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As of December 13, 2022 there were
iMEDIA BRANDS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
October 29, 2022
2
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 |
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Current assets: |
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Cash | $ | | $ | | ||
Restricted Cash | | | ||||
Accounts receivable, net |
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Inventories |
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Current portion of television broadcast rights, net | | | ||||
Prepaid expenses and other |
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Total current assets |
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Property and equipment, net |
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Television broadcast rights, net | | | ||||
Goodwill | | | ||||
Intangible assets, net | | | ||||
Other assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued liabilities |
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Current portion of television broadcast rights obligations | | | ||||
Current portion of long-term debt |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Long-term broadcast rights obligations |
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Long-term debt, net |
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Long-term operating lease liabilities | | | ||||
Deferred tax liability | | | ||||
Other long-term liabilities | | | ||||
Total liabilities |
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Commitments and contingencies |
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Shareholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss | ( | ( | ||||
Total shareholders’ equity |
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Equity of the non-controlling interest | | | ||||
Total equity | | | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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 | $ | | $ | | $ | | $ | | ||||
Cost of sales |
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Gross profit |
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Operating expense: |
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Distribution and selling |
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General and administrative |
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Depreciation and amortization |
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Restructuring costs |
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Total operating expense |
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Operating loss |
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Other income (expense): |
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Interest income and other |
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Interest expense |
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Change in fair value of contract liability, net | — | — | | — | ||||||||
Loss on divestiture | — | — | ( | — | ||||||||
Loss on debt extinguishment |
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Total other expense, net |
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Loss before income taxes |
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Income tax provision |
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Net loss | ( | ( | ( | ( | ||||||||
Less: Net loss attributable to non-controlling interest | — | — | ( | ( | ||||||||
Net loss attributable to shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per common share | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per common share — assuming dilution | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average number of common shares outstanding: |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive loss: | ||||||||||||
Foreign currency translation adjustments |
| ( |
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Total other comprehensive loss | ( | ( |
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Comprehensive loss |
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Comprehensive loss attributable to non-controlling interest | — | — | ( | ( | ||||||||
Comprehensive loss attributable to shareholders | $ | ( | $ | ( | $ | ( | $ | ( |
5
iMEDIA BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
(Unaudited)
| Common Stock |
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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 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Net loss |
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Common stock issuances pursuant to equity compensation awards |
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Share-based payment compensation |
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Change in cumulative translation adjustment | — | — | — | — | ( | — | ( | |||||||||||||
BALANCE, April 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Net loss |
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Common stock issuances |
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Common stock issuances pursuant to equity compensation awards | | | ( | — | — | — | ( | |||||||||||||
Share-based payment compensation |
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Divestiture of business | — |
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| — | ( | ( | |||||||||||
Change in cumulative translation adjustment | — | — | — | — | ( | — | ( | |||||||||||||
BALANCE, July 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | — | $ | | ||||||
Net loss |
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Common stock issuances pursuant to equity compensation awards |
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Share-based payment compensation |
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Common stock and warrant issuance |
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Other Comprehensive Loss | — | — | — | — | ( | — | ( | |||||||||||||
BALANCE, October 29, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | — | $ | |
| Common Stock |
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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 |
| | $ | | $ | | $ | ( | $ | — | $ | — | $ | | ||||||
Net loss |
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Common stock issuances pursuant to equity compensation awards |
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Share-based payment compensation |
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Common stock and warrant issuance |
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Investment of non-controlling interest | — | — | — | — | — | | | |||||||||||||
BALANCE, May 1, 2021 |
| | $ | | $ | | $ | ( | $ | — | $ | | $ | | ||||||
Net loss |
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Common stock issuances pursuant to equity compensation awards |
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Share-based payment compensation |
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Common stock and warrant issuance | | | | — | — | — | | |||||||||||||
BALANCE, July 31, 2021 |
| | $ | | $ | | $ | ( | $ | — | $ | | $ | | ||||||
Net loss |
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Common stock issuances pursuant to equity compensation awards |
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Share-based payment compensation |
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Common stock and warrant issuance |
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Other Comprehensive Income (loss) | — | — | — | — | ( | — | ( | |||||||||||||
BALANCE, October 30, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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: |
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Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash used for operating activities: |
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Depreciation and amortization |
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Share-based payment compensation |
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Payments for television broadcast rights | ( | ( | |||
Amortization of deferred financing costs |
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Loss on debt extinguishment |
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Change in fair value of contract liability, net | ( | — | |||
Contract separation charges | | — | |||
Loss on divestiture | | — | |||
Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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Deferred revenue |
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Prepaid expenses and other |
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Accounts payable and accrued liabilities |
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Net cash used for operating activities |
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INVESTING ACTIVITIES: |
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Property and equipment additions |
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Acquisitions | — | ( | |||
Vendor exclusivity deposit | — | ( | |||
Net cash used for investing activities |
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FINANCING ACTIVITIES: |
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Proceeds from issuance of revolving loan |
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Proceeds from issuance of common stock and warrants |
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Proceeds from issuance of term loan | | | |||
Proceeds from issuance of long-term bonds | — | | |||
Payments on revolving loan | — | ( | |||
Payments on term loan |
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Payments on seller notes | ( | ( | |||
Payments on finance leases |
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Payments for restricted stock issuance |
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Payments for deferred financing costs |
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Payments for debt extinguishment costs |
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Net cash provided by financing activities |
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Net increase (decrease) in cash and restricted cash |
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Effect of exchange rate changes on cash | | — | |||
BEGINNING CASH AND RESTRICTED CASH |
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ENDING CASH AND RESTRICTED CASH | $ | | $ | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||
Interest paid | $ | | $ | | |
Income taxes paid | $ | | $ | | |
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||
Property and equipment purchases included in accounts payable | $ | | $ | | |
Inventory received in divestiture | $ | | $ | — | |
Reclassification of forward contract liability to additional paid in capital | $ | | $ | — | |
Other long term liability issued in exchange for acquired assets | $ | — | $ | | |
Television broadcast rights obtained in exchange for liabilities | $ | — | $ | | |
Common stock issuance costs included in accrued liabilities | $ | | $ | | |
Common stock issued for acquisition liability (See Note 15) | $ | | $ | - | |
Common stock issued for contingent consideration | $ | | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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
● | 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
8
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
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
The Buildings are currently measured at the carrying value of $
9
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
10
iMEDIA BRANDS, INC. AND SUBSIDIARIES
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 $
As of October 29, 2022, we had $
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.
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
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.
11
iMEDIA BRANDS, INC. AND SUBSIDIARIES
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 $
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 $
(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 | $ | | $ | |
12
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
Less accumulated amortization |
| ( |
| ( | ||
Television broadcast rights, net | $ | | $ | |
During the first nine months of fiscal 2022 and full year fiscal 2021, the Company entered into certain affiliation agreements with television service providers for carriage of its television programming over their systems, including channel placement rights, which ensure the Company keeps its channel position on the service provider’s channel line-up during the term. The Company recorded television broadcast rights of $
In addition to the Company securing broadcast rights for channel position, the Company’s affiliation agreements generally provide that it will pay each operator a monthly service fee, most often based on the number of homes receiving the Company’s programming, and in some cases marketing support payments. Monthly service fees are expensed as distribution and selling expense within the condensed consolidated statements of operations.
(5) Goodwill and Intangible Assets
Goodwill
The following table presents the changes in goodwill during the nine months ended October 29, 2022:
Balance, January 29, 2022 | $ | | |
Acquisition valuation adjustment |
| ( | |
Foreign currency translation adjustment | ( | ||
Divestiture of business |
| ( | |
Balance, October 29, 2022 | $ | |
The Company acquired 1-2-3.tv in the prior year. Subsequent to the acquisition 1-2-3.tv’s revenues and operating income have been less than originally projected. The Company believes the high inflation in Germany and uncertain events such as the Russian invasion of Ukraine have created shifts in consumer spending habits. The Company will continue to monitor the financial results of 1-2-3.tv and should the financial results continue to fall short of our projections for a prolonged period of time an impairment of long-lived assets may become necessary to record in the future.
The occurrence of risks such as political, regulatory or jurisdictional could negatively affect our international business and, consequently, our results of operations generally. Additionally, operating in international markets also requires significant management attention and financial resources. Specifically, such an occurrence could create a triggering event that would require us to review goodwill and intangible assets for impairment and the potential full or partial write-down of those balances. We cannot be certain that
13
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
the investment and additional resources required in establishing, acquiring, or integrating operations in other countries will produce desired levels of revenues or profitability.
Finite-lived Intangible Assets
Intangible assets in the accompanying condensed consolidated balance sheets consisted of the following:
October 29, 2022 | January 29, 2022 | |||||||||||||||||||
Estimated | Gross | Gross | ||||||||||||||||||
Useful Life | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
| (In Years) |
| Amount |
| Amortization | Net Amount |
| Amount | Amortization |
| Net Amount | |||||||||
Trademarks and Trade Names |
|
| $ | | ( | $ | |
| $ | |
| $ | ( |
| $ | | ||||
Technology |
|
| | ( | |
| |
| ( |
| | |||||||||
Customer Lists and Relationships |
|
| | ( | |
| |
| ( |
| | |||||||||
Vendor Exclusivity |
|
| | ( | |
| |
| ( |
| | |||||||||
Total finite-lived intangible assets |
| $ | |
| $ | ( | $ | |
| $ | | $ | ( |
| $ | |
Intangible assets, net in the accompanying condensed consolidated balance sheets consist of trade names, technology, customer lists and a vendor exclusivity agreement primarily related to the various acquisitions the Company completed in fiscal 2021 and 2019. Amortization expense related to the finite-lived intangible assets was $
(6) Credit Agreements
The Company’s long-term credit facilities consist of:
| October 29, 2022 |
| January 29, 2022 | |||
Revolving Loan due July 31, 2024, principal amount | $ | | $ | | ||
| | |||||
Real Estate Financing term loan due July 31, 2024, principal amount | | | ||||
Seller notes: | ||||||
Seller note due in annual installments, maturing in November 2023, principal amount | | | ||||
Seller note due in quarterly installments, maturing in December 2023, principal amount | | | ||||
Total seller notes | | | ||||
Convertible Debt | | — | ||||
Total debt | | | ||||
Less: unamortized debt issuance costs and debt discount | ( | ( | ||||
Plus: unamortized debt premium | | | ||||
Total carrying amount of debt | | | ||||
Less: current portion of long-term debt | ( | ( | ||||
Long-term debt, net | $ | | $ | |
Convertible Debt
On April 18, 2022, the Company entered into a securities purchase agreement (with Growth Capital Partners, LLC (“GCP”), for the purchase and sale of an unsecured promissory note (the “GCP Note”) in the original aggregate principal amount of $
14
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
upon the terms and subject to the limitations and conditions set forth in the GCP Note. The aggregate purchase price of the GCP Note was $
As of October 29, 2022, the Company was not in compliance with certain of the coverage ratio terms of the GCP Note. 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.
The GCP Note accrues interest at
Interest expense recorded under the GCP Note was $
Debt discount and issuance costs, net of amortization, relating to the GCP Note were $
On September 28, 2021, the Company issued and sold $
The 2026 Notes pay interest quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2021, at a rate of
The 2026 Notes are the senior unsecured obligations of the Company. There is
15
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
The Company used all the net proceeds from the offering to fund its closing cash payment in connection with the acquisition of 1-2-3.tv Invest GmbH and 1-2-3.tv Holding GmbH (collectively with their direct and indirect subsidiaries, the “1-2-3.tv Group”), and any remaining proceeds for working capital and general corporate purposes, which included payments related to the acquisition.
Interest expense recorded under the
Debt issuance costs, net of amortization, relating to the Senior Unsecured Notes were $
Revolving Loan
The Company and certain of its subsidiaries, as borrowers, are party to a loan and security agreement (as amended, the “Loan Agreement”) with Siena Lending Group LLC and the other lenders party thereto from time to time, Siena Lending Group LLC, as agent (the “Agent”), and certain additional subsidiaries of the Company, as guarantors thereunder. The Loan Agreement was originally entered into on July 30, 2021, has a
On September 12, 2022, the parties to the Loan Agreement entered an amendment (the “Seventh Amendment”), which revised the agreement to amend required minimum liquidity and maximum senior debt leverage ratio criteria among other terms and conditions set forth in the Loan Agreement.
Subject to certain conditions, borrowings under the Loan Agreement bear interest at
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum liquidity requirements. The Company is also subject to a maximum senior net leverage ratio. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to shareholders. The Company also pays a monthly fee at a rate equal to
As of October 29, 2022, the Company had total borrowings of $
Interest expense recorded under the Revolving Loan was $
16
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
Deferred financing costs, net of amortization, relating to the revolving loan were $
Real Estate Financing
On July 30, 2021,
The GreenLake Note is scheduled to mature on July 31, 2024. The borrowings, which include all amounts advanced under the GreenLake Note, bear interest at
The GreenLake Note was able to be prepaid in full (but not in part) before July 30, 2022 (the “Lockout Date”) upon payment of a prepayment premium equal to the amount of interest that would have accrued from the date of prepayment through the Lockout Date. Since the Lockout Date, the GreenLake Note may be prepaid in full or in any installment greater than or equal to $
The GreenLake Note contains customary representations and warranties and financial and other covenants and conditions, including, a requirement that the borrowers comply with all covenants set forth in the Loan Agreement described above. The GreenLake Note also contains certain customary events of default.
As of October 29, 2022, the Company was not in compliance with certain of the coverage ratio terms of the Loan Agreement. Therefore, the amounts of the Company’s long-term debt associated with the GreenLake Note that would otherwise be contractually due and payable after one year are reflected on the Company’s balance sheet as current liabilities.
Interest expense recorded under the GreenLake Note was $
Debt issuance costs, net of amortization, relating to the GreenLake Note were $
Seller Notes
On November 5, 2021 the Company issued an unsecured promissory note in the amount of $
17
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
On July 30, 2021, the Company issued a $
On September 19, 2022, the parties to the Vendor Loan Agreement entered into the Third amendment, which revised the agreement to postpone the Loan Amount to be repaid on the Ordinary Maturity Date I in the amount of EUR
Maturities
The aggregate maturities of borrowings outstanding under the Company’s long-term debt obligations as of October 29, 2022 were as follows:
Seller | Real Estate | 8.5% Senior | Convertible | |||||||||||||||
Fiscal year | Notes | Financing |
| Revolving Loan |
| Unsecured Notes |
| Debt | Total | |||||||||
2022 | $ | | $ | | $ | | $ | — | $ | | $ | | ||||||
2023 | |
| |
| |
| — |
| — |
| | |||||||
2024 | |
| |
| |
| — |
| — |
| | |||||||
2025 | — |
| |
| |
| — |
| — |
| | |||||||
2026 | — |
| |
| |
| |
| — |
| | |||||||
Total amount due | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Less: unamortized debt issuance costs and debt discount | — | ( | | ( | ( | ( | ||||||||||||
Plus: unamortized debt premium | | | | — | — | | ||||||||||||
Total carrying amount of debt | $ | | $ | | $ | | $ | | $ | | $ | |
Restricted Cash
The Company is required to keep cash in a restricted account to secure letters of credit to purchase inventory as well as to secure the Company’s corporate purchasing card program. The Company had $
(7) Fair Value Measurements
GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
18
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
The valuation for the
The carrying amount of the Siena revolving loan (“as described in Note 7 – “Credit Agreements”) approximate its fair values as its variable interest rates are based on prevailing market rates, which are a Level 2 input. The carrying amounts of the GreenLake Note, GCP note, and seller notes (each as described in Note 7 – “Credit Agreements”) reasonably approximate their fair values because their interest rates are similar to market rates for similar instruments, which are Level 2 inputs.
The Company’s financial instruments are listed with their fair values below as of October 29, 2022 and January 29, 2022:
Fair Value Measurements at October 29, 2022 | |||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||
Liabilities: | |||||||||||||
Revolving loan | $ | | $ | — | $ | | $ | — | |||||
| | — | — | ||||||||||
GreenLake Note | | — | | — | |||||||||
Seller notes | | — | | — | |||||||||
GCP note | | — | | — | |||||||||
Contingent consideration | | — | — | | |||||||||
Fair Value Measurements at January 29, 2022 | |||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||
Liabilities: | |||||||||||||
Revolving loan | $ | | $ | — | $ | | $ | — | |||||
| | — | — | ||||||||||
GreenLake Note | | — | | — | |||||||||
Seller notes | | — | | — | |||||||||
Contingent consideration | | — | — | |
The Company valued the contingent consideration based on a Monte Carlo valuation method. Significant inputs used in the model includes certain financial metric growth rates, volatility rates, projections associated with the applicable contingency, the interest rate, and the related probabilities and payment structure, which are not observable in the market and are therefore considered to be Level 3 inputs.
Balance, January 29, 2022 | $ | |
Foreign currency translation adjustment | ( | |
Balance, October 29, 2022 | $ | |
(8) Shareholders’ Equity
Common Stock and Preferred Stock
The Company is authorized to issue
19
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
of directors may de-designate or 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 Loan Agreement.
Public Offerings
On June 9, 2021, the Company completed a public offering, in which the Company issued and sold
On February 18, 2021, the Company completed a public offering, in which the Company issued and sold
May 2022 Private Placement Securities Purchase Agreement
On May 11, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain purchasers (collectively, the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers: (i)
On May 16, 2022, the initial closing occurred with the issuance of
On July 22, 2022, the second closing occurred with the issuance of
The Company determined the Securities Purchase Agreement represented a forward contract to each holder (each, a “Forward Contract”). On May 11, 2022, the Company determined
Further, as of May 11, 2022, the Company determined it did not have sufficient authorized shares available for all of the equity instruments issued in connection with the SPA to be classified in stockholders’ equity. As such,
20
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
On June 14, 2022, the Company increased the number of authorized shares through the adoption of the Charter Amendment and, as such, reclassified the remaining amount of the warrant liability to stockholders’ equity.
The Company estimated the fair value of the contract liability based on a Black Scholes valuation model for Common Warrants and market price for Common Shares and Pre-Funded Warrants. The key assumptions used consist of the price of the Company’s stock, a risk-free interest rate based on the average yield of a
Warrants Outstanding
As of October 29, 2022, the Company had outstanding warrants to purchase
| Warrants |
| Warrants |
| Exercise Price |
| |||
Grant Date | Outstanding | Exercisable | (Per Share) | Expiration Date | |||||
May 2, 2019 |
| |
| | $ | |
| ||
April 17, 2020 | | | $ | | |||||
May 22, 2020 | | | $ | | |||||
June 8, 2020 | | | $ | | |||||
June 12, 2020 | | | $ | | |||||
July 11, 2020 | | | $ | | |||||
May 16, 2022 | | | $ | | |||||
July 22, 2022 | | | $ | | |||||
July 22, 2022 | | | $ | | |||||
September 7, 2022 | | | $ | |
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
Stock Compensation Plans
The Company’s 2020 Equity Incentive Plan ("2020 Plan") provides for the issuance of up to
21
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
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
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 $
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 2022 | |
Expected volatility: |
| |
Expected term (in years): |
| |
Risk-free interest rate: |
|
22
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
A summary of the status of the Company’s stock options outstanding as of October 29, 2022 and changes during the nine months 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 29, 2022 | | $ | |
| | $ | |
| | $ | | ||||
Granted | | $ | |
| | $ | |
| | $ | | ||||
Exercised | — | $ | — |
| | $ | |
| | $ | | ||||
Forfeited or canceled | ( | $ | |
| ( | $ | |
| | $ | | ||||
Balance outstanding, October 29, 2022 | | $ | |
| | $ | |
| | $ | | ||||
Options exercisable at October 29, 2022 | | $ | |
| | $ | |
| | $ | |
The following table summarizes information regarding stock options outstanding as of October 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 | | $ | | $ | | | $ | | $ | | ||||||||||
2011 Plan |
| | $ | |
| $ | |
| | $ | |
| $ | | ||||||
2004 Plan |
| | $ | |
| $ | |
| | $ | |
| $ | |
The weighted average grant-date fair value of options granted in the third quarter of fiscal 2022 was $
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $
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
The Company granted
23
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
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 be earned and become eligible to vest pursuant to this award can be between
The Company granted
A summary of the status of the Company’s non-vested restricted stock unit activity as of October 29, 2022 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 29, 2022 |
| | $ | |
| | $ | |
| | $ | | | $ | | |||||
Granted |
| | $ | |
| | $ | |
| | $ | | | $ | | |||||
Vested |
| | $ | |
| ( | $ | |
| — | $ | — | ( | $ | | |||||
Forfeited |
| | $ | |
| ( | $ | |
| — | $ | — | ( | $ | | |||||
Expired | ( | $ | |
| — | $ | — |
| — | $ | — | ( | $ | | ||||||
Non-vested outstanding, October 29, 2022 |
| | $ | |
| | $ | |
| | $ | | | $ | |
24
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
(9) Net Loss Per Common Share
Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic net loss per share and diluted net loss per share is as follows:
Three Months Ended | Nine Months Ended | |||||||||||
| October 29, | October 30, |
| October 29, | October 30, | |||||||
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Net loss attributable to common shares — Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
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Net loss per common share | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per common share — assuming dilution | $ | ( | $ | ( | $ | ( | $ | ( |
(a) | For the three and nine-month periods ended October 29, 2022 and October 30, 2021 the basic earnings per share computation included |
(b) | For three and nine-month periods ended October 29, 2022, there were approximately |
(10) Business Segments and Sales by Product Group
During fiscal 2021, the Company changed its reportable segments into
Entertainment Segment – The entertainment segment is comprised of its television networks, ShopHQ, ShopBulldogTV, ShopHQHealth, and 1-2-3.tv.
25
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
● | ShopHQ is the Company’s flagship, nationally distributed shopping entertainment network that offers a mix of proprietary, exclusive, and name-brand merchandise in the categories of Jewelry and Watches, Home, Beauty and Health, and Fashion and Accessories, directly to consumers 24 hours a day, 365 days a year using engaging interactive video. |
● | ShopBulldogTV, which launched in the fourth quarter of fiscal 2019, is a niche television shopping entertainment network that offers male-oriented products and services to men and to women shopping for men. |
● | ShopHQHealth, which launched in the second quarter of fiscal 2020, is a niche television shopping entertainment network that offers women and men products and services focused on health and wellness categories such as physical, mental and spiritual health, financial and motivational wellness, weight management and telehealth medical services. |
● | 1-2-3.tv, which was acquired in November 2021, is the German interactive media company with proprietary live and automated auctions with a mix of products shipped directly to customers homes. |
Each entertainment network offers engaging, interactive video programming distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunication companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online on the respective network’s digital commerce platforms that sell products which appear on the Company’s television networks as well as offer an extended assortment of online-only merchandise. These networks’ interactive video is also available on leading social platforms over-the-top (“OTT”) platforms and ConnectedTV platforms (“CTV”) such as Roku, AppleTV, and Samsung connected televisions, mobile devices, including smartphones and tablets.
Consumer Brands Segment – The consumer brands segment is comprised of C&B and JW.
● | Christopher & Banks – The Company’s flagship consumer brand, C&B was founded in 1956 and is a brand that specializes in offering women’s value-priced apparel and accessories that cater to women of all sizes, from petite to missy to plus sizes. Its internally designed, modern and comfortable apparel and accessories provide customers with an exclusive experience. The brand was acquired by us from Hilco Capital in March 2021. C&B’s omni-channel business model includes digital advertising driven online revenue, five brick and mortar retail stores, direct-to-consumer catalogs and a growing wholesaling business driven primarily by C&B’s television programming on our entertainment networks. |
● | J.W. Hulme Company – JW was founded in 1905 and is an iconic brand offering men and women high quality accessories made by craftswomen and craftsmen the world over. The brand was acquired by the Company in 2019. JW’s omni-channel business model includes one brick and mortar retail stores, direct-to-consumer catalogs, digital advertising driven online revenue and a growing wholesaling business driven primarily by JW’s television programming on our entertainment networks. |
Media Commerce Services Segment – The media commerce services segment is comprised of iMedia Digital Services.
● | iMedia Digital Services – The Company’s flagship media commerce service brand is iMDS, which is a digital advertising platform specializing in engaging shopping enthusiasts online and in OTT marketplaces. iMDS’s suite of services includes its Retail Media Exchange (“RME”) and value-added services (“VAS”). iMDS’s growth strategy is driven by its ability to differentiate its advertising platform by offering solutions that include our first-party shopping enthusiast data created continually by our entertainment and consumer brand segments. iMDS is primarily comprised of Synacor’s Portal and Advertising business, which the Company acquired in July of 2021. iMDS includes Float Left (“FL”), an OTT SaaS app platform that offers media and consumer brands the digital tools they need to deliver engaging television experiences to their audiences within the OTT and ConnectedTV ecosystems. FL offers custom, natively built solutions for Roku, Fire TV, Apple TV, Web, iOS and Android Mobile, and various smart TVs. |
The Company does not allocate assets between the segments for its internal management purposes, and as such, they are not presented here. There were no significant inter-segment sales or transfers during the first nine months of fiscal 2022 and fiscal 2021.
26
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
The Company allocates corporate support costs (such as finance, human resources, warehouse management and legal) to its operating segments based on their estimated usage and based on how the Company manages the business.
Net Sales by Segment and Significant Product Groups
Three Months Ended | Nine Months Ended | |||||||||||
October 29, |
| October 30, | October 29, |
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2022 | 2021 | 2022 | 2021 | |||||||||
Entertainment: | ||||||||||||
Jewelry & Watches | $ | | $ | | $ | $ | ||||||
Health, Beauty & Wellness | | | ||||||||||
Home | | | ||||||||||
Fashion & Accessories | | | ||||||||||
Other (primarily shipping & handling revenue) | | | ||||||||||
Total entertainment revenues | $ | | $ | | $ | | $ | | ||||
Consumer Brands: | ||||||||||||
Fashion & Accessories | $ | | $ | | $ | $ | ||||||
Home | — | | ||||||||||
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Other (primarily shipping & handling revenue) | | | | |||||||||
Total consumer brand revenues | $ | | $ | | $ | | $ | | ||||
Media Commerce Services: | ||||||||||||
Advertising & Search | | | | | ||||||||
Total media commerce services revenues | $ | | $ | | $ | | $ | | ||||
Total consolidated revenues | $ | | $ | | $ | | $ | | ||||
27
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
Performance Measures by Segment
Media | ||||||||||||
Consumer | Commerce |
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Entertainment | Brands | Services | Consolidated | |||||||||
Three Months Ended October 29, 2022: |
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Net Sales | $ | | $ | | $ | | $ | | ||||
Gross Margin | | | | | ||||||||
Operating Income (loss) | ( | | | ( |
(11) Income Taxes
As of January 29, 2022, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B preferred stock held by GE Capital Equity Investments, Inc. Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company’s ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited. In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOLs could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOLs. The Company currently has recorded a full valuation allowance for its net deferred tax assets. The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date. On July 13, 2015, the Company entered a Shareholder Rights Plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a
28
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $
(12) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, consumer protection and regulatory matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company’s operations or consolidated financial statements.
(13) Related Party Transactions
Relationship with Sterling Time, Famjams, Invicta Watch Company of America, Retailing Enterprises, and WRNN
On June 9, 2021, the Company entered into a Confidential Vendor Exclusivity Agreement (the “Famjams Agreement”) with Famjams Trading LLC (“Famjams”), one of the Company's
Pursuant to the Famjams Agreement, the Company agreed to issue to Famjams $
The Company also agreed, pursuant to the Famjams Agreement, provided cash of $
Additionally on June 9, 2021, iMedia Brands, Inc. entered into a Confidential Vendor Exclusivity Agreement (the “IWCA Agreement”) with Invicta Watch Company of America, Inc. (“IWCA”), one of the Company's
29
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
Pursuant to the IWCA Agreement, the Company agreed to issue to IWCA $
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 shares of the Company’s common stock and issued warrants to purchase shares of the Company’s common stock in a private placement. Details of the common stock and warrant purchase agreement are described in Note 8 - "Shareholders’ Equity." The purchasers consist of the following: Invicta Media Investments, LLC, Michael and Leah Friedman and Hacienda Jackson LLC. Invicta Media Investments, LLC purchased
On August 28, 2020, Invicta Media Investments, LLC purchased
On April 7, 2021, the Company entered into a network affiliation agreement with WRNN-TV Associates Limited Partnership (“WRNN”), an affiliate of Mr. French, a director of the Company. The Company agreed to program the Company’s 24/7 English language shopping programming on all nine of WRNN’s current full power broadcast stations during the term. The Company pays an annual minimum affiliate fee and an annual performance fee for the affiliation rights.
Transactions with Sterling Time
The Company purchased products from Sterling Time, an affiliate of Mr. Friedman, a director of the Company, in the aggregate amount of $
Transactions with Retailing Enterprises
As of October 29, 2022 and January 29, 2022, the Company had a net trade receivable balance owed by Retailing Enterprises, LLC of $
Transactions with Famjams Trading
The Company purchased products from Famjams Trading LLC ("Famjams Trading"), an affiliate of Mr. Friedman, a director of the Company, in the aggregate amount of $
30
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
October 29, 2022, and January 29, 2022, the Company had a net trade receivable balance owed by Famjams Trading of $
Transactions with TWI Watches
The Company purchased products from TWI Watches LLC ("TWI Watches"), an affiliate of Mr. Friedman, a director of the Company, in the aggregate amount of $
Transactions with The Hub Marketing Services, LLC
The Company received marketing services from The Hub Marketing Services, LLC, an affiliate of Mr. Lalo, a director of the Company, in exchange for payments in the aggregate amount of $
Transactions with WRNN-TV
The Company purchased channel placement rights from WRNN in the aggregate amount of $
(14) Restructuring Costs
During the third quarter of fiscal 2022, the Company implemented an additional cost optimization initiative. As a result of the third quarter fiscal 2022 cost optimization initiative, the Company recorded restructuring charges of $
The following table summarizes the significant components and activity under the restructuring program for the nine-month period ended October 29, 2022:
Balance at | Balance at | |||||||||||
January 29, 2022 | Charges | Cash Payments | October 29, 2022 | |||||||||
Severance | $ | | $ | | $ | ( | $ | | ||||
Other incremental costs | — | | ( | | ||||||||
$ | | $ | | $ | ( | $ | | |||||
For the nine-month period ended October 29, 2022, the Company recognized restructuring charges of $
The liability for restructuring accruals is included in accrued liabilities within the accompanying condensed consolidated balance sheets.
31
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
(15) Business Acquisitions - Divestitures
Acquisitions
1-2-3.tv Group
On November 5, 2021, the Company and its wholly-owned subsidiary iMedia &1-2-3.tv Holding GmbH (the “Subsidiary”) closed on the acquisition of 1-2-3.tv Group from Emotion Invest GmbH & Co. KG, BE Beteiligungen Fonds GmbH & Co. geschlossene Investmentkommanditgesellschaft and Iris Capital Fund II (collectively, the “1-2-3.tv Sellers”).
At the closing of the acquisition, the Company acquired 1-2-3.tv Group from the Sellers for an aggregate purchase price of EUR
The acquisition of 1-2-3.tv was accounted for in accordance with ASC 805-10 “Business Combinations”. The allocation of the purchase price was based upon a valuation, and the Company’s estimates and assumptions of the assets acquired, and liabilities assumed.
Purchase accounting with respective to tangible assets acquired and liabilities assumed have been completed, the total consideration of $
| Fair Value | ||
Cash and cash equivalents | $ | | |
Accounts receivable, net |
| | |
Inventory | | ||
Prepaid expenses | | ||
Fixed assets | | ||
Goodwill | | ||
Identifiable intangible assets acquired: |
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Developed technology | | ||
Customer lists and relationships | | ||
Trademarks and trade names | | ||
Liabilities assumed |
| ( | |
Total consideration | $ | |
Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed. Goodwill amounted to $
During the first quarter ended April 30, 2022, the Company made certain adjustments to the preliminary price allocation made as of January 29, 2022 to better reflect the price allocated to goodwill and the identifiable intangible assets acquired. The Company
32
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
determined these adjustments after additional analysis and assessment of the valuation methodologies. Subsequent to these adjustments, the Company’s purchase price allocation was finalized as of October 29, 2022.
The 1-2-3.tv Sellers may receive additional consideration from the Subsidiary, if earned, in the form of earn-out payments in the amount of up to EUR
Supplemental Pro Forma Information
1-2-3.tv had sales of approximately $
The unaudited proforma information below, as required by GAAP, assumes that the 1-2-3.tv Group had been acquired at the beginning of fiscal 2022 and includes the effect of transaction accounting adjustments. These adjustments include the amortization of acquired intangible assets, depreciation of the fair value step-up of acquired property, plant and equipment, amortization of inventory fair value step-up (assumed to be fully amortized in fiscal 2022) in connection with the acquisition.
This unaudited proforma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have resulted had the acquisition been in effect at the beginning of fiscal 2021. In addition, the unaudited proforma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.
The following table presents proforma net sales and net loss data assuming 1-2-3.tv was acquired at the beginning of fiscal 2021:
| Three Months Ended | Nine Months Ended | ||||
October 30, 2021(a) | October 30, 2021(a) | |||||
Net sales | $ | | $ | | ||
Net loss |
| ( |
| ( |
(a) The above proforma information is presented for the 1-2-3.tv acquisition as it is considered a material acquisition.
Synacor’s Portal and Advertising Business
On July 30, 2021, the Company closed on the acquisition of Synacor’s Portal and Advertising business segment. This acquisition allows the Company to leverage its interactive video expertise and national television promotional power, as well as its merchandising, customer solutions and fulfillment capabilities, to offer advertisers and consumer brands differentiated digital services that the Company believes will accelerate its timeline to become the leading single-source partner to advertisers seeking to use interactive video to drive growth. Synacor’s Portal and Advertising, which iMedia has combined with its business Float Left, has been renamed to iMDS. iMDS is a leading video advertising platform monetizing 200+ million monthly users for its publishers by utilizing its proprietary technologies, first-party customer shopping data and interactive video services to drive engagement, traffic and conversion.
The acquisition of the Portal and Advertising business was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $
33
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
assumed liabilities with a fair value of $
Based on the valuation, the total consideration of $
| Fair Value | ||
Accounts receivable and prepaids | $ | | |
Fixed assets |
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Right of use asset | | ||
Goodwill | | ||
Identifiable intangible assets acquired: |
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Developed technology | | ||
Customer lists and relationships | | ||
Liabilities assumed |
| ( | |
Total consideration | $ | |
Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $
Christopher & Banks
C&B is a specialty brand of privately branded women's apparel and accessories. The C&B brand was previously owned by Christopher & Banks Corporation, which filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in January 2021. On March 1, 2021, the Company entered into a licensing agreement with ReStore Capital, a Hilco Global company, whereby the Company will operate the C&B business throughout all sales channels, including digital, television, catalog, and brick and mortar retail, effective March 1, 2021. The Company also purchased certain assets related to the C&B eCommerce business, including primarily inventory, furniture, equipment, and certain intangible assets. The Company launched a new weekly C&B television program on its ShopHQ network, which will also promote the brand’s website, christopherandbanks.com, its
On March 1, 2021, the Company acquired all the assets of Christopher & Banks, LLC. The acquisition of Christopher & Banks, LLC was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $
34
iMEDIA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 29, 2022
(Dollars in thousands, except share and per share information)
(Unaudited)
The final total consideration of $
| Fair Value | ||
Inventory | $ | | |
Fixed assets |
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Goodwill | | ||
Identifiable intangible assets acquired: |
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Developed technology | | ||
Customer lists and relationships | | ||
Liabilities assumed |
| ( | |
Total consideration | $ | |
Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $
Non-controlling Interests
Non-controlling interests (“NCI”) represent equity interests owned by outside parties. NCI may be initially measured at fair value or at the NCI’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made on a transaction-by-transaction basis. iMedia elected to measure each NCI at its proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The share of net assets attributable to NCI are presented as a component of equity. Their share of net income or loss and comprehensive income or loss is recognized directly in equity. Total comprehensive income or loss of subsidiaries is attributed to the shareholders of the Company and to the NCI, even if this results in the NCI having a deficit balance. Due to the divestiture, the Company no longer has NCI.
Divestitures
The Closeout.com
In June 2022, the Company completed the divestiture of its
(16) Subsequent Events
Sale-Leaseback Transaction
The Company received a Letter of Intent (“LOI”) in November 2022 from a real estate investment firm for the purchase of
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended January 29, 2022. The amounts are presented in thousands, except share amounts, unless otherwise noted.
Cautionary Statement Concerning Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact, including statements regarding guidance and the expected impact of cost initiatives, industry prospects or future results of operations or financial position are forward-looking. We often use words such as "anticipates," "believes," "estimates," "expects," "intends," "predicts," "hopes," "should," "plans," "will" and similar expressions to identify forward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): the impact of the COVID-19 pandemic on our sales, operations and supply chain, variability in consumer preferences, shopping behaviors, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales and sales promotions; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor and shipping relationships and develop key partnerships and proprietary and exclusive brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facility covenants; customer acceptance of our branding strategy and our repositioning as a video commerce company; our ability to respond to changes in consumer shopping patterns and preferences, and changes in technology and consumer viewing patterns; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements, including without limitation, regulations of the Federal Communications Commission and Federal Trade Commission, and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant events (including disasters, weather events or events attracting significant television coverage) that either cause an interruption of television coverage or that divert viewership from our programming; disruptions in our distribution of our network broadcast to our customers; our ability to protect our intellectual property rights; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; expenses relating to the actions of activist or hostile shareholders; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits of television programming; and the risks identified under “Risk Factors” in our most recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our Company
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. We believe our growth strategy builds on our core strengths.
36
During fiscal 2021, we began reporting based on three reportable segments:
● | Entertainment, which is comprised of our television networks, ShopHQ, ShopBulldogTV, ShopHQHealth, and 1-2-3.tv. |
● | Consumer Brands, which is comprised of C&B, and JW. |
● | Media Commerce Services, which is comprised of iMDS. |
The corresponding current and prior period segment disclosures have been recast to reflect the current segment presentation.
Our Corporate Website
Our iMedia Brands corporate website is imediabrands.com and our Nasdaq trading symbols are IMBI and IMBIL. Our annual report is filed as our Form 10-K. We issue quarterly reports on Form 10-Q and our current third quarter press release is filed on Form 8-K. Proxy and information statements, and amendments to these reports if applicable, are available, without charge, in the investor relations section of our corporate website, imediabrands.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Copies also are available, without charge, by contacting our Legal Department, iMedia Brands, Inc., 6740 Shady Oak Road, Eden Prairie, Minnesota 55344-3433.
Our goal is to maintain the investor relations section of our corporate website as a way for investors to easily find information about us, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. The information found on our corporate website is not part of this or any other report we file with, or furnish to, the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically.
Summary Results for the Third quarter of Fiscal 2022
Consolidated net sales for our fiscal 2022 third quarter were $123,264 compared to $130,681 for our fiscal 2021 third quarter, which represents a 5.7% decrease. We reported an operating loss of $15,265 and a net loss of $21,298 for our fiscal 2022 third quarter. We reported an operating loss of $6,002 and a net loss of $9,492 for our fiscal 2021 third quarter.
Consolidated net sales for the first nine months of fiscal 2022 were $411,042 compared to $357,325 for the first nine months of fiscal 2021, which represents an 15.0% increase. We reported an operating loss of $30,619 and a net loss of $46,300 for the first nine months of fiscal 2022. The operating and net loss for the first nine months of fiscal 2022 included transaction, settlement and integration costs totaling $14,905, a loss on debt extinguishment of $884, and restructuring costs of $4,490. We reported an operating loss of $10,423 and a net loss of $17,252 for the first nine months of fiscal 2021. The operating and net loss for the first nine months of fiscal 2021 included transaction, settlement and integration costs totaling $5,757; a loss on debt extinguishment of $663; and restructuring costs of $634.
Entertainment Segment
The entertainment segment is comprised of its television networks, ShopHQ, ShopBulldogTV, ShopHQHealth and 1-2-3.tv.
● | ShopHQ is the Company’s flagship, nationally distributed shopping entertainment network that offers a mix of proprietary, exclusive, and name-brand merchandise in the categories of Jewelry and Watches, Home, Beauty and Health, and Fashion and Accessories, directly to consumers 24 hours a day, 365 days a year using engaging interactive video. |
● | ShopBulldogTV, which launched in the fourth quarter of fiscal 2019, is a niche television shopping entertainment network that offers male-oriented products and services to men and to women shopping for men. |
● | ShopHQHealth, which launched in the second quarter of fiscal 2020, is a niche television shopping entertainment network that offers women and men products and services focused on health and wellness categories such as physical, mental and spiritual health, financial and motivational wellness, weight management and telehealth medical services. |
● | 1-2-3.tv, which was acquired in November 2021, is the leading German interactive media company, disrupting Germany's TV retailing marketplace with its expertise in proprietary live and automated auctions that emotionally engage customers with 1-2-3.tv's balanced merchandising mix of compelling products shipped directly to their homes. |
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Each entertainment network offers engaging, interactive video programming distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunication companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online on the respective network’s digital commerce platforms that sell products which appear on the Company’s television networks as well as offer an extended assortment of online-only merchandise. These networks’ interactive video is also available on leading social platforms over-the-top (“OTT”) platforms and ConnectedTV platforms (“CTV”) such as Roku, AppleTV, and Samsung connected televisions, mobile devices, including smartphones and tablets. The following table shows our Entertainment reporting segment merchandise mix as a percentage of net sales for the periods indicated.
For the Three Months Ended | For the Nine Months Ended | |||||||||||
October 29, |
| October 30, | October 29, |
| October 30, | |||||||
Entertainment: | 2022 | 2021 | 2022 | 2021 | ||||||||
Jewelry & Watches | 33.7 | % | 36.4 | % | 36.2 | % | 39.3 | % | ||||
Health, Beauty & Wellness | 21.0 | % | 25.7 | % | 19.6 | % | 23.9 | % | ||||
Home | 21.7 | % | 15.1 | % | 18.4 | % | 13.7 | % | ||||
Fashion & Accessories | 12.6 | % | 12.8 | % | 14.8 | % | 12.6 | % | ||||
Other (primarily shipping & handling revenue) | 10.9 | % | 10.1 | % | 11.1 | % | 10.6 | % | ||||
Total entertainment net sales | 100 | % | 100 | % | 100 | % | 100 | % |
Consumer Brands Segment
The consumer brands segment is comprised of Christopher & Banks (“C&B”), and J.W. Hulme Company (“JW”).
● | Christopher & Banks – The Company’s flagship consumer brand, C&B, was founded in 1956 and is a brand that specializes in offering women’s value-priced apparel and accessories that cater to women of all sizes, from petite to missy to plus sizes. Its internally designed, modern and comfortable apparel and accessories provide customers with an exclusive experience. The brand was acquired by us in partnership with Hilco Capital in March 2021. C&B’s omni-channel business model includes digital advertising driven online revenue, five brick and mortar retail stores, direct-to-consumer catalogs and a growing wholesaling business driven primarily by C&B’s television programming on our entertainment networks. |
● | J.W. Hulme Company – JW was founded in 1905 and is an iconic brand, offering men and women high-quality accessories made by craftswomen and craftsmen the world over. The brand was acquired by the Company in 2019. JW’s omni-channel business model includes one brick and mortar retail store, direct-to-consumer catalogs, digital advertising driven online revenue and a growing wholesaling business driven primarily by JW’s television programming on our entertainment networks. |
For the Three Months Ended | For the Nine Months Ended | |||||||||||
October 29, |
| October 30, | October 29, |
| October 30, | |||||||
Consumer Brands: | 2022 | 2021 | 2022 | 2021 | ||||||||
Fashion & Accessories | 98.7 | % | 83.5 | % | 91.5 | % | 83.2 | % | ||||
Home | — | % | 13.9 | % | 5.5 | % | 15.4 | % | ||||
Jewelry & Watches | 0.2 | % | 0.5 | % | 0.6 | % | 0.9 | % | ||||
Other (primarily shipping & handling revenue) | 1.1 | % | 2.0 | % | 2.4 | % | 0.6 | % | ||||
Total consumer brand net sales | 100 | % | 100 | % | 100 | % | 100 | % |
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Media Commerce Services Segment
The media commerce services segment is comprised of iMedia Digital Services (“iMDS”).
● | iMedia Digital Services – The Company’s flagship media commerce service brand is iMDS, which is a digital advertising platform specializing in engaging shopping enthusiasts online and in OTT marketplaces. iMDS’s suite of services includes its Retail Media Exchange (“RME”) and value-added services (“VAS”). iMDS’s growth strategy is driven by its ability to differentiate its advertising platform by offering solutions that include our first-party shopping enthusiast data created continually by our entertainment and consumer brand segments. iMDS is primarily comprised of Synacor’s Portal and Advertising business, which the Company acquired in July of 2021. Additionally, iMDS offers, custom, natively built solutions for Roku, Fire TV, Apple TV, Web, iOS and Android Mobile, and various smart TVs. |
The following table shows our Media Commerce Services reporting segment merchandise mix as a percentage of net sales for the periods indicated.
For the Three Months Ended | For the Nine Months Ended | |||||||||||
October 29, |
| October 30, | October 29, |
| October 30, | |||||||
Media Commerce Services: | 2022 | 2021 | 2022 | 2021 | ||||||||
Advertising & Search | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Total media commerce services net sales | 100 | % | 100 | % | 100 | % | 100 | % |
Results of Operations
Selected Condensed Consolidated Financial Data
Operations
Dollar Amount as a | Dollar Amount as a | |||||||||
Percentage of Net Sales for the | Percentage of Net Sales for the | |||||||||
Three Months Ended | Nine Months Ended | |||||||||
| October 29, |
| October 30, |
|
| October 29, |
| October 30, |
| |
2022 | 2021 | 2022 | 2021 | |||||||
Net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Gross margin |
| 41.8 | % | 41.6 | % |
| 39.2 | % | 41.5 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Distribution and selling |
| 28.6 | % | 30.1 | % |
| 28.0 | % | 30.5 | % |
General and administrative |
| 17.2 | % | 8.2 | % |
| 10.9 | % | 6.9 | % |
Depreciation and amortization |
| 7.1 | % | 7.5 | % |
| 6.7 | % | 6.9 | % |
Restructuring costs |
| 1.3 | % | 0.5 | % |
| 1.1 | % | 0.2 | % |
Total operating expenses |
| 54.2 | % | 46.2 | % |
| 46.7 | % | 44.5 | % |
Operating loss |
| (12.4) | % | (4.6) | % |
| (7.4) | % | (2.9) | % |
Consolidated Net Sales
Consolidated net sales, inclusive of shipping and handling revenue, for the fiscal 2022 third quarter were $123,264, a 5.7% decrease from consolidated net sales of $130,681 for the comparable prior year quarter. Consolidated net sales, inclusive of shipping and handling revenue, for the first nine months of fiscal 2022 were $411,042, a 15.0% increase from consolidated net sales of $357,325 for the comparable prior year period.
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Gross Profit
For the Three Months Ended | ||||||||||||
| October 29, |
| October 30, |
| ||||||||
2022 | 2021 | Change | % Change |
| ||||||||
Entertainment | $ | 42,649 | $ | 44,396 | $ | (1,747) | (3.9) | % | ||||
Consumer Brands |
| 5,399 |
| 6,617 |
| (1,218) | (18.4) | % | ||||
Media Commerce Services | 3,462 | 3,408 | 54 | 1.6 | % | |||||||
Consolidated gross profit | $ | 51,510 | $ | 54,421 | $ | (2,911) | (5.3) | % | ||||
For the Nine Months Ended | ||||||||||||
October 29, |
| October 30, |
| |||||||||
2022 | 2021 | Change | % Change |
| ||||||||
Entertainment | $ | 135,080 | $ | 129,032 | $ | 6,048 | 4.7 | % | ||||
Consumer Brands |
| 16,153 |
| 14,693 |
| 1,460 | 9.9 | % | ||||
Media Commerce Services | 10,027 | 4,689 | 5,338 | 113.8 | % | |||||||
Consolidated gross profit | $ | 161,260 | $ | 148,414 | $ | 12,846 | 8.7 | % |
Consolidated gross profit for the third quarter of fiscal 2022 was $51,510 a decrease of $2,911, or 5.3%, compared to the third quarter of fiscal 2021. The Entertainment segment’s gross profit decreased $1,747, or 3.9% compared to the third quarter of fiscal 2021 and was primarily driven by the 4.1% decrease in net sales and lower gross profit rates in the Home product category due to the promotional pricing to sell-thru the Shaq branded merchandise. The Consumer Brands segment’s gross profit decreased by $1,218, or 18.4% compared to the third quarter of fiscal 2021 and was primarily driven by the 30.8% decrease in new sales and the lower gross profit rates in fiscal 2022. During 2021, the Company was able to purchase Christopher & Banks merchandise at favorable prices. The Media Commerce Services segment’s gross profit increased by $54, or 1.6% compared to the third quarter of fiscal 2021 and was primarily driven by the 9.7% sales increase.
Consolidated gross margin percentages for the third quarters of fiscal 2022 and fiscal 2021 were 41.8% and 41.6%, which represent a 14-basis point increase. The Entertainment segment’s gross margin percentages for the third quarters of fiscal 2022 and fiscal 2021 were 42.2% and 42.1%, which represents a 7-basis point increase. Sales mix is impacting the gross margin rate. The Consumer Brands segment’s gross margin percentages for the third quarters of fiscal 2022 and fiscal 2021 were 56.9% and 48.3%, which represent an 862-basis point increase. The increase in the gross margin percentage is primarily due to moderation of promotional pricing, including shipping promotions. The Media Commerce Services segment’s gross margin percentages for the third quarters of fiscal 2022 and fiscal 2021 were 27.4% and 29.6%. Sales mix is impacting gross margin rate due to blending the lower-margin rates from iMDS.
Consolidated gross profit for the first nine months of fiscal 2022 was $161,260, an increase of $12,846, or 8.7%, compared to the first nine months of fiscal 2021. The Entertainment segment’s gross profit increased $6,048, or 4.7% compared to the first nine months of fiscal 2021 and was primarily driven by the November 2021 acquisition of 1-2-3.tv. The Consumer Brands segment’s gross profit increased by $1,460, or 9.9% compared to the first nine months of fiscal 2021 and was primarily driven by the March 2021 acquisition of Christopher & Banks. The Media Commerce Services segment’s gross profit increased by $5,338, or 113.8% compared to the first nine months of fiscal 2021 and was primarily driven by the July 2021 acquisition of iMDS.
Consolidated gross margin percentages for the nine months of fiscal 2022 and fiscal 2021 were 39.2% and 41.5%, which represent a 230-basis point decrease. The Entertainment segment’s gross margin percentages for the nine months of fiscal 2022 and fiscal 2021 were 39.5% and 42.1%, which represent a 255-basis point decrease. Sales mix is impacting the gross margin rate due to blending the historical lower gross margin rates of 1-2-3.tv into the Entertainment segment. Gross margin rates for 1-2-3.tv, which was acquired in November 2021, are less than the aggregate gross margin rate for the Entertainment segment compared to the prior year. The Consumer Brands segment’s gross margin percentages for the nine months of fiscal 2022 and fiscal 2021 were 49.5% and 50.3% which represent a 74-basis point decrease. The decrease in the gross margin percentage reflects the one-time favorable gross margin rates in 2021 due to the discounted Christopher & Bank’s inventory purchased in 2021. The Media Commerce Services segment’s gross margin percentages for the nine months of fiscal 2022 and fiscal 2021 were 27.2% and 32.1%, which represents a 489-basis point increase. Sales mix is impacting gross margin rate and was primarily due to blending the lower-margin rates from iMDS.
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Operating Expenses
Total operating expenses for the fiscal 2022 third quarter were approximately $66,775 compared to $60,423 for the comparable prior year period, an increase of 10.5%. Total operating expenses as a percentage of net sales were 54.2% during the third quarter of fiscal 2022, compared to 46.2% during the comparable prior year period of fiscal 2021. Total operating expenses for the fiscal 2022 third quarter and the fiscal 2021 third quarter included transaction, settlement and integration costs of $11,793 and $3,835, as well as restructuring costs of $1,551 and $634, respectively. Additionally, during the third quarter of 2022, the Company amended and terminated a license agreement. The purpose of terminating the license agreement was to eliminate marginally profitable business. As a result of terminating the license agreement, the Company recognized a non-recurring charge of $8,067 in operating expenses (total charge is $9,941, of which $1,874 relates to inventory write-downs) in the third quarter of 2022.
Total operating expenses for the first nine months of fiscal 2022 were approximately $191,879 compared to $158,837 for the comparable prior year period, an increase of 20.8%. Total operating expenses for the first nine months of fiscal 2022 included transaction, settlement and integration costs of $14,905 and restructuring costs of $4,490. Total operating expenses for the first nine months of fiscal 2021 included transaction, settlement and integration costs of $5,757 and restructuring costs of $634.
Distribution and selling expense decreased $4,041, or 10.3%, to $35,261, or 28.6% of net sales during the fiscal 2022 third quarter compared to $39,302, or 30.1% of net sales for the comparable prior year fiscal quarter. The decrease in distribution and selling during fiscal 2022 third quarter is primarily attributable to lower television program distribution costs for our TV networks.
Distribution and selling expense increased $6,243, or 5.7%, to $115,150, or 28.0% of net sales during the first nine months of fiscal 2022 compared to $108,907, or 30.5% of net sales for the comparable prior year period. The increase in distribution and selling during fiscal 2022 during the first nine months of fiscal 2021 is attributable to the November 2021 acquisition of 1-2-3.tv and increase in television program distribution costs due to the increase in carriers and the related increased household distribution.
To the extent that our average selling price changes, our variable expense as a percentage of net sales could be impacted as the number of our shipped units change. Television program distribution expense is primarily a fixed cost per household. However, this expense may be impacted by changes in the number of average homes, channels reached or by rate changes associated with changes in our channel position with carriers.
General and administrative expense for the fiscal 2022 third quarter increased $10,439, or 97.1%, to $21,185 or 17.2% of net sales, compared to $10,746 or 8.2% of net sales for the comparable prior year fiscal quarter. The increase in general and administrative expenses during fiscal 2022 third quarter is primarily attributable to terminating a license agreement. The Company recognized a non-recurring charge of $8,067 in general and administrative expenses (total charge is $9,941, of which $1,874 relates to inventory write-downs) in the general and administrative expense for the third quarter of 2022, in addition to the increase in general and administrative expenses from the acquisition of 1-2-3.tv.
General and administrative expense for the first nine months of fiscal 2022 increased $20,249, or 82.4%, to $44,818 or 10.9% of net sales, compared to $24,569 or 6.9% of net sales for the comparable prior year period. For the first nine months of fiscal 2022, the increase in general and administrative expenses is primarily attributable to terminating a license agreement. The Company recognized a non-recurring charge of $8,067 in general and administrative expenses (total charge is $9,941, of which $1,874 relates to inventory write-downs) in the general and administrative expense for the nine months of fiscal 2022, in addition to the increase in general and administrative expenses from the acquisitions of 1-2-3.tv and iMDS.
Depreciation and amortization expense for the fiscal 2022 third quarter decreased $963, or 9.9%, to $8,778 compared to $9,741 for the comparable prior year period. Depreciation and amortization expense as a percentage of net sales for the third quarters of fiscal 2022 and fiscal 2021 was 7.1% and 7.5%. The decrease in depreciation and amortization expense for the third quarter of fiscal 2022 was primarily due to lower broadcast rights amortization, offset by increases in amortization expense generated from the 2021 acquisitions, including, 1-2-3.tv, iMDS and Christopher & Banks.
Depreciation and amortization expense for the first nine months of fiscal 2022 amounted to $27,421, an increase of $2,694, or 10.9%, compared to $24,727 for the same prior year period. Depreciation and amortization expense as a percentage of net sales for the first nine months of fiscal 2022 and 2021 was 6.7% and 6.9%. The increase in depreciation and amortization expense for the third quarter
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of fiscal 2022 was primarily due to the incremental depreciation and an increase in amortization expense generated from the 2021 acquisitions, including, 1-2-3.tv, iMDS and Christopher & Banks, partially offset by lower broadcast rights amortization.
Restructuring Costs
During the second quarter of fiscal 2022, the Company implemented cost savings initiatives. As a result of the second quarter fiscal 2022 cost optimization initiative, the Company recorded restructuring charges of $4,490 for the nine-month period ended October 29, 2022, which relate primarily to severance associated with the additional consolidation and elimination of positions across all the Company’s reportable segments. These initiatives were substantially complete and $882 remains unpaid as of October 29, 2022.
During the third quarter of fiscal 2022, the Company implemented an additional cost optimization initiative. As a result of the third quarter fiscal 2022 cost optimization initiative, the Company recorded restructuring charges of $3,552 and $938 for the nine-month period ended October 29, 2022, which relate primarily to severance associated with the additional consolidation and elimination of positions across certain of the Company’s reportable segments and the restructuring associated with the 1-2-3.tv Group, respectively. These initiatives were substantially complete as of October 29, 2022.
Operating Loss
For the fiscal 2022 third quarter, we reported an operating loss of approximately $15,265 compared to operating loss of $6,002 for the fiscal 2021 third quarter. The Entertainment segment reported an operating loss of $19,271, Consumer Brands segment reported operating income of $2,100, and Media Commerce Services segment reported operating income of $1,906 for the fiscal 2022 third quarter compared to operating loss of $6,824 for the Entertainment segment, and operating income of $364 for Consumer Brands segment, and an operating income of $458 for Media Commerce Services segment for the fiscal 2021 third quarter. For the third quarter of fiscal 2022, Entertainment segment’s operating loss increased primarily as a result of net sales declines from ShopHQ and terminating a license agreement. The Company recognized a non-recurring charge of $8,067 in operating expenses (total charge is $9,941, of which $1,874 relates to inventory write-downs) in the third quarter of fiscal 2022. The Consumer Brands segment’s operating income increased during the fiscal 2022 third quarter primarily from lower transition costs compared to those incurred in 2021. The Media Commerce Services segment’s operating income increased during the fiscal 2022 first quarter primarily driven by the profitable sales growth of iMDS, which was acquired in July 2021.
For the nine months ended October 29, 2022, we reported an operating loss of approximately $30,619 compared to an operating loss of $10,423 for the comparable prior year period. The Entertainment, Consumer Brands, and Media Commerce Services segments reported an operating loss of $41,395, operating income of $6,550, and operating income of $4,226 for the nine months ended October 29, 2022, compared to operating losses of $11,636, operating income of $882 and operating income of $331 for the nine months ended October 30, 2021. The Entertainment segment’s operating loss increased primarily as a result of net sales declines from ShopHQ and terminating a license agreement. The Company recognized a non-recurring charge of $8,067 in operating expenses (total charge is $9,941, of which $1,874 relates to inventory write-downs) during the nine months ended October 29, 2022. The Consumer Brands segment’s operating income increased primarily from the 11.6% increase in net sales driven by the March 2021 acquisition of Christopher & Banks. The Media Commerce Services segment’s operating income increased primarily driven by the profitable sales growth of iMDS, which was acquired in July 2021.
Interest Expense
Net interest expense for the fiscal 2022 third quarter increased $2,552, or 73.6%, to $6,018 compared to $3,466 for the comparable prior year period. The increase is attributable to a higher average debt balance during the current year and increasing interest rates.
Net interest expense for the first nine months of fiscal 2022 increased $9,581, or 156.5%, to $15,702 compared to $6,121 for the comparable prior year period. The increase is attributable to a higher average debt balance during the current year and increasing interest rates.
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Effect of Foreign Exchange Rates
In November of 2021, we acquired a foreign subsidiary, 1-2-3.tv, which reports its financial information in Euros. For the nine-months ended October 29, 2022, we recognized foreign translation adjustments of $8,715, which is part of other comprehensive income. Below is a summary of changes in foreign exchange rates for fiscal 2022 and 2021:
October 29, | January 29, | |||||||
2022 | 2022 | |||||||
Foreign Exchange Rate (USD / Euro) - Closing | $ | 0.996 | $ | 1.115 | ||||
% Change from prior year | (10.7) | % |
The average exchange rate was $0.996 for the three months ended October 29, 2022.
Net Loss
For the fiscal 2022 third quarter, we reported a net loss of $21,298, or ($0.72) per share, on 29,415,680 weighted average basic common shares outstanding compared with net loss of $9,492, or ($0.44) per share, on 21,503,340 weighted average basic common shares outstanding in the fiscal 2021 third quarter. The net loss for the third quarter of fiscal 2022 included transaction, settlement and integrations costs included in general and administrative expenses totaling $11,793, net interest expense of $6,018, and restructuring costs of $1,551. The net loss for the third quarter of fiscal 2021 included transaction, settlement and integrations costs totaling $3,835, net interest expense of $3,466, and restructuring costs of $634.
The net loss for the first nine months of fiscal 2022 was $46,300 compared to a net loss of $17,252 for the comparable prior year period, an increase of 168.4%. Net loss for fiscal 2022 included transaction, settlement and integrations costs totaling $14,905, net interest expense of $15,702, loss on debt extinguishment of $884, and restructuring costs of $4,490. The net loss for the first nine months of fiscal 2021 included net interest expense of $6,121, transaction, settlement and integrations costs totaling $5,757, loss on debt extinguishment of $663, and restructuring costs of $634. For the third quarters of fiscal 2022 and fiscal 2021, the net loss reflects an income tax provision of ($15). For the first nine months of fiscal 2022 and fiscal 2021 the net loss reflects an income tax provision of ($47) and ($45), respectively. The income tax provision for these periods relates to state income taxes payable on certain income for which there is no loss carryforward benefit available. We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be realized in the future.
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Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the third quarter of fiscal 2022 was $8,647 compared to Adjusted EBITDA of $10,093 for the fiscal 2021 third quarter. For the nine-month period ended October 29, 2022, Adjusted EBITDA was $22,917 compared with $26,541 for the comparable prior year period.
A reconciliation of the comparable GAAP measure, net loss, to Adjusted EBITDA follows, in thousands:
Three Months Ended | Nine Months Ended | |||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net loss attributable to shareholders | $ | (21,298) | $ | (9,492) | $ | (45,885) | $ | (16,970) | ||||
Adjustments: |
|
|
|
|
|
|
|
| ||||
TV broadcast rights amortization | 6,617 | 7,926 | 19,689 | 19,121 | ||||||||
Depreciation and amortization (a) |
| 2,999 |
| 2,751 |
| 10,358 |
| 8,444 | ||||
Interest income and other |
| (20) |
| (85) |
| (230) |
| (124) | ||||
Interest expense |
| 6,038 |
| 3,551 |
| 15,932 |
| 6,245 | ||||
Income taxes |
| 15 |
| 15 |
| 47 |
| 45 | ||||
EBITDA (b) | $ | (5,649) | $ | 4,666 | $ | (89) | $ | 16,761 | ||||
A reconciliation of EBITDA to Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
| ||||
EBITDA (b) | $ | (5,649) | $ | 4,666 | $ | (89) | $ | 16,761 | ||||
Adjustments: |
|
|
|
|
|
|
|
| ||||
Transaction, settlement and integration costs, net (c) |
| 11,793 |
| 3,835 |
| 14,905 |
| 5,757 | ||||
Non-cash share-based compensation expense | 952 | 949 | 3,061 | 2,385 | ||||||||
Loss on debt extinguishment | — |
| 9 |
| 884 |
| 663 | |||||
Inventory impairment write-down | — | — | 618 | — | ||||||||
Change in fair value of contract liability, net |
| — |
| — |
| (1,937) |
| — | ||||
Loss on divestiture |
| — |
| — |
| 985 |
| — | ||||
Restructuring Costs |
| 1,551 |
| 634 |
| 4,490 |
| 634 | ||||
Other |
| — |
| — |
| — |
| 341 | ||||
Adjusted EBITDA (b) | $ | 8,647 | $ | 10,093 | $ | 22,917 | $ | 26,541 |
(a) | Includes distribution facility depreciation of $838 and $2,626 and $936 and $2,997 for the three and nine-month periods ended October 29, 2022, and October 30, 2021. Distribution facility depreciation is included as a component of cost of sales within the accompanying condensed consolidated statements of operations. Includes amortization expense related to the television broadcast rights totaling $6,617 and $19,689 and $7,926 and $19,121. |
(b) | EBITDA as defined for this statistical presentation represents net loss for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding non-operating gains (losses); transaction, settlement and integration costs; restructuring costs; non-cash impairment charges and write downs; one-time customer concessions; loss on debt extinguishment; executive and management transition costs; rebranding costs; and non-cash share-based compensation expense. |
(c) | Transaction, settlement and integration costs, net for the three and nine-month period ended October 29, 2022 include transaction and integration costs related primarily to terminating a license agreement. The Company recognized a non-recurring charge of $9,941 ($1,874 relates to inventory write-downs) during the third quarter of fiscal 2022 and to the C&B, iMDS and 1-2-3.tv business acquisitions. Transaction, settlement and integration costs, net, for the three and nine-month period ended October 30, 2021 include consulting fees incurred to explore additional loan financings, settlement costs, and incremental COVID-19 related legal costs. |
We use "Adjusted EBITDA" to adequately assess the operating performance of our video and digital businesses and to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows
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investors to make a meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under our management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income (loss), net income (loss) or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.
Results of Operations – Reporting Segments
The following table sets forth, for the periods indicated, certain statement of operations data for each segment:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | |||||||||||||||||
Net Sales | ||||||||||||||||||||||||
Entertainment | $ | 101,150 | 82 | % | $ | 105,468 | 81 | % | $ | 341,612 | 83 | % | $ | 313,497 | 88 | % | ||||||||
Consumer Brands | 9,493 | 8 | % | 13,713 | 10 | % | 32,621 | 8 | % | 29,234 | 8 | % | ||||||||||||
Media Commerce Services | 12,621 | 10 | % | 11,500 | 9 | % | 36,809 | 9 | % | 14,594 | 4 | % | ||||||||||||
Total net sales | $ | 123,264 | 100 | % | $ | 130,681 | 100 | % | $ | 411,042 | 100 | % | $ | 357,325 | 100 | % | ||||||||
Gross Margin | ||||||||||||||||||||||||
Entertainment | $ | 42,649 | 83 | % | $ | 44,396 | 82 | % | $ | 135,080 | 84 | % | $ | 129,032 | 87 | % | ||||||||
Consumer Brands | 5,399 | 10 | % | 6,617 | 12 | % | 16,153 | 10 | % | 14,693 | 10 | % | ||||||||||||
Media Commerce Services | 3,462 | 7 | % | 3,408 | 6 | % | 10,027 | 6 | % | 4,689 | 3 | % | ||||||||||||
Total gross margin | $ | 51,510 | 100 | % | $ | 54,421 | 100 | % | $ | 161,260 | 100 | % | $ | 148,414 | 100 | % | ||||||||
Operating Loss | ||||||||||||||||||||||||
Entertainment | $ | (19,271) | 126 | % | $ | (6,824) | 114 | % | $ | (41,395) | 135 | % | $ | (11,636) | 112 | % | ||||||||
Consumer Brands | 2,100 | (14) | % | 364 | (6) | % | 6,550 | (21) | % | 882 | (8) | % | ||||||||||||
Media Commerce Services | 1,906 | (12) | % | 458 | (8) | % | 4,226 | (14) | % | 331 | (3) | % | ||||||||||||
Total operating loss | $ | (15,265) | 100 | % | $ | (6,002) | 100 | % | $ | (30,619) | 100 | % | $ | (10,423) | 100 | % |
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Entertainment Segment
The entertainment segment is comprised of our television networks: ShopHQ, ShopBulldogTV, ShopHQHealth, and 1-2-3.tv. The following table summarizes net sales by product category and other information from statements of operations for the entertainment segment:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Entertainment: | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | ||||||||||||||||
Jewelry & Watches | $ | 34,080 | 33.7 | % | $ | 38,343 | 36.4 | % | $ | 123,515 | 36.2 | % | $ | 123,216 | 39.3 | % | ||||||||
Health, Beauty & Wellness | 21,269 | 21.0 | % | 27,070 | 25.7 | % | 66,787 | 19.6 | % | 74,773 | 23.9 | % | ||||||||||||
Home | 21,953 | 21.7 | % | 15,918 | 15.1 | % | 62,887 | 18.4 | % | 42,837 | 13.7 | % | ||||||||||||
Fashion & Accessories | 12,774 | 12.6 | % | 13,471 | 12.8 | % | 50,514 | 14.8 | % | 39,591 | 12.6 | % | ||||||||||||
Other (primarily shipping & handling revenue) | 11,074 | 10.9 | % | 10,666 | 10.1 | % | 37,909 | 11.1 | % | 33,080 | 10.6 | % | ||||||||||||
Total entertainment revenues | $ | 101,150 | 100.0 | % | $ | 105,468 | 100.0 | % | $ | 341,612 | 100.0 | % | $ | 313,497 | 100.0 | % | ||||||||
Gross margin | $ | 42,649 | 42.2 | % | $ | 44,396 | 42.1 | % | $ | 135,080 | 39.5 | % | $ | 129,032 | 41.2 | % | ||||||||
Operating loss | $ | (19,271) | (19.1) | % | $ | (6,824) | (6.5) | % | $ | (41,395) | (12.1) | % | $ | (11,636) | (3.7) | % |
Entertainment net sales decreased $4,318 or 4.1% for the third quarter of fiscal 2022 when compared to the previous fiscal third quarter. For 2022, the decrease in net sales was primarily due to sales growth from the November 2021 acquisition of 1-2-3.tv, offset by decreases in ShopHQ sales resulting from carriage disruption during the third quarter.
Entertainment net sales increased $28,115 or 9.0% for the first nine months of fiscal 2022 when compared to the previous fiscal nine-month period. For 2022, the increase in net sales was primarily due to sales growth from the November 2021 acquisition of 1-2-3.tv, partially offset by decreases in ShopHQ sales resulting from carriage disruption during the third quarter.
Entertainment gross margin percentage was 42.2% and 42.1% for the third quarter of fiscal 2022 and 2021, respectively. For 2022, the 7-basis point increase was primarily attributable to actions implemented to increase the average sale prices (“ASPs”) for 1-2-3.tv. Gross margin rates for 1-2-3.tv, which was acquired in November 2021, have been historically less than the aggregate gross margin rate for the Entertainment segment compared to the prior year.
Entertainment gross margin percentage was 39.5% and 42.1% for the first nine months of fiscal 2022 and 2021, respectively. For 2022, the 255-basis point decrease was primarily attributable to blending the lower gross margin rates of 1-2-3.tv into the Entertainment segment. Gross margin rates for 1-2-3.tv, which was acquired in November 2021, have been historically less than the aggregate gross margin rate for the Entertainment segment compared to the prior year.
Entertainment operating loss as a percentage of net sales was (19.1)% and (6.5)% for the third quarter of fiscal 2022 and 2021, respectively. For 2022, the Entertainment segment’s operating loss as a percentage of sales increased primarily as a result of net sales declines from ShopHQ, the margin rate change described above and the charge relating to the termination of a license agreement. The purpose of terminating the license agreement was to eliminate marginally profitable business. As a result of terminating the license agreement, the Company recognized a non-recurring charge of $9,941 ($1,874 relates to inventory write-down).
Entertainment operating loss as a percentage of net sales was (12.1)% and (3.7)% for the first nine months of fiscal 2022 and 2021, respectively. For 2022, the Entertainment segment’s operating loss as a percentage of sales increased primarily as a result of net sales declines from ShopHQ, the margin rate change described above and the charge relating to termination of a license agreement. The purpose of terminating the license agreement was to eliminate marginally profitable business. As a result of terminating the license agreement, the Company recognized a non-recurring charge of $9,941 ($1,874 relates to inventory write-down).
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Consumer Brands Segment
The consumer brands segment is comprised of C&B, and JW. The following table summarizes net sales by product category and other information from statements of operations for the consumer brands segment:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Consumer Brands: | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | ||||||||||||||||
Fashion & Accessories | $ | 9,368 | 98.7 | % | $ | 11,456 | 83.5 | % | $ | 29,838 | 91.5 | % | $ | 24,325 | 83.2 | % | ||||||||
Home | — | — | % | 1,914 | 14.0 | % | 1,807 | 5.5 | % | 4,467 | 15.3 | % | ||||||||||||
Jewelry & Watches | 16 | 0.2 | % | 75 | 0.5 | % | 195 | 0.6 | % | 276 | 0.9 | % | ||||||||||||
Other (primarily shipping & handling revenue) | 109 | 1.1 | % | 268 | 2.0 | % | 781 | 2.4 | % | 166 | 0.6 | % | ||||||||||||
Total consumer brands revenues | $ | 9,493 | 100.0 | % | $ | 13,713 | 100.0 | % | $ | 32,621 | 100.0 | % | $ | 29,234 | 100.0 | % | ||||||||
Gross margin | $ | 5,399 | 56.9 | % | $ | 6,617 | 48.3 | % | $ | 16,153 | 49.5 | % | $ | 14,693 | 50.3 | % | ||||||||
Operating income (loss) | $ | 2,100 | 22.1 | % | $ | 364 | 2.7 | % | $ | 6,550 | 20.1 | % | $ | 882 | 3.0 | % |
Consumer brands net sales for the consumer brands segment decreased $4,220 or 30.8% for the third quarter of fiscal 2022 when compared to the comparable prior year period. For 2022, the decrease in net sales was primarily due to divested businesses in the second quarter and sales decreases in Christopher & Banks.
Consumer brands net sales for the consumer brands segment increased $3,387 or 11.6% for the first nine months of fiscal 2022, when compared to the comparable prior year period. For 2022, the increase in net sales was primarily due to the March 2021 acquisition of Christopher & Banks, partially offset by businesses divested in the second quarter.
Consumer brands gross margin percentage was 56.9% and 48.3% for the third quarter of fiscal 2022 and 2021, respectively. For fiscal 2022, the 862-basis point increase in the gross margin percentage is primarily due to moderation of promotional pricing, including shipping promotions.
Consumer brands gross margin percentage was 49.5% and 50.3% for the first nine months of fiscal 2022 and 2021, respectively. For fiscal 2022, the 74-basis point decrease in gross margin percentage is from lower margins compared to the one-time favorable gross margin in 2021 due to the discounted merchandise purchased in 2021. During 2021, the Company was able to purchase “closeout” Christopher & Banks merchandise, separate from the acquisition, at favorable prices.
Consumer brands operating income as a percentage of sales was 22.1% and 2.7% for the third quarter of fiscal 2022 and 2021, respectively. The increase in operating income as a percentage of sales in 2022 was primarily attributable to lower transition costs relating to the 2021 acquisition of Christopher & Banks.
Consumer brands operating income as a percentage of sales was 20.1% and 3.0% for the first nine months of fiscal 2022 and 2021, respectively. The increase in operating income as a percentage of sales in 2022 was primarily attributable to the increase in net sales due to the 2021 acquisition of Christopher & Banks and lower transition costs relating to the 2021 acquisition of Christopher & Banks.
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Media Commerce Services Segment
The media commerce services segment is comprised of iMDS and FL. The following table summarizes net sales by product category and other information from statements of operations for the media commerce services segment:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Media Commerce Services: | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | Amount | % of Rev | ||||||||||||||||
Advertising & Search | $ | 12,621 | 100.0 | % | $ | 11,500 | 100.0 | % | $ | 36,809 | 100.0 | % | $ | 14,594 | 100.0 | % | ||||||||
Total media commerce services revenues | $ | 12,621 | 100.0 | % | $ | 11,500 | 100.0 | % | $ | 36,809 | 100.0 | % | $ | 14,594 | 100.0 | % | ||||||||
Gross margin | $ | 3,462 | 27.4 | % | $ | 3,408 | 29.6 | % | $ | 10,027 | 27.2 | % | $ | 4,689 | 32.1 | % | ||||||||
Operating income (loss) | $ | 1,906 | 15.1 | % | $ | 458 | 4.0 | % | $ | 4,226 | 11.5 | % | $ | 331 | 2.3 | % | ||||||||
Media commerce services net sales increased $1,121 or 9.7% for the third quarter of fiscal 2022 when compared to the previous fiscal quarter. For 2022, the increase in net sales was primarily due to both customer growth and increases in advertising.
Media commerce services net sales increased $22,215 or 152.2% for the first nine months of fiscal 2022 when compared to the previous nine months of fiscal 2021. For 2022, the increase in net sales was primarily due to the July 2021 acquisition of iMDS.
Media commerce services gross margin percentage was 27.4% and 29.6% for the third quarter of 2022 and 2021, respectively. For fiscal 2022, the 220-basis point decrease was primarily due to blending the lower-margin rates from iMDS.
Media commerce services gross margin percentage was 27.2% and 32.1% for the first nine months of 2022 and 2021, respectively. For fiscal 2022, the 489-basis point decrease was primarily due to blending the lower-margin rates from iMDS.
Media commerce services operating income as a percentage of net sales was 15.1% and 4.0% of sales for the third quarter of fiscal 2022 and 2021, respectively. For 2022, the increase in operating income as a percentage of sales is primarily due to the profitable sales growth of iMDS which was acquired in July 2021 and lower transition costs relating to the 2021 acquisition of iMDS.
Media commerce services operating income as a percentage of net sales was 11.5% and 2.3% of sales for the first nine months of fiscal 2022 and 2021, respectively. For 2022, the increase in operating income as a percentage of sales is primarily due to the profitable sales growth of iMDS, which was acquired in July 2021 and lower transition costs relating to the 2021 acquisition of iMDS.
Critical Accounting Policies and Estimates
A discussion of the critical accounting policies, estimates, and assumptions are discussed in detail in our annual report on Form 10-K for the fiscal year ended January 29, 2022 under the caption entitled "Critical Accounting Policies and Estimates."
Recently Issued Accounting Pronouncements
See Note 2 - “Basis of Financial Statement Presentation” in the notes to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Financial Condition, Liquidity and Capital Resources
As of October 29, 2022, we had cash and restricted cash of $10,571. In addition, under the revolving loan under the Loan Agreement, we are required to maintain a minimum of $10,000 of unrestricted cash plus unused line availability at all times. We are currently in discussions to amend the terms of the Loan Agreement which, among other things, would amend the minimum cash requirement. As of January 29, 2022, we had cash of $13,188. For the first nine months of fiscal 2022, working capital decreased $109,616 to ($37,508) (see "Cash Requirements" below for additional information on changes in working capital accounts). The current ratio (our total current assets over total current liabilities) was 0.9 at October 29, 2022 and 1.4 at January 29, 2022.
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The Company is required to keep cash in a restricted account in order to maintain letters of credit to both purchase inventory as well as secure the Company’s corporate purchasing card program. Any interest earned is recorded in that period. The Company had $1,500 in restricted cash accounts as of October 29, 2022.
8.50% Senior Unsecured Notes
On September 28, 2021, we sold and issued $80,000 aggregate principal amount of 8.50% Senior Unsecured Notes due 2026 (the “2026 Notes”) in an underwritten public offering. The 2026 Notes pay interest quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2021, at a rate of 8.50% per year, and are scheduled to mature on September 30, 2026. The 2026 Notes were issued in denominations of $25.00 and are listed on The Nasdaq Stock Market, LLC under the symbol “IMBIL”.
The net proceeds from the offering were approximately $73,700, after deducting the underwriting discount and estimated offering expenses payable by the Company (including fees and reimbursements to the underwriters). The Company used all of the net proceeds to fund its acquisition of 1-2-3.tv Group.
The 2026 Notes are senior unsecured obligations of the Company. There is no sinking fund for the 2026 Notes. The Company may redeem the 2026 Notes for cash in whole or in part at any time at its option (i) on or after September 30, 2023 and prior to September 30, 2024, at a price equal to $25.75 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after September 30, 2024 and prior to September 30, 2025, at a price equal to $25.50 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iii) on or after September 30, 2025 and prior to maturity, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding, the date of redemption. The Indenture provides for events of default that may, in certain circumstances, lead to the outstanding principal and unpaid interest of the 2026 Notes becoming immediately due and payable. If a Mandatory Redemption Event (as defined in the Supplemental Indenture) occurs, the Company will have an obligation to redeem the 2026 Notes, in whole but not in part, within 45 days after the occurrence of the Mandatory Redemption Event at a redemption price in cash equal to $25.50 per note plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. The compliance or noncompliance with covenants in the Loan Agreement does not affect the 2026 Notes. See Note 6.
Revolving Loan
On July 30, 2021, we entered into a loan and security agreement (as amended through September 20, 2021, the “Loan Agreement”) with Siena Lending Group LLC and the other lenders party thereto from time to time, Siena Lending Group LLC, as agent (the “Agent”), and certain additional subsidiaries of the Company, as guarantors thereunder. The Loan Agreement has a three-year term and provides for up to a $80,000 revolving loan. Subject to certain conditions, the Loan Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5,000 which, upon issuance, would be deemed advances under the revolving loan. Proceeds of borrowings were used to refinance all indebtedness owing to PNC Bank, National Association, to pay the fees, costs, and expenses incurred in connection with the Loan Agreement and the transactions contemplated thereby, for working capital purposes, and for such other purposes as specifically permitted pursuant to the terms of the Loan Agreement. Our obligations under the Loan Agreement are secured by substantially all of its assets and the assets of its subsidiaries as further described in the Loan Agreement.
Subject to certain conditions, borrowings under the Loan Agreement bear interest at 4.50% plus the London interbank offered rate for deposits in dollars (“LIBOR”) for a period of 30 days as published in The Wall Street Journal three business days prior to the first day of each calendar month. As of May 27, 2022, LIBOR was replaced with the Secured Overnight Financing Rate (“SOFR”) under the Loan Agreement. The original terms included a floor of 0.50% under LIBOR, which remained applicable following the transition to SOFR.
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions. In addition, the Loan Agreement places restrictions on our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to shareholders. We also pay a monthly fee at a rate equal to 0.50% per annum of the average daily unused amount of the credit facility for the previous month.
As of October 29, 2022, the Company had total borrowings of $63,786 under its revolving loans with Siena. Remaining available capacity under the revolving loan as of October 29, 2022 was approximately $1,839. As of October 29, 2022, the Company was not in
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compliance with the net senior debt leverage ratio and minimum liquidity covenant of the Loan 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.
GreenLake Real Estate Finance
On July 30, 2021, two of our subsidiaries, VVI Fulfillment Center, Inc. and EP Properties, LLC (collectively, the “Borrowers”), and the Company, as guarantor, entered into that certain Promissory Note Secured by Mortgages (the “GreenLake Note”) with GreenLake Real Estate Finance LLC (“GreenLake”) whereby GreenLake agreed to make a secured term loan (the “Term Loan”) available to the Borrowers in the original amount of $28,500 The GreenLake Note is secured by, among other things, mortgages encumbering the Company’s owned properties in Eden Prairie, Minnesota and Bowling Green, Kentucky (collectively, the “Mortgages”) as well as other assets as described in the GreenLake Note. Proceeds of borrowings were used to (i) pay fees and expenses related to the transactions contemplated by the GreenLake Note, (ii) make certain payments approved by GreenLake to third parties, and (iii) provide for working capital and general corporate purposes of the Company. We have also pledged the stock that we own in the Borrowers to secure its guarantor obligations.
The GreenLake Note is scheduled to mature on July 31, 2024. The borrowings, which include all amounts advanced under the GreenLake Note, bear interest at 10.00% per annum or, at the election of the Lender upon no less than 30 days prior written notice to the Borrowers, at a floating rate equal to the prime rate plus 200 basis points.
The GreenLake Note contains customary representations and warranties and financial and other covenants and conditions, including, a requirement that the Borrowers comply with all covenants set forth in the Loan Agreement described above. The GreenLake Note also contains certain customary events of default.
As of October 29, 2022 and as of the date of this report, the Company was not in compliance with certain of the coverage ratio terms of its revolving credit facility. Therefore, the amounts of the Company’s long-term debt associated with the GreenLake Note that would otherwise be contractually due and payable after one year are reflected on the Company’s balance sheets as current liabilities.
Public Equity Offering
On June 9, 2021, we completed a public offering, in which we 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. We intend to use the proceeds for general working capital purposes, including, without limitation, potential acquisitions of businesses and assets that are complementary to our operations.
On February 18, 2021, we completed a public offering, in which we issued and sold 3,289,000 of our 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. We have used and intend to use the proceeds for general working capital purposes.
Private Placement Securities Purchase Agreement
On May 11, 2022, iMedia Brands, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers identified on the signature pages to the Purchase Agreement (collectively, the “Purchasers”) pursuant to which, among other things, the Company agreed to issue and sell to the Purchasers, in a registered direct offering (the “Offering”), an aggregate of 7,801,303 shares of common stock or pre-funded warrants to purchase common stock, each of which is coupled with a warrant to purchase one share of common stock. In more detail, the Company agreed to issue and sell to the Purchasers: (i) 4,136,001 shares of its common stock, at an offering price of $3.07 per share (the “Shares”), (ii) pre-funded warrants to purchase up to 3,763,022 shares of its common stock at an offering price of $3.0699 per pre-funded warrant (the “Pre-Funded Warrants”), which represents the per share offering price of its common stock less the $0.0001 per share exercise price for each pre-funded warrant and (iii) warrants to purchase up to 7,899,023 shares of its common stock, with a per share exercise price of $2.94 (the “Common Warrants”). Of these securities, 97,720 Shares and 97,720 Common Warrants are being purchased by Craig-Hallum Capital Group LLC (the “Placement Agent”) at a purchase price of $3.07. The purchase agreement was treated as a forward contract with a corresponding contract liability as the Company would be in excess of its authorized shares and did not meet the requirements for equity treatment. On June 14, 2022 the board
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authorized 20,000,000 in additional shares and the Company reassessed the contract liability and determined it met the criteria for equity treatment. The contract liability was reclassified to equity with a change in fair value of recorded to the Consolidated Statement of Operations of $1,937.
Each Pre-Funded Warrant has an exercise price of $0.0001 per share of common stock, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, became exercisable immediately upon issuance and will survive until it is exercised in full.
Each Common Warrant has an exercise price of $2.94 per share of common stock, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be exercisable at any time.
Other
Our ValuePay program is an installment payment program which allows customers to pay by credit card for certain merchandise in two or more equal monthly installments. Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment program. However, any such change to the terms of our ValuePay installment program could impact future sales, particularly for products sold with higher price points. Please see "Cash Requirements" below for a discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers to the extent possible, with related cash payments to our vendors. ValuePay remains a cost-effective promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facility. As of October 29, 2022, we had contractual cash obligations and commitments primarily with respect to our cable and satellite agreements, credit facility, operating leases, and capital leases totaling approximately $234,829 over the next five fiscal years.
Our ability to fund operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in our sales and to use available funds from our Siena Credit Facility. Our ability to borrow funds is dependent on our ability to maintain an adequate borrowing base and our ability to meet our credit facility’s covenants (as described above). Accordingly, if we do not generate sufficient cash flow from operations to fund our working capital needs, planned capital expenditures and meet credit facility covenants, and our cash reserves are depleted, we may need to take further actions that are within the Company’s control, such as further reductions or delays in capital investments, additional reductions to our workforce, reducing or delaying strategic investments or other actions.
For the nine months ended October 29, 2022, net cash used for operating activities totaled $18,591 compared to net cash used for operating activities of $48,857 for the comparable fiscal 2021 period. Net cash used for operating activities for the fiscal 2022 and 2021 periods reflects a net loss, as adjusted for depreciation and amortization, share-based payment compensation, amortization of deferred financing costs, payments for television broadcast rights, and other non-case costs, such as debt extinguishment, loss of divestitures, change in fair value contract liability and contract separation charges.
In addition, net cash used for operating activities for the nine months ended October 29, 2022 reflects decreases in accounts payable and accrued liabilities, accounts receivable, inventories and deferred revenue and increases in prepaid expenses. Inventories decreased as we optimize working capital. Accounts receivable decreased during the first nine months of fiscal 2022 due to collections on
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outstanding receivables resulting from our seasonal high fourth quarter. Accounts payable and accrued liabilities decreased during the first nine months of fiscal 2022 primarily due to the timing of paying for cable distribution fees and inventory purchases. Prepaid expenses and other increased primarily due to prepayment for cloud services.
Net cash used for investing activities totaled $7,163 for the first nine months ended October 29, 2022 was comprised entirely of property and equipment additions of $7,163. For the nine months ended October 30, 2021, net cash used in investing activities totaled $36,747 was comprised primarily of the $3,500 Christopher and Banks acquisition payment, $20,000 for iMDS business acquisition payment, $6,000 Famjams note funding, and property and equipment additions of $7,247. Capital expenditures made during the periods presented relate primarily to expenditures made for development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems; related computer equipment, digital broadcasting equipment, and other office equipment; warehouse equipment, production equipment and building improvements. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility in Bowling Green, Kentucky; security upgrades to our information technology; the upgrade of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives.
Net cash provided by financing activities totaled $23,000 for the nine months ended October 29, 2022 and related primarily to proceeds from the issuance of common stock and warrants of $20,761, proceeds from the proceeds from the issuance of the convertible debt of $9,980, and proceeds on the revolving loan of $3,570. Net cash used for financing activities included $3,000 payments on the seller notes and $7,500 payments on the convertible debt. For the first nine months ended October 30, 2021, net cash provided by financing activities totaled $123,639 and related primarily to proceeds from the issuance of long-term bonds of $80,000, proceeds from the issuance of common stock and warrants of $61,368 and proceeds from our PNC revolving loan of $56,736, and proceeds on the real estate financing loan of $28,500. Net cash used for financing activities included primarily $77,736 for payments on our revolving loans, $12,440 for payments on our PNC term loan, and $11,180 payments on deferred financing costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective because of our previously reported material weakness in our internal control over financial reporting arising from an accumulation of significant deficiencies which amounted to material weaknesses, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended January 29, 2022 (the “2021 Form 10-K”).
Remediation of Material Weaknesses
We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that significant deficiencies contributing to the material weaknesses are remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the previously reported material weaknesses in internal control over financial reporting, described in Part II, Item 9A of the 2021 Form 10-K, which includes steps to increase dedicated personnel,
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improve reporting processes, design and implement new controls, and enhance related supporting technology. We expect to be in a position to determine that some or all of the material weaknesses have been remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control Over Financial Reporting
As outlined above, due to the identification of the material weaknesses, we continued to strengthen our internal control structure by adding accounting staff, adjusting segregation of duties, adding additional levels of review, and adding technical support. We made no other changes in internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended October 29, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Control Systems
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdown can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, employment, intellectual property and consumer protection matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, is reasonably expected to have a material adverse effect on our operations or consolidated financial statements.
ITEM 1A. RISK FACTORS
See Part I. Item 1A., "Risk Factors," of the Company’s annual report on Form 10-K for the year ended January 29, 2022, for a detailed discussion of the risk factors affecting the Company. Other than as set forth below, we have not identified any material changes from the risk factors described in the annual report.
Our expansion to international markets subjects us to a variety of risks that may harm our business.
As a result of the acquisition of the 1-2-3.tv, our operations have expanded to international markets, including Germany and Austria, which exposes us to significant new risks. 1-2-3.tv operates in Germany and Austria, which requires significant resources and management attention and subjects us to legislative, judicial, accounting, regulatory, economic, and political risks in addition to those we already faced in the United States. These include:
● | the need to successfully adapt and localize products and policies for specific countries, including obtaining rights to third-party intellectual property used in each country; |
● | successfully adapting and localizing products and policies for specific countries, including obtaining rights to third-party intellectual property used in each country; |
● | complying with compliance with laws such as the Foreign Corrupt Practices Act and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws prohibiting improper payments to government officials and requiring the maintenance of accurate books and records and a system of sufficient internal controls; |
● | complying with increased financial accounting and reporting burdens and complexities; |
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● | inflationary pressures, such as those the global market is currently experiencing, which may increase costs for materials, supplies, and services; |
● | fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; |
● | challenges and costs associated with staffing and managing foreign operations; |
● | unstable political and economic conditions, social unrest or economic instability, whatever the cause, including due to pandemics, natural disasters, wars, terrorist attacks, tariffs, trade disputes, local or global recessions, diplomatic or economic tensions, environmental risks, and security concerns, in general or in a specific country or region in which we operate; |
● | the ongoing conflict in Ukraine and Eastern Europe may lead to disruption in the global supply chain, rising fuel costs, or cybersecurity risks, and economic instability generally, any of which could materially and adversely affect our business and results of operations; and |
● | complying with local laws, regulations, and customs in other jurisdictions; complying with increased financial accounting and reporting burdens and complexities; planning for fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and political or social unrest or economic instability, terrorist attacks and security concerns in general in a specific country or region in which we operate. |
The occurrence of any one of these risks could negatively affect our international business and, consequently, our results of operations generally. Additionally, operating in international markets also requires significant management attention and financial resources. Specifically, such an occurrence could create a triggering event that would require us to review goodwill and intangible assets for impairment and the potential full or partial write-down of those balances. We cannot be certain that the investment and additional resources required in establishing, acquiring, or integrating operations in other countries will produce desired levels of revenues or profitability.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 7, 2022, the Company and Shaq agreed to amend the terms of the ABG-Shaq, LLC Agreement to terminate the license agreement (the “Termination”). The Termination involved an issuance of warrants to ABG-Shaq, LLC (the “Shaq Warrants”). The Shaq Warrants have a fixed value of $500,000 with an exercise price equal to the Company’s closing share price on September 7, 2022. Additionally, the warrants vest in two equal parts on November 20, 2022, and February 1, 2023, and are exercisable for 5 years following issuance. The Shaq Warrants were issued pursuant to the exemptions from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and the rules and regulations thereunder.
Dividends
We are restricted from paying dividends on our common stock by the Loan Agreement with Siena Lending Group LLC, as discussed in Note 7 - “Credit Agreements” in the notes to our condensed consolidated financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit No. |
| Description |
| Manner of Filing |
3.1 | Fourth Amended and Restated Articles of Incorporation, as amended through July 13, 2020 | Incorporated by reference | ||
3.2 | Incorporated by reference | |||
3.3 | Incorporated by reference | |||
4.1 | Incorporated by reference | |||
4.2 | Incorporated by reference | |||
4.3 | Incorporated by reference | |||
4.4 | Filed herewith | |||
4.5 | Third Amendment to the Vendor Loan Agreement, dated September 19, 2022 | Filed herewith | ||
31.1 | Filed herewith | |||
31.2 | Filed herewith | |||
32 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | Filed herewith | ||
101 | The following materials from iMedia Brands, Inc.’s Quarterly Report on Form 10-Q for the fiscal period ended July 30, 2022, as filed with the Security and Exchange Commission, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operation; (iii) Condensed Consolidated Statements of Shareholders’ Equity; (iv) Condensed Consolidated Statement of Cash Flows; and (v) the Notes to the Condensed Consolidated Financial Statements | Filed herewith | ||
104 | Cover Page Interactive Data File (embedded within the inline XBRL) | Filed herewith |
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