tailers and from sexual wellness retailers and adult-oriented
websites;
●
our ability to
satisfy, extend, renew or refinance our existing debt;
●
the loss of one or
more significant customers;
●
our ability to
generate significant sales revenue from internet, print and radio
advertising;
●
our plan to make
continued investments in advertising and marketing;
●
our ability to protect
our trademarks, brand image, or other intellectual property
rights ;
●
any decline in consumer
spending including due to negative impact from economic
conditions ;
●
our ability to
successfully adapt to consumer shopping preferences
;
●
systems interruptions that impair customer access to our sites or
other performance failures in our technology infrastructure,
including significant disruptions of or breach in security of
information technology systems and violation of data privacy
laws;
●
our ability to attract, develop, motivate and maintain
well-qualified associates;
●
our history of
operating losses and the risk of incurring additional losses in the
future;
●
our ability to maintain our brand image, engage new and existing
customers and gain market share
●
changes in U.S.
trade policies could significantly increase the costs of certain
raw materials, parts or components used in our products and our
sales;
●
our ability to
improve manufacturing efficiency at our production
facility;
●
unfavorable changes to government regulation of the Internet and
ecommerce;
●
the
impact of increases in demand for, or the price of, raw materials
used to manufacture our products, and any disruption in the supply
of those raw materials;
●
changes in
government laws affecting our business;
●
we may not be
successful in integrating any acquisitions we make;
●
our dependence on
the experience and competence of our executive officers and other
key employees;
●
risks associated
with currency fluctuations;
●
an anticipated
worsening US deficit and a possible rise in inflation in coming
years that would put further stress on consumer
spending;
●
management’s
goals and plans for future operations; and
●
other risks or
uncertainties described elsewhere in this report and in other
periodic reports previously and subsequently filed by the Company
with the Securities and Exchange Commission.
General
Luvu
Brands, Inc. designs, manufactures and markets a portfolio of
consumer lifestyle brands through the Company’s websites,
online mass / drug merchants and specialty retail stores worldwide.
Brands include: Liberator®,
a brand category of iconic products for enhancing sensuality and
intimacy; Avana®,
products and 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 virgin and re-purposed polyurethane foam. These products are
sold through the Company’s websites, concept factory store,
online mass merchants and retail stores worldwide. Many of our
products are offered flat-packed and either roll or vacuum
compressed to save on shipping and reduce our carbon footprint. In
March, 2020, the Company began producing personal face masks under
the Avana brand in response to the COVID-19 pandemic with shipments
beginning in April. In April, 2020, the Company also began
producing and selling medical isolation gowns. During the fourth
quarter of fiscal 2020, we filled an emergency request from a local
university hospital system for approximately 37,000 reusable
isolation gowns.
Headquartered in
Atlanta, Georgia, the Company occupies a 140,000 square foot
vertically-integrated manufacturing facility and employs over 200
people.
The
Company’s e-commerce websites include:
liberator.com, jaxxliving.com,
and avanacomfort.com.
Unless
the context requires otherwise, all references in this report to
the “Company,” “Luvu Brands,”
“we,” “our,” and “us” refers to
Luvu Brands, Inc. and its subsidiaries.
Our executive offices are located at 2745 Bankers
Industrial Dr., Atlanta, GA 30360; our telephone number is
+1-770-246-6400.
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, the
“SEC”, 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 annual report.
COVID-19
In
March 2020, the World Health Organization characterized the
outbreak of COVID-19 as a global pandemic and President Trump
declared a national emergency concerning the pandemic. The COVID-19
pandemic has dramatically impacted the global health and
economic environment, with millions of confirmed cases, business
slowdowns and shutdowns and market volatility.
COVID-19 has caused, and is likely to continue to cause,
significant economic disruption and is having widespread, rapidly
evolving and unpredictable impacts on global
society, financial markets and business practices. Various
governments around the world have implemented measures in an effort
to contain the virus, including social distancing, travel
restrictions, border closures, limitations on public gatherings,
work from home requirements, supply chain logistical changes, and
closure of non-essential businesses. During the fourth quarter of
fiscal 2020, the COVID-19 pandemic positively impacted our business
through higher sales of PPE products and our other consumer brands.
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 supply
chain disruptions. 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 continued 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. Refer to Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (Part II, Item 7 of this Form 10-K) for further
discussion regarding potential risks to our business from the
COVID-19 pandemic.
Corporate History
The
Company was incorporated in the State of Florida on February 25,
1999, under the name of WES Consulting, Inc. On October 19, 2009,
the Company entered into a Merger and Recapitalization Agreement
(the “Merger Agreement”) with Liberator, Inc., a Nevada
corporation (“Old Liberator”). Pursuant to the
Merger Agreement, Old Liberator merged with and into the Company,
with the Company surviving as the sole remaining entity (the
“Merger”). On February 28, 2011, the Company name was
changed from WES Consulting, Inc. to Liberator, Inc. Effective
November 5, 2015, the Company changed its corporate name from
Liberator, Inc. to Luvu Brands, Inc. to reflect its broader
offering of wellness and lifestyle products designed for mass
market channels.
Overview of our Facilities and Operations
Since
inception we have used a vertically integrated business model, with
manufacturing, distribution, product development and marketing
performed in-house. We believe this allows us to create new
products with reduced lead times at a lower cost while enabling us
to quickly respond to market and customer demands for our existing
products. For our wholesale accounts, being able to fulfill large
orders with shorter turnaround times allows us to capture business
during December and February when wholesale customers make
just-in-time holiday purchases.
Our
140,000 square foot facility on eight acres is located in a suburb
of metro Atlanta, Georgia and includes manufacturing and
distribution, sales and marketing, product development, customer
service and administrative staff. All of the Liberator, Jaxx and
Avana branded products are designed, produced and marketed from our
facility in Atlanta, Georgia where we currently employ 204 people.
As of the date of this report, the Company employs 167 people in
Production and Distribution, 2 people in Product Development, 14
people in Sales and Marketing, and 21 people in Administration. The
Company’s employment levels may change seasonally based on
current and anticipated order levels.
Our
Atlanta-based manufacturing operation has two CAD controlled fabric
cutters, one CAD controlled wood cutter, two CAD controlled foam
contouring machines and two state-of-the-art conveyor unit
production sewing systems. Our sewing equipment is also highly
automated with conveyor-based lines leading into vacuum and roll
compression packaging of finished products. We believe that our
in-house manufacturing capabilities have enabled us to achieve
greater efficiencies and cost savings, as well as strict control
over the entire manufacturing cycle including raw material
procurement, finished goods production and logistics optimization.
In addition to providing us with greater production flexibility,
our in-house manufacturing provides us with the opportunity to
improve fulfillment response time, reduces the risk of out-of-stock
situations, limits finished goods obsolescence and improves overall
operating margins.
Because
fabric cutting, sewing, foam contouring, assembly and vacuum
packaging are performed in-house, we believe we can exercise
greater control over product quality and respond faster to changing
customer demands, which gives us a competitive advantage over
companies that utilize only out-sourced sewing services. In
addition to our in-house sewing capabilities, we outsource the
sewing of certain high-volume products to a contract sewing
facility in Mexico which, during fiscal 2021, produced
approximately 20% of our sewn product requirements.
We
source raw materials from multiple domestic and foreign suppliers
and we have supply contracts in place to produce our specialty
fabrics under specific quality control and performance standards
with just-in-time deliveries. We also repurpose approximately 4,000
pounds of polyurethane foam trim each day, primarily for Jaxx
beanbags, which gives us a cost and quality competitive
advantage.
During
fiscal 2021, we installed a second, larger roll pack and
compression machine used for the majority of our foam-based
products. We also acquired and installed a second foam contouring
machine which doubled our foam cutting capacity. These actions
resulted in increased throughput and lower production costs in
these operations, which have been partially offset by increased raw
material costs and wages.
All
business activity of the Company is done through our wholly-owned
subsidiary, OneUp Innovations, Inc. (“OneUp”). OneUp
was organized in 2000 and began operations in 2002.
Business Strategy
Our
goals are to achieve long-term growth and profitability and
diversify our sales base. We plan to achieve these goals using the
following strategies:
●
Delivering value to our
customers. Our primary goal is to deliver the highest value
to every customer, before, during and after they purchase a product
from us. This means designing relevant products with the most
utility and benefit, creating an informative and efficient buying
experience, and delivering on our promises. We believe that serving
the customer is the center of everything we do, and by doing so we
create value for our customers and wealth for our
shareholders.
●
Manufacturing.
To improve our business results, we constantly look for ways to
manage the impact of rising raw material and labor costs by
improving the productivity of our manufacturing processes. As
demand for certain high-volume products continues to increase, we
plan to shift more of the sewing of those products to a contract
facility in Mexico.
●
Sustainability.
We believe that sustainable operations are both financially and
operationally beneficial to our business, and critical to our
future success. We are acutely focused on waste reduction efforts:
repurposing 98% of our foam trim to other products, compressing all
of our foam products to reduce freight costs and corrugated use,
improving manufacturing processes to reduce waste overall, finding
new ways to repurpose certain waste streams and establishing local
recycling partnerships to divert waste from landfills.
●
Eco-Packaging.
In fiscal 2013, we developed vacuum compressed packaging to reduce
our carbon footprint, make our products more convenient for the
consumer and easier to display for the retailer, and reduce our
outbound shipping costs. During fiscal 2014, we expanded the number
of products that used Eco-Packaging to include all foam-based
products. In fiscal 2015, we further vacuum compressed our products
to even smaller sizes while adding more product marketing
information to our retail consumer packages. In fiscal 2018 and
2019, the new roll pack compression equipment expanded the number
of products offered in smaller boxes. With the addition of the
larger roll pack compression machine that we installed during
fiscal 2021, we can now more efficiently compress our larger foam
products.
●
Wholesale
Operations. Our goal
is to increase consumer demand through advertising and public
relations while our wholesale operations expand our offering to
distributors, retailers and e-tailers across every channel of
adult, mass market, and specialty accounts. For wholesalers
thinking about adding Sexual Wellness products to their retail or
online store, our Liberator product line is typically one of the
first “safer” products presented, as it can be promoted
as an assistive aid to sexual positioning. As the mainstream demand
for Sexual Wellness products grows, our sales staff is training and
educating new resellers on how to get started in this category. For
retail display, we offer mainstream packaging in a variety of sizes
and price points to meet their customers particular demographic. We
offer all our brands for sale through various e-tailers, and for
these customers we maintain brand continuity by providing rich
product content, photography and instructional videos for use on
their websites. We also provide fulfillment services and can
drop-ship orders directly to their customer.
Products, Principal Markets and Methods of
Distribution
Liberator Products
We
developed a product category which we call “Liberator Bedroom Adventure
Gear”®. Many of the
pieces in this product line are designed to elevate, create motion
and create surfaces and textures that expand the sexual repertoire
and make the act of love more exciting. Liberator Bedroom Adventure Gear combines
functional design with sensuous textures that transform ordinary
bedrooms into supportive landscapes for intimacy. Liberator
products present angles, elevations, curves and motion that help
people of all sizes, including those with back injuries and other
medical conditions, find comfortable ways to connect intimately
while assisting their stamina and performance.
Liberator
foam-based products (called “Liberator Shapes”) are
manufactured in a variety of heights and widths to accommodate
variations in the human body. They consist of differently shaped
cushions and props that are available in an assortment of fabric
colors to add to the visual excitement. Each of the product
profiles of the Liberator Shapes is unique, designed to introduce
positions to the sexual experience that were previously difficult
to achieve or impossible to achieve with standard pillows or
cushions. Liberator Shapes are manufactured from structured
polyurethane foam, cut at various angles, platforms and profiles.
The foam base is encased in a tight, fluid resistant polyester
shell, helping the cushions to maintain their shape. The
original offering of the Liberator Wedge® and
Ramp®, sold as a set,
continue to be our best-selling items. Many of the Liberator Shapes
are also available in our Black Label Series which includes
blindfolds and snap-on Velcro cuffs.
We have
also developed vacuum compressed large profile designs that are
commonly referred to as “sex furniture”. Most of the
sex furniture pieces are made from contoured urethane foam and
covered in a variety of fabrics and colors. These items are
marketed as the Esse®, Flip
Stage®, Equus
Wave®
and the Prelude®. Other
larger designs include products based on shredded polyurethane foam
encased in a wide range of fabric types and colors and sold under
our Zeppelin® product
offering. The Liberator larger profile designs can also be used as
seating when not being used for relaxed interaction and creative
intimacy. Newer designs are also flat packed with wooden bases and
feet.
We
conduct our wholesale business for Liberator sexual wellness
products through four primary channels: (1) adult and female
friendly retailers, flash sites and specialty boutiques, (2)
e-tailers who sell our products through adult, mass market, drug
and other sites offering sexual wellness products, (3) mail order
catalogers, and (4) wholesale distributors of adult / sexual
wellness products. These wholesale accounts have approximately 950
retail locations and/or websites in the United States and Canada.
We have a growing number of retailers who have added a dedicated
Liberator exhibition concept to their merchandising space. We also
sell our products in Europe through a Netherlands-based third-party
fulfillment service.
All
products sold under the Liberator brand provided 42% and 37% of our
revenues in each of our fiscal years ended June 30, 2021 and
2020, respectively.
Products Purchased for Resale
Beginning in 2006,
we began importing high-quality pleasure objects from around the
world. These resale products provided 8% of our revenues in each of
our fiscal years ended June 30, 2021 and 2020.
Jaxx Casual Seating
The
Company sells a line of contemporary casual indoor and outdoor
seating under the Jaxx® brand.
Jaxx beanbags are an
offshoot from Liberator manufacturing as it provides additional
revenue from repurposing our polyurethane foam trim into shredded
beanbag fill. The Jaxx
indoor beanbag collection includes an offering of adult and
children size beanbags in a variety of fabrics, faux-furs and
vinyl. The Jaxx product line also includes solid foam indoor
furniture collections and outdoor furniture collections that use
polystyrene bead filling. The Jaxx product line and accessory
products are sold through the following wholesale channels: (1)
e-tailers, (2) mass marketers, (3) hospitality, (4) interior
designers, (5) schools, and (6) retail furniture stores. We also
offer Jaxx private label and custom designs for large regional and
national furniture chains. The Company also owns and manages a
website under the URLs www.JaxxBeanBags.com and www.JaxxLiving.com for direct to
consumer sales of Jaxx
products. Jaxx products
provided 29% and 26% of our revenues in each of our fiscal years
ended June 30, 2021 and 2020, respectively.
The
contemporary seating business is highly competitive. We believe we
compete effectively on the basis of product quality, good design,
customer service and good price to value. We believe that our
primary competitive advantages are consumer recognition of the
Jaxx brand, as well as
distribution through the multiple sales channels where consumers
prefer to purchase.
Avana®
Products
The
Company sells a unique collection of comfort products that aid in
sleep, meditation, and relaxation under the Avana® brand. These
products include a diverse offering of top-of-bed support cushions
and props, many of which are assistive in relieving medical
conditions associated with acid reflux, surgery recovery and
chronic pain. The Avana
product line is sold through e-merchants (including Amazon.com,
Walmart.com, medical product distributors and specialty e-tailers),
and through our website under the URL www.AvanaComfort.com. We believe that
our Avana Medical products compete effectively on the basis of good
design, through offering a wide-range of designer colors and
fabrics and supported by thousands of 5-star product
reviews.
Total
Avana products provided 16%
and 25% of our revenues in our fiscal years ended June 30,
2021 and 2020, respectively. Sales of all Avana products decreased 21% to
approximately $3.7 million in fiscal 2021 from fiscal 2020, as the
prior year included approximately $780,000 of Avana PPE products.
Sales of PPE products in the current fiscal year 2021 were
immaterial.
Sales and Distribution
Our
sales personnel are organized by market channel and by customer
type. In North America, we have sales personnel who routinely visit
sexual wellness retailers to assist in product training,
merchandising and stocking of selling areas. Through our in-house
wholesale sales organization, we engage e-merchants and retailers
directly and then either ship to them on a wholesale basis or
provide fulfillment services by drop-shipping directly to their
customers.
In
international markets, the Company has a direct sales model with a
US-based salesperson. This salesperson is responsible for wholesale
sales, marketing operations and customer service in Canada and the
European Union and other international markets. For European
customers, orders are filled from our third-party warehouse in the
Netherlands or directly from our facilities in Atlanta. Total
international sales represented approximately 4% of our total net
sales in the years ended June 30, 2021 and 2020.
As is
customary in the sexual wellness and casual furniture industry,
sales to customers are generally made pursuant to purchase orders,
and we do not have long-term or exclusive contracts with any of our
retail customers or wholesale distributors. We believe that our
continuing relationships with our customers are based upon our
ability to provide a wide selection and reliable source of sexual
wellness and casual furniture products, combined with our expertise
in marketing and new product introduction.
Internet Websites
Since
2002, our Liberator website located at www.Liberator.com has allowed our
customers to purchase our Liberator merchandise over the
Internet. We design and operate our websites using an
in-house technical and creative staff.
Our
www.Liberator.com website
is intended to be an entertainment and educational venue where
consumers can watch product demonstration videos, videos on sexual
wellness topics and humorous videos on the many facets of human
sexuality, including our blog
at Liberator.com/unzipped.
Our
www.Jaxxbeanbags.com
website offers contemporary indoor and outdoor
seating,
bean
bags and foam bags, headboards, and children’s
furniture
which
is particularly appealing to the young adult and children’s
market.
Our
www.AvanaComfort.com
website blends rest, relaxation and health products in an offering
that appeals to a broad range of consumers.
Sources and Availability of Raw Materials
We
obtain all of the raw materials and components used to produce our
products from outside sources. A number of components, including
certain fabrics and zippers, are sourced from suppliers who
currently serve as our sole or primary source of supply for these
components. We believe we can obtain these raw materials and
components from other sources of supply, although we could
experience some short-term disruption in our ability to fulfill
orders in the event of an unexpected loss of supply from one of the
primary suppliers. We utilize dual sourcing on targeted components
when effective.
Recent
changes in U.S. trade policy, including tariffs on certain goods
imported into the United States from China, as well as increased
transportation costs, have increased the costs of certain raw
materials, parts or components used in our products. Such an
increase may materially and adversely affect our sales and our
business, as we may increase the selling prices of our products. If
any increase in costs of goods cannot be passed on to our
customers, our business and gross profit may be materially and
adversely affected.
Major Customers
Our ten
largest customers (excluding our own e-commerce sites and retail
store) accounted for approximately 51% of net sales for the year
ended June 30, 2021 and 49% of net sales for the year ended
June 30, 2020. Only one customer accounted for more than 10%
of total net sales (Amazon) with 29% of our net sales during the
year ended June 30, 2021 and 34% of our sales for the year
ended June 30, 2020. The loss of, or a significant adverse
change in our relationship with, any of our largest customers could
have a material adverse effect on our business, prospects, results
of operations, financial condition or cash flows.
Competition
We
compete with other manufacturers, distributors and marketers of
wellness, lifestyle and casual seating, both within and outside the
U.S. The sexual wellness and furniture industries are highly
fragmented and competition for the sale of such products comes from
many sources. These products are sold primarily through retailers
(independent retailers, drug store chains, and mass market
retailers), distributors, and direct sales channels (internet
marketing and mail order companies).
For
Liberator products, we believe that our primary competitive
advantage is consumer recognition of our brand. Due to the strength
of our brand, we have no direct competition for the majority of our
Liberator branded products. In fact, many e-commerce websites refer
to Liberator as a product category and not as a discrete product.
And since we sell through multiple sales channels, we provide
consumers with the ability to shop for Liberator intimacy products
in an environment or website that they are most comfortable in. We
also believe that we differentiate ourselves from conventional sex
toys based on our utility of design and overall customer
satisfaction as it relates to enhanced intimacy.
For
Jaxx and Avana products, we believe our primary competitive
advantage is good design and creative presentation, our offering of
a wide range of designer colors and fabrics, good price to value,
and our positive consumer reviews.
For our
Products Purchased for Resale, competition among retailers of adult
products and web-based marketers is high. Although we compete with
retail and internet businesses and now mass and drug retailers that
sell sexual wellness products including vibrators, pleasure
objects, accessories and similar merchandise, we believe that this
opens new channels of distribution for our Liberator products and
that we are able to compete favorably as our Liberator products are
unique, are couple-centric, and are assistive devices for couples
with sexual limitations and issues.
For the
Liberator e-commerce website, other competitive factors include the
effectiveness of our customer mailing lists, maintaining natural
search listing, advertising response rates, website design
aesthetics and functionality. The broad range of designs, color
choice, fabrics and accessories that we offer helps to
differentiate us and allows us to compete favorably against many
other adult or sexual wellness websites. Liberator.com also
competes against numerous mainstream websites, many of which have a
greater volume of web traffic, greater financial strength and
marketing resources.
We
believe competition in our industries is based on, among other
things, the ability to deliver the right product at the right time,
product quality and safety, innovation, customer service and price.
We believe we compete favorably with other companies because of our
ability to provide a broad product offering for customers, our
vertically integrated manufacturing operation which allows us to
quickly respond to customer demand, our commitment to quality and
safety, and our commitment to minimizing our environmental
impact.
Our
future competitive position will likely depend on, but not be
limited to, the following:
|
●
the continued acceptance of our products by our customers and
consumers;
|
|
●
our ability to protect our proprietary rights in our patent and
trademarks and the continued validity of such intellectual
property;
|
|
●
our ability to successfully expand our product
offerings;
|
|
●
our ability to maintain adequate inventory levels to meet our
customers’ demands;
|
|
●
our ability to continue to manufacture high quality products at
competitive prices;
|
|
●
our ability to attract and retain qualified personnel;
|
|
●
the effect of any future governmental regulations on our products
and business;
|
|
●
the continued growth of the global sexual wellness industry;
and
|
|
●
our ability to respond to changes within the industry and consumer
demand, financially and otherwise.
|
Government Regulation
We are
subject to customs, truth-in-advertising and other laws, including
consumer protection regulations that regulate the promotion and
sale of merchandise and the operation of warehouse facilities. We
monitor changes in these laws and believe that we are in material
compliance with applicable laws.
Intellectual Property
The
Liberator trademark is registered with the United States Patent and
Trademark office and with the registries of many foreign countries.
In addition, we were issued approximately 20 other product name
trademarks and trade names including: “Bedroom Adventure
Gear”®,
Ramp®,
Wedge®,
Stage®,
Esse®,
Zeppelin®,
Hipster®,
Wing®,
Equus®,
Jaxx®,
Avana®, and
Bonbon®. In August
2005, we were issued utility patent number US 6,925,669
“Support Cushion and System of Cushions.” We believe
our trademarks and patent have significant value and we intend to
continue to vigorously protect them against
infringement.
Human
Capital
Workforce. As of June 30, 2021, we had 204 full-time
employees (169 people in Production and Distribution, and 35 in
sales, marketing and administration operations). Additional
staffing is typically required to support the peak holiday period
through Valentine’s Day.
Our employees in the U.S. are
not covered by collective bargaining agreements. We have never
experienced a strike or work stoppage.
Our employees are a key
source of competitive advantage and their actions, guided by our
Code of Conduct, are critical to the long-term success of our
business. We recognize the importance of our employees to our
business and believe our relationship with our employees is
satisfactory.
Seasonality
Our
business is seasonal and, as a result, revenues will vary from
quarter to quarter. During the past three years, we have realized
an average of approximately 26% of our annual revenues in our
second quarter, which includes Christmas, and an average of
approximately 25% of our revenues in the third quarter, which
includes Valentine’s Day.
Financial Information about Our Business Sales
Channels
We
conduct our business through two primary sales channels: Direct
(consisting of our Internet websites) and Wholesale (consisting of
our stocking reseller, drop-ship, contract manufacturing and
distributor accounts). Net sales in the
Other channel consists primarily of shipping and handling fees
derived from our Direct business. During our last two
years, substantially all of our revenue was generated within North
America, and all of our long-lived assets are located within the
United States. The following is a summary of our
revenues:
|
(Dollars in thousands)
|
|
|
|
Direct
|
$6,919
|
$4,887
|
|
Wholesale
|
15,618
|
13,164
|
|
Other
|
568
|
325
|
|
Total
Net Sales
|
$23,105
|
$18,376
|
Direct
The
following is a summary of our Direct business net sales and the
percentage relationship to total revenues:
|
(Dollars in thousands)
|
|
|
|
Direct sales
channel net sales
|
$6,919
|
$4,887
|
|
Direct net sales as
a percentage of total revenues
|
30%
|
27%
|
Wholesale
The
following is a summary of our net sales to Wholesale customers and
the percentage relationship to total
revenues:
|
(Dollars in thousands)
|
|
|
|
Wholesale sales
channel net sales
|
$15,618
|
$13,164
|
|
Wholesale net sales
as a percentage of total revenues
|
68%
|
72%
|
As of
June 30, 2021, the Company has over 950 active wholesale
accounts, most of which are located in the United
States.
Sales by Product Type
The
following table represents the dollars and percentage of net sales
by product type:
|
(Dollars in thousands)
|
|
|
|
Net
sales:
|
|
|
|
Liberator
|
$9,806
|
42%
|
$6,852
|
37%
|
|
Jaxx
|
6,794
|
29%
|
4,787
|
26%
|
|
Avana
|
3,655
|
16%
|
4,616
|
25%
|
|
Products purchased
for resale
|
1,771
|
8%
|
1,481
|
8%
|
|
Other
|
1,079
|
5%
|
640
|
3%
|
|
Total Net
Sales
|
$23,105
|
100%
|
$18,376
|
100%
|
Liberator -
Liberator products consist of items that are manufactured by us and
are intended for sale in the sexual health and wellness market.
Liberator products are sold to e-merchants, retailers and
distributors as well as directly through our e-commerce site. Net
sales of Liberator products increased 43% during the year ended
June 30, 2021, from the comparable year earlier period. This
increase is primarily related to higher sales through our
e-commerce site, Liberator.com.
Jaxx - Jaxx products
are contemporary seating products manufactured by us and sold under
the Jaxx brand. Jaxx products are sold to e-merchants and retailers
as well as directly through our e-commerce site. Net sales of Jaxx
products increased 42% during the year ended June 30, 2020,
compared to the prior year. This increase is primarily due to
greater sales of Jaxx indoor and outdoor products to (and through)
Amazon and other e-merchants including Wayfair and Overstock and
our own e-commerce site, JaxxLiving.com.
Avana - The Avana
product line is a unique collection of comfort products that aid in
sleep, and relaxation. In April, 2020, the Avana product line was
expanded to include PPE products (personal protection masks and
isolation gowns) and during the three months ended June 30, 2020,
the Company sold approximately $780,000 of PPE products. During
fiscal 2021, sales of PPE products totaled approximately $54,000.
Avana products are sold through e-merchants, mail order catalogers
and through our e-commerce site. Net sales of Avana products
decreased 21% during the year ended June 30, 2021, compared to
the prior year. Excluding the PPE sales during fiscal 2020, Avana
sales decreased 5% during the year ended June 30, 2021, compared to
the prior year. The decrease in sales was due primarily to supply
chain shortages and increased competition from lower priced "knock
off" products from China and other countries.
Products purchased for
resale – Products purchased for resale are other
pleasure products that we purchase from others at wholesale or
distributor prices and resell through Liberator.com. Sales of these
products increased 20% during the year ended June 30, 2021
from the prior year, due to higher sales through our e-commerce
site, Liberator.com. Sales of these products is increasingly
competitive and, as a result, the Company has elected to only offer
a more curated selection of products that typically have a higher
gross profit and compliment our Liberator products.
Other - Other
products include sales from contract manufacturing and fulfillment
services(shipping and handling fees). Net sales during the year
ended June 30, 2021 increased 69% from the prior
year.
Additional information
We file
annual and quarterly reports on Forms 10-K and 10-Q, current
reports on Form 8-K and other information with the Securities and
Exchange Commission (“SEC” or the
“Commission”). The Commission also maintains an
Internet site at http://www.sec.gov that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commission.
Other
information about the Company can be found on our website
www.luvubrands.com.
Reference in this document to that website address does not
constitute incorporation by reference of the information contained
on the website.
Not
applicable to a smaller reporting company.
ITEM 1B. Unresolved Staff
Comments.
None.
We are
headquartered in Atlanta, Georgia. Our mailing address is 2745
Bankers Industrial Drive, Atlanta, GA 30360. We lease a 140,000
square feet building on eight acres which we believe allows for
expansion when needed. Our facility houses manufacturing,
distribution and fulfillment, call center, in-house advertising and
creative departments, product design group, and administrative
offices. 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 under this lease (and the prior
lease) for the 12 months ended June 30, 2021 was $501,480. The
rent expense under the prior lease for the 12 months ended June 30,
2020 was $352,479.
Our
facilities are currently adequate for their intended purposes and
are adequately maintained.
ITEM 3. Legal
Proceedings.
As of
the date of this annual 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.
ITEM 4. Mine Safety
Disclosures.
None.
ITEM 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our
common stock is quoted on the OTC Markets Group on the OTCQB tier
(“OTCQB”) under the symbol “LUVU.”
Stockholders
As of
September 25, 2021, we had 80 stockholders of record of our common
stock. This
amount does not reflect persons or entities that hold our
securities in nominee or “street” name through various
brokerage firms.
Dividend Policy
We have
not paid dividends and we plan to retain all earnings generated by
our operations, if any, for use in our business. We do not
anticipate paying any cash dividends to our shareholders in the
foreseeable future. The payment of future dividends on the common
stock and the rate of such dividends, if any, and when not
restricted, will be determined by our board of directors in light
of our earnings, financial condition, capital requirements, and
other factors. Additionally, under the terms of our credit
facility, we are precluded from paying a dividend and we may in the
future issue preferred stock and/or other securities that provides
for preferences over holders of common stock in the payment of
dividends.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
None.
ITEM 6. Selected Financial
Data.
Not
applicable to smaller reporting company.
ITEM 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
This discussion summarizes the significant factors affecting the
results of operations and financial condition of the Company during
the fiscal years ended June 30, 2021 and 2020 and should be
read in conjunction with our financial statements and accompanying
notes thereto included elsewhere herein. Certain information
contained in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” are
“forward-looking statements.” Statements
that are not historical in nature and which may be identified by
the use of words like “expects,” “assumes,”
“projects,” “anticipates,”
“estimates,” “we believe,” “could
be” and other words of similar meaning, are forward-looking
statements. These statements are based on
management’s expectations and assumptions and are subject to
risks and uncertainties that may cause actual results to differ
materially from those expressed. Our actual results may differ
materially from the results discussed in this section because of
various factors, including those set forth elsewhere herein. See
“Forward-Looking Statements” included in this
report.
Results of Operations
Overview
The
following table sets forth, for the periods indicated, information
derived from our Consolidated Financial Statements, expressed as a
percentage of net sales. The discussion that follows the
table should be read in conjunction with our Consolidated Financial
Statements.
|
|
|
|
|
Net
sales
|
100%
|
100%
|
|
Cost of goods
sold
|
73
%
|
70
%
|
|
Gross
profit
|
27%
|
30%
|
|
Selling, General
and Administrative Expenses
|
19
%
|
22
%
|
|
Operating
income
|
8%
|
8%
|
|
|
|
|
Fiscal Year ended June 30, 2021 Compared to the Fiscal Year
Ended June 30, 2020
Net sales. The net
sales increase of 26% in fiscal 2021 from fiscal 2020 consists of a
43% increase in sales of Liberator products, a 42% increase in Jaxx
products, a 20% increase in products purchased for resale, offset,
in part, by a 21% decrease in sales of Avana products. Sales of
Liberator products increased 43% from the prior year to
approximately $9.8 million during fiscal 2021, and sales of Jaxx
products increased 42% during fiscal 2021 to approximately $6.8
million. Sales of Avana products decreased 21% to $3.7 million
during fiscal 2021. Avana sales in the prior year included
approximately $780,000 of PPE (masks and isolation gowns) products;
sales of these products in the current year totaled approximately
$54,000. Sales of all products through the Wholesale sales channel
in fiscal 2021 increased 19% from the prior year while the Direct
sales channel increased approximately 42% from the prior
year. The Wholesale sales channel includes branded products
and resale products sold to brick-and-mortar retailers and
e-merchants including, but not limited to, Amazon, Overstock and
Wayfair. The Wholesale sales channel 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. The Direct
sales channel consists of consumer sales through our three
websites. In fiscal 2020 and prior years, the Direct sales channel
included sales through our single retail store, which was closed in
March, 2020 and has since been converted into a production area for
sewn products. The increase in sales through the Direct channel was
due to higher sales of products sold through our
websites.
Gross profit. Gross
profit, derived from net sales less the cost of product sales,
includes the cost of materials, direct labor, manufacturing
overhead and depreciation. Total gross profit as a
percentage of sales for the year ended June 30, 2021 decreased
to 27% from 30% in the prior year, primarily due to higher labor
and raw material costs. Gross profit dollars increased to
$6,301,000 from $5,526,000 in the prior year and represented a 14%
increase. Price increases that were implemented during the second
half of fiscal 2021 partially offset the labor and material cost
increases; further selling price increases are being implemented.
The Company also continued transitioning the sewing of certain
high-volume Jaxx and Avana products to a contract facility in
Mexico which, during fiscal 2021, produced approximately 20% of our
sewn products and reduced our total cost of production for those
products.
Operating expenses.
Excluding depreciation expense, total operating expenses for the
year ended June 30, 2021 were 18% of net sales, or $4,239,000,
compared to 21% of net sales, or $3,924,000, for the year ended
June 30, 2020. The 8% increase in operating
expenses from the prior year was primarily due to higher
advertising and promotion expenses which were incurred in an effort
to increase sales, higher occupancy costs, and higher personnel
related costs.
Other income
(expense). Other income (expense) increased to income of
$721,000 from expense of $(591,000) in the prior fiscal year,
primarily due to lower interest expense and the PPP Note
forgiveness by the U.S. Small Business Administration of
approximately $1,096,000.
We had
a net income from operations of $2,563,000, or $0.03 per diluted
share, for the year ended June 30, 2021 compared with net
income from operations of $860,000, or $0.01 per diluted share, for
the year ended June 30, 2020.
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, the
COVID-19 pandemic, 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 raw material costs increases, labor cost
increases resulting from the current labor shortage, 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:
|
|
|
|
|
|
|
|
|
|
Cash
flow data from continuing operations:
|
|
|
|
Cash provided by
operating activities
|
$540
|
$367
|
|
Cash used in
investing activities
|
$(210)
|
$(227)
|
|
Cash (used in)
provided by financing activities
|
$(505)
|
$363
|
As of
June 30, 2021, our cash and cash equivalents totaled $976,794
compared to $1,152,091 in cash and cash equivalents as of
June 30, 2020.
Operating Activities
Net
cash provided by operating activities primarily consists of the net
income adjusted for certain non-cash items, including depreciation,
stock-based compensation, PPP loan forgiveness, and the effect of
changes in operating assets and liabilities. Net cash provided by
operating activities increased from the prior year due to the net
income from operations and an increase in accounts payable offset,
in part, by an increase in inventory and prepaid expenses and other
assets.
Investing Activities
Cash
used in investing activities in the year ended June 30, 2021
was primarily for software development work, purchase of production
and computer equipment and in the year ended June 30, 2020 was
primarily for software development work, purchase of production
equipment, leasehold improvements and computer
equipment.
Financing Activities
Cash
used in financing activities in the year ended June 30, 2021 was
primarily due to repayment of secured and unsecured notes payable
and equipment notes payable offset in part by borrowings through
secured and unsecured notes payable.
Cash
provided by financing activities in the year ended June 30,
2020 was primarily due to the receipt of the PPP loan, proceeds
from unsecured and secured notes payable, borrowing from the credit
card advance and other credit facilities offset, in part, by
repayment of the unsecured notes payable, the secured notes payable
and the credit card advance.
Inflation
During
fiscal 2020 and 2021, we experienced increases in various raw
material costs and increases in labor costs. We believe these
pricing pressures have not stabilized and will continue to increase
throughout fiscal 2022, although there is no assurance this will
occur. Inflation 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.
Capital Resources
We
expect total capital expenditures for fiscal 2022 to be less than
$150,000 and to be funded by equipment loans and, to a lesser
extent, anticipated operating cash flows and borrowings under the
line of credit with Advance Financial Corporation. This includes
capital expenditures in support of our normal
operations.
If our
business plans and cost estimates are inaccurate and our operations
require additional cash or if we deviate from our current plans, we
could be required to seek additional debt financing for particular
projects or for ongoing operational needs. This
indebtedness could harm our business if we are unable to obtain
additional financing on reasonable terms. In addition,
any indebtedness we incur in the future could subject us to
restrictive covenants limiting our flexibility in planning for, or
reacting to changes in, our business. If we do not
comply with such covenants, our lenders could accelerate repayment
of our debt or restrict our access to further borrowings, which in
turn could restrict our operating flexibility and endanger our
ability to continue operations.
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 June 30, 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
June 30, 2021 are detailed in the section entitled
“Commitments and Contingencies” in the Notes to the
Consolidated Financial Statements.
Effect of Recently Issued Accounting Standards and
Estimates
We do
not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, will have a material
effect on our consolidated financial position, results of
operations, or cash flows.
Application of Critical Accounting Policies and
Estimates
Our
consolidated financial statements included under Item 8 in
this report have been prepared in accordance with GAAP. Our
significant accounting policies are described in the notes to our
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.
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.
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 2020 and 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.
Non-GAAP Financial Measures
Reconciliation of
net income to Adjusted EBITDA for the years ended June 30,
2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$2,563
|
$860
|
|
Plus interest
expense and financing costs
|
375
|
590
|
|
Plus depreciation
and amortization expense
|
220
|
151
|
|
Plus stock-based
compensation expense
|
15
|
21
|
|
Adjusted
EBITDA
|
$3,173
|
$1,622
|
As used
herein, Adjusted EBITDA represents net income before interest
income, interest expense and financing costs, depreciation, and
stock-based compensation expense. We have excluded the non-cash
expenses and stock-based compensation expense 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.
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 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 amortization and non-cash charges for stock-based
compensation expense and loss on disposal of assets.
ITEM 7A. Quantitative and
Qualitative Disclosures about Market Risk.
Not
applicable for a smaller reporting company.
ITEM 8. Financial Statements and
Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Luvu
Brands, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Luvu
Brands, Inc. (the Company) as of June 30, 2021 and 2020, and the
related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for each of the years in the
two-year period ended June 30, 2021, and the related notes
(collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of June 30, 2021 and 2020, and the results of its
operations and its cash flows for each of the years in the two-year
period ended June 30, 2021, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Valuation of inventories and inventory reserves
As
described in Notes 2 and 4 to the consolidated financial
statements, the Company has inventories, net totaled to
approximately $3.39 million as of June 30, 2021. Inventories are
stated at the lower of cost or net realizable value. Cost is
determined using the first-in, first-out (FIFO) method. The Company
establishes reserves for excess and obsolete inventory for each
accounting period and records any potential adjustments needed for
the reserves.
Auditing
management’s estimates of the net realizable value of
inventories, including inventory reserves was highly judgmental due
to the degree of subjectivity involved in assessing the inventory
reserves which are based on prevailing circumstances and judgment
for consideration of current events, such as economic conditions,
that may affect inventory.
To test
the estimates for the net realizable value of inventories,
including inventory reserves, we performed audit procedures that
included, among others, evaluating the reasonableness of the inputs
used in management’s inventory reserve calculation and
analyzing the reserve calculations to determine whether management
identified any evidence of slow-moving inventory or any
obsolescence due to existing and potential changes in marketability
which may impact the reserves.
/s/
Liggett & Webb, P.A.
We have
served as the Company’s auditor since 2012.
Boynton
Beach, Florida
September
28, 2021
Luvu Brands, Inc. and Subsidiaries
Consolidated Balance
Sheets
As of June 30, 2021 and 2020
|
|
|
|
|
Assets:
|
(in thousands, except share data)
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$977
|
$1,152
|
|
Accounts
receivable, net
|
1,134
|
1,135
|
|
Inventories,
net
|
3,391
|
1,985
|
|
Prepaid
expenses
|
145
|
55
|
|
Total current
assets
|
5,647
|
4,327
|
|
|
|
|
|
Equipment, property
and leasehold improvements, net
|
1,934
|
938
|
|
Finance lease
assets
|
27
|
—
|
|
Operating lease
assets
|
2,554
|
165
|
|
Other
assets
|
84
|
17
|
|
Total
assets
|
$10,246
|
$5,447
|
|
|
|
|
|
Liabilities
and stockholders’ equity (deficit):
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$2,669
|
$2,435
|
|
Current
debt
|
1,599
|
2,007
|
|
Current portion of
PPP loan
|
—
|
482
|
|
Other accrued
liabilities
|
694
|
623
|
|
Operating lease
liability
|
250
|
199
|
|
Total current
liabilities
|
5,212
|
5,746
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
Long-term
debt
|
1,288
|
361
|
|
PPP
loan
|
—
|
614
|
|
Long-term operating
lease liability
|
2,423
|
—
|
|
Total noncurrent
liabilities
|
3,711
|
975
|
|
Total
liabilities
|
8,923
|
6,721
|
|
Commitments
and contingencies (See Note 15)
|
—
|
—
|
|
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 as of June 30, 2021
and 2020
|
—
|
—
|
|
Common stock, $0.01
par value, 175,000,000 shares authorized, 75,037,890 and 73,452,596
shares issued and outstanding as of June 30, 2021 and 2020,
respectively
|
750
|
735
|
|
Additional paid-in
capital
|
6,166
|
6,147
|
|
Accumulated
deficit
|
(5,593
)
|
(8,156
)
|
|
Total
stockholders’ equity (deficit)
|
1,323
|
(1,274
)
|
|
Total
liabilities and stockholders’ equity (deficit)
|
$10,246
|
$5,447
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
Luvu Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended June 30, 2021 and 2020
|
|
|
|
|
|
(in thousands,
except share data)
|
|
|
|
|
|
Net
Sales
|
$23,105
|
$18,376
|
|
Cost of goods
sold
|
16,804
|
12,850
|
|
Gross
profit
|
6,301
|
5,526
|
|
Operating
expenses:
|
|
|
|
Advertising and
promotion
|
502
|
390
|
|
Other selling and
marketing
|
1,043
|
1,167
|
|
General and
administrative
|
2,694
|
2,367
|
|
Depreciation
|
220
|
151
|
|
Total operating
expenses
|
4,459
|
4,075
|
|
Operating
income
|
1,842
|
1,451
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Gain on forgiveness
of PPP loan
|
1,096
|
—
|
|
Interest expense
and financing costs
|
(375)
|
(590)
|
|
Loss on disposal of
fixed assets
|
—
|
(1
)
|
|
Total other income
(expense)
|
721
|
(591
)
|
|
Income from
operations before income taxes
|
2,563
|
860
|
|
Provision for
income taxes
|
—
|
—
|
|
Net
income
|
$2,563
|
$860
|
|
|
|
|
|
Net
income per share:
|
|
|
|
Basic
|
$0.03
|
$0.01
|
|
Diluted
|
$0.03
|
$0.01
|
|
Shares used in
calculation of net income per share:
|
|
|
|
Basic
|
74,296,689
|
73,452,596
|
|
Diluted
|
75,494,948
|
75,256,596
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-3
Luvu Brands, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the years ended June 30, 2020 and June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
—
|
—
|
—
|
—
|
21
|
—
|
21
|
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
860
|
860
|
|
Ending
balance, June 30, 2020
|
4,300,000
|
—
|
73,452,596
|
735
|
6,147
|
(8,156)
|
(1,274)
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
—
|
—
|
—
|
—
|
15
|
—
|
15
|
|
Stock option
exercises
|
—
|
—
|
1,585,294
|
15
|
4
|
—
|
19
|
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
2,563
|
2,563
|
Ending
balance, June 30, 2021
|
4,300,000
|
$—
|
75,037,890
|
$750
|
$6,166
|
$(5,593)
|
$1,323
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-4
Luvu Brands, Inc. and Subsidiaries
Consolidated Statements of Cash
Flows
Years Ended June 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$2,563
|
$860
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
Gain on forgiveness
of PPP Loan
|
(1,096)
|
—
|
|
Depreciation and
amortization
|
220
|
151
|
|
Stock-based
compensation expense
|
15
|
21
|
|
Provision for bad
debt
|
1
|
(2)
|
|
Provision for
inventory reserve
|
32
|
60
|
|
Loss on disposal of
fixed assets
|
—
|
1
|
|
Amortization of
operating lease asset
|
295
|
284
|
|
Change in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
1
|
(304)
|
|
Inventory
|
(1,438)
|
(293)
|
|
Prepaid
expenses and other assets
|
(158)
|
(7)
|
|
Accounts
payable
|
234
|
(126)
|
|
Accrued expenses
and interest
|
40
|
(33)
|
|
Operating lease
liability
|
(209)
|
(346)
|
|
Accrued payroll and
related
|
40
|
101
|
|
Net cash provided
by operating activities
|
540
|
367
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
Investment in
equipment, software development and leasehold
improvements
|
(210
)
|
(227
)
|
|
Net cash used in
investing activities
|
(210)
|
(227)
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
Borrowing
(repayment) under revolving line of credit
|
78
|
52
|
|
Borrowing
(repayment) of unsecured line of credit
|
(11)
|
22
|
|
Proceeds from
credit card advance
|
—
|
450
|
|
Repayment of credit
card advance
|
(56)
|
(574)
|
|
Borrowings under
secured note payable
|
200
|
233
|
|
Borrowings under
PPP Loan
|
—
|
1,096
|
|
Repayments under
secured note payable
|
(239)
|
(491)
|
|
Proceeds from
unsecured notes payable
|
200
|
600
|
|
Repayment of
unsecured notes payable
|
(489)
|
(834)
|
|
Repayment of term
note – shareholder
|
—
|
(49)
|
|
Payments on
equipment notes
|
(189)
|
(134)
|
|
Proceeds from
exercise of stock options
|
9
|
—
|
|
Principal payments
on capital leases
|
(8
)
|
(8
)
|
|
Net cash (used in)
provided by financing activities
|
(505
)
|
363
|
|
Net
(decrease) increase in cash and cash equivalents
|
(175)
|
503
|
|
Cash
and cash equivalents at beginning of year
|
1,152
|
649
|
|
Cash
and cash equivalents at end of year
|
$977
|
1,152
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
Non
cash items:
|
|
|
|
Purchases of
equipment with equipment notes
|
$998
|
$72
|
|
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
|
$—
|
|
Cash paid during
the year for:
|
|
|
|
Interest
|
$371
|
$584
|
|
Income
taxes
|
$—
|
$—
|
The accompanying
notes are an integral part of these consolidated financial
statements.
Luvu Brands, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements
For the years ended June 30, 2021 and 2020
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 Innovations, Inc.
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. 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.
NOTE 2. 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 financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
Use of Estimates
The
preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States
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.
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, 2021 and June 30, 2020 was
$16,965 and $14,898, respectively, and was included in “Other
accrued liabilities” on our consolidated balance
sheets.
Cost of Goods Sold
Cost of
goods sold includes raw material, labor, manufacturing overhead,
and royalty expense.
Shipping and Handling Costs
We
include fees earned on the shipment of our products to customers in
sales and include costs incurred on the shipment of product to
customers in costs of goods sold.
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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Allowance for Doubtful Accounts
The
allowance for doubtful accounts reflects management's best estimate
of probable credit losses inherent in the accounts receivable
balance. The Company determines the allowance based on historical
experience, specifically identified nonpaying accounts and other
currently available evidence. The Company reviews its allowance for
doubtful accounts monthly with a focus on significant individual
past due balances over 90 days. Account balances are charged off
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The
Company does not have any off-balance sheet credit exposure related
to its customers.
The
following is a summary of Accounts Receivable as of June 30,
2021 and June 30, 2020.
|
|
|
|
|
|
|
|
Accounts
receivable
|
$1,189
|
$1,135
|
|
Allowance for
doubtful accounts
|
(1)
|
-
|
|
Allowance for
discounts and returns
|
(54)
|
-
|
|
Total accounts
receivable, net
|
$1,134
|
$1,135
|
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 cash balances on deposit at June 30, 2021 and
2020 that exceeded the balance insured by the FDIC by $807,766 and
$960,030, respectively. Accounts receivable are typically unsecured
and are derived from revenue earned from customers primarily
located in North America and Europe.
During
2021, we purchased 34% of total inventory purchases from one
vendor.
During
2020, we purchased 33% of total inventory purchases from one
vendor.
As of
June 30, 2021 , two of the Company’s customers represent
40% and 14% of the total accounts receivables, respectively. As of
June 30, 2020, three of the Company’s customers represent
38%, 16% and 16% of the total accounts receivable, respectively.
Sales to (and through) Amazon accounted for 29% and 34% of our net
sales during each of the years ended June 30, 2021 and
June 30, 2020, respectively.
Fair Value of Financial Instruments
At
June 30, 2021 and 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 ASC 820, Fair
Value Measurements and Disclosures, which defines fair
value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. ASC 820 does not
require any new fair value measurements, but its provisions apply
to all other accounting pronouncements that require or permit fair
value measurement.
ASC 820
clarifies that fair value is an exit price, representing the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
based on the highest and best use of the asset or liability. As
such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use
in pricing an asset or liability. ASC 820 requires the Company to
use valuation techniques to measure fair value that maximize the
use of observable inputs and minimize the use of unobservable
inputs. These inputs are prioritized as follows:
·
Level 1: Observable inputs such as
quoted prices for identical assets or liabilities in active
markets;
·
Level 2: Inputs, other than the quoted
prices in active markets, that are observable either directly or
indirectly such as quoted prices for similar assets or liabilities
or market-corroborated inputs; and
·
Level 3: Unobservable inputs for which
there is little or no market data, which require the reporting
entity to develop its own assumptions about how market participants
would price the assets or liabilities.
The
valuation techniques that may be used to measure fair value are as
follows:
A.
Market approach - Uses
prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities.
B.
Income approach - Uses
valuation techniques to convert future amounts to a single present
amount based on current market expectations about those future
amounts, including present value techniques, option-pricing models
and excess earnings method.
C.
Cost approach - Based on
the amount that currently would be required to replace the service
capacity of an asset (replacement cost).
Advertising Costs
Advertising costs
are expensed in the period when the advertisements are first aired
or distributed to the public. Prepaid advertising (included in
prepaid expenses) was $5,000 at June 30, 2021 and $5,000 at
June 30, 2020. Advertising expense for the years ended
June 30, 2021 and 2020 was $501,711 and $390,108,
respectively.
Research and Development
Research and
development expenses for new products are expensed as they are
incurred. Expenses for new product development (included
in general and administrative expense) totaled $109,024 for the
year ended June 30, 2021 and $111,148 for the year ended
June 30, 2020.
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 which 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.
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 year ended June 30, 2020 was $352,479.
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 year ended June 30, 2021
(under the previous lease and the new lease) was
$501,480.
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.
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.
The
Company also leases certain equipment under operating leases, as
more fully described in NOTE 15 - Commitments and Contingencies
..
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Segment Information
We have
identified three reportable sales channels: Direct, Wholesale and Other. Direct includes product sales through
our five e-commerce sites and our single retail store. 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.
|
|
|
|
|
|
Net Sales by Channel:
|
|
|
|
Direct
|
$6,919
|
$4,887
|
42%
|
|
Wholesale
|
$15,618
|
$13,164
|
19%
|
|
Other
|
$568
|
$325
|
75%
|
|
Total
Net Sales
|
$23,105
|
$18,376
|
26%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit by Channel:
|
|
|
|
|
|
Direct
|
$3,329
|
$2,392
|
49%
|
39%
|
|
Wholesale
|
$4,216
|
$3,977
|
30%
|
6%
|
|
Other
|
$(1,244)
|
$(843)
|
(259)%
|
(48)%
|
|
Total
Gross Profit
|
$6,301
|
$5,526
|
30%
|
14%
|
Recent accounting pronouncements
From
time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (“FASB”) or other
standard setting bodies that are adopted by the Company as of the
specified effective date.
Adopted during the year ended June 30, 2021
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fair Value Measurement
In August 2018, the FASB issued Accounting Standards
Update (“ASU”) No. 2018-13, Fair
Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair
Value Measurement. The new
standard eliminates, adds and modifies certain disclosure
requirements for fair value measurement as part of the FASB’s
disclosure framework project. Under the new standard, the amount
and reason for a transfer between Level 1 and Level 2 of
the fair value hierarchy are no longer required to be disclosed,
but public companies are required to disclose a range and weighted
average of significant unobservable inputs for Level 3 fair
value measurements. The Company adopted the new standard on
July 1, 2020; however, it did not have a significant impact on
the Company’s financial statements.
Collaborative Arrangements
In November 2018, the FASB issued
ASU No. 2018-18, Collaborative Arrangements
(Topic 808): Clarifying the Interaction between Topic 808 and
Topic 606. The new standard
clarifies that certain transactions between participants in a
collaborative arrangement should be accounted for under Topic 606
when the counterparty is a customer. The new standard also
precludes an entity from presenting consideration from a
transaction in a collaborative arrangement as revenue from
contracts with customers if the counterparty is not a customer for
that transaction. The guidance amends Topic 808 to refer to
the unit-of-account guidance in Topic 606 and requires it
to be used only when assessing whether a transaction is in the
scope of Topic 606. The Company adopted the new standard on
July 1, 2020; however, it did not have a significant impact on
the Company’s financial statements.
Adopted effective July 1, 2021
Financial Instruments—Credit Losses
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The new
standard requires that financial assets measured at amortized cost
be presented at the net amount expected to be collected and
separately measure an allowance for credit losses that is deducted
from the amortized cost basis of those financial assets. The
Company early adopted the new standard on July 1, 2021;
however, it did not have a significant impact on the
Company’s financial statements.
Income Taxes
In December 2019, the FASB issued
ASU No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes. The new standard includes several provisions
that simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740 and increasing
consistency and clarity for the users of financial statements. The
Company adopted the new standard on July 1, 2021; however, it
did not have a significant impact on the Company’s financial
statements.
Investments – Equity Securities, Investments – Equity
Method and Joint Ventures, and Derivatives and Hedging
In January 2020, the FASB issued
ASU No. 2020-01, Investments – Equity
Securities (Topic 321), Investments – Equity Method and Joint
Ventures (Topic 323), and Derivatives and Hedging (Topic
815)—Clarifying the Interactions between Topic 321, Topic
323, and Topic 815. The new
standard addresses interactions between the guidance to account for
certain equity securities under ASC Topic 321, the guidance to
account for investments under the equity method of accounting in
ASC Topic 323 and the guidance in ASC Topic 815, which could change
how an entity accounts for an equity security under the measurement
alternative or a forward contract or purchased option to purchase
securities that, upon settlement of the forward contract or
exercise of the purchased option, would be accounted for under the
equity method of accounting or the fair value option in accordance
with ASC Topic 825, Financial
Instruments. These amendments
improve current U.S. GAAP by reducing diversity in practice and
increasing comparability of the accounting for any such
interactions. The Company adopted the new standard on July 1,
2021; however, it did not have a significant impact on the
Company’s financial statements.
Net Income Per Share
In
accordance with FASB Accounting Standards Codification No. 260,
“Earnings Per Share”, basic net income per share is
computed by dividing the net income available to common
stockholders for the period by the weighted average number of
common shares outstanding during the period. Diluted net income per
share is computed by dividing net income available to common
stockholders by the weighted average number of common and common
equivalent shares outstanding during the period.
The
total potential dilutive securities as of June 30, 2021 and
2020 are as follows:
|
|
|
|
|
Convertible
Preferred Stock
|
4,300,000
|
4,300,000
|
|
Stock options
– 2015 Plan
|
2,500,000
|
4,250,000
|
|
Total
|
6,800,000
|
8,550,000
|
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. At June 30,
2021, we carried a valuation allowance of $1.5 million against our
net deferred tax assets.
Stock Based Compensation
We
account for stock-based compensation to employees in accordance
with FASB ASC 718, Compensation – Stock Compensation. We
measure the cost of each stock option and restricted stock award at
its fair value on the grant date. Each award vests over the
subsequent period during which the recipient is required to provide
service in exchange for the award (the vesting period). The cost of
each award is recognized as expense in the financial statements
over the respective vesting period.
NOTE 3. 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 June 30,
2021 or 2020.
NOTE 4. INVENTORIES
All
inventories are stated at the lower of cost (which approximates
first-in, first-out) or net realizable value. The Company’s
inventories consist of the following components at June 30,
2021 and 2020:
|
|
|
|
|
|
|
|
Raw
materials
|
$1,637
|
$992
|
|
Work in
process
|
396
|
234
|
|
Finished
goods
|
1,531
|
900
|
|
Total
inventories
|
3,564
|
2,126
|
|
Allowance for
inventory reserves
|
(173)
|
(141)
|
|
Total inventories,
net of allowance
|
$3,391
|
$1,985
|
NOTE 5. EQUIPMENT, PROPERTY AND LEASEHOLD IMPROVEMENTS,
NET
Equipment, property
and leasehold improvements at June 30, 2021 and 2020 consisted
of the following:
|
|
|
|
Estimated
Useful Life
|
|
|
|
|
|
Factory
equipment
|
$3,567
|
$2,646
|
2-10 years
|
|
Computer equipment
and software
|
1,146
|
1,087
|
5-7 years
|
|
Office equipment
and furniture
|
205
|
205
|
5-7 years
|
|
Leasehold
improvements
|
480
|
463
|
10
years
|
|
Projects in
process
|
222
|
3
|
|
|
Subtotal
|
5,620
|
4,404
|
|
|
Accumulated
depreciation
|
(3,686)
|
(3,466
)
|
|
|
Equipment,
property and leasehold improvements, net
|
$1,934
|
$938
|
|
Depreciation
expense was $220,635 and $151,105 for the years ended June 30,
2021 and 2020, respectively.
NOTE 6. OTHER ACCRUED LIABILITIES
Other
accrued liabilities at June 30, 2021 and 2020 consisted of the
following:
|
|
|
|
|
|
|
|
Accrued
compensation
|
$509
|
$468
|
|
Accrued expenses
and interest
|
185
|
155
|
|
|
|
|
|
Other accrued
liabilities
|
$694
|
$623
|
NOTE 7. CURRENT AND LONG-TERM DEBT SUMMARY
Current
and long-term debt at June 30, 2021 and 2020 consisted of the
following:
|
|
|
|
|
Current
debt:
|
|
|
Unsecured lines of
credit (Note 12)
|
$37
|
$48
|
|
Line of credit
(Note 11)
|
1,083
|
1,005
|
|
Short-term
unsecured notes payable (Note 8)
|
100
|
489
|
|
Current portion of
equipment notes payable (Note 15)
|
219
|
102
|
|
Current portion
secured notes payable (Note 13)
|
152
|
191
|
|
Current portion of
leases payable
|
8
|
-
|
|
Credit card advance
(net of discount) (Note 10)
|
-
|
56
|
|
Notes payable-
related party (Note 9)
|
-
|
116
|
|
Total current
debt
|
1,599
|
2,007
|
|
Long-term
debt:
|
|
|
|
Unsecured notes
payable (Note 8)
|
300
|
200
|
|
Equipment notes
payable (Note 15)
|
853
|
161
|
|
Leases
payable
|
19
|
-
|
|
Notes payable-
related party (Note 9)
|
116
|
-
|
|
Total
long-term debt
|
$1,288
|
$361
|
NOTE 8. UNSECURED NOTES PAYABLE
Unsecured notes
payable at June 30, 2021 and 2020 consisted of the
following:
|
|
|
|
|
Current
debt:
|
|
|
|
|
|
|
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
|
|
20% Unsecured note,
interest only, due October 31, 2021 (4)
|
100
|
-
|
|
Total current
debt
|
100
|
489
|
|
Long-term
debt:
|
|
|
|
13.5% Unsecured
note, interest only, due May 1, 2023 (3)
|
200
|
-
|
|
20% Unsecured note,
interest only, due October 31, 2021 (4)
|
-
|
100
|
|
13.5% Unsecured
note, interest only, due July 31, 2023 (5)
|
100
|
100
|
|
Total long-term
debt
|
300
|
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 April 30, 2021 and replaced with a new
note from an entity controlled by the same lender with interest
payable monthly at 13.5%, principal due in full on May 1, 2023.
Personally guaranteed by principal stockholder.
(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
payable monthly at 20%, principal originally due in full on July
31, 2013, extended to July 31, 2019, then extended to July 31,
2021. This note was repaid in full on July 30, 2021 and replaced
with a new note from an entity controlled by the same lender with
interest payable monthly at 13.5%, principal due in full on July
31, 2023. Personally guaranteed by principal
stockholder.
NOTE 9. NOTES PAYABLE- RELATED PARTY
Related
party notes payable at June 30, 2021 and 2020 consisted of the
following:
|
|
|
|
|
|
|
|
Unsecured note
payable to an officer, with interest at 3.25%, due July 1,
2023
|
$40
|
$40
|
|
Unsecured note
payable to an officer, with interest at 3.25%, due July 1,
2023
|
76
|
76
|
|
Total unsecured
notes payable
|
116
|
116
|
|
Less: current
portion
|
—
|
(116
)
|
|
Long-term unsecured
notes payable
|
$116
|
$—
|
Effective June 29,
2021, the notes were replaced with new notes due July 1,
2023.
NOTE 10. CREDIT CARD ADVANCES
On
August 28, 2019, the Company borrowed $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, Louis S. Friedman (see Note
16).
NOTE 11. 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 June 30, 2021, the interest rate was 5.25%. All other
terms of the credit facility remain the same.
The
Company’s CEO, Louis Friedman, has personally guaranteed the
repayment of the facility. In addition, Luvu Brands has provided
its corporate guarantee of the credit facility (see Note 16). On
June 30, 2021, the balance owed under this line of credit was
$1,083,405. As of June 30, 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 12. UNSECURED LINES OF CREDIT
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 (see Note
16). 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 $36,680
at June 30, 2021 and $47,619 at June 30,
2020.
NOTE 13. SECURED NOTE PAYABLE
On June
11, 2019, the Company entered into an agreement with a secured
lender, whereby the lender agreed to loan OneUp Innovations 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. This note was repaid in full on May 5, 2021. This note
payable was guaranteed by the Company and was 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,
whereby Amazon agreed to loan OneUp Innovations 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 the 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 was
guaranteed by the Company and was 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 Innovations a total of
$200,000. Repayment of this note is by 12 monthly payments of
$17,675, which includes interest at 10.99%. On June 30, 2021, the
balance owed under this note payable was $152,032. The Company has
granted Amazon a security interest in the assets of the
Company.
NOTE 14. 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 is being administered by Ameris Bank. The PPP Loan has
a two-year term and bears interest at a rate of 1.0% per annum.
Monthly principal and interest payments are deferred for six
months. Beginning November 26, 2020, seven months from the date of
the PPP Note, the Company is 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 the forgiveness was
certain.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The
Company leases it facilities under a non-cancelable operating lease
expiring 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 June 30, 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 June 30, 2021 is as
follows:
Supplemental
balance sheet information related to leases at June 30, 2021 is as
follows:
|
Operating
leases
|
Balance
Sheet Classification
|
|
|
Right-of-use
assets
|
Operating lease
right-of-use assets, net
|
$2,554
|
|
|
|
|
Current lease
liabilities
|
Operating lease
obligations
|
$250
|
|
Non-current lease
liabilities
|
Long-term operating
lease obligations
|
2,423
|
|
Total lease
liabilities
|
|
$2,673
|
NOTE
15. COMMITMENTS AND CONTINGENCIES
(continued)
Maturities
of lease liabilities at June 30, 2021 are as
follows:
|
Payments
|
|
|
2022
|
$604
|
|
2023
|
642
|
|
2024
|
680
|
|
2025
|
721
|
|
|
1,290
|
|
Total undiscounted
lease payments
|
3,937
|
|
Less:
Present value discount
|
(1,264)
|
|
Total lease
liability balance
|
$2,673
|
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
approximately $1,529,246. 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 10.5% to 11.3%.
The
following is an analysis of the minimum future equipment note
payable payments subsequent to June 30, 2021:
|
Year
ending June 30,
|
|
|
2022
|
$320
|
|
2023
|
303
|
|
2024
|
282
|
|
2025
|
236
|
|
2026
|
124
|
|
Future Minimum Note
Payable Payments
|
$1,265
|
|
Less Amount
Representing Interest
|
(193)
|
|
Present Value of
Minimum Note Payable Payments
|
1,072
|
|
Less Current
Portion
|
(219)
|
|
Long-Term
Obligations under Equipment Notes Payable
|
$853
|
NOTE
15. COMMITMENTS AND CONTINGENCIES
(continued)
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 Annual Report, there are no material pending legal
or governmental proceedings relating to the Company or properties
to which the Company is a party, and to the Company’s
knowledge there are no material proceedings to which any of its
directors, executive officers or affiliates are a party adverse to
the Company or which have a material interest adverse to the
Company.
NOTE 16. RELATED PARTY TRANSACTIONS
The
Company has a subordinated note payable to an officer of the
Company who is also the wife of the Company’s CEO (Louis
Friedman) and majority shareholder in the amount of $76,000 (see
Note 9). Interest on the note during the year ended June 30,
2021 was accrued by the Company at the prevailing prime rate (which
is currently 3.25%) and totaled $2,470. The accrued interest on the
note as of June 30, 2021 was $30,148. This note is subordinate
to all other credit facilities currently in place.
On
October 30, 2010, Mr. Friedman, loaned the Company $40,000 (see
Note 9). Interest on the note during the year ended June 30,
2021 was accrued by the Company at the prevailing prime rate (which
is currently 3.25%) and totaled $1,300. The accrued interest on the
note as of June 30, 2021 was $5,515. 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 11 – Line of Credit). In addition, Luvu
Brands has provided its corporate guarantees of the credit
facility. On June 30, 2021, the balance owed under
this line of credit was $1,083,405.
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 8). This note was repaid in full on July 30, 2021 and replaced
with a new note from an entity controlled by the same lender with
interest payable monthly at 13.5%, principal due in full on July
31, 2023. Repayment of this promissory note is personally
guaranteed by the Company’s CEO and controlling shareholder,
Louis S. Friedman.
On
October 31, 2013, the Company issued an unsecured promissory note
to an individual for $100,000. Terms of the promissory note call
for monthly interest payments of $1,667 (equal to interest at 20%
per annum) beginning on November 30, 2013, with the principal
amount due in full on or before October 31, 2014 extended by the
holder to October 31, 2021 (see Note 8). 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 8). This note
was repaid in full on April 30, 2021 and replaced with a new note
from an entity controlled by the same lender with interest payable
monthly at 13.5%, principal due in full on May 1, 2023. Mr.
Friedman has personally guaranteed the repayment of the loan
obligation.
NOTE 16. RELATED PARTY TRANSACTIONS
(continued)
The
loans from Power Up Lending Group, Ltd. (see Note 10) 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 Lending Group, Ltd. is
controlled by Curt Kramer, who also controls 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 $36,680 at June 30, 2021
and $47,619 at June 30, 2020 (see Note 12). 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 Innovations 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. This note was repaid in full on May 5, 2021 (see Note 13).
This note payable was guaranteed by the Company and was 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 note payable was repaid in
full on September 18, 2020 (see Note 8). 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 (see Note 13). 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 repaid in full on
February 19, 2021 (see Note 8). The loan was personally guaranteed
by the Company’s CEO and majority shareholder, Louis S.
Friedman.
During the year
ended June 30, 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.
NOTE 17. STOCKHOLDERS’ EQUITY
Options
At
June 30, 2021, the Company had the 2015 Equity Incentive Plan
(the “2015 Plan”), which is shareholder-approved and
under which 3,400,000 shares are reserved for issuance under the
2015 Plan until that 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
June 30, 2021, the number of shares available for issuance
under the 2015 Plan was 900,000.
NOTE 17. STOCKHOLDERS’ EQUITY
(continued)
A
summary of option activity under the Company’s stock plan for
the years ended June 30, 2021 and 2020 is presented below:
|
Option Activity
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
|
|
Outstanding at
June 30, 2019
|
4,050,000
|
$.02
|
2.3 years
|
$13,500
|
|
Granted
|
550,000
|
$.03
|
4.8
years
|
|
|
Exercised
|
—
|
$—
|
|
|
|
Forfeited or
Expired
|
(350,000)
|
$.03
|
|
|
|
Outstanding at
June 30, 2020
|
4,250,000
|
$.02
|
1.7 years
|
$624,700
|
|
Granted
|
350,000
|
$.15
|
4.8
years
|
|
|
Exercised
|
(1,600,000)
|
$.01
|
|
|
|
Forfeited or
Expired
|
(500,000)
|
$.05
|
|
|
|
Outstanding at
June 30, 2021
|
2,500,000
|
$.04
|
1.9
years
|
$974,300
|
|
Exercisable at
June 30, 2021
|
1,625,000
|
$.03
|
1.2
years
|
$649,375
|
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 $.43, $.17, and $.02
at June 30, 2021, 2020 and 2019, respectively.
There
were 350,000 stock options granted during the year ended
June 30, 2021 and 550,000 stock options granted during the
year ended June 30, 2020.
The
range of fair value assumptions related to options granted during
the years ended June 30, 2021 and 2020 were as
follows:
|
|
|
|
|
Exercise
Price:
|
$.13-$.17
|
$.03
|
|
Volatility:
|
469%-489%
|
405%-426%
|
|
Risk Free
Rate:
|
.25%-.49%
|
1.41%-1.81%
|
|
Vesting
Period:
|
4 years
|
4 years
|
|
Forfeiture
Rate:
|
0%
|
0%
|
|
Expected
Life:
|
4.1 years
|
4.1 years
|
|
Dividend
Rate:
|
0%
|
0%
|
NOTE 17. STOCKHOLDERS’ EQUITY
(continued)
The
following table summarizes the weighted average characteristics of
outstanding stock options as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100,000
|
1.6
|
$.03
|
1,525,000
|
$.03
|
|
.05
|
200,000
|
2.0
|
$.05
|
100,000
|
$.05
|
|
.13 to
..17
|
200,000
|
4.8
|
$.15
|
-
|
-
|
|
|
2,500,000
|
1.9
|
$.04
|
1,625,000
|
$.03
|
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.
All
stock option grants made under the Plan were at exercise prices no
less than the Company’s closing stock price on the date of
grant. Options under the Plan were determined by the board of
directors in accordance with the provisions of the plan. The
terms of each option grant include vesting, exercise, and other
conditions are set forth in a Stock Option Agreement evidencing
each grant. No option can have a life in excess of ten
(10) years. The Company records compensation expense for
employee stock options based on the estimated fair value of the
options on the date of grant using the Black-Scholes option-pricing
model. The model requires various assumptions, including a
risk-free interest rate, the expected term of the options, the
expected stock price volatility over the expected term of the
options, and the expected dividend yield. Compensation
expense for employee stock options is recognized ratably over the
vesting term. The Company has no awards with market or
performance conditions.
Stock-based
compensation expense recognized in the consolidated statements of
operations for each of the fiscal years ended June 30, 2021
and 2020 is based on awards ultimately expected to
vest.
As of
June 30, 2021, total unrecognized stock-based compensation
expense related to all unvested stock options was $39,162 which is
expected to be expensed over a weighted average period of 0.9
years.
In
determining the grant date fair value of option awards under the
equity incentive plans, the Company applied the Black-Scholes
option pricing model. Based upon limited option exercise history,
the Company has generally used the “simplified” method
outlined in SEC Staff Accounting Bulletin No. 110 to estimate
the expected life of stock option grants. Management believes that
the historical volatility of the Company’s stock price on
OTCQB best represents the expected volatility over the estimated
life of the option. The risk-free interest rate is based upon
published U.S. Treasury yield curve rates at the date of grant
corresponding to the expected life of the stock option. An assumed
dividend yield of zero reflects the fact that the Company has never
paid cash dividends and has no intentions to pay dividends in the
foreseeable future.
During the year
ended June 30, 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.
The
following table summarizes stock-based compensation expense by line
item in the consolidated statements of operations, all relating to
employee stock plans:
|
|
For the
Years Ended June 30,
|
|
|
|
|
|
|
|
|
Other Selling and
Marketing
|
$4
|
$4
|
|
General and
Administrative
|
11
|
17
|
|
Total
|
$15
|
$21
|
NOTE 17. STOCKHOLDERS’ EQUITY
(continued)
Share Purchase Warrants
As of
June 30, 2021 and 2020, there were no share purchase warrants
outstanding.
Common Stock
The
Company’s authorized common stock was 175,000,000 shares at
June 30, 2021 and 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
June 30, 2021, the Company had reserved the following shares
of common stock for issuance:
|
|
|
|
Shares of common
stock reserved for issuance under the 2015 Stock Option
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
|
During the year
ended June 30, 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
18. INCOME TAXES
Deferred tax assets
and liabilities are computed by applying the effective U.S. federal
income tax rate to the gross amounts of temporary differences and
other tax attributes. Deferred tax assets and liabilities relating
to state income taxes are not material. In assessing the
realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. As
of June 30, 2021 and 2020, the Company believed it was more
likely than not that future tax benefits from net operating loss
carryforwards and other deferred tax assets would not be realizable
through generation of future taxable income; therefore, they were
fully reserved.
NOTE 18. INCOME TAXES
(continued)
The
components of deferred tax assets and liabilities at June 30,
2021 and 2020 are approximately as follows:
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
Inventory
reserves
|
$45
|
$36
|
|
Allowance for
doubtful accounts
|
14
|
14
|
|
Stock-based
compensation
|
100
|
96
|
|
Net operating loss
carry-forwards
|
1,384
|
1,775
|
|
Total gross
deferred tax assets
|
1,543
|
1,921
|
|
Valuation
allowance
|
(1,543)
|
(1,921)
|
|
Net deferred tax
assets
|
$—
|
$—
|
The
income tax provision differs from the amount of income tax
determined by applying the U.S. federal and state income tax rates
of 25% to pretax (income) loss from operations for the years ended
June 30, 2021 and 2020 due to the following:
|
|
|
|
|
|
|
|
|
Net
income
|
$(660)
|
$(221)
|
|
Permanent
differences and change in tax rate estimate
|
282
|
(868)
|
|
Valuation
(allowance)
|
378
|
1,089
|
|
Net tax
benefit
|
$—
|
$—
|
At
June 30, 2021, the Company had net operating loss (NOL)
carryforwards of approximately $5.4 million that may be offset
against future taxable income. During 2021 and 2020, the total
change in the valuation allowance was approximately $378,000 and
$1,089,000, respectively. The Company’s ability to use its
NOL carryforwards may be substantially limited due to ownership
change limitations that may have occurred or that could occur in
the future, as required by Section 382 of the Internal Revenue
Code of 1986, as amended (the Code), as well as similar state
provisions. These ownership changes may limit the amount of NOL
that can be utilized annually to offset future taxable income and
tax, respectively. In general, an “ownership change” as
defined by Section 382 of the Code results from a transaction
or series of transactions over a three-year period resulting in an
ownership change of more than 50.0% of the outstanding stock of a
company by certain stockholders or public groups.
NOTE 18. INCOME TAXES (continued)
The
Company has not completed a study to assess whether an ownership
change has occurred or whether there have been multiple ownership
changes since the Company became a “loss corporation”
under the definition of Section 382. If the Company has
experienced an ownership change, utilization of the NOL
carryforwards would be subject to an annual limitation under
Section 382 of the Code, which is determined by first
multiplying the value of the Company’s stock at the time of
the ownership change by the applicable long-term, tax-exempt rate,
and then could be subject to additional adjustments, as required.
Any limitation may result in expiration of a portion of the NOL
carryforwards before utilization. Further, until a study is
completed and any limitation known, no positions related to
limitations are being considered as an uncertain tax position or
disclosed as an unrecognized tax benefit. Any carryforwards that
expire prior to utilization as a result of such limitations will be
removed from deferred tax assets with a corresponding reduction of
the valuation allowance. Due to the existence of the valuation
allowance, it is not expected that any possible limitation will
have an impact on the results of operations or financial position
of the Company. The NOL carryforward of approximately $5.3
million can be carried forward to offset future taxable income
through 2028. The NOL
carryforwards of approximately $110,000 can be carried
forward indefinitely, but are limited to 80% of taxable
income in any one year.
The tax
years that remain subject to examination by major taxing
jurisdictions are those for the years ended June 30, 2012
through 2021. The Company has not filed its Federal or State tax
returns for 2017 through 2021 but expects to file these returns
before the end of calendar year 2021.
NOTE 19. – SUBSEQUENT EVENTS
On July
30, 2021 the unsecured note payable for $100,000 which was due on
July 31, 2021, was repaid in full and replaced with a new note from
an entity controlled by the same lender with interest payable
monthly at 13.5%, principal due in full on July 31,
2023.
ITEM 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
There
are no events required to be disclosed under this
Item.
ITEM 9A. Controls and
Procedures.
(a) Evaluation of Disclosure Controls and Procedures
We
maintain certain disclosure controls and procedures as defined
under the Securities Exchange Act of 1934. They are designed to
help ensure that material information is: (1) gathered and
communicated to our management, including our principal executive
and financial officers, in a manner that allows for timely
decisions regarding required disclosures; and (2) recorded,
processed, summarized, reported and filed with the SEC as required
under the Securities Exchange Act of 1934 and within the time
periods specified by the SEC.
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of the
design and operation of our disclosure controls and procedures as
of June 30, 2021. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
June 30, 2021.
(b) Management’s Annual Report on Internal Control Over
Financial Reporting
Management
is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company, and for
performing an assessment of the effectiveness of internal control
over financial reporting as of June 30, 2021. For this
purpose, internal control over financial reporting refers to a
process designed by, or under the supervision of, the
Company’s principal executive and financial officers and
effected by the Company’s board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s
assets that could have a material adverse effect on the financial
statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management
performed an assessment of the effectiveness of the Company’s
internal control over financial reporting as of June 30, 2021
based upon criteria in an Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this assessment,
management believes the Company’s internal control over
financial reporting was effective as of June 30, 2021 based on
the criteria issued by COSO.
This Annual Report on Form 10-K does not include an attestation
report of the Company’s registered public accounting firm.
Our independent registered public accounting firm will not be
required to formally attest to the effectiveness of our internal
control over financial reporting as long as we are an
“emerging growth company” pursuant to the provisions of
the JOBS Act.
(c) Changes in Internal Control Over Financial
Reporting
There
were no changes to our internal control over financial reporting
during the fourth quarter ended June 30, 2021 that have
materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. Other
Information.
None.
ITEM 10.
Directors, Executive Officers and Corporate
Governance.
The
following table sets forth the officers and directors of Luvu
Brands, Inc. as of June 30, 2021.
|
Name
|
|
Age
|
|
Position
|
|
Louis
S. Friedman
|
|
69
|
|
Chief
Executive Officer, President, Director
|
|
Manuel
Munoz
|
|
47
|
|
Chief
Information Officer (1)
|
|
Ronald
P. Scott
|
|
66
|
|
Chief
Financial Officer, Secretary, Director
|
|
Leslie
S. Vogelman
|
|
69
|
|
Treasurer
|
(1) Effective
September 13, 2021, Mr. Munoz transitioned to a nonexecutive
position and is no longer a Company officer.
All
directors serve for one-year terms until their successors are
elected or they are re-elected at the annual shareholders’
meeting. Officers hold their positions at the pleasure of the
board of directors.
There
is no arrangement, agreement or understanding between any of the
directors or officers and any other person pursuant to which any
director or officer was or is to be selected as a director or
officer. Also, there is no arrangement, agreement or
understanding between management and non-management shareholders
under which non-management shareholders may directly or indirectly
participate in or influence the management of our
affairs.
Directors are not
presently compensated for their service on the board, other than
the repayment of actual expenses incurred. There are no
present plans to compensate directors for their service on the
board.
Background of Executive Officers and Directors
Louis S. Friedman, President, Chief Executive
Officer and Director. Mr. Friedman has served as
President, Chief Executive Officer, and director since our merger
with Old Liberator in October 2009. Prior to that, he served
as Old Liberator’s Chief Executive Officer and a director
since June 2009, when OneUp Innovations, Inc. merged with Old
Liberator in June 2009. Mr. Friedman founded OneUp in 2000.
Before starting OneUp, Mr. Friedman was in business consulting,
venture capital and private investing from 1990 to
2000. Earlier in his career, Mr. Friedman was Executive
Vice President of Chemtronics, Inc., until its sale to Morgan
Crucible in 1990. Mr. Friedman’s experience as Chief
Executive Officer and insight into our operations, our industry,
and related risks as well as experience bringing consumer products
to market were factors considered by our board of directors in
concluding he should serve as a director of our
Company.
Manuel Munoz, Chief Information Officer.
Mr. Munoz joined the company in July 2018 and has delivered
technological advice and services for the Company. Prior to that,
he served as VP of Technical Operations at Brighter Brain LLC from
2015 to 2018, working with a wide variety of technological
platforms and going from mobile technologies such as Android and
iOS all the way up to Content Managements Systems like SharePoint
and technologies like Big Data and Data Science. From 2013 to 2015
he worked as a Director of Technology for Techfield, LLC, where he
primarily focused on web technologies such as .NET, SQL and
Business Intelligence solutions. Mr. Munoz holds a B.S. degree in
Informatics and Computer Systems from the Universidad
Iberoamericana in Mexico City.
Ronald Scott, Chief Financial Officer,
Secretary and Director. Mr. Scott joined the Company
in October 2009 in connection with our merger with Old
Liberator. Prior to that, he served as Old Liberator’s
Chief Financial Officer, Secretary, and a director since June 2009,
when OneUp Innovations, Inc. merged with Old Liberator in June
2009. Mr. Scott joined OneUp Innovations as a part-time
consultant in July 2006 and as a full-time consultant in October
2007, serving as its Chief Financial Officer. From 2004 to
2009, Mr. Scott was president of Impact Business Solutions, LLC, a
consulting business that provides financial management services.
Prior to Impact Business Solutions, and from 1990 to 2004, Mr.
Scott was Executive Vice President - Finance and
Administration and a member of the Board of Directors for Cyanotech
Corporation, a NASDAQ-listed natural products company. Mr. Scott
holds a B.S. degree in Finance and Management from San Jose State
University and an M.B.A. degree with a concentration in Accounting
from Santa Clara University. Mr. Scott’s relevant operating
experience with small, high growth companies and an in-depth
understanding of generally accepted accounting principles,
financial statements and SEC reporting requirements were factors
considered by our board of directors in concluding he should serve
as a director of our Company.
Leslie Vogelman, Treasurer. Ms.
Vogelman joined the Company in October 2009 in connection with our
merger with Old Luvu Brands, Inc. Prior to that, she served
as Old Liberator’s Treasurer since June 2009, when OneUp
Innovations, Inc. merged with Old Liberator in June 2009. Ms.
Vogelman joined OneUp at its inception in 2000 as Secretary and
Treasurer. Ms. Vogelman holds a B.A. from the State
University of New York in Binghamton and an M.B.A. from Adelphi
University.
The
experience and background of each of the directors, as summarized
above, were significant factors in their previously being nominated
as directors of the Company.
Family Relationships
Louis
Friedman, our President, Chief Executive Officer and Chairman, and
Leslie Vogelman, our Treasurer, are husband and wife.
There
are no other relationships between the officers or directors of the
Company.
Committees
As of
the date of this report, we have not established an audit committee
or any other committee of the board of directors and, therefore,
the responsibilities of such committees have been conducted by our
board of directors as a whole.
We may,
in the future, establish an audit committee and/or other committees
of the board of directors. We currently do not have any independent
directors.
Audit Committee Financial Expert
In
general, an “audit committee financial expert” is an
individual who:
|
|
●
|
understands
generally accepted accounting principles and financial
statements,
|
|
|
●
|
is able
to assess the general application of such principles in connection
with accounting for estimates, accruals and reserves,
|
|
|
●
|
has
experience preparing, auditing, analyzing or evaluating financial
statements comparable to the breadth and complexity of our
financial statements,
|
|
|
●
|
understands
internal controls over financial reporting, and
|
|
|
●
|
understands audit
committee functions.
|
Our
board of directors has determined that Ronald Scott, our Chief
Financial Officer, is an “audit committee financial
expert” within the meaning of the foregoing
definition.
Diversity
We only
have two members on our board of directors, but we hope to add more
members for a diverse board in terms of previous business
experience and educational and personal background of the members
of our board. While the Company does not have a policy regarding
diversity of its board members, diversity is one of a number of
factors that will be taken into account in identifying board
nominees.
Directors’ Compensation
For the
fiscal years ended June 30, 2021 and 2020, our directors did
not receive any compensation in their capacity as a
director.
Compliance with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our executive officers,
directors, and persons who beneficially own more than 10% of a
registered class of our equity securities to file with the SEC
initial statements of beneficial ownership, reports of changes in
ownership, and annual reports concerning their ownership of our
common shares and other equity securities on Forms 3, 4, and 5
respectively. Executive officers, directors, and greater than
10% shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file. Based on a
review of the copies of such forms received by us, and to the best
of our knowledge, there were no reports untimely filed during the
fiscal year ended June 30, 2021.
Code of Ethics
We have
not yet adopted a Code of Business Conduct and Ethics. We are
currently working towards developing a formal Code of Business
Conduct and Ethics, which will apply to all of our employees,
including our board of directors. When available, a copy of our
Code of Business Conduct and Ethics may, upon request made to us in
writing at the following address, be made available without charge:
2745 Bankers Industrial Drive, Atlanta, Georgia,
30360.
ITEM 11.
Executive Compensation.
Summary Compensation Table
The
following summary compensation table indicates the cash and
non-cash compensation earned during the fiscal years ended
June 30, 2021 and 2020 by our named executive officers as
defined in Item 402(a) of Regulation S-K (each an
“NEO”).
|
|
Fiscal
|
|
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
|
Name and Principal Position
|
Year
|
|
|
|
|
|
|
|
|
Louis
S. Friedman
|
2021
|
150,000
|
—
|
—
|
—
|
—
|
—
|
150,000
|
|
President, Chief
Executive
|
2020
|
150,000
|
—
|
—
|
—
|
—
|
—
|
150,000
|
Officer and
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
Ronald
P. Scott
|
2021
|
145,000
|
—
|
—
|
—
|
—
|
—
|
145,000
|
Chief Financial
Officer, Secretary
|
2020
|
145,000
|
—
|
—
|
—
|
—
|
—
|
145,000
|
|
Manuel
Munoz (2)
|
2021
|
144,231
|
—
|
—
|
—
|
—
|
—
|
144,231
|
|
Chief Information
Officer
|
2020
|
135,000
|
—
|
—
|
—
|
—
|
—
|
135,000
|
(1)
The amounts reported in this column represent the full grant date
fair value of stock awards in accordance with ASC 718, net of
estimated forfeitures. Refer to Note 19 of the financial
statements included in Item 8 of this Annual Report for the
assumptions made in the valuation of stock awards. See
Grants of Plan-Based Awards table below.
(2) Effective September 13, 2021, Mr. Munoz transitioned to a
nonexecutive position and is no longer a Company
officer.
Grants of Plan-Based Awards
There
were no grants of plan-based awards made in our fiscal year ending
June 30, 2021 to any of our NEOs.
Outstanding Equity Awards at Fiscal Year End
The
following table shows, for the fiscal year ended June 30,
2021, certain information regarding outstanding equity awards at
fiscal year-end for our NEOs.
|
|
Outstanding Equity
Awards at June 30, 2021
Option Awards
|
|
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price ($)
|
|
|
Number of
Shares
or Units of
Stock
That Have Not
Vested (#)
|
Market
Value
of Shares
or
Units of
Stock
That Have
Not Vested
($)
|
|
Louis S.
Friedman
|
300,000
|
—
|
$.033
|
2/13/2022
|
(1)
|
—
|
—
|
|
|
150,000
|
50,000
|
$.031
|
12/11/2022
|
(2)
|
|
|
|
Ronald
P. Scott
|
200,000
|
—
|
$.03
|
2/13/2022
|
(1)
|
—
|
—
|
|
|
93,750
|
31,250
|
$.028
|
12/11/2022
|
(2)
|
—
|
—
|
|
Manuel Munoz
|
100,000
|
100,000
|
$.046
|
7/2/2023
|
(3)
|
—
|
—
|
|
|
(1)
The
common stock option vests pro rata over a four-year period on each
of February 13, 2018, February 13, 2019, February 13, 2020 and
February 13, 2021.
(2)
The
common stock option vests pro rata over a four-year period on each
of December 11, 2018, December 11, 2019, December 11, 2020 and
December 11, 2021.
(3)
The
common stock option vests pro rata over a four-year period on each
of July 2, 2019, July 2, 2020, July 2, 2021 and July 2,
2022.
Incentive and Non-qualified Stock Option and Stock Award
Plans
At June 30, 2021 we had options outstanding
under the 2015 Equity Incentive Plan. Please see Note 17 to the notes to our financial
statements appearing elsewhere in this report for a description of
the material terms of this plan.
Employment Agreement
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, should the Company implement a bonus plan for
executives. Under the agreement, this executive employee may
be terminated at any time with or without cause, or by reason of
death or disability. In certain termination situations, the
Company is liable to pay severance compensation to this executive
for up to 9 months.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Our
voting securities include shares of our common stock and our Series
A Convertible Preferred Stock. The following table sets forth
certain information known to us with respect to the beneficial
ownership of our common stock by:
|
●
all persons who are beneficial owners of five percent (5%) or more
of any class of our voting securities;
|
|
●
each of our directors;
|
|
●
each of our Named Executive Officers; and
|
|
●
all current directors and executive officers as a
group.
|
Except as
otherwise indicated, and subject to applicable community property
laws, the persons named in the table below have sole voting and
investment power with respect to all shares of our securities held
by them.
Applicable
percentage ownership in the following table is based on 75,037,890
shares of common stock and 4,300,000 shares of Series A Convertible
Preferred Stock outstanding as of September 26,
2021.
Beneficial
ownership is determined in accordance with the rules of the SEC. In
computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock
subject to options held by that person that are currently
exercisable or exercisable within 60 days of September 26,
2021, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership
of any other person. Unless otherwise disclosed these
persons’ address is c/o Luvu Brands, Inc., 2745 Bankers
Industrial Drive, Atlanta, GA 30360.
|
|
Name and Address of Beneficial
Owner
|
Amount and Nature of
Beneficial Ownership
|
|
|
|
Executive Officers
and Directors
|
|
|
|
|
Common
|
Louis S.
Friedman
|
36,394,376
|
(1)
|
45.6%
|
|
Common
|
Ronald P.
Scott
|
889,266
|
(2)
|
1.2%
|
|
Common
|
Leslie
Vogelman
|
593,750
|
(3)
|
*
|
|
Common
|
All directors and
executive officers as a group (3 persons)
|
37,877,392
|
|
47.1%
|
|
5%
Shareholders
|
|
|
|
|
Common
|
Hope Capital,
Inc.
|
5,384,933
|
(4)
|
7.2%
|
|
Executive Officers
and Directors
|
|
|
|
|
Series A
Convertible Preferred Stock
|
Louis S.
Friedman
|
4,300,000
|
(5)
|
100.0%
|
|
Series A
Convertible Preferred Stock
|
Manuel
Munoz
|
0
|
|
0.0%
|
|
Series A
Convertible Preferred Stock
|
Ronald P.
Scott
|
0
|
|
0.0%
|
|
Series A
Convertible Preferred Stock
|
Leslie
Vogelman
|
0
|
|
0.0%
|
|
Series A
Convertible Preferred Stock
|
All directors and
executive officers as a group (3 persons)
|
4,300,000
|
|
100.0%
|
* Less
than 1%
|
(1)
|
Includes 4,300,000 shares of common stock issuable upon conversion
of 4,300,000 shares of Series A Convertible Preferred stock at the
discretion of the holder. Mr. Friedman owns 100% of the Series A
Convertible Preferred Stock, each share of which has 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 Stock issued and outstanding at the
time of such vote. Accordingly, Mr. Friedman will own
71.2 % of the combined voting power of the common stock and Series
A Convertible Preferred Stock, voting as a single class and will
control the outcome of any corporate transaction or other matter
submitted to the shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of our
assets, and also the power to prevent or cause a change in control.
The interests of Mr. Friedman may differ from the interests of the
other shareholders. Also includes options for purchase 450,000
shares of common stock.
|
|
(2)
|
Includes
options to purchase 293,750 shares of common stock.
|
|
(3)
|
Includes
options to purchase 293,750 shares of common
stock.
|
|
(4)
|
This
person’s address is 111 Great Neck Road, Suite 216, Great
Neck, NY 11021. Curt Kramer is the sole shareholder of Hope
Capital, Inc. and the natural control person over these
securities.
|
|
(5)
|
Mr.
Friedman owns 100% of the Series A Convertible Preferred
Stock, each share of which has 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 Stock issued and outstanding at the time of such
vote. Accordingly, Mr. Friedman will own 71.2 % of the
combined voting power of the common stock and Series A Convertible
Preferred Stock, voting as a single class and will control the
outcome of any corporate transaction or other matter submitted to
the shareholders for approval, including mergers, consolidations
and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The
interests of Mr. Friedman may differ from the interests of the
other shareholders.
|
Securities Authorized for Issuance under Equity Compensation
Plans
The
following table sets forth securities authorized for issuance under
any equity compensation plan approved by our shareholders as well
as any equity compensation plans not approved by our stockholders
as of June 30, 2021.
|
|
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights
(a)
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column
(a)
(c)
|
|
Plan category
|
|
|
|
|
Plans
approved by stockholders:
|
|
|
|
|
2015
Equity Incentive Plan
|
2,500,000
|
.04
|
900,000
|
|
|
|
|
|
ITEM 13.
Certain Relationships and Related Transactions, and Director
Independence.
Related Party Transactions – refer to Note 16 in the
Notes to Consolidated Financial Statements
Director Independence
Our
board of directors has determined that none of its current members
qualifies as “independent” as the term is used in Item
407 of Regulation S-K as promulgated by the SEC or under
Nasdaq’s Marketplace Rule 5605(a)(2).
ITEM 14.
Principal Accounting Fees and Services.
The
aggregate fees billed by our principal accountant for each of the
last two fiscal years for Audit Fees, Audit-Related Fees, Tax Fees
and All Other Fees are as follows:
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
|
|
Audit Fees
(1)
|
$42
|
$42
|
|
Audit-Related Fees
(2)
|
$—
|
$—
|
|
Tax Fees
(3)
|
$—
|
$—
|
|
All Other Fees
(4)
|
$—
|
$—
|
|
(1)
|
Audit Fees – This category includes the audit of our
annual financial statements, review of financial statements
included in our Quarterly Reports on Form 10-Q, and services that
are normally provided by independent auditors in connection with
the engagement for fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial
statements.
|
|
(2)
|
Audit-Related Fees – This category consists of
assurance and related services by our independent auditors that are
reasonably related to the performance of the audit or review of our
financial statements and are not reported above under “Audit
Fees.” The services for the fees disclosed under this
category include consultation regarding our correspondence with the
SEC.
|
|
(3)
|
Tax Fees – This category consists of professional
services rendered by our independent auditors for tax compliance
and tax advice. The services for the fees disclosed under
this category include tax return preparation and technical tax
advice.
|
|
(4)
|
All Other Fees – This category consists of fees for
other miscellaneous items.
|
Our
board of directors reviews and approves audit and permissible
non-audit services performed by its independent accountants, as
well as the fees charged for such services. In its review of
non-audit service fees and its appointment of Liggett & Webb
P.A. as our independent accountants, the Board considered whether
the provision of such services is compatible with maintaining
independence. All of the services provided and fees charged by
Liggett & Webb P.A. were approved by the Board.
ITEM 15. Exhibits, Financial
Statement Schedules.
(a)
Financial
Statements; Schedules
Our
consolidated financial statements for the fiscal years ended
June 30, 2021 and 2020 begin on page F-1 of this annual
report. We are not required to file any financial
statement schedules.
|
|
|
|
|
Incorporated by Reference
|
|
Filed or
Furnished
Herewith
|
|
No.
|
|
Exhibit Description
|
|
Form
|
|
Date Filed
|
|
Number
|
|
|
|
|
Merger
and Recapitalization Agreement between WES Consulting, Inc., the
majority shareholder of WES Consulting, Inc., Luvu Brands, Inc.,
and the majority shareholder of Luvu Brands, Inc., dated as of
October 19, 2009
|
|
8-K
|
|
10/22/09
|
|
2.1
|
|
|
|
|
|
Stock
Purchase and Recapitalization Agreement between OneUp Acquisition,
Inc., Remark Enterprises, Inc., OneUp Innovations, Inc., and Louis
S. Friedman, dated March 31, 2009 and fully executed on April 3,
2009
|
|
8-K/A
|
|
3/24/10
|
|
2.2
|
|
|
|
|
|
Amendment
No. 1 to Stock Purchase and Recapitalization Agreement, dated June
22, 2009
|
|
8-K/A
|
|
3/24/10
|
|
2.3
|
|
|
|
|
|
Amended
and Restated Articles of Incorporation
|
|
SB-2
|
|
3/2/07
|
|
3i
|
|
|
|
|
|
Bylaws
|
|
SB-2
|
|
3/2/07
|
|
3ii
|
|
|
|
|
|
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,
effective February 28, 2011
|
|
8-K
|
|
3/3/11
|
|
3.1
|
|
|
|
|
|
Designation
of Rights and Preferences of Series A Convertible Preferred Stock
of WES Consulting, Inc.
|
|
8-K
|
|
2/23/11
|
|
4.1
|
|
|
|
|
|
Receivables
Financing Agreement between One Up Innovations, Inc. and Advance
Financial Corporation, dated May 24, 2011
|
|
10-K
|
|
10/12/11
|
|
10.17
|
|
|
|
|
|
Guarantee
between Luvu Brands, Inc. and Advance Financial Corporation, dated
May 24, 2011
|
|
10-K
|
|
10/12/11
|
|
10.18
|
|
|
|
|
|
Guarantee
between Foam Labs, Inc. and Advance Financial Corporation, dated
May 24, 2011
|
|
10-K
|
|
10/12/11
|
|
10.20
|
|
|
|
|
|
Guarantee
between Louis S. Friedman and Advance Financial Corporation, dated
May 24, 2011
|
|
10-K
|
|
10/12/11
|
|
10.21
|
|
|
|
|
|
Amended
and Restated Receivable Financing Agreement between One Up
Innovations, Inc. and Advance Financial Corporation, dated
September 4, 2013
|
|
10-K
|
|
9/30/13
|
|
10.8
|
|
|
|
10.6
|
|
Form of
promissory note
|
|
10-K
|
|
10/11/19
|
|
10.11
|
|
|
|
|
|
Employment
Agreement between the Company and Louis Friedman dated January 27,
2021
|
|
8-K
|
|
2/2/11
|
|
10.3
|
|
|
|
|
|
2015
Equity Incentive Plan
|
|
DEF14C
|
|
10/9/15
|
|
B
|
|
|
|
|
|
U.S.
Small Business Administration Note by One Up Innovations, Inc. in
favor of Ameris Bank
|
|
8-K
|
|
4/28/20
|
|
10.1
|
|
|
|
|
|
Subsidiaries
|
|
10-K
|
|
9/29/14
|
|
21.1
|
|
|
|
23.1
|
|
Consent
of Liggett & Webb P.A. independent registered public accounting
firm
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Section
302 Certificate of Chief Executive Officer
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Section
302 Certificate of Chief Financial Officer
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Section
906 Certificate of Chief Executive Officer
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Section
906 Certificate of Chief Financial 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
|
ITEM 16. Form 10-K Summary.
The
Company elected not to provide the summary
information.
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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.
|
|
|
|
|
Date:
September 27 , 2021
|
By: /s/
Louis S. Friedman
|
|
|
Louis
S. Friedman, Chief Executive Officer and President
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
/s/
Louis S. Friedman
|
|
Chairman
of the Board, Chief Executive Officer,
and
President (Principal Executive Officer)
|
|
September
27, 2021
|
|
Louis
S. Friedman
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald P. Scott
|
|
Chief
Financial Officer (Principal Financial and
Accounting
Officer), Secretary, and Director
|
|
September
27, 2021
|
|
Ronald
P. Scott
|
|
|
|
|
|
|
|
|
|
|