NOTE 6 – COMMITMENTS, CONTINGENCY AND RELATED PARTIES

Operating Lease Commitments

The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through September 2031. Monthly payments related to these leases range from $2,040 to $45,600.

Expected future annual minimum rental payments under these leases follow:

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 $3,165,978 at November 1, 2020 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”) performs management services for the Company under a contractual agreement. Certain of our directors are members and principals of Mistral. Management fees incurred were approximately $100,000 and $300,000 for the thirteen and thirty-nine weeks ended November 1, 2020 and November 3, 2019, respectively and are included in selling, general and administrative expenses. There were $40,000 and $2,000 amounts payable and accrued expenses to Mistral as of November 1, 2020 and February 2, 2020 respectively and are included in accrued expenses in the accompanying condensed consolidated balance sheets. The Company also reimbursed Mistral for out of pocket expenses incurred in the amount of $0 and $16,113 during the thirteen weeks ended November 1, 2020 and November 3, 2019, respectively. The Company reimbursed Mistral for expenses incurred in the amount of $0 and $39,000 for out of pocket expenses for the thirty-nine weeks ended November 1, 2020 and November 3, 2019, respectively.

Our equity sponsor Satori Capital, LLC (“Satori”) performs management services for the Company under a contractual agreement. One of our directors is a principal of Satori. Management fees incurred were approximately $25,000 and $75,000 for the thirteen and thirty-nine weeks ended November 1, 2020 and November 3, 2019, respectively, and are included in selling, general and administrative expenses. Amounts payable to Satori as of November 1, 2020 was $30,000 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. Amounts payable to Satori as of February 2, 2020 were $95,000 consisting of $25,000 in management fees and $70,000 of reimbursable expenses which were included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. There were no such reimbursements during the thirteen and thirty-nine weeks ended November 1, 2020 and November 3, 2019, 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 is also a director of Blueport. There were $442,267 and $435,000 of fees incurred with Blueport sales transacted through the Blueport platform during the thirteen weeks ended November 1, 2020 and November 3, 2019, respectively, and $2,143,392 and $1,202,831 during the thirty-nine weeks ended November 1, 2020 and November 3, 2019, respectively. There was an additional $663,572 of fees incurred with Blueport during the thirteen weeks ended November 1, 2020 related to Lovesac’s early termination of our contract in order to launch a new enhanced ecommerce platform. The amount payable to Blueport as of November 1, 2020 was $331,786 related to the early termination fee and is included in accrued expenses in the accompanying condensed consolidated balance sheets. The amount payable to Blueport as of February 2, 2020 was $150,508 and is included in accrued expenses in the accompanying condensed consolidated balance sheets.