Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
May 02, 2020 | May 29, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | APEX GLOBAL BRANDS INC. | |
Entity Central Index Key | 0000844161 | |
Document Type | 10-Q | |
Document Period End Date | May 2, 2020 | |
Trading Symbol | APEX | |
Amendment Flag | false | |
Current Fiscal Year End Date | --01-30 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Shell Company | false | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 5,570,530 | |
Document Fiscal Year Focus | 2021 | |
Document Fiscal Period Focus | Q1 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity File Number | 0-18640 | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 95-4182437 | |
Entity Address, Address Line One | 5990 Sepulveda Boulevard | |
Entity Address, City or Town | Sherman Oaks | |
Entity Address, State or Province | CA | |
Entity Address, Postal Zip Code | 91411 | |
City Area Code | 818 | |
Local Phone Number | 908-9868 | |
Title of 12(b) Security | Common stock | |
Security Exchange Name | NASDAQ |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | May 02, 2020 | Feb. 01, 2020 |
Current assets: | ||
Cash and cash equivalents | $ 1,259 | $ 1,209 |
Accounts receivable, net | 3,319 | 4,962 |
Income tax and other receivables | 8,869 | 157 |
Prepaid expenses and other current assets | 1,077 | 1,431 |
Total current assets | 14,524 | 7,759 |
Property and equipment, net | 316 | 319 |
Intangible assets, net | 54,547 | 59,110 |
Goodwill | 6,752 | 12,152 |
Accrued revenue and other assets | 3,505 | 3,582 |
Total assets | 79,644 | 82,922 |
Current liabilities: | ||
Accounts payable and other current liabilities | 5,225 | 6,282 |
Current portion of long-term debt | 56,786 | 56,044 |
Deferred revenue—current | 2,580 | 3,551 |
Total current liabilities | 64,591 | 65,877 |
Long-term liabilities: | ||
Long-term debt | 491 | |
Deferred income taxes | 8,781 | 9,515 |
Long-term lease liabilities | 1,309 | 1,389 |
Other liabilities | 792 | 794 |
Total liabilities | 75,964 | 77,575 |
Commitments and Contingencies (Note 7) | ||
Stockholders’ Equity: | ||
Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued | ||
Common stock, $.02 par value, 10,000,000 shares authorized, shares issued 5,570,530 (May 2, 2020) and 5,570,530 (February 1, 2020) | 111 | 111 |
Additional paid-in capital | 78,723 | 78,541 |
Accumulated deficit | (75,154) | (73,305) |
Total stockholders’ equity | 3,680 | 5,347 |
Total liabilities and stockholders’ equity | $ 79,644 | $ 82,922 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | May 02, 2020 | Feb. 01, 2020 |
Statement Of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.02 | $ 0.02 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.02 | $ 0.02 |
Common stock, shares authorized | 10,000,000 | 10,000,000 |
Common stock, shares issued | 5,570,530 | 5,570,530 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
May 02, 2020 | May 04, 2019 | |
Income Statement [Abstract] | ||
Revenues | $ 4,034 | $ 5,052 |
Operating expenses: | ||
Selling, general and administrative expenses | 2,896 | 3,855 |
Stock-based compensation | 150 | 208 |
Business acquisition and integration costs | 66 | |
Restructuring charges | 42 | |
Intangible assets and goodwill impairment charges | 9,800 | |
Depreciation and amortization | 202 | 257 |
Total operating expenses | 13,048 | 4,428 |
Operating (loss) income | (9,014) | 624 |
Other income (expense): | ||
Interest expense | (2,181) | (2,245) |
Other (expense) income, net | (34) | 1 |
Total other expense, net | (2,215) | (2,244) |
Loss before income taxes | (11,229) | (1,620) |
(Benefit) provision for income taxes | (9,380) | 638 |
Net loss | $ (1,849) | $ (2,258) |
Net loss per share: | ||
Basic loss per share | $ (0.33) | $ (0.44) |
Diluted loss per share | $ (0.33) | $ (0.44) |
Weighted average common shares outstanding: | ||
Basic | 5,571 | 5,128 |
Diluted | 5,571 | 5,128 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands | Total | Common Stock | Additional Paid-in Capital | Accumulated Deficit |
Balance at Feb. 02, 2019 | $ 15,122 | $ 98 | $ 76,829 | $ (61,805) |
Balance (in shares) at Feb. 02, 2019 | 4,900 | |||
Increase (Decrease) in Stockholders' Equity | ||||
Stock-based compensation | 208 | 208 | ||
Equity issuances, net of tax | 623 | $ 8 | 615 | |
Equity issuances, net of tax (in shares) | 415 | |||
Stock Warrants | 28 | 28 | ||
Net Loss | (2,258) | (2,258) | ||
Balance at May. 04, 2019 | 13,723 | $ 106 | 77,680 | (64,063) |
Balance (in shares) at May. 04, 2019 | 5,315 | |||
Balance at Feb. 01, 2020 | 5,347 | $ 111 | 78,541 | (73,305) |
Balance (in shares) at Feb. 01, 2020 | 5,571 | |||
Increase (Decrease) in Stockholders' Equity | ||||
Stock-based compensation | 150 | 150 | ||
Stock Warrants | 32 | 32 | ||
Net Loss | (1,849) | (1,849) | ||
Balance at May. 02, 2020 | $ 3,680 | $ 111 | $ 78,723 | $ (75,154) |
Balance (in shares) at May. 02, 2020 | 5,571 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
May 02, 2020 | May 04, 2019 | |
Cash flows from operating activities: | ||
Net loss | $ (1,849) | $ (2,258) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 202 | 257 |
Restructuring charges | 42 | |
Intangible assets and goodwill impairment charge | 9,800 | |
Amortization of deferred financing costs | 579 | 575 |
Interest expense paid in kind | 680 | |
Deferred income taxes and noncurrent provisions | (734) | 387 |
Stock-based compensation and stock warrant charges | 182 | 236 |
Changes in operating assets and liabilities, net of effects from business combinations: | ||
Accounts receivable | 1,643 | 242 |
Income tax and other receivables | (8,712) | 46 |
Prepaid expenses and other current assets | 354 | 212 |
Accrued revenue and other assets | 77 | (233) |
Accounts payable and other current liabilities | (1,059) | (1,957) |
Long- term lease liabilities | (80) | |
Deferred revenue | (971) | (484) |
Net cash provided by (used in) operating activities | 112 | (2,935) |
Cash flows from investing activities: | ||
Capital investments | (37) | (38) |
Net cash used in investing activities | (37) | (38) |
Cash flows from financing activities: | ||
Proceeds from promissory note payable | 736 | |
Payments on term loan and line of credit | (350) | (250) |
Debt issuance costs | (411) | (28) |
Issuance of common stock | 623 | |
Net cash (used in) provided by financing activities | (25) | 345 |
Increase (decrease) in cash and cash equivalents | 50 | (2,628) |
Cash and cash equivalents, beginning of period | 1,209 | 4,284 |
Cash and cash equivalents, end of period | 1,259 | 1,656 |
Cash paid for: | ||
Income taxes | 231 | 276 |
Interest | 861 | $ 1,646 |
Noncash investing and financing activities: | ||
Interest paid in kind | $ 680 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
May 02, 2020 | |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
Basis of Presentation | 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. Cherokee Inc. changed its name to Apex Global Brands Inc. effective June 27, 2019. These financial statements include the accounts of Apex Global Brands Inc. and its consolidated subsidiaries (the “Company”) and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended February 1, 2020 included in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of results to be expected for the full year. Liquidity and Going Concern The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, from the Company’s senior secured lender . Beginning in the quarter ended May 2, 2020, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures. The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time. In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. The Company has classified its term loans and junior notes as current obligations because its financial projections, which now reflect the impact of the COVID-19 pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant and borrowing base requirements beyond the forbearance period agreed to with the Company’s senior lender. The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to these defaults through July 27, 2020. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments will not be paid in cash, but an equivalent amount will be added to the principal amount of the term loans to be repaid in future periods. During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended. The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility. In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the then outstanding loan balance when the debt is repaid. The Company’s Junior Notes holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020. Future compliance failures under the senior secured credit facility would subject the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts. If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized. If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations. The Company is evaluating potential sources of working capital, including the disposition of certain assets, and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain. NOL carryback claims are expected to result in federal income tax refunds of approximately $ 9.0 million. Management’s plans also include the evaluation of strategic alternatives to enhance shareholder value. There is no assurance that the Company will be able to execute these plans. Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern. |
New Accounting Pronouncements
New Accounting Pronouncements | 3 Months Ended |
May 02, 2020 | |
Accounting Policies [Abstract] | |
New Accounting Pronouncements | 2. New Accounting Pronouncements In December 2019, the Financial Accounting Standards Board In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (“Topic 326”). This standard requires a forward-looking expected loss model for trade receivables rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted this standard as of the beginning of its fiscal year ending January 30, 2021 (‘‘Fiscal 2021’’). The impact of adoption was not material. |
Intangible Assets
Intangible Assets | 3 Months Ended |
May 02, 2020 | |
Goodwill And Intangible Assets Disclosure [Abstract] | |
Intangible Assets | 3 . Intangible Assets Intangible assets consists of the following: May 2, 2020 February 1, 2020 (In thousands) Gross Amount Accumulated Amortization Net Book Value Gross Amount Accumulated Amortization Net Book Value Amortizable trademarks $ 30,186 (20,796 ) $ 9,390 $ 30,153 (20,600 ) $ 9,553 Indefinite lived trademarks 45,157 — 45,157 49,557 — 49,557 $ 75,343 $ (20,796 ) $ 54,547 $ 79,710 $ (20,600 ) $ 59,110 Intangible assets include trademarks that are classified as indefinite lived and not subjected to amortization. Other indefinite lived trademarks include certain Cherokee brand trademarks that were acquired in historical transactions. The Company's revenues have been adversely impacted by the COVID-19 pandemic and its effect on the Company’s licensees. This was identified as an interim impairment indicator for the related indefinite lived trademarks during the preparation of the Company’s interim financial statements, and management performed an interim impairment test based on updated cash flow projections and discounted cash flows based on estimated weighted average costs of capital (income approach). The Company determined that the fair values of its Hi-Tec and Magnum trademarks were not in excess of their carrying values, and as a result, an impairment charge of $ million was recorded during the three months ended May 2, 2020 to adjust these trademarks to their estimated fair value The forcasted impact of the COVID-19 pandemic on the Company’s future revenues is subject to change as additional information becomes available. Further impairments may be required if management’s revenue forecasts for Hi-Tec and Magnum are further reduced in future reporting periods. The Company’s goodwill of $16.3 million arose from the Hi-Tec Acquisition that occurred during Fiscal 2017. Goodwill is tested at least annually for impairment in the Company’s fourth quarter, and because the Company has one reporting unit, the impairment test is based primarily on the relationship between the Company’s market capitalization and the book value of its equity adjusted for an estimated control premium. The annual goodwill impairment test in the fourth quarter of the fiscal year ended February 1, 2020 indicated that the Company’s goodwill was impaired, and an impairment charge of $4.1 million was recorded to reduce goodwill to $12.2 million. The Company’s market capitalization was adversely affected during the three months ended May 2, 2020 as a result of the COVID-19 pandemic. This was identified as an interim impairment indicator for goodwill during the preparation of the Company’s interim financial statements, and management performed an interim impairment test, which indicated that the Company’s goodwill was impaired. Accordingly, an impairment charge of $5.4 million was recorded during the quarter ended May 2, 2020 to reduce goodwill to $6.8 million. |
Accounts Payable and Other Curr
Accounts Payable and Other Current Liabilities | 3 Months Ended |
May 02, 2020 | |
Other Liabilities Current [Abstract] | |
Accounts Payable and Other Current Liabilities | 4 . Accounts Payable and Other Current Liabilities Accounts Payable and other current liabilities consist of the following: (In thousands) May 2, 2020 February 1, 2020 Accounts payable $ 2,881 $ 2,814 Accrued employee compensation and benefits 159 413 Restructuring plan liabilities 1,214 1,677 Income taxes payable 289 291 Other liabilities 682 1,087 $ 5,225 $ 6,282 |
Restructuring Plans
Restructuring Plans | 3 Months Ended |
May 02, 2020 | |
Restructuring And Related Activities [Abstract] | |
Restructuring Plans | 5 . Restructuring Plans The Company incurred restructuring charges in Fiscal 2018 and Fiscal 2017 related to the Hi-Tec Acquisition and its integration into the Company’s ongoing operations (the “Hi-Tec Plan”). Payments against the restructuring plan obligations were as follows: (In thousands) FY19 Plan Hi-Tec Plan Total Balance, February 1, 2020 1,649 28 1,677 Payments during the period (463 ) — (463 ) Balance, May 2, 2020 $ 1,186 $ 28 $ 1,214 |
Debt
Debt | 3 Months Ended |
May 02, 2020 | |
Debt Disclosure [Abstract] | |
Debt | 6 . Debt On August 3, 2018, the Company entered into a senior secured credit facility, which provided a $40.0 term loan, and $13.5 million of subordinated promissory notes (the “Junior Notes”). The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million. The term loans mature in August 2021 and generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin. The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan. The term loans are secured by substantially all the assets of the Company and are guaranteed by the Company’s subsidiaries. The Junior Notes mature in November 2021, and they are secured by a second priority lien on substantially all of the assets of Company and guaranteed by the Company’s subsidiaries. Interest is generally payable monthly on the Junior Notes, but no periodic amortization payments are required. The Junior Notes are subordinated in rights of payment and priority to the term loans but otherwise have economic terms substantially similar to the term loans. The weighted-average interest rate on both the term loans and Junior Notes at May 2, 2020 was 10.8%. The term loans are generally subject to a borrowing base and include financial covenants and obligations regarding the operation of the Company’s business that are customary in facilities of this type, including limitations on the payment of dividends. Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the agreement, and maintain a specified level of cash on hand. The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans. If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall. Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements. The Company’s operating results for the twelve months ended November 2, 2019 and February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender Outstanding borrowings under the term loans were $44.4 million at May 2, 2020 with associated unamortized debt issuance costs of $1.5 million. Outstanding Junior Notes were $14.0 million at May 2, 2020 with associated unamortized debt issuance costs of $0.3 million. As a result of the covenant violations and the short-term nature of the forbearance agreement referred to above, the total amount of the Company’s long-term debt is reflected as a current obligation in the Company’s May 2, 2020 consolidated balance sheet. During the three months ended May 2, 2020 the company obtained a Paycheck Protection Program loan under the CARES Act totaling $0.7 million. The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting in October 2020, and matures in April 2022. In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
May 02, 2020 | |
Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 7 . Commitments and Contingencies The Company indemnifies certain customers against liability arising from third‑party claims of intellectual property rights infringement related to the Company’s trademarks. These indemnities appear in the licensing agreements with the Company’s customers, are not limited in amount or duration and generally survive the expiration of the contracts. The Company is unable to determine a range of estimated losses that it could incur related to such indemnities since the amount of any potential liabilities cannot be determined until an infringement claim has been made. The Company is involved from time to time in various claims and other matters incidental to the Company’s business, the resolution of which is not presently expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity. Estimated reserves for contingent liabilities, including threatened or pending litigation, are recorded as liabilities in the financial statements when the outcome of these matters is deemed probable and the liability is reasonably estimable. The Company has non-cancelable operating lease agreements with various expiration dates for office space and equipment. Certain lease agreements include options to renew, which are not reasonably certain to be exercised and therefore are not factored into our determination of the present value of lease obligations. Operating lease costs are included as a component of selling, general and administrative expense and were $0.1 million and $0.2 million, excluding variable lease costs and sublease income, for the three months ended May 2, 2020 and May 4, 2019, respectively. Cash paid for operating lease obligations is consistent with operating lease costs for the period. As of May 2, 2020, the weighted-average remaining lease term is 4.4 years, and the weighted-average IBR is 8.8%. The right-of-use assets as of May 2, 2020 was $1.5 million. Future minimum commitments under non-cancelable operating leases as of May 2, 2020 are as follows: (In thousands) Operating Leases Remainder of Fiscal 2021 $ 323 Fiscal 2022 442 Fiscal 2023 425 Fiscal 2024 434 Fiscal 2025 333 Total future minimum lease payments 1,957 Less imputed interest (345 ) Present value of operating lease liabilities $ 1,612 |
Revenues and Concentrations of
Revenues and Concentrations of Risk | 3 Months Ended |
May 02, 2020 | |
Risks And Uncertainties [Abstract] | |
Revenues and Concentrations of Risk | 8 . Revenues and Concentrations of Risk Revenues by geographic area based upon the licensees’ country of domicile comprise the following: Three Months Ended (In thousands) May 2, 2020 May 4, 2019 U.S. and Canada $ 1,027 $ 1,342 EMEA (1) 1,132 1,349 Asia-Pacific 1,270 1,682 Latin America 605 679 Total $ 4,034 $ 5,052 (1) EMEA includes Europe, Middle East and Africa Long‑lived assets located in the United States and outside the United States amount to $0.2 million and $0.1 million, respectively, at May 2, 2020 and $0.2 million and $0.2 million, respectively, at February 1, 2020. Deferred revenue totaled $2.9 million and $3.8 million at May 2, 2020 and February 1, 2020, respectively. Revenue recognized in the three months ended May 2, 2020 and May 4, 2019 that was previously included in deferred revenue was $1.3 million and $0.7 million, respectively. Five licensees accounted for approximately 60% of accounts receivable at May 2, 2020, and two licensees accounted for approximately 35% of revenues for the three months ended May 2, 2020, respectively. Four licensees accounted for approximately 45% of accounts receivable at February 1, 2020. Two licensees accounted for approximately 28% of revenues for the three months ended May 4, 2019. |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 3 Months Ended |
May 02, 2020 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | 9 . Earnings (Loss) Per Share Basic earnings (loss) per share (“EPS”) is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of outstanding stock options and warrants as if such securities had been exercised at the beginning of the period. The computation of diluted common shares outstanding excludes outstanding stock options and warrants that are anti‑dilutive. |
Taxes on Income
Taxes on Income | 3 Months Ended |
May 02, 2020 | |
Income Tax Disclosure [Abstract] | |
Taxes on Income | 10 . Taxes on Income Each reporting period, the Company evaluates the realizability of its deferred tax assets, and in recent years has maintained a full valuation allowance against its deferred tax assets in the United States and the foreign subsidiaries acquired in the Hi-Tec Acquisition. However, the CARES Act allows the Company’s historical net operating loss in Fiscal 2018 to be carried back two years and the Company’s net operating losses for Fiscal 2019, Fiscal 2020 and Fiscal 2021 to be carried back five years. The Company recognized an income tax benefit of $9.0 million in the three months ended May 2, 2020 based on estimated tax refunds expected to result from these carryback claims. The Company continues to maintain a full valuation allowance against its other deferred tax assets. These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these other deferred tax assets will be realized. The Company’s deferred tax liabilities related to its indefinite lived Hi-Tec and Magnum trademarks cannot be used as a source of taxable income to support the realization of the Company’s deferred tax assets. Accordingly, the valuation allowance reserves for the deferred tax assets in these foreign jurisdictions and results in a “naked credit” for these indefinite-lived trademarks. The impairment charge recorded during the quarter ended May 2, 2020 for these indefinite-lived trademarks reduced the naked credit, which resulted in a $0.7 million income tax benefit during the quarter. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 3 Months Ended |
May 02, 2020 | |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
Liquidity and Going Concern | Liquidity and Going Concern The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, from the Company’s senior secured lender . Beginning in the quarter ended May 2, 2020, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures. The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time. In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. The Company has classified its term loans and junior notes as current obligations because its financial projections, which now reflect the impact of the COVID-19 pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant and borrowing base requirements beyond the forbearance period agreed to with the Company’s senior lender. The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to these defaults through July 27, 2020. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments will not be paid in cash, but an equivalent amount will be added to the principal amount of the term loans to be repaid in future periods. During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended. The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility. In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the then outstanding loan balance when the debt is repaid. The Company’s Junior Notes holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020. Future compliance failures under the senior secured credit facility would subject the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts. If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized. If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations. The Company is evaluating potential sources of working capital, including the disposition of certain assets, and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain. NOL carryback claims are expected to result in federal income tax refunds of approximately $ 9.0 million. Management’s plans also include the evaluation of strategic alternatives to enhance shareholder value. There is no assurance that the Company will be able to execute these plans. Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern. |
Intangible Assets (Tables)
Intangible Assets (Tables) | 3 Months Ended |
May 02, 2020 | |
Goodwill And Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets | Intangible assets consists of the following: May 2, 2020 February 1, 2020 (In thousands) Gross Amount Accumulated Amortization Net Book Value Gross Amount Accumulated Amortization Net Book Value Amortizable trademarks $ 30,186 (20,796 ) $ 9,390 $ 30,153 (20,600 ) $ 9,553 Indefinite lived trademarks 45,157 — 45,157 49,557 — 49,557 $ 75,343 $ (20,796 ) $ 54,547 $ 79,710 $ (20,600 ) $ 59,110 |
Accounts Payable and Other Cu_2
Accounts Payable and Other Current Liabilities (Tables) | 3 Months Ended |
May 02, 2020 | |
Other Liabilities Current [Abstract] | |
Schedule of Accounts Payable and Other Current Liabilities | (In thousands) May 2, 2020 February 1, 2020 Accounts payable $ 2,881 $ 2,814 Accrued employee compensation and benefits 159 413 Restructuring plan liabilities 1,214 1,677 Income taxes payable 289 291 Other liabilities 682 1,087 $ 5,225 $ 6,282 |
Restructuring Plans (Tables)
Restructuring Plans (Tables) | 3 Months Ended |
May 02, 2020 | |
Restructuring And Related Activities [Abstract] | |
Schedule of restructuring-related costs is measured at its fair value | (In thousands) FY19 Plan Hi-Tec Plan Total Balance, February 1, 2020 1,649 28 1,677 Payments during the period (463 ) — (463 ) Balance, May 2, 2020 $ 1,186 $ 28 $ 1,214 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
May 02, 2020 | |
Commitments And Contingencies Disclosure [Abstract] | |
Schedule of future minimum commitments under non-cancelable operating leases | (In thousands) Operating Leases Remainder of Fiscal 2021 $ 323 Fiscal 2022 442 Fiscal 2023 425 Fiscal 2024 434 Fiscal 2025 333 Total future minimum lease payments 1,957 Less imputed interest (345 ) Present value of operating lease liabilities $ 1,612 |
Revenues and Concentrations o_2
Revenues and Concentrations of Risk (Tables) | 3 Months Ended |
May 02, 2020 | |
Risks And Uncertainties [Abstract] | |
Schedule of revenues by geographic area based upon the licensees' country of domicile | Three Months Ended (In thousands) May 2, 2020 May 4, 2019 U.S. and Canada $ 1,027 $ 1,342 EMEA (1) 1,132 1,349 Asia-Pacific 1,270 1,682 Latin America 605 679 Total $ 4,034 $ 5,052 (1) EMEA includes Europe, Middle East and Africa |
Basis of Presentation (Details)
Basis of Presentation (Details) $ in Millions | 3 Months Ended |
May 02, 2020USD ($) | |
Basis Of Presentation [Line Items] | |
Expected federal income tax refunds from NOL carryback claims | $ 9 |
Senior Secured Credit Facility | |
Basis Of Presentation [Line Items] | |
Percentage of additional fee payable on outstanding loan balance, when debt is repaid | 2.00% |
New Accounting Pronouncements (
New Accounting Pronouncements (Details) | 3 Months Ended |
May 02, 2020 | |
ASU 2016-13 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |
New Accounting Pronouncement or Change in Accounting Principle, Description | In December 2019, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update (“ASU”) to simplify the accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance will be effective for the first quarter of the Company’s Fiscal 2023, which will end on January 28, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (“Topic 326”). This standard requires a forward-looking expected loss model for trade receivables rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted this standard as of the beginning of its fiscal year ending January 30, 2021 (‘‘Fiscal 2021’’). The impact of adoption was not material. |
Intangible Assets (Details)
Intangible Assets (Details) - USD ($) $ in Thousands | May 02, 2020 | Feb. 01, 2020 |
Intangible assets subject to amortization: | ||
Intangible assets, Gross value | $ 75,343 | $ 79,710 |
Accumulated amortization | (20,796) | (20,600) |
Intangible Assets, Net (Excluding Goodwill), Total | 54,547 | 59,110 |
Trademarks | ||
Intangible assets not subject to amortization: | ||
Gross Value and Carrying Value | 45,157 | 49,557 |
Trademarks | ||
Intangible assets subject to amortization: | ||
Gross Value | 30,186 | 30,153 |
Accumulated amortization | (20,796) | (20,600) |
Carrying Value | $ 9,390 | $ 9,553 |
Intangible Assets - Annual Impa
Intangible Assets - Annual Impairment (Details) $ in Millions | 3 Months Ended |
May 02, 2020USD ($) | |
Goodwill And Intangible Assets Disclosure [Abstract] | |
Impairment charges | $ 4.4 |
Intangible Assets - Weighted Av
Intangible Assets - Weighted Average Period (Details) - Trademarks $ in Thousands | 3 Months Ended |
May 02, 2020USD ($) | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Residual values | $ 0 |
Weighted-average amortization period | 10 years |
Intangible Assets - Amortizatio
Intangible Assets - Amortization Expenses (Details) - USD ($) $ in Millions | 3 Months Ended | |
May 02, 2020 | May 04, 2019 | |
Goodwill And Intangible Assets Disclosure [Abstract] | ||
Amortization of Intangible Assets | $ 0.2 | $ 0.2 |
Intangible Assets - Goodwill (D
Intangible Assets - Goodwill (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
May 02, 2020 | Feb. 01, 2020 | Jan. 28, 2017 | |
Goodwill And Intangible Assets Disclosure [Abstract] | |||
Goodwill impairment charges | $ 5,400 | $ 4,100 | |
Goodwill | $ 6,752 | $ 12,152 | $ 16,300 |
Accounts Payable and Other Cu_3
Accounts Payable and Other Current Liabilities (Details) - USD ($) $ in Thousands | May 02, 2020 | Feb. 01, 2020 |
Other Liabilities Current [Abstract] | ||
Accounts payable | $ 2,881 | $ 2,814 |
Accrued employee compensation and benefits | 159 | 413 |
Restructuring plan liabilities | 1,214 | 1,677 |
Income taxes payable | 289 | 291 |
Other liabilities | 682 | 1,087 |
Total accounts payable and other current liabilities | $ 5,225 | $ 6,282 |
Restructuring Plans (Details)
Restructuring Plans (Details) $ in Thousands | 3 Months Ended |
May 02, 2020USD ($) | |
Payments for restructuring plan obligations | |
Balance at beginning of period | $ 1,677 |
Payments during the period | (463) |
Balance at end of period | 1,214 |
FY19 Plan | |
Payments for restructuring plan obligations | |
Balance at beginning of period | 1,649 |
Payments during the period | (463) |
Balance at end of period | 1,186 |
Hi-Tec Plan | |
Payments for restructuring plan obligations | |
Balance at beginning of period | 28 |
Balance at end of period | $ 28 |
Debt (Details)
Debt (Details) - USD ($) | Aug. 03, 2018 | May 02, 2020 | May 02, 2020 | Jul. 27, 2020 | Jan. 30, 2019 |
Promissory Notes to Bank | |||||
Debt | |||||
Debt instrument, interest rate, stated percentage | 1.00% | 1.00% | |||
Proceeds from Paycheck Protection Program loan | $ 700,000 | ||||
Paycheck Protection Program loan, frequency of periodic payment | monthly | ||||
Paycheck Protection Program loan, first required repayment month and year | 2020-10 | ||||
Paycheck Protection Program loan, maturity month and year | 2022-04 | ||||
Senior Secured Credit Facility | |||||
Debt | |||||
Adjusted level of earnings before interest tax depreciation and amortization | $ 6,500,000 | ||||
Senior Secured Credit Facility | Forecast | |||||
Debt | |||||
Minimum cash balance | $ 150,000 | ||||
Senior Secured Credit Facility | Term Loan | |||||
Debt | |||||
Maximum borrowing capacity | $ 40,000,000 | $ 5,300,000 | |||
Line of credit facility maturity month and year | 2021-08 | ||||
Debt instrument, interest rate, stated percentage | 3.00% | ||||
Line of credit facility, borrowing capacity, description | The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans. If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall. Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements. | ||||
Line of credit facility, maximum amount outstanding during period | $ 44,400,000 | ||||
Unamortized debt issuance costs | 1,500,000 | 1,500,000 | |||
Senior Secured Credit Facility | Junior Notes | |||||
Debt | |||||
Maximum borrowing capacity | $ 13,500,000 | ||||
Line of credit facility maturity month and year | 2021-11 | ||||
Debt instrument periodic amortization payment interest | $ 0 | ||||
Line of credit facility, maximum amount outstanding during period | 14,000,000 | ||||
Unamortized debt issuance costs | $ 300,000 | $ 300,000 | |||
Senior Secured Credit Facility | Term Loan and Junior Notes | |||||
Debt | |||||
Debt instrument, interest rate, stated percentage | 10.80% | 10.80% |
Commitments and Contingencies_2
Commitments and Contingencies (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May 02, 2020 | May 04, 2019 | |
Commitments And Contingencies Disclosure [Abstract] | ||
Operating lease cost excluding variable lease costs and sublease income | $ 100 | $ 200 |
Operating lease, Weighted-average remaining lease term | 4 years 4 months 24 days | |
Operating lease, Weighted-average IBR | 8.80% | |
Operating lease, right-of-use asset | $ 1,500 | |
Remainder of Fiscal 2021 | 323 | |
Fiscal 2022 | 442 | |
Fiscal 2023 | 425 | |
Fiscal 2024 | 434 | |
Fiscal 2025 | 333 | |
Total future minimum lease payments | 1,957 | |
Less imputed interest | (345) | |
Present value of operating lease liabilities | $ 1,612 |
Revenues and Concentrations o_3
Revenues and Concentrations of Risk (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |
May 02, 2020 | May 04, 2019 | Feb. 01, 2020 | |
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Revenues | $ 4,034 | $ 5,052 | |
Long-lived tangible assets | 316 | $ 319 | |
Deferred revenue | 2,900 | $ 3,800 | |
Revenue recognized | $ 1,300 | $ 700 | |
Customer Concentration Risk | Accounts Receivable | Five Licensees | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Concentration risk (as a percent) | 60.00% | ||
Customer Concentration Risk | Accounts Receivable | Four Licensees | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Concentration risk (as a percent) | 45.00% | ||
Customer Concentration Risk | Revenues | Two Licensees | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Concentration risk (as a percent) | 35.00% | 28.00% | |
U.S. and Canada | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Revenues | $ 1,027 | $ 1,342 | |
EMEA | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Revenues | 1,132 | 1,349 | |
Asia-Pacific | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Revenues | 1,270 | 1,682 | |
Latin America | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Revenues | 605 | $ 679 | |
United States | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Long-lived tangible assets | 200 | $ 200 | |
Non-US | |||
Revenues From External Customers And Long Lived Assets [Line Items] | |||
Long-lived tangible assets | $ 100 | $ 200 |
Taxes on Income - (Details)
Taxes on Income - (Details) - USD ($) $ in Thousands | 3 Months Ended | |
May 02, 2020 | May 04, 2019 | |
Income Taxes [Line Items] | ||
Income tax benefit based on estimated tax refunds from carryback claims | $ 9,000 | |
Income tax benefit | 9,380 | $ (638) |
Trademarks | ||
Income Taxes [Line Items] | ||
Income tax benefit | $ 700 |