Company Quick10K Filing
Quick10K
Evine Live
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.48 76 $36
10-Q 2019-05-04 Quarter: 2019-05-04
10-K 2019-02-02 Annual: 2019-02-02
10-Q 2018-11-03 Quarter: 2018-11-03
10-Q 2018-08-04 Quarter: 2018-08-04
10-Q 2018-05-05 Quarter: 2018-05-05
10-K 2018-02-03 Annual: 2018-02-03
10-Q 2017-10-28 Quarter: 2017-10-28
10-Q 2017-07-29 Quarter: 2017-07-29
10-Q 2017-04-29 Quarter: 2017-04-29
10-K 2017-01-28 Annual: 2017-01-28
10-Q 2016-10-29 Quarter: 2016-10-29
10-Q 2016-07-30 Quarter: 2016-07-30
10-Q 2016-04-30 Quarter: 2016-04-30
10-K 2016-01-30 Annual: 2016-01-30
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-08-01 Quarter: 2015-08-01
10-Q 2015-05-02 Quarter: 2015-05-02
10-K 2015-01-31 Annual: 2015-01-31
10-Q 2014-11-01 Quarter: 2014-11-01
10-Q 2014-08-02 Quarter: 2014-08-02
10-Q 2014-05-03 Quarter: 2014-05-03
10-K 2014-02-01 Annual: 2014-02-01
8-K 2019-07-16 Amend Bylaw, Regulation FD, Exhibits
8-K 2019-07-12 Shareholder Vote
8-K 2019-05-27 Earnings, Exit Costs, Officers, Regulation FD, Exhibits
8-K 2019-05-16 Enter Agreement, Exhibits
8-K 2019-05-02 Enter Agreement, Sale of Shares, Officers, Regulation FD, Exhibits
8-K 2019-01-14
8-K 2019-01-01 Officers, Exhibits
8-K 2018-11-23 Earnings, Sale of Shares, Exhibits
8-K 2018-08-29 Earnings, Exhibits
8-K 2018-06-13 Shareholder Vote, Exhibits
8-K 2018-06-06 Officers, Exhibits
8-K 2018-05-30 Earnings, Exhibits
8-K 2018-04-10 Officers, Exhibits
8-K 2018-03-22 Officers, Exhibits
8-K 2018-03-19 Enter Agreement, Exhibits
8-K 2018-03-15 Exhibits
8-K 2018-03-14 Earnings, Exhibits
8-K 2018-02-23 Other Events
HLT Hilton Worldwide Holdings 26,530
NDSN Nordson 8,210
PHAS PhaseBio Pharmaceuticals 379
OMI Owens & Minor 249
CBL CBL & Associates Properties 217
WEBK Wellesley Bancorp 88
MHH Mastech Digital 56
TKAT Takung Art 8
ROPL Reckson Operating Partnership 0
VDH Vigilant Diversified Holdings 0
EVLV 2019-05-04
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31105042019.htm
EX-31.2 ex31205042019.htm
EX-32 ex3205042019.htm

Evine Live Earnings 2019-05-04

EVLV 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 evlv10qq1f19.htm 10-Q Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended May 4, 2019
Commission File Number 001-37495
evinelogo03.jpg
EVINE Live Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
 
41-1673770
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
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
EVLV
Nasdaq Global Market
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 þ No o
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 þ No o
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 o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company þ
 
 
 
Emerging growth company o

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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of June 7, 2019, there were 76,288,036 shares of the registrant’s common stock, $0.01 par value per share, outstanding.




EVINE Live Inc. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
May 4, 2019
 
 
 
Page
 
 


2


PART IFINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
May 4,
2019
 
February 2,
2019
 
(In thousands, except share and per share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
28,739

 
$
20,485

Restricted cash equivalents
450

 
450

Accounts receivable, net
72,181

 
81,763

Inventories
57,168

 
65,272

Prepaid expenses and other
8,112

 
9,053

Total current assets
166,650

 
177,023

Property and equipment, net
49,950

 
51,118

Other assets
3,179

 
1,846

TOTAL ASSETS
$
219,779

 
$
229,987

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
59,875

 
$
56,157

Accrued liabilities
36,981

 
37,374

Current portion of long term credit facility
2,714

 
2,488

Current portion of operating lease liabilities
824

 

Deferred revenue
35

 
35

Total current liabilities
100,429

 
96,054

Other long term liabilities
376

 
50

Long term credit facility
68,037

 
68,932

Total liabilities
168,842

 
165,036

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, 99,600,000 shares authorized; 76,230,985 and 67,919,349 shares issued and outstanding
762

 
679

Additional paid-in capital
449,090

 
442,197

Accumulated deficit
(398,915
)
 
(377,925
)
Total shareholders' equity
50,937

 
64,951

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
219,779

 
$
229,987

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

3


EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
For the Three-Month
 
Periods Ended
 
May 4,
2019
 
May 5,
2018
 
(In thousands, except share and per share data)
Net sales
$
131,521

 
$
156,505

Cost of sales
94,228

 
100,250

Gross profit
37,293

 
56,255

Operating expense:
 
 
 
Distribution and selling
46,864

 
48,887

General and administrative
6,869

 
6,719

Depreciation and amortization
1,679

 
1,572

Executive and management transition costs
2,031

 
1,024

Total operating expense
57,443

 
58,202

Operating loss
(20,150
)
 
(1,947
)
Other income (expense):
 
 
 
Interest income
5

 
7

Interest expense
(830
)
 
(1,026
)
Total other expense, net
(825
)
 
(1,019
)
Loss before income taxes
(20,975
)
 
(2,966
)
Income tax provision
(15
)
 
(20
)
Net loss
$
(20,990
)
 
$
(2,986
)
Net loss per common share
$
(0.31
)
 
$
(0.05
)
Net loss per common share — assuming dilution
$
(0.31
)
 
$
(0.05
)
Weighted average number of common shares outstanding:
 
 
 
Basic
67,318,462

 
65,360,951

Diluted
67,318,462

 
65,360,951

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

4


EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIODS ENDED MAY 4, 2019 AND MAY 5, 2018
(Unaudited)
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Total
Shareholders'
Equity
 
Number
of Shares
 
Par
Value
 
 
Accumulated
Deficit
 
For the Three Months Ended May 4, 2019
(In thousands, except share data)
BALANCE, February 2, 2019
67,919,349

 
$
679

 
$
442,197

 
$
(377,925
)
 
$
64,951

Net loss

 

 

 
(20,990
)
 
(20,990
)
Common stock issuances pursuant to equity compensation awards
311,636

 
3

 
(11
)
 

 
(8
)
Share-based payment compensation

 

 
966

 

 
966

Common stock and warrant issuance
8,000,000

 
80

 
5,938

 

 
6,018

BALANCE, May 4, 2019
76,230,985

 
$
762

 
$
449,090

 
$
(398,915
)
 
$
50,937

 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Total
Shareholders'
Equity
 
Number
of Shares
 
Par
Value
 
 
Accumulated
Deficit
 
For the Three Months Ended May 5, 2018
(In thousands, except share data)
BALANCE, February 3, 2018
65,290,458

 
$
653

 
$
439,111

 
$
(355,768
)
 
$
83,996

Net loss

 

 

 
(2,986
)
 
(2,986
)
Common stock issuances pursuant to equity compensation awards
297,879

 
3

 
(103
)
 

 
(100
)
Share-based payment compensation

 

 
820

 

 
820

BALANCE, May 5, 2018
65,588,337

 
$
656

 
$
439,828

 
$
(358,754
)
 
$
81,730

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

5


EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Three-Month
 
Periods Ended
 
May 4,
2019
 
May 5,
2018
 
(in thousands)
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(20,990
)
 
$
(2,986
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,629

 
2,620

Share-based payment compensation
966

 
820

Inventory impairment write-down
6,050

 

Amortization of deferred revenue
(8
)
 
(9
)
Amortization of deferred financing costs
55

 
52

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
9,582

 
11,499

Inventories
2,054

 
(4,247
)
Prepaid expenses and other
874

 
(3,798
)
Accounts payable and accrued liabilities
3,533

 
7,745

Net cash provided by operating activities
4,745

 
11,696

INVESTING ACTIVITIES:
 
 
 
Property and equipment additions
(1,802
)
 
(2,078
)
Net cash used for investing activities
(1,802
)
 
(2,078
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of revolving loan
58,300

 
50,500

Proceeds from issuance of common stock and warrants
6,000

 

Payments on revolving loan
(58,300
)
 
(53,300
)
Payments on term loan
(678
)
 
(581
)
Payments for restricted stock issuance
(8
)
 
(100
)
Payments on finance leases
(3
)
 

Net cash provided by (used for) financing activities
5,311

 
(3,481
)
Net increase in cash and restricted cash equivalents
8,254

 
6,137

BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS
20,935

 
24,390

ENDING CASH AND RESTRICTED CASH EQUIVALENTS
$
29,189

 
$
30,527

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid
$
495

 
$
912

Income taxes paid
$

 
$

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Property and equipment purchases included in accounts payable
$
91

 
$
101

Common stock issuance costs included in accrued liabilities
$
175

 
$

Issuance of warrants
$
193

 
$

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

6


EVINE Live Inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 2019
(Unaudited)

(1) General
EVINE Live Inc. and its subsidiaries ("we," "our," "us," or the "Company") are collectively an interactive media company that offers a mix of proprietary, exclusive and name-brand merchandise in the categories of jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories directly to consumers 24 hours a day in an engaging and informative shopping experience via television, online and mobile devices. Evine programming is distributed in more than 87 million homes through cable and satellite distribution agreements, agreements with telecommunications companies and arrangements with over-the-air broadcast television stations. Evine programming is also streamed live online at evine.com, a comprehensive digital commerce platform that sells products which appear on its television shopping network as well as an extended assortment of online-only merchandise, and is available on mobile channels and over-the-top platforms. Our programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.

(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 February 2, 2019 has been derived from the Company's audited financial statements for the fiscal year ended February 2, 2019. 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 February 2, 2019. Operating results for the three-month period ended May 4, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2020.
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 2018, ended on February 2, 2019, and consisted of 52 weeks. Fiscal 2019 will end February 1, 2020 and will contain 52 weeks. The three-month periods ended May 4, 2019 and May 5, 2018 each consisted of 13 weeks.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Leases, Topic 842 (ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted this standard in the first quarter of fiscal 2019 using a modified retrospective transition approach to leases existing at, or entered into after, February 3, 2019. See Note 3 - "Leases" for information on the impact of adopting ASU 2016-02 on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2018, the 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 new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The new standard can be applied retrospectively or prospectively to all implementation costs incurred after the date

7


of adoption. The Company is currently assessing the impact that adopting the new accounting standard will have on its consolidated financial statements.
  
(3) Leases
Adoption of Leases, Topic 842
On February 3, 2019, the Company adopted ASU No. 2016-02, "Leases", and all related amendments using the modified retrospective method transition approach to leases existing at, or entered into after, February 3, 2019. Under this transition method, comparative prior periods, including disclosures, were not restated. The Company elected the transition package of practical expedients which, among other things, allowed the Company to carry forward historical lease classification. The Company chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on the Company's condensed consolidated statements of operations and there was no adjustment to its retained earnings opening balance sheet. The Company does not expect the adoption of the new standard to have a material impact on the Company's operating results on an ongoing basis.
The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while the Company's accounting for finance leases remained substantially unchanged. On February 3, 2019, the adoption of the new standard resulted in the recognition of a right-of-use asset of $1,474,000 and a lease liability of $1,407,000, and a reduction to prepaid expenses and other of $67,000.
The Company leases certain property and equipment, such as offices at subsidiary locations, transmission and production equipment, satellite transponder and office equipment. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of the Company's leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain the Company will exercise that option. As of May 4, 2019, the lease liability and right-of-use assets did not include any lease extension options.
The Company has lease agreements with lease and non-lease components, and has elected to account for these as a single lease component. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
 
 
For the Three-Month Period Ended
May 4, 2019
Operating lease cost
 
$
265,000

Short-term lease cost
 
62,000

Variable lease cost (a)
 
20,000

(a) Includes variable costs of finance leases.
Finance lease costs included amortization of right-of-use assets of $3,000 and interest on lease liabilities of $1,000 for the three-month period ended May 4, 2019.
The Company did not obtain any right-of-use assets in exchange for operating and finance leases during the three-month period ended May 4, 2019. Supplemental cash flow information related to leases were as follows:
 
 
For the Three-Month Period Ended
May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
264,000

Operating cash flows from finance leases
 
1,000

Financing cash flows from finance leases
 
3,000


8


The weighted average remaining lease term and weighted average discount rates related to leases were as follows:
 
 
May 4, 2019
Weighted average remaining lease term:
 
 
Operating leases
 
1.4 years
Finance leases
 
2.6 years
Weighted average discount rate:
 
 
Operating leases
 
5.5%
Finance leases
 
5.8%
Supplemental balance sheet information related to leases is as follows:
Leases
 
Classification
 
May 4, 2019
Assets
 
 
 
 
Operating lease right-of-use assets
 
Other assets
 
$
1,227,000

Finance lease right-of-use assets
 
Property and equipment, net
 
25,000

Total lease right-of-use assets
 
 
 
$
1,252,000

Operating lease liabilities
 
 
 
 
Current portion of operating lease liabilities
 
Current portion of operating lease liabilities
 
$
824,000

Operating lease liabilities, excluding current portion
 
Other long term liabilities
 
337,000

Total operating lease liabilities
 
 
 
1,161,000

Finance lease liabilities
 
 
 
 
Current portion of finance lease liabilities
 
Current liabilities: Accrued liabilities
 
10,000

Finance lease liabilities, excluding current portion
 
Other long term liabilities
 
16,000

Total finance lease liabilities
 
 
 
26,000

Total lease liabilities
 
 
 
$
1,187,000

Future maturities of lease liabilities as of May 4, 2019 are as follows:
Fiscal year
 
Operating Leases
 
Finance Leases
 
Total
2019
 
$
665,000

 
$
10,000

 
$
675,000

2020
 
542,000

 
8,000

 
550,000

2021
 

 
8,000

 
8,000

2022
 

 
2,000

 
2,000

2023
 

 

 

Thereafter
 

 

 

Total lease payments
 
1,207,000

 
28,000

 
1,235,000

Less imputed interest
 
(46,000
)
 
(2,000
)
 
(48,000
)
Total lease liabilities
 
$
1,161,000

 
$
26,000

 
$
1,187,000

As of May 4, 2019, the Company had no operating and finance leases that had not yet commenced.

9


Disclosures Related to Periods Prior to Adoption of Leases, Topic 842
Future minimum lease payments for assets under capital and operating leases at February 2, 2019 are as follows:
Future Minimum Lease Payments:
Capital Leases
 
Operating Leases
 
 
 
 
2019
$
13,000

 
$
1,005,000

2020
8,000

 
604,000

2021
8,000

 

2022
2,000

 

2023 and thereafter

 

Total minimum lease payments
31,000

 
$
1,609,000

Less: Amounts representing interest
(2,000
)
 
 
 
29,000

 
 
Less: Current portion
(12,000
)
 
 
Long-term capital lease obligation
$
17,000

 
 

(4) 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 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 May 4, 2019 and February 2, 2019, the Company recorded a merchandise return liability of $7,528,000 and $8,097,000, included in accrued liabilities, and a right of return asset of $3,997,000 and $4,410,000, included in other current assets.
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, 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 significant product group is provided in Note 10 - "Business Segments and Sales by Product Group."
As of May 4, 2019, approximately $59,000 is expected to be recognized from remaining performance obligations within the next two years. 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. Revenue recognized over time was $8,000 and $9,000 for the three-month periods ended May 4, 2019 and May 5, 2018.
Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. 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 May 4, 2019 and February 2, 2019, the Company had approximately $64,656,000 and $74,787,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $7,579,000 and $8,533,000.

(5) 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

10


all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
As of May 4, 2019 and February 2, 2019, the Company had $450,000 in Level 2 investments in the form of bank certificates of deposit, which are included in restricted cash equivalents in the condensed consolidated balance sheets. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of May 4, 2019 and February 2, 2019, the Company also had a long-term variable rate PNC Credit Facility (as defined below), classified as Level 2, with carrying values of $70,751,000 and $71,420,000. As of May 4, 2019 and February 2, 2019, $2,714,000 and $2,488,000 of the long-term variable rate PNC Credit Facility was classified as current. The fair value of the PNC Credit Facility approximates, and is based on, its carrying value due to the variable rate nature of the financial instrument. The Company has no Level 3 investments that use significant unobservable inputs.

(6) Intangible Assets
Intangible assets in the accompanying condensed consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life
(In Years)
 
May 4, 2019
 
February 2, 2019
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets
 
5-15
 
$
1,979,000

 
$
(543,000
)
 
$
1,786,000

 
$
(502,000
)
Finite-lived Intangible Assets
The finite-lived intangible assets are included in Other Assets in the accompanying balance sheets and consist of the Evine trademark, a vendor exclusivity agreement (as further described below), and the Princeton Watches trade name and customer list. Amortization expense related to the finite-lived intangible assets was $41,000 for the three-month periods ended May 4, 2019 and May 5, 2018. Estimated amortization expense is $194,000 for fiscal 2019, $204,000 for fiscal 2020, $195,000 for fiscal 2021, and $134,000 for fiscal 2022 and fiscal 2023.
On May 2, 2019, we entered into a five-year vendor exclusivity agreement with Sterling Time, LLC ("Sterling Time") and Invicta Watch Company of America, Inc. ("IWCA") in connection with the closing under the private placement securities purchase agreement described in Note 8 below. The vendor exclusivity agreement grants the Company the exclusive right in television shopping to market, promote and sell the products from IWCA. The Company issued five-year warrants to purchase 3,500,000 shares of our common stock in connection with and as consideration for primarily entering into a vendor exclusivity agreement with the Company, which represented an aggregate value of $193,000. The vendor exclusivity agreement is being amortized as cost of sales over the five year agreement term. See Note 8 - "Shareholders' Equity" for additional information.

(7) Credit Agreements
The Company's long-term credit facility consists of:
 
 
May 4, 2019
 
February 2, 2019
PNC revolving loan due July 27, 2023, principal amount
 
$
53,900,000

 
$
53,900,000

PNC term loan due July 27, 2023, principal amount
 
16,964,000

 
17,643,000

Less unamortized debt issuance costs
 
(113,000
)
 
(123,000
)
PNC term loan due July 27, 2023, carrying amount
 
16,851,000

 
17,520,000

Total long-term credit facility
 
70,751,000

 
71,420,000

Less current portion of long-term credit facility
 
(2,714,000
)
 
(2,488,000
)
Long-term credit facility, excluding current portion
 
$
68,037,000

 
$
68,932,000

PNC Credit Facility
On February 9, 2012, the Company entered into a credit and security agreement (as amended through July 27, 2018, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provides

11


a revolving line of credit of $90.0 million and provides 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 provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $25.0 million at the discretion of the lenders and upon certain conditions being met.
All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides 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. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $90.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory. The PNC Credit Facility is 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 may 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 bears interest at either a Base Rate or LIBOR plus a margin consisting of between 1% and 2% on Base Rate advances and 2% and 3% 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 bears interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3% on Base Rate term loans and 3% to 4% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.
As of May 4, 2019, the Company had borrowings of $53.9 million under its revolving credit facility. Remaining available capacity under the revolving credit facility as of May 4, 2019 was approximately $5.7 million, which provided liquidity for working capital and general corporate purposes. The PNC Credit Facility also provides for a term loan on which the Company had originally drawn to fund an expansion and improvements at the Company's distribution facility in Bowling Green, Kentucky and subsequently to partially pay down the Company's GACP Term Loan and reduce its revolving credit facility borrowings. As of May 4, 2019, there was approximately $17.0 million outstanding under the PNC Credit Facility term loan of which $2.7 million was classified as current in the accompanying balance sheet.
Principal borrowings under the term loan are to be payable in monthly installments over an 84-month amortization period commencing on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 3.0% if terminated on or before July 27, 2019, 1.0% if terminated on or before July 27, 2020, 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of May 4, 2019, the imputed effective interest rate on the PNC term loan was 6.2%.
Interest expense recorded under the PNC Credit Facility was $829,000 and $1,024,000 for the three-month periods ended May 4, 2019 and May 5, 2018.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $10.8 million. As of May 4, 2019, the Company's unrestricted cash plus unused line availability was $34.4 million and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Deferred financing costs, net of amortization, relating to the revolving line of credit was $516,000 and $561,000 as of May 4, 2019 and February 2, 2019 and are included within other assets within the accompanying balance sheet. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.

12


The aggregate maturities of the Company's long-term credit facility as of May 4, 2019 are as follows:
 
 
PNC Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2019
 
$
1,809,000

 
$

 
$
1,809,000

2020
 
2,714,000

 

 
2,714,000

2021
 
2,714,000

 

 
2,714,000

2022
 
2,714,000

 

 
2,714,000

2023
 
7,013,000

 
53,900,000

 
60,913,000

 
 
$
16,964,000

 
$
53,900,000

 
$
70,864,000


(8) Shareholders' Equity
Private Placement Securities Purchase Agreement
On May 2, 2019, the Company entered into a private placement securities purchase agreement ("Purchase Agreement") with certain accredited investors pursuant to which the Company: (a) sold, in the aggregate, 8,000,000 shares of the Company's common stock at a price of $0.75 per share and (b) issued five-year warrants ("5-year Warrants") to purchase 3,500,000 shares of the Company's common stock at an exercise price of $1.50 per share. The 5-year Warrants are exercisable in whole or in part from time to time through the expiration date of May 2, 2024. The purchasers included Invicta Media Investments, LLC, Michael and Leah Friedman, Timothy Peterman and certain other private investors. Invicta Media Investments, LLC is owned by 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, which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and our long-time vendor. A description of the relationship between the Company, ICWA and Sterling Time is contained in Note 15 - “Related Party Transactions”. Under the Purchase Agreement, the purchasers agreed to customary standstill provisions related to the Company for a period of two years, as well as to vote their shares in favor of matters recommended by the Company’s board of directors for approval by our shareholders. In addition, the Company agreed in the Purchase Agreement to appoint Eyal Lalo, an owner of IWCA, as vice chair of the Company’s board of directors, Michael Friedman to the Company’s board of directors and Timothy Peterman as the Company’s chief executive officer.
In connection with the closing under the Purchase Agreement, the Company entered into certain other agreements with IWCA, Sterling Time and the purchasers, including a five-year vendor exclusivity agreement with Sterling Time and IWCA. The vendor exclusivity agreement grants the Company the exclusive right in television shopping to market, promote and sell the products from IWCA.
The Company received gross proceeds of $6.0 million and incurred approximately $175,000 of issuance costs. The Company allocated the proceeds of the stock offering to the shares of common stock issued. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less issuance costs, recorded as additional paid in capital in the Company's balance sheet. The Company plans to use the proceeds for general working capital purposes. The 5-year Warrants were issued primarily as consideration for a five-year vendor exclusivity agreement with IWCA and Sterling Time. The aggregate market value of the 5-year Warrants on the grant date was $193,000, which was recorded as an intangible asset and is being amortized as cost of sales over the agreement term. The 5-year Warrants are indexed to the Company's publicly traded stock and were classified as equity. As a result, the fair value of the 5-year Warrants was recorded as an increase to additional paid-in capital.

13


Warrants
As of May 4, 2019, the Company had outstanding warrants to purchase 8,849,365 shares of the Company’s common stock, of which 7,474,365 are fully exercisable. The warrants expire five to seven years from the date of grant. The following table summarizes information regarding warrants outstanding at May 4, 2019:
Grant Date
 
Warrants Outstanding
 
Warrants Exercisable
 
Exercise Price
(Per Share)
 
Expiration Date
September 19, 2016
 
2,976,190

 
2,976,190

 
$2.90
 
September 19, 2021
November 10, 2016
 
333,873

 
333,873

 
$3.00
 
November 10, 2021
January 23, 2017
 
489,302

 
489,302

 
$1.76
 
January 23, 2022
March 16, 2017
 
50,000

 
50,000

 
$1.92
 
March 16, 2022
November 27, 2018
 
500,000

 
125,000

 
$1.05
 
November 27, 2025
November 27, 2018
 
1,000,000

 

 
$3.00
 
November 27, 2025
May 2, 2019
 
3,500,000

 
3,500,000

 
$1.50
 
May 2, 2024
On November 27, 2018, the Company issued warrants to Fonda, Inc. for 1,500,000 shares of our common stock in connection with and as consideration for entering into a services and trademark licensing agreement between the companies. Under the agreement, the parties plan to develop and market one or more lines of products, including a fitness and wellness lifestyle brand.  Additionally, the agreement identifies Jane Fonda as the primary spokesperson for the brand on our television network. The parties also plan to partner with key retailers to offer a brick & mortar version of the brand. Of the warrant shares issued, 500,000 have an exercise price of $1.05 per share representing the closing price of the Company's stock on the date the agreement was signed. The warrants vested as to 125,000 warrant shares on the date of grant and 125,000 of the warrant shares will vest on each of the first, second and third anniversaries of the date of grant. Of the warrant shares issued, 1,000,000 have an exercise price of $3.00 per share. These will vest in full on the date when the dollar volume-weighted average price of our common stock equals or exceeds $3.00 for 30 trading days. The aggregate market value on the date of the award was $441,000 and is being amortized as cost of sales over the three year services and trademark licensing agreement term. Compensation expense relating to the warrant issuance was $37,000 for the first quarter of fiscal 2019. As of May 4, 2019, there was $378,000 of total unrecognized compensation cost related to warrant issuances which is expected to be recognized over a weighted average period of 2.6 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 1,500,000 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 successful skin-care brand with a loyal customer base 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, 500,000 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. The remaining restricted shares will vest in equal amounts on January 4, 2020 and 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 $117,000 for the first quarter of fiscal 2019. As of May 4, 2019, there was $1,202,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average period of 2.6 years.
A summary of the status of the Company’s non-vested restricted stock award activity as of May 4, 2019 and changes during the three months then ended is as follows:
 
 
Restricted Stock
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2019
 
1,000,000

 
$
0.94

Granted
 

 
$

Vested
 

 
$

Non-vested outstanding, May 4, 2019
 
1,000,000

 
$
0.94


14


Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $374,000 and $305,000 for the first quarters of fiscal 2019 and fiscal 2018. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of May 4, 2019, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 13,000,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than 10 years after the effective date of the respective plan's inception or be exercisable more than 10 years after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. Except for market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options, and have contractual terms of 10 years from the date of grant.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
 
Fiscal 2019
 
Fiscal 2018
Expected volatility:
82%
 
72%
Expected term (in years):
6 years
 
6 years
Risk-free interest rate:
2.3%
-
2.6%
 
2.8%
A summary of the status of the Company’s stock option activity as of May 4, 2019 and changes during the three months then ended is as follows:
 
2011
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
 
2004
Incentive
Stock
Option
Plan
 
Weighted
Average
Exercise
Price
Balance outstanding, February 2, 2019
4,759,000

 
$
1.36

 
107,000

 
$
4.87

Granted
80,000

 
$
0.48

 

 
$

Exercised

 
$

 

 
$

Forfeited or canceled
(3,000
)
 
$
1.24

 
(10,000
)
 
$
1.47

Balance outstanding, May 4, 2019
4,836,000

 
$
1.35

 
97,000

 
$
5.22

Options exercisable at May 4, 2019
2,749,000

 
$
1.52

 
97,000

 
$
5.22


15


The following table summarizes information regarding stock options outstanding at May 4, 2019:
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
4,836,000

 
$
1.35

 
8.0
 
$
11,000

 
4,620,000

 
$
1.36

 
8.0
 
$
10,000

2004 Incentive:
97,000

 
$
5.22

 
5.0
 
$

 
97,000

 
$
5.22

 
5.0
 
$

The weighted average grant-date fair value of options granted in the first three-months of fiscal 2019 and fiscal 2018 was $0.34 and $0.65. The total intrinsic value of options exercised during the first three-months of fiscal 2019 and fiscal 2018 was $0. As of May 4, 2019, total unrecognized compensation cost related to stock options was $1,146,000 and is expected to be recognized over a weighted average period of approximately 1.6 years.
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $438,000 and $515,000 for the first quarters of fiscal 2019 and fiscal 2018. As of May 4, 2019, there was $2,251,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 2.0 years. The total fair value of restricted stock units vested during the first three months of fiscal 2019 and fiscal 2018 was $139,000 and $410,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company's stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.
The Company has granted time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock generally vests in three equal annual installments beginning one year from the grant date and is being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each restricted stock grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The grants are amortized as director compensation expense over the twelve-month vesting period.
The Company granted 765,000 and 489,000 market-based restricted stock performance units to executives as part of the Company's long-term incentive program during the first quarters of fiscal 2019 and fiscal 2018. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
 
Fiscal 2019
 
Fiscal 2018
Total grant date fair value
$393,000
 
$523,000
Total grant date fair value per share
$0.51
 
$1.07
Expected volatility
74%
 
73%
Weighted average expected life (in years)
3 years
 
3 years
Risk-free interest rate
2.3%
 
2.4%
The percent of the target market-based performance restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
Percentile Rank
 
Percentage of
Units Vested
< 33%
 
0%
33%
 
50%
50%
 
100%
100%
 
150%
On May 2, 2019, Timothy A. Peterman was appointed as Chief Executive Officer and entered into an executive employment agreement. In conjunction with the employment agreement, the Company granted 680,000 restricted stock units to Mr. Peterman. The restricted stock units vest in three tranches, each tranche consisting of one-third of the units subject to the award. Tranche 1 will vest upon the one year anniversary of the grant date. Tranche 2 will vest on the date the Company's average closing stock

16


price for 20 consecutive trading days equals or exceeds $2.00 per share and the executive has been continuously employed at least one year. Tranche 3 will vest on the date the Company's average closing stock price for 20 consecutive trading days equals or exceeds $4.00 per share and the executive has been continuously employed at least two years. The vesting of the second and third tranches can occur any time on or before May 1, 2029. The total grant date fair value was estimated to be $220,000 and is being amortized over the derived service periods for each tranche.
Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 2.5%, a weighted average expected life of 2.9 years and an implied volatility of 80% and were as follows for each tranche:
 
 
Fair Value (Per Share)
 
Derived Service Period
Tranche 1 (one year)
 
$0.37
 
1.00 Year
Tranche 2 ($2.00/share)
 
$0.32
 
3.27 Years
Tranche 3 ($4.00/share)
 
$0.29
 
4.53 Years
A summary of the status of the Company’s non-vested restricted stock unit activity as of May 4, 2019 and changes during the three-month period then ended is as follows:
 
Restricted Stock Units
 
Market-Based Units
 
Time-Based Units
 
Total
 
Shares
 
Weighted Average Grant Date Fair Value
 
Shares
 
Weighted Average Grant Date Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2019
1,629,000

 
$
1.35

 
1,807,000

 
$
1.04

 
3,436,000

 
$
1.18

Granted
1,219,000

 
$
0.44

 
1,228,000

 
$
0.44

 
2,447,000

 
$
0.44

Vested

 
$

 
(330,000
)
 
$
1.08

 
(330,000
)
 
$
1.08

Forfeited
(417,000
)
 
$
1.50

 
(7,000
)
 
$
0.60

 
(424,000
)
 
$
1.48

Non-vested outstanding, May 4, 2019
2,431,000

 
$
0.86

 
2,698,000

 
$
0.76

 
5,129,000

 
$
0.81


(9) Net Loss Per Common Share
During the fourth quarter of fiscal 2018, the Company issued a restricted stock award that meets the criteria of a participating security. Accordingly, basic income (loss) per share is computed using the two-class method under which earnings are allocated to both common shares and participating securities. Undistributed net losses are allocated entirely to common shareholders since the participating security has no contractual obligation to share in the losses. All shares of restricted stock are deducted from weighted-average number of common shares outstanding – basic. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods and is calculated using the treasury method.

17


A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:
 
 
Three-Month Periods Ended
 
 
May 4, 2019
 
May 5, 2018
Numerator:
 
 
 
 
Net loss (a)
 
$
(20,990,000
)
 
$
(2,986,000
)
Earnings allocated to participating share awards (b)
 

 

Net loss attributable to common shares — Basic and diluted
 
$
(20,990,000
)
 
$
(2,986,000
)
Denominator:
 
 
 
 
Weighted average number of common shares outstanding — Basic
 
67,318,462

 
65,360,951

Dilutive effect of stock options, non-vested shares and warrants (c)
 

 

Weighted average number of common shares outstanding — Diluted
 
67,318,462

 
65,360,951

Net loss per common share
 
$
(0.31
)
 
$
(0.05
)
Net loss per common share — assuming dilution
 
$
(0.31
)
 
$
(0.05
)
(a) The net loss for the three-month period ended May 4, 2019 includes costs related to executive and management transition of $2,031,000 and an inventory impairment write-down of $6,050,000. The net loss for the three-month period ended May 5, 2018 includes costs related to executive and management transition of $1,024,000 and contract termination costs of $753,000.
(b) During the fourth quarter of fiscal 2018, the Company issued a restricted stock award that is a participating security. For the three-month period ended May 4, 2019, the entire undistributed loss is allocated to common shareholders.
(c) For the three-month periods ended May 4, 2019 and May 5, 2018, there were 173,000 and -0- incremental in-the-money potentially dilutive common shares outstanding. The incremental in-the-money potentially dilutive common stock shares are excluded from the computation of diluted earnings per share, as the effect of their inclusion would be anti-dilutive.
 
(10) Business Segments and Sales by Product Group
The Company has one reporting segment, which encompasses its interactive video and digital commerce retailing. The Company markets, sells and distributes its products to consumers primarily through its video commerce television, online website, evine.com, and mobile platforms. The Company's television shopping, online and mobile platforms have similar economic characteristics with respect to products, product sourcing, vendors, marketing and promotions, gross margins, customers, and methods of distribution. In addition, the Company believes that its television shopping program is a key driver of traffic to both the evine.com website and mobile applications whereby many of the online sales originate from customers viewing the Company's television program and then placing their orders online or through mobile devices. All of the Company's sales are made to customers residing in the United States. The chief operating decision maker is the Chief Executive Officer of the Company.
Information on net sales by significant product groups are as follows (in thousands):
 
 
Three-Month Periods Ended
 
 
May 4,
2019
 
May 5,
2018
Jewelry & Watches
 
$
52,143

 
$
56,793

Home & Consumer Electronics
 
24,027

 
31,042

Beauty & Wellness
 
21,981

 
27,022

Fashion & Accessories
 
22,354

 
26,572

All other (primarily shipping & handling revenue)
 
11,016

 
15,076

Total
 
$
131,521

 
$
156,505


(11) Income Taxes
At February 2, 2019, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $338 million which may be available to offset future taxable income. The Company's federal NOLs generated prior to 2018 expire in varying

18


amounts each year from 2023 through 2037 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. The Company's federal NOLs generated in 2018 and after can be carried forward indefinitely.
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B preferred stock held by GE Capital Equity Investments, Inc. (“GE Equity”). Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company's ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited. In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOLs could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOLs. The Company currently has recorded a full valuation allowance for its net deferred tax assets. The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date. On July 13, 2015, the Company entered into a Shareholder Rights Plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, of the Company (“Preferred Stock” and each one one-thousandth of a share of Preferred Stock, a “Unit”) at a price of $9.00 per Unit. The Rights Plan will expire as of July 12, 2019 if the Company's shareholders do not re-approve the Rights Plan at the 2019 annual meeting of shareholders ("2019 Annual Meeting"). If the Company's shareholders re-approve the Rights Plan, the Rights Plan will expire on the close of business on the date of the third annual meeting of shareholders following the 2019 Annual Meeting, unless the Rights Plan is re-approved by shareholders prior to expiration.

(12) Restricted Cash Equivalents
The following table provides a reconciliation of cash and restricted cash equivalents reported with the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
 
May 4, 2019
 
February 2, 2019
Cash
$
28,739,000

 
$
20,485,000

Restricted cash equivalents
450,000

 
450,000

Total cash and restricted cash equivalents
$
29,189,000

 
$
20,935,000

The Company's restricted cash equivalents consist of certificates of deposit with original maturities of three months or less and are generally restricted for a period ranging from 30 to 60 days.

(13) Inventory Impairment Write-down
On May 2, 2019, Timothy A. Peterman was appointed Chief Executive Officer of the Company (See Note 16 - “Executive and Management Transition Costs”) and implemented a new merchandise strategy to shift airtime and merchandise by increasing higher contribution margin categories, such as jewelry & watches and beauty & wellness and decreasing home and fashion & accessories. This change of strategy resulted in the need to liquidate excess inventory in the fashion & accessories and home product categories as a result of the reduced airtime being allocated to those categories. As a result, the Company recorded a non-cash inventory write-down of $6,050,000 during the first quarter of fiscal 2019.

(14) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, consumer protection and regulatory matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate, will have a material adverse effect on the Company's operations or consolidated financial statements.

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(15) Related Party Transactions
Director Relationships
On May 2, 2019, in accordance with the Purchase Agreement described in Note 8 - "Shareholders' Equity", the Company's Board of directors elected Michael Friedman and Eyal Lalo to the board for a term expiring at our 2019 annual meeting of shareholders, and appointed Mr. Lalo as the vice chair of the board. Mr. Lalo reestablished Invicta, the flagship brand of the Invicta Watch Group and one of the Company's largest brands, in 1994, and has served as its chief executive officer since its inception. Mr. Friedman has served as chief executive officer of Sterling Time, which is the exclusive distributor of IWCA’s watches and watch accessories for television home shopping and our long-time vendor, since 2005 and served as a vendor to the Company for over 20 years. Under the Purchase Agreement, the Company agreed to recommend that our shareholders vote to re-elect each of Eyal Lalo and Michael Friedman as a director of the Company at the 2019 annual meeting of shareholders for a term of office expiring at the 2020 annual meeting of shareholders, and to reflect such recommendation in the proxy statement for the 2019 annual meeting and solicit proxies in favor thereof. For their service as non-employee members of the board of directors, Messrs. Friedman and Lalo will receive compensation under the Company's non-employee director compensation policy. Each director receives $65,000 in a cash retainer annually for service on our board. In addition, the Company's non-employee directors receive a restricted stock unit award equal to $65,000 divided by the closing price on the date of grant that vest on the day immediately prior to the next annual meeting of shareholders. These amounts will be prorated for the partial year, resulting in an award of 20,436 restricted stock units on May 2, 2019.
Mr. Lalo is the owner of IWCA, which is the sole owner of Invicta Media Investments, LLC. Mr. Friedman is an owner of Sterling Time. Pursuant to the Purchase Agreement, Invicta Media Investments, LLC purchased 4,000,000 shares of the Company's common stock and a warrant to purchase 2,526,562 shares of the Company's common stock for an aggregate purchase price of $3,000,000. Pursuant to the Purchase Agreement, Michael and Leah Friedman purchased 1,800,000 shares of the Company's common stock and a warrant to purchase 842,188 shares of the Company's common stock for an aggregate purchase price of $1,350,000.
In the first quarter of fiscal 2019 and fiscal 2018, the Company purchased products from Sterling Time, an affiliate of Mr. Friedman, in the aggregate amount of $15.4 million and $12.3 million. The Company purchased goods from Sterling Time on standard commercial terms. In the first quarter of fiscal 2019, the Company subsidized the cost of a promotional cruise for Invicta branded and other vendors’ products.

(16) Executive and Management Transition Costs
On May 2, 2019, Robert J. Rosenblatt, the Company's Chief Executive Officer, was terminated from his position as an officer and employee of the Company and will receive the payments set forth in his existing employment agreement. The Company recorded charges to income totaling $1,922,000 as a result. Mr. Rosenblatt remained a member of the Company's board of directors. On May 2, 2019, in accordance with the Purchase Agreement, the Company's board of directors appointed Timothy A. Peterman to serve as Chief Executive Officer, effective immediately and entered into an employment agreement with Mr. Peterman. In conjunction with these executive changes as well as other executive and management terminations made during the first three months of fiscal 2019, the Company recorded charges to income totaling $2,031,000 for the three-months ended May 4, 2019, which relate primarily to severance payments to be made as a result of the chief executive officer and other management terminations and other direct costs associated with the Company's 2019 executive and management transition.
On April 11, 2018, the Company entered into a transition and separation agreement with its Executive Vice President, Chief Operating Officer/Chief Financial Officer, under which his position terminated on April 16, 2018 and he served as a non-officer employee until June 1, 2018. On April 11, 2018, the Company announced the appointment of a new Chief Financial Officer, effective as of April 16, 2018. In conjunction with this executive change as well as other executive and management terminations made during the first three months of fiscal 2018, the Company recorded charges to income totaling $1,024,000 for the three-months ended May 5, 2018, which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the Company's 2018 executive and management transition.
On May 29, 2019, subsequent to the fiscal 2019 first quarter, the Company announced the completion of a cost optimization event which is expected to eliminate approximately $15 million in annual overhead costs. The event included a 20% reduction to the Company's non-variable workforce. In connection with the cost optimization event, the Company's (a) Executive Vice President, Chief Financial Officer, (b) Senior Vice President, Chief Accounting Officer, (c) Executive Vice President, General Counsel & Corporate Secretary, and (d) Executive Vice President, Managing Director of Brand Development ceased serving in such roles effective May 28, 2019. The Company expects to record charges of approximately $4.0 million to $4.5 million for severance

20


payments and other termination costs. On May 29, 2019, the Company announced the appointment of a new Chief Financial Officer, who was promoted from the previous position as Vice President, Finance and Investor Relations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended February 2, 2019.
Cautionary Statement Concerning Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words such as anticipates, believes, estimates, expects, intends, predicts, hopes, should, plans, will and similar expressions to identify forward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): variability in consumer preferences, shopping behaviors, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales and sales promotions; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor and shipping relationships and develop key partnerships and proprietary and exclusive brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facility covenants; customer acceptance of our branding strategy and our repositioning as a video commerce company; our ability to respond to changes in consumer shopping patterns and preferences, and changes in technology and consumer viewing patterns; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements, including without limitation, regulations of the Federal Communications Commission and Federal Trade Commission, and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant events (including disasters, weather events or events attracting significant television coverage) that either cause an interruption of television coverage or that divert viewership from our programming; disruptions in our distribution of our network broadcast to our customers; our ability to protect our intellectual property rights; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; expenses relating to the actions of activist or hostile shareholders; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits of television programming; and the risks identified under “Risk Factors” in our most recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our Company
We are an interactive media company that offers a mix of proprietary, exclusive and name-brand merchandise in the categories of jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories directly to consumers 24 hours a day in an engaging and informative shopping experience via television, online and mobile devices. Evine programming is distributed in more than 87 million homes through cable and satellite distribution agreements, agreements with telecommunications companies and over-the-air broadcast television stations. Our programming is also streamed live online at evine.com and is available on mobile channels and over-the-top platforms. We also operate evine.com, a comprehensive digital commerce platform that sells products which appear on our television shopping network as well as an extended assortment of online-only merchandise. Our programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.

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Our website address is www.evine.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy and information statements, and amendments to these reports if applicable, are available, without charge, on our investor relations website at investors.evine.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Copies also are available, without charge, by contacting the General Counsel, EVINE Live Inc., 6740 Shady Oak Road, Eden Prairie, Minnesota 55344-3433. Our goal is to maintain the investor relations website as a way for investors to easily find information about us, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically.
Products and Customers
Products sold on our digital commerce platforms include jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories. Historically jewelry & watches has been our largest merchandise category. While changes in our product mix have occurred as a result of customer demand and other factors including our efforts to diversify our offerings within our major merchandise categories, jewelry & watches remained our largest merchandise category during the first three months of fiscal 2019. We are focused on diversifying our merchandise assortment within our existing product categories as well as offering potential new product categories, including proprietary, exclusive and name-brands, in an effort to increase revenues, gross profits and to grow our new and active customer base. The following table shows our merchandise mix as a percentage of total digital commerce net merchandise sales for the three-month periods indicated by product category group.
 
 
For the Three-Month
 
 
Periods Ended
 
 
May 4,
2019
 
May 5,
2018
Net Merchandise Sales by Category
 
 
 
 
Jewelry & Watches
 
43%
 
40%
Home & Consumer Electronics
 
20%
 
22%
Beauty & Wellness
 
18%
 
19%
Fashion & Accessories
 
19%
 
19%
Total
 
100%
 
100%
Our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand, as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute. During the first quarter of fiscal 2019, we started implementing a new strategy to shift airtime and merchandise mix into higher contribution margin categories, such as jewelry & watches and beauty & wellness to drive better customer engagement, and improve our merchandising margin and shipping margin. We also expect this changed mix will lower our variable costs as a percentage of revenue. Our core digital commerce customers — those who interact with our network and transact through television, online and mobile devices — are primarily women between the ages of 45 and 70. We also have a strong presence of male customers of similar age. We believe our customers make purchases based on our unique products, quality merchandise and value.
Company Strategy
As an interactive media company, our strategy includes developing and growing multiple monetization models, including TV retailing, eCommerce, advertising and service fees to grow our business. We expect that these initiatives build upon our core strengths and provide us an advantage in the marketplace. We will be changing our corporate name to iMedia Brands, Inc. to reflect our broader portfolio of media brands.
Our strategy includes offering our curated assortment of proprietary, exclusive (i.e., products that are not readily available elsewhere), emerging and name-brand products. Our programming is distributed through our video commerce infrastructure, which includes television access to more than 87 million homes in the United States, primarily on cable and satellite systems as well as over-the-air broadcast and over-the-top platforms. Our merchandising plan is focused on delivering a balanced assortment of profitable products presented in an engaging, entertaining, shopping-centric format using our unique expertise in storytelling and “live on location” broadcasting. We are also focused on growing our high lifetime value customer file and growing our revenues, through social, mobile, online, and over-the-top platforms, as well as leveraging our capacity, system capability and expertise in distribution and product development to generate new business relationships. We believe these initiatives will position us to deliver a more engaging and enjoyable customer experience with product offerings and service that exceed customer expectations. We are planning to change the name of the Evine network back to ShopHQ, which was the name of the network in 2014. ShopHQ is

22


easier to recognize for existing television retailing customers and we believe this more intuitive and recognizable name will allow us to better promote our network and build our customer file again.
Our growth strategy also includes building profitable niche interactive media networks and services, such as Shop Bulldog and LaVenta. We plan to rebrand our existing Evine Too channel into a new omni-channel, television shopping brand that will sell and advertise men's merchandise and services, and the aspirational lifestyles associated with its brands and personalities. In addition, in 2020, we expect to launch a new omni-channel, Spanish language, television shopping brand centered on the Latin culture to sell and advertise merchandise, services and personalities, celebrating aspirational lifestyles. To grow our service revenue, we recently launched our first customer with our new third party logistics services. We plan to expand our service offering to provide a “one-stop commerce services offering” targeting brands interested in propelling their growth using our unique combination of assets in television, web and third party logistics services.
Program Distribution
Our 24-hour television shopping programs, Evine and Evine Too, which are distributed primarily on cable and satellite systems, reached more than 87 million homes during the three months ended May 4, 2019 and May 5, 2018. Our television home shopping programming is also simulcast 24 hours a day, 7 days a week on our website, evine.com, broadcast over-the-air in certain markets and is also available on all mobile channels and on various video streaming applications, such as Roku and Apple TV.  This multiplatform distribution approach, complemented by our strong mobile and online efforts, ensures that our programming is available wherever and whenever our customers choose to shop.
In addition to our total homes reached, we continue to increase the number of channels on existing distribution platforms and alternative distribution methods, including reaching deals to launch our programming on high definition ("HD") channels.  We believe that our distribution strategy of pursuing additional channels in productive homes already receiving our programming is a more balanced approach to growing our business than merely adding new television homes in untested areas. We also invested in HD equipment and, in fiscal 2017, transitioned to a full HD signal. We believe that having an HD feed of our service allows us to attract new viewers and customers.
Cable and Satellite Distribution Agreements
We have entered into distribution agreements with cable operators, direct-to-home satellite providers and telecommunications companies to distribute our television programming over their systems. The terms of the distribution agreements typically range from one to five years. During the fiscal year, certain agreements with cable, satellite or other distributors may expire. Under certain circumstances, the cable operators or we may cancel the agreements prior to their expiration. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales and earnings unless we are able to arrange for alternative means of broadly distributing our television programming.
Our Competition
The video and digital commerce retail business is highly competitive, and we are in direct competition with numerous retailers, including online retailers, many of whom are larger, better financed and have a broader customer base than we do. In our television shopping and digital commerce operations, we compete for customers with other television shopping and e-commerce retailers, infomercial companies, other types of consumer retail businesses, including traditional "brick and mortar" department stores, discount stores, warehouse stores and specialty stores; catalog and mail order retailers and other direct sellers.
Our direct competitors within the television shopping industry include QVC, Inc. and HSN, Inc., which are owned by Qurate Retail Inc. Both QVC, Inc. and HSN, Inc. are substantially larger than we are in terms of annual revenues and customers, and the programming of each is carried more broadly to U.S. households, including high definition bands and multi-channel carriage, than our programming. Multimedia Commerce Group, Inc., which operates Jewelry Television, also competes with us for customers in the jewelry category. In addition, there are a number of smaller niche retailers and startups in the television shopping arena who compete with us. We believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do, and that their fee arrangements are substantially on a commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our current sales level, our distribution costs as a percentage of total consolidated net sales are higher than those of our competition. However, we have the ability to leverage this fixed expense with sales growth to accelerate improvement in our profitability.

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We anticipate continued competition for viewers and customers, for experienced television commerce and e-commerce personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies, but also from other companies that seek to enter the television shopping and online retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that our ability to be successful in the video and digital commerce industry will be dependent on a number of key factors, including continuing to expand our digital footprint to meet our customers' needs, increasing the lifetime value of our customer base by a combination of growing the number of customers who purchase products from us and maximizing the dollar value of sales and profitability per customer.
Summary Results for the First Quarter of Fiscal 2019
Consolidated net sales for our fiscal 2019 first quarter were $131.5 million compared to $156.5 million for our fiscal 2018 first quarter, which represents a 16% decrease. We reported an operating loss of $20.2 million and a net loss of $21.0 million for our fiscal 2019 first quarter. The operating and net loss for the fiscal 2019 first quarter included an inventory impairment write-down of $6.1 million and charges relating to executive and management transition costs totaling $2.0 million. We had an operating loss of $1.9 million and a net loss of $3.0 million for our fiscal 2018 first quarter. The operating and net loss for the fiscal 2018 first quarter included charges relating to executive and management transition costs totaling $1.0 million and contract termination costs of $753,000.
Private Placement Securities Purchase Agreement
On May 2, 2019, we entered into a private placement securities purchase agreement ("Purchase Agreement") with certain accredited investors pursuant to which we: (a) sold, in the aggregate, 8,000,000 shares of our common stock at a price of $0.75 per share and (b) issued five-year warrants ("5-year Warrants") to purchase 3,500,000 shares of our common stock at an exercise price of $1.50 per share. The 5-year Warrants are exercisable in whole or in part from time to time through the expiration date of May 2, 2024. The purchasers included Invicta Media Investments, LLC, Michael and Leah Friedman, Timothy Peterman and certain other private investors. 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 our 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 our long-time vendor. A description of the relationship between our company, ICWA and Sterling Time is contained in Note 15 - “Related Party Transactions” in the notes to our condensed consolidated financial statements. Under the Purchase Agreement, the purchasers agreed to customary standstill provisions related to our company for a period of two years, as well as to vote their shares in favor of matters recommended by our board of directors for approval by our shareholders. In addition, we agreed in the Purchase Agreement to appoint Eyal Lalo, an owner of IWCA, as vice chair of our board of directors, Michael Friedman to our board of directors and Timothy Peterman as our chief executive officer.
In connection with the closing under the Purchase Agreement, we entered into certain other agreements with IWCA, Sterling Time and the purchasers, including a 5-year vendor exclusivity agreement with Sterling Time and IWCA. The vendor exclusivity agreement grants us the exclusive right in television shopping to market, promote and sell the products from IWCA.
The Company received gross proceeds of $6.0 million and incurred approximately $175,000 of issuance costs. We plan to use the proceeds for general working capital purposes. The 5-year Warrants were issued primarily as consideration for a five-year vendor exclusivity agreement with IWCA and Sterling Time. The aggregate market value of the 5-year Warrants on the grant date was $193,000, which was recorded as an intangible asset and is being amortized as cost of sales over the agreement term.
Inventory Impairment Write-down
On May 2, 2019, Timothy A. Peterman was appointed Chief Executive Officer of the Company (see Note 16 - “Executive and Management Transition Costs” in the notes to our condensed consolidated financial statements) and implemented a new merchandise strategy to shift airtime and merchandise by increasing higher contribution margin categories, such as jewelry & watches and beauty & wellness and decreasing home and fashion & accessories. This change of strategy resulted in the need to liquidate excess inventory in the fashion & accessories and home product categories as a result of the reduced airtime being allocated to those categories. As a result, we recorded a non-cash inventory write-down of $6.1 million during the first quarter of fiscal 2019.
Executive and Management Transition Costs
On May 2, 2019, Robert J. Rosenblatt, our Chief Executive Officer, was terminated from his position as an officer and employee of our company and will receive the payments set forth in his existing employment agreement. Mr. Rosenblatt remained a member of our board of directors. On May 2, 2019, in accordance with the Purchase Agreement, our board of directors appointed Timothy A. Peterman to serve as Chief Executive Officer, effective immediately and entered into an employment agreement with

24


Mr. Peterman. In conjunction with these executive changes as well as other executive and management terminations made during the first three months of fiscal 2019, we recorded charges to income totaling $2.0 million for the three-months ended May 4, 2019, which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with our 2019 executive and management transition.
Results of Operations
Selected Condensed Consolidated Financial Data
Operations

 
 
Dollar Amount as a
Percentage of Net Sales for the
 
 
Three-Month Periods Ended
 
 
May 4,
2019
 
May 5,
2018
Net sales
 
100.0%
 
100.0%
 
 
 
 
 
Gross margin
 
28.4%
 
35.9%
Operating expenses:
 
 
 
 
Distribution and selling
 
35.6%
 
31.2%
General and administrative
 
5.2%
 
4.3%
Depreciation and amortization
 
1.3%
 
1.0%
Executive and management transition costs
 
1.6%
 
0.7%
 
 
43.7%
 
37.2%
Operating loss
 
(15.3)%
 
(1.3)%

Key Performance Metrics

 
For the Three-Month
 
Periods Ended
 
May 4,
2019
 
May 5,
2018
 
Change
Merchandise Metrics
 
 
 
 
 
   Gross margin %
28.4%
 
35.9%
 
(750) bps
   Net shipped units (in thousands)
1,899
 
2,472
 
(23)%
   Average selling price
$63
 
$57
 
11%
   Return rate
20.2%
 
18.9%
 
130 bps
   Digital net sales % (a)
52.8%
 
53.0%
 
(20) bps
Total Customers - 12 Month Rolling (in thousands)
1,179
 
1,269
 
(7)%
(a) Digital net sales percentage is calculated based on net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online.

Net Shipped Units
The number of net shipped units (shipped units less units returned) during the fiscal 2019 first quarter decreased 23% from the prior year comparable quarter to approximately 1.9 million. The decrease in net shipped units during the first quarter of fiscal 2019 was driven primarily by a decrease in consolidated net sales and by offering a higher average selling price assortment in our jewelry & watches and beauty & wellness product categories.

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Average Selling Price
The average selling price ("ASP") per net unit was $63 in the first quarter of fiscal 2019, an 11% increase from the prior year quarter. The increase in the first quarter ASP was primarily driven by ASP increases in our jewelry & watches and beauty & wellness product categories, combined with a mix shift into jewelry & watches.
Return Rates
For the three months ended May 4, 2019, our return rate was 20.2% compared to 18.9% for the comparable prior year quarter, a 130 basis point increase. The increase in the return rates was driven primarily by a sales mix shift out of the home & consumer electronics category and into our jewelry & watches category, which has a higher return rate. The increase was additionally driven by return rate increases in our jewelry & watches and beauty & wellness product categories commensurate with the ASP increases in these categories. We continue to monitor our return rates in an effort to keep our overall return rates commensurate with our current product mix and our ASP levels.
Total Customers
Total customers who have purchased over the last twelve months decreased 7% over the prior year to approximately 1.2 million. The decrease was driven primarily by a reduction in new customers as compared to the prior year.
Net Sales
Consolidated net sales, inclusive of shipping and handling revenue, for the fiscal 2019 first quarter were $131.5 million, a 16% decrease from consolidated net sales of $156.5 million for the comparable prior year quarter. The decrease in quarterly consolidated net sales was driven by decreases in all product categories. During the first quarter of fiscal 2019, net sales from home & consumer electronics and fashion & accessories decreased as a result of reduced airtime and productivity. Net sales from beauty & wellness and jewelry & watches decreased as a result of reduced productivity. Our digital sales penetration, or, the percentage of net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online, was 52.8% for the first quarter of fiscal 2019 compared to 53.0% in the comparable prior year period. Overall, we continue to deliver strong digital sales penetration. Our mobile penetration increased to 58.7% of total digital orders in the first quarter of fiscal 2019 versus 49.4% of total digital orders for the comparable prior year period.
Gross Profit
Gross profit for the first quarter of fiscal 2019 was $37.3 million, a decrease of $19.0 million, or 34%, compared to the first quarter of fiscal 2018. The decrease in gross profit during the first quarter of fiscal 2019 was primarily driven by the decrease in net sales, a non-cash inventory impairment write-down of $6.1 million, and lower gross profit percentages experienced in most product categories. The non-cash inventory impairment write-down was the result of the new planned shift in our airtime and merchandise mix into higher margin categories, such as jewelry & watches and beauty & wellness and out of home and fashion & accessories and to liquidate excess inventory in the fashion and home product categories. Gross margin percentages for the first quarters of fiscal 2019 and fiscal 2018 were 28.4% and 35.9%, which represent a 750 basis point decrease. The decrease in the gross margin percentage reflects the inventory write-down and decreased margin rates, primarily in our beauty & wellness and fashion & accessories categories. The decrease in beauty & wellness reflects a mix shift within the product category to brands with lower margins, while the decrease in fashion & accessories reflects margin rate pressure resulting from softer than expected sales.
Operating Expenses
Total operating expenses for the fiscal 2019 first quarter were approximately $57.4 million compared to $58.2 million for the comparable prior year period, a decrease of 1.3%. Total operating expenses as a percentage of net sales were 43.7% and 37.2% during the first quarters of fiscal 2019 and fiscal 2018. Total operating expenses for the fiscal 2019 first quarter included executive and management transition costs of $2.0 million, while total operating expenses for the fiscal 2018 first quarter included executive and management transition costs of $1.0 million. Excluding executive and management transition costs, total operating expenses as a percentage of net sales for the first quarters of fiscal 2019 and fiscal 2018 were 42.1% and 36.5%.
Distribution and selling expense decreased $2.0 million, or 4%, to $46.9 million, or 35.6% of net sales during the fiscal 2019 first quarter compared to $48.9 million, or 31.2% of net sales for the comparable prior year fiscal quarter. Distribution and selling expense decreased during the quarter due to decreased variable costs of $1.6 million, decreased program distribution expense of $314,000 and decreased software service fees of $132,000. The decrease in variable costs was primarily driven by decreased variable credit card processing fees and bad debt credit expense of $1.1 million and decreased variable fulfillment and customer service salaries and wages of $440,000. Total variable expenses during the first quarter of fiscal 2019 were approximately 9.8% of total net sales versus 9.3% of total net sales for the prior year comparable period. Variable expense dollars for the quarter

26


declined as a result of decreases in net sales and net shipped units, as well as we continue to find efficiencies through process and technology. Variable expense as a percentage of net sales was 9.8% or 50 basis points higher than last year, reflecting the deleveraging of our fulfillment, credit, and customer solution expense categories.
To the extent that our ASP changes, our variable expense as a percentage of net sales could be impacted as the number of our shipped units change. Program distribution expense is primarily a fixed cost per household, however, this expense may be impacted by changes in the number of average homes or channels reached or by rate changes associated with changes in our channel position with carriers.
General and administrative expense for the fiscal 2019 first quarter increased $150,000, or 2%, to $6.9 million or 5.2% of net sales, compared to $6.7 million or 4.3% of net sales for the comparable prior year fiscal quarter. General and administrative expense increased during the first quarter primarily as a result of increased professional fees of $172,000 and increased salaries of $124,000, partially offset by decreased software maintenance and services fees of $73,000 and decreased telecommunications expense of $59,000.
Depreciation and amortization expense for the fiscal 2019 first quarter increased $107,000, or 7%, to $1.7 million compared to $1.6 million for the comparable prior year period. Depreciation and amortization expense as a percentage of net sales for the three-month periods ended May 4, 2019 and May 5, 2018 was 1.3% and 1.0%. The increase in the quarterly depreciation and amortization expense was primarily due to an average net increase in our non-fulfillment depreciable asset base year over year.
Operating Loss
For the fiscal 2019 first quarter, we reported an operating loss of approximately $20.2 million compared to an operating loss of $1.9 million for the fiscal 2018 first quarter. For the first quarter of fiscal 2019, our operating loss increased primarily as a result of a decrease in gross profit driven by a decrease in consolidated net sales, a decrease in margin rates, a non-cash inventory write-down of $6.1 million, and increases in executive and management transition costs, general and administrative expense, and depreciation and amortization expense. The increase in our operating loss was partially offset by a decrease in distribution and selling expense.
Net Loss
For the fiscal 2019 first quarter, we reported a net loss of $21.0 million or $0.31 per share on 67,318,462 weighted average basic common shares outstanding compared with a net loss of $3.0 million or $0.05 per share on 65,360,951 weighted average basic common shares outstanding in the fiscal 2018 first quarter. The net loss for the first quarter of fiscal 2019 includes a non-cash inventory write-down of $6.1 million, executive and management transition costs of $2.0 million and interest expense of $830,000. The net loss for the first quarter of fiscal 2018 included executive and management transition costs of $1.0 million, contract termination costs of $753,000 and interest expense of $1.0 million.
For the first quarters of fiscal 2019 and fiscal 2018, the net loss reflects an income tax provision of $15,000 and $20,000. The income tax provision for both quarters relates to state income taxes payable on certain income for which there is no loss carryforward benefit available. We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be realized in the future.

27


Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the fiscal 2019 first quarter was $(8.5) million compared with Adjusted EBITDA of $3.3 million for the fiscal 2018 first quarter.
A reconciliation of the comparable GAAP measure, net loss, to Adjusted EBITDA follows, in thousands:
 
 
For the Three-Month
 
 
Periods Ended
 
 
May 4,
2019
 
May 5,
2018
Net loss
 
$
(20,990
)
 
$
(2,986
)
Adjustments:
 
 
 
 
Depreciation and amortization
 
2,629

 
2,620

Interest income
 
(5
)
 
(7
)
Interest expense
 
830

 
1,026

Income taxes
 
15

 
20

EBITDA (a)
 
$
(17,521
)
 
$
673

 
 
 
 
 
A reconciliation of EBITDA to Adjusted EBITDA is as follows:
 
 
 
 
EBITDA (a)
 
$
(17,521
)
 
$
673

Adjustments:
 
 
 
 
Executive and management transition costs
 
2,031

 
1,024

Inventory impairment write-down
 
6,050

 

Contract termination costs
 

 
753

Non-cash share-based compensation expense
 
966

 
820

Adjusted EBITDA (a)
 
$
(8,474
)
 
$
3,270

(a) EBITDA as defined for this statistical presentation represents net loss for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding non-operating gains (losses), executive and management transition costs, non-cash impairment charges and write downs, contract termination costs and non-cash share-based compensation expense.
We have included the term "Adjusted EBITDA" in our EBITDA reconciliation in order to adequately assess the operating performance of our video and digital businesses and in order to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows investors to make a meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under our management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income (loss), net income (loss) or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.
Seasonality
Our business is subject to seasonal fluctuation, with the highest sales activity normally occurring during our fourth fiscal quarter of the year, namely November through January. Our business is also sensitive to general economic conditions and business conditions affecting consumer spending. Additionally, our television audience (and therefore sales revenue) can be significantly impacted by major world or domestic television-covering events which attract television viewership and divert audience attention away from our programming.
Critical Accounting Policies and Estimates
A discussion of the critical accounting policies related to accounting estimates and assumptions are discussed in detail in our fiscal 2018 annual report on Form 10-K under the caption entitled "Critical Accounting Policies and Estimates."

28


Recently Issued Accounting Pronouncements
See Note 2 - “Basis of Financial Statement Presentation” in the notes to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Financial Condition, Liquidity and Capital Resources
As of May 4, 2019, we had cash of $28.7 million and had restricted cash equivalents of $450,000. Our restricted cash equivalents are generally restricted for a period ranging from 30 to 60 days. In addition, under the PNC Credit Facility (as defined below), we are required to maintain a minimum of $10 million of unrestricted cash plus unused line availability at all times. As of February 2, 2019, we had cash of $20.5 million and had restricted cash equivalents of $450,000. For the first three months of fiscal 2019, working capital decreased $14.7 million to $66.2 million (see "Cash Requirements" below for additional information on changes in working capital accounts). The current ratio (our total current assets over total current liabilities) was 1.7 at May 4, 2019 and 1.8 at February 2, 2019.
Sources of Liquidity
Our principal source of liquidity is our available cash and our additional borrowing capacity under our revolving credit facility with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc. As of May 4, 2019, we had cash of $28.7 million and additional borrowing capacity of $5.7 million. Our cash was held in bank depository accounts primarily for the preservation of cash liquidity.
PNC Credit Facility
On February 9, 2012, we entered into a credit and security agreement (as amended through July 27, 2018, the "PNC Credit Facility") with PNC, as lender and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provides a revolving line of credit of $90.0 million and provides for a term loan on which we had originally drawn to fund improvements at our distribution facility in Bowling Green, Kentucky and to partially pay down our previously outstanding term loan with GACP Finance Co., LLC. The PNC Credit Facility also provides for an accordion feature that would allow us to expand the size of the revolving line of credit by an additional $25.0 million at the discretion of the lenders and upon certain conditions being met.
All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides 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. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $90.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.
The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 1% and 2% on Base Rate advances and 2% and 3% on LIBOR advances based on our trailing twelve-month reported leverage ratio (as defined in the PNC Credit Facility) measured semi-annually as demonstrated in our financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3% on Base Rate term loans and 3% to 4% on LIBOR Rate term loans based on our leverage ratio measured annually as demonstrated in our audited financial statements.
As of May 4, 2019, we had borrowings of $53.9 million under our revolving line of credit. As of May 4, 2019, the term loan under the PNC Credit Facility had $17.0 million outstanding, of which $2.7 million was classified as current in the accompanying balance sheet. Remaining available capacity under the revolving credit facility as of May 4, 2019 was approximately $5.7 million, which provides liquidity for working capital and general corporate purposes. In addition, as of May 4, 2019, our unrestricted cash plus unused line availability was $34.4 million, we were in compliance with applicable financial covenants of the PNC Credit Facility and expect to be in compliance with applicable financial covenants over the next twelve months.
Principal borrowings under the modified term loan are to be payable in monthly installments over an 84-month amortization period commencing on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $10.8 million. In addition, the PNC Credit Facility places restrictions on our ability to incur additional indebtedness or prepay existing

29


indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Private Placement Securities Purchase Agreement
On May 2, 2019, we entered into a Purchase Agreement with certain accredited investors to which we: (a) sold, in the aggregate, 8,000,000 shares of our common stock at a price of $0.75 per share and (b) issued 5-year Warrants to purchase 3,500,000 shares of our common stock at an exercise price of $1.50 per share. The 5-year Warrants are exercisable in whole or in part from time to time through the expiration date of May 2, 2024. The Company received gross proceeds of $6.0 million and incurred approximately $175,000 of issuance costs. We plan to use the proceeds for general working capital purposes.
Other
Our ValuePay program is an installment payment program which allows customers to pay by credit card for certain merchandise in two or more equal monthly installments. Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment program. However, any such change to the terms of our ValuePay installment program could impact future sales, particularly for products sold with higher price points. Please see "Cash Requirements" below for further discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding accounts receivable, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers, to the extent possible, with related cash payments to our vendors. ValuePay remains a cost-effective promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facility. As of February 2, 2019, we had contractual cash obligations and commitments, primarily with respect to our cable and satellite agreements, credit facility, operating leases, and finance leases totaling approximately $240.7 million over the next five fiscal years. During fiscal 2018 and fiscal 2019, we experienced a decline in customers and lost a significant brand which contributed to a decrease in our consolidated net sales and corresponding decrease in profitability. Additionally, our stock price has declined and is currently trading below $1.00 and as a result, we have received a notification that we are out of compliance with Nasdaq listing requirements. We have taken, or are taking the following steps to enhance our operations and liquidity position: entered into a private placement securities purchase agreement in which we received gross proceeds of $6.0 million during the first quarter of fiscal 2019, implemented a cost reduction in overhead costs with $15 million in expected annualized savings, primarily driven by a 20% reduction in our non-variable work force; planned a reduction in capital expenditures compared to prior years; managed our inventory levels commensurable with our sales; launched a new marquee beauty brand in January 2019; and partnering with well-known personalities to develop and market exclusive lifestyle brands. Our ability to fund operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in our sales and to use available funds from our PNC Credit Facility. Our ability to borrow funds is dependent on our ability to maintain an adequate borrowing base and our ability to meet our credit facility's covenants, which requires, among other things, maintaining a minimum of $10 million of unrestricted cash plus facility availability at all times. Accordingly, if we do not generate sufficient cash flow from operations to fund our working capital needs and planned capital expenditures, and our cash reserves are depleted, we may need to take further actions, such as reducing or delaying capital investments, strategic investments or other actions. We believe that our existing cash balances, together with our availability under the PNC Credit Facility, will be sufficient to fund our normal business operations over the next twelve months from the issuance of this report. However, there can be no assurance that we will be able to achieve our strategic initiatives or obtain additional funding on favorable terms in the future which could have a significant adverse effect on our operations.
For the three months ended May 4, 2019, net cash provided by operating activities totaled $4.7 million compared to net cash provided by operating activities of approximately $11.7 million for the comparable fiscal 2018 period. Net cash provided by operating activities for the fiscal 2019 and 2018 periods reflects the net loss, as adjusted for depreciation and amortization, share-based payment compensation, inventory impairment write-down, amortization of deferred revenue and amortization of deferred financing costs. In addition, net cash provided by operating activities for the three months ended May 4, 2019 reflects a decrease in accounts receivable, inventory, and prepaid expenses and other and an increase in accounts payable and accrued liabilities.

30


Accounts receivable primarily decreased during the first three months of fiscal 2019 as a result of collections made on outstanding receivables balances resulting from our seasonal high fourth quarter and a decrease in sales. Inventories decreased as a result of managing our inventory levels commensurable with our sales. Accounts payable and accrued liabilities increased during the first three months of fiscal 2019 primarily due to an increase in inventory payables as a result of the timing of payments made to vendors, an increase in accrued severance resulting from our 2019 executive and management transition, an increase in accrued cable distribution fees due to timing of payments and an increase in accrued salaries due to timing of payments. The increase in accounts payable and accrued liabilities was partially offset by a decrease in our merchandise return liability.
Net cash used for investing activities totaled $1.8 million for the first three months of fiscal 2019 compared to net cash used for investing activities of $2.1 million for the comparable fiscal 2018 period. For the three months ended May 4, 2019 and May 5, 2018, expenditures for property and equipment were approximately $1.8 million and $2.1 million. Capital expenditures made during the periods presented relate primarily to expenditures made for the upgrades in our customer service call routing technology, development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems, related computer equipment, digital broadcasting equipment, and other office equipment, warehouse equipment and production equipment. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility in Bowling Green, Kentucky; security upgrades to our information technology; the upgrade of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives.
Net cash provided by financing activities totaled $5.3 million for the three months ended May 4, 2019 and related primarily to proceeds from the PNC revolving loan of $58.3 million and proceeds from the issuance of common stock and warrants of $6.0 million, offset by principal payments on the PNC revolving loan of $58.3 million, principal payments on our PNC term loan of $678,000, tax payments for restricted stock unit issuances of $8,000 and finance lease payments of $3,000. Net cash used for financing activities totaled $3.5 million for the three months ended May 5, 2018 and related primarily to principal payments on the PNC revolving loan of $53.3 million, principal payments on our PNC term loan of $581,000 and tax payments for restricted stock unit issuances of $100,000, partially offset by proceeds from the PNC revolving loan of $50.5 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments as a hedge to offset market risk. Our operations are conducted primarily in the United States and are not subject to foreign currency exchange rate risk. Some of our products are sourced internationally and may fluctuate in cost as a result of foreign currency swings; however, we believe these fluctuations have not been significant. Our credit facility has exposure to interest rate risk; changes in market interest rates could impact the level of interest expense and income earned on our cash portfolio.

ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

31


PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, employment, intellectual property and consumer protection matters. In the opinion of management, none of the claims and suits, either individually or in the aggregate will have a material adverse effect on our operations or consolidated financial statements.
    
ITEM 1A. RISK FACTORS
See Part I. Item 1A., "Risk Factors," of EVINE Live Inc.'s Annual Report on Form 10-K for the year ended February 2, 2019, for a detailed discussion of the risk factors affecting the Company. There have been no material changes from the risk factors described in the annual report.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Dividends
We are restricted from paying dividends on our common stock by the PNC Credit Facility, as discussed in Note 7 - “Credit Agreements” in the notes to our condensed consolidated financial statements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.

ITEM 5. OTHER INFORMATION
None.


32


ITEM 6. EXHIBITS
Exhibit
No.
 
Description
 
Manner of Filing
3.1
 
 
Incorporated by reference (1)
 
 
 
 
 
3.2
 
 
Incorporated by reference (2)
 
 
 
 
 
3.3
 
 
Incorporated by reference (3)
 
 
 
 
 
4.1
 
 
Incorporated by reference (4)
 
 
 
 
 
10.1
 
 
Incorporated by reference (5)
 
 
 
 
 
10.2
 
 
Incorporated by reference (6)
 
 
 
 
 
10.3
 
 
Incorporated by reference (7)
 
 
 
 
 
10.4
 
 
Incorporated by reference (8)
 
 
 
 
 
10.5
 
 
Incorporated by reference (9)
 
 
 
 
 
10.6
 
 
Incorporated by reference (10)
 
 
 
 
 
10.7
 
 
Incorporated by reference (11)
 
 
 
 
 
10.8
 
 
Incorporated by reference (12)
 
 
 
 
 
10.9
 
 
Incorporated by reference (13)
 
 
 
 
 
31.1
 
 
Filed herewith
 
 
 
 
 
31.2
 
 
Filed herewith
 
 
 
 
 
32
 
 
Filed herewith
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
Filed herewith
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
Filed herewith
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
Filed herewith
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
Filed herewith
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
Filed herewith
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
Filed herewith
____________________

(1)
Incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed on November 18, 2014, File No. 000-20243.
(2)
Incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed on July 7, 2016, File No. 001-37495.

33


(3)
Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on July 13, 2015, File No. 000-20243.
(4)
Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(5)
Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(6)
Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(7)
Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(8)
Incorporated herein by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(9)
Incorporated herein by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(10)
Incorporated herein by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(11)
Incorporated herein by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(12)
Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on May 3, 2019, File No. 001-37495.
(13)
Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 21, 2019, File No. 001-37495.

34


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
EVINE Live Inc.
 
June 12, 2019
/s/ TIMOTHY A. PETERMAN
 
Timothy A. Peterman
 
Chief Executive Officer
(Principal Executive Officer) 
 
 
 
 
June 12, 2019
/s/ MICHAEL R. PORTER
 
Michael R. Porter
 
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) 
 

35