Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Equity

v3.21.2
Shareholders' Equity
9 Months Ended
Oct. 30, 2021
Equity [Abstract]  
Shareholders' Equity

(8)   Shareholders’ Equity

Common Stock

The Company is authorized to issue 10,000,000 shares of capital stock, of which 400,000 is designated as Series A Junior Participating Cumulative Preferred Stock, and 20,000,000 shares of common stock. As of October 30, 2021, no shares of preferred stock were issued or outstanding and 21,560,514 shares of common stock were issued and outstanding. The board of directors may establish new classes and series of capital stock by resolution without shareholder approval; however, in certain circumstances the Company is required to obtain approval under the Company’s Siena Loan Agreement.

Public Offerings

On June 9, 2021, the Company completed a public offering, in which the Company 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 $40.1 million. The Company has used or intends 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, the Company completed a public offering, in which the Company issued and sold 3,289,000 shares of its common stock at a public offering price of $7.00 per share, including 429,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $21.2 million. The Company used the proceeds for general working capital purposes.

On August 28, 2020, the Company completed a public offering, in which the Company issued and sold 2,760,000 shares of its common stock at a public offering price of $6.25 per share, including 360,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $15.8 million. The Company used the proceeds for general working capital purposes.

April 2020 Private Placement Securities Purchase Agreement

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

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

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

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

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

Warrants

As of October 30, 2021, the Company had outstanding warrants to purchase 1,416,504 shares of the Company’s common stock, of which 1,416,504 were fully exercisable. The warrants expire approximately five years from the date of grant. The following table summarizes information regarding warrants outstanding at October 30, 2021:

    

Warrants

    

Warrants

    

Exercise Price

    

Grant Date

Outstanding

Exercisable

(Per Share)

Expiration Date

November 10, 2016

 

33,386

 

33,386

$

30.00

 

November 10, 2021

January 23, 2017

 

48,930

 

48,930

$

17.60

 

January 23, 2022

March 16, 2017

 

5,000

 

5,000

$

19.20

 

March 16, 2022

May 2, 2019

 

349,998

 

349,998

$

15.00

 

May 2, 2024

April 17, 2020

367,197

367,197

$

2.66

April 14, 2025

May 22, 2020

122,398

122,398

$

2.66

April 14, 2025

June 8, 2020

122,399

122,399

$

2.66

April 14, 2025

June 12, 2020

122,398

122,398

$

2.66

April 14, 2025

July 11, 2020

244,798

244,798

$

2.66

April 14, 2025

Stock Compensation Plans

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

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

Stock-Based Compensation - Stock Options

Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $64,000 and $5,000 for the third quarters of fiscal 2021 and fiscal 2020 and $116,000 and $116,000 for the first nine months of fiscal 2021 and 2020. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.

The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. Expected term is calculated using the simplified method taking into consideration the option’s contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the comparable 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:

 

85%

 

Expected term (in years):

 

6 years

 

Risk-free interest rate:

 

1.02%

 

A summary of the status of the Company’s stock options outstanding as of October 30, 2021 and changes during the nine months then ended is as follows:

2020

Weighted

Weighted

Weighted

Equity

Average 

Average 

Average 

Incentive

Exercise 

2011

Exercise 

2004

Exercise 

Plan

Price

Plan

Price

Plan

Price

Balance outstanding, January 30, 2021

$

 

34,000

$

12.87

 

3,000

$

53.49

Granted

127,000

$

7.71

 

$

 

$

Exercised

$

 

$

 

$

Forfeited or canceled

$

 

$

 

$

Balance outstanding, October 30, 2021

127,000

$

7.71

 

34,000

$

12.87

 

3,000

$

53.49

Options exercisable at October 30, 2021

$

 

30,000

$

13.67

 

3,000

$

53.49

The following table summarizes information regarding stock options outstanding as of October 30, 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

2020 Incentive:

127,000

$

7.71

9.6

$

111,000

7.71

9.6

$

2011 Incentive:

 

34,000

$

12.87

 

5.3

$

13,000

 

33,000

$

13.01

 

5.3

$

12,000

2004 Incentive:

 

3,000

$

53.49

 

2.4

$

 

3,000

$

53.49

 

$

The weighted average grant-date fair value of options granted in the first, second and third quarters of fiscal 2021 was $6.38, $6.41 and $6.08, respectively. The total intrinsic value of options exercised during the first, second and third quarters of fiscal 2021 and fiscal 2020 was $0. As of October 30, 2021, total unrecognized compensation cost related to stock options was $340,000 and was expected to be recognized over a weighted average period of approximately 2.5 years.

Stock-Based Compensation - Restricted Stock Units

Compensation expense relating to restricted stock unit grants was $53,000 and $(219,000) for the third quarters of fiscal 2021 and fiscal 2020 and $246,000 and $(55,000) for the first three quarters of fiscal 2021 and 2020. As of October 30, 2021, there was $2,490,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 2.5 years. The total fair value of restricted stock units vested during the first nine months of fiscal 2021 and fiscal 2020 was $1,255,000 and $316,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company’s stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.

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

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

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

A summary of the status of the Company’s non-vested restricted stock unit activity as of October 30, 2021 and changes during the nine-month period then ended is as follows:

Restricted Stock Units

Market-Based Units

Time-Based Units

    

Performance-Based Units

    

Total

    

    

Weighted

    

    

Weighted

    

Weighted

    

Weighted

Average

Average 

Average

Average 

Grant Date

Grant Date 

Grant Date

Grant Date 

Shares

    

Fair Value

    

Shares

Fair Value

    

Shares

    

Fair Value

    

Shares

Fair Value

Non-vested outstanding, January 30, 2021

 

60,000

$

3.52

 

736,000

$

4.03

 

146,000

$

1.69

942,000

$

3.64

Granted

 

$

 

824,000

$

9.33

 

77,000

$

8.72

901,000

$

9.28

Vested

 

$

 

(336,000)

$

5.83

 

$

(336,000)

$

5.83

Forfeited

 

$

 

(42,000)

$

4.15

 

$

(42,000)

$

4.15

Non-vested outstanding, October 30, 2021

 

60,000

$

3.52

 

1,182,000

$

7.39

 

223,000

$

4.13

1,465,000

$

6.74