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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021

OR

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37495

GRAPHIC

iMedia Brands, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

   

41-1673770

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

6740 Shady Oak Road, Eden Prairie, MN 55344-3433

(Address of Principal Executive Offices, including Zip Code)

952-943-6000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

IMBI

Nasdaq Capital Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of June 7, 2021 there were 16,384,402 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

iMEDIA BRANDS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

May 1, 2021

Part I. Financial Information

Page

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of May 1, 2021 and January 30, 2021

3

Condensed Consolidated Statements of Operations for the Three-Month Periods Ended May 1, 2021 and May 2, 2020

4

Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month Periods Ended May 1, 2021 and May 2, 2020

5

Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended May 1, 2021 and May 2, 2020

6

Notes to Condensed Consolidated Financial Statements as of May 1, 2021

7

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

27

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

Item 4. Controls and Procedures

40

Part II. Other Information

40

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

40

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

41

Item 3. Defaults Upon Senior Securities

41

Item 4. Mine Safety Disclosures

41

Item 5. Other Information

41

Item 6. Exhibits

42

Signatures

43

2

PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

May 1,

    

January 30,

2021

2021

(In thousands, except share and 

per share data)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

14,946

$

15,485

Accounts receivable, net

 

56,601

 

61,951

Inventories

 

74,522

 

68,715

Current portion of television broadcast rights, net

17,364

19,725

Prepaid expenses and other

 

11,722

 

7,853

Total current assets

 

175,155

 

173,729

Property and equipment, net

 

43,441

 

41,988

Television broadcast rights, net

4,230

7,028

Intangible assets, net

7,712

2,359

Other assets

 

1,263

 

1,533

TOTAL ASSETS

$

231,801

$

226,637

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

54,941

$

77,995

Accrued liabilities

 

41,840

 

29,509

Current portion of television broadcast rights obligations

26,141

29,173

Current portion of long term credit facility

 

2,714

 

2,714

Current portion of operating lease liabilities

 

262

 

462

Deferred revenue

 

361

 

213

Total current liabilities

 

126,259

 

140,066

Other long term liabilities

 

6,814

 

8,855

Long term credit facility

 

49,995

 

50,666

Total liabilities

 

183,068

 

199,587

Commitments and contingencies

 

  

 

  

Shareholders' equity:

 

  

 

  

Preferred stock, $0.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding

 

 

Common stock, $0.01 per share par value, 29,600,000 shares authorized as of May 1, 2021 and January 30, 2021; 16,384,402 and 13,019,061 shares issued and outstanding as of May 1, 2021 and January 30, 2021

 

164

 

130

Additional paid-in capital

 

495,972

 

474,375

Accumulated deficit

 

(450,683)

 

(447,455)

Total shareholders’ equity

 

45,453

 

27,050

Equity of the non-controlling interest

$

3,280

$

Total equity

$

48,733

$

27,050

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

231,801

$

226,637

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

3

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three-Month

Periods Ended

May 1,

May 2,

    

2021

    

2020

(In thousands, except share and per share data)

Net sales

$

113,203

$

95,834

Cost of sales

 

67,196

 

60,277

Gross profit

 

46,007

 

35,557

Operating expense:

 

  

 

  

Distribution and selling

 

34,247

 

33,735

General and administrative

 

6,436

 

5,367

Depreciation and amortization

 

7,375

 

1,881

Restructuring costs

 

 

209

Total operating expense

 

48,058

 

41,192

Operating loss

 

(2,051)

 

(5,635)

Other income (expense):

 

  

 

  

Interest income

 

1

 

1

Interest expense

 

(1,313)

 

(1,179)

Total other expense, net

 

(1,312)

 

(1,178)

Loss before income taxes

 

(3,363)

 

(6,813)

Income tax provision

 

(15)

 

(15)

Net loss

$

(3,378)

$

(6,828)

Less: Net loss attributable to non-controlling interest

(150)

Net loss attributable to shareholders

(3,228)

(6,828)

Net loss per common share

$

(0.21)

$

(0.82)

Net loss per common share — assuming dilution

$

(0.21)

$

(0.82)

Weighted average number of common shares outstanding:

 

  

 

  

Basic

 

15,517,454

 

8,290,790

Diluted

 

15,517,454

 

8,290,790

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

4

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

Common Stock

    

    

    

    

    

    

    

Additional 

Equity of

Total 

Number 

Paid-In 

Accumulated 

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Interest

Equity

For the Three-Month Period Ended May 1, 2021

 

(In thousands, except share data)

BALANCE, January 30, 2021

 

13,019,061

$

130

$

474,375

$

(447,455)

$

$

27,050

Net loss

 

 

 

 

(3,228)

 

(150)

 

(3,378)

Common stock issuances pursuant to equity compensation awards

 

76,341

 

1

 

(262)

 

 

 

(261)

Share-based payment compensation

 

 

 

668

 

 

 

668

Common stock and warrant issuance

 

3,289,000

 

33

 

21,191

 

 

 

21,224

Investment of non-controlling interest

3,430

3,430

BALANCE, May 1, 2021

 

16,384,402

 

164

 

495,972

 

(450,683)

 

3,280

 

48,733

    

Common Stock

    

    

    

    

    

    

    

Additional 

Equity of

Total 

Number 

Paid-In 

Accumulated 

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Interest

Equity

For the Three-Month Period Ended May 2, 2020

 

(In thousands, except share data)

BALANCE, February 1, 2020

 

8,208,227

$

82

$

452,833

$

(434,221)

$

$

18,694

Net loss

 

 

 

 

(6,828)

 

 

(6,828)

Common stock issuances pursuant to equity compensation awards

 

32,652

 

1

 

(3)

 

 

 

(2)

Share-based payment compensation

 

 

 

615

 

 

 

615

Common stock and warrant issuance

 

731,937

 

7

 

1,418

 

 

 

1,425

BALANCE, May 2, 2020

 

8,972,816

 

90

 

454,863

 

(441,049)

 

 

13,904

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

5

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Three-Month

Periods Ended

May 1,

May 2,

2021

2020

(in thousands)

OPERATING ACTIVITIES:

  

 

  

Net loss

$

(3,378)

$

(6,828)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

 

  

 

  

Depreciation and amortization

 

8,317

 

2,905

Share-based payment compensation

 

668

 

615

Payments for television broadcast rights

(6,219)

Amortization of deferred financing costs

 

46

 

50

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

6,050

 

8,777

Inventories

 

(517)

 

14,909

Deferred revenue

 

149

 

(26)

Prepaid expenses and other

 

(3,639)

 

1,175

Accounts payable and accrued liabilities

 

(16,694)

 

(5,161)

Net cash (used for) provided by operating activities

 

(15,217)

 

16,416

INVESTING ACTIVITIES:

 

  

 

  

Property and equipment additions

 

(2,078)

 

(1,166)

Cash paid for business acquisitions

 

(3,500)

 

Net cash used for investing activities

 

(5,578)

 

(1,166)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from issuance of revolving loan

 

 

5,900

Proceeds from issuance of common stock and warrants

 

21,224

 

1,500

Payments on revolving loan

 

 

(15,800)

Payments on term loan

 

(678)

 

(905)

Payments on finance leases

 

(28)

 

(25)

Payments for restricted stock issuance

 

(262)

 

(2)

Net cash provided by (used for) financing activities

 

20,256

 

(9,332)

Net (decrease) increase in cash and restricted cash equivalents

 

(539)

 

5,918

BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS

 

15,485

 

10,287

ENDING CASH AND RESTRICTED CASH EQUIVALENTS

$

14,946

$

16,205

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid

$

1,267

$

1,316

Television broadcast rights obtained in exchange for liabilities

$

-

$

22,028

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment purchases included in accounts payable

$

447

$

368

Common stock issuance costs included in accrued liabilities

$

259

$

75

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

6

iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

May 1, 2021

(Unaudited)

(1)   General

iMedia Brands, Inc. and its subsidiaries (“we,” “our,” “us,” or the “Company”) is a leading interactive media company that owns a growing portfolio of lifestyle television networks, consumer brands, online marketplaces and media commerce services that together position the Company as a leading single-source partner to television advertisers and consumer brands seeking to entertain and transact with customers using interactive video. The Company’s growth strategy revolves around its ability to increase its expertise and scale using interactive video to engage customers within multiple business models and multiple sales channels.  The Company believes its growth strategy builds on its core strengths and provides an advantage in these marketplaces.

The Company’s lifestyle television networks are ShopHQ, ShopBulldogTV and ShopHQHealth. ShopHQ is the Company’s flagship, nationally distributed shopping entertainment network that offers a mix of proprietary, exclusive, and name-brand merchandise in the categories of Jewelry and Watches, Home, Beauty and Health, and Fashion and Accessories, directly to consumers 24 hours a day using engaging interactive video. ShopBulldogTV, which launched in the fourth quarter of fiscal 2019, is a niche television shopping entertainment network that offers male-oriented products and services to men and to women shopping for men. ShopHQHealth, which launched in the third quarter of fiscal 2020, is a niche television shopping entertainment network that offers women and men products and services focused on health and wellness categories such as physical, mental and spiritual health, financial and motivational wellness, weight management and telehealth medical services.

The Company’s engaging, interactive video programming is distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunications companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online at shophq.com, shopbulldogtv.com and shophqhealth.com, which are comprehensive digital commerce platforms that sell products which appear on the Company’s television lifestyle networks as well as offer an extended assortment of online-only merchandise. The Company’s interactive video is also available on over-the-top ("OTT") platforms and ConnectedTV platforms (“CTV”) such as Roku, AppleTV, and Samsung connected televisions, mobile devices, including smartphones and tablets, and through the leading social media channels.

The Company’s consumer brands include J.W. Hulme Company ("J.W. Hulme"), Cooking with Shaquille O’Neal, Kate & Mallory, Live Fit MD, and Christopher & Banks. Christopher & Banks was acquired during the first quarter of fiscal year 2021.

The Company’s online marketplace brands are OurGalleria.com, a high-end branded, online marketplace launched in November 2020 that offers discounted merchandise within an exciting interactive shopping experience, and TheCloseout.com, a deeply-discount branded online marketplace acquired in fiscal year 2021 that offers discounted merchandise in many categories within an exciting interactive shopping experience.  

The Company’s media commerce services brands are Float Left Interactive, Inc. ("Float Left"), an OTT app technology services business and the Company’s customer solutions and logistics services business called, i3PL.

Amendment to Articles of Incorporation

Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized shares of common stock by 15,000,000 shares. The Articles of Incorporation, as amended, now provide that the Company is authorized to issue 10,000,000 shares of capital stock and 20,000,000 shares of common stock.

7

(2)    Basis of Financial Statement Presentation

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of January 30, 2021 has been derived from the Company’s audited financial statements for the fiscal year ended January 30, 2021. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of these financial statements. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its annual report on Form 10-K for the fiscal year ended January 30, 2021. Operating results for the three-month period ended May 1, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 29, 2022.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31 and results in either a 52-week or 53-week fiscal year. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 2020, ended on January 30, 2021, and consisted of 52 weeks. Fiscal 2021 will end January 29, 2022 and will contain 52 weeks. The three-month period ended May 1, 2021 consisted of 13 weeks.

Recently Adopted Accounting Standards

In June 2016, the FASB issued guidance on the accounting for credit losses on financial instruments, Topic 326, Financial Instruments—Credit Losses (Accounting Standards Update (“ASU” 2016-13). Topic 326 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. Among other provisions, this guidance introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for losses. The Company adopted this guidance during the first quarter of fiscal 2021.

In August 2018, the Financial Accounting Standards Board ("FASB") issued Intangibles—Goodwill and Other—Internal-Use Software, Subtopic 350-40 (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard during the first quarter of fiscal year 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. Topic 848 is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of Topic 848 on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-14). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount

8

over its fair value.  The changes are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted.  The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

(3)   Revenue

Revenue Recognition

Revenue is recognized when control of the promised merchandise is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for the merchandise, which is upon shipment. Revenue for services is recognized when the services are provided to the customer. Revenue is reported net of estimated sales returns, credits and incentives, and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on historical experience. As of May 1, 2021 and January 30, 2021, the Company recorded a merchandise return liability of $5,439,000 and $5,271,000, included in accrued liabilities, and a right of return asset of $2,779,000 and $2,749,000, included in Prepaid Expenses and Other.

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 May 1, 2021, the Company had no remaining performance obligations for contracts with original expected terms of one year or more. 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 $0 and $8,000 for the three-month periods ended May 1, 2021 and May 2, 2020.

Accounts Receivable

The Company’s accounts receivable is comprised primarily of customer receivables from its ValuePay program, but also includes vendor receivables, credit card receivables and other receivables.  The Company’s ValuePay program is an installment payment program 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 May 1, 2021 and January 30, 2021, the Company had approximately $45,907,000 and $49,736,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $2,941,000 and $3,132,000. The decrease in the total reserve as a percentage of receivables is primarily due to the Company’s recently shortened active collections cycle, whereby the Company is pursuing collection for a shorter period prior to selling and writing off its receivables while yielding a comparable recovery rate.

(4)    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).

9

As of May 1, 2021 and January 30, 2021, the Company’s long-term variable rate PNC Credit Facility (as defined below), classified as Level 2, had carrying values of $52,709,000 and $53,380,000. As of May 1, 2021 and January 30, 2021, $2,714,000 of the long-term variable rate PNC Credit Facility was classified as current. The fair value of the PNC Credit Facility approximates, and is based on, its carrying value due to the variable rate nature of the financial instrument. The Company has no Level 3 investments that use significant unobservable inputs.

(5)    Television Broadcast Rights

Television broadcast rights in the accompanying condensed consolidated balance sheets consisted of the following:

    

May 1, 2021

    

January 30, 2021

Television broadcast rights

$

43,655,000

$

43,655,000

Less accumulated amortization

 

(22,061,000)

 

(16,902,000)

Television broadcast rights, net

$

21,594,000

$

26,753,000

During fiscal year 2020, the Company entered into certain affiliation agreements with television service providers for carriage of its television programming over their systems, including channel placement rights, which ensure the Company keeps its channel position on the service provider’s channel line-up during the term. The Company recorded the television broadcast rights of $0 and $22.0 million during the first quarters of fiscal year 2021 and 2020, which represents the present value of payments for the television broadcast rights associated with the channel position placement. Television broadcast rights are amortized on a straight-line basis over the lives of the individual agreements. The remaining weighted average lives of the television broadcast rights was 1.2 years as of May 1, 2021. Amortization expense related to the television broadcast rights was $5.2 million and $47,000 for the three-month periods ended May 1, 2021 and May 2, 2020 and is included in depreciation and amortization within the condensed consolidated statements of operations. Estimated broadcast rights amortization expense is $19.7 million for fiscal 2021 and $7.0 million for fiscal 2022. The liability relating to the television broadcast rights was $30.8 million as of May 1, 2021, of which $26.1 million was classified as current in the accompanying condensed consolidated balance sheets. The long-term portion of the broadcast rights obligations is included in other liabilities within the accompanying condensed consolidated balance sheets. Interest expense related to the television broadcast rights obligation was $503,000 and $6,000 during the three-month periods ended May 1, 2021 and May 2, 2020.

In addition to the Company securing broadcast rights for channel position, the Company’s affiliation agreements generally provide that it will pay each operator a monthly service fee, most often based on the number of homes receiving the Company’s programming, and in some cases marketing support payments. Monthly service fees are expensed as distribution and selling expense within the condensed consolidated statement of operations.

(6)    Intangible Assets

Intangible assets in the accompanying condensed consolidated balance sheets consisted of the following:

May 1, 2021

January 30, 2021

Estimated 

Gross 

Gross 

Useful Life 

Carrying 

Accumulated 

Carrying 

Accumulated 

    

(In Years)

    

Amount

    

Amortization

    

Amount

    

Amortization

Trade Names

 

3-15

 

$

1,928,000

 

$

(168,000)

 

$

1,568,000

 

$

(124,000)

Technology

 

4

 

3,163,000

 

(294,000)

 

772,000

 

(228,000)

Customer Lists

 

3-5

 

3,224,000

 

(257,000)

 

339,000

 

(93,000)

Vendor Exclusivity

 

5

 

192,000

 

(77,000)

 

192,000

 

(67,000)

Total finite-lived intangible assets

 

$

8,507,000

 

$

(796,000)

 

$

2,871,000

 

$

(512,000)

Finite-lived Intangible Assets

The finite-lived intangible assets are included in the accompanying condensed consolidated balance sheets within intangible assets, net and consist of the J.W. Hulme trade name and customer list; the Float Left developed technology, customer relationships and trade

10

name; a vendor exclusivity agreement; Christopher & Banks customer list and TCO technology. Amortization expense related to the finite-lived intangible assets was $104,000 for the three-month periods ended May 1, 2021 and May 2, 2020. Estimated amortization expense is $415,000 for fiscal 2021, $410,000 for fiscal 2022, $352,000 for fiscal 2023, $156,000 for fiscal 2024, and $105,000 for fiscal 2025.

(7)   Credit Agreements

The Company’s long-term credit facility consists of:

    

May 1, 2021

    

January 30, 2021

PNC revolving loan due July 27, 2023, principal amount

$

41,000,000

$

41,000,000

PNC term loan due July 27, 2023, principal amount

 

11,762,000

 

12,441,000

Less unamortized debt issuance costs

 

(53,000)

 

(61,000)

PNC term loan due July 27, 2023, carrying amount

 

11,709,000

 

12,380,000

Total long-term credit facility

 

52,709,000

 

53,380,000

Less current portion of long-term credit facility

 

(2,714,000)

 

(2,714,000)

Long-term credit facility, excluding current portion

$

49,995,000

$

50,666,000

PNC Credit Facility

On February 9, 2012, the Company entered into a credit and security agreement (as amended through February 5, 2021, 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 $70.0 million and provides for a term loan on which the Company had originally drawn to fund improvements at the Company’s distribution facility in Bowling Green, Kentucky and subsequently to pay down the Company’s previously outstanding term loan with GACP Finance Co., LLC. The PNC Credit Facility also has an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $20.0 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 $70.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.

All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million, which, upon issuance, would be deemed advances under the PNC Credit Facility. The PNC Credit Facility is secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky. Under certain circumstances, the borrowing base may be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.

The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3.5% on Base Rate advances and 3% and 4.5% on LIBOR advances based on the Company’s trailing twelve-month reported leverage ratio (as defined in the PNC Credit Facility) measured semi-annually as demonstrated in its financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.

As of May 1, 2021, the Company had borrowings of $41.0 million under its revolving line of credit. Remaining available capacity under the revolving line of credit as of May 1, 2021 was approximately $9.3 million, which provided liquidity for working capital and general corporate purposes. The PNC Credit Facility also provides for a term loan on which the Company had originally drawn to fund an expansion and improvements at the Company’s distribution facility in Bowling Green, Kentucky and subsequently to partially pay down the Company’s previously outstanding term loan with GACP Finance Co., LLC and reduce its revolving line of credit borrowings. As of May 1, 2021, there was approximately $11.8 million outstanding under the term loan, of which $2.7 million was classified as current in the accompanying condensed consolidated balance sheet.

Principal borrowings under the term loan are to be payable in monthly installments over an 84-month amortization period that commenced on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to,

11

upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of May 1, 2021, the imputed effective interest rate on the PNC term loan was 6.41%.

Interest expense recorded under the PNC Credit Facility was $803,000 and $1,167,000 for the three-month periods ended May 1, 2021 and May 2, 2020.

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 May 1, 2021, the Company’s unrestricted cash plus unused line availability was $24.2 million, and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.

Deferred financing costs, net of amortization, relating to the revolving line of credit were $228,000 and $243,000 as of May 1, 2021 and January 30, 2021 and are included within other assets within the accompanying condensed consolidated balance sheets. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.

The aggregate maturities of the Company’s long-term credit facility as of May 1, 2021 were as follows:

PNC Credit Facility

Fiscal year

    

Term loan

    

Revolving loan

    

Total

2021

$

2,035,000

$

$

2,035,000

2022

 

2,714,000

 

 

2,714,000

2023

 

7,013,000

 

41,000,000

 

48,013,000

$

11,762,000

$

41,000,000

$

52,762,000

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 the Company’s 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’s ability to fund operations and capital expenditures in the future will be dependent on its ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in its sales and to use available funds from its PNC Credit Facility. The Company’s ability to borrow funds is dependent on its ability to maintain an adequate borrowing base and its ability to meet its credit facility’s covenants (as described above). Accordingly, if the Company does not generate sufficient cash flow from operations to fund its working capital needs, planned capital expenditures and meet credit facility covenants, and its cash reserves are depleted, the Company may need to take actions that are within the Company’s control, such as further reductions or delays in capital investments, additional reductions to the Company’s workforce, reducing or delaying strategic investments or other actions. The

12

Company believes that it is probable its existing cash balances and its availability under the PNC Credit Facility, will be sufficient to fund the Company’s normal business operations over the next twelve months from the issuance of this report.

(8)   Shareholders’ Equity

Common Stock

Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized number of common shares from 5,000,000 to 20,000,000. The Company currently has 10,000,000 shares of capital stock, of which 400,000 is designated as preferred stock, and 20,000,000 shares of common stock. The Company currently has authorized 9,600,000 shares of undesignated capital stock and an additional 20,000,000 shares of common stock authorized. As of May 1, 2021, no shares of capital stock were outstanding and 16,384,402 shares of common stock were issued and outstanding. The board of directors may establish new classes and series of capital stock by resolution without shareholder approval; however, in certain circumstances the Company is required to obtain approval under the Company’s PNC Credit Facility.

Public Offerings

On February 18, 2021, the Company completed a public offering, in which the Company issued and sold 3,289,000 shares of its common stock at a public offering price of $7.00 per share, including 429,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $21,224,000. The Company has used or intends to use the proceeds for general working capital purposes.

On August 28, 2020, the Company completed a public offering, in which the Company issued and sold 2,760,000 shares of its common stock at a public offering price of $6.25 per share, including 360,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $15,833,000. The Company used the proceeds for general working capital purposes.

April 2020 Private Placement Securities Purchase Agreement

On April 14, 2020, the Company entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which the Company sold an aggregate of 1,836,314 shares of the Company’s common stock, issued warrants to purchase an aggregate of 979,190 shares of the Company’s common stock at a price of $2.66 per share, and fully-paid warrants to purchase an aggregate 114,698 shares of the Company’s common stock at a price of $0.001 per share in a private placement, for an aggregate cash purchase price of $4,000,000. The initial closing occurred on April 17, 2020 and the Company received gross proceeds of $1,500,000. Additional closings occurred on May 22, 2020, June 8, 2020, June 12, 2020 and July 11, 2020 and the Company received gross proceeds of $2,500,000. The Company incurred approximately $190,000 of issuance costs during the first half of fiscal 2020. The Warrants are indexed to the Company’s publicly traded stock and were classified as equity. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less issuance costs, recorded as additional paid in capital in the accompanying condensed consolidated balance sheets. The Company used the proceeds for general working capital purposes.

The purchasers consisted of the following: Invicta Media Investments, LLC, Michael and Leah Friedman and Hacienda Jackson LLC. Invicta Media Investments, LLC is owned by Invicta Watch Company of America, Inc. (“IWCA”), which is the designer and manufacturer of Invicta-branded watches and watch accessories, one of the Company’s largest and longest tenured brands. Michael and Leah Friedman are owners and officers of Sterling Time, LLC (“Sterling Time”), which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and the Company’s long-time vendor. IWCA is owned by the Company’s Vice Chair and director, Eyal Lalo, and Michael Friedman also serves as a director of the Company. A description of the relationship between the Company, IWCA and Sterling Time is contained in Note 15 - “Related Party Transactions.” Further, Invicta Media Investments, LLC and Michael and Leah Friedman comprise a “group” of investors within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended, that is the Company’s largest shareholder.

The warrants have an exercise price per share of $2.66 and are exercisable at any time and from time to time from six months following their issuance date until April 14, 2025. The Company has included a blocker provision in the purchase agreement whereby no purchaser may be issued shares of the Company’s common stock if the purchaser would own over 19.999% of the Company’s

13

outstanding common stock and, to the extent a purchaser in this offering would own over 19.999% of the Company’s outstanding common stock, that purchaser will receive fully-paid warrants (in contrast to the coverage warrants that will be issued in this transaction, as described above) in lieu of the shares that would place such holder’s ownership over 19.999%. Further, the Company included a similar blocker in the warrants (and amended the warrants purchased by the purchasers on May 2, 2019, if any) whereby no purchaser of the warrants may exercise a warrant if the holder would own over 19.999% of the Company’s outstanding common stock.

During the third quarter of fiscal 2020, the fully-paid warrants were exercised for the purchase of 114,698 shares of the Company’s common stock.

Warrants

As of May 1, 2021, the Company had outstanding warrants to purchase 1,714,120 shares of the Company’s common stock, of which 1,714,120 were fully exercisable. The warrants expire approximately five years from the date of grant. The following table summarizes information regarding warrants outstanding at May 1, 2021:

    

Warrants

    

Warrants

    

Exercise Price

    

Grant Date

Outstanding

Exercisable

(Per Share)

Expiration Date

September 19, 2016

 

297,616

 

297,616

$

29.00

 

September 19, 2021

November 10, 2016

 

33,386

 

33,386

$

30.00

 

November 10, 2021

January 23, 2017

 

48,930

 

48,930

$

17.60

 

January 23, 2022

March 16, 2017

 

5,000

 

5,000

$

19.20

 

March 16, 2022

May 2, 2019

 

349,998

 

349,998

$

15.00

 

May 2, 2024

April 17, 2020

367,197

367,197

$

2.66

April 14, 2025

May 22, 2020

122,398

122,398

$

2.66

April 14, 2025

June 8, 2020

122,399

122,399

$

2.66

April 14, 2025

June 12, 2020

122,398

122,398

$

2.66

April 14, 2025

July 11, 2020

244,798

244,798

$

2.66

April 14, 2025

Commercial Agreement with Shaquille O’Neal

On November 18, 2019, the Company entered into a commercial agreement (“Shaq Agreement”) with ABG-Shaq, LLC (“Shaq”) pursuant to which certain products are sold bearing certain intellectual property rights of Shaquille O’Neal on the terms and conditions set forth in the Shaq Agreement. In exchange for such services and pursuant to a restricted stock unit award agreement, the Company issued 400,000 restricted stock units to Shaq that vest in three separate tranches. The first tranche of 133,333 restricted stock units vested on November 18, 2019, which was the date of grant. The second tranche of 133,333 restricted stock units will vest February 1, 2021 and the final tranche of 133,334 restricted stock units will vest February 1, 2022. Additionally, in connection with the Shaq Agreement, the Company entered into a registration rights agreement with respect to the restricted stock units pursuant to which the Company agreed to register the common stock issuable upon settlement of the restricted stock units in accordance with the terms and conditions therein. The restricted stock units each settle for one share of the Company’s common stock. The aggregate market value on the date of the award was $2,595,000 and is being amortized as cost of sales over the three-year commercial term. The estimated fair value is based on the grant date closing price of the Company’s stock.

Compensation expense relating to the restricted stock unit grant was $216,000 and $216,000 for the first quarters of fiscal 2021 and 2020. As of May 1, 2021, there was $1,514,000 of total unrecognized compensation cost related to the award. That cost is expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock Award

On November 23, 2018, the Company entered into a restricted stock award agreement with Flageoli Classic Limited, LLC (“FCL”) granting FCL 150,000 restricted shares of the Company’s common stock in connection with and as consideration for entering into a vendor exclusivity agreement with the Company. The vendor exclusivity agreement grants us the exclusive right in television shopping to market, promote and sell products under the trademark of Serious Skincare, a skin-care brand that launched on the Company’s television network on January 3, 2019. Additionally, the agreement identifies Jennifer Flavin-Stallone as the primary spokesperson for

14

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 vested on January 4, 2021. The aggregate market value on the date of the award was $1,408,000 and is being amortized as cost of sales over the three-year vendor exclusivity agreement term. The estimated fair value of the restricted stock is based on the grant date closing price of the Company’s stock for time-based vesting awards.

Compensation expense relating to the restricted stock award was $153,000 and $117,000 for the first quarters of fiscal 2021 and 2020. As of May 1, 2021, the compensation cost related to the award was fully recognized.

Stock Compensation Plans

The Company’s 2020 Equity Incentive Plan ("2020 Plan") provides for the issuance of up to 3,000,000 shares of the Company’s common stock. The 2020 Plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the 2020 Plan. The types of awards that may be granted under the 2020 Plan include incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the common stock as of the date of grant (except in the limited case of "substitute awards" as defined by the 2020 Plan). No stock option may be granted more than 10 years after the effective date of the respective plan’s inception or be exercisable more than 10 years after the date of grant. Except for market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options and have contractual terms of 10 years from the date of grant. The 2020 Plan was approved by the Company’s shareholders at the 2020 Annual Meeting of Shareholders on July 13, 2020.

The Company also maintains the 2011 Omnibus Incentive Plan ("2011 Plan"). Upon the adoption and approval of the 2020 Plan, the Company ceased making awards under the 2011 Plan. Awards outstanding under the 2011 Plan continue to be subject to the terms of the 2011 Plan, but if those awards subsequently expire, are forfeited or cancelled or are settled in cash, the shares subject to those awards will become available for awards under the 2020 Plan. Similarly, the Company ceased making awards under its 2004 Omnibus Stock Plan ("2004 Plan") on June 22, 2014, but outstanding awards under the 2004 Plan remain outstanding in accordance with its terms.

Stock-Based Compensation - Stock Options

Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $19,000 and $117,000 for the first quarters of fiscal 2021 and fiscal 2020. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.

The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. Expected term is calculated using the simplified method taking into consideration the option’s contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.

    

Fiscal 2021

    

Expected volatility:

 

88%

 

Expected term (in years):

 

6 years

 

Risk-free interest rate:

 

1.30%

 

15

A summary of the status of the Company’s stock option activity as of May 1, 2021 and changes during the three months then ended is as follows:

2020

Weighted

Weighted

Weighted

Equity

Average 

Average 

Average 

Incentive

Exercise 

2011

Exercise 

2004

Exercise 

Plan

Price

Plan

Price

Plan

Price

Balance outstanding, January 30, 2021

$

 

34,000

$

12.87

 

3,000

$

53.49

Granted

48,000

$

8.72

 

$

 

$

Exercised

$

 

$

 

$

Forfeited or canceled

$

 

$

 

$

Balance outstanding, May 1, 2021

48,000

$

8.72

 

34,000

$

12.87

 

3,000

$

53.49

Options exercisable at May 1, 2021

$

 

27,000

$

12.87

 

3,000

$

53.49

The following table summarizes information regarding stock options outstanding as of May 1, 2021:

Options Outstanding

Options Vested or Expected to Vest

    

    

    

Weighted

    

    

    

    

Weighted

    

Average 

Average 

Weighted

Remaining 

Weighted

Remaining 

Average 

Contractual 

Aggregate

Average 

Contractual 

Aggregate

Number of

Exercise 

Life 

Intrinsic 

Number of

Exercise 

Life 

Intrinsic 

Option Type

Shares

Price

 

(Years)

Value

Shares

Price

 

(Years)

Value

2011 Incentive:

48,000

$

8.72

9.9

$

42,000

8.72

9.9

$

2011 Incentive:

 

34,000

$

12.87

 

5.8

$

8,000

 

32,000

$

13.11

 

5.7

$

22,000

2004 Incentive:

 

3,000

$

53.49

 

2.9

$

 

3,000

$

53.49

 

2.9

$

The weighted average grant-date fair value of options granted in the first three months of fiscal 2021 was $6.38. The total intrinsic value of options exercised during the first three months of fiscal 2021 and fiscal 2020 was $0. As of May 1, 2021, total unrecognized compensation cost related to stock options was $265,000 and is expected to be recognized over a weighted average period of approximately 2.6 years.

Stock-Based Compensation - Restricted Stock Units

Compensation expense relating to restricted stock unit grants was $280,000 and $164,000 for the first quarters of fiscal 2021 and fiscal 2020. As of May 1, 2021, there was $2,749,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 2.7 years. The total fair value of restricted stock units vested during the first three months of fiscal 2021 and fiscal 2020 was $579,000 and $70,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company’s stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.

The Company has granted time-based restricted stock units to certain key employees as part of the Company’s long-term incentive program. The restricted stock units generally vest in three equal annual installments beginning one year from the grant date and are being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company’s annual director compensation program. Each restricted stock unit grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The grants are amortized as director compensation expense over the twelve-month vesting period.

The Company granted 77,408 performance share units to the Company’s Chief Executive Officer as part of the Company’s long-term incentive program during the first quarter of fiscal 2021. The number of shares earned is based on the Company’s achievement of pre-established goals for sales growth over the measurement period from January 31, 2021 to January 29, 2022. Any earned performance share units will vest on February 3, 2024, so long as the executive’s service has been continuous through the vest date. The number of units that may actually be earned and become eligible to vest pursuant to this award can be between 0% and 200% of the target number of performance share units. The Company recognizes compensation expense on these performance share units ratably over the requisite

16

performance period of the award to the extent management views the performance goals as probable of attainment. The grant date fair value of these performance share units is based on the grant date closing price of the Company’s stock.

The Company granted 146,000 performance share units to the Company’s Chief Executive Officer as part of the Company’s long-term incentive program during the first quarter of fiscal 2020. The number of shares earned is based on the Company’s achievement of pre-established goals for liquidity over the measurement period from February 2, 2020 to January 30, 2021. Any earned performance share units will vest on January 28, 2023, so long as the executive’s service has been continuous through the vest date. The number of units that may actually be earned and become eligible to vest pursuant to this award can be between 0% and 125% of the target number of performance share units. The Company recognizes compensation expense on these performance share units ratably over the requisite performance period of the award to the extent management views the performance goals as probable of attainment. The grant date fair value of these performance share units is based on the grant date closing price of the Company’s stock.

On May 2, 2019, Timothy A. Peterman was appointed as Chief Executive Officer and entered into an executive employment agreement. In conjunction with the employment agreement, the Company granted 68,000 market-based restricted stock performance units to Mr. Peterman. The market-based restricted stock performance units vest in three tranches, each tranche consisting of one-third of the units subject to the award. Tranche 1 vested on May 2, 2020, the one-year anniversary of the grant date. Tranche 2 will vest on the date the Company’s average closing stock price for 20 consecutive trading days equals or exceeds $20.00 per share. Tranche 3 will vest on the date the Company’s average closing stock price for 20 consecutive trading days equals or exceeds $40.00 per share and the executive has been continuously employed at least two years. The vesting of the second and third tranches can occur any time on or before May 1, 2029. The total grant date fair value was estimated to be $220,000 and is being amortized over the derived service periods for each tranche.

Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 2.5%, a weighted average expected life of 2.9 years and an implied volatility of 80% and were as follows for each tranche:

    

Fair Value

    

Derived Service

(Per Share)

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 May 1, 2021 and changes during the three-month period then ended is as follows:

Restricted Stock Units

Market-Based Units

Time-Based Units

    

Performance-Based Units

    

Total

    

    

Weighted

    

    

Weighted

    

Weighted

    

Weighted

Average

Average 

Average

Average 

Grant Date

Grant Date 

Grant Date

Grant Date 

Shares

    

Fair Value

    

Shares

Fair Value

    

Shares

    

Fair Value

    

Shares

Fair Value

Non-vested outstanding, January 30, 2021

 

60,000

$

3.52

 

736,000

$

4.03

 

146,000

$

1.69

942,000

$

3.64

Granted

 

$

 

181,000

$

8.72

 

77,000

$

8.72

258,000

$

8.72

Vested

 

$

 

(74,000)

$

1.97

 

$

(74,000)

$

1.97

Forfeited

 

$

 

$

 

$

$

Non-vested outstanding, May 1, 2021

 

60,000

$

3.52

 

843,000

$

5.22

 

223,000

$

4.12

1,126,000

$

4.90

(9)   Net Loss Per Common Share

Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.

17

A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:

Three-Month Periods Ended

    

May 1,

May 2,

    

2021

    

2020

Numerator:

 

  

 

  

 

Net loss

$

(3,228,000)

$

(6,828,000)

Earnings allocated to participating share awards (a)

 

 

Net loss attributable to common shares — Basic and diluted

$

(3,228,000)

$

(6,828,000)

Denominator:

 

  

 

  

Weighted average number of common shares outstanding — Basic (b)

 

15,517,454

 

8,290,790

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

 

 

Weighted average number of common shares outstanding — Diluted

 

15,517,454

 

8,290,790

Net loss per common share

$

(0.21)

$

(0.82)

Net loss per common share — assuming dilution

$

(0.21)

$

(0.82)

(a) During fiscal 2018, the Company issued a restricted stock award that is a participating security. For the three-month periods ended May 1, 2021 and May 2, 2020, the entire undistributed loss is allocated to common shareholders.
(b) For the three-month period ended May 1, 2021, the basic earnings per share computation included 21,000 outstanding fully-paid warrants to purchase shares of the Company’s common stock at a price of $0.001 per share.

For the three-month periods ended May 1, 2021 and May 2, 2020, there were 650,000 and 72,000 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.

(10)   Business Segments and Sales by Product Group

During fiscal year 2019, the Company changed its reportable segments into two reporting segments: “ShopHQ” and “Emerging Business.” 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 Business segment separately from its core business, ShopHQ. The chief operating decision maker is the Company’s 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 the Company’s sales are made to customers residing in the United States.

The Company does not allocate assets between the segments for its internal management purposes, and as such, they are not presented here. There were no significant inter-segment sales or transfers during the first three months of fiscal 2021 and fiscal 2020. The Company allocates corporate support costs (such as finance, human resources, warehouse management and legal) to its operating segments based on their estimated usage and based on how the Company manages the business.

ShopHQ Reporting Segment

The ShopHQ segment encompasses the Company’s flagship nationally distributed shopping entertainment television network. ShopHQ informs, promotes, demonstrates and sells its products to consumers using interactive video across multiple sales channels including linear television, online streaming, mobile and social platforms, brick and mortar retail, and OTT and CTV platforms such as Roku, AppleTV and Samsung connected televisions.

Emerging Business Reporting Segment

The Emerging Business segment consists of the Company’s early developing brands and business models. This segment includes the Company’s owned and operated consumer brands that include J.W. Hulme, Cooking with Shaquille O’Neal, Kate & Mallory, Live

18

Fit MD, and Christopher & Banks. This segment also includes the Company’s online marketplace brands OurGalleria.com and TheCloseout.com, and the Company’s media commerce services brands Float Left and i3PL. This segment also includes the recently launched niche television networks ShopBulldogTV and ShopHQHealth.

Net Sales by Segment and Significant Product Groups

Three-Month Periods Ended

    

May 1,

    

May 2,

    

2021

2020

ShopHQ

Net merchandise sales by category:

 

  

 

  

 

Jewelry & Watches

$

43,254

$

39,402

Home

 

13,186

 

18,490

Beauty & Health

 

19,245

 

15,140

Fashion & Accessories

 

13,580

 

12,724

All other (primarily shipping & handling revenue)

 

10,597

 

8,043

Total ShopHQ

 

99,862

 

93,799

Emerging Business

 

13,341

 

2,035

Consolidated net sales

$

113,203

$

95,834

Performance Measures by Segment

Three-Month Periods Ended

    

May 1,

    

May 2,

    

2021

2020

Gross profit

  

ShopHQ

$

40,363

$

34,955

Emerging Business

$

5,644

$

602

Consolidated gross profit

$

46,007

$

35,557

Operating loss

 

  

 

  

ShopHQ

$

(1,892)

$

(3,803)

Emerging Business

 

(159)

 

(1,832)

Consolidated operating loss

$

(2,051)

$

(5,635)

Depreciation and amortization

 

  

 

  

ShopHQ (a)

$

7,848

$

2,740

Emerging Business

 

469

 

165

Consolidated depreciation and amortization

$

8,317

$

2,905

Includes distribution facility depreciation of $942,000 and $1,014,000 for the three-month periods ended May 1, 2021 and May 2, 2020. Distribution facility depreciation is included as a component of cost of sales within the accompanying condensed consolidated statements of operations.

(11)   Leases

The Company leases certain property and equipment, such as transmission and production equipment, satellite transponder and office equipment. The Company also leases office space used by its Emerging segment’s Float Left and retail space used by its Emerging segment retailer, J.W. Hulme. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the accompanying condensed consolidated balance sheets.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities and right-of-use assets are recognized

19

at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of the Company’s leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain the Company will exercise that option. As of May 1, 2021, the lease liability and right-of-use assets did not include any lease extension options.

The Company has lease agreements with lease and non-lease components and has elected to account for these as a single lease component. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The components of lease expense were as follows:

    

For the Three-Month Periods Ended

    

May 1, 2021

May 2, 2020

Operating lease cost

$

272,000

$

245,000

Short-term lease cost

 

3,000

 

30,000

Variable lease cost (a)

 

18,000

 

27,000

(a) Includes variable costs of finance leases.

For the three-month periods ended May 1, 2021 and May 2, 2020, finance lease costs included amortization of right-of-use assets of $28,000 and $25,000 and interest on lease liabilities of $1,000 and $2,000.

Supplemental cash flow information related to leases were as follows:

    

For the Three-Month Periods Ended

    

May 1, 2021

May 2, 2020

Cash paid for amounts included in the measurement of lease liabilities:

 

  

 

  

 

Operating cash flows used for operating leases

$

272,000

$

338,000

Operating cash flows used for finance leases

 

1,000

 

2,000

Financing cash flows used for finance leases

28,000

25,000

Right-of-use assets obtained in exchange for lease liabilities:

Operating leases

532,000

Finance leases

 

 

The weighted average remaining lease term and weighted average discount rates related to leases were as follows:

    

May 1, 2021

    

May 2, 2020

    

Weighted average remaining lease term:

 

  

 

  

 

Operating leases

 

3.1 years

 

3.1 years

 

Finance leases

 

1.0 years

 

1.7 years

 

Weighted average discount rate:

 

  

 

  

 

Operating leases

 

6.8%

 

6.5%

 

Finance leases

 

5.7%

 

5.3%

 

20

Supplemental balance sheet information related to leases is as follows:

May 1,

January 30,

Leases

    

Classification

    

2021

    

2021

    

Assets

 

  

 

  

 

  

 

Operating lease right-of-use assets

 

Other assets

$

860,000

$

1,116,000

Finance lease right-of-use assets

 

Property and equipment, net

 

73,000

 

101,000

Total lease right-of-use assets

 

  

$

933,000

$

1,217,000

Operating lease liabilities

 

  

 

  

 

  

Current portion of operating lease liabilities

 

Current portion of operating lease liabilities

$

262,000

$

462,000

Operating lease liabilities, excluding current portion

 

Other long term liabilities

 

601,000

 

646,000

Total operating lease liabilities

 

  

 

863,000

 

1,108,000

Finance lease liabilities

 

  

 

  

 

  

Current portion of finance lease liabilities

 

Current liabilities: Accrued liabilities

 

70,000

 

86,000

Finance lease liabilities, excluding current portion

 

Other long term liabilities

 

6,000

 

19,000

Total finance lease liabilities

 

  

 

76,000

 

105,000

Total lease liabilities

 

  

$

939,000

$

1,213,000

Future maturities of lease liabilities as of May 1, 2021 are as follows:

Fiscal year

    

Operating Leases

    

Finance Leases

2021

$

255,000

$

59,000

2022

 

313,000

 

19,000

2023

 

250,000

 

2024

 

141,000

 

Thereafter