Annual report pursuant to Section 13 and 15(d)

Shareholders' Equity

v3.8.0.1
Shareholders' Equity
12 Months Ended
Feb. 03, 2018
Equity [Abstract]  
Shareholders' Equity
Shareholders' Equity
Common Stock
The Company currently has authorized 99,600,000 shares of undesignated capital stock, of which 65,290,458 shares were issued and outstanding as common stock as of February 3, 2018. 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 our PNC Credit Facility.
Preferred Stock
The Company 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 February 3, 2018, there were zero shares issued and outstanding. See Note 12 - "Income Taxes" for additional information.
Dividends
The Company has never declared or paid any dividends with respect to its capital stock. The Company is restricted from paying dividends on its stock by its PNC Credit Facility.
Registered Direct Offering
On May 23, 2017, the Company entered into Common Stock Purchase Agreements with certain accredited investors to which the Company sold, in the aggregate, 4,008,273 shares of common stock in a registered direct offering pursuant to a shelf registration statement on Form S-3 (File No. 333-203209), filed with the SEC on May 13, 2015. The shares were sold at a price of $1.12 per share, except for shares purchased by investors who are directors or executive officers of the Company, which were sold at a price of $1.15 per share. The closing of this sale occurred on May 30, 2017 and the Company received gross proceeds of approximately $4.5 million and incurred approximately $323,000 of issuance costs. The Company has used the proceeds for general working capital purposes.
Private Placement Securities Purchase Agreements
On September 14, 2016, the Company entered into private placement securities purchase agreements ("Purchase Agreements") with certain accredited investors to which the Company: (a) sold, in the aggregate, 5,952,381 shares of the Company's common stock at a price of $1.68 per share; (b) issued five-year warrants ("Warrants") to purchase 2,976,190 shares of the Company's common stock at an exercise price of $2.90 per share, and (c) issued an option by which certain investors may purchase additional shares of Company's common stock and additional warrants to purchase shares of common stock ("Options").
The Company received gross proceeds of $10.0 million and incurred approximately $852,000 of issuance costs. The Warrants will expire on September 19, 2021 and were not exercisable until March 19, 2017. Except as noted below, the term of each option was six months and expired on March 19, 2017. The option exercise price was equal to the five-day volume weighted average price per share of the Company's common stock as of the day immediately prior to exercise. Upon exercise of the Options, two-thirds of the option securities would be issued in the form of common stock, and one-third would be issued in the form of warrants ("Option Warrants"). These Option Warrants have an exercise price at a 50% premium to the Company's closing stock price one-day prior to the option exercise and will expire five years after issuance. If all of the Warrants, Options and Option Warrants issued by the Company are all exercised, the total shares of common stock issued in connection with this offering cannot be more than approximately 19.99% of the Company's total issued and outstanding shares following such exercises.
The Company allocated the $10 million proceeds of the stock offering to each of the issued freestanding financial instruments based on their fair value at the time of issuance. The Warrants are indexed to the Company's publicly traded stock and were classified as equity. As a result, the portion of the proceeds allocated to the fair value of the Warrants was recorded as an increase to additional paid-in capital. The fair value of the Options was determined to be nominal. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less offering costs, recorded as additional paid in capital in the Company's balance sheet. The Company has used the proceeds for general working capital purposes.
As part of the Purchase Agreements, the Company agreed to register the shares of common stock sold in the private placement and the shares of common stock issuable upon exercise of the Warrants, Options and certain of the Option Warrants. The Company has filed registration statements on Form S-3 to register the common stock sold in the private placement and issuable upon exercise of the Warrants, Options and the outstanding Option Warrants. The Company agreed to keep the shelf registration statement effective until the earlier of the second anniversary of the closing or such time as all registrable securities may be sold pursuant to Rule 144 under the Securities Act of 1933, without the need for current public information or other restriction.
During the fourth quarter of fiscal 2016, three investors exercised their Options. These exercises resulted in the Company's issuance, in the aggregate, of (a) 1,646,350 shares of the Company's common stock at a price ranging from $1.20 - $1.94 per share, resulting in aggregate proceeds of $2.5 million; and (b) five-year Option Warrants to purchase an additional 823,175 shares of the Company's common stock at an exercise price ranging from $1.76 - $3.00 per share and expire between November 10, 2021 and January 23, 2022. The Company incurred, in the aggregate, approximately $49,000 of issuance costs related to the Options exercised during the fourth quarter of fiscal 2016.
On March 16, 2017, the Company entered into the First Amendment and Restated Option (the "Amended Option") with TH Media Partners, LLC, one of the September 14, 2016 Securities Purchase Agreement investors. Under the terms of the Amended Option, the investor has the right to exercise its Option in two tranches. The first tranche reflects rights to purchase 150,000 shares of the Company’s common stock, which were issuable in the form of 100,000 common shares and a warrant to purchase an additional 50,000 common shares and was exercised on March 16, 2017. The exercise resulted in the issuance of (a) 100,000 shares of the Company's common stock at a price of $1.33 per share, resulting in aggregate proceeds of $133,000; and (b) a five-year Option Warrant to purchase an additional 50,000 shares of the Company's common stock at an exercise price of $1.92 per share and expiring on March 16, 2022. The second tranche reflected the right to purchase up to 1,073,945 shares of the Company’s common stock issuable in the form of 715,963 common shares and an Option Warrant to purchase an additional 357,982 common shares. The second tranche expired unexercised on September 19, 2017. The exercise price of the Option and Option Warrants for the first and second tranches were not modified by the Amended Option. The Company incurred, in the aggregate, approximately $23,000 of issuance costs related to the Options exercised during the first quarter of fiscal 2017.
Stock Purchase from NBCU
On January 31, 2017, the Company purchased from NBCUniversal Media, LLC (“NBCU”) 4,400,000 shares of the Company's common stock for approximately $5 million or $1.12 per share pursuant to the Repurchase Letter Agreement. Immediately following the Company's share purchase, the direct equity ownership of NBCU in the Company consisted of 2,741,849 shares of common stock, or 4.5% of the Company's outstanding common stock. Upon the settlement, the NBCU Shareholder Agreement was terminated pursuant to the Repurchase Letter Agreement. As of February 3, 2018, the Company believes that NBCU sold its remaining shares of the Company's common stock. See Note 18 - "Related Party Transactions" for additional information.
Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for fiscal 2017, fiscal 2016 and fiscal 2015 related to stock option awards was $915,000, $522,000 and $611,000. 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.
As of February 3, 2018, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 9,500,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2001 Omnibus Stock Plan expired on June 21, 2011 and as of February 3, 2018, there were no stock awards outstanding under the 2001 Omnibus Plan. The 2011 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 plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive 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 underlying stock as of the date of grant. No incentive 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. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. With the exception of 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 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 2017
 
Fiscal 2016
 
Fiscal 2015
Expected volatility
81%
 
81
%
-
84%
 
75
%
-
82%
Expected term (in years)
6 years
 
6 years
 
6 years
Risk-free interest rate
2.0
%
-
2.2%
 
1.4
%
-
2.2%
 
1.7
%
-
1.9%

A summary of the status of the Company’s stock option activity as of February 3, 2018 and changes during the year then ended is as follows:
 
 
2011
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2004
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2001
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, January 28, 2017
 
2,543,000

 
$
2.19

 
301,000

 
$
5.41

 
77,000

 
$
10.73

Granted
 
1,627,000

 
$
1.31

 

 
$

 

 
$

Exercised
 
(72,000
)
 
$
1.08

 

 
$

 

 
$

Forfeited or canceled
 
(714,000
)
 
$
2.90

 
(189,000
)
 
$
5.73

 
(77,000
)
 
$
10.73

Balance outstanding, February 3, 2018
 
3,384,000

 
$
1.64

 
112,000

 
$
4.86

 

 
$

Options exercisable at:
 
 
 
 
 
 
 
 
 
 
 
 
February 3, 2018
 
927,000

 
$
2.35

 
112,000

 
$
4.86

 

 
$

January 28, 2017
 
648,000

 
$
3.53

 
292,000

 
$
5.43

 
77,000

 
$
10.73

January 30, 2016
 
995,000

 
$
3.97

 
652,000

 
$
6.22

 
399,000

 
$
7.78


The following table summarizes information regarding stock options outstanding at February 3, 2018:
 
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
 
3,384,000

 
$
1.64

 
8.4
 
$
58,000

 
3,078,000

 
$
1.67

 
8.2
 
$
55,000

2004 Incentive:
 
112,000

 
$
4.86

 
5.8
 
$

 
112,000

 
$
4.86

 
5.8
 
$

2001 Incentive:
 

 
$

 
0.0
 
$

 

 
$

 
0.0
 
$


The weighted average grant-date fair value of options granted in fiscal 2017, fiscal 2016 and fiscal 2015 was $0.91, $0.96 and $3.95. The total intrinsic value of options exercised during fiscal 2017, fiscal 2016 and fiscal 2015 was $15,000, $0 and $1,441,000. As of February 3, 2018, total unrecognized compensation cost related to stock options was $1,454,000 and is expected to be recognized over a weighted average period of approximately 1.9 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 $6,000, $0 and $526,000 in fiscal 2017, fiscal 2016 and fiscal 2015. 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
Compensation expense recorded in fiscal 2017, fiscal 2016 and fiscal 2015 relating to restricted stock grants was $1,973,000, $1,424,000 and $1,664,000. As of February 3, 2018, there was $1,700,000 of total unrecognized compensation cost related to non-vested restricted stock grants. That cost is expected to be recognized over a weighted average period of 1.5 years. The total fair value of restricted stock vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $409,000, $761,000 and $378,000.
During the fourth quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company granted a total of 20,000, 10,000 and 37,000 shares of time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of grant was $28,000, $21,000 and $86,360 for the fourth quarters of fiscal 2017, fiscal 2016 and fiscal 2015. The grants are being amortized as compensation expense over the three-year vesting period. During the fourth quarter of fiscal 2016, the Company also granted a total of 20,045 shares of restricted stock units to a new board member as part of the Company's annual director compensation program. The restricted stock vested on June 13, 2017, the day immediately preceding the Company's 2017 annual meeting of shareholders. The aggregate market value of the restricted stock at the date of grant was $40,000 and was amortized as director compensation expense over the vesting period.
During the third quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company granted a total of 3,000, 34,563 and 32,000 shares of time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of grant was $3,000, $57,000 and $80,640 for the third quarters of fiscal 2017, fiscal 2016 and fiscal 2015. The awards are being amortized as compensation expense over the three-year vesting period. During the third quarter of fiscal 2016, the Company also granted a total of 28,119 shares of restricted stock units to a board member as part of the Company's annual director compensation program. The restricted stock vested on June 13, 2017, the day immediately preceding the Company's 2017 annual meeting of shareholders. The aggregate market value of the restricted stock at the date of grant was $51,000 and was amortized as director compensation expense over the vesting period.
During the third quarter of fiscal 2016, Robert Rosenblatt was appointed as permanent Chief Executive Officer and entered into an executive employment agreement. In conjunction with the employment agreement, the Company granted to Mr. Rosenblatt 231,799 shares of market-based restricted stock performance units as part of the Company's long-term incentive program. 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. The total grant date fair value was estimated to be $422,000, or $1.82 per share and is being amortized over the three-year performance period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 0.76%, a weighted average expected life of three years and an implied volatility of 77%. 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:
Percentile Rank
 
Percentage of
Units Vested
< 33%
 
0%
33%
 
50%
50%
 
100%
100%
 
150%

On August 18, 2016 the Company granted an additional 625,000 shares of restricted stock in conjunction with Mr. Rosenblatt's employment agreement. The restricted stock vests in three tranches. Tranche 1 (one-third of the shares subject to the award) vested on the date of grant. Tranche 2 (one-third) will vest on the date the Company's average closing stock price for 20 consecutive trading days equals or exceeds $4.00 per share and the executive has been continuously employed at least one year. Tranche 3 (one-third) will vest on the date the Company's average closing stock price for 20 consecutive trading days equals or exceeds $6.00 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 the tenth anniversary of the grant date. The total grant date fair value was estimated to be $958,000 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 1.5%, a weighted average expected life of 1.2 years and an implied volatility of 86% and were as follows for each tranche:
 
 
Fair Value (Per Share)
 
Derived Service Period
Tranche 1 (immediate)
 
$1.60
 
0 Years
Tranche 2 ($4.00/share)
 
$1.52
 
1.46 Years
Tranche 3 ($6.00/share)
 
$1.48
 
2.22 Years

During the second quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company granted a total of 472,720, 167,142 and 182,334 shares of restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each restricted stock grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The aggregate market value of the restricted stock at the date of grant was $520,000, $292,000 and $520,000 for the second quarters of fiscal 2017, fiscal 2016 and fiscal 2015. The grants are amortized as director compensation expense over the twelve-month vesting period. During the second quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company also granted a total of 318,360, 60,916 and 26,810 shares of time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of grant was $395,000, $78,000 and $158,000 for the second quarters of fiscal 2017, fiscal 2016 and fiscal 2015. The grants are being amortized as compensation expense over the three-year vesting period.
During the first quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company granted a total of 317,219, 188,991 and 67,786 shares of time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of grant was $422,000, $187,000 and $417,593 for the first quarters of fiscal 2017, fiscal 2016 and fiscal 2015. The grants are being amortized as compensation expense over the three-year vesting period. During the first quarter of fiscal 2017, the Company also granted a total of 327,738 shares of time-based restricted stock units to employees as part of the Company's annual merit process. The restricted stock vests one year after the date of the grant on April 24, 2018. The aggregate market value of the restricted stock at the date of grant was $446,000 and is being amortized as compensation expense over the one-year vesting period.
During the first quarter of fiscal 2017, the Company also granted a total of 7,096 shares of restricted stock units to a newly appointed board member as part of the Company's annual director compensation program. The restricted stock vested on June 13, 2017, the day immediately preceding the Company's 2017 annual meeting of shareholders. The aggregate market value of the restricted stock at the date of grant was $9,000 and was amortized as director compensation expense over the vesting period.
During the first quarters of fiscal 2017, fiscal 2016 and fiscal 2015, the Company granted a total of 561,981, 179,156 and 106,963 shares of market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program. 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 2017
 
Fiscal 2016
 
Fiscal 2015
Total grant date fair value
$860,000
 
$224,000
 
$777,000
Total grant date fair value per share
$1.53
 
$0.98
-
$1.72
 
$7.26
Expected volatility
75%
 
71
%
-
73%
 
54
%
-
55%
Weighted average expected life (in years)
3 years
 
3 years
 
3 years
Risk-free interest rate
1.5%
 
0.9
%
-
1.0%
 
0.9%

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:
Percentile Rank
 
Percentage of
Units Vested
< 33%
 
0%
33%
 
50%
50%
 
100%
100%
 
150%
A summary of the status of the Company’s non-vested restricted stock activity as of February 3, 2018 and changes during the twelve-month period then ended is as follows:
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, January 28, 2017
 
1,620,000

 
$2.00
Granted
 
2,028,000

 
$1.32
Vested
 
(352,000
)
 
$1.95
Forfeited
 
(467,000
)
 
$2.72
Non-vested outstanding, February 3, 2018
 
2,829,000

 
$1.40