IMEDIA BRANDS, INC., 10-K filed on 4/30/2020
Annual Report
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Feb. 01, 2020
Apr. 27, 2020
Aug. 02, 2019
Document and Entity Information [Abstract]      
Entity Registrant Name iMedia Brands, Inc.    
Entity Central Index Key 0000870826    
Document Type 10-K    
Document Period End Date Feb. 01, 2020    
Document Fiscal Year Focus 2019    
Amendment Flag false    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --02-01    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   8,949,744  
Entity Public Float     $ 26,916,000
Entity Interactive Data Current Yes    
Entity File Number 001-37495    
Entity Incorporation, State or Country Code MN    
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Feb. 01, 2020
Feb. 02, 2019
Current assets:    
Cash $ 10,287 $ 20,485
Restricted cash equivalents 0 450
Accounts receivable, net 63,594 81,763
Inventories 78,863 65,272
Prepaid expenses and other 8,196 9,053
Total current assets 160,940 177,023
Property and equipment, net 47,616 51,118
Other assets 4,187 1,846
TOTAL ASSETS 212,743 229,987
Current liabilities:    
Accounts payable 83,659 56,157
Accrued liabilities 40,250 37,374
Current portion of long term credit facility 2,714 2,488
Current portion of operating lease liabilities 704 0
Deferred revenue 141 35
Total current liabilities 127,468 96,054
Other long term liabilities 335 50
Long term credit facility 66,246 68,932
Total liabilities 194,049 165,036
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, 14,600,000 and 9,960,000 shares authorized; 8,208,227 and 6,791,934 shares issued and outstanding 82 68
Additional paid-in capital 452,833 442,808
Accumulated deficit (434,221) (377,925)
Total shareholders’ equity 18,694 64,951
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 212,743 $ 229,987
v3.20.1
Consolidated Balance Sheets (Parentheticals) - $ / shares
Feb. 01, 2020
Feb. 02, 2019
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 14,600,000 9,960,000
Common stock, shares issued 8,208,227 6,791,934
Common stock, shares outstanding 8,208,227 6,791,934
v3.20.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Feb. 01, 2020
Feb. 02, 2019
Feb. 03, 2018
Income Statement [Abstract]      
Net sales $ 501,822 $ 596,637 $ 648,220
Cost of sales 338,185 389,790 413,108
Gross profit 163,637 206,847 235,112
Operating expense:      
Distribution and selling 170,587 191,917 199,484
General and administrative 25,611 25,883 24,442
Depreciation and amortization 8,057 6,243 6,370
Restructuring costs 9,166 0 0
Executive and management transition costs 2,741 2,093 2,145
Gain on sale of television station 0 (665) (551)
Total operating expense     231,890
Operating income (loss)     3,222
Other income (expense):      
Interest income 17 34 17
Interest expense (3,777) (3,502) (5,084)
Loss on debt extinguishment 0 0 (1,457)
Total other expense, net   (3,468) (6,524)
Loss before income taxes (56,285) (22,092) (3,302)
Income tax benefit (provision) (11) (65) 3,445
Net income (loss) $ (56,296) $ (22,157) $ 143
Net income (loss) per common share $ (7.54)   $ 0.02
Net income (loss) per common share — assuming dilution     $ 0.02
Weighted average number of common shares outstanding:      
Basic   6,607,321 6,387,005
Diluted     6,396,830
v3.20.1
Consolidated Statement of Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit
Common Stock, Shares, Outstanding period beginning at Jan. 28, 2017   6,519,231    
Total Shareholders' Equity period beginning at Jan. 28, 2017 $ 81,703 $ 65 $ 437,549 $ (355,911)
Net income (loss) 143 $ 0 0 143
Repurchases of common stock, Shares   (440,000)    
Repurchases of common stock, Value (5,055) $ (4) (5,051) 0
Common stock issuances pursuant to equity compensation awards, Shares   38,987    
Common stock issuances pursuant to equity compensation awards, Value 34 $ 0 34 0
Share-based payment compensation 2,888 $ 0 2,888 0
Common stock and warrant issuance, Shares   410,827    
Common stock and warrant issuance, Value 4,283 $ 4 4,279 0
Common Stock, Shares, Outstanding period end at Feb. 03, 2018   6,529,045    
Total Shareholders' Equity period end at Feb. 03, 2018 83,996 $ 65 439,699 (355,768)
Net income (loss) (22,157) $ 0 0 (22,157)
Common stock issuances pursuant to equity compensation awards, Shares   262,889    
Common stock issuances pursuant to equity compensation awards, Value 48 $ 3 45 0
Share-based payment compensation $ 3,064 $ 0 3,064 0
Common Stock, Shares, Outstanding period end at Feb. 02, 2019 6,791,934 6,791,934.000    
Total Shareholders' Equity period end at Feb. 02, 2019 $ 64,951 $ 68 442,808 (377,925)
Net income (loss) (56,296) $ 0 0 (56,296)
Common stock issuances pursuant to equity compensation awards, Shares   225,293    
Common stock issuances pursuant to equity compensation awards, Value (39) $ 2 (41) 0
Share-based payment compensation 2,204 $ 0 2,204 0
Common stock issuances pursuant to business acquisitions, Shares   391,000    
Common stock issuances pursuant to business acquisitions, Value 1,856 $ 4 1,852 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 Feb. 01, 2020 8,208,227 8,208,227    
Total Shareholders' Equity period end at Feb. 01, 2020 $ 18,694 $ 82 $ 452,833 $ (434,221)
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Feb. 01, 2020
Feb. 02, 2019
Feb. 03, 2018
OPERATING ACTIVITIES:      
Net income (loss) $ (56,296) $ (22,157) $ 143
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities:      
Depreciation and amortization 12,014 10,164 10,307
Share-based payment compensation 2,204 3,064 2,888
Inventory impairment write-down 6,050 0 0
Amortization of deferred finance costs 201 215 366
Gain on sale of television station 0 (665) (551)
Loss on debt extinguishment 0 0 1,457
Deferred income taxes 0 0 (3,522)
Changes in operating assets and liabilities:      
Accounts receivable, net 18,285 14,796 2,503
Inventories (18,816) 3,539 1,381
Deferred revenue 58 (35) (60)
Prepaid expenses and other 776 905 166
Accounts payable and accrued liabilities 29,367 (2,614) (11,800)
Net cash (used for) provided by operating activities (6,157) 7,212 3,278
INVESTING ACTIVITIES:      
Property and equipment additions (7,146) (8,768) (10,499)
Cash paid for business acquisitions (638) 0 0
Proceeds from the sale of assets 0 665 12,738
Net cash (used for) provided by investing activities (7,784) (8,103) 2,239
FINANCING ACTIVITIES:      
Proceeds from issuance of revolving loan 188,100 239,300 96,800
Proceeds from issuance of common stock and warrants 6,000 0 4,628
Proceeds of term loan 0 5,821 6,000
Proceeds from exercise of stock options 0 181 79
Payments on revolving loan (188,100) (245,300) (96,800)
Payments on term loans (2,488) (2,325) (18,780)
Payments for common stock issuance costs (109) 0 (452)
Payments on finance leases (71) (12) 0
Payments for restricted stock issuance (39) (133) (45)
Payments for deferred financing costs 0 (96) (265)
Payments for repurchases of common stock 0 0 (5,055)
Payment for debt extinguishment costs 0 0 (334)
Net cash provided by (used for) financing activities 3,293 (2,564) (14,224)
Net decrease in cash and restricted cash equivalents (10,648) (3,455) (8,707)
BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS 20,935 24,390 33,097
ENDING CASH AND RESTRICTED CASH EQUIVALENTS $ 10,287 $ 20,935 $ 24,390
v3.20.1
The Company
12 Months Ended
Feb. 01, 2020
General [Abstract]  
The Company
The Company
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 services. Our portfolio includes ShopHQ, our nationally distributed shopping entertainment network, Bulldog Shopping Network, J.W. Hulme and Media 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 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 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
On December 3, 2019, the Company held a special meeting of shareholders. At the special meeting, the Company’s shareholders approved an amendment to Section A of Article 3 of the Company’s Articles of Incorporation to provide that the Company is authorized to issue ten million (10,000,000) shares of capital stock and an additional five million (5,000,000) shares of common stock (as adjusted for reverse stock split). In addition, the Company’s shareholders approved amendments to the Company’s Articles of Incorporation to delete the following sections:
Section D of Article 3, which provided restrictions on the voting power of the Company's shares of common stock in excess of 20% by or for the account of aliens, a foreign government or any corporation organized under the laws of a foreign country;
Section E of Article 3, which provided restrictions on the ownership and transfer of the Company's shares of common stock in excess of 20% by aliens, a foreign government or any corporation organized under the laws of a foreign country, and a related redemption right on behalf of the Company; and
Article 7, which provided that no officer or director of the Company may be an alien or a representative of a foreign government.
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. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. All common share and per share data in the consolidated financial statements and notes to the consolidated financial statements have been retrospectively revised to reflect the reverse stock split. Shares of common stock underlying outstanding stock options, warrants and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The reverse stock split was primarily intended to bring the company into compliance with the minimum bid price requirement for maintaining its listing on the Nasdaq Capital Market. The Company's common stock continues to trade under the symbol “IMBI” and began trading on a split-adjusted basis on December 12, 2019.
v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Feb. 01, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
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 2018 ended on February 2, 2019 and consisted of 52 weeks. Fiscal 2017 ended on February 3, 2018 and consisted of 53 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
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.
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 February 1, 2020, approximately $32,000 is expected to be recognized from remaining performance obligations within the next 12 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 $35,000, $35,000 and $60,000 for fiscal 2019, fiscal 2018 and fiscal 2017.
Merchandise Returns
The Company records a merchandise return liability as a reduction of gross sales for anticipated merchandise returns at each reporting period and must make estimates of potential future merchandise returns related to current period product revenue. The Company estimates and evaluates the adequacy of its merchandise return liability by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing the merchandise return liability in any accounting period. As of February 1, 2020 and February 2, 2019, the Company recorded a merchandise return liability of $5,820,000 and $8,097,000, included in accrued liabilities, and a right of return asset of $3,171,000 and $4,410,000, included in other current assets.
Shipping and Handling
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the merchandise. Shipping and handling fees charged to customers are recognized when the customer obtains control of the merchandise, which is upon shipment. The Company accrues costs for shipping and handling activities, which occur subsequent to transfer of control to the customer and are recorded as cost of sales in the accompanying statements of operations.
Sales Taxes
The Company has elected to exclude from revenue the sales taxes imposed on its sales and collected from customers.
Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the payment terms are less than one year. Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of February 1, 2020 and February 2, 2019, the Company had approximately $56,928,000 and $74,787,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $6,579,000 and $8,533,000.
Revenue Recognition Judgments
The Company's merchandise is generally sold with a right of return for up to a certain number of days after the merchandise is shipped and the Company may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Merchandise returns and other credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.
The Company evaluated whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) in certain vendor arrangements where the merchandise is shipped directly from the vendor to the Company's customer and the purchase and sale of inventory is virtually simultaneous. Generally, the Company is the principal and reports revenues from such vendor arrangements on a gross basis, as it controls the merchandise before it is transferred to the customer. The Company's control is evidenced by it being primarily responsible to the customers, establishing price and its inventory risk upon customer returns.
Cost of Sales and Other Operating Expenses
Cost of sales includes primarily the cost of merchandise sold and services provided, shipping and handling costs, inbound freight costs, excess and obsolete inventory charges, distribution facility depreciation and vendor share based payment compensation. Purchasing and receiving costs, including costs of inspection, are included as a component of distribution and selling expense and were approximately $8,730,000, $10,299,000 and $10,660,000 for fiscal 2019, fiscal 2018 and fiscal 2017. Distribution and selling expense consists primarily of cable and satellite access fees, credit card fees, bad debt expense and costs associated with purchasing and receiving, inspection, marketing and advertising, show production, website marketing and merchandising, telemarketing, customer service, warehousing, fulfillment and share based compensation. General and administrative expense consists primarily of costs associated with executive, legal, accounting and finance, information systems and human resources departments, software and system maintenance contracts, insurance, investor and public relations, share based compensation and director fees.
Cash
Cash consists of cash on deposit. The Company maintains its cash balances at financial institutions in demand deposit accounts that are federally insured. The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on its cash.
Restricted Cash Equivalents
The Company's restricted cash equivalents consisted of certificates of deposit with original maturities of three months or less and were generally restricted for a period ranging from 30 to 60 days. Interest income is recognized when earned. The following table provides a reconciliation of cash and restricted cash equivalents reported with the consolidated balance sheets to the total of the same amounts shown in the consolidated statements of cash flows:
 
February 1, 2020
 
February 2, 2019
Cash
$
10,287,000

 
$
20,485,000

Restricted cash equivalents

 
450,000

Total cash and restricted cash equivalents
$
10,287,000

 
$
20,935,000


Inventories
Inventories, which consists of consumer merchandise held for resale, are stated at the lower of average cost or net realizable value, giving consideration to obsolescence provision write downs of $8,798,000, $5,149,000 and $3,757,000 for fiscal 2019, fiscal 2018 and fiscal 2017. Additional disclosure of the fiscal 2019 obsolescence provision write down is provided in Note 16 - "Inventory Impairment Write-down." During fiscal 2019, 2018 and 2017, products purchased from one vendor accounted for approximately 19%, 14% and 15% of our consolidated net sales.
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred and consist primarily of contractual marketing fees paid to certain cable operators for cross channel promotions and online advertising, including amounts paid to online search engine operators and customer mailings. Total marketing and advertising costs and online search marketing fees totaled $4,673,000, $4,561,000 and $4,530,000 for fiscal 2019, fiscal 2018 and fiscal 2017. The Company includes advertising costs as a component of distribution and selling expense in the Company’s consolidated statement of operations.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Improvements and renewals that extend the life of an asset are capitalized and depreciated. Repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are removed from the related accounts, and any residual values are charged or credited to operations. Depreciation and amortization for financial reporting purposes are provided on a straight-line method based upon estimated useful lives. Costs incurred to develop software for internal use and for the Company’s websites are capitalized and amortized over the estimated useful life of the software. Costs related to maintenance of internal-use software and for the Company’s website are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment would be recognized when the carrying amount of an asset or asset group exceeds the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount that the carrying amount of the asset exceeds the fair value of the asset.
Intangible Assets
Identifiable intangibles with finite lives are amortized over their estimated useful lives and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. The impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount.
Stock-Based Compensation
Compensation is recognized for all stock-based compensation arrangements by the Company, including employee and non-employee stock option and restricted stock unit grants. The estimated grant date fair value of each stock-based award is recognized as compensation over the requisite service period, which is generally the vesting period. Stock-based compensation expense is recognized net of forfeitures, which the Company estimates based on historical data. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards. The estimated fair value of restricted stock grants 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.
Income Taxes
The Company accounts for income taxes under the liability method of accounting whereby deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment of such laws. The Company assesses the recoverability of its deferred tax assets and records a valuation allowance when it is more likely than not some portion of the deferred tax asset will not be realized.
The Company recognizes interest and penalties related to uncertain tax positions within income tax expense.
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 (loss) 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 net income (loss) per share and diluted net income (loss) per share is as follows:
 
 
For the Years Ended
 
 
February 1,
2020
 
February 2,
2019
 
February 3,
2018
Numerator:
 
 
 
 
 
 
Net income (loss)
 
$
(56,296,000
)
 
$
(22,157,000
)
 
$
143,000

Earnings allocated to participating share awards (a)
 

 

 

Net income (loss) attributable to common shares — Basic and diluted
 
$
(56,296,000
)
 
$
(22,157,000
)
 
$
143,000

Denominator:
 
 
 
 
 
 
Weighted average number of common shares outstanding — Basic
 
7,462,380

 
6,607,321

 
6,387,005

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

 

 
9,825

Weighted average number of common shares outstanding — Diluted
 
7,462,380

 
6,607,321

 
6,396,830

Net income (loss) per common share
 
$
(7.54
)
 
$
(3.35
)
 
$
0.02

Net income (loss) per common share — assuming dilution
 
$
(7.54
)
 
$
(3.35
)
 
$
0.02


(a) During fiscal 2018, the Company issued a restricted stock award that is a participating security. For fiscal 2019 and fiscal 2018, the entire undistributed loss is allocated to common shareholders.
(b) For fiscal 2019 and fiscal 2018, there were 46,000 and 34,000 incremental in-the-money potentially dilutive common shares outstanding. 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.
Fair Value of Financial Instruments
GAAP requires disclosures of fair value information about financial instruments for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. GAAP excludes certain financial instruments and all non-financial instruments from its disclosure requirements.
The Company used the following methods and assumptions in estimating its fair values for financial instruments. The carrying amounts reported in the accompanying consolidated balance sheets approximate the fair value for cash, short-term investments, accounts receivable, trade payables and accrued liabilities, due to the short maturities of those instruments. The fair value of the Company’s variable rate PNC Credit Facility, approximates, and is based on, its carrying value due to the variable rate nature of the financial instrument. The additional disclosures regarding the Company’s fair value measurements are included in Note 7 - "Fair Value Measurements."
Fair Value Measurements on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to the Company's tangible fixed assets and finite-lived intangible assets. These assets and liabilities are recorded at fair value only if an impairment is recognized in the current period. If the Company determines that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded as a loss within operating income in the consolidated statement of operations. The Company had no remeasurements of such assets or liabilities to fair value during fiscal 2019, fiscal 2018 or fiscal 2017.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during reporting periods. These estimates relate primarily to the carrying amounts of accounts receivable and inventories, the realizability of certain long-term assets and the recorded balances of certain accrued liabilities and reserves. Ultimate results could differ from these estimates.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Leases, Topic 842 (ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted this standard in the first quarter of fiscal 2019 using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. See Note 11 - "Leases" for information on the impact of adopting ASU 2016-02 on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2018, the 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 new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The new standard can be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact that adopting the new accounting standard will have on its consolidated financial statements.
v3.20.1
Property and Equipment
12 Months Ended
Feb. 01, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]
Property and Equipment
Property and equipment in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life (In Years)
 
February 1, 2020
 
February 2, 2019
Land and improvements
 
 
$
3,236,000

 
$
3,236,000

Buildings and leasehold improvements
 
3-40
 
42,239,000

 
42,079,000

Transmission and production equipment
 
5-10
 
7,919,000

 
7,312,000

Office and warehouse equipment
 
3-15
 
19,353,000

 
19,227,000

Computer hardware, software and telephone equipment
 
3-10
 
87,348,000

 
89,421,000

 
 
 
 
160,095,000

 
161,275,000

Less — Accumulated depreciation
 
 
 
(112,479,000
)
 
(110,157,000
)
 
 
 
 
$
47,616,000

 
$
51,118,000

Depreciation expense in fiscal 2019, fiscal 2018 and fiscal 2017 was $10,661,000, $9,999,000 and $10,141,000.
v3.20.1
Intangible Assets
12 Months Ended
Feb. 01, 2020
Intangible Assets [Abstract]  
Intangible Assets
Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life
(In Years)
 
February 1, 2020
 
February 2, 2019
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Trade Names
 
3-15
 
$
1,568,000

 
$
(19,000
)
 
$
1,439,000

 
$
(354,000
)
Customer Lists
 
3-5
 
$
339,000

 
$
(14,000
)
 
$
347,000

 
$
(148,000
)
Technology
 
4
 
$
772,000

 
$
(35,000
)
 
$

 
$

Vendor Exclusivity
 
5
 
$
192,000

 
$
(29,000
)
 
$

 
$

Total finite-lived intangible assets
 
 
 
$
2,871,000

 
$
(97,000
)
 
$
1,786,000

 
$
(502,000
)

Finite-lived Intangible Assets
The finite-lived intangible assets are included in other assets in the accompanying 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 $1,353,000, $165,000 and $165,000 for fiscal 2019, fiscal 2018 and fiscal 2017. 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.
In November 2019, the Company completed the acquisition of J.W. Hulme Company ("J.W. Hulme"). The intangible assets acquired through the business combination include the J.W. Hulme trade name and J.W. Hulme customer list valued at $1,480,000 and $86,000 and are being amortized over their estimated useful lives of 15 and three years. See Note 12 - "Business Acquisitions" for additional information.
In November 2019, the Company completed the acquisition of Float Left Interactive, Inc. ("Float Left"). The intangible assets acquired through the business combination include the Float Left developed technology, the Float Left customer relationships and the Float Left trade name valued at $772,000, $253,000 and $88,000, respectively, and are being amortized over their estimated useful lives of four, five and 15 years, respectively.
On May 29, 2019, the Company announced the decision to change the name of the Evine network back to ShopHQ, which was the name of the network in 2014. The remaining carrying amount of the Evine trademark was amortized prospectively over the revised remaining useful life through August 21, 2019, the date of the network name change.
On May 2, 2019, we entered into a five-year vendor exclusivity agreement with Sterling Time, LLC ("Sterling Time") and Invicta Watch Company of America, Inc. ("IWCA") in connection with the closing under the private placement securities purchase agreement described in Note 9 below. The vendor exclusivity agreement grants the Company the exclusive right in television shopping to market, promote and sell the products from IWCA. The Company issued five-year warrants to purchase 350,000 shares of our common stock in connection with and as consideration for primarily entering into a vendor exclusivity agreement with the Company, which represented an aggregate value of $193,000. The vendor exclusivity agreement is being amortized as cost of sales over the five-year agreement term. See Note 9 - "Shareholders' Equity" for additional information.
Sale of Boston Television Station, WWDP and FCC Broadcast License
On August 28, 2017, the Company entered into two agreements with unrelated parties to sell its Boston television station, WWDP, including the Company's FCC broadcast license, for an aggregate of $13,500,000. During the fiscal 2017 fourth quarter, the Company closed on the asset purchase agreement to sell substantially all the assets primarily related to its television broadcast station, WWDP(TV), Norwell, Massachusetts (the “Station”), which included an intangible FCC broadcasting license asset. The Company recorded a pre-tax operating gain on the television station sale of $551,000 during the fourth quarter of fiscal 2017 upon the closing of the transaction. During the fiscal 2018 fourth quarter, the Company received the remainder of the sales price, which resulted from the satisfaction of the Station being carried by certain designated carriers, and recorded a pre-tax operating gain of $665,000 upon the resolution of this gain contingency.
v3.20.1
Accrued Liabilities
12 Months Ended
Feb. 01, 2020
Accrued Liabilities, Current [Abstract]  
Accrued Liabilities, Current [Abstract]
Accrued Liabilities
Accrued liabilities in the accompanying consolidated balance sheets consisted of the following:
 
 
February 1, 2020
 
February 2, 2019
Accrued cable access fees
 
$
18,243,000

 
$
18,241,000

Accrued salaries, severance and related
 
5,937,000

 
2,493,000

Allowance for sales returns
 
5,820,000

 
8,097,000

Other
 
10,250,000

 
8,543,000

 
 
$
40,250,000

 
$
37,374,000

v3.20.1
ShopHQ Private Label Consumer Credit Card Program
12 Months Ended
Feb. 01, 2020
Private Label Consumer Credit Card Program [Abstract]  
ShopHQ Private Label Consumer Credit Card Program
ShopHQ Private Label Consumer Credit Card Program
The Company has a private label consumer credit card program (the "Program"). The Program is made available to all qualified consumers to finance ShopHQ purchases and provides benefits including instant purchase credits, free or reduced shipping promotions throughout the year and promotional low-interest financing on qualifying purchases. Use of the ShopHQ credit card enhances customer loyalty, reduces total credit card expense and reduces the Company’s overall bad debt exposure since the credit card issuing bank bears the risk of loss on ShopHQ credit card transactions except those in the Company's ValuePay installment payment program. In July 2017, the Company extended the Program through December 2020 by entering into a Private Label Consumer Credit Card Program Agreement Amendment with Synchrony Financial, the issuing bank for the Program.
v3.20.1
Fair Value Measurements
12 Months Ended
Feb. 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 February 1, 2020 and February 2, 2019 the Company had $0 and $450,000 in Level 2 investments in the form of bank certificates of deposit, which are included in restricted cash equivalents in the consolidated balance sheets. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of February 1, 2020 and February 2, 2019 the Company also had a long-term variable rate PNC Credit Facility (as defined below), classified as Level 2, with carrying values of $68,960,000 and $71,420,000. As of February 1, 2020 and February 2, 2019, $2,714,000 and $2,488,000 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.
v3.20.1
Credit Agreements
12 Months Ended
Feb. 01, 2020
Debt Disclosure [Abstract]  
Credit Agreements [Text Block]
Credit Agreements
The Company's long-term credit facility consists of:
 
 
February 1, 2020
 
February 2, 2019
PNC revolving loan due July 27, 2023, principal amount
 
$
53,900,000

 
$
53,900,000

PNC term loan due July 27, 2023, principal amount
 
15,155,000

 
17,643,000

Less unamortized debt issuance costs
 
(95,000
)
 
(123,000
)
PNC term loan due July 27, 2023, carrying amount
 
15,060,000

 
17,520,000

Total long-term credit facility
 
68,960,000

 
71,420,000

Less current portion of long-term credit facility
 
(2,714,000
)
 
(2,488,000
)
Long-term credit facility, excluding current portion
 
$
66,246,000

 
$
68,932,000


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 GACP Term Loan (as defined below). The PNC Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $25.0 million at the discretion of the lenders and upon certain conditions being met. 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. On November 25, 2019, the Company entered into the Eleventh Amendment to the PNC Credit Facility, which among other things, increased the interest rate margin by 2% on the term loan and between 1% and 1.5% on the revolving line of credit.
All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million which, upon issuance, would be deemed advances under the PNC Credit Facility. 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 February 1, 2020, the Company had borrowings of $53.9 million under its revolving credit facility. Remaining available capacity under the revolving credit facility as of February 1, 2020 was approximately $5.6 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 GACP Term Loan and reduce its revolving credit facility borrowings. As of February 1, 2020, there was approximately $15.2 million outstanding under the PNC Credit Facility term loan of which $2.7 million was classified as current in the accompanying balance sheet.
Principal borrowings under the term loan are payable in monthly installments over an 84-month amortization period commencing on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 1.0% if terminated on or before July 27, 2020, 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of February 1, 2020, the imputed effective interest rate on the PNC term loan was 8.0%.
Interest expense recorded under the PNC Credit Facility was $3,758,000, $3,499,000 and $4,128,000 for fiscal 2019, fiscal 2018 and fiscal 2017.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. 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 February 1, 2020, the Company's unrestricted cash plus unused line availability was $15.9 million and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Deferred financing costs, net of amortization, relating to the revolving line of credit was $406,000 and $561,000 as of February 1, 2020 and February 2, 2019 and are included within other assets within the accompanying balance sheet. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.
Prepayment on Great American Capital Partners Term Loan
During fiscal 2017, the Company retired its term loan (the "GACP Term Loan") under a credit and security agreement with GACP Finance Co., LLC ("GACP"), with voluntary principal prepayments of $9.5 million, $2.5 million and $3.5 million on March 21, 2017, October 18, 2017 and December 6, 2017. The Company recorded a loss on debt extinguishment of $1.5 million during fiscal 2017. The fiscal 2017 loss on debt extinguishment includes early termination and lender fees of $334,000 and a write-off of unamortized debt issuance costs of $1.1 million, which represents the proportionate amount of unamortized debt issuance costs attributable to the settled debt. Interest expense recorded under the GACP Credit Agreement was $940,000 for fiscal 2017.
Maturities
The aggregate maturities of the Company's long-term credit facility as of February 1, 2020 are as follows:
 
 
PNC Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2020
 
$
2,714,000

 
$

 
$
2,714,000

2021
 
2,714,000

 

 
2,714,000

2022
 
2,714,000

 

 
2,714,000

2023
 
7,013,000

 
53,900,000

 
60,913,000

 
 
$
15,155,000

 
$
53,900,000

 
$
69,055,000


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 has experienced a decline in net sales and a decline in its active customer file during fiscal 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 with gross proceeds of $4.0 million to close in the first half of fiscal 2020; implemented a reduction in overhead costs during fiscal 2019 with $22 million in expected annualized savings, primarily driven by a reduction in the Company's work force; implemented additional reductions in overhead costs during the first quarter of fiscal 2020 with $16 million in expected annualized savings; renegotiating with the Company's major cable and satellite distributors to reduce service costs and improve payment terms; planned a reduction in capital expenditures compared to prior years; managing the Company's inventory receipts in fiscal 2020 to reduce inventory on hand; and negotiated improved payment terms with the Company's inventory vendors.
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, which requires, among other things, maintaining a minimum of $10 million of unrestricted cash adjusted by credit facility availability at all times. Accordingly, if the Company does not generate sufficient cash flow from operations to fund our working capital needs and planned capital expenditures, and its cash reserves are depleted, the Company may need to take further actions in 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 to grow both in the U.S. and globally and is adversely affecting the economy and financial markets and may affect 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. 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.
v3.20.1
Shareholders' Equity
12 Months Ended
Feb. 01, 2020
Equity [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 consolidated financial statements and notes to the consolidated financial statements for the current period and prior periods have been retrospectively revised. See Note 1 - "The Company" for additional information.
Common Stock
On December 3, 2019, the Company's shareholders approved an amendment to the Company's Articles of Incorporation authorizing the Company to issue 10,000,000 shares of capital stock and an additional 5,000,000 shares of common stock. The Company currently has authorized 9,600,000 shares of undesignated capital stock and an additional 5,000,000 shares of common stock, of which 8,208,227 common shares were issued and outstanding as common stock as of February 1, 2020. 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.
Preferred Stock
The Company authorized 400,000 Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, during fiscal 2015 as part of the Shareholder Rights Plan. As of February 1, 2020, there were zero shares issued and outstanding. See Note 13 - "Income Taxes" for additional information.
Dividends
The Company has never declared or paid any dividends with respect to its capital stock. The Company is restricted from paying dividends on its stock by its PNC Credit Facility.
Private Placement Securities Purchase Agreement
On May 2, 2019, the Company entered into a private placement securities purchase agreement ("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, Michael and Leah Friedman, Timothy Peterman and certain other private investors. Invicta Media Investments, LLC is owned by 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, which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and our long-time vendor. A description of the relationship between the Company, IWCA and Sterling Time is contained in Note 18 - “Related Party Transactions.” 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, an owner of IWCA, 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 Company's balance sheet. 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.
Registered Direct Offering
On May 23, 2017, the Company entered into Common Stock Purchase Agreements with certain accredited investors to which the Company sold, in the aggregate, 400,827 shares of common stock in a registered direct offering pursuant to a shelf registration statement on Form S-3 (File No. 333-203209), filed with the SEC on May 13, 2015. The shares were sold at a price of $11.20 per share, except for shares purchased by investors who are directors or executive officers of the Company, which were sold at a price of $11.50 per share. The closing of this sale occurred on May 30, 2017 and the Company received gross proceeds of approximately $4.5 million and incurred approximately $323,000 of issuance costs. The Company has used the proceeds for general working capital purposes.
Warrants
As of February 1, 2020, the Company had outstanding warrants to purchase 734,930 shares of the Company’s common stock, of which 734,930 are fully exercisable. The warrants expire five years from the date of grant. The following table summarizes information regarding warrants outstanding at February 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

On November 27, 2018, the Company issued warrants to Fonda, Inc. for 150,000 shares of our common stock in connection with and as consideration for entering into a services and trademark licensing agreement between the companies. The aggregate market value on the date of the award was $441,000 and was being amortized as cost of sales over the three-year services and trademark licensing agreement term. On July 29, 2019, the Company and Fonda, Inc. agreed to terminate the services and trademark licensing agreement and the warrants for 150,000 shares were forfeited.
Commercial Agreement with Shaquille O'Neal
On November 18, 2019, the Company entered into a commercial agreement (“Shaq Agreement”) and restricted stock unit award agreement (“RSU Agreement”) with ABG-Shaq, LLC (“Shaq”) pursuant to which certain products would be 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 the RSU 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 based on the grant date closing price of the Company's stock. Amortization of the award will commence on February 1, 2020, which is the beginning of the three-year commercial term.
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 grant was $469,000 and $89,000 for fiscal 2019 and fiscal 2018. As of February 1, 2020, there was $850,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average period of 1.8 years. The total fair value of restricted stock vested during fiscal 2019 was $188,000.
A summary of the status of the Company’s non-vested restricted stock award activity as of February 1, 2020 and changes during the twelve-month period then ended is as follows:
 
 
Restricted Stock
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2019
 
100,000

 
$
9.39

Granted
 

 
$

Vested
 
(50,000
)
 
$
9.39

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

 
$
9.39


Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for fiscal 2019, fiscal 2018 and fiscal 2017 related to stock option awards was $681,000, $1,157,000 and $915,000. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of February 1, 2020, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 1,300,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than 10 years after the effective date of the respective plan's inception or be exercisable more than 10 years after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. 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 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
 
Fiscal 2018
 
Fiscal 2017
Expected volatility
75%
-
82%
 
72%
-
78%
 
81%
Expected term (in years)
6 years
 
6 years
 
6 years
Risk-free interest rate
1.4%
-
2.6%
 
2.8%
-
3.0%
 
2.0%
-
2.2%

A summary of the status of the Company’s stock option activity as of February 1, 2020 and changes during the year then ended is as follows:
 
 
2011
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2004
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, February 2, 2019
 
476,000

 
$
13.60

 
11,000

 
$
48.71

Granted
 
34,000

 
$
4.62

 

 
$

Exercised
 

 
$

 

 
$

Forfeited or canceled
 
(263,000
)
 
$
13.54

 
(5,000
)
 
$
44.87

Balance outstanding, February 1, 2020
 
247,000

 
$
12.44

 
6,000

 
$
51.52

Options exercisable at February 1, 2020
 
140,000

 
$
14.64

 
6,000

 
$
51.52


The following table summarizes information regarding stock options outstanding at February 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:
 
247,000

 
$
12.44

 
7.4
 
$

 
230,000

 
$
12.62

 
7.4
 
$

2004 Incentive:
 
6,000

 
$
51.52

 
4.2
 
$

 
6,000

 
$
51.52

 
4.2
 
$


The weighted average grant-date fair value of options granted in fiscal 2019, fiscal 2018 and fiscal 2017 was $3.12, $7.35 and $9.14. The total intrinsic value of options exercised during fiscal 2019, fiscal 2018 and fiscal 2017 was $0, $26,000 and $15,000. As of February 1, 2020, total unrecognized compensation cost related to stock options was $270,000 and is expected to be recognized over a weighted average period of approximately 1.3 years.
Stock Option Tax Benefit
The exercise of certain stock options granted under the Company’s stock option plans give rise to compensation, which is included in the taxable income of the applicable employees and deductible by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company’s common stock subsequent to the date of grant of the applicable exercised stock options and these increases are not recognized as an expense for financial accounting purposes, as the options were originally granted at the fair market value of the Company’s common stock on the date of grant. The related tax benefits will be recorded if and when realized, and totaled $0, $7,000 and $6,000 in fiscal 2019, fiscal 2018 and fiscal 2017. The Company has not recorded any income tax benefit from the exercise of stock options in these fiscal years, due to the uncertainty of realizing income tax benefits in the future.
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $1,031,000, $1,792,000 and $1,973,000 for fiscal 2019, fiscal 2018 and fiscal 2017. As of February 1, 2020, there was $759,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average period of 1.7 years. The total fair value of restricted stock units vested during fiscal 2019, fiscal 2018 and fiscal 2017 was $434,000, $1,216,000 and $409,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company's stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.
The Company has granted time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock generally vests in three equal annual installments beginning one year from the grant date and is being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each restricted stock grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The grants are amortized as director compensation expense over the twelve-month vesting period.
The Company granted 94,000, 75,000 and 56,000 market-based restricted stock performance units to executives as part of the Company's long-term incentive program during fiscal 2019, fiscal 2018 and fiscal 2017. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
 
Fiscal 2019
 
Fiscal 2018
 
Fiscal 2017
Total grant date fair value
$482,000
 
$859,000
 
$860,000
Total grant date fair value per share
$5.14
 
$10.70
-
$13.00
 
$15.30
Expected volatility
74%
-
82%
 
73%
-
76%
 
75%
Weighted average expected life (in years)
3 years
 
3 years
 
3 years
Risk-free interest rate
1.7%
-
2.3%
 
2.4%
-
2.7%
 
1.5%

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

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 restricted stock units to Mr. Peterman. The restricted stock units vest in three tranches, each tranche consisting of one-third of the units subject to the award. Tranche 1 will vest upon 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 and the executive has been continuously employed at least one year. 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 February 1, 2020 and changes during the twelve-month period then ended is as follows:
 
Restricted Stock Units
 
Market-Based Units
 
Time-Based Units
 
Total
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2019
163,000

 
$
13.47

 
181,000

 
$
10.35

 
344,000

 
$
11.83

Granted
139,000

 
$
4.44

 
640,000

 
$
5.71

 
779,000

 
$
5.48

Vested

 
$

 
(233,000
)
 
$
7.90

 
(233,000
)
 
$
7.90

Forfeited
(173,000
)
 
$
11.41

 
(153,000
)
 
$
7.12

 
(326,000
)
 
$
9.40

Non-vested outstanding, February 1, 2020
129,000

 
$
6.49

 
435,000

 
$
5.96

 
564,000

 
$
6.08

v3.20.1
Business Segments and Sales by Product Group
12 Months Ended
Feb. 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 was no significant inter-segment sales or transfers during fiscal 2019, fiscal 2018 and fiscal 2017. 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 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
 
 
For the Years Ended
 
 
February 1,
2020
 
February 2,
2019
 
February 3,
2018
 
 
(in thousands)
ShopHQ
 
 
 
 
 
 
Net merchandise sales by category:
 
 
 
 
 
 
Jewelry & Watches
 
$
200,893

 
$
206,021

 
$
222,999

Home & Consumer Electronics
 
106,025

 
135,184

 
147,769

Beauty & Wellness
 
80,945

 
102,099

 
100,829

Fashion & Accessories
 
65,616

 
94,295

 
108,409

All other (primarily shipping & handling revenue)
 
42,628

 
52,630

 
60,830

Total ShopHQ
 
496,107

 
590,229

 
640,836

Emerging
 
5,715

 
6,408

 
7,384

Consolidated net sales
 
$
501,822

 
$
596,637

 
$
648,220


Performance Measures by Segment
 
 
For the Years Ended
 
 
February 1,
2020
 
February 2,
2019
 
February 3,
2018
 
 
(in thousands)
Gross profit
 
 
 
 
 
 
ShopHQ
 
$
162,809

 
$
205,036

 
$
232,905

Emerging
 
$
828

 
$
1,811

 
$
2,207

Consolidated gross profit
 
$
163,637

 
$
206,847

 
$
235,112

 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
ShopHQ
 
$
(46,956
)
 
$
(17,173
)
 
$
3,960

Emerging
 
(5,569
)
 
(1,451
)
 
(738
)
Consolidated operating income (loss)
 
$
(52,525
)
 
$
(18,624
)
 
$
3,222

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
ShopHQ
 
$
11,395

 
$
10,065

 
$
10,207

Emerging
 
619

 
99

 
100

Consolidated depreciation and amortization
 
$
12,014

 
$
10,164

 
$
10,307

v3.20.1
Leases (Notes)
12 Months Ended
Feb. 01, 2020
Leases [Abstract]  
Leases
Leases
Adoption of Leases, Topic 842
On February 3, 2019, the Company adopted ASU No. 2016-02, "Leases," and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. The Company elected the transition package of practical expedients which, among other things, allowed the Company to carry forward historical lease classification. The Company chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on the Company's consolidated statements of operations and there was no adjustment to its retained earnings opening balance sheet. The Company does not expect the adoption of the new standard to have a material impact on the Company's operating results on an ongoing basis.
The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while the Company's accounting for finance leases remained substantially unchanged. On February 3, 2019, the adoption of the new standard resulted in the recognition of a right-of-use asset of $1,474,000 and a lease liability of $1,407,000, and a reduction to prepaid expenses and other of $67,000.
The Company leases certain property and equipment, such as transmission and production equipment, satellite transponder and office equipment. 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 the balance sheet.
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 future 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 February 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 Year Ended
 
 
February 1, 2020
Operating lease cost
 
$
1,007,000

Short-term lease cost
 
153,000

Variable lease cost (a)
 
96,000

(a) Includes variable costs of finance leases.
For the year ended February 1, 2020, finance lease costs included amortization of right-of-use assets of $73,000 and interest on lease liabilities of $8,000.
The Company obtained $188,000 and $318,000 right-of-use assets in exchange for finance and operating leases, respectively, during the year ended February 1, 2020. Supplemental cash flow information related to leases were as follows:
 
 
For the Fiscal Year Ended
 
 
February 1, 2020
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows used for operating leases
 
$
950,000

Operating cash flows used for finance leases
 
8,000

Financing cash flows used for finance leases
 
71,000


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

Supplemental balance sheet information related to leases is as follows:
Leases
 
Classification
 
February 1, 2020
Assets
 
 
 
 
Operating lease right-of-use assets
 
Other assets
 
$
832,000

Finance lease right-of-use assets
 
Property and equipment, net
 
143,000

Total lease right-of-use assets
 
 
 
$
975,000

Operating lease liabilities
 
 
 
 
Current portion of operating lease liabilities
 
Current portion of operating lease liabilities
 
$
704,000

Operating lease liabilities, excluding current portion
 
Other long term liabilities
 
129,000

Total operating lease liabilities
 
 
 
833,000

Finance lease liabilities
 
 
 
 
Current portion of finance lease liabilities
 
Current liabilities: Accrued liabilities
 
80,000

Finance lease liabilities, excluding current portion
 
Other long term liabilities
 
66,000

Total finance lease liabilities
 
 
 
146,000

Total lease liabilities
 
 
 
$
979,000


Future maturities of lease liabilities as of February 1, 2020 are as follows:
Fiscal year
 
Operating Leases
 
Finance Leases
 
Total
2020
 
$
725,000

 
$
85,000

 
$
810,000

2021
 
46,000

 
60,000

 
106,000

2022
 
47,000

 
8,000

 
55,000

2023
 
40,000

 

 
40,000

2024
 
10,000

 

 
10,000

Thereafter
 

 

 

Total lease payments
 
868,000

 
153,000

 
1,021,000

Less imputed interest
 
(35,000
)
 
(7,000
)
 
(42,000
)
Total lease liabilities
 
$
833,000

 
$
146,000

 
$
979,000


As of February 1, 2020, the Company had no operating and finance leases that had not yet commenced.
Disclosures Related to Periods Prior to Adoption of Leases, Topic 842
Future minimum lease payments for assets under capital and operating leases at February 2, 2019 are as follows:
Future Minimum Lease Payments:
Capital Leases
 
Operating Leases
 
 
 
 
2019
$
13,000

 
$
1,005,000

2020
8,000

 
604,000

2021
8,000

 

2022
2,000

 

2023 and thereafter

 

Total minimum lease payments
31,000

 
$
1,609,000

Less: Amounts representing interest
(2,000
)
 
 
 
29,000

 
 
Less: Current portion
(12,000
)
 
 
Long-term capital lease obligation
$
17,000

 
 
v3.20.1
Business Acquisitions
12 Months Ended
Feb. 01, 2020
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions
Float Left Interactive, Inc.
In November 2019, the Company entered into an asset purchase agreement and acquired substantially all the assets of Float Left, 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. The Company plans to utilize Float Left’s team and technology platform to further grow its content delivery capabilities in OTT platforms while providing new revenue opportunities.
The acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities assumed pursuant to the asset purchase agreement based on fair values at the acquisition date. The operating results of Float Left, which were not material, have been included in the consolidated financial statements of the Company since the date of acquisition. The supplementary proforma information, assuming this acquisition occurred as of the beginning of the prior periods, and the operations of Float Left for the period from the November 26, 2019 acquisition date through the end of fiscal 2019 were immaterial. The Company incurred $78,000 of acquisition-related costs and are included in general and administrative expense in the accompanying fiscal 2019 consolidated statement of operations. The acquisition date fair value of consideration transferred for Float Left was approximately $1,102,000, which consisted of $353,000 of cash, net of cash acquired, $459,000 of common stock and $290,000 of contingent consideration.
The estimated fair value of the common stock issued as purchase consideration, 100,000 shares, is based on the issue date closing price of the Company's stock. The purchase includes contingent consideration of up to 50,000 additional shares of our common stock in the event certain performance metrics are satisfied relating to the Float Left business following closing. The estimated fair value of contingent consideration is primarily based on the Float Left's projected performance for each of the next two fiscal years following the closing date and the closing price of the Company's stock.
The following table summarizes our allocation of the Float Left purchase consideration:
 
 
Fair Value
Current assets
 
$
139,000

Identifiable intangible assets acquired:
 
 
Developed technology
 
772,000

Customer relationships
 
253,000

Trade names
 
88,000

Other assets
 
18,000

Accounts payable and accrued liabilities
 
(168,000
)
 
 
$
1,102,000


The fair value of identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate rate of return.
J.W. Hulme Company
In November 2019, the Company entered into an asset purchase agreement and acquired substantially all the assets of J.W. Hulme, a business specializing in artisan-crafted leather products, including handbags and luggage. The Company plans to accelerate J.W. Hulme's revenue growth by creating its own programming on ShopHQ. Additionally, the Company plans to utilize J.W. Hulme to craft private-label accessories for the Company's existing owned and operated fashion brands.
The acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities assumed pursuant to the asset purchase agreement based on fair values at the acquisition date. The operating results of J.W. Hulme, which were not material, have been included in the consolidated financial statements of the Company since the date of acquisition. The supplementary proforma information, assuming this acquisition occurred as of the beginning of the prior periods, and the operations of J.W. Hulme for the period from the November 26, 2019 acquisition date through the end of fiscal 2019 were immaterial. The Company incurred $80,000 of acquisition-related costs and are included in general and administrative expense in the accompanying fiscal 2019 consolidated statement of operations. The acquisition date fair value of consideration transferred for J.W. Hulme was approximately $1,906,000, which consisted of $285,000 of cash, net of cash acquired, a working capital holdback of $225,000 and $1,396,000 of common stock issued. The estimated fair value of the common stock issued as purchase consideration, 291,000 shares, is based on the issue date closing price of the Company's stock.
The following table summarizes our allocation of the J.W. Hulme purchase consideration:
 
 
Fair Value
Current assets
 
$
904,000

Identifiable intangible assets acquired:
 
 
Trade names
 
1,480,000

Existing customer list
 
86,000

Other assets
 
184,000

Accounts payable and accrued liabilities
 
(580,000
)
Other long term liabilities
 
(168,000
)
 
 
$
1,906,000


The fair value of identifiable intangible assets were determined using an income-based approach, which includes market participant expectations of cash flows that an asset will generate over the remaining useful life discounted to present value using an appropriate rate of return.
v3.20.1
Income Taxes
12 Months Ended
Feb. 01, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company records deferred taxes for differences between the financial reporting and income tax bases of assets and liabilities, computed in accordance with tax laws in effect at that time. The deferred taxes related to such differences as of February 1, 2020 and February 2, 2019 were as follows (in thousands):
 
 
February 1, 2020
 
February 2, 2019
Accruals and reserves not currently deductible for tax purposes
 
$
4,039

 
$
5,281

Inventory capitalization
 
1,181

 
1,339

Differences in depreciation lives and methods
 
(1,076
)
 
(1,382
)
Differences in basis of intangible assets
 
153

 
43

Differences in investments and other items
 
2,140

 
1,432

Net operating loss carryforwards
 
96,894

 
85,138

Valuation allowance
 
(103,331
)
 
(91,851
)
Net deferred tax liability
 
$

 
$


The income tax benefit (provision) consisted of the following (in thousands):
 
 
For the Years Ended
 
 
February 1, 2020
 
February 2, 2019
 
February 3, 2018
Current
 
$
(11
)
 
$
(65
)
 
$
(60
)
Deferred
 

 

 
3,505

 
 
$
(11
)
 
$
(65
)
 
$
3,445


A reconciliation of the statutory tax rates to the Company’s effective tax rate is as follows:
 
 
For the Years Ended
 
 
February 1, 2020
 
February 2, 2019
 
February 3, 2018
Taxes at federal statutory rates
 
21.0
 %
 
21.0
 %
 
33.8
 %
State income taxes, net of federal tax benefit
 
4.1

 
5.9

 
40.4

Provision to return true-up
 
(4.0
)
 
(2.5
)
 
(41.6
)
Non-cash stock option vesting expense
 
(0.6
)
 
(1.2
)
 
(12.2
)
FCC license deferred tax liability impact on valuation allowance
 

 

 
100.4

Impact of Tax Act on deferred tax valuation
 

 

 
(1,382.3
)
Valuation allowance and NOL carryforward benefits
 
(20.4
)
 
(23.6