UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
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(Exact Name of Registrant as Specified in Its Charter)
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As of September 1, 2021 there were
iMEDIA BRANDS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
July 31, 2021
2
PART I — FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS
iMEDIA BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| July 31, |
| January 30, | |||
2021 | 2021 | |||||
(In thousands, except share and | ||||||
per share data) | ||||||
ASSETS |
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Current assets: |
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Cash | $ | | $ | | ||
Restricted Cash | | | ||||
Accounts receivable, net |
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Inventories |
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Current portion of television broadcast rights, net | | | ||||
Prepaid expenses and other |
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Total current assets |
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Property and equipment, net |
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Television broadcast rights, net | | | ||||
Intangible assets and goodwill, net | | | ||||
Other assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued liabilities |
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Current portion of television broadcast rights obligations | | | ||||
Current portion of long term credit facility |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Long term broadcast rights liability |
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Other long term liabilities | | | ||||
Long term credit facility |
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Total liabilities |
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Commitments and contingencies |
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Shareholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
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Total shareholders’ equity |
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Equity of the non-controlling interest | $ | | $ | | ||
Total equity | $ | | $ | | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | | $ | |
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 | For the Six-Month | ||||||||||||
Periods Ended | Periods Ended | ||||||||||||
July 31, | August 1, | July 31, | August 1, | ||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
(In thousands, except share and per share data) | |||||||||||||
Net sales | $ | | $ | | $ | | $ | | |||||
Cost of sales |
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Gross profit |
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Operating expense: |
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Distribution and selling |
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General and administrative |
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Depreciation and amortization |
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Restructuring costs |
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| — |
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Total operating expense |
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Operating income (loss) |
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Other income (expense): |
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Interest income |
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Interest expense |
| ( |
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Loss on debt extinguishment |
| ( |
| — |
| ( |
| — | |||||
Total other expense, net |
| ( |
| ( |
| ( |
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Income (loss) before income taxes |
| ( |
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| ( |
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Income tax provision |
| ( |
| ( |
| ( |
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Net income (loss) | $ | ( | $ | | $ | ( | $ | ( | |||||
Less: Net loss attributable to non-controlling interest | ( | — | ( | — | |||||||||
Net income (loss) attributable to shareholders | ( | | ( | ( | |||||||||
Net income (loss) per common share | $ | ( | $ | | $ | ( | $ | ( | |||||
Net income (loss) per common share — assuming dilution | $ | ( | $ | | $ | ( | $ | ( | |||||
Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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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 |
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Additional | Equity of | Total | |||||||||||||||
Number | Paid-In | Accumulated | Non-Controlling | Shareholders' | |||||||||||||
of Shares |
| Par Value | Capital | Deficit | Interest | Equity | |||||||||||
For the Six-Month Period Ended July 31, 2021 |
| (In thousands, except share data) | |||||||||||||||
BALANCE, January 30, 2021 |
| | $ | | $ | | $ | ( | $ | — | $ | | |||||
Net loss |
| — |
| — |
| — |
| ( |
| ( |
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Common stock issuances pursuant to equity compensation awards |
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| ( |
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Share-based payment compensation |
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Common stock and warrant issuance |
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Investment of non-controlling interest | — | — | — | — | | | |||||||||||
BALANCE, May 1, 2021 |
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Net loss |
| — |
| — |
| — |
| ( |
| ( |
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Common stock issuances pursuant to equity compensation awards |
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| — |
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Share-based payment compensation |
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Common stock issuance | | | | — | — | | |||||||||||
BALANCE, July 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | |
| Common Stock |
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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 August 1, 2020 |
| (In thousands, except share data) | |||||||||||||||
BALANCE, February 1, 2020 |
| | $ | | $ | | $ | ( | $ | — | $ | | |||||
Net loss |
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| — |
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| ( |
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Common stock issuances pursuant to equity compensation awards |
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| ( |
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Share-based payment compensation |
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Common stock and warrant issuance |
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BALANCE, May 2, 2020 |
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Net loss |
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Common stock issuances pursuant to equity compensation awards |
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| ( |
| — |
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Share-based payment compensation |
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Common stock and warrant issuance | | | | — | | ||||||||||||
BALANCE, August 1, 2020 |
| | $ | | $ | | $ | ( | $ | — | $ | |
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 Six-Month | ||||||
Periods Ended | ||||||
July 31, | August 1, | |||||
2021 | 2020 | |||||
(in thousands) | ||||||
OPERATING ACTIVITIES: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |
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Depreciation and amortization |
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Share-based payment compensation |
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Payments for television broadcast rights | ( | ( | ||||
Amortization of deferred financing costs |
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Loss on debt extinguishment |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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Deferred revenue |
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Prepaid expenses and other |
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Accounts payable and accrued liabilities |
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Net cash (used for) provided by operating activities |
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INVESTING ACTIVITIES: |
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Property and equipment additions |
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Acquisitions | ( | — | ||||
Vendor exclusivity deposit | ( | — | ||||
Net cash used for investing activities |
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FINANCING ACTIVITIES: |
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Proceeds from issuance of revolving loan |
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Proceeds from issuance of common stock |
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Proceeds from issuance of term loan | | — | ||||
Payments on revolving loan |
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Payments on term loan |
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Payments for common stock issuance costs |
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Payments on finance leases |
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Payments for restricted stock issuance |
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Payments for deferred financing costs |
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Payments for debt extinguishment costs |
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Net cash provided by (used for) financing activities |
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Net increase in cash and restricted cash |
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BEGINNING CASH AND RESTRICTED CASH |
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ENDING CASH AND RESTRICTED CASH | $ | | $ | | ||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | | ||
Television broadcast rights obtained in exchange for liabilities | $ | | $ | | ||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||
Property and equipment purchases included in accounts payable | $ | | $ | | ||
Other long term liability issued in exchange for acquired assets | $ | | $ | - | ||
Common stock issuance costs included in accrued liabilities | $ | | $ | | ||
Equipment acquired through finance lease obligations | $ | | $ | |
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
July 31, 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 television networks, consumer brands and digital 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 ShopHealthHQ. 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. ShopHealthHQ, 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 shophealthhq.com, which are comprehensive digital commerce platforms that sell products which appear on the Company’s television 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 and TheCloseout.com, a deeply-discounted branded online marketplace, were acquired during the first quarter of the fiscal year ended January 31, 2021 (“fiscal 2020”).
The Company’s digital services brands are iMedia Digital Services (“iMDS”) and the Company’s customer solutions and logistics services business called, i3PL. iMDS is comprised of Synacor’s Portal and Advertising business, which the Company purchased on July 30, 2021 (see Notes to Condensed Consolidated Financial Statements - Footnote #16 – Business Acquisitions for additional information), and its existing OTT app platform, Float Left.
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
(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
7
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 and six-month period ended July 31, 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
. Fiscal 2021 will end January 29, 2022 and will contain . The three and six-month periods ended July 31, 2021, consisted of .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 and did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the Financial Accounting Standards Board ("FASB") issued Intangibles—Goodwill and Other—Internal-Use Software, Subtopic 350-40 (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard during the first quarter of fiscal 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.
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 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.
8
(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 July 31, 2021 and January 30, 2021, the Company recorded a merchandise return liability of $
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 July 31, 2021, the Company had
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 July 31, 2021 and January 30, 2021, the Company had approximately $
(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).
On July 30, 2021, the Company entered into a long-term variable rate credit agreement with Siena Lending Group, which is classified as Level 2 and had a carrying value of $
9
(5) Television Broadcast Rights
Television broadcast rights in the accompanying condensed consolidated balance sheets consisted of the following:
| July 31, 2021 |
| January 30, 2021 | |||
Television broadcast rights | $ | | $ | | ||
Less accumulated amortization |
| ( |
| ( | ||
Television broadcast rights, net | $ | | $ | |
During the first six months of fiscal 2021 and fiscal 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 television broadcast rights of $
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:
July 31, 2021 | January 30, 2021 | |||||||||||||
Estimated | Gross | Gross | ||||||||||||
Useful Life | Carrying | Accumulated | Carrying | Accumulated | ||||||||||
| (In Years) |
| Amount |
| Amortization |
| Amount |
| Amortization | |||||
Trade Names |
|
| $ | |
| $ | ( |
| $ | |
| $ | ( | |
Technology |
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| ( |
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| ( | |||||
Customer Lists |
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| ( |
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| ( | |||||
Vendor Exclusivity |
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| ( |
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| ( | |||||
Total finite-lived intangible assets |
| $ | |
| $ | ( |
| $ | |
| $ | ( | ||
Goodwill | $ | |
| $ | — |
| $ | — |
| $ | — | |||
Total indefinite-lived intangible assets |
| $ | |
| $ | — |
| $ | — |
| $ | — | ||
Total finite- and indefinite-lived intangible assets |
| $ | |
| $ | ( |
| $ | |
| $ | ( |
10
Finite-lived Intangible Assets
The finite-lived intangible assets are included in the accompanying condensed consolidated balance sheets within intangible assets and goodwill, net and consist of the J.W. Hulme trade name and customer list; the Float Left developed technology, customer relationships and trade name; a vendor exclusivity agreement; Christopher & Banks customer list; TCO technology and Portal and Ad business customer relationships and technology. Amortization expense related to the finite-lived intangible assets was $
Indefinite-lived Intangible Assets
The indefinite-lived intangible assets are included in the accompanying condensed consolidated balance sheets within intangible assets and goodwill, net and consist of goodwill associated with the purchase of the Portal and Advertising business from Synacor (see Notes to Condensed Consolidated Financial Statements - Footnote #16 – Business Acquisitions for additional information).
(7) Credit Agreements
The Company’s long-term credit facility consists of:
| July 31, 2021 |
| January 30, 2021 | |||
PNC revolving loan due July 27, 2023, principal amount | $ | — | $ | | ||
Siena revolving loan due July 31, 2024, principal amount | |
| — | |||
PNC term loan due July 27, 2023, principal amount |
| — |
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GreenLake Real Estate Funding, due July 31, 2024 ,principal amount | | — | ||||
Less unamortized debt issuance costs |
| ( |
| ( | ||
Term Loan, carrying amount |
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Total long-term credit facility |
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Less current portion of long-term credit facility |
| — |
| ( | ||
Long-term credit facilities, excluding current portion | $ | | $ | |
Siena Credit Facility
On July 30, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a loan and security agreement (the “Loan Agreement”) with Siena Lending Group LLC and the other lenders party thereto from time to time, Siena Lending Group LLC, as agent (the “Agent”), and certain additional subsidiaries of the Company, as guarantors thereunder. The Loan Agreement has a
Subject to certain conditions, borrowings under the Loan Agreement bear interest at
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum liquidity requirements of not less than $
11
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 shareholders. The Company also pays a monthly fee at a rate equal to
As of July 31, 2021, the Company had total borrowings of $
GreenLake Real Property Financing
On July 30, 2021,
The Note is scheduled to mature on July 31, 2024. The borrowings, which include all amounts advanced under the Note, bear interest at
The Borrowers may prepay the Note in full (but not in part) before July 30, 2022 (the “Lockout Date”) upon payment of a prepayment premium equal to the amount of interest that would have accrued from the date of prepayment through the Lockout Date. After the Lockout Date, the Note may be prepaid in full or in any installment greater than or equal to $
The Note contains customary representations and warranties and financial and other covenants and conditions, including, a requirement that the Borrowers comply with all covenants set forth in the Loan Agreement described above. The Note also contains certain customary events of default.
As of July 31, 2021, there was $
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. On July 30, 2021, the PNC revolver and term loan were paid in full and the PNC Credit Facility was terminated through a refinancing with Siena and GreenLake, the Company recognized $
The PNC Credit Facility, which included CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provided a revolving line of credit of $
12
certain conditions being met. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility were equal to the lesser of $
The PNC Credit Facility also provided for the issuance of letters of credit in an aggregate amount up to $
The revolving line of credit under the PNC Credit Facility bore interest at either a Base Rate or LIBOR plus a margin consisting of between
Interest expense recorded under the PNC Credit Facility was $
Deferred financing costs, net of amortization, relating to the revolving line of credit were $
The aggregate maturities of borrowings outstanding under the Company’s long-term debt obligations as of July 31, 2021 were as follows:
GreenLake | Siena | ||||||||
Fiscal year |
| Term loan |
| Revolving loan |
| Total | |||
2021 | $ | | $ | | $ | | |||
2022 |
| |
| |
| | |||
2023 |
| |
| |
| | |||
2024 |
| |
| |
| | |||
$ | | $ | | $ | |
Restricted Cash
The Company is required to keep cash in a restricted account in order to maintain lines of credit to both purchase inventory as well as general and administrative expenses. Any interest earned is recorded in that period. The Company had $
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.
13
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 Siena Loan Agreement. 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 Company believes that it is probable its existing cash balances and its availability under the Siena Loan Agreement, 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
Public Offerings
On June 9, 2021, the Company completed a public offering, in which the Company issued and sold
On February 18, 2021, the Company completed a public offering, in which the Company issued and sold
On August 28, 2020, the Company completed a public offering, in which the Company issued and sold
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
14
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 $
During the third quarter of fiscal 2020, the fully-paid warrants were exercised for the purchase of
Warrants
As of July 31, 2021, the Company had outstanding warrants to purchase
| Warrants |
| Warrants |
| Exercise Price |
| |||
Grant Date | Outstanding | Exercisable | (Per Share) | Expiration Date | |||||
September 19, 2016 |
| |
| | $ | |
| ||
November 10, 2016 |
| |
| | $ | |
| ||
January 23, 2017 |
| |
| | $ | |
| ||
March 16, 2017 |
| |
| | $ | |
| ||
May 2, 2019 |
| |
| | $ | |
| ||
April 17, 2020 | | | $ | | |||||
May 22, 2020 | | | $ | | |||||
June 8, 2020 | | | $ | | |||||
June 12, 2020 | | | $ | | |||||
July 11, 2020 | | | $ | |
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
15
Compensation expense relating to the restricted stock unit grant was $
Restricted Stock Award
On November 23, 2018, the Company entered into a restricted stock award agreement with Flageoli Classic Limited, LLC (“FCL”) granting FCL
Compensation expense relating to the restricted stock award was $
Stock Compensation Plans
The Company’s 2020 Equity Incentive Plan ("2020 Plan") provides for the issuance of up to
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 $
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.
16
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: |
|
| |
Expected term (in years): |
|
| |
Risk-free interest rate: |
|
|
A summary of the status of the Company’s stock option activity as of July 31, 2021 and changes during the six 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 | — | $ | — |
| | $ | |
| | $ | | ||||
Granted | | $ | |
| | $ | |
| | $ | | ||||
Exercised | — | $ | — |
| | $ | |
| | $ | | ||||
Forfeited or canceled | — | $ | — |
| | $ | |
| | $ | | ||||
Balance outstanding, July 31, 2021 | | $ | |
| | $ | |
| | $ | | ||||
Options exercisable at July 31, 2021 | — | $ | — |
| | $ | |
| | $ | |
The following table summarizes information regarding stock options outstanding as of July 31, 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: | | $ | | $ | | | | $ | ||||||||||||
2011 Incentive: |
| | $ | |
| $ | |
| | $ | |
| $ | | ||||||
2004 Incentive: |
| | $ | |
| $ | |
| | $ | |
| $ | |
The weighted average grant-date fair value of options granted in the first and second quarters of fiscal 2021 was $
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $
17
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
The Company granted
The Company granted
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
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
| Fair Value |
| Derived Service | ||
(Per Share) | Period | ||||
Tranche 1 ( | $ | |
| ||
Tranche 2 ($20.00/share) | $ | |
| ||
Tranche 3 ($40.00/share) | $ | |
|
18
A summary of the status of the Company’s non-vested restricted stock unit activity as of July 31, 2021 and changes during the six-month period then ended is as follows:
Restricted Stock Units | ||||||||||||||||||||
Market-Based Units | Time-Based Units |
| Performance-Based Units |
| Total | |||||||||||||||
|
| 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 |
| | $ | |
| | $ | |
| | $ | | | $ | | |||||
Granted |
| | $ | |
| | $ | |
| — | $ | — | | $ | | |||||
Vested |
| | $ | |
| ( | $ | |
| — | $ | — | ( | $ | | |||||
Forfeited |
| | $ | |
| ( | $ | |
| — | $ | — | ( | $ | | |||||
Non-vested outstanding, July 31, 2021 |
| | $ | |
| | $ | |
| | $ | | | $ | |
(9) Net Income (Loss) Per Common Share
Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of net 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:
Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||
| July 31, | August 1, |
| July 31, | August 1, |
| |||||||
2021 |
| 2020 | 2021 |
| 2020 | ||||||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | ( | |||||
Earnings allocated to participating share awards (a) |
| |
| ( |
| |
| | |||||
Net (loss) income attributable to common shares — Basic and diluted | $ | ( | $ | | $ | ( | $ | ( | |||||
Denominator: |
|
|
|
|
|
|
|
| |||||
Weighted average number of common shares outstanding — Basic (b) |
| |
| |
| |
| | |||||
Dilutive effect of stock options, non-vested shares and warrants (c) |
| |
| |
| |
| | |||||
Weighted average number of common shares outstanding — Diluted |
| |
| |
| |
| | |||||
Net (loss) income per common share | $ | ( | $ | | $ | ( | $ | ( | |||||
Net (loss) income per common share — assuming dilution | $ | ( | $ | | $ | ( | $ | ( |
(a) | During fiscal 2018, the Company issued a restricted stock award that is a participating security. For the three- and six- month periods ended July 31, 2021 and for the six-month period ended August 1, 2020, the entire undistributed loss is allocated to common shareholders. |
(b) | For the three and six-month periods ended July 31, 2021, the basic earnings per share computation included |
19
(c) | For the six--month periods ended July 31, 2021 and August 1, 2020 there were |
(10) Business Segments and Sales by Product Group
During fiscal year 2019, the Company changed its reportable segments into
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 six 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 Fit MD, Christopher & Banks and TheCloseout.com and the Company’s digital services brand iMedia digital services and niche television networks ShopBulldogTV and ShopHealthHQ.
Net Sales by Segment and Significant Product Groups
Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||
| July 31, |
| August 1, |
| July 31, |
| August 1, |
| |||||
2021 | 2020 | 2021 | 2020 | ||||||||||
(in thousands) | |||||||||||||
ShopHQ | |||||||||||||
Net merchandise sales by category: |
|
|
|
|
|
|
|
|
| ||||
Jewelry & Watches | $ | | $ | | $ | | $ | | |||||
Home |
| |
| |
| |
| | |||||
Beauty & Health |
| |
| |
| |
| | |||||
Fashion & Accessories |
| |
| |
| |
| | |||||
All other (primarily shipping & handling revenue) |
| |
| |
| |
| | |||||
Total ShopHQ |
| |
| |
| |
| | |||||
Emerging Business |
| |
| |
| |
| | |||||
Consolidated net sales | $ | | $ | | $ | | $ | |
20
Performance Measures by Segment
Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||
| July 31, |
| August 1, |
| July 31, |
| August 1, |
| |||||
2021 | 2020 | 2021 | 2020 | ||||||||||
(in thousands) | |||||||||||||
Gross profit |
|
| |||||||||||
ShopHQ | $ | | $ | | $ | | $ | | |||||
Emerging Business | | | $ | | $ | | |||||||
Consolidated gross profit | $ | | $ | | $ | | $ | | |||||
Operating income (loss) |
|
|
|
|
|
|
|
| |||||
ShopHQ | $ | ( | $ | | $ | ( | $ | ( | |||||
Emerging Business |
| |
| ( |
| |
| ( | |||||
Consolidated operating income (loss) | $ | ( | $ | | $ | ( | $ | ( | |||||
Depreciation and amortization |
|
|
|
|
|
|
|
| |||||
ShopHQ (a) | $ | | $ | | $ | | $ | | |||||
Emerging Business |
| |
| |
| |
| | |||||
Consolidated depreciation and amortization | $ | | $ | | $ | | $ | |
(a) Includes distribution facility depreciation of $
(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 iMedia Digital Services 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 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 July 31, 2021, the lease liability and right-of-use assets did
The Company has lease agreements with lease and non-lease components and has elected to account for these as a single lease component. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
| For the Three-Month Periods Ended |
| For the Six-Month Periods Ended |
| |||||||||
July 31, 2021 | August 1, 2020 | July 31, 2021 | August 1, 2020 | ||||||||||
Operating lease cost | $ | | $ | | $ | | $ | | |||||
Short-term lease cost |
| |
| |
| |
| | |||||
Variable lease cost (a) |
| |
| |
| |
| |
(a) | Includes variable costs of finance leases. |
21
For the three-month periods ended July 31, 2021 and August 1, 2020, finance lease costs included amortization of right-of-use assets of $
Supplemental cash flow information related to leases were as follows:
| For the Six-Month Periods Ended |
| |||||
July 31, 2021 | August 1, 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
| ||
Operating cash flows used for operating leases | $ | | $ | | |||
Operating cash flows used for finance leases |
| |
| | |||
Financing cash flows used for finance leases | | | |||||
Right-of-use assets obtained in exchange for lease liabilities: | |||||||
Operating leases | | | |||||
Finance leases |
| — |
| |
The weighted average remaining lease term and weighted average discount rates related to leases were as follows:
| July 31, 2021 |
| August 1, 2020 |
| |
Weighted average remaining lease term: |
|
|
|
|
|
Operating leases |
|
|
| ||
Finance leases |
|
|
| ||
Weighted average discount rate: |
|
|
|
|
|
Operating leases |
|
|
| ||
Finance leases |
|
|
|
Supplemental balance sheet information related to leases is as follows:
July 31, | January 30, | ||||||||
Leases |
| Classification |
| 2021 |
| 2021 |
| ||
Assets |
|
|
|
|
|
|
| ||
Operating lease right-of-use assets |
| Other assets | $ | | $ | | |||
Finance lease right-of-use assets |
| Property and equipment, net |
| |
| | |||
Total lease right-of-use assets |
|
| $ | | $ | | |||
Operating lease liabilities |
|
|
|
|
|
| |||
Current portion of operating lease liabilities |
| Current portion of operating lease liabilities | $ | | $ | | |||
Operating lease liabilities, excluding current portion |
| Other long term liabilities |
| |
| | |||
Total operating lease liabilities |
|
|
| |
| | |||
Finance lease liabilities |
|
|
|
|
|
| |||
Current portion of finance lease liabilities |
| Current liabilities: Accrued liabilities |
| |
| | |||
Finance lease liabilities, excluding current portion |
| Other long term liabilities |
| |
| | |||
Total finance lease liabilities |
|
|
| |
| | |||
Total lease liabilities |
|
| $ | | $ | |
22
Future maturities of lease liabilities as of July 31, 2021 are as follows:
Fiscal year |
| Operating Leases |
| Finance Leases | ||
2021 | $ | | $ | | ||
2022 |
| |
| | ||
2023 |
| |
| | ||
2024 |
| |
| | ||
Thereafter |
| |
| | ||
Total lease payments |
| |
| | ||
Less imputed interest |
| ( |
| ( | ||
Total lease liabilities | $ | | $ | |
As of July 31, 2021, the Company had
(12) Income Taxes
As of January 30, 2021, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B preferred stock held by GE Capital Equity Investments, Inc. Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company’s ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited. In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOLs could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOLs. The Company currently has recorded a full valuation allowance for its net deferred tax assets. The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date. On July 13, 2015, the Company entered into a Shareholder Rights Plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $
(13) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, consumer protection and regulatory matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company’s operations or consolidated financial statements.
23
(14) Related Party Transactions
Relationship with Sterling Time, Famjams, Invicta Watch Company of America, and Retailing Enterprises
On June 9, 2021, the Company entered into a Confidential Vendor Exclusivity Agreement (the “Famjams Agreement”) with Famjams Trading LLC (“Famjams”), one of the Company's
Pursuant to the Famjams Agreement, the Company agreed to issue to Famjams $
The Company also agreed, pursuant to the Famjams Agreement, to deliver a cash deposit of $
Additionally on June 9, 2021, iMedia Brands, Inc. entered into a Confidential Vendor Exclusivity Agreement (the “IWCA Agreement”) with Invicta Watch Company of America, Inc. (“IWCA”), one of the Company's ten largest vendors, pursuant to which IWCA granted the Company the exclusive right to market, promote and sell watches and watch accessories using the Invicta brand names and any substantially similar or directly competitive goods or services through the Company’s live or taped direct response video retail programming in North and South America during the
Pursuant to the IWCA Agreement, the Company agreed to issue to IWCA $
On April 14, 2020, the Company entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which the Company sold shares of the Company’s common stock and issued warrants to purchase shares of the Company’s common stock in a private placement. Details of the common stock and warrant purchase agreement are described in Note 8 - "Shareholders’ Equity." The purchasers consist of the following: Invicta Media Investments, LLC, Michael and Leah Friedman and Hacienda Jackson LLC. Invicta Media Investments, LLC purchased
24
Time that is above these stated amounts. Following May 31, 2022, the Company’s payment terms revert back to standard 90-day aging terms as previously described.
On May 2, 2019, in accordance with the purchase agreement described in Note 8 - "Shareholders’ Equity," the Company’s Board of directors elected Michael Friedman and Eyal Lalo to the board and appointed Mr. Lalo as the vice chair of the board. Mr. Lalo reestablished Invicta, the flagship brand of the Invicta Watch Group and one of the Company’s largest brands, in 1994, and has served as its chief executive officer since its inception. Mr. Friedman has served as chief executive officer of Sterling Time, which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and the Company’s long-time vendor, since 2005. Sterling Time has served as a vendor to the Company for over 20 years. For their service as non-employee members of the board of directors, Messrs. Friedman and Lalo receive compensation under the Company’s non-employee director compensation policy.
Mr. Lalo is the owner of IWCA, which is the sole owner of Invicta Media Investments, LLC. Mr. Friedman is an owner of Sterling Time. Pursuant to the May 2, 2019 purchase agreement the following companies invested as a group, including: Invicta Media Investments, LLC purchased
On August 28, 2020, Invicta Media Investments, LLC purchased
Transactions with Sterling Time
The Company purchased products from Sterling Time, an affiliate of Mr. Friedman, in the aggregate amount of $
Transactions with Retailing Enterprises
As of July 31, 2021 and January 30, 2021, the Company had a net trade receivable balance owed from Retailing Enterprises, LLC of $
Transactions with Famjams Trading
The Company purchased products from Famjams Trading LLC ("Famjams Trading"), an affiliate of Mr. Friedman, in the aggregate amount of $
Transactions with TWI Watches
The Company purchased products from TWI Watches LLC ("TWI Watches"), an affiliate of Mr. Friedman, in the aggregate amount of $
(15) Restructuring Costs
During the first quarter of fiscal 2020, the Company implemented and completed a cost optimization initiative, which eliminated positions across the Company’s ShopHQ segment, the majority of whom were employed in customer service, order fulfillment and
25
television production. As a result of the first quarter fiscal 2020 cost optimization initiative, the Company recorded restructuring charges of $
The following table summarizes the significant components and activity under the restructuring program for the six-month period ended July 31, 2021:
| Balance at |
|
|
| Balance at | |||||||
January 30, | July 31, | |||||||||||
2021 | Charges | Cash Payments | 2021 | |||||||||
Severance | $ | | $ | — | $ | ( | $ | | ||||
Other incremental costs |
| |
| — |
| ( |
| | ||||
$ | | $ | — | $ | ( | $ | |
The liability for restructuring accruals was previously presented in current accrued liabilities within the accompanying condensed consolidated balance sheets.
(16) Business Acquisitions
Synacor’s Portal and Advertising Business Acquisition
On July 30, 2021, the Company closed on the acquisition of Synacor’s Portal and Advertising business segment. This acquisition allows the Company to leverage its interactive video expertise and national television promotional power, as well as its merchandising, customer solutions and fulfillment capabilities, to offer advertisers and consumer brands differentiated digital services that the Company believes will accelerate its timeline to become the leading single-source partner to advertisers seeking to use interactive video to drive growth. Synacor Portal and Advertising, which iMedia has combined with its business Float Left, has been renamed to iMedia Digital Services (“iMDS). iMDS is a leading video advertising platform monetizing 200+ million monthly users for its publishers by utilizing its proprietary technologies, first-party customer shopping data and interactive video services to drive engagement, traffic and conversion.
The acquisition of the Portal and Advertising business was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $
Based on the preliminary valuation, the total consideration of $
| Fair Value | ||
Accounts Receivable and Prepaid | $ | | |
Fixed assets |
| | |
Goodwill and Intangible assets |
| | |
Liabilities assumed |
| ( | |
Total consideration | $ | |
Goodwill and intangible assets have been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $
26
The preliminary purchase price allocation may be adjusted, as necessary, up to one year after the acquisition closing date if management obtains additional information regarding asset valuations and liabilities assumed.
Christopher & Banks Transaction
Christopher & Banks is a specialty brand of privately branded women's apparel and accessories. The Christopher & Banks brand was previously owned by Christopher & Banks Corporation, which filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in January 2021. On March 1, 2021, the Company entered into a licensing agreement with ReStore Capital, a Hilco Global company, whereby the Company will operate the Christopher & Banks business throughout all sales channels, including digital, television, catalog, and brick and mortar retail, effective March 1, 2021. The Company also purchased certain assets related to the Christopher & Banks eCommerce business, including primarily inventory, furniture, equipment, and certain intangible assets. The Company plans to launch a new weekly Christopher & Banks television program on its ShopHQ network, which will also promote the brand’s website, cristopherandbanks.com, its
On March 1, 2021, the Company acquired all of the assets of Christopher & Banks, LLC (“C&B”). The acquisition of C&B was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $
Based on the preliminary valuation, the total consideration of $
| Fair Value | ||
Inventory | $ | | |
Fixed assets |
| | |
Goodwill and Intangible assets |
| | |
Liabilities assumed |
| ( | |
Total consideration | $ | |
Goodwill and intangible assets have been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $
The preliminary purchase price allocation may be adjusted, as necessary, up to
The Closeout.com Acquisition
On February 5, 2021, the Company became a controlling member under the limited liability company agreement for TCO, LLC (“TCO”), a Delaware limited liability company entered into between the Company and LAKR Ecomm Group LLC (“LAKR”) to operate TheCloseout.com, an online marketplace that was previously owned in part by Invicta Media Investments. LAKR is a newly formed company indirectly owned by Invicta Media Investments, LLC and The Closeout.com LLC. The initial Board of Directors of TCO includes Tim Peterman, the Chief Executive Officer and a director of the Company, Landel Hobbs, the Chairman of the Board of the Company, and Eyal Lalo, a director of the Company. See Note 14 – “Related Party Transactions” for additional information regarding the Company’s relationships with Invicta Media Investments, LLC, Retailing Enterprises and Mr. Lalo.
Under the limited liability company agreement, the Company will act as the controlling member of TCO. Mr. Peterman and Mr. Hobbs, as the designees of the Company, will lead TCO, with certain significant corporate actions requiring the consent of both members. Mr. Peterman will be the Chairperson of TCO. Distributions of available cash may be made to the members at the discretion
27
of TCO’s board of managers. In addition, beginning on February 5, 2026 and recurring every 12 months thereafter, the Company will have the right, but not the obligation, to acquire LAKR’s interest in TCO at a value determined based on financial benchmarks set forth in the TCO limited liability company agreement.
In connection with the establishment of TCO, the Company contributed assets in the form of inventory valued at $
Non-controlling Interests
Non-controlling interests (“NCI”) represent equity interests owned by outside parties. NCI may be initially measured at fair value or at the NCI’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made on a transaction by transaction basis. iMedia elected to measure each NCI at its proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The share of net assets attributable to NCI are presented as a component of equity. Their share of net income or loss and comprehensive income or loss is recognized directly in equity. Total comprehensive income or loss of subsidiaries is attributed to the shareholders of the Company and to the NCI, even if this results in the NCI having a deficit balance.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended January 30, 2021.
Cautionary Statement Concerning Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact, including statements regarding guidance and the expected impact of cost initiatives, industry prospects or future results of operations or financial position are forward-looking. We often use words such as "anticipates," "believes," "estimates," "expects," "intends," "predicts," "hopes," "should," "plans," "will" and similar expressions to identify forward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, many of which are, and will be, amplified by the COVID-19 pandemic, including (but not limited to): the impact of the COVID-19 pandemic on our sales, operations and supply chain, variability in consumer preferences, shopping behaviors, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales and sales promotions; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor and shipping relationships and develop key partnerships and proprietary and exclusive brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facility covenants; customer acceptance of our branding strategy and our repositioning as a video commerce company; our ability to respond to changes in consumer shopping patterns and preferences, and changes in technology and consumer viewing patterns; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements, including without limitation, regulations of the Federal Communications Commission and Federal Trade Commission, and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant events (including disasters, weather events or events attracting significant television coverage) that either cause an interruption of television coverage or that divert viewership from our programming; disruptions in our distribution of our network broadcast to our customers; our ability to protect our intellectual property rights; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; expenses relating to the actions of activist or hostile shareholders; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits of television programming; and the risks identified under “Risk Factors” in our most recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our Company
We are a leading interactive media company that owns a growing portfolio of television networks, consumer brands and digital 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 synergies and provides it an advantage in these marketplaces.
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The Company’s television networks are ShopHQ, ShopBulldogTV and ShopHealthHQ. 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. ShopHealthHQ, 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 shophealthhq.com, which are comprehensive digital commerce platforms that sell products which appear on the Company’s television lifestyle networks as well as an extended assortment of online-only merchandise. The Company’s interactive video is also available on the OTT and CTV platforms such as Roku, Apple TV, Samsung connected televisions, and on mobile devices, including smartphones and tablets, and through the leading social media channels.
The Company’s consumer brands include J.W. Hulme, Kate & Mallory, Live Fit MD, Christopher & Banks and TheCloseout.com, a deeply-discount branded online marketplace, acquired in the first quarter of fiscal year 2021 that offers discounted merchandise in many categories within an exciting interactive shopping experience.
The Company’s digital services brands are iMedia Digital Services (“iMDS”) and the Company’s customer solutions and logistics services business called, i3PL. iMDS is comprised of Synacor’s Portal and Advertising business, which the Company purchased on July 30, 2021 (see Notes to Condensed Consolidated Financial Statements - Footnote #16 – Business Acquisitions for additional information), and its existing OTT app platform, Float Left. The Company believes that iMDS’s video advertising platform when combined with the television network’s first party purchasing data and Float Left’s best-in-class OTT app will create a truly differentiated video advertising platform.
ShopHQ Reporting Segment
ShopHQ offers its merchandise, which includes products in Jewelry and Watches, Home, Beauty and Health, and Fashion and Accessories across all its sales channels. Our merchandising strategy is focused on delivering a balanced assortment of profitable products presented in an engaging, entertaining, shopping-centric format using our unique expertise in storytelling and “live on location” broadcasting. We are also focused on growing our high lifetime value customer file and growing our revenues, through social, mobile, online, OTT and CTV platforms, as well as leveraging our capacity, system capability and expertise in distribution and product development to generate new business relationships. We believe these initiatives will position us to deliver a more engaging and enjoyable customer experience with product offerings and service that exceed customer expectations. While changes in this product mix do occur as a result of customer demand during certain times of the year, our legacy strengths in Jewelry and Watches continue to represent our largest merchandise category. Our merchants focus on diversifying our merchandise assortment within our existing product categories and offering new products in new assortments. We offer customers proprietary brands and merchandise as well as exclusive and/or less distributed bundles of name-brands products. The following table shows our ShopHQ reporting segment merchandise mix as a percentage of net merchandise sales for the periods indicated.
For the Three-Month | For the Six-Month | ||||||||||
Periods Ended | Period Ended | ||||||||||
July 31, | August 1, | July 31, | August 1, | ||||||||
Net Merchandise Sales by Category |
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
|
|
Jewelry & Watches |
| 49 | % | 36 | % |
| 48 | % | 40 | % |
|
Home |
| 17 | % | 11 | % |
| 16 | % | 13 | % |
|
Beauty & Health |
| 20 | % | 43 | % |
| 21 | % | 35 | % |
|
Fashion & Accessories | 14 | % | 10 | % | 15 | % | 12 | % | |||
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
|
Our ShopHQ promotional strategy is driven by offering our customers competitive pricing and special values, which drive new and existing customer engagement. During fiscal year 2020, we began offering static programming for our viewers, meaning we aired the
30
same shows at the same times each week, and this has improved our customers viewership of our programming. Our core customers are primarily women between the ages of 45 and 70. We also have a smaller presence of male customers of similar age. We believe our customers purchases are driven by our engaging interactive video that demonstrates the product’s utility and quality, and our dependable, friendly customer experience.
ShopHQ distributes its interactive video content 24-hours a day primarily on U.S. linear television’s cable and satellite systems and it reached more than 80 million homes and 75 million homes during the three months ended July 31, 2021 and August 1, 2020. ShopHQ is also streamed 24 hours a day, 7 days a week on our ShopHQ website, broadcast over-the-air in certain markets and is also available on mobile and social channels and on various video streaming OTT and CTV platforms, such as Roku and Apple TV. This multiplatform distribution approach, complemented by our strong mobile and online efforts, ensures that our programming is available wherever and whenever our customers choose to shop.
We continue to increase the number of channels on existing distribution platforms and alternative distribution methods, including reaching deals to launch our programming on high definition ("HD") channels. For example, in June 2021, we launched approximately 20 million new homes receiving our signal in high definition through an affiliation agreement with RNN. These homes are primarily in major television markets such as New York City, Los Angeles, San Francisco, Philadelphia, Dallas, Houston, Washington D.C. and Boston. We believe that our distribution strategy of pursuing additional channels in productive homes already receiving our programming is a more balanced approach to growing our business than merely adding new television homes in untested areas. We believe that having an HD feed of our service allows us to attract new viewers and customers.
We have entered into distribution agreements with cable operators, direct-to-home satellite providers, telecommunications companies and over-the-air broadcasters to distribute our television programming over their systems. The terms of the distribution agreements typically range from one to five years. During any fiscal year, certain agreements with cable, satellite or other distributors may or have expired. Under certain circumstances, the cable operators or we may cancel the agreements prior to their expiration. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales and earnings unless we are able to arrange for alternative means of broadly distributing our television programming.
During fiscal year 2021 and 2020, we entered into certain affiliation agreements with television providers for carriage of our television programming over their systems that includes television broadcast rights associated with our channel position on their systems. As a result, in accordance with GAAP,we recorded television broadcast rights assets of $71.2 million and $25.5 million during the six months ended July 31, 2021 and August 1, 2020. The total liability relating to television broadcast rights was $79.2 million and $29.8 million as of July 31, 2021 and August 1, 2020, of which $29.4 million and $7.3 million was classified as current. We believe having consistent favorable channel positioning within the general entertainment area on the distributor’s channel line-up improves our sales. We believe that a portion of our sales is attributable to purchases resulting from channel "surfing" and that a channel position near popular cable networks increases the likelihood of such purchases.
ShopHQ offers a balanced mix of merchandise to customers using interactive video and faces competition from a variety of sources, including, QVC and HSN. Both QVC and HSN are owned by Qurate Retail Inc. and each are substantially larger than ShopHQ in terms of annual revenues and customers, and the programming of each is carried more broadly to U.S. households, including high-definition bands and multi-channel carriage, than our programming. In addition, Multimedia Commerce Group, Inc., which operates Jewelry Television, also competes with us for customers in the Jewelry and Watches category. In addition, there are several smaller niche television shopping networks and startups in the television shopping arena who compete with us.
We anticipate continued competition for viewers and customers, for experienced television commerce and e-commerce personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies, but also from other companies that seek to enter the television shopping and online retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that ShopHQ’s ability to be successful in the interactive video arena will depend on several key factors, including its ability to continue to curate compelling product assortments, capture and engage new and existing customers, and continually offer its interactive video on all the video distribution platforms available.
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Emerging Business Reporting Segment
By leveraging ShopHQ’s interactive video expertise, national scaled promotional power, expansive media and vendor relationships, customer experience and fulfillment capabilities, and financial resources, iMedia seeks to strategically build and acquire growing businesses that accelerate the Company’s strategic goal of becoming the leading single-source partner to television advertisers and consumer brands seeking to entertain and transact with customers using interactive video.
Within the Emerging Business segment, the Company’s operates its two, niche lifestyle television networks, ShopBulldogTV and ShopHealthHQ, its consumer brands that include J.W. Hulme, Kate & Mallory, Live Fit M.D. and Christopher & Banks, its online marketplace brands TheCloseout.com, and its digital services brands, iMDSand i3PL.
In terms of competitors for the Emerging Business reporting segment, we believe there is a growing number of competitors in the creation, distribution and consumption of streaming fact-based video content in the online, OTT and CTV marketplaces, and for the digital services offered in the online, OTT, CTV and advertising marketplaces. Today, we believe our competition in these arenas range from the larger media commerce service companies like Brightcove (“BCOV”) and ChannelAdvisor (“ECOM”), to the smaller factual content streaming network providers like Curiosity Streams (“CURI”), and larger single-source digital services providers Shopify and Squarespace.
Our Corporate Website
Our iMedia Brands corporate website is imediabrands.com and our Nasdaq trading symbol is IMBI. Our annual report is filed as our Form 10-K. We issue quarterly reports on Form 10-Q and our current second quarter press release is filed on Form 8-K. Proxy and information statements, and amendments to these reports if applicable, are available, without charge, in the investor relations section of our corporate website, imediabrands.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Copies also are available, without charge, by contacting our Legal Department, iMedia Brands, Inc., 6740 Shady Oak Road, Eden Prairie, Minnesota 55344-3433.
Our goal is to maintain the investor relations section of our corporate website as a way for investors to easily find information about us, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. The information found on our corporate website is not part of this or any other report we file with, or furnish to, the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically.
Summary Results for the Second quarter of Fiscal 2021
Consolidated net sales for our fiscal 2021 second quarter were $113.4 million compared to $124.5 million for our fiscal 2020 second quarter, which represents a 8.9% decrease. We reported an operating loss of $2.4 million and a net loss of $4.2 million for our fiscal 2021 second quarter. We reported operating income of $2.5 million and a net income of $1.1 million for our fiscal 2020 second quarter.
Consolidated net sales for the first six months of fiscal 2021 were $226.6 million compared to $220.3 million for the first six months of fiscal 2020, which represents a 2.9% increase. We reported an operating loss of $4.4 million and a net loss of $7.5 million for the first six months of fiscal 2021. The operating and net loss for the first six months of fiscal 2021 included transaction, settlement and integration costs totaling $1.9 million, a loss on debt extinguishment of $654,000 and one-time customer concessions of $341,000. We reported an operating loss of $3.2 million and a net loss of $5.8 million for the first six months of fiscal 2020. The operating and net loss for the first six months of fiscal 2020 included transaction, settlement and integration costs totaling $574,000; and restructuring costs of $209,000.
Restructuring Costs
During the first quarter of fiscal 2020, the Company implemented and completed another cost optimization initiative, which eliminated positions across the ShopHQ segment, the majority of whom were employed in customer service, order fulfillment and television production. As a result of the first quarter fiscal 2020 cost optimization initiative, we recorded restructuring charges of $209,000 for the first quarter of fiscal 2020, which relate primarily to severance and other incremental costs associated with the consolidation and elimination of positions across the ShopHQ segment. These initiatives were substantially completed as of July 31, 2021. The first quarter fiscal 2020 optimization initiative is expected to eliminate approximately $16 million in annual overhead costs.
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Results of Operations
Selected Condensed Consolidated Financial Data
Operations
Dollar Amount as a | Dollar Amount as a | |||||||||
Percentage of Net Sales for the | Percentage of Net Sales for the | |||||||||
Three-Month Periods Ended | Six-Month Periods Ended | |||||||||
| August 1, |
| August 3, |
|
| July 31, |
| August 1, |
| |
2021 | 2020 | 2021 | 2020 | |||||||
Net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Gross margin |
| 42.3 | % | 37.2 | % |
| 41.5 | % | 37.1 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
| |
Distribution and selling |
| 31.2 | % | 25.6 | % |
| 30.7 | % | 29.8 | % |
General and administrative |
| 6.5 | % | 4.1 | % |
| 6.1 | % | 4.7 | % |
Depreciation and amortization |
| 6.7 | % | 5.5 | % |
| 6.6 | % | 3.9 | % |
Restructuring costs |
| (0.0) | % | — | % |
| — | % | 0.1 | % |
Total operating expenses |
| 44.4 | % | 35.2 | % |
| 43.4 | % | 38.5 | % |
Operating loss |
| (2.1) | % | 2.0 | % |
| (2.0) | % | (1.4) | % |
Key Performance Metrics
For the Three-Month | For the Six-Month Periods Ended | ||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | ||||||||||||||||||
| 2021 |
| 2020 |
|
|
| 2021 |
| 2020 |
| Change |
|
| ||||||||
Merchandise Metrics |
|
|
|
|
| ||||||||||||||||
Gross margin % | 42.3 | % | 37.2 | % | 510 | bps | 41.5 | % | 37.1 | % | 437 | bps | |||||||||
Net shipped units (in thousands) | 1,521 |
| 1,763 | (13.7) | % | 3,034 |
| 3,111 | (2.5) | % | |||||||||||
Average selling price | $ | 67 | $ | 63 | 6.3 | % | $ | 66 |
| $ | 63 | $ | 4.8 | % | |||||||
Return rate |
| 15.5 | % | 11.9 | % | 360 | bps |
| 16.1 | % | 14.6 | % |
| 150 | bps | ||||||
ShopHQ Digital net sales % (a) |
| 47.2 | % | 50.1 | % | (290) | bps |
| 51.1 | % | 51.4 | % |
| (30) | bps | ||||||
Total Customers - 12 Month Rolling (in thousands) |
| 1,109 |
| 1,014 | 9.4 | % |
| N/A |
| N/A |
| % |
(a) | Digital net sales percentage is calculated based on ShopHQ net sales that are generated from our website and mobile platforms, which are primarily ordered directly online. |
Net Shipped Units
The number of net shipped units (shipped units less units returned) during the fiscal 2021 second quarter decreased 14% from the prior year comparable quarter to approximately 1.5 million. For the six months ended July 31, 2021, net shipped units decreased by 3% from the comparable prior year period to approximately 3 million. The decrease in net shipped units was mainly driven by the decrease net sales, along with a higher ASP.
Average Selling Price
The average selling price ("ASP") per net unit was $67 in the second quarter of fiscal 2021, a 6% increase from the prior year quarter. ASP increases in the second quarter ended July 31, 2021 were primarily driven by ASP increases in our jewelry and watches category. For the six months ended July 31, 2021, the ASP was $66, a 5% increase from the prior year comparable period. The ASP increases in the first six months ended July 31, 2021 were primarily driven by ASP increases in our jewelry and watches category.
Return Rates
For the three months ended July 31, 2021, our return rate was 15.5% compared to 11.9% for the comparable prior year quarter, a 360-basis point increase. For the six months ended July 31, 2021, our return rate was 16.1% compared to 14.6% for the comparable prior year period, a 150-basis point increase. The increase in the return rate was primarily driven by a sales mix shift out of beauty and
33
health into jewelry & watches, which has a higher return rate. We continue to monitor our return rates in an effort to keep our overall return rates commensurate with our current product mix and our ASP levels.
Total Customers
Total customers who have purchased over the last twelve months increased 9% over the prior year to approximately 1.1 million. The increase in total customers was mainly attributed to an increase in new customers compared to the prior year. We continue to focus on the following initiatives, among others, to increase our active customer file:
● | introducing by appointment viewing "static programming," so viewers know when to watch; |
● | launching innovative programming, such as "Learning to Cook with Shaq," "GemHQ," "Invicta Collectors Room," and "Fashion Talk with Fatima"; and |
● | managing category specific customer growth priorities around ASP, product assortment and product margins. |
Net Sales
Consolidated net sales, inclusive of shipping and handling revenue, for the fiscal 2021 second quarter were $113.4 million, a 9% decrease from consolidated net sales of $124.5 million for the comparable prior year quarter.
During the second quarter of fiscal 2021, our consolidated net sales, inclusive of shipping and handling revenue, decreased 9% compared to the prior year second quarter. Our decrease in net sales was driven primarily by a decrease in net sales from ShopHQ stemming from material shipping delays for several of our most productive products, partially offset by revenue growth from our Emerging Businesses.
Consolidated Net Sales for the Second Quarter of Fiscal Six Months 2021 Compared to the Prior Year Periods
For the Three-Month Periods Ended |
| |||||||||||
| July 31, |
| August 1, |
|
|
| ||||||
2021 | 2020 | Change | % Change |
| ||||||||
ShopHQ | (dollars in thousands) |
| ||||||||||
Net merchandise sales by category: |
|
|
|
|
|
|
|
| ||||
Jewelry & Watches | $ | 41,045 | $ | 39,058 | $ | 1,987 |
| 5 | % | |||
Home |
| 14,359 |
| 12,375 |
| 1,984 |
| 16 | % | |||
Beauty & Health |
| 16,659 |
| 46,571 |
| (29,912) |
| (64) | % | |||
Fashion & Accessories |
| 12,111 |
| 10,951 |
| 1,160 |
| 11 | % | |||
All other (primarily shipping & handling revenue) |
| 9,936 |
| 11,715 |
| (1,779) |
| (15) | % | |||
Total ShopHQ |
| 94,110 |
| 120,670 |
| (26,560) |
| (22) | % | |||
Emerging Business |
| 19,332 |
| 3,845 |
| 15,487 |
| 403 | % | |||
Consolidated net sales | $ | 113,442 | $ | 124,515 | $ | (11,073) |
| (9) | % |
For the Six-Months Periods Ended |
| |||||||||||
July 31, | August 1, |
| ||||||||||
2021 | 2020 | Change | % Change |
| ||||||||
ShopHQ | (dollars in thousands) |
| ||||||||||
Net merchandise sales by category: |
|
|
|
|
|
|
|
| ||||
Jewelry & Watches | $ | 84,299 | $ | 78,460 | $ | 5,839 |
| 7 | % | |||
Home |
| 27,545 |
| 25,142 |
| 2,403 |
| 10 | % | |||
Beauty & Health |
| 35,905 |
| 67,434 |
| (31,529) |
| (47) | % | |||
Fashion & Accessories |
| 25,691 |
| 23,675 |
| 2,016 |
| 9 | % | |||
All other (primarily shipping & handling revenue) |
| 20,531 |
| 19,758 |
| 773 |
| 4 | % | |||
Total ShopHQ |
| 193,971 |
| 214,469 |
| (20,498) |
| (10) | % | |||
Emerging |
| 32,673 |
| 5,880 |
| 26,793 |
| 456 | % | |||
Consolidated net sales | $ | 226,644 | $ | 220,349 | $ | 6,295 |
| 3 | % |
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Jewelry & Watches: The $2.0 million increase in jewelry & watches during the second quarter of fiscal 2021 was primarily due to a 26% increase in airtime compared to the prior year. Jewelry & watches also continues to be our most productive category.
Home: The $2.0 million increase during the second quarter of fiscal 2021 was driven by an increase in airtime during the second quarter of fiscal 2021.
Beauty & Health: The $29.9 million decrease during the second quarter of fiscal 2021 was mainly driven by a 39% reduction in airtime.
Fashion & Accessories: The $1.2 million increase during the second quarter of fiscal 2021 was primarily due to a 23% increase in airtime compared to the prior year.
Other: The $1.8 million decrease during the second quarter of fiscal 2021 was driven by a decrease in shipping & handling revenue resulting from the 14% decrease in net shipped units.
Emerging Business: The $15.5 million increase during the second quarter of fiscal 2021 was mainly driven by revenue from business initiatives following the comparable prior year period, such as our launch of the ShopHealthHQ television network in September 2020, along with revenue from our newly acquired businesses of Christopher & Banks and TheCloseout.com.
Digital and Mobile Net Sales
We believe that our interactive television video is a key driver of traffic to both our website and mobile applications whereby many of the online sales originate from customers viewing our interactive television video and then placing their orders online or through mobile devices. Our digital sales penetration, or the percentage of ShopHQ net sales that are generated from our website and mobile platforms, which are primarily ordered directly online, was 47.2% and 51.1% during the second quarter and first six months of fiscal 2021 compared to 50.1% and 51.4% during the second quarter and first six months of fiscal 2020. Overall, we continue to deliver strong digital sales penetration. Our mobile penetration decreased to 52.8% of total digital orders in the second quarter of fiscal 2021 versus 55.6% of total digital orders for the comparable prior year period.
Gross Profit
For the Three-Month Periods Ended |
| |||||||||||
| July 31, |
| August 1, |
|
| |||||||
2021 | 2020 | Change |
| % Change |
| |||||||
(dollars in thousands) |
| |||||||||||
ShopHQ | $ | 39,690 | $ | 44,731 | $ | (5,041) |
| (11) | % | |||
Emerging Business |
| 8,296 |
| 1,561 |
| 6,735 |
| 431 | % | |||
Consolidated gross profit | $ | 47,986 | $ | 46,292 | $ | 1,694 |
| 4 | % |
Consolidated gross profit for the second quarter of fiscal 2021 was $48.0 million, an increase of $1.7 million, or 4%, compared to the second quarter of fiscal 2020. ShopHQ’s gross profit decreased $5.0 million, or 11% compared to the second quarter of fiscal 2020 and was primarily driven by the 22% decrease in net sales (as discussed above), partially offset by higher gross profit percentages experienced in most product categories during the second quarter of fiscal 2021. Emerging Business gross profit increased by $7.2 million compared to the second quarter of fiscal 2020 and was primarily driven by the increase in net sales (as discussed above).
Consolidated gross margin percentages for the second quarters of fiscal 2021 and fiscal 2020 were 42.3% and 37.2%, which represent a 510-basis point increase. ShopHQ’s gross margin percentages for the second quarters of fiscal 2021 and fiscal 2020 were 42.2% and 37.0%, which represent a 520-basis point increase. The increase in the gross margin percentage primarily reflects an increase attributable to increased gross profit rates in most product categories. The category gross profit rates were positively impacted by more disciplined pricing and markdown execution. Emerging Business gross margin percentages for the second quarters of fiscal 2021 and
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fiscal 2020 were 42.9% and 42.0%. The increase in the Emerging Business gross margin percentage reflects new business initiatives not included in the prior year comparable period, such as ShopHealthHQ, and recently acquired businesses, primarily Christopher & Banks.
| For the Six-Month Periods Ended |
|
|
|
|
| ||||||
July 31, | August 1, |
| ||||||||||
2021 |
| 2020 | Change | % Change |
| |||||||
(dollars in thousands) |
| |||||||||||
ShopHQ | $ | 80,006 | $ | 79,686 | $ | 320 |
| 0 | % | |||
Emerging |
| 13,987 |
| 2,163 |
| 11,824 |
| 547 | % | |||
Consolidated gross profit | $ | 93,993 | $ | 81,849 | $ | 12,144 |
| 15 | % |
Consolidated gross profit for the first six months of fiscal 2021 was $94.0 million, an increase of $12.2 million, or 15%, compared to the first six months of fiscal 20. ShopHQ's gross profit was for the most part flat compared to the first six months of fiscal 2020, and was primarily driven by the 9% decrease in net sales (as discussed above), partially offset by higher gross profit percentages experienced in most product categories during the first six months of fiscal 2021. Emerging's gross profit increased $11.8 million compared to the first six months of fiscal 2020 and was primarily driven by the increase in net sales (as discussed above).
Consolidated gross margin percentages for the first six months of fiscal 2021 and fiscal 2020 were 41.5% and 37.1%, which represented a 430-basis point increase. ShopHQ's gross margin percentages for the first six months of fiscal 2021 and fiscal 2020 were 41.3% and 37.2%, which represented a 410-basis point increase. The increase in the gross margin percentage was primarily attributable to increased gross profit rates in most product categories. Emerging's gross margin percentages for the first six months of fiscal 2021 and fiscal 2020 were 42.8% and 36.8%. The increase in the Emerging Business gross margin percentage reflects new business initiatives not included in the prior year comparable period, such as ShopHQHealth, and recently acquired businesses, primarily Christopher & Banks.
Operating Expenses
Total operating expenses for the fiscal 2021 second quarter were approximately $50.4 million compared to $43.8 million for the comparable prior year period, an increase of 15.1%. Total operating expenses as a percentage of net sales were 44.4% during the second quarter of fiscal 2021, compared to 35.2% during the comparable prior year period of fiscal 2020. Total operating expenses for the fiscal 2021 second quarter and the fiscal 2020 second quarter included transaction, settlement and integration costs of $1.2 million and $315,000.
Total operating expenses for the first six months of fiscal 2021 were approximately $98.4 million compared to $85.0 million for the comparable prior year period, an increase of 15.8%. Total operating expenses for the first six months of fiscal 2021 included transaction, settlement and integration costs of $1.9 million. Total operating expenses for the first six months of fiscal 2020 included transaction, settlement and integration costs of $574,000 and restructuring costs of $209,000. Excluding transaction, settlement and integration costs and restructuring costs, total operating expenses as a percentage of net sales for the second quarter and first six months of fiscal 2021 were 43.4% and 42.6%, compared to 34.9% and 38.2% for the second quarter and first six months of fiscal 2020.
Distribution and selling expense increased $3.5 million, or 10.9%, to $35.4 million, or 31.2% of net sales during the fiscal 2021 second quarter compared to $31.9 million, or 25.6% of net sales for the comparable prior year fiscal quarter. Distribution and selling expense increased during the quarter primarily due to an increase in costs associated with the expansion of our Emerging Business segment of $3.1 million and an increase of ShopHQ segment merchandising, marketing and production costs of $1.1 million partially offset by decreased ShopHQ segment variable costs of $589,000 and decreased ShopHQ segment program distribution expense of $484,000.
Distribution and selling expense increased $4.0 million, or 6.1%, to $69.6 million, or 30.7% of net sales during the first six months of fiscal 2021 compared to $65.6 million, or 29.8% of net sales for the comparable prior year period. Distribution and selling expense increased during the first six months due to an increase in costs associated with the expansion of our Emerging Business segment of $5.3 million, an increase in ShopHQ segment merchandising, marketing and production costs of $1.0 million partially offset by decreased ShopHQ segment program distribution expense of $2.5 million. Total variable expenses during the first six months of fiscal 2021 were approximately 8.5% of total net sales versus 8.7% of total net sales for the prior year comparable period.
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To the extent that our ASP changes, our variable expense as a percentage of net sales could be impacted as the number of our shipped units change. Program distribution expense is primarily a fixed cost per household. However, this expense may be impacted by changes in the number of average homes, channels reached or by rate changes associated with changes in our channel position with carriers.
General and administrative expense for the fiscal 2021 second quarter increased $2.3 million, or 45.1%, to $7.4 million or 6.5% of net sales, compared to $5.1 million or 4.1% of net sales for the comparable prior year fiscal quarter. General and administrative expense increased during the second quarter primarily due to an increase in costs associated with the expansion of our Emerging Business segment of $979,000, increased transaction and integration costs related to the Christopher & Banks and TheCloseout.com business acquisitions of $905,000 and increased equity compensation costs of $526,000.
General and administrative expense for the first six months of fiscal 2021 increased $3.3 million, or 32%, to $13.8 million or 6.1% of net sales, compared to $10.5 million or 4.8% of net sales for the comparable prior year period. For the first six months of fiscal 2021, general and administrative expense increased primarily due to an increase in costs associated with the expansion of our Emerging Business segment of $1.4 million, increased transaction and integration costs related to the Christopher & Banks and TheCloseout.com business acquisitions of $1.3 million and increased equity compensation costs of $573,000.
Depreciation and amortization expense for the fiscal 2021 second quarter increased $684,000, or 11.2%, to $7.6 million compared to $6.8 million for the comparable prior year period. Depreciation and amortization expense as a percentage of net sales for the second quarters of fiscal 2021 and fiscal 2020 was 6.7% and 5.5%. The increase in depreciation and amortization expense for the second quarter of fiscal 2021 was primarily due to increased amortization expense of $928,000 relating to additional television broadcast rights obtained during the second fiscal quarter of 2021 partially offset by, decreased depreciation and amortization expenses of $165,000 primarily attributable to an average net decrease in our non-fulfillment depreciable asset base of the ShopHQ segment year over year.
Depreciation and amortization expense for the first six months of fiscal 2021 amounted to $15.0 million, an increase of $6.3 million, or 71.8%, compared to $8.7 million for the same prior year period. Depreciation and amortization expense as a percentage of net sales for the first six months of fiscal 2021 and 2020 was 6.6% and 3.9%. The increase in depreciation and amortization expense for the first six months of fiscal 2021 was primarily due to increased amortization expense of $6.0 million relating to the television broadcast rights obtained in fiscal 2021 and 2020 and increased depreciation and amortization expense of $327,000 relating to the expansion of our Emerging Business segment, partially offset by decreased depreciation expense of $110,000 resulting from an average net decrease in our non-fulfillment depreciable asset base of the ShopHQ segment year over year.
Operating Loss
For the fiscal 2021 second quarter, we reported an operating loss of approximately $2.4 million compared to operating income of $2.5 million for the fiscal 2020 second quarter. ShopHQ reported an operating loss of $2.8 million and Emerging Business reported operating income of $405,000 for the fiscal 2021 second quarter compared to operating income of $3.7 million for ShopHQ and an operating loss of $1.3 million for Emerging Business for the fiscal 2020 second quarter. For the second quarter of fiscal 2021, ShopHQ’s operating loss decreased primarily as a result of decreased net sales and increased operating expenses offset partially by increased gross margins. The Emerging Business operating loss decreased during the fiscal 2021 second quarter primarily from an increase in net sales and related gross profits of $7.1 million, partially offset by increased distribution and selling expense of $3.2 million and an increase in general and administrative expense of $2.1 million. Depreciation and amortization expense for the second quarter of fiscal 2021 increased $769,000, or 11.2%, to $7.6 million compared to $6.8 million for the comparable prior year period.
For the six months ended July 31, 2021, we reported an operating loss of approximately $4.4 million compared to an operating loss of $3.2 million for the comparable prior year period. ShopHQ and Emerging reported an operating loss of $4.7 million and operating income of $246,000 for the six months ended August 1, 2020 compared to operating losses of $55,000 and $3.1 million for the six months ended August 1, 2020. ShopHQ’s operating loss decreased primarily as a result of decreased net sales and increased operating expenses offset partially by increased gross margins. Emerging Business operating loss decreased during the first six months of fiscal year 2021 primarily from an increase in net sales and related gross profits of $12.1 million, partially offset by increased distribution and selling expense of $5.3 million and an increase in general and administrative expense of $3.2 million. Depreciation and amortization expense for the first six months of fiscal 2021 increased $6.3 million, or 72.4%, to $15.0 million compared to $8.7 million for the comparable prior year period.
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Interest Expense
Total interest expense for the fiscal 2021 second quarter decreased $59,000, or 4.2%, to $1.3 million compared to $1.4 million for the comparable prior year period. The decrease in interest expense was primarily driven by a decrease in interest expense attributable to borrowings under the PNC credit facility of $102,000 largely offset by increased interest expense on our television broadcast rights liability.
Total interest expense for the first six months of fiscal 2021 increased $76,000, or 2.9%, to $2.7 million compared to $2.6 million for the comparable prior year period. The increase in interest expense was largely attributable to increased interest expense on our television broadcast rights liability of $694,000, a result of higher average outstanding balances during the first six months of fiscal 2021. This increase was largely offset by decreased interest expense attributable to our PNC credit facility, a result of lower outstanding balances during the first six months of fiscal 2021.
Net Income (Loss)
For the fiscal 2021 second quarter, we reported a net loss of $4.2 million, or $0.23 per share, on 19,101,652 weighted average basic common shares outstanding compared with net income of $1.1 million, or $0.11 per share, on 9,896,729 weighted average fully diluted common shares outstanding in the fiscal 2020 second quarter. The net loss for the second quarter of fiscal 2021 included transaction, settlement and integrations costs totaling $1.2 million, interest expense of $1.4 million and a loss on debt extinguishment of $654,000. The net income for the second quarter of fiscal 2020 included transaction, settlement and integrations costs totaling $315,000 and interest expense of $1.4 million.
The net loss for the first six months of fiscal 2021 was approximately $7.5 million compared to a net loss of $5.8 million for the comparable prior year period, an increase of 29.3.%. Net loss for fiscal 2021 included transaction, settlement and integrations costs totaling $1.9 million, interest expense of $2.7 million and a loss on debt extinguishment of $654,000 The net loss for the first six months of fiscal 2020 included interest expense of $2.6 million, transaction, settlement and integrations costs totaling $574,000 and restructuring costs of $209,000. For the second quarters of fiscal 2021 and fiscal 2020, the net loss reflects an income tax provision of $15,000. For the first six months of fiscal 2021 and fiscal 2020 the net loss reflects an income tax provision of $30,000. The income tax provision for these periods relates to state income taxes payable on certain income for which there is no loss carryforward benefit available. We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be realized in the future.
Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the second quarter of fiscal 2021 was $8.3 million compared to Adjusted EBITDA of $10.7 million for the fiscal 2020 second quarter. For the six-month period ended July 31, 2021, Adjusted EBITDA was $16.4 million compared with $9.1 million for the comparable prior year period.
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A reconciliation of the comparable GAAP measure, net income (loss), to Adjusted EBITDA follows, in thousands:
For the Three-Month | For the Six-Month | ||||||||||||
Periods Ended | Periods Ended | ||||||||||||
July 31, | August 1, | July 31, | August 1, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||
Net loss | $ | (4,249) | $ | 1,054 | $ | (7,476) | $ | (5,774) | |||||
Adjustments: |
|
|
|
|
|
|
|
| |||||
Depreciation and amortization (a) |
| 8,562 |
| 7,840 |
| 16,888 |
| 10,745 | |||||
Interest income |
| (39) |
| — |
| (39) |
| (1) | |||||
Interest expense |
| 1,381 |
| 1,402 |
| 2,694 |
| 2,581 | |||||
Income taxes |
| 15 |
| 15 |
| 30 |
| 30 | |||||
EBITDA (b) | $ | 5,670 | $ | 10,311 | $ | 12,097 | $ | 7,581 | |||||
A reconciliation of EBITDA to Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
| |||||
EBITDA (b) | $ | 5,670 | $ | 10,311 | $ | 12,097 | $ | 7,581 | |||||
Adjustments: |
|
|
|
|
|
|
|
| |||||
Transaction, settlement and integration costs, net (c) |
| 1,220 |
| 315 |
| 1,920 |
| 574 | |||||
Restructuring costs |
| — |
| — |
| — |
| 209 | |||||
One-time customer concessions | — | — | 341 | — | |||||||||
Loss on debt extinguishment |
| 654 |
| — |
| 654 |
| — | |||||
Non-cash share-based compensation expense |
| 768 |
| 108 |
| 1,436 |
| 723 | |||||
Adjusted EBITDA (b) | $ | 8,312 | $ | 10,734 | $ | 16,448 | $ | 9,087 |
(a) | Includes distribution facility depreciation of $952,000 and $1.9 million and $998,000 and $2.0 million for the three and six month periods ended July 31, 2021 and August 1, 2020. Distribution facility depreciation is included as a component of cost of sales within the accompanying condensed consolidated statements of operations. The three-month and six-month periods ended July 31, 2021 and August 1, 2020 include amortization expense related to the television broadcast rights totaling $6.0 million and $11.2 million and $5.1 million. |
(b) | EBITDA as defined for this statistical presentation represents net income (loss) for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding non-operating gains (losses); transaction, settlement and integration costs; restructuring costs; non-cash impairment charges and write downs; one-time customer concessions; executive and management transition costs; rebranding costs; and non-cash share-based compensation expense. |
(c) | Transaction, settlement and integration costs, net for the three and six-month period ended July 31, 2021 include transaction and integration costs related primarily to the TCO and C&B business acquisitions. Transaction, settlement and integration costs, net, for the three and six-month period ended August 1, 2020 include consulting fees incurred to explore additional loan financings, settlement costs, and incremental COVID-19 related legal costs. |
We use "Adjusted EBITDA" to adequately assess the operating performance of our video and digital businesses and in order to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows investors to make a meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under our management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income (loss), net income (loss) or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.
Critical Accounting Policies and Estimates
A discussion of the critical accounting policies related to accounting estimates and assumptions are discussed in detail in our fiscal 2020 annual report on Form 10-K under the caption entitled "Critical Accounting Policies and Estimates."
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Recently Issued Accounting Pronouncements
See Note 2 - “Basis of Financial Statement Presentation” in the notes to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Financial Condition, Liquidity and Capital Resources
As of July 31, 2021, we had cash and restricted cash of $23.1 million. In addition, under the Siena Credit Facility (as defined below), we are required to maintain a minimum of $7.5 million of unrestricted cash plus unused line availability at all times. As of January 30, 2021, we had cash of $15.5 million. For the first six months of fiscal 2021, working capital increased $49.0 million to $82.7 million (see "Cash Requirements" below for additional information on changes in working capital accounts). The current ratio (our total current assets over total current liabilities) was 1.68 at July 31, 2021 and 1.16 at January 30, 2021.
The Company is required to keep cash in a restricted account in order to maintain lines of credit to both purchase inventory as well as general and administrative expenses. Any interest earned is recorded in that period. The Company had $2,192,000 in restricted cash accounts as of July 31, 2021.
Siena Lending Group
On July 30, 2021, iMedia Brands, Inc. (the “Company”) and certain of its subsidiaries, as borrowers, entered into a loan and security agreement (the “Loan Agreement”) with Siena Lending Group LLC and the other lenders party thereto from time to time, Siena Lending Group LLC, as agent (the “Agent”), and certain additional subsidiaries of the Company, as guarantors thereunder. The Loan Agreement has a three-year term and provides for up to a $80 million revolving line of credit. Subject to certain conditions, the Loan Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings shall be used to refinance all indebtedness owing to PNC Bank, National Association, to pay the fees, costs, and expenses incurred in connection with the Loan Agreement and the transactions contemplated thereby, for working capital purposes, and for such other purposes as specifically permitted pursuant to the terms of the Loan Agreement. The Company’s obligations under the Loan Agreement are secured by substantially all of its assets and the assets of its subsidiaries as further described in the Loan Agreement.
Subject to certain conditions, borrowings under the Loan Agreement bear interest at 4.50% plus the London interbank offered rate for deposits in dollars (“LIBOR”) for a period of 30 days as published in The Wall Street Journal three business days prior to the first day of each calendar month. There is a floor for LIBOR of 0.50%. If LIBOR is no longer available, a successor rate to be chosen by the Agent in consultation with the Company or a base rate.
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum liquidity requirements of not less than $7,500,000 as of the end of any fiscal month and a maximum senior net leverage ratio of not less than 2.50:1.00 as of the last day of each fiscal quarter. In addition, the Loan Agreement 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 shareholders. The Company also pays a monthly fee at a rate equal to 0.50% per annum of the average daily unused amount of the credit facility for the previous month.
As of July 31, 2021, the Company had total borrowings of $47.2 million under its revolving line of credits with Siena. Remaining available capacity under the revolving line of credit as of July 31, 2021 was approximately $13.5 million, which provided liquidity for working capital and general corporate purposes. As of July 31, 2021, the Company was in compliance with applicable financial covenants of the Siena Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months.
GreenLake Real Estate Finance
On July 30, 2021, two of the Company’s subsidiaries, VVI Fulfillment Center, Inc. and EP Properties, LLC (collectively, the “Borrowers”), and the Company, as guarantor, entered into that certain Promissory Note Secured by Mortgages (the “Note”) with GreenLake Real Estate Finance LLC (“GreenLake”) whereby GreenLake agreed to make a secured term loan (the “Term Loan”) available to the Borrowers in the original amount of $28,500,000 The Note is secured by, among other things, mortgages encumbering
40
the Company’s owned properties in Eden Prairie, Minnesota and Bowling Green, Kentucky (collectively, the “Mortgages”) as well as other assets as described in the Note. Proceeds of borrowings shall be used to (i) pay fees and expenses related to the transactions contemplated by the Note, (ii) make certain payments approved by GreenLake to third parties, and (iii) provide for working capital and general corporate purposes of the Company. The Company has also pledged the stock that it owns in the Borrowers to secure its guarantor obligations.
The Note is scheduled to mature on July 31, 2024. The borrowings, which include all amounts advanced under the Note, bear interest at 10.00% per annum or, at the election of the Lender upon no less than 30 days prior written notice to the Borrowers, at a floating rate equal to the prime rate plus 200 basis points.
The Borrowers may prepay the Note in full (but not in part) before July 30, 2022 (the “Lockout Date”) upon payment of a prepayment premium equal to the amount of interest that would have accrued from the date of prepayment through the Lockout Date. After the Lockout Date, the Note may be prepaid in full or in any installment greater than or equal to $100,000 without any prepayment penalty or premium on 90 days’ prior written notice from Borrowers to GreenLake.
The Note contains customary representations and warranties and financial and other covenants and conditions, including, a requirement that the Borrowers comply with all covenants set forth in the Loan Agreement described above. The Note also contains certain customary events of default.
As of July 31, 2021, there was $28.5 million outstanding under the term loan with GreenLake, all of which was classified as long-term in the accompanying condensed consolidated balance sheet. Principal borrowings under the term loan are non-amortizing over the life of the loan.
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. On July 30, 2021, the PNC revolver and term loan were paid in full and the PNC Credit Facility was terminated through a refinancing with Siena and Greenlake The Company recognized $654,000 in related debt extinguishment costs in the fiscal 2021 second quarter which included both the write-off of remaining deferred financing costs in related to the PNC term loan and revolver, as well as a prepayment penalty per the PNC Credit Facility.
The PNC Credit Facility, which included CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provided a revolving line of credit of $70.0 million and provided 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 had 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 were equal to the lesser of $70.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.
The PNC Credit Facility also provided 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 was 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 could 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 bore 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 bore 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.
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Interest expense recorded under the PNC Credit Facility was $755,000 and $1,558,000 for the three and six-month periods ended July 31, 2021 and $857,000 and $2,024,000 for the three and six-month periods ended August 1, 2020.
Deferred financing costs, net of amortization, relating to the revolving line of credit were $1,826,000 and $243,000 as of July 31, 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.
Public Equity Offering
On June 9, 2021, we completed a public offering, in which we issued and sold 4,830,918 shares of our common stock ( at a public offering price of $9.00 per share. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $40.4 million. We have used or intend to use the proceeds for general working capital purposes, including potential acquisitions of businesses and assets that are complementary to our operations.
On February 18, 2021, we completed a public offering, in which we issued and sold 3,289,000 of our 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 $21.2 million. We have used and intend to use the proceeds for general working capital purposes.
On August 28, 2020, we completed a public offering, in which we issued and sold 2,760,000 shares of our 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 $15.8 million. We used the proceeds for general working capital purposes.
Private Placement Securities Purchase Agreement
On April 14, 2020, we entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which we will issue and sell shares of our common stock and warrants to purchase shares of our common stock. The initial closing occurred on April 17, 2020 and we issued an aggregate of 731,937 shares and warrants to purchase an aggregate of 367,197 shares of our common stock. We received gross proceeds of $1.5 million for the initial closing. The additional closings occurred during the second quarter of fiscal 2020 with an aggregate cash purchase price of $2.5 million, in which we issued 1,104,377 shares of our common stock, warrants to purchase an aggregate of 611,993 shares of our common stock at a price of $2.66 per share, and fully-paid warrants to purchase an aggregate of 114,698 shares of our common stock at a price of $0.001 per share. See Note 8 - "Shareholders’ Equity" in the notes to our condensed consolidated financial statements for additional information.
Other
Our ValuePay program is an installment payment program which allows customers to pay by credit card for certain merchandise in two or more equal monthly installments. Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment program. However, any such change to the terms of our ValuePay installment program could impact future sales, particularly for products sold with higher price points. Please see "Cash Requirements" below for a discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers, to the extent possible, with related cash payments to our vendors. ValuePay remains a cost-effective
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promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facility. As of January 30, 2021, we had contractual cash obligations and commitments primarily with respect to our cable and satellite agreements, credit facility, operating leases, and capital leases totaling approximately $181.2 million over the next five fiscal years.
Our ability to fund operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in our sales and to use available funds from our Siena Credit Facility. Our ability to borrow funds is dependent on our ability to maintain an adequate borrowing base and our ability to meet our credit facility’s covenants (as described above). Accordingly, if we do not generate sufficient cash flow from operations to fund our working capital needs, planned capital expenditures and meet credit facility covenants, and our cash reserves are depleted, we may need to take further actions that are within the Company’s control, such as further reductions or delays in capital investments, additional reductions to our workforce, reducing or delaying strategic investments or other actions. Additionally, the COVID-19 outbreak continues in both the U.S. and globally and is adversely affecting the economy, financial markets and has negatively impacted, and may continue to impact demand for our merchandise and impact our stock price. As a result, it is difficult to predict the overall impact of COVID-19 on our business and financial results. Despite these adverse impacts of COVID-19, we believe the COVID-19 pandemic has been impacting our business less than other media companies because of our direct-to-consumer business model that serves home-bound consumers who seek to buy goods without leaving the safety of their homes.
For the six months ended July 31, 2021, net cash used for operating activities totaled $36.0 million compared to net cash provided by operating activities of approximately $21.3 million for the comparable fiscal 2020 period. Net cash (used for) provided by operating activities for the fiscal 2021 and 2020 periods reflects a net loss, as adjusted for depreciation and amortization, share-based payment compensation, amortization of deferred financing costs, payments for television broadcast rights, and inventory impairment write-down.
In addition, net cash used for operating activities for the six months ended July 31, 2021 reflects decreases in accounts payable and accrued liabilities, accounts receivable and deferred revenue and increases in inventories and prepaid expenses. Inventories increased as we prepare for continued revenue growth in 2021. Accounts receivable decreased during the first six months of fiscal 2021 due to collections on outstanding receivables resulting from our seasonal high fourth quarter. Accounts payable and accrued liabilities decreased during the first six months of fiscal 2021 primarily due to the timing of paying for cable distribution fees and inventory purchases. Prepaid expenses and other increased primarily due to our new salesforce implementation in 2021.
Net cash used for investing activities totaled $34.7 million for the first six months of fiscal 2021 was comprised primarily of the $3.5 million Christopher and Banks acquisition payment, $6.0 million Famjams note funding and $20.0 million for the Portal and Advertising business acquisition payment and compares to net cash used for investing activities of $2.5 million for the comparable fiscal 2020 period. For the first six months ended July 31, 2021 and August 1, 2020, expenditures for property and equipment were $5,2 million and $2.5 million. Capital expenditures made during the periods presented relate primarily to expenditures made for development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems; related computer equipment, digital broadcasting equipment, and other office equipment; warehouse equipment, production equipment and building improvements. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility in Bowling Green, Kentucky; security upgrades to our information technology; the upgrade of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives.
Net cash provided by financing activities totaled $78.3 million for the six months ended July 31, 2021 and related primarily to proceeds from the issuance of common stock and warrants of $61.4 million, proceeds on Siena revolving loan of $47,2 million and proceeds on GreenLake term loan of $28.5 million. Net cash used for financing activities included primarily $41.0 million for full payment on the PNC revolving loan and 12.4 million on the PNC term loan. For the comparable period, the first six months ended August 1, 2020, related primarily to principal payments on the PNC revolving loan of $18.0 million, principal payments on our PNC term loan of $1.4 million, finance lease payments of $49,000 and tax payments for restricted stock unit issuances of $17,000, offset by proceeds from our PNC revolving loan of $5.9 million and proceeds from the issuance of common stock and warrants of $4.0 million.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, employment, intellectual property and consumer protection matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, is reasonably expected to have a material adverse effect on our operations or consolidated financial statements.
ITEM 1A. RISK FACTORS
See Part I. Item 1A., "Risk Factors," of the Company’s annual report on Form 10-K for the year ended January 30, 2021, for a detailed discussion of the risk factors affecting the Company. There have been no material changes from the risk factors described in the annual report.
Our results of operations may be adversely impacted by the COVID-19 pandemic, and the duration and extent to which it will impact our results of operations remains uncertain. Our operations may also be limited or impacted by government monitoring and/or regulation of product sales in connection with the COVID-19 pandemic.
The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations, financial results and financial condition will depend on numerous evolving factors which are uncertain and cannot be predicted, including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response; the effect on our customers and customers’ demand for our services and products; the effect on our suppliers and disruptions to the global supply chain; our ability to sell and provide our services and products, including as a result of travel restrictions and people working from home; disruptions to our operations resulting from the illness of any of our employees, including employees at our fulfillment center; restrictions or disruptions to transportation, including reduced availability of ground or air transport; the ability of our customers to pay for our services and products; and any closures of our and our suppliers’ and customers’ facilities. In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, commodity and energy prices, and interest rates. If any of these effects of the COVID-19 pandemic were to worsen, it could result in lost or delayed revenue to us. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. Any of these events could
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amplify the other risks and uncertainties described in the Annual Report on Form 10-K and could materially adversely affect our business, financial condition, results of operations and/or stock price.
Furthermore, since April 2020, we have received communications, including cease and desist letters, from the Offices of the Attorneys General for the states of Florida, Kansas, Minnesota, New York and Ohio in connection with our sale of certain COVID-19-related products, including face masks and hand sanitizers. The allegations range from potential unfair or deceptive advertising practices to price gouging. We have responded to each claim and do not currently have a basis to believe we have violated any state law; however, at this time, we are unable to determine the probability of the outcome of these matters or estimate a range of reasonably possible loss, if any.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Dividends
We are restricted from paying dividends on our common stock by the PNC Credit Facility, as discussed in Note 7 - “Credit Agreements” in the notes to our condensed consolidated financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit No. |
| Description |
| Manner of Filing |
3.1 | Fourth Amended and Restated Articles of Incorporation, as amended through July 13, 2020 | Incorporated by reference | ||
3.2 | By-Laws of the Registrant (as amended through July 16, 2019) | Incorporated by reference | ||
3.3 | Incorporated by reference | |||
4.1 | Incorporated by reference | |||
4.2 | Incorporated by reference | |||
10.1 | Incorporated by reference | |||
10.2 | Incorporated by reference | |||
10.3 | Stock Purchase Agreement, dated June 9, 2021 by and between the Company and ALCC, LLC | Incorporated by reference | ||
10.4 | Employment Offer Letter, dated June 16, 2021, by and between the Company and Montgomery Wageman | Incorporated by reference | ||
10.5 | Incorporated by reference | |||
10.6 | Incorporated by reference | |||
31.1 | Filed herewith | |||
31.2 | Filed herewith | |||
32 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | Filed herewith | ||
101 | The following materials from iMedia Brands, Inc.’s Quarterly Report on Form 10-Q for the fiscal period ended July 31, 2021, as filed with the Security and Exchange Commission, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operation; (iii) Condensed Consolidated Statements of Shareholders’ Equity; (iv) Condensed Consolidated Statement of Cash Flows; and (v) the Notes to the Condensed Consolidated Financial Statements | Filed herewith | ||
104 | Cover Page Interactive Data File (embedded within the inline XBRL) | Filed herewith |
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