Annual report pursuant to Section 13 and 15(d)

Shareholders' Equity

v3.22.1
Shareholders' Equity
12 Months Ended
Jan. 29, 2022
Shareholders' Equity  
Shareholders' Equity

(10)  Shareholders’ Equity

Common Stock

The Company is authorized to issue 29,600,000 shares of common stock. As of January 29, 2022, 21,571,387 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.

Preferred Stock

The Company has authorized 400,000 Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, during fiscal 2015 as part of the Shareholder Rights Plan. As of January 29, 2022, there were zero shares issued and outstanding. See Note 14 – “Income Taxes” for additional information.

Dividends

The Company has never declared or paid any dividends with respect to its capital or common stock. The Company is restricted from paying dividends on its stock by its 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 $39,955. 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 $21,224. 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 $15,833.

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. The initial closing occurred on April 17, 2020 and the Company received gross proceeds of $1,500. 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. The Company incurred approximately $190 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 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 19 – “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.

May 2019 Private Placement Securities Purchase Agreement

On May 2, 2019, the Company entered into a private placement securities purchase agreement with certain accredited investors pursuant to which the Company: (a) sold, in the aggregate, 800,000 shares of the Company’s common stock at a price of $7.50 per share and (b) issued five-year warrants (“5-year Warrants”) to purchase 350,000 shares of the Company’s common stock at an exercise price of $15.00 per share. The 5-year Warrants are exercisable in whole or in part from time to time through the expiration date of May 2, 2024. The purchasers included Invicta Media Investments, LLC, Retailing Enterprises, LLC, Michael and Leah Friedman, Timothy Peterman and certain other private investors. Retailing Enterprises, LLC is a party in which the Company entered into an agreement to liquidate obsolete inventory. Under the purchase

agreement, the purchasers agreed to customary standstill provisions related to the Company for a period of two years, as well as to vote their shares in favor of matters recommended by the Company’s board of directors for shareholder approval. In addition, the Company agreed in the purchase agreement to appoint Eyal Lalo as vice chair of the Company’s board of directors, Michael Friedman to the Company’s board of directors and Timothy Peterman as the Company’s chief executive officer.

In connection with the closing under the Purchase Agreement, the Company entered into certain other agreements with IWCA, Sterling Time and the purchasers, including a five-year vendor exclusivity agreement with Sterling Time and IWCA. The vendor exclusivity agreement grants the Company the exclusive right in television shopping to market, promote and sell the products from IWCA.

The Company received gross proceeds of $6,000 and incurred approximately $175 of issuance costs. The Company allocated the proceeds of the stock offering to the shares of common stock issued. 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 consolidated balance sheets. The Company has used the proceeds for general working capital purposes. The 5-year Warrants were issued primarily as consideration for a five-year vendor exclusivity agreement with IWCA and Sterling Time. The aggregate market value of the 5-year Warrants on the grant date was $193, which was recorded as an intangible asset and is being amortized as cost of sales over the agreement term. The 5-year Warrants are indexed to the Company’s publicly traded stock and were classified as equity. As a result, the fair value of the 5-year Warrants was recorded as an increase to additional paid-in capital.

Warrants

As of January 29, 2022, the Company had outstanding warrants to purchase 1,334,188 shares of the Company’s common stock, of which 1,334,188 are fully exercisable. The following table summarizes information regarding warrants outstanding at January 29, 2022:

    

Warrants

    

Warrants

    

Exercise Price

    

Grant Date

Outstanding

Exercisable

(Per Share)

Expiration Date

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

All warrants are exercisable at any time through the date of expiration. All agreements provide for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis.

Commercial Agreement with Shaquille O’Neal

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

Compensation expense relating to the restricted stock unit grant was $865 for fiscal 2021 and $865 for fiscal 2020. As of January 29, 2022 there was $865 of total unrecognized compensation cost related to the award. That cost is expected to be recognized over a weighted average period of 1.0 years.

Restricted Stock Award

On November 23, 2018, the Company entered into a restricted stock award agreement with Flageoli Classic Limited, LLC (“FCL”) granting FCL 150,000 restricted shares of the Company’s common stock in connection with and as consideration for entering into a vendor exclusivity agreement with the Company. The vendor exclusivity agreement grants us the exclusive right in television shopping to market, promote and sell products under the trademark of Serious Skincare, a skin-care brand that launched on the Company’s television network on January 3, 2019. Additionally, the agreement identifies Jennifer Flavin-Stallone as the primary spokesperson for the brand on the Company’s television network. The restricted shares vested in three tranches. Of the restricted shares granted, 50,000 vested on January 4, 2019, which was the first business day following the initial appearance of the Serious Skincare brand on the Company’s television network, 50,000 vested on January 4, 2020 and 50,000 vested on January 4, 2021. The aggregate market value on the date of the award was $1,408 and was amortized as cost of sales over the three-year vendor exclusivity agreement term. The estimated fair value of the restricted stock is based on the grant date closing price of the Company’s stock for time-based vesting awards.

Compensation expense relating to the restricted stock award grant was $153, $697 and $469 for fiscal 2021, fiscal 2020 and fiscal 2019.

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 for fiscal 2021, fiscal 2020 and fiscal 2019 related to stock option awards was $174, $121 and $681. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.

The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. Expected term is calculated using the simplified method taking into consideration the option’s contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because

it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.

Fiscal 2021

    

Fiscal 2020

    

Fiscal 2019

Expected volatility:

82% - 89%

 

75% - 82%

Expected term (in years):

6 years

 

6 years

Risk-free interest rate:

1.0% - 1.3%

 

1.4% - 2.6%

A summary of the status of the Company’s stock option activity as of January 29, 2022 and changes during the year then ended is as follows:

2020 Plan

2011 Plan

2004 Plan

Option

Weighted Average

Option

Weighted Average

Option

Weighted Average

Shares

Exercise Price

Shares

Exercise Price

Shares

Exercise Price

Balance outstanding, January 30, 2021

$

 

34,000

$

12.87

 

3,000

$

53.49

Granted

158,000

$

7.48

 

$

 

$

Exercised

$

 

$

 

$

Forfeited or canceled

(10,500)

$

9.64

 

(8,300)

$

22.59

 

$

Balance outstanding, January 29, 2022

147,500

$

7.33

 

25,700

$

10.04

 

3,000

$

53.49

Options exercisable at January 29, 2022

10,000

$

8.72

 

22,800

$

10.73

 

3,000

$

53.49

The following table summarizes information regarding stock options outstanding at January 29, 2022:

Options Outstanding

Options Vested or Expected to Vest

Weighted

Weighted

Weighted

Average 

Weighted

Average 

Average 

Remaining 

Aggregate

Average 

Remaining 

Aggregate

Number of

Exercise 

Contractual 

Intrinsic 

Number of

Exercise 

Contractual 

Intrinsic 

Option Type

Shares

Price

 

Life (Years)

Value

Shares

Price

 

Life (Years)

Value

2020 Plan

147,500

$

7.33

9.4

$

129,700

$

7.34

9.4

$

2011 Plan

 

25,700

$

10.04

 

5.9

$

2,500

 

25,200

$

10.16

 

5.9

$

2,400

2004 Plan

 

3,000

$

53.49

 

2.2

$

 

3,000

$

53.49

 

2.2

$

The weighted average grant-date fair value of options granted in fiscal 2021 under the 2020 Plan and in fiscal 2019 under the 2011 Plan was $5.30 and $3.12. There were no options granted in fiscal 2020. The total intrinsic value of options exercised during fiscal 2021, fiscal 2020 and fiscal 2019 was $0, $0 and $0. As of January 29, 2022, total unrecognized compensation cost related to stock options was $518 and is expected to be recognized over a weighted average period of approximately 2.4 years.

Stock Option Tax Benefit

The exercise of certain stock options granted under the Company’s stock option plans give rise to compensation, which is included in the taxable income of the applicable employees and deductible by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company’s common stock subsequent to the date of grant of the applicable exercised stock options and these increases are not recognized as an expense for financial accounting purposes, as the options were originally granted at the fair market value of the Company’s common stock on the date of grant. The related tax benefits will be recorded if and when realized, and totaled $0, $0 and $0 in fiscal 2021, fiscal 2020 and fiscal 2019. The Company has not recorded any income tax benefit from the exercise of stock options in these fiscal years, due to the uncertainty of realizing income tax benefits in the future.

Stock-Based Compensation – Restricted Stock Units

Compensation expense relating to restricted stock unit grants was $1,375, $277 and $1,031 for fiscal 2021, fiscal 2020 and fiscal 2019. As of January 29, 2022, there was $1,799 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average period of 1.9 years. The total fair value of restricted stock units vested during fiscal 2021, fiscal 2020 and fiscal 2019 was $1,345, $337 and $434. 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 76,900 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.

The Company granted 94,000 market-based restricted stock performance units to executives and key employees as part of the Company’s long-term incentive program during fiscal 2019. The number of restricted stock units earned is based on the Company’s total shareholder return (“TSR”) relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:

    

Fiscal 2019

    

Total grant date fair value

 

$482

Total grant date fair value per share

 

$5.14

Expected volatility

 

74% - 82%

Weighted average expected life (in years)

 

3 years

Risk-free interest rate

 

1.7% - 2.3%

The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company’s TSR relative to the peer group is as follows:

    

Percentage of

Percentile Rank

Units Vested

< 33%

 

0

%

33%

 

50

%

50%

 

100

%

100%

 

150

%

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

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

    

Fair Value

    

Derived Service

(Per Share)

Period

Tranche 1 (one year)

$

3.66

 

1.00 Year

Tranche 2 ($20.00/share)

$

3.19

 

3.27 Years

Tranche 3 ($40.00/share)

$

2.85

 

4.53 Years

A summary of the status of the Company’s non-vested restricted stock unit activity as of January 29, 2022 and changes during the twelve-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

 

$

 

824,200

$

9.33

 

76,900

$

8.72

901,100

$

9.28

Vested

 

$

 

(451,500)

$

5.82

 

$

(451,500)

$

5.82

Forfeited

 

(2,200)

$

5.10

 

(77,400)

$

4.28

 

$

(79,600)

$

4.30

Non-vested outstanding, January 29, 2022

 

57,800

$

3.47

 

1,031,300

$

7.46

 

222,900

$

4.13

1,312,000

$

6.72