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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission File Number: 001-38555
 
THE LOVESAC COMPANY
(Exact name of registrant as specified in its charter)
Delaware32-0514958
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Two Landmark Square, Suite 300
 
 Stamford, Connecticut
06901
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (888) 636-1223
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per share LOVE The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes No
As of December 7, 2021, there were 15,123,084 shares of common stock, $0.00001 par value per share, outstanding.


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THE LOVESAC COMPANY
FORM 10-Q
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 31, 2021
Page
 
 
 
 
 
   
   
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority, which statements may involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
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 at all or on a specified timeframe. The cautionary statements set forth in this Quarterly Report on Form 10-Q, including in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 sustain the recent increase in our Internet sales;
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;
the impact of any systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure;
any decline in consumer spending including due to negative impact from economic conditions;
our ability to compete and succeed in a highly competitive and evolving industry; and
the effect and consequences of the novel coronavirus (“COVID-19”) public health crisis on our business operations and continuity.
We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the sections entitled “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur at all or on a specified timeline, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
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The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE LOVESAC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 October 31,
2021
January 31,
2021
(amounts in thousands, except share and per share amounts)(unaudited)  
Assets  
Current Assets  
Cash and cash equivalents$47,862 $78,341 
Trade accounts receivable9,794 4,513 
Merchandise inventories94,544 50,417 
Prepaid expenses and other current assets11,421 10,128 
Total Current Assets163,621 143,399 
Property and equipment, net32,133 25,868 
Operating lease right-of-use assets95,567  
Other Assets
Goodwill144 144 
Intangible assets, net1,345 1,517 
Deferred financing costs, net23 91 
Total Other Assets1,512 1,752 
Total Assets$292,833 $171,019 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$25,430 $24,311 
Accrued expenses23,427 17,187 
Payroll payable7,865 6,362 
Customer deposits6,704 5,993 
Current operating lease liabilities15,722  
Sales taxes payable2,430 2,471 
Total Current Liabilities81,578 56,324 
Deferred Rent 6,749 
Operating Lease Liabilities, long-term90,658  
Line of Credit  
Total Liabilities172,236 63,073 
Stockholders’ Equity
Preferred Stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of October 31, 2021 and January 31, 2021.
  
Common Stock $.00001 par value, 40,000,000 shares authorized, 15,122,882 shares issued and outstanding as of October 31, 2021 and 15,011,556 shares issued and outstanding as of January 31, 2021.
  
Additional paid-in capital170,773 171,382 
Accumulated deficit(50,176)(63,436)
Stockholders’ Equity120,597 107,946 
Total Liabilities and Stockholders’ Equity$292,833 $171,019 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE LOVESAC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen weeks ended Thirty-nine weeks ended
(amounts in thousands, except per share data and share amounts)October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Net sales$116,678 $74,742 $302,041 $191,060 
Cost of merchandise sold58,062 33,434 138,317 91,413 
Gross profit58,616 41,308 163,724 99,647 
Operating expenses
Selling, general and administration expenses38,087 25,945 104,191 75,160 
Advertising and marketing15,832 10,975 39,548 26,337 
Depreciation and amortization1,726 1,854 5,748 5,034 
Total operating expenses55,645 38,774 149,487 106,531 
Operating income (loss)2,971 2,534 14,237 (6,884)
Interest expense, net(45)(44)(135)(22)
Net income (loss) before taxes2,926 2,490 14,102 (6,906)
Provision for income taxes(174)(11)(842)(70)
Net income (loss)$2,752 $2,479 $13,260 $(6,976)
Net income (loss) per common share:
Basic$0.18 $0.17 $0.88 $(0.48)
Diluted$0.17 $0.16 $0.83 $(0.48)
Weighted average number of common shares outstanding:
Basic15,146,890 14,561,835 15,092,844 14,520,282 
Diluted16,069,729 15,581,487 16,015,683 14,520,282 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE LOVESAC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2021 AND NOVEMBER 1, 2020
(unaudited)
CommonAdditional Paid-in
Capital
Accumulated
Deficit
Total
(amounts in thousands, except share amounts)SharesAmount
Balance - February 2, 202014,472,611 $ $168,318 $(78,163)$90,155 
Net loss— — — (8,348)(8,348)
Equity based compensation— — 898 — 898 
Issuance of common stock for restricted stock35,776 — — — — 
Taxes paid for net share settlement of equity awards— — (150)— (150)
Balance - May 3, 202014,508,387  169,066 (86,511)82,555 
Net loss— — — (1,107)(1,107)
Equity based compensation— — 677 — 677 
Issuance of common stock for restricted stock19,192 — — — — 
Taxes paid for net share settlement of equity awards— — (306)— (306)
Balance - August 2, 202014,527,579 $ $169,437 $(87,618)$81,819 
Net income— — — 2,479 2,479 
Equity based compensation— — 1,063 — 1,063 
Issuance of common stock for restricted stock18,725 — — — — 
Exercise of Warrants136,834 — — — — 
Taxes paid for net share settlement of equity awards— — (109)— (109)
Balance - November 1, 202014,683,138 $ $170,391 $(85,139)$85,252 
Balance - January 31, 202115,011,556 $ $171,382 $(63,436)$107,946 
Net income— — — 2,061 2,061 
Equity based compensation— — 655 — 655 
Issuance of common stock for restricted stock4,868 — — — — 
Exercise of Warrants2,106 — 20 — 20 
Balance - May 2, 202115,018,530 $ $172,057 $(61,375)$110,682 
Net income— — — 8,447 8,447 
Equity based compensation— — 1,085 — 1,085 
Issuance of common stock for restricted stock78,446 — — — — 
Exercise of Warrants8,850 — 84 — 84 
Taxes paid for net share settlement of equity awards— — (3,370)— (3,370)
Balance - August 1, 202115,105,826  169,856 (52,928)116,928 
Net income— — — 2,752 2,752 
Equity based compensation— — 1,110 — 1,110 
Issuance of common stock for restricted stock17,056 — — — — 
Taxes paid for net share settlement of equity awards— — (193)— (193)
Balance - October 31, 202115,122,882  170,773 (50,176)120,597 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE LOVESAC COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Thirty-nine weeks ended
(amounts in thousands)October 31,
2021
November 1,
2020
Cash Flows from Operating Activities  
Net income (loss)$13,260 $(6,976)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment5,121 4,604 
Amortization of other intangible assets627 430 
Amortization of deferred financing fees68 65 
Net loss on disposal of property and equipment 5 
Equity based compensation2,850 2,639 
Deferred rent 3,280 
Non-cash operating lease cost11,003  
Impairment of right of use lease asset554  
Changes in operating assets and liabilities:
Trade accounts receivable(5,281)(42)
Merchandise inventories(44,127)(21,358)
Prepaid expenses and other current assets1,166 (2,803)
Accounts payable and accrued expenses9,265 17,070 
Operating lease liabilities(10,396) 
Customer deposits711 10,015 
Net Cash (Used in) Provided by Operating Activities(15,179)6,929 
Cash Flows from Investing Activities
Purchase of property and equipment(11,386)(6,671)
Payments for patents and trademarks(455)(497)
Net Cash Used in Investing Activities(11,841)(7,168)
Cash Flows from Financing Activities
Taxes paid for net share settlement of equity awards(3,563)(564)
Proceeds from the exercise of warrants104  
Payment of deferred financing costs (50)
Net Cash Used in Financing Activities(3,459)(614)
Net Change in Cash and Cash Equivalents(30,479)(853)
Cash and Cash Equivalents - Beginning78,341 48,539 
Cash and Cash Equivalents - Ending$47,862 $47,686 
Supplemental Cash Flow Disclosures
Cash paid for taxes$775 $70 
Cash paid for interest$80 $62 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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THE LOVESAC COMPANY
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2021 AND NOVEMBER 1, 2020
NOTE 1 - BASIS OF PRESENTATION, OPERATIONS AND LIQUIDITY
The condensed consolidated balance sheet of The Lovesac Company (the “Company”, “we”, “us” or “our”) as of January 31, 2021, which has been derived from our audited financial statements as of and for the 52-week year ended January 31, 2021, and the accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to those rules and regulations. The financial information presented herein, which is not necessarily indicative of results to be expected for the full current fiscal year, reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited condensed consolidated financial statements. Such adjustments are of a normal, recurring nature. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements filed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2021.
Due to the seasonality of the Company’s business, with the majority of our activity occurring in the fourth quarter of each fiscal year, the results of operations for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020 are not necessarily indicative of results to be expected for the full fiscal year.
Nature of Operations
The Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. The Company markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. The Company was formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company (“SAC LLC”), the predecessor entity to the Company.
COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and, in the following weeks, the U.S. federal, state and local governments issued lockdown orders and related safety measures impacting the operations of our showrooms and consumer demand. Although there has been a general improvement in conditions, there continues to be significant uncertainties around the scope and severity of the pandemic, its impact on the global economy, including supply chains, and other business disruptions that may impact our operating results and financial condition. We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.
Operations and Liquidity
The Company had incurred significant operating losses and used cash in its operating activities since inception through fiscal 2020. Operating losses resulted from inadequate sales levels for the cost structure and expenses as a result of impact of tariffs on inventory, expanding into new markets, opening new showrooms, and investments into advertising, marketing and infrastructure to support increases in revenues. The Company plans to continue to open new retail showrooms in larger markets and increase its shop-in-shop relationships to increase sales levels invest in advertising and marketing initiatives to increase brand awareness and invest in infrastructure to support growth of the Company. There can be no assurance that anticipated sales levels will be achieved. The Company believes that based on its current sales and expense levels, projections for the next twelve months, current cash on hand and the credit facility with Wells Fargo Bank, National Association, see Note 7, the Company will have sufficient working capital to cover operating cash needs through the twelve-month period from the financial statement issuance date.
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NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
Except as described below, the Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements. The Company, as an emerging growth company, has elected to use the extended transition period for complying with new or revised financial accounting standards.
The following new accounting pronouncement was adopted in fiscal 2022:
In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) amending lease guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU No. 2020-05 extended the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted the guidance in fiscal 2022 and there was not a material effect on the Company’s consolidated results of operations.
Adoption of this standard resulted in the recognition of operating lease right-to-use (“ROU”) assets and corresponding lease liabilities of approximately $90 million and $97 million, respectively, and reclassification of deferred rent of $6.7 million as a reduction of the right-of-use assets on the consolidated balance sheet as of February 1, 2021. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, The Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of our leases.
NOTE 3 – INTANGIBLE ASSETS, NET
A summary of intangible assets follows:
October 31, 2021
(amounts in thousands)Estimated LifeGross Carrying AmountAccumulated Amortization Net carrying amount
Patents10 years$2,717 $(1,581)$1,136 
Trademarks3 years1,365 (1,156)209 
Other intangibles5 years840 (840) 
Total$4,922 $(3,577)$1,345 
January 31, 2021
(amounts in thousands)Estimated LifeGross Carrying AmountAccumulated Amortization Net carrying amount
Patents10 years$2,387 $(1,129)$1,258 
Trademarks3 years1,239 (981)258 
Other intangibles5 years840 (840) 
Total$4,466 $(2,950)$1,516 
Amortization expense associated with intangible assets subject to amortization is included in depreciation and amortization expense on the accompanying condensed consolidated statements of operations. Amortization expense on other intangible assets was $0.1 million and $0.6 million and $0.3 million and $0.4 million for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively.
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As of October 31, 2021, estimated future amortization expense associated with intangible assets subject to amortization is as follows:
(amounts in thousands)
Remainder of Fiscal 2022$73 
2023219 
2024202 
2025160 
2026141 
2027140 
Thereafter410 
$1,345 
NOTE 4 – INCOME TAXES
The Company continues to provide a full valuation allowance against its net deferred tax assets due to the uncertainty as to when business conditions will improve sufficiently to enable it to utilize its deferred tax assets. As a result, the Company did not record a federal or state tax benefit on its operating losses for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020.
The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no material interest or penalties during the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively, and we do not anticipate any such items during the next twelve months. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the condensed consolidated statements of operations.
NOTE 5 – BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and common stock equivalents outstanding during the period. Diluted net income (loss) per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities where the average market price of the common stock exceeds the exercise prices for the respective periods.
For the thirteen and thirty-nine weeks ended October 31, 2021, the effects of 518,262 shares of common stock related to restricted stock units, 495,366 shares of common stock underlying stock options and warrants to purchase 281,750 shares of common stock were included in the diluted share calculation.
For the thirteen weeks ended November 1, 2020, there were 495,366 shares of common stock underlying stock options of potentially dilutive shares which may be issued in the future that were excluded from the diluted net income per share calculation because the effect of including these potentially dilutive shares was antidilutive.
For the thirty-nine weeks ended November 1, 2020, there were 1,973,607 of potentially dilutive shares which may be issued in the future, including 685,743 shares of common stock related to restricted stock units, 495,366 shares of common stock underlying stock options and warrants to purchase 792,498 shares of common stock. These were excluded from the diluted loss per share calculation in the thirteen and thirty-nine weeks ended November 1, 2020, because the effect of including these potentially dilutive shares was antidilutive.
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NOTE 6 – COMMITMENTS, CONTINGENCY AND RELATED PARTIES
Leases
The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through January 2032. The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Certain operating leases have renewal options and rent escalation clauses. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement.
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset. The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.
ASC 842 requires companies to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determined our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment. We used the incremental borrowing rates we determined as of February 1, 2021 for operating leases that commenced prior to that date. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company. Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Some of our leases contain variable lease payments based on a Consumer Price Index or percentage of sales, which are excluded from the measurement of the lease liability.
The Company’s lease terms and rates are as follows:
 October 31,
2021
Weighted average remaining lease term (in years)
Operating Leases7.1
 
Weighted average discount rate
Operating Leases3.85 %
During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized operating lease expense of $4.9 million and $13.9 million, respectively. In addition, during the thirteen and thirty-nine weeks ended October 31, 2021, we recognized $2.9 million and $7.3 million, respectively, for index-based changes in rent, maintenance, real estate taxes, insurance and other charges included in the lease as well as rental expenses related to short term leases.
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During the thirty-nine weeks ended October 31, 2021, we recognized impairment charges totaling $0.6 million associated with showroom-level ROU assets that are included as part of selling, general and administrative expenses. We did not recognize any impairment charges associated with showroom-level ROU assets during the thirteen weeks ended October 31, 2021 or during fiscal year 2021 as we did not adopt the guidance in ASU No. 2016-02, Leases (Topic 842) until fiscal year 2022.
The following table discloses the location and amount of our operating lease costs within our condensed consolidated balance sheets:
(amounts in thousands)Balance sheet locationOctober 31,
2021
Assets  
Operating leasesOperating lease right-of-use assets (non-current)$95,567 
  
Liabilities 
Current: 
Operating leasesCurrent operating lease liabilities15,722 
  
Noncurrent: 
Operating leasesOperating lease liability, long term90,658 
  
Total lease liabilities $106,380 
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of October 31, 2021 in thousands:
(amounts in thousands)
Remainder 2022$3,382 
202319,264 
202418,590 
202517,440 
202615,801 
Thereafter48,408 
Total undiscounted future minimum lease payments122,885 
Less: imputed interest(16,505)
Total present value of lease obligations106,380 
Less: current operating lease liability(15,722)
Operating lease liability- long term$90,658 
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Supplemental Cash Flow information and non-cash activity related to our operating leases is as follows (in thousands):
(amounts in thousands)For the thirty-nine weeks ended October 31, 2021
Operating cash flow information: 
Amounts paid on operating lease liabilities$10,396 
Non-cash activities
Right-of-use assets obtained in exchange for lease obligations$106,415 
Severance Contingency
The Company has various employment agreements with its senior level executives. A number of these agreements have severance provisions, ranging from 12 to 18 months of salary, in the event those employees are terminated without cause. The total amount of exposure to the Company under these agreements was $5.1 million at October 31, 2021 if all executives with employment agreements were terminated without cause and the full amount of severance was payable.
Legal Contingency
The Company is involved in various legal proceedings in the ordinary course of business. Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
Related Parties
Our equity sponsor Mistral Capital Management, LLC (“Mistral”) performed management services for the Company under a contractual agreement that ended on January 31, 2021. One of our directors is a member and principal of Mistral. Management fees totaled approximately $0.1 million and $0.3 million for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, and are included in selling, general and administrative expenses. There were no amounts payable to Mistral as of October 31, 2021. Amounts payable to Mistral as of January 31, 2021 were less than $0.1 million related to reimbursable fees and were included in accrued liabilities in the accompanying condensed consolidated balance sheets.
Our equity sponsor Satori Capital, LLC (“Satori”) performed management services for the Company under a contractual agreement that ended on January 31, 2021. One of our directors is a partner at Satori. Management fees totaled less than $0.1 million for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, and are included in selling, general and administrative expenses. There were no amounts payable to Satori as of October 31, 2021. Amounts payable to Satori as of January 31, 2021 were less than $0.1 million consisting of management fees which were included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. In addition, the Company reimbursed Satori for expenses incurred for less than $0.1 million for out-of-pocket expenses for the thirty-nine weeks ended November 1, 2020. There were no such reimbursements for the thirty-nine weeks ended October 31, 2021. There were no such reimbursements during the thirteen weeks ended October 31, 2021 and November 1, 2020, respectively.
The Company engaged Blueport Commerce (“Blueport”), a company owned in part by investment vehicles affiliated with Mistral, as an ecommerce platform in February 2018. One of our directors was also a director of Blueport. The Company terminated the Blueport contract in fiscal 2021 in order to launch a new enhanced ecommerce platform. There were $0.4 million and $2.1 million of fees incurred with Blueport sales transacted through the Blueport platform during the thirteen and thirty-nine weeks ended November 1, 2020, respectively. There were no amounts payable to Blueport as of October 31, 2021 and January 31, 2021, respectively.
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NOTE 7 – FINANCING ARRANGEMENTS
The Company has a line of credit with Wells Fargo Bank, National Association (“Wells”). The line of credit with Wells allows the Company to borrow up to $25.0 million and will mature in February 2023. Borrowings are limited to 90% of eligible credit card receivables plus 85% of eligible wholesale receivables plus 85% of the net recovery percentage for the eligible inventory multiplied by the value of such eligible inventory of the Company for the period from December 16 of each year until October 14 of the immediately following year, with a seasonal increase to 90% of the net recovery percentage for the period from October 15 of each year until December 15 of such year, seasonal advance rate, minus applicable reserves established by Wells. As of October 31, 2021 and January 31, 2021, the Company’s borrowing availability under the line of credit with Wells was $22.5 million and $15.9 million, respectively. As of October 31, 2021 and January 31, 2021, there were no borrowings outstanding on this line of credit.
Under the line of credit with Wells, the Company may elect that revolving loans bear interest at a rate per annum equal to the base rate plus the applicable margin or the LIBOR rate plus the applicable margin. The applicable margin is based on tier’s relating to the quarterly average excess availability. The tiers range from 2.00% to 2.25% The loan agreement calls for certain covenants including a timing of the financial statement’s threshold and a minimum excess availability threshold.
NOTE 8 – STOCKHOLDERS’ EQUITY
Common Stock Warrants
The following represents warrant activity during the thirty-nine weeks ended October 31, 2021 and November 1, 2020:
 Average exercise
price
Number of warrants Weighted average remaining
 contractual life (in years)
Warrants Outstanding at February 2, 2020
$16.83 1,039,120 1.93
Warrants issued  0
Expired and canceled  0
Exercised16.00 (246,622)0.71
Outstanding at November 1, 2020
$17.14 792,498 1.38
    
Warrants Outstanding at January 31, 2021
$19.07 293,973 2.57
Warrants issued  0
Expired and canceled9.83 (98)0
Exercised16.00 (12,125)0.09
Outstanding at October 31, 2021
$19.20 281,750 1.66
In the thirty-nine weeks ended October 31, 2021, a total of 5,625 warrants were exercised on a cashless basis, whereby the holders received fewer shares of common stock in lieu of a cash payment to the Company. Warrants exercised in the thirty-nine weeks ended October 31, 2021 resulted in the issuance of 10,956 common shares. There were 98 warrants that expired in the thirty-nine weeks ended October 31, 2021.
Equity Incentive Plan
The Company adopted the 2017 Equity Incentive Plan (the “2017 Equity Plan”) which provides for awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. The number of shares of common stock reserved for issuance under the 2017 Equity Plan was 2,104,889 at October 31, 2021.
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Stock Options
In June 2019, the Company granted 495,366 non-statutory stock options to certain officers of the Company with an option price of $38.10 per share. 100% of the stock options are subject to vesting on the third anniversary of the date of grant if the officers are still employed by the Company and the average closing price of the Company’s common stock for the prior 40 consecutive trading days has been at least $75 by the third anniversary of the grant. Both the employment and the market condition must be satisfied no later than June 5, 2024 or the options will terminate. These options were valued using a Monte Carlo simulation model to account for the path dependent market conditions that stipulate when and whether or not the options shall vest. The 495,366 stock options were modified in fiscal 2021 to extend the term of the options through June 5, 2024. This resulted in additional compensation of approximately $0.9 million of which, $0.3 million was recorded upon modification and the remaining expense to be recognized over the remaining expected term. The market condition was met on June 5, 2021, which was the date on which the average closing price of the Company’s common stock had been at least $75 for 40 consecutive trading days. The options will vest and become exercisable on June 5, 2022 as long as the officers are still employed on that date. As a result of the market condition being met, the Company accelerated the amortization and recognized additional stock-based compensation expense during the thirteen and thirty-nine weeks ended October 31, 2021 of approximately $0.4 million and $0.5 million, respectively.
A summary of the status of our stock options as of October 31, 2021 and November 1, 2020, and the changes during the thirty-nine weeks ended October 31, 2021 and November 1, 2020 is presented below:
 Number of optionsWeighted average exercise priceWeighted average remaining contractual life (in years)Average intrinsic value
Outstanding at February 2, 2020
495,366 $38.10 2.34 
Exercised 
Expired and canceled 
Outstanding at November 1, 2020
495,366 $38.10 3.59 
Exercisable at the end of the period —  
 
 Number of optionsWeighted average exercise priceWeighted average remaining contractual life (in years)Average intrinsic value
Outstanding at January 31, 2021
495,366 $38.10 3.35
Granted  
Canceled and forfeited  
Outstanding at October 31, 2021
495,366 $38.10 2.60$27.08 
Exercisable at the end of the period  — 
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Restricted Stock Units
A summary of the status of our unvested restricted stock units as of October 31, 2021 and November 1, 2020, and changes during the thirty-nine weeks then ended, is presented below:
 Number of shares Weighted average grant date fair value
Unvested at February 2, 2020
183,053 $21.34 
Granted611,086 17.83 
Forfeited(3,078)15.27 
Vested(105,318)15.83 
Unvested at November 1, 2020
685,743 $19.19 
 Number of shares Weighted average grant date fair value
Unvested at January 31, 2021
655,558$18.86 
Granted75,65676.91 
Forfeited(39,503)20.52 
Vested(173,449)19.54 
Unvested at October 31, 2021
518,262$26.57 
Equity based compensation expense was approximately $1.1 million and $2.9 million for the thirteen and thirty-nine weeks ended October 31, 2021 and $1.1 million and $2.6 million and for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.
The total unrecognized equity-based compensation cost related to unvested restricted stock awards was approximately $5.2 million as of October 31, 2021 and will be recognized in operations over a weighted average period of 1.82 years.
NOTE 9 – EMPLOYEE BENEFIT PLAN
In February 2017, the Company established the TLC 401(k) Plan (the “401(k) Plan”) with Elective Deferrals beginning May 1, 2017. The 401(k) Plan calls for Elective Deferral Contributions, Safe Harbor Matching Contributions and Profit-Sharing Contributions. All associates of the Company will be eligible to participate in the 401(k) Plan as of the day of the month which is coincident with or next follows the date on which they attain age 21 and complete one month of service. Participants will be able to contribute up to 100% of their eligible compensation to the 401(k) Plan subject to limitations with the IRS. The Company's contributions to the 401(k) Plan were $0.2 million and $0.6 million for the thirteen weeks and the thirty-nine weeks ended October 31, 2021 and $0.1 million and $0.3 million for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.
NOTE 10 – SEGMENT INFORMATION
The Company has determined that the Company operates within a single reporting segment. The chief operating decision makers of the Company are the Chief Executive Officer and President. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas including economic characteristics, class of consumer, nature of products and distribution method and products are a singular group of products which make up over 95% of net sales.
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 Thirteen weeks endedThirty-nine weeks ended
 October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
(amounts in thousands)    
Sactionals$100,374 $63,303 $263,558 $160,655 
Sacs14,195 10,197 33,053 27,723 
Other2,109 1,242 5,430 2,682 
 $116,678 $74,742 $302,041 $191,060 
NOTE 11 – BARTER ARRANGEMENTS
The Company has a bartering arrangement with a third-party vendor, whereby the Company provides inventory in exchange for media credits. The Company exchanged $0.6 million and $1.1 million of inventory plus the cost of freight for certain media credits for the thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively. During the thirteen weeks ended October 31, 2021 and November 1, 2020, the Company exchanged $0.6 million and $0.4 million of inventory for certain media credits, respectively.
The Company had $2.0 million and $2.5 million of unused media credits remaining as of October 31, 2021 and January 31, 2021, respectively, which is included in “Prepaid and other current assets” on the accompanying condensed consolidated balance sheet.
The Company accounts for barter transactions under ASC Topic No. 845 “Nonmonetary Transactions.” Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products received have a more readily determinable estimated fair value. Revenue associated with barter transactions is recorded at the time of the exchange of the related assets.
NOTE 12 – REVENUE RECOGNITION
The Company’s revenue consists substantially of product sales. The Company reports product sales net of discounts and recognizes them at the point in time when control transfers to the customer, which occurs when shipment is confirmed.
Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies. The Company records estimated refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the condensed consolidated statement of operations and an increase in inventory and customers returns liability on the condensed consolidated balance sheet. As of October 31, 2021 and January 31, 2021, there was a returns allowance recorded on the condensed consolidated balance sheet in the amount of $1.6 million and $2.2 million respectively, which was included in accrued expenses and $0.3 million and $0.3 million respectively, associated with sales returns included in merchandise inventories.
In some cases, deposits are received before the Company transfers control, resulting in contract liabilities. These contract liabilities are reported as deposits on the Company’s condensed consolidated balance sheet. As of October 31, 2021 and January 31, 2021, the Company recorded under customer deposit liabilities the amount of $6.7 million and $6.0 million respectively. During the thirty-nine weeks ended October 31, 2021 and November 1, 2020, the Company recognized approximately $6.0 million and $1.7 million respectively, related to our customer deposits.
Upon adoption of ASC 606, we have elected the following accounting policies and practical expedients:
The Company recognizes shipping and handling expense as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. Accordingly, we record the expenses for shipping and handling activities at the same time we recognize revenue.
The Company excludes from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).
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The Company does not adjust revenue for the effects of any financing components if the contract has a duration of one year or less, as the Company receives payment from the customer within one year from when it transferred control of the related goods. 
The Company offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to its customers in showrooms, which includes mobile concierge and kiosks, and through the internet. The Other channel predominantly represents sales through the use of online pop-up-shops and shop-in-shops that are staffed with associates trained to demonstrate and sell our product. The following represents sales disaggregated by channel:
Thirteen weeks endedThirty-nine weeks ended
(amounts in thousands)October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Showrooms$69,694 $41,538 $181,274 $72,507 
Internet35,542 25,710 90,198 101,848 
Other11,442 7,494 30,569 16,705 
$116,678 $74,742 $302,041 $191,060 
The Company has no foreign operations and its sales to foreign countries was less than .01% of total net sales in both fiscal 2022 and 2021. 
The Company had no customers in fiscal 2022 or 2021 that comprise more than 10% of total net sales. 
See Note 10 for sales disaggregated by product.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in the Forward-Looking Statements section herein and set forth below and those discussed in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent report on Form 10-K filed with the Securities and Exchange Commission.
We operate on a 52- or 53-week fiscal year that ends on the Sunday closest to February 1. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period.
Overview
We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products online directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. We believe that our ecommerce centric approach, coupled with our ability to deliver our large, upholstered products through express couriers, is unique to the furniture industry.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and, in the following weeks, the U.S. federal, state and local governments issued lockdown orders and related safety measures impacting the operations of our showrooms and consumer demand. Although there has been a general improvement in conditions, there continues to be significant uncertainties around the scope and severity of the pandemic, its impact on the global economy, including supply chains, and other business disruptions that may impact our operating results and financial condition. We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.
While the COVID-19 pandemic led to shifts in the way in which we operated in fiscal 2021, we continued to serve our customers through our online channels as our products can be easily configured, shopped online and delivered quickly in a touchless way, coupled with consumers’ demand for home related products and solutions. In fiscal 2022, our showroom sales have increased, including sales from shop-in-shop and pop-up-shops, and our internet sales have decreased demonstrating a customer shift back to in-store purchases. As our showrooms are now fully reopened, we continue to experience growth as our net sales increased $110.9 million, or 58.1%, to $302.0 million for the thirty-nine weeks ended October 31, 2021, compared to $191.1 million for the thirty-nine weeks ended November 1, 2020. Retail sales drove an increase of $108.8 million, or 150.0%, to $181.3 million for the thirty-nine weeks ended October 31, 2021 compared to $72.5 million for the thirty-nine weeks ended November 1, 2020. The increase in retail sales over the prior year period was mainly due to the limited showroom operations related to COVID-19 in the prior year period, which more than offset the decrease in our internet sales (sales made directly to customers through our ecommerce channel) of $11.6 million or 11.4% in the thirty-nine weeks ended October 31, 2021. New customers increased by 13.7% for the thirty-nine weeks ended October 31, 2021 as compared to 45.7% for the thirty-nine weeks ended November 1, 2020 due to large number of new internet customers acquired related to the Heroes campaign and the temporary closures of some showroom locations.
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Product Overview
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. They are built to last and evolve throughout a customer’s life.
Sactionals. Our Sactional product line currently represents a majority of our net sales. 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 their geometry and modularity, coupling mechanisms and other features. Utilizing only two, standardized pieces, “seats” and “sides,” and approximately 200 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, storage 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, which we believe is a major pillar of their value proposition to the consumer. Our Sactionals represented 86.0% and 87.3% of our sales for the thirteen and thirty-nine weeks ended October 31, 2021 as compared to 84.7% and 84.1% of our sales for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.

During October 2021, we introduced the new Sactionals StealthTech Sound + Charge product line. This unique innovation features immersive surround sound by Harman Kardon and convenient wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform. The System includes two Sound + Charge Sides each with embedded front- and rear-firing Harman Kardon speakers, a Subwoofer that easily integrates into a Sactionals Seat Frame and a Center Channel, all working in unison to deliver captivating surround sound that is completely hidden from view.
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 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 and our unique Sactionals Power Hub, providing our customers with the flexibility to customize their furnishings with decorative and practical add-ons to meet evolving style preferences.
Sales Channels
We offer our products through an omni-channel platform that provides a seamless and meaningful experience to our customers online and in-store. Our distribution strategy allows us to reach customers through four distinct, brand-enhancing channels.
Showrooms. We market and sell our products through 135 retail locations at top tier malls, lifestyle centers, mobile concierge, kiosk, and street locations in 38 states in the U.S. We carefully select the best small-footprint retail locations in high-end malls and lifestyle centers for our showrooms. Compared to traditional retailers, our showrooms require significantly less square footage because of our need to have only a few in-store sample configurations for display and our ability to stack our inventory for immediate sale. 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 is the standard for new showrooms. Our new showroom concept utilizes technology in more experiential ways to increase traffic and sales. Net sales completed through this channel accounted for 59.7% and 60.0% of total net sales for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, up from 55.6% and 37.9% of total net sales for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.
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Ecommerce. Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience for home furnishings, driving deeper brand engagement and loyalty, while also realizing more favorable margins than our 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. With furniture especially suited to ecommerce applications, our net sales completed through this channel accounted for 30.5% and 29.9% of total net sales for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, down from 34.4% and 53.3% of total net sales for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.
Other touchpoints. We augment our showrooms with other touchpoint strategies including online pop-up-shops, shop-in-shops, and barter inventory transactions. We utilize in store pop-up-shops to increase the number of locations where customers can experience and purchase our products, a low-cost alternative to drive brand awareness, in store sales, and ecommerce sales. These in-store pop-up-shops are staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand. Unlike the in-store pop-up-shops which are typically 10-day shows, and pop-up locations, shop-in-shops are designed to be in permanent locations carrying the same digital technology of our showrooms and are also staffed with associates trained to demonstrate and sell our products. Shop-in-shops require less capital expenditure to open a productive space to drive brand awareness and touchpoint opportunities for demonstrating and selling our products. We did not host any in-store pop-up-shops in the thirteen and thirty-nine weeks ended October 31, 2021. We did not host any in-store pop-up-shops in the thirteen weeks ended November 1, 2020 and hosted 154 in store pop-up-shops at Costco for the thirty-nine weeks ended November 1, 2020.
We operated 2 and 6 temporary online pop-up-shops on Costco.com for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, and 2 and 4 for the thirteen and thirty-nine weeks ended November 1, 2020, respectively. We expect to continue hosting temporary online pop-ups on Costco.com and do not currently expect any further contribution from Costco for in-store pop-up-shops. We operated 5 Best Buy shop-in-shops for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, up from 3 for the thirteen and thirty-nine weeks ended November 1, 2020, respectively. Other sales which includes pop-up-shop sales, shop-in-shop sales, and barter inventory transactions accounted for 9.8% and 10.1% of our total sales for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, up from 10.0% and 8.7% of our total sales for the thirteen and thirty-nine weeks ended November 1, 2020, respectively.
SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables present our summary condensed consolidated financial and other data as of and for the periods indicated. The condensed consolidated statement of operations data for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020, the condensed consolidated statement of cash flow data for the thirty-nine weeks ended October 31, 2021 and November 1, 2020 and the summary condensed consolidated balance sheet data as of October 31, 2021, are derived from our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report filed on Form 10-Q and have been prepared on the same basis as the audited condensed consolidated financial statements.
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The summarized financial information presented below is derived from and should be read in conjunction with our audited condensed consolidated financial statements including the notes to those financial statements and our unaudited condensed consolidated financial statements including the notes to those financial statements both of which are included elsewhere in is Quarterly Report filed on Form 10-Q 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.
Thirteen weeks endedThirty-nine weeks ended
(amounts in thousands, except per share data and share amounts)October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Condensed Consolidated Statement of Operations Data:
Net sales
Showrooms$69,694 $41,538 $181,274 $72,507 
Internet35,542 25,710 90,198 101,848 
Other11,442 7,494 30,569 16,705 
Total net sales116,678 74,742 302,041 191,060 
Cost of merchandise sold58,062 33,434 138,317 91,413 
Gross profit58,616 41,308 163,724 99,647 
Operating expenses
Selling, general and administrative expenses38,087 25,945 104,191 75,160 
Advertising and marketing15,832 10,975 39,548 26,337 
Depreciation and amortization1,726 1,854 5,748 5,034 
Total operating expenses55,645 38,774 149,487 106,531 
Operating income (loss)2,971 2,534 14,237 (6,884)
Interest expense, net(45)(44)(135)(22)
Net income (loss) before taxes2,926 2,490 14,102 (6,906)
Provision for income taxes(174)(11)(842)(70)
Net income (loss)$2,752 $2,479 $13,260 $(6,976)
Net Income (Loss) Attributable to Common Stockholders$2,752 $2,479 $13,260 $(6,976)
Net income (loss) per common share:
Basic (1)$0.18 $0.17 $0.88 $(0.48)
Diluted (1)$0.17 $0.16 $0.83 $(0.48)
Weighted average number of common shares outstanding:
Basic15,146,890 14,561,835 15,092,844 14,520,282 
Diluted16,069,729 15,581,487 16,015,683 14,520,282 
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Thirteen weeks endedThirty-nine weeks ended
(dollars in thousands)October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
EBITDA (2)(3)$4,697 $4,388 $19,985 $(1,851)
Adjusted EBITDA (2)(3)$5,818 $5,954 $23,553 $2,437 
As of
(amounts in thousands)October 31,
2021
January 31,
2021
Balance Sheet Data:
Cash and cash equivalents$47,862 $78,341 
Working capital82,043 87,075 
Total assets292,833 171,019 
Total liabilities172,236 63,073 
Total stockholders’ equity120,597 107,946 
Thirty-nine weeks ended
(amounts in thousands)October 31, 2021November 1, 2020
Condensed Consolidated Statement of Cash flow Data:
Net Cash (Used in) Provided by Operating Activities$(15,179)$6,929 
Net Cash Used in Investing Activities(11,841)(7,168)
Net Cash Used in Financing Activities(3,459)(614)
Net change in cash and cash equivalents(30,479)(853)
Cash and cash equivalents at the end of the period47,862 47,686 
(1)For the calculation of basic and diluted net income (loss) per share, see Note 5 and Note 8 to our condensed consolidated financial statements.
(2)EBITDA and Adjusted EBITDA are “Non-GAAP Measures” that 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 GAAP measures such as gross profit, operating income (loss) and net income (loss), to measure and evaluate our operating performance and we believe these measures are useful to investors in evaluating our operating performance.
These Non-GAAP Measures 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 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.
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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.
(3)We define “EBITDA” as earnings 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 management 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.
Reconciliation of Non-GAAP Financial Measures
The following provides a reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:
(amounts in thousands)Thirteen weeks ended October 31, 2021Thirteen weeks ended November 1, 2020Thirty-nine weeks ended October 31, 2021Thirty-nine weeks ended November 1, 2020
Net income (loss)$2,752 $2,479 $13,260 $(6,976)
Interest expense, net45 44 135 22 
Taxes174 11 842 70 
Depreciation and amortization1,726 1,854 5,748 5,034 
EBITDA4,697 4,388 19,985 (1,851)
Management fees (a)— 125 — 375 
Deferred rent (b)— 378 — 1,234 
Equity-based compensation (c)1,121 1,063 3,014 2,638 
Loss on disposal of property and equipment (d)— — — 
Impairment of right of use lease asset (e)— — 554 — 
Other non-recurring expenses (f)(g)— — — 36 
Adjusted EBITDA$5,818 $5,954 $23,553 $2,437 
(a)Represents management fees and expenses charged by our equity sponsors.
(b)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. The Company adopted ASC 842 at the beginning of fiscal 2022 therefore we no longer recognize deferred rent.
(c)Represents expenses, such as compensation expense and employer taxes related to RSU equity vesting and exercises associated with stock options and restricted stock units granted to our associates and board of directors.
(d)Represents the loss on disposal of fixed assets related to showroom remodels.
(e)Represents the impairment of the right of use lease asset for one showroom for which the fixed assets had been impaired in the prior fiscal quarter.
(f)There were no other non-recurring expenses in the thirteen weeks ended October 31, 2021 and November 1, 2020, respectively.
(g)There were no other non-recurring expenses in the thirty-nine weeks ended October 31, 2021. Other non-recurring expenses in the thirty-nine weeks ended November 1, 2020 are related to professional and legal fees related to financing initiatives.
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How We Assess the Performance of Our Business
We consider a variety of financial and operating measures, including the following, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Net Sales
Net sales reflect our sale of merchandise plus shipping and handling revenue less returns and discounts. Sales made at Company operated showrooms, including shop-in-shops and pop-up shops, and via the web are recognized in accordance with the guidance set forth in ASC 606, which is typically at the point of transference of title when the goods are shipped.
Gross Profit
Gross profit is equal to our net sales less cost of merchandise sold. Gross profit as a percentage of our net sales is referred to as gross margin. In September 2018, the Office of the U.S. Trade Representative began imposing a 10 percent ad valorem duty on a subset of products imported from China, inclusive of various furniture product categories. In September 2019, the Office of U.S. Trade Representative imposed an additional 15 percent ad valorem duty on products imported from China.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense, not included in cost of merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity-based compensation, financing related expense and public company expenses. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.
Our recent revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are payroll and rent costs. We expect these expenses, as well as rent expense associated with the opening of new showrooms, to increase as we grow our business. We expect to leverage total selling, general and administrative expenses as a percentage of sales as sales volumes continue to grow. We expect to continue to invest in infrastructure to support the Company’s growth. These investments will lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging happening after the period of investment. However, total selling, general and administrative expenses generally will leverage during the periods of investments with the most deleverage occurring in the first three quarters of the fiscal year, and the greatest leverage occurring in the fourth quarter.
Advertising and Marketing Expense
Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives that cover all of our business channels. Advertising and marketing expense is expected to continue to increase as a percentage to sales as we continue to invest in advertising and marketing which has accelerated sales growth.
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Basis of Presentation and Results of Operations
The following table sets forth, for the periods presented, our condensed consolidated statement of operations data as a percentage of total revenues:
Thirteen weeks endedThirty-nine weeks ended
October 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Statement of Operations Data:
Net sales100 %100 %100 %100 %
Cost of merchandise sold50 %45 %46 %48 %
Gross profit50 %55 %54 %52 %
Selling, general and administrative expenses33 %35 %34 %39 %
Advertising and marketing14 %15 %13 %14 %
Depreciation and amortization%%%%
Operating income (loss)%%%-4 %
Interest expense, net%%%%
Net income (loss) before taxes