Filed Pursuant to Rule 424(b)(4)
Registration No. 333-224358

PROSPECTUS

3,500,000 Shares

The Lovesac Company

Common Stock

This is the initial public offering of shares of common stock of The Lovesac Company. We are offering 3,500,000 shares of our common stock.

The initial public offering price is $16.00 per share. Currently, no public market exists for our common stock. Our common stock has been approved for listing on the Nasdaq Global Market under the symbol “LOVE.”

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company disclosure standards. See “Prospectus Summary — Implications of Being an Emerging Growth Company.” We will also be a “controlled company” under the corporate governance standards for Nasdaq listed companies and would be exempt from certain corporate governance requirements of the rules. See “Risk Factors — Risks Relating to this Offering and Ownership of Our Common Stock.”

The offering is being underwritten on a firm commitment basis. We have granted the underwriters an option to buy up to an additional 525,000 shares of common stock from us to cover over-allotments. The underwriters may exercise this option at any time and from time to time during the 30-day period from the date of this prospectus.

 

 

 

 

Total

 

 

Per Share

 

No Exercise of
Over-
Allotment

 

Full Exercise of  Over-
Allotment

Public offering price

 

$

16.00

 

$

56,000,000

 

$

64,400,000

Underwriting discounts

 

$

1.12

 

$

3,920,000

 

$

4,508,000

Proceeds to us, before expenses

 

$

14.88

 

$

52,080,000

 

$

59,892,000

We have also agreed to issue to Roth Capital Partners, LLC a warrant to purchase up to 281,750 shares of our common stock, which equates to 7% of the number of shares of our common stock to be issued and sold in this offering. In addition, we have agreed to reimburse the underwriters for certain expenses. See “Underwriting” on page 100 of this prospectus for additional information.

Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” starting on page 16 of this prospectus and elsewhere in this prospectus for information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Delivery of the shares is expected to be made to the purchasers on or about June 29, 2018.

Sole Book-Running Manager

Roth Capital Partners

Co-Manager

Craig-Hallum Capital Group

The date of this prospectus is June 26, 2018

 

 

 

 

TABLE OF CONTENTS

Prospectus Summary

 

1

Risk Factors

 

16

Cautionary Note Regarding Forward-Looking Statements

 

35

Use of Proceeds

 

36

Dividend Policy

 

37

Capitalization

 

38

Dilution

 

40

Selected Consolidated Financial Information

 

42

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

46

Business

 

60

Management

 

74

Executive Compensation

 

80

Security Ownership of Certain Beneficial Owners and Management

 

86

Certain Relationships and Related Party Transactions

 

88

Description of Capital Stock

 

91

Shares Eligible for Future Sale

 

95

Material United States Federal Income Tax Consequences To Non-U.S. Holders of Our Common Stock

 

97

Underwriting

 

100

Legal Matters

 

105

Experts

 

105

Where You Can Find More Information

 

105

Index to Financial Statements

 

F-1

You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. Neither we nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of securities. Our business, financial condition, results of operations and prospects may have changed since that date. We are not making an offer of these securities in any jurisdiction where the offer is not permitted.

For investors outside the United States: We and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of securities and the distribution of this prospectus outside the United States.

As used in this prospectus, the terms “we”, “us”, “our”, “our Company”, “the Company” and “Lovesac” refer to The Lovesac Company, our wholly-owned subsidiary, Lovesac, LLC, and our predecessor entities, as applicable, unless the context clearly indicates otherwise.

We do not have a calendar year end fiscal year, instead we use a 52 or 53 week fiscal year ending on the Sunday closest to February 1st. Fiscal years are identified in this prospectus according to the calendar year in which they end. For example, references to “fiscal 2018” or “fiscal year 2018” or similar references refer to the fiscal year ended February 4, 2018, and “fiscal 2017” or “fiscal year 2017” or similar references refer to the fiscal year ended January 29, 2017. Alternatively, references to “2018” and “2017” refer to the calendar years ended December 31, 2018 and December 31, 2017, respectively.

In this prospectus, unless otherwise specified, all references to “common stock” refer to shares of our common stock.

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Trademarks, Trade Names and Service Marks

We own various U.S. federal trademark registrations and applications, certain foreign trademark registrations and applications, and unregistered trademarks, including the following marks referred to in this prospectus: Lovesac®, Lovesoft®, Sactionals®, Durafoam®, SAC® and Designed For Life®. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references are not intended to indicate that we or their respective owners will not assert, to the fullest extent possible under applicable law, our or their rights thereto.

Market, Industry and Other Data

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on reports from various third-party sources. We believe this information to be reasonable based on the information available to us as of the date of this prospectus. However, we have not independently verified market and industry data from third-party sources. Because this information involves a number of assumptions and limitations, you are cautioned not to give undue weight to such information. The content of the sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those discussed under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.

ii

 

Prospectus Summary

This summary highlights certain information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information you should consider before investing in shares of our common stock. You should read the entire prospectus carefully, including “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes included in this prospectus before deciding to invest in our common stock. Except for the information contained in our audited consolidated financial statements, all share and per share information relating to our common stock in this prospectus has been adjusted to reflect a 1-for-2.5 reverse stock split immediately prior to the closing of this offering.

Our Business

We are a technology driven, omni-channel company that designs, manufactures and sells unique, high quality furniture comprised of modular couches called Sactionals and premium foam beanbag chairs called Sacs. We market and sell our products through modern and efficient showrooms and, increasingly, through online sales. We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through nationwide express couriers, are unique to the furniture industry.

The name “Lovesac” was derived from our original innovative product, a premium foam beanbag chair, the Sac. The Sac was developed in 1995 and provided the foundation for the Company. Sales of this product have been increasing, representing $26.9 million for fiscal 2018, as compared to $20.1 million for fiscal 2017. We believe that the large size, comfortable foam filling and irreverent branding of our Sacs products have been instrumental in growing a loyal customer base and our positive, fun image.

Our Sactionals product line currently represents a majority of our sales. Sactionals are a couch system that consists of two components, seats and sides, which can be arranged, rearranged and expanded into thousands of configurations easily and without tools. Our Sactional products include a number of patented features relating to its geometry and modularity, coupling mechanisms and other features. Our Sactionals represented 71.3% of our sales for fiscal 2018 (or $72.6 million) as compared to 70.9% of sales for fiscal 2017 (or $54.1 million). We believe that these high quality premium priced products enhance our brand image and customer loyalty and expect them to continue to garner a significant share of our sales.

Sacs and Sactionals come in a wide variety of colors and fabrics that allow consumers to customize their purchases in numerous configurations and styles. We provide lifetime warranties on our Sactionals frames and the proprietary foam used in both product lines, and 3-year warranties on our covers. Our Designed for Life trademark reflects our dynamic product line that is built to last and evolve throughout a customer’s life. Customers can continually update their Sacs and Sactionals with new covers, additions and configurations to accommodate the changes in their family and housing situations.

We believe that our products complement one another and have generated a loyal customer base, evidenced by our recent estimate that 39% of our transactions in fiscal 2018 were from repeat customers. We believe the strength of our brand is reflected in the number of customers who routinely share their purchases of Lovesac products with their friends through social media, often displaying our logos or company name in their posts. Our customers include celebrities and other influencers who support our brand through postings made on an uncompensated and unsolicited basis. As of May 6, 2018, we had approximately 588,131 followers on Facebook and 218,556 followers on Instagram, representing increases of 66% and 152%, respectively, from the same date in the prior year.

We currently market and sell our products through 68 showrooms at top tier malls and lifestyle centers in 29 states in the U.S. Our modern, efficient showrooms are designed to appeal to millennials and other purchasers looking for comfortable, enduring, premium furniture. They showcase the different sizes of our Sacs, the myriad forms into which our Sactionals can be configured, and the large variety of fabrics that can be used to cover our products. According to Furniture Today, our showrooms generated the highest reported sales per square foot in the industry in 2016, reflecting our efficient, small-footprint showroom model.

As part of our direct to consumer sales approach, we also sell our products through our fast growing ecommerce platform. We believe our products are uniquely suited to this channel. Our foam based Sacs can be reduced to one-eighth of their normal size and each of our Sactionals components weighs less than 40 pounds upon shipping. With furniture

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especially suited to ecommerce applications, our sales completed through this channel accounted for 18.5% of our total sales in fiscal 2018, up from 16.1% for fiscal 2017. Our showrooms and other direct marketing efforts work in concert to drive customer conversion in ecommerce.

Despite the increase in sales of both our Sacs and Sactionals, net losses were $5.5 million for fiscal 2018 and $6.9 million for fiscal 2017, primarily due to increased spending on showrooms and marketing.

Product Overview

We challenge the notion that a piece of furniture is static by offering a dynamic product line built to last and evolve throughout a customer’s life. Our products serve as a set of building blocks that can be rearranged, restyled and re-upholstered with any new setting, mitigating constant changes in fashion and style.

         Sactionals. We believe our Sactionals platform is unlike competing products in its adaptability, yet is comparable aesthetically to similarly priced premium couches and sectionals. Our Sactional products include a number of patented features relating to its geometry and modularity, coupling mechanisms and other features. Utilizing only two, standardized pieces, “seats” and “sides,” and over 300 high quality, tight-fitting covers that are removable, washable, and changeable, customers can create numerous permutations of a sectional couch with minimal effort. Customization is further enhanced with our specialty-shaped modular offerings, such as our wedge seat and roll arm side. Our custom features and accessories can be added easily and quickly to a Sactional to meet endless design, style and utility preferences, reflecting our Designed for Life philosophy. Sactionals are built to meet the highest durability and structural standards applicable to fixed couches. Sactionals are comprised of standardized units and we guarantee their compatibility over time, a major pillar of their value proposition to the consumer.

         Sacs. We believe that our Sacs product line is a category leader in oversized beanbags. The Sac product line offers 6 different sizes ranging from 22 pounds to 95 pounds with capacity to seat 3+ people on the larger model Sacs. Filled with Durafoam, a proprietary blend of shredded foam, Sacs provide serene comfort and guaranteed durability. Their removable covers are machine washable, and may be easily replaced with a wide selection of cover offerings.

         Accessories. Our accessories complement our Sacs and Sactionals by increasing their adaptability to meet evolving consumer demands and preferences. Our current product line offers Sactional-specific drink holders, footsac blankets, decorative pillows, fitted seat tables and ottomans in varying styles and finishes, providing our customers with the flexibility to customize their furnishings with decorative and practical add-ons to meet evolving style preferences. We are in the process of developing additional accessories for the tech-savvy consumer.

Sales Channels

Lovesac offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to our customers in showrooms and online. In recent periods, we have increased our focus on providing a platform for the transaction of business online through digital and mobile applications. As consumers increasingly transact via various ecommerce channels, our robust and user-friendly technological platform is well positioned to benefit from this growth. Additionally, our products’ compact packaging facilitates production scheduling, lower shipping costs and the outsourcing of our shipping function to nationwide express couriers, allowing us to quickly and cost-effectively deliver online orders.

We leverage our showroom as both a traditional retail channel to purchase our products and an educational center for prospective online customers to learn about and interact with our products in real time. Compared to traditional retailers, our showrooms require significantly less square footage because we need to maintain only a few sample seats, sides and Sacs to demonstrate numerous configurations. Warehouse space is minimized by our ability to stack our inventory for immediate sale. In addition to providing a compelling customer experience, we believe that our showroom model provides a more efficient use of capital and logistical advantages over our competitors.

We have an ongoing working relationship with Costco to operate “roadshows” in Costco’s stores, which we refer to as shop in shops, throughout fiscal 2019. Our shop in shops display select Sacs and Sactionals and are staffed similarly to

2

our more traditional showrooms with associates trained to demonstrate and sell the product. Between January 30, 2017 and February 4, 2018, we hosted 100+ roadshows that averaged sales of $3,800 per day. For fiscal 2018, the Costco shop in shop showrooms represented approximately 5% of sales. Our research found that nearly 2% of our in-store purchasers and 3% of our online visitors cited Costco as their source of awareness for Lovesac, reflecting the efficacy of our shop in shop concept in generating revenue and driving brand awareness.

Current and Target Customers

We believe there is significant overlap in the profiles of our current customers and our target customers. Our target customer earns a household income of at least $100,000, is between the ages of 24 and 45, is married and currently has or plans to form a household. While we seek to market our products to this target customer broadly, we especially target millennials (who we define as those persons born between 1983 and 2000) because we believe they desire the branding, transparent business practices, innovative solutions and convenience of the on-demand commerce we offer. Millennial heads of household have increasingly become a larger portion of our customer base as represented by a 19% share (based on internal sampling we conducted with one of our products). We believe our culture of innovation, superior product development capabilities and integrated omni-channel infrastructure enable us to offer our customers a value proposition superior to our competitors.

Our Market

Large and Growing Furniture Retailing Industry

We sell our products in the large and highly fragmented furniture retailing industry, which has been rebounding steadily since the global recession. According to Mintel, a market research firm, consumer furniture expenditures are expected to grow to $127.5 billion in 2021, representing an average annual growth rate of 3.4% between 2016 and 2021. Additionally, Mintel reported that the segment consisting of couches, chairs, and other seating products comprised nearly 30% of all U.S. consumer furniture expenditures in 2015, surpassing the next largest segment, mattresses and sleep equipment, which represented 17% of expenditures.

A Maturing Millennial Population with Favorable Furniture Purchasing Habits

Millennials, our target demographic, have surpassed Baby Boomers (persons generally born between 1946 and 1964) as the largest living generation in the U.S. The millennial population reached 83.1 million people in 2015, representing more than 25% of the U.S. population according to data from the U.S. Census Bureau. Moreover, tech savvy millennials are maturing to an age where their buying power coincides with larger discretionary purchases, including furniture products. Based on a survey conducted by Mintel, 73% of millennials (who Mintel defines as those persons born between 1977 and 1994) purchased furniture between April 2014 and April 2016. According to Mintel, of those purchasing furniture between April 2014 and April 2016, 47% of millennials reported that they had made the purchase online, compared to just 26% for Generation X and 17% for Baby Boomers.

Emergence of Online Sales in the Furniture Industry

According to eMarketer, a market research company that provides insights and trends related to digital marketing, media and commerce, retail ecommerce sales of furniture and home furnishings will grow from $36.0 billion in 2017 to $62.4 billion in 2021. In addition, over one-third of furniture consumers have purchased products online, and this number is expected to continue to expand, according to Mintel. Driving the market share growth of the online segment are retailers that offer fully supported shopping experiences across their web and mobile platforms. When purchasing their most recent home furnishing product, 30% of consumers made an online purchase using a computer and 9% of consumers made an online purchase using a mobile device, according to data from Mintel. While consumers are now more tech savvy and likely to browse for furniture products online, many consumers still prefer to see and feel products in-store before making their purchasing decision. Omni-channel retailers that offer a comprehensive shopping experience across all channels are well positioned to attract the growing portion of consumers who use multiple channels to browse, compare and purchase furniture products.

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Our Competitive Strengths

We believe that the following strengths are central to the power of our brand and business model:

Innovative Business Model

         Merchandising Strategy. Nearly all home furnishings retailers, online or offline, rely on an assortment of new offerings each season to drive their business and to refashion their offerings. We have avoided this “merchandising” approach in favor of a product platform-based approach that reduces the need for seasonal introductions, designer collections, or broad in-stock assortments. We optimize our in-stock assortment of covers and accessories by limiting them to those that sell in large quantity and therefore reduce our inventory. We also provide a broad assortment of made-to-order items, that we manufacture after the consumer has purchased and paid for them. This business model yields little to no surplus inventory, less margin erosion due to overstock write-downs, higher than average annual inventory turns, increased focus at the showroom management level, and simplicity at merchandising display execution.

         Product Platform Approach. We have essentially two platforms upon which we develop, manufacture and sell our fundamental Sacs and Sactionals products. We market our product platforms as a long term investment that our customers can continually update with new arrangements, coverings and accessories. In turn, these changes and updates provide a recurring revenue source for our business. In addition, our Sactionals platform is an environmentally conscious alternative to fixed couches which tend to be discarded when they go out of style or wear out, a by-product of our Designed for Life approach and an important feature to some consumers.

         Ecommerce Focus. We build our business processes, systems, compensation structures, and logistical models with an ecommerce-first approach. We continually innovate to make shopping online easier for our customers, and we use social media to drive increased traffic to our web-based sales applications. From a product standpoint, the open-cell nature of the Durafoam filler in our Sacs allows them to be compressed for shipping to one-eighth of their normal size. To facilitate shipping, Sactionals seat cushions and back pillows are compressed to fit inside an otherwise hollow hardwood upholstered Seat frame.

         A Culture of Innovation. From inception, we have focused on developing unique, innovative and proprietary product platforms. We are continuously expanding and introducing new extensions to these platforms to broaden the appeal and grow the addressable market of our product offerings. We continually evaluate new products to complement our Sactionals and Sac lines and are currently developing accessories for the tech-savvy consumer. We have 10 issued U.S. utility patents, 21 issued international utility patents, 10 pending U.S. utility patent applications and 4 pending international utility patent applications. We expect to file U.S. and international patent applications for future innovations. We believe that our patent portfolio, combined with our innovative design approach may deter others from attempting to imitate or replicate our products.

         Customer Acquisition Cost. For fiscal 2018, our customer acquisition cost (“CAC”) was $283.22 per customer. We calculate CAC on an annual basis by dividing our expenses associated with acquiring new customers for a fiscal year by the number of new customers we acquire in that fiscal year. We include premium rent for locations above commercial rates, media costs to new customers, and a portion of showroom merchandising costs in our marketing expenses associated with acquiring new customers when calculating our CAC. We believe that fiscal 2018 is the first fiscal year that our CAC fully reflects the implementation of changes to our marketing. In fiscal 2018 we significantly increased our spending on marketing expenses and media costs. Our marketing expenses for fiscal 2018 were equal to 6.3% of revenue as compared to 1.3% of revenue for fiscal 2017.

Strong Brand Loyalty

We believe our brand, products, and Designed for Life philosophy encourage people to share their stories and develop a personal relationship with Lovesac and its community. We foster these interactions through active direct engagement using several social media platforms. We believe that our customers are active ambassadors, providing organic public relations, word of mouth advertising, and customer testimonials and endorsements. In addition, our customers have a high repeat purchasing rate and high expected lifetime engagement.

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         Robust customer lifetime value. Once customers invest in our products, they tend to stay with them, grow with them, and add to them. We believe our customers’ loyalty is an important driver of our customer lifetime value (“CLV”). We estimate our three-year benchmark CLV to be $1,236 per customer. Our three-year benchmark CLV is a fixed estimate of the average gross profit we expect to receive from a customer during his or her purchasing lifetime. We based our three-year benchmark CLV on our internal data relating to customers who first purchased from us in fiscal 2015, which we refer to as our 2015 cohort. We chose fiscal 2015 as our base year because we began to make changes to our business and our target customers in fiscal 2015 and believe that the customers in fiscal 2015 more accurately reflect our current and target customer than in years prior to fiscal 2015. We calculated our three-year benchmark CLV by dividing the aggregate gross profits through fiscal 2018 attributable to the 2015 cohort (approximately $35,706,282) by the total number of customers in the 2015 cohort (28,882 customers).

         High repeat purchasing rates. We believe our focus on customer interaction and data driven analysis of their behavior and projected needs drives our high repeat customer rates. In fiscal 2018, our repeat customers accounted for 39% of all transactions. Additionally as of end of fiscal 2018, 7% of our customers purchased both Sacs and Sactionals in the fiscal 2017 cohort. As we attract more customers to the Sactionals product platform, we believe sustained repeat purchasing rates will create opportunities for accelerated growth and will allow us to capitalize on the high lifetime value of our customers.

Omni-Channel Approach

Our distribution strategy allows us to reach customers through three distinct, brand-enhancing channels, which we refer to as our omni-channel approach.

         Ecommerce. Through our mobile and ecommerce channel, we believe that we are able to significantly enhance the consumer shopping experience, driving deeper brand engagement and loyalty, while also realizing higher margins that are more favorable than our retail showroom locations. We believe our robust technological capabilities position us well to benefit from the growing consumer preference to transact at home and via mobile devices.

         Showrooms. We carefully select the best small-footprint retail locations in high-end malls and lifestyle centers for our showrooms. The architecture and layout of these showrooms is designed to communicate our brand personality and key product features. Our goal is to educate first-time customers, creating an environment where people can touch, feel, read, and understand the technology behind our products. We are updating and remodeling many of our showrooms to reflect our new showroom concept, which emphasizes our unique product platform, and will be the standard for future showrooms. Our new showroom concept, introduced in 2016, utilizes technology in more experiential ways to increase traffic and sales.

         Shop in shops. We are expanding the use of lower cost shop in shops to increase the number of locations where customers can experience and purchase our products. We have an ongoing working relationship with Costco to operate shop in shop programs, or “roadshows,” that usually run for 10 days at a time. These shop in shops are staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand. We also believe our shop in shops provide a low cost alternative to drive brand awareness, in store sales, and ecommerce sales.

Strong Millennial Appeal

We have targeted the millennial generation because we believe they desire branded products, coupled with transparent business practices, innovative solutions and the convenience of on-demand commerce. Additionally, members of the millennial generation, currently the most populous age group in the U.S., are completing their educations, getting married, and starting or expanding their households. The peak ages for home furnishings purchases are 35-54. We believe that home furnishings will thrive as millennials and their children need larger residences and the necessary furnishings for household and family formation. The modularity of our Sactionals and ease of cleaning and replacing covers on Sactionals and Sacs provide our customers who are moving and expanding their households with the ability to evolve their purchases to accommodate the changes in their family and housing situations, offering us a competitive advantage.

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Unique Distribution Capability

Due to the unique modularity of our Sactionals products and the shrinkability of our Sacs, we are able to distribute our products through nationwide express carriers and utilize warehouse space and international shipping routes. We believe our Sactionals are the only product in its category that enjoys these logistical advantages.

Seasoned Management Team

Our management team is led by our CEO and founder, Shawn Nelson, who continues to focus on developing new products and intellectual property to drive future growth. Our President and Chief Operating Officer, Jack Krause, has significant experience in and a deep understanding of the complexities in managing high-growth brands. Since joining Lovesac, he has been instrumental in guiding the company from a retail-led business model to an omni-channel direct-marketing driven business model. Our Executive Vice President and Chief Financial Officer, Donna Dellomo, is a Certified Public Accountant and possesses significant experience and knowledge regarding public company accounting and reporting. Prior to joining our Company, for 19 years, Ms. Dellomo served as Vice President and Chief Financial Officer of a publicly traded fragrance retailer with over 290 retail locations and a wholesale distribution network. In addition, we recently hired David Jensen as our Chief Technology/Chief Information Officer to lead our technology team as we evolve into a more marketing-driven digital-first retailer. Prior to joining our Company, Mr. Jensen served as the Senior Director of Information Services at the retailer J. Jill.

Our Growth Strategies

Key drivers of our growth strategy include:

Continue to Build on Our Brand

Despite our loyal following, we believe there is a significant opportunity to increase our brand awareness. Based on our own internal benchmarking study that was concluded in April 2017, we estimate that our brand awareness is less than 1% among all consumers nationally. Before 2017, we invested minimally in advertising. Since then, we have aggressively invested in brand building and direct marketing efforts, including direct mail, 30-second television commercials in select markets and social media. Our focus on building our brand has led to an increase in our new customer base, which grew by 27.2% in fiscal 2018. We plan to accelerate our ecommerce sales by building awareness via increased digital and social media, including digital videos and direct response television.

Update Showrooms and Add Other Locations

We intend to continue to renovate our current showroom locations, open new showrooms across the country in lifestyle centers, top tier shopping malls, and high street and urban locations, and expand product touch-feel points through the increased use of lower cost shop in shop locations.

         Showrooms. We are evolving our model for new showrooms and renovating our existing showrooms to reflect the standards of this new model. Our new showroom concept utilizes technology in more experiential ways to increase traffic and sales, and communicate our brand personality and key product features. The architecture and layout of these showrooms is designed to educate first-time customers, creating a nearly self-service environment where people can touch, feel and understand the technology behind our products. To attract customer traffic, our new model features two giant LED screens embedded in the walls that play videos demonstrating the Sactionals differentiating technology in motion. In addition, in connection with these renovations, we have experienced increased sales and negotiated more favorable lease terms.

In addition, we recently refined our real estate selection strategy for showrooms in shopping centers to include alignment with the demographics of customers located near the prospective center and to seek locations within the center near other furniture retailers to take advantage of furniture-related customer traffic and to provide a comparison shopping experience that we believe favors our products.

         Shop in shops. We have an ongoing working relationship with Costco to operate shop in shop showrooms and have been expanding the use of these shop in shop showrooms. At these locations, customers can experience and purchase our products at a lower cost to us than our permanent showrooms.

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Increase Sales and Operating Margins

We will seek to improve operating margins by maintaining our premium pricing and increasing sales through our omni-channel distribution approach.

         Premium Pricing. Reflecting their durability, functionality and configurability, Lovesac’s products are positioned in the premium segment of the market. In fiscal 2018, the average purchase price of first time Sactionals was $3,789 and our average transaction was $1,058. Although Sactionals are premium priced, the cost of adding to or changing them over time is lower than purchasing another couch, which we believe motivates our customers to make higher margin initial investments in our products. Further, we believe that as we grow sales, we will be able to spread them over relatively fixed overhead and increase our margins.

         Omni-Channel Platform. By leveraging our omni-channel platform, we cost-effectively drive traffic to our ecommerce channel, resulting in increased web-based sales and improved operating margins. We continually seek to improve our ecommerce capabilities to drive sales and take advantage of the lower cost of this channel. Our showrooms and other direct marketing efforts work in concert to drive customer conversion in ecommerce. In addition, our shop in shops provide a low cost alternative to drive brand awareness and both in-store and ecommerce sales.

Summary Risk Factors

Investing in our common stock involves substantial risk, and our business is subject to numerous risks and uncertainties, including those listed in the section entitled “Risk Factors” and elsewhere in this prospectus. These risks include, among other things:

         our ability to sustain recent growth rates, increase sales and achieve profitability;

         our ability to improve our products and develop new products;

         our ability to maintain and grow our brand image and reputation;

         our ability to maintain existing customers and acquire new customers in a cost-effective manner;

         our ability to manage the growth of our operations over time, including the growth of our omni-channel operations;

         our ability to successfully optimize our omni-channel operations and provide a seamless, relevant and reliable omni-channel experience;

         our ability to successfully open and operate new showrooms on a profitable basis;

         our ability to compete and succeed in a highly competitive and evolving industry;

         our ability to adapt to changes in consumer spending and general economic conditions;

         our dependence on a small number of suppliers and international suppliers in developing countries;

         our ability to manage supply chain-related expenses and disruptions in our supply chain;

         our ability to maintain adequate protection of our intellectual property and to avoid violation of the intellectual property rights of others;

         our ability to manage our information technology systems to support our growing business;

         our ability to secure the personal information of our customers and employees and comply with applicable security standards; and

         our failure to maintain adequate internal controls over our financial and management systems.

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Recent Reorganization, Securities Issuances and Events

The Company was formed in the State of Delaware 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 and current majority shareholder of the Company. Pursuant to the terms of the reorganization, on March 22, 2017, SAC Acquisition LLC assigned and the Company assumed all right, title and interest in and to all assets, including intellectual property, and liabilities of SAC Acquisition LLC in exchange for 6,000,000 shares of common stock.

We raised $25.5 million through the sale of preferred stock and warrants in multiple offerings in fiscal 2018. In March 2017, we issued an aggregate of 1,000,000 shares of our Series A-1 Preferred Stock at a purchase price of $10.00 per share for an aggregate purchase price of $10.0 million and warrants, as amended, to purchase 350,000 shares of our common stock at a price per share equal to the offering price to affiliates of Satori Capital, LLC (“Satori”). The Preferred A-1 Shares accrued dividends at a rate of 8% per annum, and, immediately prior to the closing of this offering, will accrue an additional amount of dividends equal to the amount of dividends that would have accrued and accumulated through and including the one year anniversary of the completion of this offering. Immediately prior to the closing of this offering, the Series A-1 Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, will convert into approximately 1,301,612 shares of our common stock.

Beginning in March 2017 and ending in October 2017, we completed an offering of our Series A Preferred Stock and issued an aggregate of 923,000 shares of our Series A Preferred Stock at a purchase price of $10.00 per share for an aggregate purchase price of $9.2 million and warrants, as amended, to purchase 230,750 shares of our common stock at a price per share equal to the offering price to various entities and accredited investors, including investment vehicles affiliated with Mistral Capital Management, LLC (“Mistral”). The Preferred A Shares accrued dividends at a rate of 8% per annum, and, immediately prior to the closing of this offering, will accrue an additional amount of dividends equal to the amount of dividends that would have accrued and accumulated through and including the one year anniversary of the completion of this offering. Immediately prior to the closing of this offering, the Series A Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, will convert into approximately 1,207,767 shares of our common stock.

Lastly, between October 2017 and December 2017: (i) we issued 400,000 shares of our Series A-2 Preferred Stock at a purchase price of $10.00 per share for an aggregate purchase price of $4.0 million and warrants, as amended, to purchase 140,000 shares of our common stock at a price per share equal to the offering price to entities affiliated with Satori; (ii) we issued an aggregate of 11,500 shares of our Series A-2 Preferred Stock at a purchase price of $10 per share for an aggregate purchase price of $115,000 and warrants, as amended, to purchase 4,025 shares of our common stock at a price per share equal to the offering price to Shawn Nelson, our founder and Chief Executive Officer, Jack Krause, our President and Chief Operating Officer, and Donna Dellomo, our Executive Vice President and Chief Financial Officer; and (iii) we issued 212,000 shares of our Series A-2 Preferred Stock at a purchase price of $10.00 per share for an aggregate purchase price of $2.12 million and warrants, as amended, to purchase 74,200 shares of our common stock at a price per share equal to the offering price to an investment vehicle associated with Mistral. The Preferred A-2 Shares accrued dividends at a rate of 8% per annum, and, immediately prior to the closing of this offering, will accrue an additional amount of dividends equal to the amount of dividends that would have accrued and accumulated through and including the one year anniversary of the completion of this offering. Immediately prior to the closing of this offering, the Series A-2 Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, will convert into approximately 778,062 shares of our common stock.

On June 20, 2018, the Company granted to certain non-executive employees of the Company an aggregate of 68,378 restricted stock units, of which 14,625 restricted stock units immediately vested.

On June 22, 2018, the board of directors of the Company approved a 1-for-2.5 reverse stock split of our common stock to occur immediately prior to the closing of this offering.

Immediately prior to the closing of this offering, we intend to (i) convert all of our outstanding shares of preferred stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, into approximately 3,287,441 shares of common stock, (ii) effect a 1-for-2.5 reverse stock split of our common stock, (iii) file an amended and restated certificate of incorporation, and (iv) adopt amended and restated bylaws. A description of the conversion features of our preferred stock can be found under the heading “Description of Capital Stock — Preferred Stock” and in Notes 7 and 12 to our consolidated financial statements for the fiscal year ended February 4, 2018.

Wells Fargo Credit Facility

On February 6, 2018, we terminated our line of credit with Siena Funding, LLC and replaced it with a four-year, secured revolving credit facility with Wells Fargo Bank, National Association (“Wells Fargo”). The credit facility

8

with Wells Fargo permits borrowings of up to $25.0 million, subject to borrowing base and availability restrictions. For additional information regarding our line of credit with Wells Fargo, see Note 12, to our consolidated financial statements for the fiscal year ended February 4, 2018.

Corporate Information

The Company’s principal executive office is Two Landmark Square, Suite 300, Stamford, CT 06901. Our telephone number is 888-636-1223. Our Internet address is www.lovesac.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website a part of this prospectus.

Our Equity Sponsor

We have a valuable relationship with our equity sponsor, Mistral, who, through funds and investment vehicles advised by Mistral, has made significant equity investments in us, including a controlling interest in our majority shareholder, SAC Acquisition LLC. We believe that we will continue to benefit from Mistral’s investment experience in the consumer products sector, its expertise in effecting transactions and its support for our near-term and long term strategic initiatives.

Upon completion of this offering, assuming an offering size as set forth in “Summary of the Offering” and an initial public offering price of $16.00, Mistral, through its controlling interest of SAC Acquisition LLC and the common stock held by investment vehicles affiliated with Mistral, will control approximately 60% of our common stock and will therefore be able to control all matters that require approval by our stockholders, including the election and removal of directors, changes to our organizational documents and approval of acquisition offers and other significant corporate transactions. Because Mistral will control more than 50% of the voting power of our outstanding common stock, we will be a “controlled company” under the corporate governance rules for Nasdaq listed companies. We will therefore be permitted to, and we intend to, elect not to comply with certain corporate governance requirements. See “Management-Controlled Company.”

Control by Mistral may give rise to actual or perceived conflicts of interest with holders of our common stock. Mistral’s significant ownership in us and its resulting ability to effectively control us may discourage a third party from making a significant equity investment in us or a transaction involving a change of control, including transactions in which holders of shares of our common stock might otherwise receive a premium for such holders’ shares over the then-current market price. See “Risk Factors- Risks Related to this Offering and Ownership of Our Common Stock” for a summary of the potential conflicts of interest that may arise as a result of our control by Mistral.

Implications of Being an Emerging Growth Company

The Jumpstart Our Business Startups Act (the “JOBS Act”), was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), requirements related to compliance with new or revised accounting standards, requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. As a result, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to take advantage of this extended transition period.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have $1.07 billion or more in annual revenue; (ii) the date we qualify as a “large accelerated filer” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

9

Summary of the Offering

Common stock offered by us

 

3,500,000 shares

 

 

 

Offering price

 

$16.00 per share

 

 

 

Common stock outstanding before this offering

 


6,077,626 shares, as of May 6, 2018

 

 

 

Common stock to be outstanding after this offering

 


12,926,921 shares. If the underwriters’ over-allotment option is exercised in full, the total number of shares of common stock outstanding immediately after this offering would be 13,451,921.

 

 

 

Over-allotment option

 

We have granted a 30-day option to the underwriters to purchase up to 525,000 additional shares of common stock solely to cover over-allotments, if any.

 

 

 

Use of proceeds

 

We intend to use the net proceeds of this offering for: (i) increased sales and marketing expenses; (ii) product development; (iii) repayment of amounts drawn from our credit facility with Wells Fargo; and (iv) working capital and other general corporate purposes. See “Use of Proceeds” beginning on page 36 of this prospectus.

 

 

 

Risk factors

 

Investing in our shares of common stock involves a high degree of risk. See “Risk Factors” beginning on page 16 of this prospectus for a discussion of factors you should consider before making a decision to invest in our common stock.

 

 

 

Controlled Company

 

After the completion of this offering, Mistral and its affiliates will continue to control a majority of our common stock. We will avail ourselves of the controlled company exemption under the corporate governance standards of Nasdaq.

 

 

 

Proposed listing

 

In connection with this offering, we are applying to list our common stock on the Nasdaq Global Market (“Nasdaq”) under the symbol “LOVE.”

Immediately prior to the closing of this offering, we intend to (i) convert all of our outstanding shares of preferred stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, into approximately 3,287,441 shares of common stock, (ii) effect a 1-for-2.5 reverse stock split of our common stock, (iii) file an amended and restated certificate of incorporation, and (iv) adopt amended and restated bylaws.

The number of shares of our common stock to be outstanding immediately after the closing of this offering is based on 6,077,626 shares of common stock outstanding as of May 6, 2018, and, except as otherwise indicated, all information in this prospectus, reflects and assumes the following:

         initial public offering price of $16.00 per share of common stock;

         conversion of the 923,000 outstanding shares of Series A Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to approximately 1,207,767 shares of our common stock;*

         conversion of the 1,000,000 outstanding shares of Series A-1 Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to approximately 1,301,612 shares of our common stock;*

         conversion of the 623,500 outstanding shares of Series A-2 Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to will approximately 778,062 shares of our common stock;*

         does not reflect the exercise of the outstanding warrants to purchase 798,975 shares of our common stock at an exercise price per share equal to the offering price;*

10

         does not reflect 475,548 unvested restricted stock units and 47,267 shares of common stock reserved for issuance under the Equity Plan; and

         does not reflect the exercise of the Representative’s Warrant to purchase up to 265,650 additional shares of our common stock in this offering.

____________

*         A description of the conversion features of our preferred stock and of the exercise prices of our warrants can be found under the heading “Description of Capital Stock — Preferred Stock” and in Notes 7 and 12 to our consolidated financial statements for the fiscal year ended February 4, 2018.

Summary Consolidated Financial and Operating Data

The following tables present our summary consolidated financial and other data as of and for the periods indicated. The summary consolidated statements of operations data and the consolidated statement of cash flow data for the fiscal years ended February 4, 2018 and January 29, 2017, and the summary consolidated balance sheet data as of February 4, 2018 and January 29, 2017, are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data and the consolidated statement of cash flow data for the thirteen weeks ended May 6, 2018 and April 30, 2017 and the summary consolidated balance sheet data as of May 6, 2018, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. Our historical audited results are not necessarily indicative of the results that should be expected in any future period.

The summarized financial information presented below is derived from and should be read in conjunction with our audited consolidated financial statements including the notes to those financial statements and our unaudited consolidated financial statements including the notes to those financial statements both of which are included elsewhere in this prospectus along with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.

11

 

 

Fiscal Year Ended

 

Thirteen Weeks Ended

 

 

February 4, 2018

 

January 29, 2017

 

May 6,
2018

 

April 30,
2017

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Showrooms

 

$

77,837

 

 

$

62,277

 

 

$

18,549

 

 

$

13,993

 

Internet

 

 

18,859

 

 

 

12,270

 

 

 

4,566

 

 

 

3,051

 

Other

 

 

5,114

 

 

 

1,796

 

 

 

3,653

 

 

 

588

 

Total net sales

 

 

101,810

 

 

 

76,343

 

 

 

26,769

 

 

 

17,632

 

Costs of merchandise sold

 

 

44,593

 

 

 

34,646

 

 

 

12,122

 

 

 

8,544

 

Gross profit

 

 

57,217

 

 

 

41,697

 

 

 

14,647

 

 

 

9,088

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

62,255

 

 

 

47,868

 

 

 

20,272

 

 

 

12,275

 

Operating loss

 

 

(5,038

)

 

 

(6,171

)

 

 

(5,625

)

 

 

(3,187

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(438

)

 

 

(565

)

 

 

(58

)

 

 

(150

)

Income taxes

 

 

(26

)

 

 

(138

)

 

 

 

 

 

 

Net Loss

 

$

(5,502

)

 

$

(6,874

)

 

$

(5,683

)

 

$

(3,337

)

Net Loss Attributable to Common
Stockholders

 

$

(6,710

)

 

$

(6,874

)

 

$

(7,584

)

 

$

(3,337

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share (basic and diluted)(1)

 

$

(1.11

)

 

$

(1.20

)

 

$

(1.25

)

 

$

(0.56

)

Weighted-average shares used in computing net loss per common share(1)

 

 

6,001,699

 

 

 

5,747,286

 

 

 

6,065,238

 

 

 

6,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma Net Loss per Common Share (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net loss per common share (basic and diluted)(2)

 

$

(0.52

)

 

$

(0.55

)

 

$

(2.73

)

 

$

(0.26

)

Pro forma weighted-average shares used in computing pro forma net loss per
common share

 

 

12,864,120

 

 

 

12,609,707

 

 

 

12,914,533

 

 

 

12,862,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial and Operating Data (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable showroom sales change(4)

 

 

19.5

%

 

 

4

%

 

 

28.2

%

 

 

14.9

%

Showrooms open at end of period

 

 

66

 

 

 

60

 

 

 

68

 

 

 

59

 

Total showroom square footage at end of period (in thousands)

 

 

88

 

 

 

80

 

 

 

90

 

 

 

80

 

Total showroom selling square footage at end of period (in thousands)(5)

 

 

62

 

 

 

57

 

 

 

63

 

 

 

56

 

Sales per selling square foot(6)

 

$

1,262

 

 

$

1,101

 

 

$

294

 

 

$

250

 

Capital expenditures(7)

 

$

6,636

 

 

$

3,681

 

 

$

2,774

 

 

$

827

 

EBITDA(8)(9)

 

$

(2,679

)

 

$

(3,991

)

 

$

(4,955

)

 

$

(2,840

)

Adjusted EBITDA(8)(9)

 

$

1,271

 

 

$

(2,861

)

 

$

(4,189

)

 

$

(2,599

)

Adjusted EBITDA Margin(8)(10)

 

 

1

%

 

 

(4

)%

 

 

(16

)%

 

 

(15

)%

Average Unit Volume(8)(11)

 

 

1,235,031

 

 

 

1,072,623

 

 

 

277,528

 

 

 

232,893

 

12

 

 

As of
May 6,
2018

 

As of February 4, 2018

 

As of January 29, 2017

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet data:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,942

 

$

9,176

 

$

879

Working capital(12)

 

 

6,779

 

 

12,946

 

 

3,350

Total assets

 

 

39,090

 

 

41,441

 

 

20,720

Total liabilities

 

 

20,840

 

 

17,802

 

 

13,670

Total stockholders’ equity

 

 

18,250

 

 

23,638

 

 

7,050

 

 

 

Fiscal Year Ended

 

Thirteen Weeks Ended

 

 

February 4, 2018

 

January 29, 2017

 

May 6,
2018

 

April 30,
2017

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(2,740

)

 

$

(6,477

)

 

$

(5,588

)

 

$

(4,210

)

Net cash used in investing activities

 

 

(6,809

)

 

 

(3,985

)

 

 

(2,853

)

 

 

(835

)

Net cash provided by financing activities

 

 

17,847

 

 

 

11,132

 

 

 

1,208

 

 

 

5,344

 

Net change in cash and cash equivalents

 

 

8,297

 

 

 

670

 

 

 

(7,234

)

 

 

299

 

Cash and cash equivalents at end of period

 

 

9,176

 

 

 

879

 

 

 

1,942

 

 

 

1,178

 

____________

(1)      For the calculation of basic and diluted net loss per share, see Note 1 and Note 7 to our audited consolidated financial statements. The weighted average number of common shares used in computing the net loss per common share gives effect to the 1-for-2.5 reverse stock split of our common stock that will occur immediately prior to the closing of this offering. The pro forma weighted average number of common shares used in computing pro forma net loss per common share gives effect to (i) the conversion of our outstanding preferred stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, into approximately 3,287,441 shares of our common stock, and (ii) the 1-for-2.5 reverse stock split of our common stock that will occur immediately prior to the closing of this offering.

(2)      For the quarter ended May 6, 2018, our pro forma net loss per common share increased as a result of the inducement offer made to preferred stockholders. This effect was calculated as follows:

(in thousands, except share and per share data)

 

Thirteen weeks ended May 6, 2018

 

 

 

 

 

Net Loss Attributable to Common Stockholders

$

(7,584

)

Deemed dividend

 

(27,630

)

Pro forma Net loss Attributable to Common Stockholders

$

(35,214

)

 

 

 

 

Weighted-average shares used in computing net loss per common share

 

6,065,238

 

Preferred conversion to common

 

3,287,441

 

Vested restricted stock units

 

61,854

 

Offering shares

 

3,500,000

 

 

 

12,914,533

 

 

 

 

 

Pro forma net loss per common share (basic and diluted)

$

(2.73

)

(3)     Retail data represents our showrooms exclusive of shop in shop showrooms.

(4)     Comparable showroom sales are calculated based on showrooms that were open at least fifty-two weeks as of the end of the reporting period. A showroom is not considered a part of the comparable showroom sales base if the square footage of the showroom changed or if the showroom was relocated. If a showroom was closed for any period of time during the measurement period, that showroom is excluded from comparable showroom sales. The change in comparable showroom sales is calculated by comparing the period’s comparable showroom sales to the same period in the preceding fiscal year.

(5)      Selling square footage is retail space at our showrooms used to sell our products. Selling square footage excludes backrooms at showrooms used for storage, office space or similar matters.

(6)      Retail sales per selling square foot is calculated by dividing total net sales for all showrooms, comparable and non-comparable, by the average selling square footage for the period.

(7)      Capital expenditures consist primarily of investments in new showrooms and remodeled showrooms.

13

(8)      EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Average Unit Volume (collectively, our “Non-GAAP Measures”) are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe that EBITDA and Adjusted EBITDA are useful measures of operating performance, as they eliminate expenses that are not reflective of the underlying business performance, facilitate a comparison of our operating performance on a consistent basis from period-to-period and provide for a more complete understanding of factors and trends affecting our business. Additionally, EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use EBITDA and Adjusted EBITDA, alongside other GAAP measures such as gross profit, operating income (loss) and net income (loss), to measure evaluate our operating performance and we believe these measures are useful to investors in evaluating our operating performance.

Our Non-GAAP Measures are not GAAP measures of our financial performance or liquidity and should not be considered as alternatives to net income (loss) or net income (loss) per share as a measure of financial performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. They should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, our Non-GAAP Measures are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as tax payments and debt service requirements and certain other cash costs that may recur in the future. Our Non-GAAP Measures contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In addition, our Non-GAAP Measures exclude certain non-recurring and other charges.

You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in Our Non-GAAP Measures. Our presentation of Our Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying primarily on our GAAP results and by using Our Non-GAAP Measures as supplemental information. Our Non-GAAP Measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

(9)      We define EBITDA as net income before interest, taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include sponsor fees, equity-based compensation expense, write-offs of property and equipment, deferred rent, financing expenses and certain other charges and gains that we do not believe reflect our underlying business performance. The following provides a reconciliation of net loss to EBITDA and Adjusted EBITDA for the periods presented:

 

 

Fiscal Year Ended

 

Thirteen Weeks Ended

 

 

February 4, 2018

 

January 29, 2017

 

May 6,
2018

 

April 30,
2017

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,502

)

 

$

(6,874

)

 

$

(5,683

)

 

$

(3,337

)

Interest expense

 

 

438

 

 

 

565

 

 

 

58

 

 

 

150

 

Taxes

 

 

26

 

 

 

138

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,359

 

 

 

2,180

 

 

 

670

 

 

 

347

 

EBITDA

 

 

(2,679

)

 

 

(3,991

)

 

 

(4,955

)

 

 

(2,840

)

Sponsor fees(a)

 

 

484

 

 

 

400

 

 

 

125

 

 

 

108

 

Equity-based compensation expense(b)

 

 

951

 

 

 

26

 

 

 

295

 

 

 

 

Write-off of property and equipment(c)

 

 

197

 

 

 

77

 

 

 

6

 

 

 

 

Deferred rent(d)

 

 

360

 

 

 

217

 

 

 

124

 

 

 

67

 

Other expenses(e)(f)

 

 

1,959

 

 

 

410

 

 

 

216

 

 

 

249

 

Adjusted EBITDA

 

$

1,271

 

 

$

(2,861

)

 

$

(4,189

)

 

$

(2,416

)

____________

(a)      Represents management fees charged by our equity sponsors.

(b)      Represents expenses associated with stock options and restricted stock units granted to our management.

(c)      Represents the net loss on the disposal of fixed assets.

(d)      Represents the difference between rent expense recorded and the amount paid by the Company. In accordance with generally accepted accounting principles, the Company records monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease terms.

(e)      Other expenses in fiscal 2018 are made up of: (1) $1,072 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $182 in travel and logistical costs associated with the offering; (3) $484 in costs related to the offering and finance fees; and (4) $221 in accounting fees related to the offering. Other expenses in fiscal 2017 are made up of: (1) $242 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services

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incurred in connection with such activities; (2) $29 in travel and logistical costs associated with the offering; and (3) $139 in accounting fees related to the offering.

(f)       Other expenses in the thirteen weeks ended May 6, 2018 are made up of: (1) $94 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $6 in travel and logistical costs associated with the offering; (3) $32 in costs related to the offering and finance fees; and (4) $82 in accounting fees related to the offering. Other expenses in the thirteen weeks ended April 30, 2017 are made up of: (1) $224 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; and (2) $25 in travel and logistical costs associated with the offering.

(10)   Adjusted EBITDA margin means, for any period, the Adjusted EBITDA for that period divided by the net sales for that period.

(11)   Average Unit Volume is calculated by dividing total showroom sales by the average number of showrooms open during the period. For showrooms that are not open for the entire period, fractional adjustments are made to the number of showrooms used in the denominator such that it corresponds to the period of associated sales

(12)   Working capital is defined as current assets, less current liabilities.

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Risk Factors

An investment in the common stock of The Lovesac Company (the “Company,” “Lovesac,” “we,” “us” or “our”) involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our financial statements and the related notes thereto, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are not material, also may become important factors that affect us and impair our business operations. The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, results of operations, financial condition and cash flows, and in such case, our future prospects would likely be materially and adversely affected. If any of such events or developments were to happen, the trading price of our common stock could decline. Further, our actual results could differ materially and adversely from those anticipated in our forward-looking statements as a result of certain factors.

Risks Relating to Our Business and Industry

We have historically operated at a loss, and we may never achieve or sustain profitability.

While we have typically experienced revenue growth from period-to-period, the level of growth has at times been inconsistent. We have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. We have historically operated at a loss, which has resulted in an accumulated deficit. Despite the fact that we have raised significant capital in recent periods, there can be no assurance that we will ever achieve profitability. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on a quarterly or annual basis. Failure to do so would continue to have a material adverse effect on our accumulated deficit and could result in a decline in our common stock price.

Our recent growth rates may not be sustainable.

While we have experienced recent growth, maintaining that growth is dependent on a number of factors, including increased traffic to our website and showrooms, our sales conversion rate, and our ability to open new showrooms. We also rely on shop in shops, and there can be no assurance the current retailer with whom we partner will continue to house them or that we will be able to enter into similar arrangements with other retailers, which could hinder our anticipated sales growth. Our business is highly competitive, and there can be no assurance that we will be able to sustain or improve our recent growth rates.

Our ability to raise capital in the future may be limited. Our inability to raise capital when needed could prevent us from growing and could have a material adverse effect on our business, financial condition, operating results and prospects.

If we continue to experience insufficient cash flow from operations to support our operating and capital needs we will be required to raise additional capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all. We may sell common stock, preferred stock, convertible securities and other equity securities in one or more transactions at prices and in such a manner as we may determine from time to time. If we sell any such equity securities in subsequent transactions, investors may be materially diluted. Debt financing, if available, may involve restrictive covenants and could reduce, among other things, our operational flexibility. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures. In addition, debt financings may be blocked by our senior lender that provides an asset-backed revolving credit facility to fund our inventory purchases in advance of customer sales. Our lender has, and any subsequent senior lender likely will have, the right to consent to any new debt financing. There can be no assurance that our lender will provide such consent. Our inability to raise capital when needed could prevent us from growing and have a material adverse effect on our business, financial condition, operating results and prospects.

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If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be adversely affected.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of SOX requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with the fiscal year ending January 2019. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or the date we are no longer an “emerging growth company,” as defined in the JOBS Act. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process will be time-consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, are unable to comply with the requirements of Section 404 of SOX in a timely manner, are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be adversely affected. In addition, we could become subject to investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

We rely on financial reporting and data analytics that must be accurate in order to make real-time management decisions, accurately manage our cash position, and maintain adequate inventory levels while conserving adequate cash to fund operations. In the event of a systems failure, a process breakdown, the departure of key management, or fraud, we would be unable to efficiently manage these items and may experience liquidity shortfalls that our revolving credit facility may not be able to accommodate. In such a situation, we also may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

We may be unable to accurately forecast our operating results and growth rate, which may adversely affect our reported results and stock price.

We may not be able to accurately forecast our operating results and growth rate. We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market conditions. Our growth rates may not be sustainable, and our growth depends on the continued growth of demand for the products we offer. Lower demand caused by changes in customer preferences, a weakening of the economy or other factors may result in decreased revenues or growth. Furthermore, many of our expenses and investments are fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our operating results. Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower than anticipated. If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.

If we fail to manage our growth effectively, our business, financial condition, operating results and prospects could be harmed.

To manage our anticipated growth effectively, we must continue to implement our operational plans and strategies, improve and expand our corporate infrastructure, information systems, and executive management and expand, train and manage our employee base. As we grow, we will need to find, train, and monitor additional employees and continue to invest in information systems that support key functions such as accounting, human resources, sales analytics, and

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marketing, all of which strain the time of our executive management team and our resources. If we fail to manage our growth effectively, our business, financial condition, operating results and prospects could be harmed.

Our inability to maintain our brand image, engage new and existing customers and gain market share could have a material adverse effect on our growth strategy and our business, financial condition, operating results and prospects.

Our ability to maintain our brand image and reputation is integral to our business and implementation of our growth strategy. Maintaining, promoting and growing our brand will depend largely on the success of our design, merchandising and marketing efforts and our ability to provide a consistent, high-quality product and customer experience. Our reputation could be jeopardized if we fail to maintain high standards for product quality and integrity and any negative publicity about these types of concerns may reduce demand for our products. While we believe our brand enjoys a loyal customer base, the success of our growth strategy depends, in part, on our ability to keep existing customers engaged and attract new customers to our brand. If we experience damage to our reputation or loss of consumer confidence, we may not be able to retain existing customers or acquire new customers, which could have a material adverse effect on our business, financial condition, operating results and prospects.

If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to achieve revenue growth or profitability.

To acquire new customers, we must appeal to prospects who have historically used other means of commerce to purchase furniture, such as traditional furniture retailers. To date, we have reached new customers primarily through our showroom presence in various markets, and through social media, digital content, third-party advocates for our brand and products and by word of mouth. Until now, these efforts have allowed us to acquire new customers at what we believe is a reasonable cost and rate. However, there is no guarantee that these methods will continue to be successful or will drive customer acquisition rates necessary for us to achieve revenue growth or profitability.

Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. We compete with furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and marketplaces, including the following:

         Ashley Furniture, IKEA, and other regional stores such as Bob’s Discount Furniture, Havertys, Raymour & Flanagan and Rooms To Go;

         Costco, JCPenney and Macy’s;

         Crate and Barrel, Ethan Allen, Pottery Barn and Restoration Hardware; and

         Amazon, Wayfair, eBay, Joybird, Burrow, Campaign and One Kings Lane.

We expect competition in both retail stores and ecommerce to continue to increase. Our ability to compete successfully depends on many factors both within and beyond our control, including:

         the size and composition of our customer base;

         our selling and marketing efforts;

         the quality, price, reliability and uniqueness of products we offer;

         the convenience of the shopping experience that we provide;

         our ability to distribute our products and manage our operations; and

         our reputation and brand strength.

Many of our current and potential competitors have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technological capabilities, faster and less costly shipping, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to, among other things, derive greater sales from their existing customer base, acquire customers at lower costs and

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respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies. If we are unable to successfully compete, our business, financial condition, operating results and prospects could be materially adversely affected.

Our business depends on effective marketing and increased customer traffic.

We rely on a variety of marketing strategies to compete for customers and increase sales. If our competitors increase their spending on marketing, if our marketing is less effective than that of our competitors, or if we do not adequately leverage the technology and data analytics needed to generate concise competitive insight, our business, financial condition, operating results and prospects could be adversely affected.

Our increased use of social media poses reputational risks.

As use of social media becomes more prevalent, our susceptibility to risks related to social media increases. The immediacy of social media precludes us from having real-time control over postings made regarding us via social media, whether matters of fact or opinion. Information distributed via social media could result in immediate unfavorable publicity we may not be able to reverse. This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and prospects.

Our efforts to launch new products may not be successful.

We plan to expand our product line in the future. We may not be able to develop products which are attractive to our customers, and our costs to develop new products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results. Failure to successfully develop or market new products or delays in the development of new products could have a material adverse effect on our financial condition, results of operations and business.

We rely on the performance of members of management and highly skilled personnel. If we are unable to attract, develop, motivate and retain well-qualified employees, our business could be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Andrew Heyer, our Chairman, Jack Krause, our President and Chief Operating Officer, Donna Dellomo, our Executive Vice President and Chief Financial Officer, and other members of our management team. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. The market for such employees in the cities in which we operate is competitive. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of any of our key employees, including members of our senior management team, could materially adversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. Our inability to recruit and develop mid-level managers could have similar adverse effects on our ability to execute our business plan.

Some of our officers and other key employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. While others have employment agreements with stated terms, they could still leave our employ. If we do not succeed in retaining and motivating existing employees or attracting well-qualified employees, our business, financial condition, operating results and prospects may be materially adversely affected.

System interruptions that impair customer access to our sites or other performance failures in our technology infrastructure could damage our business, reputation and brand, and substantially harm our business and results of operations.

The satisfactory performance, reliability and availability of our website, transaction processing systems and technology infrastructure are critical to our reputation, and our ability to acquire and retain customers and maintain adequate customer service levels. We currently rely on a variety of third party service providers to support mission critical systems and the efficient flow of merchandise from and between warehouses and showrooms to customers. For example, we rely on common carriers for the delivery of merchandise purchased by customers through our website and in our showrooms, and the systems we employ to communicate delivery schedules and update customers about order

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tracking interface with the information systems of these common carriers. Our own systems, which are customized versions of ecommerce, customer relationship management, payment processing, and inventory management software technologies deployed by numerous retailers and wholesalers in a variety of industries, must work seamlessly in order for information to flow correctly and update accurately across these systems. Any failure in this regard could result in negative customer experiences, putting our brand and growth at risk.

Through third parties that underwrite customer risk, we offer financing options in order to increase the market demand for our products among customers who may not be able to buy them using cash. The systems of these third parties must work efficiently in order to give customers real-time credit availability. Changes in the risk underwriting or technologies of these third parties may result in lower credit availability to our potential customers and therefore reduced sales. The occurrence of any of the foregoing could substantially harm our business and results of operations.

Unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system or otherwise, could severely hurt our business.

Certain aspects of our business involve the receipt, storage and transmission of customers’ personal information, consumer preferences and payment card information, as well as confidential information about our associates, our suppliers and our Company, some of which is entrusted to third-party service providers and vendors. Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be vulnerable to security breaches, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

An electronic security breach in our systems (or in the systems of third parties with which we do business) that results in the unauthorized release of individually identifiable information about customers or other sensitive data could occur and have a material adverse effect on our reputation, lead to substantial financial losses from remedial actions, and lead to a substantial loss of business and other liabilities, including possible punitive damages. In addition, as the regulatory environment relating to retailers and other companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines, other regulatory sanctions and lawsuits.

Our business is sensitive to economic conditions and consumer spending.

We face numerous business risks relating to macroeconomic factors. Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other times when disposable income is lower. Factors impacting discretionary consumer spending include general economic conditions, wages and employment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, volatility of fuel and energy prices, interest rates, consumer confidence, political and economic uncertainty and other macroeconomic factors. Deterioration in economic conditions or increasing unemployment levels may reduce the level of consumer spending and inhibit consumers’ use of credit, which may adversely affect our sales. In recessionary periods and other periods where disposable income is adversely affected, we may have to increase the number of promotional sales or otherwise dispose of inventory for which we have previously paid to manufacture, which could further adversely affect our financial performance. It is difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our business, financial condition, operating results and prospects.

A substantial portion of our business is dependent on a small number of suppliers. A material disruption at any of our suppliers’ manufacturing facilities could prevent us from meeting customer demand, reduce our sales, and/or negatively affect our financial results.

We do not own or operate any manufacturing facilities and therefore depend on third-party suppliers for the manufacturing of all of our products. Moreover, a substantial portion of our business is dependent on a small number of suppliers. Sacs, which represented approximately 26% of our revenues in both fiscal 2018 and 2017, are currently manufactured by a single manufacturer in Texas. Sactionals, which represented approximately 74% of our revenues in both fiscal 2018 and 2017, are manufactured by two suppliers in China and our outdoor Sactionals are manufactured in Vietnam. Sacs represented approximately 34% of our revenues in the thirteen weeks ended May 6, 2018 and 27% of our revenues for the thirteen weeks ended April 30, 2017. Sactionals represented approximately 63% of our revenues in the thirteen weeks ended May 6, 2018 and 73% of our revenues for the thirteen weeks ended April 30, 2017.

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Any of our suppliers’ manufacturing facilities, or any of the machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, which could materially and adversely impact our business, operations and financial condition. These events include but are not limited to:

         equipment failure;

         fires, floods, earthquakes, hurricanes, or other catastrophes;

         unscheduled maintenance outages;

         utility and transportation infrastructure disruptions;

         labor difficulties;

         other operational problems;

         war or terrorism;

         political, social or economic instability; or

         financial instability or bankruptcy of any such supplier.

Our reliance on international suppliers increases our risk of supply chain disruption, which could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects.

Our current suppliers are located in China, Vietnam and the United States. Our reliance on international suppliers increases our risk of supply chain disruption. Events that could cause disruptions to our supply chain include but are not limited to:

         the imposition of additional trade laws or regulations;

         the imposition of additional duties, tariffs and other charges on imports and exports;

         foreign currency fluctuations;

         theft; and

         restrictions on the transfer of funds.

The occurrence of any of the foregoing could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects.

Our reliance on suppliers in developing countries increases our risk with respect to available manufacturing infrastructure, labor and employee relations, political and economic stability, corruption, and regulatory, environmental, health and safety compliance.

Our reliance on suppliers in developing countries increases our risk with respect to infrastructure available to support manufacturing, labor and employee relations, political and economic stability, corruption, and regulatory, environmental, health and safety compliance. Any failure of our suppliers to comply with ethical sourcing standards or labor or other local laws in the country of manufacture, or the divergence of a supplier’s labor practices from those generally accepted as ethical in the United States, could disrupt the shipment of products, force us to locate alternative manufacturing sources, reduce demand for our products, damage our reputation and/or expose us to potential liability for their wrongdoings. Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and prospects.

Most of our products are shipped from our suppliers by ocean vessel. If a disruption occurs in the operation of ports through which our products are imported, we may incur increased costs and suffer delays, which could have a material adverse effect on our business, financial condition, operating results and prospects.

Most of our products are shipped from our suppliers by ocean vessel. If a disruption occurs in the operation of ports through which our products are imported, we may incur increased costs related to air freight or use of alternative ports.

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Shipping by air is significantly more expensive than shipping by ocean and our margins could be reduced. Shipping to alternative ports could also lead to delays in receipt of our products. We rely on third-party shipping companies to deliver our products to us. Failures by these shipping companies to deliver our products to us or lack of capacity in the shipping industry could lead to delays in receipt of our products or increased expense in the delivery of our products. Any of these developments could have a material adverse effect on our business, financial condition, operating results and prospects.

Increases in the demand for, or the price of, raw materials used to manufacture our products or other fluctuations in sourcing or distribution costs could increase our costs and negatively impact our gross margin.

We believe that we have strong supplier relationships, and we work with our suppliers to manage cost increases. Our gross margin depends, in part, on our ability to mitigate rising costs or shortages of raw materials used to manufacture our products. Raw materials used to manufacture our products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, weather, government regulations, economic conditions and other unpredictable factors. In addition, our sourcing costs may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations or other unpredictable factors. The occurrence of any of the foregoing could increase our costs, delay or reduce the availability of our products and negatively impact our gross margin.

Our inability to manage our inventory levels and products, including with respect to our omni-channel operations, could have a material adverse effect on our business, financial condition, operating results and prospects.

Inventory levels in excess of customer demand may result in lower than planned financial performance. Alternatively, if we underestimate demand for our products, we may experience inventory shortages resulting in missed sales and lost revenues. Either of these events could significantly affect our operating results and brand image and loyalty. Our financial performance may also be impacted by changes in our products and pricing. These changes could have a material adverse effect on our business, financial condition, operating results and prospects.

Our inability to manage the complexities created by our omni-channel operations may have a material adverse effect on our business, financial condition, operating results and prospects.

Our omni-channel operations create additional complexities in our ability to manage inventory levels, as well as certain operational issues, including timely shipping and returns. Accordingly, our success depends to a large degree on continually evolving the processes and technology that enable us to plan and manage inventory levels and fulfill orders, address any related operational issues and further align channels to optimize our omni-channel operations. If we are unable to successfully manage these complexities, it may have a material adverse effect on our business, financial condition, operating results and prospects.

We may be subject to product liability claims if people or property are harmed by the products we sell.

We have not had any significant product liability claims to date. We place a high priority on designing our products to be safe for consumers and safety test our products in third-party laboratories. Still, the products we sell or have manufactured may expose us to product liability claims, litigation and regulatory action relating to personal injury, death and environmental or property damage. Some of our agreements with our suppliers and international manufacturers may not indemnify us from product liability for a particular supplier’s or international manufacturer’s products, or our suppliers or international manufacturers may not have sufficient resources or insurance to satisfy their indemnity and defense obligations. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. Any product liability claims asserted against us could, among other things, harm our reputation, damage our brand, cause us to incur significant costs, and have a material adverse effect on our business, results of operations and financial condition.

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Our ability to attract customers to our showrooms depends heavily on successfully locating our showrooms in suitable locations. Any impairment of a showroom location, including any decrease in customer traffic, could cause our sales to be lower than expected.

We plan to open new showrooms in high street and urban locations and historically we have favored top tier mall locations near luxury and contemporary retailers that we believe are consistent with our key customers’ demographics and shopping preferences. Sales at these showrooms are derived, in part, from the volume of foot traffic in these locations. Showroom locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things:

         economic downturns in a particular area;

         competition from nearby retailers selling similar products;

         changing consumer demographics in a particular market;

         changing preferences of consumers in a particular market;

         the closing or decline in popularity of other businesses located near our store;

         reduced customer foot traffic outside a showroom location; and

         store impairments due to acts of God or terrorism.

Even if a showroom location becomes unsuitable, we will generally be unable to cancel the long term lease associated with such showroom.

We may be unable to successfully open and operate new showrooms, which could have a material adverse effect on our business, financial condition, operating results and prospects.

As of May 6, 2018, we had 68 showrooms, but our growth strategy requires us to increase our showroom base. There can be no assurance that we will succeed in opening additional showrooms. If we are unable to successfully open and operate new showrooms, it could have a material adverse effect on our business, financial condition, operating results and prospects.

Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to:

         identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful;

         obtain desired locations, including showroom size and adjacencies, in targeted high street and urban locations and top tier malls;

         negotiate acceptable lease terms, including desired rent and tenant improvement allowances;

         achieve brand awareness, affinity and purchaser intent in new markets;

         hire, train and retain showroom associates and field management;

         assimilate new showroom associates and field management into our corporate culture;

         source and supply sufficient inventory levels;

         successfully integrate new showrooms into our existing operations and information technology systems; and

         have the capital necessary to fund new showrooms.

In addition, our new showrooms may not be immediately profitable, and we may incur significant losses until these showrooms become profitable. Unavailability of desired showroom locations, delays in the acquisition or opening of new showrooms, delays or costs resulting from a decrease in commercial development due to capital restraints, difficulties in staffing and operating new showroom locations or a lack of customer acceptance of showrooms in new

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market areas may negatively impact our new showroom growth and the costs or the profitability associated with new showrooms. While we are seeking to mitigate some of the risks related to our mall based showrooms by opening high street and lifestyle center-based showrooms and continuing to build our online sales, there can be no assurance that this strategy will be successful or lead to greater sales.

As we expand our showroom base, we may not be able to achieve the showroom sales growth rates that we have achieved in the past, which could cause our share price to decline.

As we expand our showroom base, we may not be able to achieve the showroom sales growth rates that we have achieved historically. If our showroom sales growth rates decline or fail to meet market expectations, the value of our common stock could decline.

In addition, the results of operations of our showroom locations have fluctuated in the past and can be expected to continue to fluctuate in the future. A variety of factors affect showroom sales, including, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our product assortment, the success of marketing programs and weather conditions. If we misjudge the market for our products, we may have excess inventory of some of our products and miss opportunities for other products. These factors may cause our showroom sales results in the future to be materially lower than recent periods or our expectations, which could harm our results of operations and result in a decline in the price of our common stock.

We have and will continue to expend significant capital remodeling our existing showrooms, and there is no guarantee that this will result in incremental showroom traffic or sales.

We intend to continue remodeling our existing showroom base to reflect our new showroom design, and we intend to expend significant capital doing so. While preliminary results appear promising, there is no guarantee that the capital spent on these remodeled showrooms will result in increased showroom traffic or increased sales.

Our lease obligations are substantial and expose us to increased risks.

We do not own any of our showrooms. Instead, we rent all of our showroom spaces pursuant to leases. Nearly all of our leases require a fixed annual rent, and many of them require the payment of additional rent if showroom sales exceed a negotiated amount. Most of our leases are “net” leases that require us to pay all costs of insurance, maintenance and utilities, as well as applicable taxes.

Our required payments under these leases are substantial and account for a significant portion of our selling, general and administrative expenses. We expect that any new showrooms we open will also be leased, which will further increase our lease expenses and require significant capital expenditures. Our substantial lease obligations could have significant negative consequences, including, among others:

         increasing our vulnerability to general adverse economic and industry conditions;

         limiting our ability to obtain additional financing;

         requiring a substantial portion of our available cash to pay our rental obligations, reducing cash available for other purposes;

         limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and

         placing us at a disadvantage with respect to some of our competitors who sell their products exclusively online.

Many of our leases contain relocation clauses that allow the landlord to move the location of our showrooms. Moreover, as our leases expire, we may be unable to negotiate acceptable renewals. If either of these events occur, our business, sales and results of operations may be harmed.

Many of our leases include relocation clauses that allow the landlord to move the location of our showrooms. If any of our showrooms are relocated, there can be no assurance that the new location will experience the same levels

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of customer traffic or success that the prior location experienced. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may also be unable to enter into new leases on terms acceptable to us or in desirable locations. If any of the foregoing occur, our business, sales and results of operations may be harmed.

We are required to make substantial lease payments under our leases, and any failure to make these lease payments when due would likely harm our business.

We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.

Moreover, our showroom leases are generally long term and non-cancelable, and we generally expect future showrooms to be subject to similar long term, non-cancelable leases. If an existing or future showroom is not profitable, and we decide to close it, we may nonetheless be required to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term if we cannot negotiate a mutually acceptable termination payment.

Changes in lease accounting standards may materially and adversely affect us.

The Financial Accounting Standards Board (“FASB”), recently adopted new accounting rules that will apply to annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. The Company, as an “emerging growth company,” has elected to defer compliance with new or revised financial accounting standards and, as a result, the new accounting rule will apply to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. When the rules are effective, we will be required to capitalize all leases on our balance sheet and account for our showroom leases as assets and liabilities, where we previously accounted for such leases on an “off balance sheet” basis. As a result, a significant amount of lease-related assets and liabilities will be recorded on our balance sheet, and we may be required to make other changes to the recording and classification of our lease-related expenses. These changes will not directly impact our overall financial condition. However, they could cause investors or others to believe that we are highly leveraged and could change the calculations of financial metrics and covenants under our debt facilities and third-party financial models regarding our financial condition.

We depend on our ecommerce business and failure to successfully manage this business and deliver a seamless omni-channel shopping experience to our customers could have an adverse effect on our growth strategy, business, financial condition, operating results and prospects.

Sales through our ecommerce channel account for a significant portion of our revenues. Our business, financial condition, operating results and prospects are dependent on maintaining our ecommerce business. Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including:

         the failure to successfully implement new systems, system enhancements and Internet platforms;

         the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures;

         the reliance on third-party computer hardware/software providers;

         rapid technological change;

         liability for online content;

         violations of federal, state, foreign or other applicable laws, including those relating to data protection;

         credit card fraud;

         cyber security and vulnerability to electronic break-ins and other similar disruptions; and

         diversion of traffic and sales from our stores.

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Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase costs, diminish our growth prospects and damage the reputation of our brand, each of which could have a material adverse effect on our business, financial condition, operating results and prospects.

Our inability to successfully optimize our omni-channel operations and maintain a relevant and reliable omni-channel experience for our customers could have a material adverse effect on our growth strategy and our business, financial condition, operating results and prospects.

Growing our business through our omni-channel operations is key to our growth strategy. Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs. Failure to enhance our technology and marketing efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals. If we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our business, financial condition, operating results and prospects.

If we are unable to successfully adapt to consumer shopping preferences or develop and maintain a relevant and reliable omni-channel experience for our customers, our financial performance and brand image could be adversely affected.

We are continuing to grow our omni-channel business model. While we interact with many of our customers through our showrooms, our customers are increasingly using computers, tablets and smartphones to make purchases online and to help them make purchasing decisions when in our showrooms. Our customers also engage with us online through our social media channels, including Facebook and Instagram, by providing feedback and public commentary about aspects of our business. Omni-channel retailing is rapidly evolving. Our success depends, in part, on our ability to anticipate and implement innovations in customer experience and logistics in order to appeal to customers who increasingly rely on multiple channels to meet their shopping needs. If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our customers across all channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected.

Purchasers of furniture may choose not to shop online, which could affect the growth of our business.

The online market for furniture is less developed than the online market for apparel, consumer electronics and other consumer products in the United States. While we believe this market is growing, it still accounts for a small percentage of the market as a whole. We are relying on online sales for our continued success and growth. If the online market for furniture does not gain wider acceptance, our growth and business may suffer.

In addition, our success in the online market will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional retailers. We may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to our website and convert them into purchasing customers. Specific factors that could impact consumers’ willingness to purchase furniture from us online include:

         concerns about buying products, and in particular larger products, with a limited physical storefront, face-to-face interaction with sales personnel and the ability to physically examine products;

         actual or perceived lack of security of online transactions and concerns regarding the privacy of personal information;

         inconvenience associated with returning or exchanging items purchased online; and

         usability, functionality and features of our website.

If the online shopping experience we provide does not appeal to consumers or meet the expectations of existing customers, we may not acquire new customers at rates consistent with historical periods, and existing customers’ buying patterns may not be consistent with historical buying patterns. If either of these events occur, our business, sales and results of operations may be harmed.

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Product warranty claims could have a material adverse effect on our business.

We provide a lifetime warranty on most components of our products, which, if deficient, could lead to warranty claims. In prior years, the Company did not maintain a reserve for warranty claims. As a result of a projected increase in sales, the Company began recording a reserve for warranty claims for fiscal 2019. However, there can be no assurance that our reserve for warranty claims will be adequate and additional or reduced warranty reserves may be required. Material warranty claims could, among other things, harm our reputation and damage our brand, cause us to incur significant repair and/or replacement costs, and material adversely affect our business, financial condition, operating results and prospects.

Significant merchandise returns could harm our business.

We allow our customers to return products, subject to our return policy. While the Company has experienced relatively few product returns, this could change, and, if customer returns are significant, our business, financial condition, operating results and prospects could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns.

We are subject to risks related to online payment methods.

We accept payment using a variety of methods, including credit card, debit card, PayPal and gift cards. As we offer new payment options to consumers, we may become subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and increase our operating costs. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply.

As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or have restrictions placed upon, our ability to accept credit card and debit card payments from consumers or our ability to facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected.

In addition, we occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition, operating results and prospects.

Government regulation of the Internet and ecommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and ecommerce. Existing and future regulations and laws could impede the growth of the Internet, ecommerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or ecommerce. It is possible that general business regulations and laws, or those specifically governing the Internet or ecommerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Though we seek at all times to be in full compliance with all such laws, we cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could damage our

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reputation and brand, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our website by consumers and result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations.

We may be unable to protect our trademarks or brand image, which could harm our business.

We rely on trademark registrations and common law trademark rights to protect the distinctiveness of our brand. However, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent counterfeiting or infringement of our trademarks by others. We may not be able to claim or assert trademark or unfair competition claims against third parties for any number of reasons, and our trademarks may be found invalid or unenforceable. A judge, jury or other adjudicative body may find that the conduct of competitors does not infringe or violate our trademark rights. Third parties may claim that the use of our trademarks and branding infringe, dilute or otherwise violate the common law or registered marks of that party, or that our sales and marketing efforts constitute unfair competition. Such claims could result in injunctive relief prohibiting the use of our marks, branding and marketing activities, and significant damages, treble damages and attorneys’ fees and costs could be awarded as a result of such claims. Moreover, U.S. and foreign trademark offices may refuse to grant existing and future trademark applications and may cancel or partially cancel trademark registrations.

The laws of certain foreign countries may not protect the use of unregistered trademarks to the same extent as do the laws of the United States. As a result, international protection of our brand image may be limited, and our right to use our trademarks outside the United States could be impaired. Other persons or entities may have rights to trademarks that contain portions of our marks or may have registered similar or competing marks for furniture and/or accessories in foreign countries where our products are manufactured. There may also be other prior registrations of trademarks identical or similar to our trademarks in other foreign countries of which we are not aware. Accordingly, it may be possible for others to prevent the manufacture of our branded merchandise in certain foreign countries or the sale or exportation of our branded merchandise from certain foreign countries to the United States. If we were unable to reach a licensing arrangement with these parties, we might be unable to manufacture our products in those countries. Our inability to register our trademarks or purchase or license the right to use the relevant trademarks or logos in these jurisdictions could limit our ability to manufacture our products in less costly markets or penetrate new markets in jurisdictions outside the United States. The occurrence of any of the foregoing could harm our business.

We may not be able to adequately protect our intellectual property rights.

We regard our customer and prospect lists, trademarks, domain names, copyrights, patents and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. We have 10 issued U.S. utility patents, 21 issued international utility patents, 10 pending U.S. utility patent applications and 4 pending international utility patent applications. We expect to file U.S. and international patent applications for future innovations. We might not be able to obtain protection in the United States or internationally for our intellectual property, and we might not be able to obtain effective intellectual property protection in countries in which we may in the future sell products. If we are unable to obtain such protection, our business, financial condition, operating results and prospects may be harmed. Additionally, employees, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition, operating results and prospects for the future.

The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Notwithstanding such expenditures, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential information or intellectual property. The validity, enforceability and infringement of our patents, trademarks, trade secrets and other intellectual property rights may be challenged by others in litigation or through administrative process, and we may not prevail in such disputes. Additionally, because the process of obtaining patent and trademark protection is expensive and time-consuming, we may not be able to prosecute all necessary or desirable patent and trademark applications at a reasonable cost or in a timely manner, and such applications may never be granted. Even if such applications issue as patents and trademarks, there can be no assurance that these patents and trademarks will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and

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scope of protection of patents, trademarks and other intellectual property rights are uncertain. If we are unable to adequately protect our intellectual property rights, our business, financial condition, operating results and prospects may be harmed.

We also might be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to discover or determine the extent of any infringement, misappropriation, disclosure or other violation of our intellectual property rights, confidential information or other proprietary rights. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights, confidential information or other proprietary rights or to establish the validity of such rights. Despite our efforts, we may be unable to prevent third parties, former employees, consultants or independent contractors from infringing upon, misappropriating, disclosing or otherwise violating our intellectual property rights, confidential information and other proprietary rights. In addition, initiating claims or litigations against others for infringement, misappropriation, disclosure or violation of our intellectual property rights, confidential information or proprietary rights will be expensive, and may be prohibitively expensive. Any litigation or other dispute resolution mechanism, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition, operating results and prospects.

Our products or marketing activities may be found to infringe or violate the intellectual property rights of others.

Third parties may assert claims or initiate litigation asserting that our products or our marketing activities infringe or violate such third parties’ patent, copyright, trademark, trade secret or other intellectual property rights. The asserted claims and/or litigation could include claims against us or our suppliers alleging infringement of intellectual property rights with respect to our products or components of such products.

Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we may have to, among other things:

         obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all;

         redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others;

         stop using the subject matter protected by the intellectual property held by others;

         pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or

         defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and management resources.

If any of the foregoing occur, our business, financial condition, operating results and prospects could be materially adversely affected.

Risks Relating to this Offering and Ownership of Our Common Stock

Our principal stockholder, SAC Acquisition LLC, will continue to have significant influence over us following the completion of this offering, and its interests could conflict with those of our other stockholders.

Immediately following this offering, our principal stockholder, SAC Acquisition LLC, will own approximately 47% of the outstanding shares of our common stock. SAC Acquisition LLC is controlled by Mistral through ownership interests in SAC Acquisition LLC held by various investment vehicles affiliated with Mistral. Currently, Messrs. Bradley, Heyer and Phoenix are directors of the Company and are also principals of Mistral. As a result, SAC Acquisition LLC and Mistral are able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. SAC Acquisition LLC and Mistral may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company and might ultimately affect the market price of our common stock.

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Holders of our outstanding warrants to purchase common stock will own a significant portion of our common stock following the exercise of such warrants. The exercise of such warrants will significantly dilute the investors participating in this offering.

Holders of our outstanding warrants to purchase common stock will own a significant portion of our common stock following the exercise of such warrants, if any. Assuming the sale of 3,500,000 shares of common stock in this Offering and the exercise of all outstanding warrants at the closing of this Offering, holders of our outstanding warrants would hold approximately 6% of our common stock. During the three-year period following the completion of this offering, holders of our outstanding warrants will have the right to exercise such warrants and purchase shares of our common stock at the price per share paid by investors in this offering. The exercise will dilute investors participating in this offering.

We will be a “controlled company” within the meaning of the Nasdaq rules. As a result, we will qualify for, and may rely on, certain exemptions from corporate governance requirements that provide protection to stockholders of other companies.

After completion of this offering, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with some corporate governance requirements, including:

         the requirement that a majority of our board of directors consist of “independent directors”;

         the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

         the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

         the requirement for an annual performance evaluation of the compensation and nominating and corporate governance committees.

We will be a “controlled company” as a result of Mistral owning approximately 60% of our common stock after completion of this offering (47% through its controlling interest in SAC Acquisition LLC and 13% through common stock held by investment vehicles affiliated with Mistral). Following this offering, we intend to rely on some or all of these exemptions. If we so rely, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

In addition, Nasdaq has developed listing standards regarding compensation committee independence requirements and the role and disclosure of compensation consultants and other advisers to the compensation committee that, among other things, require:

         compensation committees to be composed of independent directors, as determined pursuant to new independence requirements;

         compensation committees to be explicitly charged with hiring and overseeing compensation consultants, legal counsel and other committee advisors; and

         compensation committees to consider, when engaging compensation consultants, legal counsel or other advisors, independence factors, including factors that examine the relationship between the consultant or advisor’s employer and us.

As a controlled company, we will not be subject to these compensation committee independence requirements.

There has been no prior market for our common stock. An active market may not develop or be sustained, and investors may not be able to resell their shares of common stock at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following the completion of this offering. An active or liquid market in our common stock may not develop upon completion of this offering or, if it does develop, may not be sustained. As a result, you may not be able to sell the shares of common stock you purchase in this offering at or above the initial public offering price, or if at all.

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The market price of our common stock may be volatile or may decline steeply or suddenly regardless of our operating performance, resulting in substantial losses for investors purchasing shares of common stock in this offering.

The initial public offering price for our common stock will be determined through negotiations between the underwriters and the Company. This price may not reflect the market price of our common stock following the completion of this offering. Moreover, the market price of our common stock may be volatile or decline steeply or suddenly, regardless of our operating performance. This could occur for any number of reasons, many of which are beyond our control, including:

         actual or anticipated fluctuations in our customer growth, sales, or other operating results;

         variations between our actual operating results and the expectations of securities analysts, investors, and the financial community;

         any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information;

         actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors;

         additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales, including if existing stockholders sell shares into the market when applicable “lock-up” periods end;

         price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

         announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments;

         lawsuits threatened or filed against us;

         developments in new legislation or rulings by judicial or regulatory bodies; and

         other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock may be volatile, and in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, and results of operations.

An active trading market for our common stock may never develop or be sustained and we may be unable to comply with the applicable continued listing requirements or standards of the Nasdaq Global Market and could be delisted.

We have applied to list our common stock on the Nasdaq Global Market under the symbol “LOVE.” In order to maintain that listing, we will be required to satisfy minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurance that we will be able to comply with the applicable listing standards. If we cannot comply with the applicable listing standards our common stock may be delisted which could materially adversely affect our trading volume and stock price.

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our Company, the trading price for our common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.

The requirements of being a public company may strain our resources, result in more litigation, and divert the attention of Company management.

As a public company, we will be subject to the reporting requirements of the Exchange Act, SOX, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Market, and other applicable securities rules and regulations. Complying with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming and costly, and increase demand on our systems and resources. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures, retain a transfer agent, adopt an insider trading policy and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws.

The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. By disclosing information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

While we intend to use the net proceeds of this offering in the manner set forth in “Use of Proceeds” below, we have broad discretion over the ultimate use of those proceeds. You will be relying on the judgment of Company management regarding the application of those proceeds. You will not have the opportunity to influence our decisions regarding how we use our proceeds from this offering, and we may spend or invest these proceeds in a way with which our stockholders disagree.

If our management fails to use these funds effectively, our business could be seriously harmed. Moreover, Company management may apply our proceeds from this offering in ways that fail to increase, or even decrease, the value of your investment.

Investors in this offering will experience immediate and substantial dilution.

The initial public offering price is expected to be substantially higher than the net tangible book value per share of our common stock immediately following this offering. Therefore, if you purchase common stock in the offering, you will experience immediate and substantial dilution in net tangible book value per share in relation to the price that you paid for your shares. We expect the dilution as a result of the offering to be $10.64 per share, based on an initial offering price of $16.00 per share and our pro forma as adjusted net tangible book value of $5.36 per share as of May 6, 2018. Accordingly, if we were liquidated at our pro forma net tangible book value, you would not receive the full amount of your investment.

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We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we could be an emerging growth company for up to five years following the completion of this offering. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including:

         not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of SOX;

         reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

         exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. Investors may find our common stock less attractive if we choose to rely on any of the exemptions or accommodations afforded to emerging growth companies. If investors find our common stock less attractive because we rely on any of these exemptions or accommodations, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile. The Company has irrevocably elected to take advantage of the extended transition period for new or revised accounting standards.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, and limit attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will be effective immediately prior to the completion of this Offering may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws will include provisions that:

         permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships by the affirmative vote of a majority of the directors or stockholders holding at least 25% of the issued and outstanding shares of common stock;

         provide that directors may only be removed by the majority of the shares of voting stock then outstanding entitled to vote generally in election of directors;

         require a majority of all directors who constitute the Board of Directors or holders at least 25% of the issued and outstanding shares our common stock to adopt, amend or repeal provisions of our bylaws;

         require 50% of the voting power of all then outstanding shares of capital stock of the Company entitled to vote generally in election of directors to amend, alter or repeal, or adopt any provision inconsistent with certain sections of our certificate of incorporation;

        except as otherwise provided by the terms of any series of preferred stock, special meetings of stockholders of the Company may be called only by the board of directors, the chairperson of the board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or at least twenty-five percent (25%) of all then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class; and

         establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we will be governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally

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prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.

We do not expect to declare any dividends in the foreseeable future.

The continued operation and growth of our business will require substantial cash. Accordingly, we do not anticipate paying any cash dividends to holders of our common stock at any time in the foreseeable future. Any determination to pay future dividends will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, contractual restrictions, indebtedness, restrictions imposed by applicable law and other factors our board of directors deems relevant. Consequently, the only way investors may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated. However, there is no guarantee that investors’ shares of common stock will appreciate in value or even maintain the price at which our investors purchased their shares of common stock.

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Cautionary Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. The cautionary statements set forth in this prospectus, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

         our ability to sustain recent growth rates;

         our ability to manage the growth of our operations over time;

         our ability to maintain, grow and enforce our brand and trademark rights;

         our ability to improve our products and develop new products;

         our ability to obtain, grow and enforce intellectual property related to our business and avoid infringement or other violation of the intellectual property rights of others;

         our ability to successfully open and operate new showrooms;

         our ability to increase our Internet sales; and

         our ability to compete and succeed in a highly competitive and evolving industry.

These risks are not exhaustive. Other sections of this prospectus include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Although the forward-looking statements in this prospectus are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this prospectus or otherwise make public statements updating our forward-looking statements.

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Use of Proceeds

We estimate that the net proceeds to us from the sale of common stock by this prospectus will be approximately $51,380,000, assuming the sale by us of 3,500,000 shares of our common stock at an public offering price of $16.00 per share and after deducting the underwriting discounts and commissions, and estimated offering expenses payable by us of approximately $4,620,000.

The principal purposes of this offering are to increase our capitalization and financial flexibility, and create a public market for our common stock and thereby enable access to the public equity markets for us and our stockholders. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds from this offering primarily (i) to increase sales and marketing, (ii) for product development, (iii) repayment of amounts drawn from our credit facility with Wells Fargo, and (iv) for working capital and other general corporate purposes.

The amount and timing of expenditures or for any particular use may vary based on a number of factors, including the amount of cash used in or provided by our operations. Our management will have broad discretion in the application of these proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering.

36

Dividend Policy

We have never declared nor paid any dividends on our common stock since incorporation and do not anticipate that we will do so in the foreseeable future. All shares of our common stock are entitled to an equal share of any dividends declared and paid. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments, provisions of applicable law and other factors the board of directors deems relevant.

37

CAPITALIZATION

The following table describes our capitalization as of May 6, 2018:

         on an actual basis giving effect to a 1-for-2.5 reverse stock split of our common stock.

         on a pro forma basis to give effect to the conversion of all outstanding Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock, in each case along with the aggregate accrued or accumulated and unpaid dividends thereon and a 1-for-2.5 reverse stock split of our common stock. A description of the conversion features of our preferred stock can be found under the heading “Description of Capital Stock — Preferred Stock” and in Notes 7 and 12 to our consolidated financial statements for the years ended February 4, 2018 and January 29, 2017.

         on a pro forma, as adjusted basis to give effect to the pro forma adjustment set forth above and the sale of the shares in this offering at the public offering price of $16.00 per share, after deducting underwriting discounts and other estimated offering expenses payable by us and after giving effect to the application of the net proceeds received from this offering as described under “Use of Proceeds.”

The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

You should read the following table in connection with the sections entitled “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Description of Capital Stock” and our financial statements and related notes included elsewhere in this prospectus.

 

 

As of May 6, 2018

 

 

Actual

 

Pro
Forma

 

Pro Forma As Adjusted

Indebtedness

 

$

1,500,000

 

 

$

1,500,000

 

 

$

0

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock, par value $0.00001 per share; 100,000,0000 shares authorized, 6,077,626 shares issued and outstanding; 40,000,000 shares authorized, 9,365,067 shares issued and outstanding; 40,000,000 shares authorized, 12,865,067

 

 

61

 

 

 

94

 

 

 

129

 

Preferred Stock, par value $0.00001 per share; 25,000,000 shares authorized and 2,546,500 shares issued and outstanding; 10,000,000 shares authorized and no shares issued and outstanding; 10,000,000 shares authorized and no shares issued and outstanding

 

 

26

 

 

 

0

 

 

 

0

 

Accumulated paid-in capital

 

 

80,187,058

 

 

 

80,187,051

 

 

 

131,567,016

 

Accumulated deficit

 

 

(61,936,701

)

 

 

(61,936,701

)

 

 

(61,936,701

)

Total stockholders’ equity

 

 

18,250,444

 

 

 

18,250,444

 

 

 

69,630,444

 

Total capitalization

 

$

19,750,444

 

 

$

19,750,444

 

 

$

69,630,444

 

The pro forma information discussed above is to illustrate only and will change based on the actual public offering price, number of shares and other terms of this offering determined in pricing.

The number of shares of our common stock outstanding shown in the pro forma, as adjusted column reflects:

         the conversion to common stock of the 923,000 outstanding shares of Series A Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to approximately 1,207,767 shares of our common stock;*

38

         the conversion to common stock of the 1,000,000 outstanding shares of Series A-1 Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to approximately 1,301,612 shares of our common stock;*

         the conversion to common stock of the 623,500 outstanding shares of Series A-2 Convertible Preferred Stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, convertible to approximately 778,062 shares of our common stock;*

         the exclusion of outstanding warrants to purchase 798,975 shares of our common stock at an exercise price per share equal to the offering price;*

         the exclusion of 475,548 unvested restricted stock units and 47,267 shares of common stock reserved for issuance under the Equity Plan; and

         the exclusion of 265,650 shares of common stock issuable upon exercise of the Representative’s Warrant.

____________

*         A description of the conversion features of our preferred stock and of the exercise prices of our warrants can be found under the heading “Description of Capital Stock — Preferred Stock” and in Notes 7 and 12 to our consolidated financial statements for the year ended February 4, 2018.

39

Dilution

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon completion of this offering. Net tangible book value per share represents the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of our common stock outstanding.

Our pro forma net tangible book value (deficit) as of May 6, 2018 was $17,539,496 or approximately $1.87 per share of common stock, based upon 9,365,067 shares outstanding as of May 6, 2018. Pro Forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the total number of shares outstanding as of May 6, 2018, after giving effect to the conversion of all outstanding Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock, in each case along with the aggregate accrued or accumulated and unpaid dividends thereon, and a 1-for-2.5 reverse stock split of our common stock.

Our pro forma as adjusted net tangible book value (deficit) at May 6, 2018 would have been approximately $68,92 million or $5.36 per share. This represents an immediate increase in pro forma net tangible book value of approximately $3.48 per share to our existing stockholders, and immediate dilution of $10.64 per share to investors purchasing shares in this offering. Pro forma as adjusted net tangible book value per share represents our pro forma net tangible book value, plus the effect of the sale by us of 3,500,000 shares of our common stock in this offering at an initial public offering price of $16.00 per share, and after the sale of the shares in this offering at the public offering price of $16.00 per share and after deducting the estimated underwriting discount and offering expenses payable by us, and after giving effect to the application of the net proceeds received from this offering as described under “Use of Proceeds.”

Dilution in pro forma net tangible book value (deficit) per share represents the difference between the amount per share paid by purchasers of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

The following table and the discussion thereafter illustrates the per share dilution to investors purchasing shares in the offering, after giving effect to (i) the conversion of our outstanding preferred stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, into approximately 3,287,441 shares of our common stock, and (ii) the 1-for-2.5 reverse stock split of our common stock that occurred immediately prior to the closing of this offering:

Initial public offering price per share

 

$

16.00

Pro forma net tangible book value per share as of May 6, 2018

 

 

1.87

Increase in pro forma net tangible book value per share attributable to new investors in
this offering

 

 

3.48

Pro forma as adjusted net tangible book value per share after this offering

 

 

5.36

Dilution in pro forma net tangible book value per share to new investors in this offering

 

$

10.64

If the underwriters exercise their over-allotment option in full to purchase an additional 525,000 shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $5.73 per share, representing an immediate increase to existing stockholders of $3.86 per share and an immediate dilution of $10.27 per share to new investors participating in this offering.

The following table summarizes, on a pro forma as adjusted basis as of May 6, 2018, after giving effect to the conversion of all of our outstanding preferred stock, along with the aggregate accrued or accumulated and unpaid dividends thereon, into shares of our common stock immediately prior to the closing of this offering, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering.

40

The calculation below is based on an initial public offering price of $16.00 per share.

 

 

Shares Purchased

 

Total Consideration

 

Average Price Per Share

 

 

#

 

%

 

$

 

%

 

 

Existing stockholders

 

9,365,067

 

72.71

%

 

$

32,514,853

 

36.73

%

 

$

3.47

New investors purchasing common stock

 

3,500,000

 

27.21

 

 

 

56,000,000

 

63.27

 

 

 

16.00

Total

 

12,865,067

 

100

%

 

$

88,514,853

 

100

%

 

$

6.88

Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We may also choose to engage in strategic acquisitions through the issuance of shares of our stock. New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.

The pro forma information discussed above is illustrative only and will change based on the actual public offering price, number of shares and other terms of this offering determined at pricing.

41

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables present our summary consolidated financial and other data as of and for the periods indicated. The summary consolidated statements of operations data and the consolidated statement of cash flow data for the fiscal years ended February 4, 2018 and January 29, 2017, and the summary consolidated balance sheet data as of February 4, 2018 and January 29, 2017 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data and the consolidated statement of cash flow data for the thirteen weeks ended May 6, 2018 and April 30, 2017 and the summary consolidated balance sheet data as of May 6, 2018, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. Our historical audited results are not necessarily indicative of the results that should be expected in any future period.

The summarized financial information presented below is derived from and should be read in conjunction with our audited consolidated financial statements including the notes to those financial statements and our unaudited consolidated financial statements including the notes to those financial statements both of which are included elsewhere in this prospectus along with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.

 

 

Fiscal Year Ended

 

Thirteen Weeks Ended

 

 

February 4, 2018

 

January 29, 2017

 

May 6,
2018

 

April 30,
2017

(dollars in thousands, except per share data)