IMEDIA BRANDS, INC., 10-Q filed on 8/25/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Aug. 01, 2020
Aug. 21, 2020
Document Information [Line Items]    
Entity Registrant Name iMedia Brands, Inc.  
Entity Central Index Key 0000870826  
Current Fiscal Year End Date --01-30  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Aug. 01, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Small Business true  
Entity Emerging Growth Company false  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   10,141,749
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Interactive Data Current Yes  
Entity File Number 001-37495  
Entity Incorporation, State or Country Code MN  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Aug. 01, 2020
Feb. 01, 2020
Current assets:    
Cash $ 18,703 $ 10,287
Accounts receivable, net 58,137 63,594
Inventories 61,627 78,863
Current portion of television dIstribution rights, net 18,221 0
Prepaid expenses and other 7,013 8,196
Total current assets 163,701 160,940
Property and equipment, net 44,882 47,616
Television distribution rights, net 7,263 0
Other assets 3,931 4,187
TOTAL ASSETS 219,777 212,743
Current liabilities:    
Accounts payable 79,812 83,659
Accrued liabilities 36,839 40,250
Current portion of television distribution rights obligation 21,221 0
Current portion of long term credit facility 2,714 2,714
Current portion of operating lease liabilities 278 704
Deferred revenue 188 141
Total current liabilities 141,052 127,468
Other long term liabilities 9,273 335
Long term credit facility 52,006 66,246
Total liabilities 202,331 194,049
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, 29,600,000 and 14,600,000 shares authorized as of August 1, 2020 and February 1, 2020; 10,141,649 and 8,208,227 shares issued and outstanding as of August 1, 2020 and February 1, 2020 101 82
Additional paid-in capital 457,340 452,833
Accumulated deficit (439,995) (434,221)
Total shareholders’ equity 17,446 18,694
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 219,777 $ 212,743
v3.20.2
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares
Aug. 01, 2020
Feb. 01, 2020
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 29,600,000 14,600,000
Common stock, shares issued 10,141,649 8,208,227
Common stock, shares outstanding 10,141,649 8,208,227
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Aug. 01, 2020
Aug. 03, 2019
Aug. 01, 2020
Aug. 03, 2019
Income Statement [Abstract]        
Net sales $ 124,515 $ 131,503 $ 220,349 $ 263,024
Cost of sales 78,223 83,777 138,500 178,005
Gross profit 46,292 47,726 81,849 85,019
Operating expense:        
Distribution and selling 31,875 43,521 65,610 90,385
General and administrative 5,104 5,532 10,471 12,401
Depreciation and amortization 6,842 2,502 8,723 4,181
Restructuring costs 0 5,165 209 5,165
Executive and management transition expense 0 310 0 2,341
Total operating expense 43,821 57,030 85,013 114,473
Operating income (loss) 2,471 (9,304) (3,164) (29,454)
Other income (expense):        
Interest income 0 6 1 11
Interest expense (1,402) (864) (2,581) (1,694)
Total other expense, net (1,402) (858) (2,580) (1,683)
Income (loss) before income taxes 1,069 (10,162) (5,744) (31,137)
Income tax provision (15) (15) (30) (30)
Net income (loss) $ 1,054 $ (10,177) $ (5,774) $ (31,167)
Net income (loss) per common share $ 0.11 $ (1.35) $ (0.65) $ (4.36)
Net income (loss) per common share — assuming dilution $ 0.11 $ (1.35) $ (0.65) $ (4.36)
Weighted average number of common shares outstanding:        
Basic 9,532,369 7,550,265 8,911,580 7,141,055
Diluted 9,896,729 7,550,265 8,911,580 7,141,055
v3.20.2
Condensed Consolidated Statement of Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Common Stock, Shares, Outstanding period beginning at Feb. 02, 2019   6,791,934    
Total Shareholders' Equity period beginning at Feb. 02, 2019 $ 64,951 $ 68 $ 442,808 $ (377,925)
Net income (loss) (20,990) $ 0 0 (20,990)
Common stock issuances pursuant to equity compensation awards, Shares   31,164    
Common stock issuances pursuant to equity compensation awards, Value (8) $ 0 (8) 0
Share-based payment compensation 966 $ 0 966 0
Common stock and warrant issuance, Shares   800,000    
Common stock and warrant issuance, Value 6,018 $ 8 6,010 0
Common Stock, Shares, Outstanding period end at May. 04, 2019   7,623,098    
Total Shareholders' Equity period end at May. 04, 2019 50,937 $ 76 449,776 (398,915)
Common Stock, Shares, Outstanding period beginning at Feb. 02, 2019   6,791,934    
Total Shareholders' Equity period beginning at Feb. 02, 2019 64,951 $ 68 442,808 (377,925)
Net income (loss) (31,167)      
Common Stock, Shares, Outstanding period end at Aug. 03, 2019   7,676,935    
Total Shareholders' Equity period end at Aug. 03, 2019 41,038 $ 77 450,053 (409,092)
Common Stock, Shares, Outstanding period beginning at May. 04, 2019   7,623,098    
Total Shareholders' Equity period beginning at May. 04, 2019 50,937 $ 76 449,776 (398,915)
Net income (loss) (10,177) $ 0 0 (10,177)
Common stock issuances pursuant to equity compensation awards, Shares   53,837    
Common stock issuances pursuant to equity compensation awards, Value (13) $ 1 (14) 0
Share-based payment compensation 291 $ 0 291 0
Common Stock, Shares, Outstanding period end at Aug. 03, 2019   7,676,935    
Total Shareholders' Equity period end at Aug. 03, 2019 $ 41,038 $ 77 450,053 (409,092)
Common Stock, Shares, Outstanding period beginning at Feb. 01, 2020 8,208,227 8,208,227    
Total Shareholders' Equity period beginning at Feb. 01, 2020 $ 18,694 $ 82 452,833 (434,221)
Net income (loss) (6,828) $ 0 0 (6,828)
Common stock issuances pursuant to equity compensation awards, Shares   32,652    
Common stock issuances pursuant to equity compensation awards, Value (2) $ 1 (3) 0
Share-based payment compensation 615 $ 0 615 0
Common stock and warrant issuance, Shares   731,937    
Common stock and warrant issuance, Value 1,425 $ 7 1,418 0
Common Stock, Shares, Outstanding period end at May. 02, 2020   8,972,816    
Total Shareholders' Equity period end at May. 02, 2020 $ 13,904 $ 90 454,863 (441,049)
Common Stock, Shares, Outstanding period beginning at Feb. 01, 2020 8,208,227 8,208,227    
Total Shareholders' Equity period beginning at Feb. 01, 2020 $ 18,694 $ 82 452,833 (434,221)
Net income (loss) $ (5,774)      
Common stock and warrant issuance, Shares 1,836,314      
Common Stock, Shares, Outstanding period end at Aug. 01, 2020 10,141,649 10,141,649    
Total Shareholders' Equity period end at Aug. 01, 2020 $ 17,446 $ 101 457,340 (439,995)
Common Stock, Shares, Outstanding period beginning at May. 02, 2020   8,972,816    
Total Shareholders' Equity period beginning at May. 02, 2020 13,904 $ 90 454,863 (441,049)
Net income (loss) 1,054 $ 0 0 1,054
Common stock issuances pursuant to equity compensation awards, Shares   64,456    
Common stock issuances pursuant to equity compensation awards, Value (5) $ 1 (6) 0
Share-based payment compensation 108 $ 0 108 0
Common stock and warrant issuance, Shares   1,104,377    
Common stock and warrant issuance, Value $ 2,385 $ 10 2,375 0
Common Stock, Shares, Outstanding period end at Aug. 01, 2020 10,141,649 10,141,649    
Total Shareholders' Equity period end at Aug. 01, 2020 $ 17,446 $ 101 $ 457,340 $ (439,995)
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Aug. 01, 2020
Aug. 03, 2019
OPERATING ACTIVITIES:    
Net loss $ (5,774) $ (31,167)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 10,745 6,140
Share-based payment compensation 723 1,257
Amortization of deferred financing costs 98 104
Payments for television distribution rights (1,196) 0
Inventory impairment write-down 0 6,050
Changes in operating assets and liabilities:    
Accounts receivable, net 5,457 11,494
Inventories 17,236 (3,187)
Deferred revenue 73 (17)
Prepaid expenses and other 1,684 (163)
Accounts payable and accrued liabilities (7,773) 9,581
Net cash provided by operating activities 21,273 92
INVESTING ACTIVITIES:    
Property and equipment additions (2,527) (3,491)
Net cash used for investing activities (2,527) (3,491)
FINANCING ACTIVITIES:    
Proceeds from issuance of revolving loan 5,900 109,700
Proceeds from issuance of common stock and warrants 4,000 6,000
Payments on revolving loan (18,800) (109,700)
Payments on term loan (1,357) (1,357)
Payments on finance leases (49) (23)
Payments for common stock issuance costs (17) (66)
Payments for restricted stock issuance (7) (21)
Net cash (used for) provided by financing activities (10,330) 4,533
Net increase in cash and restricted cash equivalents 8,416 1,134
BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS 10,287 20,935
ENDING CASH AND RESTRICTED CASH EQUIVALENTS 18,703 22,069
SUPPLEMENTAL CASH FLOW INFORMATION:    
Interest paid 2,214 1,451
Income taxes paid 80 28
Television distribution rights obtained in exchange for liabilities 30,633 0
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Property and equipment purchases included in accounts payable 302 124
Common stock issuance costs included in accrued liabilities 173 110
Equipment acquired through finance lease obligations 34 188
Issuance of warrants $ 0 $ 193
v3.20.2
General
6 Months Ended
Aug. 01, 2020
General [Abstract]  
General
General
iMedia Brands, Inc. (formerly EVINE Live Inc.) and its subsidiaries ("we," "our," "us," or the "Company") are a leading interactive media company managing a growing portfolio of niche television networks, niche national advertisers and media commerce services. Our portfolio includes ShopHQ, our nationally distributed shopping entertainment network, Bulldog Shopping Network, J.W. Hulme Company ("J.W. Hulme") and Media Commerce Services. ShopHQ 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. ShopHQ programming is distributed through cable and satellite distribution agreements, agreements with telecommunications companies and arrangements with over-the-air broadcast television stations. ShopHQ programming is also streamed live online at shophq.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, and is available on mobile channels and over-the-top ("OTT") platforms. Our programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels. The Company's nascent, but growing Media Commerce Services offers creative and interactive advertising, OTT app services and third-party logistics. During the fourth quarter of fiscal 2019, the Company launched the Bulldog Shopping Network, a niche television shopping network geared towards male consumers and also acquired Float Left Interactive, Inc. ("Float Left") and J.W. Hulme.
On July 16, 2019, the Company changed its corporate name to iMedia Brands, Inc. from EVINE Live Inc. Effective July 17, 2019, the Company's Nasdaq trading symbol also changed from EVLV to IMBI. On August 21, 2019, the Company changed the name of its primary network, Evine, back to ShopHQ, which was the name of the network in 2014.
Amendment to Articles of Incorporation
Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized shares of common stock by 15,000,000 shares. The Articles of Incorporation, as amended, now provide that the Company is authorized to issue 10,000,000 shares of capital stock and 20,000,000 shares of common stock. 
Reverse Stock Split
On December 11, 2019, the Company effected a one-for-ten reverse stock split of its common stock. Upon the effectiveness of the reverse stock split, every ten shares of issued and outstanding common stock were combined into one issued and outstanding share of common stock, with no change in par value per share. All common share and per share data in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retrospectively revised to reflect the reverse stock split.
v3.20.2
Basis of Financial Statement Presentation
6 Months Ended
Aug. 01, 2020
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 1, 2020 has been derived from the Company's audited financial statements for the fiscal year ended February 1, 2020. 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 1, 2020. Operating results for the six-month period ended August 1, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 2021.
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 2019, ended on February 1, 2020, and consisted of 52 weeks. Fiscal 2020 will end January 30, 2021 and will contain 52 weeks. The three and six-month periods ended August 1, 2020 and August 3, 2019 each consisted of 13 and 26 weeks.
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Intangibles—Goodwill and Other—Internal-Use Software, Subtopic 350-40 (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard during the first quarter of fiscal 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company's condensed consolidated financial statements.
v3.20.2
Revenue
6 Months Ended
Aug. 01, 2020
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
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, which is upon shipment. Revenue for services is recognized when the services are provided to the customer. 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. As of August 1, 2020 and February 1, 2020, the Company recorded a merchandise return liability of $5,852,000 and $5,820,000, included in accrued liabilities, and a right of return asset of $3,021,000 and $3,171,000, included in other current assets.
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 Accounting Standards Codification ("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 segment and significant product group is provided in Note 10 - "Business Segments and Sales by Product Group."
As of August 1, 2020, approximately $15,000 was expected to be recognized from remaining performance obligations over the next 5 months. 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 for both of the three-month periods ended August 1, 2020 and August 3, 2019 and $17,000 for both of the six-month periods ended August 1, 2020 and August 3, 2019.
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 1, 2020 and February 1, 2020, the Company had approximately $50,041,000 and $56,928,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $3,032,000 and $6,579,000.
v3.20.2
Fair Value Measurements
6 Months Ended
Aug. 01, 2020
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 1, 2020 and February 1, 2020, the Company's long-term variable rate PNC Credit Facility (as defined below), classified as Level 2, had carrying values of $54,720,000 and $68,960,000. As of August 1, 2020 and February 1, 2020, $2,714,000 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.
v3.20.2
Television Distribution Rights
6 Months Ended
Aug. 01, 2020
Television Distribution Rights [Abstract]  
Television Distribution Rights
Television Distribution Rights
Television distribution rights in the accompanying condensed consolidated balance sheets consisted of the following:
 
 
August 1, 2020
 
February 1, 2020
Television distribution rights
 
$
30,633,000

 
$

Less accumulated amortization
 
(5,149,000
)
 

Television distribution rights, net
 
$
25,484,000

 
$


During the first six months of fiscal 2020, the Company entered into certain affiliation agreements with television service providers for carriage of our television programming over their systems, including channel placement rights. The rights provide the Company with a channel position on the service provider's channel line-up. The Company recorded television distribution rights of $30.6 million during the first six months of fiscal 2020, which represents the present value of payments for the television distribution channel placement. Television distribution rights are amortized on a straight-line basis over the lives of the individual agreements. The remaining weighted average lives of the television distribution rights was 1.3 years as of August 1, 2020. Amortization expense related to the television distribution rights was $5,102,000 and $5,149,000 for the three and six-month periods ended August 1, 2020 and is included in depreciation and amortization within the condensed consolidated statements of operations. Estimated amortization expense is $16,594,000 for fiscal 2020, $12,423,000 for fiscal 2021, and $1,616,000 for fiscal 2022. The liability relating to the television distribution rights was $29,840,000 as of August 1, 2020, of which $21,221,000 was classified as current in the accompanying condensed consolidated balance sheets. The long-term portion of the obligations is included in other long term liabilities within the accompanying condensed consolidated balance sheets. Interest expense related to the television distribution rights obligation was $397,000 and $403,000 during the three and six-month periods ended August 1, 2020.
In addition to the channel placement fees, the Company's affiliation agreements generally provide that we will pay each operator a monthly access fee, most often based on the number of homes receiving our programming, and in some cases marketing support payments. Monthly access fees are expensed as distribution and selling expense within the condensed consolidated statement of operations.
v3.20.2
Intangible Assets
6 Months Ended
Aug. 01, 2020
Intangible Assets [Abstract]  
Intangible Assets
Intangible Assets
Intangible assets in the accompanying condensed consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life
(In Years)
 
August 1, 2020
 
February 1, 2020
 
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Trade Names
 
3-15
 
$
1,568,000

 
$
(71,000
)
 
$
1,568,000

 
$
(19,000
)
Technology
 
4
 
772,000

 
(132,000
)
 
772,000

 
(35,000
)
Customer Lists
 
3-5
 
339,000

 
(54,000
)
 
339,000

 
(14,000
)
Vendor Exclusivity
 
5
 
192,000

 
(48,000
)
 
192,000

 
(29,000
)
Total finite-lived intangible assets
 
 
 
$
2,871,000

 
$
(305,000
)
 
$
2,871,000

 
$
(97,000
)
Finite-lived Intangible Assets
The finite-lived intangible assets are included in other assets in the accompanying condensed consolidated balance sheets and consist of the J.W. Hulme trade name and customer list; the Float Left developed technology, customer relationships and trade name; and a vendor exclusivity agreement. Amortization expense related to the finite-lived intangible assets was $104,000 and $945,000 for the three-month periods ended August 1, 2020 and August 3, 2019 and $208,000 and $986,000 for the six-month periods ended August 1, 2020 and August 3, 2019. Estimated amortization expense is $415,000 for fiscal 2020 and fiscal 2021, $410,000 for fiscal 2022, $352,000 for fiscal 2023, and $156,000 for fiscal 2024.
v3.20.2
Credit Agreements
6 Months Ended
Aug. 01, 2020
Debt Disclosure [Abstract]  
Credit Agreements
Credit Agreements
The Company's long-term credit facility consists of:
 
 
August 1, 2020
 
February 1, 2020
PNC revolving loan due July 27, 2023, principal amount
 
$
41,000,000

 
$
53,900,000

PNC term loan due July 27, 2023, principal amount
 
13,797,000

 
15,155,000

Less unamortized debt issuance costs
 
(77,000
)
 
(95,000
)
PNC term loan due July 27, 2023, carrying amount
 
13,720,000

 
15,060,000

Total long-term credit facility
 
54,720,000

 
68,960,000

Less current portion of long-term credit facility
 
(2,714,000
)
 
(2,714,000
)
Long-term credit facility, excluding current portion
 
$
52,006,000

 
$
66,246,000


PNC Credit Facility
On February 9, 2012, the Company entered into a credit and security agreement (as amended through November 25, 2019, 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 previously outstanding term loan with GACP Finance Co., LLC. 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. 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.
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. 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 2% and 3.5% on Base Rate advances and 3% and 4.5% 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 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.
As of August 1, 2020, the Company had borrowings of $41.0 million under its revolving line of credit. Remaining available capacity under the revolving line of credit as of August 1, 2020 was approximately $9.4 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 had originally 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 previously outstanding term loan with GACP Finance Co., LLC and reduce its revolving line of credit borrowings. As of August 1, 2020, there was approximately $13.8 million outstanding under the term loan, of which $2.7 million was classified as current in the accompanying condensed consolidated balance sheet.
Principal borrowings under the term loan are to be payable in monthly installments over an 84-month amortization period that commenced 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 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of August 1, 2020, the imputed effective interest rate on the PNC term loan was 6.5%.
Interest expense recorded under the PNC Credit Facility was $857,000 and $2,024,000 for the three and six-month periods ended August 1, 2020 and $860,000 and $1,689,000 for the three and six-month periods ended August 3, 2019.
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. 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 1, 2020, the Company's unrestricted cash plus unused line availability was $28.1 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 were $324,000 and $406,000 as of August 1, 2020 and February 1, 2020 and are included within other assets within the accompanying condensed consolidated balance sheets. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.
The aggregate maturities of the Company's long-term credit facility as of August 1, 2020 were as follows:
 
 
PNC Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2020
 
$
1,356,000

 
$

 
$
1,356,000

2021
 
2,714,000

 

 
2,714,000

2022
 
2,714,000

 

 
2,714,000

2023
 
7,013,000

 
41,000,000

 
48,013,000

 
 
$
13,797,000

 
$
41,000,000

 
$
54,797,000


Cash Requirements
Currently, the Company's principal cash requirements are to fund business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding the Company's basic operating expenses, particularly the Company's contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. The Company closely manages its cash resources and working capital. The Company attempts to manage its inventory receipts and reorders in order to ensure its inventory investment levels remain commensurate with the Company's current sales trends. The Company also monitors the collection of its credit card and ValuePay installment receivables and manages vendor payment terms in order to more effectively manage the Company's working capital which includes matching cash receipts from the Company's customers, to the extent possible, with related cash payments to our vendors. ValuePay remains a cost-effective promotional tool for the Company. The Company continues to make strategic use of its ValuePay program in an effort to increase sales and to respond to similar competitive programs.
The Company experienced a decline in net sales and a decline in its active customer file during the first half of fiscal 2020, and fiscal years 2019, 2018 and 2017 and a corresponding decrease in the Company's profitability. The Company has taken or is taking the following steps to enhance its operations and liquidity position: entered into a private placement securities purchase agreement in which the Company received gross proceeds of $6.0 million during the first quarter of fiscal 2019; entered into a common stock and warrant purchase agreement in which the Company received gross proceeds of $4.0 million during the first half of fiscal 2020; implemented a reduction in overhead costs totaling $22 million in expected annualized savings for the reductions made during fiscal 2019 and $16 million in expected annualized savings for the reductions made during the first quarter of fiscal 2020, primarily driven by a reduction in the Company's work force; negotiated improved payment terms with the Company's inventory vendors; planned a reduction in capital expenditures compared to prior years; renegotiating with certain major cable and satellite distributors to reduce service costs and improve payment terms; and managing the Company's inventory receipts in fiscal 2020 to reduce inventory on hand.
The Company's ability to fund operations and capital expenditures in the future will be dependent on its ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in its sales and to use available funds from its PNC Credit Facility. The Company's ability to borrow funds is dependent on its ability to maintain an adequate borrowing base and its ability to meet its credit facility's covenants (as described above). Accordingly, if the Company does not generate sufficient cash flow from operations to fund its working capital needs, planned capital expenditures and meet credit facility covenants, and its cash reserves are depleted, the Company may need to take further actions that are within the Company's control, such as further reductions or delays in capital investments, additional reductions to the Company's workforce, reducing or delaying strategic investments or other actions. Additionally, the COVID-19 outbreak continues in both the U.S. and globally and is adversely affecting the economy, financial markets and may continue to impact demand for our merchandise and impact our stock price. As a result, it is difficult to predict the overall impact of COVID-19 on the Company's business and financial results. Beginning at the end of March 2020 and continuing through the second quarter of 2020, the Company observed an increase in demand for merchandise within the Company's beauty & wellness category, particularly in health products, and a decrease in demand for higher priced merchandise within our jewelry category. As the COVID-19 pandemic continues, there is risk of changes in consumer demand, consumer spending patterns, and changes in consumer tastes which may adversely affect the Company's operating results. The Company believes that it is probable our existing cash balances, together with the cost cutting measures described above and our availability under the PNC Credit Facility, will be sufficient to fund our normal business operations over the next twelve months from the issuance of this report.
v3.20.2
Shareholders' Equity
6 Months Ended
Aug. 01, 2020
Share-based Payment Arrangement, Noncash Expense [Abstract]  
Shareholders' Equity
Shareholders' Equity
Reverse Stock Split
On December 11, 2019, the Company effected a one-for-ten reverse stock split of its common stock. Accordingly, all share and per-share amounts in the condensed consolidated financial statements and notes to the condensed consolidated financial statements for the current period and prior periods have been retrospectively revised.
Common Stock
Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized number of common shares from 5,000,000 to 20,000,000. The Company currently has 10,000,000 shares of capital stock, of which 400,000 is designated as preferred stock, and 20,000,000 shares of common stock. The Company currently has authorized 9,600,000 shares of undesignated capital stock and an additional 20,000,000 shares of common stock authorized. As of August 1, 2020, no shares of capital stock were outstanding and 10,141,649 shares of common stock were issued and outstanding. The board of directors may establish new classes and series of capital stock by resolution without shareholder approval; however, in certain circumstances the Company is required to obtain approval under our PNC Credit Facility.
April 2020 Private Placement Securities Purchase Agreement
On April 14, 2020, the Company entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which the Company sold an aggregate of 1,836,314 shares of the Company's common stock, issued warrants to purchase an aggregate of 979,190 shares of the Company's common stock at a price of $2.66 per share, and fully-paid warrants to purchase an aggregate 114,698 shares of the Company's common stock at a price of $0.001 per share in a private placement, for an aggregate cash purchase price of $4,000,000. The initial closing occurred on April 17, 2020 and the Company received gross proceeds of $1,500,000. Additional closings occurred on May 22, 2020, June 8, 2020, June 12, 2020 and July 11, 2020 and the Company received gross proceeds of $2,500,000. The Company incurred approximately $190,000 of issuance costs during the first half of fiscal 2020. The Warrants are indexed to the Company's publicly traded stock and were classified as equity. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less issuance costs, recorded as additional paid in capital in the accompanying condensed consolidated balance sheets. The Company used the proceeds for general working capital purposes.
The purchasers consisted of the following: Invicta Media Investments, LLC, Michael and Leah Friedman and Hacienda Jackson LLC. Invicta Media Investments, LLC is owned by Invicta Watch Company of America, Inc. (“IWCA”), which is the designer and manufacturer of Invicta-branded watches and watch accessories, one of the Company's largest and longest tenured brands. Michael and Leah Friedman are owners and officers of Sterling Time, LLC (“Sterling Time”), which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and our long-time vendor. IWCA is owned by the Company's Vice Chair and director, Eyal Lalo, and Michael Friedman also serves as a director of the Company. A description of the relationship between the Company, IWCA and Sterling Time is contained in Note 15 - “Related Party Transactions.” Further, Invicta Media Investments, LLC and Michael and Leah Friedman comprise a “group” of investors within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended, that is our largest shareholder.
The warrants have an exercise price per share of $2.66 and are exercisable at any time and from time to time from six months following their issuance date until April 14, 2025. The Company has included a blocker provision in the purchase agreement whereby no purchaser may be issued shares of the Company's common stock if the purchaser would own over 19.999% of the Company's outstanding common stock and, to the extent a purchaser in this offering would own over 19.999% of the Company's outstanding common stock, that purchaser will receive fully-paid warrants (in contrast to the coverage warrants that will be issued in this transaction, as described above) in lieu of the shares that would place such holder’s ownership over 19.999%. Further, the Company included a similar blocker in the warrants (and amended the warrants purchased by the purchasers on May 2, 2019, if any) whereby no purchaser of the warrants may exercise a warrant if the holder would own over 19.999% of the Company's outstanding common stock.
May 2019 Private Placement Securities Purchase Agreement
On May 2, 2019, the Company entered into a private placement securities purchase agreement with certain accredited investors pursuant to which the Company: (a) sold, in the aggregate, 800,000 shares of the Company's common stock at a price of $7.50 per share and (b) issued five-year warrants ("5-year Warrants") to purchase 350,000 shares of the Company's common stock at an exercise price of $15.00 per share. The 5-year Warrants are exercisable in whole or in part from time to time through the expiration date of May 2, 2024. The purchasers included Invicta Media Investments, LLC, Retailing Enterprises, LLC, Michael and Leah Friedman, Timothy Peterman and certain other private investors. Retailing Enterprises, LLC is a party in which the Company entered into an agreement to liquidate obsolete inventory. Under the purchase agreement, the purchasers agreed to customary standstill provisions related to the Company for a period of two years, as well as to vote their shares in favor of matters recommended by the Company’s board of directors for approval by our shareholders. In addition, the Company agreed in the purchase agreement to appoint Eyal Lalo as vice chair of the Company’s board of directors, Michael Friedman to the Company’s board of directors and Timothy Peterman as the Company’s chief executive officer.
In connection with the closing under the purchase agreement, the Company entered into certain other agreements with IWCA, Sterling Time and the purchasers, including a five-year vendor exclusivity agreement with Sterling Time and IWCA. The vendor exclusivity agreement grants the Company the exclusive right in television shopping to market, promote and sell the products from IWCA.
The Company received gross proceeds of $6.0 million and incurred approximately $175,000 of issuance costs. The Company allocated the proceeds of the stock offering to the shares of common stock issued. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less issuance costs, recorded as additional paid in capital in the accompanying condensed consolidated balance sheets. The Company has used the proceeds for general working capital purposes. The 5-year Warrants were issued primarily as consideration for a five-year vendor exclusivity agreement with IWCA and Sterling Time. The aggregate market value of the 5-year Warrants on the grant date was $193,000, which was recorded as an intangible asset and is being amortized as cost of sales over the agreement term. The 5-year Warrants are indexed to the Company's publicly traded stock and were classified as equity. As a result, the fair value of the 5-year Warrants was recorded as an increase to additional paid-in capital.
Warrants
As of August 1, 2020, the Company had outstanding warrants to purchase 1,828,818 shares of the Company’s common stock, of which 849,628 were fully exercisable. The warrants expire five to ten years from the date of grant. The following table summarizes information regarding warrants outstanding at August 1, 2020:
Grant Date
 
Warrants Outstanding
 
Warrants Exercisable
 
Exercise Price
(Per Share)
 
Expiration Date
September 19, 2016
 
297,616

 
297,616

 
$29.00
 
September 19, 2021
November 10, 2016
 
33,386

 
33,386

 
$30.00
 
November 10, 2021
January 23, 2017
 
48,930

 
48,930

 
$17.60
 
January 23, 2022
March 16, 2017
 
5,000

 
5,000

 
$19.20
 
March 16, 2022
May 2, 2019
 
349,998

 
349,998

 
$15.00
 
May 2, 2024
April 17, 2020
 
367,197

 

 
$2.66
 
April 14, 2025
May 22, 2020
 
122,398

 

 
$2.66
 
April 14, 2025
June 8, 2020
 
122,399

 

 
$2.66
 
April 14, 2025
June 12, 2020
 
122,398

 

 
$2.66
 
April 14, 2025
July 11, 2020
 
244,798

 

 
$2.66
 
April 14, 2025
July 11, 2020
 
114,698

 
114,698

 
$0.001
 
April 14, 2030

Commercial Agreement with Shaquille O'Neal
On November 18, 2019, the Company entered into a commercial agreement (“Shaq Agreement”) with ABG-Shaq, LLC (“Shaq”) pursuant to which certain products are sold bearing certain intellectual property rights of Shaquille O’Neal on the terms and conditions set forth in the Shaq Agreement. In exchange for such services and pursuant to a restricted stock unit award agreement, the Company issued 400,000 restricted stock units to Shaq that vest in three separate tranches. The first tranche of 133,333 restricted stock units vested on November 18, 2019, which was the date of grant. The second tranche of 133,333 restricted stock units will vest February 1, 2021 and the final tranche of 133,334 restricted stock units will vest February 1, 2022. Additionally, in connection with the Shaq Agreement, the Company entered into a registration rights agreement with respect to the restricted stock units pursuant to which the Company agreed to register the common stock issuable upon settlement of the restricted stock units in accordance with the terms and conditions therein. The restricted stock units each settle for one share of the Company's common stock. The aggregate market value on the date of the award was $2,595,000 and is being amortized as cost of sales over the three-year commercial term. The estimated fair value is based on the grant date closing price of the Company's stock.
Compensation expense relating to the restricted stock unit grant was $216,000 and $432,000 for the second quarter and first six-months of fiscal 2020. As of August 1, 2020, there was $2,162,000 of total unrecognized compensation cost related to the award. That cost is expected to be recognized over a weighted average period of 2.5 years.
Restricted Stock Award
On November 23, 2018, the Company entered into a restricted stock award agreement with Flageoli Classic Limited, LLC (“FCL”) granting FCL 150,000 restricted shares of the Company's common stock in connection with and as consideration for entering into a vendor exclusivity agreement with the Company. The vendor exclusivity agreement grants us the exclusive right in television shopping to market, promote and sell products under the trademark of Serious Skincare, a skin-care brand that launched on the Company's television network on January 3, 2019. Additionally, the agreement identifies Jennifer Flavin-Stallone as the primary spokesperson for the brand on the Company's television network. The restricted shares will vest in three tranches. Of the restricted shares granted, 50,000 vested on January 4, 2019, which was the first business day following the initial appearance of the Serious Skincare brand on the Company's television network, and 50,000 vested on January 4, 2020. The remaining 50,000 restricted shares will vest on January 4, 2021. The aggregate market value on the date of the award was $1,408,000 and is being amortized as cost of sales over the three-year vendor exclusivity agreement term. The estimated fair value of the restricted stock is based on the grant date closing price of the Company's stock for time-based vesting awards.
Compensation expense relating to the restricted stock award was $117,000 for the second quarters of fiscal 2020 and fiscal 2019 and $235,000 for the first six months of fiscal 2020 and fiscal 2019. As of August 1, 2020, there was $615,000 of total unrecognized compensation cost related to the award. That cost is expected to be recognized over a weighted average period of 1.3 years.
A summary of the status of the Company’s non-vested restricted stock award activity as of August 1, 2020 and changes during the six months then ended is as follows:
 
 
Restricted Stock
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 1, 2020
 
50,000

 
$
9.39

Granted
 

 
$

Vested
 

 
$

Non-vested outstanding, August 1, 2020
 
50,000

 
$
9.39


Stock Compensation Plans
The Company's 2020 Equity Incentive Plan ("2020 Plan") provides for the issuance of up to 3,000,000 shares of the Company's common stock. The 2020 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 2020 Plan. The types of awards that may be granted under the 2020 Plan include incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. 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 common stock as of the date of grant (except in the limited case of "substitute awards" as defined by the 2020 Plan). No 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. Except for 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 2020 Plan was approved by the Company's shareholders at the 2020 Annual Meeting of Shareholders on July 13, 2020.
The Company also maintains the 2011 Omnibus Incentive Plan ("2011 Plan"). Upon the adoption and approval of the 2020 Plan, the Company ceased making awards under the 2011 Plan. Awards outstanding under the 2011 Plan continue to be subject to the terms of the 2011 Plan, but if those awards subsequently expire, are forfeited or cancelled or are settled in cash, the shares subject to those awards will become available for awards under the 2020 Plan. Similarly, the Company ceased making awards under its 2004 Omnibus Stock Plan ("2004 Plan") on June 22, 2014, but outstanding awards under the 2004 Plan remain outstanding in accordance with its terms.
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 $(6,000) and $140,000 for the second quarters of fiscal 2020 and fiscal 2019 and $111,000 and $514,000 for the first six months of fiscal 2020 and fiscal 2019. 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.
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. 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 2019
Expected volatility:
75%
-
82%
Expected term (in years):
6 years
Risk-free interest rate:
1.9%
-
2.6%

A summary of the status of the Company’s stock option activity as of August 1, 2020 and changes during the six months then ended is as follows:
 
2011
Plan
 
Weighted
Average
Exercise
Price
 
2004
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, February 1, 2020
247,000

 
$
12.44

 
6,000

 
$
51.52

Granted

 
$

 

 
$

Exercised

 
$

 

 
$

Forfeited or canceled
(55,000
)
 
$
9.25

 
(1,000
)
 
$
46.20

Balance outstanding, August 1, 2020
192,000

 
$
13.34

 
5,000

 
$
52.15

Options exercisable at August 1, 2020
184,000

 
$
13.66

 
5,000

 
$
52.15


The following table summarizes information regarding stock options outstanding at August 1, 2020:
 
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:
192,000

 
$
13.34

 
6.7
 
$

 
191,000

 
$
13.39

 
6.7
 
$

2004 Incentive:
5,000

 
$
52.15

 
3.7
 
$

 
5,000

 
$
52.15

 
3.7
 
$


The weighted average grant-date fair value of options granted in the first six months of fiscal 2019 was $3.15. The total intrinsic value of options exercised during the first six months of fiscal 2020 and fiscal 2019 was $0. As of August 1, 2020, total unrecognized compensation cost related to stock options was $25,000 and is expected to be recognized over a weighted average period of approximately 1.5 years.
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $(219,000) and $48,000 for the second quarters of fiscal 2020 and fiscal 2019 and $(55,000) and $486,000 for the first six months of fiscal 2020 and fiscal 2019. As of August 1, 2020, there was $1,214,000 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 2.4 years. The total fair value of restricted stock units vested during the first six months of fiscal 2020 and fiscal 2019 was $316,000 and $382,000. 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 units generally vest in three equal annual installments beginning one year from the grant date and are 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 unit 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 granted 146,000 performance share units to the Company's Chief Executive Officer as part of the Company's long-term incentive program during the first quarter of fiscal 2020. The number of shares earned is based on our achievement of pre-established goals for liquidity over the measurement period from February 2, 2020 to January 30, 2021. Any earned performance share units will vest on January 28, 2023, so long as the executive's service has been continuous through the vest date. The number of units that may actually be earned and become eligible to vest pursuant to this award can be between 0% and 125% of the target number of performance share units. The Company recognizes compensation expense on these performance share units ratably over the requisite performance period of the award to the extent management views the performance goals as probable of attainment.  The grant date fair value of these performance share units is based on the grant date closing price of the Company's stock.
The Company granted 18,000 market-based restricted stock performance units to executives and key employees as part of the Company's long-term incentive program during the second quarter of fiscal 2019 and 94,000 market-based restricted stock performance units during the first six months of fiscal 2019. No such market-based restricted stock performance units were granted during the first six months of fiscal 2020. 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 2019
Total grant date fair value
$482,000
Total grant date fair value per share
$5.14
Expected volatility
74%
-
82%
Weighted average expected life (in years)
3 years
Risk-free interest rate
1.7%
-
2.3%
The percent of the target market-based restricted stock performance units 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%

On May 2, 2019, Timothy A. Peterman was appointed as Chief Executive Officer and entered into an executive employment agreement. In conjunction with the employment agreement, the Company granted 68,000 market-based restricted stock performance units to Mr. Peterman. The market-based restricted stock performance units vest in three tranches, each tranche consisting of one-third of the units subject to the award. Tranche 1 vested on May 2, 2020, the one-year anniversary of the grant date. Tranche 2 will vest on the date the Company's average closing stock price for 20 consecutive trading days equals or exceeds $20.00 per share. Tranche 3 will vest on the date the Company's average closing stock price for 20 consecutive trading days equals or exceeds $40.00 per share and the executive has been continuously employed at least two years. The vesting of the second and third tranches can occur any time on or before May 1, 2029. The total grant date fair value was estimated to be $220,000 and is being amortized over the derived service periods for each tranche.
Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 2.5%, a weighted average expected life of 2.9 years and an implied volatility of 80% and were as follows for each tranche:
 
 
Fair Value (Per Share)
 
Derived Service Period
Tranche 1 (one year)
 
$3.66
 
1.00 Year
Tranche 2 ($20.00/share)
 
$3.19
 
3.27 Years
Tranche 3 ($40.00/share)
 
$2.85
 
4.53 Years

A summary of the status of the Company’s non-vested restricted stock unit activity as of August 1, 2020 and changes during the six-month period then ended is as follows:
 
Restricted Stock Units
 
Market-Based Units
 
Time-Based Units
 
Performance-Based Units
 
Total
 
Shares
 
Weighted Average Grant Date Fair Value
 
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 1, 2020
129,000

 
$
6.49

 
435,000

 
$
5.96

 

 
$

 
564,000

 
$
6.08

Granted

 
$

 
412,000

 
$
2.28

 
146,000

 
1.69

 
558,000

 
$
2.12

Vested

 
$

 
(100,000
)
 
$
4.36

 

 

 
(100,000
)
 
$
4.36

Forfeited
(69,000
)
 
$
9.05

 
(46,000
)
 
$
5.02

 

 

 
(115,000
)
 
$
7.46

Non-vested outstanding, August 1, 2020
60,000

 
$
3.52

 
701,000

 
$
4.09

 
146,000

 
$
1.69

 
907,000

 
$
3.67

v3.20.2
Net Income (Loss) Per Common Share
6 Months Ended
Aug. 01, 2020
Earnings Per Share [Abstract]  
Net Income (Loss) Per Common Share
Net Income (Loss) Per Common Share
During fiscal 2018, the Company issued a restricted stock award that meets the criteria of a participating security. Accordingly, basic income (loss) per share is computed using the two-class method under which earnings are allocated to both common shares and participating securities. Undistributed net losses are allocated entirely to common shareholders since the participating security has no contractual obligation to share in the losses. All shares of restricted stock are deducted from weighted-average number of common shares outstanding – basic. 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 and is calculated using the treasury method.
A reconciliation of net income (loss) per share calculations and the number of shares used in the calculation of basic income (loss) per share and diluted loss per share is as follows:
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 1,
2020
 
August 3,
2019
 
August 1,
2020
 
August 3,
2019
Numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
1,054,000

 
$
(10,177,000
)
 
$
(5,774,000
)
 
$
(31,167,000
)
Earnings allocated to participating share awards (a)
 
(5,000
)
 

 

 

Net income (loss) attributable to common shares — Basic and diluted
 
$
1,049,000

 
$
(10,177,000
)
 
$
(5,774,000
)
 
$
(31,167,000
)
Denominator:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding — Basic (b)
 
9,532,369

 
7,550,265

 
8,911,580

 
7,141,055

Dilutive effect of stock options, non-vested shares and warrants (c)
 
364,360

 

 

 

Weighted average number of common shares outstanding — Diluted
 
9,896,729

 
7,550,265

 
8,911,580

 
7,141,055

Net income (loss) per common share
 
$
0.11

 
$
(1.35
)
 
$
(0.65
)
 
$
(4.36
)
Net income (loss) per common share — assuming dilution
 
$
0.11

 
$
(1.35
)
 
$
(0.65
)
 
$
(4.36
)

(a) During fiscal 2018, the Company issued a restricted stock award that is a participating security. For the six-month period ended August 1, 2020 and the three and six-month periods ended August 3, 2019, the entire undistributed loss is allocated to common shareholders.
(b) For the three and six-month periods ended August 1, 2020, the basic earnings per share computation included 28,000 and 14,000 fully-paid warrants to purchase shares of the Company's common stock at a price of $0.001 per share.
(c) For the six-month periods ended August 1, 2020, there were 218,000 incremental in-the-money potentially dilutive common shares outstanding, and 28,000 and 23,000 for the three and six-month periods ended August 3, 2019. 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.
v3.20.2
Business Segments and Sales by Product Group
6 Months Ended
Aug. 01, 2020
Segment Reporting [Abstract]  
Business Segments and Sales by Product Group
Business Segments and Sales by Product Group
During the fourth quarter of fiscal 2019, the Company changed its reportable segments into two reporting segments: “ShopHQ” and “Emerging.” In light of recent strategic shifts in the Company's emerging businesses, the Company's Chief Executive Officer, the chief operating decision maker, began reviewing operating results of the Emerging segment separately from our core business, ShopHQ. The chief operating decision maker is our Chief Executive Officer and Interim Chief Financial Officer. These segments reflect the way the Company's chief operating decision maker evaluates the Company's business performance and manages its operations. All of Company's sales are made to customers residing in the United States.
The Company does not allocate assets between the segments for our internal management purposes, and as such, they are not presented here. There were no significant inter-segment sales or transfers during the second quarters and first six months of fiscal 2020 and fiscal 2019. The Company allocates corporate support costs (such as finance, human resources, warehouse management and legal) to our operating segments based on their estimated usage and based on how the Company manages the business. The Company has recast its segment results for all periods presented to conform to the new segment structure.
ShopHQ
The ShopHQ segment encompasses the Company's nationally distributed shopping entertainment network. ShopHQ sells and distributes its products to consumers through its video commerce television, online website and mobile platforms.
Emerging
The Emerging segment consists of the Company's developing business models. This segment includes the Company's Media Commerce Services, which includes creative and interactive services and third-party logistics services. The Emerging segment also encompasses the Bulldog Shopping Network and recently acquired businesses, J.W. Hulme and Float Left. Bulldog Shopping Network is a niche television shopping network geared towards male consumers. J.W. Hulme is a business specializing in artisan-crafted leather products, including handbags and luggage. J.W. Hulme products are distributed primarily through jwhulme.com, retails stores, and programming on ShopHQ. Float Left is a business comprised of connected TVs, video-based content, application development and distribution, including technical consulting services, software development and maintenance related to video distribution.
Net Sales by Segment and Significant Product Groups
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 1,
2020
 
August 3,
2019
 
August 1,
2020
 
August 3,
2019
 
 
(in thousands)
ShopHQ
 
 
 
 
 
 
 
 
Net merchandise sales by category:
 
 
 
 
 
 
 
 
Jewelry & Watches
 
$
39,058

 
$
57,440

 
$
78,460

 
$
108,868

Home & Consumer Electronics
 
12,375

 
22,540

 
25,142

 
46,567

Beauty & Wellness
 
46,571

 
22,981

 
67,434

 
44,962

Fashion & Accessories
 
10,951

 
16,100

 
23,675

 
38,454

All other (primarily shipping & handling revenue)
 
11,715

 
11,687

 
19,758

 
22,696

Total ShopHQ
 
120,670

 
130,748

 
214,469

 
261,547

Emerging
 
3,845

 
755

 
5,880

 
1,477

Consolidated net sales
 
$
124,515

 
$
131,503

 
$
220,349

 
$
263,024


Performance Measures by Segment
 
 
Three-Month Periods Ended
 
Six-Month Periods Ended
 
 
August 1,
2020
 
August 3,
2019
 
August 1,
2020
 
August 3,
2019
 
 
(in thousands)
Gross profit
 
 
 
 
 
 
 
 
ShopHQ
 
$
44,731

 
$
47,669

 
$
79,686

 
$
84,848

Emerging
 
1,561

 
57

 
$
2,163

 
$
171

Consolidated gross profit
 
$
46,292

 
$
47,726

 
$
81,849

 
$
85,019

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
ShopHQ
 
$
3,748

 
$
(7,778
)
 
$
(55
)
 
$
(27,042
)
Emerging
 
(1,277
)
 
(1,526
)
 
(3,109
)
 
(2,412
)
Consolidated operating income (loss)
 
$
2,471

 
$
(9,304
)
 
$
(3,164
)
 
$
(29,454
)
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
ShopHQ
 
$
7,678

 
$
2,683

 
$
10,418

 
$
5,285

Emerging
 
162

 
828

 
327

 
855

Consolidated depreciation and amortization
 
$
7,840

 
$
3,511

 
$
10,745

 
$
6,140

v3.20.2
Leases
6 Months Ended
Aug. 01, 2020
Leases [Abstract]  
Leases
Leases
The Company leases certain property and equipment, such as transmission and production equipment, satellite transponder and office equipment. The Company also leases office space used by its Emerging segment's Float Left and retail space used by its Emerging segment retailer, J.W. Hulme. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on accompanying condensed consolidated balance sheets.
Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease liabilities and right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of the Company's leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain the Company will exercise that option. As of August 1, 2020, the lease liability and right-of-use assets did not include any lease extension options.
The Company has lease agreements with lease and non-lease components, and has elected to account for these as a single lease component. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
 
 
For the Three-Month Periods Ended
 
For the Six-Month Periods Ended
 
 
August 1, 2020
 
August 3, 2019
 
August 1, 2020
 
August 3, 2019
Operating lease cost
 
$
245,000

 
$
258,000

 
$
490,000

 
$
523,000

Short-term lease cost
 
15,000

 
48,000

 
45,000

 
110,000

Variable lease cost (a)
 
26,000

 
30,000

 
53,000

 
50,000

(a) Includes variable costs of finance leases.
For the three-month periods ended August 1, 2020 and August 3, 2019, finance lease costs included amortization of right-of-use assets of $25,000 and $21,000 and interest on lease liabilities of $1,000 and $2,000. For the six-month periods ended August 1, 2020 and August 3, 2019, finance lease costs included amortization of right-of-use assets of $50,000 and $24,000 and interest on lease liabilities of $3,000 and $3,000.
Supplemental cash flow information related to leases were as follows:
 
 
For the Six-Month Periods Ended
 
 
August 1, 2020
 
August 3, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows used for operating leases
 
$
613,000

 
$
524,000

Operating cash flows used for finance leases
 
3,000

 
3,000

Financing cash flows used for finance leases
 
49,000

 
23,000

Right-of-use assets obtained in exchange for lease liabilities:
 
 
 
 
Operating leases
 
534,000

 
142,000

Finance leases
 
34,000

 
188,000


The weighted average remaining lease term and weighted average discount rates related to leases were as follows:
 
 
August 1, 2020
 
February 1, 2020
Weighted average remaining lease term:
 
 
 
 
Operating leases
 
3.5 years
 
1.4 years
Finance leases
 
1.4 years
 
1.9 years
Weighted average discount rate:
 
 
 
 
Operating leases
 
6.7%
 
5.6%
Finance leases
 
5.5%
 
5.3%

Supplemental balance sheet information related to leases is as follows:
Leases
 
Classification
 
August 1,
2020
 
February 1,
2020
Assets
 
 
 
 
 
 
Operating lease right-of-use assets
 
Other assets
 
$
851,000

 
$
832,000

Finance lease right-of-use assets
 
Property and equipment, net
 
127,000

 
143,000

Total lease right-of-use assets
 
 
 
$
978,000

 
$
975,000

Operating lease liabilities
 
 
 
 
 
 
Current portion of operating lease liabilities
 
Current portion of operating lease liabilities
 
$
278,000

 
$
704,000

Operating lease liabilities, excluding current portion
 
Other long term liabilities
 
503,000

 
129,000

Total operating lease liabilities
 
 
 
781,000

 
833,000

Finance lease liabilities
 
 
 
 
 
 
Current portion of finance lease liabilities
 
Current liabilities: Accrued liabilities
 
96,000

 
80,000

Finance lease liabilities, excluding current portion
 
Other long term liabilities
 
34,000

 
66,000

Total finance lease liabilities
 
 
 
130,000

 
146,000

Total lease liabilities
 
 
 
$
911,000

 
$
979,000


Future maturities of lease liabilities as of August 1, 2020 are as follows:
Fiscal year
 
Operating Leases
 
Finance Leases
2020
 
$
235,000

 
$
53,000

2021
 
169,000

 
74,000

2022
 
172,000

 
8,000

2023
 
168,000

 

2024
 
141,000

 

Thereafter
 

 

Total lease payments
 
885,000

 
135,000

Less imputed interest
 
(104,000
)
 
(5,000
)
Total lease liabilities
 
$
781,000

 
$
130,000


As of August 1, 2020, the Company had no operating and finance leases that had not yet commenced. Subsequent to August 1, 2020, the Company amended its satellite transponder operating lease agreement which was expiring on October 31, 2020. The amended operating lease agreement extended the lease agreement an additional five years for total cash payments of $3.6 million.
v3.20.2
Income Taxes
6 Months Ended
Aug. 01, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
At February 1, 2020, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $393 million which may be available to offset future taxable income. The Company's federal NOLs generated prior to 2018 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. The Company's federal NOLs generated in 2018 and after can be carried forward indefinitely.
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.  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.
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 $90.00 per Unit. On July 12, 2019, the Company's shareholders re-approved the Rights Plan at the 2019 annual meeting of shareholders. The Rights Plan will expire on the close of business on the date of the 2022 annual meeting of shareholders, unless the Rights Plan is re-approved by shareholders prior to expiration.
v3.20.2
Inventory Impairment Write-down
6 Months Ended
Aug. 01, 2020
Inventory Disclosure [Abstract]  
Inventory Impairment Write-down
Inventory Impairment Write-down
On May 2, 2019, Timothy A. Peterman was appointed Chief Executive Officer of the Company (See Note 17 - “Executive and Management Transition Costs”) and implemented a new merchandise strategy to shift airtime and merchandise by increasing higher contribution margin categories, such as jewelry & watches and beauty & wellness, and decreasing home and fashion & accessories. This change of strategy resulted in the need to liquidate excess inventory in the fashion & accessories and home product categories as a result of the reduced airtime being allocated to those categories. As a result, the Company recorded a non-cash inventory write-down of $6,050,000 within cost of sales during the first quarter of fiscal 2019.
v3.20.2
Litigation
6 Months Ended
Aug. 01, 2020
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, are reasonably likely to have a material adverse effect on the Company's operations or consolidated financial statements.
v3.20.2
Related Party Transactions
6 Months Ended
Aug. 01, 2020
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
Relationship with Sterling Time, Invicta Watch Company of America, and Retailing Enterprises
On May 2, 2019, in accordance with the purchase agreement described in Note 8 - "Shareholders' Equity," the Company's Board of directors elected Michael Friedman and Eyal Lalo to the board and appointed Mr. Lalo as the vice chair of the board. Mr. Lalo reestablished Invicta, the flagship brand of the Invicta Watch Group and one of the Company's largest brands, in 1994, and has served as its chief executive officer since its inception. Mr. Friedman has served as chief executive officer of Sterling Time, which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and our long-time vendor, since 2005. Sterling Time has served as a vendor to the Company for over 20 years. For their service as non-employee members of the board of directors, Messrs. Friedman and Lalo receive compensation under the Company's non-employee director compensation policy.
Mr. Lalo is the owner of IWCA, which is the sole owner of Invicta Media Investments, LLC. Mr. Friedman is an owner of Sterling Time. Pursuant to the May 2, 2019 purchase agreement the following companies invested as a group, including: Invicta Media Investments, LLC purchased 400,000 shares of the Company's common stock and a warrant to purchase 252,656 shares of the Company's common stock for an aggregate purchase price of $3,000,000, Michael and Leah Friedman purchased 180,000 shares of the Company's common stock and a warrant to purchase 84,218 shares of the Company's common stock for an aggregate purchase price of $1,350,000, and Retailing Enterprises, LLC purchased 160,000 shares of the Company's common stock for an aggregate purchase price of $1,200,000, among others.
On April 14, 2020, the Company entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which the Company sold shares of the Company's common stock and issued warrants to purchase shares of the Company's common stock in a private placement. Details of the common stock and warrant purchase agreement are described in Note 8 - "Shareholders' Equity." The purchasers consist of the following: Invicta Media Investments, LLC, Michael and Leah Friedman and Hacienda Jackson LLC. Invicta Media Investments, LLC purchased 734,394 shares of the Company's common stock and a warrant to purchase 367,196 shares of the Company's common stock for an aggregate purchase price of $1,500,000. Michael and Leah Friedman purchased 727,022 shares of the Company's common stock and a warrant to purchase 367,196 shares of the Company's common stock for an aggregate purchase price of $1,500,000. Pursuant to the agreement, Sterling Time has standard payment terms with 90-day aging from receipt date for all purchase orders. If the Company's accounts payable balance to Sterling Time exceeds (a) $3,000,000 in any given week during the Company's first three fiscal quarters through May 31, 2022 or (b) $4,000,000 in any given week during the Company's fourth fiscal quarters of fiscal 2020 and fiscal 2021, the Company will pay the accounts payable balance owed to Sterling Time that is above these stated amounts. Following May 31, 2022, the Company's payment terms revert back to standard 90-day aging terms as previously described.
Transactions with Sterling Time
The Company purchased products from Sterling Time, an affiliate of Mr. Friedman, in the aggregate amount of $15.6 million and $27.4 million during the second quarter and first six months of fiscal 2020 and $18.5 million and $33.9 million during the second quarter and first six months of fiscal 2019. In addition, during the first quarters of fiscal 2020 and fiscal 2019, the Company subsidized the cost of a promotional cruise for Invicta branded and other vendors’ products. As of August 1, 2020 and February 1, 2020, the Company had a net trade payable balance owed to Sterling Time of $1.8 million and $1.6 million.
Transactions with Retailing Enterprises
During fiscal 2019, the Company entered into an agreement, which was subsequently amended, to liquidate obsolete inventory to Retailing Enterprises, LLC for a total purchase price of $1.4 million. The inventory is currently stored at the Company's fulfillment center under a bill and hold arrangement. The terms of the agreement provide for 12 monthly payments. As of August 1, 2020 and February 1, 2020, the Company had a net trade receivable balance owed from Retailing Enterprises, LLC of $1.2 million. During the second quarter and first six months of fiscal 2020, the Company accrued commissions of $81,000 and $142,000 to Retailing Enterprises, LLC for Company sales of the Invincible Guarantee program. The Invincible Guarantee program is an Invicta watch offer whereby customers receive credit on watch trade-ins within a five-year period. The program is serviced by Retailing Enterprises, LLC.
Transactions with Famjams Trading
The Company purchased products from Famjams Trading LLC ("Famjams Trading"), an affiliate of Mr. Friedman, in the aggregate amount of $25.7 million and $27.2 million during the second quarter and first six months of fiscal 2020 and $0 during the first six months of fiscal 2019. In addition, the Company provided third party logistic services and warehousing to Famjams Trading, totaling $0 and $15,000 during the second quarter and first six months of fiscal 2020 and $0 during the first six months of fiscal 2019. As of August 1, 2020 and February 1, 2020, the Company had a net trade payable balance owed to Famjams Trading of $943,000 and $488,000.
Transactions with TWI Watches
The Company purchased products from TWI Watches LLC ("TWI Watches"), an affiliate of Mr. Friedman, in the aggregate amount of $214,000 and $373,000 during the second quarter and first six months of fiscal 2020 and $182,000 and $396,000 during the second quarter of fiscal 2020 and fiscal 2019. As of August 1, 2020 and February 1, 2020, the Company had a net trade payable balance owed to TWI Watches of $268,000 and $277,000.
Transactions with a Financial Advisor
In November 2018, the Company entered into an engagement letter with Guggenheim Securities, LLC pursuant to which Guggenheim was engaged to provide certain advisory services to the Company. A relative of Neal Grabell, who was a director of the Company at that time, was a managing director of Guggenheim Securities. During the fourth quarter of fiscal 2019, the Company accrued $1.0 million in connection with an amendment to the engagement letter. As of August 1, 2020, no amounts had been paid.
v3.20.2
Restructuring Costs
6 Months Ended
Aug. 01, 2020
Restructuring Costs [Abstract]  
Restructuring Costs
Restructuring Costs
During the first quarter of fiscal 2020, the Company implemented and completed a cost optimization initiative, which eliminated positions across the Company’s ShopHQ segment, the majority of whom were employed in customer service, order fulfillment and television production. As a result of the first quarter fiscal 2020 cost optimization initiative, the Company recorded restructuring charges of $0 and $209,000 for the three and six-month periods ended August 1, 2020, which relate primarily to severance and other incremental costs associated with the consolidation and elimination of positions across the Company's ShopHQ segment. These initiatives were substantially completed as of August 1, 2020, with related cash payments expected to continue through the third quarter of fiscal 2020.
During second quarter of fiscal 2019, the Company implemented a cost initiative to streamline its organizational structure and realign its cost base with sales declines. During the second quarter of 2019, the Company implemented and completed a cost optimization initiative, which reduced and flattened the Company's organizational structure, closed the New York office, closed the Los Angeles office and related product development initiatives, and reduced corporate overhead costs. The second quarter 2019 initiative included the elimination of 11 senior executive roles and a 20% reduction to the Company's non-variable workforce. As a result of the second quarter of fiscal 2019 cost optimization initiatives, the Company recorded restructuring charges of $5,165,000 for the three and six-month periods ended August 3, 2019, which relate primarily to severance and other incremental costs associated with the consolidation and elimination of positions across the Company's ShopHQ segment. Both of the Company's operating segments were affected by these actions, including $4,337,000 related to the ShopHQ segment and $828,000 related to the Emerging segment.
The following table summarizes the significant components and activity under the restructuring program for the six-month period ended August 1, 2020:
 
 
Balance at
February 1,
2020
 
Charges
 
Cash Payments
 
Balance at
August 1,
2020
Severance
 
$
3,133,000

 
$
141,000

 
$
(1,930,000
)
 
$
1,344,000

Other incremental costs
 
127,000

 
68,000

 
(145,000
)
 
50,000

 
 
$
3,260,000

 
$
209,000

 
$
(2,075,000
)
 
$
1,394,000


The liability for restructuring accruals is included in current accrued liabilities within the accompanying condensed consolidated balance sheets.
v3.20.2
Executive and Management Transition Costs
6 Months Ended
Aug. 01, 2020
Executive Transition Costs [Abstract]  
Executive and Management Transition Costs [Text Block]
Executive and Management Transition Costs
On May 2, 2019, Robert J. Rosenblatt, the Company's former Chief Executive Officer, was terminated from his position as an officer and employee of the Company and was entitled to receive the payments set forth in his employment agreement. The Company recorded charges to income totaling $1,922,000 as a result. Mr. Rosenblatt remained a member of the Company's board of directors until October 1, 2019. On May 2, 2019, in accordance with the purchase agreement described in Note 8 - "Shareholders' Equity," the Company's board of directors appointed Timothy A. Peterman to serve as Chief Executive Officer, effective immediately, and entered into an employment agreement with Mr. Peterman. In conjunction with these executive changes as well as other executive and management terminations made during the first six months of fiscal 2019, the Company recorded charges to income totaling $310,000 and $2,341,000 for the three and six-month periods ended August 3, 2019, 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 2019 executive and management transition. As of August 1, 2020, $571,000 was accrued, with the related cash payments expected to continue through the second quarter of fiscal 2021.
v3.20.2
Basis of Financial Statement Presentation (Policies)
6 Months Ended
Aug. 01, 2020
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 1, 2020 has been derived from the Company's audited financial statements for the fiscal year ended February 1, 2020. 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 1, 2020. Operating results for the six-month period ended August 1, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 2021.
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 2019, ended on February 1, 2020, and consisted of 52 weeks. Fiscal 2020 will end January 30, 2021 and will contain 52 weeks. The three and six-month periods ended August 1, 2020 and August 3, 2019 each consisted of 13 and 26 weeks.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Intangibles—Goodwill and Other—Internal-Use Software, Subtopic 350-40 (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard during the first quarter of fiscal 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company's condensed consolidated financial statements.
v3.20.2
Revenue (Policies)
6 Months Ended
Aug. 01, 2020
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, which is upon shipment. Revenue for services is recognized when the services are provided to the customer. 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. As of August 1, 2020 and February 1, 2020, the Company recorded a merchandise return liability of $5,852,000 and $5,820,000, included in accrued liabilities, and a right of return asset of $3,021,000 and $3,171,000, included in other current assets.
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 Accounting Standards Codification ("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 segment and significant product group is provided in Note 10 - "Business Segments and Sales by Product Group."
As of August 1, 2020, approximately $15,000 was expected to be recognized from remaining performance obligations over the next 5 months. 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 for both of the three-month periods ended August 1, 2020 and August 3, 2019 and $17,000 for both of the six-month periods ended August 1, 2020 and August 3, 2019.
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 1, 2020 and February 1, 2020, the Company had approximately $50,041,000 and $56,928,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $3,032,000 and $6,579,000.
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 1, 2020 and February 1, 2020, the Company had approximately $50,041,000 and $56,928,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $3,032,000 and $6,579,000.
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Net Income (Loss) Per Common Share (Policies)
6 Months Ended
Aug. 01, 2020
Earnings Per Share [Abstract]  
Net Income (Loss) Per Common Share
Net Income (Loss) Per Common Share
During fiscal 2018, the Company issued a restricted stock award that meets the criteria of a participating security. Accordingly, basic income (loss) per share is computed using the two-class method under which earnings are allocated to both common shares and participating securities. Undistributed net losses are allocated entirely to common shareholders since the participating security has no contractual obligation to share in the losses. All shares of restricted stock are deducted from weighted-average number of common shares outstanding – basic. 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 Compa