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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 30, 2022

OR

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

Commission File Number 001-37495

Graphic

iMedia Brands, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

   

41-1673770

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

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

(Address of Principal Executive Offices, including Zip Code)

952-943-6000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

IMBI

The Nasdaq Stock Market, LLC

8.5% Senior Unsecured Notes due 2026

IMBIL

The Nasdaq Stock Market, LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of September 9, 2022 there were 23,178,152 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

July 30, 2022

Part I. Financial Information

Page

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of July 30, 2022 and January 29, 2022

3

Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended July 30, 2022 and July 31, 2021

4

Condensed Consolidated Statements of Comprehensive Loss for the Three-Month and Six-Month Periods Ended July 30, 2022 and July 31, 2021

5

Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month and Six-Month Periods Ended July 30, 2022 and July 31, 2021

6

Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended July 30, 2022 and July 31, 2021

7

Notes to Condensed Consolidated Financial Statements as of July 30, 2022

8

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

35

Item 3. Quantitative and Qualitative Disclosures About Market Risk

50

Item 4. Controls and Procedures

50

Part II. Other Information

51

Item 1. Legal Proceedings

51

Item 1A. Risk Factors

51

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

52

Item 3. Defaults Upon Senior Securities

52

Item 4. Mine Safety Disclosures

53

Item 5. Other Information

53

Item 6. Exhibits

54

Signatures

57

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PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

    

July 30,

    

January 29,

2022

2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

19,902

$

11,295

Restricted Cash

1,575

1,893

Accounts receivable, net

 

65,577

 

78,947

Inventories

 

104,978

 

116,256

Current portion of television broadcast rights, net

22,797

27,521

Prepaid expenses and other

 

17,741

 

18,340

Total current assets

 

232,570

 

254,252

Property and equipment, net

 

47,074

 

48,225

Television broadcast rights, net

66,852

74,821

Goodwill

89,323

99,050

Intangible assets, net

27,075

27,940

Other assets

 

19,928

 

18,359

TOTAL ASSETS

$

482,822

$

522,647

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

81,358

$

89,046

Accrued liabilities

 

36,278

 

44,388

Current portion of television broadcast rights obligations

34,254

31,921

Current portion of long-term debt

 

16,595

 

14,031

Current portion of operating lease liabilities

 

1,773

 

2,331

Deferred revenue

 

209

 

427

Total current liabilities

 

170,467

 

182,144

Long-term broadcast rights obligations

 

68,615

 

81,268

Long-term debt, net

 

176,477

 

176,432

Long-term operating lease liabilities

4,290

5,169

Deferred tax liability

5,183

5,285

Other long-term liabilities

2,741

2,986

Total liabilities

 

427,773

 

453,284

Commitments and contingencies

 

  

 

  

Shareholders' equity:

 

  

 

  

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

 

 

Common stock, $0.01 per share par value, 49,600,000 and 29,600,000 shares authorized as of July 30, 2022 and January 29, 2022; 25,482,389 and 21,571,387 shares issued and outstanding as of July 30, 2022 and January 29, 2022

 

255

 

216

Additional paid-in capital

 

558,948

 

538,627

Accumulated deficit

 

(494,050)

 

(469,463)

Accumulated other comprehensive loss

(10,104)

(2,428)

Total shareholders’ equity

 

55,049

 

66,951

Equity of the non-controlling interest

2,412

Total equity

55,049

69,363

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

482,822

$

522,647

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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended

Six Months Ended

July 30,

July 31,

July 30,

July 31,

    

2022

    

2021

    

2022

    

2021

Net sales

$

133,233

$

113,442

$

287,778

$

226,644

Cost of sales

 

84,820

 

65,456

 

178,028

 

132,651

Gross profit

 

48,413

 

47,986

 

109,750

 

93,993

Operating expense:

 

  

 

  

 

  

 

  

Distribution and selling

 

36,740

 

35,357

 

79,889

 

69,605

General and administrative

 

9,986

 

7,387

 

23,633

 

13,822

Depreciation and amortization

 

7,749

 

7,611

 

18,643

 

14,986

Restructuring costs

 

2,779

 

 

2,939

 

Total operating expense

 

57,254

 

50,355

 

125,104

 

98,413

Operating loss

 

(8,841)

 

(2,369)

 

(15,354)

 

(4,420)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income and other

 

42

 

39

 

210

 

39

Interest expense

 

(4,040)

 

(1,381)

 

(9,894)

 

(2,694)

Change in fair value of contract liability, net

1,937

1,937

Loss on divestiture

(985)

(985)

Loss on debt extinguishment

 

(884)

 

(654)

 

(884)

 

(654)

Total other expense, net

 

(3,930)

 

(1,997)

 

(9,616)

 

(3,309)

Loss before income taxes

 

(12,771)

 

(4,366)

 

(24,970)

 

(7,729)

Income tax provision

 

(16)

 

(15)

 

(32)

(30)

Net loss

(12,787)

(4,381)

(25,002)

(7,759)

Less: Net loss attributable to non-controlling interest

(96)

(132)

(415)

(282)

Net loss attributable to shareholders

$

(12,691)

$

(4,249)

$

(24,587)

$

(7,476)

Net loss per common share

$

(0.48)

$

(0.23)

$

(1.02)

$

(0.45)

Net loss per common share — assuming dilution

$

(0.48)

$

(0.23)

$

(1.02)

$

(0.45)

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

26,662,037

 

19,101,652

 

24,181,920

 

17,314,317

Diluted

 

26,662,037

 

19,101,652

 

24,181,920

 

17,314,317

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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended

Six Months Ended

July 30,

July 31,

July 30,

July 31,

    

2022

    

2021

    

2022

    

2021

Net loss

$

(12,787)

$

(4,381)

$

(25,002)

$

(7,759)

Other comprehensive loss:

Foreign currency translation adjustments

 

(3,401)

 

 

(7,676)

 

Total other comprehensive loss

(3,401)

 

(7,676)

 

Comprehensive loss

 

(16,188)

 

(4,381)

 

(32,678)

 

(7,758)

Comprehensive loss attributable to non-controlling interest

(96)

(132)

(415)

(282)

Comprehensive loss attributable to shareholders

$

(16,092)

$

(4,249)

$

(32,263)

$

(7,476)

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share data)

(Unaudited)

    

Common Stock

    

    

    

    

    

    

    

    

    

Additional 

Additional Other

Equity of

Total 

Number 

Paid-In 

Accumulated 

Comprehensive

Non-Controlling

Shareholders' 

Six Months Ended July 30, 2022

of Shares

    

Par Value

Capital

Deficit

Income (Loss)

Interest

Equity

BALANCE, January 29, 2022

 

21,571,387

$

216

$

538,627

$

(469,463)

$

(2,428)

$

2,412

$

69,363

Net loss

 

 

 

 

(11,896)

 

 

(319)

 

(12,215)

Common stock issuances pursuant to equity compensation awards

 

232,630

 

2

 

(212)

 

 

 

 

(210)

Share-based payment compensation

 

 

 

985

 

 

 

 

985

Change in cumulative translation adjustment

(4,275)

(4,275)

BALANCE, April 30, 2022

 

21,804,017

$

218

$

539,400

$

(481,359)

$

(6,703)

$

2,093

$

53,649

Net loss

 

 

 

 

(12,691)

 

 

(96)

 

(12,787)

Common stock issuances

 

3,500,822

 

35

 

18,438

 

 

 

 

18,473

Common stock issuances pursuant to equity compensation awards

177,550

2

(13)

(11)

Share-based payment compensation

 

 

 

1,123

 

 

 

 

1,123

Divestiture of business

 

 

(1,997)

(1,997)

Change in cumulative translation adjustment

(3,401)

(3,401)

BALANCE, July 30, 2022

 

25,482,389

$

255

$

558,948

$

(494,050)

$

(10,104)

$

$

55,049

    

Common Stock

    

    

    

    

    

    

    

    

    

Additional 

Additional Other

Equity of

Total 

Number 

Paid-In 

Accumulated 

Comprehensive

Non-Controlling

Shareholders' 

Six Months Ended July 31, 2021

of Shares

    

Par Value

Capital

Deficit

Income (loss)

Interest

Equity

BALANCE, January 30, 2021

 

13,019,061

$

130

$

474,375

$

(447,455)

$

$

$

27,050

Net loss

 

 

 

 

(3,228)

 

 

(150)

 

(3,378)

Common stock issuances pursuant to equity compensation awards

 

76,341

 

1

 

(262)

 

 

 

 

(261)

Share-based payment compensation

 

 

 

668

 

 

 

 

668

Common stock and warrant issuance

 

3,289,000

 

33

 

21,191

 

 

 

 

21,224

Investment of non-controlling interest

3,430

3,430

BALANCE, May 1, 2021

 

16,384,402

$

164

$

495,972

$

(450,683)

$

$

3,280

$

48,733

Net loss

 

 

 

 

(4,249)

 

 

(132)

 

(4,381)

Common stock issuances pursuant to equity compensation awards

 

39,094

 

 

 

 

 

 

Share-based payment compensation

 

 

 

768

 

 

 

 

768

Common stock and warrant issuance

4,830,918

48

40,095

40,143

BALANCE, July 31, 2021

 

21,254,414

$

212

$

536,835

$

(454,932)

$

$

3,148

$

85,263

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

6

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share data)

(Unaudited)

Six Months Ended

July 30,

July 31,

2022

    

2021

OPERATING ACTIVITIES:

  

 

  

Net loss

$

(25,002)

$

(7,759)

Adjustments to reconcile net loss to net cash used for operating activities:

 

  

 

  

Depreciation and amortization

 

20,431

 

16,888

Share-based payment compensation

 

2,108

 

1,435

Payments for television broadcast rights

(11,308)

(14,055)

Amortization of deferred financing costs

 

1,538

 

93

Loss on debt extinguishment

 

884

654

Change in fair value of contract liability, net

 

(1,937)

 

Loss on sale of investment

985

Changes in operating assets and liabilities:

 

 

  

Accounts receivable, net

 

10,040

 

5,183

Inventories

 

11,557

 

(2,730)

Deferred revenue

 

742

 

148

Prepaid expenses and other

 

(2,144)

 

(6,893)

Accounts payable and accrued liabilities

 

(17,483)

 

(28,992)

Net cash used for operating activities

 

(9,589)

 

(36,028)

INVESTING ACTIVITIES:

 

  

 

  

Property and equipment additions

 

(5,174)

 

(5,167)

Acquisitions

(23,500)

Vendor exclusivity deposit

(6,000)

Net cash used for investing activities

 

(5,174)

 

(34,667)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from revolving loan

 

2,427

 

47,245

Proceeds from issuance of common stock and warrants

 

20,761

 

61,368

Proceeds from issuance of term loan

9,980

28,500

Payments on revolving loan

(41,000)

Payments on term loan

 

(7,500)

 

(12,440)

Payments on seller notes

(2,000)

Payments on finance leases

 

(7)

 

(54)

Payments for restricted stock issuance

 

(222)

 

(262)

Payments for deferred financing costs

 

(580)

 

(4,632)

Payments for debt extinguishment costs

 

 

(405)

Net cash provided by financing activities

 

22,859

 

78,320

Net increase in cash and restricted cash

 

8,096

 

7,625

Effect of exchange rate changes on cash

193

BEGINNING CASH AND RESTRICTED CASH

 

13,188

 

15,485

ENDING CASH AND RESTRICTED CASH

$

21,477

$

23,110

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid

$

7,468

$

2,388

Income taxes paid

$

63

$

61

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment purchases included in accounts payable

$

371

$

221

Inventory received in divestiture

$

3,505

$

Reclassification of contract liability to additional paid in capital

$

4,383

$

Other long term liability issued in exchange for acquired assets

$

$

10,000

Television broadcast rights obtained in exchange for liabilities

$

$

55,647

Common stock issuance costs included in accrued liabilities

$

100

$

122

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

7

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

(1)   General

iMedia Brands, Inc. and its subsidiaries (“we,” “our,” “us,” or the “Company”) is an entertainment company capitalizing on the convergence of entertainment, ecommerce, and advertising. The Company owns a growing portfolio of vertically integrated television networks in the United States and Western Europe. The Company believes its growth strategy builds on its core strengths.

Beginning with the financial statements for our fiscal year ended January 29, 2022, the Company began reporting based on three segments:

Entertainment, which comprises its television networks, ShopHQ, ShopBulldogTV, ShopHQHealth, and 1-2-3.tv.
Consumer Brands, which comprises Christopher & Banks (“C&B”), and J.W. Hulme Company (“JW”).
Media Commerce Services, which comprises iMedia Digital Services (“iMDS”) and Float Left (“FL”).

The corresponding current and prior period disclosures have been recast to reflect the current segment presentation. See Note 10 – “Business Segments and Sales by Product Group.”

(2)    Basis of Financial Statement Presentation

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of January 29, 2022 has been derived from the Company’s audited financial statements for the fiscal year ended January 29, 2022. 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 fiscal year ended 2021. Operating results for the three and six-month periods ended July 30, 2022 are not necessarily indicative of the results that may be expected for fiscal year ending January 28, 2023.

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.

Forward Contracts

The Company classifies a forward contract to purchase shares of its common stock that do not qualify for equity classification as a liability on its consolidated balance sheets as this forward contract contains freestanding financial instruments that may require the Company to transfer consideration upon exercise. Each instrument is initially recorded at fair value on date of grant using the Black-Scholes model for warrants and the market value for common shares and pre-funded warrants, and it is subsequently re-measured to fair value at each subsequent balance sheet date while liability-classified and outstanding. Changes in fair value of the instruments are recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. Issuance costs are expensed under liability treatment for forward contracts. The Company will continue to adjust the forward contracts for changes

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

in fair value until the earlier of the exercise, when the forward contract qualifies for equity treatment, or the expiration of the forward contract.

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 2021, ended on January 29, 2022, and consisted of 52 weeks. Fiscal 2022 will end January 28, 2023 and will contain 52 weeks. The three and six-month periods ended July 30, 2022 and July 31, 2021 each consisted of 13 and 26 weeks.

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments are effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis. The Company has not adopted any of the optional expedients or exceptions through July 30, 2022, but the Company will continue to evaluate the possible adoption of any such expedients or exceptions and does not expect such adoption to have a material impact on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The guidance in ASU 2020-06 simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard on January 30, 2022 using the modified retrospective approach. The adoption of ASU 2020-06 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers, which provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. This ASU is effective for the Company on January 29, 2023, with early adoption permitted, and shall be applied on a prospective basis to business combinations that occur on or after the adoption date. The Company is evaluating the effect that the implementation of this standard may have on the Company's condensed consolidated financial statements but does not currently expect the impact to be material.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which provides guidance to increase the transparency of government assistance transactions with business entities that are accounted for by applying a grant or contribution accounting model. This ASU is effective for the Company's annual financial statements to be issued for the year ended January 28, 2023, with early adoption permitted. The Company expects to adopt this

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

new accounting standard in its Annual Report on Form 10-K for the year ended January 28, 2023 and does not expect the adoption of this standard to have a material impact on the Company's condensed consolidated financial statements.

Liquidity and Management’s Plans

When preparing financial statements, management has the responsibility to evaluate if it has adequate liquidity to continue to operate for the next twelve months.  In applying this accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next twelve months. In addition, the company evaluates its history of financial performance, where we have had a historic trend of operating losses which continues to have an unfavorable impact on our overall liquidity.  Most recently, we reported operating losses of $8,841 and $15,354 for the three and six months ended July 30, 2022.  We also reported operating losses for the fiscal years 2021 and 2020.

The Company is also required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all.  Violations of certain debt covenants may result in the inability of our Company to borrow unused amounts under the line of credit. On September 12, 2022, the parties to the revolving loan agreement entered in an amendment (the “Seventh Amendment”) which revised the agreement to amend required minimum liquidity and maximum senior debt leverage ratio criteria among other terms and conditions set forth in the Loan Agreement. The Company was in compliance with such amended covenants and expects to be in compliance with applicable financial covenants over the next twelve months, taking into consideration management’s plans disclosed below.

The Company continues to develop plans and take proactive steps to grow its revenues and enhance its operations, which in turn generates the additional cash that the Company uses to offset past operating losses and fund future working capital needs.  These plans include reducing inventory through improved inventory management to increase cash available for working capital needs, pay down of debt using proceeds from the recent capital raise, and capital expenditure savings achieved through workforce reduction strategies.

The Company has concluded that management’s current plan mitigates the unfavorable impact that the factors described above have on the Company’s liquidity. Additional factors considered in our assessment include our current cash on hand, our forecast of future operating results for the next twelve months from the date of this report and the actions we have taken to improve our liquidity.

(3)   Revenue

Revenue Recognition

For revenue in the entertainment and consumer brands reporting segments, 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. For revenue in the Media Commerce Services segment, revenue is recognized when the services are provided to the customer. Revenue is reported net of estimated sales returns, credits and incentives, and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on historical experience.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Accounting Standards Codification (“ASC”) 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Substantially all the Company’s merchandise sales are single performance obligation arrangements for transferring control of merchandise to customers or providing service to customers.

The Company’s merchandise is generally sold with a right of return for up to a certain number of days after the merchandise is received and the Company may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Merchandise returns and other credits including the provision for returns are estimated at contract

10

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

inception and updated at the end of each reporting period as additional information becomes available. As of July 30, 2022, and January 29, 2022, the Company recorded a merchandise return liability of $5,214 and $8,126, included in accrued liabilities, and a right of return asset of $2,367 and $3,770, included in Prepaid Expenses and Other.

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.”

Accounts Receivable

For its entertainment and consumer brands segments, the Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. Payment is generally required within 30 to 60 days from the purchase date. 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 and service sales, receivables from credit card companies, and amounts due from vendors for unsold and returned products and are reflected net of reserves for estimated uncollectible amounts. The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. A provision for ValuePay bad debts is provided as a percentage of ValuePay receivables in the period of sale and is based on historical experience and the Company’s judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with known disputes or collectability issues. As of July 30, 2022 and January 29, 2022, the Company had approximately $33,221 and $47,008 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $2,570 and $3,019.

(4)    Television Broadcast Rights

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

    

July 30, 2022

    

January 29, 2022

Television broadcast rights

$

146,578

$

146,200

Less accumulated amortization

 

(56,929)

 

(43,858)

Television broadcast rights, net

$

89,649

$

102,342

During the first six months of fiscal 2022 and full year fiscal 2021, 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 $378 and $102,545 during the first six months of fiscal year 2022 and full year 2021, which represent the present value of payments for the television broadcast rights associated with the channel position placement. Television broadcast rights are amortized on a matching basis over the lives of the individual agreements. The remaining weighted average lives of the television broadcast rights was 4.1 years as of July 30, 2022. Amortization expense related to the television broadcast rights was $5,150 and $13,072 for the three and six-month periods ended July 30, 2022 and $6,100 and $11,200 for the three and six-month periods ended July 31, 2021 and is included in depreciation and amortization within the condensed consolidated statements of operations. Estimated broadcast rights amortization expense is $12,557 for the remainder of fiscal 2022, $20,090 for fiscal 2023, $20,877 for fiscal 2024, $21,402 for fiscal 2025, $14,723 for fiscal 2026 and $0 thereafter. The liability relating to the television broadcast rights was $102,869 and $113,189 as of July 30, 2022 and January 29, 2022, of which $34,254 and $31,921 was classified as current in the accompanying condensed consolidated balance sheets, respectively. Interest expense related to the television broadcast rights obligation was ($707) and $611 during the three and six-month periods ended July 30, 2022 and $594 and $1,097 during the three and six-month periods ended July 31, 2021.

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Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

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 statements of operations.

(5)    Goodwill and Intangible Assets

Goodwill

The following table presents the changes in goodwill during the six months ended July 30, 2022:

Balance, January 29, 2022

$

99,050

Acquisition valuation adjustment

 

(444)

Foreign currency translation adjustment

(7,543)

Divestiture of business

 

(1,740)

Balance, July 30, 2022

$

89,323

The Company acquired 123.tv in the prior year.  Subsequent to the acquisition 123.tv’s revenues and operating income have been less than originally projected.  The Company believes the high inflation in Germany and uncertain short-term events such as the Russian invasion of Ukraine have created short term shifts in consumer spending habits.  The Company will continue to monitor the financial results of 123.tv and should the financial results continue to fall short of our projections for a prolonged period of time an impairment of long-lived assets may become necessary to record in the future.

The occurrence of risks such as political, regulatory or jurisdictional could negatively affect our international business and, consequently, our results of operations generally. Additionally, operating in international markets also requires significant management attention and financial resources. Specifically, such an occurrence could create a triggering event that would require us to review goodwill and intangible assets for impairment and the potential full or partial write-down of those balances. We cannot be certain that the investment and additional resources required in establishing, acquiring, or integrating operations in other countries will produce desired levels of revenues or profitability.

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Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2022

(Dollars in thousands, except share and per share information)

(Unaudited)

Finite-lived Intangible Assets

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

July 30, 2022

January 29, 2022

Estimated 

Gross 

Gross 

Useful Life 

Carrying 

Accumulated 

Carrying 

Accumulated 

    

(In Years)

    

Amount

    

Amortization

Net Amount

    

Amount

Amortization

    

Net Amount

Trademarks and Trade Names

 

15

 

$

14,919

(692)

$

14,227

 

$

14,462

 

$

(451)

 

$

14,011

Technology

 

4-9

 

6,645

(507)

6,138

 

6,524

 

(752)

 

5,772

Customer Lists and Relationships

 

3-14

 

9,006

(2,364)

6,642

 

8,689

 

(619)

 

8,070

Vendor Exclusivity

 

5

 

193

(125)

68

 

193

 

(106)

 

87

Total finite-lived intangible assets

 

$

30,763

 

$

(3,688)

$

27,075

 

$

29,868

$

(1,928)

 

$

27,940

Intangible assets, net in the accompanying condensed consolidated balance sheets consist of trade names, technology, customer lists and a vendor exclusivity agreement primarily related to the various acquisitions the Company completed in fiscal 2021 and 2019. Amortization expense related to the finite-lived intangible assets was $777 and $0 for the three-month periods ended July 30, 2022 and July 31, 2021 and $1,572 and $273 for the six-month period ended July 30, 2022 and July 31, 2021. Estimated amortization expense is $1,528 for the remainder of fiscal 2022, $3,003 for fiscal 2023, $2,807 for fiscal 2024, $2,627 for fiscal 2025, and $2,166 for fiscal 2026 and $14,944 thereafter.

(6)   Credit Agreements

The Company’s long-term credit facilities consist of:

    

July 30, 2022

    

January 29, 2022

Revolving Loan due July 31, 2024, principal amount

$

62,643

$

60,216

8.5% Senior Unsecured Notes, due 2026, principal amount

80,000

80,000

Real Estate Financing term loan due July 31, 2024, principal amount

28,500

28,500

Seller notes:

Seller note due in annual installments, maturing in November 2023, principal amount

18,409

20,062

Seller note due in quarterly installments, maturing in December 2023, principal amount

6,000