lfvn-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________

Form 10-Q

________________________________________________________________________________


☒			QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024


☐			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 001-35647

________________________________________________________________________________

LIFEVANTAGE CORPORATION

(Exact name of Registrant as specified in its charter)

________________________________________________________________________________


Delaware						90-0224471
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

3300 Triumph Blvd, Suite 700, Lehi, UT 84043

(Address of principal executive offices, including zip code)

(801) 432-9000

(Registrant’s telephone number)

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

Common Stock, par value $0.0001

LFVN

The Nasdaq Stock Market LLC

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

________________________________________________________________________________

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 (§232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the 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 ☒

The number of shares outstanding of the issuer’s common stock, par value $0.0001 per share, as of May 1, 2024 was 12,700,556.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q, in particular “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the information incorporated by reference herein contains “forward-looking statements” (as such term is defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended). These statements, which involve risks and uncertainties, reflect our current expectations, intentions, or strategies regarding our possible future results of operations, performance, and achievements. Forward-looking statements include, without limitation: statements regarding future products or product development; statements regarding future selling, general and administrative costs and research and development spending; statements regarding the future performance of our network marketing efforts; statements regarding our expectations regarding ongoing litigation; statements regarding international growth; and statements regarding future financial performance, results of operations, capital expenditures and sufficiency of capital resources to fund our operating requirements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and applicable rules of the Securities and Exchange Commission and common law.

These forward-looking statements may be identified in this report and the information incorporated by reference by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “should” and similar terms and expressions, including references to assumptions and strategies. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to certain risks, uncertainties, and contingencies, which could cause our actual results, performance, or achievements to differ materially from those expressed in, or implied by, such statements.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

•Inability to properly manage, motivate and retain our independent consultants (which we previously referred to as “distributors” in our prior filings) or to attract new customers and independent consultants on an ongoing basis;

•The widespread outbreak of an illness or communicable disease or any other public health crisis, similar to the recent COVID-19 pandemic, could adversely affect our business, results of operations and financial condition;

•Inability to protect against cyber security risks and to maintain the integrity of data;

•Inability to manage existing markets, open new international markets or expand our operations;

•Non-compliance by our independent consultants with applicable legal requirements or our policies and procedures, including making improper and/or illegal claims about our products or earnings opportunity;

•Inability of new products and technological innovations to gain customer or independent consultant or market acceptance;

•Our business and stock price may be adversely affected if our internal controls over financial reporting is not effective;

•Inability to execute our product launch process due to increased pressure on our supply chain, information systems and management;

•Inability to appropriately manage our inventory;

•Disruptions in our information technology systems;

•International trade or foreign exchange restrictions, increased tariffs, foreign currency exchange fluctuations;

•Inability to raise additional capital or complete desired acquisitions;

•Inability to comply with financial covenants imposed by our revolving line of credit and the impact of debt service obligations and restrictive debt covenants;

•Dependence upon a few products for revenue;

•We may be unable to retain our existing consultant force or customer base or attract additional customers and/or independent consultants;

•Changes to the Company’s independent consultant compensation plans;

•High quality materials for our products may become difficult to obtain or expensive;

•Improper actions by our independent consultants that violate laws or regulations could harm our business;

•Dependence on third parties to manufacture our products;

•Disruptions to the transportation channels used to distribute our products;

•We may be subject to a product recall;

•Unfavorable publicity on our business or products;

•Risks related to Global Not For Resale programs;

•Our direct selling program could be found to not be in compliance with current or newly adopted laws or regulations in various markets;

•The impact of actions by activist stockholders;

•Legal proceedings may be expensive and time consuming;

•Strict government regulations on our business;

•Regulations governing the production or marketing of our products;

•Risk of investigatory and enforcement action;

•Government authorities may question our tax positions or transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business;

•Failure to comply with anti-corruption laws;

•Loss of or inability to attract key personnel;

•We may be held responsible for certain taxes or assessments and other obligations relating to the activity of our independent consultants;

•Competition in the dietary supplement and personal care markets;

•Our inability to protect our intellectual property rights;

•Third party claims that we infringe on their intellectual property;

•Product liability claims against us;

•Consumer discretionary spending habits factor into our economic success;

•Economic, political, foreign exchange and other risks associated with international operations;

•Unfavorable global economic conditions, including high inflation, and other macroeconomic conditions;

•Potential delisting of our common stock due to non-compliance with Nasdaq's continued listing requirements;

•Volatility of the market price of our common stock; and

•Substantial sales of shares may negatively impact the market price of our common stock.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this report and the documents incorporated by reference. Except as required by law, we have no obligation and do not undertake to update or revise any such forward-looking statements to reflect events or circumstances after the date of this report.

LIFEVANTAGE CORPORATION

INDEX



		PAGE
PART I. Financial Information		5
Item 1.	Financial Statements:	5
	Condensed Consolidated Balance Sheets (unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)	6
	Condensed Consolidated Statement of Stockholders’ Equity (unaudited)	7
	Condensed Consolidated Statements of Cash Flows (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

PART II. Other Information		27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
Signatures		30

PART I. Financial Information

Item 1. Financial Statements

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2024		June 30, 2023
(In thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents	$	17,377	$	21,605
Accounts receivable	2,135		1,612
Income tax receivable	360		241
Inventory, net	15,162		16,073

Prepaid expenses and other	2,763		4,753
Total current assets	37,797		44,284

Property and equipment, net	8,349		9,086
Right-of-use assets	9,382		8,738
Intangible assets, net	356		455
Deferred income tax asset	4,927		2,991

Other long-term assets	496		569
TOTAL ASSETS	$	61,307	$	66,123

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,954	$	3,505
Commissions payable	6,093		6,651


Income tax payable	772		—
Lease liabilities	1,675		1,521
Other accrued expenses	6,981		7,932

Total current liabilities	22,475		19,609





Long-term lease liabilities	11,852		11,566
Other long-term liabilities	211		299
Total liabilities	34,538		31,474
Commitments and contingencies - Note 7
Stockholders’ equity
Preferred stock — par value $0.0001 per share, 5,000 shares authorized, no shares issued or outstanding	—		—
Common stock — par value $0.0001 per share, 40,000 shares authorized and 12,688 and 12,622 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively	1		1
Additional paid-in capital	136,198		134,314
Accumulated deficit	(107,709)		(98,305)
Accumulated other comprehensive loss	(1,721)		(1,361)
Total stockholders’ equity	26,769		34,649
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	61,307	$	66,123

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2024		2023		2024		2023
(In thousands, except per share data)
Revenue, net	$	48,245	$	53,741	$	151,233	$	159,177
Cost of sales	10,172		10,618		31,418		32,318
Gross profit	38,073		43,123		119,815		126,859
Operating expenses:
Commissions and incentives	19,714		23,816		63,941		71,185
Selling, general and administrative	16,425		17,708		54,452		54,018


Total operating expenses	36,139		41,524		118,393		125,203
Operating income	1,934		1,599		1,422		1,656
Other income (expense):
Interest income, net	76		59		352		91
Other income (expense), net	(89)		7		(135)		(304)

Total other income (expense)	(13)		66		217		(213)
Income before income taxes	1,921		1,665		1,639		1,443
Income tax expense	(262)		(643)		(7)		(869)
Net income	$	1,659	$	1,022	$	1,632	$	574
Net income per share:
Basic	$	0.13	$	0.08	$	0.13	$	0.05
Diluted	$	0.13	$	0.08	$	0.13	$	0.05
Weighted-average shares outstanding:
Basic	12,424		12,615		12,525		12,538
Diluted	12,986		12,770		13,010		12,555
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment	$	(529)	$	14	$	(360)	$	144

Other comprehensive (loss) income, net of tax	(529)		14		(360)		144
Comprehensive income	$	1,130	$	1,036	$	1,272	$	718

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
(In thousands, except per share data)
Balances, June 30, 2023	12,622	$	1	$	134,314	$	(98,305)	$	(1,361)	$	34,649

Stock-based compensation	—	—		978		—		—		978

Common stock issued under equity award plans	281	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(90)	—		(465)		—		—		(465)
Repurchase of company stock	(145)	—		—		(795)		—		(795)
Common stock issued under employee stock purchase plan	39	—		126		—		—		126
Cash dividends	—	—		—		(5,534)		—		(5,534)
Currency translation adjustment	—	—		—		—		(294)		(294)
Net income	—	—		—		629		—		629
Balances, September 30, 2023	12,707	$	1	$	134,953	$	(104,005)	$	(1,655)	$	29,294

Stock-based compensation	—	—		750		—		—		750

Common stock issued under equity award plans	495	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(34)	—		(213)		—		—		(213)
Repurchase of company stock	(288)	—		—		(1,876)		—		(1,876)
Cash dividends	—	—		—		(455)		—		(455)
Currency translation adjustment	—	—		—		—		463		463
Net loss	—	—		—		(656)		—		(656)
Balances, December 31, 2023	12,880	$	1	$	135,490	$	(106,992)	$	(1,192)	$	27,307

Stock-based compensation	—	—		796		—		—		796

Common stock issued under employee stock purchase plan	25	—		145		—		—		145
Common stock issued under equity award plans	113	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(38)	—		(233)		—		—		(233)
Repurchase of company stock	(292)	—		—		(1,928)		—		(1,928)
Cash dividends	—	—		—		(448)		—		(448)

Currency translation adjustment	—	—		—		—		(529)		(529)
Net income	—	—		—		1,659		—		1,659
Balances, March 31, 2024	12,688	$	1	$	136,198	$	(107,709)	$	(1,721)	$	26,769

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
(In thousands, except per share data)
Balances, June 30, 2022	12,493	$	1	$	131,075	$	(98,437)	$	(1,123)	$	31,516

Stock-based compensation	—	—		602		—		—		602

Common stock issued under equity award plans	48	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(17)	—		(72)		—		—		(72)

Common stock issued under employee stock purchase plan	36	—		121		—		—		121
Cash dividends	—	—		—		(377)		—		(377)
Currency translation adjustment	—	—		—		—		(510)		(510)
Net income	—	—		—		610		—		610
Balances, September 30, 2022	12,560	$	1	$	131,726	$	(98,204)	$	(1,633)	$	31,890

Stock-based compensation	—	—		823		—		—		823

Common stock issued under equity award plans	152	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(5)	—		(19)		—		—		(19)

Cash dividends	—	—		—		(381)		—		(381)
Currency translation adjustment	—	—		—		—		640		640
Net loss	—	—		—		(1,058)		—		(1,058)
Balances, December 31, 2022	12,707	$	1	$	132,530	$	(99,643)	$	(993)	$	31,895

Stock-based compensation	—	—		817		—		—		817

Common stock issued under employee stock purchase plan	40	—		131		—		—		131
Common stock issued under equity award plans	38	—		—		—		—		—
Shares canceled or surrendered as payment of tax withholding and other	(14)	—		(54)		—		—		(54)
Cash dividends	—	—		—		(383)		—		(383)
Currency translation adjustment	—	—		—		—		14		14
Net income	—	—		—		1,022		—		1,022
Balances, March 31, 2023	12,771	$	1	$	133,424	$	(99,004)	$	(979)	$	33,442

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended March 31,
	2024		2023
(In thousands)
Cash Flows from Operating Activities:
Net income	$	1,632	$	574
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,775		2,678

Stock-based compensation	2,524		2,242
Non-cash operating lease expense	920		1,257
Loss on disposal of assets	—		24



Deferred income tax	(1,936)		(953)
Changes in operating assets and liabilities:
Accounts receivable	(552)		975
Income tax receivable	(118)		1,090
Inventory, net	725		(1,947)
Prepaid expenses and other	1,983		1,859
Other long-term assets	59		55
Accounts payable	3,385		(1,642)
Income tax payable	772		(453)
Other accrued expenses	(1,549)		(1,301)
Lease liabilities	(1,120)		(1,274)
Other long-term liabilities	115		(119)
Net Cash Provided by Operating Activities	9,615		3,065
Cash Flows from Investing Activities:



Purchase of property and equipment	(1,967)		(2,554)
Net Cash Used in Investing Activities	(1,967)		(2,554)
Cash Flows from Financing Activities:



Repurchase of company stock	(4,599)		—
Payment of cash dividends	(6,437)		(1,141)
Shares canceled or surrendered as payment of tax withholding and other	(911)		(145)
Proceeds from common stock issued under employee stock purchase plan	271		252

Net Cash Used in Financing Activities	(11,676)		(1,034)
Foreign Currency Effect on Cash	(200)		(138)
Decrease in Cash and Cash Equivalents:	(4,228)		(661)
Cash and Cash Equivalents — beginning of period	21,605		20,190
Cash and Cash Equivalents — end of period	$	17,377	$	19,529



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	5	$	3
Cash paid for income taxes	$	1,381	$	977

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIFEVANTAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes of LifeVantage Corporation (“LifeVantage" or the “Company”) as of and for the year ended June 30, 2023 included in the annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on August 28, 2023.

Note 1 — Organization and Basis of Presentation

LifeVantage is a company focused on nutrigenomics, the study of how nutrition and naturally occurring compounds affect human genes to support good health. The Company is dedicated to helping people achieve their health, wellness and financial goals. The Company provides quality, scientifically-validated products to customers and independent consultants as well as a financially rewarding commission-based direct sales opportunity to its independent consultants. LifeVantage sells its products in the United States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines. The Company sold its products in China through a China approved cross-border e-commerce business model until March 15, 2023, at which time the Company closed its e-commerce business in China.

The Company engages in the identification, research, development, formulation and sale of advanced nutrigenomic activators, dietary supplements, nootropics, pre- and pro-biotics, weight management, skin and hair care, bath & body, and targeted relief products. The Company’s line of scientifically validated dietary supplements includes its flagship Protandim® family of products, LifeVantage® Omega+, ProBio, IC Bright®, Daily Wellness, Rise AM, Reset PM and D3+ dietary supplements. TrueScience® is the Company's Nrf2 enhanced line of skin, hair, and bath & body products. The Company also markets and sells Petandim®, its companion pet supplement formulated to combat oxidative stress in dogs, AXIO® its nootropic energy drink mixes, and PhysIQ™, its smart weight management system.

The condensed consolidated financial statements included herein have been prepared by the Company’s management, without audit, pursuant to the rules and regulations of the SEC. In the opinion of the Company’s management, these interim financial statements include all adjustments that are considered necessary for a fair presentation of its financial position as of March 31, 2024, and the results of operations for the three and nine months ended March 31, 2024 and 2023, and the cash flows for the nine months ended March 31, 2024 and 2023. Interim results are not necessarily indicative of results for a full year or for any future period.

The condensed consolidated financial statements and notes included herein are presented as required by Form 10-Q, and do not contain certain information included in the Company’s audited financial statements and notes for the fiscal year ended June 30, 2023, pursuant to the rules and regulations of the SEC. For further information, refer to the financial statements and notes thereto as of and for the year ended June 30, 2023, and included in the annual report on Form 10-K on file with the SEC.

Note 2 — Summary of Significant Accounting Policies

Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The Company prepares the condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In preparing these statements, the Company is required to use estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. On an ongoing basis, the Company reviews its estimates, including, but not limited to, those related to inventory valuation and obsolescence, sales returns, income taxes and tax valuation reserves, transfer pricing methodology and positions, impairment of assets, share-based compensation, and loss contingencies.

Foreign Currency Translation

A portion of the Company’s business operations occurs outside the United States. The local currency of each of the Company’s subsidiaries is generally its functional currency. All assets and liabilities are translated into U.S. dollars at exchange rates existing at the balance sheet dates, revenue and expenses are translated at weighted-average exchange rates and

stockholders’ equity is recorded at historical exchange rates. The resulting foreign currency translation adjustments are recorded as a separate component of stockholders’ equity in the condensed consolidated balance sheets and as a component of comprehensive income. Transaction gains and losses are included in other expense, net in the condensed consolidated statements of operations and comprehensive income. For the three months ended March 31, 2024 and 2023, net foreign currency losses of $0.1 million and gains of $36,000, respectively, are recorded in other income (expense), net. For the nine months ended March 31, 2024 and 2023, net foreign currency losses of $0.2 million and $0.2 million, respectively, are recorded in other income (expense), net.

Cash and Cash Equivalents

The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents.

Concentration of Credit Risk

Accounting guidance for financial instruments requires disclosure of significant concentrations of credit risk regardless of the degree of such risk. Financial instruments with significant credit risk include cash and investments. At March 31, 2024, the Company had $13.1 million in cash accounts at one financial institution and $4.3 million in accounts at other financial institutions. At June 30, 2023, the Company had $17.0 million in cash accounts at one financial institution and $4.6 million in accounts at other financial institutions. As of March 31, 2024 and June 30, 2023, and during the periods then ended, the Company’s cash balances exceeded federally insured limits.

Accounts Receivable

The Company’s accounts receivable as of March 31, 2024 and June 30, 2023 consist primarily of credit card receivables. Based on the Company’s verification process for customer credit cards and historical information available, management has determined that an allowance for doubtful accounts on credit card sales related to its customer sales as of March 31, 2024 and June 30, 2023 is not necessary. No bad debt expense was recorded during the three and nine months ended March 31, 2024 and 2023.

Inventory

As of March 31, 2024 and June 30, 2023, inventory consisted of (in thousands):


	March 31, 2024				June 30, 2023
Finished goods	$	11,273	74.4	%	$	12,153	75.6	%
Raw materials	3,889		25.6	%	3,920		24.4	%
Total inventory	$	15,162	100.0	%	$	16,073	100.0	%

Inventories are carried at the lower of cost or net realizable value, using the first-in, first-out method, which includes a reduction in inventory values of $1.3 million and $1.3 million at March 31, 2024 and June 30, 2023, respectively, related to obsolete and slow-moving inventory.

Fair Value of Financial Instruments

The Company accounts for assets and liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the fair-value hierarchy below. This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

•Level 1—Quoted prices for identical instruments in active markets;

•Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

•Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our financial instruments, consisting primarily of cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value due to their short-term nature.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value-added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company generates the majority of its revenue through product sales to customers. These products include the Protandim® line of dietary supplements, LifeVantage® Omega+, ProBio, IC Bright®, Daily Wellness, Rise AM, Reset PM, and D3+ dietary supplements, TrueScience® skin, hair, bath & body and targeted relief, Petandim®, Axio® nootropic energy drink mixes, and the PhysIQ™ smart weight management system. The Company ships most of its product directly to the consumer and receives substantially all payment for product sales in the form of credit card receipts. Revenue from direct product sales to customers is recognized upon shipment, which is when passage of title and risk of loss occurs. For items sold in packs and bundles, the Company determines the standalone selling price at contract inception for each distinct good, and then allocates the transaction price on a relative standalone selling price basis. Any discounts are accounted for as a direct reduction to the transaction price. Shipping and handling revenue is recognized upon shipment when the performance obligation is completed.

Contract liabilities, recorded as deferred revenue, include loyalty program credit deferrals with certain customers which are accounted for as a reduction in the transaction price and are generally recognized as credits which are redeemed for additional products at a later date. The Company also records deferred revenue when cash payments are received or due in advance of performance, including amounts which are refundable. In addition, the Company pre-sells tickets to its events. When cash payments are received in advance of events, the cash received is recorded to deferred revenue until the event is held, at which time the Company has performed its obligations under the contract and the revenue is recognized.

Deferred revenue is included in accrued expenses in the consolidated balance sheets. The balance of deferred revenue related to contract liabilities was $0.7 million and $0.8 million as of March 31, 2024 and June 30, 2023, respectively. The contract liabilities impact to revenue for the three months ended March 31, 2024 and 2023 was an increase of $0.2 million and a decrease of $0.1 million, respectively. The contract liabilities impact to revenue for the nine months ended March 31, 2024 and 2023 was an increase of $0.1 million and a decrease of $0.3 million, respectively.

Estimated returns are recorded when product is shipped. Subject to some exceptions based on local regulations, the Company’s return policy is to provide a full refund for product returned within 30 days. After 30 days of purchase, only unopened product that is in a resalable and restockable condition may be returned within twelve months of purchase and shall receive a 100% refund, less a 10% handling and restocking fee and any shipping and handling costs. The Company establishes a refund liability reserve, and an asset reserve for its right to recover products, based on historical experience. The returns asset reserve and returns liability reserve are evaluated on a quarterly basis. As of March 31, 2024 and June 30, 2023, the returns liability reserve, net was $0.1 million and $0.1 million, respectively.

Shipping and Handling

Shipping and handling costs associated with inbound freight and freight out to customers and independent consultants are included in cost of sales. Shipping and handling fees charged to customers and independent consultants are included in revenue.

Research and Development Costs

The Company expenses all costs related to research and development activities, as incurred. Research and development expenses for the three months ended March 31, 2024 and 2023 were $0.2 million and $0.2 million, respectively. Research and development expenses for the nine months ended March 31, 2024 and 2023 were $0.5 million and $0.4 million, respectively.

Leases

The Company accounts for leases in accordance with Accounting Standards Codification ("ASC") 842. The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the condensed consolidated balance sheets. The Company does not have any finance leases.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum

lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Changes in the Company's strategies have resulted in operation modifications in certain Asia/Pacific markets resulting in the closure of showrooms and changes to selling models. As of December 31, 2022, the Company abandoned the ROU assets related to the Hong Kong and Singapore showroom leases. These leases were terminated in February 2023 and the Company has no remaining lease liability for these showrooms. Total expenses related to the abandonment of the ROU assets and costs associated with the change in operations in these markets for the nine months ended March 31, 2023 was $0.4 million and is included in selling, general, and administrative expenses.

Stock-Based Compensation

The Company recognizes stock-based compensation by measuring the cost of services to be rendered based on the grant date fair value of the equity award. The Company recognizes stock-based compensation, net of any estimated forfeitures, over the period an employee is required to provide service in exchange for the award, generally referred to as the requisite service period. The Company estimates forfeitures based on historical information and other management assumptions. For awards with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by employees, regardless of when, if ever, the market-based performance conditions are satisfied.

The Black-Scholes option pricing model is used to estimate the fair value of stock options and options under the Company's 2019 Employee Stock Purchase Plan. The determination of the fair value of options is affected by the Company's stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company uses historical data for estimating the expected volatility and expected life of stock options required in the Black-Scholes model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of the stock options.

The fair value of restricted stock grants, including performance restricted stock units that include non-market based performance conditions, is based on the closing market price of the Company's stock on the date of grant less the Company's expected dividend yield. The Company recognizes compensation costs for awards with performance conditions when it concludes it is probable that the performance conditions will be achieved. The Company reassesses the probability of vesting at each balance sheet date and adjusts compensation costs accordingly.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, updated as needed for changes in corporate tax rates. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. The Company recognizes tax liabilities or benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized would be the largest liability or benefit that the Company believes has greater than a 50% likelihood of being realized upon settlement.

For the nine months ended March 31, 2024 and 2023, the Company recognized income tax expense of $7,000 and $0.9 million, respectively, which is reflective of the Company’s current estimated federal, state and foreign effective tax rate. Realization of deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain.

Income Per Share

Basic income per common share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period, less unvested restricted stock awards. Diluted income per common share is computed by dividing net income by the weighted-average common shares and potentially dilutive common share equivalents using the treasury stock method.

For the three months ended March 31, 2024 and 2023, the effects of approximately 8,000 and 0.1 million common shares, respectively, issuable upon exercise of options and non-vested shares of restricted stock are not included in computations as their effect was anti-dilutive. For the nine months ended March 31, 2024 and 2023, the effects of approximately 34,000 and 0.3 million common shares, respectively, issuable upon exercise of options and non-vested shares of restricted stock are not included in computations as their effect was anti-dilutive.

The following is a reconciliation of net income per share and the weighted-average common shares outstanding for purposes of computing basic and diluted net income per share (in thousands, except per share amounts):


	Three Months Ended March 31,			Nine Months Ended March 31,
	2024		2023	2024	2023
Numerator:
Net income	$	1,659	$