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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2021

OR

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37495

Graphic

iMedia Brands, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

   

41-1673770

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

6740 Shady Oak Road, Eden Prairie, MN 55344-3433

(Address of Principal Executive Offices, including Zip Code)

952-943-6000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

IMBI

Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of September 1, 2021 there were 21,530,811 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

July 31, 2021

Part I. Financial Information

Page

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of July 31, 2021 and January 30, 2021

3

Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended July 31, 2021 and August 1, 2020

4

Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month and Six-Month Periods Ended July 31, 2021 and August 1, 2020

5

Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended July 31, 2021 and August 1, 2020

6

Notes to Condensed Consolidated Financial Statements as of July 31, 2021

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

44

Item 4. Controls and Procedures

44

Part II. Other Information

44

Item 1. Legal Proceedings

44

Item 1A. Risk Factors

44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3. Defaults Upon Senior Securities

45

Item 4. Mine Safety Disclosures

45

Item 5. Other Information

45

Item 6. Exhibits

46

Signatures

47

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PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

July 31,

    

January 30,

2021

2021

(In thousands, except share and 

per share data)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

20,918

$

15,485

Restricted Cash

2,192

Accounts receivable, net

 

64,324

 

61,951

Inventories

 

76,735

 

68,715

Current portion of television broadcast rights, net

24,972

19,725

Prepaid expenses and other

 

15,027

 

7,853

Total current assets

 

204,168

 

173,729

Property and equipment, net

 

44,593

 

41,988

Television broadcast rights, net

46,234

7,028

Intangible assets and goodwill, net

36,915

2,359

Other assets

 

12,936

 

1,533

TOTAL ASSETS

$

344,846

$

226,637

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

58,535

$

77,995

Accrued liabilities

 

31,816

 

29,509

Current portion of television broadcast rights obligations

29,441

29,173

Current portion of long term credit facility

 

 

2,714

Current portion of operating lease liabilities

 

1,036

 

462

Deferred revenue

 

679

 

213

Total current liabilities

 

121,507

 

140,066

Long term broadcast rights liability

 

49,779

 

7,358

Other long term liabilities

14,378

1,497

Long term credit facility

 

73,919

 

50,666

Total liabilities

 

259,583

 

199,587

Commitments and contingencies

 

  

 

  

Shareholders' equity:

 

  

 

  

Preferred stock, $0.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding

 

 

Common stock, $0.01 per share par value, 29,600,000 shares authorized as of July 31, 2021 and January 30, 2021; 21,254,414 and 13,019,061 shares issued and outstanding as of July 31, 2021 and January 30, 2021

 

212

 

130

Additional paid-in capital

 

536,835

 

474,375

Accumulated deficit

 

(454,932)

 

(447,455)

Total shareholders’ equity

 

82,115

 

27,050

Equity of the non-controlling interest

$

3,148

$

Total equity

$

85,263

$

27,050

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

344,846

$

226,637

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

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Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three-Month

For the Six-Month

Periods Ended

Periods Ended

July 31,

August 1,

July 31,

August 1,

    

2021

    

2020

    

2021

    

2020

(In thousands, except share and per share data)

Net sales

$

113,442

$

124,515

$

226,644

$

220,349

Cost of sales

 

65,456

 

78,223

 

132,651

 

138,500

Gross profit

 

47,986

 

46,292

 

93,993

 

81,849

Operating expense:

 

  

 

  

 

  

 

  

Distribution and selling

 

35,357

 

31,875

 

69,605

 

65,610

General and administrative

 

7,387

 

5,104

 

13,822

 

10,471

Depreciation and amortization

 

7,611

 

6,842

 

14,986

 

8,723

Restructuring costs

 

 

 

 

209

Total operating expense

 

50,355

 

43,821

 

98,413

 

85,013

Operating income (loss)

 

(2,370)

 

2,471

 

(4,420)

 

(3,164)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income

 

39

 

 

39

 

1

Interest expense

 

(1,381)

 

(1,402)

 

(2,694)

 

(2,581)

Loss on debt extinguishment

 

(654)

 

 

(654)

 

Total other expense, net

 

(1,997)

 

(1,402)

 

(3,309)

 

(2,580)

Income (loss) before income taxes

 

(4,366)

 

1,069

 

(7,729)

 

(5,744)

Income tax provision

 

(15)

 

(15)

 

(30)

 

(30)

Net income (loss)

$

(4,381)

$

1,054

$

(7,759)

$

(5,774)

Less: Net loss attributable to non-controlling interest

(132)

(282)

Net income (loss) attributable to shareholders

(4,249)

1,054

(7,476)

(5,774)

Net income (loss) per common share

$

(0.23)

$

0.11

$

(0.45)

$

(0.65)

Net income (loss) per common share — assuming dilution

$

(0.23)

$

0.11

$

(0.45)

$

(0.65)

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

19,101,652

 

9,532,369

 

17,314,317

 

8,911,580

Diluted

 

19,101,652

 

9,896,729

 

17,314,317

 

8,911,580

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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

Common Stock

    

    

    

    

    

    

    

Additional 

Equity of

Total 

Number 

Paid-In 

Accumulated 

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Interest

Equity

For the Six-Month Period Ended July 31, 2021

 

(In thousands, except share data)

BALANCE, January 30, 2021

 

13,019,061

$

130

$

474,375

$

(447,455)

$

$

27,050

Net loss

 

 

 

 

(3,228)

 

(150)

 

(3,378)

Common stock issuances pursuant to equity compensation awards

 

76,341

 

1

 

(262)

 

 

 

(261)

Share-based payment compensation

 

 

 

668

 

 

 

668

Common stock and warrant issuance

 

3,289,000

 

33

 

21,191

 

 

 

21,224

Investment of non-controlling interest

3,430

3,430

BALANCE, May 1, 2021

 

16,384,402

 

164

 

495,972

 

(450,683)

 

3,280

 

48,733

Net loss

 

 

 

 

(4,249)

 

(132)

 

(4,381)

Common stock issuances pursuant to equity compensation awards

 

39,094

 

 

 

 

 

Share-based payment compensation

 

 

 

768

 

 

 

768

Common stock issuance

4,830,918

48

40,095

40,144

BALANCE, July 31, 2021

 

21,254,414

$

212

$

536,835

$

(454,932)

$

3,148

$

85,263

    

Common Stock

    

    

    

    

    

    

    

Additional 

Equity of

Total 

Number 

Paid-In 

Accumulated 

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Interest

Equity

For the Three-Month Period Ended August 1, 2020

 

(In thousands, except share data)

BALANCE, February 1, 2020

 

8,208,227

$

82

$

452,833

$

(434,221)

$

$

18,694

Net loss

 

 

 

 

(6,828)

 

 

(6,828)

Common stock issuances pursuant to equity compensation awards

 

32,652

 

1

 

(3)

 

 

 

(2)

Share-based payment compensation

 

 

 

615

 

 

 

615

Common stock and warrant issuance

 

731,937

 

7

 

1,418

 

 

 

1,425

BALANCE, May 2, 2020

 

8,972,816

 

90

 

454,863

 

(441,049)

 

 

13,904

Net loss

 

 

 

 

1,054

 

 

1,054

Common stock issuances pursuant to equity compensation awards

 

64,456

 

1

 

(6)

 

 

 

(5)

Share-based payment compensation

 

 

 

108

 

 

 

108

Common stock and warrant issuance

1,104,377

10

2,375

2,385

BALANCE, August 1, 2020

 

10,141,649

$

101

$

457,340

$

(439,995)

$

$

17,446

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

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iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Six-Month

Periods Ended

July 31,

August 1,

2021

2020

(in thousands)

OPERATING ACTIVITIES:

  

 

  

Net loss

$

(7,759)

$

(5,774)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

 

  

 

  

Depreciation and amortization

 

16,888

 

10,745

Share-based payment compensation

 

1,435

 

723

Payments for television broadcast rights

(14,055)

(1,196)

Amortization of deferred financing costs

 

93

 

98

Loss on debt extinguishment

 

654

 

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

5,183

 

5,457

Inventories

 

(2,730)

 

17,236

Deferred revenue

 

148

 

73

Prepaid expenses and other

 

(6,893)

 

1,684

Accounts payable and accrued liabilities

 

(28,992)

 

(7,773)

Net cash (used for) provided by operating activities

 

(36,028)

 

21,273

INVESTING ACTIVITIES:

 

  

 

  

Property and equipment additions

 

(5,167)

 

(2,527)

Acquisitions

(23,500)

Vendor exclusivity deposit

(6,000)

Net cash used for investing activities

 

(34,667)

 

(2,527)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from issuance of revolving loan

 

47,245

 

5,900

Proceeds from issuance of common stock

 

61,368

 

4,000

Proceeds from issuance of term loan

28,500

Payments on revolving loan

 

(41,000)

 

(18,800)

Payments on term loan

 

(12,440)

 

(1,357)

Payments for common stock issuance costs

 

 

(17)

Payments on finance leases

 

(54)

 

(49)

Payments for restricted stock issuance

 

(262)

 

(7)

Payments for deferred financing costs

 

(4,632)

 

Payments for debt extinguishment costs

 

(405)

 

Net cash provided by (used for) financing activities

 

78,320

 

(10,330)

Net increase in cash and restricted cash

 

7,625

 

8,416

BEGINNING CASH AND RESTRICTED CASH

 

15,485

 

10,287

ENDING CASH AND RESTRICTED CASH

$

23,110

$

18,703

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid

$

2,388

$

2,214

Income taxes paid

$

61

$

80

Television broadcast rights obtained in exchange for liabilities

$

55,647

$

30,633

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment purchases included in accounts payable

$

221

$

302

Other long term liability issued in exchange for acquired assets

$

10,000

$

-

Common stock issuance costs included in accrued liabilities

$

122

$

173

Equipment acquired through finance lease obligations

$

-

$

34

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

6

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2021

(Unaudited)

(1)   General

iMedia Brands, Inc. and its subsidiaries (“we,” “our,” “us,” or the “Company”) is a leading interactive media company that owns a growing portfolio of television networks, consumer brands and digital services that together position the Company as a leading single-source partner to television advertisers and consumer brands seeking to entertain and transact with customers using interactive video. The Company’s growth strategy revolves around its ability to increase its expertise and scale using interactive video to engage customers within multiple business models and multiple sales channels.  The Company believes its growth strategy builds on its core strengths and provides an advantage in these marketplaces.

The Company’s lifestyle television networks are ShopHQ, ShopBulldogTV and ShopHealthHQ. 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 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. ShopHealthHQ, which launched in the third 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.

The Company’s engaging, interactive video programming is distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunications companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online at shophq.com, shopbulldogtv.com and shophealthhq.com, which are comprehensive 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. The Company’s interactive video is also available on over-the-top ("OTT") platforms and ConnectedTV platforms (“CTV”) such as Roku, AppleTV, and Samsung connected televisions, mobile devices, including smartphones and tablets, and through the leading social media channels.

The Company’s consumer brands include J.W. Hulme Company ("J.W. Hulme"), Cooking with Shaquille O’Neal, Kate & Mallory, Live Fit MD, and Christopher & Banks. Christopher & Banks and TheCloseout.com, a deeply-discounted branded online marketplace, were acquired during the first quarter of the fiscal year ended January 31, 2021 (“fiscal 2020”).

The Company’s digital services brands are iMedia Digital Services (“iMDS”) and the Company’s customer solutions and logistics services business called, i3PL. iMDS is comprised of Synacor’s Portal and Advertising business, which the Company purchased on July 30, 2021 (see Notes to Condensed Consolidated Financial Statements - Footnote #16 – Business Acquisitions for additional information), and its existing OTT app platform, Float Left.  

Amendment to Articles of Incorporation

Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized shares of common stock by 15,000,000 shares. The Articles of Incorporation, as amended, now provide that the Company is authorized to issue 10,000,000 shares of capital stock and 20,000,000 shares of common stock.

(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

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of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of January 30, 2021 has been derived from the Company’s audited financial statements for the fiscal year ended January 30, 2021. 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 the fiscal year ended January 30, 2021. Operating results for the three and six-month period ended July 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 29, 2022.

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.

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 2020, ended on January 30, 2021, and consisted of 52 weeks. Fiscal 2021 will end January 29, 2022 and will contain 52 weeks. The three and six-month periods ended July 31, 2021, consisted of 13 and 26 weeks, respectively.

Recently Adopted Accounting Standards

In June 2016, the FASB issued guidance on the accounting for credit losses on financial instruments, Topic 326, Financial Instruments—Credit Losses (Accounting Standards Update (“ASU” 2016-13). Topic 326 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. Among other provisions, this guidance introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for losses. The Company adopted this guidance during the first quarter of fiscal 2021 and did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the Financial Accounting Standards Board ("FASB") issued Intangibles—Goodwill and Other—Internal-Use Software, Subtopic 350-40 (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard during the first quarter of fiscal 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued 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. The Company is currently evaluating the impact of Topic 848 on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-14). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.  The changes are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted.  The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

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(3)   Revenue

Revenue Recognition

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. Revenue for services 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. As of July 31, 2021 and January 30, 2021, the Company recorded a merchandise return liability of $5,674,000 and $5,271,000, included in accrued liabilities, and a right of return asset of $2,905,000 and $2,749,000, included in Prepaid Expenses and Other.

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 of the Company’s sales are single performance obligation arrangements for transferring control of merchandise to customers.

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."

As of July 31, 2021, the Company had no remaining performance obligations for contracts with original expected terms of one year or more. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected term of one year or less.

Accounts Receivable

The Company’s accounts receivable is comprised primarily of customer receivables from its ValuePay program, but also includes vendor receivables, credit card receivables and other receivables.  The Company’s ValuePay program is an installment payment program that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. 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 sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of July 31, 2021 and January 30, 2021, the Company had approximately $43,920,000 and $49,736,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $2,251,000 and $3,132,000. The decrease in the total reserve as a percentage of receivables is primarily due to the Company’s recently shortened active collections cycle, whereby the Company is pursuing collection for a shorter period prior to selling and writing off its receivables while yielding a comparable recovery rate.

(4)    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).

On July 30, 2021, the Company entered into a long-term variable rate credit agreement with Siena Lending Group, which is classified as Level 2 and had a carrying value of $47,245,000 as of July 31, 2021.  Also on July 30, 2021, the PNC revolver and term loan were paid in full, and the PNC Credit Facility was terminated.   As of July 31, 2021 and January 30, 2021, the Company’s long-term variable rate PNC Credit Facility (as defined below), classified as Level 2, had carrying values of $0 and $53,380,000. As of July 31, 2021 and January 30, 2021, $0 and $2,714,000 of the long-term variable rate PNC Credit Facility was classified as current. The fair value of the PNC Credit Facility approximated, and was based on, its carrying value due to the variable rate nature of the financial instrument. See Note 7 – “Credit Agreements” for additional details of our credit arrangements. The Company had no Level 3 investments that use significant unobservable inputs as of July 31, 2021 and January 30, 2021.

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(5)    Television Broadcast Rights

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

    

July 31, 2021

    

January 30, 2021

Television broadcast rights

$

99,302,000

$

43,655,000

Less accumulated amortization

 

(28,096,000)

 

(16,902,000)

Television broadcast rights, net

$

71,206,000

$

26,753,000

During the first six months of fiscal 2021 and fiscal 2020, 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 $55.7 million and $30.6 million during the first six months of fiscal year 2021 and 2020, which represents the present value of payments for the television broadcast rights associated with the channel position placement. Television broadcast rights are amortized on a straight-line basis over the lives of the individual agreements. The remaining weighted average lives of the television broadcast rights was 4.0 years as of July 31, 2021. Amortization expense related to the television broadcast rights was $6.1 million and $11.2 million for the three and six-month periods ended July 31, 2021 and $5.1 million for the three and six-month periods ended August 1, 2020 and is included in depreciation and amortization within the condensed consolidated statements of operations. Estimated broadcast rights amortization expense is $26.2 million for fiscal 2021, $18.2 million for fiscal 2022, $11.1 million for fiscal 2023, $11.1 million for fiscal 2024, $11.1 million for fiscal 2025 and $4.6 million thereafter. The liability relating to the television broadcast rights was $79.2 million as of July 31, 2021, of which $29.4 million was classified as current in the accompanying condensed consolidated balance sheets. Interest expense related to the television broadcast rights obligation was $594,000 and $1,097,000 during the three and six-month periods ended July 31, 2021 and $397,000 and $403,000 during the three- and six-month periods ended August 1, 2020.

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 statement of operations.

(6)    Intangible Assets

Intangible assets in the accompanying condensed consolidated balance sheets consisted of the following:

July 31, 2021

January 30, 2021

Estimated 

Gross 

Gross 

Useful Life 

Carrying 

Accumulated 

Carrying 

Accumulated 

    

(In Years)

    

Amount

    

Amortization

    

Amount

    

Amortization

Trade Names

 

3-15

 

$

3,957,000

 

$

(184,000)

 

$

1,568,000

 

$

(124,000)

Technology

 

4

 

11,133,000

 

(332,000)

 

772,000

 

(228,000)

Customer Lists

 

3-5

 

13,225,000

 

(201,000)

 

339,000

 

(93,000)

Vendor Exclusivity

 

5

 

192,000

 

(87,000)

 

192,000

 

(67,000)

Total finite-lived intangible assets

 

$

28,507,000

 

$

(804,000)

 

$

2,871,000

 

$

(512,000)

Goodwill

$

9,212,000

 

$

 

$

 

$

Total indefinite-lived intangible assets

 

$

9,212,000

 

$

 

$

 

$

Total finite- and indefinite-lived intangible assets

 

$

37,719,000

 

$

(804,000)

 

$

2,871,000

 

$

(512,000)

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Finite-lived Intangible Assets

The finite-lived intangible assets are included in the accompanying condensed consolidated balance sheets within intangible assets and goodwill, net and consist of the J.W. Hulme trade name and customer list; the Float Left developed technology, customer relationships and trade name; a vendor exclusivity agreement; Christopher & Banks customer list; TCO technology and Portal and Ad business customer relationships and technology. Amortization expense related to the finite-lived intangible assets was $0 and $104,000 for the three-month periods ended July 31, 2021 and August 1, 2020 and $273,000 and $208,000 for the six-month period ended July 31, 2021 and August 1, 2020. Estimated amortization expense is $415,000 for fiscal 2021, $410,000 for fiscal 2022, $352,000 for fiscal 2023, $156,000 for fiscal 2024, and $105,000 for fiscal 2025.

Indefinite-lived Intangible Assets

The indefinite-lived intangible assets are included in the accompanying condensed consolidated balance sheets within intangible assets and goodwill, net and consist of goodwill associated with the purchase of the Portal and Advertising business from Synacor (see Notes to Condensed Consolidated Financial Statements - Footnote #16 – Business Acquisitions for additional information).

(7)   Credit Agreements

The Company’s long-term credit facility consists of:

    

July 31, 2021

    

January 30, 2021

PNC revolving loan due July 27, 2023, principal amount

$

$

41,000,000

Siena revolving loan due July 31, 2024, principal amount

47,245,000

 

PNC term loan due July 27, 2023, principal amount

 

 

12,441,000

GreenLake Real Estate Funding, due July 31, 2024 ,principal amount

28,500,000

Less unamortized debt issuance costs

 

(1,826,000)

 

(61,000)

Term Loan, carrying amount

 

26,674,000

 

12,380,000

Total long-term credit facility

 

73,919,000

 

53,380,000

Less current portion of long-term credit facility

 

 

(2,714,000)

Long-term credit facilities, excluding current portion

$

73,919,000

$

50,666,000

Siena Credit Facility

On July 30, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a loan and security agreement (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 million revolving line of credit. Subject to certain conditions, the Loan Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings shall be 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. The Company’s 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. There is a floor for LIBOR of 0.50%. If LIBOR is no longer available, a successor rate to be chosen by the Agent in consultation with the Company or a base rate.

The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum liquidity requirements of not less than $7,500,000 as of the end of any fiscal month and a maximum senior net leverage ratio of not less than 2.50:1.00 as of the last day of each fiscal quarter. 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

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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 0.50% per annum of the average daily unused amount of the credit facility for the previous month.

As of July 31, 2021, the Company had total borrowings of $47.2 million under its revolving line of credits with Siena. Remaining available capacity under the revolving line of credit as of July 31, 2021 was approximately $13.5 million, which provided liquidity for working capital and general corporate purposes.  As of July 31, 2021, the Company was in compliance with applicable financial covenants of the Siena Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months.

GreenLake Real Property Financing

On July 30, 2021, two of the Company’s 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 “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 $28,500,000. The 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 Note. Proceeds of borrowings shall be used to (i) pay fees and expenses related to the transactions contemplated by the Note, (ii) make certain payments approved by GreenLake to third parties, and (iii) provide for working capital and general corporate purposes of the Company. The Company has also pledged the stock that it owns in the Borrowers to secure its guarantor obligations.

The Note is scheduled to mature on July 31, 2024. The borrowings, which include all amounts advanced under the 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 Borrowers may prepay the Note 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. After the Lockout Date, the Note may be prepaid in full or in any installment greater than or equal to $100,000 without any prepayment penalty or premium on 90 days’ prior written notice from Borrowers to GreenLake.

 The 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 Note also contains certain customary events of default.

As of July 31, 2021, there was $28.5 million outstanding under the term loan with GreenLake, all of which was classified as long-term in the accompanying condensed consolidated balance sheet.  Principal borrowings under the term loan are non-amortizing over the life of the loan.

PNC Credit Facility

On February 9, 2012, the Company entered into a credit and security agreement (as amended through February 5, 2021, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. On July 30, 2021, the PNC revolver and term loan were paid in full and the PNC Credit Facility was terminated through a refinancing with Siena and GreenLake, the Company recognized $654,000 in related debt extinguishment costs in the fiscal 2021 second quarter which included both the write-off of remaining deferred financing costs in related to the PNC term loan and revolver, as well as a prepayment penalty per the PNC Credit Facility.

The PNC Credit Facility, which included CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provided a revolving line of credit of $70.0 million and provided for a term loan on which the Company had originally drawn to fund improvements at the Company’s distribution facility in Bowling Green, Kentucky and subsequently to pay down the Company’s previously outstanding term loan with GACP Finance Co., LLC. The PNC Credit Facility also had an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $20.0 million at the discretion of the lenders and upon

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certain conditions being met. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility were equal to the lesser of $70.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.

The PNC Credit Facility also provided for the issuance of letters of credit in an aggregate amount up to $6.0 million, which, upon issuance, would be deemed advances under the PNC Credit Facility. The PNC Credit Facility was secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky. Under certain circumstances, the borrowing base could be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.

The revolving line of credit under the PNC Credit Facility bore interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3.5% on Base Rate advances and 3% and 4.5% on LIBOR advances based on the Company’s trailing twelve-month reported leverage ratio (as defined in the PNC Credit Facility) measured semi-annually as demonstrated in its financial statements. The term loan bore interest at either a Base Rate or LIBOR plus a margin consisting of between 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.

Interest expense recorded under the PNC Credit Facility was $755,000 and $1,558,000 for the three and six-month periods ended July 31, 2021 and $857,000 and $2,024,000 for the three and six-month periods ended August 1, 2020.

Deferred financing costs, net of amortization, relating to the revolving line of credit were $1,826,000 and $243,000 as of July 31, 2021 and January 30, 2021 and are included within other assets within the accompanying condensed consolidated balance sheets. The balance of these costs are being expensed as additional interest over the three-year term of the Siena Loan Agreement.

The aggregate maturities of borrowings outstanding under the Company’s long-term debt obligations as of July 31, 2021 were as follows:

GreenLake

Siena

Fiscal year

    

Term loan

    

Revolving loan

    

Total

2021

$

$

$

2022

 

 

 

2023

 

 

 

2024

 

28,500

 

47,245

 

75,745

$

28,500

$

47,245

$

75,745

Restricted Cash

The Company is required to keep cash in a restricted account in order to maintain lines of credit to both purchase inventory as well as general and administrative expenses. Any interest earned is recorded in that period. The Company had $2,192,000 in restricted cash accounts as of July 31, 2021.

Cash Requirements

Currently, the Company’s principal cash requirements are to fund business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding the Company’s basic operating expenses, particularly the Company’s contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. The Company closely manages its cash resources and working capital. The Company attempts to manage its inventory receipts and reorders in order to ensure its inventory investment levels remain commensurate with the Company’s current sales trends. The Company also monitors the collection of its credit card and ValuePay installment receivables and manages vendor payment terms in order to more effectively manage the Company’s working capital which includes matching cash receipts from the Company’s customers to the extent possible with related cash payments to the Company’s vendors. ValuePay remains a cost-effective promotional tool for the Company. The Company continues to make strategic use of its ValuePay program in an effort to increase sales and to respond to similar competitive programs.

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The Company’s ability to fund operations and capital expenditures in the future will be dependent on its ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in its sales and to use available funds from its Siena Loan Agreement. The Company’s ability to borrow funds is dependent on its ability to maintain an adequate borrowing base and its ability to meet its credit facility’s covenants (as described above). Accordingly, if the Company does not generate sufficient cash flow from operations to fund its working capital needs, planned capital expenditures and meet credit facility covenants, and its cash reserves are depleted, the Company may need to take actions that are within the Company’s control, such as further reductions or delays in capital investments, additional reductions to the Company’s workforce, reducing or delaying strategic investments or other actions. The Company believes that it is probable its existing cash balances and its availability under the Siena Loan Agreement, will be sufficient to fund the Company’s normal business operations over the next twelve months from the issuance of this report.

(8)   Shareholders’ Equity

Common Stock

Effective July 13, 2020, the Company amended its Articles of Incorporation to increase the authorized number of common shares from 5,000,000 to 20,000,000. The Company currently has 10,000,000 shares of capital stock, of which 400,000 is designated as preferred stock, and 20,000,000 shares of common stock. The Company currently has authorized 9,600,000 shares of undesignated capital stock and an additional 20,000,000 shares of common stock. As of July 31, 2021, no shares of capital stock were outstanding and 21,254,414 shares of common stock were issued and outstanding. The board of directors may establish new classes and series of capital stock by resolution without shareholder approval; however, in certain circumstances the Company is required to obtain approval under the Company’s Siena Credit Facility.

Public Offerings

On June 9, 2021, the Company completed a public offering, in which the Company issued and sold 4,830,918 shares of our common stock at a public offering price of  $9.00 per share. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $40.4 million. The Company has used or intends to use the proceeds for general working capital purposes, including potential acquisitions of businesses and assets that are complementary to our operations.

On February 18, 2021, the Company completed a public offering, in which the Company issued and sold 3,289,000 shares of its common stock at a public offering price of $7.00 per share, including 429,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $21.2 million. The Company used the proceeds for general working capital purposes.

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

April 2020 Private Placement Securities Purchase Agreement

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

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

The warrants have an exercise price per share of $2.66 and are exercisable at any time and from time to time from six months following their issuance date until April 14, 2025. The Company has included a blocker provision in the purchase agreement whereby no purchaser may be issued shares of the Company’s common stock if the purchaser would own over 19.999% of the Company’s outstanding common stock and, to the extent a purchaser in this offering would own over 19.999% of the Company’s outstanding common stock, that purchaser will receive fully-paid warrants (in contrast to the coverage warrants that will be issued in this transaction, as described above) in lieu of the shares that would place such holder’s ownership over 19.999%. Further, the Company included a similar blocker in the warrants (and amended the warrants purchased by the purchasers on May 2, 2019, if any) whereby no purchaser of the warrants may exercise a warrant if the holder would own over 19.999% of the Company’s outstanding common stock.

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

Warrants

As of July 31, 2021, the Company had outstanding warrants to purchase 1,714,120 shares of the Company’s common stock, of which 1,714,120 were fully exercisable. The warrants expire approximately five years from the date of grant. The following table summarizes information regarding warrants outstanding at July 31, 2021:

    

Warrants

    

Warrants

    

Exercise Price

    

Grant Date

Outstanding

Exercisable

(Per Share)

Expiration Date

September 19, 2016

 

297,619

 

297,619

$

29.00

 

September 19, 2021

November 10, 2016

 

33,386

 

33,386

$

30.00

 

November 10, 2021

January 23, 2017

 

48,930

 

48,930

$

17.60

 

January 23, 2022

March 16, 2017

 

5,000

 

5,000

$

19.20

 

March 16, 2022

May 2, 2019

 

349,998

 

349,998

$

15.00

 

May 2, 2024

April 17, 2020

367,197

367,197

$

2.66

April 14, 2025

May 22, 2020

122,398

122,398

$

2.66

April 14, 2025

June 8, 2020

122,399

122,399

$

2.66

April 14, 2025

June 12, 2020

122,398

122,398

$

2.66

April 14, 2025

July 11, 2020

244,798

244,798

$

2.66

April 14, 2025

Commercial Agreement with Shaquille O’Neal

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

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Compensation expense relating to the restricted stock unit grant was $216,000 and $216,000 for the second quarters of fiscal 2021 and 2020 and $432,000 and $432,000 for the first two quarters of fiscal 2021 and 2020. As of July 31, 2021, there was $1,297,000 of total unrecognized compensation cost related to the award. That cost is expected to be recognized over a weighted average period of 1.5 years.

Restricted Stock Award

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

Compensation expense relating to the restricted stock award was $0 and $117,000 for the second quarters of fiscal 2021 and 2020 and $153,000 and $235,000 for the first six months of fiscal year 2021 and 2020. As of May 1, 2021, the compensation cost related to the award was fully recognized.

Stock Compensation Plans

The Company’s 2020 Equity Incentive Plan ("2020 Plan") provides for th