Lovesac Co 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures 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. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of February 2, 2025. Management's Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is 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 in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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. Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 2, 2025. 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 February 2, 2025. The effectiveness of our internal control over financial reporting as of February 2, 2025 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, included within this Item 9A of this Annual Report on Form 10-K. Changes in our Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year ended February 2, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. 44 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of The Lovesac Company Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of The Lovesac Company (the “Company”) as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. 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 February 2, 2025, of the Company and our report dated April 10, 2025, expressed an unqualified opinion on those financial statements. Basis for Opinion 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. 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. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting 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. 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; (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; 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. /s/ Deloitte & Touche LLP Stamford, Connecticut April 10, 2025 45 Table of Contents Item 9B. Other Information. Trading Arrangements On January 10, 2025 , Shawn D. Nelson , CEO , adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 24,000 shares of the Company’s common stock. Mr. Nelson's plan will expire on January 10, 2026 , subject to early termination for certain specified events set forth in the plan. No other director or officer of the Company (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted , modified or terminated a Rule 10b5-1 trading arrangement or a non- Rule 10b5-1 trading arrangement (each as defined in Item 408 (a) and (c) of Regulation S-K) during the thirteen weeks ended February 2, 2025. Transactions by Section 16 directors and officers will be disclosed publicly through Form 4 filings with the SEC to the extent required by law. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 46 Table of Contents PART III. Item 10. Directors, Executive Officers and Corporate Governance. The following is a list of the names, ages and backgrounds of our current executive officers as of April 10, 2025: Name Age Present Position Business Experience Shawn Nelson 48 Chief Executive Officer and Director Shawn Nelson founded Lovesac in 1998 and is currently serving as Chief Executive Officer of the Company and as a member of the Board of Directors. Mr. Nelson is the lead designer of the Company's patented products and leads sourcing, creative, design, public relations, investor relations and culture. In 2005, Mr. Nelson won Richard Branson's "The Rebel Billionaire" on Fox and continues to participate in ongoing TV appearances. Mr. Nelson has a Master's Degree in Strategic Design and Management and is a former graduate-level instructor at Parsons, The New School for Design in New York City. Mr. Nelson is also fluent in Mandarin. Mary Fox 52 President and Chief Operating Officer Mary Fox is the President and Chief Operating Officer of Lovesac since November 2021. Previously, she served as General Manager for North America Consumer Products at BIC from 2018 to November 2021. Prior to joining BIC, she spent six years at L’Oréal in various roles within Ecommerce, New Business Development, and Business Transformation in the United States. Before L’Oréal, Ms. Fox held several senior leadership positions at Walmart in both the United States and International divisions. During her time as SVP Global Sourcing at Walmart, Ms. Fox co-founded the Sustainable Apparel Coalition in 2009 with Patagonia, which is now the leading global apparel, footwear, and textile coalition focused on sustainable production. Since 2023, Ms. Fox is a director of AF Ventures, a venture capital fund investing in high growth consumer products. 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. Ms. Fox graduated from Coventry University in the United Kingdom and holds a degree in manufacturing engineering and business studies. Keith Siegner 50 Executive Vice President, Chief Financial Officer and Treasurer Keith Siegner is Executive Vice President, Chief Financial Officer and Treasurer of The Lovesac Company. From April 2021 to February 2023, he served as Chief Financial Officer of Vindex, LLC, a leading global esports technology and infrastructure company that was sold to Savvy Games Group in February 2023. In this role, Keith led global finance operations for Vindex and its subsidiaries, which included Esports Engine, Vindex Intelligence and Belong Gaming Arenas. Prior to joining Vindex he served as the Vice President, Investor Relations, Mergers & Acquisitions, and Treasurer at Yum! Brands (NYSE: YUM), which included leading the capital markets, global cash management, and risk finance teams, as well as several years in corporate strategy. Before YUM, Keith was a senior banking executive in equity research for over 15 years at UBS Securities, where he was Executive Director, and at Credit Suisse before that. He began his career at Arthur Andersen in the International Tax Consulting Division. Keith received Bachelor’s and Master’s accounting degrees from Wake Forest University, and is a Certified Financial Analyst Charterholder and a Certified Public Accountant (inactive). 47 Table of Contents We will file with the SEC a definitive proxy statement (the “2025 Proxy Statement”) pursuant to Regulation 14A for our 2025 annual meeting of stockholders within 120 days of the fiscal year ended February 2, 2025. The additional information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein. Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and associates, which is available on our website (https://investor.lovesac.com) under "Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Conduct by posting such information on the website address and location specified above. Item 11. Executive Compensation. The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein. Item 14. Principal Accountant Fees and Services. The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein. 48 Table of Contents PART IV. Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this report: 1. Financial Statements (see Part II, Item 8. Financial Statements and Supplementary Data ) Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) F- 3 Balance Sheets – As of February 2, 2025 and February 4, 2024 F- 5 Statements of Operations – Years Ended February 2, 2025, February 4, 2024, and January 29, 2023 F- 6 Statements of Changes in Stockholders’ Equity - Years Ended February 2, 2025, February 4, 2024, and January 29, 2023 F- 7 Statements of Cash Flows - Years Ended February 2, 2025, February 4, 2024, and January 29, 2023 F- 8 Notes to Financial Statements F- 9 2. Financial Statement Schedules Schedules have been omitted because they are not required or are not applicable or because the information required to be set forth therein either is not material or is included in the financial statements or notes thereto. 3. Exhibits See the Exhibit Index. Item 16. Form 10-K Summary. Optional disclosure not included in this Annual Report on Form 10-K. 49 Table of Contents EXHIBIT INDEX Exhibit Number Description of Exhibit Filed / Incorporated by Reference from Form ** Incorporated by Reference from Exhibit Number Dated Filed 2.1 Assignment and Assumption Agreement S-1 2.1 4/20/2018 3.1 Amended and Restated Certificate of Incorporation 8-K 3.1 6/7/2021 3.2 Amended and Restated Bylaws 8-K 3.2 12/1/2023 4.5 Description of the Company’s securities registered pursuant to Section 12 of the Exchange Act of 1934 10-K 4.5 4/11/2024 10.1† Wells Fargo Credit Agreement S-1 10.1 4/20/2018 10.2† Amendment No. 6 to Credit Agreement between The Lovesac Company and Wells Fargo Bank, N.A. 10-K 10.2 3/30/2022 10.3± Second Amended and Restated 2017 Equity Incentive Plan 10-Q 10.1 6/8/2022 10.4± Amendment No. 1 to Second Amended and Restated 2017 Equity Incentive Plan 8-K 10.1 6/2/2023 10.5± Form of Restricted Stock Units Agreement S-1/A 10.3 5/23/2018 10.6 Amended and Restated Registration Rights Agreement S-1 10.5 4/20/2018 10.7± Employment Agreement dated October 26, 2017, by and between The Lovesac Company and Shawn Nelson S-1 10.6 4/20/2018 10.8± First Amendment to Employment Agreement dated October 2, 2019, by and between The Lovesac Company and Shawn Nelson 10-K 10.8 4/14/2021 10.9± Second Amendment to Employment Agreement dated March 24, 2022, by and between The Lovesac Company and Shawn Nelson 10-K 10.14 3/30/2022 10.10± Amended and Restated Employment Agreement dated March 23, 2023, by and between The Lovesac Company and Shawn Nelson 10-K 10.16 3/29/2023 10.11± Employment Agreement between The Lovesac Company and Mary Fox, dated September 30, 2021 8-K 10.1 11/12/2021 10.12± Offer Letter between The Lovesac Company and Mary Fox, dated September 30, 2021 8-K 10.3 11/12/2021 10.13± Mary Fox Resignation Letter from Board of Directors, dated November 9, 2021 8-K 10.4 11/12/2021 10.14± Form of Stock Option Award Agreement 10-K 10.11 4/14/2021 10.15± The Lovesac Company Annual Incentive Compensation Plan 10-Q 10.1 12/9/2021 10.16± The Lovesac Company Director Compensation Policy , as amended, dated February 2, 2025 Filed herewith. 10.17† Amendment No. 7 to Credit Agreement between The Lovesac Company and Wells Fargo Bank, N.A. 10-K 10.22 3/29/2023 10.18± Employment Agreement between the Company and Keith Siegner, dated June 1, 2023 10-K 10.24 4/11/2024 10.19± Offer Letter between the Company and Keith Siegner, dated May 12, 2023 10-K 10.25 4/11/2024 10.20 Retailer Program Agreement between Synchrony Bank (formerly GE Capital Retail Bank) and the Company (formerly SAC Acquisition LLC), dated April 1, 2013 10-K 10.27 4/11/2024 50 Table of Contents Exhibit Number Description of Exhibit Filed / Incorporated by Reference from Form ** Incorporated by Reference from Exhibit Number Dated Filed 10.21 First Amendment to Retailer Program Agreement between Synchrony Bank (formerly GE Capital Retail Bank) and the Company (formerly SAC Acquisition LLC), dated September 1, 2014 10-K 10.28 4/11/2024 10.22 Second Amendment to Retailer Program Agreement between Synchrony Bank (formerly SAC Acquisition LLC), dated May 11, 2018, and effective as of January 1, 2018 10-K 10.29 4/11/2024 10.23 Third Amendment to Retailer Program Agreement between Synchrony Bank and the Company (formerly SAC Acquisition LLC), dated March 24, 2023, and effective as of January 1, 2023 10-K 10.30 4/11/2024 10.24 † Ei ghth Amendment to Credit Agreement, dated as of Sept ember 7, 2023 , by and among The Lovesac Company, Wells Fargo Bank, National Association, as agent, swing line lender and L/C issuer, and the other lenders party thereto. Filed herewith. 10.25 † Ninth Amendment to Credit Agreement, dated as of July 29, 2024, by and among The Lovesac Company, Wells Fargo Bank, National Association, as agent, swing line lender and L/C issuer, and the other lenders party thereto. 8-K 10.1 7/31/2024 10.26± Amendment No. 2 to the Second Amended and Restated 2017 Equity Incentive Plan 8-K 10.1 6/14/2024 19.1 The Loves ac Company I nsider Trading Policy , as amended Filed herewith. 21.1 List of Subsidiaries 10-K 21.1 4/14/2021 23.1 Consent of Deloitte & Touche LLP Filed herewith. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended Filed herewith. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended Filed herewith. 32.1* Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended Filed herewith. 32.2* Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended Filed herewith. 97.1* The Lovesac Dodd-Frank Clawback Policy 10-K 97.1 4/11/2024 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 51 Table of Contents Exhibit Number Description of Exhibit Filed / Incorporated by Reference from Form ** Incorporated by Reference from Exhibit Number Dated Filed 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) ± Indicates a management contract or compensatory plan. † Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon its request. * This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act. 52 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. The Lovesac Company By: /s/ Shawn Nelson Shawn Nelson Date: April 10, 2025 Chief Executive Officer (Principal Executive Officer) By: /s/ Keith Siegner Keith Siegner Date: April 10, 2025 Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 53 Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shawn Nelson and Keith Siegner, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Shawn Nelson April 10, 2025 Shawn Nelson Chief Executive Officer and Director (Principal Executive Officer) /s/ Keith Siegner April 10, 2025 Keith Siegner Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Andrew Heyer April 10, 2025 Andrew Heyer Chairman and Director /s/ Walter McLallen April 10, 2025 Walter McLallen Director /s/ Sharon M. Leite April 10, 2025 Sharon M. Leite Director /s/ Shirley Romig April 10, 2025 Shirley Romig Director /s/ John Grafer April 10, 2025 John Grafer Director /s/ Jack Krause April 10, 2025 Jack Krause Director /s/ Vineet Mehra April 10, 2025 Vineet Mehra Director 54 Table of Contents THE LOVESAC COMPANY FINANCIAL STATEMENTS AS OF FEBRUARY 2, 2025 AND FEBRUARY 4, 2024 AND FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023 F-1 Table of Contents THE LOVESAC COMPANY CONTENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) F- 3 Financial Statements Balance Sheets F- 5 Statements of Operations F- 6 Statements of Changes in Stockholders’ Equity F- 7 S tatement s of Cash Flows F- 8 Notes to the Financial Statements F- 9 F-2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of The Lovesac Company Opinion on the Financial Statements We have audited the accompanying balance sheets of The Lovesac Company (the "Company") as of February 2, 2025 and February 4, 2024, the related statements of operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended February 2, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2025 and February 4, 2024, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also 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 February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 10, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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. 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. Barter Arrangements — Refer to Note 1 to the financial statements Critical Audit Matter Description The Company has a bartering arrangement with a third-party vendor, in which the Company repurposes returned open-box inventory in exchange for media credits. 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. 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 forecasted media spend subject to media credits under the barter arrangement. For the year ended February 2, 2025, the Company recognized $9.0 million of barter sales in exchange for media credits. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for F-3 Table of Contents any changes in circumstances. As of February 2, 2025, the Company had $36.7 million of unused media credits and did not recognize any impairment. 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 and of forecasted media spend used to evaluate the unused media credits for potential impairment. 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 and future utilization of media credits. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to barter arrangement included the following, among others: ◦ We tested the effectiveness of controls over the determination of the transaction price. ◦ We read the underlying barter transaction agreements. ◦ 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: ▪ Obtained shipping documents that evidenced the transfer of control of the related inventory. ▪ Compared management’s estimate of advertising costs to the actual advertising costs incurred for selected promotional campaigns subject to the barter arrangement from the third-party vendor. ▪ 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. ▪ 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. /s/ Deloitte & Touche LLP Stamford, Connecticut April 10, 2025 We have served as the Company’s auditor since fiscal 2023. F-4 Table of Contents THE LOVESAC COMPANY BALANCE SHEETS (amounts in thousands, except share and per share amounts) February 2, 2025 February 4, 2024 Assets Current Assets Cash and cash equivalents $ 83,734 $ 87,036 Trade accounts receivable, net 16,781 13,463 Merchandise inventories, net 124,333 98,440 Prepaid expenses 14,807 11,664 Other current assets 6,942 3,845 Total Current Assets 246,597 214,448 Property and equipment, net 77,990 70,807 Operating lease right-of-use assets 157,750 155,856 Goodwill 144 144 Intangible assets, net 1,586 1,457 Deferred tax asset 15,277 10,803 Other assets 32,906 28,665 Total Assets $ 532,250 $ 482,180 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 51,814 $ 28,821 Accrued expenses 51,986 38,622 Payroll payable 9,501 6,998 Customer deposits 11,250 8,257 Current operating lease liabilities 22,662 17,628 Sales taxes payable 7,897 6,030 Total Current Liabilities 155,110 106,356 Operating lease liabilities, long-term 160,361 157,876 Income tax payable, long-term 424 452 Line of credit — — Total Liabilities $ 315,895 $ 264,684 Commitments and Contingencies (See Note 7) Stockholders’ Equity Preferred stock $ 0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of February 2, 2025 and February 4, 2024. — — Common stock $ 0.00001 par value, 40,000,000 shares authorized, 14,786,934 shares issued and outstanding as of February 2, 2025 and 15,489,364 shares issued and outstanding as of February 4, 2024. — — Additional paid-in capital 190,510 183,095 Accumulated earnings 25,845 34,401 Stockholders’ Equity 216,355 217,496 Total Liabilities and Stockholders’ Equity $ 532,250 $ 482,180 The accompanying notes are an integral part of these financial statements F-5 Table of Contents THE LOVESAC COMPANY STATEMENTS OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023 (amounts in thousands, except per share data and share amounts) 2025 2024 2023 Net sales $ 680,628 $ 700,265 $ 651,179 Cost of merchandise sold 282,793 299,222 307,528 Gross profit 397,835 401,043 343,651 Operating expenses: Selling, general and administrative expenses 281,450 264,314 215,979 Advertising and marketing 88,027 94,050 79,864 Depreciation and amortization 14,710 12,603 10,842 Total operating expenses 384,187 370,967 306,685 Operating income 13,648 30,076 36,966 Interest and other income (expense), net 2,801 1,747 ( 117 ) Net income before taxes 16,449 31,823 36,849 Income tax expense 4,893 7,962 10,361 Net income $ 11,556 $ 23,861 $ 26,488 Net income per common share: Basic $ 0.75 $ 1.55 $ 1.74 Diluted $ 0.69 $ 1.45 $ 1.66 Weighted average shares outstanding: Basic 15,502,469 15,427,975 15,198,754 Diluted 16,791,471 16,460,383 15,955,668 The accompanying notes are an integral part of these financial statements F-6 Table of Contents THE LOVESAC COMPANY STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023 Common Additional Paid-in Capital Accumulated Earnings (Deficit) Total Shareholders' Equity (amounts in thousands, except share amounts) Shares Amount Balance - January 30, 2022 15,123,338 $ — $ 173,762 $ ( 15,948 ) $ 157,814 Net income — — — 26,488 26,488 Equity-based compensation — — 10,450 — 10,450 Vested restricted stock units 72,360 — — — — Taxes paid for net share settlement of equity awards — — ( 1,658 ) — ( 1,658 ) Balance - January 29, 2023 15,195,698 — 182,554 10,540 193,094 Net income — — — 23,861 23,861 Equity-based compensation — — 4,216 — 4,216 Vested restricted stock units 219,074 — — — — Taxes paid for net share settlement of equity awards — — ( 3,675 ) — ( 3,675 ) Exercise of warrants 74,592 — — — — Balance - February 4, 2024 15,489,364 $ — $ 183,095 $ 34,401 $ 217,496 Net income — — — 11,556 11,556 Equity-based compensation — — 7,945 — 7,945 Vested restricted stock units 75,283 — — — — Repurchases of common stock ( 777,713 ) — — ( 20,112 ) ( 20,112 ) Taxes paid for net share settlement of equity awards — — ( 530 ) — ( 530 ) Balance - February 2, 2025 14,786,934 $ — $ 190,510 $ 25,845 $ 216,355 The accompanying notes are an integral part of these financial statements F-7 Table of Contents THE LOVESAC COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023 (amounts in thousands) 2025 2024 2023 Cash Flows from Operating Activities Net income $ 11,556 $ 23,861 $ 26,488 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 14,292 12,174 10,454 Amortization of other intangible assets 418 429 388 Amortization of deferred financing fees 127 159 164 Net loss on disposal of property and equipment 140 235 45 Gain on lease termination — ( 131 ) — Equity based compensation 7,945 4,216 10,450 Non-cash lease expense 25,171 22,631 19,265 Deferred income taxes ( 4,474 ) ( 2,126 ) 1,044 Change in operating assets and liabilities: Trade accounts receivable ( 3,318 ) ( 4,360 ) ( 555 ) Merchandise inventories ( 25,893 ) 21,187 ( 11,135 ) Prepaid expenses and other current assets ( 6,064 ) ( 164 ) 3,087 Other assets ( 4,241 ) ( 6,301 ) ( 20,913 ) Accounts payable 22,392 2,669 ( 12,774 ) Accrued expenses and other payables 17,507 14,020 ( 18,564 ) Operating lease liabilities ( 19,546 ) ( 14,007 ) ( 22,263 ) Customer deposits 2,993 1,497 ( 6,556 ) Other liabilities ( 28 ) 452 — Net cash provided by (used in) operating activities 38,977 76,441 ( 21,375 ) Cash Flows from Investing Activities Purchase of property and equipment ( 21,026 ) ( 28,736 ) ( 25,242 ) Payments for patents and trademarks ( 491 ) ( 475 ) ( 307 ) Net cash used in investing activities ( 21,517 ) ( 29,211 ) ( 25,549 ) Cash Flows from Financing Activities Taxes paid for net share settlement of equity awards ( 530 ) ( 3,675 ) ( 1,658 ) Repurchases of common stock ( 19,929 ) — — Proceeds from the line of credit — 255 — Payments on the line of credit — ( 255 ) — Payment of deferred financing costs ( 303 ) ( 52 ) ( 277 ) Net cash used in financing activities ( 20,762 ) ( 3,727 ) ( 1,935 ) Net change in cash and cash equivalents ( 3,302 ) 43,503 ( 48,859 ) Cash and cash equivalents - Beginning 87,036 43,533 92,392 Cash and cash equivalents - Ending $ 83,734 $ 87,036 $ 43,533 Supplemental Cash Flow Data: Cash paid for taxes $ 8,447 $ 1,810 $ 10,670 Cash paid for interest $ 112 $ 146 $ 192 Non-cash investing and financing activities: Asset acquisitions not yet paid for at period end $ 1,240 $ 1,576 $ 4,103 Excise tax on share repurchases, accrued but not paid $ 183 $ — $ — The accompanying notes are an integral part of these financial statements F-8 Table of Contents THE LOVESAC COMPANY NOTES TO FINANCIAL STATEMENTS Note 1. Basis of Presentation, and Summary of Significant Accounting Policies Nature of Operations 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 points in the form of our own showrooms, which include our mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. As of February 2, 2025, the Company operated 257 showrooms including kiosks and mobile concierges located throughout the United States. 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. Basis of Presentation The financial statements of the Company as of February 2, 2025 and February 4, 2024 and for the years ended February 2, 2025, February 4, 2024 and January 29, 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission. Fiscal Year The Company’s fiscal year is determined on a 52/53 week basis ending on the Sunday closest to February 1. Hereinafter, fiscal years ended February 2, 2025, February 4, 2024 and January 29, 2023 are referred to as fiscal 2025, 2024 and 2023, respectively. Fiscal 2025, 2024 and 2023 were 52-week, 53-week and 52-week fiscal years, respectively. Use of Estimates The preparation of financial statements in conformity with U.S. 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. 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. Actual results may differ from the original or revised estimates. Revenue Recognition The Company's revenue consists substantially of product net sales. The Company reports product net sales net of discounts and recognizes them at the point in time when control transfers to the customer, which generally occurs upon our delivery to a third-party carrier. Shipping and handling charges billed to customers are included in revenue. 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. 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. Shipping and handling costs were $ 116.0 million, $ 133.2 million and $ 159.7 million in fiscal 2025, 2024 and 2023, respectively. Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies. 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. As of February 2, 2025 and February 4, 2024, there was a returns allowance recorded on the balance sheet in the amount of $ 9.2 million and $ 5.6 million, respectively, which was included in accrued expenses, and sales returns of $ 2.4 million and $ 1.3 million, respectively, included in merchandise inventories. F-9 Table of Contents In some cases, deposits are received before the Company transfers control, resulting in contract liabilities. These contract liabilities are reported as customer deposits on the Company's balance sheet. As of February 2, 2025, and February 4, 2024, the Company recorded customer deposit liabilities in the amount of $ 11.3 million and $ 8.3 million, respectively. During fiscal 2025, 2024 and 2023, the Company recognized $ 8.3 million, $ 6.8 million and $ 13.3 million, respectively, related to customer deposits from fiscal 2024, 2023 and 2022, respectively. The Company offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to its customers in showrooms, which include mobile concierge and kiosks, and through the internet. The Other channel predominantly represents net sales through the use of online and in-store pop-up shops, shop-in-shops, and barter inventory transactions. In-store pop-up-shops and shop-in-shops are staffed with associates trained to demonstrate and sell our product. The following represents net sales disaggregated by channel: (in thousands) 2025 2024 2023 Showrooms $ 425,863 $ 437,394 $ 398,184 Internet 196,313 199,778 176,519 Other 58,452 63,093 76,476 Total net sales $ 680,628 $ 700,265 $ 651,179 The Company has no foreign operations and its net sales to foreign countries was less than 0.01 % of total net sales in fiscal 2025, 2024, and 2023. The Company had no customers that comprise more than 10% of total net sales in fiscal 2025, 2024, or 2023. See Note 10. Segment Information for net sales disaggregated by product . Barter Arrangements The Company has a bartering arrangement with a third-party vendor. 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. 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. 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 forecasted media spend subject to media credits under the barter arrangement. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances. 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 expenses, with the remaining balance included as part of Other assets on the balance sheet. For fiscal 2025, 2024, and 2023, the Company recognized $ 9.0 million, $ 12.3 million, and $ 21.3 million, respectively, of barter sales in exchange for media credits. As of February 2, 2025, and February 4, 2024, the Company had $ 5.3 million and $ 5.1 million, respectively, of unused media credits expected to be utilized in the next fiscal year classified as current, and the remaining balance of $ 31.4 million and $ 27.7 million, respectively, classified as non-current. The credits expire from January through October 2034 and the Company expects to utilize all credits prior to expiration. The Company did not recognize any impairment for fiscal 2025, 2024, and 2023. 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 The Company considers all highly liquid investments with a maturity at purchase of three months or less to be cash equivalents. The Company has deposits with financial institutions that maintain Federal Deposit Insurance Corporation “FDIC” deposit insurance up to $250,000 per depositor. The portion of the deposit in excess of this limit represents a credit risk to the Company. Due to the high cash balance maintained by the Company, the Company does maintain depository balances in excess of the insured amounts. F-10 Table of Contents Trade Accounts Receivable, net 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. 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. 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. For fiscal 2025, 2024, and 2023, the Company recognized $ 0.4 million, $ 1.0 million, and $ 0.4 million , respectively, related to bad debt write-offs. Breakdown of trade accounts receivable is as follows: (in thousands) February 2, 2025 February 4, 2024 Credit card receivables $ 11,121 $ 10,963 Wholesale receivables 5,660 2,500 Total trade accounts receivable, net $ 16,781 $ 13,463 The Company had two wholesale customers that comprised 100 % of wholesale receivables at February 2, 2025 and February 4, 2024, respectively. Prepaid Expenses The Company recognizes payments made for goods and services to be received in the near future as prepaid expenses. Prepaid expenses consist primarily of barter credits and payments related to income taxes, insurance, rent, credit card fees, marketing, software licenses, and other costs. Other Current Assets Other current assets consist primarily of rebate receivables, deposits, and other receivables. Private Label Credit Card The Company has an agreement with Synchrony Bank (formerly GE Capital Retail Bank) (“Issuer”) to provide clients with private label credit cards (the “Retailer Program Agreement”) which was amended on March 24, 2023 to extend the term of the agreement through March 31, 2026. Each private label credit card bears The Lovesac Company brand logo and can only be used at the Company’s Showroom locations or website. The Issuer is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and fraudulent charges with specific requirements. During the term of the Retailer Program Agreement, the Company receives a percentage of private label credit card sales from the Issuer and is also eligible to receive incentive payments for the achievement of certain targets. These funds are recorded within net revenue in the statements of operation. The Company also receives reimbursement funds from the Issuer for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card and are recorded within net revenue in the statements of operation. Merchandise Inventories, net Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value. Cost is determined on a weighted-average method basis. Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. The Company adjusts its inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, the Company includes capitalized freight and warehousing costs in inventory relative to the finished goods in inventory. Gift Certificates and Merchandise Credits The Company sells gift certificates and issues merchandise credits to its customers in the showrooms and through its website. Revenue associated with gift certificates and merchandise credits is deferred until redemption of the gift certificate F-11 Table of Contents and merchandise credits. The Company did not recognize any breakage revenue in fiscal 2025, 2024 or 2023 as the Company continues to honor all outstanding gift certificates. Property and Equipment, net Property and equipment are stated at cost less accumulated depreciation and amortization. Office and showroom furniture and equipment, software and vehicles are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over their expected useful lives or lease term, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. 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. 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. Goodwill Goodwill represents the excess of the purchase price over the fair value of the identified net assets of each business acquired. Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying amounts may be impaired. The Company did no t recognize any goodwill impairment charges during fiscal 2025, 2024, or 2023. Intangible Assets, net 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. 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. There were no impairments during fiscal 2025, 2024, or 2023. Intangible assets, net as of February 2, 2025 and February 4, 2024 consists of (in thousands): February 2, 2025 February 4, 2024 Weighted-Average Remaining Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-Average Remaining Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Patents 7.5 $ 3,974 $ ( 2,459 ) $ 1,515 7.5 $ 3,493 $ ( 2,140 ) $ 1,353 Trademarks 2.0 1,661 ( 1,590 ) 71 2.0 1,595 ( 1,491 ) 104 Other intangibles 0.0 840 ( 840 ) — 0.0 840 ( 840 ) — Total $ 6,475 $ ( 4,889 ) $ 1,586 $ 5,928 $ ( 4,471 ) $ 1,457 Amortization expense was $ 0.4 million in fiscal 2025, 2024, and 2023. The following table presents the future expected amortization expense as of February 2, 2025 (in thousands): 2026 $ 373 2027 293 2028 264 2029 198 2030 158 After 300 $ 1,586 F-12 Table of Contents Impairment of Long Lived Assets Our long-lived assets consist of property and equipment and right-of-use assets from leases. 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. We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified. 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. 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. 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. These estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability. Actual future results may differ from those estimates. If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value. In fiscal 2025, 2024, and 2023, the Company did not recognize any impairment charges associated with showroom-level right of use lease assets. Product Warranty Depending on the type of merchandise, the Company offers either a three-year limited warranty or a lifetime warranty. The Company’s warranties require it to repair or replace defective products at no cost to the customer. At the time product revenue is recognized, the Company reserves for estimated future costs that may be incurred under its warranties based on historical experience. The Company periodically reviews the adequacy of its recorded warranty liability. Product warranty expense, without any reserve adjustments, was approximately $ 2.5 million, $ 2.0 million, and $ 0.7 million in fiscal 2025, 2024, and 2023. Warranty reserve was $ 2.4 million and $ 1.4 million as of February 2, 2025 and February 4, 2024, respectively, which was included in accrued expenses. Leases The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through April 2035. Leases with an initial term of twelve months or less are not recorded on the balance sheet and are expensed as incurred over the lease term in the Statements of Operations. 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. 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 possession date. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. 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. 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. We determine incremental borrowing rates quarterly as of the last day of each prior fiscal quarter provided by a third party valuation specialist. 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. 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. F-13 Table of Contents 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. Cost of Merchandise Sold Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; all freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs associated with shipping product to our customers. Certain of our competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit and profit margin may not be comparable to other companies. The primary drivers of our cost of merchandise sold are raw materials costs, labor costs in the countries where we source our merchandise, and logistics costs. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. Selling, General and Administrative Expenses Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expenses and public company expenses; and credit card transaction fees. 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. Research and Development Expenses Research and development costs are charged to expense in the period incurred. Research and development expense were $ 8.4 million, $ 7.7 million, and $ 8.4 million in fiscal years 2025, 2024, and 2023, respectively. Employee Benefit Plan In February 2017, the Company established The Lovesac Company 401(k) Plan (the “401(k) Plan”) with elective deferrals beginning May 1, 2017. The 401(k) Plan calls for elective deferral contributions, safe harbor matching contributions and profit sharing contributions. 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. Participants are able to contribute up to 100 % of their eligible compensation to the 401(k) Plan subject to limitations with the IRS. Employer contributions to the 401(k) Plan for fiscal years 2025, 2024, and 2024 were approximately $ 2.1 million, $ 1.6 million, and $ 1.3 million, respectively. Advertising Expenses Advertising expense include digital, social, and traditional advertising that covers all of our business channels. All advertising costs are expensed as incurred, or upon the release of the initial advertisement. Total advertising expenses were $ 77.4 million, $ 82.3 million, and $ 71.4 million in fiscal years 2025, 2024, and 2023, respectively. Showroom Preopening and Closing Costs Non-capital expenditures incurred in preparation for opening new retail showrooms are expensed as incurred and included in selling, general and administrative expenses. The Company continually evaluates the profitability of its showrooms. 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. Such costs are expensed as incurred and are included in selling, general and administrative expenses. F-14 Table of Contents Equity-Based Compensation 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. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. Vesting is typically over a three or four-year period and is contingent upon continued employment with the Company on each vesting date. 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. 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. For performance based restricted stock units, stock-based compensation expense is recognized based on expected achievement of performance targets. The Company recognizes forfeitures as they occur. Income Taxes The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as non-current to the extent that the Company anticipates payment (or receipt) of cash beyond one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes. 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. A valuation allowance is provided for that portion of deferred income tax assets not likely to be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Basic and Diluted Net Income (Loss) Per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive potential common shares, including unvested restricted stock units, stock options, and warrants. Diluted net income per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities under the treasury stock method, where the average market price of the common stock exceeds the exercise prices for the respective periods. In periods of loss, there are no potentially dilutive common shares to add to the weighted average number of common shares outstanding. Recent Accounting Pronouncements 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. Recent Accounting Pronouncements Adopted Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. On February 5, 2024, the Company adopted ASU 2023-07 with impact to its disclosures only and no impacts to its results of operations, cash flows or financial condition. Recent Accounting Pronouncements Not Yet Adopted Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This accounting standards update will be effective for us for fiscal year 2026 and interim periods beginning in F-15 Table of Contents the first quarter of fiscal 2027, with early adoption permitted. The Company expects this ASU to only impact its disclosures with no impacts to its results of operations, cash flows or financial condition. Disaggregation of income statement expenses. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disclosure of certain costs and expenses within the notes to the financial statements. This accounting standards update will be effective for us for fiscal year 2028 and interim periods beginning in the first quarter of fiscal 2029, with early adoption permitted. The Company expects this ASU to only impact its disclosures with no impacts to its results of operations, cash flows or financial condition. Climate-Related Disclosures. In March 2024, the SEC passed rule changes that will require registrants to provide certain climate-related information in their registration statements and annual reports. The new rules enhance and standardize climate-related disclosures in an effort to provide investors with more consistent, comparable and reliable information about the impact of climate-related risks on registrants. The rules require disclosure of greenhouse gas (GHG) emissions in annual reports and registration statements Additionally, all registrants would be required to provide numerous climate-related disclosures within their financial statements and elsewhere in their filings. In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule. The Company is currently evaluating the impact of the potential rule change. This accounting standards update would be effective for us for fiscal year 2027. Note 2. Property and Equipment, net Property and equipment, net as of February 2, 2025 and February 4, 2024 consists of (in thousands): Estimated Life February 2, 2025 February 4, 2024 Office and store furniture, and equipment 5 Years $ 15,410 $ 13,089 Software 5 Years 3,006 5,206 Leasehold improvements Shorter of estimated useful life or lease term 97,874 80,501 Computers 3 Years 5,747 5,254 Tools, Dies, Molds 5 Years 1,525 779 Vehicles 5 Years 497 497 Construction in process NA 6,442 7,826 Total 130,501 113,152 Accumulated depreciation and amortization ( 52,511 ) ( 42,345 ) Property and equipment, net $ 77,990 $ 70,807 Depreciation and amortization expense was $ 14.3 million, $ 12.2 million, and $ 10.5 million in fiscal 2025, 2024, and 2023, respectively. Note 3. Accrued Expenses The following table presents the components of accrued expenses (in thousands): February 2, 2025 February 4, 2024 Accrued warehouse, freight, and inventory $ 17,837 $ 13,348 Customer return liability 10,042 5,606 Accrued income taxes 8,259 7,675 Accrued advertising and marketing 6,707 3,373 Warranty liability 2,391 1,359 Other accrued expenses (1) 6,750 7,261 Total Accrued Expenses $ 51,986 $ 38,622 (1) Other accrued expenses consists primarily of professional fees, credit card fees, rent, property and equipment, and other operating costs. F-16 Note 4. Income Taxes The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations for fiscal 2025, 2024, and 2023 are set forth below: 2025 2024 2023 Current taxes: U.S. federal $ 6,767 $ 6,898 $ 6,127 State and local 2,600 3,190 3,190 Total current tax expense $ 9,367 $ 10,088 $ 9,317 Deferred taxes: U.S. federal $ ( 3,498 ) $ ( 1,238 ) $ 1,767 State and local ( 976 ) ( 888 ) ( 723 ) Total deferred tax (benefit) expense ( 4,474 ) ( 2,126 ) 1,044 Total income tax expense $ 4,893 $ 7,962 $ 10,361 A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2025, 2024, and 2023 is as follows: 2025 2024 2023 Provision (benefit) at federal Statutory rates 21.0 % 21.0 % 21.0 % State tax, net of federal provision (benefit) 6.6 % 5.1 % 4.9 % Non-deductible executive compensation — % 0.3 % 1.8 % Permanent adjustments 0.2 % 0.1 % 0.2 % Penalties 1.9 % — % — % Equity-based compensation 2.7 % 0.5 % 0.1 % Research and development credit ( 2.1 ) % ( 3.6 ) % — % Other ( 0.4 ) % 0.2 % 0.1 % Uncertain tax benefits ( 0.2 ) % 1.4 % — % Effective tax rate 29.7 % 25.0 % 28.1 % F-17 Table of Contents Significant components of the Company's deferred tax assets are as follows (in thousands): February 2, 2025 February 4, 2024 Deferred Income Tax Assets State net operating loss carryforward $ 286 $ 342 Intangible assets 467 465 Accrued liabilities 4,043 2,879 Equity-based compensation 3,122 2,219 Merchandise inventories 4,534 3,848 Research and development capitalization 4,183 3,687 Operating lease liabilities 46,994 45,220 Total Deferred Income Tax Assets 63,629 58,660 Deferred Income Tax Liabilities Operating lease right of use asset ( 40,505 ) ( 40,393 ) Property and equipment ( 7,847 ) ( 7,464 ) Total Deferred Tax Liabilities ( 48,352 ) ( 47,857 ) Net Deferred Income Tax Asset $ 15,277 $ 10,803 At February 2, 2025 and February 4, 2024, the Company did no t have any net operating loss carryforwards available for federal income tax purposes. The Company has approximately $ 4.8 million and $ 5.7 million of state net operating loss carryforwards as of February 2, 2025 and February 4, 2024, respectively. The state net operating losses expire at various times between 2032 and 2040. The statute of limitations has expired for all tax years prior to 2022 for federal and state tax purposes. 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. As of February 2, 2025 and February 4, 2024, 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. A reconciliation of beginning and ending amounts of unrecognized tax benefits for fiscal 2025, 2024, and 2023 is as follows: 2025 2024 2023 Gross unrecognized tax benefit, beginning of period $ 452 $ — $ — Additions based on tax positions related to the current year 65 177 — Additions related to tax positions in prior year — 275 — Settlements related to tax positions in a prior period — — — Decreases based on tax positions in a prior period ( 142 ) — — Gross unrecognized tax benefit, end of period $ 375 $ 452 $ — The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. As of February 2, 2025 and February 4, 2024, the Company has unrecognized tax benefits of $ 0.4 million and $ 0.5 million, respectively. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no material interest or penalties during fiscal 2025, 2024, and 2023. To the extent these unrecognized tax benefits are ultimately recognized, approximately $ 0.4 million will impact the Company’s effective tax rate. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations. The Internal Revenue Service (IRS) has concluded the audit of the Company's fiscal 2019 federal income tax return as of February 4, 2024. During fiscal 2025, the Company filed amended federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement. The amended returns did not have a material impact to the financial statements. F-18 Table of Contents On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of February 2, 2025, and will continue to monitor the impact of the changes. 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. For fiscal 2025, 2024, and 2023, due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $ 7.5 million, $ 9.0 million, and $ 7.7 million , respectively, with a corresponding increase in the Company’s deferred tax assets. The Company will continue to monitor the impact of changes in tax legislation. Note 5. Basic and Diluted Net Income Per Common Share The following table sets forth the computation of basic and diluted net income per share for fiscal 2025, 2024, and 2023: (amounts in thousands, except per share data and share amounts) 2025 2024 2023 Net income $ 11,556 $ 23,861 $ 26,488 Weighted-average number of common shares outstanding, basic 15,502,469 15,427,975 15,198,754 Effect of dilutive securities (1) 1,289,002 1,032,408 756,914 Weighted-average number of common shares outstanding, diluted 16,791,471 16,460,383 15,955,668 Basic net income per share $ 0.75 $ 1.55 $ 1.74 Diluted net income per share $ 0.69 $ 1.45 $ 1.66 (1) The effect of dilutive securities includes unvested restricted stock units, stock options and warrants. During fiscal 2024, all remaining outstanding warrants were exercised. For fiscal 2025, 2024, and 2023, the effects of 495,366 stock options outstanding were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive. Note 6. Leases Components of lease expense were as follows (in thousands): 2025 2024 2023 Operating lease expense $ 34,469 $ 30,305 $ 24,173 Variable and short term lease expense 7,465 13,290 16,803 Total lease expense $ 41,934 $ 43,595 $ 40,976 Variable lease expense includes percentage rent, maintenance, sales tax on rent, insurance and other variable charges included in the lease as well as rental expenses related to short term leases. During fiscal 2025, 2024, and 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets. F-19 Table of Contents Future minimum lease payments under non-cancelable leases as of February 2, 2025 were as follows (in thousands): 2026 $ 32,024 2027 33,583 2028 31,331 2029 28,826 2030 26,810 Thereafter 70,284 Total undiscounted future minimum lease payments 222,858 Less: imputed interest ( 39,835 ) Total present value of lease obligations 183,023 Less: current operating lease liability ( 22,662 ) Operating lease liability- long term $ 160,361 Supplemental cash flow information related to our operating leases is as follows (in thousands): 2025 2024 2023 Operating cash flow information: Amounts paid on operating lease liabilities $ 34,651 $ 29,748 $ 23,724 Non-cash activities Net additions to right-of-use assets obtained in exchange for lease obligations $ 22,639 $ 42,064 $ 53,239 Weighted average remaining lease term - operating leases 6.9 years 7.5 years 7.4 years Weighted average discount rate - operating leases 5.23 % 4.97 % 4.10 % Note 7. Commitments, Contingencies and Related Parties Legal Proceedings We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below. We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred. Legal proceedings are inherently unpredictable. It is possible that our financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings. As previously disclosed, the Company voluntarily self-reported to the SEC information concerning the internal investigation of the accounting matters that led to the restatement of its previously issued audited financial statements as of and for the year ended January 29, 2023 and our unaudited condensed financial statements for the quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022. As a result of self-reporting, the Company was the subject of a non-public investigation by the SEC. The Company cooperated fully with the SEC in its investigation, and on October 29, 2024, the Company agreed to a settlement to resolve the claims against it. Without admitting or denying the SEC’s allegations, Lovesac agreed to the entry of a final judgment ordering it to pay a $ 1.5 million civil penalty and imposing a permanent injunction against future violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and the associated rules thereunder. During F-20 Table of Contents fiscal 2025, t he penalties were recognized within selling, general and administrative expense in the Statements of Operations and paid in full. On December 19, 2023, a putative securities class action was filed against the Company and certain of its current and former officers related to the restatement of certain of the Company’s financial statements. The suit, captioned Gutknecht v. The Lovesac Company , No. 3:23-cv-1640, was filed in the United States District Court for the District of Connecticut and alleges that all defendants violated Sections 10(b) of the Exchange Act and SEC Rule 10b-5 and that the individual defendants violated Section 20(a) of the Exchange Act. The complaint generally alleges that the Company made certain misrepresentations or failed to disclose certain accounting errors related to the restatement of its financial statements and that the Company’s disclosure controls and procedures and internal controls over financial reporting were deficient. The plaintiffs seek, among other things, an unspecified amount of damages and attorneys’ fees, expert fees and other costs. On March 11, 2024, the court appointed Susan Cooke Peña as Lead Plaintiff and The Rosen Law Firm, P.A. as Lead Counsel. On May 29, 2024, the parties entered into a term sheet to settle the action, subject to various conditions, including execution of a definitive settlement agreement, filing of the definitive agreement with the court, and court approval. The parties executed the definitive settlement agreement on July 30, 2024. The court preliminarily approved the proposed settlement on August 1, 2024, authorized dissemination of notice to the class, and scheduled a fairness hearing. On December 9, 2024, the Court entered an order approving final settlement of the litigation, including dismissing the lawsuit and releasing all claims in exchange for a settlement payment by the Company (the “Approval Order”). On December 10, 2024, the Court entered judgment dismissing the litigation on the merits and with prejudice according to the terms of the parties’ settlement agreement and the Approval Order. During fiscal 2025, the settlement was recognized within selling, general and administrative expense in the Statements of Operations and paid in full. On July 29, 2024, a putative shareholder derivative action captioned Getz v. Nelson , No. 3:24-cv-1260, was filed in the United States District Court for the District of Connecticut on behalf of the Company against certain of its current and former officers and directors. Two similar shareholder derivative actions, captioned Valle v. Dellomo , No. 3:24-cv-1327, and McKinnon v. Nelson , No. 3:24-cv-1343, were filed in the same court against the same defendants on August 19, 2024, and August 21, 2024, respectively. The cases assert claims on behalf of the Company for breach of fiduciary duty, violations of the Exchange Act, unjust enrichment, corporate waste, and aiding and abetting primary violations. The factual allegations underlying those claims are similar to those alleged in the securities class action. The plaintiffs seek, among other things, an unspecified amount of damages and attorneys’ fees, expert fees, and other costs. On September 20, 2024, the Court consolidated the three lawsuits under the caption In re The Lovesac Company Derivative Litigation , Lead Case No. 3:24-cv-01260-VAB (i.e., the “Derivative Action”). The parties have reached an agreement in principle to settle the Derivative Action, which is subject to execution of a definitive agreement and, among other conditions, approval by the Court. If the contemplated settlement is ultimately concluded as agreed in principle, the Company believes the resolution will not have a material impact to the financial statements. On March 21, 2024, a putative class action complaint related to the Company’s pricing was filed against the Company. The lawsuit, captioned Nguyen v. The Lovesac Company , was filed in the Superior Court of California, County of Sacramento, and was removed to the United States District Court for the Eastern District of California. The complaint generally alleges that the Company falsely advertised discounts on certain products. The plaintiff seeks, among other things, an unspecified amount of monetary damages, including treble damages, punitive damages, injunctive relief related to the Company’s sales practices, and attorneys’ fees, expert fees, and other expenses. On June 24, 2024, the Company filed a motion to dismiss. On July 15, 2024, the plaintiff filed an amended complaint. On August 12, 2024, the Company filed a motion to dismiss the plaintiff’s amended complaint. On November 26, 2024, the court entered an order to stay all proceedings in the case in light of a mediation of the dispute scheduled for January 23, 2025. The parties were unable to come to an agreement at the January 23, 2025 mediation. On February 7, 2025, the court unstayed the proceedings in the case for the purpose of ruling on the Company's pending motion to dismiss. On March 28, 2025, the court granted the Company's motion to dismiss with leave to amend, but dismissed Plaintiff's request for injunctive relief without leave to amend. The court provided the plaintiff 30 days to file another amended complaint. If the plaintiff amends his complaint, the Company will have 21 days to file a responsive pleading. At this time, we are unable to reasonably estimate the possible loss or range of loss from this proceeding. F-21 Table of Contents Note 8. Financing Arrangements Credit Line On February 6, 2018, the Company established a $ 25.0 million line of credit with Wells Fargo Bank, National Association ("Wells"). 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 from $ 25.0 million to $ 40.0 million, subject to borrowing base and availability restrictions. Availability is based on eligible accounts receivable and inventory. 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. Our credit agreement includes a $ 1.0 million sublimit for the issuance of letters of credit and a $ 4.0 million sublimit for swing line loans. 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. On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. On July 29, 2024, the Company amended the credit agreement to, among other things, add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, increase the size of the revolving credit facility by $ 10.0 million and extend the maturity date of the loans made under the credit agreement from September 30, 2024 to July 29, 2029. As of February 2, 2025 and February 4, 2024, the Company’s borrowing availability under the line of credit with Wells was $ 32.6 million and $ 36.0 million, respectively, there were no borrowings outstanding on this line of credit, and the Company was in compliance with required covenants. Note 9. Stockholders' Equity Common Stock Warrants On June 29, 2018, the Company issued 281,750 warrants with a five-year term and an average exercise price of $ 19.20 to Roth Capital Partners, LLC as part of the underwriting agreement in connection with the Company's IPO. 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. As of January 30, 2022, the weighted average contractual life of the 281,750 outstanding warrants was 1.4 years. There were no warrants issued, exercised, or expired and canceled in fiscal 2023 and the weighted average remaining contractual life was 0.4 years as of January 29, 2023. In fiscal 2024, Roth Capital Partners, LLC performed a cashless exercise of all 281,750 remaining outstanding warrants resulting in 74,592 net shares issued. As of February 2, 2025, no warrants remain outstanding. Equity Incentive Plans The Company adopted the Second Amended and Restated 2017 Equity Incentive Plan (the "2017 Equity Plan") which provides for awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance based restricted stock units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. In fiscal 2025, the 2017 Equity Plan was amended to increase the shares of our common stock authorized and reserved for issuance by 1,100,000 shares, which increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan to 3,979,889 shares of common stock. Time-Based Restricted Stock Units Time-based restricted stock units ("RSU awards") granted under the 2017 Equity Plan are generally subject to only a service-based vesting condition. RSU awards vest equally over three years on the anniversary date of the grant date if employed at the time of vesting. The valuation of these RSU awards is based solely on the fair value of the Company’s stock on the date of grant. F-22 Table of Contents Performance Based Restricted Stock Units Performance based restricted stock units ("PSU awards") granted under the 2017 Equity Plan are generally subject to both a service-based vesting condition and a performance-based vesting condition. PSU awards will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates. The stock-based compensation expense relating to PSU awards is recognized over the requisite service period when it is probable that the performance condition will be satisfied. Stock Options In June 2019, the Company granted 495,366 non-statutory stock options to certain officers of the Company with an exercise 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. Both the employment and the market condition were originally 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. The 495,366 stock options were modified in fiscal 2022 to extend the term of the options through June 5, 2024. This resulted in additional compensation of approximately $ 0.9 million, of which, $ 0.3 million was recorded upon modification with the remaining expense to be recognized over the remaining expected term. 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. The options vested and became exercisable on June 5, 2022 as the officers were still employed on that date. There were no stock options issued, exercised, or expired and canceled during fiscal 2025, 2024, and 2023. The following represents stock option activity during fiscal 2025, 2024, and 2023 : Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Average intrinsic value Outstanding at January 30, 2022 495,366 $ 38.10 2.35 $ 6,162 Issued — — Canceled and forfeited — — Exercised — — Outstanding at January 29, 2023 495,366 38.10 1.35 — Issued — — Canceled and forfeited — — Exercised — — Outstanding at February 4, 2024 495,366 38.10 5.34 — Issued — — Canceled and forfeited — — Exercised — — Outstanding and exercisable at February 2, 2025 495,366 $ 38.10 4.34 $ — F-23 Table of Contents Time and Performance Based Restricted Stock Units The following table summarizes the Company's RSU and PSU awards activity during fiscal 2025, 2024, and 2023: Number of shares Weighted average grant date fair value Unvested at January 30, 2022 533,333 $ 28.41 Granted 289,625 44.20 Forfeited ( 62,186 ) 29.09 Vested ( 120,516 ) 36.03 Unvested at January 29, 2023 640,256 34.50 Granted 836,678 26.50 Forfeited ( 63,298 ) 34.93 Vested ( 381,228 ) 25.24 Unvested at February 4, 2024 1,032,408 31.41 Granted 847,634 21.47 Forfeited ( 484,447 ) 32.55 Vested ( 106,593 ) 34.31 Unvested at February 2, 2025 1,289,002 $ 24.20 In March 2023, Shawn Nelson, our Chief Executive Officer, received a one-time performance and retention long-term incentive grant of 235,000 Restricted Stock Units (the “RSU Grant”) pursuant to the 2017 Equity Plan and Mr. Nelson’s Restricted Stock Units Agreement and Grant Notice (the “RSU Agreement”). 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. Nelson remains in continuous service with the Company as Chief Executive Officer through such date; 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. Nelson remains in continuous service with the Company through such date. Except in the event of termination of employment as defined in the 2017 Equity Plan, the RSU Grant will be settled in shares of common stock of the Company on the first anniversary of the applicable vesting date. The RSU grant was 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. The grant date fair value of the RSU Grant was $ 4.4 million. The expense will be recognized on a straight-line basis over the longest of the derived, explicit, or implicit service period. Equity-based compensation expense was approximately $ 7.9 million, $ 4.2 million, and $ 10.5 million for fiscal 2025, 2024, and 2023 respectively. The total unrecognized equity based compensation cost related to unvested RSU and PSU awards was approximately $ 16.7 million as of February 2, 2025 and will be recognized in operations over a weighted average period of 2.7 years. Share Repurchase Program On June 11, 2024, our Board of Directors approved a $ 40.0 million share repurchase program. Under the share repurchase program, we may repurchase shares from time to time in the open market, privately negotiated transactions and accelerated share repurchase. The timing, volume and nature of share repurchases, if any, will be at our sole discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or discontinue the share repurchase program at any time. The exact number of shares to be repurchased by the Company, if any, is not guaranteed. Depending on market conditions and other factors, these repurchases may be commenced or suspended at any time or periodically without prior notice. During fiscal 2025, we repurchased and subsequently retired 777,713 shares of common stock for $ 19.9 million, including broker commissions and fees. The Inflation Reduction Act imposed a nondeductible 1% excise tax on the net value of stock repurchases. During fiscal 2025, the excise tax on net share repurchases was not material. F-24 Table of Contents As of February 2, 2025, we had $ 20.1 million available to repurchase shares pursuant to the share repurchase program. Note 10. Segment Information Segments are reflective of how the chief operating decision maker ("CODM") reviews operating results for the purpose of allocating resources and assessing performance. The CODM group of the Company is comprised of the Chief Executive Officer and the President/Chief Operating Officer. The Company markets and sells its products through an omni-channel platform that provides a seamless and meaningful experience to its customers across multiple channel. The Company has one operating segment which aligns with the way our CODM group evaluates performance and allocates resources within the Company. As the Company's products and sales channels are complementary and analyzed in the same manner, the Company operates its business as one operating segment and therefore it has one reportable segment. The CODM group regularly receives financial information presented on an entity-wide basis. The CODM group uses net sales and net income as reported on the statements of operations to allocate resources, assess performance of our business, and evaluate earnings generated in deciding where to reinvest profits into its single reportable segment. Net sales and net income are used to monitor budget versus actual results. The significant expenses considered by the CODM group in evaluating the performance of our business are consistent with the financial information included on the Company's statements of operations. There are no additional expense categories and amounts that meet the definition of significant expense items that are regularly provided to the CODM group and included in net income. The CODM group may also evaluate financial performance based on net income adjusted for certain items that are unusual and non-recurring. While management uses these additional adjusted metrics in assessing and allocating resources to our business, management recognizes that US GAAP principles are the basis of our performance. The Company’s net sales by product which are considered one segment are as follows: 2025 2024 2023 Sactionals $ 621,898 $ 637,388 $ 584,449 Sacs 48,798 51,719 55,145 Other 9,932 11,158 11,585 Total net sales $ 680,628 $ 700,265 $ 651,179 Interest income (expense), net is as follows: 2025 2024 2023 Interest income (expense), net (1) 2,800 1,747 ( 117 ) (1) Interest income (expense), net is included in Interest and other income (expense), net on the statements of operations. As the Company discloses a single reportable segment, total net sales is reported in the statements of operations, segment assets are reported in the balance sheets, and capital expenditures are reported in the statements of cash flows. The Company has material long-lived assets, as stated on the balance sheet, with immaterial long-lived assets located in foreign countries. The accounting policies of the reported segment are the same as those described in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies. Refer to Revenue Recognition in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies for additional information on our sales channels, geographic areas, and major customers. F-25