EVINE LIVE INC., 10-Q filed on 9/7/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Aug. 04, 2018
Sep. 05, 2018
Document Information [Line Items]    
Entity Registrant Name EVINE Live Inc.  
Entity Central Index Key 0000870826  
Current Fiscal Year End Date --02-02  
Entity Filer Category Accelerated Filer  
Document Type 10-Q  
Document Period End Date Aug. 04, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   66,341,105
Entity Well-known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Aug. 04, 2018
Feb. 03, 2018
Current assets:    
Cash $ 28,142 $ 23,940
Restricted cash equivalents 450 450
Accounts receivable, net 82,611 96,559
Inventories 65,392 68,811
Prepaid expenses and other 11,043 5,344
Total current assets 187,638 195,104
Property & equipment, net 51,070 52,048
Other assets 2,017 2,106
TOTAL ASSETS 240,725 249,258
Current liabilities:    
Accounts payable 52,344 55,614
Accrued liabilities 37,201 35,646
Current portion of long term credit facilities 2,714 2,326
Deferred revenue 36 35
Total current liabilities 92,295 93,621
Other long term liabilities 50 68
Long term credit facilities 66,042 71,573
Total liabilities 158,387 165,262
Commitments and Contingencies
Shareholders' equity:    
Preferred stock, $.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding 0 0
Common stock, $.01 per share par value, 99,600,000 shares authorized; 66,287,786 and 65,290,458 shares issued and outstanding 663 653
Additional paid-in capital 440,469 439,111
Accumulated deficit (358,794) (355,768)
Total shareholders’ equity 82,338 83,996
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 240,725 $ 249,258
v3.10.0.1
Consolidated Balance Sheets (Parentheticals) - $ / shares
Aug. 04, 2018
Feb. 03, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 400,000 400,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 99,600,000 99,600,000
Common stock, shares issued 66,287,786 65,290,458
Common stock, shares outstanding 66,287,786 65,290,458
v3.10.0.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Aug. 04, 2018
Jul. 29, 2017
Aug. 04, 2018
Jul. 29, 2017
Income Statement [Abstract]        
Net sales $ 150,799 $ 148,949 $ 307,304 $ 305,292
Cost of sales 93,929 92,469 194,179 192,526
Gross profit 56,870 56,480 113,125 112,766
Operating expense:        
Distribution and selling 47,958 48,687 96,845 97,417
General and administrative 6,521 6,012 13,240 12,007
Depreciation and amortization 1,522 1,680 3,094 3,316
Executive and management transition costs 0 572 1,024 1,078
Total operating expense 56,001 56,951 114,203 113,818
Operating income (loss) 869 (471) (1,078) (1,052)
Other income (expense):        
Interest income 9 2 16 4
Interest expense (898) (1,313) (1,924) (2,808)
Loss on debt extinguishment 0 0 0 (913)
Total other expense, net (889) (1,311) (1,908) (3,717)
Loss before income taxes (20) (1,782) (2,986) (4,769)
Income tax provision (20) (209) (40) (418)
Net loss $ (40) $ (1,991) $ (3,026) $ (5,187)
Net loss per common share $ 0.00 $ (0.03) $ (0.05) $ (0.08)
Net loss per common share — assuming dilution $ 0.00 $ (0.03) $ (0.05) $ (0.08)
Weighted average number of common shares outstanding:        
Basic 66,009,117 64,091,228 65,685,034 62,504,868
Diluted 66,009,117 64,091,228 65,685,034 62,504,868
v3.10.0.1
Consolidated Statement of Shareholders' Equity - 6 months ended Aug. 04, 2018 - USD ($)
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit
Common Stock, Shares, Outstanding period beginning at Feb. 03, 2018 65,290,458 65,290,458.000    
Total Shareholders' Equity period beginning at Feb. 03, 2018 $ 83,996,000 $ 653,000 $ 439,111,000 $ (355,768,000)
Net loss (3,026,000) $ 0 0 (3,026,000)
Common stock issuances pursuant to equity compensation plans, Shares   997,328    
Common stock issuances pursuant to equity compensation plans, Value (16,000) $ 10,000 (26,000) 0
Share-based payment compensation, Shares   0    
Share-based payment compensation, Value $ 1,384,000 $ 0 1,384,000 0
Common Stock, Shares, Outstanding period end at Aug. 04, 2018 66,287,786 66,287,786.000    
Total Shareholders' Equity period end at Aug. 04, 2018 $ 82,338,000 $ 663,000 $ 440,469,000 $ (358,794,000)
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Aug. 04, 2018
Jul. 29, 2017
OPERATING ACTIVITIES:    
Net loss $ (3,026) $ (5,187)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 5,135 5,259
Share-based payment compensation 1,358 1,267
Amortization of deferred revenue (17) (42)
Amortization of deferred financing costs 104 214
Loss on debt extinguishment 0 913
Deferred income taxes 0 394
Changes in operating assets and liabilities:    
Accounts receivable, net 13,948 16,248
Inventories 3,419 6,444
Prepaid expenses and other (5,676) (54)
Accounts payable and accrued liabilities (1,750) (19,119)
Net cash provided by operating activities 13,495 6,337
INVESTING ACTIVITIES:    
Property and equipment additions (4,071) (6,256)
Net cash used for investing activities (4,071) (6,256)
FINANCING ACTIVITIES:    
Proceeds from issuance of revolving loan 111,400 10,500
Proceeds of term loans 5,821 6,000
Proceeds from issuance of common stock and warrants 0 4,628
Proceeds from exercise of stock options 111 29
Payments on revolving loan (121,400) (14,900)
Payments on term loans (969) (11,058)
Payments for repurchases of common stock 0 (5,055)
Payments for common stock issuance costs 0 (357)
Payments for deferred financing costs (58) (220)
Payments for debt extinguishment costs 0 (199)
Payments for restricted stock issuance (127) (37)
Net cash used for financing activities (5,222) (10,669)
Net increase (decrease) in cash and restricted cash equivalents 4,202 (10,588)
BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS 24,390 33,097
ENDING CASH AND RESTRICTED CASH EQUIVALENTS 28,592 22,509
SUPPLEMENTAL CASH FLOW INFORMATION:    
Interest paid 1,726 2,631
Income taxes paid 14 34
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Property and equipment purchases included in accounts payable 216 401
Deferred financing costs included in accrued liabilities 29 0
Common stock issuance costs included in accrued liabilities $ 0 $ 103
v3.10.0.1
General
6 Months Ended
Aug. 04, 2018
General [Abstract]  
General
General
EVINE Live Inc. and its subsidiaries ("we," "our," "us," or the "Company") are collectively a multiplatform interactive digital commerce company that offers a mix of proprietary, exclusive and name-brand merchandise in the categories of jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories directly to consumers 24 hours a day in an engaging and informative shopping experience via television, online and mobile devices. Evine programming is distributed in more than 87 million homes through cable and satellite distribution agreements, agreements with telecommunications companies and over-the-air broadcast television stations. Evine programming is also streamed live online at evine.com and is available on mobile channels and over-the-top platforms.
The Company also operates evine.com, a comprehensive digital commerce platform that sells products which appear on its television shopping network as well as an extended assortment of online-only merchandise. The live programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.
v3.10.0.1
Basis of Financial Statement Presentation
6 Months Ended
Aug. 04, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Financial Statement Presentation
Basis of Financial Statement Presentation
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of February 3, 2018 has been derived from the Company's audited financial statements for the fiscal year ended February 3, 2018. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of these financial statements. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its annual report on Form 10-K for the fiscal year ended February 3, 2018. Operating results for the six-month period ended August 4, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending February 2, 2019.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31 and results in either a 52-week or 53-week fiscal year. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 2017, ended on February 3, 2018, and consisted of 53 weeks. Fiscal 2018 will end February 2, 2019 and will contain 52 weeks. The quarters ended August 4, 2018 and July 29, 2017 each consisted of 13 weeks.
Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (ASU 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues reflect amounts an entity expects to receive in exchange for goods and services. The guidance also includes additional disclosure requirements regarding revenue, timing of cash flows and obligations related to contracts with customers. The Company adopted this standard in the first quarter of fiscal 2018, using the modified retrospective transition method. See Note 3 - "Revenue" for information on the impact of adopting ASU 2014-09 and all related amendments on the Company's condensed consolidated financial statements.
In November 2016, the Financial Accounting Standards Board issued Statement of Cash Flows, Topic 230: Restricted Cash (ASU 2016-18), which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending amounts shown on the statement of cash flows. The Company adopted this standard in the first quarter of fiscal 2018 and has revised the condensed consolidated statements of cash flows for the six-month period ended July 29, 2017 to reflect total cash and restricted cash equivalents for each period presented. The following table provides a reconciliation of cash and restricted cash equivalents reported with the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
 
August 4, 2018
 
February 3, 2018
 
July 29, 2017
 
January 28, 2017
Cash
$
28,142,000

 
$
23,940,000

 
$
22,059,000

 
$
32,647,000

Restricted cash equivalents
450,000

 
450,000

 
450,000

 
450,000

Total cash and restricted cash equivalents
$
28,592,000

 
$
24,390,000

 
$
22,509,000

 
$
33,097,000


The Company's restricted cash equivalents consist of certificates of deposit with original maturities of three months or less and are generally restricted for a period ranging from 30 to 60 days.
In May 2017, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2017-09), which provides clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. The Company adopted this standard in the first quarter of fiscal 2018 and there was no impact on the Company's condensed consolidated financial statements.
In June 2018, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2018-07), which simplifies the accounting for share-based payments to nonemployees for goods and services. Under the new standard, most of the guidance on payments to nonemployees is now aligned with the requirements for share-based payments granted to employees. Under the new guidance, (i) equity-classified share-based payment awards issued to nonemployees will be measured at the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (ii) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (iii) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company elected to early adopt this standard in the second quarter of fiscal 2018 and there was no impact on the Company's condensed consolidated financial statements since there was no outstanding nonemployee share-based payment awards for which there is unrecognized compensation expense.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued Leases, Topic 842 (ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this standard in the first quarter of fiscal 2019 using a modified retrospective transition approach to leases existing at, or entered into after, February 3, 2019. Under this transition method, comparative prior periods will not be restated and a cumulative adjustment will be recognized to the opening balance of retained earnings. The Company is continuing to evaluate the impact of adopting ASU 2016-02 and all related amendments on the Company's consolidated financial statements, financial systems and controls. In addition, the Company is in the process of evaluating practical expedient and accounting policy elections.
v3.10.0.1
Revenue
6 Months Ended
Aug. 04, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
Adoption of Revenue from Contracts with Customers, Topic 606
On February 4, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers", and all related amendments using the modified retrospective method applied to contracts that were not completed as of February 4, 2018. The comparative prior period information has not been restated and continues to be reported under the accounting standards in effect during those periods. The adoption did not have a material impact on the Company's revenue recognition and there was no adjustment to its retained earnings opening balance. The Company does not expect the adoption of the new standard to have a material impact on the Company's operating results on an ongoing basis.
The impact of the new revenue standard adoption on our condensed consolidated statements of operations was as follows (in thousands):
 
 
For the Three-Month Period Ended August 4, 2018
 
For the Six-Month Period Ended August 4, 2018
 
 
As Reported
 
Balance without adoption of ASC 606
 
Effect of Change
 
As Reported
 
Balance without adoption of ASC 606
 
Effect of Change
Net sales
 
$
150,799

 
$
150,147

 
$
652

 
$
307,304

 
$
306,693

 
$
611

Cost of sales
 
93,929

 
93,385

 
544

 
194,179

 
193,654

 
525

Operating expense:
 
 
 
 
 
 
 
 
 
 
 
 
Distribution and selling
 
47,958

 
47,951

 
7

 
96,845

 
96,759

 
86

Net loss
 
(40
)
 
(141
)
 
101

 
(3,026
)
 
(3,026
)
 


As of August 4, 2018, the Company recorded a merchandise return liability of $7,804,000, included in accrued liabilities, and a right of return asset of $4,355,000, included in other current assets. As of February 3, 2018, the Company had approximately $3,544,000 reserved for future merchandise returns included in accrued liabilities, which represents the net margin obligation recorded under the previous revenue guidance.
Revenue Recognition
Revenue is recognized when control of the promised merchandise is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for the merchandise. The Company recognizes revenue upon shipment. Revenue is reported net of estimated sales returns, credits and incentives, and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on historical experience.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Substantially all of the Company's sales are single performance obligation arrangements for transferring control of merchandise to customers.
In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers by significant product groups and timing of when the performance obligations are satisfied. A reconciliation of disaggregated revenue by significant product group is provided in Note 9 - "Business Segments and Sales by Product Group".
As of August 4, 2018, approximately $86,000 is expected to be recognized from remaining performance obligations within the next 3 years. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected term of one year or less. Revenue recognized over time was $9,000 and $21,000 for the three-month periods ended August 4, 2018 and July 29, 2017 and $17,000 and $42,000 for the six-month periods ended August 4, 2018 and July 29, 2017.
Merchandise Returns
The Company records a merchandise return liability as a reduction of gross sales for anticipated merchandise returns at each reporting period and must make estimates of potential future merchandise returns related to current period product revenue. The Company estimates and evaluates the adequacy of its merchandise return liability by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing the merchandise return liability in any accounting period.
Shipping and Handling
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the merchandise. Shipping and handling fees charged to customers are recognized when the customer obtains control of the merchandise, which is upon shipment. The Company accrues costs for shipping and handling activities, which occur subsequent to transfer of control to the customer and are recorded as cost of sales in the accompanying statements of operations.
Sales Taxes
The Company has elected to exclude from revenue the sales taxes imposed on its sales and collected from customers.
Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the payment terms are less than one year. Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of August 4, 2018 and February 3, 2018, the Company had approximately $74,539,000 and $88,452,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $8,390,000 and $6,008,000. The increase in the total reserve as a percentage of receivables is primarily due to an extension in our collections cycle, which has been yielding a higher total recovery rate.
Judgments
The Company's merchandise is generally sold with a right of return for up to a certain number of days after the merchandise is shipped and the Company may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Merchandise returns and other credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.
The Company evaluated whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) in certain vendor arrangements where the merchandise is shipped directly from the vendor to the Company's customer and the purchase and sale of inventory is virtually simultaneous. Generally, the Company is the principal and reports revenues from such vendor arrangements on a gross basis, as it controls the merchandise before it is transferred to the customer. The Company's control is evidenced by it being primarily responsible to the customers, establishing price and its inventory risk upon customer returns.
v3.10.0.1
Fair Value Measurements
6 Months Ended
Aug. 04, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
As of August 4, 2018 and February 3, 2018, the Company had $450,000 in Level 2 investments in the form of bank certificates of deposit, which are included in restricted cash equivalents in the condensed consolidated balance sheets. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of August 4, 2018 and February 3, 2018, the Company also had a long-term variable rate PNC Credit Facility, classified as Level 2, with carrying values of $68,756,000 and $73,899,000. As of August 4, 2018 and February 3, 2018, $2,714,000 and $2,326,000 of the long-term variable rate PNC Credit Facility was classified as current. The fair value of the PNC Credit Facility approximates and is based on its carrying value due to the variable rate nature of the financial instrument. The Company has no Level 3 investments that use significant unobservable inputs.
v3.10.0.1
Intangible Assets
6 Months Ended
Aug. 04, 2018
Intangible Assets [Abstract]  
Intangible Assets
Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life
(In Years)
 
August 4, 2018
 
February 3, 2018
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets
 
5-15
 
$
1,786,000

 
$
(419,000
)
 
$
1,786,000

 
$
(336,000
)
Finite-lived Intangible Assets
The finite-lived intangible assets are included in Other Assets in the accompanying balance sheets and consist of the Evine trademark and the Princeton Watches trade name and customer list. Amortization expense related to the finite-lived intangible assets was $42,000 for the three-month periods ended August 4, 2018 and July 29, 2017 and $83,000 for the six-month periods ended August 4, 2018 and July 29, 2017. Estimated amortization expense is $165,000 for fiscal 2018 and each fiscal year through fiscal 2020, $157,000 for fiscal 2021 and $96,000 for fiscal 2022.
Sale of Boston Television Station, WWDP and FCC Broadcast License
On August 28, 2017, the Company entered into two agreements with unrelated parties to sell its Boston television station, WWDP, including the Company's FCC broadcast license, for an aggregate of $13,500,000. During the fiscal 2017 fourth quarter, the Company closed on the asset purchase agreement to sell substantially all of the assets primarily related to its television broadcast station, WWDP(TV), Norwell, Massachusetts (the “Station”), which included an intangible FCC broadcasting license asset. As of August 4, 2018, $667,000 of the sales price remained in escrow pending the Station being carried by certain distribution carriers. The Company has not recorded any additional gain relating to the remaining escrow amount and will not record the remaining gain until the contingency is resolved.
v3.10.0.1
Credit Agreements
6 Months Ended
Aug. 04, 2018
Debt Disclosure [Abstract]  
Credit Agreements
Credit Agreements
The Company's long-term credit facilities consist of:
 
 
August 4, 2018
 
February 3, 2018
PNC revolving loan due July 27, 2023, principal amount
 
$
49,900,000

 
$
59,900,000

 
 
 
 
 
PNC term loan due July 27, 2023, principal amount
 
19,000,000

 
14,148,000

Less unamortized debt issuance costs
 
(144,000
)
 
(149,000
)
PNC term loan due July 27, 2023, carrying amount
 
18,856,000

 
13,999,000

 
 
 
 
 
Total long-term credit facilities
 
68,756,000

 
73,899,000

Less current portion of long-term credit facilities
 
(2,714,000
)
 
(2,326,000
)
Long-term credit facilities, excluding current portion
 
$
66,042,000

 
$
71,573,000


PNC Credit Facility
On February 9, 2012, the Company entered into a credit and security agreement (as amended through July 27, 2018, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provides a revolving line of credit of $90.0 million and provides for a term loan on which the Company had originally drawn to fund improvements at the Company's distribution facility in Bowling Green, Kentucky and subsequently to pay down the Company's GACP Term Loan (as defined below). The PNC Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $25.0 million at the discretion of the lenders and upon certain conditions being met. On July 27, 2018, the Company entered into the Tenth Amendment to the PNC Credit Facility, which among other things, increased the term loan by $5,821,000, extended the term of the PNC Credit Facility from March 21, 2022 to July 27, 2023, and decreased the interest rate margins on both the revolving line of credit and term loan. The term loan increase was used to reduce borrowings under the revolving line of credit.
All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million which, upon issuance, would be deemed advances under the PNC Credit Facility. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $90.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory. The PNC Credit Facility is secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky. Under certain circumstances, the borrowing base may be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.
The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 1% and 2% on Base Rate advances and 2% and 3% on LIBOR advances based on the Company's trailing twelve-month reported leverage ratio (as defined in the PNC Credit Facility) measured semi-annually as demonstrated in its financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3% on Base Rate term loans and 3% to 4% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.
As of August 4, 2018, the Company had borrowings of $49.9 million under its revolving credit facility. Remaining available capacity under the revolving credit facility as of August 4, 2018 was approximately $23.3 million, which provided liquidity for working capital and general corporate purposes. The PNC Credit Facility also provides for a term loan on which the Company has drawn to fund an expansion and improvements at the Company's distribution facility in Bowling Green, Kentucky and subsequently to partially pay down the Company's GACP Term Loan and reduce its revolving credit facility borrowings. As of August 4, 2018, there was approximately $19.0 million outstanding under the PNC Credit Facility term loan of which $2.7 million was classified as current in the accompanying balance sheet.
Principal borrowings under the modified term loan are to be payable in monthly installments over an 84-month amortization period commencing on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 3.0% if terminated on or before July 27, 2019, 1.0% if terminated on or before July 27, 2020, 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of August 4, 2018, the imputed effective interest rate on the PNC term loan was 5.8%.
Interest expense recorded under the PNC Credit Facility was $898,000 and $1,922,000 for the three and six-month periods ended August 4, 2018 and $1,079,000 and $2,142,000 for the three and six-month periods ended July 29, 2017.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. As the Company's unused line availability was greater than $10.0 million at August 4, 2018, no additional cash was required to be restricted. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $10.8 million. As of August 4, 2018, the Company's unrestricted cash plus unused line availability was $51.4 million and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Deferred financing costs, net of amortization, relating to the revolving line of credit was $650,000 and $656,000 as of August 4, 2018 and February 3, 2018 and are included within other assets within the accompanying balance sheet. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.
Prepayment on Great American Capital Partners Term Loan
During fiscal 2017, the Company retired its term loan (the "GACP Term Loan") under a credit and security agreement with GACP Finance Co., LLC ("GACP"), with voluntary principal prepayments of $9.5 million, $2.5 million and $3.5 million on March 21, 2017, October 18, 2017 and December 6, 2017. During the first quarter of fiscal 2017, the Company recorded a loss on debt extinguishment of $913,000 for the portion of debt extinguished on March 21, 2017. The fiscal 2017 first quarter loss on extinguishment of debt includes early termination and lender fees of $199,000 and a write-off of unamortized debt issuance costs of $714,000, which represents the proportionate amount of unamortized debt issuance costs attributable to the settled debt. Interest expense recorded under the GACP Credit Agreement for the three and six-month periods ended July 29, 2017 was $231,000 and $661,000.
The aggregate maturities of the Company's long-term credit facilities as of August 4, 2018 are as follows:
 
 
PNC Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2018
 
$
1,357,000

 
$

 
$
1,357,000

2019
 
2,488,000

 

 
2,488,000

2020
 
2,714,000

 

 
2,714,000

2021
 
2,714,000

 

 
2,714,000

2022
 
2,714,000

 

 
2,714,000

2023
 
7,013,000

 
49,900,000

 
56,913,000

 
 
$
19,000,000

 
$
49,900,000

 
$
68,900,000

v3.10.0.1
Shareholders' Equity
6 Months Ended
Aug. 04, 2018
Share-based Compensation [Abstract]  
Shareholders' Equity
Shareholders' Equity
Warrants
As of August 4, 2018, the Company had outstanding warrants to purchase 3,849,365 shares of the Company’s common stock ("Warrants"). The Warrants are fully exercisable and expire five years from the date of grant. The Warrants were issued in connection with private placement securities purchase agreements ("Purchase Agreements"), including the related option exercises, which the Company entered into with certain accredited investors on September 14, 2016. The following table summarizes information regarding Warrants outstanding at August 4, 2018:
Grant Date
 
Shares of common stock purchasable
 
Exercise Price
(Per Share)
 
Expiration Date
September 19, 2016
 
2,976,190

 
$2.90
 
September 19, 2021
November 10, 2016
 
333,873

 
$3.00
 
November 10, 2021
January 23, 2017
 
489,302

 
$1.76
 
January 23, 2022
March 16, 2017
 
50,000

 
$1.92
 
March 16, 2022

Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $237,000 and $220,000 for the second quarters of fiscal 2018 and fiscal 2017 and $542,000 and $423,000 for the first six months of fiscal 2018 and fiscal 2017. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of August 4, 2018, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 13,000,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than 10 years after the effective date of the respective plan's inception or be exercisable more than 10 years after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. With the exception of market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options, and have contractual terms of 10 years from the date of grant.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table, and a Monte Carlo valuation model is used for market-based vesting awards. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
 
Fiscal 2018
 
Fiscal 2017
Expected volatility:
72%
 
81%
Expected term (in years):
6 years
 
6 years
Risk-free interest rate:
2.8%
-
3.0%
 
2.0%
-
2.2%

A summary of the status of the Company’s stock option activity as of August 4, 2018 and changes during the six months then ended is as follows:
 
2011
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2004
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, February 3, 2018
3,384,000

 
$
1.64

 
112,000

 
$
4.86

Granted
2,198,000

 
$
1.02

 

 
$

Exercised
(112,000
)
 
$
0.99

 

 
$

Forfeited or canceled
(333,000
)
 
$
1.49

 
(5,000
)
 
$
4.62

Balance outstanding, August 4, 2018
5,137,000

 
$
1.40

 
107,000

 
$
4.87

Options exercisable at August 4, 2018
1,585,000

 
$
1.93

 
107,000

 
$
4.87


The following table summarizes information regarding stock options outstanding at August 4, 2018:
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
5,137,000

 
$
1.40

 
8.7
 
$
813,000

 
4,619,000

 
$
1.43

 
8.6
 
$
682,000

2004 Incentive:
107,000

 
$
4.87

 
5.3
 
$

 
107,000

 
$
4.87

 
5.3
 
$


The weighted average grant-date fair value of options granted in the first six-months of fiscal 2018 and fiscal 2017 was $0.74 and $0.91. The total intrinsic value of options exercised during the first six-months of fiscal 2018 and fiscal 2017 was $23,000 and $9,000. As of August 4, 2018, total unrecognized compensation cost related to stock options was $2,117,000 and is expected to be recognized over a weighted average period of approximately 2.1 years.
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $302,000 and $526,000 for the second quarters of fiscal 2018 and fiscal 2017 and $817,000 and $844,000 for the first six-months of fiscal 2018 and fiscal 2017. As of August 4, 2018, there was $2,596,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 1.9 years. The total fair value of restricted stock units vested during the first six months of fiscal 2018 and fiscal 2017 was $1,139,000 and $370,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company's stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.
The Company has granted time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock generally vests in three equal annual installments beginning one year from the grant date and is being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each restricted stock grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The grants are amortized as director compensation expense over the twelve-month vesting period.
The Company has granted a total of 259,000 and -0- market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program during the second quarters of fiscal 2018 and fiscal 2017 and 747,000 and 562,000 market-based restricted stock performance units during the first six months of fiscal 2018 and fiscal 2017. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
 
Fiscal 2018
 
Fiscal 2017
Total grant date fair value
$859,000
 
$860,000
Total grant date fair value per share
$1.07
-
$1.30
 
$1.53
Expected volatility
73%
-
76%
 
75%
Weighted average expected life (in years)
3 years
 
3 years
Risk-free interest rate
2.4%
-
2.7%
 
1.5%

The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
Percentile Rank
 
Percentage of
Units Vested
< 33%
 
0%
33%
 
50%
50%
 
100%
100%
 
150%

A summary of the status of the Company’s non-vested restricted stock unit activity as of August 4, 2018 and changes during the six-month period then ended is as follows:
 
Restricted Stock Units
 
Market-Based
Performance Units
 
Time-Based Units
 
Total
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 3, 2018
973,000

 
$
1.55

 
1,856,000

 
$
1.32

 
2,829,000

 
$
1.40

Granted
747,000

 
$
1.15

 
1,198,000

 
$
1.17

 
1,945,000

 
$
1.16

Vested

 
$

 
(1,003,000
)
 
$
1.23

 
(1,003,000
)
 
$
1.23

Forfeited
(211,000
)
 
$
1.23

 
(75,000
)
 
$
1.46

 
(286,000
)
 
$
1.29

Non-vested outstanding, August 4, 2018
1,509,000

 
$
1.39

 
1,976,000

 
$
1.27

 
3,485,000

 
$
1.32

v3.10.0.1
Net Loss Per Common Share
6 Months Ended
Aug. 04, 2018
Earnings Per Share [Abstract]  
Net Loss Per Common Share
Net Loss Per Common Share
Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Net loss (a)
 
$
(40,000
)
 
$
(1,991,000
)
 
$
(3,026,000
)
 
$
(5,187,000
)
Weighted average number of shares of common stock outstanding — Basic
 
66,009,117

 
64,091,228

 
65,685,034

 
62,504,868

Dilutive effect of stock options, non-vested shares and warrants (b)
 

 

 

 

Weighted average number of shares of common stock outstanding — Diluted
 
66,009,117

 
64,091,228

 
65,685,034

 
62,504,868

Net loss per common share
 
$
(0.00
)
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.08
)
Net loss per common share — assuming dilution
 
$
(0.00
)
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.08
)
(a) The net loss for the three and six-month periods ended August 4, 2018 includes costs related to executive and management transition of $0 and $1,024,000 and contract termination costs of $0 and $753,000. The net loss for the three and six-month periods ended July 29, 2017 includes costs related to executive and management transition of $572,000 and $1,078,000 and a loss on debt extinguishment of $0 and $913,000.
(b) For the three and six-month periods ended August 4, 2018, there were 543,000 and 272,000 incremental in-the-money potentially dilutive common shares outstanding, and -0- for the three and six-month periods ended July 29, 2017. The incremental in-the-money potentially dilutive common stock shares are excluded from the computation of diluted earnings per share, as the effect of their inclusion would be anti-dilutive.
v3.10.0.1
Business Segments and Sales by Product Group
6 Months Ended
Aug. 04, 2018
Segment Reporting [Abstract]  
Business Segments and Sales by Product Group
Business Segments and Sales by Product Group
The Company has one reporting segment, which encompasses its interactive digital commerce retailing. The Company markets, sells and distributes its products to consumers primarily through its video commerce television, online website, evine.com, and mobile platforms. The Company's television shopping, online and mobile platforms have similar economic characteristics with respect to products, product sourcing, vendors, marketing and promotions, gross margins, customers, and methods of distribution. In addition, the Company believes that its television shopping program is a key driver of traffic to both the evine.com website and mobile applications whereby many of the online sales originate from customers viewing the Company's television program and then placing their orders online or through mobile devices. All of the Company's sales are made to customers residing in the United States. The chief operating decision maker is the Chief Executive Officer of the Company. Certain fiscal 2017 product category amounts in the accompanying table have been reclassified to conform to our fiscal 2018 product category groupings.
Information on net sales by significant product groups are as follows (in thousands):
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Jewelry & Watches
 
$
53,842

 
$
53,737

 
$
110,635

 
$
111,773

Home & Consumer Electronics
 
28,666

 
29,166

 
59,708

 
58,581

Beauty & Wellness
 
28,615

 
22,589

 
55,637

 
45,622

Fashion & Accessories
 
24,562

 
27,968

 
51,134

 
57,763

All other (primarily shipping & handling revenue)
 
15,114

 
15,489

 
30,190

 
31,553

Total
 
$
150,799

 
$
148,949

 
$
307,304

 
$
305,292

v3.10.0.1
Income Taxes
6 Months Ended
Aug. 04, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
At February 3, 2018, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $321 million, and state NOLs of approximately $260 million which are available to offset future taxable income.  The Company's federal NOLs expire in varying amounts each year from 2023 through 2037 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. 
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B preferred stock held by GE Capital Equity Investments, Inc. (“GE Equity”).  Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company's ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited.  In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOLs could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOLs. The Company currently has recorded a full valuation allowance for its net deferred tax assets.  The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
For the second quarters of fiscal 2018 and fiscal 2017, the income tax provision included a non-cash tax charge of approximately $0 and $197,000 relating to changes in the Company's long-term deferred tax liability related to the tax amortization of the Company's indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to the Company's income tax valuation allowance. For the first six-months of fiscal 2018 and fiscal 2017, the income tax provision included a non-cash tax charge of approximately $0 and $394,000. During the fourth quarter of fiscal 2017, the Company sold its indefinite-lived intangible FCC license asset in connection with the sale of the Company's television broadcast station, WWDP(TV).
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted. The Tax Act significantly revised U.S. corporate tax law by, among other things, (i) reducing the corporate tax rate to 21% from 35%, (ii) a repeal of the corporate alternative minimum tax (AMT), (iii) changes to tax depreciation for first-year property, (iv) a partial limitation on the deductibility of business interest expense and (v) for losses incurred in tax years beginning after December 31, 2017 the NOL deduction is limited to 80% of taxable income with an indefinite carry forward.
The income tax effects of the Tax Act required the remeasurement of the Company's deferred tax assets and liabilities in accordance with ASC Topic 740.  The Company remeasured its net deferred tax assets and related valuation allowance to reflect the lower corporate tax rate at the end of fiscal 2017. The SEC staff issued Staff Accounting Bulletin No. 118 that allows companies to record provisional estimates of the impacts of the Tax Act during a measurement period of up to one year from the enactment which is similar to the measurement period used when accounting for business combinations.  As reflected in the Company's fiscal 2017 financial statements, the Tax Act did not have an impact on the Company's tax expense or benefit due to the full valuation allowance against the Company's deferred tax assets.
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date. On July 13, 2015, the Company entered into a Shareholder Rights Plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, of the Company (“Preferred Stock” and each one one-thousandth of a share of Preferred Stock, a “Unit”) at a price of $9.00 per Unit.
v3.10.0.1
Litigation
6 Months Ended
Aug. 04, 2018
Litigation [Abstract]  
Litigation
Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, consumer protection and regulatory matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, will have a material adverse effect on the Company's operations or consolidated financial statements.
v3.10.0.1
Executive and Management Transition Costs
6 Months Ended
Aug. 04, 2018
Executive Transition Costs [Abstract]  
Executive and Management Transition Costs [Text Block]
Executive and Management Transition Costs
On April 11, 2018, the Company entered into a transition and separation agreement with its Executive Vice President, Chief Operating Officer/Chief Financial Officer, under which his position terminated on April 16, 2018 and he served as a non-officer employee until June 1, 2018. On April 11, 2018, the Company announced the appointment of a new Chief Financial Officer, effective as of April 16, 2018. In conjunction with this executive change as well as other executive and management terminations made during the first six months of fiscal 2018, the Company recorded charges to income totaling $0 and $1,024,000 for the three and six-months ended August 4, 2018, which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the Company's 2018 executive and management transition.
On March 23, 2017, the Company announced the elimination of the position of Senior Vice President of Sales & Product Planning. In conjunction with this executive change as well as other executive and management terminations made during the first six months of fiscal 2017, the Company recorded charges to income totaling $572,000 and $1,078,000 for the three and six-months ended July 29, 2017, which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the Company's 2017 executive and management transition.
v3.10.0.1
Basis of Financial Statement Presentation (Policies)
6 Months Ended
Aug. 04, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Principles of Consolidation
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of February 3, 2018 has been derived from the Company's audited financial statements for the fiscal year ended February 3, 2018. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of these financial statements. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its annual report on Form 10-K for the fiscal year ended February 3, 2018. Operating results for the six-month period ended August 4, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending February 2, 2019.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31 and results in either a 52-week or 53-week fiscal year. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 2017, ended on February 3, 2018, and consisted of 53 weeks. Fiscal 2018 will end February 2, 2019 and will contain 52 weeks. The quarters ended August 4, 2018 and July 29, 2017 each consisted of 13 weeks.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (ASU 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues reflect amounts an entity expects to receive in exchange for goods and services. The guidance also includes additional disclosure requirements regarding revenue, timing of cash flows and obligations related to contracts with customers. The Company adopted this standard in the first quarter of fiscal 2018, using the modified retrospective transition method. See Note 3 - "Revenue" for information on the impact of adopting ASU 2014-09 and all related amendments on the Company's condensed consolidated financial statements.
In November 2016, the Financial Accounting Standards Board issued Statement of Cash Flows, Topic 230: Restricted Cash (ASU 2016-18), which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending amounts shown on the statement of cash flows. The Company adopted this standard in the first quarter of fiscal 2018 and has revised the condensed consolidated statements of cash flows for the six-month period ended July 29, 2017 to reflect total cash and restricted cash equivalents for each period presented. The following table provides a reconciliation of cash and restricted cash equivalents reported with the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
 
August 4, 2018
 
February 3, 2018
 
July 29, 2017
 
January 28, 2017
Cash
$
28,142,000

 
$
23,940,000

 
$
22,059,000

 
$
32,647,000

Restricted cash equivalents
450,000

 
450,000

 
450,000

 
450,000

Total cash and restricted cash equivalents
$
28,592,000

 
$
24,390,000

 
$
22,509,000

 
$
33,097,000


The Company's restricted cash equivalents consist of certificates of deposit with original maturities of three months or less and are generally restricted for a period ranging from 30 to 60 days.
In May 2017, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2017-09), which provides clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. The Company adopted this standard in the first quarter of fiscal 2018 and there was no impact on the Company's condensed consolidated financial statements.
In June 2018, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2018-07), which simplifies the accounting for share-based payments to nonemployees for goods and services. Under the new standard, most of the guidance on payments to nonemployees is now aligned with the requirements for share-based payments granted to employees. Under the new guidance, (i) equity-classified share-based payment awards issued to nonemployees will be measured at the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (ii) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (iii) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company elected to early adopt this standard in the second quarter of fiscal 2018 and there was no impact on the Company's condensed consolidated financial statements since there was no outstanding nonemployee share-based payment awards for which there is unrecognized compensation expense.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued Leases, Topic 842 (ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this standard in the first quarter of fiscal 2019 using a modified retrospective transition approach to leases existing at, or entered into after, February 3, 2019. Under this transition method, comparative prior periods will not be restated and a cumulative adjustment will be recognized to the opening balance of retained earnings. The Company is continuing to evaluate the impact of adopting ASU 2016-02 and all related amendments on the Company's consolidated financial statements, financial systems and controls. In addition, the Company is in the process of evaluating practical expedient and accounting policy elections.
v3.10.0.1
Revenue (Policies)
6 Months Ended
Aug. 04, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition
Revenue is recognized when control of the promised merchandise is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for the merchandise. The Company recognizes revenue upon shipment. Revenue is reported net of estimated sales returns, credits and incentives, and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on historical experience.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Substantially all of the Company's sales are single performance obligation arrangements for transferring control of merchandise to customers.
In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers by significant product groups and timing of when the performance obligations are satisfied. A reconciliation of disaggregated revenue by significant product group is provided in Note 9 - "Business Segments and Sales by Product Group".
As of August 4, 2018, approximately $86,000 is expected to be recognized from remaining performance obligations within the next 3 years. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected term of one year or less. Revenue recognized over time was $9,000 and $21,000 for the three-month periods ended August 4, 2018 and July 29, 2017 and $17,000 and $42,000 for the six-month periods ended August 4, 2018 and July 29, 2017.
Merchandise Returns
The Company records a merchandise return liability as a reduction of gross sales for anticipated merchandise returns at each reporting period and must make estimates of potential future merchandise returns related to current period product revenue. The Company estimates and evaluates the adequacy of its merchandise return liability by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing the merchandise return liability in any accounting period.
Shipping and Handling
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the merchandise. Shipping and handling fees charged to customers are recognized when the customer obtains control of the merchandise, which is upon shipment. The Company accrues costs for shipping and handling activities, which occur subsequent to transfer of control to the customer and are recorded as cost of sales in the accompanying statements of operations.
Sales Taxes
The Company has elected to exclude from revenue the sales taxes imposed on its sales and collected from customers.
Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the payment terms are less than one year. Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of August 4, 2018 and February 3, 2018, the Company had approximately $74,539,000 and $88,452,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $8,390,000 and $6,008,000. The increase in the total reserve as a percentage of receivables is primarily due to an extension in our collections cycle, which has been yielding a higher total recovery rate.
Judgments
The Company's merchandise is generally sold with a right of return for up to a certain number of days after the merchandise is shipped and the Company may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Merchandise returns and other credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.
The Company evaluated whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) in certain vendor arrangements where the merchandise is shipped directly from the vendor to the Company's customer and the purchase and sale of inventory is virtually simultaneous. Generally, the Company is the principal and reports revenues from such vendor arrangements on a gross basis, as it controls the merchandise before it is transferred to the customer. The Company's control is evidenced by it being primarily responsible to the customers, establishing price and its inventory risk upon customer returns.
Merchandise Returns
Merchandise Returns
The Company records a merchandise return liability as a reduction of gross sales for anticipated merchandise returns at each reporting period and must make estimates of potential future merchandise returns related to current period product revenue. The Company estimates and evaluates the adequacy of its merchandise return liability by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing the merchandise return liability in any accounting period.
Shipping and Handling
Shipping and Handling
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the merchandise. Shipping and handling fees charged to customers are recognized when the customer obtains control of the merchandise, which is upon shipment. The Company accrues costs for shipping and handling activities, which occur subsequent to transfer of control to the customer and are recorded as cost of sales in the accompanying statements of operations.
Sales Taxes
Sales Taxes
The Company has elected to exclude from revenue the sales taxes imposed on its sales and collected from customers.
Accounts Receivable
Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the payment terms are less than one year. Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of August 4, 2018 and February 3, 2018, the Company had approximately $74,539,000 and $88,452,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $8,390,000 and $6,008,000. The increase in the total reserve as a percentage of receivables is primarily due to an extension in our collections cycle, which has been yielding a higher total recovery rate.
v3.10.0.1
Basis of Financial Statement Presentation Basis of FInancial Statement Presentation (Tables)
6 Months Ended
Aug. 04, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Reconciliation of cash and restricted cash equivalents [Table Text Block]
The following table provides a reconciliation of cash and restricted cash equivalents reported with the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
 
August 4, 2018
 
February 3, 2018
 
July 29, 2017
 
January 28, 2017
Cash
$
28,142,000

 
$
23,940,000

 
$
22,059,000

 
$
32,647,000

Restricted cash equivalents
450,000

 
450,000

 
450,000

 
450,000

Total cash and restricted cash equivalents
$
28,592,000

 
$
24,390,000

 
$
22,509,000

 
$
33,097,000

v3.10.0.1
Revenue (Tables)
6 Months Ended
Aug. 04, 2018
Revenue from Contract with Customer [Abstract]  
Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]
The impact of the new revenue standard adoption on our condensed consolidated statements of operations was as follows (in thousands):
 
 
For the Three-Month Period Ended August 4, 2018
 
For the Six-Month Period Ended August 4, 2018
 
 
As Reported
 
Balance without adoption of ASC 606
 
Effect of Change
 
As Reported
 
Balance without adoption of ASC 606
 
Effect of Change
Net sales
 
$
150,799

 
$
150,147

 
$
652

 
$
307,304

 
$
306,693

 
$
611

Cost of sales
 
93,929

 
93,385

 
544

 
194,179

 
193,654

 
525

Operating expense:
 
 
 
 
 
 
 
 
 
 
 
 
Distribution and selling
 
47,958

 
47,951

 
7

 
96,845

 
96,759

 
86

Net loss
 
(40
)
 
(141
)
 
101

 
(3,026
)
 
(3,026
)
 

v3.10.0.1
Intangible Assets (Tables)
6 Months Ended
Aug. 04, 2018
Intangible Assets [Abstract]  
Schedule of Finite-lived Intangible Asset [Table Text Block]
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life
(In Years)
 
August 4, 2018
 
February 3, 2018
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets
 
5-15
 
$
1,786,000

 
$
(419,000
)
 
$
1,786,000

 
$
(336,000
)
v3.10.0.1
Credit Agreements Credit Facility (Tables)
6 Months Ended
Aug. 04, 2018
Debt Disclosure [Abstract]  
Schedule of Long-term Credit Facilities [Table Text Block]
The Company's long-term credit facilities consist of:
 
 
August 4, 2018
 
February 3, 2018
PNC revolving loan due July 27, 2023, principal amount
 
$
49,900,000

 
$
59,900,000

 
 
 
 
 
PNC term loan due July 27, 2023, principal amount
 
19,000,000

 
14,148,000

Less unamortized debt issuance costs
 
(144,000
)
 
(149,000
)
PNC term loan due July 27, 2023, carrying amount
 
18,856,000

 
13,999,000

 
 
 
 
 
Total long-term credit facilities
 
68,756,000

 
73,899,000

Less current portion of long-term credit facilities
 
(2,714,000
)
 
(2,326,000
)
Long-term credit facilities, excluding current portion
 
$
66,042,000

 
$
71,573,000

Schedule of Maturities of Long-term Debt [Table Text Block]
The aggregate maturities of the Company's long-term credit facilities as of August 4, 2018 are as follows:
 
 
PNC Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2018
 
$
1,357,000

 
$

 
$
1,357,000

2019
 
2,488,000

 

 
2,488,000

2020
 
2,714,000

 

 
2,714,000

2021
 
2,714,000

 

 
2,714,000

2022
 
2,714,000

 

 
2,714,000

2023
 
7,013,000

 
49,900,000

 
56,913,000

 
 
$
19,000,000

 
$
49,900,000

 
$
68,900,000

v3.10.0.1
Shareholders' Equity (Tables)
6 Months Ended
Aug. 04, 2018
Share-based Compensation [Abstract]  
Schedule of warrants outstanding [Table Text Block]
The following table summarizes information regarding Warrants outstanding at August 4, 2018:
Grant Date
 
Shares of common stock purchasable
 
Exercise Price
(Per Share)
 
Expiration Date
September 19, 2016
 
2,976,190

 
$2.90
 
September 19, 2021
November 10, 2016
 
333,873

 
$3.00
 
November 10, 2021
January 23, 2017
 
489,302

 
$1.76
 
January 23, 2022
March 16, 2017
 
50,000

 
$1.92
 
March 16, 2022
Schedule of stock options valuation assumptions [Table Text Block]
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table, and a Monte Carlo valuation model is used for market-based vesting awards. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
 
Fiscal 2018
 
Fiscal 2017
Expected volatility:
72%
 
81%
Expected term (in years):
6 years
 
6 years
Risk-free interest rate:
2.8%
-
3.0%
 
2.0%
-
2.2%
Schedule of stock option activity [Table Text Block]
A summary of the status of the Company’s stock option activity as of August 4, 2018 and changes during the six months then ended is as follows:
 
2011
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2004
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, February 3, 2018
3,384,000

 
$
1.64

 
112,000

 
$
4.86

Granted
2,198,000

 
$
1.02

 

 
$

Exercised
(112,000
)
 
$
0.99

 

 
$

Forfeited or canceled
(333,000
)
 
$
1.49

 
(5,000
)
 
$
4.62

Balance outstanding, August 4, 2018
5,137,000

 
$
1.40

 
107,000

 
$
4.87

Options exercisable at August 4, 2018
1,585,000

 
$
1.93

 
107,000

 
$
4.87

Schedule of stock options outstanding, vested and expected to vest [Table Text Block]
The following table summarizes information regarding stock options outstanding at August 4, 2018:
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
5,137,000

 
$
1.40

 
8.7
 
$
813,000

 
4,619,000

 
$
1.43

 
8.6
 
$
682,000

2004 Incentive:
107,000

 
$
4.87

 
5.3
 
$

 
107,000

 
$
4.87

 
5.3
 
$

Schedule of grant date fair value assumptions, market-based restricted stock performance units [Table Text Block]
Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
 
Fiscal 2018
 
Fiscal 2017
Total grant date fair value
$859,000
 
$860,000
Total grant date fair value per share
$1.07
-
$1.30
 
$1.53
Expected volatility
73%
-
76%
 
75%
Weighted average expected life (in years)
3 years
 
3 years
Risk-free interest rate
2.4%
-
2.7%
 
1.5%
Schedule of vesting criteria, market-based restricted stock performance units [Table Text Block]
The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
Percentile Rank
 
Percentage of
Units Vested
< 33%
 
0%
33%
 
50%
50%
 
100%
100%
 
150%
Schedule of restricted stock unit activity [Table Text Block]
A summary of the status of the Company’s non-vested restricted stock unit activity as of August 4, 2018 and changes during the six-month period then ended is as follows:
 
Restricted Stock Units
 
Market-Based
Performance Units
 
Time-Based Units
 
Total
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 3, 2018
973,000

 
$
1.55

 
1,856,000

 
$
1.32

 
2,829,000

 
$
1.40

Granted
747,000

 
$
1.15

 
1,198,000

 
$
1.17

 
1,945,000

 
$
1.16

Vested

 
$

 
(1,003,000
)
 
$
1.23

 
(1,003,000
)
 
$
1.23

Forfeited
(211,000
)
 
$
1.23

 
(75,000
)
 
$
1.46

 
(286,000
)
 
$
1.29

Non-vested outstanding, August 4, 2018
1,509,000

 
$
1.39

 
1,976,000

 
$
1.27

 
3,485,000

 
$
1.32

v3.10.0.1
Net Loss Per Common Share (Tables)
6 Months Ended
Aug. 04, 2018
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Net loss (a)
 
$
(40,000
)
 
$
(1,991,000
)
 
$
(3,026,000
)
 
$
(5,187,000
)
Weighted average number of shares of common stock outstanding — Basic
 
66,009,117

 
64,091,228

 
65,685,034

 
62,504,868

Dilutive effect of stock options, non-vested shares and warrants (b)
 

 

 

 

Weighted average number of shares of common stock outstanding — Diluted
 
66,009,117

 
64,091,228

 
65,685,034

 
62,504,868