Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

☐

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

For the transition period from to

Commission File Number 000-53314

Luvu Brands, Inc.

(Exact name of registrant as specified in its charter)

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

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

(770) 246-6400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ __ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 20, 2023, there were 76,547,672 shares of common stock outstanding.

LUVU BRANDS, INC.

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements	Page Number

	Consolidated Balance Sheets – At September 30, 2023 (unaudited) and June 30, 2023	4

	Consolidated Statements of Operations – For the Three Months Ended September 30, 2023 and September 30, 2022 (unaudited	5

	Consolidated Statements of Stockholders’ Equity – For the Three Months Ended September 30, 2023 and September 30, 2022 (unaudited)	6

	Consolidated Statements of Cash Flows – For the Three Months Ended September 30, 2023 and September 30, 2022 (unaudited)	7

	Condensed Notes Consolidated Financial Statements (unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	27

ITEM 4.	Controls and Procedures	27

	PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	28

ITEM 1A.	Risk Factors	28

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 3.	Defaults Upon Senior Securities	29

ITEM 4.	Mine Safety Disclosures	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits	30

SIGNATURES		31

Unless the context otherwise indicates, when used in this report, the terms the “Company,” “LUVU”, “we,” “us, “our” and similar terms refer to LUVU Brands, Inc. and our wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). Our corporate website is www.LuvuBrands.com. There we make available copies of Luvu Brands documents, news releases and our filings with the U.S. Securities and Exchange Commission including financial statements.

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

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

This report may contain forward-looking statements, which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plan,” “believes,” “predicts”, “estimates” or similar expressions. In addition, any statement concerning future financial performance, ongoing business strategies or prospects and possible future actions are also forward-looking statements. Forward-looking statements are based upon current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning the Company, the performance of the industry in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance. You should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LUVU BRANDS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30,
	2023			June 30,
	(unaudited)			2023
Assets:	(in thousands, except share data)
Current assets:
Cash and cash equivalents	$	1,138		$	1,041
Accounts receivable, net		1,169			1,051
Inventories, net		4,055			4,202
Prepaid expenses		122			84
Total current assets		6,484			6,378

Equipment and leasehold improvements, net		2,142			2,186
Finance lease assets		21			24
Right of use assets		1,820			1,913
Deferred Tax asset, net		10			10
Other assets		76			100
Total assets	$	10,553		$	10,611

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	2,178		$	2,114
Current debt		1,512			1,659
Other accrued liabilities		565			416
Operating lease liability		411			396
Total current liabilities		4,666			4,585

Noncurrent liabilities:
Long-term debt		1,253			1,148
Long-term operating lease liability		1,557			1,667
Total noncurrent liabilities		2,810			2,815
Total liabilities		7,476			7,400
Commitments and contingencies (See Note 12)
Stockholders’ equity:
Preferred stock, 0.0001 par value, 5,700,000 shares authorized none issued and outstanding		—			—
Series A Convertible Preferred stock, 4,300,000 shares authorized $0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $1,000 at September 30, 2023 and June 30, 2023		—			—
Common stock, $0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,547,672 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively		765			765
Additional paid-in capital		6,228			6,234
Accumulated deficit		(3,916	)		(3,790	)
Total stockholders’ equity		3,077			3,211
Total liabilities and stockholders’ equity	$	10,553		$	10,611

See accompanying condensed notes to unaudited consolidated financial statements.

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LUVU BRANDS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

	Three Months Ended September 30,
	2023			2022
	(in thousands, except share data)
Net Sales	$	6,126		$	8,059
Cost of goods sold		4,643			6,173
Gross profit		1,483			1,886
Operating expenses
Advertising and promotion		269			187
Other selling and marketing		427			365
General and administrative		819			758
Total operating expenses		1,515			1,310
Income / (loss) from operations		(32	)		576
Other Income (Expense):
Interest expense and financing costs		(94	)		(84	)
Total Other Income (Expense)		(94	)		(84	)
Income before income taxes		(126	)		492
Provision for income taxes		—			—
Net (loss) income	$	(126	)	$	492
Net income / (loss) per share:
Basic	$	(0.00	)	$	0.01
Diluted	$	(0.00	)	$	0.01

Shares used in computing net (loss) income per share:
Basic		76,547,672			76,046,249
Diluted		76,547,672			76,632,738

See accompanying notes to unaudited condensed consolidated financial statements.

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Luvu Brands, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months ended September 30, 2023 and September 30, 2022 (unaudited)

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

Balance, June 30, 2022 (unaudited)		4,300,000	$	—		76,046,249	$	760	$	6,183		$	(4,989	)	$	1,954
Stock-based compensation expense		—		—		—		—		12			—			12
Net income for the three months ended September 30, 2022		—		—		—		—		—			492			492
Balance, September 30, 2022 (unaudited)		4,300,000	$	—		76,046,249	$	760	$	6,195		$	(4,497	)	$	2,458

Balance, June 30, 2023 (unaudited)		4,300,000	$	—		76,547,672	$	765	$	6,234		$	(3,790	)	$	3,211
Stock-based compensation expense		—		—		—		—		(6	)		—			(6	)
Net loss for the three months ended September 30, 2023		—		—		—		—		—			(126	)		(126	)
Balance, September 30, 2023 (unaudited)		4,300,000	$	—		76,547,672	$	765	$	6,228		$	(3,916	)	$	3,077

See accompanying condensed notes to unaudited consolidated financial statements.

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LUVU BRANDS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended
	September 30,
	2023			2022
OPERATING ACTIVITIES:	(in thousands)
Net (loss) income	$	(126	)	$	492
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		99			87
Stock based compensation expense		(6	)		12
Bad debt expense		2			1
Amortization of operating lease asset		93			81
Changes in operating assets and liabilities:
Accounts receivable		(119	)		(290	)
Inventories		147			158
Prepaid expenses and other assets		(36	)		(25	)
Accounts payable		64			20
Accrued compensation		155			110
Accrued expenses and interest		(7	)		48
Operating lease liability		(94	)		(77	)
Net cash provided by operating activities		172			617

INVESTING ACTIVITIES:
Investment in purchase of equipment and leasehold improvements		(32	)		(21	)
Net cash used in investing activities		(32	)		(21	)

FINANCING ACTIVITIES:
Proceeds from unsecured notes payable		200			—
Repayment of unsecured notes payable		(200	)		—
Proceeds from secured notes payable		—			—
Net cash provided by (repaid to) line of credit		63			(25	)
Repayment of unsecured line of credit		(3	)		(3	)
Payments on equipment notes		(99	)		(76	)
Principal payments on leases payable		(4	)		(3	)
Net cash used in financing activities		(43	)		(107	)
Net increase in cash and cash equivalents		97			489
Cash and cash equivalents at beginning of period		1,041			859
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,138		$	1,348

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	94		$	83
Income taxes	$	—		$	—

See accompanying condensed notes to unaudited consolidated financial statements.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

Luvu Brands, Inc. (the “Company” or “Luvu”) was incorporated in the State of Florida on February 25, 1999. References to the Company in these notes include the Company and its wholly owned subsidiaries, OneUp Innovations, Inc. (“OneUp”), and Foam Labs, Inc. (“Foam Labs”). All operations of the Company are currently conducted by OneUp.

The Company is an Atlanta, Georgia based designer, manufacturer and marketer of a portfolio of consumer lifestyle brands including: Liberator^®, a brand category of iconic products for enhancing sexual performance; Avana^® inclined bed therapy products, assistive in relieving medical conditions associated with acid reflux and surgery recovery; and Jaxx^®, a diverse range of casual fashion daybeds, sofas and beanbags made from polyurethane foam and repurposed polyurethane foam trim. These products are sold through the Company’s websites, online mass merchants and retail stores worldwide. Many of our products are offered flat-packed and either roll or vacuum compressed to save on shipping and reduce our carbon footprint.

Sales are generated through internet and print advertisements and social marketing. We have a diversified customer base with only one customer accounting for 10% or more of consolidated net sales in the current and prior fiscal year and no particular concentration of credit risk in one economic sector.

The accompanying unaudited consolidated financial statements of the Company and all of its wholly-owned subsidiaries included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included. The year-end condensed balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2023 (the “2023 10-K”).

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 GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements contained in the Company’s 2023 10-K.

Use of Estimates

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

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 customers 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 September 30, 2023 was $18,754 and was included in “Other accrued liabilities” on our consolidated balance sheets. The deferred revenue balance as of September 30, 2022 was $137,821.

Cost of Goods Sold

Cost of goods sold includes raw materials, labor, manufacturing overhead, depreciation and royalty expense.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts on estimated losses 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, our history of bad debts and a forecast of projected credit losses. We believe that the allowance for doubtful accounts is adequate to cover anticipated losses in the receivable balance under current conditions. However, significant deterioration in the financial condition of our customers, resulting in an impairment of their ability to make payments, could materially change these expectations and an additional allowance may be required.

The following is a summary of Accounts Receivable as of September 30, 2023 and June 30, 2023.

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Accounts receivable	$	1,177		$	1,107
Allowance for doubtful accounts		(2	)		(1	)
Allowance for discounts and returns		(6	)		(55	)
Total accounts receivable, net	$	1,169		$	1,051

Inventories and Allowance for Excess and Obsolete Inventory

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 allowance 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 allowance required to record inventory at lower of cost or net realizable value may be adjusted in response to changing conditions.

Concentration of Credit Risk

The Company maintains its cash accounts with banks located in Georgia. The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per bank. The Company had bank balances on deposit at September 30, 2023 that exceeded the balance insured by the FDIC by $926,492. Accounts receivable are typically unsecured and are derived from revenue earned from customers primarily located in North America and Europe.

During the three months ended September, 30 2023, we purchased 35% of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2023, we purchased 35% of total inventory purchases from one vendor.

As of September 30, 2023, two of the Company’s customers represents 48% and 13% of the total accounts receivables, respectively. As of June 30, 2023, two of the Company’s customers represents 35% and 12% of the total accounts receivables, respectively. For the three months ended September 30, 2023, sales to and through Amazon accounted for 37% of our net sales.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

At September 30, 2023 and June 30, 2023, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and other long-term debt.

The fair values of these financial instruments approximated their carrying values based on either their short term maturity or current terms for similar instruments.

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

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

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

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

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

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 and Promotion Costs

Advertising costs are expensed in the period when the advertisements are first aired or distributed to the public. There was no Prepaid advertising at September 30, 2023 and at June 30, 2023. Advertising expense for the three months ended September 30, 2023 and 2022 was $ 268,544 and $186,994, respectively.

Research and Development

Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $32,722 and $30,950 for the three months ended September 30, 2023 and 2022, respectively. Research and development costs are included in general and administrative expense.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equipment and Leasehold Improvements

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

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. When properties are disposed of, the related costs and accumulated depreciation are removed from the respective accounts, and any gain or loss is recognized currently.

Impairment or Disposal of Long Lived Assets

Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as required by Financial Accounting Standards Board (“FASB”) ASC Topic No. 360, Property, Plant, and Equipment. The Company has determined that there was no impairment at September 30, 2023.

Operating Leases

On November 2, 2020, the Company entered into an agreement with its landlord on a lease for the current facilities for six years and two months, beginning January 1, 2021. The lease includes two months of rent abatement totaling $103,230. Under the lease, the monthly rent on the facility is $51,615 with annual escalations of 3% with the final two months of rent at $61,605. In addition, the Company will pay the landlord a 2% property management fee. The rent expense for the three months ended September 30, 2023 and 2022 was $163,188 and $163,188, respectively.

Under ASC 842, which was adopted July 1, 2019, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company elected not to recognize leases with a term less than one year on its balance sheet. Operating lease right-of-use (ROU) assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

In accordance with the guidance in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.) Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, the Company elected the practical expedient to not separate lease and non-lease components. The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense. See Note 12 for details.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

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 four e-commerce sites. Wholesale includes Liberator, Jaxx, and Avana branded products sold to distributors and retailers, purchased products sold to retailers, and private label items sold to other resellers. The Wholesale category also includes contract manufacturing services, which consists of specialty items that are manufactured in small quantities for certain customers, and which, to date, has not been a material part of our business. Other consists principally of shipping and handling fees and costs derived from our Direct business.

The following is a summary of sales results for the Direct, Wholesale, and Other channels.

	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,527	$	2,267		-33	%
Wholesale	$	4,473	$	5,598		-20	%
Other	$	125	$	195		-36	%
Total Net Sales	$	6,126	$	8,059		-24	%

	Three Months Ended						Three Months Ended
	September 30, 2023			Margin %			September 30, 2022			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	720			47	%	$	1,014			45	%		-29	%
Wholesale	$	1,114			25	%	$	1,313			23	%		-15	%
Other	$	(251	)		-199	%	$	(353	)	-%				29	%
Total Gross Profit	$	1,582			26	%	$	1,973			24	%		-20	%

Recent accounting pronouncements

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

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements”, which replaces the existing “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. Under the CECL model, the Company is required to present certain financial assets carried at amortized cost, such as accounts receivable, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company adopted this standard in the consolidated financial statements on July 1, 2023. The change had no impact on the Company’s financial statements.

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

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income / (Loss) Per Share

In accordance with ASC 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 plus the effect of stock options using the treasury stock method.

For the three months ended September 30, 2023, common stock equivalent shares are excluded from the computation of net loss per share as their effect is anti-dilutive. For the three months ended September 30, 2022, the common stock equivalents did not have any effect on net income per share.

	September 30,
	2023		2022
Common stock options – 2015 Plan		1,350,000		1,975,000
Convertible preferred stock		4,300,000		4,300,000
Total		5,650,000		6,275,000

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.

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 September 30, 2023 or June 30, 2023.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 4. INVENTORIES, NET

Inventories are stated at the lower of cost (which approximates first-in, first-out) or net realizable value. Net realizable value is defined as sales price less cost to dispose and a normal profit margin. Inventories consisted of the following:

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Raw materials	$	1,777		$	1,926
Work in process		550			507
Finished goods		1,980			2,021
Total inventories		4,307			4,454
Allowance for excess and obsolete inventory		(252	)		(252	)
Total inventories, net of allowance	$	4,055		$	4,202

NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

	September 30, 2023			June 30, 2023			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	4,730		$	4,356		2-10 years
Computer equipment and software		1,172			1,171		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		-			320
Subtotal		6,587			6,532
Accumulated depreciation and amortization		(4,445	)		(4,346	)
Equipment and leasehold improvements, net	$	2,142		$	2,186

Depreciation and amortization expense was $99,222 and $86,856 for the three months ended September 30, 2023 and 2022, respectively.

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset’s fair value. Management has determined no asset impairment occurred during the three months ended September 30, 2023.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 6. OTHER ACCRUED LIABILITIES

Other accrued liabilities at September 30, 2023 and June 30, 2023:

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Accrued compensation	$	457	$	302
Accrued expenses and interest		108		114
Other accrued liabilities	$	565	$	416

NOTE 7. CURRENT AND LONG-TERM DEBT SUMMARY

Current and long-term debt at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
Current debt:	(in thousands)
Unsecured lines of credit (Note 11)	$	10	$	13
Line of credit (Note 10)		1,102		1,039
Short-term unsecured notes payable (Note 8)		-		200
Current portion of equipment notes payable (Note 12)		387		392
Current portion of finance leases payable (Note 12)		13		15
Total current debt		1,512		1,659
Long-term debt:
Unsecured notes payable (Note 8)		400		200
Finance leases payable (Note 12)		8		9
Equipment notes payable (Note 12)		729		824
Notes payable – related party (Note 9)		116		116
Total long-term debt	$	1,253	$	1,148

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 8. UNSECURED NOTES PAYABLE

Unsecured notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
Current unsecured notes payable:	(in thousands)

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

Long-term unsecured notes payable:
13.5% Unsecured note, interest only, due May 1, 2025 (2)		200		200
13.5% Unsecured note, interest only, due July 31, 2025 (3)		100		-
13.5% Unsecured note, interest only, due October 31, 2025 (1)		100
Total long-term unsecured notes payable		400		200
Total unsecured notes payable	$	400	$	400

(1) 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. This note was repaid in full on October 1, 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 October 31, 2023. This note was repaid in full on September 30, 2023 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 October 31, 2025. Personally guaranteed by principal stockholder.

(2) 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. This note was repaid in full on April 30, 2023 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, 2025. Personally guaranteed by principal stockholder.

(3) 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. This note was repaid in full on July 30, 2023 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, 2025. Personally guaranteed by principal stockholder.

NOTE 9. NOTES PAYABLE - RELATED PARTY

Related party notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025	$	40	$	40
Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025		76		76
Total unsecured notes payable		116		116
Less: current portion		-		-
Long-term unsecured notes payable	$	116	$	116

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 10. LINE OF CREDIT

The Company’s wholly owned subsidiary, OneUp and OneUp’s wholly owned subsidiary, Foam Labs has entered into a credit facility with a finance company, Advance Financial Corporation dated May 24, 2011, as amended, to provide it with an asset based line of credit of up to $1,200,000 against 85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital and includes an Inventory Advance (as defined in the agreement) of up to the lesser of $500,000 or 125% of the eligible accounts receivable loan. The term of the agreement was one year, renewable for additional one-year 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 is secured by our accounts receivable and other rights to payment, general intangibles, inventory and equipment, and are subject to eligibility requirements for current accounts receivable. Advances under the agreement are currently charged interest at a rate of prime rate plus 2% over the lenders Index Rate. In addition, there is a Monthly Service Fee (as defined in the agreement) of currently 0.05 % per month.

The Company’s President, Chief Executive Officer (CEO), and majority shareholder, Louis Friedman, has personally guaranteed the repayment of the facility. In addition, the Company has provided its corporate guarantee of the credit facility (see Note 13). On September 30, 2023 and June 30, 2023, the balance owed under this line of credit were $1,102,122 and $1,039,013, respectively. As of September 30, 2023, we were current and in compliance with all terms and conditions of this line of credit.

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

NOTE 11. UNSECURED LINE OF CREDIT

The Company has drawn a cash advance on one unsecured line of credit that is in the name of the Company and Louis Friedman. The terms of this unsecured line of credit calls for monthly payments of principal and interest, with interest at 11%. The aggregate amount owed on the unsecured line of credit was $9,608 at September 30, 2023 and $12,806 at June 30, 2023.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 12. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its facilities under a non-cancelable operating lease which now expires February 28, 2027. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities for the lease renewal were recognized at the inception date which is November 2, 2020 based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available. At September 30, 2023, the weighted average remaining lease term for the lease renewal is 4 years and the weighted average discount rate is 14.49%. Supplemental balance sheet information related to leases at September 30, 2023 is as follows:

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	1,820

Current lease liabilities	Operating lease liabilities	$	411
Non-current lease liabilities	Long-term operating lease liabilities		1,557
Total lease liabilities		$	1,968

Maturities of lease liabilities at September 30, 2023 are as follows:

Payments	(in thousands)
2024	$	515
2025		721
2026		762
2027 and thereafter		528
Total undiscounted lease payments		2,526
Less: Present value discount		(558	)
Total lease liability balance	$	1,968

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 $2,290,061. These assets are included in the fixed assets listed in Note 5 - Equipment and Leasehold Improvements and include production equipment. The equipment notes have stated or imputed interest rates ranging from 7.29% to 11.3%.

The following is an analysis of the minimum future equipment note payable payments subsequent to September 30, 2023:

Years ending June 30,	*(in* *thousands)*
2024		351
2025		427
2026		309
2027		130
2028		39
Future Minimum Note Payable Payments		1,256
Less Amount Representing Interest		(140	)
Present Value of Minimum Note Payable Payments		1,116
Less Current Portion		(387	)
Long-Term Obligations under Equipment Notes Payable	$	729

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)

Finance Leases Payable

The Company has lease obligations for equipment under the provisions of long-term finance leases. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The equipment acquired with these leases has a total cost of approximately $58,152. These assets are included in the finance lease and include production equipment.

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

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

The following is an analysis of the minimum finance lease payable payments subsequent to September 30, 2023:

Year ending June 30,	(in thousands)
2024		12
2025		6
2026		3
Future Minimum Finance Lease Payable Payments	$	21
Less Amount Representing Interest		(1	)
Present Value of Minimum Finance Lease Payable Payments		20
Less Current Portion		(13	)
Long-Term Obligations under Finance Lease Payable	$	8

Employment Agreements

The Company has entered into an employment agreement with Louis Friedman, President and CEO. The agreement provides for an annual base salary of $155,000 and eligibility to receive a bonus. In certain termination situations, the Company is liable to pay severance compensation to Mr. Friedman for up to nine months at his current salary. As of September 30, 2023 the Company has not accrued a liability as it is not probable.

Legal Proceedings

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

NOTE 13. 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 three months ended September 30, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50%) and totaled $1,615. The accrued interest on the note as of September 30, 2023 was $36,210. 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 three months ended September 30, 2023 was accrued by the Company at the prevailing prime rate (which is currently 8.50%) and totaled $850. The accrued interest on the note as of September 30, 2023 was $4,948 and included in Other Current Liabilities on the consolidated balance sheet. This note is subordinate to all other credit facilities currently in place.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 13. RELATED PARTY TRANSACTIONS (continued)

The Company’s CEO, Louis Friedman, has personally guaranteed the repayment of the loan obligation to Advance Financial Corporation (see Note 10 – Line of Credit). In addition, Luvu Brands has provided its corporate guarantees of the credit facility. On September 30, 2023, the balance owed under this line of credit was $1,102,122.

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. This note was repaid in full on July 30, 2023 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, 2025. Repayment of this promissory note is personally guaranteed by the Company’s CEO, 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). This note was repaid in full on October 31, 2021 and replaced with a new note from an entity controlled by the same lender with interest payable monthly at 13.5%, principal due in full on October 31, 2023. This note was repaid in full on October 31, 2023 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 October 31, 2025. Repayment of the promissory note is personally guaranteed by the Company’s CEO, 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. This note was repaid in full on April 30, 2023 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, 2025. Mr. Friedman has personally guaranteed the repayment of the loan obligation.

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 11%. The aggregate amount owed on the unsecured line of credit was $9,608 at September 30, 2023 (see Note 11). The loan is personally guaranteed by the Company’s CEO, Louis S. Friedman.

NOTE 14. STOCKHOLDERS’ EQUITY

Options

At September 30, 2023, the Company had the 2015 Stock Option Plan (the “2015 Plan”), which is shareholder-approved and under which 1,450,000 shares are reserved for issuance under the 2015 Plan until such Plan terminates on August 31, 2025.

Under the 2015 Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company’s common stock. The shares issuable under the 2015 Plan will either be shares of the Company’s authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. As of September 30, 2023, the number of shares available for issuance under the 2015 Plan was 200,000.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 14. STOCKHOLDERS’ EQUITY (continued)

The following table summarizes the Company’s stock option activities during the three months ended September 30, 2023:

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2023		1,400,000			3.0	$	0.14	$	29,000
Granted		200,000					-		3,760
Exercised		-					-		-
Forfeited or expired		(250,000	)				-		-
Options outstanding as of September 30, 2023		1,350,000			2.2	$	0.10	$	32,760
Options exercisable as of September 30, 2023		550,000			1.9	$	0.09	$	23,500

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of $0.10 for such day.

There were no stock options exercised during the three months ended September 30, 2023 and the three months ended September 30, 2022.

On September 1, 2023, 200,000 stock options were granted to a new employee of the Company under the 2015 Plan with exercise price of $0.081. There were no stock options granted during the three months ended September 30, 2022.

The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 2023:

		Outstanding Options						Exercisable Options
Exercise Prices		Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$	.02 to $.03		400,000		1.0	$	0.03		325,000	$	0.03
$	.05 to $.10		200,000		4.9	$	0.08		-	$	-
$	.15 to $.20		700,000		3.4	$	0.16		200,000	$	0.16
$	.30		50,000		2.9	$	0.30		25,000		0.30
Total stock options			1,350,000		2.9	$	0.12		550,000	$	0.09

Stock-based compensation

We account for stock-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. We measure the cost of each stock option and at its fair value on the grant date. Each award vests over the subsequent period during which the recipient is required to provide service in exchange for the award (the vesting period). The cost of each award is recognized as expense in the financial statements over the respective vesting period.

Stock option-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended September 30, 2023 and 2022 are based on awards ultimately expected to vest, and is reduced for estimated forfeitures.

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LUVU BRANDS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

NOTE 14. STOCKHOLDERS’ EQUITY (continued)

The following table summarizes stock option-based compensation expense by line item in the Condensed Consolidated Statements of Operations, all relating to the Plans:

	Three Months Ended September 30,
	2023			2022
	($ in thousands)
Cost of Goods Sold	$	1		$	1
Other Selling and Marketing		3			7
General and Administrative (1)		(10	)		4
Total Stock-based Compensation Expense	$	(6	)	$	12

(1) Reflects 250,000 forfeited stock options.

On September 1, 250,000 stock options were forfeited by an affiliate of the Company resulting in reversal of stock option-based compensation expense in the amount of $15,625 which was recognized in prior periods.

As of September 30, 2023, the Company’s total unrecognized compensation cost was $89,662 which will be recognized over the weighted average vesting period of approximately twenty-seven months.

Warrants

As of September 30, 2023 and 2022, there were no warrants outstanding.

Common Stock

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

	September 30,
	2023
Shares of common stock reserved for issuance under the 2015 Plan		1,450,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000
Total shares of common stock equivalents		5,750,000

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.

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ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth, for the periods indicated, information derived from our Interim Unaudited Condensed Consolidated Financial Statements, expressed as a percentage of net sales. The discussion that follows the table should be read in conjunction with our Interim Unaudited Condensed Consolidated Financial Statements.

	Three Months Ended
	(unaudited)
	September 30, 2023			September 30, 2022
Net Sales		100.0	%		100.0	%
Cost Of Goods Sold		75.8	%		76.5	%
Gross Margin		24.2	%		23.4	%
Operating Expenses		24.7	%		16.3	%
Income from operations		-0.5	%		7.3	%

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

	Three Months Ended (unaudited)
(Dollars in thousands)	September 30, 2023				September 30, 2022
Net Sales:
Liberator	$	3,324	54	%	$	5,107	63	%
Jaxx		1,799	29	%		1,781	22	%
Avana		531	9	%		554	7	%
Products purchased for resale		249	4	%		315	4	%
Other		224	4	%		302	4	%
Total Net Sales	$	6,126	100	%	$	8,059	100	%

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Net sales. Sales for the three months ended September 30, 2023 were approximately $6,126,000, a 24% decrease from the comparable prior year period. The major components of net sales, by product, are as follows:

Liberator sales - Sales of Liberator branded products decreased $1,784,000, or 35%, during the quarter from the comparable prior year period, due primarily to lower sales through the Company’s e-commerce sites including: Liberator.com, Amazon and third-party e-tailers. Note that the 2022 sales of Liberator products increased largely due to product placement and exposure on the popular Netflix show How to Build a Sex Room”.

Jaxx sales – Jaxx product sales increased 1% from the prior year first quarter to $1,799,000

Avana sales – Net sales of Avana products decreased 4% during the quarter from the comparable prior year quarter to $531,000. Sales of this product line have been impacted by lower-priced competitive products in the marketplace, production constraints which resulted in longer delivery lead times which resulted in lower sales through drop ship channels including Amazon, Overstock and Wayfair.

Products purchased for resale – This product category decreased by 21%, or $66,000, from the prior year first quarter due to lower sales of certain products through our e-commerce website, Liberator.com.

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Gross margin. Gross profit, derived from net sales less the cost of goods sold, includes the cost of materials, direct labor, manufacturing overhead, freight costs, royalties and depreciation. Gross profit margin, as a percentage of sales, increased to 24.2 from 23.4% in the prior year first quarter. Gross profit decreased to $1,483,000 from $1,886,000 in the prior year first quarter.

Operating expenses. Total operating expenses for the three months ended September 30, 2023 were approximately 24.7% of net sales, or approximately $1,515,000, compared to 16% of net sales, or approximately $1,310,000, for the same period in the prior year. The change was a primary the result of higher than expected operating expenses.

Other income (expense). Interest expense during the first quarter increased slightly from approximately ($84,000) in fiscal 2023 to approximately ($96,000) in fiscal 2024. The decrease was primarily due to higher average borrowing balances.

Variability of Results

We have experienced significant quarterly fluctuations in operating results and anticipate that these fluctuations may continue in future periods. Operating results have fluctuated as a result of changes in sales levels to consumers and wholesalers, competition, seasonality costs associated with new product introductions, and increases in raw material costs. In addition, future operating results may fluctuate as a result of factors beyond our control such as foreign exchange fluctuation, changes in government regulations, and economic changes in the regions in which we operate and sell. A portion of our operating expenses are relatively fixed and the timing of increases in expense levels is based in large part on forecasts of future sales. Therefore, if net sales are below expectations in any given period, the adverse impact on results of operations may be magnified by our inability to meaningfully adjust spending in certain areas, or the inability to adjust spending quickly enough, as in personnel and administrative costs, to compensate for a sales shortfall. We may also choose to increase spending in response to market conditions, and these decisions may have a material adverse effect on financial condition and results of operations.

Liquidity and Capital Resources

The following table summarizes our cash flows:
	Three Months Ended
	September 30,
(Dollars in thousands)	2023			2022
	(Unaudited)
Cash flow data:
Cash provided by operating activities	$	172		$	617
Cash used in investing activities	$	(32	)	$	(21	)
Cash provided by financing activities	$	(43	)	$	(107	)

As of September 30, 2023, our cash and cash equivalents totaled $1,137,581, compared to $1,347,790 in cash and cash equivalents as of September 30, 2022.

For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Our principal sources of liquidity are our cash flow that we generate from our operations, availability of borrowings under our line of credit and cash raised through equity and debt financings.

Operating Activities

Net cash provided by operating activities was $171,000 during the three months ended September 30, 2023 compared to $617,000 net cash provided by operating activities in the three months ended September 30, 2022. The primary components of the cash provided by operating activities in the current year is the decrease in Inventory of $146,000 and increase in Accrued Compensation of $155,000, offset in part by a net loss of 125,000 an increase in accounts receivable of $119,000.

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Investing Activities

Cash used in investing activities in the three months ended September 30, 2023 was $32,000 and related to the purchase and installation of certain production equipment during the period.

Financing Activities

Cash used by financing activities during the three months ended September 30, 2023 of $43,000 was primarily attributable to the repayment of the secured and unsecured notes payable and payments made on equipment notes.

Inflation

During fiscal 2023, we experienced increases in various raw material costs and increases in labor and transportation costs. These cost pressures have not stabilized and we anticipate they will continue to increase throughout the fiscal 2024, although there is no assurance this will occur. 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.

Non-GAAP Financial Measures

Reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2023 and 2022:

(Dollars in thousands)	Three months ended September 30,
	2023			2022
Net income (loss)	$	(126	)	$	492
Plus interest expense, net		94			84
Plus depreciation and amortization expense		99			87
Plus stock-based compensation		6			12
Adjusted EBITDA	$	73		$	675

As used herein, Adjusted EBITDA represents net income before interest income, interest expense, income taxes, depreciation, amortization, and stock-based compensation expense. We have excluded the non-cash expenses and stock-based compensation, as they do not reflect the cash-based operations of the Company. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income of the Company or net cash provided by operating activities.

Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and non-cash charges for stock-based compensation expense.

Off-Balance Sheet Arrangements

We do not use off-balance sheet arrangements with unconsolidated entities or related parties, nor do we use other forms of off-balance sheet arrangements. Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities. As of September 30, 2023, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical accounting policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances and impairment of long-lived assets. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing in this report.

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Recent accounting pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the unaudited condensed consolidated accompanying financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosures. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer (Chief Executive Officer) and principal financial officer (Chief Financial Officer), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in United States Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to the management, including CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings, nor, to our knowledge, is there any legal proceeding threatened against us. However, from time to time, we may become a party to certain legal proceedings in the ordinary course of business.

ITEM 1A. RISK FACTORS

This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our financial condition, results of operations and cash flows or on the trading prices of our common stock. The risks and uncertainties described in this Annual Report on Form 10-K are not the only ones facing us. Additional risks and uncertainties that currently are not known to us or that we currently believe are immaterial also may adversely affect our businesses and operation. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

We have been adversely affected by the effects of inflation and a potential recession.

Inflation has adversely affected our liquidity, business, financial condition, and results of operations by increasing our overall cost structure and such affects will be further exacerbated if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates, and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. In addition, poor economic and market conditions, including a potential recession, may negatively impact market sentiment, decreasing the demand for our products, which would adversely affect our operating income and results of operations. If we are unable to take effective measures in a timely manner to mitigate the impact of inflation, as well as a potential recession, our business, financial condition, and results of operations could be adversely affected.

Competition from other brands may hinder the development of our business.

Increased competitor consolidations, marketplace competition, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our sales, we may be unable to achieve our current revenue and financial targets. As a means of maintaining and expanding our sales revenues, we intend to introduce additional products. We may not be successful in doing this, or it may take us longer than anticipated to achieve market acceptance of these new products, if at all. Other companies may be more successful in this regard over the long term. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our ability to expand the market for our products.

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Our reliance on logistics service providers, distributors, ecommerce and social media platforms and retailers could affect our ability to efficiently and profitably promote, sell, distribute and market our products, maintain our existing markets and expand our business into other geographic markets.

Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable logistics service providers, distributors, ecommerce and social media platforms and retailers strategically positioned to serve those areas. Most of our distributors and retailers promote, sell and distribute competing products, and our products may represent a small portion of their businesses. The success of our distribution network depends on the performance of the logistics service providers, distributors, ecommerce and social media platforms and retailers in our network. There is a risk they may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other companies who have greater resources than we do. To the extent that our distributors and retailers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, our sales and results of operations could be adversely affected. Furthermore, such third parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sales activities.

We will be dependent on our suppliers and do not have supply agreements with our suppliers. Events adversely affecting our suppliers, manufacturers and contractors would adversely affect us.

If we experience significant increased sales, and since we do not have supply agreements to ensure our requirements, there can be no assurance that additional products will be available when required or on terms that are favorable to us, or that a supplier would allocate sufficient products to us in order to meet our requirements or fill our orders in a timely manner which could lead to delays to our customers, which could hurt our relationships with our customers, result in negative publicity, damage our brand and adversely affect our business, prospects and operating results.

We intend to maintain a full supply chain for the provision of our products. Suppliers, manufacturers, service providers and contractors may elect, at any time, to decline or withdraw services necessary for our operations. Loss of these suppliers, manufacturers, service providers and contractors may have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, any significant interruption, negative change in the availability or economics of the supply chain or increase in the prices for the production of our products provided by any such third-party suppliers, manufacturers, service providers and contractors could materially impact our business, financial condition, results of operations and prospects. Any inability to secure required supplies or to do so on appropriate terms could have a materially adverse impact on our business, financial condition, results of operations and prospects.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

		Incorporated by Reference			Filed or Furnished
No.	Exhibit Description	Form	Date Filed	Number	Herewith
2.1	Merger and Capitalization Agreement	8-K	10/22/09	2.1
2.2	Stock Purchase and Recapitalization Agreement	8-K/A	3/24/10	2.2
2.3	Amendment No. 1 to the Stock Purchase and Recapitalization Agreement	8-K/A	3/24/10	2.3
3.1	Amended and Restated Articles of Incorporation	SB-2	3/2/07	3(i)
3.2	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	2/23/11	3.1
3.3	Designation of Rights and Preferences of Series A Convertible Preferred Stock	8-K	2/23/11	4.1
3.4	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	3/3/11	3.1
3.5	Articles of Amendment to the Amended and Restated Articles of Incorporation	8-K	11/5/15	3.5
3.6	Bylaws	SB-2	3/2/07	3(ii)
31.1	Section 302 Certification by the Corporation’s Principal Executive Officer				Filed
31.2	Section 302 Certification by the Corporation’s Principal Financial and Accounting Officer				Filed
32.1	Section 906 Certification by the Corporation’s Principal Executive Officer				Filed
32.2	Section 906 Certification by the Corporation’s Principal Financial and Accounting Officer				Filed
101.INS	XBRL Instance Document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document				Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		LUVU BRANDS, INC.
		(Registrant)

November 20, 2023	By:	/s/ Louis S. Friedman
(Date)		Louis S. Friedman
		President and Chief Executive Officer (Principal Executive Officer)

November 20, 2023	By:	/s/ Martin Scott
(Date)		Martin Scott
		Chief Financial Officer (Principal Financial & Accounting Officer)

nullnullnullnull

Cover - shares	3 Months Ended
Cover - shares	Sep. 30, 2023	Nov. 20, 2023
Cover [Abstract]
Entity Registrant Name	Luvu Brands, Inc.
Entity Central Index Key	0001374567
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Small Business	false
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2024
Entity Common Stock Shares Outstanding		76,547,672
Entity File Number	000-53314
Entity Incorporation State Country Code	FL
Entity Tax Identification Number	59-3581576
Entity Address Address Line 1	2745 Bankers Industrial Drive
Entity Address City Or Town	Atlanta
Entity Address State Or Province	GA
Entity Address Postal Zip Code	30360
City Area Code	770
Local Phone Number	246-6400
Security 12g Title	Common Stock, $.01 par value
Document Quarterly Report	true
Document Transition Report	false
Entity Address Address Line 2	Atlanta
Entity Interactive Data Current	Yes

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
Current assets
Cash and cash equivalents	$ 1,138	$ 1,041
Accounts receivable, net	1,169	1,051
Inventories, net	4,055	4,202
Prepaid expenses	122	84
Total current assets	6,484	6,378
Equipment and leasehold improvements, net	2,142	2,186
Finance lease assets	21	24
Right of use assets	1,820	1,913
Deferred Tax asset, net	10	10
Other assets	76	100
Total assets	10,553	10,611
Current liabilities:
Accounts payable	2,178	2,114
Current debt	1,512	1,659
Other accrued liabilities	565	416
Operating lease liability	411	396
Total current liabilities	4,666	4,585
Noncurrent liabilities:
Long-term debt	1,253	1,148
Long-term operating lease liability	1,557	1,667
Total noncurrent liabilities	2,810	2,815
Total liabilities	7,476	7,400
Stockholders' equity:
Preferred stock, value	0	0
Common stock, $0.01 par value, 175,000,000 shares authorized, 76,547,672 and 76,547,672 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively	765	765
Additional paid-in capital	6,228	6,234
Accumulated deficit	(3,916)	(3,790)
Total stockholders' equity	3,077	3,211
Total liabilities and stockholders' equity	10,553	10,611
Series A Convertible Preferred Stock [Member]
Stockholders' equity:
Preferred stock, value	$ 0	$ 0

Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2023	Jun. 30, 2023
Preferred stock - par value	$ 0.0001	$ 0.0001
Preferred stock - shares authorized	5,700,000	5,700,000
Preferred stock - shares issued	0	0
Preferred stock - shares outstanding	0	0
Common stock- par value	$ 0.01	$ 0.01
Common stock- shares authorized	175,000,000	175,000,000
Common stock- shares issued	76,547,672	76,547,672
Common stock- shares outstanding	76,547,672	76,547,672
Series A Preferred Stock Shares
Preferred stock - par value	$ 0.0001	$ 0.0001
Preferred stock - shares authorized	4,300,000	4,300,000
Preferred stock - shares issued	4,300,000	4,300,000
Preferred stock - shares outstanding	4,300,000	4,300,000
Preferred stock - liquidation preference	$ 1,000	$ 1,000

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Operations (Unaudited)
Net Sales	$ 6,126	$ 8,059
Cost of goods sold	4,643	6,173
Gross profit	1,483	1,886
Operating expenses
Advertising and promotion	269	187
Other selling and marketing	427	365
General and administrative	819	758
Total operating expenses	1,515	1,310
Income / (loss) from operations	(32)	576
Other Income (Expense):
Interest expense and financing costs	(94)	(84)
Total Other Income (Expense)	(94)	(84)
Income before income taxes	(126)	492
Provision for income taxes	0	0
Net (loss) income	$ (126)	$ 492
Net income / (loss) per share:
Basic	$ (0.00)	$ 0.01
Diluted	$ (0.00)	$ 0.01
Shares used in computing net (loss) income per share:
Basic	76,547,672	76,046,249
Diluted	76,547,672	76,632,738

Consolidated Statements of Changes in Stockholders Equity (Unaudited) - USD ($) $ in Thousands	Total	Series A Preferred Stocks [Member]	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Balance, shares at Jun. 30, 2022		4,300,000	76,046,249
Balance, amount at Jun. 30, 2022	$ 1,954	$ 0	$ 760	$ 6,183	$ (4,989)
Stock-based compensation expense	12	0	0	12	0
Net income for the three months ended September 30, 2022	492	$ 0	$ 0	0	492
Balance, shares at Sep. 30, 2022		4,300,000	76,046,249
Balance, amount at Sep. 30, 2022	2,458	$ 0	$ 760	6,195	(4,497)
Balance, shares at Jun. 30, 2023		4,300,000	76,547,672
Balance, amount at Jun. 30, 2023	3,211	$ 0	$ 765	6,234	(3,790)
Stock-based compensation expense	(6)	0	0	(6)	0
Net income for the three months ended September 30, 2022	(126)	$ 0	$ 0	0	(126)
Balance, shares at Sep. 30, 2023		4,300,000	76,547,672
Balance, amount at Sep. 30, 2023	$ 3,077	$ 0	$ 765	$ 6,228	$ (3,916)

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
OPERATING ACTIVITIES:
Net (loss) income	$ (126)	$ 492
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	99	87
Stock based compensation expense	(6)	12
Bad debt expense	2	1
Amortization of operating lease asset	93	81
Changes in operating assets and liabilities:
Accounts receivable	(119)	(290)
Inventories	147	158
Prepaid expenses and other assets	(36)	(25)
Accounts payable	64	20
Accrued compensation	155	110
Accrued expenses and interest	(7)	48
Operating lease liability	(94)	(77)
Net cash provided by operating activities	172	617
INVESTING ACTIVITIES:
Investment in purchase of equipment and leasehold improvements	(32)	(21)
Net cash used in investing activities	(32)	(21)
FINANCING ACTIVITIES:
Proceeds from unsecured notes payable	200	0
Repayment of unsecured notes payable	(200)	0
Proceeds from secured notes payable	0	0
Net cash provided by (repaid to) line of credit	63	(25)
Repayment of unsecured line of credit	(3)	(3)
Payments on equipment notes	(99)	(76)
Principal payments on leases payable	(4)	(3)
Net cash used in financing activities	(43)	(107)
Net increase in cash and cash equivalents	97	489
Cash and cash equivalents at beginning of period	1,041	859
CASH AND CASH EQUIVALENTS AT END OF PERIOD	1,138	1,348
Cash paid during the period for:
Interest	94	83
Income taxes	$ 0	$ 0

ORGANIZATION AND NATURE OF BUSINESS

3 Months Ended

Sep. 30, 2023

ORGANIZATION AND NATURE OF BUSINESS

ORGANIZATION AND NATURE OF BUSINESS

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Use of Estimates

Revenue Recognition

Deferred revenues

Cost of Goods Sold

Cost of goods sold includes raw materials, labor, manufacturing overhead, depreciation and royalty expense.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Allowance for Doubtful Accounts

The following is a summary of Accounts Receivable as of September 30, 2023 and June 30, 2023.

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Accounts receivable	$	1,177		$	1,107
Allowance for doubtful accounts		(2	)		(1	)
Allowance for discounts and returns		(6	)		(55	)
Total accounts receivable, net	$	1,169		$	1,051

Inventories and Allowance for Excess and Obsolete Inventory

Concentration of Credit Risk

During the three months ended September, 30 2023, we purchased 35% of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2023, we purchased 35% of total inventory purchases from one vendor.

Fair Value of Financial Instruments

At September 30, 2023 and June 30, 2023, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and other long-term debt.

The fair values of these financial instruments approximated their carrying values based on either their short term maturity or current terms for similar instruments.

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

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.

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

Advertising and Promotion Costs

Research and Development

Equipment and Leasehold Improvements

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.

Impairment or Disposal of Long Lived Assets

Operating Leases

Segment Information

The following is a summary of sales results for the Direct, Wholesale, and Other channels.

	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,527	$	2,267		-33	%
Wholesale	$	4,473	$	5,598		-20	%
Other	$	125	$	195		-36	%
Total Net Sales	$	6,126	$	8,059		-24	%

	Three Months Ended						Three Months Ended
	September 30, 2023			Margin %			September 30, 2022			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	720			47	%	$	1,014			45	%		-29	%
Wholesale	$	1,114			25	%	$	1,313			23	%		-15	%
Other	$	(251	)		-199	%	$	(353	)	-%				29	%
Total Gross Profit	$	1,582			26	%	$	1,973			24	%		-20	%

Recent accounting pronouncements

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

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

Net Income / (Loss) Per Share

	September 30,
	2023		2022
Common stock options – 2015 Plan		1,350,000		1,975,000
Convertible preferred stock		4,300,000		4,300,000
Total		5,650,000		6,275,000

Income Taxes

Stock Based Compensation

IMPAIRMENT OF LONGLIVED ASSETS

3 Months Ended

Sep. 30, 2023

IMPAIRMENT OF LONGLIVED ASSETS

IMPAIRMENT OF LONGLIVED ASSETS

NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS

INVENTORIES NET

3 Months Ended

Sep. 30, 2023

INVENTORIES NET

INVENTORIES NET

NOTE 4. INVENTORIES, NET

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Raw materials	$	1,777		$	1,926
Work in process		550			507
Finished goods		1,980			2,021
Total inventories		4,307			4,454
Allowance for excess and obsolete inventory		(252	)		(252	)
Total inventories, net of allowance	$	4,055		$	4,202

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

3 Months Ended

Sep. 30, 2023

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

	September 30, 2023			June 30, 2023			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	4,730		$	4,356		2-10 years
Computer equipment and software		1,172			1,171		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		-			320
Subtotal		6,587			6,532
Accumulated depreciation and amortization		(4,445	)		(4,346	)
Equipment and leasehold improvements, net	$	2,142		$	2,186

Depreciation and amortization expense was $99,222 and $86,856 for the three months ended September 30, 2023 and 2022, respectively.

OTHER ACCRUED LIABILITIES

3 Months Ended

Sep. 30, 2023

OTHER ACCRUED LIABILITIES

OTHER ACCRUED LIABILITIES

NOTE 6. OTHER ACCRUED LIABILITIES

Other accrued liabilities at September 30, 2023 and June 30, 2023:

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Accrued compensation	$	457	$	302
Accrued expenses and interest		108		114
Other accrued liabilities	$	565	$	416

CURRENT AND LONGTERM DEBT SUMMARY

3 Months Ended

Sep. 30, 2023

CURRENT AND LONGTERM DEBT SUMMARY

CURRENT AND LONGTERM DEBT SUMMARY

NOTE 7. CURRENT AND LONG-TERM DEBT SUMMARY

Current and long-term debt at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
Current debt:	(in thousands)
Unsecured lines of credit (Note 11)	$	10	$	13
Line of credit (Note 10)		1,102		1,039
Short-term unsecured notes payable (Note 8)		-		200
Current portion of equipment notes payable (Note 12)		387		392
Current portion of finance leases payable (Note 12)		13		15
Total current debt		1,512		1,659
Long-term debt:
Unsecured notes payable (Note 8)		400		200
Finance leases payable (Note 12)		8		9
Equipment notes payable (Note 12)		729		824
Notes payable – related party (Note 9)		116		116
Total long-term debt	$	1,253	$	1,148

UNSECURED NOTES PAYABLE

3 Months Ended

Sep. 30, 2023

UNSECURED NOTES PAYABLE

UNSECURED NOTES PAYABLE

NOTE 8. UNSECURED NOTES PAYABLE

Unsecured notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
Current unsecured notes payable:	(in thousands)

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

Long-term unsecured notes payable:
13.5% Unsecured note, interest only, due May 1, 2025 (2)		200		200
13.5% Unsecured note, interest only, due July 31, 2025 (3)		100		-
13.5% Unsecured note, interest only, due October 31, 2025 (1)		100
Total long-term unsecured notes payable		400		200
Total unsecured notes payable	$	400	$	400

NOTES PAYABLE RELATED PARTY

3 Months Ended

Sep. 30, 2023

NOTES PAYABLE RELATED PARTY

NOTES PAYABLE RELATED PARTY

NOTE 9. NOTES PAYABLE - RELATED PARTY

Related party notes payable at September 30, 2023 and June 30, 2023 consisted of the following:

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025	$	40	$	40
Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025		76		76
Total unsecured notes payable		116		116
Less: current portion		-		-
Long-term unsecured notes payable	$	116	$	116

LINE OF CREDIT

3 Months Ended

Sep. 30, 2023

LINE OF CREDIT

LINE OF CREDIT

NOTE 10. LINE OF CREDIT

UNSECURED LINE OF CREDIT

3 Months Ended

Sep. 30, 2023

UNSECURED LINE OF CREDIT

UNSECURED LINE OF CREDIT

NOTE 11. UNSECURED LINE OF CREDIT

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2023

Commitments and contingencies (See Note 12)

COMMITMENTS AND CONTINGENCIES

NOTE 12. COMMITMENTS AND CONTINGENCIES

Operating Leases

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	1,820

Current lease liabilities	Operating lease liabilities	$	411
Non-current lease liabilities	Long-term operating lease liabilities		1,557
Total lease liabilities		$	1,968

Maturities of lease liabilities at September 30, 2023 are as follows:

Payments	(in thousands)
2024	$	515
2025		721
2026		762
2027 and thereafter		528
Total undiscounted lease payments		2,526
Less: Present value discount		(558	)
Total lease liability balance	$	1,968

Equipment Notes Payable

The following is an analysis of the minimum future equipment note payable payments subsequent to September 30, 2023:

Years ending June 30,	*(in* *thousands)*
2024		351
2025		427
2026		309
2027		130
2028		39
Future Minimum Note Payable Payments		1,256
Less Amount Representing Interest		(140	)
Present Value of Minimum Note Payable Payments		1,116
Less Current Portion		(387	)
Long-Term Obligations under Equipment Notes Payable	$	729

Finance Leases Payable

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

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

The following is an analysis of the minimum finance lease payable payments subsequent to September 30, 2023:

Year ending June 30,	(in thousands)
2024		12
2025		6
2026		3
Future Minimum Finance Lease Payable Payments	$	21
Less Amount Representing Interest		(1	)
Present Value of Minimum Finance Lease Payable Payments		20
Less Current Portion		(13	)
Long-Term Obligations under Finance Lease Payable	$	8

Employment Agreements

Legal Proceedings

RELATED PARTY TRANSACTIONS

3 Months Ended

Sep. 30, 2023

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 13. RELATED PARTY TRANSACTIONS

STOCKHOLDERS EQUITY

3 Months Ended

Sep. 30, 2023

STOCKHOLDERS EQUITY

STOCKHOLDERS EQUITY

NOTE 14. STOCKHOLDERS’ EQUITY

Options

The following table summarizes the Company’s stock option activities during the three months ended September 30, 2023:

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2023		1,400,000			3.0	$	0.14	$	29,000
Granted		200,000					-		3,760
Exercised		-					-		-
Forfeited or expired		(250,000	)				-		-
Options outstanding as of September 30, 2023		1,350,000			2.2	$	0.10	$	32,760
Options exercisable as of September 30, 2023		550,000			1.9	$	0.09	$	23,500

There were no stock options exercised during the three months ended September 30, 2023 and the three months ended September 30, 2022.

The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 2023:

		Outstanding Options						Exercisable Options
Exercise Prices		Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$	.02 to $.03		400,000		1.0	$	0.03		325,000	$	0.03
$	.05 to $.10		200,000		4.9	$	0.08		-	$	-
$	.15 to $.20		700,000		3.4	$	0.16		200,000	$	0.16
$	.30		50,000		2.9	$	0.30		25,000		0.30
Total stock options			1,350,000		2.9	$	0.12		550,000	$	0.09

Stock-based compensation

The following table summarizes stock option-based compensation expense by line item in the Condensed Consolidated Statements of Operations, all relating to the Plans:

	Three Months Ended September 30,
	2023			2022
	($ in thousands)
Cost of Goods Sold	$	1		$	1
Other Selling and Marketing		3			7
General and Administrative (1)		(10	)		4
Total Stock-based Compensation Expense	$	(6	)	$	12

(1) Reflects 250,000 forfeited stock options.

As of September 30, 2023, the Company’s total unrecognized compensation cost was $89,662 which will be recognized over the weighted average vesting period of approximately twenty-seven months.

Warrants

As of September 30, 2023 and 2022, there were no warrants outstanding.

Common Stock

	September 30,
	2023
Shares of common stock reserved for issuance under the 2015 Plan		1,450,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000
Total shares of common stock equivalents		5,750,000

Preferred Stock

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Cost of goods sold includes raw materials, labor, manufacturing overhead, depreciation and royalty expense.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Allowance for Doubtful Accounts

The following is a summary of Accounts Receivable as of September 30, 2023 and June 30, 2023.

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Accounts receivable	$	1,177		$	1,107
Allowance for doubtful accounts		(2	)		(1	)
Allowance for discounts and returns		(6	)		(55	)
Total accounts receivable, net	$	1,169		$	1,051

Inventories and Allowance for Excess and Obsolete Inventory

Concentration of Credit Risk

During the three months ended September, 30 2023, we purchased 35% of total inventory purchases from one vendor.

During the fiscal year ended June 30, 2023, we purchased 35% of total inventory purchases from one vendor.

Fair Value of Financial Instruments

At September 30, 2023 and June 30, 2023, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and other long-term debt.

The fair values of these financial instruments approximated their carrying values based on either their short term maturity or current terms for similar instruments.

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

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.

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

Advertising and Promotion Costs

Research and Development

Equipment and Leashold Improvements

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.

Impairment or Disposal of Long Lived Assets

Operating Leases

Segment Information

The following is a summary of sales results for the Direct, Wholesale, and Other channels.

	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,527	$	2,267		-33	%
Wholesale	$	4,473	$	5,598		-20	%
Other	$	125	$	195		-36	%
Total Net Sales	$	6,126	$	8,059		-24	%

	Three Months Ended						Three Months Ended
	September 30, 2023			Margin %			September 30, 2022			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	720			47	%	$	1,014			45	%		-29	%
Wholesale	$	1,114			25	%	$	1,313			23	%		-15	%
Other	$	(251	)		-199	%	$	(353	)	-%				29	%
Total Gross Profit	$	1,582			26	%	$	1,973			24	%		-20	%

Recent accounting pronouncements

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

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

Net Income / (Loss) Per Share

	September 30,
	2023		2022
Common stock options – 2015 Plan		1,350,000		1,975,000
Convertible preferred stock		4,300,000		4,300,000
Total		5,650,000		6,275,000

Income Taxes

Stock Based Compensation

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of accounts receivable

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Accounts receivable	$	1,177		$	1,107
Allowance for doubtful accounts		(2	)		(1	)
Allowance for discounts and returns		(6	)		(55	)
Total accounts receivable, net	$	1,169		$	1,051

Schedule of segment Information

	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022		% Change
	(in thousands)
Net Sales by Channel:
Direct	$	1,527	$	2,267		-33	%
Wholesale	$	4,473	$	5,598		-20	%
Other	$	125	$	195		-36	%
Total Net Sales	$	6,126	$	8,059		-24	%

	Three Months Ended						Three Months Ended
	September 30, 2023			Margin %			September 30, 2022			Margin %			% Change
	(in thousands)						(in thousands)
Gross Profit by Channel:
Direct	$	720			47	%	$	1,014			45	%		-29	%
Wholesale	$	1,114			25	%	$	1,313			23	%		-15	%
Other	$	(251	)		-199	%	$	(353	)	-%				29	%
Total Gross Profit	$	1,582			26	%	$	1,973			24	%		-20	%

Schedule of Potential dilutive securities

	September 30,
	2023		2022
Common stock options – 2015 Plan		1,350,000		1,975,000
Convertible preferred stock		4,300,000		4,300,000
Total		5,650,000		6,275,000

INVENTORIES NET (Tables)

3 Months Ended

Sep. 30, 2023

INVENTORIES NET

Schedule of inventories

	September 30, 2023			June 30, 2023
	(unaudited)
	(in thousands)
Raw materials	$	1,777		$	1,926
Work in process		550			507
Finished goods		1,980			2,021
Total inventories		4,307			4,454
Allowance for excess and obsolete inventory		(252	)		(252	)
Total inventories, net of allowance	$	4,055		$	4,202

EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Tables)

3 Months Ended

Sep. 30, 2023

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and Leasehold Improvements

	September 30, 2023			June 30, 2023			Estimated Useful Life
	(unaudited)
	(in thousands)
Factory equipment	$	4,730		$	4,356		2-10 years
Computer equipment and software		1,172			1,171		5-7 years
Office equipment and furniture		205			205		5-7 years
Leasehold improvements		480			480		6 years
Project in process		-			320
Subtotal		6,587			6,532
Accumulated depreciation and amortization		(4,445	)		(4,346	)
Equipment and leasehold improvements, net	$	2,142		$	2,186

OTHER ACCRUED LIABILITIES (Tables)

3 Months Ended

Sep. 30, 2023

OTHER ACCRUED LIABILITIES

Schedule of Accrued Liabilities

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Accrued compensation	$	457	$	302
Accrued expenses and interest		108		114
Other accrued liabilities	$	565	$	416

CURRENT AND LONGTERM DEBT SUMMARY (Tables)

3 Months Ended

Sep. 30, 2023

CURRENT AND LONGTERM DEBT SUMMARY

Schedule Of Current and Long-term Debt

	September 30, 2023		June 30, 2023
	(unaudited)
Current debt:	(in thousands)
Unsecured lines of credit (Note 11)	$	10	$	13
Line of credit (Note 10)		1,102		1,039
Short-term unsecured notes payable (Note 8)		-		200
Current portion of equipment notes payable (Note 12)		387		392
Current portion of finance leases payable (Note 12)		13		15
Total current debt		1,512		1,659
Long-term debt:
Unsecured notes payable (Note 8)		400		200
Finance leases payable (Note 12)		8		9
Equipment notes payable (Note 12)		729		824
Notes payable – related party (Note 9)		116		116
Total long-term debt	$	1,253	$	1,148

UNSECURED NOTES PAYABLE (Tables)

3 Months Ended

Sep. 30, 2023

UNSECURED NOTES PAYABLE

Schedule Of Unsecured Notes Payable

	September 30, 2023		June 30, 2023
	(unaudited)
Current unsecured notes payable:	(in thousands)

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

Long-term unsecured notes payable:
13.5% Unsecured note, interest only, due May 1, 2025 (2)		200		200
13.5% Unsecured note, interest only, due July 31, 2025 (3)		100		-
13.5% Unsecured note, interest only, due October 31, 2025 (1)		100
Total long-term unsecured notes payable		400		200
Total unsecured notes payable	$	400	$	400

NOTES PAYABLE RELATED PARTY (Tables)

3 Months Ended

Sep. 30, 2023

NOTES PAYABLE RELATED PARTY

Schedule Of Related Party Transactions

	September 30, 2023		June 30, 2023
	(unaudited)
	(in thousands)

Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025	$	40	$	40
Unsecured note payable to an officer, with interest at 8.50%, due on July 1, 2025		76		76
Total unsecured notes payable		116		116
Less: current portion		-		-
Long-term unsecured notes payable	$	116	$	116

COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Sep. 30, 2023

Commitments and contingencies (See Note 12)

Schedule of Operating Leases

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	1,820

Current lease liabilities	Operating lease liabilities	$	411
Non-current lease liabilities	Long-term operating lease liabilities		1,557
Total lease liabilities		$	1,968

Schedule of maturities of lease liabilities

Payments	(in thousands)
2024	$	515
2025		721
2026		762
2027 and thereafter		528
Total undiscounted lease payments		2,526
Less: Present value discount		(558	)
Total lease liability balance	$	1,968

Schedule of Minimum Future Equipment Notes Payable

Years ending June 30,	*(in* *thousands)*
2024		351
2025		427
2026		309
2027		130
2028		39
Future Minimum Note Payable Payments		1,256
Less Amount Representing Interest		(140	)
Present Value of Minimum Note Payable Payments		1,116
Less Current Portion		(387	)
Long-Term Obligations under Equipment Notes Payable	$	729

Schedule of Finance Leases Payable

Year ending June 30,	(in thousands)
2024		12
2025		6
2026		3
Future Minimum Finance Lease Payable Payments	$	21
Less Amount Representing Interest		(1	)
Present Value of Minimum Finance Lease Payable Payments		20
Less Current Portion		(13	)
Long-Term Obligations under Finance Lease Payable	$	8

STOCKHOLDERS EQUITY (Tables)

3 Months Ended

Sep. 30, 2023

STOCKHOLDERS EQUITY

Schedule of Stock Option Activites

	Number of Shares Underlying Outstanding Options			Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value
Options outstanding as of June 30, 2023		1,400,000			3.0	$	0.14	$	29,000
Granted		200,000					-		3,760
Exercised		-					-		-
Forfeited or expired		(250,000	)				-		-
Options outstanding as of September 30, 2023		1,350,000			2.2	$	0.10	$	32,760
Options exercisable as of September 30, 2023		550,000			1.9	$	0.09	$	23,500

Schedule of Weighted average stock options

		Outstanding Options						Exercisable Options
Exercise Prices		Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$	.02 to $.03		400,000		1.0	$	0.03		325,000	$	0.03
$	.05 to $.10		200,000		4.9	$	0.08		-	$	-
$	.15 to $.20		700,000		3.4	$	0.16		200,000	$	0.16
$	.30		50,000		2.9	$	0.30		25,000		0.30
Total stock options			1,350,000		2.9	$	0.12		550,000	$	0.09

Schedule of Stock Options Compensation Expense

	Three Months Ended September 30,
	2023			2022
	($ in thousands)
Cost of Goods Sold	$	1		$	1
Other Selling and Marketing		3			7
General and Administrative (1)		(10	)		4
Total Stock-based Compensation Expense	$	(6	)	$	12

Schedule of Common Stock Equivalents

	September 30,
	2023
Shares of common stock reserved for issuance under the 2015 Plan		1,450,000
Shares of common stock issuable upon conversion of the Preferred Stock		4,300,000
Total shares of common stock equivalents		5,750,000

ORGANIZATION AND NATURE OF BUSINESS (Details Narrative)	Sep. 30, 2023
ORGANIZATION AND NATURE OF BUSINESS
Consolidated sales percentage	10.00%

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts receivable	$ 1,177	$ 1,107
Allowance for doubtful accounts	(2)	(1)
Allowance for discounts and returns	6	55
Total accounts receivable, net	$ 1,169	$ 1,051

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Net Sales	$ 6,126	$ 8,059
Gross profit	1,483	1,886
Direct [member]
Net Sales	1,527	2,267
Gross profit	$ 720	$ 1,014
% Change in Sales	(33.00%)
Gross Profit Margin	47.00%	45.00%
% Change in Gross Profit	(29.00%)
Wholesale [member]
Net Sales	$ 4,473	$ 5,598
Gross profit	$ 1,114	$ 1,313
% Change in Sales	(20.00%)
Gross Profit Margin	25.00%	23.00%
% Change in Gross Profit	(15.00%)
Other [Member]
Net Sales	$ 125	$ 195
Gross profit	$ (251)	$ (353)
% Change in Sales	(36.00%)
Gross Profit Margin	(199.00%)	0.00%
% Change in Gross Profit	29.00%
Total [member]
Net Sales	$ 6,126	$ 8,059
Gross profit	$ 1,582	$ 1,973
% Change in Sales	(24.00%)
Gross Profit Margin	26.00%	24.00%
% Change in Gross Profit	(20.00%)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - shares	3 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Anti-dilutive Securities	5,650,000	6,275,000
Stock options - 2015 Plan [Member]
Anti-dilutive Securities	1,350,000	1,975,000
Convertible Preferred Stock [Member]
Anti-dilutive Securities	4,300,000	4,300,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Jun. 30, 2023	Nov. 02, 2020
Deferred Revenue	$ 18,754	$ 137,821
Total cash at banks	250,000
FDIC balance limit excess	926,492
Advertising Expense	268,544	186,994
New product development	32,722	30,950
Rent Expense	$ 163,188	$ 163,188
Rental abatement				$ 103,230
Final two months rent				61,605
New monthly rent				$ 51,615
Annual escalations in rent	3.00%
Property management fee	2.00%
Sales \| Amazon
Concetration percentage	37.00%
One Vendor \| Inventory Purchases
Concetration percentage	35.00%		35.00%
Customer 1 \| Accounts Receivable
Concetration percentage	48.00%		35.00%
Customer 2 \| Accounts Receivable
Concetration percentage	13.00%		12.00%
Minimum
Estimated useful life	2 years
Maximum
Estimated useful life	10 years

INVENTORIES, NET (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
INVENTORIES NET
Raw materials	$ 1,777	$ 1,926
Work in Process	550	507
Finished Goods	1,980	2,021
Total inventories	4,307	4,454
Allowance for excess and obsolete inventory	(252)	(252)
Total inventories, net of allowance	$ 4,055	$ 4,202

EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2023	Jun. 30, 2023
Property and Equipment, gross	$ 6,587	$ 6,532
Accumulated depreciation and amortization	(4,445)	(4,346)
Property and Equipment, net	2,142	2,186
Factory Equipment
Property and Equipment, gross	$ 4,730	4,356
Factory Equipment \| Minimum
Depreciation life	2
Factory Equipment \| Maximum
Depreciation life	10
Computer equipment and software
Property and Equipment, gross	$ 1,172	1,171
Computer equipment and software \| Minimum
Depreciation life	5
Computer equipment and software \| Maximum
Depreciation life	7
Office equipment and furniture
Property and Equipment, gross	$ 205	205
Office equipment and furniture \| Minimum
Depreciation life	5
Office equipment and furniture \| Maximum
Depreciation life	7
Leasehold Improvements
Property and Equipment, gross	$ 480	480
Depreciation life	6
Projects in process
Property and Equipment, gross	$ 0	$ 320

EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization expense	$ 99,222	$ 86,856

OTHER ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
OTHER ACCRUED LIABILITIES
Accrued compensation	$ 457	$ 302
Accrued expenses and interest	108	114
Other accrued liabilities	$ 565	$ 416

CURRENT AND LONGTERM DEBT SUMMARY (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
Current debt:
Unsecured lines of credit (Note 11)	$ 10	$ 13
Lines of credit (Note 10)	1,102	1,039
Short-term unsecured notes payable (Note 8)	0	200
Current portion of equipment notes payable (Note 13)	387	392
Current portion of finance leases payable	13	15
Total current debt	1,512	1,659
Long-term debt:
Unsecured notes payable (Note 8)	400	200
Equipment note payable (Note 13)	8	9
Finance leases payable (Note 13)	729	824
Notes Payable - related party (Note 9)	116	116
Total long-term debt	$ 1,253	$ 1,148

UNSECURED NOTES PAYABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
Current unsecured notes payable	$ 0	$ 200
Long-term unsecured notes payable	400	200
Unsecured notes payable	400	400
13.5% Unsecured Notes Payable [Member}
Current unsecured notes payable	0	100
Long-term unsecured notes payable	200	200
13.5% Unsecured Notes Payable #1 [Member]
Current unsecured notes payable	0	100
Long-term unsecured notes payable	100	$ 0
13.5% Unsecured Notes Payable #2 [Member]
Long-term unsecured notes payable	$ 100

UNSECURED NOTES PAYABLE (Details Narrative)	3 Months Ended
UNSECURED NOTES PAYABLE (Details Narrative)	Sep. 30, 2023 USD ($)
Interest Rate	2.00%
Note 2
Note Face Amount	$ 200,000
Interest Rate	20.00%
Date of Maturity	May 01, 2023
Note 1
Note Face Amount	$ 100,000
Interest Rate	20.00%
Date of Maturity	Oct. 31, 2023
Note 3
Note Face Amount	$ 100,000
Interest Rate	20.00%
Date of Maturity	Jul. 31, 2023

NOTES PAYABLE RELATED PARTY (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
Total unsecured notes payable	$ 116	$ 116
Less: current portion	0	0
Long-term unsecured notes payable	$ 116	116
Interest Rate	2.00%
Related Party Note Payable 1
Unsecured notes payable	$ 40	40
Interest Rate	8.50%
Related Party Note Payable 2
Unsecured notes payable	$ 76	$ 76
Interest Rate	8.50%

LINE OF CREDIT (Details Narrative) - USD ($)	3 Months Ended
LINE OF CREDIT (Details Narrative) - USD ($)	Sep. 30, 2023	Jun. 30, 2023	May 24, 2011
Collateral	85% of eligible accounts receivable (as defined in the agreement) for the purpose of improving working capital
Monthly Service Fee	125.00%
Interest Rate	2.00%
Invetory Advance
Line of credit	$ 1,102,122	$ 1,039,013	$ 1,200,000
Loan receviable			$ 500,000

UNSECURED LINES OF CREDIT (Details Narrative) - USD ($)	Sep. 30, 2023	Jun. 30, 2023
UNSECURED LINES OF CREDIT (Details Narrative)
Amount owed	$ 9,608	$ 12,806
Interest rate	11.00%

COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023
Operating Leases
Operating lease right-of-use assets, net	$ 1,820	$ 1,913
Current lease liabilities	411	396
Non-current lease liabilities	1,557	$ 1,667
Total lease liabilities	$ 1,968

COMMITMENTS AND CONTINGENCIES (Details 1) $ in Thousands	Sep. 30, 2023 USD ($)
Commitments and contingencies (See Note 12)
2024	$ 515
2025	721
2026	762
2027 and thereafter	528
Total undiscounted lease payments	2,526
Less:Present value discount	(558)
Total lease liability balance	$ 1,968

COMMITMENTS AND CONTINGENCIES (Details 2) $ in Thousands	Sep. 30, 2023 USD ($)
Commitments and contingencies (See Note 12)
2024	$ 351
2025	427
2026	309
2027	130
2028	39
Future Minimum Note Payable Payments	1,256
Less Amount Representing Interest	(140)
Present Value of Minimum Note Payable Payments	1,116
Less Current Portion	(387)
Long-Term Obligations under Equipment Notes Payable	$ 729

COMMITMENTS AND CONTINGENCIES (Details 3) $ in Thousands	Sep. 30, 2023 USD ($)
Commitments and contingencies (See Note 12)
2024	$ 12
2025	6
2026	3
Future Minimum Finance Lease Payable Payments	21
Less Amount Representing Interest	(1)
Present Value of Minimum Finance Lease Payable Payments	20
Less Current Portion	(13)
Long-Term Obligations under Finance Lease Payable	$ 8

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended
	Feb. 02, 2022	Jun. 22, 2020	Sep. 30, 2023	Feb. 01, 2022
Annual base salary			$ 155,000
Weighted average remaining lease term			4 years
Weighted average discount rate			14.49%
Equipment notes payable			$ 2,290,061
Finance Leases Payable [Member]
Imputed interest rates	3.75%	8.09%
Finance lease agreement		$ 34,761		$ 22,862
Total cost of approximately			$ 58,152
monthly payment		$ 850		$ 514
Minimum
Imputed interest rates			7.29%
Maximum
Imputed interest rates			11.30%

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)		1 Months Ended		3 Months Ended
	May 02, 2012	Oct. 31, 2013	Jul. 20, 2011	Sep. 30, 2023
Interest Rate				2.00%
Note Payable to Wife of CEO
Interest Rate				8.50%
Note Face Amount				$ 76,000
Prevailing prime rate				1,615
Acrrued Interest				$ 36,210
October 30, 2010 Note
Interest Rate				8.50%
Note Face Amount				$ 40,000
Prevailing prime rate				850
Acrrued Interest				4,948
Line of credit				$ 1,102,122
July 20, 2011 Note
Interest Rate				20.00%
Note Face Amount				$ 100,000
Interest payable monthly			13.50%	13.50%
Interest Payment				$ 1,667
Date of Maturity				Jul. 31, 2023
Extended Date of Maturity			Jul. 31, 2025	Jul. 31, 2021
October 31, 2013
Interest Rate				20.00%
Note Face Amount				$ 100,000
Interest payable monthly		13.50%		13.50%
Interest Payment				$ 1,667
Date of Maturity		Oct. 31, 2025		Oct. 31, 2023
Extended Date of Maturity				Oct. 31, 2021
May 1, 2012 Note
Interest Rate				20.00%
Note Face Amount				$ 200,000
Interest payable monthly	13.50%			13.50%
Date of Maturity	May 01, 2025			May 01, 2023
Extended Date of Maturity				May 01, 2021
Cash Advance from Company and CEO
Interest Rate				11.00%
Line of credit				$ 9,608

STOCKHOLDERS EQUITY (Details)	3 Months Ended
STOCKHOLDERS EQUITY (Details)	Sep. 30, 2023 USD ($) $ / shares shares
STOCKHOLDERS EQUITY
Options outstanding	1,400,000
Options, Granted	200,000
Options, Forfeited or expired	(250,000)
Options Outstanding, Ending Balance	1,350,000
Options Outstanding, Exercisable	550,000
Weighted Average Remaining Contractual Life (Years)
Weighted Average Remaining Contractual Life, Outstanding, Beginning Balance	3 years
Weighted Average Remaining Contractual Life, Ending Balance	2 years 2 months 12 days
Weighted Average Remining Contractual Life, Exercisable	1 year 10 months 24 days
Weighted Average Exercise Price
Weighted Average Exercise Price, Outstanding, Begining Balance \| $ / shares	$ 0.14
Weighted Average Exercise Price, Outstanding, Ending Balance \| $ / shares	0.10
Weighted Average Exercise Price, Outstanding, Exercisable \| $ / shares	$ 0.09
Aggregate Intrinsic Value
Aggregate Intrinsic Vale, Options Outstanding, Beginning Balance \| $	$ 29,000
Intrinsic value granted \| $ / shares	$ 3,760
Aggregate Intrinsic Vale, Options Outstanding, Ending Balance \| $	$ 32,760
Aggregate Intrinsic Vale, Options Exercisable \| $	$ 23,500

STOCKHOLDERS EQUITY (Details 1)	3 Months Ended
STOCKHOLDERS EQUITY (Details 1)	Sep. 30, 2023 $ / shares shares
Number of Options \| shares	1,350,000
Remaining Life (Years)	2 years 10 months 24 days
Weighted Average Price \| $ / shares	$ 0.12
Number of Shares \| shares	550,000
Options Exercisable, Weighted Average Price \| $ / shares	$ 0.09
0.02 to 0.03
Number of Options \| shares	400,000
Remaining Life (Years)	1 year
Weighted Average Price \| $ / shares	$ 0.03
Number of Shares \| shares	325,000
Options Exercisable, Weighted Average Price \| $ / shares	$ 0.03
0.05 to 0.10
Number of Options \| shares	200,000
Remaining Life (Years)	4 years 10 months 24 days
Weighted Average Price \| $ / shares	$ 0.08
0.15 to 0.20
Number of Options \| shares	700,000
Remaining Life (Years)	3 years 4 months 24 days
Weighted Average Price \| $ / shares	$ 0.16
Number of Shares \| shares	200,000
Options Exercisable, Weighted Average Price \| $ / shares	$ 0.16
0.30
Number of Options \| shares	50,000
Remaining Life (Years)	2 years 10 months 24 days
Weighted Average Price \| $ / shares	$ 0.30
Number of Shares \| shares	25,000
Options Exercisable, Weighted Average Price \| $ / shares	$ 0.30

STOCKHOLDERS EQUITY (Details 2) - USD ($) $ in Thousands	3 Months Ended
STOCKHOLDERS EQUITY (Details 2) - USD ($) $ in Thousands	Sep. 30, 2023	Sep. 30, 2022
Stock-based compensation expense	$ (6)	$ 12
Cost of goods sold [Member]
Stock-based compensation expense	1	1
Other Selling and Marketing [Member]
Stock-based compensation expense	3	7
General and Administrative [Member]
Stock-based compensation expense	$ (10)	$ 4

STOCKHOLDERS EQUITY (Details 3)	Sep. 30, 2023 shares
STOCKHOLDERS EQUITY
Shares of common stock reserved for issuance under the 2015 Stock Option Plan	1,450,000
Shares of common stock issuable upon conversion of the Preferred Stock	4,300,000
Total shares of common stock equivalents	5,750,000

STOCKHOLDERS EQUITY (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
STOCKHOLDERS EQUITY (Details Narrative) - USD ($)	Feb. 18, 2011	Sep. 30, 2023	Jun. 30, 2023
Unrecognized stock expense		$ 89,662
Shares of common stock reserved for issuance under the 2015 Plan		1,450,000
Stock options granted		200,000
stock option-based compensation expense		$ 15,625
Closing stock price		$ 0.10
Common stock- shares authorized		175,000,000	175,000,000
Share exercise plan		$ 0.081
Preferred stock - par value	$ 0.0001	$ 0.0001	$ 0.0001
Preferred stock - shares issued		0	0
Preferred stock - shares authorized		5,700,000	5,700,000
2015 Plan [Member]
Number of share available for issue		200,000
Series A Preferred Stock Shares
Preferred stock - par value		$ 0.0001	$ 0.0001
Preferred stock - shares issued	4,300,000	4,300,000	4,300,000
Preferred stock - shares authorized	10,000,000	4,300,000	4,300,000
Voting description	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
Aggregate of liquidation preference	$ 1,000,000
Preferred stock - liquidation preference	$ 0.2325