Annual report pursuant to Section 13 and 15(d)

Restatement and Other Corrections of Previously Issued Consolidated Financial Statements

v3.23.3
Restatement and Other Corrections of Previously Issued Consolidated Financial Statements
 12 Months Ended
Jan. 29, 2023
Accounting Changes and Error Corrections [Abstract]  
Restatement and Other Corrections of Previously Issued Consolidated Financial Statements Restatement and Other Corrections of Previously Issued Financial Statements
The Audit Committee of the Board of Directors of Lovesac completed an independent investigation in August 2023 whereby the Company concluded $2.2 million of last mile shipping expenses relating to the fiscal year ended January 29, 2023 were improperly capitalized during the quarter ended April 30, 2023. Through this investigation, the Company also determined that the methodology used to estimate an accrual of last mile freight expenses at each period end was not accurate because the calculation did not use the correct number of shipments that were accepted by the shipper for delivery, but not yet invoiced to the Company. Management prepared a quantitative and qualitative analysis of these errors, along with certain other immaterial accounting errors, in accordance with the U.S. SEC Staff's Accounting Bulletin Nos. 99 and 108, Materiality, and concluded the aggregate impact of all the errors are material to the Company's previously reported interim, year-to-date, and annual financial statements as of and for the year ended January 29, 2023 and the Company’s previously reported interim financial statements as of and for the three-month period ended April 30, 2023 and immaterial to the previously reported interim, year-to-date, and annual financial statements as of and for the year ended January 30, 2022 (collectively the "previously reported financial statements"). As a result, the accompanying financial statements as of and for the years ended January 29, 2023 and 2022, and related notes hereto, have been restated or revised, as applicable, to correct these errors. The errors had no impact on the Company's previously financial statements as of and for the year ended January31, 2021.

A summary of the impacts of the adjustments on the previously reported financial statements are included below. Note 13. Quarterly Financial Data (Unaudited) discloses the impact of the adjustments on the Company’s unaudited condensed financial information for each interim period within the fiscal year ended January 29, 2023.

Year Ended
January 29, 2023 January 30, 2022
(in thousands) As Previously Reported As Restated As Previously Reported As Revised
Net sales $ 651,545  $ 651,179  $ 498,239  $ 498,239 
Gross profit 345,826  343,651  273,345  273,532 
Operating income 39,017  36,966  38,441  40,578 
Net income 28,242  26,488  45,900  47,488 

As of
January 29, 2023 January 30, 2022
(in thousands) As Previously Reported As Restated As Previously Reported As Revised
Total current assets $ 194,041  $ 187,715  $ 225,158  $ 221,731 
Total non-current assets 224,013  220,911  146,421  147,353 
Total assets 418,054  408,626  371,579  369,084 
Total current liabilities 88,839  82,041  118,779  114,696 
Total non-current liabilities 135,955  133,491  96,574  96,574 
Total liabilities 224,794  215,532  215,353  211,270 
Total equity 193,260  193,094  156,226  157,814 
A description of the errors and their impacts on the previously issued financial statements are included below.

Description of Misstatement Adjustments

(a) Last Mile Freight

The Company recorded adjustments to correct misstatements identified in the internal investigation related to last mile freight expenses. The correction of this item represents the net impact of the findings from the investigation as noted above.

(b) Leases

The Company recorded adjustments to correct certain misstatements related to its operating leases. In the fiscal year 2022, the Company recorded an incorrect entry that resulted in the double-counting of rent expense associated with operating leases, with a corresponding impact on prepaid rent and lease liabilities as of January 30, 2022. In addition, the Company recorded an incorrect entry pertaining to incremental borrowing rate that resulted in misstatements associated with operating leases, with a corresponding impact on prepaid rent, right-of-use assets, and the current and long-term portion of operating lease liabilities, as of and during the fiscal year ended January 29, 2023

(c) Buyer’s Remorse

The Company recorded an adjustment to correct certain canceled sales orders related to buyer’s remorse, which resulted in an overstatement of net revenue and trade receivables as of and for the fiscal year ended January 29, 2023. The Company defines buyer's remorse as a customer who cancels an order within a short window of time after making a purchase.


(d) Supplier Rebates

During the quarter ended July 31, 2022, the Company received rebates from certain of its suppliers which was incorrectly recorded to cost of goods sold for the entire amount of the rebate received instead of deferring a portion of the rebate to inventory and recognizing the rebate in cost of goods sold as the related inventory was sold. We corrected these misstatements to defer the up-front consideration from suppliers when the retention or receipt of that consideration was to recognize the consideration as a reduction of cost of goods sold over the sell through rate of the inventory.

(e) Balance Sheet Reclassifications

The Company recorded adjustments to correct the classification of certain balance sheet reclassifications between short and long-term assets. These adjustments primarily related to the classification of prepaid expenses and other current assets and the classification of other assets (long-term). In addition, the Company recorded adjustments to correct the classification of tenant improvement allowances which resulted in a reclassification between prepaid expenses and other current assets and short-term lease liabilities.

(f) Income Taxes

The Company recorded adjustments to recognize the net impact on current and deferred income taxes associated with all the misstatements described herein. The adjustments to income taxes were recorded in the period corresponding with the respective misstatements. The correction of these misstatements resulted in a decrease in provision for income taxes of $0.3 million and a decrease in benefit from income taxes of $0.5 million, respectively for the years ended January 29, 2023 and January 30, 2022.

(g) Inventory and Cost of Goods Sold

The Company recorded adjustments to correct for a misstatement of an accrual related to a duplicate recording of a vendor invoice for freight charges. The Company recorded another adjustment to correct for the misstatement of inventory related to partial returned goods.
(h) Cash Flow Reclassification

The Company corrected the cash flow presentation related to purchases of property and equipment and patents and trademarks not yet paid for at period end. This resulted in a reclassification between cash flows from operating activities and investing activities for the fiscal year ended January 30, 2022 and for the fiscal periods ended October 30, 2022, July 31, 2022 and May 1, 2022. There was no impact to net change in cash and cash equivalents.
THE LOVESAC COMPANY
BALANCE SHEET

January 29, 2023
(amounts in thousands, except share and per share amounts) As Previously Reported Corrections Reference As Restated
Assets
Current Assets
Trade accounts receivable 9,469  (366)
(c)
 9,103 
Merchandise inventories, net 119,962  (335)
(g)
 119,627 
Prepaid expenses and other current assets 21,077  (5,625)
(a)(b)(e)(f)
 15,452 
Total Current Assets 194,041  (6,326) 187,715 
Operating lease right-of-use assets 138,271  (2,860)
(b)
 135,411 
Other Assets
Deferred tax asset 9,420  (743)
(f)
 8,677 
Other assets 21,863  501 
(e)
 22,364 
Total Other Assets 32,838  (242) 32,596 
Total Assets $ 418,054  $ (9,428) $ 408,626 
Liabilities and Stockholders' Equity
Current Liabilities
Accrued expenses 23,392  2,025 
(a)(b)(f)
 25,417 
Current operating lease liabilities 21,898  (8,823)
(b)(e)
 13,075 
Total Current Liabilities 88,839  (6,798) 82,041 
Operating Lease Liability, long-term 135,955  (2,464)
(b)
 133,491 
Total Liabilities 224,794  (9,262) 215,532 
Stockholders’ Equity
Accumulated earnings (deficit)
 10,706  (166)
(a)(b)(c)(f)(g)
 10,540 
Stockholders' Equity 193,260  (166) 193,094 
Total Liabilities and Stockholders' Equity $ 418,054  $ (9,428) $ 408,626 
The description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of $1.0 million, an increase to accrued expenses of $2.3 million, and a decrease to accumulated earnings of $1.3 million at January 29, 2023.
(b) Leases - The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of less than $0.1 million, a decrease to operating lease right-of-use assets of $2.9 million, an increase to accrued expenses of $0.2 million, a decrease to current operating lease liabilities of $2.7 million, a decrease to operating lease liability, long-term of $2.5 million, and an increase to accumulated earnings of $2.1 million at January 29, 2023.
(c) Buyer’s Remorse - The correction of these misstatements resulted in a decrease to trade accounts receivable of $0.4 million and a decrease to accumulated earnings of $0.4 million at January 29, 2023.
(e) Balance Sheet Reclassifications - The correction of these misstatements resulted in a decrease to prepaid expenses and other current assets of $6.7 million, a decrease to current operating lease liabilities of $6.2 million, and an increase to other assets of $0.5 million at January 29, 2023.
(f) Income Taxes - The tax impact of all misstatements resulted in a decrease to prepaid expenses and other current assets of less than $0.1 million, a decrease to deferred tax asset of $0.7 million, a decrease to accrued expenses of $0.5 million, and a decrease to accumulated earnings of $0.2 million at January 29, 2023.
(g) Inventory and Cost of Goods Sold - The correction of these misstatements resulted in a decrease to merchandise inventories, net of $0.3 million and a decrease to accumulated earnings of $0.3 million at January 29, 2023.
THE LOVESAC COMPANY
STATEMENT OF OPERATIONS

For the Year Ended January 29, 2023
(amounts in thousands, except per share data and share amounts) As Previously Reported Corrections Reference As Restated
Net sales $ 651,545  $ (366)
(c)
 $ 651,179 
Cost of merchandise sold 305,719  1,809  (a)(g) 307,528 
Gross profit 345,826  (2,175) 343,651 
Operating expenses
Selling, general and administration expenses 216,103  (124)
(b)
 215,979 
Total operating expenses 306,809  (124) 306,685 
Operating income (loss) 39,017  (2,051) 36,966 
Net income (loss) before taxes 38,900  (2,051) 36,849 
(Provision for) benefit from income taxes
 (10,658) 297 
(f)
 (10,361)
Net income (loss) $ 28,242  $ (1,754) $ 26,488 
Net income (loss) per common share:
Basic $ 1.86  $ (0.12) $ 1.74 
Diluted $ 1.77  $ (0.11) $ 1.66 
The description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in an increase to cost of merchandise sold of $1.5 million for the year ended January 29, 2023.
(b) Leases - The correction of these misstatements resulted in a decrease to selling, general and administrative expenses of $0.1 million for the year ended January 29, 2023.
(c) Buyer’s Remorse - The correction of these misstatements resulted in a decrease to net sales of $0.4 million for the year ended January 29, 2023.
(f) Income Taxes - The tax impact of all misstatements resulted in a decrease to provision for income taxes of $0.3 million for the year ended January 29, 2023.
(g) Inventory and Cost of Goods Sold - The correction of these misstatements resulted in an increase to cost of merchandise sold of $0.3 million for the year ended January 29, 2023.
THE LOVESAC COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED JANUARY 29, 2023

Common
(amounts in thousands, except share amounts) Restatement Reference Shares Amount Additional paid-in capital Accumulated (deficit) earnings Total Shareholders' Equity
As Previously Reported
Balance - January 30, 2022 15,123,338  $ —  $ 173,762  $ (17,536) $ 156,226 
Net income —  —  —  28,242  28,242 
Balance - January 29, 2023 15,195,698  $ —  $ 182,554  $ 10,706  $ 193,260 
Adjustments/Restatement Impacts
Balance - January 30, 2022 —  $ —  $ —  $ 1,588  $ 1,588 
Net loss
(a)(b)(c)(f)(g)
 —  —  —  (1,754) (1,754)
Balance - January 29, 2023 —  $ —  $ —  $ (166) $ (166)
As Revised/Restated
Balance - January 30, 2022 (As Revised)
 15,123,338  $ —  $ 173,762  $ (15,948) $ 157,814 
Net income (As Restated)
 —  —  —  26,488  26,488 
Balance - January 29, 2023 (As Restated)
 15,195,698  $ —  $ 182,554  $ 10,540  $ 193,094 
See descriptions of the net income (loss) impacts in the statement of operations for the year ended January 29, 2023 sections above.
THE LOVESAC COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended January 29, 2023
As Previously Reported Corrections Reference As Restated
Cash Flows from Operating Activities
Net income (loss) $ 28,242  $ (1,754)
(a)(b)(c)(f)(g)
 $ 26,488 
Adjustments to reconcile net income (loss) to cash used in operating activities:
Deferred income taxes 416  628 
(f)
 1,044 
Change in operating assets and liabilities:
Trade accounts receivable (921) 366 
(c)
 (555)
Merchandise inventories (11,470) 335 
(g)
 (11,135)
Prepaid expenses and other current assets 890  2,197 
(a)(b)(e)(f)
 3,087 
Other assets (21,459) 546 
(e)
 (20,913)
Accounts payable and accrued expenses (33,002) 1,664 
(a)(b)(f)
 (31,338)
Operating lease liabilities (18,281) (3,982)
(b)(e)
 (22,263)
Net cash used in operating activities
 (21,375) —  (21,375)
Cash Flows from Investing Activities
Net cash used in investing activities (25,549) —  (25,549)
Cash Flows from Financing Activities
Net cash used in financing activities (1,935) —  (1,935)
Net change in cash and cash equivalents (48,859) —  (48,859)
Cash and cash equivalents - Beginning 92,392  —  92,392 
Cash and cash equivalents - Ending $ 43,533  $ —  $ 43,533 
See descriptions of the net income (loss) impacts in the statement of operations for the year ended January 29, 2023 section above.
No other misstatements impacted the classifications between net operating, net investing, or net financing cash flow activities for the year ended January 29, 2023.
THE LOVESAC COMPANY
BALANCE SHEET

January 30, 2022
(amounts in thousands, except share and per share amounts) As Previously Reported Revisions Reference As Revised
Assets
Current Assets
Prepaid expenses and other current assets 15,726  (3,427)
(a)(b)(e)(f)
 12,299 
Total Current Assets 225,158  (3,427) 221,731 
Other Assets
Deferred tax asset 9,836  (115)
(f)
 9,721 
Other assets —  1,047  (e) 1,047 
Total Other Assets 11,393  932  12,325 
Total Assets $ 371,579  $ (2,495) $ 369,084 
Liabilities and Stockholders' Equity
Current Liabilities
Accrued expenses 40,497  362 
(a)(f)
 40,859 
Current operating lease liabilities 16,382  (4,445)
(b)(e)
 11,937 
Total Current Liabilities 118,779  (4,083) 114,696 
Total Liabilities 215,353  (4,083) 211,270 
Stockholders’ Equity
Accumulated (deficit) earnings (17,536) 1,588 
(a)(b)(f)
 (15,948)
Stockholders' Equity 156,226  1,588  157,814 
Total Liabilities and Stockholders' Equity $ 371,579  $ (2,495) $ 369,084 
The description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of $0.1 million, a decrease to accrued expenses of $0.1 million, and a decrease to accumulated deficit of $0.2 million at January 30, 2022.
(b) Leases - The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of $0.3 million, a decrease to current operating lease liabilities of $1.7 million, and a decrease to accumulated deficit of $2.0 million at January 30, 2022.
(e) Balance Sheet Reclassifications - The correction of these misstatements resulted in a decrease to prepaid expenses and other current assets of $3.8 million, a decrease to current operating lease liabilities of $2.8 million, and an increase to other assets of $1.0 million at January 30, 2022.
(f) Income Taxes - The tax impact of all misstatements resulted in an increase to prepaid expenses and other current assets of less than $0.1 million, a decrease to deferred tax asset of $0.1 million, an increase to accrued expenses of $0.5 million, and an increase to accumulated deficit of $0.5 million at January 30, 2022.

THE LOVESAC COMPANY
STATEMENT OF OPERATIONS

For the Year Ended January 30, 2022
(amounts in thousands, except per share data and share amounts) As Previously Reported Revisions Reference As Revised
Cost of merchandise sold 224,894  (187)
(a)
 224,707 
Gross profit 273,345  187  273,532 
Operating expenses
Selling, general and administration expenses 161,967  (1,950)
(b)
 160,017 
Total operating expenses 234,904  (1,950) 232,954 
Operating income 38,441  2,137  40,578 
Net income before taxes 38,262  2,137  40,399 
Benefit from (provision for) income taxes 7,638  (549)
(f)
 7,089 
Net income $ 45,900  $ 1,588  $ 47,488 
Net income per common share:
Basic $ 3.04  $ 0.10  $ 3.14 
Diluted $ 2.86  $ 0.10  $ 2.96 
The description of each error is described above. The impact of each error for the corresponding period in the above table is described below:
(a) Last Mile Freight - The correction of these misstatements resulted in a decrease to cost of merchandise sold of $0.2 million for the year ended January 30, 2022.
(b) Leases - The correction of these misstatements resulted in a decrease to selling, general and administrative expenses of $2.0 million for the year ended January 30, 2022.
(f) Income Taxes - The tax impact of all misstatements resulted in a decrease to benefit from income taxes of $0.5 million for the year ended January 30, 2022.
THE LOVESAC COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED JANUARY 30, 2022

Common
(amounts in thousands, except share amounts)
Reference
 Shares Amount Additional paid-in capital Accumulated (deficit) earnings Total Shareholders' Equity
As Previously Reported
Balance - January 31, 2021 15,011,556  $ —  $ 171,382  $ (63,436) $ 107,946 
Net income —  —  —  45,900  45,900 
Balance - January 30, 2022 15,123,338  $ —  $ 173,762  $ (17,536) $ 156,226 
Adjustments
Balance - January 31, 2021 —  $ —  $ —  $ —  $ — 
Net income
(a)(b)(f)
 —  —  —  1,588  1,588 
Balance - January 30, 2022 —  $ —  $ —  $ 1,588  $ 1,588 
As Revised
Balance - January 31, 2021 15,011,556  $ —  $ 171,382  $ (63,436) $ 107,946 
Net income —  —  —  47,488  47,488 
Balance - January 30, 2022 15,123,338  $ —  $ 173,762  $ (15,948) $ 157,814 

See descriptions of the net income (loss) impacts in the statement of operations for the year ended January 30, 2022 sections above.
THE LOVESAC COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended January 30, 2022
As Previously Reported Revisions Reference As Revised
Cash Flows from Operating Activities
Net income $ 45,900  $ 1,588 
(a)(b)(f)
 $ 47,488 
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Deferred income taxes (9,836) 115 
(f)
 (9,721)
Change in operating assets and liabilities:
Prepaid expenses and other current assets (2,459) 3,427 
(a)(b)(e)(f)
 968 
Other assets —  (1,047)
(e)
 (1,047)
Accounts payable and accrued expenses 39,195  (1,008)
(a)(f)(h)
 38,187 
Operating lease liabilities (14,400) (4,445)
(b)(e)
 (18,845)
Net cash provided by (used in) operating activities 34,018  (1,370) 32,648 
Cash Flows from Investing Activities
Purchase of property and equipment (15,887) 1,272 
(h)
 (14,615)
Payments for patents and trademarks (601) 98 
(h)
 (503)
Net cash (used in) provided by investing activities
 (16,488) 1,370  (15,118)
Cash Flows from Financing Activities
Net cash used in financing activities (3,479) —  (3,479)
Net change in cash and cash equivalents 14,051  —  14,051 
Cash and cash equivalents - Beginning 78,341  —  78,341 
Cash and cash equivalents - Ending $ 92,392  $ —  $ 92,392 
Supplemental Cash Flow Data:
Non-cash investing activities:
Asset acquisitions not yet paid for at period end $ —  $ 1,370 
(h)
 $ 1,370 
See descriptions of the net income (loss) impacts in the statement of operations for the year ended January 30, 2022 section above.
The cash flow classification, as described in item (h) in the description of misstatement adjustments section above, resulted in a decrease of $1.4 million in net cash provided by operating activities and an increase of $1.4 million in net cash provided by investing activities for the year ended January 30, 2022.
No other misstatements impacted the classifications between net operating, net investing, or net financing cash flow activities for the year ended January 30, 2022.