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 October 29, 2022

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

Commission File Number 001-37495

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 December 13, 2022 there were 28,916,847 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

October 29, 2022

Part I. Financial Information	Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 29, 2022 and January 29, 2022	3
Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended October 29, 2022 and October 30, 2021	4
Condensed Consolidated Statements of Comprehensive Loss for the Three-Month and Nine-Month Periods Ended October 29, 2022 and October 30, 2021	5
Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month and Nine-Month Periods Ended October 29, 2022 and October 30, 2021	6
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended October 29, 2022 and October 30, 2021	7
Notes to Condensed Consolidated Financial Statements as of October 29, 2022	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
Item 4. Controls and Procedures	52
Part II. Other Information	53
Item 1. Legal Proceedings	53
Item 1A. Risk Factors	53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3. Defaults Upon Senior Securities	54
Item 4. Mine Safety Disclosures	54
Item 5. Other Information	54
Item 6. Exhibits	55
Signatures	56

Table of Contents

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)


	October 29,		January 29,
	2022		2022
ASSETS
Current assets:
Cash	$	9,071	$	11,295
Restricted Cash		1,500		1,893
Accounts receivable, net		55,301		78,947
Inventories		119,162		116,256
Current portion of television broadcast rights, net		21,016		27,521
Prepaid expenses and other		11,726		18,340
Total current assets		217,776		254,252
Property and equipment, net		46,788		48,225
Television broadcast rights, net		62,090		74,821
Goodwill		87,741		99,050
Intangible assets, net		25,827		27,940
Other assets		19,379		18,359
TOTAL ASSETS	$	459,601	$	522,647
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	87,168	$	89,046
Accrued liabilities		37,144		44,388
Current portion of television broadcast rights obligations		30,296		31,921
Current portion of long-term debt		98,209		14,031
Current portion of operating lease liabilities		2,346		2,331
Deferred revenue		121		427
Total current liabilities		255,284		182,144
Long-term broadcast rights obligations		63,566		81,268
Long-term debt, net		94,800		176,432
Long-term operating lease liabilities		3,354		5,169
Deferred tax liability		4,450		5,285
Other long-term liabilities		2,671		2,986
Total liabilities		424,125		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 October 29, 2022 and January 29, 2022; 28,916,847 and 21,571,387 shares issued and outstanding as of October 29, 2022 and January 29, 2022		257		216
Additional paid-in capital		561,710		538,627
Accumulated deficit		(515,348)		(469,463)
Accumulated other comprehensive loss		(11,143)		(2,428)
Total shareholders’ equity		35,476		66,952
Equity of the non-controlling interest		—		2,412
Total equity		35,476		69,363
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	459,601	$	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				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
	2022		2021		2022		2021
Net sales	$	123,264	$	130,681	$	411,042	$	357,325
Cost of sales		71,754		76,260		249,782		208,911
Gross profit		51,510		54,421		161,260		148,414
Operating expense:
Distribution and selling		35,261		39,302		115,150		108,907
General and administrative		21,185		10,746		44,818		24,569
Depreciation and amortization		8,778		9,741		27,421		24,727
Restructuring costs		1,551		634		4,490		634
Total operating expense		66,775		60,423		191,879		158,837
Operating loss		(15,265)		(6,002)		(30,619)		(10,423)
Other income (expense):
Interest income and other		20		85		230		124
Interest expense		(6,038)		(3,551)		(15,932)		(6,245)
Change in fair value of contract liability, net		—		—		1,937		—
Loss on divestiture		—		—		(985)		—
Loss on debt extinguishment		—		(9)		(884)		(663)
Total other expense, net		(6,018)		(3,475)		(15,634)		(6,784)
Loss before income taxes		(21,283)		(9,477)		(46,253)		(17,207)
Income tax provision		(15)		(15)		(47)		(45)
Net loss		(21,298)		(9,492)		(46,300)		(17,252)
Less: Net loss attributable to non-controlling interest		—		—		(415)		(282)
Net loss attributable to shareholders	$	(21,298)	$	(9,492)	$	(45,885)	$	(16,970)
Net loss per common share	$	(0.72)	$	(0.44)	$	(1.77)	$	(0.91)
Net loss per common share — assuming dilution	$	(0.72)	$	(0.44)	$	(1.77)	$	(0.91)
Weighted average number of common shares outstanding:
Basic		29,415,680		21,503,340		25,932,294		18,710,658
Diluted		29,415,680		21,503,340		25,932,294		18,710,658

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				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
	2022		2021		2022		2021
Net loss	$	(21,298)	$	(9,492)	$	(46,300)	$	(17,252)
Other comprehensive loss:
Foreign currency translation adjustments		(1,039)		(371)		(8,715)		(371)
Total other comprehensive loss		(1,039)		(371)		(8,715)		(371)

Comprehensive loss		(22,337)		(9,863)		(55,015)		(16,881)
Comprehensive loss attributable to non-controlling interest		—		—		(415)		(282)
Comprehensive loss attributable to shareholders	$	(22,337)	$	(9,863)	$	(54,600)	$	(16,599)

Table of Contents

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'
Nine Months Ended October 29, 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
Net loss	—		—		—		(21,298)		—		—		(21,298)
Common stock issuances pursuant to equity compensation awards	10,554		—		107		—		—		—		107
Share-based payment compensation	—		—		1,097		—		—		—		1,097
Common stock and warrant issuance	3,423,904		2		1,558		—		—		—		1,560
Other Comprehensive Loss	—		—		—		—		(1,039)		—		(1,039)
BALANCE, October 29, 2022	28,916,847	$	257	$	561,710	$	(515,348)	$	(11,143)	$	—	$	35,476


	Common Stock
				Additional				Additional Other		Equity of		Total
	Number			Paid-In		Accumulated		Comprehensive		Non-Controlling		Shareholders'
Nine Months Ended October 30, 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
Net loss	—		—		—		(9,492)		—		—		(9,492)
Common stock issuances pursuant to equity compensation awards	306,100		1		67		—		—		—		68
Share-based payment compensation	—		—		949		—		—		—		949
Common stock and warrant issuance	—		—		136		—		—		—		136
Other Comprehensive Income (loss)	—		—		—		—		(371)		—		(371)
BALANCE, October 30, 2021	21,560,514	$	213	$	537,987	$	(464,424)	$	(371)	$	3,148	$	76,553

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 CASH FLOWS
(in thousands, except share and per share data)
(Unaudited)


	Nine Months Ended
	October 29,		October 30,
	2022		2021
OPERATING ACTIVITIES:
Net loss	$	(46,300)	$	(17,252)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		30,047		27,565
Share-based payment compensation		3,205		2,385
Payments for television broadcast rights		(21,093)		(21,926)
Amortization of deferred financing costs		2,072		556
Loss on debt extinguishment		884		663
Change in fair value of contract liability, net		(1,937)		—
Contract separation charges		9,941		—
Loss on divestiture		985		—
Changes in operating assets and liabilities:
Accounts receivable, net		20,146		3,453
Inventories		(4,883)		(17,996)
Deferred revenue		654		10
Prepaid expenses and other		(1,897)		(8,269)
Accounts payable and accrued liabilities		(10,415)		(18,046)
Net cash used for operating activities		(18,591)		(48,857)
INVESTING ACTIVITIES:
Property and equipment additions		(7,163)		(7,247)
Acquisitions		—		(23,500)
Vendor exclusivity deposit		—		(6,000)
Net cash used for investing activities		(7,163)		(36,747)
FINANCING ACTIVITIES:
Proceeds from issuance of revolving loan		3,570		56,736
Proceeds from issuance of common stock and warrants		20,761		61,368
Proceeds from issuance of term loan		9,980		28,500
Proceeds from issuance of long-term bonds		—		80,000
Payments on revolving loan		—		(77,736)
Payments on term loan		(7,500)		(12,440)
Payments on seller notes		(3,000)		(1,000)
Payments on finance leases		(7)		(70)
Payments for restricted stock issuance		(224)		(134)
Payments for deferred financing costs		(580)		(11,180)
Payments for debt extinguishment costs		—		(405)
Net cash provided by financing activities		23,000		123,639
Net increase (decrease) in cash and restricted cash		(2,754)		38,035
Effect of exchange rate changes on cash		137		—
BEGINNING CASH AND RESTRICTED CASH		13,188		15,485
ENDING CASH AND RESTRICTED CASH	$	10,571	$	53,520
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	12,377	$	3,612
Income taxes paid	$	63	$	62
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchases included in accounts payable	$	451	$	915
Inventory received in divestiture	$	3,505	$	—
Reclassification of forward 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
Common stock issued for acquisition liability (See Note 15)	$	1,500	$	-
Common stock issued for contingent consideration	$	24	$	-

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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 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 businesses that cross promote and exchange data with each other to optimize the engagement experiences it creates for advertisers and consumers 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”).

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.”

On October 14, 2022, the Company received a written notice from the Listing Qualifications Staff of the Nasdaq Stock Market ("Nasdaq") notifying the Company that it has not been in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) for a period of 30 consecutive business days (the "Notice"). This Notice has no immediate effect on the listing of the Company's stock on The Nasdaq Global Market.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is provided a compliance period of 180 days from the date of the Notice to regain compliance with the minimum closing bid price requirement. If the Company does not regain compliance during the compliance period, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company must meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards for the Nasdaq Capital Market (with the exception of the minimum bid price requirement) and notify Nasdaq of its intent to cure the deficiency by effecting a reverse stock split if necessary. If the Company does not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, the Company's stock will be subject to delisting.

The Company can achieve compliance with the minimum bid price requirement if, during either compliance period, the closing bid price per share of the Company's stock is at least $1.00 for a minimum of ten consecutive business days.

The Company will continue to monitor the closing bid price of its stock and assess potential actions to regain compliance, but there can be no assurance that the Company will regain compliance with the minimum bid price requirement during the 180-day compliance period, secure a second 180-day period to regain compliance, or maintain compliance with the other Nasdaq listing requirements.

(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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2022

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

(Unaudited)

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 nine-month periods ended October 29, 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 adjusts the forward contracts for changes 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 nine-month periods ended October 29, 2022 and October 30, 2021 consisted of 13 and 39 weeks.

Held for Sale Assets

The Company previously disclosed that it was marketing buildings located in Eden Prairie, MN and Bowling Green, KY, which currently serve as the Company’s corporate headquarters and production studios, and its distribution center (the “Buildings”). The Company received a Letter of Intent (“LOI”) in November 2022 from a real estate investment firm for the purchase of two buildings located in Bowling Green, KY, which serve as its distribution centers and one building located in Eden Prairie, MN which currently serves as the corporate headquarters and production studios for the Company. The LOI serves as the Company’s intent to enter into a sales-leaseback transaction for the Buildings with a purchase price of $48,000, and a lease term of twenty-one (21) years with additional renewal options available. The Company intends to use the net proceeds to retire existing debt and for working capital purposes and expects the transaction to close in the fourth quarter of fiscal year 2022. There can be no assurances that the sale-leaseback transaction will be successful.

The Buildings are currently measured at the carrying value of $14,000, which represents the lower of carrying value or fair value less cost to sell, in accordance with ASC 360-10-35-43, and thus no gain or loss was recorded at the initial measurement of the held for sale assets.

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2022

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

(Unaudited)

Recently Adopted Accounting Standards

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.

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 October 29, 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.

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 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 Going Concern

In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Going Concern, management has evaluated whether there are certain conditions and events, considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern for twelve months after the date that these consolidated financial statements are issued. 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, including related covenants. In addition, the Company evaluates its history of financial performance, where we have had a historic trend of operating losses, net losses and negative

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2022

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

(Unaudited)

operating cash flows which continue to have an unfavorable impact on our overall liquidity. Most recently, we reported operating losses of $15,265 and $30,619, net losses of $6,002 and $10,423 for the three and nine months ended October 29, 2022, and negative operating cash flows of $18,591 for the nine months ended October 29, 2022. We also reported operating losses, net losses and negative operating cash flows for the fiscal years 2021 and 2020 which we expect to continue until operating results improve. In addition, we were in violation of our debt covenants as of October 29, 2022.

As of October 29, 2022, we had $10,571 in cash and cash equivalents and $1,839 of available capacity under our debt and related agreements, resulting in $12,410 of liquidity.

The Company is required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we would be considered in default and our indebtedness would be due immediately and may not be able to make additional borrowings under the agreement which may be at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. As of October 29, 2022, the Company was not in compliance with certain of the covenants under the loan and security agreement governing its revolving loan. The Company is working with its asset-based lender, Siena Lending Group, LLC (“Siena”), to address the Company’s compliance with certain covenants under their loan agreement whether through the issuance of an amendment or forbearance agreement. Therefore, the amounts of the Company’s long-term debt that would otherwise be contractually due and payable after one year are reflected on the Company’s balance sheets as current liabilities, including the GCP Note and the GreenLake Note (see Note 6 for a discussion of the Company’s debt arrangements).

Improving operating results and cash flow is dependent upon the Company’s ability to achieve its business plans to grow its revenues and enhance its operations by reducing inventory through improved inventory management. In addition, management plans to execute a sale leaseback transaction and use the proceeds to pay down debt, and capital expenditure savings achieved through deferral of nonessential projects.

There can be no assurances that management will be successful with the sale leaseback transaction nor with management’s other plans. As a result, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months following the issuance date of the condensed consolidated financial statements as of and for the period ended October 29, 2022.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business within twelve months after the date that these condensed financial statements are issued.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2022

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

(Unaudited)

(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 inception and updated at the end of each reporting period as additional information becomes available. As of October 29, 2022, and January 29, 2022, the Company recorded a merchandise return liability of $4,250 and $8,126, included in accrued liabilities, and a right of return asset of $1,701 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 October 29, 2022 and January 29, 2022, the Company had approximately $30,177 and $47,008 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $2,430 and $3,019.

(4) Television Broadcast Rights

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


	October 29, 2022		January 29, 2022
Television broadcast rights	$	146,653	$	146,200

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iMEDIA BRANDS, INC. AND SUBSIDIARIES