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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 October 30, 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

The Nasdaq Stock Market, LLC

8.5% Senior Notes due 2026

IMBIL

The 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 December 1, 2021 there were 21,560,514 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

October 30, 2021

Part I. Financial Information

Page

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of October 30, 2021 and January 30, 2021

3

Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended October 30, 2021 and October 31, 2020

4

Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month and Nine-Month Periods Ended October 30, 2021 and October 31, 2020

5

Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended October 30, 2021 and October 30, 2020

6

Notes to Condensed Consolidated Financial Statements as of October 30, 2021

7

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

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

Item 4. Controls and Procedures

45

Part II. Other Information

45

Item 1. Legal Proceedings

45

Item 1A. Risk Factors

46

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

47

Item 3. Defaults Upon Senior Securities

47

Item 4. Mine Safety Disclosures

47

Item 5. Other Information

47

Item 6. Exhibits

48

Signatures

50

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

October 30, 2021

    

January 30, 2021

(In thousands, except share and 

per share data)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

51,352

$

15,485

Restricted Cash

2,168

Accounts receivable, net

 

66,948

 

61,951

Inventories

 

92,001

 

68,715

Current portion of television broadcast rights, net

21,349

19,725

Prepaid expenses and other

 

15,922

 

7,853

Total current assets

 

249,740

 

173,729

Property and equipment, net

 

44,932

 

41,988

Television broadcast rights, net

41,865

7,028

Intangible assets and goodwill, net

35,769

2,359

Other assets

 

13,161

 

1,533

TOTAL ASSETS

$

385,467

$

226,637

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

62,235

$

77,995

Accrued liabilities

 

39,592

 

29,509

Current portion of television broadcast rights obligations

25,937

29,173

Current portion of long term credit facility

 

 

2,714

Current portion of operating lease liabilities

 

1,046

 

462

Deferred revenue

 

541

 

213

Total current liabilities

 

129,351

 

140,066

Long term broadcast rights liability

 

45,742

 

7,358

Other long term liabilities

13,403

1,497

Long term credit facility

 

46,650

 

50,666

8.50% Senior Unsecured Notes

 

73,768

 

Total liabilities

 

308,914

 

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 October 30, 2021 and January 30, 2021; 21,560,514 and 13,019,061 shares issued and outstanding as of October 30, 2021 and January 30, 2021

 

213

 

130

Additional paid-in capital

 

537,987

 

474,375

Accumulated deficit

 

(464,424)

 

(447,455)

Accumulated other comprehensive loss

(371)

Total shareholders’ equity

 

73,405

 

27,050

Equity of the non-controlling interest

$

3,148

$

Total equity

$

76,553

$

27,050

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

385,467

$

226,637

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

3

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three-Month

For the Nine-Month

Periods Ended

Periods Ended

October 30,

October 31,

October 30,

October 31,

    

2021

    

2020

    

2021

    

2020

(In thousands, except share and per share data)

Net sales

$

130,681

$

109,025

$

357,325

$

329,374

Cost of sales

 

76,260

 

68,211

 

208,911

 

206,711

Gross profit

 

54,421

 

40,814

 

148,414

 

122,663

Operating expense:

 

  

 

  

 

  

 

  

Distribution and selling

 

39,302

 

31,490

 

108,907

 

97,100

General and administrative

 

10,746

 

4,687

 

24,569

 

15,158

Depreciation and amortization

 

9,741

 

7,977

 

24,727

 

16,700

Restructuring costs

 

634

 

55

 

634

 

264

Total operating expense

 

60,423

 

44,209

 

158,837

 

129,222

Operating loss

 

(6,002)

 

(3,395)

 

(10,423)

 

(6,559)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income

 

85

 

1

 

124

 

2

Interest expense

 

(3,551)

 

(1,339)

 

(6,245)

 

(3,920)

Loss on debt extinguishment

 

(9)

 

 

(663)

 

Total other expense, net

 

(3,475)

 

(1,338)

 

(6,784)

 

(3,918)

Loss before income taxes

 

(9,477)

 

(4,733)

 

(17,207)

 

(10,477)

Income tax provision

 

(15)

 

(15)

 

(45)

 

(45)

Net loss

$

(9,492)

$

(4,748)

$

(17,252)

$

(10,522)

Less: Net loss attributable to non-controlling interest

(282)

Net loss attributable to shareholders

(9,492)

(4,748)

(16,970)

(10,522)

Net loss per common share

$

(0.44)

$

(0.39)

$

(0.91)

$

(1.05)

Net loss per common share — assuming dilution

$

(0.44)

$

(0.39)

$

(0.91)

$

(1.05)

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

21,503,340

 

12,177,990

 

18,710,658

 

10,000,383

Diluted

 

21,503,340

 

12,177,990

 

18,710,658

 

10,000,383

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

4

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

Common Stock

    

    

    

    

    

    

    

    

    

    

Additional 

Additional Other

Equity of

Total 

Number 

Paid-In 

Accumulated 

Comprehensive

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Income (Loss)

Interest

Equity

For the Nine-Month Period Ended October 30, 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 and warrant issuance

4,830,918

48

40,095

40,143

BALANCE, July 31, 2021

 

21,254,414

$

212

$

536,835

$

(454,932)

$

$

3,148

$

85,263

Net loss

 

 

 

 

(9,492)

 

 

 

(9,492)

Common stock issuances pursuant to equity compensation awards

 

306,100

 

1

 

67

 

 

 

 

68

Share-based payment compensation

 

 

 

949

 

 

 

 

949

Common stock issuance

 

 

 

136

 

 

 

 

136

Other Comprehensive Income (loss)

(371)

(371)

BALANCE, October 30, 2021

 

21,560,514

$

213

$

537,987

$

(464,424)

$

(371)

$

3,148

$

76,553

    

Common Stock

    

    

    

    

    

    

    

    

    

    

Additional 

Additional Other

Equity of

Total 

Number 

Paid-In 

Accumulated 

Comprehensive

Non-Controlling

Shareholders' 

of Shares

    

Par Value

Capital

Deficit

Income (loss)

Interest

Equity

For the Nine-Month Period Ended October 31, 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

Net loss

 

 

 

 

(4,748)

 

 

 

(4,748)

Common stock issuances pursuant to equity compensation awards

 

313

 

 

(1)

 

 

 

 

(1)

Exercise of warrants

114,698

1

(1)

 

 

Share-based payment compensation

 

 

 

504

 

 

 

 

504

Common stock and warrant issuance

 

2,760,000

 

28

 

15,805

 

 

 

 

15,833

BALANCE, October 31, 2020

 

13,016,660

$

130

$

473,647

$

(444,743)

$

$

$

29,034

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

5

Table of Contents

iMEDIA BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Nine-Month Period Ended

October 30, 2021

October 31, 2020

(in thousands)

OPERATING ACTIVITIES:

  

 

  

Net loss

$

(17,252)

$

(10,522)

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

 

  

 

  

Depreciation and amortization

 

27,565

 

19,697

Share-based payment compensation

 

2,385

 

1,227

Payments for television broadcast rights

(21,926)

(5,292)

Amortization of deferred financing costs

 

556

 

148

Loss on debt extinguishment

 

663

 

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

3,453

 

10,055

Inventories

 

(17,996)

 

7,197

Deferred revenue

 

10

 

90

Prepaid expenses and other

 

(8,269)

 

1,472

Accounts payable and accrued liabilities

 

(18,046)

 

(14,964)

Net cash (used for) provided by operating activities

 

(48,857)

 

9,108

INVESTING ACTIVITIES:

 

  

 

  

Property and equipment additions

 

(7,247)

 

(3,680)

Acquisitions

(23,500)

Vendor exclusivity deposit

(6,000)

Net cash used for investing activities

 

(36,747)

 

(3,680)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from issuance of revolving loan

 

56,736

 

14,400

Proceeds from issuance of common stock and warrants

 

61,368

 

20,043

Proceeds from issuance of term loan

28,500

Proceeds from issuance of long term bonds

80,000

Payments on revolving loan

 

(77,736)

 

(28,800)

Payments on term loan

 

(12,440)

 

(2,036)

Payments for business acquisition

 

 

(238)

Payments for common stock issuance costs

 

 

(39)

Payments on finance leases

 

(70)

 

(75)

Payments for restricted stock issuance

 

(134)

 

(8)

Payments for deferred financing costs

 

(11,180)

 

Payments on sellers note

(1,000)

Payments for debt extinguishment costs

 

(405)

 

Net cash provided by financing activities

 

123,639

 

3,247

Net increase in cash and restricted cash

 

38,035

 

8,675

BEGINNING CASH AND RESTRICTED CASH

 

15,485

 

10,287

ENDING CASH AND RESTRICTED CASH

$

53,520

$

18,962

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid

$

3,612

$

3,307

Income taxes paid

$

62

$

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

$

915

$

459

Other long term liability issued in exchange for acquired assets

$

10,000

$

-

Common stock issuance costs included in accrued liabilities

$

122

$

361

Equipment acquired through finance lease obligations

$

-

$

62

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

October 30, 2021

(Unaudited)

(1)   General

iMedia Brands, Inc. and its subsidiaries (“we,” “our,” “us,” or the “Company”) is a leading interactive media company capitalizing on the convergence of entertainment, ecommerce, and advertising. The Company owns a growing, global portfolio of Entertainment, Consumer Brands and Media Commerce Services businesses that cross promote and exchange data with each other to optimize the engagement experiences it creates for advertisers and consumers. 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 entertainment television networks are ShopHQ, ShopBulldogTV, ShopHealthHQ and the newly acquired 123tv. 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.  123tv, which the Company acquired on November 5, 2021 (see Note 17 – “Subsequent Events” for additional information), 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 123tv's balanced merchandising mix of compelling products shipped directly to their homes.

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 Christopher & Banks, J.W. Hulme Company ("J.W. Hulme"), Cooking with Shaquille O’Neal, Kate & Mallory, Live Fit MD and TheCloseout.com. Christopher & Banks and TheCloseout.com, a deeply discounted branded online marketplace, were acquired during the first quarter of fiscal year 2021.

The Company’s media commerce services brands are iMedia Digital Services (“iMDS”) and i3PL, the Company’s customer solutions and logistics services business. iMDS is comprised of Synacor’s Portal and Advertising business, which the Company purchased on July 30, 2021 (see Note #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.

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(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 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 fiscal year ended 2020. Operating results for the three and nine-month periods ended October 30, 2021 are not necessarily indicative of the results that may be expected for 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 nine-month periods ended October 30, 2021 and October 31, 2020 each consisted of 13 and 39 weeks.

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

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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.

(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 October 30, 2021 and January 30, 2021, the Company recorded a merchandise return liability of $6,223,000 and $5,271,000, included in accrued liabilities, and a right of return asset of $3,139,000 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 October 30, 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 October 30, 2021 and January 30, 2021, the Company had approximately $43,117,000 and $49,736,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $2,629,000 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).

The Company entered into a foreign currency forward contract on October 26, 2021 to reduce the short-term effects of foreign currency fluctuations on their investment in German subsidiary 123tv. The Company’s primary objective in holding derivatives is to

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reduce the volatility of their investment in 123tv associated with changes in foreign currency exchange rates. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company does, however, seek to mitigate such risks by limiting our counterparties to major financial institutions. Management does not expect material losses as a result of defaults by counterparties.

The fair values of the Company’s derivative instruments classified as Level 2 financial instruments and the line items within the accompanying consolidated balance sheets to which they were recorded are summarized as of October 30, 2021 and January 30, 2021, follows:

    

    

October 30,

January 30,

Balance Sheet Line Item

2021

    

2021

Derivatives designated as hedging instruments:

 

 

  

 

  

Foreign currency derivatives

Accrued liabilities

$

371,000

$

Total

 

371,000

 

Three-Month Periods Ended

Nine-Month Periods Ended

    

Line Item in Statement

    

October 30,

October 31,

    

October 30,

October 31,

of Operations

2021

    

2020

2021

    

2020

Derivatives designated as hedging instruments:

 

 

  

 

  

 

  

 

  

Foreign currency derivatives

Other income (expense)

$

$

$

$

Total

 

 

 

 

On September 28, 2021, the Company completed the transaction relating to the public offering, issuance and sale of $80.0 million aggregate principal amount of 8.50% Senior Unsecured Notes due 2026 (the “Notes”) at a public offering price equal to $25.00 per Note (the “Offering”). The Notes are classified as Level 2, will 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 will mature on September 30, 2026.

On July 30, 2021, the Company entered into long-term variable rate credit agreements with Siena Lending Group and Green Lake Real Estate Finance LLC, which are classified as Level 2 and had a combined carrying value of $46,650,000 as of October 30, 2021. The fair value of the Siena Lending Group and Green Lake Real Estate Finance LLC credit facilities approximated, and were based on, their carrying value due to the variable rate nature of the financial instrument.

The Company had no Level 3 investments that use significant unobservable inputs as of October 30, 2021 and January 30, 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 October 30, 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 October 30, 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.

(5)    Television Broadcast Rights

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

    

October 30, 2021

    

January 30, 2021

Television broadcast rights

$

99,301,000

$

43,655,000

Less accumulated amortization

 

(36,087,000)

 

(16,902,000)

Television broadcast rights, net

$

63,214,000

$

26,753,000

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During the first nine months of fiscal 2021 and full year 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 nine months of fiscal year 2021 and 2020, which represent 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 October 30, 2021. Amortization expense related to the television broadcast rights was $8.0 million and $19.2 million for the three and nine-month periods ended October 30, 2021 and $6.2 million and $11.3 million for the three and nine-month periods ended October 31, 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 $71.7 million as of October 30, 2021, of which $25.9 million was classified as current in the accompanying condensed consolidated balance sheets. Interest expense related to the television broadcast rights obligation was $952,000 and $2,049,000 during the three and nine-month periods ended October 30, 2021 and $488,000 and $891,000 during the three and nine-month periods ended October 31, 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:

October 30, 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

 

$

(225,000)

 

$

1,568,000

 

$

(124,000)

Technology

 

4

 

11,133,000

 

(396,000)

 

772,000

 

(228,000)

Customer Lists

 

3-5

 

13,225,000

 

(339,000)

 

339,000

 

(93,000)

Vendor Exclusivity

 

5

 

192,000