2 unchanged sentences
Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report.
−Removed: Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures were not effective as of January 30, 2022 due to a material weakness related to information technology general controls, as discussed below in Management's Annual Report on Internal Control over Financial Reporting.
+Added: Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of January 29, 2023.
Management's Annual Report on Internal Control over Financial Reporting
6 unchanged sentences
Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 29, 2023.
−Removed: In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, due to the material weaknesses described below, management has concluded that the Company’s internal control over financial reporting was not effective as of January 30, 2022.
−Removed: Marcum LLP, the Company’s independent registered public accounting firm, is appointed by the Company’s Board of Directors and ratified by the Company’s stockholders.
−Removed: They were engaged to render an opinion regarding the fair presentation of the Company’s consolidated financial statements as well as conducting an audit of internal control over financial reporting.
−Removed: Their reports included in Item 8 of this Form 10-K are based upon audits conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).
−Removed: Material Weaknesses
−Removed: A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
−Removed: Our management concluded that a material weakness existed as of January 30, 2022 relating to ineffective information technology general controls in the areas of user access and segregation of duties related to certain information technology systems that support our financial reporting process.
−Removed: Notwithstanding the material weakness described above, our management has concluded that our consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.
−Removed: Remediation of Material Weaknesses
−Removed: Our management, under the oversight of our Audit Committee and in consultation with outside advisors, has begun evaluating and implementing measures designed to ensure that the control deficiencies contributing to the material weakness are remediated.
−Removed: These remediation measures include, but are not limited to:
−Removed: (i) evaluating and implementing enhanced process controls around user access management to key information systems which may impact our financial reporting;
−Removed: (ii) expanding the management and governance over user access and system controls and (iii) enhancing our information technology compliance and accounting functions with additional experienced hires including a new Chief Information Officer.
−Removed: We believe the above actions will be effective in remediating the material weakness described above and we will continue to devote time and attention to these remedial efforts.
−Removed: However, as we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above.
−Removed: Our remediation efforts will not be considered complete until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.
−Removed: Our independent registered public accounting firm, Marcum LLP, has issued an adverse attestation report on the effectiveness of our internal control over financial reporting as of January 30, 2022, as stated in their report which is included in the Financial Statements of this Annual Report on Form 10-K.
−Removed: Marcum LLP has also audited our consolidated financial statements at January 30, 2022 and January 31, 2021, and for each of the three years in the period ended January 30, 2022, and its report dated March 30, 2022, expressed an unqualified opinion on our consolidated financial statements.
+Added: In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, management has concluded that the Company’s internal control over financial reporting was effective as of January 29, 2023.The effectiveness of our internal control over financial reporting as of January 29, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, included in Part IV of this Annual Report on Form 10-K.
+Added: Remediation of Previously Identified Material Weaknesses
+Added: As previously disclosed in Part II, "Item 9A - Controls and Procedures" of our Annual Report on Form 10-K for the year ended January 30, 2022, we identified a material weakness in our internal control over financial reporting relating to ineffective information technology general controls in the areas of user access and segregation of duties related to certain information technology systems that support our financial reporting process.
+Added: During the year ended January 29, 2023, we undertook a series of activities to remediate the material weakness, with the following actions designed to strengthen the information technology control environment:
+Added: • Evaluating and implementing enhanced process controls around user access management to key information systems which may impact our financial reporting;
+Added: • Expanding management and governance over user access and system controls;
+Added: • Enhancing our information technology compliance and accounting functions with additional experienced hires including a new Chief Information Officer.
+Added: We completed our testing of both the design and operating effectiveness of the informational technology general controls, and have concluded that the material weakness has been remediated as of January 29, 2023.
Changes in our Internal Control over Financial Reporting
−Removed: Other than as described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended January 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
+Added: Other than as described above in connection with our implementation of the remediation actions discussed above, there were no changes in our internal control over financial reporting that occurred during the quarter ended January 29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
4 unchanged sentences
Other Information.
−Removed: On March 25, 2022, we amended our existing credit agreement providing for an asset-based revolving credit facility with the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.
−Removed: The maturity date of our credit agreement was extended to February 6, 2024, and among other things, the maximum revolver commitment was increased from $25.0 million to $40.0 million, subject to borrowing base and availability restrictions.
−Removed: Our credit agreement includes a $1,000,000 sublimit for the issuance of letters of credit and a $4,000,000 sublimit for swing line loans.
−Removed: There were no outstanding borrowings under our credit facility as of March 30, 2022.
−Removed: The credit facility is secured by a first lien on substantially all of our assets.
−Removed: No other subsidiary of the Company guaranteed the obligations under the credit facility or granted security interests in their assets to secure such obligations.
−Removed: Availability under the credit facility is based on eligible accounts receivable and inventory.
−Removed: Our credit facility contains a financial covenant that requires us to maintain undrawn availability under the credit facility of at least 10% of the lesser of (i) the aggregate commitments in the amount of $40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable and inventory.
−Removed: We are required to pay a commitment fee of 0.30% based on the daily unused portion of the credit facility.
−Removed: Amounts outstanding under the credit facility, at our option, bear interest at either a base rate or a term SOFR based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the credit facility and ranging from 0.50% to 0.75% for borrowings accruing interest at a base rate and from 1.625% to 1.850% for borrowings accruing interest at term SOFR.
−Removed: Swing line loans will at all times accrue interest at a base rate plus the applicable margin.
−Removed: The lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the credit facility.
+Added: Shawn Nelson Amended and Restated Employment Agreement
+Added: On March 23, 2023, the Compensation Committee of the Board of Directors (the “Committee”) of the Company approved, and the Company and Shawn Nelson entered into, an Amended and Restated Employment Agreement (the “A&R Employment Agreement”), which replaces and supersedes in its entirety the prior employment agreement between the Company and Mr.
+Added: Nelson, dated October 26, 2017, as amended October 2, 2019, and March 24, 2022 (the “Prior Agreement”).
+Added: The A&R Employment Agreement extends Mr.
+Added: Nelson’s non-competition and non-solicitation covenants from 18 months to 24 months following the termination of his employment and, in connection with this, correspondingly increases the period during which Mr.
+Added: Nelson will be entitled to severance compensation and benefits upon a termination of his employment without Cause or for Good Reason (in each case, as defined in Mr.
+Added: Nelson’s A&R Employment Agreement) from 18 months to 24 months.
+Added: The other material terms and conditions of the A&R Employment Agreement generally remain unchanged from those set forth in the Prior Agreements.
+Added: The foregoing description of the A&R Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the A&R Employment Agreement, filed herewith as Exhibit 10.16 of this Form 10-K and is incorporated herein by reference.
+Added: Shawn Nelson One-Time Performance and Retention Long-Term Incentive Grant
+Added: On March 23, 2023, the Committee approved a one-time performance and retention long-term incentive grant of 235,000 Restricted Stock Units (the “RSU Grant”) for Mr.
+Added: Nelson pursuant to the Lovesac Company Second Amended and Restated 2017 Equity Incentive Plan (the “Plan”) and Mr.
+Added: Nelson’s Restricted Stock Units Agreement and Grant Notice (the “RSU Agreement”).
+Added: The RSU Grant vests on the later to occur of (i) the fifth anniversary of the date of grant so long as, (x) on or prior to such date (subject to certain limited extensions), the Company has achieved a specified level of performance with respect to share price and net sales, and (y) Mr.
+Added: Nelson remains in continuous service with the Company as Chief Executive Officer through such date;
+Added: or (ii) if the specified level of performance with respect to net sales is not achieved on or prior to the fifth anniversary of the date of grant, but the other conditions in subclause (i) are achieved, the first date that such specified level of performance with respect to net sales is achieved, so long as it is achieved on or prior to the seventh anniversary of the date of grant and so long as Mr.
+Added: Nelson remains in continuous service with the Company through such date.
+Added: Except as described in the following paragraph, the RSU Grant will be settled in shares of common stock of the Company on the first anniversary of the applicable vesting date.
+Added: Nelson’s service with the Company is terminated (a) by the Company without Cause after the fifth anniversary of the date of grant, or (b) by the Company without Cause or by Mr.
+Added: Nelson for Good Reason following a Change in Control (as defined in the Plan), the RSU Grant will vest in full as of the date of Mr.
+Added: Nelson’s termination of service and will be settled on the first anniversary of such vesting date, except that if such termination of service occurs within two years following a Change in Control, the RSU Grant will be settled immediately upon such vesting date.
+Added: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
+Added: Not applicable.
Directors, Executive Officers and Corporate Governance.
14 unchanged sentences
Since 2023, Ms.
−Removed: Fox has also served as a director of AF Acquisition Corp., a special purpose acquisition company targeting the better-for-you food and beverage, health and wellness, beauty, personal care and pet industries.
+Added: Fox is a director of AF Ventures, a venture capital fund investing in high growth consumer products.
+Added: She also served as a director of AF Acquisition Corp., a special purpose acquisition company targeting the better-for-you food and beverage, health and wellness, beauty, personal care and pet industries, from 2021 to 2023.
She also served on the Board of Directors of The Lovesac Company from February 2020 to November 2021.
13 unchanged sentences
She also held progressive positions from October 1988 to December 1997 as Internal Audit Manager, Accounting Manager and Corporate Controller at Cybex International, Inc., a $125 million publicly traded company that manufactured and distributed fitness, rehabilitative and health care equipment.
−Removed: Dellomo is a Certified Public Accountant with initial focus on audit and tax and is also a Member of the Board of Trustees of Molloy College and Chair of their Fiscal Affairs Committee.
+Added: Dellomo is a Certified Public Accountant with initial focus on audit and tax and is also a former Member of the Board of Trustees of Molloy University and Chair of their Fiscal Affairs Committee.
We will file with the SEC a definitive proxy statement (the “2023 Proxy Statement”) pursuant to Regulation 14A for our 2023 annual meeting of stockholders within 120 days of the fiscal year ended January 29, 2023.
5 unchanged sentences
Securities Authorized for Issuance under Equity Compensation Plans
−Removed: The following table provides information as of January 30, 2022, about the securities which are either already issued, or authorized for future issuance, under our Amended and Restated 2017 Equity Incentive Plan (the “2017 Equity Plan”).
+Added: The following table provides information as of January 29, 2023, about the securities which are either already issued, or authorized for future issuance, under our Second Amended and Restated 2017 Equity Incentive Plan (the “2017 Equity Plan”).
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (1)
11 unchanged sentences
In fiscal 2021, the 2017 Equity Plan was amended and restated to increase the shares of our common stock authorized and reserved for issuance by 690,000 shares.
+Added: In fiscal 2023, the 2017 Equity Plan was amended and restated to, among other things, increase the shares of our common stock authorized and reserved for issuance by 550,000 shares.
The remaining information required by this Item will appear in the 2023 Proxy Statement and is incorporated by reference herein.
5 unchanged sentences
(a) The following documents are filed as part of this report:
−Removed: Financial Statements (see Part II, Item 8 – Consolidated Financial Statements and Supplementary Data)
+Added: Financial Statements (see Part II, Item 8.
+Added: Financial Statements and Supplementary Data )
Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 )
−Removed: Consolidated Balance Sheets – As of January 30, 2022 and January 31, 2021
−Removed: Consolidated Statements of Operations – Years Ended January 3 0 , 202 2 , January 31, 2021 and February 2, 2020
−Removed: Consolidated Statements of Changes in Stockholders’ Equity - Years Ended January 3 0 , 202 2 , January 31, 2021 and February 2, 2020
−Removed: Consolidated Statements of Cash Flows - Years Ended January 3 0 , 202 2 , January 31, 2021 and February 2, 2020
−Removed: Consolidated Notes to Financial Statements
+Added: Reports of Independent Registered Public Accounting Firm (PCAOB ID 688 )
+Added: Balance Sheets – As of January 29, 2023 and January 30, 2022
+Added: Statements of Operations – Years Ended January 29, 2023, January 30, 2022, and January 31, 2021
+Added: Statements of Changes in Stockholders’ Equity - Years Ended January 29, 2023, January 30, 2022 , and January 31, 2021
+Added: Statements of Cash Flows - Years Ended January 29, 2023, January 30, 2022 , and January 31, 2021
+Added: Notes to Financial Statements
Financial Statement Schedules
25 unchanged sentences
6 to Credit Agreement between The Lovesac Company and Wells Fargo Bank, N.A.
−Removed: Filed herewith.
−Removed: 10.3± 2017 Amended and Restated Equity Incentive Plan
−Removed: S-8 4.1 9/11/2020
+Added: 10-K 10.2 3/30/2022
+Added: 10.3± Second Amended and Restated 2017 Equit y Incentive Plan
+Added: 10-Q 10.1 6/8/2022
10.4± Form of Restricted Stock Units Agreement
19 unchanged sentences
10.14± Second Amendment to Employment Agreement dated March 24, 2022, by and between The Lovesac Company and Shawn Nelson
−Removed: Filed herewith.
+Added: 10-K 10.14 03/30/2022
10.15± Second Amendment to Employment Agreement dated March 24, 2022, by and between The Lovesac Company and Donna Dellomo
+Added: 10-K 10.15 03/30/2022
+Added: Number Description of Exhibit Filed / Incorporated by Reference from Form ** Incorporated by Reference from Exhibit Number Dated Filed
+Added: 10.16± Amended and Restated Employment Agreement dated March 23, 2023, by and between The Lovesac Company and Shawn Nelson
Filed herewith.
1 unchanged sentence
8-K 10.3 11/12/2021
−Removed: Number Description of Exhibit Filed / Incorporated by Reference from Form ** Incorporated by Reference from Exhibit Number Dated Filed
10.18± Mary Fox Resignation Letter from Board of Directors, dated November 9, 2021
5 unchanged sentences
10.21± The Lovesac Company Director Compensation Policy
−Removed: 10-Q 10.2 12/9/2021
+Added: Filed herewith.
+Added: 10.22† Amendment No.
+Added: 7 to Credit Agreement between The Lovesac Company and Wells Fargo Bank, N.A.
+Added: Filed herewith.
21.1 List of Subsidiaries
10-K 21.1 4/14/2021
+Added: 23.1 Consent of D eloitte & Touche LLP
+Added: Filed herewith.
23.2 Consent of Marcum LLP
33 unchanged sentences
Chief Financial Officer
−Removed: (Principal Financial Officer and
−Removed: Principal Accounting Officer)
+Added: (Principal Financial Officer and Principal Accounting Officer)
/s/ Andrew Heyer March 29, 2023
8 unchanged sentences
/s/ Jack Krause March 29, 2023
+Added: /s/ Vineet Mehra March 29, 2023
THE LOVESAC COMPANY
−Removed: CONSOLIDATED FINANCIAL STATEMENTS
−Removed: AS OF JANUARY 30, 2022 AND JANUARY 31, 2021 AND FOR THE YEARS ENDED JANUARY 30, 2022, JANUARY 31, 2021 AND FEBRUARY 2, 2020
+Added: FINANCIAL STATEMENTS
+Added: AS OF JANUARY 29, 2023 AND JANUARY 30, 2022 AND FOR THE YEARS ENDED JANUARY 29, 2023, JANUARY 30, 2022, AND JANUARY 31, 2021
THE LOVESAC COMPANY
−Removed: Reports of Independent Registered Public Accounting Firm (PCAOB ID 688)
−Removed: Consolidated Financial Statements
−Removed: Consolidated Balance Sheets
−Removed: Consolidated Statements of Operations
−Removed: Consolidated Statements of Changes in Stockholders’ Equity
−Removed: Consolidated Statements of Cash Flows
−Removed: Notes to Consolidated Financial Statements
+Added: Report of Independent Registered Public Accounting Firm as of and for the year ended January 29, 2023 (PCAOB ID 34 )
+Added: Report of Independent Registered Public Accounting Firm as of and for the year s ended January 30, 2022 and January 31 , 2021 (PCAOB ID 688 )
+Added: Financial Statements
+Added: Balance Sheets
+Added: Statements of Operations
+Added: Statements of Changes in Stockholders’ Equity
+Added: S tatements of Cash Flows
+Added: Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+Added: To the Stockholders and Board of Directors of The Lovesac Company
+Added: Opinion on the Financial Statements
+Added: We have audited the accompanying balance sheet of The Lovesac Company (the “Company”) as of January 29, 2023, the related statements of operations, changes in stockholders’ equity, and cash flows for the year ended January 29, 2023, and the related notes (collectively referred to as the “financial statements”).
+Added: In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2023, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2023, in conformity with accounting principles generally accepted in the United States of America.
+Added: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2023, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.
+Added: Basis for Opinion
+Added: These financial statements are the responsibility of the Company's management.
+Added: Our responsibility is to express an opinion on the Company's financial statements based on our audits.
+Added: We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
+Added: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
+Added: We conducted our audits in accordance with the standards of the PCAOB.
+Added: Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
+Added: Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
+Added: Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
+Added: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
+Added: We believe that our audits provide a reasonable basis for our opinion.
+Added: Critical Audit Matter
+Added: The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
+Added: The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
+Added: Barter Arrangements — Refer to Note 1 to the financial statements
+Added: Critical Audit Matter Description
+Added: The Company has a bartering arrangement with a third-party vendor, in which the Company sells returned open-box inventory in exchange for media credits.
+Added: Barter sale transactions with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up from the Company’s warehouse.
+Added: Fair value is estimated using various considerations including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on a marketing spend forecast.
+Added: For the year ended January 29, 2023, the Company recognized $ 21.3 million of barter sales in exchange for media credits.
+Added: The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances.
+Added: As of January 29, 2023, the Company had $ 25.2 million of unused media credits and did not recognize any impairment.
+Added: We identified the barter arrangement as a critical audit matter because of the significant estimate and assumptions management makes to determine the transaction price based on the estimated fair value of the non-cash consideration received in exchange for the media credits.
+Added: This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimate of the fair value of the sale transaction price.
+Added: How the Critical Audit Matter Was Addressed in the Audit
+Added: Our audit procedures related to barter arrangement included the following, among others:
+Added: • We tested the effectiveness of controls over the determination of the transaction price
+Added: • We read the underlying barter transaction agreement
+Added: • For a sample of barter sale transactions, we tested that the sale occurred and the estimated fair value of the sale transaction price, as follows:
+Added: ◦ Obtained shipping documents that evidenced the transfer of control of the related inventory
+Added: ◦ Compared management’s independent estimate of advertising costs to the actual advertising costs incurred under the barter arrangement from the third-party vendor
+Added: ◦ Compared the transaction price of the inventory sold through the bartering agreement to the transaction price of like inventory sold to other third-party customers
+Added: ◦ Tested the underlying assumptions to management’s analysis to determine their ability to utilize media credits by 1) making inquiries of management related to their projected advertising and media spend, 2) performing a lookback analysis of total marketing spend and specific marketing spend with the third-party vendor, and 3) comparing the forecasts to the amounts included in the overall business forecast as communicated to the Board of Directors
+Added: /s/ Deloitte & Touche LLP
+Added: Stamford, Connecticut
+Added: March 29, 2023
+Added: We have served as the Company’s auditor since fiscal 2023.
+Added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+Added: To the Stockholders and the Board of Directors of The Lovesac Company
+Added: Opinion on Internal Control over Financial Reporting
+Added: We have audited the internal control over financial reporting of The Lovesac Company (the “Company”) as of January 29, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
+Added: In our opinion, the Company maintained, in all material aspects, effective internal control over financial reporting as of January 29, 2023 based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO .
+Added: We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended January 29, 2023, of the Company and our report dated March 29, 2023, expressed an unqualified opinion on those financial statements.
+Added: Basis for Opinion
+Added: The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
+Added: Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
+Added: We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
+Added: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
+Added: We conducted our audit in accordance with the standards of the PCAOB.
+Added: Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
+Added: Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
+Added: We believe that our audit provides a reasonable basis for our opinion.
+Added: Definition and Limitations of Internal Control over Financial Reporting
+Added: A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
+Added: A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
+Added: (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
+Added: and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
+Added: Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
+Added: Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
+Added: /s/Deloitte & Touche LLP
+Added: Stamford, Connecticut
+Added: March 29, 2023
+Added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
1 unchanged sentence
Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheets of The Lovesac Company (the “Company”) as of January 30, 2022 and January 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended January 30, 2022, and the related notes (collectively referred to as the “financial statements”).
−Removed: In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2022 and January 31, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
+Added: We have audited the accompanying consolidated balance sheet of The Lovesac Company (the “Company”) as of January 30, 2022, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended January 30, 2022, and the related notes (collectively referred to as the “financial statements”).
+Added: In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2022, and the results of its operations and its cash flows for each of the two years in the period ended January 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of January 30, 2022, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 30, 2022, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of a material weakness.
29 unchanged sentences
/s/ Marcum LLP
−Removed: We have served as the Company’s auditor since 2017.
−Removed: March 30, 2022
−Removed: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
−Removed: ON INTERNAL CONTROL OVER FINANCIAL REPORTING
−Removed: WITH A MATERIAL WEAKNESS
−Removed: To the Stockholders and the Board of Directors of
−Removed: The Lovesac Company
−Removed: Adverse Opinion on Internal Control over Financial Reporting
−Removed: We have audited The Lovesac Company’s (the “Company”) internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
−Removed: In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 30, 2022 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
−Removed: A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
−Removed: The following material weakness has been identified and included in “Management's Annual Report on Internal Control over Financial Reporting”:
−Removed: the Company has not established an effective control environment due to the ineffective design and implementation of information technology and related activity level controls covering all significant accounts.
−Removed: This ineffectiveness was due, in part, to inadequate information technology general controls ("ITGC") relating to certain information technology systems.
−Removed: The ITGC deficiencies affected, among other things, the integrity of the data used to support the related activity level controls.
−Removed: This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements as of and for the year ended January 30, 2022, of the Company, and this report does not affect our report on such financial statements.
−Removed: This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements for the year ended January 30, 2022 and this report does not affect our report dated March 30, 2022 on those consolidated financial statements.
−Removed: We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of January 30, 2022 and January 31, 2021 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows and the related notes for each of the three years in the period ended January 30, 2022, and our report dated March 30, 2022 expressed an unqualified opinion on those consolidated financial statements.
−Removed: Basis for Opinion
−Removed: The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management’s Annual Report on Internal Control over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
−Removed: We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
−Removed: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audit in accordance with the standards of the PCAOB.
−Removed: Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
−Removed: Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
−Removed: Our audit also included performing such other procedures, as we considered necessary in the circumstances.
−Removed: We believe that our audit provides a reasonable basis for our opinion.
−Removed: Definition and Limitations of Internal Control over Financial Reporting
−Removed: A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
−Removed: A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
−Removed: (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
−Removed: and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
−Removed: Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
−Removed: Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.
−Removed: /s/Marcum LLP
−Removed: Hartford, Connecticut
+Added: We have served as the Company’s auditor from 2017 to 2022.
March 30, 2022
THE LOVESAC COMPANY
−Removed: CONSOLIDATED BALANCE SHEETS
+Added: BALANCE SHEETS
JANUARY 29, 2023 AND JANUARY 30, 2022
3 unchanged sentences
Trade accounts receivable 9,469 8,547
−Removed: Merchandise inventories 108,493 50,417
+Added: Merchandise inventories, net 119,962 108,493
Prepaid expenses and other current assets 21,077 15,726
4 unchanged sentences
Intangible assets, net 1,411 1,413
−Removed: Deferred financing costs, net — 91
Deferred tax asset 9,420 9,836
+Added: Other assets 21,863 —
Total Other Assets 32,838 11,393
9 unchanged sentences
Total Current Liabilities 88,839 118,779
−Removed: Deferred Rent — 6,749
Operating Lease Liabilities, long term 135,955 96,574
6 unchanged sentences
Additional paid-in capital 182,554 173,762
−Removed: Accumulated deficit ( 17,536 ) ( 63,436 )
+Added: Accumulated income (deficit) 10,706 ( 17,536 )
Stockholders’ Equity 193,260 156,226
Total Liabilities and Stockholders’ Equity $ 418,054 $ 371,579
−Removed: The accompanying notes are an integral part of these consolidated financial statements
+Added: The accompanying notes are an integral part of these financial statements
THE LOVESAC COMPANY
−Removed: CONSOLIDATED STATEMENTS OF OPERATIONS
−Removed: FOR THE YEARS ENDED JANUARY 30, 2022, JANUARY 31, 2021, AND FEBRUARY 2, 2020
−Removed: (amounts in thousands, except per share data and share amounts) January 30, 2022 January 31, 2021 February 2, 2020
+Added: STATEMENTS OF OPERATIONS
+Added: FOR THE YEARS ENDED JANUARY 29, 2023, JANUARY 30, 2022, AND JANUARY 31, 2021
+Added: (amounts in thousands, except per share data and share amounts) 2023 2022 2021
Net sales $ 651,545 $ 498,239 $ 320,738
6 unchanged sentences
Total operating expenses 306,809 234,904 159,892
−Removed: Operating income (loss) 38,441 14,880 ( 15,809 )
−Removed: Interest (expense) income, net ( 179 ) ( 67 ) 647
−Removed: Net income (loss) before taxes 38,262 14,813 ( 15,162 )
−Removed: Benefit from (provision for) income taxes 7,638 ( 86 ) ( 43 )
−Removed: Net income (loss) $ 45,900 $ 14,727 $ ( 15,205 )
−Removed: Net income (loss) per common share:
+Added: Operating income 39,017 38,441 14,880
+Added: Interest expense, net ( 117 ) ( 179 ) ( 67 )
+Added: Net income before taxes 38,900 38,262 14,813
+Added: (Provision for) benefit from income taxes ( 10,658 ) 7,638 ( 86 )
+Added: Net income $ 28,242 $ 45,900 $ 14,727
+Added: Net income per common share:
Basic $ 1.86 $ 3.04 $ 1.01
3 unchanged sentences
Diluted 15,955,668 16,058,111 15,332,998
−Removed: The accompanying notes are an integral part of these consolidated financial statements
+Added: The accompanying notes are an integral part of these financial statements
THE LOVESAC COMPANY
−Removed: CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
−Removed: FOR THE YEARS ENDED JANUARY 30, 2022, JANUARY 31, 2021, AND FEBRUARY 2, 2020
−Removed: Common Additional Paid-in Accumulated
−Removed: (amounts in thousands, except share amounts) Shares Amount Capital Deficit Total
+Added: STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
+Added: FOR THE YEARS ENDED JANUARY 29, 2023, JANUARY 30, 2022, AND JANUARY 31, 2021
+Added: Common Additional Paid-in Accumulated (Deficit)
+Added: (amounts in thousands, except share amounts) Shares Amount Capital Income Total
Balance - February 2, 2020 14,472,611 $ — $ 168,318 $ ( 78,163 ) $ 90,155
−Removed: Net loss — — — ( 15,205 ) ( 15,205 )
+Added: Net income — — — 14,727 14,727
Equity-based compensation — — 4,681 — 4,681
−Removed: Issuance of common shares, net 750,000 — 25,610 — 25,610
Issuance of common stock for restricted stock 99,498 — — — —
1 unchanged sentence
Exercise of warrants 439,447 — 100 — 100
−Removed: Cancelation of shares ( 175,390 ) — — — —
−Removed: Balance - February 2, 2020 14,472,611 — 168,318 ( 78,163 ) 90,155
+Added: Balance - January 31, 2021 15,011,556 — 171,382 ( 63,436 ) 107,946
Net income — — — 45,900 45,900
8 unchanged sentences
Taxes paid for net share settlement of equity awards — — ( 1,658 ) — ( 1,658 )
−Removed: Exercise of warrants 10,956 — 104 — 104
Balance - January 29, 2023 15,195,698 $ — $ 182,554 $ 10,706 $ 193,260
−Removed: The accompanying notes are an integral part of these consolidated financial statements
+Added: The accompanying notes are an integral part of these financial statements
THE LOVESAC COMPANY
−Removed: CONSOLIDATED STATEMENTS OF CASH FLOWS
−Removed: FOR THE YEARS ENDED JANUARY 30, 2022, JANUARY 31, 2021, AND FEBRUARY 2, 2020
−Removed: (amounts in thousands) January 30, 2022 January 31, 2021 February 2, 2020
+Added: STATEMENTS OF CASH FLOWS
+Added: FOR THE YEARS ENDED JANUARY 29, 2023, JANUARY 30, 2022, AND JANUARY 31, 2021
+Added: (amounts in thousands) 2023 2022 2021
Cash Flows from Operating Activities
−Removed: Net income (loss) $ 45,900 $ 14,727 $ ( 15,205 )
−Removed: Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
+Added: Net income $ 28,242 $ 45,900 $ 14,727
+Added: Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment 10,454 7,154 6,100
−Removed: Amortization of other intangible assets 705 513 264
+Added: Amortization of intangible assets 388 705 513
Amortization of deferred financing fees 164 91 88
−Removed: Net loss (gain) on disposal of property and equipment 464 5 ( 167 )
+Added: Net loss on disposal of property and equipment 45 464 5
Impairment of long-lived assets — 554 245
1 unchanged sentence
Deferred rent — — 3,641
−Removed: Non-cash operating lease cost 14,953 — —
+Added: Non-cash lease expense 19,265 14,953 —
Deferred income taxes 416 ( 9,836 ) —
4 unchanged sentences
Prepaid expenses and other current assets 890 ( 2,459 ) ( 2,060 )
+Added: Other assets ( 21,459 ) — —
Accounts payable and accrued expenses ( 33,002 ) 39,195 19,584
1 unchanged sentence
Customer deposits ( 6,556 ) 7,323 4,339
−Removed: Net Cash Provided by (Used in) Operating Activities 34,018 40,521 ( 11,194 )
+Added: Net Cash (Used in) Provided by Operating Activities ( 21,375 ) 34,018 40,521
Cash Flows from Investing Activities
1 unchanged sentence
Payments for patents and trademarks ( 307 ) ( 601 ) ( 678 )
−Removed: Proceeds from disposal of property and equipment — — 300
Net Cash Used in Investing Activities ( 25,549 ) ( 16,488 ) ( 9,052 )
Cash Flows from Financing Activities
−Removed: Proceeds from the issuance of common shares, net — — 25,610
Taxes paid for net share settlement of equity awards ( 1,658 ) ( 3,583 ) ( 1,717 )
Proceeds from the exercise of warrants — 104 100
−Removed: Paydown of proceeds from line of credit — — ( 31 )
Payment of deferred financing costs ( 277 ) — ( 50 )
−Removed: Net Cash (used in) Provided by Financing Activities ( 3,479 ) ( 1,667 ) 21,313
+Added: Net Cash Used in Financing Activities ( 1,935 ) ( 3,479 ) ( 1,667 )
Net Change in Cash and Cash Equivalents ( 48,859 ) 14,051 29,802
4 unchanged sentences
Cash paid for interest $ 192 $ 95 $ 85
−Removed: The accompanying notes are an integral part of these consolidated financial statements
+Added: Non-cash investing activities:
+Added: Asset acquisitions not yet paid for at end of year $ 4,103 $ — $ —
+Added: The accompanying notes are an integral part of these financial statements
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - BASIS OF PRESENTATION, OPERATIONS AND LIQUIDITY, AND SIGNIFICANT ACCOUNTING POLICIES
−Removed: The consolidated financial statements of The Lovesac Company (the “Company”, “we”, “us” or “our”) as of January 30, 2022 and January 31, 2021 and for the years ended January 30, 2022, January 31, 2021 and February 2, 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission.
−Removed: Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation.
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Basis of Presentation, and Summary of Significant Accounting Policies
Nature of Operations
−Removed: The Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary Designed for Life approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do.
+Added: The Lovesac Company (the “Company”, “we”, “us” or “our”)is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary "Designed for Life" approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do.
The Company markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers.
1 unchanged sentence
The Company was formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company (“SAC LLC”), the predecessor entity to the Company.
−Removed: In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and, in the following weeks, the U.S.
−Removed: federal, state and local governments issued lockdown orders and related safety measures impacting the operations of our showrooms and consumer demand.
−Removed: Although there has been improvement in conditions, there continues to be uncertainty around the scope and severity of the pandemic, its impact on the global economy, including supply chains, and other business disruptions that may impact our operating results and financial condition.
−Removed: We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.
−Removed: OPERATIONS AND LIQUIDITY
−Removed: Prior to fiscal 2022 and fiscal 2021, the Company had incurred significant operating losses and used cash in its operating activities from inception through fiscal 2020.
−Removed: Operating losses resulted from inadequate sales levels for the cost structure and expenses as a result of impact of tariffs on inventory, expanding into new markets, opening new showrooms, and investments into advertising, marketing and infrastructure to support increases in revenues.
−Removed: The Company plans to continue to open new retail showrooms in larger markets and increase its shop-in-shop relationships to increase sales levels, invest in advertising and marketing initiatives to increase brand awareness, and invest in infrastructure to support growth of the Company.
−Removed: There can be no assurance that anticipated sales levels will be achieved.
−Removed: The Company believes that based on its current sales and expense levels, cash generated from operating activities during fiscal 2022 and fiscal 2021, projections for the next twelve months, and the credit facility with Wells Fargo Bank, N.A.
−Removed: ("Wells"), see Note 10 , the Company will have sufficient working capital to cover operating cash needs through the twelve-month period from the financial statement issuance date.
−Removed: SIGNIFICANT ACCOUNTING POLICIES
−Removed: PRINCIPLES OF CONSOLIDATION
−Removed: The consolidated financial statements include the accounts of the Company and its subsidiary.
−Removed: All significant intercompany accounts and transactions have been eliminated in consolidation.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
+Added: Basis of Presentation
+Added: The financial statements of the Company as of January 29, 2023 and January 30, 2022 and for the years ended January 29, 2023, January 30, 2022 and January 31, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
+Added: GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission.
The Company’s fiscal year is determined on a 52/53 week basis ending on the Sunday closest to February 1.
−Removed: Hereinafter, the fiscal years ended January 30, 2022, January 31, 2021 and February 2, 2020 are referred to as fiscal 2022, 2021 and 2020, respectively.
+Added: Hereinafter, fiscal years ended January 29, 2023, January 30, 2022 and January 31, 2021 are referred to as fiscal 2023, 2022 and 2021, respectively.
Fiscal 2023, 2022 and 2021 were 52-week fiscal years.
Use of Estimates
−Removed: The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
−Removed: Actual results could differ from those estimates.
−Removed: Estimates and assumptions are reviewed periodically and the effects of the revisions are reflected in the period the change is determined.
+Added: The preparation of financial statements in conformity with U.S.
+Added: GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
+Added: The Company evaluates its estimates and judgements on an ongoing basis based on historical experience, expectations of future events and various other factors we believe to be reasonable under the circumstances and revise them when necessary in the period the change is determined.
+Added: Actual results may differ from the original or revised estimates.
Revenue Recognition
−Removed: The Company implemented Accounting Standards Update ("ASU") 2015-04, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606, “ASC 606”), in the first quarter of fiscal 2020 using modified retrospective method, which required the Company to apply the new guidance retrospectively to revenue transactions completed on or after the effective date.
−Removed: Adopting this new standard had no material financial impact on our consolidated financial statements but did result in enhanced presentation and disclosures.
Our revenue consists substantially of product sales.
−Removed: The Company reports product sales net of discounts and recognize them at the point in time when control transfers to the customer, which occurs when shipment is confirmed.
−Removed: Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies.
−Removed: The Company records estimated refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the statement of operations and an increase in inventory and customers returns liability on the balance sheet.
−Removed: As of January 30, 2022, there was a returns allowance of $ 2.0 million which was in accrued expenses and $ 0.4 million associated with sales returns in merchandise inventories.
−Removed: As of January 31, 2021, there was a returns allowance of $ 2.2 million which was in accrued expenses and $ 0.3 million associated with sales returns in merchandise inventories.
−Removed: In some cases, deposits are received before the Company transfers control, resulting in contract liabilities.
−Removed: These contract liabilities are reported as deposits on the Company’s balance sheet.
−Removed: As of January 30, 2022 and January 31, 2021, the Company recorded under customer deposit liabilities the amount of $ 13.3 million and $ 6.0 million, respectively.
−Removed: During the fiscal year ended January 30, 2022, the Company recognized $ 6.0 million related to its customer deposits from fiscal 2021.
−Removed: During the fiscal year ended January 31, 2021, the Company recognized $ 1.7 million from fiscal 2020.
−Removed: During the fiscal year ended February 2, 2020, the Company recognized $ 1.1 million from fiscal 2019.
−Removed: Under ASC 606, the Company has elected the following accounting policies and practical expedients:
−Removed: The Company recognizes shipping and handling expense as fulfillment activities (rather than as a promised good or service) when the activities are performed.
+Added: The Company reports product sales net of discounts and recognized at a point in time when control transfers to the customer, which occurs when products are shipped.
+Added: The Company excludes from the measurement of the transaction price all taxes assessed by governmental authorities collected from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).
+Added: The Company applies the practical expedient for contracts with duration of one year or less and therefore does not consider the effects of the time value of money.
+Added: Shipping and handling charges billed to customers are included in revenue.
+Added: The Company recognizes shipping and handling expense as fulfillment activities (rather than a promised good or service) when the activities are performed.
Accordingly, the Company records the expenses for shipping and handling activities at the same time the Company recognizes revenue.
−Removed: The Company excludes from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).
−Removed: The Company does not adjust revenue for the effects of any financing components if the contract has a duration of one year or less, as the Company receives payment from the customer within one year from when it transferred control of the related goods.
+Added: Shipping and handling costs incurred are included in cost of merchandise sold and include inbound
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: freight and tariff costs relative to inventory sold, warehousing, and last mile shipping to our customers.
+Added: Shipping and handling costs were $ 158.0 million in fiscal 2023, $ 112.8 million in fiscal 2022, and $ 63.1 million in fiscal 2021.
+Added: Estimated refunds for returns are recorded using our historical return patterns, adjusting for any changes in returns policies and current product performance.
+Added: The Company records estimated refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the statement of operations and an increase in inventory and customers return liability on the balance sheet.
+Added: As of January 29, 2023 and January 30, 2022, we recorded a return liability of $ 4.5 million and $ 2.0 million within accrued expenses, and a corresponding asset for the net realizable value of inventory to be returned for $ 1.0 million and $ 0.4 million, respectively, in merchandise inventories on our Balance Sheet.
+Added: In some cases, deposits are received before the Company transfers control, resulting in the recognition of contract liabilities, reported as customer deposits on our Balance Sheet.
+Added: As of January 29, 2023, and January 30, 2022, the Company recorded customer deposit liabilities the amount of $ 6.8 million and $ 13.3 million, respectively.
+Added: During the years ended January 29, 2023, and January 30, 2022, the Company recognized $ 13.3 million and $ 6.0 million related to customer deposits from fiscal 2022 and 2021.
The Company offers its products through showrooms and through the Internet.
2 unchanged sentences
The following represents sales disaggregated by channel:
−Removed: For the fiscal years ended
−Removed: January 30, 2022 January 31, 2021 February 2, 2020
+Added: (in thousands) 2023 2022 2021
Showrooms $ 398,550 $ 298,989 $ 146,150
4 unchanged sentences
The Company had no customers in fiscal 2023, 2022, or 2021 that comprise more than 10% of total net sales.
−Removed: See Note 11 for sales disaggregated by product .
+Added: Segment Information for net sales disaggregated by product .
+Added: Barter Arrangements
+Added: The Company has a bartering arrangement with a third-party vendor.
+Added: The Company repurposes returned open-box inventory in exchange for media credits, which are being used to support our advertising initiatives to create brand awareness and drive net sales growth.
+Added: Barter transactions with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up in our warehouse.
+Added: Fair value is estimated using various considerations, including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on a marketing spend forecast.
+Added: The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances.
+Added: As the barter credits are expected to be utilized at various dates through their expiration dates, the Company will classify the amount expected to be utilized in the next fiscal year as current, which is included in Prepaid and Other Current Assets, with the remaining balance included as part of Other Assets on the balance sheet.
+Added: For the year ended January 29, 2023, and January 30, 2022, the Company recognized $ 21.3 million and $ 3.5 million, respectively, of barter sales in exchange for media credits.
+Added: The Company had $ 25.2 million and $ 3.4 million of unused
+Added: THE LOVESAC COMPANY
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: media credits as of January 29, 2023, and January 30, 2022, respectively, and did not recognize any impairment.
+Added: The difference between the opening and closing balances of the Company's prepaid barter credit primarily results from the inventory exchanged for media credits during the period, offset by utilization of those credits.
Cash and Cash Equivalents
3 unchanged sentences
Due to the high cash balance maintained by the Company, the Company does maintain depository balances in excess of the insured amounts.
−Removed: TRADE ACCOUNTS RECEIVABLE
−Removed: Trade accounts receivable are carried at their estimated realizable amount and do not bear interest.
+Added: Trade Accounts Receivable, net
+Added: Trade accounts receivable are stated at their estimated realizable amount and do not bear interest for which collectability is reasonably assured.
Management determines the allowance for doubtful accounts by regularly evaluating individual customer accounts, considering the customer’s financial condition, and credit history, and general and industry current economic conditions.
−Removed: Trade accounts receivable are reserved for when deemed uncollectible.
+Added: Trade accounts receivables are evaluated for collectability on a regular basis and an allowance is recorded, if necessary.
Recoveries of amounts previously written off are recorded when received.
−Removed: Historically, collection losses have been immaterial as a significant portion of the Company’s receivables are related to individual credit card transactions and three wholesale customers for which the Company has no history of collection losses.
−Removed: Management has concluded that an allowance was not necessary at January 30, 2022 and January 31, 2021, respectively.
−Removed: Breakdown of accounts receivable is as follows:
−Removed: As of January 30, 2022 As of As of January 31, 2021
+Added: Historically, collection losses have been immaterial as a significant portion of the Company’s receivables are related to individual credit card transactions and two wholesale customers.
+Added: The Company recognized $ 0.4 million related to bad debt write-offs for fiscal 2023, and 2022, and recognized $ 0.8 million for fiscal 2021, respectively.
+Added: Breakdown of trade accounts receivable is as follows:
+Added: (in thousands) As of January 29, 2023 As of January 30, 2022
Credit card receivables $ 5,069 $ 3,186
Wholesale receivables 4,400 5,361
−Removed: $ 8,547 $ 4,513
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
−Removed: The Company had two wholesale customers that comprised 100 % and 97 % of wholesale receivables at January 30, 2022 and January 31, 2021, respectively.
+Added: Total trade receivable, net $ 9,469 $ 8,547
+Added: The Company had two wholesale customers that comprised 100 % of wholesale receivables at January 29, 2023 and January 30, 2022, respectively.
Prepaid Expenses and Other Current Assets
The Company recognizes payments made for goods and services to be received in the near future as prepaid expenses and other current assets.
−Removed: Prepaid expenses and other current assets consist primarily of payments related to insurance premiums, catalog costs, barter credits, deposits, prepaid rent, prepaid inventory, and other costs.
−Removed: MERCHANDISE INVENTORIES
+Added: Prepaid expenses and other current assets consist primarily of payments related to insurance premiums, deposits, prepaid rent, prepaid inventory, and other costs.
+Added: Merchandise Inventories, net
Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value.
5 unchanged sentences
The Company sells gift certificates and issues merchandise credits to its customers in the showrooms and through its website.
−Removed: Revenue associated with gift certificates and merchandise credits is deferred until redemption of the gift certificate and merchandise credits.
+Added: Revenue associated with gift certificates and merchandise credits is deferred until redemption of the gift certificate
+Added: THE LOVESAC COMPANY
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: and merchandise credits.
The Company did not recognize any breakage revenue in fiscal 2023, fiscal 2022 or fiscal 2021 as the Company continues to honor all outstanding gift certificates.
5 unchanged sentences
For assets sold or otherwise disposed of, the cost and related accumulated depreciation or amortization is removed from the accounts, and any resulting gain or loss is reflected in operations for the period.
+Added: The disposals generally relate to the decommissioning of aged assets, remodeled showrooms, and fixtures used during pop-up-shops.
Expenditures for major betterments that extend the useful lives of property and equipment are capitalized.
3 unchanged sentences
If goodwill is quantitatively assessed for impairment, a two-step approach is applied.
−Removed: In the first step, the Company compares the fair value of the reporting unit, generally defined as the same level as or one level below an operating segment, to its carrying value.
−Removed: If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform further testing.
−Removed: If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the impairment test must be performed in order to determine the implied fair value of the reporting unit’s goodwill.
−Removed: If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference would be recorded.
There were no impairments during fiscal 2023, 2022, or 2021.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
−Removed: The fair value of the Company’s reporting unit is determined by using a discounted cash flow analysis.
−Removed: The determination of fair value requires assumptions and estimates of many critical factors, including among others, the nature and history of the Company, financial and economic conditions affecting the Company, the industry and the general economy, past results, current operations and future prospects, sales of similar businesses or capital stock of publicly held similar businesses, as well as prices, terms and conditions affecting past sales of similar businesses.
−Removed: Forecasts of future operations are based, in part, on operating results and management’s expectations as to future market conditions.
−Removed: These types of analyses contain uncertainties because they require management to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies.
−Removed: However, if actual results are not consistent with the Company’s estimates and assumptions, there may be exposure to future impairment losses that could be material.
−Removed: INTANGIBLE ASSETS
−Removed: Intangible assets with finite useful lives, including patents, trademarks, and other intangible assets are being amortized on a straight-line basis over their estimated lives.
−Removed: Other intangible assets with finite useful lives are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset might not be recovered.
−Removed: Patents and licenses are recorded at cost and amortized on a straight-line basis over the estimated remaining life of the patent or license.
−Removed: Ongoing maintenance costs are expensed as incurred.
−Removed: If the estimates of the useful lives should change, the Company will amortize the remaining book value over the remaining useful life, or if it is deemed to be impaired a write-down of the value of the asset may be required at such time.
−Removed: There were no impairments during either fiscal 2022, 2021, or 2020.
+Added: Intangible Assets, net
+Added: Intangible assets with finite useful lives, including patents, trademarks, and other intangible assets are being amortized on a straight-line basis over their estimated lives of 10 years, 3 years, and 5 years, respectively.
+Added: Intangible assets with finite useful lives are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset might not be recovered.
+Added: There were no impairments during fiscal 2023, 2022, or 2021.
Impairment of Long Lived Assets
−Removed: The Company’s long-lived assets consist of property and equipment and right of use assets from leases.
−Removed: Property and equipment includes leasehold improvements, and other intangible assets.
+Added: Our long-lived assets consist of property and equipment and right-of-use assets from leases.
+Added: Property and equipment includes leasehold improvements, and other tangible assets.
Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be recovered.
−Removed: The Company evaluates for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified.
−Removed: When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset.
−Removed: If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss calculation is prepared.
−Removed: An impairment loss is measured based upon the excess of the carrying value of the asset over its estimated fair value which is generally based on an estimated future discounted cash flow.
−Removed: If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.
−Removed: In fiscal 2022, the Company recognized impairment charges totaling $ 0.6 million associated with showroom-level right of use lease assets.
−Removed: During fiscal 2021, the Company recorded impairment charges of $ 0.2 million, associated with the assets of an underperforming retail location.
−Removed: During fiscal 2020 there were no impairment charges.
−Removed: The impairments in fiscal 2022 and fiscal were 2021 calculated using a discounted cash flow model and were recorded in selling, general and administrative in the Company’s Consolidated Statements of Operations.
+Added: We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified.
+Added: When evaluating long-lived assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset.
+Added: If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value.
+Added: We estimate fair value based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions.
+Added: These estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability.
+Added: Actual future results may differ from those estimates.
+Added: If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value.
+Added: In fiscal 2023, the Company did not recognize any impairment charges associated with showroom-level right of use lease assets.
+Added: Durin g fiscals 2022 and 2021, the Company recorded impairment charges of $ 0.6 million and $ 0.2 million, respectively, associated with the assets of an underperforming retail locations.
+Added: The impairments were recorded in selling, general and administrative in the Company’s Statements of Operations.
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
−Removed: SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
−Removed: Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense, not included in cost of merchandise sold.
−Removed: These expenses include all payroll and payroll-related expenses;
−Removed: showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance;
−Removed: occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expenses and public company expenses;
−Removed: and credit card transaction fees.
−Removed: Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.
−Removed: ADVERTISING AND CATALOG COSTS
−Removed: The Company capitalizes direct response advertising costs, which consist primarily of television advertising, postcards, catalogs and their mailing costs, and recognizes expense over the related revenue stream if the following conditions are met (1) the primary purpose of the advertising is to elicit sales to customers who could be shown to have responded specifically to the advertising, and (2) the direct-response advertising results in probable and estimable future benefits.
−Removed: Direct-response advertising costs, which are included in prepaid expenses and other current assets, are amortized commencing the date the catalogs and post cards are mailed and the television commercial airs through the estimated period of time for the Company has determined the related advertising impacts sales.
−Removed: There was no balance as of January 30, 2022 and January 31, 2021.
−Removed: As of January 30, 2022 and January 31, 2021 the Company did not have any capitalized deferred direct-response television, postcard and catalog costs.
−Removed: Advertising costs not associated with direct-response advertising are expensed as incurred and were $ 65.1 million in fiscal 2022, $ 41.9 million in fiscal 2021, and $ 29.2 million in fiscal 2020.
−Removed: SHOWROOM PREOPENING AND CLOSING COSTS
−Removed: Non-capital expenditures incurred in preparation for opening new retail showrooms are expensed as incurred and included in selling, general and administrative expenses.
−Removed: The Company continually evaluates the profitability of its showrooms.
−Removed: When the Company closes or relocates a showroom, the Company incurs unrecoverable costs, including the net book value of abandoned fixtures and leasehold improvements, lease termination payments, costs to transfer inventory and usable fixtures and other costs of vacating the leased location.
−Removed: Such costs are expensed as incurred and are included in selling, general and administrative expenses.
+Added: NOTES TO FINANCIAL STATEMENTS
Product Warranty
3 unchanged sentences
The Company periodically reviews the adequacy of its recorded warranty liability.
−Removed: Product warranty expense, without any reserve adjustments, was approximately $ 0.5 million in fiscal 2022, $ 0.7 million in fiscal 2021, and $ 0.9 million in fiscal 2020.
−Removed: The decreases in fiscal 2022 and fiscal 2021 are related to fewer number of warranty claims.
−Removed: Warranty reserve was $ 0.7 million as of January 30, 2022 and $ 0.6 million as of January 31, 2021.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
−Removed: OPERATING LEASES
−Removed: During Fiscal 2022, the Company adopted ASU No.
−Removed: 2016-02, Leases (Topic 842), see NEW ACCOUNTING PRONOUNCEMENTS section of Note 1 .
−Removed: The Company determines if a long-term contractual obligation is a lease at inception.
−Removed: The majority of our operating leases relate to company showrooms.
−Removed: We also lease our corporate facilities.
−Removed: These operating leases expire at various dates through fiscal 2032.
−Removed: Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception.
−Removed: Some leases also include early termination options, which can be exercised under specific conditions.
−Removed: Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
−Removed: The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.
−Removed: As the Company's leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
+Added: Product warranty expense, without any reserve adjustments, was approximately $ 0.7 million, $ 0.5 million, and $ 0.7 million in fiscal 2023, 2022, and 2021.
+Added: The increase in fiscal 2023 is related to an increase in warranty claims related to an increase in net sales.
+Added: Warranty reserve was $ 0.7 million as of January 29, 2023 and January 30, 2022.
+Added: The Company adopted Accounting Standards Update (ASU) No.2016-02, Leases (ASC 842) during fiscal 2022.
+Added: The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through January 2034.
+Added: Leases with an initial term of twelve months or less are not recorded on the balance sheet and are expensed on a straight-line basis over the lease term in the Statements of Operations.
+Added: The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset.
+Added: Operating right-of-use assets represents the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, both of which are recognized based on the present value of future minimum lease payments over the lease term at the commencement date, Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
+Added: We combine lease and non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation.
+Added: The lease payments are discounted at the Company's incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company's leases, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
+Added: We determine incremental borrowing rates as of the first day of each fiscal year and analyze changes in interest rates and the Company's credit profile to determine if the rates need to be updated during the fiscal year.
We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening.
When a lease contains a predetermined fixed escalation of the fixed rent, we recognize the related operating lease cost on a straight-line basis over the lease term.
−Removed: In addition, certain of our lease agreements include variable lease payments, such as payments based on a percentage of sales that are in excess of a predetermined level and/or increases based on a change in the consumer price index or fair market value.
+Added: In addition, certain of our lease agreements include variable lease payments, such as payments based on a percentage of net sales that are in excess of a predetermined level and/or increases based on a change in the consumer price index or fair market value.
These variable lease payments are excluded from minimum lease payments and are included in the determination of net lease cost when it is probable that the expense has been incurred and the amount can be reasonably estimated.
If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term.
−Removed: See Note 7 of the Notes to Consolidated Financial Statements for related disclosures.
Fair Value Measurements
The carrying amount of the Company’s financial instruments classified as current assets and current liabilities approximate fair values based on the short-term nature of the accounts.
−Removed: EQUITY-BASED COMPENSATION
−Removed: The Company’s 2017 Equity Plan provides for awards in the form of options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, cash-based awards and other stock-based awards.
−Removed: The plan allows for the issuance of up to 2,104,889 shares at January 30, 2022 and January 31, 2021.
−Removed: All awards shall be granted within 10 years from the effective date of the plan.
−Removed: The unit vesting was based on both time and performance.
−Removed: See Note 8 for additional disclosure.
−Removed: SHIPPING AND HANDLING
−Removed: Shipping and handling charges billed to customers are included in revenue.
−Removed: Shipping and handling costs incurred are included in cost of merchandise sold and include inbound freight and tariff costs relative to inventory sold, warehousing, and last mile shipping to our customers.
−Removed: Shipping and handling costs were $ 112.8 million in fiscal 2022, $ 63.1 million in fiscal 2021, and $ 47.1 million in fiscal 2020.
+Added: Selling, General and Administrative Expenses
+Added: Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense, not included in cost of merchandise sold.
+Added: These expenses include all payroll and payroll-related expenses;
+Added: showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance;
+Added: occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: related expenses and public company expenses;
+Added: and credit card transaction fees.
+Added: Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.
+Added: Employee Benefit Plan
+Added: In February 2017, the Company established the The Lovesac Company 401(k) Plan (the “401(k) Plan”) with elective deferrals beginning May 1, 2017.
+Added: The 401(k) Plan calls for elective deferral contributions, safe harbor matching contributions and profit sharing contributions.
+Added: All employees of the Company will be eligible to participate in the 401(k) Plan in the month following one (1) month of service and the employee is over age 21.
+Added: Participants are able to contribute up to 100 % of their eligible compensation to the 401(k) Plan subject to limitations with the IRS.
+Added: Employer contributions to the 401(k) Plan for fiscal 2023, fiscal 2022, and fiscal 2021 were approximately $ 1.3 million, $ 0.8 million, and $ 0.5 million, respectively.
+Added: Advertising and Marketing Expenses
+Added: Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives, that cover all of our business channels.
+Added: All advertising costs are expensed as incurred, or upon the release of the initial advertisement.
+Added: Total advertising expenses were $ 79.9 million, $ 65.1 million, and $ 41.9 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
+Added: Showroom Preopening and Closing Costs
+Added: Non-capital expenditures incurred in preparation for opening new retail showrooms are expensed as incurred and included in selling, general and administrative expenses.
+Added: The Company continually evaluates the profitability of its showrooms.
+Added: When the Company closes or relocates a showroom, the Company incurs unrecoverable costs, including the net book value of abandoned fixtures and leasehold improvements, lease termination payments, costs to transfer inventory and usable fixtures and other costs of vacating the leased location.
+Added: Such costs are expensed as incurred and are included in selling, general and administrative expenses.
+Added: Equity-Based Compensation
+Added: The Company adopted the 2017 Equity Plan which provides for awards in the form of options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards.
+Added: All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan.
+Added: Vesting is typically over a three or four-year period and is contingent upon continued employment with the Company on each vesting date.
+Added: The fair value of the restricted stock units is determined based on the closing price of the Company's common stock on the grant date and the expense is recognized over the service period.
+Added: For performance based restricted stock units, the number of units received will depend on the achievement of financial metrics relative to the approved performance targets.
+Added: For performance based restricted stock units, stock-based compensation expense is recognized based on expected achievement of performance targets.
+Added: The Company recognizes forfeitures as they occur.
The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions.
3 unchanged sentences
Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
−Removed: In connection with the 2017 reorganization, the intent was that the net operating losses (NOLs) of SAC Acquisition, LLC, a limited liability company that had been historically treated as a C-corporation for federal and state income tax purposes, were to be inherited by the Company.
−Removed: The Company filed a request for a private letter ruling requesting additional time to make a check the box election pursuant to Treas.
−Removed: In PLR-109713-19 dated October 22, 2019 the Company was granted an extension of time of 120 days to file form 8832 “Entity Classification Election.” The completed Form 8832 was filed with The IRS on November 11, 2019.
−Removed: The Company has maintained the position that the NOLs were inherited from SAC Acquisition in the 2017 reorganization and consistently maintained a full valuation allowance against its NOLs as they were part of deferred income tax assets not likely to be realized prior to fiscal 2022.
−Removed: During fiscal 2022, the Company recorded a deferred tax asset of $ 9.8 million.
−Removed: Previous to fiscal 2022, the resolution of the uncertain tax position regarding the Company’s NOL carry forward during the year did not have an impact on the Company’s financial position or results of operations.
−Removed: As of January 30, 2022, there were no uncertain tax positions.
−Removed: See Note 6 for additional disclosures.
+Added: THE LOVESAC COMPANY
+Added: NOTES TO FINANCIAL STATEMENTS
Deferred income taxes are provided on temporary differences between the income tax basis of assets and liabilities and the amounts reported in the financial statements and on net operating loss and tax credit carry forwards.
5 unchanged sentences
Diluted net income (loss) per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities where the average market price of the common stock exceeds the exercise prices for the respective periods.
−Removed: In fiscal 2022, the effects of 533,333 unvested restricted stock units, 495,366 stock options, and 281,750 common stock warrants were included in the diluted share calculation.
In fiscal 2023, the effects of 640,256 unvested restricted stock units, and 281,750 common stock warrants were included in the diluted share calculation.
The effects of 495,366 stock options were excluded in the diluted net income per common share calculation because the effects of including theses potentially dilutive shares was antidilutive.
−Removed: In fiscal 2020, there were 1,717,539 of potentially dilutive shares which may be issued in the future, including 183,053 unvested restricted stock units, 495,366 stock options, and 1,039,120 common stock warrants.
−Removed: These shares were excluded in the diluted net loss per common share calculation as the effects of including theses potentially dilutive shares was antidilutive.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
−Removed: NEW ACCOUNTING PRONOUNCEMENTS
−Removed: Except as described below, the Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
−Removed: The following new accounting pronouncements were adopted in fiscal 2022:
−Removed: In February 2016, FASB issued ASU No.
−Removed: 2016-02, Leases (Topic 842) ("ASC 842") amending lease guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
−Removed: 2020-05 extended the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted.
−Removed: The Company adopted the guidance in fiscal 2022 and there was not a material effect on the Company’s consolidated results of operations.
−Removed: Adoption of this standard resulted in the recognition of operating lease right-to-use (“ROU”) assets and corresponding lease liabilities of approximately $ 90 million and $ 97 million, respectively, and reclassification of deferred rent of $ 6.7 million as a reduction of the right-of-use assets on the consolidated balance sheet as of February 1, 2021.
−Removed: The new standard also provides practical expedients for an entity’s ongoing accounting.
−Removed: The Company elected the short-term lease recognition exemption for all leases that qualify.
−Removed: This means, for those leases that qualify, The Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.
−Removed: The Company also elected the practical expedient to not separate lease and non-lease components for all of our leases.
−Removed: In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Topic 718).
−Removed: ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees.
−Removed: The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options.
−Removed: ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
−Removed: The Company adopted the guidance in fiscal 2022 and there was not a material effect on the Company’s consolidated results of operations.
−Removed: NOTE 2 - PROPERTY AND EQUIPMENT, NET
−Removed: Property and equipment as of January 30, 2022 and January 31, 2021 consists of:
+Added: In fiscal 2022, the effects of 533,333 unvested restricted stock units, 495,366 stock options and 281,750 common stock warrants were included in the diluted share calculation.
+Added: In fiscal 2021, the effects of 655,558 unvested restricted stock units and 293,973 common stock warrants were included in the diluted share calculation.
+Added: The effects of 495,366 stock were excluded in the diluted net loss per common share calculation as the effects of including theses potentially dilutive shares was antidilutive.
+Added: Recent Accounting Pronouncements
+Added: The Company has considered all recent accounting pronouncements issued by the Financial Accounting Standards Board and they were considered to be not applicable or the adoption of such pronouncements will not have a material impact on the financial statements.
+Added: Property and Equipment, net
+Added: Property and equipment as of January 29, 2023 and January 30, 2022 consists of (in thousands):
Estimated Life 2023 2022
6 unchanged sentences
Construction in process NA 6,329 2,765
−Removed: 57,074 47,498
+Added: Total 85,619 57,074
Accumulated depreciation and amortization ( 32,715 ) ( 22,937 )
−Removed: $ 34,137 $ 25,868
+Added: Property and equipment, net $ 52,904 $ 34,137
+Added: Depreciation and amortization expense was $ 10.5 million, $ 7.2 million, and $ 6.1 million in fiscal 2023, 2022, and 2021, respectively.
THE LOVESAC COMPANY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: Depreciation expense was $ 7.2 million in fiscal 2022, $ 6.1 million in fiscal 2021, and $ 4.9 million in fiscal 2020.
−Removed: In fiscal 2022, 2021, and 2020 asset disposals resulted in a reduction in gross assets of $ 6.3 million, $ 0.3 million, $ 0.4 million, respectively, and accumulated depreciation of $ 5.8 million, $ 0.3 million, $ 0.3 million, respectively.
−Removed: The disposals generally relate to the decommissioning of aged assets, remodeled showrooms, and the reduction of fixtures used during pop-up-shops.
−Removed: NOTE 3 - OTHER INTANGIBLE ASSETS, NET
−Removed: A summary of other intangible assets follows:
+Added: JANUARY 29, 2023 AND JANUARY 30, 2022
+Added: Intangible Assets, net
+Added: A summary of other intangible assets follows (in thousands):
January 29, 2023
−Removed: Estimated Life Gross Carrying Amount Accumulated Amortization Net carrying amount
−Removed: Patents 10 Years $ 2,838 $ ( 1,626 ) $ 1,212
−Removed: Trademarks 3 Years 1,390 ( 1,189 ) 201
−Removed: Other intangibles 5 Years 840 ( 840 ) —
+Added: Weighted-Average Remaining Life (in years) Gross Carrying Amount Accumulated Amortization Net carrying amount
+Added: Patents 7.6 $ 3,091 $ ( 1,864 ) $ 1,227
+Added: Trademarks 2.2 1,522 ( 1,338 ) 184
+Added: Other intangibles — 840 ( 840 ) —
Total $ 5,453 $ ( 4,042 ) $ 1,411
January 30, 2022
−Removed: Estimated Life Gross Carrying Amount Accumulated Amortization Net carrying amount
−Removed: Patents 10 years $ 2,388 $ ( 1,129 ) $ 1,259
−Removed: Trademarks 3 years 1,239 ( 981 ) 258
−Removed: Other intangibles 5 years 840 ( 840 ) —
+Added: Weighted-Average Remaining Life (in years) Gross Carrying Amount Accumulated Amortization Net carrying amount
+Added: Patents 8.1 $ 2,838 $ ( 1,626 ) $ 1,212
+Added: Trademarks 2.2 1,390 ( 1,189 ) 201
+Added: Other intangibles — 840 ( 840 ) —
Total $ 5,068 $ ( 3,655 ) $ 1,413
−Removed: Amortization expense on other intangible assets was $ 0.7 million in fiscal 2022, $ 0.5 million in fiscal 2021, and $ 0.3 million in fiscal 2020.
+Added: Amortization expense was $ 0.4 million, $ 0.7 million, and $ 0.5 million in fiscal 2023, 2022, and 2021, respectively.
Expected amortization expense by fiscal year for these other intangible assets follows (in thousands):
1 unchanged sentence
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Prepaid Expenses and Other Current Assets
A summary of other prepaid and other current assets follows (in thousands):
−Removed: Prepaid insurance $ 1,667 $ 1,236
−Removed: Prepaid catalogue costs and related 4,794 588
+Added: Tenant allowance receivable $ 6,160 $ 2,781
Barter credits 3,770 3,407
+Added: Rebate receivable 2,780 226
+Added: Prepaid insurance 2,009 1,667
+Added: Prepaid catalog costs and related 1,557 4,794
+Added: Prepaid taxes 1,000 —
+Added: Prepaid software licenses 945 790
Deposits 662 421
1 unchanged sentence
Prepaid inventory 49 475
−Removed: Prepaid software licenses 790 967
−Removed: Tenant allowance receivable 2,781 1,464
Other 1,640 1,103
$ 21,077 $ 15,726
−Removed: NOTE 5 - ACCRUED EXPENSES
+Added: Accrued Expenses
A summary of accrued expenses follows (in thousands):
−Removed: Accrued freight and shipping $ 23,683 $ 4,524
−Removed: Accrued advertising fees 4,150 2,015
Accrued warehouse expenses $ 5,625 $ 2,671
−Removed: Accrued professional fees 2,268 1,590
Customer return liability 4,483 2,026
+Added: Accrued professional fees 2,167 2,268
+Added: Accrued freight and shipping 2,131 23,683
Accrued occupancy 1,278 1,284
1 unchanged sentence
Accrued insurance 1,026 973
−Removed: Warranty liability 689 606
Accrued credit card fees 770 542
+Added: Accrued advertising fees 739 4,150
+Added: Warranty liability 721 689
Other accrued expenses 3,265 1,204
$ 23,392 $ 40,497
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 6 - INCOME TAXES
−Removed: On March 27, 2020, the Federal government of the United States enacted the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) which includes a number of significant changes to the existing U.S.
−Removed: tax laws including postponing the filing date of specific federal income tax returns and payments from April 15, 2020 to July 15, 2020, temporarily increasing the 30% limitation on the interest deduction to 50%, introduction of a capital investment deduction for Qualified Improvement Property (“QIP”), and change in the use of net operating losses.
−Removed: The Company’s federal net operating losses that have been incurred in tax years beginning on or before December 31, 2017 will have a 20-year carryforward limitation, a two-year carryback period and can offset 100% of future taxable income.
−Removed: Net operating losses incurred in tax years beginning after December 31, 2017 and before January 1, 2021 will have an indefinite life, a five-year carryback period and can offset 100% of future taxable income prior to 2021 and 80% of future taxable income after 2020.
−Removed: Net operating losses incurred in tax years beginning on or after January 1, 2021 will have an indefinite life, generally no carryback period and can offset 80% of future taxable income.
−Removed: State taxes for the fiscal years ended January 30, 2022, January 31, 2021 and February 2, 2020, were approximately $ 2.2 million, $ 0.1 million and less than $ 0.1 million respectively.
−Removed: The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months;
−Removed: however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur.
−Removed: We had no material interest or penalties during the fiscal years 2022, 2021, and 2020, and we do not anticipate any such items during the next twelve months.
−Removed: Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the consolidated statements of operations.
−Removed: The components of deferred income taxes follow:
−Removed: Deferred Income Tax Assets
−Removed: Federal net operating loss carryforward $ 2,082 $ 7,763
−Removed: State net operating loss carryforward 1,403 1,818
−Removed: Intangible assets 397 286
−Removed: Accrued liabilities 5,646 4,423
−Removed: Equity-based compensation 2,032 1,083
−Removed: Property and equipment — 640
−Removed: Merchandise inventories 689 330
−Removed: Charitable Contributions 12 10
−Removed: Total Deferred Income Tax Assets 12,261 16,353
−Removed: Deferred Income Tax Liabilities
−Removed: Property and equipment ( 2,425 ) —
−Removed: Valuation Allowance — ( 16,353 )
−Removed: Net Deferred Income Tax Asset $ 9,836 $ —
+Added: Table of Content s
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: The income tax provision differs from the amount obtained by applying the statutory Federal income tax rate to pre-tax income as follows:
−Removed: 2022 2021 2020
−Removed: Provision (benefit) at Federal Statutory rates $ 8,035 $ 3,111 $ ( 3,184 )
−Removed: Permanent adjustments ( 1,039 ) ( 411 ) ( 848 )
−Removed: State tax, net of Federal provision (benefit) 1,737 496 ( 582 )
−Removed: Change in state deferred tax 146 — —
−Removed: Federal True-ups ( 164 ) 61 ( 394 )
−Removed: Uncertain tax positions- NOLS — — ( 10,753 )
−Removed: Change in valuation allowance ( 16,353 ) ( 3,171 ) 15,804
−Removed: Income (benefit) tax provision $ ( 7,638 ) $ 86 $ 43
+Added: NOTES TO FINANCIAL STATEMENTS
The Company is subject to federal, state and local corporate income taxes.
−Removed: The components of the provision for income taxes reflected on the consolidated statements of operations are set forth below:
+Added: The components of the provision for income taxes reflected on the statements of operations are set forth below:
2023 2022 2021
8 unchanged sentences
Total tax provision $ 10,658 $ ( 7,638 ) $ 86
−Removed: Differences in terms of percentages are as follows:
+Added: A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:
2023 2022 2021
Provision (benefit) at federal Statutory rates 21.0 % 21.0 % 21.0 %
−Removed: Permanent adjustments ( 2.7 ) % ( 2.8 ) % ( 5.6 ) %
State tax, net of federal provision (benefit) 4.3 % 4.9 % 3.3 %
−Removed: Change in state deferreds 0.4 % — % — %
+Added: Non-deductible executive compensation 1.7 % 1.9 % — %
+Added: Permanent adjustments 0.2 % — % 0.1 %
+Added: Equity-based compensation 0.1 % ( 4.7 ) % ( 2.8 ) %
Federal true-ups 0.1 % ( 0.4 ) % 0.4 %
−Removed: Uncertain tax positions- NOLS — % — % ( 70.9 ) %
Change in valuation allowance — % ( 42.7 ) % ( 21.4 ) %
Income tax provision 27.4 % ( 20.0 ) % 0.6 %
+Added: Table of Content s
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: At January 30, 2022 and January 31, 2021, the Company has net operating loss carryforwards available for federal income tax purposes of approximately $ 9.9 million and $ 37.0 million, respectively, which are scheduled to expire in varying amounts from fiscal 2027 to fiscal 2037.
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Significant components of the Company's deferred tax assets are as follows (in thousands):
+Added: Deferred Income Tax Assets
+Added: Federal net operating loss carryforward $ — $ 2,082
+Added: State net operating loss carryforward 595 1,403
+Added: Intangible assets 403 397
+Added: Accrued liabilities 2,952 3,243
+Added: Equity-based compensation 3,247 2,032
+Added: Merchandise inventories 726 689
+Added: Charitable Contributions — 12
+Added: R&D Capitalization 1,920 —
+Added: Operating Lease Liabilities 40,814 29,129
+Added: Total Deferred Income Tax Assets 50,657 38,987
+Added: Deferred Income Tax Liabilities
+Added: Operating Lease Right of Use Asset ( 36,224 ) ( 26,726 )
+Added: Property and equipment ( 5,013 ) ( 2,425 )
+Added: Total Deferred Tax Liabilities ( 41,237 ) ( 29,151 )
+Added: Net Deferred Income Tax Asset $ 9,420 $ 9,836
+Added: At January 29, 2023, the Company did not have any net operating loss carryforwards available for federal income tax purposes.
+Added: At January 30, 2022, the Company had net operating loss carryforwards available for federal income tax purposes of approximately $ 9.9 million.
In addition, the Company has approximately $ 9.4 million and $ 22.2 million of state net operating loss carryforwards as of January 29, 2023 and January 30, 2022, respectively.
−Removed: In fiscal 2021 a reserve had been released that was previously recorded against the net operating losses in accordance with ASC 740-10 due to a Private Letter Ruling (“PLR”) that was issued by the IRS.
−Removed: The PLR approved the late filing of Form 8832, “Entity Classification Election”.
−Removed: Due to the filing of this form, the Company believes that the Federal and State NOLs will be available for future utilization.
−Removed: As defined in Section 382 of the Internal Revenue Code, certain ownership changes limit the annual utilization of federal net operating losses.
−Removed: As a result of issuance, sales and other transactions involving the Company’s stock, the Company experienced an ownership change during fiscal years ended January 31, 2011, February 2, 2020, and January 30, 2022 which have caused such federal net operating losses to be subject to limitation under Section 382.
−Removed: The annual base limitation from 2011, 2019, and 2022 are approximately $ 0.3 million, $ 5.9 million, and $ 7.7 million respectively.
−Removed: The Company is entitled to additional limitation based on the net unrealized built-in gain computation, which results in additional limitation of approximately $ 40.0 million over the next 5 years.
−Removed: During fiscal years ending January 30, 2022, January 31, 2021, and February 2, 2020, the Company increased/(decreased) the valuation allowance by approximately $( 16.4 ) million, $( 3.2 ) million, and $ 15.8 million, respectively.
−Removed: The Company reversed its valuation allowance during the fiscal year ended January 30, 2022 since it is more likely than not that the remaining net deferred tax assets will be realized.
−Removed: As of January 30, 2022, the Company does not have a valuation allowance against its net deferred tax assets.
−Removed: 2022 2021 2020
−Removed: Beginning balance $ — $ — $ 10,753
−Removed: Additions for tax positions acquired — — —
−Removed: Additions for tax positions related to current year — — —
−Removed: Tax positions of prior years:
−Removed: Payments — — —
−Removed: Settlements — — —
−Removed: Release — — ( 10,753 )
−Removed: Ending balance $ — $ — $ —
−Removed: NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
−Removed: The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through January 2032.
−Removed: The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset.
−Removed: Certain operating leases have renewal options and rent escalation clauses.
−Removed: We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors.
−Removed: Any options that meet these criteria are included in the lease term at lease commencement.
+Added: The state net operating losses expire at various times between 2031 and 2040.
+Added: The statute of limitations has expired for all tax years prior to 2019 for federal and state tax purposes.
+Added: However, the net operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
+Added: Prior to the fiscal 2022 year-end, the Company recorded a full valuation allowance on its net deferred tax assets, as it did not meet the more likely than not threshold required under ASC 740-10-30.
+Added: For the year ended January 30, 2022, the Company reversed its full valuation allowance of $ 16.4 million, as it assessed and concluded that it met the more likely than not threshold of realizing its net deferred tax assets.
+Added: The main forms of positive evidence to support the valuation allowance release were the substantial realization of its net operating loss carryforwards and cumulative three years of income.
+Added: As of January 29, 2023, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it is more likely than not that it would realize its net deferred tax assets.
+Added: As of January 29, 2023 and January 30, 2022, the Company assessed and concluded that it does not have any unrecognized tax benefits.
+Added: The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months;
+Added: however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur.
+Added: We had no interest or penalties during fiscal years 2023, 2022, and 2021, and we do not anticipate any such items during the next twelve months.
+Added: Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations.
+Added: The IRS is auditing the Company's fiscal 2019 federal income tax return.
+Added: The Company has been responding to information requests and at this time, the Internal Revenue Service (IRS) has not proposed any adjustments.
+Added: On August 16, 2022, the Inflation Reduction Act was signed into law.
+Added: The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023.
+Added: The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of January 29, 2023, and will continue to monitor the impact of the changes.
+Added: Table of Content s
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTIES (CONTINUED)
−Removed: Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.
−Removed: Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists.
−Removed: These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable.
−Removed: We combine lease and certain non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation.
−Removed: Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable.
−Removed: Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
−Removed: Lease expense for operating leases consists of both fixed and variable components.
−Removed: Expense related to fixed lease payments are recognized on a straight-line basis over the lease term.
−Removed: Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease.
−Removed: Leases with an initial term of twelve months or less are not recorded on the balance sheet.
−Removed: In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset.
−Removed: The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.
−Removed: ASC 842 requires companies to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate.
−Removed: Most of our leases do not have an interest rate implicit in the lease.
−Removed: As a result, for purposes of measuring our ROU asset and lease liability, we determined our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment.
−Removed: We used the incremental borrowing rates we determined as of February 1, 2021 for operating leases that commenced prior to that date.
−Removed: In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease.
−Removed: The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company.
−Removed: Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants.
−Removed: Some of our leases contain variable lease payments based on a Consumer Price Index or percentage of sales, which are excluded from the measurement of the lease liability.
−Removed: The Company’s lease terms and rates are as follows:
−Removed: January 30, 2022
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022.
+Added: These changes in tax laws did not have a material impact on the Company’s results of operations for the year ended January 30, 2022.
+Added: For the year ended January 29, 2023 due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $ 7.7 million with a corresponding increase in the Company’s deferred tax assets.
+Added: The Company will continue to monitor the impact of changes in tax legislation.
+Added: During fiscal 2022, the Company adopted ASC No.
+Added: 2016-02, Leases (Topic 842).
+Added: Components of lease expense were as follows (in thousands):
+Added: Operating lease expense $ 24,173 $ 18,902
+Added: Variable lease expense 16,207 12,439
+Added: Short term lease expense 721 336
+Added: Total lease expense $ 41,101 $ 31,677
+Added: Variable lease expense includes index-based changes in rent, maintenance, real estate taxes, insurance and other variable charges included in the lease as well as rental expenses related to short term leases.
+Added: The Company’s weighted average lease term and weighted average discount rates are as follows:
+Added: For the year ended
Weighted average remaining lease term (in years)
2 unchanged sentences
Operating Leases 4.10 % 3.44 %
−Removed: During the fiscal year ended January 30, 2022, we recognized operating lease expense of $ 18.9 million.
−Removed: In addition, during the fiscal year ended January 30, 2022, we recognized $ 12.8 million, for index-based changes in rent, maintenance, real estate taxes, insurance and other charges included in the lease as well as rental expenses related to short term leases.
−Removed: During the fiscal year ended January 30, 2022, we recognized impairment charges totaling $ 0.6 million associated with showroom-level ROU assets that are included as part of selling, general and administrative expenses.
−Removed: We did not recognize any impairment charges associated with showroom-level ROU assets during the fiscal year ended January 31, 2021 as we did not adopt the guidance in ASC 842 until fiscal year 2022.
+Added: During the fiscal year ended January 29, 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets.
+Added: During the fiscal year ended January 30, 2022, we recognized impairment charges totaling $ 0.6 million associated with showroom-level ROU assets that were included as part of selling, general and administrative expenses.
+Added: We did not recognize any impairment charges with showroom-level right-of-use assets during the fiscal year ended January 31, 2021 as we did not adopt ASC 842 until fiscal year 2022.
+Added: Table of Content s
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTIES (CONTINUED)
−Removed: The following table discloses the location and amount of our operating lease costs within our consolidated balance sheets:
−Removed: (amounts in thousands) Balance sheet location January 30, 2022
−Removed: Operating leases Operating lease right-of-use assets (non-current) $ 100,891
−Removed: Operating leases Current operating lease liabilities $ 16,382
−Removed: Operating leases Operating lease liability, long term $ 96,574
−Removed: Total lease liabilities $ 112,956
−Removed: The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheet as of January 30, 2022 in thousands:
−Removed: (amounts in thousands)
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Future minimum lease payments under non-cancelable leases as of January 29, 2023 were as follows (in thousands):
2024 $ 27,671
6 unchanged sentences
Supplemental cash flow information and non-cash activity related to our operating leases is as follows (in thousands):
−Removed: (amounts in thousands) For the year ended January 30, 2022
Operating cash flow information:
−Removed: Amounts paid on operating lease liabilities $ 14,400
+Added: Cash paid for operating lease liabilities $ 23,724 $ 14,400
Non-cash activities
−Removed: Right-of-use assets obtained in exchange for lease obligations $ 116,048
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTIES (CONTINUED)
−Removed: SEVERANCE CONTINGENCY
−Removed: The Company has various employment agreements with its senior level executives.
−Removed: A number of these agreements have severance provisions, ranging from 12 to 18 months of salary, in the event those executives are terminated without cause or resign for good reason.
−Removed: The total amount of exposure to the Company under these agreements was $ 5.5 million at January 30, 2022 if all executives with employment agreements were terminated without cause or were to resign for good reason and the full amount of severance was payable.
+Added: Net additions to right-of-use assets obtained in exchange for lease obligations $ 56,099 $ 116,048
+Added: Commitments, Contingencies and Related Parties
Legal Contingency
The Company is involved in various legal proceedings in the ordinary course of business.
−Removed: Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
−Removed: RELATED PARTIES
−Removed: Our equity sponsor Mistral Capital Management, LLC (“Mistral”) performed management services for the Company under a contractual agreement that ended on January 31, 2021.
+Added: Where appropriate, the Company has made accruals with respect to these matters, however, for cases where liability is not probable or the amount cannot be reasonably estimated, accruals have not been made.
+Added: Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s financial position, results of operations or cash flows.
+Added: The Company received management services from Mistral Capital Management, LLC (“Mistral”) under a contractual agreement that ended on January 31, 2021.
One of our directors is a member and principal of Mistral.
−Removed: There were no management fees incurred in fiscal 2022.
−Removed: Management fees totaled approximately $ 0.4 million in both fiscal 2021 and 2020 and are included in selling, general and administrative expenses.
−Removed: There were no amounts payable to Mistral as of January 30, 2022.
+Added: There were no management fees incurred in fiscal 2023 or fiscal 2022, and management fees totaled approximately $ 0.4 million in fiscal 2021, and are included in selling, general and administrative expenses.
+Added: There were no amounts payable to Mistral as of January 29, 2023 or January 30, 2022.
There were less than $ 0.1 million in amounts payable to Mistral as of January 31, 2021.
−Removed: In addition, the Company reimbursed Mistral for expenses incurred for less than $ 0.1 million for out-of-pocket expenses for fiscal 2021 and 2020.
−Removed: There were no such reimbursements in fiscal 2022.
−Removed: Our equity sponsor Satori Capital, LLC (“Satori”) performed management services for the Company under a contractual agreement that ended on January 31, 2021.
−Removed: There were no management fees incurred in fiscal 2022.
−Removed: Management fees totaled approximately $ 0.1 millions in both fiscal 2021 and 2020 and are included in selling, general and administrative expenses.
−Removed: There were no amounts payable to Satori as of January 30, 2022.
−Removed: Amounts payable to Satori as of January 31, 2021 were less than $ 0.1 million consisting of management fees which were included in accounts payable in the accompanying consolidated balance sheet as of January 31, 2021.
−Removed: In addition, the Company reimbursed Satori for expenses incurred for less than $ 0.1 million for out-of-pocket expenses in both fiscal 2021 and 2020.
−Removed: There were no such reimbursements during fiscal 2022.
+Added: The Company also received management services from Satori Capital, LLC (“Satori”) under a contractual agreement that ended on January 31, 2021.
+Added: One of our directors is a partner at Satori.
+Added: There were no management fees incurred in fiscal 2023 or fiscal 2022 and management fees totaled approximately $ 0.1 millions in fiscal 2021 and are included in selling, general and administrative expenses.
+Added: There were no amounts payable to Satori as of January 29, 2023 or January 30, 2022.
+Added: Amounts payable to Satori as of January 31, 2021 were less than $ 0.1 million consisting of management fees which were included in accounts payable in the accompanying balance sheet as of January 31, 2021.
The Company engaged Blueport Commerce (“Blueport”), a company owned in part by investment vehicles affiliated with Mistral, as an ecommerce platform in February 2018.
−Removed: The Company terminated the Blueport contract in fiscal 2021 in order to launch a new enhanced ecommerce platform.
−Removed: There were no fees incurred in fiscal 2022.
−Removed: There were $ 2.1 million and $ 1.8 million of fees incurred with Blueport that were related to sales transacted through the Blueport platform during fiscal 2021 and 2020, respectively.
−Removed: There was an additional $ 0.7 million of fees incurred with Blueport during fiscal 2021 related to Lovesac’s early termination of our contract.
−Removed: There were no amounts payable as of January 30, 2022 or January 31, 2021.
+Added: The Company terminated the Blueport contract in fiscal 2021 in
+Added: THE LOVESAC COMPANY
+Added: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
+Added: order to launch a new enhanced ecommerce platform.
+Added: There were no fees incurred in fiscal 2023 or 2022.
+Added: There was $ 2.1 million of fees incurred with Blueport for sales transacted through the platform and an early termination fee of $ 0.7 million during fiscal 2021.
+Added: There were no amounts payable as of January 29, 2023, January 30, 2022, or January 31, 2021.
Recovery of Insurance Proceeds
2 unchanged sentences
The Company reached an agreement with its insurance carrier and the Company received a cash insurance recovery of approximately $ 1.2 million for the reimbursement of lost inventory and profit margin.
−Removed: Accordingly, the Company recognized a gain of approximately $ 0.6 million related to the recovery of lost profit margin and is included in the accompanying consolidated statements of operations as a reduction to cost of goods sold.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 8 - STOCKHOLDERS’ EQUITY
+Added: Accordingly, the Company recognized a gain of approximately $ 0.6 million related to the recovery of lost profit margin and is included in the accompanying statements of operations as a reduction to cost of goods sold.
+Added: No other insurance proceeds were received during the periods presented.
+Added: Stockholders' Equity
Common Stock Warrants
−Removed: In fiscal 2022, a total of 5,625 warrants were exercised on a cashless basis, whereby the holders received fewer shares of common stock in lieu of a cash payment to the Company.
−Removed: Warrants exercised in fiscal 2022 resulted in the issuance of 10,956 common shares.
+Added: On June 29, 2018, the Company issued 281,750 warrants with a five-year term to Roth Capital Partners, LLC as part of the underwriting agreement in connection with the Company's IPO.
+Added: The warrants remain outstanding as of January 29, 2023.
+Added: Warrants may be exercised on a cashless basis, where the holders receive fewer shares of common stock in lieu of a cash payment to the Company.
+Added: In fiscal 2023, there were no exercises of warrants.
+Added: In fiscal 2022, 5,625 warrants were exercised, which resulted in the issuance of 10,956 common shares.
There were 98 warrants that expired as of January 30, 2022.
−Removed: In fiscal 2021, 738,897 warrants exercised were cashless, whereby the holders received fewer shares of common stock in lieu of a cash payment to the Company.
−Removed: Warrants exercised in fiscal 2021 resulted in the issuance of 439,447 common shares.
−Removed: Warrants exercised in fiscal 2020 resulted in the issuance of 27,246 common shares.
+Added: In fiscal 2021, 738,897 warrants were exercised on a cashless basis and resulted in the issuance of 439,447 common shares.
The following represents warrant activity during fiscal 2023, 2022, and 2021:
4 unchanged sentences
Exercised 16.00 ( 745,147 ) 0.41
−Removed: Outstanding at February 2, 2020 16.83 1,039,120 1.93
+Added: Outstanding at January 31, 2021 19.07 293,973 2.57
Warrants issued — — —
9 unchanged sentences
All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan.
+Added: In June 2020,
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 8 - STOCKHOLDERS’ EQUITY (CONTINUED)
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: the stockholders of the Company approved an amendment to the 2017 Equity Plan that increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan by 690,000 shares of common stock.
+Added: The number of shares of common stock reserved for issuance under the 2017 Equity Plan increased from 1,414,889 to 2,104,889 shares of common stock.
+Added: In fiscal 2023, the 2017 Equity Plan was amended and restated to, among other things, increase the shares of our common stock authorized and reserved for issuance by 550,000 shares, which increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan to 2,654,889 shares of common stock.
+Added: Stock Options
In June 2019, the Company granted 495,366 nonstatutory stock options to certain officers of the Company with an option price of $ 38.10 per share.
100 % of the stock options are subject to vesting on the third anniversary of the date of grant if the officers are still employed by the Company and the average closing price of the Company’s common stock for the prior 40 consecutive trading days has been at least $ 75 by the third anniversary of the grant.
−Removed: Both the employment and the market condition must be satisfied no later than June 5, 2024 or the options will terminate.
+Added: Both the employment and the market condition were required to be satisfied no later than June 5, 2022 or the options would terminate.
These options were valued using a Monte Carlo simulation model to account for the path dependent market conditions that stipulate when and whether or not the options shall vest.
2 unchanged sentences
The market condition was met on June 5, 2021, which was the date on which the average closing price of the Company’s common stock had been at least $ 75 for 40 consecutive trading days.
−Removed: The options will vest and become exercisable on June 5, 2022 as long as the officers are still employed on that date.
As a result of the market condition being met, the Company accelerated the amortization and recognized additional stock-based compensation expense during fiscal year 2022 of approximately $ 0.9 million.
−Removed: In June 2020, the stockholders of the Company approved an amendment to the 2017 Equity Plan that increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan by 690,000 shares of common stock.
−Removed: The number of shares of common stock reserved for issuance under the 2017 Equity Plan increased from 1,414,889 to 2,104,889 shares of common stock.
−Removed: A summary of the status of our stock options as of January 30, 2022, January 31, 2021, and February 2, 2020 and the changes during fiscal years then ended, is presented below:
−Removed: For the years ended January 30, 2022, January 31, 2021, and February 2, 2020
−Removed: Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Average intrinsic value
−Removed: Outstanding at February 3, 2019 — $ — 0 —
−Removed: Granted 495,366 38.10
−Removed: Canceled and forfeited — $ —
+Added: The awards vested and became exercisable on June 5, 2022.
+Added: The following summarizes the activity of our stock options as of January 29, 2023, January 30, 2022, and January 31, 2021 and the changes during fiscal years then ended (in thousands, except share and per share amounts) :
+Added: Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Aggregate intrinsic value
Outstanding at February 2, 2020 495,366 $ 38.10 2.34 $ —
1 unchanged sentence
Outstanding at January 31, 2021 495,366 38.10 3.35 9,135
−Removed: Granted — $ —
Canceled and forfeited — —
Outstanding at January 30, 2022 495,366 38.10 2.35 6,162
−Removed: Exercisable at the end of the period — — — —
+Added: Canceled and forfeited — —
+Added: Outstanding and exercisable at January 29, 2023 495,366 $ 38.10 1.35 $ —
THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 8 - STOCKHOLDERS’ EQUITY (CONTINUED)
−Removed: A summary of the status of our unvested restricted stock units as of January 30, 2022, January 31, 2021, February 2, 2020, and and changes during fiscal years then ended, is presented below:
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Restricted Stock Units
+Added: The following table summarizes the activity for the Company's unvested restricted stock units as of January 29, 2023, January 30, 2022, January 31, 2021, and changes during fiscal years then ended, is presented below:
Number of shares Weighted average grant date fair value
3 unchanged sentences
Vested ( 149,734 ) 16.24
−Removed: Unvested at February 2, 2020 183,053 $ 21.34
+Added: Unvested at January 31, 2021 655,558 18.86
Granted 94,985 78.53
7 unchanged sentences
Equity-based compensation expense was approximately $ 10.5 million, $ 5.9 million, and $ 4.7 million for fiscal 2023, 2022, and 2021 respectively.
−Removed: In fiscal 2020, all the unvested restricted stock units for certain senior executives of the Company that were granted prior to the accelerated vesting trigger, vested according to the accelerated vesting trigger in their restricted stock unit agreements.
−Removed: The triggering event was the market capitalization of the Company post-IPO, exceeding $ 300 million for 60 consecutive trading days and the expiration of the lock-up period.
−Removed: This accelerated vesting resulted in equity based compensation in the amount of $ 2.9 million.
−Removed: In December 2019, the exchange and modification of options that were held at SAC LLC resulted in approximately $ 313,000 of equity-based compensation expense.
−Removed: The total unrecognized equity based compensation cost related to unvested stock option and restricted unit awards was approximately $ 4.8 million as of January 30, 2022 and will be recognized in operations over a weighted average period of 2.11 years.
−Removed: NOTE 9 - EMPLOYEE BENEFIT PLAN
−Removed: In February 2017, the Company established the TLC 401(k) Plan (the “401(k) Plan”) with Elective Deferrals beginning May 1, 2017.
−Removed: The 401(k) Plan calls for Elective Deferral Contributions, Safe Harbor Matching Contributions and Profit Sharing Contributions.
−Removed: All associates of the Company will be eligible to participate in the 401(k) Plan as of the day of the month which is coincident with or next follows the date on which they attain age 21 and complete 1 month of service.
−Removed: Participants will be able to contribute up to 100 % of their eligible Compensation to the 401(k) Plan subject to limitations with the IRS.
−Removed: The employer contributions to the 401(k) Plan for fiscal 2022, fiscal 2021, and fiscal 2020 were approximately $ 0.8 million, $ 0.5 million, and $ 0.4 million, respectively.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
−Removed: NOTE 10 - FINANCING ARRANGEMENTS
−Removed: On February 6, 2018, the Company established a line of credit with Wells.
−Removed: The line of credit with Wells allows the Company to borrow up to $ 25.0 million and will mature in February 2023.
−Removed: Borrowings are limited to 90 % of eligible credit card receivables plus 85 % of eligible wholesale receivables plus 85 % of the net recovery percentage for the eligible inventory multiplied by the value of such eligible inventory of the Company for the period from December 16 of each year until October 14 of the immediately following year, with a seasonal increase to 90 % of the net recovery percentage for the period from October 15 of each year until December 15 of such year, seasonal advance rate, minus applicable reserves established by Wells.
−Removed: As of January 30, 2022 and January 31, 2021, the Company’s borrowing availability under the line of credit with Wells was $ 22.5 million and $ 15.9 million respectively.
−Removed: As of January 30, 2022 and January 31, 2021, there were no borrowings outstanding on this line of credit.
−Removed: Under the line of credit, the Company may elect that the revolving loans bear interest at a rate per annum equal to the base rate plus the applicable margin or the LIBOR rate plus the applicable margin.
−Removed: The applicable margin is based on tier’s relating to the quarterly average excess availability.
−Removed: The tiers range from 2.00 % to 2.25 %.
+Added: In fiscal 2023, The Company recognized $ 4.3 million related to performance stock units granted in fiscal 2021 with a three year term, which met the performance target of $ 550 million in net sales and $ 50 million in Adjusted EBITDA for fiscal 2023.
+Added: The total unrecognized equity based compensation cost related to unvested restricted stock unit awards was approximately $ 4.2 million as of January 29, 2023 and will be recognized in operations over a weighted average period of 1.95 years.
+Added: Financing Arrangements
+Added: On February 6, 2018, the Company established a line of credit with Wells Fargo Bank.
+Added: The line of credit allowed the Company to borrow up to $ 25.0 million and matured on February 2023.
+Added: As of January 30, 2022, the Company’s borrowing availability under the line of credit was $ 22.5 million, and there were no borrowings outstanding on this line of credit.
On March 25, 2022, the Company amended the credit agreement to extend the maturity date to March 25, 2024, and among other things, increase the maximum revolver commitment to $ 40.0 million, subject to borrowing base and availability restrictions.
1 unchanged sentence
The amended agreement contains a financial covenant that requires us to maintain undrawn availability under the credit facility of at least 10 % of the lesser of (i) the aggregate commitments in the amount of $ 40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable and inventory.
−Removed: Under the amended line of credit with Wells, the Company may elect that revolving loans bear interest at either a base rate or a term SOFR based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the line of credit and ranging from 0.50 % to 0.75 % for borrowings accruing interest at a base rate and from 1.625 % to 1.850 % for borrowings accruing interest at term SOFR.
+Added: THE LOVESAC COMPANY
+Added: NOTES TO FINANCIAL STATEMENTS
+Added: Under the amended line of credit, the Company may elect that revolving loans bear interest at either a base rate or a term SOFR based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the line of credit and ranging from 0.50 % to 0.75 % for borrowings accruing interest at a base rate and from 1.625 % to 1.850 % for borrowings accruing interest at term SOFR.
Swing line loans will at all times accrue interest at a base rate plus the applicable margin.
The lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the line of credit.
−Removed: NOTE 11 - SEGMENT INFORMATION
−Removed: The Company has determined that the Company operates within a single reporting segment.
−Removed: The chief operating decision makers of the Company are the Chief Executive Officer and the President.
−Removed: The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas including economic characteristics, class of consumer, nature of products and distribution method and products are a singular group of products which make up over 95 % of total sales.
−Removed: THE LOVESAC COMPANY
−Removed: CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
+Added: As of January 29, 2023, the Company’s borrowing availability under the line of credit was $ 36.0 million, no borrowings outstanding, and the Company was in compliance with required covenants.
+Added: On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024.
+Added: All other terms of the credit agreement remain unchanged.
+Added: Segment Information
+Added: Segments are reflective of how the chief operating decision maker ("CODM") reviews operating results for the purpose of allocating resources and assessing performance.
+Added: The CODM group of the Company are the Chief Executive Officer and the President and Chief Operating Officer.
+Added: The Company's operating segments are the sales channels, which share similar economic and other qualitative characteristics, and are aggregated together as one reportable segment.
The Company’s sales by product which are considered one segment are as follows:
−Removed: Fiscal year ending
−Removed: January 30, 2022 January 31, 2021 February 2, 2020
+Added: 2023 2022 2021
Sactionals $ 584,815 $ 436,588 $ 271,018
1 unchanged sentence
Other 11,585 9,173 4,745
−Removed: $ 498,239 $ 320,738 $ 233,377
−Removed: NOTE 12 - BARTER ARRANGEMENTS
−Removed: The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits.
−Removed: The Company exchanged $ 1.5 million, $ 3.2 million, and $ 1.1 million of inventory plus the cost of freight for certain media credits during fiscal 2022, fiscal 2021, and fiscal 2020, respectively.
−Removed: The Company had $ 3.4 million and $ 2.5 million of unused media credits remaining as of January 30, 2022 and January 31, 2021, respectively, which is included in “Prepaid and other current assets” on the accompanying condensed consolidated balance sheet.
−Removed: The Company accounts for barter transactions under ASC Topic No.
−Removed: 845 “Nonmonetary Transactions.” Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products received have a more readily determinable estimated fair value.
−Removed: Revenue associated with barter transactions is recorded at the time of the exchange of the related assets.
+Added: Total net sales $ 651,545 $ 498,239 $ 320,738
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.