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 May ~~3, 2020~~2, 2021

☐ 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)

Delaware		~~16-1685692~~32-0514958
(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 class		Trading 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 filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller 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 June ~~8, 2020,~~7, 2021, there were ~~14,520,865~~15,095,160 shares of common stock, $0.00001 par value per share, outstanding.

THE LOVESAC COMPANY

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

MAY ~~3, 2020~~2, 2021

			Page

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements	1
		1

	Condensed Consolidated Balance Sheets as of May ~~3, 2020~~2, 2021 (unaudited) and ~~February 2, 2020~~January 31, 2021	1
		1

	Condensed Consolidated Statements of Operations for the thirteen weeks ended May 2, 2021 and May 3, 2020 ~~and May 5, 2019~~ (unaudited)	2
		2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the thirteen weeks ended May 2, 2021 and May 3, 2020 ~~and May 5, 2019~~ (unaudited)	3
		3

	Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended May 2, 2021 and May 3, 2020 ~~and May 5, 2019~~ (unaudited)	4
		4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5
		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
		16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
		27

Item 4.	Controls and Procedures	29	27

Part II. OTHER INFORMATION		30


Item 1.	Legal Proceedings	30
		28

Item 1A.	Risk Factors	30
		28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
		28

Item 3.	Defaults Upon Senior Securities	30
		28

Item 4.	Mine Safety Disclosures	30
		28

Item 5.	Other Information	30
		28

Item 6.	Exhibits	30	29

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of ~~Section 27A of~~ the Private Securities Litigation Reform Act of ~~1933, as amended,~~1995 and ~~Section 21E of the Securities Exchange Act of 1934, as amended,~~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. ~~Forward-looking~~

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 ~~contained~~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, ~~but are not limited to, statements about:~~among other things:

●

the effect and consequences of the novel coronavirus (“COVID-19”) public health crisis on matters including U.S. and local economies; our business operations and continuity; the availability of corporate and consumer financing; the health and productivity of our associates; the ability of third-party providers to continue uninterrupted service; and the regulatory environment in which we operate;

●	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; ~~and~~

●

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.~~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 ~~elsewhere~~ 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.

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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE LOVESAC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

May 3,
2020 February 2,
2020
Assets (unaudited)

Current Assets
Cash and cash equivalents $ 45,478,559 $ 48,538,827
Trade accounts receivable 7,076,590 7,188,925
Merchandise inventories 33,419,165 36,399,862
Prepaid expenses and other current assets 5,901,175 8,050,122

Total Current Assets 91,875,489 100,177,736

Property and Equipment, Net 24,429,058 23,844,261

Other Assets
Goodwill 143,562 143,562
Intangible assets, net 1,479,346 1,352,161
Deferred financing costs, net 158,673 146,047

Total Other Assets 1,781,581 1,641,770

Total Assets $ 118,086,128 $ 125,663,767

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable $ 17,396,215 $ 19,887,611
Accrued expenses 6,915,766 8,567,580
Payroll payable 2,085,322 887,415
Customer deposits 4,738,974 1,653,597
Sales taxes payable 1,145,967 1,404,792
Total Current Liabilities 32,282,244 32,400,995

Deferred rent 3,248,543 3,108,245

Line of credit - -

Total Liabilities 35,530,787 35,509,240

Stockholders’ Equity
Preferred Stock $.00001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of May 3, 2020 and February 2, 2020. - -
Common Stock $.00001 par value, 40,000,000 shares authorized, 14,508,387 shares issued and outstanding as of May 3, 2020 and 14,472,611 shares issued and outstanding as of February 2, 2020. 145 145
Additional paid-in capital 169,065,775 168,317,210
Accumulated deficit (86,510,579 ) (78,162,828 )

Stockholders’ Equity 82,555,341 90,154,527

Total Liabilities and Stockholders’ Equity $ 118,086,128 $ 125,663,767

	May 2, 2021			January 31, 2021
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	65,740,400		$	78,341,101
Trade accounts receivable		6,895,679			4,513,460
Merchandise inventories		55,956,132			50,416,712
Prepaid expenses and other current assets		11,609,793			10,128,353
Total Current Assets		140,202,004			143,399,626

Property and equipment, net		26,830,716			25,867,980
Operating lease right-of-use assets		90,745,429			-

Other Assets
Goodwill		143,562			143,562
Intangible assets, net		1,192,568			1,517,032
Deferred financing costs, net		68,003			90,671
Total Other Assets		1,404,133			1,751,265

Total Assets	$	259,182,282		$	171,018,871

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	17,745,185		$	24,310,972
Accrued expenses		13,931,405			17,187,694
Payroll payable		8,134,045			6,361,677
Customer deposits		7,843,326			5,992,633
Current operating lease liabilities		14,287,019			-
Sales taxes payable		1,785,519			2,470,593
Total Current Liabilities		63,726,499			56,323,569

Deferred Rent		-			6,748,747
Operating Lease Liability, long-term		84,732,550			-
Line of Credit		41,673			-

Total Liabilities		148,500,722			63,072,316

Stockholders’ Equity
Preferred Stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of May 2, 2021 and January 31, 2021.		-			-
Common Stock $.00001 par value, 40,000,000 shares authorized, 15,018,530 shares issued and outstanding as of May 2, 2021 and 15,011,556 shares issued and outstanding as of January 31, 2021.		150			150
Additional paid-in capital		172,056,558			171,382,086
Accumulated deficit		(61,375,148	)		(63,435,681	)

Stockholders’ Equity		110,681,560			107,946,555

Total Liabilities and Stockholders’ Equity	$	259,182,282		$	171,018,871

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE LOVESAC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Thirteen weeks ended
May 3,
2020 May 5,
2019
Net sales $ 54,372,407 $ 40,958,363
Cost of merchandise sold 27,088,838 19,965,868
Gross profit 27,283,569 20,992,495
Operating expenses
Selling, general and administration expenses 25,831,402 23,861,612
Advertising and marketing 8,195,585 5,389,330
Depreciation and amortization 1,635,660 1,065,617
Total operating expenses 35,662,647 30,316,559

Operating loss (8,379,078 ) (9,324,064 )
Interest income, net 56,356 234,563
Net loss before taxes (8,322,722 ) (9,089,501 )
Provision for income taxes (25,029 ) (12,276 )
Net loss $ (8,347,751 ) $ (9,101,777 )

Net loss per common share:
Basic and diluted $ (0.58 ) $ (0.67 )

Weighted average number of common shares outstanding:
Basic and diluted $ 14,480,081 $ 13,669,944

	Thirteen weeks ended
	May 2, 2021			May 3, 2020
Net sales	$	82,915,419		$	54,372,407
Cost of merchandise sold		36,839,311			27,088,838
Gross profit		46,076,108			27,283,569

Operating expenses
Selling, general and administration expenses		30,718,182			25,831,402
Advertising and marketing		10,680,365			8,195,585
Depreciation and amortization		2,419,704			1,635,660
Total operating expenses		43,818,251			35,662,647

Operating income (loss)		2,257,857			(8,379,078	)
Interest (expense) income, net		(44,138	)		56,356
Net income (loss) before taxes		2,213,719			(8,322,722	)
Provision for income taxes		(153,186	)		(25,029	)
Net income (loss)	$	2,060,533		$	(8,347,751	)

Net income (loss) per common share:
Basic	$	0.14		$	(0.58	)
Diluted	$	0.13		$	(0.58	)

Weighted average number of common shares outstanding:
Basic		15,034,954			14,480,081
Diluted		16,073,021			14,480,081

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE LOVESAC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THIRTEEN WEEKS ENDED MAY ~~3, 2020~~2, 2021 AND MAY ~~5, 2019~~3, 2020

(unaudited)

Common Preferred Additional Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
Balance - February 3, 2019 13,588,568 $ 136 - $ - 141,727,807 $ (62,957,809 ) $ 78,770,134

Net loss - - - - - (9,101,777 ) (9,101,777 )
Equity based compensation - - - - 3,222,563 - 3,222,563
Vested restricted stock units 158,329 2 - - (3,164,134 ) - (3,164,132 )
Exercise of warrants 5,138 - - - 4,000 - 4,000
Balance - May 5, 2019 13,752,035 $ 138 - $ - $ 141,790,236 $ (72,059,586 ) $ 69,730,788

Balance - February 2, 2020 14,472,611 $ 145 - $ - $ 168,317,210 $ (78,162,828 ) $ 90,154,527
Net loss - - - - - (8,347,751 ) (8,347,751 )
Equity based compensation - - - - 898,077 - 898,077
Vested restricted stock units 35,776 - - - - - -
Taxes paid for net share settlement of equity awards - - - - (149,512 ) - (149,512 )
Balance - May 3, 2020 14,508,387 $ 145 - $ - $ 169,065,775 $ (86,510,579 ) $ 82,555,341

	Common				Additional Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance - February 2, 2020		14,472,611	$	145		168,317,210		$	(78,162,828	)	$	90,154,527
Net loss		-		-		-			(8,347,751	)		(8,347,751	)
Equity based compensation		-		-		898,077			-			898,077
Vested restricted stock units		35,776		-		-			-			-
Taxes paid for net share settlement of equity awards		-		-		(149,512	)		-			(149,512	)
Balance - May 3, 2020		14,508,387	$	145	$	169,065,775		$	(86,510,579	)	$	82,555,341

Balance - January 31, 2021		15,011,556	$	150	$	171,382,086		$	(63,435,681	)	$	107,946,555
Net income		-		-		-			2,060,533			2,060,533
Equity based compensation		-		-		654,472			-			654,472
Vested restricted stock units		4,868		-		-			-			-
Exercise of Warrants		2,106		-		20,000			-			20,000
Balance - May 2, 2021		15,018,530	$	150	$	172,056,558		$	(61,375,148	)	$	110,681,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE LOVESAC COMPANY

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS

(unaudited)

Thirteen weeks ended
May 3, 2020 May 5, 2019
Cash Flows from Operating Activities
Net loss $ (8,347,751 ) $ (9,101,777 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 1,557,289 1,016,035
Amortization of other intangible assets 78,371 49,583
Amortization of deferred financing fees 19,726 12,171
Net loss on disposal of property and equipment - 46,857
Equity based compensation 898,077 3,222,563
Deferred rent 140,298 11,772
Changes in operating assets and liabilities:
Trade accounts receivable 112,335 (1,043,903 )
Merchandise inventories 2,980,697 (4,762,440 )
Prepaid expenses and other current assets 2,166,595 (409,621 )
Accounts payable and accrued expenses (3,204,128 ) 2,527,119
Customer deposits 3,085,377 271,536
Net Cash Used in Operating Activities (513,114 ) (8,160,105 )
Cash Flows from Investing Activities
Purchase of property and equipment (2,142,086 ) (1,930,145 )
Payments for patents and trademarks (205,556 ) (77,448 )
Net Cash Used in Investing Activities (2,347,642 ) (2,007,593 )
Cash Flows from Financing Activities
Proceeds from the issuance of common shares, net
Taxes paid for net share settlement of equity awards (149,512 ) (3,164,132 )
Proceeds from the issuance of warrants, net - 4,000
Paydowns of line of credit - (31,373 )
Payments of deferred financing costs (50,000 ) -
Net Cash Used in Financing Activities (199,512 ) (3,191,505 )
Net Change in Cash and Cash Equivalents (3,060,268 ) (13,359,203 )
Cash and Cash Equivalents- Beginning 48,538,827 49,070,952
Cash and Cash Equivalents- Ending $ 45,478,559 $ 35,711,749
Supplemental Cash Flow Disclosures
Cash paid for taxes $ 25,029 $ 12,276
Cash paid for interest $ 16,816 $ 8,392

	Thirteen weeks ended
	May 2, 2021			May 3, 2020
Cash Flows from Operating Activities
Net income (loss)	$	2,060,533		$	(8,347,751	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of property and equipment		1,956,383			1,557,289
Amortization of other intangible assets		463,321			78,371
Amortization of deferred financing fees		22,668			19,726
Equity based compensation		654,472			898,077
Deferred rent		-			140,298
Non-cash operating lease cost		3,546,304			-
Changes in operating assets and liabilities:
Trade accounts receivable		(2,382,219	)		112,335
Merchandise inventories		(5,539,420	)		2,980,697
Prepaid expenses and other current assets		(546,671	)		2,166,595
Accounts payable and accrued expenses		(8,290,368	)		(3,204,128	)
Operating Lease Liabilities		(3,400,094	)		-
Customer deposits		1,850,693			3,085,377
Net Cash Used in Operating Activities		(9,604,398	)		(513,114	)

Cash Flows from Investing Activities
Purchase of property and equipment		(2,919,119	)		(2,142,086	)
Payments for patents and trademarks		(138,857	)		(205,556	)
Net Cash Used in Investing Activities		(3,057,976	)		(2,347,642	)

Cash Flows from Financing Activities
Taxes paid for net share settlement of equity awards		-			(149,512	)
Proceeds from the exercise of warrants		20,000			-
Proceeds from the line of credit		41,673			-
Payment of deferred financing costs		-			(50,000	)
Net Cash Provided by (Used in) Financing Activities		61,673			(199,512	)

Net Change in Cash and Cash Equivalents		(12,600,701	)		(3,060,268	)
Cash and Cash Equivalents - Beginning		78,341,101			48,538,827
Cash and Cash Equivalents - Ending	$	65,740,400		$	45,478,559

Supplemental Cash Flow Disclosures
Cash paid for taxes	$	61,000		$	25,029
Cash paid for interest	$	8,071		$	16,816

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE LOVESAC COMPANY

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THIRTEEN WEEKS ENDED MAY ~~3, 2020~~2, 2021 AND MAY ~~5, 2019~~3, 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 ~~February 2, 2020,~~January 31, 2021, which has been derived from our audited financial statements as of and for the 52-week year ended ~~February 2, 2020,~~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 ~~February 2, 2020.~~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 weeks ended May ~~3, 2020~~2, 2021 and May ~~5, 2019~~3, 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 ~~foam filled~~unique, high quality furniture ~~sectional couches,~~derived through its proprietary “Designed for Life” approach which results in products that are built to last a lifetime and ~~related accessories throughout the world.~~designed to evolve as our customers’ lives do. The Company ~~operated 91 leased retail~~markets and sells its products through modern and efficient showrooms ~~located throughout~~and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the ~~United States which were closed~~form of our own showrooms as ~~of May 3, 2020 (see below regarding COVID-19). In addition, the Company operates a retail Internet website~~well as through shop-in-shops and ~~does business to business transactions through its wholesale operations principally~~pop-up-shops with ~~Costco and to a lesser extent Macy’s and Best Buy.~~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, ~~many U.S. states and localities issued lockdown orders impacting consumer demand and resulting in the closing of all the Company’s showrooms. Since then, the COVID-19 situation within~~ the U.S. has rapidly escalated. On March 18, 2020, the Company closed all showroom locations and on April 1, 2020, the Company announced the extension of the showroom closures until it is safe and permitted to reopen the showrooms. The Company will follow the guidance of federal, state and local governments ~~as well as~~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 ~~determine when~~protect the ~~Company can safely reopen its showrooms. Additionally, the Company implemented a reduction in workforce of approximately 445 part time employees (representing 57%~~safety of our total headcount) as well as a temporary reduction in executive cash compensation. Cash compensation was reduced by 20% for certain officers of the Company. The base salaries of all other senior managementassociates and ~~full-time headquarter team members has been temporarily reduced by graduated amounts. The Company’s Board of Directors has also agreed to a temporary reduction of its retainer~~customers.

Operations and monitoring fees and an extension of the associated payment timeline. The Company continues to monitor the situation closely and it is possible that the Company will implement further measures to provide additional financial flexibility as it works work to protect its cash position and liquidity.Liquidity

The Company has incurred significant operating losses and used cash in its operating activities since inception. Operating losses have resulted from inadequate sales levels for the cost structure and expenses as a result of 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~~shop-in-shop relationships to increase sales levels and invest in advertising and marketing initiatives to increase brand awareness. ~~Of course, there~~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.

On May 21, 2019, the Company and certain of the Company’s stockholders completed a primary and secondary public offering of an aggregate of 2,500,000 shares of common stock, which included 750,000 shares offered by the Company and 1,750,000 shares offered by certain selling stockholders of the Company, at a public offering price of $36.00 per share. Net proceeds to the Company from the offering were approximately $25.6 million after legal and underwriting expenses. On May 29, 2019, the underwriters also exercised an option to purchase up to an additional 375,000 shares of common stock from the selling stockholders. The Company did not receive any proceeds from the sale of the common stock by the selling stockholders.

Immediately prior to the follow-on offering in May 2019, various investment vehicles affiliated with our equity sponsor Mistral Capital Managements, LLC (“Mistral”), which included SAC LLC, owned approximately 41% of our common stock. Immediately after the completion of the follow-on offerings, such entities owned approximately 29% of the Company’s common stock. As a result, the Company is no longer a “controlled company” within the meaning of the corporate governance standards of Nasdaq, and the Company no longer relies on exemptions from corporate governance requirements that are available to controlled companies. In December 2019, SAC LLC distributed the shares of the Company’s common stock to its members, which included certain affiliates of Mistral. Following the distribution by SAC LLC, Mistral and its affiliates owned approximately 19% of the Company’s common stock. See Note 8.

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 pronouncements ~~and related impacts on adoption are being evaluated by the Company:~~were 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. ~~2019-10~~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 ~~will adopt~~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 ~~fiscal 2022. Management has evaluated~~ the ~~impact ASU No. 2016-02 will have on these condensed consolidated financial statements. Based~~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 ~~initial evaluation, we have determined that adopting this standard will have a material impact on our condensed~~ consolidated balance sheet as ~~we have a significant number~~ of ~~operating leases.~~

~~In June 2018, the FASB issued ASU 2018-07,~~~~Improvements to Nonemployee Share-Based Payment Accounting~~ ~~(Topic 718). ASU 2018-07 eliminates the separate accounting model~~February 1, 2021. The new standard also provides practical expedients for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s ~~adoption~~ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of ~~Topic 606. Management is currently evaluating~~those assets in transition. We also elected the ~~impact ASU 2018-07 will have on these condensed consolidated financial statements.~~

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 is as follows:

May 2, 2021
Estimated
Life Gross Carrying Amount Accumulated Amortization Net carrying
amount
Patents 10 Years $ 2,495,408 $ (1,483,452 ) $ 1,011,956
Trademarks 3 Years 1,270,111 (1,089,499 ) 180,612
Other intangibles 5 Years 839,737 (839,737 ) -
Total $ 4,605,256 $ (3,412,688 ) $
1,192,568

May 3, 2020
Estimated
Life Gross Carrying Amount Accumulated Amortization Net carrying amount
Patents 10 Years $ 2,108,750 $ (883,469 ) $ 1,225,281
Trademarks 3 Years 1,045,400 (791,335 ) 254,065
Other intangibles 5 Years 839,737 (839,737 ) -
Total $ 3,993,887 $ (2,514,541 ) $ 1,479,346

February 2, 2020
Estimated
Life Gross Carrying Amount Accumulated Amortization Net carrying amount
Patents 10 Years $ 1,965,794 $ (846,898 ) $ 1,118,896
Trademarks 3 Years 982,800 (749,535 ) 233,265
Other intangibles 5 Years 839,737 (839,737 ) -
Total $ 3,788,331 $ (2,436,170 ) $ 1,352,161
January 31, 2021
Estimated
Life Gross Carrying Amount Accumulated Amortization Net carrying
amount
Patents 10 Years $ 2,387,328 $ (1,128,997 ) $ 1,258,331
Trademarks 3 Years 1,239,334 (980,633 ) 258,701
Other intangibles 5 Years 839,737 (839,737 ) -
Total $ 4,466,399 $ (2,949,367 ) $
1,517,032

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 ~~$78,371~~$463,321 and ~~$49,582~~$78,371 for the thirteen weeks ended May 2, 2021 and May 3, 2020 ~~and May 5, 2019~~ respectively.

As of May ~~3, 2020,~~2, 2021, estimated future amortization expense associated with intangible assets subject to amortization is as follows:
Remainder of Fiscal 2021 $ 236,744
2022 277,249
2023 172,032
2024 149,277
2025 147,213
2026 144,546
Thereafter 352,285
$ 1,479,346
7
Remainder of Fiscal 2022 $ 206,758
2023 165,401
2024 147,995
2025 121,669
2026 119,449
2027 117,796
Thereafter 313,500
$
1,192,568

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 provision or benefit on its operating income or losses for the thirteen weeks ended May ~~3, 2020~~2, 2021 and May ~~5, 2019.~~3, 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. The Company had no material interest or penalties during the thirteen weeks ended May ~~3, 2020~~2, 2021 and May ~~5, 2019,~~3, 2020, respectively, and the Company does 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 ~~LOSS~~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 ~~loss~~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. In the thirteen weeks ended May 2, 2021, the effects of 652,052 unvested restricted stock units, 495,366 stock options and 291,598 common stock warrants were included in the diluted share calculation.

~~As of~~In the thirteen weeks ended May 3, 2020, there were 1,760,245 of potentially dilutive shares which may be issued in the future, including 225,759 ~~shares of common stock related to~~unvested restricted stock units, 495,366 stock options and ~~warrants to purchase~~ 1,039,120 common stock warrants. These shares ~~of common stock. As of May 5, 2019, there~~ were ~~1,179,697 of potentially dilutive shares which may be issued~~excluded in the ~~future, including 104,681 shares of common stock relating to restricted stock and warrants to purchase 1,075,016 shares of common stock. These were excluded from the~~ diluted net loss per common share calculation ~~because~~as the ~~effect~~effects of including ~~these~~theses potentially dilutive shares was antidilutive.

NOTE 6 - COMMITMENTS, CONTINGENCY AND RELATED PARTIES
Leases
~~Operating Lease Commitments~~
The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through ~~January~~June 2031. 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:
May 2,
2021
Weighted average remaining lease term (in years)
Operating Leases 7.1
Weighted average discount rate
Operating Leases 3.70 %

The following table discloses the amount of our lease expense within our condensed consolidated statement of operations (in thousands):
Thirteen weeks ended
May 2,
2021
Operating Lease Cost $ 3,546
Short term lease cost 167
Additional lease cost (1) 2,087
Total Lease Expense $ 5,800
(1) Additional lease payments include index-based changes in rent, maintenance, real estate taxes, insurance and other charges included in the lease
The following table discloses the location and amount of our operating lease costs within our condensed consolidated balance sheets:
Balance sheet location May 2,
2021
Assets
Operating leases Operating lease right-of-use assets (non-current) $ 90,745,429

Liabilities
Current:
Operating leases Current operating lease liabilities 14,287,019
Noncurrent:
Operating leases Operating lease liability, long term 84,732,550
Total lease liabilities $ 99,019,569
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 May 2, 2021:
Remainder 2022 $ 11,395,157
2023 17,121,688
2024 16,836,144
2025 15,654,092
2026 13,969,500
Thereafter 38,086,783
Total undiscounted future minimum lease payments 113,063,364
Less: imputed interest (14,043,795 )
Total present value of lease obligations 99,019,569
Less: current operating lease liability (14,287,019 )
Operating lease liability- long term $ 84,732,550
Monthly payments related to these leases range from ~~$2,040~~$2,500 to $45,600.

~~Expected future annual minimum rental payments under these~~

Supplemental Cash Flow information and non-cash activity related to our operating leases ~~follow:~~is as follows (in thousands):
Remainder 2021 $ 8,945,797
2022 10,916,055
2023 10,391,523
2024 10,107,284
2025 9,164,310
2026 7,999,320
Thereafter 17,027,472
$ 74,551,761
For the thirteen
weeks ended
May 2,
2021
Operating cash flow information:
Amounts paid on operating lease liabilities $ 4,070

Non-cash activities
Right-of-use assets obtained in exchange for lease obligations $ 4,743
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~~associates are terminated without cause. The total amount of exposure to the Company under these agreements was ~~$3,165,978~~$4,493,468 at May ~~3, 2020~~2, 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 ~~performs~~Capital Management, LLC (“Mistral”) performed management services for the Company under a contractual ~~agreement.~~agreement that ended on January 31, 2021. Certain of our directors are members and principals of Mistral. Management fees totaled approximately $100,000 for ~~both~~ the thirteen weeks ended May 3, 2020, and are included in selling, general and administrative expenses. There was $15,213 in amounts payable to Mistral as of May ~~5, 2019,~~2, 2021 and January 31, 2021 and is 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 approximately $25,000 for the thirteen weeks ended May 3, 2020, and are included in selling, general and administrative expenses. There were ~~$0 and $2,000~~no amounts payable to ~~Mistral~~Satori as of May ~~3, 2020 and February~~ 2, 2020, respectively and are included in accounts payable in the accompanying condensed consolidated balance sheets. In addition, the Company reimbursed Mistral for expenses incurred in the amount of $0 and $39,000 for out of pocket expenses for the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively.
Satori Capital, LLC (“Satori”), an affiliate of two stockholders of the Company since April 2017, performs management services for the Company under a contractual agreement. Management fees totaled approximately $25,000 for both the thirteen weeks ended May 3, 2020 and May 5, 2019 respectively, and are included in selling, general and administrative expenses.2021. Amounts payable to Satori as of ~~May 3, 2020~~January 31, 2021 were ~~$126,401~~$8,333 consisting of ~~$20,000 in~~ management fees and $106,401 of reimbursable expenses which were included in accounts payable and accrued liabilities 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 liabilities in the accompanying condensed consolidated balance sheets. In addition, the Company reimbursed Satori for expenses incurred in the amount of $36,401 ~~and $0~~ for ~~out of pocket~~out-of-pocket expenses for the thirteen weeks ended May 3, ~~2020 and May 5, 2019, respectively.~~2020.
The Company engaged Blueport Commerce (“Blueport”), a company owned in part by investment vehicles affiliated with ~~Mistral. Certain directors are members and principals of the Company launched the Blueport~~Mistral, as an ecommerce platform in February 2018. One of our directors is also a director of Blueport. There were $482,848 ~~and $337,496~~ of fees incurred with Blueport sales transacted through the Blueport platform during the thirteen weeks ended May 3, ~~2020 and May 5, 2019, respectively. Amounts~~2020. There were no amounts payable to Blueport as of May ~~3, 2020~~2, 2021 and ~~February 2, 2020 were $398,138 and $150,508, respectively, and are included~~January 31, 2021, respectively. The Company terminated the Blueport contract in ~~accrued expenses~~fiscal 2021 in ~~the accompanying condensed consolidated balance sheets.~~order to launch a new enhanced ecommerce platform.

NOTE 7 - FINANCING ARRANGEMENTS
~~On February 6, 2018, the~~The Company ~~established~~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 May ~~3, 2020,~~2, 2021, and ~~February 2, 2020,~~January 31, 2021, the Company’s borrowing availability under the line of credit with Wells ~~Fargo~~ was ~~$11.4 million~~$18.1 and ~~$12.5~~$15.9 million, respectively. As of May ~~3, 2020, and February~~ 2, ~~2020,~~2021, we had borrowings of $41,673 relating to fees associated with the line of credit. As of 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
In fiscal 2020, the Company issued 18,166 warrants to a third party in connection with previous equity raise. These warrants were valued using the Black-Scholes model. The warrants had a fair value of approximately $130,000. Of these warrants, 17,396 were exercised on May 14, 2019.
The warrants may be exercised at any time following the date of issuance during the period prior to their expiration date. The fair value of each warrant is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on comparable Companies’ historical volatility, with consideration of the Company’s volatility, which management believes represents the most accurate basis for estimating expected future volatility under the current circumstances. The risk-free rate is based on the U.S. treasury yield in effect at the time of the grant.
May 2019
Warrants 18,166
Expected volatility 44 %
Expected dividend yield 0 %
Expected term (in years) 3.00
Risk-free interest rate 2.69 %
Exercise price $ 16.00
Calculated fair value of warrant $ 7.16

The following represents warrant activity during the thirteen weeks ended May ~~3, 2020~~2, 2021 and May ~~5, 2019:~~3, 2020:
Average exercise price Number of warrants Weighted average remaining contractual life (in years)
Warrants Outstanding at February 3, 2019 $ 16.83 1,067,475 2.93
Warrants issued 16.00 18,166 2.40
Expired and canceled - - -
Exercised 16.00 (10,625 ) (2.40 )
Warrants Outstanding at May 5, 2019 $ 16.83 1,075,016 2.68

Warrants Outstanding at February 2, 2020 $ 16.83 1,039,120 1.93
Warrants issued - - -
Expired and canceled - - -
Exercised - - -
Outstanding at May 3, 2020 $ 16.83 1,039,120 1.68
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 - - -
Expired and canceled - - -
Exercised - - -
Outstanding at May 3, 2020 $ 16.83 1,039,120 1.68

Warrants Outstanding at January 31, 2021 $ 19.07 293,973 2.57
Warrants issued - - -
Expired and canceled - - -
Exercised 16.00 (2,375 ) 0.16
Outstanding at May 2, 2021 $ 19.11 291,598 2.09
~~The majority~~
In the thirteen weeks ended May 2, 2021, a total of ~~the 10,625~~1,125 warrants were exercised ~~in fiscal 2020 were~~on a cashless basis, whereby the holders received ~~less~~fewer shares of common stock in lieu of a cash payment to the ~~Company, which~~Company. Warrants exercised in the thirteen weeks ended May 2, 2021 resulted in the issuance of ~~5,138~~2,106 common shares.

Equity Incentive Plans
The Company adopted the 2017 Equity Incentive Plan (the ~~“Plan”~~“2017 Equity Plan”) which provides for ~~Awards~~awards in the form of ~~Options, Stock Appreciation~~stock options, stock appreciation rights, ~~Restricted Stock Awards, Restricted Stock Units, Performance~~restricted stock awards, restricted stock units, performance shares, ~~Performance Units, Cash-Based Awards~~performance units, cash-based awards and ~~Other Stock-Based~~other stock-based Awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. The ~~Plan, as amended, reserves 1,414,889~~number of shares of common stock reserved for ~~issuance.~~issuance under the 2017 Equity Plan was 2,104,889 at March 31, 2021.

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 first trading day after the date on which the average closing price of the Company’s common stock ~~price~~ has been at least $75 for 6040 consecutive trading days so long as this goal has been attained by June 5, ~~2022~~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 $874,000, of which, $315,000 was recorded upon modification and the remaining expense was recognized over the remaining expected term.

In December 2019, SAC LLC distributed the shares of the Company’s common stock it held. In connection with the distribution officers of the Company agreed to exchange and modify options that were held at SAC LLC for shares of vested common stock of the Company. Pursuant to the exchange SAC LLC transferred 175,478 shares of common stock to the Company and the Company immediately cancelled these shares. The Company then issued to the former option holders the number of those shares pursuant to the Plan and withheld 73,507 shares to satisfy taxes associated with the issuance.
A summary of the status of our stock options as of May 2, 2021 and May 3, 2020, and the changes during the thirteen weeks ended May 2, 2021 and May 3, 2020 isare presented below:
Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Average intrinsic value
Outstanding at February 2, 2020 495,366 $ 38.10 2.34     -
Exercised -
Expired and canceled -
Vested -
Outstanding at May 3, 2020 495,366 $ 38.10 2.09 -
Exercisable at the end of the period - - - -

Thirteen weeks ended May 3, 2020
Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Average intrinsic value
Outstanding at February 2, 2020 495,366 $ 38.10 2.34 -
Granted -
Exercised -
Canceled and forfeited -
Expired and canceled -
Vested -
Outstanding at May 3, 2020 495,366 $ 38.10 2.09 -
Exercisable at the end of the period - - - -
Number of options Weighted average exercise price Weighted average remaining contractual life (in years) Average intrinsic value
Outstanding at January 31, 2021 495,366 $ 38.10 3.35 -
Exercised -
Expired and canceled -
Vested -
Outstanding at May 2, 2021 495,366 $ 38.10 3.10 22.87
Exercisable at the end of the period - - - -

Restricted stock units
A summary of the status of our unvested restricted stock units as of May 2, 2021 and May 3, 2020, and changes during the thirteen weeks then ended, is presented below:
Number of shares Weighted average grant date fair value
Unvested at February 3, 2019 377,286 $ 11.16
Granted 8,780 30.07
Forfeited (2,060 ) 30.07
Vested (279,325 ) 12.52
Unvested at May 5, 2019 104,681 $ 17.24
Number of shares Weighted average grant date fair value
Unvested at February 2, 2020 183,053 $ 21.34
Granted 93,290 6.77
Forfeited (265 ) 14.83
Vested (50,319 ) 6.47
Unvested at May 3, 2020 225,759 $ 18.65

Number of shares Weighted average grant date fair value
Unvested at January 31, 2021 655,558 $ 18.86
Granted 6,000 53.82
Forfeited (4,638 ) 16.64
Vested (4,868 ) 8.86
Unvested at May 2, 2021 652,052 $ 19.27
Equity based compensation expense was approximately ~~$0.9 million~~$0.7 and ~~$3.2~~$0.9 million for the thirteen weeks ended May 2, 2021 and May 3, 2020, ~~and for the thirteen weeks ended May 5, 2019,~~ respectively. In the thirteen weeks ended May 5, 2019, all the unvested restricted stock units for certain senior executives of the Company vested according to the accelerated vesting trigger in their restricted stock unit agreements. The triggering event was the market capitalization of the Company post IPO, exceeding $300 million for 60 consecutive trading days and the expiration of the lockup period. This accelerated vesting resulted in equity-based compensation in the amount of $2.9 million.
The total unrecognized ~~restricted stock unit~~equity-based compensation cost related to ~~non-vested~~unvested stock option and restricted stock awards was ~~$4,113,742~~$4,512,543 as of May ~~3, 2020~~2, 2021 and will be recognized in operations over a weighted average period of ~~1.95~~2.25 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 ~~employees~~associates of ~~The Lovesac~~the Company ~~(except for union employees and nonresident aliens)~~ 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 employer contributions to the 401(k) Plan were ~~$117,280~~$155,682 and ~~$74,232~~$117,280 for the thirteen weeks ended May 2, 2021 and May 3, 2020 ~~and May 5, 2019~~ respectively.
NOTE 10 - SEGMENT INFORMATION
The ~~Company has determined that the~~ Company operates within a single reporting segment. The chief operating decision ~~maker~~makers of the Company isare the Chief Executive Officer and ~~President.~~the President and Chief Operating Officer. 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.
Thirteen weeks ended
May 3,
2020 May 5,
2019

Sactionals $ 43,807,567 $ 32,846,087
Sacs 9,657,072 5,913,425
Other 907,768 2,198,851
$ 54,372,407 $ 40,958,363
13
Thirteen weeks ended
May 2,
2021 May 3,
2020
Sactionals $ 74,010,529 $ 43,807,567
Sacs 7,140,873 9,657,072
Other 1,764,017 907,768
$ 82,915,419 $ 54,372,407
NOTE 11 - BARTER ARRANGEMENTS
The Company has a bartering arrangement with Icon International, Inc. (“Icon”), a vendor, whereby the Company will provide inventory in exchange for media credits During fiscal ~~2020,~~2021, the Company exchanged ~~$1,097,488~~$3,169,825 of inventory plus the cost of freight for certain media credits. To account for the exchange, the Company recorded the transfer of the inventory asset as a reduction of inventory and an increase to a prepaid media asset account of ~~$1,055,185~~$2,937,035 which is included in “Prepaid and other current assets” on the accompanying condensed consolidated balance sheet. During the first quarter of fiscal ~~2021,~~2022, the Company used ~~$228,402~~$544,323 in media credits. There were no additional barter arrangements entered into in the thirteen weeks ended May ~~3, 2020.~~2, 2021. The Company had ~~$146,021~~$1,976,948 and ~~$374,423~~$2,521,271 of unused media credits remaining as of May ~~3, 2020~~2, 2021 and ~~February 2, 2020,~~January 31, 2021, respectively.
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 implemented ASU 2015-04, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606, “ASC 606”), in the first quarter of fiscal 2020 using modified retrospective method, which required the company to apply the new guidance retrospectively to revenue transactions completed on or after the effective date. Adopting this new standard had no material financial impact on the Company’s condensed consolidated financial statements but did result in enhanced presentation and disclosures.
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 upon 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.~~sheets. As of May ~~3, 2020,~~2, 2021, and ~~February 2, 2020~~January 31, 2021 there was a returns allowance recorded on the condensed consolidated balance sheet in the amount ~~$1,885,464~~$1,109,023 and ~~$2,177,715~~$2,226,723 respectively, which was included in accrued expenses and ~~$347,039~~$219,405 and ~~$442,390,~~$334,896, 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 May ~~3, 2020,~~2, 2021, and ~~February 2, 2020,~~January 31, 2021, the Company recorded under customer deposit liabilities the amount of ~~$4,738,974and $1,653,597~~$7,843,326 and $5,992,633 respectively. During the thirteen weeks ended May ~~3, 2020~~2, 2021 and May ~~5, 2019,~~3, 2020, the Company recognized approximately ~~$1,653,597~~$5,992,633 and ~~$1,331,493,~~$1,653,597, respectively, related to our customer deposits.

~~Upon adoption of~~Under ASC 606, the Company has 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 Company records the expenses for shipping and handling activities at the same time ~~we recognize~~the Company recognizes 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 entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).
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 and through the internet. The other channel predominantly represents sales through the use of ~~pop-up shops~~pop-up-shops that typically average ten days at a time and are staffed with associates trained to demonstrate and sell our product. The following represents sales disaggregated by channel:
Thirteen weeks ended
May 3,
2020 May 5,
2019
Showrooms $ 18,118,141 $ 26,925,081
Internet 30,064,037 8,458,970
Other 6,190,229 5,574,312
$ 54,372,407 $ 40,958,363
Thirteen weeks ended
May 2,
2021 May 3,
2020
Showrooms $ 48,985,875 $ 18,118,141
Internet 25,175,029 30,064,037
Other 8,754,515 6,190,229
$ 82,915,419 $ 54,372,407
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.

~~NOTE 13 - SUBSEQUENT EVENTS~~
~~The Company has evaluated events and transactions subsequent to May 3, 2020 through the date the condensed consolidated financial statements were issued.~~
On June 4, 2020, the stockholders of the Company approved an amendment to the Plan that increased the number of shares of common stock reserved for issuance under the Plan by 690,000 shares of common stock.

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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled ~~“Note About Forward-Looking~~“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 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~~Annual 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 ~~omni-channel~~ company that designs, manufactures and sells unique, high quality furniture derived through our proprietary Designed for Life philosophy 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, ~~and~~ premium foam beanbag chairs called ~~Sacs.~~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 primarily online directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms as well as through ~~modern~~shop-in-shops and ~~efficient showrooms and, increasingly, through online sales.~~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 ~~nationwide~~ express couriers, is unique to the furniture industry.
The name “Lovesac” was derived from our original innovative product, a premium foam beanbag chair, the Sac. The Sac was developed in 1995 and provided the foundation for the Company. We believe that the large size, comfortable foam filling and irreverent branding of our Sacs products have been instrumental in growing a loyal customer base and our positive, fun image. Sales of this product ~~have been increasing on an annual basis, totaling~~were $7.1 million for the thirteen weeks ended May 2, 2021, as compared to $9.7 million in the thirteen weeks ended May 3, ~~2020,~~2020. The decrease was related to less promotional activity in fiscal 2022 as compared to ~~$5.9 million for~~ the ~~thirteen weeks ended May 5, 2019.~~
~~Our Sactionals product line currently represents a majority~~first quarter of our sales. Sactionals are a couch system that consists of two components, seats and sides, which can be arranged, rearranged and expanded into thousands of configurations easily and without tools. Our Sactional products include a number of patented features relating to their geometry and modularity, coupling mechanisms and other features. We believe that these high quality premium priced products enhance our brand image and customer loyalty and expect them to continue to garner a significant share of our sales. Our Sactionals represented 80.6% of our sales for the thirteen weeks ended May 3, 2020, or $43.8 million as compared to 80.2% of sales for the thirteen weeks ended May 5, 2019 or $32.8 million.
Sacs and Sactionals come in a wide variety of colors and fabrics that allow consumers to customize their purchases in numerous configurations and styles. We provide lifetime warranties on our Sactionals frames and the foam used in both product lines, and 3-year warranties on our covers. Our Designed for Life trademark reflects our dynamic product line that is built to last and evolve throughout a customer’s life. Customers can continually update their Sacs and Sactionals with new covers, additions and configurations to accommodate changes in their family and housing situations.
We believe the strength of our brand is reflected in the number of customers who routinely share their purchases of Lovesac products with their friends through social media, often displaying our logos or company name in their posts. Our customers include celebrities and other influencers who support our brand through postings made on an uncompensated and unsolicited basis.year.

We market and sell our products through 91 showrooms at top tier malls, lifestyle centers and street locations in 35 states in the U.S. On March 18, 2020, we temporarily closed all showrooms as a result of COVID-19. We have started safely re-opening showrooms following the guidance of federal, state, and local governments, as well as health organizations. Our modern, efficient showrooms are designed to appeal to millennials and other purchasers looking for comfortable, enduring, premium furniture. They showcase the different sizes of our Sacs, the myriad forms into which our Sactionals can be configured, and the large variety of fabrics that can be used to cover our products. Our retail showrooms are technology driven and focused on educating prospective customers about the many benefits of our unique products, enabling us to have an average of just 895 square feet for each showroom.
As part of our direct to consumer sales approach, we also sell our products through our ecommerce platform. We believe our products are uniquely suited to this channel. Our foam-based Sacs can be reduced to one-eighth of their normal size and each of our Sactionals components weighs less than 50 pounds upon shipping. With furniture especially suited to ecommerce applications, our sales completed through this channel accounted for 55.3% of total sales for the thirteen weeks ended May 3, 2020; up from 20.7% for the thirteen weeks ended May 5, 2019. Our showrooms and other direct advertising and marketing efforts work in concert to drive customer conversion in ecommerce. As a result of COVID-19, there has been a shift in focus to our ecommerce platform.
Despite the increase in sales of both our Sacs and Sactionals, net losses were $8.3 million for the thirteen weeks ended May 3, 2020, and $9.1 million for the thirteen weeks ended May 5, 2019, respectively. SG&A as a percent to net sales decreased 10.7% primarily related to leveraging of employment cost, rent, and professional fees as well as a decrease in equity based compensation, offset by increases in selling related expenses.
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, ~~many~~the U.S. ~~states~~federal, state and ~~localities~~local governments issued lockdown orders and related safety measures impacting the operations of our ~~stores~~showrooms and consumer demand. ~~Since then,~~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 chain, 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, including frequent cleaning of our showrooms and offices, offering remote work opportunities, adopting appropriate social distancing protocols, using personal protective equipment, in-store protective plexiglass barriers, touchless transactions and other measures.

While the COVID-19 ~~situation within~~pandemic led to shifts in the ~~U.S. has rapidly escalated. On March 18, 2020,~~way in which we ~~closed~~operated in fiscal 2021, including temporarily closures of all of our showroom locations, and on April 1, 2020, we announced the extension of the showroom closures until it is safe and permitted to reopen the showrooms. We have started safely re-opening showrooms following the guidance of federal, state, and local governments, as well as health organizations. We will follow the guidance of federal, state, and local governments, as well as health organizations, to determine when we can safely reopen our showrooms. Additionally, we implemented a reduction in workforce ~~of approximately 445 part time employees (representing 57% of our total headcount) as well as~~and a temporary reduction in ~~executive cash compensation. Cash~~ compensation ~~was reduced by 20%~~payable to our associates and directors, 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 ~~Shawn Nelson, Chief Executive Officer, Jack Krause, President~~home related products and ~~Chief Operating Officer, and Donna Dellomo, Executive Vice President and Chief Financial Officer. The base salaries~~solutions. As our showrooms are now fully reopened, we continue to experience growth as our net sales increased $28.5 million, or 52.5%, to $82.9 million for the thirteen weeks ended May 2, 2021, compared to $54.4 million for the thirteen weeks ended May 3, 2020. Retail sales drove an increase of $30.9 million, or 170.4%, to $49.0 million for the thirteen weeks ended May 2, 2021 compared to $18.1 million for the thirteen weeks ended May 3, 2020 mainly due to COVID-19 related closures of all ~~other senior management~~our showroom locations 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 $4.9 million, or 16.3% in the same time periods. New customers increased by 2.3% for the thirteen weeks ended May 2, 2021 as compared to 57.7% for the thirteen weeks ended May 3, 2020 due to large number of new internet customers acquired related to the Heroes campaign and ~~full-time headquarter team members~~the temporary closures of all showroom locations.
Although all of our showrooms reopened to the public in fiscal 2021, we believe that the pandemic has ~~been temporarily reduced by graduated amounts. Our Board~~contributed to an acceleration in the shift of ~~Directors has also agreed~~commerce to online sales which resulted in an increase in sales on our ecommerce platform and a ~~temporary reduction~~slight decline in showroom sales in fiscal 2021. Due to the significant growth of ~~its retainer~~our ecommerce platform, we have adapted our systems, technology and ~~monitoring fees~~supply chain and ~~an extension of~~logistics capabilities to manage the ~~associated payment timeline.~~increase in online demand. We plan to continue to develop our digital capabilities and invest in our technological infrastructure, however, it is possible that this increased ecommerce demand may not continue in future periods. We continue to monitor changes in the ~~situation closely~~retail landscape resulting from COVID-19 and ~~it is possible that we will implement further measures.~~take actions necessary to support our business growth and strategy.
Product Overview
~~We challenge the notion that a piece of furniture is static by offering a dynamic product line built to last and evolve throughout a customer’s life.~~ Our products serve as a set of building blocks that can be rearranged, restyled and re-upholstered with any new setting, mitigating constant changes in fashion and style. 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 ~~over 250~~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 89.3% of our sales for the thirteen weeks ended May 2, 2021, or $74.0 million, as compared to 80.6% of our sales for the thirteen weeks ended May 3, 2020, or $43.8 million.

● ● 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.

● ● ~~Other~~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~~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. 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. Our ~~retail showrooms are technology driven and focused on educating prospective customers about the many benefits of our unique products, enabling~~distribution strategy allows us to require an average of just 895 square feet for each showroom. The small footprint requirement provides a cost advantage and flexibility in locating our showrooms strategically in A-rated malls and street locations in our target markets. These logistical advantages underlie our broader tech-driven, Internet-based business model, where we leverage our showrooms as both a traditional retail channel to purchase our products and an educational center for prospective onlinereach customers ~~to learn about and interact with our products in real time.~~through four distinct, brand-enhancing channels.
● 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 30.4% of total net sales for the thirteen weeks ended May 2, 2021, down from 55.3% for the thirteen weeks ended May 3, 2020, as our showrooms have fully reopened.

Through our fast growing mobile and ecommerce channel, we are able to significantly enhance the consumer shopping experience for home furnishings, driving deeper brand engagement and loyalty, while simultaneously driving favorable margin expansion. Our technology capabilities are robust, and we are well positioned to benefit from the growing consumer preference to transact via mobile devices. We leverage our strong social media presence and showroom footprint to drive traffic toward our ecommerce platform, where product testimonials and inspirational stories from our Lovesac community create a more engaging consumer experience for our customers. Additionally, our products’ compact packaging facilitates consistent production scheduling, outsourcing of delivery and lower shipping costs, allowing us to quickly and cost-effectively deliver online orders.
● Showrooms. We market and sell our products through 116 showrooms at top tier malls, lifestyle centers and street locations in 37 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 will be the standard for future showrooms. Our new showroom concept utilizes technology in more experiential ways to increase traffic and sales.

● Other touchpoints. We augment our showrooms with other touchpoint strategies including in store pop-up- shops and shop-in-shops. 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 hosted 0 and 135 pop-up-shops at Costco locations for the thirteen weeks ended May 2, 2021 and May 3, 2020, respectively. We operated 2 temporary online pop-ups on Costco.com and operated 4 shop-in-shops at Best Buy locations and online at BestBuy.com for the thirteen weeks ended May 2, 2021. We expect to continue hosting temporary online pop-ups on Costco.com and do not currently expect any further contribution from Costco in store pop-up-shops. Other sales which includes pop-up-shop sales and shop-in-shop sales accounted for 10.6% and 11.4% of our total sales for the thirteen weeks ended May 2, 2021 and May 3, 2020, respectively.
We have also enhanced our sales through the use of pop-up shops and shop in shops. The pop-up shop showrooms display select Sacs and Sactionals and are staffed with associates trained to demonstrate and sell our products. We have an ongoing working relationship with Costco to operate pop-up shop showrooms that typically average ten days at a time. Due to the success of our pop-up shops, we worked with Costco to bring eighteen-day Internet pop-up shops to Costco.com, in which our products are offered for purchase through the Costco.com website. We hosted 135 and 159 pop-up shop showrooms at Costco locations for the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively. Due to the impacts of COVID-19, Costco cancelled 89 pop-up shops that were originally scheduled in the thirteen weeks ended May 3, 2020. Unlike the pop-up shops which are 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 will be staffed with our associates trained to demonstrate and sell our products. We have an ongoing working relationship with Macy’s to operate shop in shop showrooms and are currently expanding the use of this shop in shop format with Best Buy. Due to the impact of COVID-19, we have closed our shop in shops. We continue to explore other pop-up and shop in shop partnerships and opportunities to promote our products and facilitate customers interacting with our products. Other sales which includes pop-up and shop in shop sales accounted for 11.4% and 13.6% of our total sales for thirteen weeks ended May 3, 2020 and May 5, 2019, respectively. Due to the regulations implemented by federal, state and local government in response to COVID-19, all shop in shops were temporarily closed through the end of the quarter.

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 and the condensed consolidated statement of cash flow data for the thirteen weeks ended May 2, 2021 and May 3, 2020 and the summary condensed consolidated balance sheet data as of May 2, 2021 and May 3, 2020, 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.
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 this 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 ended
(dollars in thousands, except per share data) May 2,
2021 May 3,
2020
Condensed Consolidated Statement of Operations Data:
Net Sales
Showrooms $ 48,986 $ 18,118
Internet 25,175 30,064
Other 8,754 6,190
Total net sales 82,915 54,372

Cost of merchandise sold 36,839 27,089

Gross profit 46,076 27,283

Operating Expenses
Selling, general and administrative expenses 30,718 25,831
Advertising and marketing 10,680 8,196
Depreciation and amortization 2,420 1,636

Total operating expenses 43,818 35,662

Operating income (loss) 2,258 (8,379 )

Interest (expense) income, net (44 ) 56

Net income (loss) before taxes 2,214 (8,323 )

Provision for income taxes (153 ) (25 )

Net income (loss) $ 2,061 $ (8,348 )
Net Income (Loss) Attributable to Common Stockholders $ 2,061 $ (8,348 )

Net income (loss) per common share:
Basic (1) $ 0.14 $ (0.58 )
Diluted (1) $ 0.13 $ (0.58 )

Weighted average number of common shares outstanding:
Basic 15,034,954 14,480,081
Diluted 16,073,021 14,480,081

Thirteen weeks ended
(dollars in thousands, except per share data) May 3,
2020 May 5,
2019
Condensed Consolidated Statement of Operations Data:
Net Sales
Showrooms $ 18,118 $ 26,925
Internet 30,064 8,459
Other 6,190 5,574
Total net sales 54,372 40,958

Cost of merchandise sold 27,089 19,966

Gross profit 27,283 20,992
Operating Expenses
Selling, general and administrative expenses 25,831 23,862
Advertising and marketing 8,196 5,389
Depreciation and amortization 1,636 1,066

Total operating expenses 35,662 30,317

Operating loss (8,379 ) (9,325 )

Interest income, net 56 235

Net loss before taxes (8,323 ) (9,090 )

Provision for income taxes (25 ) (12 )

Net Loss $ (8,348 ) $ (9,102 )
Net Loss Attributable to Common Stockholders $ (8,348 ) $ (9,102 )

Net Loss per Common Share:
Net loss per common share (basic and dilutive) $ (0.58 ) $ (0.67 )

Weighted-average shares used in computing net loss per common share 14,480,081 13,669,944

Thirteen weeks ended
May 3,
2020 May 5,
2019
(dollars in thousands)
EBITDA (1)(2) $ (6,743 ) $ (8,259 )
Adjusted EBITDA (1)(2) $ (5,692 ) $ (4,663 )
As of
May 3,
2020 May 5,
2019
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 45,479 $ 35,712
Working capital 59,593 50,554
Total assets 118,086 98,754
Total liabilities 35,531 29,023
Total stockholders’ equity 82,555 69,731
Thirteen weeks ended
(dollars in thousands) May 2,
2021 May 3,
2020
EBITDA (2)(3) $ 4,678 $ (6,743 )
Adjusted EBITDA (2)(3) $ 5,332 $ (5,692 )
Thirteen weeks ended
May 3,
2020 May 5,
2019
(dollars in thousands)
Condensed Consolidated Statement of Cash flow Data:
Net cash used in operating activities $ (513 ) $ (8,160 )
Net cash used in investing activities (2,348 ) (2,008 )
Net cash used in financing activities (200 ) (3,191 )
Net change in cash and cash equivalents (3,060 ) (13,359 )
Cash and cash equivalents at the end of the period 45,479 35,712
As of
(dollars in thousands) May 2,
2021 May 3,
2020
Balance Sheet Data:
Cash and cash equivalents $ 65,740 $ 45,479
Working capital 75,702 59,593
Total assets 264,603 118,086
Total liabilities 153,921 35,531
Total stockholders’ equity 110,682 82,555
Thirteen weeks ended
(dollars in thousands) May 2,
2021 May 3,
2020
Condensed Consolidated Statement of Cash flow Data:
Net Cash Used in Operating Activities $ (9,604 ) $ (513 )
Net Cash Used in Investing Activities (3,058 ) (2,348 )
Net Cash Provided by (Used in) Financing Activities 62 (200 )
Net change in cash and cash equivalents (12,601 ) (3,060 )
Cash and cash equivalents at the end of the period 65,740 45,479
~~(1)~~ (1) For the calculation of basic and diluted net ~~loss~~income (loss) per share, see Note 5 and Note 8 to our condensed consolidated financial statements.

~~(2)~~
(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.

You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our Non-GAAP Measures. Our presentation of our Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying primarily on our GAAP results and by using our Non-GAAP Measures as supplemental information. Our Non-GAAP Measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
~~(3)~~ (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. ~~The following provides a reconciliation of net loss to EBITDA and Adjusted EBITDA for the periods presented:~~

Thirteen weeks ended Thirteen weeks ended
(dollars in thousands) May 3,
2020 May 5,
2019
Net loss $ (8,348 ) $ (9,102 )
Interest income, net (56 ) (235 )
Taxes 25 12
Depreciation and amortization 1,636 1,066
EBITDA (6,743 ) (8,259 )
Management fees (a) 125 164
Deferred Rent (b) (8 ) 12
Equity-based compensation (c) 898 3,223
Loss on disposal of property and equipment (d) - 47
Other non-recurring expenses (e) 36 150
Adjusted EBITDA $ (5,692 ) $ (4,663 )
Reconciliation of Non-GAAP Financial Measures
The following provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:
Thirteen weeks ended Thirteen weeks ended
(dollars in thousands) May 2,
2021 May 3,
2020
Net income (loss) $ 2,061 $ (8,348 )
Interest expense (income), net 44 (56 )
Provision for income taxes 153 25
Depreciation and amortization 2,420 1,636
EBITDA 4,678 (6,743 )
Management fees (a) - 125
Deferred Rent (b) - (8 )
Equity-based compensation (c) 654 898
Other non-recurring expenses (d) - 36
Adjusted EBITDA $ 5,332 $ (5,692 )
(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 associated with stock options and restricted stock units granted to our associates and board of directors.

(d) ~~Represents~~There were no other non-recurring expenses in the ~~loss on disposal of fixed assets.~~
~~(e)~~ thirteen weeks ended May 2, 2021. Other non-recurring expenses in the thirteen weeks ended May 3, 2020 are made up of $36 in professional and legal fees related to financing initiatives. ~~Other expenses in the thirteen weeks ended May 5, 2019 are made up of $150 in recruitment fees to build executive management team and Board of Directors.~~

How We Assess the Performance of Our Business
~~In assessing the performance of our business, we~~We consider a variety of financial and operating measures, including the ~~following:~~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,~~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 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 asgross 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~~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~~Marketing Expenses
Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives that cover all of our business channels. Advertising and marketing expense will continue to increase as a percentage to sales as we continue to invest in advertising and marketing which has accelerated sales growth.

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 ended
May 3,
2020 May 5,
2019
Statement of Operations Data:
Net sales 100 % 100 %
Cost of merchandise sold 50 % 49 %
Gross profit 50 % 51 %
Selling, general and administrative expenses 48 % 58 %
Advertising and marketing 15 % 13 %
Depreciation and amortization 3 % 3 %
Operating loss -15 % -23 %
Interest income, net 0 % 1 %
Loss before taxes -15 % -22 %
Provision for income taxes 0 % 0 %
Net loss -15 % -22 %
Thirteen weeks ended
May 2,
2021 May 3,
2020
Statement of Operations Data:
Net sales 100 % 100 %
Cost of merchandise sold 44 % 50 %
Gross profit 56 % 50 %
Selling, general and administrative expenses 37 % 48 %
Advertising and marketing 13 % 15 %
Depreciation and amortization 3 % 3 %
Operating income (loss) 3 % -15 %
Interest (expense) income, net 0 % 0 %
Income (loss) before taxes 3 % -15 %
Provision for income taxes 0 % 0 %
Net income (loss) 3 % -15 %
Thirteen weeks ended May ~~3, 2020~~2, 2021 compared to the Thirteen weeks ended May ~~5, 2019~~3, 2020
Net ~~sales~~Sales
Net sales increased ~~$13.4~~$28.5 million, or ~~32.8%~~52.5%, to $82.9 million in the thirteen weeks ended May 2, 2021 as compared to $54.4 million in the thirteen weeks ended May 3, ~~2020 compared to $41.0 million in the thirteen weeks ended May 5, 2019.~~2020. The increase in overall net sales is primarily driven by our Showroom sales, Other sales and partially offset by a decrease in our Internet sales. ~~New customers~~Showrooms net sales increased ~~by 57.7%~~$30.9 million, or 170.4%, to $49.0 million in the thirteen weeks ended May 2, 2021, as compared to $18.1 million in the thirteen weeks ended May 3, ~~2020 as compared~~2020. This increase was due in large part to ~~20.0%~~a $26.7 million increase in comparable showroom sales to $41.3 million in the thirteen weeks ended May ~~5, 2019.~~2, 2021 as compared to $14.6 million due to the temporary closures of all showroom locations in the thirteen weeks ended May 3, 2020. We had 91116 and 7891 showrooms as of May ~~3, 2020~~2, 2021 and May ~~5, 2019,~~3, 2020, respectively. We opened ~~zero~~8 additional showrooms ~~and~~in the thirteen weeks ended May 2, 2021 as compared to temporarily ~~closed~~closing 91 showrooms in the thirteen weeks ended May 3, 2020 ~~related~~due to COVID-19. Showrooms sales decreased $8.8 million, or 32.7%, to $18.1 million in the thirteen weeks ended May 3, 2020 as compared to $26.9 million in thirteen weeks ended May 5, 2019. This decrease was due in large part to our comparable showroom point of sales transaction decrease of $6.8 million, or (31.7%), to $14.6 million in the thirteen weeks ended May 3, 2020 as a result of showroom closures due to COVID-19 compared to $21.4 million in thirteen weeks ended May 5, 2019. Point of sales transactions represent orders placed through our showrooms which does not always reflect the point at which when control transfers to the customer, which occurs upon shipment being confirmed. See Note 12 to the condensed consolidated financial statements. We believe point of sales transactions is a more accurate way to measure showroom performance and how our showroom associates are incentivized. New customers increased by 2.3% in the thirteen weeks ended May 2, 2021 as compared to 57.7% in the thirteen weeks ended May 3, 2020 due to large number of new internet customers acquired related to the Heroes campaign and the temporary closures of all showroom locations in prior year period. Retail sales per selling square foot ~~decreased $194,~~increased $268, or ~~48.3%,~~129.5% to $475 compared to $207 in the thirteen weeks ended May 3, ~~2020 as a result of showroom closures due to COVID-19 compared to $401 in the thirteen weeks ended May 5, 2019.~~2020. Total number of units sold at point of transaction ~~decreased~~increased by approximately ~~48.0%~~151.2% driven by ~~COVID-19 showroom closures.~~higher comparable sales. Internet sales (sales made directly to customers through our ecommerce channel) ~~increased $21.6~~decreased $4.9 million, or ~~255.4%~~16.3%, to $25.2 million in the thirteen weeks ended May 2, 2021, as compared to $30.1 million in the thirteen weeks ended May 3, ~~2020 compared to $8.5 million for the thirteen weeks ended May 5, 2019. We believe that the increase~~2020. The decrease in Internet sales was due ~~primarily to our showroom closures related~~ to the ~~impact~~shift of ~~COVID-19 and our increased advertising and marketing initiatives.~~sales into the internet channel in prior year period as a result of the temporary showroom closures. Other sales, which include ~~pop-up shop~~pop-up-shop sales and ~~shop in shop~~shop-in-shop sales increased ~~$0.6~~$2.6 million, or ~~11.0%~~41.4%, to $8.8 million, as compared to $6.2 million in the thirteen weeks ended May 3, 2020 ~~as compared~~and is related to ~~$5.6~~the prior year period closures of all pop-up-shop and shop-in-shop locations due to COVID-19.

Gross Profit
Gross profit increased $18.8 million, or 68.9%, to $46.1 million in the thirteen weeks ended May ~~5, 2019. This increase was due in large part to the addition of shop in shops, offset by a decrease in pop-up shops which were closed as a result of COVID-19.~~
23
~~Gross profit~~
~~Gross profit increased $6.3 million, or 30.0%, to~~2, 2021 from $27.3 million in the thirteen weeks ended May 3, ~~2020 from $21.0 million~~2020. Gross margin increased to 55.6% of net sales in the thirteen weeks ended May ~~5, 2019. Gross margin decreased to~~2, 2021 from 50.2% of net sales in the thirteen weeks ended May 3, ~~2020 from 51.3%~~2020. The increase in gross margin percentage of ~~net sales~~540 basis points was driven by a 400 basis points improvement in gross profit as a result of a reduction in promotional discounts, higher overall Sactional product category and premium covers mix impact, and lower product costs related to vendor negotiated tariff mitigation initiatives due to higher volume. Distribution expenses improved by 140 basis points over the prior year due to higher leverage of 490 basis points in warehousing and distribution costs, partially offset by the increase in inbound freight and freight capitalization of 350 basis points.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4.9 million, or 18.9%, to $30.7 million in the thirteen weeks ended May 5, 2019. The decrease in gross margin percentage of 110 basis points was driven by an increase of approximately 300 basis points in distribution and tariff related expenses, partially offset by improvements of approximately 190 basis points in reduction in product costs as a result of vendor negotiations to assist with the mitigation of tariffs and continued shift of products from China to Vietnam and Malaysia.
~~We expect fiscal~~2, 2021, gross profit margin to be slightly higher than fiscal 2020 gross profit margin related to continued vendor negotiations to assist with the mitigation of tariffs and continued shift of products from China to Vietnam and Malaysia. In fiscal 2021, the effect of 25% tariffs are being mitigated in total dollars but will have an impact on margin percent.
~~Selling, general and administrative expenses~~
~~Selling, general and administrative expenses increased $2.0 million, or 8.3%, to $25.8 million in thirteen weeks ended May 3, 2020~~ as compared to ~~$23.9~~$25.8 million in the prior year period. The increase in selling, general and administrative expenses was primarily related to an increase in employment costs, rent and overhead expenses partially offset by a decrease in selling related expenses. Employment costs increase of $3.0 million was driven by an increase in new hires and variable compensation. Rent increased by $1.5 million ~~$0.1~~due to our net addition of 8 showrooms. Overhead expenses increased $0.7 million consisting of ~~increased rent associated with our 91 showrooms~~an increase of $0.9 million in infrastructure investments and an increase in insurance expense of ~~$0.6~~$0.1 million related to the growth of the company, partially offset by a decrease of $0.2 million in equity-based compensation and a decrease of $0.1 million in travel expenses related to ~~sales such as an increase~~COVID-19 restrictions. The decrease of ~~$0.7~~$0.3 million ~~of credit card fees, offset by~~in selling related expenses was due to a reduction of ~~$0.1~~$1.1 million ~~of pop-up shop sales agent fees. Overhead expenses decreased $0.2 million consisting of a decrease~~ in ~~equity-based compensation of $2.3 million,~~in-store pop-up-shop fees, partially offset by an increase of ~~$1.9~~$0.8 million in ~~infrastructure improvements and an increase of $0.2 million related to operating costs of the business such as insurance.~~credit card fees.
Selling, general and administrative expenses were 37.0% of net sales in the thirteen weeks ended May 2, 2021, as compared to 47.5% of net sales in the thirteen weeks ended May 3, ~~2020 compared to 58.3% of net sales in the thirteen weeks ended May 5, 2019.~~2020. The decrease in selling, general and administrative expenses of ~~10.7%~~10.5% of net sales was ~~primarily~~ due to ~~leveraging~~higher leverage within infrastructure investments, selling related expenses, employment costs, rent, equity-based compensation, travel, and ~~professional fees as well as a decrease in equity based compensation, offset by increases in selling related expenses related to the increase in Internet sales.~~
We expect to leverage total selling, general and administrative expenses as a percentage of sales as sales volumes continue to grow. We expect to invest in infrastructure over the next 18 months to support the Company’s growth. We believe these investments will lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging occurring after the period of investment.
insurance.
24
Advertising and ~~marketing~~Marketing Expenses
Advertising and marketing expenses increased ~~$2.8~~$2.5 million, or ~~52.1%~~30.3%, to $10.7 million in the thirteen weeks ended May 2, 2021, as compared to $8.2 million in the thirteen weeks ended May 3, ~~2020 compared to $5.4 million in the thirteen weeks ended May 5, 2019.~~2020. The majority of the increase in advertising and marketing dollars relates to ~~increased media and direct to consumer programs which~~the reinstatement of marketing spends as showroom locations are ~~expected to drive revenue beyond~~fully open in the current period ofversus the ~~expense.~~temporary closures in the prior year period. The investment by quarter may vary greatly.
Advertising and marketing expenses were 12.9% of net sales in the thirteen weeks ended May 2, 2021, as compared to 15.1% of net sales in the thirteen weeks ended May 3, ~~2020 compared to 13.2% of net sales in the thirteen weeks ended May 5, 2019.~~2020. The majority of the ~~increase~~decrease in advertising and marketing as a percent of net sales ~~is principally~~was due to an increase in net sales driven by higher Sactional sales mix and reduction in promotional discounts for the first quarter of fiscal 2022 as compared to the prior year ~~investments~~period.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $0.8 million or 47.6% in ~~content production, product innovation and research. These investments were included in prepaid expenses and other current assets on~~ the ~~condensed consolidated balance sheet~~thirteen weeks ended May 2, 2021, as ~~of February 2, 2020 and were expensed~~compared to $0.6 million in the thirteen weeks ended May 3, 2020.
~~Depreciation and amortization expenses~~
~~Depreciation and amortization expenses increased $0.6 million or 53.5% in the thirteen weeks ended May 3, 2020 to $1.6 million compared to $1.1 million in the thirteen weeks ended May 5, 2019.~~ The increase in depreciation and amortization expense principally relates to capital investments for new and remodeled showrooms.
Interest ~~income,~~(Expense) Income, Net

Interest expense, net

~~Interest income, net~~ was less than $0.1 million which reflects ~~$56,000 consisting of $92,000 in earnings~~less than $0.1 million expense related to the ~~net proceeds from the IPO and primary share offering, partially offset by $36,000 of interest expense related to~~ unused line fees and amortization of deferred financing fees on the ~~Company’s line of credit~~asset-based loan for the thirteen weeks ended May ~~3, 2020.~~2, 2021. The ~~decrease~~increase in interest income, net from prior year was the result of ~~a decrease in interest rates~~lower earnings related to continued operations and the net proceeds from primary share offering during the thirteen weeks ended May 3, 2020.

Provision for ~~income taxes~~Income Taxes

Income tax provision was less than ~~0.05%~~0.2% of sales for the thirteen weeks ended May 2, 2021 and May 3, 2020, ~~and May 5, 2019,~~ respectively.

Liquidity and Capital Resources

General

Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity. Our primary cash needs are for advertising and marketing, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology. The most significant components of our working capital are cash and cash equivalents, inventory, accounts receivable, accounts payable and other current liabilities and customer deposits. ~~borrowings~~Borrowings generally increase in our third fiscal quarter as we prepare for the holiday selling season, which is in our fourth fiscal quarter. We believe that cash expected to be generated from operations, the availability under our revolving line of credit and our existing cash balances are sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

Cash Flow Analysis

A summary of operating, investing, and financing activities during the periods indicated are shown in the following table:

Thirteen weeks ended
May 3,
2020 May 5,
2019

Condensed Consolidated Statement of Cash flow Data:
Net cash used in operating activities $ (513 ) $ (8,160 )
Net cash used in investing activities (2,348 ) (2,008 )
Net cash used in financing activities (200 ) (3,191 )
Net change in cash and cash equivalents (3,060 ) (13,359 )
Cash and cash equivalents at end of period 45,479 35,712

	Thirteen weeks ended
	May 2, 2020			May 3, 2021
Condensed Consolidated Statement of Cash flow Data:
Net Cash Used in Operating Activities	$	(9,604	)	$	(513	)
Net Cash Used in Investing Activities		(3,058	)		(2,348	)
Net Cash Provided by (Used in) Financing Activities		62			(200	)
Net change in cash and cash equivalents		(12,601	)		(3,060	)
Cash and cash equivalents at the end of the period		65,740			45,479

Net Cash ~~Provided By (Used In)~~Used In Operating Activities

Cash ~~from~~used in operating activities consists primarily of net loss adjusted for certain non-cash items, including depreciation and amortization, ~~loss on disposal of property and equipment, equity based~~equity-based compensation, deferred rent, amortization of finance leases and non-cash interest expense and the effect of changes in working capital and other activities.

In the thirteen weeks ended May 2, 2021, net cash used in operating activities was $9.6 million and consisted of changes in operating assets and liabilities of $18.5 million, net income of $2.1 million, and adjustments to reconcile net income to cash used in operating activities of $6.6 million. Working capital and other activities consisted primarily of increases in inventory of $5.5 million, prepaid expenses of $0.6 million, trade accounts receivable of $2.4 million, operating lease liabilities of $3.5 million, and customer deposits of $1.9 million, partially offset by a decrease in accounts payable and accrued expenses of $8.3 million.

In the thirteen weeks ended May 3, 2020, net cash used in operating activities was $0.5 million and consisted of changes in operating assets and liabilities of $5.2 million, a net loss of $8.3 million, and adjustments to reconcile net loss to cash used in operating activities of $2.6 million. Working capital and other activities consisted primarily of decreases in inventory of $3.0 million, prepaid expenses of $2.2 million, accounts receivable of $0.1 million, and accounts payable and accrued expenses of $3.2 million, partially offset by an increase in customer deposits of $3.1 million.

In the thirteen weeks ended May 5, 2019, net cash used by operating activities was $8.2 million and consisted of changes in operating assets and liabilities of $3.3 million, a net loss of $9.1 million, and non-cash items of $4.4 million. Working capital and other activities consisted primarily of increases in inventory of $4.8 million, prepaid expenses of $0.4 million and accounts receivable of $1.0 million, partially offset by an increase in accounts payable and accrued expenses of $2.6 million, and customer deposits of $0.3 million.

Net Cash Used In Investing Activities

Investing activities consist primarily of investment in supply chain and systems infrastructure and capital expenditures related to new showroom openings and the remodeling of existing showrooms.

For the thirteen weeks ended May 2, 2021, capital expenditures were $3.1 million as a result of investments in new and remodeled showrooms and intangibles such as patents and trademarks.

For the thirteen weeks ended May 3, 2020, capital expenditures were $2.3 million as a result of investments in new and remodeled showrooms and intangibles such as patents and trademarks.

~~For the thirteen weeks ended May 5, 2019, capital expenditures were $2.0 million as a result of investments in new and remodeled showrooms and intangibles such as patents and trademarks.~~

Net Cash ~~Used In~~Provided By (Used In) Financing Activities

Financing activities consist primarily of taxes paid for the net settlement of equity ~~awards.~~awards, proceeds from the issuance of warrants and borrowings under the line of credit

For the thirteen weeks ended May 2, 2021, net cash provided by financing activities was $0.1 million, due mostly to borrowing under the line of credit of $0.04 million and $0.02 million in proceeds from the issuance of warrants

For the thirteen weeks ended May 3, 2020, net cash used in financing activities was $0.2 million, due mostly to taxes paid for net share settlement of $0.15 million.

~~For the thirteen weeks ended May 5, 2019, net cash used in financing activities was $3.2 million, due mostly to taxes paid for net share settlement of $3.16 million.~~

Revolving Line of Credit

On February 6, 2018, we entered a five-year, secured revolving credit facility with ~~Wells.~~Wells Fargo Bank, National Association (“Wells”). The credit facility permits borrowings of up to $25.0 million, subject to borrowing base and availability restrictions. For additional information regarding our line of credit with Wells, see Note 7 to our condensed consolidated financial statements. As of May ~~3, 2020,~~2, 2021, the Company’s borrowing availability under the line of credit with Wells was ~~$11.4~~$18.1 million. As of May ~~3, 2020,~~2, 2021, there were no borrowings outstanding ~~on this~~of $41,673 relating to fees associated with the line of credit.

~~Contractual Obligations~~Severance Contingency

~~We generally enter into long term contractual obligations and commitments~~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 ~~normal course~~event those associates are terminated without cause. The total amount of ~~business, primarily debt obligations~~exposure to the Company under these agreements was $4,493,468 at May 2, 2021 if all executives with employment agreements were terminated without cause and ~~non-cancelable operating leases. As~~the full amount of ~~May 3, 2020, our contractual cash obligations over the next several periods were as follows:~~severance was payable.

Payments due by period
Total Less than 1 year 1 - 3 years 3 - 5 Years More than 5 years

Employment agreements $ 3,165,978 $ 3,165,978 $ - $ - $ -
Operating leases 74,551,761 8,945,797 21,307,578 19,271,594 25,026,792

Total $ 77,717,739 $ 12,111,775 $ 21,307,578 $ 19,271,594 $ 25,026,792

Off Balance Sheet Arrangements

We have no material off balance sheet arrangements as of May ~~3, 2020,~~2, 2021, except for operating leases and employment agreements entered in the ordinary course of business.

Critical Accounting Policies and Estimates

The discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in conformity with GAAP. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Please see Note 1 to our consolidated financial statements included in the Annual Report on Form 10-K filed on April ~~29, 2020~~14, 2021 for a complete description of our significant accounting policies. There have been no material changes to the significant accounting policies during the thirteen weeks ended May ~~3, 2020.~~2, 2021.

Recent Accounting Pronouncements

~~Except as described below,~~Refer to Note 2, Recent Accounting Pronouncements, contained in the ~~Company has considered all other recently issued~~Condensed Consolidated Notes to Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q for a full description of the recent accounting pronouncements and ~~does not believe the adoption~~our expectation of ~~such pronouncements will have a material~~their 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.~~

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. 2019-10 extended the effective date to fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted. We will adopt this standard beginning in 2022. Management has evaluated the impact ASU No. 2016-02 will have on these condensed consolidated financial statements. Based on the initial evaluation, we have determined that adopting this standard will have a material impactif any, on our ~~condensed consolidated balance sheet as we have a significant number~~results of ~~operating leases.~~operations and financial condition.

~~In June 2018, the FASB issued ASU 2018-07,~~~~Improvements to Nonemployee Share-Based Payment Accounting~~ (Topic 718). ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. Management is currently evaluating the impact ASU 2018-07 will have on these condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

~~Not Applicable.~~In the normal course of business, we are exposed to a variety of risks, including fluctuations in interest rates that could affect our financial position and results of operations.

Interest Rate Risk

Debt

Interest rate risk exists primarily through our borrowing activities. We use U.S. dollar denominated borrowings to fund our working capital and investment needs. It is anticipated that the fair market value of any future debt under the line of credit will continue to be immaterially affected by fluctuations in interest rates and we do not believe that the value of such debt would be significantly impacted by current market events. Under the line of credit, 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%. We currently do not engage in any interest rate hedging activity and we have no intention of doing so in the foreseeable future. A hypothetical 100 basis point change (up or down) in the one-month LIBOR rate would not have a material effect on our condensed consolidated results of operations.

LIBOR Transition

Borrowings under our revolving line of credit have an interest rate tied to LIBOR, which is the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms and other pressure may cause LIBOR to disappear entirely or to perform differently than in the past. It is expected that certain banks will stop reporting information used to set LIBOR at the end of 2021 when their reporting obligations cease. This will effectively end the usefulness of LIBOR and end its publication. If LIBOR is no longer available, or otherwise at our option, we will pursue alternative interest rate calculations in our Credit Agreement, including the use of the Secured Overnight Financing Rate (SOFR). A number of other alternatives to LIBOR have been proposed or are being developed, but it is not clear which, if any, will be adopted. Any of these alternative methods may result in interest payments that are higher than expected or that do not otherwise correlate over time with the payments that would have been made on such indebtedness for the interest periods if the applicable LIBOR rate was available in its current form.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (our principal executive ~~officer~~officer) and Chief Financial Officer (our principal financial ~~officer,~~officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the thirteen weeks ended May ~~3, 2020~~2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~February 2, 2020.~~January 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Not Applicable.~~In the thirteen weeks ended May 2, 2021, 1,125 warrants with an exercise price of $16 per share were exercised on a cashless basis, resulting in the issuance of 856 common shares, and 1,250 warrants with an exercise price of $16 per share were exercised upon cash payment of the exercise price to the Company. We received no proceeds from the cashless exercise of the warrants. In issuing these shares, we relied on an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3. Defaults upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

~~None.~~

Item 6. Exhibits

Exhibit Number	Description of Exhibit	Filed / Incorporated by Reference from Form **	Incorporated by Reference from Exhibit Number	Dated Filed
3.1	Amended and Restated Certificate of Incorporation	8-K	3.1	6/07/2021
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended	Filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended	Filed herewith.
32.1*	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended	Filed herewith.
32.2*	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended	Filed herewith.
101.INS	XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~Exhibit No.~~*		~~Description~~

~~31.1~~		~~Certification~~This certification is deemed not filed for purposes of section 18 of the ~~Chief Executive Officer pursuant~~Exchange Act, or otherwise subject to ~~Section 302~~the liability of that section, nor shall it be deemed incorporated by reference into any filing under the ~~Sarbanes-Oxley~~Securities Act of ~~2002,~~1933, as amended.**

~~31.2~~		~~Certification of~~amended or the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.**

~~32.1~~		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.***

~~32.2~~		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.***

~~101.INS~~		~~XBRL Instance Document~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~Filed herewith.~~

~~***~~

~~Furnished herewith.~~Exchange Act.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the ~~Securities~~ Exchange Act, ~~of 1934,~~ the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	The Lovesac Company

Date: June 11, 2021	By:	/s/ Shawn Nelson
		Shawn Nelson
		Chief Executive Officer
		(Principal Executive Officer)

Date: June ~~9, 2020~~11, 2021	By:	/s/ ~~Shawn Nelson~~Donna Dellomo
		Donna Dellomo
		Executive Vice President and Chief Financial Officer
		~~Shawn Nelson~~
		~~Chief Executive Officer~~

~~Date: June 9, 2020~~	~~By:~~	~~/s/ Donna Dellomo~~
		~~Donna Dellomo~~
		~~Executive Vice President and~~ ~~Chief~~ (Principal Financial Officer and Principal Accounting Officer)

iso4217:USD xbrli:shares

	May 3, 2020			February 2, 2020
Assets	(unaudited)

Current Assets
Cash and cash equivalents	$	45,478,559		$	48,538,827
Trade accounts receivable		7,076,590			7,188,925
Merchandise inventories		33,419,165			36,399,862
Prepaid expenses and other current assets		5,901,175			8,050,122

Total Current Assets		91,875,489			100,177,736

Property and Equipment, Net		24,429,058			23,844,261

Other Assets
Goodwill		143,562			143,562
Intangible assets, net		1,479,346			1,352,161
Deferred financing costs, net		158,673			146,047

Total Other Assets		1,781,581			1,641,770

Total Assets	$	118,086,128		$	125,663,767

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	17,396,215		$	19,887,611
Accrued expenses		6,915,766			8,567,580
Payroll payable		2,085,322			887,415
Customer deposits		4,738,974			1,653,597
Sales taxes payable		1,145,967			1,404,792
Total Current Liabilities		32,282,244			32,400,995

Deferred rent		3,248,543			3,108,245

Line of credit		-			-

Total Liabilities		35,530,787			35,509,240

Stockholders’ Equity
Preferred Stock $.00001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of May 3, 2020 and February 2, 2020.		-			-
Common Stock $.00001 par value, 40,000,000 shares authorized, 14,508,387 shares issued and outstanding as of May 3, 2020 and 14,472,611 shares issued and outstanding as of February 2, 2020.		145			145
Additional paid-in capital		169,065,775			168,317,210
Accumulated deficit		(86,510,579	)		(78,162,828	)

Stockholders’ Equity		82,555,341			90,154,527

Total Liabilities and Stockholders’ Equity	$	118,086,128		$	125,663,767

	Thirteen weeks ended
	May 3, 2020			May 5, 2019
Net sales	$	54,372,407		$	40,958,363
Cost of merchandise sold		27,088,838			19,965,868
Gross profit		27,283,569			20,992,495
Operating expenses
Selling, general and administration expenses		25,831,402			23,861,612
Advertising and marketing		8,195,585			5,389,330
Depreciation and amortization		1,635,660			1,065,617
Total operating expenses		35,662,647			30,316,559

Operating loss		(8,379,078	)		(9,324,064	)
Interest income, net		56,356			234,563
Net loss before taxes		(8,322,722	)		(9,089,501	)
Provision for income taxes		(25,029	)		(12,276	)
Net loss	$	(8,347,751	)	$	(9,101,777	)

Net loss per common share:
Basic and diluted	$	(0.58	)	$	(0.67	)

Weighted average number of common shares outstanding:
Basic and diluted	$	14,480,081		$	13,669,944

	Common				Preferred				Additional Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance - February 3, 2019		13,588,568	$	136		-	$	-		141,727,807		$	(62,957,809	)	$	78,770,134

Net loss		-		-		-		-		-			(9,101,777	)		(9,101,777	)
Equity based compensation		-		-		-		-		3,222,563			-			3,222,563
Vested restricted stock units		158,329		2		-		-		(3,164,134	)		-			(3,164,132	)
Exercise of warrants		5,138		-		-		-		4,000			-			4,000
Balance - May 5, 2019		13,752,035	$	138		-	$	-	$	141,790,236		$	(72,059,586	)	$	69,730,788

Balance - February 2, 2020		14,472,611	$	145		-	$	-	$	168,317,210		$	(78,162,828	)	$	90,154,527
Net loss		-		-		-		-		-			(8,347,751	)		(8,347,751	)
Equity based compensation		-		-		-		-		898,077			-			898,077
Vested restricted stock units		35,776		-		-		-		-			-			-
Taxes paid for net share settlement of equity awards		-		-		-		-		(149,512	)		-			(149,512	)
Balance - May 3, 2020		14,508,387	$	145		-	$	-	$	169,065,775		$	(86,510,579	)	$	82,555,341

	Thirteen weeks ended
	May 3, 2020			May 5, 2019
Cash Flows from Operating Activities
Net loss	$	(8,347,751	)	$	(9,101,777	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment		1,557,289			1,016,035
Amortization of other intangible assets		78,371			49,583
Amortization of deferred financing fees		19,726			12,171
Net loss on disposal of property and equipment		-			46,857
Equity based compensation		898,077			3,222,563
Deferred rent		140,298			11,772
Changes in operating assets and liabilities:
Trade accounts receivable		112,335			(1,043,903	)
Merchandise inventories		2,980,697			(4,762,440	)
Prepaid expenses and other current assets		2,166,595			(409,621	)
Accounts payable and accrued expenses		(3,204,128	)		2,527,119
Customer deposits		3,085,377			271,536
Net Cash Used in Operating Activities		(513,114	)		(8,160,105	)
Cash Flows from Investing Activities
Purchase of property and equipment		(2,142,086	)		(1,930,145	)
Payments for patents and trademarks		(205,556	)		(77,448	)
Net Cash Used in Investing Activities		(2,347,642	)		(2,007,593	)
Cash Flows from Financing Activities
Proceeds from the issuance of common shares, net
Taxes paid for net share settlement of equity awards		(149,512	)		(3,164,132	)
Proceeds from the issuance of warrants, net		-			4,000
Paydowns of line of credit		-			(31,373	)
Payments of deferred financing costs		(50,000	)		-
Net Cash Used in Financing Activities		(199,512	)		(3,191,505	)
Net Change in Cash and Cash Equivalents		(3,060,268	)		(13,359,203	)
Cash and Cash Equivalents- Beginning		48,538,827			49,070,952
Cash and Cash Equivalents- Ending	$	45,478,559		$	35,711,749
Supplemental Cash Flow Disclosures
Cash paid for taxes	$	25,029		$	12,276
Cash paid for interest	$	16,816		$	8,392

		May 2, 2021
	Estimated Life	Gross Carrying Amount		Accumulated Amortization			Net carrying amount
Patents	10 Years	$	2,495,408	$	(1,483,452	)	$	1,011,956
Trademarks	3 Years		1,270,111		(1,089,499	)		180,612
Other intangibles	5 Years		839,737		(839,737	)		-
Total		$	4,605,256	$	(3,412,688	)	$	1,192,568

		February 2, 2020
	Estimated Life	Gross Carrying Amount		Accumulated Amortization			Net carrying amount
Patents	10 Years	$	1,965,794	$	(846,898	)	$	1,118,896
Trademarks	3 Years		982,800		(749,535	)		233,265
Other intangibles	5 Years		839,737		(839,737	)		-
Total		$	3,788,331	$	(2,436,170	)	$	1,352,161

		January 31, 2021
	Estimated Life	Gross Carrying Amount		Accumulated Amortization			Net carrying amount
Patents	10 Years	$	2,387,328	$	(1,128,997	)	$	1,258,331
Trademarks	3 Years		1,239,334		(980,633	)		258,701
Other intangibles	5 Years		839,737		(839,737	)		-
Total		$	4,466,399	$	(2,949,367	)	$	1,517,032

Remainder of Fiscal 2021	$	236,744
2022		277,249
2023		172,032
2024		149,277
2025		147,213
2026		144,546
Thereafter		352,285
	$	1,479,346

Remainder of Fiscal 2022	$	206,758
2023		165,401
2024		147,995
2025		121,669
2026		119,449
2027		117,796
Thereafter		313,500
	$	1,192,568

	May 2, 2021
Weighted average remaining lease term (in years)
Operating Leases		7.1

Weighted average discount rate
Operating Leases		3.70	%

	Thirteen weeks ended May 2, 2021
Operating Lease Cost	$	3,546
Short term lease cost		167
Additional lease cost (1)		2,087
Total Lease Expense	$	5,800

	Balance sheet location	May 2, 2021
Assets
Operating leases	Operating lease right-of-use assets (non-current)	$	90,745,429

Liabilities
Current:
Operating leases	Current operating lease liabilities		14,287,019
Noncurrent:
Operating leases	Operating lease liability, long term		84,732,550
Total lease liabilities		$	99,019,569

Remainder 2022	$	11,395,157
2023		17,121,688
2024		16,836,144
2025		15,654,092
2026		13,969,500
Thereafter		38,086,783
Total undiscounted future minimum lease payments		113,063,364
Less: imputed interest		(14,043,795	)
Total present value of lease obligations		99,019,569
Less: current operating lease liability		(14,287,019	)
Operating lease liability- long term	$	84,732,550

Remainder 2021	$	8,945,797
2022		10,916,055
2023		10,391,523
2024		10,107,284
2025		9,164,310
2026		7,999,320
Thereafter		17,027,472
	$	74,551,761

	For the thirteen weeks ended May 2, 2021
Operating cash flow information:
Amounts paid on operating lease liabilities	$	4,070

Non-cash activities
Right-of-use assets obtained in exchange for lease obligations	$	4,743

	May 2019
Warrants		18,166
Expected volatility		44	%
Expected dividend yield		0	%
Expected term (in years)		3.00
Risk-free interest rate		2.69	%
Exercise price	$	16.00
Calculated fair value of warrant	$	7.16

	Average exercise price		Number of warrants			Weighted average remaining contractual life (in years)
Warrants Outstanding at February 3, 2019	$	16.83		1,067,475			2.93
Warrants issued		16.00		18,166			2.40
Expired and canceled		-		-			-
Exercised		16.00		(10,625	)		(2.40	)
Warrants Outstanding at May 5, 2019	$	16.83		1,075,016			2.68

Warrants Outstanding at February 2, 2020	$	16.83		1,039,120			1.93
Warrants issued		-		-			-
Expired and canceled		-		-			-
Exercised		-		-			-
Outstanding at May 3, 2020	$	16.83		1,039,120			1.68

	Number of options		Weighted average exercise price		Weighted average remaining contractual life (in years)		Average intrinsic value
Outstanding at February 2, 2020		495,366	$	38.10		2.34		-
Exercised		-
Expired and canceled		-
Vested		-
Outstanding at May 3, 2020		495,366	$	38.10		2.09		-
Exercisable at the end of the period		-		-		-		-

	Thirteen weeks ended May 3, 2020
	Number of options		Weighted average exercise price		Weighted average remaining contractual life (in years)		Average intrinsic value
Outstanding at February 2, 2020		495,366	$	38.10		2.34		-
Granted		-
Exercised		-
Canceled and forfeited		-
Expired and canceled		-
Vested		-
Outstanding at May 3, 2020		495,366	$	38.10		2.09		-
Exercisable at the end of the period		-		-		-		-

	Number of shares			Weighted average grant date fair value
Unvested at February 3, 2019		377,286		$	11.16
Granted		8,780			30.07
Forfeited		(2,060	)		30.07
Vested		(279,325	)		12.52
Unvested at May 5, 2019		104,681		$	17.24

	Number of shares			Weighted average grant date fair value
Unvested at February 2, 2020		183,053		$	21.34
Granted		93,290			6.77
Forfeited		(265	)		14.83
Vested		(50,319	)		6.47
Unvested at May 3, 2020		225,759		$	18.65

	Number of shares			Weighted average grant date fair value
Unvested at January 31, 2021		655,558		$	18.86
Granted		6,000			53.82
Forfeited		(4,638	)		16.64
Vested		(4,868	)		8.86
Unvested at May 2, 2021		652,052		$	19.27

	Thirteen weeks ended
(dollars in thousands, except per share data)	May 2, 2021			May 3, 2020
Condensed Consolidated Statement of Operations Data:
Net Sales
Showrooms	$	48,986		$	18,118
Internet		25,175			30,064
Other		8,754			6,190
Total net sales		82,915			54,372

Cost of merchandise sold		36,839			27,089

Gross profit		46,076			27,283

Operating Expenses
Selling, general and administrative expenses		30,718			25,831
Advertising and marketing		10,680			8,196
Depreciation and amortization		2,420			1,636

Total operating expenses		43,818			35,662

Operating income (loss)		2,258			(8,379	)

Interest (expense) income, net		(44	)		56

Net income (loss) before taxes		2,214			(8,323	)

Provision for income taxes		(153	)		(25	)

Net income (loss)	$	2,061		$	(8,348	)
Net Income (Loss) Attributable to Common Stockholders	$	2,061		$	(8,348	)

Net income (loss) per common share:
Basic (1)	$	0.14		$	(0.58	)
Diluted (1)	$	0.13		$	(0.58	)

Weighted average number of common shares outstanding:
Basic		15,034,954			14,480,081
Diluted		16,073,021			14,480,081

	As of
	May 3, 2020		May 5, 2019
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	45,479	$	35,712
Working capital		59,593		50,554
Total assets		118,086		98,754
Total liabilities		35,531		29,023
Total stockholders’ equity		82,555		69,731

	Payments due by period
	Total		Less than 1 year		1 - 3 years		3 - 5 Years		More than 5 years

Employment agreements	$	3,165,978	$	3,165,978	$	-	$	-	$	-
Operating leases		74,551,761		8,945,797		21,307,578		19,271,594		25,026,792

Total	$	77,717,739	$	12,111,775	$	21,307,578	$	19,271,594	$	25,026,792