Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 29, 2017August 4, 2018
Commission File Number 001-37495
evinelogolargea06.jpg
EVINE Live Inc.
(Exact Name of Registrant as Specified in Its Charter)

Minnesota 41-1673770
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
6740 Shady Oak Road, Eden Prairie, MN 55344-3433
(Address of Principal Executive Offices, including Zip Code)
952-943-6000
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller
reporting company)
Smaller reporting company o
   
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of August 28, 2017,September 5, 2018, there were 65,224,65866,341,105 shares of the registrant’s common stock, $.01$0.01 par value per share, outstanding.



Table of Contents

EVINE Live Inc. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
July 29, 2017August 4, 2018
  
 Page
 
 


PART IFINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
August 4,
2018
 February 3,
2018
July 29,
2017
 January 28,
2017
(In thousands, except share and per share data)
ASSETS      
Current assets:      
Cash$22,059
 $32,647
$28,142
 $23,940
Restricted cash and investments450
 450
Restricted cash equivalents450
 450
Accounts receivable, net82,814
 99,062
82,611
 96,559
Inventories63,748
 70,192
65,392
 68,811
Prepaid expenses and other5,564
 5,510
11,043
 5,344
Total current assets174,635
 207,861
187,638
 195,104
Property & equipment, net53,135
 52,715
FCC broadcasting license12,000
 12,000
Property and equipment, net51,070
 52,048
Other assets2,231
 2,204
2,017
 2,106
TOTAL ASSETS$242,001
 $274,780
$240,725
 $249,258
   
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable$47,082
 $65,796
$52,344
 $55,614
Accrued liabilities36,881
 37,858
37,201
 35,646
Current portion of long term credit facilities3,440
 3,242
2,714
 2,326
Deferred revenue85
 85
36
 35
Total current liabilities87,488
 106,981
92,295
 93,621
Other long term liabilities286
 428
50
 68
Deferred tax liability3,916
 3,522
Long term credit facilities73,308
 82,146
66,042
 71,573
Total liabilities164,998
 193,077
158,387
 165,262
Commitments and contingencies
 

 
Shareholders' equity:      
Preferred stock, $.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding
 
Common stock, $.01 per share par value, 99,600,000 shares authorized; 65,220,233 and 65,192,314 shares issued and outstanding652
 652
Preferred stock, $0.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding
 
Common stock, $0.01 per share par value, 99,600,000 shares authorized; 66,287,786 and 65,290,458 shares issued and outstanding663
 653
Additional paid-in capital437,449
 436,962
440,469
 439,111
Accumulated deficit(361,098) (355,911)(358,794) (355,768)
Total shareholders' equity77,003
 81,703
82,338
 83,996
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$242,001
 $274,780
$240,725
 $249,258
The accompanying notes are an integral part of these condensed consolidated financial statements.

EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
For the Three-Month For the Six-Month
For the Three-Month For the Six-MonthPeriods Ended Periods Ended
Periods Ended Periods EndedAugust 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
(In thousands, except share and per share data)
Net sales$148,949
 $157,139
 $305,292
 $324,059
$150,799
 $148,949
 $307,304
 $305,292
Cost of sales92,469
 97,311
 192,526
 202,783
93,929
 92,469
 194,179
 192,526
Gross profit56,480
 59,828
 112,766
 121,276
56,870
 56,480
 113,125
 112,766
Operating expense:              
Distribution and selling48,687
 51,605
 97,417
 105,030
47,958
 48,687
 96,845
 97,417
General and administrative6,012
 5,878
 12,007
 11,647
6,521
 6,012
 13,240
 12,007
Depreciation and amortization1,680
 1,977
 3,316
 4,084
1,522
 1,680
 3,094
 3,316
Executive and management transition costs572
 242
 1,078
 3,843

 572
 1,024
 1,078
Distribution facility consolidation and technology upgrade costs
 300
 
 380
Total operating expense56,951
 60,002
 113,818
 124,984
56,001
 56,951
 114,203
 113,818
Operating loss(471) (174) (1,052) (3,708)
Operating income (loss)869
 (471) (1,078) (1,052)
Other income (expense):              
Interest income2
 2
 4
 4
9
 2
 16
 4
Interest expense(1,313) (1,606) (2,808) (2,811)(898) (1,313) (1,924) (2,808)
Loss on debt extinguishment
 
 (913) 

 
 
 (913)
Total other expense, net(1,311) (1,604) (3,717) (2,807)(889) (1,311) (1,908) (3,717)
Loss before income taxes(1,782) (1,778) (4,769) (6,515)(20) (1,782) (2,986) (4,769)
Income tax provision(209) (205) (418) (410)(20) (209) (40) (418)
Net loss$(1,991) $(1,983) $(5,187) $(6,925)$(40) $(1,991) $(3,026) $(5,187)
Net loss per common share$(0.03) $(0.03) $(0.08) $(0.12)$(0.00) $(0.03) $(0.05) $(0.08)
Net loss per common share — assuming dilution$(0.03) $(0.03) $(0.08) $(0.12)$(0.00) $(0.03) $(0.05) $(0.08)
Weighted average number of common shares outstanding:              
Basic64,091,228
 57,258,672
 62,504,868
 57,219,914
66,009,117
 64,091,228
 65,685,034
 62,504,868
Diluted64,091,228
 57,258,672
 62,504,868
 57,219,914
66,009,117
 64,091,228
 65,685,034
 62,504,868
The accompanying notes are an integral part of these condensed consolidated financial statements.

EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JULY 29, 2017AUGUST 4, 2018
(Unaudited)
(In thousands, except share data)
 Common Stock   
Additional
Paid-In
Capital
   
Total
Shareholders'
Equity
 
Number
of Shares
 
Par
Value
  
Accumulated
Deficit
 
BALANCE, January 28, 201765,192,314
 $652
 $436,962
 $(355,911) $81,703
Net loss
 
 
 (5,187) (5,187)
Repurchases of common stock(4,400,000) (44) (5,011) 
 (5,055)
Common stock issuances pursuant to equity compensation plans319,646
 3
 (11) 
 (8)
Share-based payment compensation
 
 1,267
 
 1,267
Common stock and warrant issuance4,108,273
 41
 4,242
 
 4,283
BALANCE, July 29, 201765,220,233
 $652
 $437,449
 $(361,098) $77,003
 Common Stock   
Additional
Paid-In
Capital
   
Total
Shareholders'
Equity
 
Number
of Shares
 
Par
Value
  
Accumulated
Deficit
 
 (In thousands, except share data)
BALANCE, February 3, 201865,290,458
 $653
 $439,111
 $(355,768) $83,996
Net loss
 
 
 (3,026) (3,026)
Common stock issuances pursuant to equity compensation plans997,328
 10
 (26) 
 (16)
Share-based payment compensation
 
 1,384
 
 1,384
BALANCE, August 4, 201866,287,786
 $663
 $440,469
 $(358,794) $82,338
The accompanying notes are an integral part of these condensed consolidated financial statements.

EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six-Month
For the Six-MonthPeriods Ended
Periods EndedAugust 4,
2018
 July 29,
2017
July 29,
2017
 July 30,
2016
(in thousands)
OPERATING ACTIVITIES:      
Net loss$(5,187) $(6,925)$(3,026) $(5,187)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization5,259
 6,111
5,135
 5,259
Share-based payment compensation1,267
 635
1,358
 1,267
Amortization of deferred revenue(42) (43)(17) (42)
Amortization of deferred financing costs214
 262
104
 214
Loss on debt extinguishment913
 

 913
Deferred income taxes394
 395

 394
Changes in operating assets and liabilities:      
Accounts receivable, net16,248
 21,703
13,948
 16,248
Inventories6,444
 7,051
3,419
 6,444
Prepaid expenses and other(54) (134)(5,676) (54)
Accounts payable and accrued liabilities(19,119) (11,597)(1,750) (19,119)
Net cash provided by operating activities6,337
 17,458
13,495
 6,337
INVESTING ACTIVITIES:      
Property and equipment additions(6,256) (3,892)(4,071) (6,256)
Net cash used for investing activities(6,256) (3,892)(4,071) (6,256)
FINANCING ACTIVITIES:      
Proceeds from issuance of revolving loan10,500
 
111,400
 10,500
Proceeds of term loans6,000
 17,000
5,821
 6,000
Proceeds from issuance of common stock and warrants4,628
 

 4,628
Proceeds from exercise of stock options29
 
111
 29
Payments on revolving loan(14,900) 
(121,400) (14,900)
Payments on term loans(11,058) (1,355)(969) (11,058)
Payments for repurchases of common stock(5,055) 

 (5,055)
Payments for common stock issuance costs(357) 

 (357)
Payments for deferred financing costs(220) (1,432)(58) (220)
Payments for debt extinguishment costs(199) 

 (199)
Payments for restricted stock issuance(37) (5)(127) (37)
Payments on capital leases
 (27)
Net cash provided by (used for) financing activities(10,669) 14,181
Net increase (decrease) in cash(10,588) 27,747
BEGINNING CASH32,647
 11,897
ENDING CASH$22,059
 $39,644
Net cash used for financing activities(5,222) (10,669)
Net increase (decrease) in cash and restricted cash equivalents4,202
 (10,588)
BEGINNING CASH AND RESTRICTED CASH EQUIVALENTS24,390
 33,097
ENDING CASH AND RESTRICTED CASH EQUIVALENTS$28,592
 $22,509
SUPPLEMENTAL CASH FLOW INFORMATION:      
Interest paid$2,631
 $2,136
$1,726
 $2,631
Income taxes paid$34
 $51
$14
 $34
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:      
Property and equipment purchases included in accounts payable$401
 $190
$216
 $401
Deferred financing costs included in accrued liabilities$
 $15
$29
 $
Common stock issuance costs included in accrued liabilities$103
 $
$
 $103
The accompanying notes are an integral part of these condensed consolidated financial statements.

EVINE Live Inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 29, 2017August 4, 2018
(Unaudited)

(1) General
EVINE Live Inc. and its subsidiaries ("we," "our," "us," "Evine," or the "Company") are collectively a multiplatform videointeractive digital commerce company that offers a mix of proprietary, exclusive and name brandname-brand merchandise in the categories of jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories directly to consumers 24 hours a day in an engaging and informative shopping experience through TV,via television, online and mobile devices. The Company operates a 24-hour television shopping network, Evine which is distributed primarily on cable and satellite systems, through which it offers proprietary, exclusive and name brand merchandise in the categories of jewelry & watches; home & consumer electronics; beauty; and fashion & accessories. Orders are taken via telephone, online and mobile channels. The television networkprogramming is distributed in overmore than 87 million homes primarily through cable and satellite affiliationdistribution agreements, and agreements with telecommunications companies such as AT&T and Verizon. Programmingover-the-air broadcast television stations. Evine programming is also streamed live online at evine.com and is also available on mobile channels. Programming is also distributed through a Company-owned full-power television station in Boston, Massachusettschannels and through leased carriage on a full-power television station in Seattle, Washington.over-the-top platforms.
The Company also operates evine.com, a comprehensive digital commerce platform that sells products which appear on its television shopping network as well as an extended assortment of online-only merchandise. The live programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.

(2) Basis of Financial Statement Presentation
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of January 28, 2017February 3, 2018 has been derived from the Company's audited financial statements for the fiscal year ended January 28, 2017February 3, 2018. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of these financial statements. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its annual report on Form 10-K for the fiscal year ended January 28, 2017February 3, 2018. Operating results for the six-month period ended July 29, 2017August 4, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending February 3, 20182, 2019.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31 and results in either a 52-week or 53-week fiscal year. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 20162017, ended on January 28, 2017, and consisted of 52 weeks. Fiscal 2017 will end on February 3, 2018, and consisted of 53 weeks. Fiscal 2018 will end February 2, 2019 and will contain 5352 weeks. The quarters ended July 29, 2017August 4, 2018 and July 30, 201629, 2017 each consisted of 13 weeks.
Recently Adopted Accounting Standards
In July 2015,May 2014, the Financial Accounting Standards Board issued SimplifyingRevenue from Contracts with Customers, Topic 606 (ASU 2014-09), which provides a framework for the Measurementrecognition of Inventory,revenue, with the objective that recognized revenues reflect amounts an entity expects to receive in exchange for goods and services. The guidance also includes additional disclosure requirements regarding revenue, timing of cash flows and obligations related to contracts with customers. The Company adopted this standard in the first quarter of fiscal 2018, using the modified retrospective transition method. See Note 3 - "Revenue" for information on the impact of adopting ASU 2014-09 and all related amendments on the Company's condensed consolidated financial statements.
In November 2016, the Financial Accounting Standards Board issued Statement of Cash Flows, Topic 330230: Restricted Cash (ASU No 2015-11). ASU 2015-112016-18), which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending amounts shown on the statement of cash flows. The Company adopted this standard in the first quarter of fiscal 2018 and has revised the condensed consolidated statements of cash flows for the six-month period ended July 29, 2017 to reflect total cash and restricted cash equivalents for each period presented.

The following table provides a reconciliation of cash and restricted cash equivalents reported with the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
 August 4, 2018 February 3, 2018 July 29, 2017 January 28, 2017
Cash$28,142,000
 $23,940,000
 $22,059,000
 $32,647,000
Restricted cash equivalents450,000
 450,000
 450,000
 450,000
Total cash and restricted cash equivalents$28,592,000
 $24,390,000
 $22,509,000
 $33,097,000
The Company's restricted cash equivalents consist of certificates of deposit with original maturities of three months or less and are generally restricted for a period ranging from 30 to 60 days.
In May 2017, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2017-09), which provides clarity on which changes to the measurement principleterms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. The Company adopted this standard in the first quarter of fiscal 2018 and there was no impact on the Company's condensed consolidated financial statements.
In June 2018, the Financial Accounting Standards Board issued Compensation—Stock Compensation, Topic 718 (ASU 2018-07), which simplifies the accounting for inventory fromshare-based payments to nonemployees for goods and services. Under the lowernew standard, most of the guidance on payments to nonemployees is now aligned with the requirements for share-based payments granted to employees. Under the new guidance, (i) equity-classified share-based payment awards issued to nonemployees will be measured at the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (ii) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (iii) the current requirement to reassess the classification (equity or market to lowerliability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of cost or net realizable value.convertible instruments. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016. The Company adopted this standard in the first quarter of fiscal 2017, applying it prospectively. The adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.
In March 2016, the Financial Accounting Standards Board issued Compensation-Stock Compensation, Topic 718 (ASU No. 2016-09). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. In addition, the ASU also clarifies the statement of cash flows presentation for certain components of share-based awards. The new

standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2016-09 in the first quarter of fiscal 2017 and has elected to continue estimating forfeitures each period. Prospectively, beginning January 29, 2017, excess tax benefits/deficiencies, along with the full valuation allowance, have been reflected as income tax benefit/expense in the statement of operations resulting in no impact on the tax provision in fiscal 2017. Additionally, the statement of cash flows classification of prior periods has not changed as a result of adoption.
In August 2016, the Financial Accounting Standards Board issued Statement of Cash Flows, Topic 230 (ASU No. 2016-15). This amendment provides guidance on the presentation and classification of specific cash flow items to improve consistency in practice. The standard provides guidance in a number of situations including, among others, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and debt prepayment or extinguishment costs. The new standard is effective retrospectively for the Company for fiscal years and interim periods beginning after December 15, 2017,2018, with early adoption permitted. The Company elected to early adopt this standard in the firstsecond quarter of fiscal 2017, applying it retrospectively. The adoption of ASU 2016-15 had2018 and there was no impact on the Company's condensed consolidated financial statements.statements since there was no outstanding nonemployee share-based payment awards for which there is unrecognized compensation expense.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (ASU No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. The guidance also includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers. In July 2015, the Financial Accounting Standards Board approved a one year deferral of the effective date of ASU 2014-09. The standard will now become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. The Company is continuing to evaluate the impact of this ASU, related amendments and interpretive guidance will have on the Company's consolidated financial statements, financial systems and controls. In addition, the Company is still determining the application of several aspects of the ASU, including; principal versus agent and the determination of when control of goods transfers to our customers. Based on our analysis thus far, we believe the impact of adopting the new guidance will be immaterial to our annual and interim financial statements. We continue to assess the impact on all areas of our revenue recognition, our transition method and related disclosure requirements.
In February 2016, the Financial Accounting Standards Board issued Leases, Topic 842 (ASU No 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this standard in the first quarter of fiscal 2019 using a modified retrospective transition approach to leases existing at, or entered into after, February 3, 2019. Under this transition method, comparative prior periods will not be restated and a cumulative adjustment will be recognized to the opening balance of retained earnings. The Company is currently evaluatingcontinuing to evaluate the impact of adopting ASU 2016-02 and all related amendments on the Company's consolidated financial statements.statements, financial systems and controls. In addition, the Company is in the process of evaluating practical expedient and accounting policy elections.
(3)Revenue
Adoption of Revenue from Contracts with Customers, Topic 606
On February 4, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers", and all related amendments using the modified retrospective method applied to contracts that were not completed as of February 4, 2018. The comparative prior period information has not been restated and continues to be reported under the accounting standards in effect during those periods. The adoption did not have a material impact on the Company's revenue recognition and there was no adjustment to its retained earnings opening balance. The Company does not expect the adoption of the new standard to have a material impact on the Company's operating results on an ongoing basis.

The impact of the new revenue standard adoption on our condensed consolidated statements of operations was as follows (in thousands):
  For the Three-Month Period Ended August 4, 2018 For the Six-Month Period Ended August 4, 2018
  As Reported Balance without adoption of ASC 606 Effect of Change As Reported Balance without adoption of ASC 606 Effect of Change
Net sales $150,799
 $150,147
 $652
 $307,304
 $306,693
 $611
Cost of sales 93,929
 93,385
 544
 194,179
 193,654
 525
Operating expense:            
Distribution and selling 47,958
 47,951
 7
 96,845
 96,759
 86
Net loss (40) (141) 101
 (3,026) (3,026) 
As of August 4, 2018, the Company recorded a merchandise return liability of $7,804,000, included in accrued liabilities, and a right of return asset of $4,355,000, included in other current assets. As of February 3, 2018, the Company had approximately $3,544,000 reserved for future merchandise returns included in accrued liabilities, which represents the net margin obligation recorded under the previous revenue guidance.
Revenue Recognition
Revenue is recognized when control of the promised merchandise is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for the merchandise. The Company recognizes revenue upon shipment. Revenue is reported net of estimated sales returns, credits and incentives, and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on historical experience.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Substantially all of the Company's sales are single performance obligation arrangements for transferring control of merchandise to customers.
In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers by significant product groups and timing of when the performance obligations are satisfied. A reconciliation of disaggregated revenue by significant product group is provided in Note 9 - "Business Segments and Sales by Product Group".
As of August 4, 2018, approximately $86,000 is expected to be recognized from remaining performance obligations within the next 3 years. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected term of one year or less. Revenue recognized over time was $9,000 and $21,000 for the three-month periods ended August 4, 2018 and July 29, 2017 and $17,000 and $42,000 for the six-month periods ended August 4, 2018 and July 29, 2017.
Merchandise Returns
The Company records a merchandise return liability as a reduction of gross sales for anticipated merchandise returns at each reporting period and must make estimates of potential future merchandise returns related to current period product revenue. The Company estimates and evaluates the adequacy of its merchandise return liability by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing the merchandise return liability in any accounting period.
Shipping and Handling
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the merchandise. Shipping and handling fees charged to customers are recognized when the customer obtains control of the merchandise, which is upon shipment. The Company accrues costs for shipping and handling activities, which occur subsequent to transfer of control to the customer and are recorded as cost of sales in the accompanying statements of operations.
Sales Taxes
The Company has elected to exclude from revenue the sales taxes imposed on its sales and collected from customers.

Accounts Receivable
The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the payment terms are less than one year. Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies and are reflected net of reserves for estimated uncollectible amounts. As of August 4, 2018 and February 3, 2018, the Company had approximately $74,539,000 and $88,452,000 of net receivables due from customers under the ValuePay installment program and total reserves for estimated uncollectible amounts of $8,390,000 and $6,008,000. The increase in the total reserve as a percentage of receivables is primarily due to an extension in our collections cycle, which has been yielding a higher total recovery rate.
Judgments
The Company's merchandise is generally sold with a right of return for up to a certain number of days after the merchandise is shipped and the Company may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Merchandise returns and other credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.
The Company evaluated whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) in certain vendor arrangements where the merchandise is shipped directly from the vendor to the Company's customer and the purchase and sale of inventory is virtually simultaneous. Generally, the Company is the principal and reports revenues from such vendor arrangements on a gross basis, as it controls the merchandise before it is transferred to the customer. The Company's control is evidenced by it being primarily responsible to the customers, establishing price and its inventory risk upon customer returns.

(3)(4) Fair Value Measurements
GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
As of July 29, 2017August 4, 2018 and January 28, 2017February 3, 2018, the Company had $450,000 in Level 2 investments in the form of bank certificates of deposit.deposit, which are included in restricted cash equivalents in the condensed consolidated balance sheets. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of July 29, 2017August 4, 2018 and January 28, 2017February 3, 2018, the Company also had a long-term variable rate PNC Credit Facilities,Facility, classified as Level 2, with carrying values of $76,748,000$68,756,000 and $85,388,000.$73,899,000. As of July 29, 2017August 4, 2018 and January 28, 2017, $3,440,000February 3, 2018, $2,714,000 and $3,242,000$2,326,000 of the long-term variable rate PNC Credit Facility was classified as current. The fair value of the variable ratePNC Credit FacilitiesFacility approximates and is based on its carrying value.value due to the variable rate nature of the financial instrument. The Company has no Level 3 investments that use significant unobservable inputs.


(4)(5) Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
  Estimated Useful Life
(In Years)
 July 29, 2017 January 28, 2017
   Gross
Carrying
Amount
 Accumulated
Amortization
 Gross
Carrying
Amount
 Accumulated
Amortization
Finite-lived intangible assets 5-15 $1,786,000
 $(254,000) $1,786,000
 $(171,000)
Indefinite-lived intangible assets:          
  FCC broadcast license   $12,000,000
   $12,000,000
  
  Estimated Useful Life
(In Years)
 August 4, 2018 February 3, 2018
   Gross
Carrying
Amount
 Accumulated
Amortization
 Gross
Carrying
Amount
 Accumulated
Amortization
Finite-lived intangible assets 5-15 $1,786,000
 $(419,000) $1,786,000
 $(336,000)
Finite-lived Intangible Assets
As of January 28, 2017, the Company had an intangible FCC broadcasting license with a carrying value of $12,000,000 and an estimated fair value of $13,400,000. The Company annually reviews its FCC television broadcast license for impairment in the fourth quarter, or more frequently if an impairment indicator is present. The Company estimates the fair value of its FCC television broadcast license primarily by using income-based discounted cash flow models with the assistance of an independent outside fair value consultant. The discounted cash flow models utilize a range of assumptions including revenues, operating profit margin, projected capital expenditures and an unobservable discount rate. The Company also considers comparable asset market and sales data for recent comparable market transactions for standalone television broadcasting stations to assist in determining fair value. The Company concluded that the inputs used in its intangible FCC broadcasting license asset valuation are Level 3 inputs related to this valuation.
While the Company believes that its estimates and assumptions regarding the valuation of the license are reasonable, different assumptions or future events could materially affect its valuation. In addition, due to the illiquid nature of this asset, the Company's valuation for this license could be materially different if it were to decide to sell it in the short term which, upon revaluation, could result in a future impairment of this asset.
On August 28, 2017, the Company entered into agreements to sell the Boston television station, WWDP, including the Company's FCC broadcast license, for an aggregate of $13.5 million. See Note 14 - "Subsequent Event" for additional information.
The finite-lived intangible assets are included in Other Assets in the accompanying balance sheets and consistsconsist of the Evine trademark and the Princeton Watches trade name and customer list. Amortization expense related to the finite-lived intangible assets was $42,000 and $25,000 for the three-month periods ended August 4, 2018 and July 29, 2017 and July 30, 2016 and $83,000 and $43,000 for the six-month periods

ended August 4, 2018 and July 29, 2017 and July 30, 2016.2017. Estimated amortization expense is $165,000 for fiscal 20172018 and each fiscal year through fiscal 2020, and $157,000 for fiscal 2021.2021 and $96,000 for fiscal 2022.
Sale of Boston Television Station, WWDP and FCC Broadcast License
On August 28, 2017, the Company entered into two agreements with unrelated parties to sell its Boston television station, WWDP, including the Company's FCC broadcast license, for an aggregate of $13,500,000. During the fiscal 2017 fourth quarter, the Company closed on the asset purchase agreement to sell substantially all of the assets primarily related to its television broadcast station, WWDP(TV), Norwell, Massachusetts (the “Station”), which included an intangible FCC broadcasting license asset. As of August 4, 2018, $667,000 of the sales price remained in escrow pending the Station being carried by certain distribution carriers. The Company has not recorded any additional gain relating to the remaining escrow amount and will not record the remaining gain until the contingency is resolved.

(5)(6) Credit Agreements
The Company's long-term credit facilities consist of:
  July 29, 2017 January 28, 2017
PNC Credit Facility    
PNC revolving loan due March 21, 2022, principal amount $55,500,000
 $59,900,000
     
PNC term loan due March 21, 2022, principal amount 15,505,000
 10,637,000
Less unamortized debt issuance costs (176,000) (181,000)
PNC term loan due March 21, 2022, carrying amount 15,329,000
 10,456,000
     
GACP Credit Agreement    
GACP term loan due March 9, 2021, principal amount 6,366,000
 16,292,000
Less unamortized debt issuance costs (447,000) (1,260,000)
GACP term loan due March 9, 2021, carrying amount 5,919,000
 15,032,000
     
Total long-term credit facilities 76,748,000
 85,388,000
Less current portion of long-term credit facilities (3,440,000) (3,242,000)
Long-term credit facilities, excluding current portion $73,308,000
 $82,146,000

  August 4, 2018 February 3, 2018
PNC revolving loan due July 27, 2023, principal amount $49,900,000
 $59,900,000
     
PNC term loan due July 27, 2023, principal amount 19,000,000
 14,148,000
Less unamortized debt issuance costs (144,000) (149,000)
PNC term loan due July 27, 2023, carrying amount 18,856,000
 13,999,000
     
Total long-term credit facilities 68,756,000
 73,899,000
Less current portion of long-term credit facilities (2,714,000) (2,326,000)
Long-term credit facilities, excluding current portion $66,042,000
 $71,573,000
PNC Credit Facility
On February 9, 2012, the Company entered into a credit and security agreement (as amended through March 21, 2017,July 27, 2018, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private BankBank) as part of the facility, provides a revolving line of credit of $90.0 million and provides for a term loan on which the Company had originally drawn to fund improvements at the Company's distribution facility in Bowling Green, Kentucky and subsequently to pay down the Company's GACP Term Loan (as defined below). The PNC Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $25.0 million at the discretion of the lenders and upon certain conditions being met. On March 21, 2017,July 27, 2018, the Company entered into the EighthTenth Amendment to the PNC Credit Facility, which among other things, increased the term loan by $6,000,000,$5,821,000, extended the term of the PNC Credit Facility from May 1, 2020 to March 21, 2022 to July 27, 2023, and authorizeddecreased the proceeds frominterest rate margins on both the revolving line of credit and term loan. The term loan increase was used to be used as partreduce borrowings under the revolving line of a voluntary prepayment of $9,500,000 on its GACP Term Loan.credit.
All borrowings under the PNC Credit Facility mature and are payable on March 21, 2022.July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million which, upon issuance, would be deemed advances under the PNC Credit Facility. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $90.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory. The PNC Credit Facility is secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky up to $19 million.Kentucky. Under certain circumstances, the borrowing base may be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.
The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 1% and 2% on Base Rate advances and 2% and 3% and 4.5%on LIBOR advances based on the Company's trailing twelve-month reported EBITDAleverage ratio (as defined in the PNC Credit Facility) measured quarterly in fiscal 2016 and semi-annually thereafter as demonstrated in its financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 4%2% and 5%3% on Base Rate term loans and 5%3% to 6%4% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.
As of July 29, 2017,August 4, 2018, the Company had borrowings of $55.5$49.9 million under its revolving credit facility. Remaining available capacity under the revolving credit facility as of July 29, 2017 isAugust 4, 2018 was approximately $11.4$23.3 million, and provideswhich provided liquidity for

working capital and general corporate purposes. The PNC Credit Facility also provides for a term loan on which the Company has drawn to fund an expansion and improvements at the Company's distribution facility in Bowling Green, Kentucky and subsequently to partially pay down the Company's GACP Term Loan.Loan and reduce its revolving credit facility borrowings. As of July 29, 2017,August 4, 2018, there was approximately $15.5$19.0 million outstanding under the PNC Credit Facility term loan of which $2.5$2.7 million was classified as current in the accompanying balance sheet.
Principal borrowings under the modified term loan are to be payable in monthly installments over an 84 month84-month amortization period commencing on AprilSeptember 1, 20172018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 3.0% if terminated on or before March 21, 2018,July 27, 2019, 1.0% if terminated on or before March 21, 2019,July 27, 2020, 0.5% if terminated on or before March 21, 2020,July 27, 2021, and no fee if terminated after March 21, 2020.July 27, 2021. As of July 29, 2017,August 4, 2018, the imputed effective interest rate on the PNC term loan was 7.7%5.8%.
Interest expense recorded under the PNC Credit Facility was $898,000 and $1,922,000 for the three and six-month periods ended August 4, 2018 and $1,079,000 and $2,142,000 for the three and six-month periods ended July 29, 2017 was $1,079,000 and $2,142,000 and $1,010,000 and $1,867,000 for the three and six-month periods ended July 30, 2016.2017.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. As the Company's unused line availability was greater than $10.0 million at July 29, 2017,August 4, 2018, no additional cash was required to be restricted. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $18.0$10.8 million. As of July 29, 2017,August 4, 2018, the Company's unrestricted cash plus unused line availability was $33.4$51.4 million and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.

Costs incurred to obtain amendmentsDeferred financing costs, net of amortization, relating to the PNC Credit Facility totaling $1,369,000revolving line of credit was $650,000 and unamortized$656,000 as of August 4, 2018 and February 3, 2018 and are included within other assets within the accompanying balance sheet. These costs incurred to obtain the original PNC Credit Facility totaling $466,000 have been deferred and are being expensed as additional interest over the five-year term of the PNC Credit Facility.
Prepayment on Great American Capital Partners Credit AgreementTerm Loan
On March 10, 2016,During fiscal 2017, the Company entered into aretired its term loan (the "GACP Term Loan") under a credit and security agreement (as amended through March 21, 2017, the "GACP Credit Agreement") with GACP Finance Co., LLC ("GACP") for a term loan, with voluntary principal prepayments of $17.0 million. Proceeds from the GACP Term Loan have been used to provide for working capital$9.5 million, $2.5 million and general corporate purposes and to help strengthen the Company's total liquidity position. The term loan under the GACP Credit Agreement (the "GACP Term Loan") is secured$3.5 million on a first lien priority basis by the proceeds of any sale of the Company's Boston television station FCC license and on a second lien priority basis by the Company's accounts receivable, equipment, inventory and certain real estate as well as other assets as described in the GACP Credit Agreement. The Company has also pledged the stock of certain subsidiaries to secure such obligations on a second lien priority basis.
On March 21, 2017, October 18, 2017 and December 6, 2017. During the Company made a voluntary principal prepaymentfirst quarter of $9,500,000 on its GACP Term Loan. The principal payment was funded by a combination of cash on hand and proceeds of $6,000,000 fromfiscal 2017, the Company’s lower interest PNC Credit Facility term loan. The Company recorded a loss on debt extinguishment of $913,000 for the portion of debt extinguished on March 21, 2017. The fiscal 2017 first quarter loss on extinguishment of debt totaling $913,000 in connection with the principal prepayment, which includes early termination and lender fees of $199,000 and a write-off of unamortized debt issuance costs of $714,000, which represents the proportionate amount of unamortized debt issuance costs attributable to the extinguishedsettled debt.
The GACP Credit Agreement matures on March 9, 2021. The GACP Term Loan bears interest at either (i) a fixed rate based on the greater of LIBOR for interest periods of one, two or three months or 1% plus a margin of 11.0%, or (ii) a daily floating Alternate Base Rate plus a margin of 10.0%. As of July 29, 2017, the imputed effective interest rate on the GACP term loan was 15.5%.
Principal borrowings under the GACP Term Loan are payable in consecutive monthly installments of $70,833 each, commencing on April 1, 2016, with a final installment due at the end of the five-year term equal to the aggregate principal amount of all loans outstanding on such date. The GACP Term Loan is also subject to mandatory prepayment in certain circumstances, including, but without limitation, from the proceeds of the sale of collateral assets and from 50% of annual excess cash flow as defined in the GACP Credit Agreement. The GACP Term Loan can be prepaid voluntarily at any time and, if terminated prior to maturity, the Company would be required to pay an early termination fee of 2.0% if terminated on or before March 10, 2018; 1.0% if terminated on or before March 10, 2019; and no fee if terminated after March 10, 2019. Interest expense recorded under the GACP Credit Agreement for the three and six-month periods ended July 29, 2017 was $231,000 and $661,000 and $592,000 and $934,000 for the three and six-month periods ended July 30, 2016.
The GACP Credit Agreement contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus revolving line of credit availability under the PNC Credit Facility of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the GACP Credit Agreement) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus revolving line of credit availability under the PNC Credit Facility falls below $18.0 million. As of July 29, 2017, the Company's unrestricted cash plus unused line availability was $33.4 million and the Company was in compliance with applicable financial covenants of the GACP Credit Agreement and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the GACP Credit Agreement places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Costs incurred to obtain the GACP Credit Agreement totaling $1,556,000 less the costs written-off for the March 21, 2017 partial debt extinguishment totaling $714,000 have been deferred and are being expensed as additional interest over the five-year term of the GACP Credit Agreement.

$661,000.
The aggregate maturities of the Company's long-term credit facilities as of July 29, 2017August 4, 2018 are as follows:
 PNC Credit Facility     PNC Credit Facility  
Fiscal year Term loan Revolving loan GACP Term Loan Total Term loan Revolving loan Total
2017 $1,357,000
 $
 $495,000
 $1,852,000
2018 2,326,000
 
 850,000
 3,176,000
 $1,357,000
 $
 $1,357,000
2019 2,132,000
 
 779,000
 2,911,000
 2,488,000
 
 2,488,000
2020 2,326,000
 
 850,000
 3,176,000
 2,714,000
 
 2,714,000
2021 2,326,000
 
 3,392,000
 5,718,000
 2,714,000
 
 2,714,000
2022 5,038,000
 55,500,000
 
 60,538,000
 2,714,000
 
 2,714,000
2023 7,013,000
 49,900,000
 56,913,000
 $15,505,000
 $55,500,000
 $6,366,000
 $77,371,000
 $19,000,000
 $49,900,000
 $68,900,000


(6) Shareholders' Equity(8) Net Loss Per Common Share
Registered Direct Offering
On May 23, 2017,Basic net loss per share is computed by dividing reported loss by the Company entered into Common Stock Purchase Agreements with certain accredited investors to which the Company sold, in the aggregate, 4,008,273weighted average number of shares of common stock in a registered direct offering pursuant to a shelf registration statement on Form S-3 (File No. 333-203209), filed withoutstanding for the Securities and Exchange Commission on May 13, 2015. The shares were sold at a price of $1.12reported period. Diluted net income per share except for shares purchased by investors who are directorsreflects the potential dilution that could occur if securities or executive officersother contracts to issue common stock were exercised or converted into common stock of the Company which were sold at a priceduring reported periods.
A reconciliation of $1.15net loss per share. The closing of this sale occurred on May 30, 2017share calculations and the Company received gross proceedsnumber of approximately $4.5 millionshares used in the calculation of basic loss per share and incurred approximately $323,000diluted loss per share is as follows:
  Three-Month Periods Ended Six-Month Periods Ended
  August 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
Net loss (a) $(40,000) $(1,991,000) $(3,026,000) $(5,187,000)
Weighted average number of shares of common stock outstanding — Basic 66,009,117
 64,091,228
 65,685,034
 62,504,868
Dilutive effect of stock options, non-vested shares and warrants (b) 
 
 
 
Weighted average number of shares of common stock outstanding — Diluted 66,009,117
 64,091,228
 65,685,034
 62,504,868
Net loss per common share $(0.00) $(0.03) $(0.05) $(0.08)
Net loss per common share — assuming dilution $(0.00) $(0.03) $(0.05) $(0.08)
(a) The net loss for the three and six-month periods ended August 4, 2018 includes costs related to executive and management transition of issuance costs.$0 and $1,024,000 and contract termination costs of $0 and $753,000. The Company has usednet loss for the proceedsthree and six-month periods ended July 29, 2017 includes costs related to executive and management transition of $572,000 and $1,078,000 and a loss on debt extinguishment of $0 and $913,000.
(b) For the three and six-month periods ended August 4, 2018, there were 543,000 and 272,000 incremental in-the-money potentially dilutive common shares outstanding, and -0- for general working capital purposes.the three and six-month periods ended July 29, 2017. The incremental in-the-money potentially dilutive common stock shares are excluded from the computation of diluted earnings per share, as the effect of their inclusion would be anti-dilutive.
Private Placement Securities Purchase Agreements
On September 14, 2016,
(7) Shareholders' Equity
Warrants
As of August 4, 2018, the Company entered intohad outstanding warrants to purchase 3,849,365 shares of the Company’s common stock ("Warrants"). The Warrants are fully exercisable and expire five years from the date of grant. The Warrants were issued in connection with private placement securities purchase agreements ("Purchase Agreements"), including the related option exercises, which the Company entered into with certain accredited investors to which the Company: (a) sold, in the aggregate, 5,952,381 shares of the Company's common stock at a price of $1.68 per share; (b) issued five-year warrants ("Warrants") to purchase 2,976,190 shares of the Company's common stock at an exercise price of $2.90 per share, and (c) issued an option by which certain investors may purchase additional shares of Company's common stock and additional warrants to purchase shares of common stock ("Options").
The Company received gross proceeds of $10.0 million and incurred approximately $852,000 of issuance costs. The Warrants will expire on September 19, 2021 and were not exercisable until March 19, 2017. Except as noted below, the term of each option was six months and expired on March 19, 2017.14, 2016. The option exercise price was equal to the five-day volume weighted average price per share of the Company's common stock as of the day immediately prior to exercise. Upon exercise of the Options, two-thirds of the option securities would be issued in the form of common stock, and one-third would be issued in the form of warrants ("Option Warrants"). These Optionfollowing table summarizes information regarding Warrants have an exercise priceoutstanding at a 50% premium to the Company's closing stock price one-day prior to the option exercise and will expire five years after issuance. If all of the Warrants, Options and Option Warrants issued by the Company are all exercised, the total shares of common stock issued in connection with this offering cannot be more than approximately 19.99% of the Company's total issued and outstanding shares following such exercises.August 4, 2018:
The Company allocated the $10 million proceeds of the stock offering to each of the issued freestanding financial instruments based on their fair value at the time of issuance. The Warrants are indexed to the Company's publicly traded stock and were classified as equity. As a result, the portion of the proceeds allocated to the fair value of the Warrants was recorded as an increase to additional paid-in capital. The fair value of the Options was determined to be nominal. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less offering costs, recorded as additional paid in capital in the Company's balance sheet. The Company has used the proceeds for general working capital purposes.
As part of the Purchase Agreements, the Company agreed to register the shares of common stock sold in the private placement and the shares of common stock issuable upon exercise of the Warrants, Options and certain of the Option Warrants. The Company has filed registration statements on Form S-3 to register the common stock sold in the private placement and issuable upon exercise of the Warrants, Options and the outstanding Option Warrants. The Company agreed to keep the shelf registration statement effective until the earlier of the second anniversary of the closing or such time as all registrable securities may be sold pursuant to Rule 144 under the Securities Act of 1933, without the need for current public information or other restriction.

During the fourth quarter of fiscal 2016, three investors exercised their Options. These exercises resulted in the Company's issuance, in the aggregate, of (a) 1,646,350 shares of the Company's common stock at a price ranging from $1.20 - $1.94 per share, resulting in aggregate proceeds of $2.5 million; and (b) five-year Option Warrants to purchase an additional 823,175 shares of the Company's common stock at an exercise price ranging from $1.76 - $3.00 per share and expire between November 10, 2021 and January 23, 2022. The Company incurred, in the aggregate, approximately $49,000 of issuance costs related to the Options exercised during the fourth quarter of fiscal 2016.
On March 16, 2017, the Company entered into the First Amendment and Restated Option (the "Amended Option") with TH Media Partners, LLC, one of the September 14, 2016 Securities Purchase Agreement investors. Under the terms of the Amended Option, the investor has the right to exercise its Option in two tranches. The first tranche reflects rights to purchase 150,000 shares of the Company’s common stock, which were issuable in the form of 100,000 common shares and a warrant to purchase an additional 50,000 common shares and was exercised on March 16, 2017. The exercise resulted in the issuance of (a) 100,000 shares of the Company's common stock at a price of $1.33 per share, resulting in aggregate proceeds of $133,000; and (b) a five-year Option Warrant to purchase an additional 50,000 shares of the Company's common stock at an exercise price of $1.92 per share and expiring on March 16, 2022. The second tranche reflects the right to purchase up to 1,073,945 shares of the Company’s common stock issuable in the form of 715,963 common shares and an Option Warrant to purchase an additional 357,982 common shares. The second tranche must be exercised on or before September 16, 2017. The exercise price of the Option and Option Warrants for the first and second tranches were not modified by the Amended Option. The Company incurred, in the aggregate, approximately $23,000 of issuance costs related to the Options exercised during the first quarter of fiscal 2017.
Stock Purchase from NBCU
On January 31, 2017, the Company purchased from NBCUniversal Media, LLC (“NBCU”) 4,400,000 shares of the Company’s common stock for approximately $5 million or $1.12 per share pursuant to the Repurchase Letter Agreement. Following the Company's share purchase, the direct equity ownership of NBCU in the Company consisted of 2,741,849 shares of common stock, or 4.5% of the Company's outstanding common stock. Upon the settlement, the NBCU Shareholder Agreement was terminated pursuant to the Repurchase Letter Agreement. See Note 11 for additional information.
Grant Date Shares of common stock purchasable Exercise Price
(Per Share)
 Expiration Date
September 19, 2016 2,976,190
 $2.90 September 19, 2021
November 10, 2016 333,873
 $3.00 November 10, 2021
January 23, 2017 489,302
 $1.76 January 23, 2022
March 16, 2017 50,000
 $1.92 March 16, 2022
Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $237,000 and $220,000 for the second quarters of fiscal 2018 and fiscal 2017 and fiscal 2016 related to stock option awards was $220,000$542,000 and $135,000. Stock-based compensation expense$423,000 for the first six months of fiscal 20172018 and fiscal 2016 related to stock option awards was $423,000 and $255,000.2017. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of July 29, 2017,August 4, 2018, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 9,500,00013,000,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under

the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2001 Omnibus Stock Plan expired on June 21, 2011. No further awards may be made under the 2001 Omnibus Plan, but any award granted under the 2001 Omnibus Plan and outstanding on June 21, 2011 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than 10 years after the effective date of the respective plan's inception or be exercisable more than 10 years after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. With the exception of market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options, and have contractual terms of 10 years from the date of grant.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table.table, and a Monte Carlo valuation model is used for market-based vesting awards. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
Fiscal 2017 Fiscal 2016Fiscal 2018 Fiscal 2017
Expected volatility:81% 84%72% 81%
Expected term (in years):6 years 5
-6 years6 years 6 years
Risk-free interest rate:2.0%-2.2% 1.6%-1.7%2.8%-3.0% 2.0%-2.2%
A summary of the status of the Company’s stock option activity as of July 29, 2017August 4, 2018 and changes during the six months then ended is as follows:
2011
Incentive
Stock
Option
Plan
 Weighted
Average
Exercise
Price
 2004
Incentive
Stock
Option
Plan
 Weighted
Average
Exercise
Price
 2001
Incentive
Stock
Option
Plan
 Weighted
Average
Exercise
Price
2011
Incentive
Stock
Option
Plan
 Weighted
Average
Exercise
Price
 2004
Incentive
Stock
Option
Plan
 Weighted
Average
Exercise
Price
Balance outstanding, January 28, 20172,543,000
 $2.19
 301,000
 $5.41
 77,000
 $10.73
Balance outstanding, February 3, 20183,384,000
 $1.64
 112,000
 $4.86
Granted1,627,000
 $1.31
 
 $
 
 $
2,198,000
 $1.02
 
 $
Exercised(29,000) $0.99
 
 $
 
 $
(112,000) $0.99
 
 $
Forfeited or canceled(520,000) $3.13
 (10,000) $4.85
 (77,000) $10.73
(333,000) $1.49
 (5,000) $4.62
Balance outstanding, July 29, 20173,621,000
 $1.67
 291,000
 $5.43
 
 $
Options exercisable at July 29, 2017792,000
 $2.48
 291,000
 $5.43
 
 $
Balance outstanding, August 4, 20185,137,000
 $1.40
 107,000
 $4.87
Options exercisable at August 4, 20181,585,000
 $1.93
 107,000
 $4.87
The following table summarizes information regarding stock options outstanding at July 29, 2017August 4, 2018:
Options Outstanding Options Vested or Expected to VestOptions Outstanding Options Vested or Expected to Vest
Option TypeNumber of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Life
(Years)
 Aggregate
Intrinsic
Value
 Number of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Life
(Years)
 Aggregate
Intrinsic
Value
Number of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Life
(Years)
 Aggregate
Intrinsic
Value
 Number of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Life
(Years)
 Aggregate
Intrinsic
Value
2011 Incentive:3,621,000
 $1.67
 8.9 $37,000
 3,185,000
 $1.71
 8.4 $34,000
5,137,000
 $1.40
 8.7 $813,000
 4,619,000
 $1.43
 8.6 $682,000
2004 Incentive:291,000
 $5.43
 2.7 $
 291,000
 $5.43
 2.7 $
107,000
 $4.87
 5.3 $
 107,000
 $4.87
 5.3 $
2001 Incentive:
 $
 0.0 $
 
 $
 0.0 $
The weighted average grant-date fair value of options granted in the first six-months of fiscal 20172018 and fiscal 20162017 was $0.91$0.74 and $0.860.91. The total intrinsic value of options exercised during the first six-months of fiscal 20172018 and fiscal 20162017 was $9,000$23,000 and $0.$9,000. As of July 29, 2017August 4, 2018, total unrecognized compensation cost related to stock options was $1,907,000$2,117,000 and is expected to be recognized over a weighted average period of approximately 2.32.1 years.

Stock-Based Compensation - Restricted Stock Units
Compensation expense recordedrelating to restricted stock unit grants was $302,000 and $526,000 for the second quarters of fiscal 2018 and fiscal 2017 and fiscal 2016 relating to restricted stock grants was $526,000$817,000 and $263,000. Compensation expense recorded$844,000 for the first six-months of fiscal 2018 and fiscal 2017 and fiscal 2016 relating to restricted stock grants was $844,000 and $380,000.. As of July 29, 2017,August 4, 2018, there was $2,788,000$2,596,000 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 1.71.9 years. The total fair value of restricted stock units vested during the first six months of fiscal 20172018 and fiscal 20162017 was $370,000$1,139,000 and $269,000.
During the second quarters of fiscal 2017 and fiscal 2016, the Company granted a total of 472,720 and 167,142 shares$370,000. The estimated fair value of restricted stock units is based on the grant date closing price of the Company's stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.
The Company has granted time-based restricted stock units to certain key employees as part of the Company's long-term incentive program. The restricted stock generally vests in three equal annual installments beginning one year from the grant date and is being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company's annual director compensation program. Each restricted stock awardgrant vests or did vest on the day immediately preceding the next annual meeting of shareholders following the date of grant. The aggregate market value of the restricted stock at the date of the awards was $520,000 and $292,000 for the second quarters of fiscal 2017 and fiscal 2016. The awards are being amortized as director compensation expense over the twelve-month vesting period. During the second quarters of fiscal 2017 and fiscal 2016, the Company also granted a total of 318,360 and 60,916 shares of time-based restricted stock awards to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of the award was $395,000 and $78,000 for the second quarters of fiscal 2017 and fiscal 2016. The awards are being amortized as compensation expense over the three-year vesting period.

During the first quarters of fiscal 2017 and fiscal 2016, the Company granted a total of 317,219 and 188,991 shares of time-based restricted stock awards to certain key employees as part of the Company's long-term incentive program. The restricted stock vests in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of the award was $422,000 and $187,000 for the first quarters of fiscal 2017 and fiscal 2016. The awards are being amortized as compensation expense over the three-year vesting period. During the first quarter of fiscal 2017, the Company also granted a total of 327,738 shares of time-based restricted stock awards to employees as part of the Company's annual merit process. The restricted stock vests one year after the date of the grant on April 24, 2018. The aggregate market value of the restricted stock at the date of the award was $446,000 and is being amortized as compensation expense over the one-year vesting period.
During the first quarter of fiscal 2017, the Company also granted a total of 7,096 shares of restricted stock to a newly appointed board member as part of the Company's annual director compensation program. This award vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The aggregate market value of the restricted stock at the date of the award was $9,000 and is beinggrants are amortized as director compensation expense over the twelve-month vesting period.
During the first quarters of fiscal 2017 and fiscal 2016, theThe Company has granted a total of 561,981259,000 and 179,156 shares of-0- market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program.program during the second quarters of fiscal 2018 and fiscal 2017 and 747,000 and 562,000 market-based restricted stock performance units during the first six months of fiscal 2018 and fiscal 2017. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
Fiscal 2017 Fiscal 2016Fiscal 2018 Fiscal 2017
Total grant date fair value$860,000 $224,000$859,000 $860,000
Total grant date fair value per share$1.53 $0.98-$1.72$1.07-$1.30 $1.53
Expected volatility75% 71%-73%73%-76% 75%
Weighted average expected life (in years)3 years 3 years3 years 3 years
Risk-free interest rate1.5% 0.9%-1.0%2.4%-2.7% 1.5%
The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
Percentile Rank Percentage of
Units Vested
< 33% 0%
33% 50%
50% 100%
100% 150%
A summary of the status of the Company’s non-vested restricted stock unit activity as of July 29, 2017August 4, 2018 and changes during the six-month period then ended is as follows:
 Shares 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, January 28, 20171,620,000
 $2.00
Granted2,005,000
 $1.32
Vested(319,000) $1.93
Forfeited(241,000) $2.92
Non-vested outstanding, July 29, 20173,065,000
 $1.49
Shareholder Cooperation and Standstill Agreement
On March 24, 2017, the Company entered into a Cooperation Agreement with the Clinton Group, Inc. and GlassBridge Enterprises, Inc. (collectively "the Investor Group"). Pursuant to the Cooperation Agreement, the Company agreed (i) to have the Company's Board of Directors (the "Board") appoint, within 30 calendar days, one new independent director, from a list of candidates, to serve on the Board until the 2017 Annual Meeting of Shareholders (the "2017 Annual Meeting"), (ii) to nominate the new independent director for election to the Board at the 2017 Annual Meeting for a term expiring at the 2018 Annual Meeting of Shareholders, (iii) to recommend in the Company's 2017 definitive proxy statement that the shareholders of the Company vote
 Restricted Stock Units
 
Market-Based
Performance Units
 Time-Based Units Total
 Shares 
Weighted
Average
Grant Date
Fair Value
 Shares Weighted
Average
Grant Date
Fair Value
 Shares Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 3, 2018973,000
 $1.55
 1,856,000
 $1.32
 2,829,000
 $1.40
Granted747,000
 $1.15
 1,198,000
 $1.17
 1,945,000
 $1.16
Vested
 $
 (1,003,000) $1.23
 (1,003,000) $1.23
Forfeited(211,000) $1.23
 (75,000) $1.46
 (286,000) $1.29
Non-vested outstanding, August 4, 20181,509,000
 $1.39
 1,976,000
 $1.27
 3,485,000
 $1.32

to elect the new independent director to the Board at the 2017 Annual Meeting, and (iv) to solicit, obtain proxies in favor of and otherwise support the election of the new independent director to the board at the 2017 Annual Meeting in a manner no less favorable than the manner in which the Company supports other nominees for election at the 2017 Annual Meeting. The Company has complied with each of these requirements. Under the terms of the Cooperation Agreement, the Investor Group agreed to certain standstill provisions with respect to the Investor Group's actions with regard to the Company and its common stock. Such standstill provisions will be in effect for a period commencing on March 24, 2017 and ending on the date that is the earlier of (x) ten (10) business days prior to the expiration of the advance notice period for the submission by shareholders of director nominations for consideration at the 2018 Annual Meeting, (y) one hundred (100) calendar days prior to the first anniversary of the 2017 Annual Meeting, or (z) upon ten (10) calendar days' prior written notice delivered by any of the Investor Group to the Company following a material breach of the Cooperation Agreement by the Company if such breach has not been cured within a notice period, provided that any member of the Investor Group is not then in material breach of the Cooperation Agreement.

(7) Net Loss Per Common Share
Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:    
  Three-Month Periods Ended Six-Month Periods Ended
  July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
Net loss (a) $(1,991,000) $(1,983,000) $(5,187,000) $(6,925,000)
Weighted average number of shares of common stock outstanding — Basic 64,091,228
 57,258,672
 62,504,868
 57,219,914
Dilutive effect of stock options, non-vested shares and warrants (b) 
 
 
 
Weighted average number of shares of common stock outstanding — Diluted 64,091,228
 57,258,672
 62,504,868
 57,219,914
Net loss per common share $(0.03) $(0.03) $(0.08) $(0.12)
Net loss per common share — assuming dilution $(0.03) $(0.03) $(0.08) $(0.12)
(a) The net loss for the three and six-month periods ended July 29, 2017 includes costs related to executive and management transition of $572,000 and $1,078,000 and loss on debt extinguishment of $0 and $913,000. The net loss for the three and six-month periods ended July 30, 2016 includes costs related to executive and management transition of $242,000 and $3,843,000 and distribution facility consolidation and technology upgrade costs totaling $300,000 and $380,000.
(b) For the three and six-month periods ended July 29, 2017, there were -0- incremental in-the-money potentially dilutive common shares outstanding, and approximately 162,000 and -0- for the three and six-month periods ended July 30, 2016. Incremental in-the-money potentially dilutive common shares are excluded from the computation of diluted earnings per share, as the effect of their inclusion would be antidilutive.
(8)(9) Business Segments and Sales by Product Group
The Company has one reporting segment, which encompasses its videointeractive digital commerce retailing. The Company markets, sells and distributes its products to consumers primarily through its video commerce television, online website, evine.com, and mobile platforms. The Company's television shopping, online and mobile platforms have similar economic characteristics with respect to products, product sourcing, vendors, marketing and promotions, gross margins, customers, and methods of distribution. In addition, the Company believes that its television shopping program is a key driver of traffic to both the evine.com website and mobile applications whereby many of the online sales originate from customers viewing the Company's television program and then placing their orders online or through mobile devices. All of the Company's sales are made to customers residing in the United States. The chief operating decision maker is the Chief Executive Officer of the Company.

Certain fiscal 2017 product category amounts in the accompanying table have been reclassified to conform to our fiscal 2018 product category groupings.
Information on net sales by significant product groups are as follows (in thousands):
 Three-Month Periods Ended Six-Month Periods Ended Three-Month Periods Ended Six-Month Periods Ended
 July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
 August 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
Jewelry & Watches $53,737
 $57,972
 $111,773
 $122,146
 $53,842
 $53,737
 $110,635
 $111,773
Home & Consumer Electronics 30,494
 28,918
 61,324
 64,564
 28,666
 29,166
 59,708
 58,581
Beauty 21,261
 23,124
 42,879
 46,364
Beauty & Wellness 28,615
 22,589
 55,637
 45,622
Fashion & Accessories 27,968
 30,991
 57,763
 58,519
 24,562
 27,968
 51,134
 57,763
All other (primarily shipping & handling revenue) 15,489
 16,134
 31,553
 32,466
 15,114
 15,489
 30,190
 31,553
Total $148,949
 $157,139
 $305,292
 $324,059
 $150,799
 $148,949
 $307,304
 $305,292

(9)(10) Income Taxes
At January 28, 2017,February 3, 2018, the Company had federal net operating loss carryforwards (“NOLs”) of approximately $326$321 million, and state NOLs of approximately $262$260 million which are available to offset future taxable income.  The Company's federal NOLs expire in varying amounts each year from 2023 through 20362037 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. 
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B preferred stock held by GE Capital Equity Investments, Inc. (“GE Equity”).  Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company's ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited.  In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOLs could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOLs. The Company currently has recorded a full valuation allowance for its net deferred tax assets.  The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
For the second quarters of fiscal 20172018 and fiscal 2016,2017, the income tax provision included a non-cash tax charge of approximately $197,000$0 and $198,000$197,000 relating to changes in the Company's long-term deferred tax liability related to the tax amortization of the Company's indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to the Company's income tax valuation allowance. For the first six-months of fiscal 20172018 and fiscal 2016,2017, the income tax provision included a non-cash tax charge of approximately $394,000$0 and $395,000. The$394,000. During the fourth quarter of fiscal 2017, the Company expects the continued tax amortization ofsold its indefinite-lived intangible FCC license asset in connection with the sale of the Company's television broadcast station, WWDP(TV).
On December 22, 2017, the Tax Cuts and resulting book versusJobs Act (the "Tax Act") was enacted. The Tax Act significantly revised U.S. corporate tax asset carrying value differencelaw by, among other things, (i) reducing the corporate tax rate to result21% from 35%, (ii) a repeal of the corporate alternative minimum tax (AMT), (iii) changes to tax depreciation for first-year property, (iv) a partial limitation on the deductibility of business interest expense and (v) for losses incurred in approximately $394,000tax years beginning after December 31, 2017 the NOL deduction is limited to 80% of additional non-cashtaxable income with an indefinite carry forward.

The income tax expense overeffects of the remainderTax Act required the remeasurement of the Company's deferred tax assets and liabilities in accordance with ASC Topic 740.  The Company remeasured its net deferred tax assets and related valuation allowance to reflect the lower corporate tax rate at the end of fiscal 2017. The SEC staff issued Staff Accounting Bulletin No. 118 that allows companies to record provisional estimates of the impacts of the Tax Act during a measurement period of up to one year from the enactment which is similar to the measurement period used when accounting for business combinations.  As reflected in the Company's fiscal 2017 financial statements, the Tax Act did not have an impact on the Company's tax expense or benefit due to the full valuation allowance against the Company's deferred tax assets.
Shareholder Rights Plan
During the second quarter of fiscal 2015, theThe Company has adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date. On July 13, 2015, the Company entered into a Shareholder Rights Plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, of the Company (“Preferred Stock” and each one one-thousandth of a share of Preferred Stock, a “Unit”) at a price of $9.00 per Unit.
The Rights initially trade together with the common stock and are not exercisable. Subject to certain exceptions specified in the Rights Plan, the Rights will separate from the common stock and become exercisable following (i) the tenth calendar day after a public announcement or filing that a person or group has become an “Acquiring Person,” which is defined as a person who has acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of the common stock then outstanding, subject to certain exceptions, or (ii) the tenth calendar day (or such later date as may be determined by the board of directors) after any person or group commences a tender or exchange offer, the consummation of which would result in a person or group becoming an Acquiring Person. If a person or group becomes an Acquiring Person, each Right will entitle its holders (other than such Acquiring Person) to purchase one Unit at a price of $9.00 per Unit. A Unit is intended to give the shareholder approximately the same dividend, voting and liquidation rights as would one share of Common Stock, and should approximate the value of one share

of Common Stock. At any time after a person becomes an Acquiring Person, the board of directors may exchange all or part of the outstanding Rights (other than those held by an Acquiring Person) for shares of common stock at an exchange rate of one share of common stock (and, in certain circumstances, a Unit) for each Right. The Company will promptly give public notice of any exchange (although failure to give notice will not affect the validity of the exchange).
The Rights will expire upon certain events described in the Rights Plan, including the close of business on the date of the third annual meeting of shareholders following the last annual meeting of shareholders of the Company at which the Rights Plan was most recently approved by shareholders, unless the Rights Plan is re-approved by shareholders at that third annual meeting of shareholders.  However, in no event will the Rights Plan expire later than the close of business on July 13, 2025. The Rights Plan was approved by the Company’s shareholders at the 2016 annual meeting of shareholders.
Until the close of business on the tenth calendar day after the day a public announcement or a filing is made indicating that a person or group has become an Acquiring Person, the Company may in its sole and absolute discretion amend the Rights or the Rights Plan agreement without the approval of any holders of the Rights or shares of common stock in any manner, including without limitation, amendments that increase or decrease the purchase price or redemption price or accelerate or extend the final expiration date or the period in which the Rights may be redeemed. The Company may also amend the Rights Plan after the close of business on the tenth calendar day after the day such public announcement or filing is made to cure ambiguities, to correct defective or inconsistent provisions, to shorten or lengthen time periods under the Rights Plan or in any other manner that does not adversely affect the interests of holders of the Rights. No amendment of the Rights Plan may extend its expiration date.

(10)(11) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, and consumer protection and regulatory matters.
On June 26, 2017, a purported class action case was filed by an individual, William Horan, against both In the Companyopinion of management, none of the claims and Invicta Watch Co. of America, Inc. (“Invicta”)suits, either individually or in the United States District Court for the Eastern District of New York, asserting claims under the federal Magnuson-Moss Warranty Act and New York General Business Law Section 349.  The claims relate to the warranty provided with the Invicta watch that the plaintiff allegedly purchased through the Company.  Plaintiff alleges that the defendants breached the warranty, failed to discloseaggregate, will have a material information and\or made false representations concerning the warranty.  This case is pled as a putative class action, which means that the plaintiff seeks to represent a class of all other similarly situated individuals who purchased an Invicta watch through the Company.  The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, injunctive relief, costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper. Given the uncertainty of litigation, the preliminary stage of this case and the legal standards that must be met for, among other things, class certification, the Company cannot reasonably estimate the possible loss or range of loss that may result from this action.
On June 29, 2017, a purported class action case was filed by an individual, Betty Gregory, against the Company in the United States District Court for the Central District of California, asserting claims under the federal Telephone Consumer Protection Act (“TCPA”).  The plaintiff alleges that the Company unlawfully contacted heradverse effect on her cellular telephone without her prior express consent.  This case is pled as a putative class action, and the plaintiff seeks to represent a class of all other individuals who received telephone calls similar to the ones she allegedly received from the Company and the Company's third-party collection vendors.  The TCPA provides for recovery of actual damagesoperations or $500 for each violation, whichever is greater. If it is determined that a defendant acted willfully or knowingly in violating the TCPA, the amount of the award may be increased by up to three times the amount provided above. The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, injunctive relief, costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper. Given the uncertainty of litigation, the preliminary stage of this case and the legal standards that must be met for, among other things, class certification, the Company cannot reasonably estimate the possible loss or range of loss that may result from this action.consolidated financial statements.

(11) Related Party Transactions(12) Executive and Management Transition Costs
Relationship with GE Equity, Comcast and NBCU
UntilOn April 29, 2016, the Company was a party to an amended and restated shareholder agreement, dated February 25, 2009 (the “GE/NBCU Shareholder Agreement”), with GE Equity and NBCU, which provided for certain corporate governance and standstill matters (as described further below). NBCU is an indirect subsidiary of Comcast Corporation (“Comcast”). The Company believes that as of July 29, 2017, the direct equity ownership of NBCU in the Company consists of 2,741,849 shares of common stock, or approximately 4.2% of the Company’s current outstanding common stock. The Company has a significant cable

distribution agreement with Comcast and believes that the terms of the agreement are comparable to those with other cable system operators.
In an SEC filing made on August 18, 2015, GE Equity disclosed that on August 14, 2015, it and ASF Radio, L.P. (“ASF Radio”), an independent third party to Evine, entered into a Stock Purchase Agreement pursuant to which GE Equity agreed to sell 3,545,049 shares of the Company’s common stock, which is all of the shares GE Equity then owned, to ASF Radio for $2.15 per share. According to the SEC filing, ASF Radio is an affiliate of Ardian, an independent private equity investment company. The closing of this sale (the “GE/ASF Radio Sale”) occurred on April 29, 2016. In connection with the GE/ASF Radio Sale, the GE/NBCU Shareholder Agreement was terminated and11, 2018, the Company entered into a transition and separation agreement with its Executive Vice President, Chief Operating Officer/Chief Financial Officer, under which his position terminated on April 16, 2018 and he served as a non-officer employee until June 1, 2018. On April 11, 2018, the Company announced the appointment of a new Shareholder Agreement (the “NBCU Shareholder Agreement”) with NBCU described below.
GE/NBCU Shareholder Agreement
The GE/NBCU Shareholder Agreement that was terminated April 29, 2016 provided that GE Equity was entitled to designate nominees for three members of the Company's Board of Directors so long as the aggregate beneficial ownership of GE Equity and NBCU (and their affiliates) was at least equal to 50% of their beneficial ownershipChief Financial Officer, effective as of February 25, 2009 (i.e., beneficial ownershipApril 16, 2018. In conjunction with this executive change as well as other executive and management terminations made during the first six months of approximately 8.7 million common shares) (the “50% Ownership Condition”), and two members of the Company's Board of Directors so long as their aggregate beneficial ownership was at least 10% of the shares of “adjusted outstanding common stock,” as defined in the GE/NBCU Shareholder Agreement (the “10% Ownership Condition”). In addition, the GE/NBCU Shareholder Agreement provided that GE Equity may designate any of its director-designees to be an observer of the audit, human resources and compensation, and corporate governance and nominating committees of the Company's Board of Directors. Neither GE Equity nor NBCU currently has, or during fiscal 2017 had, any designees serving on the Company's Board of Directors or committees.
The GE/NBCU Shareholder Agreement required that2018, the Company obtain the consent of GE Equity before the Company (i) exceed certain thresholds relatingrecorded charges to the issuance of securities, the payment of dividends, the repurchase or redemption of common stock, acquisitions (including investmentsincome totaling $0 and joint ventures) or dispositions, and the incurrence of debt; (ii) enter into any business different than the business in which the Company and its subsidiaries are currently engaged; and (iii) amend the Company's articles of incorporation to adversely affect GE Equity and NBCU (or their affiliates); provided, however, that these restrictions would no longer apply when both (1) GE Equity is no longer entitled to designate three director nominees, and (2) GE Equity and NBCU no longer hold any Series B preferred stock. The Company was also prohibited from taking any action that would cause any ownership interest by us in television broadcast stations from being attributable to GE Equity, NBCU or their affiliates.
Stock Purchase from NBCU
On January 31, 2017, the Company purchased from NBCU 4,400,000 shares of the Company's common stock, representing approximately 6.7% of shares then outstanding,$1,024,000 for approximately $5 million or $1.12 per share, pursuant to the Repurchase Letter Agreement. Following the Company's share purchase, the direct equity ownership of NBCU in the Company consisted of 2,741,849 shares of common stock, or 4.5% of the Company's outstanding common stock. The NBCU Shareholder Agreement was terminated pursuant to the Repurchase Letter Agreement.
NBCU Shareholder Agreement
The Company was a party to the NBCU Shareholder Agreement until it was terminated pursuant to the Repurchase Letter Agreement on January 31, 2017. The NBCU Shareholder Agreement replaced the GE/NBCU Shareholder Agreement. The NBCU Shareholder Agreement provided that as long as NBCU or its affiliates beneficially own at least 5% of the Company's outstanding common stock, NBCU is entitled to designate one individual to be nominated to the Company’s Board of Directors. In addition, the NBCU Shareholder Agreement provided that NBCU may designate its director designee to be an observer of the audit, human resources and compensation, and corporate governance and nominating committees of the Company's Board of Directors. In addition, the NBCU Shareholder Agreement required the Company to obtain the consent of NBCU prior to the Company's adoption or amendment of any shareholder’s rights plan or certain other actions that would impede or restrict the ability of NBCU to acquire the Company's voting stock or our taking any action that would result in NBCU being deemed to be in violation of the Federal Communications Commission multiple ownership regulations.
The NBCU Shareholder Agreement also provided that unless NBCU beneficially owned less than 5% or more than 90% of the adjusted outstanding shares of common stock, NBCU could not sell, transfer or otherwise dispose of any securities of the Company subject to limited exceptions for (i) transfers to affiliates, (ii) third party tender offers, (iii) mergers, consolidations and reorganizations and (iv) transfers pursuant to underwritten public offerings or transfers exempt from registration under the Securities Act (provided, in the case of (iv), such transfers would not result in the transferee acquiring beneficial ownership in excess of 20%).

Registration Rights Agreement
On February 25, 2009, the Company entered into an amended and restated registration rights agreement that, as further amended, provided GE Equity, NBCU and their affiliates and any transferees and assigns, an aggregate of five demand registrations and unlimited piggy-back registration rights. In connection with the GE/ASF Radio Sale, an amendment to the Amended and Restated Registration Rights Agreement was entered into removing GE Equity as a party and adding ASF Radio, L.P. as a party.
2015 Letter Agreement with GE Equity
On July 9, 2015, the Company entered into a letter agreement with GE Equity pursuant to which GE Equity consented to the Company's adoption of a Shareholder Rights Plan in consideration for the Company's agreement to provide GE Equity, NBCU and certain of their respective affiliates with exemptions from the Shareholder Rights Plan. GE Equity’s consent was required pursuant to the terms of the GE/NBCU Shareholder Agreement. This discussion is a summary of the terms of the letter agreement. In the letter agreement, the Company agreed that if any of GE Equity, NBCU or any of their respective affiliates that holds shares of the Company's common stock from time to time (each a “Grandfathered Investor”) sells or otherwise transfers shares of the Company's common stock currently owned by such Grandfathered Investor to any third party identified to the Company in writing (any such third party, an “Exempt Purchaser”), the Company will take all actions necessary under the Shareholder Rights Plan so that such third party will not be deemed an Acquiring Person (as defined in the Shareholder Rights Plan) by virtue of the acquisition of such shares. The Company further agreed that, subject to certain limitations, upon request of any Grandfathered Investor or Exempt Purchaser, and in connection with a transfer by such Grandfathered Investor or Exempt Purchaser of shares of the Company's common stock to an Exempt Purchaser, the Company will enter into an agreement with the acquiring Exempt Purchaser granting such acquiring Exempt Purchaser substantially the same rights as set forth above with respect to any sale of the Company's outstanding shares of common stock to any other third party. Additionally, the Company agreed that without the consent of any Grandfathered Investor that is an affiliate of GE Equity and any Grandfathered Investor that is an affiliate of NBCU, the Company will not (i) amend the Shareholder Rights Plan in any material respect, other than to accelerate the Expiration Date or the Final Expiration Date, (ii) adopt another shareholders’ rights plan or (iii) amend the letter agreement.
Director Relationships
The Company entered into a service agreement with Newgistics, Inc. ("Newgistics") in fiscal 2004. Newgistics provides offsite customer returns consolidation and delivery services to the Company. The Company's Chief Executive Officer, Robert Rosenblatt, is a member of Newgistics Board of Directors. The Company made payments to Newgistics totaling approximately $1,141,000 and $2,286,000 during the three and six-month periodssix-months ended July 29, 2017 and payments totaling approximately $1,069,000 and $2,534,000 during the three and six-month periods ended July 30, 2016.
One of the Company's directors, Thomas Beers, has a minority interest in one of the Company's on air food suppliers. The Company made inventoryAugust 4, 2018, which relate primarily to severance payments to this supplier totaling approximately $480,000 and $826,000 during the three and six-month periods ended July 29, 2017 and payments totaling approximately $354,000 and $1,223,000 during the three and six-month periods ended July 30, 2016.

(12) Distribution Facility Expansion, Consolidation & Technology Upgrade
During fiscal 2014, the Company began a significant operational expansion initiative with respect to overall warehousing capacity and new equipment and system technology upgrades at the Company's Bowling Green, Kentucky distribution facility. During fiscal 2015, the Company expanded our 262,000 square foot facility to an approximately 600,000 square foot facility and moved out of the Company's leased satellite warehouse space. The updated facilities and technology upgrade includes a new high-speed parcel shipping and item sortation system coupled with a new warehouse management system to support the Company's increased level of shipments and a new call center facility to better serve our customers. The new sortation and warehouse management system were phased into production through fiscal 2016. Total cost of the physical building expansion, new sortation equipment and call center facility was approximately $25 million and was financed with the Company's expanded PNC revolving line of credit and a $15 million PNC term loan.
Asbe made as a result of the Company's distribution facility expansion, consolidationexecutive officer and technology upgrade initiative, the Company incurred $0 in incremental expenses during the threeother management terminations and six month periods ended July 29, 2017 and approximately $300,000 and $380,000 in incremental expenses during the three and six month periods ended July 30, 2016 related primarily to increased labor and trainingother direct costs associated with the Company’s warehouseCompany's 2018 executive and management system migration.


(13) Executive and Management Transition Coststransition.
On March 23, 2017, the Company announced the elimination of the position of Senior Vice President of Sales & Product Planning. In conjunction with this executive change as well as other executive and management terminations made during the first six months of fiscal 2017, the Company recorded charges to income totaling $572,000 and $1,078,000 for the three and six-months ended July 29, 2017, which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the Company's 2017 executive and management transition.
On February 8, 2016, the Company announced the resignation of two executive officers, namely its Chief Executive Officer, and its Executive Vice President - Chief Strategy Officer & Interim General Counsel. In conjunction with these executive changes as well as other executive and management terminations made during the first six months of fiscal 2016, the Company recorded charges to income totaling $242,000 and $3,843,000 for the three and six-months ended July 30, 2016, which relate primarily to severance payments to be made as a result of the executive officer terminations and other direct costs associated with the Company's 2016 executive and management transition. On August 18, 2016, the Company announced that Robert Rosenblatt was appointed permanent Chief Executive Officer and entered into an executive employment agreement with Mr. Rosenblatt.

(14)Subsequent Event
Sale of Boston Television Station, WWDP
On August 28, 2017, the Company entered into a channel sharing and facilities agreement (the “Channel Sharing Agreement”) with NRJ Boston OpCo, LLC and NRJ TV Boston License Co., LLC (collectively, “NRJ”) to allow NRJ to operate its local Boston television station on one-third of the spectrum used in the operation of the Company's television broadcast station, WWDP(TV), Norwell, Massachusetts (the “Station”), in perpetuity. The total consideration payable to the Company under the Channel Sharing Agreement is $3.5 million, with $2.5 million being payable upon grant of a required construction permit by the FCC and the balance being payable upon the closing of a sale of substantially all of the assets used by the Company in the operation of the Station or the transfer of the equipment necessary for channel sharing among the Company and NRJ to a newly formed entity.
On August 28, 2017, the Company also entered into an asset purchase agreement to sell substantially all of the assets primarily related to the Station to affiliates of WRNN-TV Associates Limited Partnership (“Buyers”). The purchase price for the Station's assets is $10.0 million in cash, subject to an escrow holdback amount of $1.0 million, which is payable to the Company when the Station is being carried by certain designated carriers at or following the closing of the transaction. The escrow holdback is payable back to the Buyers in monthly installment beginning approximately 14 months after the closing if the station is not being carried by certain designated carriers. The asset purchase agreement includes customary representations, warranties, covenants and indemnification obligations of the parties. The sale of assets pursuant to the purchase agreement is expected to close in the fourth quarter of fiscal 2017 or the first quarter of fiscal 2018 following receipt of specified regulatory approvals from the FCC and satisfaction of the other closing conditions in the asset purchase agreement.
The Company plans to use the proceeds received from the transaction to pay in full the remaining amounts due under the Company's term loan with GACP, with the remaining proceeds used for general working capital purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended January 28, 2017February 3, 2018.
Cautionary Statement RegardingConcerning Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are

forward-looking. We often use words such as anticipates, believes, estimates, expects, intends, predicts, hopes, should, plans, will and similar expressions to identify forward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): variability in consumer preferences, shopping behaviors, spending and debt levels;

the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales;sales and sales promotions; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor and shipping relationships and develop key partnerships and proprietary and exclusive brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facilities covenants; customer acceptance of our branding strategy and our repositioning as a video commerce company; the market demand for television station sales;our ability to respond to changes in consumer shopping patterns and preferences, and changes in technology and consumer viewing patterns; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements, including without limitation, regulations of the Federal Communications Commission and Federal Trade Commission, and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant public events (including disasters, weather events or events attracting significant television coverage) that are difficult to predict, or other significant television-covering events causingeither cause an interruption of television coverage or that directly compete with thedivert viewership from our programming; disruptions in our distribution of our programming;network broadcast to our customers; our ability to protect our intellectual property rights; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; expenses relating to the actions of activist or hostile shareholders; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits of television programming; and the risks identified under “Risk Factors” in our most recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our Company
We are a multiplatform videointeractive digital commerce company that offers a mix of proprietary, exclusive and name brands directly to consumers in an engaging and informative shopping experience through TV, online and mobile devices. We operate a 24-hour television shopping network, Evine, which is distributed primarily on cable and satellite systems, through which we offer proprietary, exclusive and name brandname-brand merchandise in the categories of jewelry & watches;watches, home & consumer electronics; beauty;electronics, beauty & wellness, and fashion & accessories.accessories directly to consumers 24 hours a day in an engaging and informative shopping experience. Evine programming is distributed in more than 87 million homes through cable and satellite distribution agreements, agreements with telecommunications companies and over-the-air broadcast television stations. Our programming is also streamed live online at evine.com and is available on mobile channels and over-the-top platforms. We also operate evine.com, a comprehensive digital commerce platform that sells products which appear on our television shopping network as well as an extended assortment of online-only merchandise. Our programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.
Our investor relations website address is http://investors.evine.com/overview/default.aspx. Our goal is to maintain the investor relations website as a way for investors to find information about us easily, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. We also make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to these filings as soon as practicable after that material is electronically filed with or furnished to the SEC.  The information found on our website is not part of this or any other report we file with, or furnish to, the SEC.
Products and Customers
Products sold on our videodigital commerce platforms include jewelry & watches, home & consumer electronics, beauty & wellness, and fashion & accessories. Historically jewelry & watches has been our largest merchandise category. While changes in our product mix have occurred as a result of customer demand and other factors including our efforts to diversify our offerings within our major merchandise categories, jewelry & watches remained our largest merchandise category during the first six months of fiscal 2017.2018. We are focused on diversifying our merchandise assortment both amongwithin our existing product categories as well as with potentiallyby offering potential new product categories, including proprietary, exclusive and name brands, in an effort to increase revenues, gross profits and to grow our new and active customer base. The following table shows our merchandise mix as a percentage of total videodigital commerce net merchandise sales for the three and six-month periods indicated by product category group. Certain

fiscal 2017 product category percentages in the accompanying table have been reclassified to conform to our fiscal 2018 product category groupings.
 For the Three-Month For the Six-Month For the Three-Month For the Six-Month
 Periods Ended Periods Ended Periods Ended Periods Ended
 July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
 August 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
Net Merchandise Sales by Category          
Jewelry & Watches 40% 41% 41% 42% 40% 40% 40% 41%
Home & Consumer Electronics 23% 21% 22% 22% 21% 22% 22% 21%
Beauty 16% 16% 16% 16%
Beauty & Wellness 21% 17% 20% 17%
Fashion & Accessories 21% 22% 21% 20% 18% 21% 18% 21%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand, as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute. Our core videodigital commerce customers — those who interact with our network and transact through television, online and mobile devices — are primarily women between the ages of 45 and 70. We also have a strong presence of male customers of similar age. We believe our customers make purchases based on our unique products, quality merchandise and value.
Company Strategy
As a multiplatform videointeractive digital commerce company, our strategy includes offering an excitingour curated assortment of proprietary, exclusive (i.e., products that are not readily available elsewhere), emerging and name brand products usingname-brand products. Our programming is distributed through our video commerce infrastructure, which includes television access to more than 87 million cable and satellite homes in the United States.States, primarily on cable and satellite systems. We are also focused on growing our high lifetime value customer file and growing our revenues, through social, mobile, online, and Over-the-Top platforms, as well as exploring online only and thoughtful brick and mortar retailing partnerships.over-the-top platforms.
Our merchandising plan is focused on delivering a balanced assortment of profitable proprietary, exclusive, emerging and name brandname-brand products presented in an engaging, entertaining, shopping-centric format.format using our unique expertise in storytelling. To enhance the shopping experience for our customers, we will continue to work hard to engage our customers more intelligently by leveraging the use of predictive analytics and interactive marketing to drive personalization and relevancy to each experience. In addition, we will continue to find new methods, territories, technologies and channels to distribute our video commerce programming beyond the television screen, including "live on location" entertainment and enhancing our social advertising. We believe these initiatives will position us as a multiplatform videointeractive digital commerce company that delivers a more engaging and enjoyable customer experience with sales and service that exceed customer expectations.
Program Distribution
Our 24-hour television shopping networks,programs, Evine and Evine Too, which are distributed primarily on cable and satellite systems, reached more than 87 million homes or full time equivalent subscribers, during the three and six months ended August 4, 2018 and July 29, 2017 and July 30, 2016.2017.  Our television home shopping programming is also simulcast 24 hours a day, 7 days a week on our online website, evine.com, broadcast over-the-air in certain markets and is also available on all mobile channels and on various video streaming applications, such as Roku and Apple TV.  This multiplatform distribution approach, complemented by our strong onlinemobile and mobileonline efforts, will ensure that Evineour programming is available wherever and whenever our customers choose to shop.
In addition to our total homes reached, we continue to increase the number of channels on existing distribution platforms and alternative distribution methods, and part-time carriage in strategic markets, including securing a deal in the second quarter of fiscal 2017 to launch our networkprogramming on a high definition ("HD") channel in more than 10 million high definitiontelevision homes induring the next six months.second half of 2017.  We believe that our distribution strategy of pursuing additional channels in productive homes we are already inreceiving our programming is a more balanced approach to growing our business than merely adding new television homes in untested areas.  We are also investinginvested in high definition ("HD")HD equipment and, have made low-cost infrastructure investments that have enabled us to launch an up-converted version of our digital signal in a HD format and that improved the appearance of our primary network feed. We expect to transition to a full HD signal starting in the third quarter of fiscal 2017.2017, transitioned to a full HD signal. We believe that having an HD feed of our service provides a better customer experience and allows us to attract new viewers and customers.
Cable and Satellite Distribution Agreements
We have entered into distribution agreements with cable operators, direct-to-home satellite providers and telecommunications companies to distribute our television programming over their systems. The terms of the affiliation agreements typically range from one to five years. During the fiscal year, certain agreements with cable, satellite or other distributors may expire. Under certain circumstances, the cable operators or we may cancel the agreements prior to their expiration. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service

so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television programming.
Our Competition
The videodigital commerce retail business is highly competitive, and we are in direct competition with numerous retailers, including online retailers, many of whom are larger, better financed and have a broader customer base than we do. In our television shopping and digital commerce operations, we compete for customers with other television shopping and e-commerce retailers, infomercial companies, other types of consumer retail businesses, including traditional "brick and mortar" department stores, discount stores, warehouse stores and specialty stores; catalog and mail order retailers and other direct sellers.
Our direct competitors within the television shopping industry include QVC, Inc. and HSN, Inc. QVC is, which are owned by Liberty Interactive Corporation, which recently announced an agreement to purchase an additional 62% of HSN,Qurate Retail, Inc. to increase its holdings in HSN, Inc. to 100%. Both QVC, Inc. and HSN, Inc. are substantially larger than we are in terms of annual revenues and customers, and the programming of each is carried more broadly to U.S. households, including high definition bands and multi-channel carriage, than our programming. Multimedia Commerce Group, Inc., which operates Jewelry Television, also competes with us for customers in the jewelry category. Furthermore, in 2016, Amazon.com, Inc. ("Amazon") launched a live television program, Style Code Live, which features products that viewers can order online. This program, and any additional similar programs that Amazon may offer in the future, may compete with us. In addition, there are a number of smaller niche playersretailers and startups in the television shopping arena who compete with us. We believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do, and that their fee arrangements are substantially on a commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our current sales level, our distribution costs as a percentage of total consolidated net sales are higher than those of our competition. However, one of our strategies is to maintain our fixed distribution cost structure in orderwe have the ability to leverage this fixed expense with sales growth to accelerate improvement in our profitability.
We anticipate continued competition for viewers and customers, for experienced television shopping and e-commerce personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies, but also from other companies that seek to enter the television shopping and online retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that our ability to be successful in the video commerce industry will be dependent on a number of key factors, including continuing to expand our digital footprint to meet our customers' needs, increasing the lifetime value of our customer base by a combination of growing the number of customers who purchase products from us and increasingmaximizing the dollar value of sales profitability per customer from our existing customer base.customer.
Summary Results for the Second Quarter of Fiscal 20172018
Consolidated net sales for our fiscal 20172018 second quarter were approximately $148.9$150.8 million compared to $157.1$148.9 million for our fiscal 20162017 second quarter, which represents a 5% decrease.1.2% increase. We reported operating income of $869,000 and a net loss of $40,000 for our fiscal 2018 second quarter. We had an operating loss of approximately $471,000 and a net loss of approximately $2.0 million for our fiscal 2017 second quarter. The operating and net loss for the fiscal 2017 second quarter included charges relating to executive and management transition costs totaling $572,000. We had an operating loss of $174,000 and a net loss of approximately $2.0 million for our fiscal 2016 second quarter. The operating and net loss for the fiscal 2016 second quarter included charges relating to executive and management transition costs totaling $242,000 and distribution facility consolidation and technology upgrade costs totaling $300,000.
Consolidated net sales for the first six months of fiscal 20172018 were approximately $305.3$307.3 million compared to $324.1$305.3 million for the first six months of fiscal 2016,2017, which represents a 6% decrease.0.7% increase. We reported an operating loss of approximately $1.1 million and a net loss of approximately$3.0 million for the first six months of fiscal 2018. The operating and net loss for the first six months of fiscal 2018 included charges relating to executive and management transition costs totaling $1.0 million and contract termination costs of $753,000. We reported an operating loss of $1.1 million and a net loss of $5.2 million for the first six months of fiscal 2017. The operating and net loss for the first six months of fiscal 2017 included charges relating to executive and management transition costs totaling $1.1 million. The net loss for the first six months of fiscal 2017 also included a loss on debt extinguishment of $913,000. We had an operating loss of $3.7 million and a net loss of $6.9 million for the first six months of fiscal 2016. The operating and net loss for the first six months of fiscal 2016 included charges relating to executive and management transition costs totaling $3.8 million and distribution facility consolidation and technology upgrade costs totaling $380,000.
Registered Direct Offering
On May 30, 2017, we sold 4,008,273 shares of common stock in a registered direct offering to certain accredited investors. The shares were sold at a price of $1.12 per share, except for shares purchased by our directors and executive officers, which were sold at a price of $1.15 per share. We received gross proceeds of approximately $4.5 million and incurred approximately $323,000 of issuance costs. We have used the proceeds for general working capital purposes.


Results of Operations
Selected Condensed Consolidated Financial Data
Operations

 
Dollar Amount as a
Percentage of Net Sales for the
 
Dollar Amount as a
Percentage of Net Sales for the
 
Dollar Amount as a
Percentage of Net Sales for the
 
Dollar Amount as a
Percentage of Net Sales for the
 Three-Month Periods Ended Six-Month Periods Ended Three-Month Periods Ended Six-Month Periods Ended
 July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
 August 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
            
Gross margin 37.9% 38.1% 36.9% 37.4% 37.7% 37.9% 36.8% 36.9%
Operating expenses:                
Distribution and selling 32.7% 32.8% 31.9% 32.4% 31.8% 32.7% 31.5% 31.9%
General and administrative 4.0% 3.7% 3.9% 3.6% 4.3% 4.0% 4.3% 3.9%
Depreciation and amortization 1.1% 1.3% 1.1% 1.3% 1.0% 1.1% 1.0% 1.1%
Executive and management transition costs 0.4% 0.2% 0.3% 1.2% —% 0.4% 0.3% 0.3%
Distribution facility consolidation and technology upgrade costs —% 0.2% —% 0.1%
 38.2% 38.2% 37.2% 38.6% 37.1% 38.2% 37.1% 37.2%
Operating loss (0.3)% (0.1)% (0.3)% (1.2)%
Operating income (loss) 0.6% (0.3)% (0.3)% (0.3)%

Key Performance Metrics

For the Three-Month For the Six-MonthFor the Three-Month For the Six-Month
Periods Ended Periods EndedPeriods Ended Periods Ended
July 29,
2017
 July 30,
2016
 Change July 29,
2017
 July 30,
2016
 ChangeAugust 4,
2018
 July 29,
2017
 Change August 4,
2018
 July 29,
2017
 Change
Merchandise Metrics        
Gross margin %37.9% 38.1% (20) bps 36.9% 37.4% (50) bps37.7% 37.9% (20) bps 36.8% 36.9% (10) bps
Net shipped units (000's)2,423 2,461 (2)% 5,003 4,878 3%
Net shipped units (in thousands)2,462 2,423 2% 4,934 5,003 (1)%
Average selling price$55 $57 (4)% $54 $59 (8)%$55 $55 —% $56 $54 4%
Return rate19.1% 19.8% (70) bps 19.0% 19.4% (40) bps18.7% 19.1% (40) bps 18.8% 19.0% (20) bps
Digital net sales % (a)48.1% 47.9% 20 bps 49.4% 48.4% 100 bps52.6% 48.1% 450 bps 52.8% 49.4% 340 bps
Total Customers - 12 Month Rolling (000's)1,377 1,447 (5)% N/A N/A 
Total Customers - 12 Month Rolling (in thousands)1,255 1,377 (9)% N/A N/A 
(a) Digital net sales percentage is calculated based on net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online.


Net Shipped Units
The number of net shipped units (shipped units less units returned) during the fiscal 20172018 second quarter decreasedincreased 2% from the prior year comparable quarter to approximately 2.42.5 million. For the six months ended July 29, 2017,August 4, 2018, net shipped units increased 3%decreased 1% from the prior year comparable period to 5.04.9 million. The decreaseincrease in net shipped units during the second quarter of fiscal 20172018 was driven primarily by a 5% decreasean increase in consolidated net sales, (as discussed below), partially offset by a 4%specifically our beauty & wellness product category. The decrease in our average selling price (as discussed below). We believe the increase in net shipped units during the first six months of fiscal 2017 reflects the continued broadening of our merchandise assortment and2018 was primarily driven by offering a decline in ourhigher average selling price (as discussed below),("ASP") assortment in our jewelry & watches and home & consumer electronics categories, partially offset by a 6% decreasean increase in consolidated net sales (as discussed below).sales.
Average Selling Price
The average selling price ("ASP")ASP per net unit was $55 in the second quarters of fiscal 2017 second quarter, a 4% decrease from the prior year quarter.2018 and fiscal 2017. For the six months ended July 29, 2017,August 4, 2018, the ASP was $54, an 8% decrease$56, a 4% increase from the prior year comparable period. The decreasesincrease in the year-to-date ASP werewas primarily driven by a sales mix shift into our home and fashion & accessories categories, which typically have lower average selling prices, and out ofASP increases in our jewelry & watches and home & consumer electronics product categories. In addition, we experienced ASP decreases within our fashion & accessories and beauty product categories. The ASP decrease, for the six months ended July 29, 2017, contributed to our increase in net shipped units of 3%.
Return Rates
For the three months ended July 29, 2017,August 4, 2018, our return rate was 19.1%18.7% compared to 19.8%19.1% for the comparable prior year quarter, a 7040 basis point decrease. For the six months ended July 29, 2017,August 4, 2018, our return rate was 19.0%18.8% compared to 19.4%19.0% for the comparable prior year period, a 4020 basis point decrease. These decreases in the return rates were driven primarily by rate improvements across alllower return rates experienced in our beauty & wellness and jewelry & watches product categories. We believe that the improvement in the category return rates were driven by the decreases in ASP, as described above, our strong product assortment and improvement in the quality of merchandise. We continue to monitor our return rates in an effort to keep our overall return rates commensurate with our current product mix and our average selling price levels.
Total Customers
Total customers who have purchased over the last twelve months decreased 5%9% over the prior year to approximately 1.41.3 million. The decrease was driven by a reduction in new customers over the prior year, partially offset by improvements achievedyear. Our loyal customer group remains strong and is driving growth in our customer retentionpurchase frequency, average spend and reactivation. As a resultlifetime value. During the second quarter of our efforts during fiscal 2016 and 2017 to re-balance our merchandising mix, including the reduction of our offering of consumer electronic products, we believe our twelve-month customer file is now comprised of2018, total customers who have made a significantly higher purchase frequency and lifetime value.during the quarter decreased 3% over the prior year comparable quarter.
Net Sales
Consolidated net sales, inclusive of shipping and handling revenue, for the fiscal 20172018 second quarter were approximately $148.9$150.8 million as compared with $157.1$148.9 million for the comparable prior year quarter, a 5% decrease.1.2% increase. Consolidated net sales, inclusive of shipping and handling revenue, for the first six months ended July 29, 2017August 4, 2018 were approximately $305.3$307.3 million as compared with $324.1$305.3 million for the comparable prior year period, a 6% decrease.0.7% increase.
The decreaseincrease in quarterly consolidated net sales was driven primarily by our beauty & wellness product category, partially offset by decreases in our jewelry & watches, fashion & accessories and home & consumer electronics product categories. Beauty & wellness increased during the second quarter as a result of increased productivity, an increase in airtime and growth in subscription sales. The decreases in fashion & accessories and home & consumer electronics resulted from a reduction in airtime and decreased productivity in our fashion & accessories category. The increase in year-to-date consolidated net sales was driven primarily by our beauty categories,& wellness product category, partially offset by decreases in our fashion & accessories and jewelry & watches categories and a decrease in our shipping and handling revenue. Beauty & wellness increased during the first six months as a result of increased productivity, an increase in our home category.airtime and growth in subscription sales. The decrease in the fashion & accessories category was primarily driven by decreased productivity. Jewelry & watches decreased during the second quarterfirst six months as a result of a shift in airtime from jewelry & watches into the home category. The decrease in fashion & accessories was a result of reduced productivity during the quarter. These decreases were partially offset by an increase in the home product category as a result of increased airtime and the successful launch of new brands. The decrease in year-to-date consolidated net sales was driven primarily by decreases in our watches consumer electronicscategory into our beauty & wellness and beauty productother categories. The decrease in watches was a result of reduced airtime and productivity during the first six months of fiscal 2017 as a result of a shift in airtime from watches into the home category and testing of some lower watch price point offerings designed to grow our customers with a high lifetime value. Consumer electronics decreased during the first six months of fiscal 2017 as we continue to shift our airtime and product mix from consumer electronics to our other higher margin product categories. The decrease in the beauty category was primarily driven by reduced productivity.
Our digital sales penetration, or, the percentage of net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online, was 52.6% and 52.8% compared to 48.1% and 49.4% compared to 47.9% and 48.4% for the second quarter and first six months of fiscal 20172018 compared to fiscal 2016.2017. Overall, we continue to deliver strong digital sales penetration. We believe the increase in penetration during the periodperiods was driven by our improved digital marketing initiatives and an enhanced responsive customer experience on mobile devices. Our mobile penetration increased to 49.4%55.7% and 48.7%52.5% of total digital orders

in the second quarter and first six months of fiscal 20172018 versus 45.2%49.4% and 45.4%48.7% of total digital orders for the comparable prior year periods.
Gross Profit
Gross profit for the fiscal 2017 second quarter andof fiscal 20162018 was $56.9 million, an increase of $390,000, or 0.7%, compared to the second quarter was approximately $56.5 million and $59.8 million, a decrease of $3.3 million, or 6%.fiscal 2017. Gross profit for the first six months ended August 4, 2018 was $113.1 million, an increase of $359,000, or 0.3%, compared to the first six months ended July 29, 2017 was approximately $112.8 million, a decrease of $8.5 million, or 7%, from $121.3 million for the comparable prior year period.2017. The decreaseincrease in gross profits experiencedprofit during the second quarter and first six months of fiscal 20172018 was primarily driven by a 5% and 6% decreasethe increase in consolidated net sales, (as discussed above) andpartially offset by lower gross marginprofit percentages experienced.experienced and costs incurred during the first quarter for contract termination costs of $753,000. Gross margin percentages for the second quarters of fiscal 20172018 and fiscal 20162017 were 37.9%37.7% and 38.1%37.9%, a 20 basis point decrease. The decrease in the gross margin percentage reflects reduceddecreased margin rates, specifically in our jewelry & watches and fashion & accessories, home & consumer electronics and jewelry product categories, partially offset by increaseda shift in product mix from consumer electronics in favor of our beauty & wellness product category, which has higher margin rates experienced in our home product category.percentages. Gross margin percentages for the first six months of fiscal 20172018 and fiscal 20162017 were 36.9%36.8% and 37.4%36.9%, a 5010 basis point decrease. The decrease in the gross margin percentage reflects reducedthe contract termination costs, partially offset by increased margin rates, specifically in our jewelrybeauty & watches and fashion & accessorieswellness product categories.category.
Operating Expenses
Total operating expenses for the fiscal 20172018 second quarter were approximately $57.0$56.0 million compared to $60.0$57.0 million for the comparable prior year period, a decrease of 5%1.7%. Total operating expenses for the six months ended July 29, 2017August 4, 2018 were approximately $113.8$114.2 million compared to $125.0$113.8 million for the comparable prior year period, a decreasean increase of 9%0.3%. Total operating expenses as a percentage of net sales were 38.2%37.1% and 37.2%37.1%, compared to 38.2% and 38.6%37.2% during the second quarters and first six months of fiscal 20172018 and fiscal 2016.2017. Total operating expenses for the fiscal 2017 second quarter includeincluded executive and management transition costs of $572,000, while total operating expenses for the fiscal 2016 second quarter include executive and management transition costs of $242,000 and distribution facility consolidation and technology upgrade costs of $300,000.$572,000. Total operating expenses for the six months ended July 29, 2017 includeAugust 4, 2018 included executive and management transition costs of $1.1$1.0 million, while total operating expenses for the six months ended July 30, 2016 include 29, 2017 included

executive and management transition costs of $3.8 million and distribution facility consolidation and technology upgrade costs of $380,000.$1.1 million. Excluding executive and management transition costs and distribution facility consolidation and technology upgrade costs, total operating expenses as a percentage of net sales for the second quarter and first six months of fiscal 20172018 were 37.8%37.1% and 36.9%36.8%, compared to 37.8% and 37.3%36.9% for fiscal 2016.2017.
Distribution and selling expense decreased $2.9$729,000, or 1.5%, to $48.0 million, or 6%, to $48.7 million, or 32.7%31.8% of net sales during the fiscal 20172018 second quarter compared to $51.6$48.7 million, or 32.8%32.7% of net sales for the comparable prior year fiscal quarter. Distribution and selling expense decreased during the quarter due in part to decreased program distribution expense of $3.3 million relating to contract negotiations and changes in channel positioning, partially offset by an increase in over-the-air and other forms of distribution. The decrease over the prior year quarter was also due to decreased accrued incentive compensation of $712,000 and decreased variable costs of $465,000, partially offset by increased salaries and benefits$1.2 million, decreased software service fees of $1.3 million and increased$153,000, decreased online selling and search fees of $366,000.$147,000 and decreased share-based compensation expense of $107,000. The decrease in variable costsdistribution and selling expense was primarily driven by decreased variable fulfillment and customer service salaries and wages of $628,000 and decreased variable credit card processing fees and bad debt credit expense of $610,000, partially offset by increased customer services telecommunications expenseaccrued incentive compensation of $761,000. Total variable expenses during the second quarter of fiscal 2017 were approximately 9.8% of total net sales versus 9.6% of total net sales for the prior year comparable period. The increase in variable expenses as a percentage of net sales during the second quarter of fiscal 2017 is primarily due to a 4% decrease in our average selling price during the quarter$736,000 and increased customer services telecommunications expense, partially offset by improved efficiencies at our fulfillment center.
Distribution and selling expense decreased $7.6 million, or 7%, to $97.4 million, or 31.9% of net sales during the six months ended July 29, 2017 compared to $105.0 million, or 32.4% of net sales for the comparable prior year period. Distribution and selling expense decreased during the first six months due in part to decreased program distribution expense of $6.5 million relating to contract negotiations and changes in channel positioning, partially offset by an increase in over-the-air and other forms of distribution. The decrease over the prior year period was also due to a decrease in variable costs of $2.1 million, decreased accrued incentive compensation of $1.3 million and decreased software service fees of $312,000, partially offset by increased salaries and benefits of $1.9 million and increased online selling and search fees of $669,000.$246,000. The decrease in variable costs was primarily driven by decreased variable credit card processing fees and bad debt credit expense of $1.7 million,$971,000 and decreased variable fulfillment and customer service salaries and wages of $952,000 and decreased Bowling Green equipment rental expense of $238,000,$318,000, partially offset by increased customer services telecommunications service expense of $661,000.$133,000. Total variable expenses during the first six monthssecond quarter of fiscal 20172018 were approximately 9.7%8.9% of total net sales versus 9.8% of total net sales for the prior year comparable period. The decrease in variable expenses as a percentage of net sales during the first six monthssecond quarter of fiscal 20172018 is primarily due to a decrease in bad debt expense and improved efficiencies at our fulfillment center,center.
Distribution and selling expense decreased $572,000, or 0.6%, to $96.8 million, or 31.5% of net sales during the six months ended August 4, 2018 compared to $97.4 million, or 31.9% of net sales for the comparable prior year period. Distribution and selling expense decreased during the first six months due in part to decreased variable costs of $1.6 million, decreased software service fees of $251,000, decreased production expenses of $210,000 and decreased online selling and search fees of $100,000. The decrease in distribution and selling expense was partially offset by increased salaries and benefits of $538,000, increased accrued incentive compensation of $1.1 million and increased program distribution expense of $356,000. The decrease in variable costs was primarily driven by decreased variable credit card processing fees and bad debt credit expense of $1.2 million and decreased variable fulfillment and customer service salaries and wages of $595,000, partially offset by increased customer services telecommunications expense.

service expense of $189,000. Total variable expenses during the first six months of fiscal 2018 were approximately 9.1% of total net sales versus 9.7% of total net sales for the prior year comparable period. The decrease in variable expenses as a percentage of net sales during the first six months of fiscal 2018 is primarily due to a decrease in bad debt expense, an increase in our ASP and improved efficiencies at our fulfillment center.
To the extent that our average selling price continues to decline,ASP changes, our variable expense as a percentage of net sales could continue to increasebe impacted as the number of our shipped units increase.changes. Program distribution expense is primarily a fixed cost per household, however, this expense may be impacted by changes in the number of average homes or channels reached or by rate changes associated with changes in our channel position with carriers.
General and administrative expense for the fiscal 20172018 second quarter increased $134,000,$509,000, or 2%8%, to approximately $6.0$6.5 million or 4.0%4.3% of net sales, compared to $5.9$6.0 million or 3.7%4.0% of net sales for the comparable prior year fiscal quarter. General and administrative expense increased slightly during the second quarter primarily as a result of increased salaries and benefitsaccrued incentive compensation of $340,000 and increased share-based compensation expense of $292,000, partially offset by$188,000. The increase was also due to a legal settlement received of $244,000 and other general and administrative expense reductionsin the second quarter of $254,000.fiscal 2017. For the six months ended July 29, 2017,August 4, 2018, general and administrative expense increased $360,000, or 3% to approximately $12.0$1.2 million, or 3.9%10.3%, to $13.2 million or 4.3% of net sales, compared to $11.6$12.0 million or 3.6%3.9% of net sales for the comparable prior year fiscal period. For the six months ended July 29, 2017,August 4, 2018, general and administrative expense increased primarily as a result of increased share basedincentive compensation of $623,000$511,000, increased professional fees of $168,000, and salaries and benefitsincreased share-based compensation expense of $374,000, partially offset by$93,000. The increase was also due to a legal settlement received of $244,000 decreased professional fees of $137,000 and other general and administrative expense reductions of $256,000.during the six months ended July 29, 2017.
Depreciation and amortization expense for the fiscal 20172018 second quarter was approximately $1.7decreased $158,000, or 9%, to $1.5 million compared to $2.0$1.7 million for the comparable prior year period, representing a decrease of $297,000 or 15%.period. Depreciation and amortization expense as a percentage of net sales for the three-month periods ended August 4, 2018 and July 29, 2017 was 1.0% and July 30, 2016 was 1.1% and 1.3%. The decrease in the quarterly depreciation and amortization expense was primarily due to decreased depreciation expense of $314,000$158,000 as a result of a reduction in our non-fulfillment depreciable asset base year over year, partially offset by increased amortization expense of $17,000.year. Depreciation and amortization expense for the six months ended July 29, 2017 was approximately $3.3August 4, 2018 decreased $222,000, or 7%, to $3.1 million compared to $4.1$3.3 million for the comparable prior year period, representing a decrease of $768,000 or 19%.period. Depreciation and amortization expense as a percentage of net sales for the six-month periodssix months ended August 4, 2018 and July 29, 2017 was 1.0% and July 30, 2016 was 1.1% and 1.3%. The decrease in the depreciation and amortization expense for the six months ended July 29, 2017,August 4, 2018 was primarily due to decreased depreciation expense of $808,000$222,000 as a result of a reduction in our non-fulfillment depreciable asset base year over year, partially offset by increased amortization expense of $40,000.year.
Operating LossIncome (Loss)
For the fiscal 20172018 second quarter, we reported an operating lossincome of approximately $471,000$869,000 compared to an operating loss of $174,000$471,000 for the fiscal 20162017 second quarter, representing an operating loss increase of $297,000.a $1.3 million improvement. For the six months ended July 29, 2017August 4, 2018, we reported an operating loss of approximately $1.1 million, compared torepresenting an operating loss increase of $3.7 million for$26,000 compared to the comparable prior year period, representing a $2.7 million improvement.period. For the second quarter of fiscal 2017,2018, our operating income improved primarily as a result of a decrease

in distribution and selling expense, a decrease in executive and management transition costs, an increase in gross profit and a decrease in depreciation and amortization expense, partially offset by an increase in general and administrative expense. For the first six months of fiscal 2018, our operating loss increased primarily as a result of decreased gross profit (as noted above) and increases in general and administrative expense and executive and management transition costs, partially offset by decreases in distribution and selling, distribution facility consolidation and technology upgrade costs and depreciation and amortization. For the first six months of fiscal 2017, our operating loss improved primarily as a result of decreases in distribution and selling, executive and management transition costs, depreciation and amortization and distribution facility consolidation and technology upgrade costs, partially offset by a decrease in gross profit (as noted above) and an increase in general and administrative expense.expense, largely offset by a decrease in distribution and selling expense, an increase in gross profit, which included contract termination costs of $753,000, a decrease in depreciation and amortization expense, and a decrease in executive and management transition costs.
Net Loss
For the fiscal 20172018 second quarter, we reported a net loss of approximately $2.0 million$40,000 or $0.03$0.00 per share on 64,091,22866,009,117 weighted average basic common shares outstanding compared with a net loss of $2.0 million or $0.03 per share on 57,258,67264,091,228 weighted average basic common shares outstanding in the fiscal 20162017 second quarter. For the first six months of fiscal 2017,2018, we reported a net loss of approximately $3.0 million or $0.05 per share on 65,685,034 weighted average basic common shares outstanding compared with a net loss of $5.2 million or $0.08 per share on 62,504,868 weighted average basic common shares outstanding compared with a net loss of $6.9 million or $0.12 per share on 57,219,914 weighted average basic common shares outstanding in the first six months of fiscal 2016.2017. Net loss for the second quarter of fiscal 2018 includes interest expense of $898,000. Net loss for the second quarter of fiscal 2017 includes executive and management transition costs of $572,000 and interest expense of $1.3 million.
Net loss for the second quarterfirst six months of fiscal 20162018 includes executive and management transition costs of $242,000, distribution facility consolidation and technology upgrade$1.0 million, contract termination costs of $300,000$753,000 and interest expense of $1.6$1.9 million.
Net loss for the first six months of fiscal 2017 includes executive and management transition costs of $1.1 million, interest expense of $2.8 million and a loss on debt extinguishment of $913,000. Net loss for the first six months of fiscal 2016 includes executive and management transition costs of $3.8 million, distribution facility consolidation and technology upgrade costs of $380,000 and interest expense of $2.8 million.

For the second quarterquarters of fiscal 2018 and first six months of fiscal 2017, net loss reflects an income tax provision of $209,000$20,000 and $418,000.$209,000. The fiscal 2017 second quarter and first six monthsincome tax provision included a non-cash tax charge of approximately$0 and $197,000 for the second quarters of fiscal 2018 and fiscal 2017, relating to changes in our long-term deferred tax liability related to the tax amortization of our previously owned indefinite-lived intangible FCC license asset that was not available to offset existing deferred tax assets in determining changes to our income tax valuation allowance. The remaining income tax provision for both quarters relates to state income taxes payable on certain income for which there is no loss carryforward benefit available. During the fourth quarter of fiscal 2017, we sold our indefinite-lived intangible FCC license asset in connection with the sale of our television broadcast station, WWDP(TV).
For the first six months of fiscal 2018 and fiscal 2017, net loss reflects an income tax provision of $40,000 and $418,000, which included a non-cash expense charge of $0 and $394,000 relating to changes in our long-term deferred tax liability related to the tax amortization of our indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to our income tax valuation allowance. As we continue to amortize the carrying value of our indefinite-lived intangible asset for tax purposes, we expect to record additional non-cash income tax expense of approximately $394,000 over the remainder of fiscal 2017.
For the second quarter and first six months of fiscal 2016, net loss reflects an income tax provision of $205,000 and $410,000, which included a non-cash expense charge of $198,000 and $395,000, respectively, relating to changes in our long-term deferred tax liability related to the tax amortization of ourpreviously owned indefinite-lived intangible FCC license asset as discussed above.
We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be realized in the future.
Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the fiscal 20172018 second quarter was $3.5$3.9 million compared with Adjusted EBITDA of $3.8$3.5 million for the fiscal 20162017 second quarter. For the six-months ended July 29, 2017,August 4, 2018, Adjusted EBITDA was $6.6$7.2 million compared with Adjusted EBITDA of $7.3$6.6 million for the comparable prior year period.

A reconciliation of the comparable GAAP measure, net loss, to Adjusted EBITDA follows, in thousands:
 For the Three-Month For the Six-Month For the Three-Month For the Six-Month
 Periods Ended Periods Ended Periods Ended Periods Ended
 July 29,
2017
 July 30,
2016
 July 29,
2017
 July 30,
2016
 August 4,
2018
 July 29,
2017
 August 4,
2018
 July 29,
2017
Net loss $(1,991) $(1,983) $(5,187) $(6,925) $(40) $(1,991) $(3,026) $(5,187)
Adjustments:                
Depreciation and amortization 2,655
 3,070
 5,259
 6,111
 2,515
 2,655
 5,135
 5,259
Interest income (2) (2) (4) (4) (9) (2) (16) (4)
Interest expense 1,313
 1,606
 2,808
 2,811
 898
 1,313
 1,924
 2,808
Income taxes 209
 205
 418
 410
 20
 209
 40
 418
EBITDA (as defined) $2,184
 $2,896
 $3,294
 $2,403
 $3,384
 $2,184
 $4,057
 $3,294
                
A reconciliation of EBITDA to Adjusted EBIDTA is as follows:        
A reconciliation of EBITDA to Adjusted EBITDA is as follows:        
EBITDA (as defined) $2,184
 $2,896
 $3,294
 $2,403
 $3,384
 $2,184
 $4,057
 $3,294
Adjustments:                
Executive and management transition costs 572
 242
 1,078
 3,843
 
 572
 1,024
 1,078
Contract termination costs 
 
 753
 
Loss on debt extinguishment 
 
 913
 
 
 
 
 913
Distribution facility consolidation and technology upgrade costs 
 300
 
 380
Non-cash share-based compensation expense 746
 398
 1,267
 635
 538
 746
 1,358
 1,267
Adjusted EBITDA (a) $3,502
 $3,836
 $6,552
 $7,261
 $3,922
 $3,502
 $7,192
 $6,552
(a) EBITDA as defined for this statistical presentation represents net loss for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding non-operating gains (losses), executive and management transition costs, distribution facility consolidation and technology upgradecontract termination costs, loss on debt extinguishment and non-cash share-based compensation expense.
We have included the term "Adjusted EBITDA" in our EBITDA reconciliation in order to adequately assess the operating performance of our televisionvideo and digital businesses and in order to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows investors to make a meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management

uses Adjusted EBITDA as a metric measure to evaluate operating performance under our management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income (loss), net income (loss) or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.
Seasonality
Our business is subject to seasonal fluctuation, with the highest sales activity normally occurring during our fourth fiscal quarter of the year, namely November through January. Our business is also sensitive to general economic conditions and business conditions affecting consumer spending. Additionally, our television audience (and therefore sales revenue) can be significantly impacted by major world or domestic television-covering events which attract television viewership and divert audience attention away from our programming.
Critical Accounting Policies and Estimates
A discussion of the critical accounting policies related to accounting estimates and assumptions are discussed in detail in our fiscal 20162017 annual report on Form 10-K under the caption entitled "Critical Accounting Policies and Estimates."
Recently Issued Accounting Pronouncements
See Note 2 - “Basis of Financial Statement Presentation” in the Notesnotes to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Financial Condition, Liquidity and Capital Resources
As of July 29, 2017,August 4, 2018, we had cash of $22.1$28.1 million and had restricted cash and investmentsequivalents of $450,000. Our restricted cash and investmentsequivalents are generally restricted for a period ranging from 30-6030 to 60 days. In addition, under the PNC Credit Facility, and GACP Credit Agreement, we are required to maintain a minimum of $10 million of unrestricted cash plus unused line availability at all times. As our unused line availability is greater than $10 million at July 29, 2017,August 4, 2018, no additional cash is required to be restricted. As of January 28, 2017,February 3, 2018, we had cash of $32.6$23.9 million and had restricted cash and investmentscash equivalents of $450,000. For the first six months of fiscal 2017,2018, working capital decreased $13.7$6.1 million to $87.1 million.$95.3 million (see "Cash Requirements" below for additional information on changes in working capital accounts). The current ratio (our total current assets over total current liabilities) was 2.0 at July 29, 2017August 4, 2018 and 1.92.1 at January 28, 2017.February 3, 2018.
Sources of Liquidity
Our principal source of liquidity is our available cash and our additional borrowing capacity under our revolving credit facility with PNC Bank, N.A. ("PNC"), a member of $22.1The PNC Financial Services Group, Inc. As of August 4, 2018, we had cash of $28.1 million asand additional borrowing capacity of July 29, 2017, which$23.3 million. Our cash was held in bank depository accounts primarily for the preservation of cash liquidity.
PNC Credit Facility
On February 9, 2012, we entered into a credit and security agreement (as amended through March 21, 2017,July 27, 2018, the "PNC Credit Facility") with PNC, Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private BankBank) as part of the facility, provides a revolving line of credit of $90.0 million and provides for a term loan on which we had originally drawn to fund improvements at our distribution facility in Bowling Green, Kentucky and subsequently to partially pay down our GACP Term Loan (as defined below). The PNC Credit Facility also provides for an accordion feature that would allow us to expand the size of the revolving line of credit by anotheran additional $25.0 million at the discretion of the lenders and upon certain conditions being met. On March 21, 2017,July 27, 2018, we entered into the EighthTenth Amendment to the PNC Credit Facility, which among other things, increased the term loan by $6,000,000,$5,821,000, extended the term of the PNC Credit Facility from May 1, 2020 to March 21, 2022 to July 27, 2023, and authorizeddecreased the proceeds from theinterest rate margins. The term loan increase was used to be used for a voluntary prepaymentreduce borrowings under the revolving line of $9,500,000 on its GACP Term Loan.credit.
All borrowings under the PNC Credit Facility mature and are payable on March 21, 2022.July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million which, upon issuance, would be deemed advances under the PNC Credit Facility. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $90.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.
The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 1% and 2% on Base Rate advances and 2% and 3% and 4.5%on LIBOR advances based on our trailing twelve-month reported EBITDAleverage ratio (as defined in the PNC Credit Facility) measured quarterly in fiscal 2016 and semi-annually thereafter as demonstrated in our financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 4%2% and 5%3% on Base Rate term loans and 5%3% to 6%4% on LIBOR Rate term loans based on our leverage ratio measured annually as demonstrated in our audited financial statements.

As of July 29, 2017,August 4, 2018, we had borrowings of $55.5$49.9 million under our revolving line of credit. As of July 29, 2017,August 4, 2018, the term loan under the PNC Credit Facility had $15.5$19.0 million outstanding, and was used to fund our expansion initiative and to partially pay down our GACP Term Loan, of which $2.5$2.7 million was classified as current in the accompanying balance sheet. Remaining available capacity under the revolving credit facility as of July 29, 2017 isAugust 4, 2018 was approximately $11.4$23.3 million, and provideswhich provided liquidity for working capital and general corporate purposes. In addition, as of July 29, 2017,August 4, 2018, our unrestricted cash plus unused line availability was $33.4$51.4 million, we were in compliance with applicable financial covenants of the PNC Credit Facility and expect to be in compliance with applicable financial covenants over the next twelve months.
Principal borrowings under the modified term loan are to be payable in monthly installments over an 84 month84-month amortization period commencing on AprilSeptember 1, 20172018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $18.0$10.8 million. In addition, the PNC Credit Facility places restrictions on our ability to incur additional indebtedness or prepay existing

indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
GACPPrepayment on Great American Capital Partners Term Loan
On March 10, 2016,During fiscal 2017, we entered into afully retired our term loan credit and security agreement (as amended through March 21, 2017, the "GACP Credit Agreement") with GACP Finance Co., LLC ("GACP") for a term loan, with voluntary principal prepayments of $17 million. Proceeds from the GACP Term Loan have been used to provide for working capital$9.5 million, $2.5 million and general corporate purposes and to help strengthen our total liquidity position. The term loan under the GACP Credit Agreement (the "GACP Term Loan") is secured$3.5 million on a first lien priority basis by the proceeds of any sale of our Boston television station FCC license and on a second lien priority basis by our accounts receivable, equipment, inventory and certain real estate as well as other assets as described in the GACP Credit Agreement. The GACP Credit Agreement matures on March 9, 2021. The GACP Term Loan bears interest at either (i) a fixed rate based on the greater of LIBOR for interest periods of one, two or three months or 1% plus a margin of 11.0%, or (ii) a daily floating Alternate Base Rate plus a margin of 10.0%. Principal borrowings under the GACP Term Loan are to be payable in consecutive monthly installments of $70,833 each, commencing on April 1, 2016, with a final installment due at the end of the five-year term equal to the aggregate principal amount of all loans outstanding on such date. The GACP Term Loan is also subject to mandatory prepayment in certain circumstances, including, but without limitation, from the proceeds of the sale of collateral assets and from 50% of annual excess cash flow as defined in the GACP Credit Agreement.
The GACP Credit Agreement contains customary covenants and conditions, which are consistent with the covenants and conditions under the PNC Credit Agreement, including, among other things, maintaining a minimum of unrestricted cash plus revolving line of credit availability under the PNC Credit Facility of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the GACP Credit Agreement) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus revolving line of credit availability under the PNC Credit Facility falls below $18 million. In addition, the GACP Credit Agreement places restrictions on our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders. As of July 29, 2017, we were in compliance with applicable financial covenants of the GACP Credit Agreement and expect to be in compliance with applicable financial covenants over the next twelve months.
On March 21, 2017, we made a voluntary principal prepayment of $9,500,000 on our GACP Term Loan. The principal payment was funded by a combination of cash on handOctober 18, 2017 and $6,000,000 from our lower interest PNC Credit Facility term loan.December 6, 2017. We recorded a loss on debt extinguishment of $913,000 during the first six months of fiscal 2017 for the portion of debt totaling $913,000 in connection withextinguished on March 21, 2017. The loss on debt extinguishment for the principal prepayment, whichfirst six months of fiscal 2017 includes early termination and lender fees of $199,000 and a write-off of unamortized debt issuance costs of $714,000, which represents the proportionate amount of unamortized debt issuance costs attributable to the settled debt.
Registered Direct Offering
On May 23, 2017, we entered into Common Stock Purchase Agreements (the “Purchase Agreements”) with certain accredited investors to which we sold, in the aggregate, 4,008,273 shares of common stock in a registered direct offering pursuant to a shelf registration statement on Form S-3 (File No. 333-203209), filed with the Securities and Exchange Commission on May 13, 2015. The shares were sold at a price of $1.12 per share, except for shares purchased by investors who are directors or executive officers of the Company, which were sold at a price of $1.15 per share. The closing of this sale occurred on May 30, 2017 and we received

gross proceeds of approximately $4.5 million and incurred approximately $323,000 of issuance costs. We have used the proceeds for general working capital purposes.
Sale of Boston Television Station, WWDP
On August 28, 2017, we entered into two agreements with unrelated parties to sell theour Boston television station, WWDP, including our FCC broadcast license, for an aggregate of $13.5 million. See Note 14 - "Subsequent Event" inDuring the Notesfiscal 2017 fourth quarter, we closed on an asset purchase agreement to sell substantially all of the assets primarily related to our consolidated financial statements for additional information.television broadcast station, WWDP(TV), Norwell, Massachusetts. We plan to useused the proceeds received from the transaction to pay in fulloff the remaining amounts due under our term loan withthe GACP Term Loan, with the remaining proceeds used for general working capital purposes. As of August 4, 2018, $667,000 of the sales price remained in escrow pending WWDP(TV) being carried by certain distribution carriers. We have not recorded any additional gain relating to the remaining escrow amount and will not record the remaining gain until the contingency is resolved.
Other
Our ValuePay program is an installment payment program which allows customers to pay by credit card for certain merchandise in two or more equal monthly installments. Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment program. However, any such change to the terms of our ValuePay installment program could impact future sales, particularly for products sold with higher price points. Please see "Cash Requirements" below for afurther discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding accounts receivable, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers, to the extent possible, with related cash payments to our vendors. ValuePay remains a cost effective promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facilities. We believe that our existing cash balances, together with our availability under the PNC Credit Facility, will be sufficient to fund our normal business operations over the next twelve months. As of January 28, 2017February 3, 2018 we had contractual cash obligations and commitments, primarily with respect to our cable and satellite agreements and payments required under our PNC Credit Facility and operating leases, totaling approximately $280.6$315.0 million over the next five fiscal years.
For the six months ended July 29, 2017,August 4, 2018, net cash provided by operating activities totaled $6.3$13.5 million compared to net cash provided by operating activities of approximately $17.5$6.3 million for the comparable fiscal 20162017 period. Net cash provided by operating activities for the fiscal 20172018 and 20162017 periods reflects net loss, as adjusted for depreciation and amortization, share-based payment compensation, amortization of deferred revenue, amortization of deferred financing costs, loss on debt extinguishment and long-term deferred income taxes. In addition, net cash provided by operating activities for the six months ended July 29, 2017August 4, 2018 reflects a decreasedecreases in accounts receivable and inventory,inventories, partially offset by an increase in prepaid expenses and other and a decrease in accounts payable and accrued liabilities.
Accounts receivable decreased during the first six months of fiscal 2018 as a result of collections made on outstanding receivables balances resulting from our seasonal high fourth quarter. Inventories decreased primarily as a result of disciplined management of overall working capital components commensurate with sales. Accounts payable and accrued liabilities decreased during the first six months of fiscal 20172018 primarily driven bydue to a decrease in accrued inventory payables, dueas a result of the timing of payments made to vendors and lower inventory levels, a decrease in our reserve for returns accrualaccrued cable distribution fees due to lower return volumes experiencedtiming of payments, and a reduction decrease

in sales duringfreight payables, The accounts payable and accrued liabilities decrease was partially offset by an increase in our merchandise return reserve, which resulted from the first six monthsadoption of fiscal 2017Revenue from Contracts with Customers, Topic 606 (ASU 2014-09), whereby estimated merchandise returns are presented as both an asset (equal to the inventory value expected to be returned) and a decrease in freight payables.corresponding return liability (equal to the full amount expected to be refunded). Under legacy accounting practice, the estimated merchandise returns liability was presented on a net basis. Prepaid expenses and other increased primarily as a result of the adoption of ASU 2014-09 (as described above), whereby an asset is now presented for the estimated inventory fair value expected to be returned.
Net cash used for investing activities totaled $6.3$4.1 million for the first six months of fiscal 20172018 compared to net cash used for investing activities of $3.9$6.3 million for the comparable fiscal 20162017 period. For the six months ended August 4, 2018 and July 29, 2017, and July 30, 2016, expenditures for property and equipment were approximately $6.3$4.1 million and $3.9$6.3 million. Capital expenditures made during the periods presented relate primarily to expenditures made for the upgrades in our customer service call routing technology, development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems, related computer equipment, digital broadcasting equipment, including high definition equipment, and other office equipment, warehouse equipment and production equipment. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility in Bowling Green, Kentucky; security upgrades to our information technology; the upgrade and digitalization of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives.

Net cash used for financing activities totaled $5.2 million for the six months ended August 4, 2018 and related primarily to principal payments on the PNC revolving loan of $121.4 million, principal payments on our PNC term loan of $969,000, tax payments for restricted stock unit issuances of $127,000 and payments for deferred financing costs of $58,000, partially offset by proceeds from the PNC revolving loan of $111.4 million, proceeds from the PNC term loan of $5.8 million and proceeds from the exercise of stock options of $111,000. Net cash used for financing activities totaled $10.7 million for the six months ended July 29, 2017 and related primarily to principal payments on the PNC revolving loan of $14.9 million, principal payments on term loans of $11.1 million, payments for the repurchase of common stock of $5.1 million, payments for common stock issuance costs of $357,000, payments for deferred financing costs of $220,000, payments for debt extinguishment costs of $199,000 and tax payments for restricted stock issuanceunit issuances of $37,000, partially offset by proceeds from the PNC revolving loan of $10.5 million, proceeds from the PNC term loan of $6.0 million, proceeds from the issuance of common stock and warrants of $4.6 million and proceeds from the exercise of stock options of $29,000. Net cash provided by financing activities totaled $14.2 million for the six months ended July 30, 2016 and related primarily to proceeds from the GACP term loan of $17.0 million, partially offset by payments for deferred financing costs of $1.4 million, principal payments on term loans of $1.4 million and capital lease payments of $27,000.

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

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

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties.
On June 26, 2017, a purported class action case was filed by an individual, William Horan, against both uswarranties, employment, intellectual property and Invicta Watch Co.consumer protection matters. In the opinion of America, Inc. (“Invicta”)management, none of the claims and suits, either individually or in the United States District Court for the Eastern District of New York, asserting claims under the federal Magnuson-Moss Warranty Act and New York General Business Law Section 349.  The claims relate to the warranty provided with the Invicta watch that the plaintiff allegedly purchased throughaggregate will have a material adverse effect on our company.  Plaintiff alleges that the defendants breached the warranty, failed to disclose material information and\operations or made false representations concerning the warranty.  This case is pled as a putative class action, which means that the plaintiff seeks to represent a class of all other similarly situated individuals who purchased an Invicta watch through our company.  The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, injunctive relief, costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper. Given the uncertainty of litigation, the preliminary stage of this case and the legal standards that must be met for, among other things, class certification, we cannot reasonably estimate the possible loss or range of loss that may result from this action.
On June 29, 2017, a purported class action case was filed by an individual, Betty Gregory, against us in the United States District Court for the Central District of California, asserting claims under the federal Telephone Consumer Protection Act (“TCPA”).  The plaintiff alleges that we unlawfully contacted her on her cellular telephone without her prior express consent.  This case is pled as a putative class action, and the plaintiff seeks to represent a class of all other individuals who received telephone calls similar to the ones she allegedly received from our company and\or third-party collection vendors.  The TCPA provides for recovery of actual damages or $500 for each violation, whichever is greater. If it is determined that a defendant acted willfully or knowingly in violating the TCPA, the amount of the award may be increased by up to three times the amount provided above. The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, injunctive relief, costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper. Given the uncertainty of litigation, the preliminary stage of this case and the legal standards that must be met for, among other things, class certification, we cannot reasonably estimate the possible loss or range of loss that may result from this action.consolidated financial statements.
    
ITEM 1A. RISK FACTORS
See Part I. Item 1A., "Risk Factors," of EVINE Live Inc.'s Annual Report on Form 10-K for the year ended January 28, 2017February 3, 2018, for a detailed discussion of the risk factors affecting the Company. There have been no material changes from the risk factors described in the annual report.report with the exception of the items noted below.
We rely on a limited number of independent shipping companies to deliver our merchandise. If our independent shipping companies fail to deliver our merchandise in a timely and accurate manner, our reputation and brand may be damaged. If relationships with our independent shipping companies are terminated, we may experience an increase in delivery costs.
We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience. In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God, and similar factors.
One of our primary independent shipping companies, United Parcel Services, Inc. ("UPS"), is currently in the process of negotiating a new collective bargaining agreement and reached a tentative agreement in July 2018. The collective bargaining agreement was extended past its expiration of July 31, 2018 to finalize negotiations. Any strike, work stoppage or slowdown at UPS could cause significant delays in our product shipments, a loss of sales and/or an increase in delivery costs.
If the implementation and installation of new customer call routing technology were to be delayed or not be successful, we could experience disruptions in our; call centers, order capture operations, and communications with our customers, which could materially and adversely impact our sales and overall operating results.
We are implementing and installing a new call routing technology, which includes interactive voice response, call routing, queuing and parking, and workforce management. The new system is currently expected to be phased in during the third quarter of fiscal 2018. As we transition and implement our upgraded customer call routing technology, risks related to a delayed or problematic implementation could include the following: extended customer wait times, reduced customer orders, dropped calls, a poor customer experience and an increase in our customer service expenses due to inefficient workforce management. If the implementation and installation of our upgraded call routing technology were to be delayed or not be successful, it could have a negative impact on our customer service reputation, among other things. For these reasons, any delays in the implementation or installation of this upgrade could materially and adversely impact our sales and overall operating results.
Trade policies, tariffs, tax or other government regulations that increase the effective price of products manufactured in China or other countries and imported into the United States could have a material adverse effect on our business.
A material percentage of the products that we offer on our television programming and our website are imported by us or our vendors, from China and other countries. Uncertainty with respect to trade policies, tariffs, tax and government regulations affecting trade between the United States, China and other countries has recently increased. Many of our vendors source a large percentage of the products we sell from China and other countries. Major developments in trade relations, such as the imposition of tariffs on imported products, could have a material adverse effect on our financial results and business.
We will be required to collect and remit sales taxes in more states and we may be subject to claims for potential uncollected amounts.
On June 21, 2018, the United States Supreme Court issued a ruling in the South Dakota v. Wayfair, Inc. case which dramatically increased the ability of states to impose sales tax collection responsibilities on remote sellers, including the Company. As a result of this new ruling, the Company will now be required to collect sales tax in any state which passes legislation requiring out of state retailers to collect sales tax even where they have no physical nexus. Adding sales tax to our transactions could negatively impact consumer demand, create a competitive disadvantage (if all retailers are not equally impacted), and create an additional

costly administrative burden of complying with the collection laws of multiple jurisdictions. While we believe we comply with current state sales tax regulations, a successful assertion by one or more states requiring us to retroactively collect taxes under an "economic nexus" threshold where we currently are not collecting could result in substantial tax liabilities for past sales, as well as penalties and interest.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following table presents information with respect to purchases of our common stock made during the three months ended July 29, 2017, by our company or on behalf of our company or any "affiliated purchaser" of our company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.

Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
April 30, 2017 through May 27, 2017 872
 $1.43 
 $
May 28, 2017 through July 1, 2017 
 N/A 
 $
July 2, 2017 through July 29, 2017 1,330
 $0.96 
 $
      Total 2,202
 $1.15 
 $
(1) The purchases in this column include 2,202 shares that were repurchased by our company to satisfy tax withholding obligations related to the vesting of restricted stock.None.
Dividends
We are restricted from paying dividends on our common stock by the PNC Credit Facility, and the GACP Credit Agreement, as discussed in Note 56 - “Credit Agreements” in the Notesnotes to our condensed consolidated financial statements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.

ITEM 5. OTHER INFORMATION
None.


ITEM 6. EXHIBITS
The exhibits filed with this Quarterly Report on Form 10-Q are set forth on the Exhibit Index filed as a part of this report beginning immediately following the signatures.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EVINE Live Inc.
August 30, 2017/s/ ROBERT J. ROSENBLATT
Robert J. Rosenblatt
Chief Executive Officer
(Principal Executive Officer) 
August 30, 2017/s/ TIMOTHY A. PETERMAN
Timothy A. Peterman
Executive Vice President, Chief Operating Officer / Chief Financial Officer
(Principal Financial Officer) 

EXHIBIT INDEX
Exhibit
No.
 Description Manner of Filing
3.1  Incorporated by reference (1)
     
3.2  Incorporated by reference (2)
     
3.3  Incorporated by reference (3)
     
10.1  Incorporated by reference (4)
10.2Incorporated by reference (5)
10.3Filed herewith
     
31.1  Filed herewith
     
31.2  Filed herewith
     
32  Filed herewith
     
101.INS XBRL Instance Document Filed herewith
     
101.SCH XBRL Taxonomy Extension Schema Filed herewith
     
101.CAL XBRL Taxonomy Extension Calculation Linkbase Filed herewith
     
101.DEF XBRL Taxonomy Extension Definition Linkbase Filed herewith
     
101.LAB XBRL Taxonomy Extension Label Linkbase Filed herewith
     
101.PRE XBRL Taxonomy Extension Presentation Linkbase Filed herewith



____________________

(1)Incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed on November 18, 2014, File No. 000-20243.
(2)Incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed on July 7, 2016, File No. 001-37495.
(3)Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on July 13, 2015, File No. 000-20243.
(4)Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 23, 2017 and filed on May 25, 2017,June 7, 2018, File No. 001-37495.001-37495
(5)Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 14, 2018, File No. 001-37495


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EVINE Live Inc.
September 7, 2018/s/ ROBERT J. ROSENBLATT
Robert J. Rosenblatt
Chief Executive Officer
(Principal Executive Officer) 
September 7, 2018/s/ DIANA G. PURCEL
Diana G. Purcel
Executive Vice President, Chief Financial Officer
(Principal Financial Officer) 

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