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3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
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5: EX-32.2 Certification -- §906 - SOA'02 HTML 18K
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12: R2 Condensed Consolidated Balance Sheets HTML 125K
13: R3 Condensed Consolidated Balance Sheets HTML 38K
(Parentheticals)
14: R4 Condensed Statements of Operations HTML 92K
15: R5 Condensed Statements of Changes in Stockholders' HTML 53K
Equity
16: R6 Condensed Statement of Cash Flows HTML 98K
17: R7 Basis of Presentation and Summary of Significant HTML 26K
Accounting Policies
18: R8 Restatement of Previously Issued Financial HTML 227K
Statements
19: R9 Revenue Recognition HTML 35K
20: R10 Income Taxes HTML 24K
21: R11 Leases HTML 44K
22: R12 Basic and Diluted Net (Loss) Income Per Common HTML 22K
Share
23: R13 Commitment and Contingencies HTML 22K
24: R14 Financing Arrangements HTML 25K
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26: R16 Segment Information HTML 31K
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Accounting Policies (Policies)
28: R18 Restatement of Previously Issued Financial HTML 218K
Statements (Tables)
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Statements - Schedule of Impacts on Previously
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36: R26 Restatement of Previously Issued Financial HTML 154K
Statements - Balance Sheet (Details)
37: R27 Restatement of Previously Issued Financial HTML 97K
Statements - Statement of Operations (Details)
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Statements - Statement of Changes in Stockholders'
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Statements - Statement of Cash Flows (Details)
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41: R31 Revenue Recognition - Schedule of sales HTML 31K
disaggregated by channel (Details)
42: R32 Income Taxes (Details) HTML 25K
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44: R34 Leases - Schedule of lease terms and rates HTML 22K
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46: R36 Leases - Schedule of future minimum payments for HTML 40K
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Share (Details)
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(Exact name of registrant as specified in its charter)
iDelaware
i32-0514958
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iTwo Landmark Square, iSuite
300
iStamford, iConnecticut
i06901
(Address
of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (i888) i636-1223
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.00001 par value per share
iLOVE
iThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx
No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) ☒iYes☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
As
of May 31, 2023, there were i15,216,988 shares of common stock, $0.00001 par value per share, outstanding.
The Lovesac Company (“Lovesac”, the “Company”, “we”, “our” and similar terms) is filing this Amendment No. 2 on Form 10-Q/A (“Amendment No. 2”) to amend the Company’s Quarterly Form 10-Q for the period ended April 30, 2023 (the “Original 10-Q”), originally filed with the Securities and Exchange Commission (“SEC”) on June 9, 2023, as amended by Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) filed on November 2, 2023, solely to include certain footnote disclosures to our unaudited quarterly condensed financial statements as of and for the period ended April
30, 2023 (the “Restated Financial Statements”) that were included in the unaudited financial statements in the Original 10-Q, but were inadvertently omitted from the Restated Financial Statements included in Part I, Item 1 of Amendment No. 1. The restatement is further described in Amendment No. 1 and in Note 2. Restatement and Other Corrections of Previously Issued Financial Statements to the Restated Financial Statements in Part I. Item 1 contained herein.
In accordance with applicable SEC rules, this Amendment No. 2 includes new certifications specified in Rule 13a-14 under the Exchange Act from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.
Except as described above, no other amendments are being made to the Original 10-Q, as amended by Amendment No.
1. This Amendment No. 2 does not reflect events occurring after the filing of the Original 10-Q, as amended by Amendment No. 1, or modify or update the disclosure contained therein in any way other than as required to reflect the amendments discussed above.
(amounts in thousands, except share and per share amounts)
(unaudited)
Assets
Current Assets
Cash and cash equivalents
$
i45,125
$
i43,533
Trade
accounts receivable
i18,447
i9,103
Merchandise
inventories, net
i104,458
i119,627
Prepaid
expenses and other current assets
i13,432
i15,452
Total
Current Assets
i181,462
i187,715
Property and equipment, net
i59,219
i52,904
Operating
lease right-of-use assets
i143,609
i135,411
Other
Assets
Goodwill
i144
i144
Intangible
assets, net
i1,445
i1,411
Deferred
tax asset
i9,959
i8,677
Other
assets
i25,371
i22,364
Total Other
Assets
i36,919
i32,596
Total Assets
$
i421,209
$
i408,626
Liabilities
and Stockholders’ Equity
Current Liabilities
Accounts payable
$
i30,097
$
i24,576
Accrued
expenses
i16,265
i25,417
Payroll
payable
i6,582
i6,783
Customer
deposits
i15,372
i6,760
Current
operating lease liabilities
i16,933
i13,075
Sales
taxes payable
i3,878
i5,430
Total Current Liabilities
i89,127
i82,041
Operating
Lease Liabilities, long-term
i142,826
i133,491
Line
of Credit
i—
i—
Total Liabilities
i231,953
i215,532
Commitments
and Contingencies (see Note 7)
i
i
Stockholders’ Equity
Preferred
Stock $ii0.00001/ par value, ii10,000,000/
shares authorized, iiiino///
shares issued or outstanding as of April 30, 2023 and January 29, 2023.
i—
i—
Common
Stock $ii.00001/ par value, ii40,000,000/
shares authorized, ii15,217,120/ shares issued and outstanding as of April 30, 2023
and ii15,195,698/ shares issued and outstanding as of January 29, 2023.
i—
i—
Additional
paid-in capital
i182,831
i182,554
Accumulated
earnings
i6,425
i10,540
Stockholders’
Equity
i189,256
i193,094
Total Liabilities and Stockholders’ Equity
$
i421,209
$
i408,626
The
accompanying notes are an integral part of these condensed financial statements.
Note
1. iBasis of Presentation and Summary of Significant Accounting Policies
The balance sheet of The Lovesac Company (the “Company”, “we”, “us” or “our”) as of January 29, 2023, which has been derived from our audited financial statements as of and for the 52-week year ended January 29, 2023, and the accompanying interim unaudited condensed financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to those rules and regulations. The financial information presented herein, which is not necessarily indicative of results to be expected for the full current fiscal year, reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited condensed financial statements. Such adjustments are of a normal, recurring nature. These condensed financial statements should be read in conjunction with the Company’s financial statements filed in its Annual Report on Form
10-K/A for the fiscal year ended January 29, 2023.
Due to the seasonality of the Company’s business, with the majority of our activity occurring in the fourth quarter of each fiscal year, the results of operations for the thirteen weeks ended April 30, 2023 and May 1, 2022 are not necessarily indicative of results to be expected for the full fiscal year.
Nature of Operations
We are 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 net sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. As of April 30, 2023, the Company operated i211
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, the predecessor entity to the Company.
i
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.
i
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.
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 associates of the Company will be eligible to participate in the 401(k) Plan as of the day of the month which is coincident with or next follows the date on which they attain age 21 and complete one month of service. Participants will be able to contribute up to i100%
of their eligible compensation to the 401(k) Plan subject to limitations with the IRS. The Company's contributions to the 401(k) Plan were $i0.5 million and $i0.4
million for the thirteen weeks ended April 30, 2023 and May 1, 2022, respectively.
i
Note 2. Restatement and Other Corrections of Previously Issued Condensed Financial Statements
The Audit Committee of the Board of Directors of Lovesac completed an independent investigation in August 2023 whereby the
Company concluded $i2.2 million of last mile shipping expenses relating to the fiscal year ended January 29, 2023 were improperly capitalized during the quarter ended April 30, 2023. Through this investigation, the Company also determined that the methodology used to estimate an accrual of last mile freight expenses at each period end was not accurate because the calculation did not use the correct number of shipments that
were accepted by the shipper for delivery, but not yet invoiced to the Company. Management prepared a quantitative and qualitative analysis of these errors, along with certain other immaterial accounting errors, in accordance with the U.S. SEC Staff's Accounting Bulletin Nos. 99 and 108, Materiality, and concluded the aggregate impact of all the errors are material to the Company's previously reported interim, year-to-date, and annual financial statements as of and for the year ended January 29, 2023 and the Company’s previously reported interim financial statements as of and for the three-month period ended April 30,
2023. As a result, the accompanying financial statements as of April 30, 2023, and for the three months ended April 30, 2023 and May 1, 2022, and related notes hereto, have been restated to correct these errors.
i
A summary of the impacts of the adjustments on the previously reported financial statements are included below:
The Company recorded
adjustments to correct misstatements identified from the internal investigation related to last mile freight expenses. The result of the investigation concluded an inappropriately recorded journal entry increased inventory by $i2.2 million related to shipping expense pertaining to fiscal 2023, and also concluded the methodology used to estimate last mile freight accrual was incorrect. The correction of these items represent the net impact of the findings from the investigation as noted above.
(b) Leases
The
Company recorded adjustments to correct certain misstatements related to its operating leases. In the fiscal year 2022, the Company recorded an incorrect entry that resulted in the double-counting of rent expense associated with operating leases, with a corresponding impact on prepaid rent and lease liabilities as of January 30, 2022. In addition, the Company reversed the out of period correction of an incorrect entry pertaining to incremental borrowing rate that had been corrected for in the Annual Report on Form 10-K/A for the fiscal year ended January 29, 2023. This entry had an impact on prepaid rent, right-of-use assets, and the current and long-term portion of operating lease liabilities,
as of and during the fiscal year ended January 29, 2023. The Company also recorded the effects of an embedded lease entered into during the quarter that was previously identified and considered immaterial.
(c) Buyer’s Remorse
The Company recorded an adjustment to correct certain canceled sales orders related to buyer’s remorse, which related to fiscal 2023 and was incorrectly reflected as an increase to Selling, General and Administrative Expense for the thirteen weeks ended April 30, 2023. The
Company defines buyer's remorse as a customer who cancels an order within a short window of time after making a purchase.
(d) Supplier Rebates
During the quarter ended July 31, 2022, the Company received rebates from certain of its suppliers which was incorrectly recorded to cost of goods sold for the entire amount of the rebate received instead of deferring a portion of the rebate to inventory and recognizing the rebate in cost of goods sold as the related inventory was sold. We corrected these misstatements to defer the up-front consideration from suppliers when the retention or receipt of that consideration was to recognize the consideration as a reduction of cost
of goods sold over the sell through rate of the inventory.
(e) Balance Sheet Reclassifications
The Company recorded adjustments to correct the classification of certain balance sheet reclassifications between short and long-term assets. These adjustments primarily related to the classification of prepaid expenses and other current assets and the classification of other assets (long-term). In addition, the Company recorded adjustments to correct the classification of tenant improvement allowances which resulted in a reclassification between prepaid expenses and other current assets and short-term lease liabilities.
(f)
Income Taxes
The Company recorded adjustments to recognize the net impact on current and deferred income taxes associated with all the misstatements described herein. The adjustments to income taxes were recorded in the period corresponding with the respective misstatements. The correction of this error resulted in a decrease in benefit from income taxes for less than $i0.1 million for the period ended April
30, 2023.
(g) Inventory and Cost of Goods Sold
The Company recorded adjustments to correct for a misstatement of an accrual related to a duplicate recording of a vendor invoice for freight charges. The Company recorded another adjustment to correct for the misstatement of inventory related to partial returned goods.
(h) Equity Based Compensation Expense
The Company recorded an adjustment to recognize equity based compensation
expense in the period ended April 30, 2023 related to a one-time performance and retention long-term incentive award granted to our Chief Executive Officer in March 2023.
Below, we have presented a reconciliation from the as previously reported to the restated values for our condensed financial statements for the quarterly period ended April 30,
2023. The values as previously reported were derived from our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2023 filed on June 9, 2023.
The
description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in a decrease to merchandise inventories, net of $i2.2 million, an increase to prepaid expenses and other current assets of $i0.6 million,
a decrease to accrued expenses of less than $i0.1 million, and a decrease to accumulated earnings of $i1.6 million at April 30, 2023.
(b) Leases - The correction
of these misstatements resulted in an increase to prepaid expenses and other current assets of less than $i0.1 million, an increase to operating lease right-of-use assets of $i1.1 million, a decrease to accounts
payable of
$i2.1 million, an increase to current operating lease liabilities of $i0.2 million,
an increase to operating lease liability, long-term of $i1.0 million, and an increase to accumulated earnings of $i2.1 million at April 30, 2023.
(e)
Balance Sheet Reclassifications - The correction of these misstatements resulted in a decrease to prepaid expenses and other current assets of $i4.5 million, a decrease to current operating lease liabilities of $i5.5 million
and a decrease to other assets of $i1.0 million at April 30, 2023.
(f) Income Taxes - The tax impact of all misstatements resulted in a decrease to prepaid expenses and other current assets of less than $i0.1 million,
a decrease to deferred tax asset of $i0.8 million, a decrease to accrued expenses of $i0.5 million, and a decrease to accumulated earnings of $i0.3 million
at April 30, 2023.
(g) Inventory and Cost of Goods Sold - The correction of these misstatements resulted in a decrease to merchandise inventories, net of $i0.1 million and a decrease to accumulated earnings of $i0.1 million
at April 30, 2023.
(h) Equity Based Compensation Expense - The correction of these misstatements resulted in an increase to additional paid-in capital of $i0.1 million and decrease in accumulated earnings of $i0.1 million
at April 30, 2023.
The
description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in an increase to cost of merchandise sold of $i0.3 million for the thirteen weeks ended April 30, 2023.
(b) Leases - The correction of these misstatements resulted in an increase to selling, general and administrative expenses of less than $i0.1 million
for the thirteen weeks ended April 30, 2023.
(c) Buyer’s Remorse - The correction of these misstatements resulted in a decrease to selling, general and administrative expenses of $i0.4 million for the thirteen weeks ended April 30, 2023.
(f) Income Taxes - The tax impact of all misstatements resulted in a decrease to benefit from income taxes of less than $i0.1 million
for the thirteen weeks ended April 30, 2023.
(g) Inventory and Cost of Goods Sold - The correction of these misstatements resulted in a decrease to cost of merchandise sold of $i0.2 million for the thirteen weeks ended April 30, 2023.
(h) Equity Based Compensation Expense - The correction of these misstatements resulted in an increase to selling, general and administrative expenses of $i0.1 million
for the thirteen weeks ended April 30, 2023.
Adjustments
to reconcile net (loss) income to cash provided by operating activities:
Equity
based compensation
i686
i61
(h)
i747
Non-cash
operating lease cost
i5,308
i7
(b)
i5,315
Deferred
income taxes
(i1,330)
i48
(f)
(i1,282)
Change
in operating assets and liabilities:
Trade accounts receivable
(i8,978)
(i366)
(c)
(i9,344)
Merchandise
inventories
i13,143
i2,026
(a)(g)
i15,169
Prepaid
expenses and other current assets
i5,971
(i1,750)
(a)(b)(e)(f)
i4,221
Other
assets
(i4,455)
i1,448
(e)
(i3,007)
Accounts
payable and accrued expenses
(i5,785)
(i4,593)
(a)(b)(f)
(i10,378)
Operating
lease liabilities
(i5,515)
i3,004
(b)(e)
(i2,511)
Net
cash provided by operating activities
i6,291
i—
i6,291
Cash
Flows from Investing Activities
Net cash used in investing activities
(i4,177)
i—
(i4,177)
Cash
Flows from Financing Activities
Net
cash used in financing activities
(i522)
i—
(i522)
Net
change in cash and cash equivalents
i1,592
i—
i1,592
Cash
and cash equivalents - Beginning
i43,533
i43,533
Cash
and cash equivalents - Ending
$
i45,125
$
i—
$
i45,125
See
descriptions of the net (loss) income impacts in the statement of operations for the thirteen weeks ended April 30, 2023 section above.
No other misstatements impacted the classifications between net operating, net investing, or net financing cash flow activities for the thirteen weeks ended April 30, 2023.
Note 3. iRevenue 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. During the thirteen weeks ended April 30, 2023 and May 1, 2022, shipping and handling costs were $i37.9 million and $i35.0
million, 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 condensed statements of operations and an increase in inventory and customers returns liability on the condensed balance sheets. There was a returns allowance recorded on the condensed balance sheet in the amount of $i2.1
million as of April 30, 2023 and $i4.5 million as of January 29, 2023, which was included in accrued expenses and
$i0.5
million as of April 30, 2023 and $i1.0 million as of January 29, 2023, associated with sales returns included in merchandise inventories.
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 condensed balance sheet. As of April 30, 2023 and January 29, 2023, the Company recorded under customer deposit liabilities the amount of $i15.4 million and $i6.8
million respectively. During the thirteen weeks ended April 30, 2023 and May 1, 2022, the Company recognized approximately $i6.8 million and $i13.3
million, respectively, related to our customer deposits.
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 includes mobile concierge and kiosks, and through the internet. The Other channel predominantly represents net sales through the use of online pop-up-shops and shop-in-shops that are staffed with associates trained to demonstrate and sell our product. iThe following represents net sales disaggregated
by channel:
The
Company has no foreign operations and its net sales to foreign countries was less than ii.01/% of total net sales in both fiscal 2024 and 2023. The
Company had no customers that comprise more than 10% of total net sales for the thirteen weeks ended April 30, 2023 and May 1, 2022.
See Note 10 for 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 a marketing spend forecast. 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 and Other Current Assets, with the remaining balance included as part of Other Assets on the balance sheet.
During the thirteen weeks ended April 30, 2023 and May 1, 2022, the Company recognized $i4.1 million and $i2.6
million, respectively, of barter sales in exchange for media credits. The Company had $i28.5 million and $i25.2 million of unused media credits as of April 30, 2023 and January 29,
2023, respectively, and did not recognize any impairment. 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.
The Company recorded an income tax benefit of $i1.3 million and income tax expense of $i0.7 million
for the thirteen weeks ended April 30, 2023 and May 1, 2022, respectively. The effective tax rate was i23.3% for the thirteen weeks ended April 30, 2023 as compared to i27.4%
for the thirteen weeks ended May 1, 2022. The effective tax rate for the thirteen weeks ended April 30, 2023 and May 1, 2022varies from the 21% federal statutory tax rate primarily due to state taxes.
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. The Company had iino/
material interest or penalties during the thirteen weeks ended April 30, 2023 and May 1, 2022, respectively, and does not anticipate any such items during the next twelve months. The Company's policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the condensed statements of operations.
Note 5. iBasic
and Diluted Net (Loss) Income Per Common Share
Basic net (loss) income per common share is computed by dividing net (loss) income 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 and common stock equivalents outstanding during the period. Diluted net income per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities where the average market price of the common stock exceeds the exercise prices for the respective periods. In periods of loss, there are no potentially dilutive common shares to add to the weighted average number of common shares outstanding.
For the thirteen weeks ended April 30, 2023, the effects
of i1,283,449 shares of common stock related to restricted stock units, i495,366
shares of common stock underlying stock options, and warrants to purchase i281,750 shares of common stock were excluded from the diluted net loss per share calculation because the effect of including these potentially dilutive shares was antidilutive.
For the thirteen weeks ended May 1, 2022, the effects of i767,023
shares of common stock related to restricted stock units, i495,366 shares of common stock underlying stock options, and warrants to purchase i281,750
shares of common stock were included in the diluted share calculation.
We
did iinot/ recognize any impairment charges associated with showroom-level right-of-use assets during the thirteen weeks ended April 30,
2023 or May 1, 2022.
i
Future minimum lease payments under non-cancelable leases as of April 30, 2023 were as follows (in thousands):
Right-of-use assets obtained in exchange for lease obligations
$
i16,118
$
i12,513
/
Note
7. iCommitments and Contingencies
Legal Proceedings
The Company is involved in various legal proceedings in the ordinary course of business. Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s
condensed financial position, results of operations or cash flows.
The Company has voluntarily self-reported to the SEC information concerning the internal investigation of the accounting matters described in the Explanatory Note and in Note 2. Restatement and Other Corrections of Previously Issued Condensed Financial Statements. As a result of self-reporting, the Company is the subject of an ongoing, non-public investigation by the SEC. The Company is cooperating fully with the SEC in its investigation and continues to respond to requests in connection with this matter. The investigation
could result in the SEC seeking various penalties and relief including, without limitation, civil injunctive relief and/or civil monetary penalties or administrative relief. The nature of the relief or remedies the SEC may seek with respect to the Company, if any, cannot be predicted at this time.
Note 8. iFinancing Arrangements
The
Company has a line of credit with Wells Fargo Bank, National Association (“Wells”). On March 25, 2022, the line of credit with Wells was amended and increased from $i25 million to allow the Company to borrow up to $i40.0
million, subject to borrowing base and availability restrictions, and will mature in March 2024. Borrowings are limited to i90% of eligible credit card receivables plus i85% of eligible wholesale receivables plus i85%
of the net recovery percentage for the eligible inventory multiplied by the value of such eligible inventory of the Company for the period from December 16 of each year until October 14 of the immediately following year, with a seasonal increase to i90% of the net recovery percentage for the period from October 15 of each year until December 15 of such year, seasonal advance rate, minus applicable reserves established by Wells. The amended agreement contains a financial covenant that requires us to maintain undrawn availability under the credit facility
of at least i10% of the lesser of (i) the aggregate commitments in the amount of $i40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable
and inventory.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 2024. All other terms of the credit agreement remain unchanged. As of April 30, 2023 and January 29, 2023, the Company’s borrowing availability under the line of credit with Wells was $i36.0
million. As of April 30, 2023 and January 29, 2023, there were iino/ borrowings outstanding on this line of credit.
On June 29, 2018, the Company issued i281,750
warrants with a ifive-year term to Roth Capital Partners, LLC as part of the underwriting agreement in connection with the Company's IPO. The warrants remain outstanding as of April 30, 2023. 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. There were iino/
warrants issued, exercised, or expired and canceled for the thirteen weeks ended April 30, 2023 and May 1, 2022. As of April 30, 2023, i281,750 warrants remain outstanding with an average exercise price of $i19.20
and a weighted average remaining contractual life of i0.16 years. As of May 1, 2022, i281,750
warrants remain outstanding with an average exercise price of $i19.20 and a weighted average remaining contractual life of i1.16
years.
Equity Incentive Plan
The Company adopted the 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 units, cash-based awards and other stock-based awards. All awards shall be granted within i10 years from the effective date of the 2017 Equity Plan. In fiscal 2024, the 2017 Equity Plan was amended and restated to increase the shares of our common stock authorized
and reserved for issuance by i225,000 shares, which increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan to i2,879,889
shares of common stock as of April 30, 2023.
Stock Options
In June 2019, the Company granted i495,366 non-statutory stock options to certain officers of the Company
with an option price of $i38.10 per share. i100% 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 i40 consecutive trading days has been at least $i75 by the third anniversary of the grant. Both the employment and the market condition
must be satisfied no later than June 5, 2024 or the options will 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 i495,366 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 $i0.9
million of which, $i0.3 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 $i75
for i40 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 for the thirteen weeks ended April 30, 2023 and May 1, 2022. As of April 30, 2023, i495,366
stock options remain outstanding with a weighted average exercise price of $i38.10, a weighted average remaining contractual life of i1.10
years, and ino intrinsic value. As of May 1, 2022, i495,366
stock options remain outstanding with a weighted average exercise price of $i38.10, a weighted average
remaining contractual life of i2.1 years and intrinsic value of $i8.05.
Restricted Stock Units
i
A summary of the status of our unvested restricted stock units as of April 30, 2023 and May 1, 2022, and changes during the thirteen weeks then ended, is presented below:
Equity
based compensation expense was approximately $i0.7 million and $i1.2 million for the thirteen weeks ended April 30, 2023 and May 1,
2022, respectively.
The total unrecognized equity-based compensation cost related to unvested stock option and restricted unit awards was approximately $i11.3 million as of April 30, 2023 and will be recognized in operations over a weighted average period of i4.1
years.
In March 2023, Shawn Nelson, our Chief Executive Officer, received a one-time performance and retention long-term incentive grant of i235,000 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 expense will be recognized on a straight-line basis over the longest of the derived, explicit, or implicit service period.
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 are the Chief Executive Officer and the President and Chief Operating Officer. The
Company's operating segments are the sales channels, which share similar economic and other qualitative characteristics, and are aggregated together as ione reportable segment.
i
The
Company’s sales by product which are considered one segment are as follows:
Cover Page Interactive Data File (embedded within the Inline XBRL document)
+ Indicates
a management contract or compensatory plan.
*This certification is deemed not filed for purposes of section 18 of the 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.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
