x
1, 2020
(Exact
| New York | 14-1541629 | |
| I.R.S. Employer Identification | ||
2818 N. Sullivan Rd. Ste 30 Spokane, WA 99216 | 12203 | |
| Address of Principal Executive Offices | Zip Code |
(Address of principal executive offices, including zip code)
(518) 452-1242
(Registrant’s telephone number, including area code)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common | TWMC | NASDAQ Stock Market |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, (as defined” and “emerging growth company” in Rule 12b-2 of the Act).
| Large accelerated filer | Accelerated filer |
| Non-accelerated filer | |
| Emerging growth company ☐ |
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| continued operating losses; • impact of the novel coronavirus identified as “COVID-19” on our business and operating results; • the ability of the Company to satisfy its liabilities and to continue as a going concern; • our ability to realize the benefits of recent divestitures; • maintaining etailz’s segment relationship with Amazon; • decline in the Company’s stock price; • the limited public float and trading volume for our Common Stock; •new product introductions; | ||
| technology; | ||
| dependence on key employees, the ability to hire new employees and pay competitive wages; |
•the Company’s level of debt and related restrictions and limitations; | ||
| future cash flows; | ||
| vendor terms; | ||
| interest rate fluctuations; | ||
| access to third party digital | ||
| marketplaces; | adverse publicity; | |
| product liability claims; | ||
| changes in laws and regulations; | ||
| breach of data security; | ||
| increase in Amazon | ||
| storage fees; | the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and other sections of this Annual Report on Form 10-K |
Item 1. BUSINESS
| Item 1. | BUSINESS |
We operate
Stores and Store Concepts
Mall stores. The Company operated 231 traditional mall-based stores as of February 3, 2018. Mall stores average about 5,200 square feet and carry a full complement of entertainment products, including trend, video, music, electronics, and related products.
Video only stores.The Company operated 6 video only stores as of February 3, 2018, predominately under the Suncoast Motion Pictures brand. These stores specialize in the sale of video and related product. They average about 2,500 square feet.
Freestanding Stores.The Company operated 23 freestanding stores predominantly under the fye brand. They carry a full complement of entertainment products, including trend, video, music, electronics, and related products and are located in freestanding, strip center and downtown locations. The freestanding stores average approximately 10,300 square feet.
Retail Web Sites
Insights Driven | |
| Simplicity | Innovation |
| Results | Ownership |
platform is shown in Figure 1.
tax provider – TaxCloud. In 2020, etailz Retail Partnerships
Fulfilled by Amazon Global.etailz is a leading Amazon marketplace retailer that partners with brands and employs advanced technology and strategies to grow sales both domestically and internationally.
Additional Marketplace Opportunities.etailz partners with brandsintends to expand their brandthis to companies: MyFBAPrep and VantageBP among others.
Drop Ship.Drop ship arrangements allowinsights it can collect. The more insights it gets, more products and services it can serve its partners and more marketplace integrations it can support. The more marketplace providers that can be integrated, the more partners etailz to offer partners’ entire catalog across marketplaces, expanding their brand presence and capturing additional sales.
Merchandise Categories
fye Segment
Net sales by merchandise category as a percentage of total net sales for fiscal 2017, 2016 and 2015 were as follows:
| 2017 | 2016 | 2015 | ||||||||||||
| Trend | 37.3 | % | 32.0 | % | 22.2 | % | ||||||||
| Video | (1) | 30.9 | 34.9 | 41.9 | ||||||||||
| Music | 19.3 | 21.9 | 25.1 | |||||||||||
| Electronics | 12.5 | 11.2 | 10.8 | |||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
etailz Segment
etailz generates revenue across a broad array of product lines primarily through the Amazon Marketplace. Approximately 60% of total etailz revenue was generated by four major categories: health & personal care; home/kitchen/grocery; tools/office/outdoor; and baby.
can acquire. This facilitates rapid scale.
fye Segment
Video and music accounted for approximately 50% of the segment’s net sales in fiscal 2017 versus approximately 57% of net sales in fiscal 2016. Physical media sales have suffered from the shift of content to digital distribution, media streaming and online retailers that offer entertainment products to consumers and collectively have gained a larger share of the market.
According to statistical information from Billboard Bulletin, total albums sold, including CDs and digital albums, decreased 17.7% to approximately 169 million units in 2017.
According to the Digital Entertainment Group’s year-end report, total video sales in the United States declined 14% in 2017.
etailz Segment
The Company’s etailz segment operates as a third party e-commerce market place (“Digital Marketplace”) reseller. Digital Marketplaces are e-commerce platforms where online retailers enable third party sellers access to their website and customer base to sell various merchandise. Digital marketplaces allow consumers to shop from a variety of merchants in one place and have become an integral part of many brand manufacturers’ businesses.
delivery speed that are only found via e-commerce.
Competition
fye Segment
The specialty entertainment retail industry is intensely competitive and subject to rapid changes in consumer preferences. We compete with mass merchants, consumer electronics stores, lifestyle retailers and online retailers. Our media products are also distributed through other methods suchwell as digital delivery. We also compete with sellers of pre-owned and value media products. Additionally, we compete with other forms of entertainment activities, including casual and mobile games, movies, television, theater, sporting events and family entertainment centers.
We compete with Walmart, Inc.; Target Corporation; Amazon.com, Inc. (“Amazon”); and Best Buy Co., Inc., among others.
The Company has diversifiedusing its products and taken other measures to position itself competitively within its industry. The Company believes it effectively competes in the following ways:
etailz Segment
etailz competes with other third-party marketplace sellers using aproprietary data driven approach to digital marketplace retailing utilizing proprietary software and e-commerce insight coupled with a direct customer relationship engagementplatform to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. In the past 12 months,brands that would be good strategic fits for its services. etailz sold over 34,000 SKUs from over 2,300 suppliers in numerous product categories, primarily through the Amazon Marketplace. etailz generates $10.7 million, or 6% of its revenue from foreign marketplaces operated by Amazon.
Seasonality
The Company’s business is seasonal, with its fourth fiscal quarter constituting the Company’s peak selling period. In fiscal 2017, fourth quarter revenue accounted for approximately 33% of annual total revenue. In anticipation of increased sales activity in the fourth quarter, the Company purchases additional inventory and hires seasonal associates to supplement its
core store sales and distribution center staffs. If, for any reason, the Company’s net sales were below seasonal norms during the fourth quarter, the Company’s operating results could be adversely affected. During fiscal 2017, fye comparable store sales declined 10% and adversely affected annual results. Quarterly sales can also be affected by the timing of new product releases, new store openings or closings and the performance of existing stores.
Advertising
fye Segment
The Company makes use of visual displays including in-store signage and external banners. The Company employs a marketing strategy including email blasts and social networking. Certain vendors from whom the Company purchases merchandise offer advertising allowances, of varying duration and amount, to promote their merchandise.
etailz Segment
etailz utilizes social media and content marketing to strengthen its visibility within the industry and locally. The segment’s Facebook, Instagram, LinkedIn, Pinterest, and Twitter accounts have a strong and engaged following. etailzindustry. etailz’s public relations efforts consist of press releases, articles in industry publications, and articles on our website. its website to build its brand.
Within in its marketing division, etailz offers advertising services to its partners including social media ads, influencer campaigns, and marketplace advertising.
Suppliers and Purchasing
fye Segment
The fye segment purchases inventory from approximately 350 suppliers. In fiscal 2017, 47% of fye purchases were made from ten suppliers including Universal Studio Home Entertainment, AEC - Paramount Video, Buena Vista Home Video, SONY Music, SONY Pictures, Twentieth Century Fox Home Entertainment, Warner/Elektra/Atlantic, Universal Music Group Distribution, Funko LLC, and Warner Home Video.
etailz Segment
During fiscal 2017, etailz sold over 34,000 SKUs from over 2,300 suppliers in numerous product categories, primarily through the Amazon Marketplace. In fiscal 2017, no individual supplier exceeded 10% of etailz revenue.
The Company does not have material long-term purchase contracts; rather, it purchases products from its suppliers on an order-by-order basis. Historically, the Company has not experienced difficulty in obtaining satisfactory sources of supply and management believes that it will continue to have access to adequate sources of supply.
Trade Customs and Practices
Under current trade practices with large suppliers, retailers of music and video products are generally entitled to return unsold merchandise they have purchased in exchange for other merchandise carried by the suppliers. The largest music suppliers charge a related merchandise return penalty or return handling fee. Most manufacturers and distributors of video products do not charge a return penalty or handling fee. Under current trade practices with large suppliers, retailers of trend, electronics, video games and related products may receive markdown support from suppliers to help clear discontinued or slow turning merchandise. Merchandise return policies and other trade practices have not changed significantly in recent years. The Company generally adapts its purchasing policies to changes in the policies of its largest suppliers.
As of February 3, 2018, the Company employed approximately 2,600 people, of whom approximately 1,200 were employed on a full-time basis. Others were employed on a part-time basis. The fye segment had approximately 1,000 full-time employees and approximately 1,400 part-time employees. The etailz segment had approximately 200 full-time and 30 part-time employees. The fye segment hires seasonal sales and distribution center employees during its fourth quarter peak selling season to ensure continued levels of personalized customer service and in-stock position. Assistant store managers, store managers, district managers and regional managers are eligible to receive incentive compensation based on the sales and/or profitability of stores for which they are responsible. Sales support managers are generally eligible to receive incentive compensation based on achieving Company performance targets. None of the Company’s employees are covered by collective bargaining agreements and management believes that the Company enjoys favorable relations with its employees.
Trademarks
The trademarks, for your entertainment (fye), etailz, and Suncoast Motion Pictures areis registered with the U.S. Patent and Trademark Office and areis owned by the Company.etailz. We believe that our rights to these trademarks arethis trademark is adequately protected. We hold no material patents, licenses, franchises, or concessions; however, our established trademarks and trade names aretrademark is essential to maintaining our competitive position in the entertainment retail industry.
Information Systems
fye Segment
The Company’s inventory management systems and point-of-sale technology show daily sales and in-store stock by title by store. The systems use this data to automatically generate replenishment shipments to each store from our distribution centers, enabling each store to carry a merchandise assortment uniquely tailored to its own sales mix and rate of sale. Call lists and reservation system also provide our buying staff with information to determine order size and inventory management for store-by-store inventory allocation.
To support most operations, the Company uses a large-scale computing environment with a state-of-the-art storage area network, a wired and wireless corporate network installed at regional headquarters, and a secure virtual private network to access and provide services to computing assets located in stores, distribution centers and satellite offices, and to the mobile workforce.
An Oracle based point-of-sale system has been enhanced to facilitate trade-in transactions, including automatic lookup of trade-in prices and printing of machine-readable bar codes to facilitate in-store restocking of pre-owned products. In addition, our central database of all pre-owned products allows us to actively manage the pricing and product availability of our pre-owned products across our store base and reallocate our pre-owned products as necessary.
etailz segment
etailz has a data driven approach to digital marketplace retail utilizing proprietary software. Using data collected from the marketplaces, optimal inventory thresholds and purchasing trends are calculated within their advanced inventory management software developed in-house. etailz also has proprietary software related to pricing, marketing, and marketplace seller information. To support most operations, etailz uses cloud computing services and a secure network to provide computing services.
Business Combinations
etailz Acquisition
On October 17, 2016, the Company completed the purchase of all of the issued and outstanding shares of etailz. The acquisition of etailz is part of our strategy to diversify our business into the fastest growing segment of retail: the Digital Marketplace. The Company plans to access the relationships, operational expertise, and infrastructure built by etailz to help unlock the full potential of etailz and to accelerate our progress towards being the industry leader for digital marketplace sales and expertise.
The Company paid $32.3 million in cash, issued 5.7 million shares of TWMC stock at closing to the shareholders of etailz as consideration for their shares, and paid $4.3 million in cash advances to settle obligations of the selling shareholders. Based on the fair value of $3.56 per share on the acquisition date, the shares had a value of $20.4 million. An earn-out of up to a maximum of $14.6 million will be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6 million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlined in the share purchase agreement. In connection with the acquisition, the Company assumed a liability of the selling shareholders for an etailz employee bonus plan, of which $1.9 million was due and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service period. The acquisition and related costs were funded primarily from the Company’s cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase method of accounting.
During the Company’s second quarter of fiscal 2017, the share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the earnout escrow account and the $3.1 million remaining in the earnout escrow account may be payable in cash to the selling shareholders in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.
The amount released from the earnout escrow was disbursed during the Company’s second quarter of fiscal 2017 as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and $1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee bonus plan from $4.2 million to $5.7 million).
The acquisition date fair value of the consideration for the above transaction consisted of the following as of October 17, 2016 (in thousands):
| Cash consideration | $ | 36,600 | ||
| Fair value of stock consideration | 20,415 | |||
| Fair value of contingent consideration | 10,381 | |||
| Fair value of indemnification consideration held in escrow | 1,500 | |||
| Fair value of purchase consideration | $ | 68,896 |
The following table summarizes the allocation of the aggregate purchase price to the estimated fair value of the net assets acquired:
| ($ in thousands) | ||||
| October 17, 2016 | ||||
| Assets (Liabilities) Acquired | ||||
| Accounts receivable | $ | 1,533 | ||
| Prepaid expenses and other current assets | 5,896 | |||
| Inventory | 14,608 | |||
| Property and equipment, net | 663 | |||
| Other long term-assets | 12 | |||
| Acquired intangible assets: | ||||
| Trade names | 3,200 | |||
| Technology | 6,700 | |||
| Vendor relationships | 19,100 | |||
| Unfavorable lease valuation | (53 | ) | ||
| Goodwill | 39,191 | |||
| Total assets acquired | $ | 90,850 | ||
| Liabilities Assumed | ||||
| Accounts payable | $ | 4,888 | ||
| Debt | 4,729 | |||
| Other current liabilities | 5,349 | |||
| Deferred taxes | 6,988 | |||
| Total liabilities assumed | $ | 21,954 | ||
| Net assets acquired | $ | 68,896 | ||
The amount of goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and for the knowledge and expertise of, and established presence in, the digital marketplace, which do not qualify as separate amortizable intangible assets. Goodwill arising from the acquisition of etailz is not deductible for tax purposes. There were no adjustments from preliminary purchase price accounting to final.
The results of operations of etailz are reported in the Company’s etailz segment and have been included in the consolidated results of operations of the Company from the date of acquisition, October 17, 2016.
Available Information
| RISK FACTORS |
Item 1A. RISK FACTORS
The following is a discussion of certain factors, which could affect the financial results of the Company.
The Company’s results of operations are affected by the continued declines in the physical video and music industries.
Physical media sales have suffered from the shift of content to digital distribution, streaming and online retailers that offer entertainment products at discounted prices and collectively have gained a larger share of the market. Physical video and music represent approximately 50% of sales and have been impacted by new distribution channels, including digital distribution, streaming and internet fulfillment. As a result, the Company has had negative comparable store sales for all periods presented.
The Company’s results of operations may suffer if
The entertainment industry is characterized by changing technology, evolving format standards, and new and enhanced product introductions. These characteristics requireone year after the Company to respond quickly to technological changes and understand the impactdate of these changesfiling of this Annual Report on customers’ preferences. If the Company is unable to participate in new product or distribution technologies, its results of operations may suffer. Specifically, CD and DVD formats have experienced a continuous decline as digital forms of music and video content have become more prevalent. If the Company does not timely adapt to these changing technologies and sufficiently shift to other merchandise categories, operating results could significantly suffer.
Form 10-K. In addition, multichannel retailingthe proceeds from the PPP Loan are subject to audit and there is rapidly evolving with the increasing usea risk of computers, tablets, mobile phonesrepayment.
Increased competition from existing retailers, including internet retailers, could adversely affect the Company’s results of operations.
The Company competes with a wide variety of entertainment retailers, including mass merchandisers, consumer electronics outlets, internet retailers and independent operators, some of whom have greater financial and other resources than the Company and frequently sell their product at discounted prices or with added value.
In addition, the Company’s success depends on our ability to positively differentiate ourselves from other retailers. The retail business is highly competitive. In the past, the Company has been able to compete by differentiating our customer shopping experience, by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, customer service and marketing efforts. Customer perceptions regarding our stores, our in-stock position and deep assortment of product are also factors in our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross profit and expenses. If we fail to continue to positively differentiate ourselves from our competitors, our results of operations could be adversely affected.
The ability to attract customers to our stores depends heavily on the success of the shopping malls in which many of our stores are located; any decrease in consumer traffic in those malls could adversely affect the Company’s results of operations.
In order to generate customer traffic, we depend heavily on locating many of our stores in prominent locations within shopping malls. Sales at these stores are derived from the volume of traffic in those malls. Our stores benefit from the ability of a mall’s other tenants to generate consumer traffic in the vicinity of our stores. Our sales volume and mall traffic generally may be adversely affected by, among other things, economic downturns in a particular area, competition from e-commerce retailers, non-mall retailers and other malls, increases in gasoline prices, fluctuations in exchange rates in border or tourism-oriented locations and the closing or decline in popularity of other stores in the malls in which we are located. An uncertain economic outlook could curtail new shopping mall development, decrease shopping mall traffic, reduce the number of hours that shopping mall operators keep their shopping malls open or force them to cease operations entirely. A reduction in mall traffic as a result of these or any other factors could have a material adverse effect on our business, results of operations, and financial condition.
condition may be materially adversely impacted if a public health outbreak, including the recent COVID-19 pandemic, interferes with our ability, or the ability of our employees, contractors, suppliers, and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business.
Historically, in
operations.
assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on our business and results of operations.
Failure
Historically,satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain.
filing of this Annual Report on Form 10-K.
Approximately 47% of fye segment’s purchases come from ten major suppliers and less than 20% of total
The Company’s results of operations are affected by the availability of new products.
The Company’s business is affected by the release of “hit” music and video titles, which can create fluctuations in sales. It is not possible to determine the timing of these fluctuations or the future availability of hit titles. The Company is dependent upon the major music and movie producers to continue to produce hit products. To the extent that new hit releases are not available, or not available at prices attractive to consumers, or, if manufacturers fail to introduce or delay the introduction of new products, the Company’s results of operations may be adversely affected.
If the Company’s vendors fail to provide marketing and merchandising support at historical levels, the Company’s results of operations could be adversely affected.
The manufacturers of entertainment products have typically provided retailers with significant marketing and merchandising support for their products. As part of this support, the Company receives cooperative advertising and other allowances from these vendors. These allowances enable the Company to actively promote and merchandise the products it sells at its stores and on its websites. If the Company’s vendors fail to provide this support at historical levels, the Company’s results of operations could be negatively impacted.
relationships on terms as favorable as the Company’s existing contracts, transactions or business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s cash flows, financial condition and results of operations.
Our success, in particular our ability to successfully manage inventory levels and process customer transactions, largely depends upon the efficient operation of our computer hardware and software systems. We use management information systems to track inventory at the store level and aggregate daily sales information, communicate customer information and process purchasing card transactions, process shipments of goods and report financial information.
of the Company’s executive officers and other key management personnel could adversely affect the Company’s results of operations.
We could be materially and adversely affected if our distribution center is disrupted.
We operate a distribution center in Albany, New York. We ship approximately 77% of our fye segment merchandise inventory through our distribution center. If our distribution center is destroyed or disrupted for any reason, including weather, fire, labor, or other issues we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes to reopen or replace the distribution center.
We maintain business interruption insurance to protect us from the costs relating to matters such as a shutdown, but our insurance may not be sufficient, or the insurance proceeds may not be timely paid to us, in the event of a shutdown.
and do not purchase third party insurance for the health insurance benefits provided to employees with the exception of pre-defined stop loss coverage, which helps limit the cost of large claims. Therethere is no assurance that future health care legislation will not adversely impact our results or operations.
Certain
We are continuously assessing opportunities to improve store productivity and complementary products and services related to our core business, including product innovations and exclusive offerings. We may expend both capital and personnel resources on such business opportunities which may or may not be successful. There can be no assurance that we will be able to develop product innovations and exclusive offerings to a point where they will become profitable or generate positive cash flow.
We could incur losses due to impairment on long-lived assets, goodwill and intangible assets.
financial results.
We maintain an asset-based revolving credit agreement
The ABL Facility includes customary eventsSubordinated Debt) of default, including, non-payment of principal, interest or fees, violation of covenants, inaccuracybut not limited to, payment defaults, breaches of representations orand warranties, cross-defaultcovenant defaults, cross-defaults to other material indebtedness,obligations, customary ERISA defaults, certain events of bankruptcy and insolvency, events,judgment defaults, the invalidity of liens on collateral, change in control, cessation of business or impairmentthe liquidation of guarantees or security interests, material judgmentsassets of the
etailz revenue is dependent upon maintaining etailz’s relationship with Amazona material portion of collateral and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations.
etailz generates substantially all of its revenue through the Amazon Marketplace. Therefore, we depend in large part on our relationship with Amazon for the continued growth of the etailz segment. In particular, we depend onobligations under the New Credit Facility to constitute senior indebtedness under any applicable subordination or intercreditor agreements, including our ability to offer products onSubordinated Debt.
Credit Facility.
Shareholders and may have competing interests.
the industries in which we operate and the home video industry. Changes in our comparable store net sales could also affect the pricevalue of our Common Stock. Failureassets. As a result of the FYE Transaction, we are reliant on the performance of etailz, and a failure to meet market expectations, particularly with respect to comparable store sales, net revenues, operating margins and earnings per share, would likely result in a further decline in the market price of our stock.
In addition, an active trading market for
The declaration of dividend payments or the repurchase of our Common Stock pursuant to our share repurchase program may not continue.
Our dividend policy and share repurchase program may be affected by, among other items, business conditions, changes in our business strategy, our views on potential future capital requirements, the terms of our debt instruments, legal risks, changes in federal income tax law and challenges to our business model. Our dividend policy may change from time to time and we may or may not continue to declare discretionary dividend payments. The Company’s amended credit facility contains certain restrictions related to the payment of cash dividends and share repurchases, including limiting the amount of dividends to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment. Additionally, although we have a share repurchase program authorized by our Board of Directors, we are not obligated to make any purchases under the program and we may discontinue it at any time. During fiscal 2017, we did not make any share repurchases under the aforementioned program an may not resume making purchases in the future.
The failure to maintain a minimum closing share price of $1.00 per share of our Common Stock could result in the delisting of our shares on the NASDAQ Global Market, which would harm the market price of the Company’s Common Stock.
In order to retain our listing on the NASDAQ Global Market we are required by NASDAQ to maintain a minimum bid price of $1.00 per share. Our stock price is currently above $1.00. However, in the event that our stock did close below the minimum bid price of $1.00 per share for any 30 consecutive business days, we would regain compliance if our Common Stock closed at or above $1.00 per share for 10 consecutive days during the 180 days immediately following failure to maintain the minimum bid price. If we are unable to do so, our stock could be delisted from the NASDAQ Global Market, transferred to a listing on the NASDAQ Capital Market, or delisted from the NASDAQ markets altogether. The failure to maintain our listing on the NASDAQ Global Market could harm the liquidity of the Company’s Common Stock and could have an adverse effect on the market price of our Common Stock. Our stock price traded below $1.00 on April 6th, 2018, however, the closing price of our stock has remained at or above $1.00 since April 6th, 2018.
raise additional capital.
Item 1B. UNRESOLVED SEC COMMENTS
None.
| UNRESOLVED SEC COMMENTS |
| PROPERTIES |
Item 2. PROPERTIES
Year | No. of Leases | Year | No. of Leases | ||
| 2018 | 197 | 2022 | 5 | ||
| 2019 | 11 | 2023 | 3 | ||
| 2020 | 16 | 2024 and beyond | 3 | ||
| 2021 | 25 |
As leases expire,
| Year | No. of Leases | Year | No. of Leases | |||
| 2020 | 164 | 2023 | 3 | |||
| 2021 | 27 | 2024 | 2 | |||
| 2022 | 3 | 2025 and beyond | 1 |
all stores, Albany, NY offices and distribution center.
| Location | Square Footage | Owned or Leased | Use | |||
fye | ||||||
| Albany, NY | 39,800 | Leased | Office administration | |||
| Albany, NY | 141,500 | Leased | Distribution center | |||
etailz | ||||||
| Spokane, WA | 30,700 | Leased | Office administration | |||
| Spokane, WA | 32,000 | Leased | Distribution center |
The Company believes that it has adequate distribution facilities to meet the Company’s current business needs. Shipments from the Albany distribution facility to the fye segment’s retail stores provide approximately 77% of merchandise shipment requirements to stores. Stores are serviced by common carriers chosen on the basis of geography and rate considerations. The balance
Item 3. LEGAL PROCEEDINGS
marketplaces for etailz.
| Item 3. | LEGAL PROCEEDINGS |
Two former Store Managers filed actions alleging claims of entitlement to unpaid compensation for overtime. In one action, the plaintiff seeks to represent a
Specifically, Carolactions. The first, Spack filed a complaint againstv. Trans World Entertainment Corporation (Trans World)Corp. was originally filed in the United States District Court, District of New Jersey, on April 20, 2017 (Case No.: 3:17-cv-02687-BRM-LHG) alleging(the “Spack Action”). The Spack Action alleges that she is entitled to unpaid compensation for overtime under the federal Fair Labor Standards Act (FLSA). She brings a nationwide collective action under the FLSA on behalf of allCompany misclassified Store Managers and(“SMs”) as exempt nationwide. It also alleges that Trans World improperly calculated overtime for Senior Assistant Managers. SheManagers (“SAMs”) nationwide, and that both SMs and SAMs worked “off-the-clock.” It also brings class action claims underalleges violations of New Jersey and Pennsylvania law on behalf of all persons who worked as Store Managers in New Jersey or Senior Assistant Managers in Pennsylvania.
On May 19, 2017, NatashaState Law with respect to calculating overtime for SAMs. The second, Roper filed a complaint againstv. Trans World Entertainment Corp., was filed in the U.S. District Court for the Northern District of New York, (Case No.: 1:17-cv-0553-TJM-CFH) in which sheMay 2017 (the “Roper Action”). The Roper Action also alleges that she is entitled to unpaid compensation for overtime under the FLSA. Ms. Roper bringsasserts a nationwide collective action under the FLSAmisclassification claim on behalf of all similarly situated Store ManagersSMs. Both actions were consolidated into the Northern District of New York, with the Spack Action being the lead case.
| Item 4. | MINE SAFETY DISCLOSURES |
Item 4.Mine Safety Disclosures
None.
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
| Item 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
| Closing Sales Prices | |||
| High | Low | ||
| 2016 | |||
| 1st Quarter | $4.00 | $3.13 | |
| 2nd Quarter | $4.00 | $3.45 | |
| 3rd Quarter | $3.92 | $3.40 | |
| 4th Quarter | $3.90 | $2.65 | |
| 2017 | |||
| 1st Quarter | $2.90 | $1.65 | |
| 2nd Quarter | $1.90 | $1.50 | |
| 3d Quarter | $2.80 | $1.55 | |
| 4th Quarter | $1.90 | $1.60 | |
| 2018 | |||
| 1st Quarter (through | |||
| March 29, 2018) | $1.80 | $1.25 | |
Closing Sales Prices High Low 2018 1st Quarter $ 36.00 $ 20.00 2nd Quarter $ 27.00 $ 17.00 3rd Quarter $ 22.80 $ 13.00 4th Quarter $ 25.80 $ 11.40 2019 1st Quarter $ 12.48 $ 5.77 2nd Quarter $ 8.01 $ 5.00 3d Quarter $ 6.08 $ 2.74 4th Quarter $ 6.98 $ 1.92 2020 1st Quarter $ 5.35 $ 2.39 2nd Quarter (through May 29, 2020) $ 5.14 $ 3.62
$4.80. On August 15, 2019, the Company completed a 1-for-20 reverse stock split of outstanding Common Stock. All closing prices have been adjusted to reflect the reverse stock split.
1, 2020
The Company’s amended credit facility contains certain restrictions related to share repurchases, including limiting the amount of repurchases to $5.0 million annually and not allowing borrowings
| Item 6. | SELECTED CONSOLIDATED FINANCIAL DATA |
Item 6.SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected Statementsrequirements of Operations and Balance Sheet data for the five fiscal years ended February 3, 2018 and is derived from the Company’s audited Consolidated Financial Statements. The fiscal year ended February 3, 2018 consisted of 53 weeks while all the other fiscal years of the Company presented consisted of 52 weeks. This information should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes and other financial information included herein, including Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
| Fiscal Year Ended | ||||||||||||||||||||
| February 3, | January 28, | January 30, | January 31, | February 1, | ||||||||||||||||
| ($ in thousands, except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||
| Net sales | $ | 437,173 | $ | 348,672 | $ | 334,661 | $ | 358,490 | $ | 393,659 | ||||||||||
| Other revenue(1) | 5,683 | 4,798 | 4,843 | 4,773 | 4,326 | |||||||||||||||
| Total revenue | 442,856 | 353,470 | 339,504 | 363,263 | 397,985 | |||||||||||||||
| Cost of sales | 299,013 | 218,811 | 204,089 | 222,572 | 245,755 | |||||||||||||||
| Gross profit | 143,843 | 134,659 | 135,415 | 140,691 | 152,230 | |||||||||||||||
| Selling, general and administrative expenses | 167,924 | 139,691 | 130,845 | 136,916 | 141,855 | |||||||||||||||
| Income from joint venture | (1,787) | — | — | — | — | |||||||||||||||
| Gain on sale of asset | — | (1,164) | — | — | — | |||||||||||||||
| Asset impairment charges | 29,107 | — | — | — | — | |||||||||||||||
| Income (loss) from operations | (51,401) | (3,868) | 4,570 | 3,775 | 10,375 | |||||||||||||||
| Interest expense | 332 | 775 | 1,860 | 1,951 | 2,010 | |||||||||||||||
| Other income | (8,881) | (1,081) | (160) | (70) | (80) | |||||||||||||||
| Income (loss) before income taxes | (42,852) | (3,562) | 2,870 | 1,894 | 8,445 | |||||||||||||||
| Income tax expense (benefit) | (299) | (6,773) | 181 | 116 | 168 | |||||||||||||||
| Net income (loss) | $ | (42,553) | $ | 3,211 | $ | 2,689 | $ | 1,778 | $ | 8,277 | ||||||||||
| Basic earnings (loss) per share | $ | (1.19) | $ | 0.10 | $ | 0.09 | $ | 0.06 | $ | 0.25 | ||||||||||
| Weighted average number of shares outstanding - basic | 36,191 | 32,162 | 31,167 | 31,744 | 32,584 | |||||||||||||||
| Diluted earnings (loss) per share | $ | (1.18) | $ | 0.10 | $ | 0.09 | $ | 0.06 | $ | 0.25 | ||||||||||
| Weighted average number of shares – diluted | 36,191 | 32,321 | 31,323 | 31,897 | 32,862 | |||||||||||||||
| Cash dividend paid per share | — | — | — | $ | 0.50 | — | ||||||||||||||
| Fiscal Year Ended | ||||||||||||||||||||
| February 3, | January 28, | January 30, | January 31, | February 1, | ||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| (in thousands, except store count data) | ||||||||||||||||||||
| BALANCE SHEET DATA (at the end of the period): | ||||||||||||||||||||
| Total assets | $ | 247,906 | $ | 307,810 | $ | 271,605 | $ | 280,009 | $ | 311,591 | ||||||||||
| Current portion of long-term debt and capital lease obligations | — | — | — | 938 | 1,066 | |||||||||||||||
| Long-term obligations | — | — | — | — | 938 | |||||||||||||||
| Shareholders’ equity | $ | 158,214 | $ | 197,936 | $ | 175,268 | $ | 171,740 | $ | 190,970 | ||||||||||
| OPERATING DATA: | ||||||||||||||||||||
| Store count (open at end of period): | ||||||||||||||||||||
| Mall stores | 237 | 256 | 267 | 270 | 293 | |||||||||||||||
| Freestanding stores | 23 | 28 | 32 | 40 | 46 | |||||||||||||||
| Total stores | 260 | 284 | 299 | 310 | 339 | |||||||||||||||
| Comparable store sales decreases(2) | (9%) | (4%) | (1%) | (1%) | (5%) | |||||||||||||||
| Total square footage in operation (Year end) | 1,439 | 1,593 | 1,730 | 1,799 | 2,030 | |||||||||||||||
| Total square footage in operation (Average) | 1,508 | 1,669 | 1,793 | 1,940 | 2,134 | |||||||||||||||
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During October 2016,
fye Segment
The U.S. entertainment retailing industry is a mature industry and continues to experience declines. Physical video and music represent approximately 50% of sales and both categories have been impacted by new distribution channels, including digital distribution and internet fulfillment. As a result, the Company has had negative comparable store sales for the past five years. To mitigate or lessen the impact these changes have had, the Company has focused on the following areas in an effort to improve its business:
Evolve the fye Brand Customer Experience.
The Company is evolving the fye brand experience by diversifying its merchandise assortment and enhancing its merchandise presentation as it continues its strategy towards becoming the most compelling entertainment and pop culture centric engagement in the marketplace. In addition, the Company offers personalized customer service in its stores guided by a commitment to approach every customer with gratitude, humility and respect.
Store Portfolio Evaluation
fye Segment
The Company’s real estate strategy is to maintain a core group of profitable locations, while evaluating opportunities for new locations in new and existing malls. During fiscal 2017, the Company opened 1 new and remodeled 4 existing fye stores under a new format which expands the merchandise selection and enhances the presentation of the trend and electronics categories while maintaining a strong presence in the media categories. As of February 3, 2018, the Company operated 36 stores under the new format.
During fiscal 2017 and fiscal 2016, the Company closed 25 and 29 stores, respectively. The Company closes stores when minimum operating thresholds are not achieved or upon lease expiration when either renewal is not available or management determines that renewal is not in the Company’s best interest. The Company has signed short-term lease agreements for desirable locations, which enables us to negotiate rents that are responsive to the then-current sales environment. The Company has 197 stores with leases expiring during fiscal 2018. We will continue to close stores that do not meet our profitability goals, a process which could result in further asset impairments and store closure costs. A continued reduction in the number of stores would lower total sales.
The Company believes that there is near-term opportunity for improving the productivity of existing stores. The environment in which our stores operate is intensely competitive and includes internet-based retailers and mass merchants. We believe a specialty retailer that can differentiate itself by offering a distinctive assortment and customer experience, and that can operate efficiently, will be better positioned to maintain its market share. Therefore, we remain dedicated to enhancing our merchandise assortment through introducing additional product lines, improving the operational efficiency of our stores and offering our customers a rewarding shopping experience guided by an approach to engage every customer with gratitude, humility and respect.
Expanding Customer Base
fye Segment
To strengthen customer loyalty, the fye stores offer its customers the option of signing up for a Backstage Pass card which provides an additional 10% discount off of everyday selling prices on nearly all products in addition to other value added benefits members receive through the program in exchange for a membership fee. Events are also co-sponsors in many stores to provide various segments of customers an opportunity to experience entertainment and shop for unique and exclusive products based on their particular interests.
etailz Segment
On October 17, 2016, etailz was acquired to continue to build upon its credibility with fans of entertainment and pop culture. The Company acquired all of the issued and outstanding capital stock of etailz, Inc., an innovative and leading digital marketplace retail expert. etailz uses a data driven approach to digital marketplace retailing utilizing proprietary software and e-commerce insight coupled with a direct customer relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. The etailz acquisition represents a significant step forward in the Company’s reinvention. The Company believes the rapid growth of marketplace sales will continue and is clear evidence of the explosive long-term trends underway in retailing. fye’s progress onboarding digital and marketing talent, accelerated through the etailz acquisition, will enable the Company to reach a large portion of the market share through a multi-channel approach spanning across retail storefronts, direct websites, and all major online marketplaces.
Total Revenue.The following table sets forth a year-over-year comparison of the Company’s total revenue:charges (excluding those related to distribution operations, as discussed in Note 5 to the Consolidated Financial Statements in this report).charges. SG&A expenses also include fixed assets write-offs associated with store closures, if any, and miscellaneous income and expense items, other than interest. The Company recorded miscellaneous income items for fiscal 2017, 2016, and 2015 in the amount of $0.4 million, $0.4 million, and $3.6 million, respectively. Included in fiscal 2015 miscellaneous income items was a one-time reimbursement of expenses incurred in prior years, related to a legal settlement of $1.4 million.netmerchandise inventory, investment (merchandise inventory less accounts payable)payable leverage, and working capital (current assets less current liabilities) as key indicators of its financial position. See Liquidity“Liquidity and Capital ResourcesResources” for further discussion of these items.253, 20181, 2020 (“fiscal 2017”2019”)January 28, 2017February 2, 2019 (“fiscal 2016”2018”)2017, 2016,2019 and 2015fiscal 2018 ended February 3, 2018, January 28, 2017,1, 2020 and January 30, 2016,February 2, 2019, respectively. Fiscal 2017 had 53 weeksBoth fiscal 2019 and fiscal 2016 and fiscal 20152018 had 52 weeks. The 53rd week in fiscal 2017 contributed approximately 1% to net sales.etailz results for fiscal 2016 included in the tables below are for the period starting from the date of acquisition.($ in thousands) Fiscal Year
Ended
February 3, 2018 Fiscal Year
Ended
January 28, 2017 Total Revenue fye $ 268,397 $ 313,211 etailz 174,459 40,259 Total Company $ 442,856 $ 353,470 Gross Profit fye $ 104,254 $ 124,735 etailz 39,589 9,924 Total Company $ 143,843 $ 134,659 Loss From Operations fye $ (49,261 ) $ (1,932 ) etailz (2,140 ) (1,936 ) Total Company $ (51,401 ) $ (3,868 ) Reconciliation of etailz Loss from Operations to etailz Adjusted Income from Operations etailz loss from operations $ (2,140 ) $ (1,936 ) Acquisition related transaction expenses - 2,325 Acquisition related intangible amortization expenses 3,871 1,130 Acquisition related compensation expenses 4,262 1,035 Earnout contingency benefit (3,280 ) (1,829 ) etailz adjusted income from operations (1) $ 2,713 $ 725 (amounts in thousands) Total Revenue etailz $ 133,216 $ 186,900 fye 192,719 231,290 Total Company $ 325,935 $ 418,190 Gross Profit etailz $ 30,393 $ 38,815 fye 65,706 89,259 Total Company $ 96,099 $ 128,074 Loss From Operations etailz $ (6,405 ) $ (72,351 ) fye (50,770 ) (24,455 ) Total Company $ (57,175 ) $ (96,806 ) Reconciliation of etailz Loss From Operations to etailz Adjusted Loss From Operations etailz Loss From Operations $ (6,405 ) $ (72,351 ) Acquisition related intangible amortization expenses 1,143 3,890 Acquisition related compensation expenses 66 3,821 Asset impairment charges 765 57,712 $ (4,431 ) $ (6,928 ) (1) In addition to the results of operations determined in accordance with generally accepted accounting principles in the United States (“ U.S. GAAP”), we reported non-GAAP etailz adjusted operating income for the etailz segmentloss as shown above. The Company believes that etailz adjusted incomeloss from operations as per the segment disclosure, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges. This measure is not a recognized measure of financial performance under GAAP, in the United States, and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP.26 2017 vs 2016 2017 2016 $ % ($ in thousands) fye net sales $ 262,714 $ 308,413 $ (45,699) (14.8%) etailz net sales 174,459 40,259 134,200 333.3% Other revenue (1) 5,683 4,798 885 18.4% Total revenue $ 442,856 $ 353,470 $ 89,386 25.3% 2019 vs. 2018 2019 2018 $ % (amounts in thousands) etailz net sales $ 133,216 $ 186,900 $ (53,684 ) fye net sales 188,777 226,097 (37,320 ) 3,942 5,193 (1,251 ) Total revenue $ 325,935 $ 418,190 $ (92,255 ) 1. 1.Other revenue is comprised of third-party commission income and management fees related to the fye segment.
Amazon Marketplace. Categories include apparel, baby, beauty, electronics, health & personal care, home/kitchen/grocery, pets, sporting goods, toys & art.
| ($ in thousands) | 2017 Net Sales | % Total | 2016 Net Sales | % Total | Total $ Net Sales Change | Total % Net Sales Change | Comparable Store % Net Sales Change | |||||||||||||||||||||||
| Trend/lifestyle | $ | 98,019 | 37.3 | % | $ | 98,692 | 32.0 | % | $ | (673 | ) | (0.6 | %) | 3.5% | ||||||||||||||||
| Video | (1) | 81,261 | 30.9 | % | 107,637 | 34.9 | % | (26,376 | ) | (24.5 | %) | (15.9%) | ||||||||||||||||||
| Music | 50,691 | 19.3 | % | 67,542 | 21.9 | % | (16,851 | ) | (24.9 | %) | (19.6%) | |||||||||||||||||||
| Electronics | 32,743 | 12.5 | % | 34,542 | 11.2 | % | (1,799 | ) | (5.1 | %) | 1.1% | |||||||||||||||||||
| Total | $ | 262,714 | 100.0 | % | $ | 308,413 | 100.0 | % | $ | (45,699 | ) | (14.8 | %) | (8.7%) | ||||||||||||||||
| ( dollar amounts in thousands) | 2019 Net Sales | % Total | 2018 Net Sales | % Total | Total $ Net Sales Change | Total % Net Sales Change | Comparable Store % Net Sales Change | |||||||||||||||||||||
| Trend/Lifestyle | $ | 85,901 | 45.5 | % | $ | 93,830 | 41.5 | % | $ | (7,929 | ) | (8.5 | %) | 6.6 | % | |||||||||||||
| Video | 45,957 | 24.3 | % | 62,403 | 27.6 | % | (16,446 | ) | (26.4 | %) | (17.8 | %) | ||||||||||||||||
| Music | 31,630 | 16.8 | % | 39,793 | 17.6 | % | (8,163 | ) | (20.5 | %) | (9.2 | %) | ||||||||||||||||
| Electronics | 25,289 | 13.4 | % | 30,071 | 13.3 | % | (4,782 | ) | (15.9 | %) | (12.6 | %) | ||||||||||||||||
| Total | $ | 188,777 | 100.0 | % | $ | 226,097 | 100.0 | % | $ | (37,320 | ) | (16.5 | %) | (4.7 | %) | |||||||||||||
2019. for fye. fye revenue was primarily due to the comparable sales decline and increased corporate home office expenses to support strategic growth initiatives. impaired. 2018. Income Tax expense: Net loss: Cash Flows for further detail. Inventory turnover measures the Company’s ability to sell merchandise and how many times it is replaced in a year. This ratio is important in determining the need for markdowns and planning future inventory levels and assessing customer response to our merchandise. For the 2, 2019. expenditures. 2020. balance street date. Inventory valuation requires significant judgment and estimates, including obsolescence, shrink and any adjustments to For the purposes of the asset impairment test, the etailz segment has one asset grouping, which is the same as the etailz segment. a Smaller Reporting Company. Exchange Act, as amended). Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control-Integrated Framework (2013). Based on our evaluation under the framework inInternal Control-Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of February 1, 2020. Item 9B. the non-employee director, the amount payable in May of 2019 was made in a single lump sum in May of 2019. Payments to non-employee directors for periods beginning after May 1, 2019 will generally be made in $20,000 increments paid quarterly in arrears on or about August 1, November 1, February 1 and May 1, provided they are serving as a director on the payment date and they did not make a timely deferral election. To the extent a non-employee director made a timely election to defer payments until separation from service with the Company, such payments will be made upon separation from service, together with interest on the deferred amounts computed at a rate equal to 120% of the applicable long-term federal rate (within the meaning of Section 1274(d) of the Internal Revenue Code of 1986, as amended) as in effect from time to time. spouses. COVID-19 outbreak and the response to curb its spread, currently we are not able to estimate the effects of the COVID-19 outbreak to our results of operations, financial condition, or liquidity. below. This compares to $4.4 million in cash and cash equivalents and net working capital of $65.9 million and no outstanding borrowings on our revolving credit facility at February 2, 2019. week periods. Major improvements and betterments to existing facilities and equipment are capitalized. Expenditures for maintenance and repairs are expensed as incurred. For the purposes of the asset impairment test, the etailz segment has one asset grouping, which is the same as the etailz reporting unit level. $16.4 million. During the fourth quarter of fiscal 2019, the Company recognized a charge of $0.4 million related to litigation (see Note 12). exclusive member-only offers. Total respectively. 2019 and fiscal 2018, respectively. fiscal 2018 were approximately 100 thousand. companies and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards. The Company had no Level 3 financial assets or liabilities at February 1, 2020 or at February 2, 2019. balance sheet but did not materially impact the Company’s consolidated operating results and did not materially impact the Company’s cash flows. statements. following: asset impairment during fiscal 2019 and fiscal 2018, respectively. amended. the occurrence of an uninsured loss to a material portion of collateral. discount rate are as follows: split. Total expense related to the etailz segment’s matching contributions was approximately $303,000 and $297,000 in fiscal 2019 and fiscal 2018, respectively. 213 thousand. year-end: 2027. an amount equal, in the aggregate, to 19.9% of the proceeds (10.35% for Alimco, 1.90% for Kick-Start, and 7.64% for RJHDC) received by the Company in respect of certain intercompany indebtedness owing to it by etailz and/or its equity interest in etailz; and intercompany accounts, the inclusion of the net proceeds from the FYE Transaction, the application of such net proceeds to repay certain outstanding debt, and the recognition of the estimated loss from the FYE Transaction.a majorityall of its stores. Total net sales for the video category declined 15.9%17.8% on a comparable store sales basis in fiscal 2017.2018. Video sales were negatively impacted by industry wide declines in physical video due to digital options.According to the Digital Entertainment Group’s year-end report, total video sales in the United States declined 14.0% in 2017.19.6%9.2% on a comparable store sale basis in fiscal 2017.According to SoundScan, total physical album unit sales in the United States declined 17.0% during the period corresponding with the Company’s fiscal 2017.increased 1.1%decreased 12.6% on a comparable store sales basis. Electronics represented 12.5% of the Company’s total net sales in fiscal 2017 versus 11.2% in fiscal 2016.etailz Segmentetailz recorded sales of $174.5 million for fiscal 2017. etailz generates revenue across a broad array of product lines primarily through the Amazon Marketplace. Categories include: apparel, baby, beauty, electronics, health & personal care, home/kitchen/grocery, pets, sporting goods, toys & art. 2017 vs 2016 2017 2016 $ % ($ in thousands) fye gross profit $ 104,254 $ 124,735 $ (20,481 ) -16.4% etailz gross profit $ 39,589 9,924 29,665 298.9% Total gross profit $ 143,843 $ 134,659 $ 9,184 6.8% fye gross profit as a % of fye revenue 38.8% 39.8% etailz gross profit as a % of etailz revenue 22.7% 24.7% Total gross profit as a % of total revenue 32.5% 38.1% (amounts in thousands) 2019 2018 $ % etailz gross profit $ 30,393 $ 38,815 $ (8,422 ) fye gross profit 65,706 89,259 (23,553 ) Total gross profit $ 96,099 $ 128,074 $ (31,975 ) etailz gross profit as a % of etailz revenue 22.8 % 20.8 % fye gross profit as a % of fye revenue 34.1 % 38.6 % Total gross profit as a % of total revenue 29.5 % 30.6 % increased 6.8%decreased 25.0% to $143.83$96.1 million compared to $134.7$128.1 million in fiscal 2016 as a result of the increased gross profit from etailz attributed to the full year results, partially offset by the decline in overall fye gross profit.fye SegmentThe decline in2018 due lower gross profit as a percentage of revenue was due to lower sales and higher inventory markdowns to sell off seasonal merchandise. Gross profit as a percentage of sales was 38.8% in fiscal 2017 as compared to 39.8% in fiscal 2016. The decline in gross margin as a percentage of revenue was due to aggressive actions to clear slow moving merchandise.22.7%22.8% in fiscal 20172019 as compared to 24.7%20.8% in fiscal 2016.2018. The increase in the gross profit rate was primarily due the rationalization and remediation activities including terminating unprofitable vendors and improving vendor relationships through negotiations focused on improvements to gross margins and supply chain efficiencies.etailzthe gross profit percentagerate was primarily due to a $2.0 million markdownthe write-down of inventory from a one-time large purchase.
to the fair value based on the FYE Transaction.28 2017 vs. 2016 2017 2016 $ % ($ in thousands) fye SG&A before depreciation and amortization $ 114,982 $ 120,201 ($5,219) -4.3% As a % of total fye revenue 42.8% 38.4% 4.4% etailz SG&A before depreciation and amortization 39,446 10,464 28,982 277.0% As a % of total etailz revenue 22.6% 26.0% -3.4% Depreciation and amortization 13,496 9,026 4,470 49.5% Total SG&A $ 167,924 $ 139,691 $ 28,233 20.2% As a % of total revenue 37.9% 39.5% TotalSG&A expenses increased $28.2 2019 2018 $ % etailz SG&A before depreciation and amortization 33,734 48,965 (15,231 ) -31.1 % As a % of total etailz revenue 18.0 % 28.1 % -10.0 % fye SG&A before depreciation and amortization $ 84,094 $ 107,141 $ (23,047 ) -21.5 % As a % of total fye revenue 58.9 % 46.3 % 12.6 % 11,463 9,116 2,347 25.7 % Total SG&A $ 129,291 $ 165,222 $ (35,931 ) -21.7 % As a % of total revenue 39.7 % 37.3 % primarily due to expenses for of amortization of right-of-use-assets upon the adoption of ASC 842.and higher amortization expenses.fye Segment$5.2$15.2 million, or 4.3%31.1%, primarily as a result of lower expenses due to fewer storesa 30% reduction in operation.etailzforce implemented during the fourth quarter of fiscal 2018 and lower commissions due to lower sales. Additional reductions implemented included expenses related to technology, hardware, and employee benefits.etailz expenses for fiscal 2017 were $39.4decreased $23.0 million, or 22.6%21.5%, primarily due to lower expenses from fewer stores in operation. The increase in the rate as a percentage of etailz revenue.$4.5$2.3 million primarily due to amortization of intangibles,right to use assets partially offset by the impairment charges recorded during the fourth quarter of fiscal 2018, as well as further impairment recorded during the third quarter of 2019, which reduced the net carrying value of the long-lived assets.fye segment’s investments in technology enhancements during previous fiscal years.Income from Joint VentureIncome from joint venture was $1.8 million during fiscal 2017.Asset Impairment Charge – fye segment.Company recognized an impairment loss of $0.8 million.2017,2018, the Company concluded, based on continued operating losses for the fyeetailz segment driven by lower than expected operating results culminating in the fourth quarter of fiscal 2018 that a triggering event had occurred, and pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) , Property, Plant, and Equipment, an evaluation of the etailz fixed assets and intangible assets for impairment was required. Fixed assets related to internally developed technology at etailz were written down to their estimated fair values at the end of fiscal 2018, resulting in the recognition of asset impairment charges of $2.1 million. Intangible assets related to technology and vendor relationships were written down to their estimated fair values at the end of fiscal 2018 resulting in the recognition of asset impairment charges of $16.4 million.requiring a testan evaluation of long-livedthe fye fixed assets for impairment was required. Fixed assets and operating lease right-of-use assets, primarily at itsthe Company’s retail stores. Long-livedstore locations, as well as certain fixed assets at locationsthe corporate location, consisting of the home office and the Albany distribution center, where impairment was determined to exist, were written down to their estimated fair values as of the end of fiscal 20172019 and fiscal 2018, resulting in the recording of asset impairment charges of $29.1 million. Estimated$23.2 million and $1.9 million, respectively. Based on the fair values for long-livedvalue as determined attributable to the fixed assets at these locations, including store fixtures, equipment, and leasehold improvements were determined based on a measure of discounted future cash flows over the remainingoperating lease terms at the respective locations. Future cash flows were estimated based on store plans and were discounted at a rate approximating the Company’s cost of capital. Management believes its assumptions were reasonable and consistently applied.29The Company did not recognize impairment during fiscal 2016 and fiscal 2015. Losses for store closingsright-of-use assets in the ordinary course of business represent the write downcontemplation of the net book valuesale of abandoned fixtures and leasehold improvements. The loss on disposal ofthe fye segment, it was determined that the fixed assets related to store closings was $0.6 million, $1.1 million and $0.6 million in fiscal 2017, 2016 and 2015, respectively, and is included in selling, general and administrative (“SG&A”) expenses in the Consolidated Statements of Operations and loss on disposal of fixedoperating right-of-use assets in the Consolidated Statements of Cash Flows. Store closings usually occur at the expiration of the lease, at which time leasehold improvements, which constitute a majority of the abandoned assets, arewere fully depreciated.20172019 was $0.3$0.9 million, compared to $0.8$0.7 million in fiscal 2016.Income.Loss (Income). Other incomeloss was $8.9$0.4 million in fiscal 20172019 compared to $1.1income of $0.2 million in fiscal 2016. Other income for fiscal 2017 consisted primarily of a gain on insurance proceeds related2018.to the death of the Company’s former Chairman. Other income for fiscal 2016 consisted primarily of a gain on the sale of an investment of $0.8 million.Benefit.Expense. The following table sets forth a year-over-year comparison of the Company’s income tax benefit: 2017 vs 2016 2017 2016 $ ($ in thousands) Income tax benefit $ (299) $ (6,773) $ 6,474 Effective tax rate 0.7% 190.1% (amounts in thousands) 2019 vs. 2018 2019 2018 $ Income tax expense Effective tax rate 2017 income tax benefit includes the refund of alternative minimum tax credits partially offset by state taxes, adjustments to the reserve for uncertain tax positions,2019 and the accrual of interest. The fiscal 20162018 income tax expense includes state taxes adjustments toand the accrual of interest on the reserve for uncertain tax positionspositions., the accrual of interest and an income tax benefit from the etailz, Inc. acquisition. See Note 11 in the Consolidated Financial Statements for further detail.(Loss) Income.Loss. The following table sets forth a year-over-year comparison of the Company’s net (loss) income: 2017 2016 $ ($ in thousands) Net (loss) income $ (42,553) $ 3,211 $ (45,764 ) Net (loss) income as a percentage of total revenue (9.6%) 0.9% (amounts in thousands) 2019 vs. 2018 2019 2018 $ Net loss Net loss as a percentage of total revenue $42.6$58.7 million for fiscal 2017,2019, compared to net income of $3.2$97.4 million for fiscal 2016.2018. Included in the results for fiscal 2017 is2019 and fiscal 2018 are non-cash impairment charges of $24.0 million and $59.7 million, respectively, as a non-cash charge of $29.1 million which is the result of recording impairment against certain long-livedfixed assets and right to use assets in the fye segment and impairment against fixed assets, intangible assets, and goodwill in the etailz segment. The increasedecrease in net loss was primarily due to a decrease in asset impairment charges.decline in fye salesyear ended February 1, 2020 were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and a lower gross margin rate partially offset by an $8.7 million gain on proceeds from company owned life insurance policies.30Fiscal Year Ended January 28, 2017 (“fiscal 2016”)Compared to Fiscal Year Ended January 30, 2016 (“fiscal 2015”)Segment Highlights:etailz results includedsatisfy liabilities and commitments in the tables below arenormal course of business. The ability of the Company to meet its liabilities and to continue as a going concern is dependent on improved profitability, the continued implementation of the strategic initiative to reposition etailz as a platform of software and services, the availability of future funding, implementation of one or more corporate initiatives to reduce costs at the parent company level (which could include a voluntary delisting from NASDAQ and deregistering of our Common Stock in order to substantially eliminate the costs associated with being a public company), satisfying all unassumed liabilities of the fye segment and other strategic alternatives, including selling all or part of the remaining business or assets of the Company, and overcoming the impact of the COVID-19 pandemic.starting fromof one year after the date of acquisition.($ in thousands) Fiscal Year
Ended
January 28, Fiscal Year
Ended
January 30, 2017 2016 Total Revenue fye $ 313,211 $ 339,504 etailz 40,259 - Total Company $ 353,470 $ 339,504 Gross Profit fye $ 124,735 $ 135,415 etailz 9,924 - Total Company $ 134,659 $ 135,415 Income (Loss) From Operations fye $ (1,932) $ 4,570 etailz (1,936) - Total Company $ (3,868) $ 4,570 Reconciliationfiling of this Annual Report on Form 10-K. In addition, the proceeds from the PPP Loan are subject to audit and there is a risk of repayment.Loss from Operationsincluding funding operating expenses, the purchase of inventory and capital expenditures. Our ability to etailz Adjusted Income from Operationsetailz loss from operations $ (1,936 ) Acquisition related transaction expenses 2,325 Acquisition related intangible amortization expenses 1,130 Acquisition related compensation expenses 1,035 Earnout contingency benefit (1,829 ) etailz adjusted income from operations(1) $ 725 1.In addition to the results of operations determined in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we reported non-GAAP adjusted operating income for the etailz segment as shown above. The Company believes that etailz adjusted income from operations as per the segment disclosure, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP.
achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and amount of our revenue; the timing and amount of our operating expenses; the timing and costs of working capital needs; successful implementation of our strategy and planned activities; and our ability to overcome the impact of the COVID-19 pandemic.31Total Revenue.year-over-year comparison of the Company’s total revenue: 2016 vs 2015 2016 2015 $ % ($ in thousands) fye net sales $ 308,413 $ 334,661 $ (26,248) (7.8%) etailz net sales 40,259 - 40,259 n/a Other revenue(1) 4,798 4,843 (45) (0.9%) Total revenue $ 353,470 $ 339,504 $ 13,966 4.1% 1.Other revenue is comprised of third-party commission income and management fees related to the fye segment.Total revenue increased 4.1% to $353.5 million compared to $339.5 million in fiscal 2015, driven by $40.3 million in net sales from etailz from the date of acquisition, and partially offset by the decline in fye net sales.fye SegmentThe 7.8% net sales decline from the prior year is due to a 5% decline in total stores in operation and a 3.6% decline in comparable store net sales. Stores closed in fiscal 2016 and fiscal 2015 recorded sales of $21.6 million and $45.2 million, respectively. Total product units sold for fiscal 2016 decreased 7.5% and the average retail price for units sold decreased 1.8%.fye net sales by merchandise category for fiscal 2016 and fiscal 2015 were as follows:($ in thousands) 2016
Net Sales %
Total 2015
Net Sales %
Total Total $
Net Sales
Change Total %
Net Sales
Change Comparable
Store % Net
Sales Change Video(1) $107,637 34.9% $140,223 41.9% $ (32,856 ) (23.4%) (15.5%) Trend/lifestyle 98,692 32.0% 74,295 22.2% 24,397 32.8% 30.9% Music 67,542 21.9% 84,000 25.1% (16,458 ) (19.6%) (15.7%) Electronics 34,542 11.2% 36,143 10.8% (1,601 ) (4.4%) 0.8% Total $308,413 100.0% $334,661 100.0% $ (26,248 ) (7.8%) (3.6%) 1.Includes Video Games category, which represented 0.8% of fye fiscal 2016 net sales. Fiscal 2015 data was adjusted to include this immaterial reclassification.Videofye stores offer a wide range of new and used DVDs, Blu-rays, and 4Ks in a majority of its stores. Total net sales for the video category declined 15.5% on a comparable store sales basis in fiscal 2016. Video sales were negatively impacted by industry wide declines in physical video due to non-physical options.According to Warner Home Video, total video sales in the United States declined 11% during the period corresponding with the Company’s fiscal 2016.32Trend/lifestylefye stores offer a selection of trend products that primarily relate to theatrical releases, music, and gaming. The trend/lifestyle category increased 30.9% on a comparable store sales basis in fiscal 2016. Trend/lifestyle represented 32.0% of the fye’s total net sales in fiscal 2016 versus 22.2% in fiscal 2015. fye continues to take advantage of opportunities to strengthen its selection and shift product mix to growing categories of entertainment-related merchandise. fye grew sales by strengthening its assortment and improving the product presentation and value proposition.Musicfye stores offer a wide range of new and used CDs, music DVDs and vinyl across most music genres, including new releases from current artists as well as an extensive catalog of music from past periods and artists. Total net sales in the music category declined 15.7% on a comparable store sale basis in fiscal 2016. fye has offset declines in CD sales by adding vinyl to its stores.According to SoundScan, total CD unit sales in the United States declined 14.0% during the period corresponding with the Company’s fiscal 2016.Electronicsfye stores offer a selection of complementary portable electronics and accessories to support our entertainment products. The electronics category increased 0.8% on a comparable store sales basis. Electronics represented 11.2% of the fye’s net sales in fiscal 2016 versus 10.8% in fiscal 2015.etailz Segmentetailz recorded sales of $40.2 million from the date of acquisition. etailz generates revenue across a broad array of product lines primarily through the Amazon Marketplace.Gross Profit. The following table sets forth a year-over-year comparison of the Company’s gross profit: 2016 vs 2015 2016 2015 $ % ($ in thousands) fye gross profit $ 124,735 $ 135,415 $ (10,680 ) -7.9% etailz gross profit 9,924 - 9,924 n/a Total gross profit $ 134,659 $ 135,415 $ (756 ) -0.6% fye gross profit as a % of fye revenue 39.8% 39.9% etailz gross profit as a % of etailz revenue 24.7% - Total gross profit as a % of total revenue 38.1% 39.9% Gross profit decreased 0.6% to $134.7 million compared to $135.4 million in fiscal 2015 as incremental gross profit from etailz did not offset lower gross profit from fye.fye SegmentThe decline in gross profit as a percentage of revenue was due to lower sales and higher inventory markdowns to sell off seasonal merchandise. Gross profit as a percentage of fye revenue was 39.8% in fiscal 2016 as compared to 39.9% in fiscal 2015.etailz Segmentetailz reported gross profit of $9.9 million from the date of acquisition. etailz gross profit as a percentage of etailz revenue was 24.7%.Selling, General and Administrative Expenses.The following table sets forth a year-over-year comparison of the Company’s SG&A expenses:33 2016 vs. 2015 2016 2015 $ % ($ in thousands) fye SG&A excluding depreciation and amortization $120,201 $126,177 ($5,976) -4.7% As a % of total fye revenue 38.4% 37.2% 1.2% etailz SG&A excluding depreciation and amortization 10,464 - 10,464 n/a As a % of total etailz revenue 26.0% - n/a n/a Depreciation and amortization 9,026 4,668 4,358 93.4% Total SG&A $139,691 $130,845 $8,846 6.8% SG&A expenses increased $8.8 million primarily due to expenses for etailz, acquisition related expenses and higher depreciation and amortization expenses.fye SegmentSG&A, excluding depreciation and amortization expenses, decreased $6.0 million, or 4.7%, due to lower performance-based compensation and lower expenses due to fewer stores in operation. Included in fiscal 2015 miscellaneous income items was a one-time reimbursement of expenses incurred in prior years, related to a legal settlement of $1.4 million.etailz Segmentetailz SG&A, excluding depreciation and amortization expenses, was $10.5 million from the date of acquisition, which primarily includes commission fees, payroll costs, and acquisition related expenses.Depreciation and amortizationDepreciation and amortization expense increased $4.4 million due to intangible assets amortization resulting from the etailzacquisition, investments in technology enhancements, new and remodeled stores and the chain wide rollout of new marketplace fixtures to support the shift in merchandising assortment.Gain on Sale of Asset.The gain on sale of asset of $1.2 million represented the sale of property located in St. Louis, Missouri. The gain represents cash proceeds of $2.8 million less carrying value of $1.6 million.Interest Expense.Interest expense in fiscal 2016 was $0.8 million, compared to $1.9 million in fiscal 2015, as the Company’s capital lease obligation ended in fiscal 2015.Other Income.Other income was $1.1 million in fiscal 2016 compared to $160 thousand in fiscal 2015. Other income for fiscal 2016 consisted primarily of a gain on the sale of an investment of $800 thousand.Income Tax Expense. The following table sets forth a year-over-year comparison of the Company’s income tax expense:($ in thousands) 2016 vs. 2015 2016 2015 $ Income tax expense (benefit) $(6,773) $181 $(6,954) Effective tax rate 190.1% 6.30% The fiscal 2016 and 2015 income tax expense includes state taxes, adjustments to the reserve for uncertain tax positions, the accrual of interest, and an income tax benefit from the etailz, Inc. acquisition. See note 11 tp the Consolidated Financial Statements for further detail.34Net Income. The following table sets forth a year-over-year comparison of the Company’s net income:($ in thousands) 2016 vs. 2015 2016 2015 $ Net income $3,211 $2,689 $522 Net income as a percentage of total revenue 0.9% 0.8% Net income for fiscal 2016 increased by $522 thousand to $3.2 million, as compared to $2.7 million for fiscal 2015.35LIQUIDITY AND CAPITAL RESOURCESLiquidity and Cash Flows: The Company’s primary sources of working capital are cash provided by operations and borrowing capacity under its revolving credit facility. The Company’s cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory purchases and returns, common stock purchases and capital expenditures. Management believes it will have adequate resources to fund its cash needs for the foreseeable future, including its capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments.Management anticipates any cash requirements due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, discussed hereafter. Cash flows from investing activities are expected to be comprised primarily of capital expenditures during fiscal 2018. The Company does not expect any material changes in the mix (between equity and debt) or the relative cost of capital resources.The following table sets forth a three-yeartwo-year summary of key components of cash flow and working capital: ($ in thousands) 2017 2016 2017 vs.
2016 2015 2016 vs.
2015 Operating Cash Flows $ (13 ) $ 4,436 $ (4,449 ) $ 7,963 $ (3,527 ) Investing Cash Flows 4,482 (57,333 ) 61,815 (20,185 ) (37,148 ) Financing Cash Flows (5,040 ) (7,337 ) 2,297 (2,004 ) (5,333 ) Capital Expenditures (8,407 ) (24,672 ) 16,265 (20,700 ) (3,972 ) End of Period Balances: Cash, Cash Equivalents, and Restricted Cash 43,506 (1) 44,077 (571 ) 104,311 (60,234 ) Merchandise Inventory 109,112 126,004 (16,892 ) 120,046 5,958 Merchandise Inventory Per Square Foot - fye 59.9 68.8 69.4 Inventory leverage - fye 44.0 40.2 3.8 43.2 (3.0 ) Inventory turns - fye 1.5 1.5 1.6 Working Capital 93,327 98,601 (5,774 ) 161,142 (62,541 ) (1) Cash and cash equivalents per
Consolidated Balance Sheets $ 31,326 $ 27,974 Add: Restricted cash 12,180 16,103 Cash, cash equivalents, and restricted cash $ 43,506 $ 44,077 (amounts in thousands) 2019 2018 Operating Cash Flows $ (15,827 ) $ (25,518 ) $ 9,691 Investing Cash Flows (2,696 ) (2,342 ) (354 ) Financing Cash Flows 13,149 (1,420 ) 14,569 Capital Expenditures (2,823 ) (3,689 ) 866 End of Period Balances: Cash, Cash Equivalents, and Restricted Cash 8,852 14,226 (5,374 ) Merchandise Inventory 67,958 94,842 (26,884 ) Working Capital 22,126 65,947 (43,821 ) Cash and cash equivalents per Consolidated Balance Sheets $ 2,977 $ 4,355 Add: Restricted cash 5,875 9,871 Cash, cash equivalents, and restricted cash $ 8,852 $ 14,226 2017,2019, cash used in operations was $13 thousand$15.8 million compared to $25.5 million in fiscal 2018. During 2019, cash used in operations consisted primarily due toof a net loss of $42.6$58.7 million adding backoffset by non-cash charges, including the $24.0 million impairment of long lived-assets, the $12.7 inventory net realizable adjustment and $11.5 million in depreciation and amortization and changes in operating assets and liabilities of $14.1$6.5 million. During fiscal 2018, cashed used in operations consisted primarily of a net loss of $97.4 million loss on fixed assetsoffset by the non-cash charges, including $59.7 million impairment of $29.1long-lived assets and $9.1 million non-cash compensation of $3.1 million, decrease in merchandise inventory of $16.9 million, and a decrease in accounts receivable and other current assets of $3.9 million, less the adjustment to the contingent consideration liability of $3.3 million, the gain on insurance proceeds of $8.7 million, and reductions in accounts payable and deferred revenue of $10.5 million and $1.3 million, respectively. During fiscal 2016, cash flow from operations was $4.4 million primarily due to net income of $3.2 million, plus depreciation and amortization and changes in operating assets and liabilities of $9.3 million, less a deferred tax benefit$0.2 million. See the Consolidated Statement of $7.0 million.inventory investment per square foot (merchandise inventory divided by total store square footage) and inventoryaccounts payable leverage (accounts payable divided by merchandise inventory).36fye segment, inventory turnover in fiscal 2017 and in fiscal 2016 was 1.5. For the etailz segment, inventory turnover in fiscal 20172019 and in fiscal 2018 was 4.5. Inventory investment per square foot measures the productivity of the inventory. It is important in determining if the Company has the appropriate level of inventory to meet customer demands while controlling its investment in inventory. Inventory investment per square foot in the fye segment was $60 per square foot at the end of fiscal 2017 as compared to $69 per square foot at the end of fiscal 2016.5.0 and 5.2, respectively. Accounts payable leverage measures the percentage of inventory being funded by the Company’s product vendors. The percentage is important in determining the Company’s ability to fund its business. Accounts payable leverage on inventory for the fyeetailz segment was 44.0%32.7% as of February 3, 20181, 2020 compared with 40.2% as of January 28, 2017. Accounts payable leverage on inventory for the etailz segment was 16.6%22.7% as of February 3, 2018.provided byused in investing activities was $4.5$2.7 million in fiscal 2017,2019, compared to cash flows used byin investing activities of $57.3$2.3 million in fiscal 2016.2018. During fiscal 2017,2019, cash provided byused in operating investing activities primarily consisted of capital expenditures. During fiscal 2018, cash used in investing activities consisted of Company owned life insurance proceeds of $14.4 million, and $1.1$1.4 million in capital distributions received from the joint venture, less $8.4more than offset by $3.7 million in capital expenditures, and a $2.6 million investment in a joint venture. During fiscal 2016, the primary uses of cash in investing activities were the investment in etailz of $36.6 million and capital expenditures of $24.7 million offset by proceeds from sale of St. Louis property and sale of miscellaneous investments.select financing arrangements and cash flow from operations. The Company anticipates capital spending of approximately $3$1.5 million in fiscal 2018 as the Company has made the majority of its planned capital investments.was $5.0of $1.4 million in fiscal 2017, compared to $7.3 million in fiscal 2016.2018. In fiscal 2017,2019, cash provided by financing activities consisted of net proceeds from short term borrowings. In fiscal 2018, cash used in financing activities was primarily comprised of a $5.0$1.5 million payment paid to the etailz shareholders in connection with the amendment to the share purchase agreement. In fiscal 2016, the primary uses of cash in financing activities were the payment of etailz’s outstanding line of credit of $4.7 million and common stock repurchases of $2.6 million.In January 2017, the Company amended and restated its revolving credit facility (“Credit Facility”). The Credit Facility provides for commitments of $50 million subject to increase up to $75 millionagreement signed during the monthsacquisition of October to December of each year, as needed. The availability under the Credit Facility is subject to limitations based on receivables and inventory levels. The principal amount of all outstanding loans under the Credit Facility together with any accrued but unpaid interest, are due and payable in January 2022, unless otherwise paid earlier pursuant to the terms of the Credit Facility. Payments of amounts due under the Credit Facility are secured by the assets of the Company. During fiscal 2017, the Company exercised the right to increase its availability to $60 million subject to the same limitations noted above.The Credit Facility contains customary affirmative and negative covenants, including restrictions on dividends and share repurchases, incurrence of additional indebtedness and acquisitions and covenants around the net number of store closings and restrictions related to the payment of cash dividends and share repurchases, including limiting the amount of dividends to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment. The Credit Facility also includes customary events of default, including, among other things, material adverse effect, bankruptcy, and certain changes of control. As of February 3, 2018, the Company was compliant with all covenants.Interest under the Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability, with the Applicable Margin for LIBO Rate loans ranging from 1.75% to 2.00% and the Applicable Margin for Prime Rate loans ranging from 0.75% to 1.00%. In addition, a commitment fee of 0.25% is also payable on unused commitments. As of February 3, 2018 and January 28, 2017, the Company did not have any borrowings under the Credit Facility. Peak borrowings under the Credit Facilityetailz during fiscal 2017 and fiscal 2016 were $11.7 million and $21.5 million, respectively.
2016.37As of February 3, 2018 and January 28, 2017, the Company had no outstanding letters of credit. The Company had $41 million and $39 million available for borrowing under the Credit Facility as of February 3, 2018 and January 28, 2017, respectively.Contractual Obligations and Commitments. The following table summarizes the Company’s contractual obligations as of February 3, 2018, and the effect that such obligations are expected to have on liquidity and cash flows in future periods.Contractual
Obligation 2018 2019-
2020 2021-
2022 2023-
2027 Total $ in thousands Operating lease and maintenance agreement obligations $ 25,308 $ 17,832 $ 6,550 $ 965 $ 50,655 Asset retirement obligations(1) 2,014 247 231 11 2,503 Pension benefits(2) 1,199 2,391 2,333 6,510 12,433 Total $ 28,521 $ 20,470 $ 9,114 $ 7,486 $ 65,591 (1)Asset retirement obligations are estimated costs associated with the fixed assets and leasehold improvements at the Company’s store locations that arise under the terms of operating leases.(2)In addition to the scheduled pension benefit payments, the Company offers 401(k) Savings Plans to eligible employees (see also Note 10 of the Consolidated Financial Statements in this report).Theleasesleased its 181,300 square foot distribution center/office facility in Albany, New York from an entity controlled by the estate of Robert J. Higgins, its former Chairman and largest shareholder. The original distribution center/office facility was occupied in 1985. On December 4, 2015, the Company amended and restated the lease. The lease commenced on January 1, 2016 and expires on December 31, 2020.new lease dated December 4, 2015, and accounted for as an operating lease, the Company paid $1.2 million in both fiscal 20172019 and fiscal 2016. Under2018, which were included in selling, general and administrative expenses in the lease prior to December 4, 2015,Statement of Operations. As of February 1, 2020, the Company paid annual rentowed $1.1 million on the operating lease liability, which is included in the current portion of $2.1 million in fiscal 2015.operating lease liabilities on the Balance Sheet. Under the terms of the lease agreement, the Company is responsible for property taxes and other operating costs with respect to the premises.Sara Neblett,wifeFYE Transaction, the Company assigned the rights and obligations of Josh Neblett, the Executive Advisorlease to Sunrise Records.etailz, was employedAlimco Re Ltd. (“Alimco”), the managing member of Kick-Start III, LLC and Kick-Start IV, LLC (“Kick-Start”), and a trustee of the Robert J. Higgins TWMC Trust (the “Trust”), an affiliate of RJHDC, LLC (“RJHDC” and together with Alimco and Kick-Start, “Related Party Entities”), respectively. The Related Party Entities are parties to the following agreements with the Company entered into on March 30, 2020:Vice PresidentCompany, and Mr. Reickert, a trustee of Partner Carethe Trust, remained as a director of etailz. Ms. Neblett received $165,250 in cash compensation during fiscal 2017.
the Company. Mr. Subin was also granted board observer rights.38Costs:Costs. Merchandise inventory is stated at the lower of cost or marketnet realizable value under the average cost method. The average cost method attachesIn the current year, the Company recorded a cost$12.7 million inventory adjustment to each item and is a blended averagenet realizable value based on the sale of its fye business after the original purchase price and those of subsequent purchases or other cost adjustments throughout the life cycle of that item.market value;net realizable value, if marketnet realizable value is lower than cost. Inherent in the entertainment products industry is the risk of obsolete inventory. Typically, newer media releases generate a higher product demand. Some media vendors offer credits to reduce the cost of products that are selling more slowly, thus allowing for a reduction in the selling price and reducing the possibility for items to become obsolete. For all merchandise categories, the Company records obsolescence and any adjustments to marketnet realizable value (if lower than cost) based on current and anticipated demand, customer preferences, and market conditions. The provision for inventory shrink is estimated as a percentage of sales for the period from the last date a physical inventory was performed to the end of the fiscal year. Such estimates are based on historical results and trends and the shrink results from the last physical inventory. Physical inventories are taken at least annually for all stores and the distribution center throughout the year and inventory records are adjusted accordingly.Shrink expense, including obsolescence was $5.4 million, $5.9 million and $4.7 million, in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. As a rate to total revenue, this equaled 1.2%, 1.7% and 1.4%, respectively. Presently, a 0.1% change in the rate of shrink provision would equal approximately $0.2 million in additional charge or benefit to cost of sales, based on fiscal 2017 net sales since the last physical inventories.2017, fiscal 20162019 and fiscal 2015 of $0.4 million, $0.62018, respectively.$0.5$3.4 million respectively.Income Taxes: Income taxes are accounted for under the assetin fiscal 2019 and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.Accounting for income taxes requires management to make estimates and judgments regarding interpretation of various taxing jurisdictions, laws and regulations as well as the ultimate realization of deferred tax assets. These estimates and judgments include the generation of future taxable income, viable tax planning strategies and support of tax filings. In assessing the value of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future39taxable income and tax planning strategies in making this assessment. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against its net deferred tax assets as of February 3, 2018.In late 2017, new tax legislation was enacted in the United States (Tax Reform Act) which resulted in significant changes to income tax expense.fiscal 2018, respectively. As a result of the Tax Reform Act, the Company re-measured certain deferred tax assetsrate to net sales, this equaled 0.8% for fiscal 2019 and liabilities based on the newly enacted federal rate of 21%. Accordingly, the federal net deferred tax assets were written down to account for the change.Goodwill and Intangible Assets:Our goodwill results from our acquisition of etailz and represents the excess purchase price over the net identifiable assets acquired. All of our goodwill is associated with etailz, a separate reporting unit, and there is no goodwill associated with our2018.reporting unit, fye. Goodwill is not amortized and we are required to evaluate our goodwill for impairment at least annually or whenever indicators of impairment are present. Our annual test is completed during the fourth fiscal quarter, and interim tests are conducted when circumstances indicate the carrying value of the goodwill or other intangible assets may not be recoverable. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is possible that these judgments and estimates could change in future periods.The determination of the fair value of intangible assets and liabilities acquired in a business acquisition, including the Company’s acquisition of etailz in 2016, is subject to many estimates and assumptions. Our identifiable intangible assets that resulted from our acquisition of etailz consist of vendor relationships, technology and tradenames. We review amortizable intangible asset groups for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.Long Lived Assets.than Goodwill:multipletwo asset groupings – corporate and individual store level assets.2017,2019 and fiscal 2018, the Company concluded, based on continued operating losses forwithin the fye segment driven by lower than expected sales that a triggering eventevents had occurred in each respective fiscal year, and pursuant to FASB ASC 360,Property, Plant, and Equipment,requiring a testan evaluation of long-livedthe fye fixed assets for impairment was required. Fixed assets and operating lease right-of-use assets, primarily at itsthe Company’s retail stores. Long-livedstore locations, as well as certain fixed assets at locationsthe corporate location, consisting of the home office and the Albany distribution center, where impairment was determined to exist were written down to their estimated fair values as of the end of fiscal 20172019 and fiscal 2018, resulting in the recording of asset impairment charges of $29.1 million. Estimated$23.2 million and $1.9 million, respectively. Based on the fair values for long-livedvalue as determined attributable to the fixed assets at these locations, including store fixtures, equipment, and leasehold improvementsoperating lease right-of-use assets in contemplation of the fye segment, it was determined that as of the end of fiscal 2019, the fixed assets and operating lease right-of-use assets were determinedfully impaired.measuretriggering event had occurred, and pursuant to FASB ASC 360, Property, Plant, and Equipment, an evaluation of discounted future cash flows over the remaining lease terms at the respective locations. Future cash flowsetailz fixed assets and intangible assets for impairment was required. For fiscal 2019, intangible assets related to vendor relationships were estimated based on store plans and were discounted at a rate approximating the Company’s cost of capital. Management believes its assumptions were reasonable and consistently applied.The Company did not recognize impairment during fiscal 2016 and fiscal 2015. Losses for store closingsfully impaired resulting in the ordinary courserecognition of business represent the write downasset impairment charges of the net book value of abandoned fixtures and leasehold improvements. The loss on disposal of$0.8 million. For fiscal 2018, fixed assets related to store closings was $0.6 million, $1.1internally developed technology at etailz were written down to their estimated fair values resulting in the recognition of asset impairment charges of $2.1 million and $0.6 million in fiscal 2017, 2016intangible assets related to technology and 2015, respectively, and is included in selling, general and administrative (“SG&A”) expensesvendor relationships were written down to their estimated fair values resulting in the Consolidated Statementsrecognition of Operations and loss on disposalasset impairment charges of fixed assets in the Consolidated Statements of Cash Flows. Store closings
$16.4 million.40usually occur at the expiration of the lease, at which time leasehold improvements, which constitute a majority of the abandoned assets, are fully depreciated.2, which is incorporated herein by reference.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company does not hold any financial instruments that expose it to significant market risk and does not engage in hedging activities. To2.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK extent the Company borrows under its revolving credit facility, the Company is subject to risk resulting from interest rate fluctuations since interest on the Company’s borrowings under its credit facility can be variable. If interest rates on the Company’s revolving credit facility were to increase by 25 basis points, and to the extent borrowings were outstanding, for every $1,000,000 outstanding on the facility, income before income taxes would be reduced by $2,500 per year. Information about the fair valuerequirements of financial instruments is included in Note 1 of Notes to the Consolidated Financial Statements in this report.Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Item 9A. CONTROLS AND PROCEDURESItem 9A. CONTROLS AND PROCEDURES 413, 2018.The acquisition of etailz, Inc. was significant to the Company and was consummated effective October 17, 2016. Upon consummation of the acquisition, etailz, Inc. became a consolidated subsidiary of the Company. As of February 3, 2018 etailz operations are fully incorporated within the Company, including internal controls over financial reporting. In connection with the foregoing evaluation by the Company’s Chief Executive Officer and Chief Financial Officer, other than as noted above,1, 2020, there have been no changes in the Company’s internal controls over financial reporting that occurred during fiscal 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.Item 9B. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.Other Information31Item 9B. OTHER INFORMATION Item.Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEItem 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE required by this itemAbout Our Executive OfficersName (1) (2) (3) (4) incorporated by referencenot a salaried employee of the Company receives a $12,500 retainer per annum plus a $2,000 attendance fee for each Board meeting attended and a $1,000 attendance fee for each committee meeting attended, except that the compensation for telephone conference meetings is $1,000 and $500 for Board and committee telephone conference meetings, respectively. A committee chairperson receives an additional $5,000 retainer per year and the Audit Committee chairperson receives a $15,000 annual retainer. The Chairman of the Board receives an annual retainer of $50,000. The Company may, in its discretion, determine to pay all or a portion of any annual retainer in shares of Common Stock in lieu of cash and to make discretionary grants of Common Stock to non-employee directors from time to time. The Company has not elected to pay the informationannual retainer in shares or make discretionary grants during the past three years.be includedparticipate in the Proxy Statement for our 2018 Annual Meeting of ShareholdersAmended and Restated 2005 Long Term Incentive Plan. During the 2019 fiscal year, options to be filed pursuantpurchase 15,000 Company shares were granted to Regulation 14A with the SECMr. Hastings.29, 2018, which information is incorporated1 of each year, non-employee directors have been entitled to receive grants of vested shares of Common Stock representing $80,000 in market value of stock on the grant date for service over the prior twelve months. They were entitled to elect to receive cash instead of shares of Common Stock to the extent they met a share ownership requirement (shares having a value at least equal to 4x the annual retainer).reference.Item 11. EXECUTIVE COMPENSATIONInformation requireditemProxy Statement captioned “Compensation Discussion and Analysis.” The Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is incorporatedattached as Appendix B to the 2019 Proxy Statement.reference fromshareholders. To recommend a nominee, a shareholder should write to the informationCompany’s Secretary. See “Submission of Shareholder Proposals” in this Proxy Statement. Any recommendation must include (i) the name and address of the candidate, (ii) a brief biographical description, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements summarized above, and (iii) the candidate’s signed consent to be includednamed in the Proxy Statement and to serve as a Director if elected. The Nominating and Corporate Governance Committee may seek additional biographical and background information from any candidate which, to be filed pursuantconsidered, must be received on a timely basis.Regulation 14Aidentify and evaluate candidates includes requests to Board members and others for recommendations, including a search firm or outside consultant, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board. Assuming the appropriate biographical and background material is provided for candidates submitted by shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by Board members. While the Company does not have a formal diversity policy for Board of Director membership, the Nominating and Corporate Governance Committee and the Board of Directors, as a whole, seeks nominees or candidates to serve as directors that represent a variety of backgrounds and experience that will enhance the quality of the Board of Director’s deliberations and decisions. The Nominating and Corporate Governance Committee considers, among other factors, diversity with respect to viewpoint, skills and experience in its evaluation of candidates for Board of Director membership. Such diversity considerations are discussed by the Nominating and Corporate Governance Committee in connection with the SEC on or about May 29, 2018, which information is incorporated by reference.general qualifications of each potential nominee.42Item 11.EXECUTIVE COMPENSATION Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERSCertain informationthis itemtheir Severance, Retention and Restrictive Covenant Agreements with the Company, Mr. Sapienza received a guaranteed bonus of $100,000 and a retention bonus of $133,000 and Mr. Eisenberg received a retention bonus of $100,000. incorporatedto provide named executive officers with reasonable and competitive levels of protection against the four contingencies (retirement, death, disability and ill health) which could interrupt their employment and/or income received as an active employee. Retirement plans, including the supplemental executive retirement plan, are designed to provide a competitive level of retirement income to named executive officers and to reward them for continued service with the Company. The retirement program consists of a supplemental executive retirement plan and the 401(k) plan.referenceour Chief Executive Officer and two other most highly compensated Executive Officers for the fiscal year ended February 1, 2020.Name Principal Position Year 2018 — 2018 — — (1) (2) (3) (4) (5) (6) Name Year Total ($) — 2018 2018 Option Awards Number of 4/14/2016 4/14/2026 5/1/2017 5/1/2027 — 5/7/2012 5/7/2022 6/3/2014 6/21/2023 5/6/2016 5/6/2026 6/27/2018 6/27/2028 (1) (2) (3) informationdate of termination, (ii) any unpaid portion of his retention bonus, (iii) any unpaid annual bonus that was earned (as determined by the Board in accordance with the applicable annual bonus plan) for the year preceding the year in which termination occurs, and (iv) payment for health insurance coverage for up to six months following termination at the same rate as the Company pays for health insurance coverage for its active employees (with the executive required to pay for any employee-paid portion of such coverage). Payment of these amounts is contingent on the executive signing (and not revoking within any statutory revocation period) a release of claims reasonably acceptable to the Company.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS includedthe beneficial owners of more than five percent of the outstanding shares of Common Stock as of June 15, 2020, are indicated below;Name and Address of Beneficial Owner 713,986 39.3 % 300,084 16.5 % 99,399 5.5 % (1) Based on Form 5, filed February 21, 2017, by The Robert J Higgins TWMC Trust. (2) Based on Schedule 13D, filed April 9, 2020, on behalf of (i) Neil S. Subin (“Mr. Subin”); (ii) MILFAM LLC; (iii) Alimco Financial Corporation (“Alimco”); (iv) Alimco Re Ltd., a wholly-owned subsidiary of Alimco (“Alimco Re”); (v) Jonathan Marcus (“Mr. Marcus”); (vi) AMIL Of Ohio, LLC; (vii) Catherine C. Miller Irrevocable Trust dtd 3/26/91; (viii) Catherine C Miller Trust A-2; (ix) Catherine C Miller Trust A-3; (x) Catherine Miller Trust C; (xi) Kimberly S. Miller GST Trust dtd 12/17/1992; (xii) LIMFAM LLC; (xiii) Lloyd I. Miller Trust A-1; (xiv) Lloyd I. Miller, III Trust A-4; (xv) Lloyd I. Miller, III Irrevocable Trust dtd 12/31/91; (xvi) Lloyd I. Miller, III Revocable Trust dtd 01/07/97; (xvii) MILFAM I L.P.; (xviii) MILFAM II L.P.; (xix) MILFAM III LLC; and (xx) Susan F. Miller (such persons, trusts and entities named in items (i) through (xx), collectively, the “Reporting Persons”). (3) Based on Form 13G, filed on February 12, 2020, by Renaissance Technologies LLC, which is majority owned by Renaissance Technologies Holdings Corporation. Proxy Statement for our 2018 Annual Meeting of Shareholderstable are owned directly by the named individuals, unless otherwise indicated therein. The Company believes that the beneficial owners have sole voting and investment power over their shares, except as otherwise stated or as to be filed pursuant to Regulation 14A with the SEC on or about May 29, 2018, which information is incorporatedshares owned by reference.Name Age Jonathan Marcus Director 60 2020 — — — * W. Michael Reickert Director 56 2016 3,200 750 3,950 * Tom Simpson Director 59 2020 57,000 — 57,000 3.1% Chief Executive Officer – etailz 38 2020 — — — * 51 2014 11,441 42,858 54,299 3.0% Edwin J. Sapienza 50 2018 1,500 7,525 9,025 * 60 1995 — — — * All Directors and Executive Officers as a group (7 persons) 73,141 51,133 124,274 6.8% * Less than 1% of issued and outstanding Common Stock (1) Excludes 713,986 shares held in the Robert J Higgins TWMC Trust of which Mr. Reickert is a Trustee. (2) Excludes 202,067 warrants held by the RJHDC LLC. (3) Excludes 25 shares held by the wife of Tom Simpson. Also excludes 23,879 and 9,737 shares held by Kick Start III, LLC and Kick Start IV, LLC. Mr. Simpson holds an interest, manages and has voting control of Kick Start III and Kick Start IV, LLC. (4) Excludes 14,041 and 9,360 warrants held by Kick Start III, LLC and Kick Start IV, LLC. Mr. Simpson holds an interest, manages and has voting control of Kick Start III and Kick Start IV, LLC. (5) Mr. Feurer ceased to be a board member and his employment was terminated as of March 30, 2020. (6) Mr. Eisenberg’s employment was terminated as of February 28, 2020. (7) Mr. Chopra joined the Company as of September 3, 2019. 3, 2018:Plan Category Number of Shares to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights(1)Weighted Average Exercise
Price of Outstanding
Options, Warrants and
RightsNumber of Shares
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Outstanding
Options, Warrants and
Rights)Equity Compensation Plan Approved by Shareholders 2,764,341 $3.06 1,311,164 Equity Compensation Plans and Agreements not Approved by Shareholders — — — Equity Compensation Plan Approved by Shareholders Equity Compensation Plans and Agreements not Approved by Shareholders (1) 178,42711,512 deferred shares which may be issued for no consideration.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation requiredItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE this itemthe estate of Robert J. Higgins, its former Chairman and largest shareholder. The distribution center/office lease commenced on January 1, 2016 and expires on December 31, 2020. incorporated by reference from the information to be included in the Proxy Statementcurrent portion of operating lease liabilities on the Balance Sheet. Under the terms of the lease agreement, the Company is responsible for our 2018 Annual Meetingproperty taxes and other operating costs with respect to the premises.Shareholdersthe FYE Transaction. On February 20, 2020, as part of the FYE Transaction, the Company assigned the rights and obligations of the lease to be filedSunrise Records.Regulation 14Awhich the Related Party Entities made a $5.2 million secured term loan ($2.7 million from Alimco, $0.5 million from Kick-Start, and $2.0 million from RJHDC) to etailz with a scheduled maturity date of May 22, 2023, interest accruing at the rate of twelve percent (12%) per annum and compounded on the last day of each calendar quarter by becoming a part of the principal amount, and secured by a second priority security interest in substantially all of the assets of the Company and etailz;SEC on or about May 30, 2018,terms of the Warrants, at an exercise price of $0.01 per share;information is incorporated by reference.Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation required by this item is incorporated by referencethe Related Party Entities received contingent value rights (“CVRs”) representing the contractual right to receive cash payments from the information to be includedCompany in an amount equal, in the Proxy Statementaggregate, to be filed19.9% of the proceeds (10.35% for Alimco, 1.90% for Kick-Start, and 7.64% for RJHDC) received by the Company in respect of certain intercompany indebtedness owing to it by etailz and/or its equity interest in etailz; andRegulation 14Awhich the Related Party Entities, the Trust, Mr. Simpson and their respective related entities agreed to how their respective shares of the Company’s capital stock held by the parties will be voted with respect to (i) amending the Articles of Incorporation of the Company to set the size of the Board of Directors of the Company at three directors, (ii) the designation, election, removal, and replacement of members of the Board and (iii) how shares of the Company’s capital stock held by the parties to the Voting Agreement will be voted on a Sale of the Company (as defined in the Voting Agreement) with respect to which there is a shareholder vote or some other action to take place during the ninety (90) days immediately following the date of the Voting Agreement. Pursuant to the Voting Agreement, Messrs. Marcus and Simpson were appointed as directors of the Company, and Mr. Reickert, a trustee of the Trust, remained as a director of the Company. Mr. Subin was also granted board observer rights.SEC onstandards of the NASDAQ Stock Market and as described below. The Nominating and Corporate Governance Committee as well as the Board annually reviews relationships that directors may have with the Company to make a determination of whether there are any material relationships that would preclude a director from being independent.about May 29, 2018, which information is incorporated by reference.its affiliates or any executive officer of the Company or his or her affiliates.43Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESItem 16. Form 10-K Summary44Item 16.Form 10-K Summary
None.Date: May 4, 2018June 15, 2020By: /s/ Michael FeurerKunal Chopra Michael FeurerChiefName Title Date Michael FeurerKunal ChopraChief and DirectorMay 4, 2018 (Michael Feurer)(Principal Executive Officer) John AndersonEdwin SapienzaMay 4, 2018(John Anderson) Martin HanakaJonathan Marcus (Martin Hanaka)May 4, 2018 /s/Robert Marks/s/ Michael Reickert (Robert Marks)May 4, 2018 Michael NahlTom Simpson (Michael Nahl)May 4, 2018 /s/ Michael Reickert (Michael Reickert)DirectorMay 4, 2018 /s/ Michael B. Solow (Michael B. Solow)DirectorMay 4, 201845TRANS WORLD ENTERTAINMENT CORPORATIONINDEX TO CONSOLIDATED FINANCIAL STATEMENTSForm 10-KPage No.ReportsReport of Independent Registered Public Accounting FirmF-248 Consolidated Financial Statements F-349 F-450 51 Consolidated Statements of Comprehensive Income (Loss) - fiscal years endedFebruary 3, 2018, January 28, 2017, and January 30, 2016F-5F-652 F-753 F-855 F-13, 20181, 2020 and January 28, 2017,February 2, 2019, the related consolidated statements of operations, comprehensive income (loss),loss, shareholders’ equity, and cash flows for each of the fiscal years in the three-yeartwo‑year period ended February 3, 2018,1, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 3, 20181, 2020 and January 28, 2017,February 2, 2019, and the results of its operations and its cash flows for each of the fiscal years in the three-yeartwo‑year period ended February 3, 2018,1, 2020, in conformity with U.S. generally accepted accounting principles.NYNew YorkMay 4, 2018F-2
June 15, 2020$ in thousands, except per share and share amounts) February 3,
2018 January 28,
2017 ASSETS CURRENT ASSETS Cash and cash equivalents $31,326 $27,974 Restricted cash 1,505 - Accounts receivable 4,469 7,085 Merchandise inventory 109,112 126,004 Prepaid expenses and other current assets 6,976 8,271 Total current assets 153,388 169,334 Restricted cash 10,675 16,103 Net fixed assets 13,546 45,097 Goodwill 39,191 39,191 Net intangible assets 23,967 27,857 Other assets 7,139 10,228 TOTAL ASSETS $247,906 $307,810 LIABILITIES CURRENT LIABILITIES Accounts payable $41,780 $52,307 Accrued expenses and other current liabilities 10,846 9,198 Deferred revenue 7,935 9,228 Total current liabilities 60,561 70,733 Other long-term liabilities 29,131 39,141 TOTAL LIABILITIES 89,692 109,874 SHAREHOLDERS’ EQUITY Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - Common stock ($0.01 par value; 200,000,000 shares authorized; 64,305,171 shares and 64,252,671 shares issued, respectively) 643 643 Additional paid-in capital 341,103 338,075 Treasury stock at cost (28,156,601 and 28,137,283 shares, respectively) (230,145) (230,144) Accumulated other comprehensive loss (998) (802) Retained earnings 47,611 90,164 TOTAL SHAREHOLDERS’ EQUITY 158,214 197,936 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $247,906 $307,810 ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,977 $ 4,355 Restricted cash 950 4,126 Accounts receivable 4,201 5,383 Merchandise inventory 67,958 94,842 Prepaid expenses and other current assets 3,979 6,657 Total current assets 80,065 115,363 Restricted cash 4,925 5,745 Fixed assets, net 2,190 7,529 Operating lease right-of-use assets 3,311 - Intangible assets, net 1,760 3,668 Other assets 5,555 5,708 TOTAL ASSETS $ 97,806 $ 138,013 LIABILITIES CURRENT LIABILITIES Accounts payable $ 24,120 $ 34,329 Short-term borrowings 13,149 - Accrued expenses and other current liabilities 4,479 8,132 Deferred revenue 6,681 6,955 Current portion of operating lease liabilities 9,510 - Total current liabilities 57,939 49,416 Operating lease liabilities 13,263 - Other long-term liabilities 22,089 24,867 TOTAL LIABILITIES 93,291 74,283 SHAREHOLDERS’ EQUITY Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - Common stock ($0.01 par value; 200,000,000 shares authorized; 3,225,627 shares and 3,221,834 shares issued, respectively) 32 32 Additional paid-in capital 345,102 344,826 Treasury stock at cost (1,409,316 and 1,408,892 shares, respectively) (230,169 ) (230,166 ) Accumulated other comprehensive loss (1,479 ) (735 ) Accumulated deficit (108,971 ) (50,227 ) TOTAL SHAREHOLDERS’ EQUITY 4,515 63,730 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 97,806 $ 138,013 F-3$ in thousands, except per share and share amounts) Fiscal Year Ended February 3,
2018 January 28,
2017 January 30,
2016 Net sales $ 437,173 $ 348,672 $ 334,661 Other revenue 5,683 4,798 4,843 Total revenue 442,856 353,470 339,504 Cost of sales 299,013 218,811 204,089 Gross profit 143,843 134,659 135,415 Selling, general and administrative expenses 167,924 139,691 130,845 Income from joint venture (1,787) — — Gain on sale of asset — (1,164) — Asset impairment charges 29,107 — — Income (loss) from operations (51,401) (3,868) 4,570 Interest expense 332 775 1,860 Other income (8,881) (1,081) (160) Income (loss) before income taxes (42,852) (3,562) 2,870 Income tax expense (benefit) (299) (6,773) 181 Net income (loss) $ (42,553) $ 3,211 $ 2,689 Basic and diluted earnings (loss) per share $ (1.18) $ 0.10 $ 0.09 Weighted average number of shares outstanding - basic 36,191 32,162 31,167 Weighted average number of shares – diluted 36,191 32,321 31,323 Fiscal Year Ended Net sales $ 321,993 412,997 Other revenue 3,942 5,193 Total revenue 325,935 418,190 Cost of sales 229,836 290,116 Gross profit 96,099 128,074 Selling, general and administrative expenses 129,291 165,222 Gain on sale of asset --- --- Asset impairment charges 23,983 59,658 Loss from operations (57,175 ) (96,806 ) Interest expense 884 723 Other loss (income) 364 (227 ) Loss before income taxes (58,423 ) (97,302 ) Income tax expense 321 80 Net loss $ (58,744 ) $ (97,382 ) Basic and diluted loss per share $ (32.35 ) $ (53.67 ) Weighted average number of shares outstanding - basic and diluted 1,816 1,814 F-4$ in thousands) Fiscal Year Ended February 3,
2018 January 28,
2017 January 30,
2016 Net income (loss) $ (42,553 ) $ 3,211 $ 2,689 Pension actuarial income (loss) adjustment (196 ) 10 1,369 Comprehensive income (loss) $ (42,749 ) $ 3,221 $ 4,058 Fiscal Year Ended Net loss $ (58,744 ) $ (97,382 ) Pension actuarial (loss) income adjustment (744 ) 263 Comprehensive loss $ (59,488 ) $ (97,119 ) F-5$dollars and shares in thousands) Common
Shares Common
Stock Additional
Paid-in
Capital Treasury
Shares Treasury
Stock
At Cost Accumulated
Other
Comprehensive
Loss Retained
Earnings Shareholders’
Equity Balance as of January 31, 2015 58,338 $ 583 $ 315,486 (27,094 ) $ (226,412 ) $ (2,181 ) $ 84,264 $ 171,740 Net Income - - - - - - 2,689 2,689 Pension actuarial income adjustment - - - - - 1,369 - 1,369 Amortization of unearned compensation - stock options - - 424 - - - - 424 Exercise of equity grants 8 - 19 - - - - 19 Purchase of treasury stock - - - (279 ) (1,085 ) - - (1,085 ) Vested restricted shares 50 1 (69 ) (38 ) - - - (68 ) Amortization of unearned compensation - restricted stock - - 180 - - - - 180 Balance as of January 30, 2016 58,396 $ 584 $ 316,040 (27,411 ) $ (227,497 ) $ (812 ) $ 86,953 $ 175,268 Net Income - - - - - - 3,211 3,211 Pension actuarial income adjustment - - - - - 10 - 10 Vesting of performance based awards - 1 429 - - - - 430 Exercise of equity grants 18 - 39 - - - 39 Purchase of treasury stock - - - (686 ) (2,644 ) - - (2,644 ) Issuance of deferred stock to Directors - - 46 - - - - 46 Vested restricted shares 108 1 (143 ) (40 ) (3 ) - - (145 ) Common stock issued in the acquisition of etailz 5,731 57 20,358 - - - - 20,415 Stock based compensation - - 1,306 - - - - 1,306 Balance as of January 28, 2017 64,253 $ 643 $ 338,075 (28,137 ) $ (230,144 ) $ (802 ) $ 90,164 $ 197,936 Net Loss - - - - - - (42,553 ) (42,553 ) Pension actuarial loss adjustment - - - - - (196 ) - (196 ) Vested restricted shares 50 - (39 ) (20 ) (1 ) - - (40 ) Common stock issued in the acquisition of etailz 2 - - - - - - - Stock based compensation - - 3,067 - - - - 3,067 Balance as of February 3, 2018 64,305 $ 643 $ 341,103 (28,157 ) $ (230,145 ) $ (998 ) $ 47,611 158,214 Balance as of February 3, 2018 3,215 (1,408 ) $ 32 $ 341,715 $ (230,145 ) $ (998 ) $ 47,611 $ 158,214 Decrease to opening balance of Retained Earnings as a result of applying ASU 2014-09 - - - - - - (456 ) (456 ) Net Loss - - - - - - (97,382 ) (97,382 ) Pension actuarial income adjustment - - - - - 263 - 263 Vested restricted shares - (1 ) - - (21 ) - - (21 ) Common stock issued-new grants 7 - - 79 - - - 80 Amortization of unearned compensation/restricted stock amortization - - - 3,032 - - - 3,032 Balance as of February 2, 2019 3,222 (1,409 ) $ 32 $ 344,826 $ (230,166 ) $ (735 ) $ (50,227 ) $ 63,730 Net Loss - - - - - - (58,744 ) (58,744 ) Pension actuarial loss adjustment - - - - - (744 ) - (744 ) Vested restricted shares 4 - - 3 (3 ) - - - Amortization of unearned compensation/restricted stock amortization - - - 273 - - - 273 Balance as of February 1, 2020 3,226 $ (1,409 ) $ 32 $ 345,102 $ (230,169 ) $ (1,479 ) $ (108,971 ) $ 4,515 F-6$ in thousands) Fiscal Year Ended February 3,
2018 January 28,
2017 January 30,
2016OPERATING ACTIVITIES: Net income (loss) ($42,553) $3,211 $2,689 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation of fixed assets 10,272 8,139 5,191 Amortization of intangible assets 3,890 1,143 - Amortization of lease valuations (20) (31) 23 Deferred tax benefit - (6,988) - Stock based compensation 3,067 1,306 538 Adjustment to contingent consideration (3,280) (1,829) - Loss on disposal of fixed assets 579 1,089 613 Loss on impairment of fixed assets 29,107 - - Gain on sale of property - (1,164) - Gain on sale of investments - (800) (250) Change in cash surrender value (399) (980) 356 Gain on life insurance asset (8,733) - - Changes in operating assets and liabilities that provide (use) cash: Accounts receivable 2,616 (1,755) (3) Merchandise inventory 16,892 8,650 6,331 Prepaid expenses and other current assets 1,295 (342) 4,666 Other long-term assets (668) 1,217 (2,561) Accounts payable (10,527) (4,469) (11,639) Deferred revenue (1,293) 245 (869) Accrued expenses and other current liabilities 1,648 (4,792) 1,576 Other long-term liabilities (1,906) 2,586 1,302 Net cash provided by (used in) operating activities (13) 4,436 7,963 INVESTING ACTIVITIES: Acquisition of a business - (36,600) - Purchases of fixed assets (8,407) (24,672) (20,700) Proceeds from company owned life insurance 14,363 - - Investment in joint venture (2,575) - - Capital distributions from joint venture 1,101 - - Proceeds from sale of assets - 2,839 1,567 Proceeds from sale of investments - 1,600 - Purchases of investments - (500) (1,052) Net cash provided by (used in) investing activities 4,482 (57,333) (20,185) FINANCING ACTIVITIES: Exercise of long term equity awards - 39 19 Vesting of long term equity awards (39) - - Payments of capital lease obligations - - (938) Payments of long term borrowings (11,657) (26,192) - Proceeds from long term borrowings 11,657 21,463 - Payments to etailz shareholders (5,000) - - Purchase of treasury stock (1) (2,647) (1,085) Net cash used in financing activities (5,040) (7,337) (2,004) Net decrease in cash and cash equivalents (571) (60,234) (14,226) Cash, cash equivalents, and restricted cash, beginning of year 44,077 104,311 118,537 Cash, cash equivalents, and restricted cash, end of year $ 43,506 $ 44,077 $ 104,311 Supplemental disclosures and non-cash investing and financing activities: Interest paid $332 $775 $1,861 Issuance of restricted performance based awards / deferred / restricted shares under deferred / restricted stock agreements 120 572 69 Net assets acquired - 68,896 - Less: Contingent consideration not yet paid - (10,381) - Less: Fair value of shares issued as consideration - (20,415) - Less: Indemnity liability not yet paid - (1,500) - Acquisition of a business $ - $ 36,600 $ - Fiscal Year Ended OPERATING ACTIVITIES: Net loss $ (58,744 ) $ (97,382 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of fixed assets 3,330 5,226 Amortization of intangible assets 1,143 3,890 Amortization of right-of-use asset 6,990 - Stock based compensation 276 3,032 Write down of investment 500 - Treasury stock received for payment of withholding tax on exercises of RSUs (3 ) (21 ) Adjustment to contingent consideration - (272 ) Loss on disposal of fixed assets 125 422 Inventory net realizable value adjustment 12,701 - Loss on impairment of long lived assets 23,983 59,658 Change in cash surrender value (329 ) 78 Changes in operating assets and liabilities that provide (use) cash: Accounts receivable 1,182 (914 ) Merchandise inventory 14,183 14,535 Prepaid expenses and other current assets 1,931 319 Other long-term assets (913 ) 6 Accounts payable (10,209 ) (7,451 ) Accrued expenses and other current liabilities (1,888 ) (1,134 ) Deferred revenue (274 ) (1,509 ) Other long-term liabilities (9,811 ) (4,001 ) Net cash used in operating activities (15,827 ) (25,518 ) INVESTING ACTIVITIES: Purchases of fixed assets (2,823 ) (3,689 ) Capital distributions from joint venture 127 1,347 Net cash used in investing activities (2,696 ) (2,342 ) FINANCING ACTIVITIES: Exercise of equity awards, net of treasury shares received - 80 Proceeds from short term borrowings 35,851 35,734 Payments of short term borrowings (22,702 ) (35,734 ) Payments to etailz shareholders - (1,500 ) Net cash provided by (used in) financing activities 13,149 (1,420 ) Net decrease in cash, cash equivalents, and restricted cash (5,374 ) (29,280 ) Cash, cash equivalents, and restricted cash, beginning of year 14,226 43,506 Cash, cash equivalents, and restricted cash, end of year $ 8,852 $ 14,226 Supplemental disclosures and non-cash investing and financing activities: Interest paid $ 838 $ 723 F-7StatementStatementsNote No.Note No. 1. 2. 3. AcquisitionInvestmentOther Intangible Assets 4. Goodwill and Other Intangible 5. Fixed Assets 6. Restricted Cash 7. Credit Facility 8.8.Leases 9. Shareholders’ Equity 10. Benefit Plans 11. Income Taxes 12. Related Party Transactions 13. Commitments and Contingencies 14. Quarterly Financial Information (Unaudited)F-8Pro forma disposition of fye businessone of the largesta specialty retailersretailer of entertainment products, including trend, video, music, electronics and related products in the United States. The fye segment operates a chain of retail entertainment stores and e-commerce sites,www.fye.comandwww.secondspin.com. As of February 3, 2018,1, 2020, the fye segment operated 260200 stores totaling approximately 1.41.1 million square feet in the United States, the District of Columbia and the U.S. Virgin Islands. The etailz segment is a leading digital marketplace retailer and generates substantially all of its revenue through Amazon Marketplace.Company’sfull extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, reserves and allowances, and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international customers and markets, which are highly uncertain and cannot be predicted at this time. Management is seasonal in nature, withactively monitoring this situation and the peak selling period beingpossible effects on its financial condition, liquidity, operations, industry, and workforce. Given the holiday season which falls indaily evolution of the Company’s fourth fiscal quarter.working capitalliquidity are cash provided by operations and borrowing capacity under its revolving credit facility. The Company’sfacility, available cash flows fluctuateand cash equivalents, and to a lesser extent, cash generated from quarteroperations. Our cash requirements relate primarily to quarter dueworking capital needed to various items,operate and grow our business, including seasonality of salesfunding operating expenses and earnings, merchandise inventory purchases and returns, the related terms on the purchasespurchase of inventory and capital expenditures. Management believes itOur ability to achieve profitability and meet future liquidity needs and capital requirements will have adequate resourcesdepend upon numerous factors, including the timing and amount of our revenue; the timing and amount of our operating expenses; the timing and costs of working capital needs; successful implementation of our strategy and planned activities; and our ability to fund its cash needsovercome the impact of the COVID-19 pandemic.foreseeableyears ended February 1, 2020 and February 2, 2019, respectively, and has an accumulated deficit of $109.0 million at February 1, 2020. In addition, net cash used in operating activities for the year ended February 1, 2020 was $15.8 million.including its capital spending, its seasonal increasefunding, implementation of one or more corporate initiatives to reduce costs at the parent company level (which could include a voluntary delisting from NASDAQ and deregistering of our Common Stock in merchandise inventoryorder to substantially eliminate the costs associated with being a public company), satisfying all unassumed liabilities of the fye segment and other operating cash requirementsstrategic alternatives, including selling all or part of the remaining business or assets of the Company, and commitments.Management anticipates any cash requirements due to a shortfall in cash from operationsovercoming the impact of the COVID-19 pandemic.funded bysuccessful in further implementing our business strategy or that the strategy, including the completed initiatives, will be successful in sustaining acceptable levels of sales growth and profitability. As a result, the Company has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of filing of this Annual Report on Form 10-K. In addition, the proceeds from the PPP Loan are subject to audit and there is a risk of repayment.hereafter.wholly-ownedwholly owned subsidiaries, Trans World NY Sub, Inc. (f/k/a Record Town, Inc. (“Record Town”), Record Town’s and its subsidiaries, and etailz, Inc. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, including those related to merchandise inventory and return costs; valuation of long-lived assets, goodwill and intangiblelong-lived assets, income taxes, accounting for gift card liability,liabilities, retirement plan obligation, liability, and other long-term liabilities that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.2017, 2016,2019 and 2015fiscal 2018 ended February 3, 2018, January 28, 2017,1, 2020 and January 30, 2016,February 2, 2019, respectively. Fiscal 2017 had 53 weeks andBoth fiscal 2016 and fiscal 2015 hadyears were 52 weeks.During the fiscal year 2016, the Company recorded an immaterial adjustment between Other Revenue and Selling, General and Administrative expenses in its fiscal 2016 and fiscal 2015 consolidated financial statements for miscellaneous income, primarily related to commissions earned from third parties. The immaterial adjustment did not impact fiscal 2016 or fiscal 2015 income (loss) from operations, net income, and basic and diluted income per share.350460 suppliers. In fiscal 2017, 47%2019, 38% of fye purchases were made from ten suppliers including Universal Studio Home Entertainment, AEC - Paramount Video , Buena Vista Home Video, SONY Music, SONY Pictures, Twentieth Century Fox Home Entertainment, Warner/Elektra/Atlantic, Universal Music Group Distribution, Funko LLC,F-9and Warner Home Video. Video, and Alliance Entertainment.sold over 34,000 SKU’spurchases various inventory from over 2,300numerous suppliers during fiscal 2017. The Companyand does not have material long-term purchase contracts; rather, it purchases products from its suppliers on an order-by-order basis. Historically, the Companyetailz segment has not experienced difficulty in obtaining satisfactory sources of supply and management believes that it will continue to have access to adequate sources of supply. of its revenue through the Amazon Marketplace. Therefore, the Companysegment depends in large part on its relationship with Amazon for theits continued growth of the etailz segment.growth. In particular, the Companyetailz segment depends on its ability to offer products on the Amazon Marketplace and on its timely delivery of products to customers. The Company’s investments consist of short-term investment grade securities consistent with its investment guidelines. These guidelines include the provision that sufficient liquidity will be maintained to meet anticipated cash flow needs. The Company maintains these investments, all of which are classified as cash equivalents due to their short term nature, with Wells Fargo Securities, LLC. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash investments. due from commissions due from third parties. For the etailz segment, accounts receivable are comprised of receivables due from Amazon. There are no provisions for uncollectible amounts from retail sales of merchandise inventory since payment is received at the time of sale.marketnet realizable value under the average cost method. In the current year, the Company recorded an inventory adjustment to net realizable value based on the sale of its fye inventory after the balance street date, which was for $12.7 million. Inventory valuation requires significant judgment and estimates, including obsolescence, shrink and any adjustments to marketnet realizable value, if market value is lower than cost. The Company records obsolescence and any adjustments to marketnet realizable value (if lower than cost) based on current and anticipated demand, customer preferences and market conditions. The provision for inventory shrink is estimated as a percentage of store sales for the period from the last date a physical inventory was performed to the end of the fiscal year. Such estimates are based on historical results and trends, and the shrink results from the last physical inventory. Physical inventories are taken at least annually for all stores and the distribution center throughout the year, and inventory records are adjusted accordingly.F-10ImpairmentAssets:Assets other than Goodwill:Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset over its remaining useful life. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is generally measured based on discounted estimated future cash flows. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the lower of the carrying amount or fair value less disposition costs. For the purpose of the asset impairment test, the fye segment has multipletwo asset groupings -– corporate and individual store level assets.2017,2019 and fiscal 2018, the Company concluded, based on continued operating losses forwithin the fye segment driven by lower than expected sales that a triggering eventevents had occurred in each respective fiscal year, and pursuant to FASB ASC 360,Property, Plant, and Equipment,, requiring a testan evaluation of the fye long-lived assets for impairment at its retail stores in the fye segment.was required. Long-lived assets, primarily at stores,the Company’s retail store locations, as well as certain fixed assets at the corporate location, consisting of the home office and the Albany distribution center, where impairment was determined to exist were written down to their estimated fair values as of the end of fiscal 20172019 and fiscal 2018, resulting in the recording of asset impairment charges of $29.1 million. Estimated$23.2 million and $1.9 million, respectively. Based on the fair values for long-livedvalue as determined attributable to the fixed assets at these locations, including store fixtures, equipment, and leasehold improvementsoperating lease right-of-use assets in contemplation of the sale of the fye segment, it was determined that the fixed assets and operating lease right-of-use assets were determinedfully impaired, as of February 1, 2020.measuretriggering event had occurred, and pursuant to FASB ASC 360, Property, Plant, and Equipment, an evaluation of discounted future cash flows over the remaining lease terms at the respective locations. Future cash flowsetailz fixed assets and intangible assets for impairment was required. For fiscal 2019, intangible assets related to vendor relationships were estimated based on an individual store and corporate level plans and were discounted at a rate approximating the Company’s cost of capital. Management believes its assumptions were reasonable and consistently applied.The Company did not recognize any other long-lived asset impairments during fiscal 2016 and fiscal 2015.Losses for store closingsfully impaired resulting in the ordinary courserecognition of business represent the write downasset impairment charges of the net book value of abandoned fixtures and leasehold improvements. The loss on disposal of$0.8 million. For fiscal 2018, fixed assets related to store closings was $0.6 million, $1.1internally developed technology at etailz were written down to their estimated fair values resulting in the recognition of asset impairment charges of $2.1 million and $0.6 million in fiscal 2017, 2016intangible assets related to technology and 2015, respectively, and is included in selling, general and administrative (“SG&A”) expensesvendor relationships were written down to their estimated fair values resulting in the Consolidated Statementsrecognition of Operations and loss on disposalasset impairment charges of fixed assets in the Consolidated Statements of Cash Flows. Store closings usually occur at the expiration of the lease, at which time leasehold improvements, which constitute a majority of the abandoned assets, are fully depreciated.business and have not been finally adjudicated.business. Although there can be no assurance as to the ultimate disposition of these matters, it is management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Company.Company’sCompany recognizes sales revenue, is primarily from retailnet of sales of merchandise inventory. Revenue is recognizedtaxes and estimated sales returns, at the point-of-sale.time it sells merchandise to the customer (point of sale). Internet sales for both segments, fyeinclude shipping revenue and etailz, are recognized asF-11revenuerecorded upon shipment. Shipping and handling fee income fromshipment to the fye segment’s internet operations is recognized as net sales.customer. The Company records shipping and handling costs in cost of sales. Loyalty cardAdditionally, estimated sales returns are calculated based on expected returns. for the fye segment is amortized over the lifeterm of the membership, period or upon cancelationwhich is typically 12 months for the Company’s Platinum Backstage Pass membership, and 24 months for the Company’s Backstage Pass VIP membership. For the Company’s Platinum Backstage Pass program, the contractual term of the program is 12 months, in which revenue is recognized over that service period. For the Company’s Backstage Pass VIP program, the term of the program is indefinite until a customer cancels the membership. Net sales are recorded net of estimated amounts for sales returnsThe Company estimates 24 months as the service period based on historical cancellation patterns and other allowances,recognizes revenue over that service period. Membership in each program provides customers with merchandise discounts and net of applicable sales taxes. annual membership fees related to the loyalty programs collected in advance, and recognized in revenue, net of estimated refunds, were as follows: the unearned revenue as of January 28, 2017, January 30, 2016, and January 31, 2015, was $7.0 million, $6.5 million, and $6.3 million, respectively. The amount of cash received from customers during fiscal 2017, 2016,2019 and 2015,2018 was $16.9 million, $16.8$13.0 million and $15.8$13.7 million, respectively. Membership fee revenue recognized was $13.3 million and $15.0 million during fiscal 2019 and 2018, respectively, and recognized on a straight-line basis over the service period. The remaining performance obligation associated with the membership programs was $4.6 million and $4.8 million as of the end of fiscal 2019 and fiscal 2018, respectively. Membership fee revenue is included in Net Sales in the Company’s Consolidated Statements of Operations. Deferred membership revenue is included in Deferred Revenue in the Company’s Consolidated Balance Sheets.revenue recognized$0.2 million. Gift card breakage is recorded as Other Revenue in earningsthe Company’s Consolidated Statements of Operations. The remaining performance obligation associated with our gift cards was $17.9 million, $16.3$1.9 million and $15.6$2.0 million in fiscal 2017, 2016, and 2015, respectively. The unearned revenue as of February 3,the end of fiscal 2019 and fiscal 2018, was $6.1 million.(“SG&A”) Expenses (SG&A): Included in SG&A expenses are payroll and related costs, store operating costs, occupancy charges, Amazon fees, professional and service fees, general operating and overhead expenses and depreciation charges (excluding those related to distribution operations). Selling, general and administrative expenses also include fixed asset write offs associated with store closures, if any, and miscellaneous income and expense items, other than interest. The Company recorded miscellaneous income items for fiscal 2017, 2016, and 2015 in the amount of $0.4 million, $0.4 million, and $3.6 million, respectively. Included in fiscal 2015 miscellaneous income was a one-time reimbursement of expenses incurred in prior years, related to a legal settlement of $1.4 million.$3.1 million, $3.2$1.7 million and $2.9$2.2 million in fiscal 2017, 2016,2019 and 2015,fiscal 2018, respectively. In the aggregate, vendor allowances supporting the fye segment’s advertising and promotion are included as a reduction of SG&A expenses, and reimbursements of such costs were $3.1 million, $3.2$1.7 million and $2.9$2.1 million in fiscal 2017, 2016,2019 and 2015,2018, respectively. Advertising costs for the etailz segment primarily consist of Amazon marketing expenses which were $1.2$0.9 million and $1.7 million in fiscal 2017.straight linestraight-line basis over the initial lease term. The Company capitalizes leasehold improvements funded by tenant improvement allowances, depreciating them over the term of the related leases. The tenant improvement allowances are recorded as deferred rent within other long-term liabilities in the Consolidated Balance Sheets and are amortized as a reduction in rent expense over the life of the related leases.
leases.F-12Store Closing Costs: Management periodically considers the closing of underperforming stores. In the event of a store closing, reserves are established at the time a liability is incurred for the present value of any remaining lease obligations, net of estimated sublease income, and other exit costs. Store closings are not considered discontinued operations and as such, closings do not represent a significant change on the Company’s operations and financial results.Gift Cards:The Company offers gift cards for sale. A deferred revenue account, which is included in deferred revenue in the Consolidated Balance Sheets, is established for gift cards issued. The deferred revenue balance related to gift cards was $1.7 million, $2.0 million and $2.3 million at the end of fiscal 2017, 2016 and 2015, respectively. When gift cards are redeemed at the store level, revenue is recorded and the related liability is reduced. Breakage is estimated based on the historical relationship of the redemption of gift cards redeemed to gift cards sold, over a certain period of time. The Company has the ability to reasonably and reliably estimate gift card liability based on historical experience with redemption rates associated with a large volume of homogeneous transactions, from a period of more than ten years. The Company’s estimate is not susceptible to significant external factors and the circumstances around purchases and redemptions have not changed significantly over time. The Company recorded breakage on its gift cards for fiscal 2017, 2016 and 2015 in the amount of $0.4 million, $0.4 million and $0.1 million, respectively. Gift card breakage is recorded as a reduction of SG&A expenses.Goodwill and Intangible Assets:Our goodwill results from our acquisition of etailz and represents the excess purchase price over the net identifiable assets acquired. All of our goodwill is associated with etailz, a separate reporting unit, and there is no goodwill associated with our other reporting unit, fye. Goodwill is not amortized and we are required to evaluate our goodwill for impairment at least annually or whenever indicators of impairment are present. Our annual test is completed during the fourth fiscal quarter, and interim tests are conducted when circumstances indicate the carrying value of the goodwill or other intangible assets may not be recoverable. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is possible that these judgments and estimates could change in future periods. The determination of the fair value of intangible assets and liabilities acquired in a business acquisition, including the Company’s acquisition of etailz in 2016, is subject to many estimates and assumptions. Our identifiable intangible assets that resulted from our acquisition of etailz consist of vendor relationships, technology and tradenames. We review amortizable intangible asset groups for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.F-13Black-Scholes option-pricingBlack‑Scholes option‑pricing model. Tax benefits, if any, resulting from tax deductions in excess of the compensation cost recognized for those options are to be classified and reported as both an operating cash outflow and financing cash inflow.Comprehensive Income (Loss):Comprehensive income (loss) consistsnet income (loss)its outstanding shares of common stock at a ratio of one-for-twenty pursuant to a Certificate of Amendment to the Company’s Certificate of Incorporation filed with the Secretary of State of the State of New York. The reverse stock split was reflected on the Nasdaq Capital Market (“Nasdaq”) beginning with the opening of trading on August 15, 2019. The primary purpose of the reverse stock split, which was approved by the Company’s stockholders at the Company’s Annual Stockholders Meeting on June 27, 2019, was to enable the Company to regain compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq. Pursuant to the reverse stock split, every twenty shares of the Company’s issued and a pension actuarial income (loss) adjustment that is recognizedoutstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in other comprehensive income (loss) (see Note 10).Income (Loss)the par value per share of the common stock. Unless otherwise indicated, all share and per share amounts of the common stock included in the accompanying Consolidated Financial Statements have been retrospectively adjusted to give effect to the reverse stock split for all periods presented, including reclassifying an amount equal to the reduction in par value to additional paid-in capital. Amounts of common stock resulting from the reverse stock split were rounded up to the nearest whole share. The reverse stock split affected all issued and outstanding shares of the Company’s common stock, and the respective numbers of shares of common stock underlying outstanding stock options, and the Company’s equity incentive plans were proportionately adjusted.income (loss)loss per share is calculated by dividing net income (loss)loss by the weighted average common shares outstanding for the period. Diluted income (loss)During fiscal 2019 and fiscal 2018, the impact of all outstanding stock awards was not considered because the Company reported a net loss and such impact would be anti-dilutive. Accordingly, basic and diluted loss per share gives effect to all dilutive potential shares outstanding resulting from employeefor fiscal 2019 and fiscal 2018 was the same. Total anti-dilutive stock options during that period. The dilutive effect of employee stock options did not have any impact on basic income per share inawards for both fiscal 20162019 and 2015, when net income was recorded.The following is a reconciliation of the basic weighted average number of shares outstanding to the diluted weighted average number of shares outstanding: 2017 2016 2015 (in thousands) Weighted average common shares outstanding – basic 36,191 32,162 31,167 Dilutive effect of employee stock options - 159 156 Weighted average common shares outstanding–diluted 36,191 32,321 31,323 Anti-dilutive stock options 2,586 2,175 1,744 companies.Prior to the acquisition of etailz in October 2016, the Company operated as one segment. Operating earnings (loss)loss by operating segment, is defined as income (loss)loss from operations, netexcluding interest expense, other (loss) income, and income taxes. Results for etailz are included in the consolidated results for all periods presented for fiscal 2017. For periods presented for fiscal 2016, results for etailz are included in consolidated results from October 17, 2016 through January 28, 2017. Significant financial statement captionsThe following balances by reportable segment in U.S. dollars were as follows:F-14($ in thousands) Fiscal Year
Ended
February 3, 2018 Fiscal Year
Ended
January 28, 2017 Total Revenue fye $ 268,397 $ 313,211 etailz 174,459 40,259 Total Company $ 442,856 $ 353,470 Gross Profit fye $ 104,254 $ 124,735 etailz 39,589 9,924 Total Company $ 143,843 $ 134,659 Loss From Operations fye $ (49,261) $ (1,932) etailz (2,140) (1,936) Total Company $ (51,401) $ (3,868) Merchandise Inventory fye $ 86,217 $ 109,612 etailz 22,895 16,392 Total Company $ 109,112 $ 126,004 Total Assets fye $ 153,050 $ 215,466 etailz 94,856 92,344 Total Company $ 247,906 $ 307,810 Other Long Term Liabilities fye $ 27,777 $ 38,792 etailz 1,354 349 Total Company $ 29,131 $ 39,141 Capital Expenditures fye $ 7,342 $ 24,418 etailz 1,065 254 Total Company $ 8,407 $ 24,672 (amounts in thousands) Fiscal Year
Ended
February 2,
2019 Fiscal Year
Ended
February 2,
2019 Total Revenue fye $ 192,719 $ 231,290 etailz 133,216 186,900 Total Company $ 325,935 $ 418,190 Gross Profit fye $ 65,706 $ 89,259 etailz 30,393 38,815 Total Company $ 96,099 $ 128,074 Depreciation and amortization fye $ 9,166 $ 4,627 etailz 2,297 4,489 Total Company $ 11,463 $ 9,116 Asset impairment charges fye $ 23,218 $ 1,946 etailz 765 57,712 Total Company $ 23,983 $ 59,658 Loss From Operations fye $ (50,770 ) $ (24,455 ) etailz (6,405 ) (72,351 ) Total Company $ (57,175 ) $ (96,806 ) Merchandise Inventory fye $ 50,122 $ 69,785 etailz 17,836 25,057 Total Company $ 67,958 $ 94,842 Total Assets fye $ 69,395 $ 101,785 etailz 28,411 36,228 Total Company $ 97,806 $ 138,013 Accounts Payable fye $ 18,292 $ 28,545 etailz 5,828 5,784 Total Company $ 24,120 $ 34,329 Other Long Term Liabilities fye $ 22,089 $ 24,789 etailz - 78 Total Company $ 22,089 $ 24,867 Capital Expenditures fye $ 1,222 $ 1,242 etailz 1,601 2,447 Total Company $ 2,823 $ 3,689 June 2014,February 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting StandardStandards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity2016-02, Leases (Topic 842). Lessees are required to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the amountdefinition of revenuea short-term lease). The liability is equal to which it expectsthe present value of lease payments. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be entitled forclassified as either operating or finance leases. Operating leases result in straight-line expense (similar to operating leases under the transfer of promised goods or servicesprior accounting standard) while finance leases result in a frontloaded expense pattern (similar to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective forcapital leases under the Company’s fiscal year beginning February 4, 2018. prior accounting standard).is continuing to assess the impactadopted this new accounting standard on our consolidated financial statements but will result in enhanced footnote disclosure requirements during the first quarter of fiscal 2018 including certain balance sheet activity and unsatisfied performance obligations related to certain promotional programs. The Company has determined that the adoption of this ASU will impact the timing of revenue recognition for gift card breakage. Gift card breakage is currently recognized at the point gift card redemption becomes remote. In accordance with this ASU, the Company will recognize gift card breakage in proportion to the pattern of rights exercised by the customer. Additionally, the Company has assessed and determined that our revenue recognition practices related to our current vendor-direct sales arrangements, for which the Company is the principal and recordedFebruary 3, 2019 on a gross basis, will remain unchanged upon adoption. Based upon our preliminary assessment of potential impacts to the presentation of our consolidated financial statements primarily related to sales return reserves,F-15our customer loyalty program, and certain other promotional programs, the Company will use a modified retrospective approach upon adoption of this ASU duringbasis and applied the first quarter ofnew standard to all leases greater than one year. As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for fiscal 2018. The Company is continuingelected the package of practical expedients permitted under the transition guidance within the new standard, which includes the ability to evaluatecarry forward the impact of the ASU’s expanded disclosure requirements.In February 2016, the FASB issued ASU 2016-02, “Leases”, which will replace most existing lease accounting guidanceclassification and to use hindsight when determining lease term. The Company does not engage in U.S. GAAP. The core principle of this ASU is that an entity should recognizeany Lessor transactions, and as a Lessee, the rights and obligations resulting from leases as assets and liabilities. TheCompany does not have any finance leases. As a result, the new standard requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. The new standard will be effective for the Company’s fiscal year beginning February 3, 2019, and requires the modified retrospective method of adoption. The Company is in the process of determining the impact of ASU 2016-02 on its consolidated financial statements. Given the nature of the operating leases for the Company’s home office, distribution center, and stores, the Company expects an increase to the carrying value of its assets and liabilities, however, the Company continues to evaluate the impact of the ASU on its consolidated financial statements.In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test wherebyhad a goodwill impairment loss is determined by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Rather, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted ASU 2017-04 in the fourth quarter of fiscal 2017, which did not have a significantmaterial impact on the consolidated financial statements. Impact of Change in Accounting Policy Adjustments ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,355 $ - $ 4,355 Restricted cash 4,126 - 4,126 Accounts receivable 5,383 - 5,383 Merchandise inventory 94,842 - 94,842 Prepaid expenses and other current assets 6,657 (748 ) 5,909 Total current assets 115,363 (748 ) 114,615 Restricted cash 5,745 - 5,745 Fixed assets, net 7,529 - 7,529 Operating lease right-of-use assets - 28,044 28,044 Intangible assets, net 3,668 - 3,668 Other assets 5,708 - 5,708 TOTAL ASSETS $ 138,013 $ 27,296 $ 165,309 LIABILITIES CURRENT LIABILITIES Accounts payable $ 34,329 $ - $ 34,329 Accrued expenses and other current liabilities 8,132 (1,319 ) 6,813 Deferred revenue 6,955 - 6,955 Current portion of operating lease liabilites - 9,064 9,064 Total current liabilities 49,416 7,745 57,161 Operating lease liabilities - 22,728 22,728 Other long-term liabilities 24,867 (3,177 ) 21,690 TOTAL LIABILITIES 74,283 27,296 101,579 SHAREHOLDERS’ EQUITY Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - - 32 - 32 Additional paid-in capital 344,826 - 344,826 Treasury stock at cost (1,408,892, 1,408,892 and 1,407,831 shares, respectively) (230,166 ) - (230,166 ) Accumulated other comprehensive loss (735 ) - (735 ) Accumulated deficit (50,227 ) - (50,227 ) TOTAL SHAREHOLDERS’ EQUITY 63,730 - 63,730 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 138,013 $ 27,296 $ 165,309 iswas effective for the Company’s fiscal year beginning February 3, 2019, and must be applied retrospectively. ASU 2017-07 is permitted for early adoption, but only at2019. This standard did not have a material effect on the beginning of an annual period for whichCompany’s consolidated financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact that this ASU will have on its reporting and asset recognition.iswas effective for the Company for interim and annual periods in fiscal year beginning February 3, 2019,2019. This standard did not have a material effect on the Company’s consolidated financial statements.earlyCustomers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. On February 4, 2018, the Company adopted Topic 606 using the modified retrospective approach. The new standard states that revenue is recognized when performance obligations are satisfied by transferring goods or services to the customer in an amount that the entity expects to collect in exchange for those goods or services. The satisfaction of a performance obligation with a single customer may occur at a point in time or may occur over time. The significant majority of the Company’s revenue is recognized at a point in time, generally when a customer purchases and takes possession of merchandise through the stores or when merchandise purchased through our e-commerce websites is shipped to a customer. Revenues do not include sales taxes or other taxes collected from customers. The Company has arrangements with customers where the performance obligations are satisfied over time, which primarily relate to the loyalty programs and gift card liabilities. The adoption permittedof Topic 606 impacted the timing of revenue recognition for gift card breakage. Prior to adoption of Topic 606, gift card breakage was recognized at the point gift card redemption became remote. In accordance with the Topic 606, the Company recognizes gift card breakage in proportion to the pattern of rights exercised by the customer. The adoption of Topic 606 also impacted presentation of the Consolidated Balance Sheets related to sales return reserves to be recorded on a gross basis, consisting of a separate right of return asset and is applied prospectivelyliability. The Company’s evaluation of Topic 606 included a review of certain third-party arrangements to determine whether the Company acts as principal or agent in such arrangements, and such evaluation did not result in any material changes in terms or conditionsgross versus net presentation as a result of awards occurring on or after the adoption date.
of the new standard. The cumulative effect of initially applying Topic 606 was a $0.3 million increase to the opening balance of inventory, a $0.3 million increase to the opening balance of accrued expenses and other liabilities, a $0.5 million increase to the opening balance of deferred revenue, and a $0.5 million decrease to the opening balance of retained earnings as of February 4, 2018F-16Note 3. Acquisition and InvestmentBusiness Combination - etailzOn October 17,Company completedFASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the purchaseimpairment of all offinancial assets measured at amortized cost. The model replaces the issuedprobable, incurred loss model for those assets and outstanding shares of etailz. The acquisition of etailzinstead, broadens the information an entity must consider in developing its expected credit loss estimate for assets measured at amortized cost. ASU No. 2016-13 is part of our strategy to diversify our business into the fastest growing segment of retail: the Digital Marketplace. The Company plans to access the relationships, operational expertise, and infrastructure built by etailz to help unlock the full potential of etailz and to accelerate our progress towards being the industry leader for digital marketplace sales and expertise.The Company paid $32.3 million in cash, issued 5.7 million shares of TWMC common stock at closing to the shareholders of etailz as consideration for their shares, and paid $4.3 million in cash advances to settle obligations of the selling shareholders. Based on the fair value of $3.56 per share on the acquisition date, the shares had a value of $20.4 million. An earn-out of up to a maximum of $14.6 million will be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6 million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlinedeffective beginning in the share purchase agreement. In connection with the acquisition, the Company assumed a liability of the selling shareholders for an etailz employee bonus plan, of which $1.9 million was due and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service period. The acquisition and related costs were funded primarily from the Company’s cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase method of accounting.During the Company’s secondfirst quarter of fiscal 2017, the share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the earnout escrow account and the $3.1 million remaining2020. Early adoption is permitted. We will adopt this standard in the earnout escrow account may be payable in cashfirst quarter of Fiscal 2020. We have evaluated the impact of this new standard on the consolidated financial statements which is immaterial.selling shareholders inDisclosure Requirements for Defined Benefit Plans”, which removes certain disclosures that are no longer cost beneficial and also includes additional disclosures to improve the overall usefulness of the disclosure requirements to financial statement users. This standard will be effective for public entities for fiscal years beginning after December 15, 2020, however early adoption is permitted. We are currently evaluating the impact of this new standard on the consolidated financial statements.subjectthe FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740), which simplifies the accounting for income taxes by eliminating certain exceptions to the achievement by etailz of operating incomeguidance in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.The amount released from the earnout escrow was disbursed during the Company’s second quarter of fiscal 2017 as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and $1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee bonus plan from $4.2 million to $5.7 million).During fiscal 2017, the Company recorded a $3.3 million benefit related to its contingent consideration liability. The decrease in the value of the contingent consideration liability resulted from the actual financial results of etailz and the amendment of the earnout agreement as described in the paragraph above. This benefit is recorded in selling, general, and administrative expenses in the Company’s Consolidated Statements of Operations.In the fourth quarter of fiscal 2016, the Company recorded a $1.4 million benefitASC 740 related to the contingent consideration liability.approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The decrease in the value of contingent liability resulted from actual fourth quarter financial results of etailz. This benefit is recorded in selling, general, and administrative expenses in the Company’s Consolidated Statements of Operations.F-17The acquisition date fair valuestandard also simplifies aspects of the considerationenacted changes in tax laws or rates. This standard will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, however early adoption is permitted. We are currently evaluating the impact of this new standard on the consolidated financial statements.transaction consisted of the following as of October 17, 2016 (in thousands):Cash consideration $ 36,600 Fair value of stock consideration 20,415 Fair value of contingent consideration 10,381 Fair value of indemnification consideration held in escrow 1,500 Fair value of purchase consideration $ 68,896 The following table summarizes the allocation of the aggregate purchase price to the estimated fair value of the net assets acquired: ($in thousands) October 17, 2016 Assets (Liablilities) Acquired Accounts receivable 1,533 Prepaid expenses and other current assets 5,896 Inventory 14,608 Property and equipment, net 663 Other long term-assets 12 Acquired intangible assets: Trade names 3,200 Technology 6,700 Vendor relationships 19,100 Unfavorable lease valuation (53 ) Goodwill 39,191 Total assets acquired $ 90,850 Liabilities Assumed Accounts payable $ 4,888 Debt 4,729 Other current liabilities 5,349 Deferred taxes 6,988 Total liabilities assumed $ 21,954 Net assets acquired $ 68,896 The amount of goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergiesare either not applicable or are not expected to be realized and for the knowledge and expertise of, and established presence in, the digital marketplace, which do not qualify as separate amortizable intangible assets. Goodwill arising from the acquisition of etailz is not deductible for tax purposes. There were no adjustments from preliminary purchase price accounting to final.Thehave a material impact on our consolidated financial condition, results of operations, of etailz are reported in the Company’s etailz segment and included in the fiscal 2016 consolidated results of operations of the Company from the date of acquisition. The following unaudited pro forma financial information for the fifty-two weeks ended January 28, 2017, presents consolidated information as if the etailz acquisition had occurred on January 31, 2016. Because of different fiscal period ends, and in order to present results for comparable periods, the unaudited pro forma financial information for the fifty-weeks ended January 28, 2017, combines (i) the Company’s historical statement of operations for the fifty-two weeks ended January 28, 2017, and (ii) etailz historical statement of operations for the period from January 1, 2016 through August 31, 2016 and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information is presented after giving effect to certain adjustments for acquisition-related costs, depreciation, amortization of definite lived intangible assets, interest expense on acquisition financing, and
or cash flows.F-18related income tax effects. The unaudited pro forma financial information is based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor does it project the Company’s financial position or results of operations at any future date or for any future period. Fifty-two Weeks
Ended January 28, 2017 (in thousands) �� Pro forma total revenue $ 434,171 Pro forma net loss (4,986) Pro forma basic and diluted loss per share $ (0.14) Pro forma weighted average number of common shares outstanding – basic and diluted 36,239 Joint VentureOn April 11, 2017, the etailz segment of the Company entered into an agreement with another party for the purpose of acquiring and selling certain retail merchandise. etailz holds a 50% economic interest in the arrangement as of February 3, 2018. The initial cash investment was $2.6 million dollars. During the fiscal year ended February 3, 2018, the Company received distributions in the amount of $2.9 million from the joint venture, of which $1.1 million was return of capital and $1.8 million was the Company’s share of joint venture income. The remaining investment of $1.5 million was included in other assets in the Company’s Consolidated Balance Sheet as of February 3, 2018.4.3. Goodwill and Other Intangible AssetsGoodwill is not amortized, but is tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in the etailz acquisition.We are continuingF-193, 20181, 2020 consisted of the following (in thousands, except weighted-average amortization period): February 3, 2018 Weighted
Average
Amortization
Period
(in months) Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount Vendor Relationships 120 $ 19,100 $ 2,487 $ 16,612 Technology 60 6,700 1,738 4,962 Trade names and trademarks 60 3,200 807 2,393 $ 29,000 $ 5,032 $ 23,967 The changes in net intangibles and goodwill from January 28, 2017 to February 3, 2018 were as follows: ($ in thousands) January 28,
2017 Amortization February 3,
2018 Amortized intangible assets: Vendor relationships $ 18,522 $ 1,910 $ 16,612 Technology 6,302 1,340 4,962 Trade names and trademarks 3,033 640 2,393 Net amortized intangible assets $ 27,857 $ 3,890 $ 23,967 Unamortized intangible assets: Goodwill $ 39,191 - $ 39,191 Total unamortized intangible assets $ 39,191 - $ 39,191 (amounts in thousands) February 1, 2020 Impairment Vendor Relationships 120 $ 19,100 $ 4,513 $ 14,587 $ - Technology 60 6,700 3,466 2,587 647 Trade names and trademarks 60 3,200 2,087 - 1,113 $ 29,000 $ 10,066 $ 17,174 $ 1,760 (amounts in thousands) February 2,
2019 Amortization Impairment February 1,
2020 Amortized intangible assets: Vendor relationships $ 880 $ 115 $ 765 $ - Technology 1,035 388 - 647 Trade names and trademarks 1,753 640 - 1,113 Net amortized intangible assets $ 3,668 $ 1,143 $ 765 $ 1,760 (amounts in thousands) February 3,
2018 Amortization Impairment February 2,
2019 Amortized intangible assets: Vendor relationships $ 16,612 $ 1,910 $ 13,822 $ 880 Technology 4,962 1,340 2,587 1,035 Trade names and trademarks 2,393 640 - 1,753 Net amortized intangible assets $ 23,967 $ 3,890 $ 16,409 $ 3,668 �� Unamortized intangible assets: Goodwill $ 39,191 $ - $ 39,191 $ - Total unamortized intangible assets $ 39,191 $ - $ 39,191 $ - eachthe remaining useful lives of the five succeeding fiscal years and thereafterintangible assets is as follows ($(amounts in thousands):Fiscal Year Amortization 2018 3,890 2019 3,890 2020 3,890 2021 3,325 2022 1,910 Thereafter $7,062 F-20Fiscal Year Amortization 2020 $ 1,028 2021 732 2022 - 2023 - 2024 - Thereafter - 5.4. Fixed Assets February 3, January 28, 2018 2017 ($ in thousands) Fixtures and equipment $14,403 $131,216 Leasehold improvements 9,836 43,491 Total fixed assets 24,239 174,707 Allowances for depreciation (10,693) (129,610) Fixed assets, net $13,546 $45,097 (amounts in thousands) Capitalized software $ 2,388 $ 845 Fixtures and equipment 538 10,040 Leasehold improvements 45 6,836 Total fixed assets 2,971 17,721 Allowances for depreciation and amortization (781 ) (10,192 ) Fixed assets, net $ 2,190 $ 7,529 of fixed assets isexpense included in fiscal 2019 and fiscal 2018 SG&A expenses within the Consolidated Statements of Operations as follows: Fiscal Year 2017 2016 2015 ($ in thousands) Cost of sales $645 $440 $523 Selling, general and administrative expenses 9,627 7,699 4,668 Total $10,272 $8,139 $5,191 Depreciation expense related to the Company’s distribution center facilitywere $3.3 million and related equipment is included$5.2 million, respectively. The Company recorded $4.7 million and $4.1 million in cost of sales. All other depreciation of fixed assets is included in SG&A expenses.6.5. Restricted Cash3, 20181, 2020 and January 28, 2017,February 2, 2019, the Company had restricted cash of $12.2$5.9 million and $16.1$9.9 million, respectively.In connection withacquisitionend of etailz and underfiscal 2019 consisted of $5.9 million rabbi trust, that resulted from the termsdeath of the share purchase agreement,Company’s former Chairman, of which $1.0 million was classified as amended (see Note 3), the Company designated $1.5 million of the restricted cash to be made available to satisfy any indemnification claims within 18 months fromin current assets and $4.9 million was classified as restricted cash as a long-term asset.dateend of acquisition, andfiscal 2018 consisted of $3.2 million ofrelated to the restricted cash to equal the maximum earn-out amount that could be paid to the selling shareholders of etailz in accordance with the share purchase agreement created during the acquisition of etailz in fiscal 2016; and a $6.7 million rabbi trust, that resulted from the death of the Company’s former Chairman, of which $1.0 million was classified as amended.In addition,restricted cash in current assets and $5.7 million was classified as restricted cash as a long-term asset.death of its former Chairman,prescribed earnings target, outlined in the Company received $7.5 million which is held in a rabbi trust and has been classifiedamended etailz acquisition share purchase agreement, as restricted cash on the accompanying Consolidated Balance Sheet as of February 3, 2018.(in(amounts in thousands): February 3, January 28, 2018 2017 Cash and cash equivalents $ 31,326 $ 27,974 Restricted cash 12,180 16,103 Total cash, cash equivalents and restricted cash $ 43,506 $ 44,077 There was no restricted cash as of January 30, 2016.F-21 Cash and cash equivalents $ 2,977 $ 4,355 Restricted cash 5,875 9,871 Total cash, cash equivalents and restricted cash $ 8,852 $ 14,226 7. 6. Debtentered into a $50 million asset basedamended and restated its revolving credit facility (“Credit Facility”) which amended. The Credit Facility provided for commitments of $50 million subject to increase up to $75 million during the previous credit facility.months of October to December of each year, as needed. The availability under the Credit Facility is subject to limitations based on receivables and inventory levels. The principal amount of all outstanding loans under the Credit Facility together with any accrued but unpaid interest, are due and payable in January 2022, unless otherwise paid earlier pursuant to the terms of the Credit Facility. Payments of amounts due under the Credit Facility are secured by the assets of the Company. The Credit Facility contains a provision to increase availability to $75 during October to December of each year, as needed. The availability under the Credit Facility is subject to limitations based on receivables and inventory levels. During fiscal 2017,as of February 2, 2019 the Company exercised the right to increase its availability to $60 million subject to the same limitations noted above.The Credit Facility contains customary affirmative and negative covenants, including restrictions on dividends and share repurchases, incurrence of additional indebtedness and acquisitions and covenants around the net number of store closings and restrictions related to the payment of cash dividends and share repurchases, including limiting the amount of dividends and share repurchases to $5.0 million annually anddid not allowinghave any outstanding borrowings under the amended facility for the six months before or six months after the dividend payment. The Credit Facility also includes customary events of default, including, among other things, material adverse effect, bankruptcy, and certain changes of control. As of February 3, 2018, the Company was compliant with all covenants.InterestFacility. Peak borrowings under the Credit Facility will accrue, atduring fiscal 2019 and fiscal 2018 were $35.9 million and $35.7 million, respectively. As of February 1, 2020 and February 2, 2019, the electionCompany had no outstanding letters of credit. The Company had $12 million and $41 million available for borrowing under the Credit Facility as of February 1, 2020 and February 2, 2019, respectively.BaseLIBOR Rate or LIBOBase Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability,Availability as defined in the Loan Agreement, with the Applicable Margin for LIBOLIBOR Rate loans ranging from 1.75%4.00% to 2.00%4.50% and the Applicable Margin for PrimeBase Rate loans ranging from 0.75%3.00% to 1.00%3.50%. In addition,commitment feefirst priority security interest in substantially all of 0.25% is also payable on unused commitments.As ofFebruary 3, 2018the assets of etailz, including inventory, accounts receivable, cash and January 28, 2017,cash equivalents and certain other collateral of the borrowers and guarantors under the New Credit Facility (collectively, the “Credit Facility Parties”) and by a first priority pledge by the Company did not have any borrowingsof its equity interests in etailz. The Company will provide a limited guarantee of etailz’s obligations under the New Credit Facility. Peak borrowings underduring fiscal 2017Parties taken as a whole, the occurrence of an uninsured loss to a material portion of collateral and fiscal 2016 were $11.7failure of the obligations under the New Credit Facility to constitute senior indebtedness under any applicable subordination or intercreditor agreements.$21.5 million, respectively.conditions under the Subordinated Loan Agreement, at the rate of twelve percent (12.0%) per annum, compounded on the last day of each calendar quarter by becoming a part of the principal amount of the Subordinated Loan.had $41.0 millionwill provide a limited guarantee of etailz’s obligations under the Subordinated Loan.$39.0 million available for borrowingmerge or acquire assets.ofFebruary 3, 2018a whole and January 28, 2017, respectively.8.7. Leases3, 2018,1, 2020, the Company leased 260200 stores under operating leases, many of which contain renewal options and escalation clauses, for periods ranging from one to ten years. Most leases also provide for payment of operating expenses and real estate taxes. Some also provide for contingent rent based on percentage of sales over a certain sales volume.leases. In addition, as more fully discussed in Note 12 to Consolidated Financial Statements, the Company currently leases its Albany, NY2 distribution centercenters and 2 administrative offices under an operating lease from an entity controlled by the estate of its former Chairman.Rental expense was as follows ($ in thousands): Fiscal Year 2017 2016 2015 Minimum rentals $25,033 $28,531 $30,311 Contingent rentals — 9 13 $25,033 $28,540 $30,324
offices.F-22Future minimum rental payments required under all leases that have initial or remaining non-cancelable lease terms at February 3, 2018, are as follows ($ in thousands): Operating
Leases 2018 $25,308 2019 9,933 2020 7,899 2021 4,804 2022 1,746 Thereafter 965 Total minimum payments required $50,655 In addition to the obligations in theabove,is a numbersummary of the Company’s stores have leases which have rent payments based oncomponents of net lease cost for the store’s sales volume in lieuthirteen- and fifty-two-week period ended February 1, 2020: (amounts in thousands) Classification Short-term operating lease cost SG&A $ 4,974 $ 15,017 Operating lease cost SG&A 1,187 6,099 Variable lease cost SG&A 210 579 Net lease cost $ 6,371 $ 21,695 fixed minimum rent payments.$6.4 million and $21.7 million, respectively, and did not record any contingent rentals. During fiscal 2017, fiscal 2016, and fiscal 2015,2018, minimum rent payments based on a store’s sales volume were $0.6 million, $0.8 million$0.5 million. Operating Leases (amounts in thousands) 2020 10,501 2021 7,312 2022 3,181 2023 2,278 2024 1,509 Thereafter 607 Total lease payments 25,388 Less: amounts representing interest (2,615 ) Present value of lease liabilities $ 22,773 $0.9 million, respectively.As of February 1, 2020 Weighted-average remaining lease term (years) Operating leases 2.4 5 % Fiscal 2019 (amounts in thousands) Cash paid for amounts included in the measurement of operating lease liabilities Operating cash flows from operating leases $ 8,918 (amounts in thousands) 2019 $ 24,426 2020 8,393 2021 5,239 2022 1,881 2023 1,137 Thereafter 1,060 Total minimum lease payments $ 42,136 (amounts in thousands) Operating Leases 2020 $ 692 2021 724 2022 746 2023 766 2024 652 Thereafter 296 Total minimum lease payments $ 3,876 9.8. Shareholders’ Equity the repurchased shares as treasury stock on the Company’s Consolidated Balance Sheet. There were no treasury stock repurchases during fiscal 2017. During2019 and fiscal 2016,2018.Company repurchased 686,137 shareseffect of commonthis stock at an average price of $3.87 per share. During fiscal 2015, the Company repurchased 298,225 shares of common stock at an average price of $3.64 per share. Since the inception of the share repurchase program, the Company has repurchased 2,558,180 shares of common stock at an average price of $3.83 per share. The Company has approximately $12.2 million available for future purchases under its share repurchase program.2017,2019 and fiscal 2016, or fiscal 2015.2018. The Company’s Credit Facility containscontained certain restrictions related to the payment of cash dividends, including limiting the amount of dividends to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment.10.9. Benefit Plans
As of February 3, 2019, the fye segment suspended its matching contribution in response to one of the Company’s cost‑cutting initiatives. The Trans World Entertainment Corporation 401(K) Plan for the fye segment was transferred to the acquiring company as part of the FYE Transaction pursuant to the terms of the Asset Purchase Agreement.F-23Company’sfye segment’s matching contributions was approximately $525,000, $592,000$0 and $424,000$340,000 in fiscal 2017, 20162019 and 2015,fiscal 2018, respectively.5.0 million.250 thousand. As of February 3, 2018,1, 2020, of the awards authorized for issuance under the Stock Award Plans, 2.8 millionapproximately 129 thousand were granted and are outstanding, 1.4 million99 thousand of which were vested and exercisable. Shares available for future grants of options and other share basedshare-based awards under the New Plan at February 3, 20181, 2020 were 4.9 million. Shares available for future grants of options and other share based awards at February 3, 2018 were 1.1 million.Total stock-based compensation expense, related to Company based Stock Award Plans, recognized in the Consolidated Statements of Operations for fiscal 2017, fiscal 2016 and fiscal 2015 was $0.6 million, $0.6 million and $0.5 million, respectively. During fiscal 2017, fiscal 2016 and fiscal 2015, the related total deferred tax benefit was $0. As of February 3, 2018, there was $0.8 million of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of 2.5 years. Stock awards typically vest ratably over 4 years and expire ten years after the date of grant.In connection with the acquisition of etailz, the Company issued 1,572,552 restricted shares of Company common stock to a key etailz employee, with a grant date fair value of $3.56 per share. These shares vest ratably through January 2019. As of February 3, 2018, the Company recognized $3.1 million of compensation cost related to these restricted shares. As of February 3, 2018, there was approximately $2.5 million of unrecognized compensation cost related to these restricted shares that is expected to be recognized as expense over a weighted average period of 1.0 year. 2017 2016 2015 Dividend yield 0% 0% 0% Expected stock price volatility 40.1%-46.4% 38.0%-47.5% 39.7%-50.2% Risk-free interest rate 1.74%-2.39% 1.06%-2.18% 1.32%-1.94% Expected award life ( in years) 5.64-5.71 4.92-6.98 4.92-5.71 Weighted average fair value per share of awards granted during the year $0.73 $1.19 $1.49 F-24The following table summarizes information about stock awards outstanding under the Company’s Stock Award Plans as of February 3, 2018: Outstanding Exercisable Weighted Weighted Average Average Aggregate Average Aggregate Exercise Remaining Exercise Intrinsic Exercise Intrinsic Price Range Shares Life Price Value Shares Price Value $0.00-$2.66 932,000 6.9 1.94 $— 352,000 $2.86 $— 2.67-3.50 721,000 7.2 3.35 — 480,000 6.72 — 3.51-4.87 932,914 7.6 3.95 — 479,164 3.29 — Total 2,585,914 7.2 $3.06 $— 1,311,164 $3.29 $— The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value based on the Company’s closing common stock price of $1.60 as of February 3, 2018, which would have been received by the award holders had all award holders under the Stock Award Plans exercised their awards as of that date. 2019 2018 Dividend yield 0 % 0 % Expected stock price volatility 63.7-70.1 % 50.5-54.0 % Risk-free interest rate 1.35%-1.62 % 2.71%-3.01 % Expected award life ( in years) 5.64-6.98 5.64-6.98 Weighted average fair value per share of awards granted during the year $ 4.46 $ 10.00 Employee and Director Stock Award Plans Number of Shares
Subject To
Option Stock Award
Exercise Price
Range Per
Share Weighted
Average
Exercise
Price Other
Share
Awards
(1) Weighted
Average
Grant Date
Value Balance January 31, 2015 2,471,850 $1.73-$14.32 $6.81 237,400 $3.75 Granted 380,000 3.40-3.88 3.72 23,774 3.59 Exercised/vested (8,000) 1.73-2.53 2.33 (50,000) 0.00 Forfeited (18,500) 1.73-4.87 3.62 — 0.00 Canceled (713,525) 1.73-14.32 13.28 — 0.10 Balance January 30, 2016 2,111,825 $1.73-$6.41 $4.04 211,174 $3.79 Granted 1,009,664 2.80-3.90 3.66 68,097 3.84 Exercised/vested (18,000) 1.73-2.53 2.09 (108,344) 3.68 Forfeited (38,250) 2.53-4.87 3.82 — 0.00 Canceled (605,675) 2.53-6.41 5.23 — 0.00 Balance January 28, 2017 2,459,564 $1.73-$5.50 $3.58 170,927 $3.63 Granted 680,000 1.60-1.85 1.84 65,000 1.85 Exercised/vested — — — (52,500) 3.50 Forfeited (389,500) 1.85-4.87 3.23 (5,000) 3.53 Canceled (164,150) 3.79-5.50 5.43 - 0.00 Balance February 3, 2018 2,585,914 $1.60-$4.87 $3.06 178,427 $3.26 (1)Other Share Awards include deferred shares granted to executives and Directors. Employee and Director Stock Award Plans Balance February 3, 2018 129,296 $ 32.00-$97.40 $ 61.20 8,921 $ 65.20 Granted 27,750 $ 19.60-$20.80 19.80 11,224 22.40 Cancelled/Forfeited (18,125 ) $ 19.60-$77.60 57.68 - 38.80 Exercised - - - (6,575 ) - Balance February 2, 2019 138,921 $ 19.60-$97.40 $ 55.00 13,571 $ 33.60 Granted 5,750 $ 3.51-$5.40 3.76 - - Cancelled/Forfeited (15,475 ) $ 34.60-$95.40 57.68 - - Exercised - - - (3,626 ) 5.66 Balance February 1, 2020 129,196 $ 3.51-$97.40 $ 52.11 9,945 $ 36.75 2017 and 2016, the Company did not issue any deferred shares to non-employee directors. During fiscal 2015,2019, the Company recognized approximately $9,000$40 thousand in expenses for deferred shares issued to non-employee directors.
During fiscal 2018, the Company recognized approximately $79 thousand in expenses for deferred shares issued to non-employee directors. There were no exercises of non-restricted stock options during fiscal 2019 and fiscal 2018.F-25($ in thousands) Stock Option Exercises 2017 2016 2015 Cash received for exercise price — $39 $19 Intrinsic value — $25 $12 2017, 2016,2019 and 2015,2018, net periodic benefit cost recognized under both plans totaled approximately $0.6 million $0.8 million, and $1.0 million, respectively.in each fiscal year. The accrued pension liability for both plans was approximately $18.3$17.5 million and $18.7$18.3 million at February 3, 20181, 2020 and January 28, 2017,February 2, 2019, respectively, and is recorded within other long termlong-term liabilities on the Consolidated Balance Sheets. The accumulated benefit obligation for both plans was $17.7 million and $18.4 million and $19.0 million foras of the fiscal years ended February 3, 20181, 2020 and January 28, 2017,February 2, 2019, respectively.year-end :funded status:($ in thousands) February 3,
2018 January 28,
2017 Change in Projected Benefit Obligation: Benefit obligation at beginning of year $ 18,700 $ 19,026 Service cost 63 61 Interest cost 555 549 Actuarial loss 177 196 Benefits paid (1,161 ) (1,132 ) Benefit obligation at end of year $ 18,334 $ 18,700 Fair value of plan assets at end of year $ - $ - Funded status $ (18,334 ) $ (18,700 ) Unrecognized prior service cost - 17 Unrecognized net actuarial gain (102 ) (315 ) Accrued benefit cost $ (18,436 ) $ (18,998 )
Funded Status:F-26(amounts in thousands) February 1,
2020 February 2,
2019 Change in Projected Benefit Obligation: Benefit obligation at beginning of year $ 17,476 $ 18,334 Service cost 55 56 Interest cost 568 560 Actuarial loss (gain) 773 (275 ) Benefits paid (1,199 ) (1,199 ) Benefit obligation at end of year $ 17,673 $ 17,476 Fair value of plan assets at end of year $ - $ - Funded status $ (17,673 ) $ (17,476 ) Unrecognized net actuarial loss (gain) 529 (263 ) Accrued benefit cost $ (17,144 ) $ (17,739 ) February 3,
2018 January 28,
2017 ($ in thousands) Current liability $ (1,199 ) $ (1,161 ) Long term liability (17,135 ) (17,539 ) Add: Accumulated other comprehensive income (102 ) (298 ) Net amount recognized $ (18,436 ) $ (18,998 ) February 1,
2020 February 2,
2019 (amounts in thousands) Current liability Long term liability Accumulated other comprehensive loss (income) Net amount recognized Net Periodic Benefit Cost: Fiscal Year 2017 2016 2015 Service cost $ 63 $ 61 $ 66 Interest cost 555 549 583 Amortization of prior service cost 17 220 342 Amortization of actuarial net gain (36 ) (14 ) (34 ) Net periodic benefit cost $ 599 $ 816 $ 957 Fiscal Year 2019 2018 Service cost $ 55 $ 56 Interest cost 568 560 Amortization of actuarial net gain (20 ) (19 ) Net periodic benefit cost $ 603 $ 597 (Income) Loss: 2017 2016 Net prior service cost recognized as a component of net periodic benefit cost $ (17) $ (220) Net actuarial gain recognized as a component of net periodic benefit cost 36 14 Net actuarial losses arising during the period 177 196 196 (10) Income tax effect - - Total recognized in other comprehensive (income) loss $ 196 $ (10) Total recognized in net periodic benefit cost and other comprehensive loss $ 795 $ 806 2019 2018 Net prior service cost recognized as a component of net periodic benefit cost $ - $ - Net actuarial loss (gain) arising during the period 744 (263 ) 744 (263 ) Income tax effect - - Total recognized in other comprehensive loss $ 744 $ (263 ) Total recognized in net periodic benefit cost and other comprehensive loss $ 1,341 $ 334 3, 2018, January 28, 2017,1, 2020 and January 30, 2016February 2, 2019 and the tax effect are summarized below.($ in thousands) February 3, January 28, January 30, 2018 2017 2016 Net unrecognized actuarial gain ($102) ($315) ($525) Net unrecognized prior service cost - 17 237 Accumulated other comprehensive income ($102) ($298) ($288) Tax expense 1,100 1,100 1,100 Accumulated other comprehensive loss $998 $802 $812 F-27 Fiscal Year 2017 2016 Weighted-average assumptions used to determine benefit obligation: Discount rate 3.42% 3.58% Salary increase rate 3.00% 3.00% Measurement date Jan 31, 2018 Jan 28, 2017 Fiscal Year 2017 2016 2015 Weighted-average assumptions used to determine net periodic benefit cost: Discount rate 3.16% 3.63% 3.00% Salary increase rate 3.00% 3.00% 3.00% (amounts in thousands) February 1, February 2, 2020 2019 Net unrecognized actuarial loss (gain) $ 744 $ (263 ) Other actuarial adjustments (365 ) (102 ) Accumulated other comprehensive loss (income) $ 379 $ (365 ) Tax expense 1,100 1,100 Accumulated other comprehensive loss $ 1,479 $ 735 Fiscal Year 2019 2018 Discount rate Salary increase rate Measurement date Jan 31, 2020 Jan 31, 2019 Fiscal Year 2019 2018 Discount rate Salary increase rate high qualityhigh-quality corporate bond market in the U.S. The projected benefit payments attributed to the projected benefit obligation have been discounted using the CPDC mid-year rates and the discount rate is the single constant rate that produces the same total present value.which reflect expected future service, as appropriate,over the next ten years are expected to be paid:Year Pension Benefits ($ in thousands) 2018 1,199 2019 1,199 2020 1,192 2021 1,184 2022 1,149 2023 – 2027 6,510 Accumulated Other Comprehensive Loss($ in thousands)PensionBenefitJanuary 28, 2017($802)Other comprehensive loss before reclassifications(196)February 3, 2018($998)F-28Year Pension Benefits 11.10. Income Taxesbenefitexpense consists of the following: Fiscal Year 2017 2016 2015 ($ in thousands) Federal - current $ (500) $ - $ - State - current 201 215 181 Deferred - (6,988 ) - Income tax expense (benefit) $ (299) $ (6,773 ) $ 181 Fiscal Year 2019 2018 (amounts in thousands) Federal - current $ - $ - State - current 316 80 Income tax expense $ 316 $ 80 Fiscal Year 2017 2016 2015 Federal statutory rate 33.7% 35.0% 35.0% State income taxes (0.5%) (6.0%) 4.1% Change in valuation allowance 36.1% (57.2%) (39.0%) Cash surrender value - insurance / benefit program 7.0% 4.0% 5.3% Contingent consideration 2.6% 19.1% —% Change in US Federal Statutory Tax Rate (79.4%) —% —% Deferred tax benefit - acquisition —% 196.1% —% Other 1.2% (0.9%) 0.9% Effective tax rate 0.7% 190.1% 6.3% Fiscal Year 2019 2018 Federal statutory rate 21.0 % 21.0 % State income taxes, net of federal tax effect (0.5 %) (0.3 %) Change in Valuation Allowance (21.0 %) (12.5 %) Cash surrender value - insurance / benefit program 0.1 % --- % Goodwill Impairment --- % (8.5 %) Contingent consideration --- % 0.1 % Other (0.1 %) 0.1 % Effective tax rate (0.5 %) (0.1 %) meals, dues,entertainment, penalties and parking benefits and the refundable portion of the federal currentalternative minimum tax benefit on refundable AMT taxcarryover credit.and liabilities are as follows: February 3,
2018 January 28,
2017($ in thousands) DEFERRED TAX ASSET Accrued Expenses $ 260 $ 400 Inventory - 347 Retirement and compensation related accruals 6,724 9,063 Fixed assets 7,561 1,718 Federal and state net operating loss and credit carry forwards 64,807 83,221 Real estate leases, included deferred rent 2,446 4,141 Losses on investment 827 1,268 Others 577 901 Gross deferred tax assets before valuation allowance 83,202 101,059 Less: valuation allowance (76,810 ) (89,443 ) Total deferred tax assets $ 6,392 $ 11,616 DEFERRED TAX LIABILITIES Intangibles $ (6,193 ) $ (11,616 ) Inventory (199 ) - Total deferred tax liabilities $ (6,392 ) $ (11,616 ) NET DEFERRED TAX ASSET $ - $ - F-29 February 1,
2020 February 2,
2019 (amounts in thousands) DEFERRED TAX ASSETS Accrued Expenses $ 1,783 $ 559 Inventory $ 32 $ - Retirement and compensation related accruals 5,888 6,001 Fixed assets 6,470 6,463 Federal and state net operating loss and credit carry forwards 83,562 75,117 Real estate leases, included deferred rent 5,712 1,973 Losses on investment 896 584 Others 549 556 Gross deferred tax assets before valuation allowance 104,892 91,253 Less: valuation allowance (104,556 ) (90,161 ) Total deferred tax assets $ 336 $ 1,092 DEFERRED TAX LIABILITIES Intangibles $ (336 ) $ (922 ) Inventory - (170 ) Total deferred tax liabilities $ (336 ) $ (1,092 ) NET DEFERRED TAX ASSET $ - $ - $208.3$288.1 million for federal income tax purposes andwhich will expire at various times throughout 2039 with a portion being available indefinitely. The Company has approximately $273.4$280.2 million of net operating loss carryforward for state income tax purposes as of the end of fiscal 20172019 that expire at various times through 20372039 and are subject to certain limitations and statutory expiration periods. The state net operating loss carryforwards are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. The Company has federal tax credit carryforwards of $0.5 million which will expire in various amounts through 2026. The Company has state tax credit carryforwards of $1.1 million, of which $0.2 million will expire in 2027 with the remainder available indefinitely.3, 2018,1, 2020, the valuation allowance decreasedincreased to $76.8$104.6 million from $89.4$90.2 million at January 28, 2017. The decrease in the Company’s deferred tax assets was caused primarily by enactment of the Tax Cuts and Jobs Act which was enacted on December 22, 2017 and changes in certain deductible temporary differences to offset income before income taxes earned in fiscal 2017.February 2, 2019. Management will continue to assess the valuation allowance against the gross deferred assets. Fiscal Year 2017 2016 2015 ($ in thousands) Unrecognized tax benefits at beginning of year $ 1,930 $ 1,930 $ 1,930 Increases in tax positions from prior years - - - Decreases in tax positions from prior years - - - Increases in tax positions for current years - - - Settlements - - - Lapse of applicable statute of limitations - - - Unrecognized tax benefits at end of year $ 1,930 $ 1,930 $ 1,930 Fiscal Year 2019 2018 (amounts in thousands) Unrecognized tax benefits at beginning of year $ 1,930 $ 1,930 Increases in tax positions from prior years - - Decreases in tax positions from prior years - - Increases in tax positions for current years - - Settlements - - Lapse of applicable statute of limitations - - Unrecognized tax benefits at end of year $ 1,930 $ 1,930 3, 2018,1, 2020, the Company had $1.9 million of gross unrecognized tax benefits, $1.5 million of which would affect the Company’s tax rate if recognized. While it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease within the next twelve months, the Company does not expect the change to have a significant impact on its results of operations or financial position. The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all federal income tax matters and all material state and local income tax matters through fiscal 2013.2017,2019, the Company accrued a provision for interest expense of $0.2 million. As of February 3, 2018,1, 2020, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $3.1$3.5 million, including accrued interest and penalties of $2.3$2.7 million.On December 22, 2017, the Act (the “Act”) was enacted. The Act makes broad and complex change to the U.S. tax code including a significant reduction to the U.S. federal corporate tax rate fromF-3035 percent to 21 percent effective January 1, 2018. Accordingly, the federal deferred tax assets were written down to account for the change. The write down is reflected in both the valuation allowance and the deferred tax assets which total $34.0 million. This change is also presented in the effective tax rate schedule as a reduction to the current year losses by 79.3%. The valuation allowance rate impact includes an offsetting reduction for the tax rate which results in no change to the provision for income taxes.The Act also repeals the Corporation Alternative Minimum Tax (“AMT”) for tax years beginning after December 31, 2017. Any AMT carryover credits will be refundable starting in the 2018 tax year, remaining credit will be fully refundable in 2021, as such,2021.recorded a current benefit in its' financial statements.Note 12. Related Party TransactionsThe Company leasesleased its 181,300 square foot distribution center/office facility in Albany, New York from an entity controlled by the estate of Robert J. Higgins, its former Chairman and largest shareholder. The original distribution center/office facility was occupied in 1985. On December 4, 2015, the Company amended and restated the lease. The lease commenced on January 1, 2016 and expires on December 31, 2020.new lease dated December 4, 2015, and accounted for as an operating lease, the Company paid $1.2 million in both fiscal 20172019 and fiscal 2016. Under2018, which were included in selling, general and administrative expenses in the lease prior to December 4, 2015,Statement of Operations. As of February 1, 2020, the Company paid annual rentowed $1.1 million on the operating lease liability, which is included in the current portion of $2.1 millionoperating lease liabilities in fiscal 2015.the Balance Sheet. Under the terms of the lease agreement, the Company is responsible for property taxes and other operating costs with respect to the premises.Sara Neblett,wifeFYE Transaction, the Company assigned the rights and obligations of Josh Neblett, the Executive Advisorlease to the acquiror.etailz, was employedAlimco Re Ltd. (“Alimco”), the managing member of Kick-Start III, LLC and Kick-Start IV, LLC (“Kick-Start”), and a trustee of the Robert J. Higgins TWMC Trust (the “Trust”), an affiliate of RJHDC, LLC (“RJHDC” and together with Alimco and Kick-Start, “Related Party Entities”), respectively. The Related Party Entities are parties to the following agreements with the Company asentered into on March 30, 2020:Vice PresidentRelated Party Entities made a $5.2 million secured term loan ($2.7 million from Alimco, $0.5 million from Kick-Start, and $2.0 million from RJHDC) to etailz with a scheduled maturity date of Partner CareMay 22, 2023, interest accruing at the rate of etailz. Ms. Nebletttwelve percent (12%) per annum and compounded on the last day of each calendar quarter by becoming a part of the principal amount, and secured by a second priority security interest in substantially all of the assets of the Company and etailz;$165,250contingent value rights (“CVRs”) representing the contractual right to receive cash payments from the Company in cash compensation during fiscal 2017.13.12. Commitments and ContingenciesStore ManagerActionsTwo former Store Managers filed actions alleging claims of entitlement to unpaid compensation for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).Specifically, Carol SpackActionTrans World Entertainment Corporation (Trans World)the Company and Synapse Group, Inc. in the United States District Court for the District of Massachusetts, Boston Division (Case No.1:18-cv-12377-DPW) concerning enrollment in the Company’s Backstage Pass VIP loyalty program and associated magazine subscriptions. The complaint alleged, among other things, that the Company’s “negative option marketing” misled consumers into enrolling for membership and subscriptions without obtaining the consumers’ consent. The complaint sought to represent a nationwide class of “all persons in the United States” who were enrolled in and/or charged for Backstage Pass VIP memberships and/or magazine subscriptions, and to obtain statutory and actual damages on their behalf.on April 20, 2017 (Case No.: 3:17-cv-02687-BRM-LHG) alleging(the “Spack Action”). The Spack Action alleges that she is entitled to unpaid compensation for overtime under the federal Fair Labor Standards Act (FLSA). She brings a nationwide collective action under the FLSA on behalf of allCompany misclassified Store Managers and(“SMs”) as exempt nationwide. It also alleges that Trans World improperly calculated overtime for Senior Assistant Managers. SheManagers (“SAMs”) nationwide, and that both SMs and SAMs worked “off-the-clock.” It also brings class action claims underalleges violations of New Jersey and Pennsylvania law on behalf of all persons who worked as Store Managers in New Jersey or Senior Assistant Managers in Pennsylvania.On May 19, 2017, NatashaState Law with respect to calculating overtime for SAMs. The second, Roper filed a complaint againstv. Trans World Entertainment Corp., was filed in the U.S. District Court for the Northern District of New York, (Case No.: 1:17-cv-0553-TJM-CFH) in which sheMay 2017 (the “Roper Action”). The Roper Action also alleges that she isF-31entitled to unpaid compensation for overtime under the FLSA. Ms. Roper bringsasserts a nationwide collective action under the FLSAmisclassification claim on behalf of SMs. Both actions were consolidated into the Northern District of New York, with the Spack Action being the lead case.similarly situated Store Managers. Historical ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,977 $ - $ - $ 2,977 Restricted cash 950 - - 950 Accounts receivable 4,201 (62 ) - 4,139 Merchandise inventory 67,958 (50,122 ) - 17,836 Prepaid expenses and other assets 3,979 (1,005 ) - 2,974 Total current assets 80,065 (51,189 ) - 28,876 Restricted cash 4,925 - - 4,925 Fixed assets, net 2,190 - 2,190 Operating lease right-of-use assets 3,311 - 3,311 Goodwill - - - - Intangible assets, net 1,760 - - 1,760 Other assets 5,555 - - 5,555 TOTAL ASSETS $ 97,806 (51,189 ) - 46,617 LIABILITIES CURRENT LIABILITIES Accounts payable $ 24,120 (9,674 ) - $ 14,446 Short-term borrowings 13,149 - (11,778 ) (ii) 1,371 Accrued expenses and other current liabilities 4,479 (958 ) - 3,521 Deferred revenue 6,681 (6,681 ) - - Current portion of operating lease liabilities 9,510 (8,976 ) - 534 Total current liabilities 57,939 (26,289 ) (11,778 ) 19,872 Operating lease liabilites 13,263 (11,059 ) - 2,204 Other long-term liabilites 22,089 (2,063 ) - 20,026 TOTAL LIABILITIES 93,291 (39,411 ) (11,778 ) 42,102 SHAREHOLDERS’ EQUITY Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - - - Common stock ($0.01 par value; 200,000,000 shares authorized; 3,225,627 shares issued) 32 - - 32 Additional paid-in capital 345,102 - - 345,102 Treasury stock at cost (1,409,316 shares) (230,169 ) - - (230,169 ) Accumulated other comprehensive loss (1,479 ) - - (1,479 ) (Accumulated deficit) Retained earnings (108,971 ) (11,778 ) 11,778 (108,971 ) TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) 4,515 (11,778 ) 11,778 4,515 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) $ 97,806 $ (51,189 ) $ - $ 46,617 (i) Represents the elimination of certain assets of the fye business sold to the Purchaser and certain liabilities of the fye business assumed by the Purchaser, which is consistent with the terms of the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, the Company will retain liabilities and obligations of the fye business not assumed by the Purchaser, including liabilities relating to pending lawsuits (including pending store manager class actions) and liabilities with respect to severance obligations for employees not transferred to the Purchaser. Below represents a reconciliation of previously disclosed fye segment assets and liabilities to the certain assets sold and liabilities assumed by the Purchaser. $ 69,395 Cash and cash equivalents Restricted cash Accounts receivable Prepaid expenses and other current assets Other assets $ 51,189 $ 82,767 Accounts payable Short-term borrowings Accrued expenses and other current liabilities Other long-term liabilities Operating lease liabilities 653 $ 39,411 (a) (ii) Represents the estimated net proceeds of the transaction used to pay down short-term borrowings, as required under the Company’s existing credit facility. Historical
(Note i) Net sales Other revenue Total revenue Cost of sales Gross profit (ii) Asset impairment charges Loss from operations Interest expense (iii) Other loss (income) Loss before income taxes Income tax expense Net loss BASIC AND DILUTED LOSS PER SHARE: Basic and dilluted income per common share �� (i) The elimination of the operating results of the fye business for the period presented, which is consistent with the terms of the Asset Purchase Agreement. (ii) Represents the corporate level expenses of the parent company, which primarily consist of executive compensation and professional fees. (iii) Represents an adjustment of interest expense assuming that $11.8 million of net cash proceeds were received at the beginning of the period and applied to repay debt. Net sales $ 412,997 $ (226,097 ) $ - $ 186,900 Other revenue 5,193 (5,193 ) - - Total revenue 418,190 (231,290 ) - 186,900 Cost of sales 290,116 (142,031 ) - 148,085 Gross profit 128,074 (89,259 ) - 38,815 Selling, general and administrative expenses 165,222 (111,768 ) 7,750 61,204 Asset impairment charges 59,658 (1,946 ) - 57,712 Loss from operations (96,806 ) 24,455 (7,750 ) (80,101 ) Interest expense (income) 723 (723 ) (498 ) (498 ) Other income (227 ) 227 - - Loss before income taxes (97,302 ) 24,951 (7,252 ) (79,603 ) Income tax expense 80 (53 ) - 27 Net loss $ (97,382 ) $ 25,004 $ (7,252 ) $ (79,630 ) Basic and diluted loss per share: Basic and diluted loss per common share $ (53.67 ) $ (43.90 ) Weighted average number of common shares outstanding – basic and diluted 1,814 1,814 (i) The elimination of the operating results of the fye business for the period presented, which is consistent with the terms of the Asset Purchase Agreement. (ii) (iii) Represents an adjustment of interest expense assuming that $11.8 million of net cash proceeds were received at the beginning of the period and applied to repay debt. Fiscal 2017 Quarter Ended Fiscal February 3, October 28, July 29, April 29, 2017 2018(2) 2017 2017 2017(1) ($ in thousands, except for per share amounts) Total Revenue $442,856 $145,409 $93,001 $102,479 $101,967 Gross profit 143,843 40,787 31,581 35,170 36,305 Net income (loss) ($42,553) ($32,450) ($8,071) ($5,565) $3,533 Basic and diluted income (loss) per share ($1.18) ($0.90) ($0.22) ($0.15) $0.10 Fiscal 2016 Quarter Ended Fiscal January 28, October 29, July 30, April 30, 2016 2017 2016 2016 2016 ($ in thousands, except for per share amounts) Total Revenue $353,470 $147,109 $66,282 $64,349 $75,730 Gross profit 134,659 50,258 26,872 26,701 30,828 Net income (loss) $3,211 $8,322 ($483) ($4,655) $27 Basic and diluted income (loss) per share $0.10 $0.23 ($0.02) ($0.15) $0.00 Fiscal 2019 Quarter Ended Fiscal 2018 Quarter Ended 1. 1.$8.7 million gain from insurance proceeds.2.Includes $29.1$8.0 million impairment of fixed assets.assets and intangibles.F-322. 3. 4. 4.8Second Amended and restated Credit Agreement betweenand Wells Fargo; National Association dated January 17, 2017–stock certificate – incorporated herein by reference to Exhibit 4.1 to the Company’s CurrentAnnual Report on Form 8-K filed January 19, 2017.10-K for the fiscal year ended February 2, 2019. Commission File No. 0-14818.E-110.1 Amended and Restated Lease, dated December 4, 2015, between Robert J. Higgins, as Landlord, and Record Town, Inc. andTenant —of February 20, 2020 – incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 20, 2020. Commission File No. 0-14818.Quarterly Report on Form 10-Q for the fiscal quarter ended October8-K filed March 31, 1998.2020. Commission File No. 0-14818. 10.5Trans World Music Corporation 1990Option Plan for Non-Employee Directors,Purchase Warrants, dated as amended and restated —of March 30, 2020 – incorporated herein by reference to Annex AExhibit 4.1 to Trans World’s Definitive Proxy Statement onthe Company’s Form 14A8-K filed as of May 19, 2000.March 31, 2020. Commission File No. 0-14818. 10.6 Form of Indemnification Agreement dated May 1, 1995 between the Company and its officers and directors—directors – incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 1995. Commission File No. 0-14818. 10.7Trans World Entertainment Corporation Supplemental Executive Retirement Plan, as amended —– incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 16, 2012. Commission File No. 0-14818. 10.8Trans World Entertainment Corporation 2005 Long Term Incentive and Share Award Plan—incorporatedPlan –incorporated herein by reference to Appendix A to Trans World Entertainment Corporation’s Definitive Proxy Statement on Form 14A filed as of May 11, 2005. Commission File No. 0-14818.* 21 Significant Subsidiaries of the Registrant. Consent of KPMG LLP. Certification of Chief Executive Officer dated May 4, 2018,June 15, 2020, relating to the Registrant’s Annual Report on Form 10-K for the year ended February 3, 2018,1, 2020, pursuant to Rule 13a-14(a) or Rule 15a-14(a). Certification of Chief Financial Officer dated May 4, 2018,June 15, 2020, relating to the Registrant’s Annual Report on Form 10-K for the year ended February 3, 2018,1, 2020, pursuant to Rule 13a-14(a) or Rule 15a-14(a).E-2*32 Certification of Chief Executive Officer and Chief Financial Officer of Registrant, dated May 4, 2018,June 15, 2020, pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 relating to the Registrant’s Annual Report on Form 10-K for the year ended February 3, 2018.1, 2020. 101.INS 101.SCHInstance DocumentTaxonomy Extension Schema 101.SCH101.CALSchemaCalculation Linkbase 101.CAL101.DEFCalculationDefinition Linkbase 101.DEF101.LABDefinitionLabel Linkbase 101.LAB101.PREXBRL Taxonomy Extension Label Linkbase*101.PREE-3