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ACQUISITION
 12 Months Ended
Feb. 02, 2025
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]

NOTE 4 – ACQUISITION

 

On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members to acquire substantially all the assets of Sunset West (the “Sunset Acquisition”). Simultaneously, we closed on the transaction by paying $23.9 million in cash and $2 million subject to an escrow arrangement. In the fourth quarter of fiscal 2023, we received $639,000 from the seller for the final working capital adjustments. Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West.

 

In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Sunset Acquisition has been accounted for using the acquisition method of accounting. We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from Sunset West at their respective fair values at the date of completion of the Sunset Acquisition. The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill.

The following table summarizes the fair values of the identifiable assets acquired and liabilities assumed in the Sunset Acquisition as of January 29, 2023.

 

Fair Value Estimates of Assets Acquired and Liabilities Assumed

 

The consideration and components of our initial fair value allocation of the purchase price paid at closing and in the subsequent net working capital adjustment consisted of the following:

 

Purchase price consideration    
Cash paid for assets acquired  $23,909 
Cash received from the seller for final working capital adjustment   (639)
Escrow   2,003 
Fair value of earnout   766 
Total purchase price  $26,039 
Fair value estimates of assets acquired and liabilities assumed     
Accounts receivable  $1,560 
Inventory   2,577 
Prepaid expenses and other current assets   90 
Property   7 
Intangible assets   11,451 
Goodwill   14,462 
Customer deposits   (3,276)
Accounts payable   (816)
Accrued expenses   (16)
Total purchase price  $26,039 

 

Property was recorded at fair value and primarily consists of machinery and equipment. Property and equipment will be amortized over their estimated useful lives.

 

Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All goodwill is expected to be deductible for income tax purposes.

 

Intangible assets consist of two separately identified assets:

 

◾Sunset West customer relationships, which are definite-lived intangible assets with an aggregate fair value of $10.4 million. The customer relationships are amortizable and will be amortized over a period of 10 years; and

 

◾The Sunset West trade name, which is a definite-lived intangible asset with fair value of $1.1 million. The trade name is amortizable and will be amortized over a period of 12 years.

 

◾The total weighted average amortization period for these assets is 10.2 years.

 

We incurred Sunset Acquisition-related costs of $414,000 in fiscal 2022 and $69,000 in fiscal 2023. These expenses were recorded as a component of “selling and administrative expenses” in our fiscal 2022 and fiscal 2023 consolidated statements of operations. Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter.