WASHINGTON,
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
COMMISSION FILE NUMBER:
TRANS WORLD ENTERTAINMENT CORPORATION
| New York | 14-1541629 | |
| I.R.S. Employer Identification | ||
2818 N. Sullivan Rd. Ste 130 Spokane Valley, WA | 99216 | |
| Address of Principal Executive Offices | Zip Code |
38 Corporate Circle
Albany, New York 12203
(
(518) 452-1242
(Registrant’s telephone number, including area code)
the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $.01 par value per share | KSPN | NASDAQ Stock Market |
☐
| Large accelerated filer | Accelerated filer |
| Non-accelerated filer | |
| Smaller reporting company | |
| Emerging growth company ☐ |
Indicate by check mark whether the registrant is
Emerging growth company o
Indicateindicate 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
☐
☒
36,208,844
TRANS WORLD ENTERTAINMENT CORPORATION
–- Interim Condensed Consolidated Financial Statements October 28, January 28, October 29, 2017 2017 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,924 $ 27,974 $ 4,708 Restricted cash 1,503 - - Merchandise inventory 144,754 126,004 157,827 Prepaid expenses and other assets 13,184 15,356 13,903 Total current assets 163,365 169,334 176,438 Restricted cash 10,731 16,103 16,100 Net fixed assets 43,472 45,097 41,902 Goodwill 39,191 39,191 39,800 Net intangible assets 24,940 27,857 28,737 Other assets 7,247 10,228 10,272 TOTAL ASSETS $ 288,946 $ 307,810 $ 313,249 LIABILITIES CURRENT LIABILITIES Accounts payable $ 45,378 $ 52,307 $ 61,956 Short-term borrowings 5,000 - 5,936 Accrued expenses and other current liabilities 9,805 9,198 9,116 Deferred revenue 7,231 9,228 7,813 Total current liabilities 67,414 70,733 84,821 Contingent consideration 2,115 8,552 10,381 Other long-term liabilities 29,236 30,589 28,927 TOTAL LIABILITIES 98,765 109,874 124,129 SHAREHOLDERS’ EQUITY Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - - Common stock ($0.01 par value; 200,000,000 shares authorized; 64,255,171, 64,252,671 and 64,252,671 shares issued, respectively) 643 643 643 Additional paid-in capital 340,391 338,075 337,439 Treasury stock at cost (28,138,116, 28,137,283 and 28,137,283 shares, respectively) (230,144 ) (230,144 ) (230,144 ) Accumulated other comprehensive loss (788 ) (802 ) (658 ) Retained earnings 80,079 90,164 81,840 TOTAL SHAREHOLDERS’ EQUITY 190,181 197,936 189,120 TOTAL LIABILITIES AND EQUITY $ 288,946 $ 307,810 $ 313,249 July 30, January 29, July 31, 2022 2022 2021 ASSETS Unaudited Unaudited CURRENT ASSETS Cash and cash equivalents $ 1,309 $ 1,218 $ 2,570 Restricted cash 1,158 1,158 1,184 Accounts receivable 2,082 2,335 2,805 Merchandise inventory 29,363 29,277 25,024 Prepaid expenses and other current assets 618 649 1,056 Total current assets 34,530 34,637 32,639 Restricted cash 1,873 2,447 2,992 Fixed assets, net 2,357 2,335 2,301 Operating lease right-of-use assets 1,823 2,144 2,447 Intangible assets, net - - 218 Cash Surrender Value 3,768 4,154 4,277 Other assets 777 965 1,157 TOTAL ASSETS $ 45,128 $ 46,682 $ 46,031 LIABILITIES CURRENT LIABILITIES Accounts payable $ 7,702 $ 6,271 $ 7,599 Short-term borrowings 3,855 9,966 - Accrued expenses and other current liabilities 2,063 2,362 1,941 Current portion of operating lease liabilities 550 649 622 Total current liabilities 14,170 19,248 10,162 Operating lease liabilities 1,416 1,608 1,942 Long-term debt 8,548 4,356 5,526 Other long-term liabilities 13,788 14,185 15,721 TOTAL LIABILITIES 37,922 39,397 33,351 SHAREHOLDERS’ EQUITY - - - 39 39 39 Additional paid-in capital 263,723 359,220 359,016 (125,906 ) (230,170 ) (230,170 ) Accumulated other comprehensive loss (910 ) (910 ) (2,007 ) Accumulated deficit (129,740 ) (120,894 ) (114,198 ) TOTAL SHAREHOLDERS’ EQUITY 7,206 7,285 12,680 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 45,128 $ 46,682 $ 46,031 3
thousands)
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | 91,817 | $ | 65,039 | $ | 293,482 | $ | 203,127 | ||||||||
| Other revenue | 1,184 | 1,242 | 3,964 | 3,232 | ||||||||||||
| Total revenue | 93,001 | 66,281 | 297,446 | 206,359 | ||||||||||||
| Cost of sales | 61,420 | 39,409 | 194,390 | 121,960 | ||||||||||||
| Gross profit | 31,581 | 26,872 | 103,056 | 84,399 | ||||||||||||
| Selling, general and administrative expenses | 40,558 | 34,680 | 122,763 | 97,415 | ||||||||||||
| Income from joint venture | (866 | ) | - | (1,038 | ) | - | ||||||||||
| Loss from operations | (8,111 | ) | (7,808 | ) | (18,669 | ) | (13,016 | ) | ||||||||
| Interest expense | 83 | 179 | 200 | 523 | ||||||||||||
| Other income | (59 | ) | (51 | ) | (8,824 | ) | (1,068 | ) | ||||||||
| Loss before income tax expense | (8,135 | ) | (7,936 | ) | (10,045 | ) | (12,471 | ) | ||||||||
| Income tax (benefit) expense | (64 | ) | (7,452 | ) | 40 | (7,358 | ) | |||||||||
| Net loss | $ | (8,071 | ) | $ | (484 | ) | $ | (10,085 | ) | $ | (5,113 | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||
| Basic and diluted loss per share | $ | (0.22 | ) | $ | (0.02 | ) | $ | (0.28 | ) | $ | (0.17 | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | 36,190 | 31,434 | 36,181 | 30,854 | ||||||||||||
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| July 30, | July 31, | July 30, | July 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenue | $ | 33,907 | $ | 34,890 | $ | 65,697 | $ | 75,507 | ||||||||
| Cost of sales | 27,178 | 26,055 | 52,118 | 56,876 | ||||||||||||
| Gross profit | 6,729 | 8,835 | 13,579 | 18,631 | ||||||||||||
| Selling, general and administrative expenses | 10,201 | 10,210 | 20,719 | 20,868 | ||||||||||||
| Loss from operations | (3,472 | ) | (1,375 | ) | (7,140 | ) | (2,237 | ) | ||||||||
| Interest expense | 901 | 460 | 1,663 | 1,015 | ||||||||||||
| Other (income) loss | - | (1,963 | ) | - | (1,963 | ) | ||||||||||
| Income (loss) before income tax expense | (4,373 | ) | 128 | (8,803 | ) | (1,289 | ) | |||||||||
| Income tax expense | 43 | 46 | 43 | 46 | ||||||||||||
| Net income (loss) | (4,416 | ) | 82 | (8,846 | ) | (1,335 | ) | |||||||||
| BASIC AND DILUTED INCOME (LOSS) PER SHARE: | ||||||||||||||||
| Basic income (loss) per common share | $ | (1.69 | ) | $ | 0.03 | $ | (3.47 | ) | $ | (0.56 | ) | |||||
| Weighted average number of common shares outstanding – basic | 2,613 | 2,491 | 2,553 | 2,404 | ||||||||||||
| Diluted income (loss) per common share | $ | (1.69 | ) | $ | 0.03 | $ | (3.47 | ) | $ | (0.56 | ) | |||||
| Weighted average number of common shares outstanding – diluted | 2,613 | 2,538 | 2,553 | 2,404 | ||||||||||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net loss | $ | (8,071 | ) | $ | (484 | ) | $ | (10,085 | ) | $ | (5,113 | ) | ||||
| Amortization of pension costs | (5 | ) | 51 | (15 | ) | 154 | ||||||||||
| Comprehensive loss | $ | (8,076 | ) | $ | (433 | ) | $ | (10,100 | ) | $ | (4,959 | ) | ||||
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| July 30, | July 31, | July 30, | July 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income (loss) | $ | (4,416 | ) | $ | 82 | $ | (8,846 | ) | $ | (1,335 | ) | |||||
| Amortization of pension gain | - | - | - | - | ||||||||||||
| Comprehensive income (loss) | $ | (4,416 | ) | $ | 82 | $ | (8,846 | ) | $ | (1,335 | ) | |||||
(unaudited)
| As of or for the | ||||||||
| Thirty-nine Weeks Ended | ||||||||
| October 28, 2017 | October 29, 2016 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | ($ | 10,085 | ) | ($ | 5,113 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of fixed assets | 7,558 | 5,436 | ||||||
| Amortization of intangible assets | 2,917 | 174 | ||||||
| Amortization of lease valuations, net | (12 | ) | - | |||||
| Deferred tax benefit | - | (7,502 | ) | |||||
| Long term incentive compensation | 2,314 | 670 | ||||||
| Adjustment to contingent consideration | (1,437 | ) | - | |||||
| Loss on disposal of fixed assets | 459 | 703 | ||||||
| Gain on sale of investments | - | (800 | ) | |||||
| Increase in cash surrender value | (227 | ) | (790 | ) | ||||
| Gain on insurance proceeds | (8,733 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Merchandise inventory | (18,750 | ) | (23,111 | ) | ||||
| Prepaid expenses and other current assets | 2,172 | (5,311 | ) | |||||
| Other assets | (497 | ) | 6,359 | |||||
| Accounts payable | (6,929 | ) | 5,281 | |||||
| Accrued expenses, deferred revenue and other current liabilities | (1,390 | ) | (8,345 | ) | ||||
| Other long-term liabilities | (1,307 | ) | 2,470 | |||||
| Net cash used in operations | (33,947 | ) | (29,879 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Acquisition of a business | - | (36,600 | ) | |||||
| Purchases of fixed assets | (6,392 | ) | (16,726 | ) | ||||
| Proceeds from company owned life insurance and SERP death benefits | 14,363 | - | ||||||
| Investment in joint venture | (2,575 | ) | - | |||||
| Proceeds from sale of investments | - | 1,600 | ||||||
| Purchases of investments | - | (500 | ) | |||||
| Capital distributions from joint venture | 632 | - | ||||||
| Net cash provided by (used in) investing activities | 6,028 | (52,226 | ) | |||||
| FINANCING ACTIVITIES: | ||||||||
| Exercise of long term equity awards | - | 39 | ||||||
| Payments to shareholders | (5,000 | ) | - | |||||
| Payments of long term borrowings | - | (4,727 | ) | |||||
| Proceeds from short term borrowings | 5,000 | 5,936 | ||||||
| Purchase of treasury stock | - | (2,646 | ) | |||||
| Net cash provided by (used in) financing activities | - | (1,398 | ) | |||||
| Net decrease in cash and cash equivalents | (27,919 | ) | (83,503 | ) | ||||
| Cash, cash equivalents, and restricted cash, beginning of year | 44,077 | 104,311 | ||||||
| Cash, cash equivalents, and restricted cash, end of year | $ | 16,158 | $ | 20,808 | ||||
| Supplemental disclosures and non-cash investing and financing activities: | ||||||||
| Interest paid | $ | 200 | $ | 523 | ||||
| Fair value of assets acquired, including cash acquired | - | 93,152 | ||||||
| Liabilities assumed | - | (24,256 | ) | |||||
| Net assets acquired | - | 68,896 | ||||||
| Less: Contingent consideration not yet paid | - | (10,381 | ) | |||||
| Less: Fair value of shares issued as consideration | - | (20,415 | ) | |||||
| Less: Indemnity liability not yet paid | - | (1,500 | ) | |||||
| Acquisition of a business | $ | - | $ | 36,600 | ||||
| Issuance of restricted performance based awards / deferred / restricted shares under deferred / restricted stock agreements | - | 6,074 | ||||||
| Thirteen Weeks Ended July 30, 2022 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Accumulated | Retained | ||||||||||||||||||||||||||||||
| Additional | Treasury | Other | Earnings | |||||||||||||||||||||||||||||
| Common | Treasury | Common | Paid-in | Stock | Comprehensive | (Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Shares | Shares | Stock | Capital | At Cost | Loss | Deficit) | Equity | |||||||||||||||||||||||||
| Balance as of April 30, 2022 | 3,903 | (1,410 | ) | $ | 39 | $ | 360,738 | $ | (230,170 | ) | $ | (910 | ) | $ | (125,324 | ) | $ | 4,375 | ||||||||||||||
| Net income | - | - | - | - | - | - | (4,416 | ) | (4,416 | ) | ||||||||||||||||||||||
| Issuance of shares, net of expenses | - | 638 | - | (97,127 | ) | 104,264 | - | - | 7,137 | |||||||||||||||||||||||
| Common stock issued- Director grants | 9 | - | - | 41 | - | - | - | 41 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 71 | - | - | - | 71 | ||||||||||||||||||||||||
| Balance as of July 31, 2022 | 3,912 | $ | (772 | ) | $ | 39 | $ | 263,723 | $ | (125,906 | ) | $ | (910 | ) | $ | (129,740 | ) | $ | 7,206 | |||||||||||||
| Twenty-Six Weeks Ended July 30, 2022 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Accumulated | Retained | ||||||||||||||||||||||||||||||
| Additional | Treasury | Other | Earnings | |||||||||||||||||||||||||||||
| Common | Treasury | Common | Paid-in | Stock | Comprehensive | (Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Shares | Shares | Stock | Capital | At Cost | Loss | Deficit) | Equity | |||||||||||||||||||||||||
| Balance as of January 29, 2022 | 3,903 | (1,410 | ) | $ | 39 | $ | 359,220 | $ | (230,170 | ) | $ | (910 | ) | $ | (120,894 | ) | $ | 7,285 | ||||||||||||||
| Net Loss | - | - | - | - | - | - | (8,846 | ) | (8,846 | ) | ||||||||||||||||||||||
| Issuance of shares, net of expenses | - | 638 | - | (97,127 | ) | 104,264 | - | - | 7,137 | |||||||||||||||||||||||
| Issuance of warrants | - | - | - | 1,518 | - | - | - | 1,518 | ||||||||||||||||||||||||
| Exercise of stock options | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Common stock issued- Director grants | 9 | - | - | 41 | - | - | - | 41 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 71 | - | - | - | 71 | ||||||||||||||||||||||||
| Balance as of July 31, 2022 | 3,912 | (772 | ) | $ | 39 | $ | 263,723 | $ | (125,906 | ) | $ | (910 | ) | $ | (129,740 | ) | $ | 7,206 | ||||||||||||||
| Thirteen Weeks Ended July 31, 2021 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Accumulated | Retained | ||||||||||||||||||||||||||||||
| Additional | Treasury | Other | Earnings | |||||||||||||||||||||||||||||
| Common | Treasury | Common | Paid-in | Stock | Comprehensive | (Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Shares | Shares | Stock | Capital | At Cost | Loss | Deficit) | Equity | |||||||||||||||||||||||||
| Balance as of May 1, 2021 | 3,889 | (1,410 | ) | $ | 39 | $ | 358,749 | $ | (230,170 | ) | $ | (2,007 | ) | $ | (114,280 | ) | $ | 12,332 | ||||||||||||||
| Net income | - | - | - | - | - | - | 82 | 82 | ||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Issuance of warrants | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Vested restricted shares | 3 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Exercise of stock options | 2 | - | 51 | - | - | - | 51 | |||||||||||||||||||||||||
| Common stock issued- Director grants | 9 | - | 1 | 184 | - | - | - | 184 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 32 | - | - | - | 32 | ||||||||||||||||||||||||
| Balance as of July 31, 2021 | 3,903 | $ | (1,410 | ) | $ | 39 | $ | 359,016 | $ | (230,170 | ) | $ | (2,007 | ) | $ | (114,198 | ) | $ | 12,680 | |||||||||||||
| Twenty-Six Weeks Ended July 31, 2021 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Accumulated | Retained | ||||||||||||||||||||||||||||||
| Additional | Treasury | Other | Earnings | |||||||||||||||||||||||||||||
| Common | Treasury | Common | Paid-in | Stock | Comprehensive | (Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Shares | Shares | Stock | Capital | At Cost | Loss | Deficit) | Equity | |||||||||||||||||||||||||
| Balance as of January 30, 2021 | 3,337 | (1,410 | ) | $ | 33 | $ | 346,495 | $ | (230,169 | ) | $ | (2,007 | ) | $ | (112,863 | ) | $ | 1,489 | ||||||||||||||
| Net Loss | - | - | - | - | - | - | (1,335 | ) | (1,335 | ) | ||||||||||||||||||||||
| Issuance of warrants | 138 | - | 1 | - | (1 | ) | - | - | - | |||||||||||||||||||||||
| Sales of shares, net of expense | 417 | - | 4 | 12,227 | - | - | - | 12,231 | ||||||||||||||||||||||||
| Exercise of stock options | 2 | - | - | 51 | - | - | - | 51 | ||||||||||||||||||||||||
| Common stock issued- Director grants | 9 | - | 1 | 184 | - | - | - | 185 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 59 | - | - | - | 59 | ||||||||||||||||||||||||
| Balance as of July 31, 2021 | 3,903 | $ | (1,410 | ) | $ | 39 | $ | 359,016 | $ | (230,170 | ) | $ | (2,007 | ) | $ | (114,198 | ) | $ | 12,680 | |||||||||||||
| Twenty-Six Weeks Ended | ||||||||
| July 30, | July 31, | |||||||
| 2022 | 2021 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (8,846 | ) | $ | (1,335 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of fixed assets | 594 | 710 | ||||||
| Amortization of intangible assets | - | 514 | ||||||
| Stock-based compensation | 112 | 243 | ||||||
| Amortization of ROU asset | 321 | 295 | ||||||
| Amortization of warrant interest | 389 | 139 | ||||||
| Interest on long term debt | 612 | 386 | ||||||
| Change in cash surrender value | 386 | (421 | ) | |||||
| Forgiveness of PPP Loan | - | (1,963 | ) | |||||
| Changes in operating assets and liabilities that provide (use) cash: | ||||||||
| Accounts receivable | 253 | (88 | ) | |||||
| Merchandise inventory | (86) | (509 | ) | |||||
| Prepaid expenses and other current assets | 32 | (492 | ) | |||||
| Other long-term assets | 188 | 185 | ||||||
| Accounts payable | 1,740 | (1,294 | ) | |||||
| Accrued expenses and other current liabilities | (999 | ) | (522 | ) | ||||
| Other long-term liabilities | (589 | ) | (782 | ) | ||||
| Net cash used in operating activities | (5,893 | ) | (4,934 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of fixed assets | (616 | ) | (743 | ) | ||||
| Net cash provided by (used in) investing activities | (616 | ) | (743 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from long term borrowings | 5,000 | - | ||||||
| Proceeds from issuance of shares, net of expense | 7,137 | 12,231 | ||||||
| Proceeds from exercise of stock options | - | 51 | ||||||
| Payments of PPP loan | - | (76 | ) | |||||
| Payment of short term borrowings | (6,111 | ) | (6,339 | ) | ||||
| Net cash provided by (used in) financing activities | 6,026 | 5,867 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (483 | ) | 190 | |||||
| Cash, cash equivalents, and restricted cash, beginning of period | 4,823 | 6,556 | ||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 4,340 | $ | 6,746 | ||||
| Supplemental disclosures and non-cash investing and financing activities: | ||||||||
| Interest paid | $ | 386 | $ | 295 | ||||
| Warrants issued with debt | $ | 1,633 | $ | - | ||||
Trans World Entertainment Corporation
learn from diverse experiences. Our empathy ignites innovation and empowers meaningful change.
Management anticipatesuncertainty with respect to any cash requirements due to a shortfall in cash from operations will be funded byavailable future funding, the Company has concluded that there is substantial doubt about the Company’s revolving credit facility, as discussed in note 9 in the interim condensed consolidated financial statements.
In connection with the preparation of these interim condensed consolidated financial statements, the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year afterconcern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
direct result of COVID-19, most of our employees are working remotely. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, reserves and allowances, and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, including the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international customers and markets, which are highly uncertain and cannot be predicted at this time.
in accordance with U.S. GAAPaccounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements.
January 28, 2023.
There have been no material changes to the accounting policies applied to our consolidated results and footnote disclosures.
29, 2022.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which will replace most existing lease accounting guidance in U.S. GAAP. The core principle of this ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. The new standard requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. The new standard will be effective for the Company’s fiscal year beginning February 3, 2019, and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining the method and timing of adoption and assessing the impact of ASU 2016-02 on its consolidated financial statements. Given the nature of the operating leases for the Company’s home office, distribution center, and stores, the Company expects an increase to the carrying value of its assets and liabilities.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment
by eliminating step two from the goodwill impairment test whereby a goodwill impairment loss is determined by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Rather, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of intangible assets acquired in a reporting unit with its carrying amountbusiness acquisition, including the Company’s acquisition of Kaspien in 2016, is subject to many estimates and recognizing an impairment chargeassumptions. Our identifiable intangible assets that resulted from our acquisition of Kaspien consist of technology and tradenames. As of October 30, 2021, the intangible assets were fully amortized.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which is intended to improve the presentation of net periodic pension cost and net periodic post-retirement benefit cost in an entity’s financial statements by requiring the service cost component be disaggregated from other components of net benefit costs and presented in the same line item or items as other compensation costs for the employees. Additionally, only the service cost component of net benefit cost is eligible for capitalization when applicable. ASU 2017-07 is effective for the Company’s fiscal year beginning February 3, 2019, and must be applied retrospectively. ASU 2017-07 is permitted for early adoption, but only at the beginning of an annual period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact that this ASU will have on its reporting and asset recognition.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provided clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for the Company for interim and annual periods in fiscal year beginning February 3, 2019, with early adoption permitted and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date.
Note 4. Acquisition and Investment
Business Combination-etailz
On October 17, 2016, the Company completed the purchase of allJuly 31, 2021 consisted of the issuedfollowing:
| Thirteen Weeks Ended | Thirty-six Weeks Ended | |||||||||||||||
| July 30, | July 31, | July 30, | July 31, | |||||||||||||
| (amounts in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Technology | $ | - | $ | 97 | $ | - | $ | 194 | ||||||||
| Trade names and trademarks | - | 160 | - | 320 | ||||||||||||
| Total amortization expense | $ | - | $ | 257 | $ | - | $ | 514 | ||||||||
The Company paid $32.3 million in cash, issued 5.7 million shares of Trans World Entertainment Corporation stock (TWMC Stock) at closing to the shareholders of etailz (the selling shareholders) as consideration for the selling shareholders’ ownership, and paid $4.3 million in cash advances to settle obligations of the selling shareholders. Based on the fair value of $3.56 per share of TWMC Stock on the acquisition date, the shares had a value of $20.4 million. An earn-out of up to a maximum of $14.6 million would be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6.0 million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlined in the share purchase agreement prior to its amendment as discussed in the following paragraph. In connection with the acquisition, the Company assumed the liability of the selling shareholders for etailz’s employee retention bonus plan, of which $1.9 million was due and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service period. The acquisition and related costs were funded primarily from the Company’s cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase method of accounting.
During the Company’s second quarter, the share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the earnout escrow account and the $3.1 million
remaining in the earnout escrow account may be payable in cash to the selling shareholders in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.
The amount released from escrow was disbursed during the Company’s second quarter as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and $1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee retention bonus plan from $4.2 million to $5.7 million).
During the Company’s second quarter, the Company recorded a $1.4 million benefit related to its contingent consideration liability. The decrease in the value of the contingent consideration liability resulted from the actual financial results of etailz and the amendment of the earnout agreement as described in the paragraph above. This benefit is recordedamortization included in selling, general and administrative expenses inof the Company’sinterim condensed consolidated statements of operations.
The results of operations of etailz are reported in the Company’s etailz segment and have been included in the consolidated results of operations of the Company from the date of acquisition. The following unaudited pro forma financial information for the thirteen and thirty-nine weeks ended October 29, 2016, presents consolidated information as if the etailz acquisition had occurred on February 1, 2016. Because of different fiscal period ends, and in order to present results for comparable periods, the unaudited pro forma consolidated financial information for the thirty-nine weeks ended October 29, 2016, combines (i) the Company’s historical statement of operations for the thirty-nine weeks ended October 29, 2016, and (ii) etailz historical statement of income for the period from January 1, 2016 through August 31, 2016 and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information for the thirteen weeks ended October 29, 2016, combines (i) the Company’s historical statement of operations for the thirteen weeks ended October 29, 2016;July 30, 2022 and (ii) etailz historical statement of income for the period from July 1, 2016 through August 31, 20162021 was $0.3 million and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information is presented after giving effect to certain adjustments for acquisition-related costs, depreciation, amortization of definite lived intangible assets, interest expense on acquisition financing, and related income tax effects. The unaudited pro forma financial information is based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor does it project the Company’s financial position or results of operations at any future date or for any future period.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||
| October 29, 2016 | October 29, 2016 | |||||||
| Pro forma total revenue | $ | 90,655 | $ | 287,060 | ||||
| Pro forma net loss | (6,945 | ) | (13,513 | ) | ||||
| Pro forma basic and diluted loss per share | $ | (0.19 | ) | $ | (0.37 | ) | ||
| Pro forma weighted average number of common shares outstanding – basic and diluted | 36,157 | 36,257 | ||||||
Joint Venture
On April 11, 2017, the Company entered into an agreement with another party for the purpose of acquiring and selling certain retail merchandise. etailz holds a 50% economic interest in the arrangement as of October 28, 2017. The initial cash investment was $2.6 million dollars. During the thirty-nine weeks ended October 28, 2017, the Company received distributions in the amount of $1.7 million from the joint venture, of which $0.7 million, was a return of capital and $1.0 million was the Company’s share of joint venture income. The remaining investment of $1.9 million was included in other assets in the interim condensed consolidated balance sheets as of October 28, 2017.
Note 5. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.
Determining the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment if circumstances indicate that the carrying amount may not be recoverable.
We are continuing to amortize certain vendor relationships, technology, and trade names and trademarks that have finite lives.
Identifiable intangible assets as of October 28, 2017 consisted of the following (in thousands, except weighted-average amortization period):
| October 28, 2017 | ||||||||||||||||
| Amortization Period (in months) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
| Vendor relationships | 120 | $ | 19,100 | $ | 2,010 | $ | 17,090 | |||||||||
| Technology | 60 | 6,700 | 1,403 | 5,297 | ||||||||||||
| Trade names and trademarks | 60 | 3,200 | 647 | 2,553 | ||||||||||||
| $ | 29,000 | $ | 4,060 | $ | 24,940 | |||||||||||
| The changes in net intangibles and goodwill from January 28, 2017 to October 28, 2017 were as follows: | ||||||||||||||||
| (in thousands) | January 28, 2017 | Amortization | October 28, 2017 | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Vendor relationships | $ | 18,522 | $ | 1,432 | $ | 17,090 | ||||||||||
| Technology | 6,302 | 1,005 | 5,297 | |||||||||||||
| Trade names and trademarks | 3,033 | 480 | 2,553 | |||||||||||||
| Net amortized intangible assets | $ | 27,857 | $ | 2,917 | $ | 24,940 | ||||||||||
| Unamortized intangible assets: | ||||||||||||||||
| Goodwill | $ | 39,191 | - | $ | 39,191 | |||||||||||
| Total unamortized intangible assets | $ | 39,191 | - | $ | 39,191 | |||||||||||
Estimated amortization expense for the remainder of fiscal 2017 and the five succeeding fiscal years and thereafter is as follows:
| Year | Annual Amortization | |||
| ( in thousands) | ||||
| 2017 | $ | 971 | ||
| 2018 | 3,890 | |||
| 2019 | 3,890 | |||
| 2020 | 3,890 | |||
| 2021 | 3,325 | |||
| 2022 | 1,910 | |||
| Thereafter | 7,064 | |||
Note 6. Depreciation and Amortization
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Cost of sales | $ | 163 | $ | 104 | $ | 474 | $ | 301 | ||||||||
| Selling, general and administrative expenses | 3,425 | 2,222 | 9,989 | 5,309 | ||||||||||||
| Total | $ | 3,588 | $ | 2,326 | $ | 10,463 | $ | 5,610 | ||||||||
for the twenty-six weeks ended July 30, 2022 and July 31, 2021 was $0.6 million and $1.2 million, respectively.
As described in Note 1 to the interim condensed consolidated financial statements, we operate in two reportable segments as shown in the following table. Results for etailz are included in the consolidated results for all periods presented for fiscal 2017. For periods presented for fiscal 2016, results for etailz are included in consolidated results from October 17, 2016 through October 29, 2016.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (in thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
| Total Revenue | ||||||||||||||||
| fye | $ | 52,105 | $ | 62,457 | $ | 176,006 | $ | 202,535 | ||||||||
| etailz | 40,896 | 3,824 | $ | 121,440 | $ | 3,824 | ||||||||||
| Total Company | $ | 93,001 | $ | 66,281 | $ | 297,446 | $ | 206,359 | ||||||||
| Gross Profit | ||||||||||||||||
| fye | $ | 21,347 | $ | 25,932 | $ | 73,342 | $ | 83,459 | ||||||||
| etailz | 10,234 | 940 | 29,714 | 940 | ||||||||||||
| Total Company | $ | 31,581 | $ | 26,872 | $ | 103,056 | $ | 84,399 | ||||||||
| Loss From Operations | ||||||||||||||||
| fye | $ | (7,858 | ) | $ | (5,083 | ) | $ | (17,703 | ) | $ | (10,291 | ) | ||||
| etailz | (253 | ) | (2,725 | ) | (966 | ) | (2,725 | ) | ||||||||
| Total Company | $ | (8,111 | ) | $ | (7,808 | ) | $ | (18,669 | ) | $ | (13,016 | ) | ||||
| Total Assets | ||||||||||||||||
| fye | $ | 186,869 | $ | 222,362 | ||||||||||||
| etailz | 102,077 | 90,887 | ||||||||||||||
| Total Company | $ | 288,946 | $ | 313,249 | ||||||||||||
Note 8.6. Restricted Cash
In connection with the acquisition of etailz and under the terms of the share purchase agreement, as amended (see Note 4), the Company designated $1.5 million of the restricted cash to be made available to satisfy any indemnification claims within 18 months from the date of acquisition and $3.2 million of the restricted cash to equal the maximum earn-out amount that could be paid to the selling shareholders of etailz in accordance with the share purchase agreement, as amended.
In addition, as a result of the death of its former Chairman, the Company received $7.5holds $3.0 million which is held in a rabbi trust, and wasof which $1.2 million is classified as restricted cash in current assets and $1.8 million is classified as restricted cash in other assets on the accompanying interim condensed consolidated balance sheet as of October 28, 2017.
July 30, 2022.
| October 28, | January 28, | October 29, | ||||||||||
| 2017 | 2017 | 2016 | ||||||||||
| Cash and cash equivalents | $ | 3,924 | $ | 27,974 | $ | 4,708 | ||||||
| Restricted cash | 12,234 | 16,103 | 16,100 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 16,158 | $ | 44,077 | $ | 20,808 | ||||||
| July 30, | January 29, | July 31, | ||||||||||
| 2022 | 2022 | 2021 | ||||||||||
| Cash and cash equivalents | $ | 1,309 | $ | 1,218 | $ | 2,570 | ||||||
| Restricted cash | 3,031 | 3,605 | 4,176 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 4,340 | $ | 4,823 | $ | 6,746 | ||||||
In January 2017, the Company Facility
swing line loans.
As of October 28, 2017, the Company had $5.0 million in outstanding borrowings under the revolving credit facility and $49.0 million was available for borrowing. As of October 29, 2016, the Company had $5.9 million in outstanding borrowings under the revolving credit facility and $53.7 million was available for borrowing. The weighted average interest rate on total, LIBO Rate and Prime Rate, outstanding borrowings for the thirteen week period ended October 28, 2017 and October 29, 2016 was 2.69% and 3.73%, respectively.
Note 10. Stock Based Compensation
As of October 28, 2017, there was approximately $0.9 million of unrecognized compensation cost related to stock awards that is expected to be recognized as expense over a weighted average period of 2.7 years.
As of October 28, 2017, stock
The table below outlines the assumptions that the Company used to estimate the fair value of stock based awards granted during the thirty-nine weeks ended October 28, 2017:
142,596.
| Number of Shares Subject To Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Other Share Awards (1) | Weighted Average Grant Fair Value | ||||||||||||||||
| Balance January 28, 2017 | 2,459,564 | $ | 3.58 | 7.3 | 170,927 | $ | 3.87 | |||||||||||||
| Granted | 620,000 | 1.84 | - | 65,000 | 1.85 | |||||||||||||||
| Forfeited | (288,750 | ) | 3.07 | - | - | - | ||||||||||||||
| Cancelled | (164,150 | ) | 5.43 | - | (5,000 | ) | 3.53 | |||||||||||||
| Exercised | - | - | - | (52,500 | ) | 3.50 | ||||||||||||||
| Balance October 28, 2017 | 2,626,664 | $ | 3.11 | 7.2 | 178,427 | $ | 3.26 | |||||||||||||
| Exercisable October 28, 2017 | 1,361,164 | $ | 3.32 | 5.8 | 63,427 | $ | 4.50 | |||||||||||||
July 30, 2022:
| Employee Stock Award Plans | ||||||||||||||||||||
Number of Shares Subject To Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Other Share Awards (1) | Weighted Average Grant Fair Value | ||||||||||||||||
Balance January 29, 2022 | 85,965 | $ | 13.41 | 7.5 | 90,000 | $ | 15.39 | |||||||||||||
| Granted | 18,750 | 6.16 | 9.9 | 9,000 | 4.59 | |||||||||||||||
| Forfeited | (17,880 | ) | 6.50 | 9.1 | (56,500 | ) | 13.79 | |||||||||||||
| Canceled | (17,306 | ) | 15.56 | - | - | - | ||||||||||||||
| Exercised | - | - | - | (9,000 | ) | 4.59 | ||||||||||||||
Balance July 30, 2022 | 69,529 | $ | 11.28 | 8.2 | 33,500 | $ | 18.08 | |||||||||||||
Exercisable July 30, 2022 | 30,059 | $ | 18.70 | 7.1 | - | $ | - | |||||||||||||
In connection with the acquisition of etailz, the Company issued 1,572,552 restricted shares of Company stockJuly 30, 2022:
| Exercise | Number | |||
| Price | Outstanding | |||
$ | 0.001 | 1,818,182 | ||
$ | 0.01 | 327,539 | ||
$ | 0.125 | 2,457,160 | ||
4,602,881 | ||||
all periods presented.
2022.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Service cost | $ | 16 | $ | 15 | $ | 48 | $ | 45 | ||||||||
| Interest cost | 139 | 137 | 417 | 411 | ||||||||||||
| Amortization of prior service costs | 4 | 55 | 12 | 166 | ||||||||||||
| Amortization of net gain(1) | (9 | ) | (4 | ) | (27 | ) | (12 | ) | ||||||||
| Net periodic pension cost | $ | 150 | $ | 203 | $ | 450 | $ | 610 | ||||||||
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| (amounts in thousands) | July 30, | July 31, | July 30, | July 31, | ||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Interest cost | $ | 89 | $ | 63 | $ | 178 | $ | 126 | ||||||||
| Net periodic pension cost | $ | 89 | $ | 63 | $ | 178 | $ | 126 | ||||||||
compared to 1.9 million shares
July 30, 2022 were approximately 4.6 million shares for both periods.
The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.
Store Manager Class Actions
Two former Store Managers filed actions alleging claims of entitlement to unpaid compensation As a result, the liability for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).
Specifically, Carol Spackcases listed below is remote.
On May 19, 2017, Natasha Roper filed a complaint against Trans Worldan amount equal, in the U.S. District Courtaggregate, to 9.0% of the proceeds received by the Company in respect of certain distributions by the Company or Kaspien; recapitalizations or financings of the Company or Kaspien (with appropriate carve out for trade financing in the Northern Districtordinary course); repayment of New York (Case No.: 1:17-cv-0553-TJM-CFH)intercompany indebtedness owing to the Company by Kaspien; or sale or transfer of any stock of the Company or Kaspien.
TRANS WORLD ENTERTAINMENT CORPORATION
29, 2022.
mutually beneficial partnerships.
| ● | We are partner obsessed. Our customers are our partners. Every decision is focused on building mutually beneficial relationships that deliver results. |
| ● | We are insights driven. We make data actionable. Our curiosity drives us to discover opportunities early and often. |
| ● | We create simplicity. We challenge the status quo. We take the complicated and simplify it. |
| ● | We take ownership. We make things happen. We hold ourselves accountable and have a bias for action. |
| ● | We empower each other. We welcome and learn from diverse experiences. Our empathy ignites innovation and empowers meaningful change. |
partners within our platform. charges. July 30, 2022 freight expenses. Company’s debt. capital expenditures. short-term borrowings of $6.1 million. during fiscal 2022. 29, 2022. Smaller Reporting Company. reporting date. reporting date. 29, 2022.Profit:Profit: Gross profit is calculated based on the cost of product in relation to its retail selling value. Changes in gross profit are impacted primarily by thenet sales levels, mix of products sold, by discounts negotiated with vendors, discounts offered to customers,obsolescence, distribution costs, and Amazon commissions and fulfillment fees paid to Amazon. fees.Company records its distributiontotal value of merchandise sold over a given time period through a customer-to-customer exchange site. It is the measurement of merchandise value sold across all channels and product shrink expenses in cost of sales. Distribution expenses include those costs associated with receiving, shipping, inspecting and warehousing product and costs associated with product returns to vendors. Warehousing cost of sales also includes obsolescence costs and is reduced by the benefit of vendor allowances, net of direct reimbursements of expense.Amazon commissions, general operating and overhead expenses and depreciation charges (excluding those related to distribution operations, as disclosed in Note 6 to the condensed consolidated financial statements). Selling, general and administrative expenses also include fixed asset write offs associated with store closures and change in square footage, if any, gift card breakage, and etailz related amortization and compensation costs. net inventory investment (merchandise inventory less accounts payable) and working capital (current assets less current liabilities) as relevant indicators of its financial position. See Liquidity and Capital ResourcesCash Flows section for further discussion of these items.19Thirty-nine WeeksTwenty-Six Ended October 28, 2017Thirty-nine WeeksTwenty-Six Ended October 29, 2016Segment Highlights:etailz results included in the tables below are for the period when etailz was acquired, therefore, etailz results are only included in the thirteenJuly 31, 2021thirty-nine weeks ended October 28, 2017. Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016 Total Revenue fye $ 52,105 $ 62,457 $ 176,006 $ 202,535 etailz 40,896 3,824 121,440 3,824 Total Company $ 93,001 $ 66,281 $ 297,446 $ 206,359 Gross Profit fye $ 21,347 $ 25,932 $ 73,342 $ 83,459 etailz 10,234 940 29,714 940 Total Company $ 31,581 $ 26,872 $ 103,056 $ 84,399 Loss From Operations fye $ (7,858 ) $ (5,083 ) $ (17,703 ) $ (10,291 ) etailz (253 ) (2,725 ) (966 ) (2,725 ) Total Company $ (8,111 ) $ (7,808 ) $ (18,669 ) $ (13,016 ) Reconciliation of etailz Loss from Operations to etailz Adjusted Income (Loss) from Operations etailz loss from operations $ (253 ) $ (2,725 ) $ (966 ) $ (2,725 ) Acquisition related transaction expenses - 2,228 - 2,228 Acquisition related amortization and compensation expenses (1) 2,087 $ 303 4,613 303 etailz adjusted income (loss) from operations (2) $ 1,834 $ (194 ) $ 3,647 $ (194 ) (1)Acquisition related expenses for the thirteen weeks ended October 28, 2017 consisted of amortization expense of intangible assets of $1 million and compensation expense of $1.1 million. Acquisition related expenses for the thirty-nine weeks ended October 28, 2017 consisted of amortization expense of intangible assets of $2.9 million and compensation expense of $3.1million, net of a $1.4 million benefit resulted from a contingent consideration liability adjustment.(2)In addition to the results of operations determined in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we reported non-GAAP adjusted operating income for the etailz segment as shown above.Total Revenue.Gross profit. total revenue: Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) fye revenue $ 52,105 $ 62,457 $ (10,352 ) -16.6 % $ 176,006 $ 202,535 $ (26,529 ) -13.1 % etailz revenue 40,896 3,824 37,072 n/a 121,440 3,824 117,616 n/a Total revenue $ 93,001 $ 66,281 $ 26,720 40.3 % $ 297,446 $ 206,359 $ 91,087 44.1 % TotalNet revenue increased 40.3% and 44.1%Gross profit: Thirteen Weeks Ended Change Twenty-Six Weeks Ended Change (amounts in thousands) July 30, 2022 July 31, 2021 $ % July 30, 2022 July 31, 2021 $ % Net Revenue $ 33,907 $ 34,890 $ (983 ) -2.8 % $ 65,697 $ 75,507 $ (9,810 ) -13.0 % Gross profit 6,729 8,835 (2,106 ) -23.8 % 13,579 18,631 (5,052 ) -27.1 % % to sales 19.8 % 25.3 % 20.7 % 24.7 % the thirteen and thirty-nine weeks ended October 28, 2017 as compared to the same period last year. The increase was driven by $40.9 million and $121.4 million in revenue for the thirteen and thirty-nine weeks ended October 28, 2017 as a result of the acquisition of etailz in October 2016, which offsets the decline in fye revenue.20fye SegmentThe following table sets forth a period over period comparison of net fye sales by merchandise category: Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change October 28,
2017 October 29,
2016 $ % Comp
Store Net
Sales October 28,
2017 October 29,
2016 $ % Comp
Store Net
Sales(in thousands, except store data) fye net sales $ 50,921 61,215 $ (10,294 ) -16.8 % -11.0 % $ 172,042 199,303 $ (27,261 ) -13.7 % -8.0 % Other revenue 1,184 1,242 (58 ) (4.7 %) 3,964 3,232 732 22.6 % Total revenue $ 52,105 $ 62,457 $ (10,352 ) -16.6 % $ 176,006 $ 202,535 $ (26,529 ) -13.1 % As a % of fye net sales Lifestyle 38.0 % 32.3 % 0.2 % 35.4 % 28.6 % 9.2 % Video 32.3 % 35.2 % -15.4 % 32.9 % 37.3 % -15.8 % Music 18.9 % 21.7 % -23.0 % 20.4 % 23.8 % -20.6 % Electronics 10.4 % 10.1 % -4.3 % 10.8 % 9.4 % 4.3 % Video Games 0.4 % 0.7 % -41.0 % 0.5 % 0.9 % -43.9 % Store Count: 268 294 (26 ) -8.8 % Total Square footage (in thousands) 1,491 1,649 (158 ) -9.6 % Net sales. Net sales decreased 16.8% and 13.7% during the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, as compared to the same period last year. The decline in net sales resulted from an 8.8% decline in total stores in operation for the thirty-nine weeks ended October 28, 2017 as compared to the same period last year, and an 11.0% and 8.0% decline in comparable store net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.Lifestyle:Comparable store net sales in the lifestyle (trend) category increased 0.2% during the thirteen weeks ended October 28, 2017. During the thirty-nine weeks ended October 28, 2017, lifestyle category increased 9.2%. Lifestyle products represented 38.0% and 35.4% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 32.3% and 28.6% inJuly 30, 2022 a 2.8% decrease from the comparable periods last year. The Company is focused on identifying, creating and delivering merchandise that differentiates its customer experience and brand with unique and engaging products.Media Categories:Media categories, which consist of Video and Music, continue to experience industry wide declines due to non-physical options. As a result, the fye segment is shifting its product mix to growing categories of entertainment and pop culture related merchandise, which is categorized as Lifestyle.Video:Comparable store sales in the video category decreased 15.4% and 15.8% during the thirteen and thirty-nine week periods ended October 28, 2017, respectively. The video category represented 32.3% and 32.9% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 35.2% and 37.3% in the comparable periods last year.Music:During the thirteen and thirty-nine weeks ended October 28, 2017, music sales in comparable stores decreased 23.0% and 20.6%, respectively, versus the thirteen and thirty-nine weeks ended October 29, 2016. The music category represented 18.9% and 20.4% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 21.7% and 23.8% for the thirteen and thirty-nine weeks ended October 29, 2016.21Electronics:Comparable store net sales in the electronics category decreased 4.3% and increased 4.3% during the thirteen and thirty-nine weeks ended October 28, 2017, respectively due to lower average retail prices. Electronics net sales represented 10.4% and 10.8% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 10.1% and 9.4% in the comparable periods last year.Other Revenue.Otherprior year period. Net revenue which was primarily related to commissions and fees earned from third parties, was approximately $1.2 million and $4.0$65.7 million for the thirteen and thirty-ninetwenty-six weeks ended October 28, 2017, respectively, compared to $1.2 million and $3.2 millionJuly 30, 2022 a 13.0% decrease from the comparable prior year period.comparable periods last year.etailz Segmentetailz reported $40.9 million and $121.4 million sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. etailzJuly 30, 2022. The Company generates revenue across a broad array of product lines primarily through the Amazon Marketplace.
Categories include apparel, baby, beauty, electronics, health & personal care, home/kitchen/grocery, pets, sporting goods, toys & art.22 Thirteen weeks ended Twenty-six weeks ended July 30, 2022 July 31, 2021 Change July 30, 2022 Jul 31, 2021 Change Amazon US $ 31,978 94.3 % $ 32,642 93.6 % -2.0 % $ 61,598 93.8 % $ 70,158 92.9 % -12.2 % Amazon International 992 2.9 % 1,289 3.7 % -23.0 % 2,279 3.5 % 3,557 4.7 % -35.9 % Other Marketplaces 350 1.0 % 507 1.5 % -31.0 % 780 1.2 % 885 1.2 % -11.9 % Subtotal Retail as a Service 33,320 98.3 % 34,438 98.7 % -3.2 % 64,657 98.4 % 74,600 98.8 % -13.3 % Subscriptions 587 1.7 % 452 1.3 % 29.8 % 1,040 1.6 % 907 1.2 % 14.7 % Net revenue $ 33,907 100.0 % $ 34,890 100.0 % -2.8 % $ 65,697 100.0 % $ 75,507 100.0 % -13.0 % year-over-yearperiod over period comparison of the Company’s gross profit: Thirteen Weeks ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) (in thousands) fye gross profit $ 21,347 $ 25,932 ($ 4,585 ) -17.7 % $ 73,342 $ 83,459 ($ 10,117 ) -12.1 % etailz gross profit 10,234 940 $ 9,294 n/a 29,714 940 $ 28,774 n/a Total gross profit $ 31,581 $ 26,872 $ 4,709 17.5 % $ 103,056 $ 84,399 $ 18,657 22.1 % fye gross profit as a % of fye revenue 41.0 % 41.5 % 41.7 % 41.2 % etailz gross profit as a % of etailz revenue 25.0 % 24.6 % 24.5 % 24.6 % Total gross profit as a % of total revenue 34.0 % 40.5 % 34.6 % 40.9 % Thirteen Weeks Ended Change Twenty six Weeks Change (amounts in thousands) July 30, 2022 July 31, 2021 $ % July 30, 2022 Jul 31, 2021 $ % Merchandise margin $ 14,121 $ 15,936 $ (1,815 ) -11.4 % $ 28,167 $ 34,656 $ (6,489 ) -18.7 % % of net revenue 41.6 % 45.7 % 4.1 % 42.9 % 45.9 % -3.0 % Fulfillment fees (4,655 ) (5,393 ) 738 -13.7 % (9,222 ) (11,843 ) 2,621 -22.1 % Warehousing and freight (2,739 ) (1,708 ) (1,031 ) 60.4 % (5,366 ) (4,182 ) (1,184 ) 28.3 % Gross profit $ 6,727 $ 8,835 $ (2,108 ) -23.9 % $ 13,579 $ 18,631 $ (5,052 ) -27.1 % % of net revenue 19.8 % 25.3 % 20.7 % 24.7 % increased 17.5% to $31.6was $6.7 million for the thirteen weeks ended October 28, 2017July 30, 2022, as compared to $26.9$8.8 million for the comparable prior year period. The decrease in gross profit was primarily attributable to a reduction in net revenue on the Amazon US Platform, a decrease in merchandise margin and an increase in warehousing and freight expenses. Gross profit as a percentage of net revenue was 19.8% as compared to 25.3% for the thirteen weeks ended October 29, 2016. ForJuly 31, 2022. Merchandise margin for the thirty-nine weeks ended October 28, 2017, gross profit increased 22.1% to $103.1thirteen-week period ending July 30, 2022 was 41.6% as compared to $84.4 million42.9% for the comparable period last year. The increase in grossprior year period.is primarilyfor the resulttwenty-six weeks ended July 30, 2022 was $13.6 million, or 20.7% of the acquisitionnet revenue, as compared to $18.6 million, or 24.7% of etailz in October 2016, which offset the decline in fye gross profit.fye SegmentTotal gross profit as a percentage of totalnet revenue for the thirteen and thirty-nine weeks ended October 28, 2017 was 41.0% and 41.7%, respectively, compared to 41.5% and 41.2% for the comparable periods last year.etailz Segmentetailz reported gross profit of $10.2 million and $29.7 million for the thirteen and thirty-nine weeks ended October 28, 2017. etailz gross profitprior year period as a percentage ofincreased net revenue was 25.0%offset by higher warehousing and 24.5% for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.23 Thirteen Weeks ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) (in thousands) fye SG&A, excluding depreciation, amortization, and acquistion related transaction costs $ 26,790 $ 28,968 $ (2,178 ) -7.5 % $ 84,102 $ 88,616 ($ 4,514 ) -5.1 % As a % of total FYE revenue 51.4 % 46.4 % 5.0 % 47.8 % 43.8 % 4.0 % etailz SG&A, excluding depreciation, amortization, and acquistion related compensation expenses 9,225 959 8,266 n/a 26,964 959 26,005 n/a etailz acquisition related compensation expenses, net of a contingency adjustment 1,118 303 815 n/a 1,708 303 1,405 n/a Depreciation and amortization 3,425 2,222 1,203 54.1 % 9,989 5,309 4,680 88.2 % etailz acquisition related transaction costs - 2,228 (2,228 ) n/a - 2,228 (2,228 ) n/a Total SG&A $ 40,558 $ 34,680 $ 5,878 16.9 % $ 122,763 $ 97,415 $ 25,348 26.0 % As a % of total revenue 43.6 % 52.3 % 41.3 % 47.2 % Thirteen Weeks Ended Change Twenty-Six Weeks Ended Change (amounts in thousands) July 30, 2022 July 31, 2021 $ % July 30, 2022 July 31, 2021 $ % Selling expenses $ 4,876 $ 5,085 $ (209 ) -4.1 % $ 9,477 $ 10,991 $ (1,514 ) -13.8 % General and administrative expenses 5,325 5,125 200 3.9 % 11,242 9,877 1,365 13.8 % Total SG&A expenses $ 10,201 $ 10,210 $ (9 ) -0.1 % $ 20,719 $ 20,868 $ (149 ) -0.7 % As a % of total revenue 30.1 % 29.3 % 31.5 % 27.6 % increased $5.9decreased $0.2 million for the thirteen weeks ended October 28, 2017 due to expenses for etailz, acquisition related compensation expenses,July 30, 2022. General and higher depreciation and amortization expenses, offset slightly by lower fye expenses. SG&Aadministrative expenses increased $25.3 million for the thirty-nine weeks ended October 28, 2017 due to expenses for etailz, acquisition related compensation expenses, and higher depreciation and amortization expenses, offset slightly by lower fye expenses, and a benefit recorded to the Company’s contingent consideration.fye SegmentSG&A excluding depreciation, amortization, and acquisition related transaction costs decreased $2.2 million, or 7.5%, and $4.5 million, or 5.1%, for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. As a percentage of fye revenue, SG&A expenses, excluding depreciation, amortization, and acquisition related transaction costs for the thirteen and thirty-nine weeks ended October 28, 2017 were 51.4% and 47.8% compared to 46.4% and 43.8% for the same period last year. The increase in the rate was primarily due to the comp sales decline and expenses to support the upgrading of the Company’s digital and data capability, including the re-platforming of fye.com.etailz Segmentetailz reported SG&A, excluding depreciation, amortization, and acquisition related compensation expenses, of $9.2 million and $27.0$0.2 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, which primarily includes commission fees and payroll costs.Depreciation and Amortization.July 30, 2022.and $4.7for the comparable prior year period.and thirty-nine weeks ended October 28, 2017, respectively. Amortization of intangibles, as described in Note 5July 30, 2022 compared to the condensed consolidated financial statements, increased $0.8 million and $2.8$0.5 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Depreciation expense increased $0.4 million and $1.9 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, primarily due to the fye segment’s investments in technology enhancements, new and remodeled stores and the chain wide rollout of new marketplace fixtures to support the fye segment’s shift in merchandising assortment from media categories to its lifestyle category.24Income from Joint Venture.etailz segment is a party to a Joint Venture Agreement as described in Note 4 to the Company’s condensed consolidated financial statements. Income from the joint venture was $866 thousand and $1,038 thousand for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.Interest Expense.Interest expense was $83 thousand and $200 thousand during the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Interest expense consisted primarily of unused commitment fees and the amortization of fees related to the Company’s credit facility. Interest expense during the thirteen and thirty-nine weeks ended October 29, 2016 was $179 thousand and $523 thousand, respectively.July 31, 2021. The reductionincrease in interest expense was due to lower commitment feesincreased short and lower interest rates resulted from the amendment of the credit facility as discussed in Note 9 to the interim condensed consolidated financial statements.Gain (Loss) on Insurance Proceeds.The gain on insurance proceeds related to the death of the Company’s former Chairmanlong-term borrowings.$8.7 million during the thirty-nine weeks ended October 28, 2017, which consisted of an $8.8 million gain recorded during the first fiscal quarter of 2017 and a loss of $129 thousand recorded during the second fiscal quarter of 2017.Other Income. Other income was $59 thousand and $91 thousand during the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to $51 thousand and $1.1$1.7 million for the same periods last year. Other incometwenty-six weeks ended July 30, 2022 compared to $1.0 million for the thirty-ninetwenty-six weeks ended October 29, 2016 included an $800 thousand gainJuly 31, 2021. The increase in interest expense was due to increased short and long-term borrowings. See Note 7 to the Condensed Consolidated Financial Statements for further detail on the sale of an investment. During the third quarter of fiscal 2016, in connection with the acquisition of etailz, the Company recognized a tax benefit of $7.5 million related to the reduction of its valuation allowance equivalent to the net deferred tax liabilities recorded on the etailz opening balance sheet. In assessing the realizability of the net deferred tax assets at the time of the acquisition of etailz, management considered whether it is more likely than not that some portion or all of the remaining deferred tax assets will not be realizable. Management considered the scheduled reversal of taxable temporary differences, projected future taxable income when combining Trans World Entertainment projected income or loss with etailz projected income or loss, and tax planning strategies when making this assessment. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against itsthe Company's deferred tax assets net of the deferred tax liabilities recorded in connection with the etailz acquisition. As a result, there were insignificant tax expense (benefit) amounts recorded during the thirteen and thirty-nine weeks ended October 28, 2017.
July 30, 2022 and July 31, 2021.25following table sets forthnet loss for the thirteen weeks ended July 30, 2022 was $4.4 million as compared to net income of $0.1 million for the comparable prior year period. The net loss for the twenty-six weeks ended July 30,2022 was $8.8 million as compared to a period over period comparisonnet loss of $1.3 million for the comparable prior year period.Company’sCOVID-19 pandemic.loss: Thirteen Weeks Ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ October 28,
2017 October 29,
2016 $ (in thousands) (in thousands) Loss before income tax $ (8,135 ) $ (7,936 ) $ (199 ) $ (10,045 ) $ (12,471 ) $ 2,426 Income tax expense (benefit) (64 ) (7,452 ) 7,388 40 (7,358 ) 7,398 Net loss $ (8,071 ) $ (484 ) $ (7,587 ) $ (10,085 ) $ (5,113 ) $ (4,972 ) Forloss of $8.8 million and $1.3 million for the thirteen and thirty-ninetwenty-six weeks ended October 28, 2017, the Company’s net loss increased $7.6 millionJuly 30, 2022 and $5.0 million,July 31, 2021, respectively. The increase in the net loss was primarily dueattributable to a decrease in sales and gross margin. In addition, the income tax benefit recordedCompany has an accumulated deficit of $129.7 million as of July 30, 2022 and net cash used in operating activities for the twenty-six weeks ended July 30, 2022 was $5.9 million. Net cash used in operating activities for the twenty-six weeks ended July 31, 2021 was $2.5 million.third quarterCompany's Annual Report on Form 10-K filed April 29, 2022, the Company experienced negative cash flows from operations during fiscal 2021 and 2020 and we expect to incur net losses in fiscal 2022.2016.LIQUIDITYLiquidityour revenue; the timing and Cash Flows:In connection withamount of our operating expenses; the preparationtiming and costs of working capital needs; successful implementation of our strategy and planned activities; and our ability to overcome the impact of the COVID-19 pandemic. There can be no assurance that we will be successful in further implementing our business strategy or that the strategy, including the completed initiatives, will be successful in sustaining acceptable levels of sales growth and profitability. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.conducted an evaluationto meet its liabilities and to continue as a going concern is dependent on improved profitability, the strategic initiatives for Kaspien and the availability of future funding. Based on recurring losses from operations, negative cash flows from operations, the expectation of continuing operating losses for the foreseeable future, and uncertainty with respect to whetherany available future funding, the Company has concluded that there were conditions and events, considered in the aggregate, which raisedis substantial doubt as toabout the entity’sCompany’s ability to continue as a going concern withinconcern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.year aftershare of Common Stock (the “Pre-Funded Warrants”), and warrants exercisable for one share of Common Stock (the “Investor Warrants”). Pursuant to the PIPE Purchase Agreement, the Company has agreed to issue and sell 1,818,182 shares (the “Shares”) of its Common Stock or Pre-Funded Warrants in lieu thereof together with Investor Warrants to purchase up to 2,457,160 shares of Common Stock. Each share of Common Stock and accompanying Investor Warrant will be sold together at a combined offering price of $3.30 per share.issuance, orexercise price including for stock splits, stock dividend, rights offerings and pro rata distributions.date of availability, ofCompany from the financial statementsPrivate Placement, after deducting placement agent fees and other estimated offering expenses payable by the Company, were approximately $7.1 million. The Company intends to be issued, noting that there did not appear to be evidence of substantial doubt ofuse the entity’s ability to continue as a going concern.The Company’s primary sources ofnet proceeds from the private placement for working capital are cash provided by operations and borrowing capacity under its revolving credit facility. The Company’s cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory purchases and returns, the related terms on the purchases and capital expenditures. Management believes it will have adequate resources to fund its cash needs for the foreseeable future, including its capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments.Management anticipates any cash requirements due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, discussed in Note 9 to the Company’s interim condensed consolidated financial statements.
general corporate purposes.26 As of or for the
Thirty-nine Weeks Ended Change (in thousands) October 28,
2017 October 29,
2016 $ Operating Cash Flows (33,947 ) (29,879 ) (4,068 ) Investing Cash Flows 6,028 (52,226 ) 58,254 Financing Cash Flows - (1,398 ) 1,398 Capital Expenditures (1) (6,392 ) (16,726 ) 10,334 Purchases of business, net of cash acquired (1) - (36,600 ) 36,600 Cash, Cash Equivalents, and Restricted Cash (2) 16,158 20,808 (4,650 ) Merchandise Inventory 144,754 157,827 (13,073 ) Working Capital 95,951 91,617 4,334 (1) Included in Investing Cash Flows (2) Cash and cash equivalents per condensed consolidated balance sheets $ 3,924 $ 4,708 $ (784 ) Add: restricted cash 12,234 16,100 (3,866 ) Cash, cash equivalents, and restricted cash $ 16,158 $ 20,808 $ (4,650 ) As of or for the Twenty-Six Weeks Ended Change (amounts in thousands) July 30, July 31, 2022 2021 $ Operating Cash Flows $ (5,893 ) $ (4,934 ) $ (959 ) Investing Cash Flows (616 ) (743 ) 127 Financing Cash Flows 6,026 5,867 159 (616 ) (743 ) 127 Cash, Cash Equivalents, and Restricted Cash (2 ) 4,340 6,746 (2,406 ) 26,672 25,024 1,648 $ 1,309 $ 2,570 $ (1,261 ) Add: restricted cash 3,031 4,176 (1,145 ) Cash, cash equivalents, and restricted cash $ 4,340 $ 6,746 $ (2,406 ) $34.0$5.9 million for the thirty-ninetwenty-six weeks ended October 28, 2017July 30, 2022, primarily due to a net loss of $10.1$8.8 million, adding back depreciationa decrease of $0.9 million in accrued expenses and amortizationa decrease of $10.5$0.6 million decrease in other long-term liabilities, net of a $1.7 million increase in accounts payable.non-cash compensation$0.7 million for the twenty-six weeks periods ended July 30, 2022 and July 31, 2021, which consisted entirely of $2.3 million, less seasonable increase in merchandise inventory of $18.7 million, the adjustment to the contingent consideration liability of $1.4 million, the gain on insurance proceeds of $8.7 million, and reductions in accounts payable and deferred revenue of $6.9 million and $2.9 million respectively.investingfinancing activities was $6.0 million for the thirty-ninetwenty-six weeks ended October 28, 2017, which consistedJuly 30, 2022. The primary source of Company owned life insurancecash was $5.0 million raised from the issuance of subordinated debt and SERP benefits proceeds$7.1 million from the Private Placement offering partially offset by the payment of $14.4 million, less $6.4 million in capital expenditures, and a $2.6 million investment in a joint venture.comprised$5.9 million for the thirteen weeks ended July 31, 2021. The primary source of $5.0 million proceeds from short-term borrowings. Cash used in financing activitiescash was comprisedan underwritten offering of $5.0 million payment to the etailz shareholders in connection with the amendment to the share purchase agreement.In January 2017, the Company entered into a $50 million asset based credit facility (“Credit Facility”) which amended the previous credit facility. The availability under the Credit Facility is subject to limitations based on inventory levels. The principal amount416,600 shares of all outstanding loans under the Credit Facility, together with any accrued but unpaid interest, are due and payable in January 2022, unless otherwise paid earlier pursuant to the terms of the Credit Facility. Payments of amounts due under the Credit Facility are secured by the assets of the Company. The Credit Facility contains a provision to increase availability to $75 million during October to December of each year, as needed. During the third quarter of fiscal 2017, the Company exercised the right to increase its borrowing base to $60 million, subject to the same limitations noted above.Interest under the Credit Facility will accrue, at the electioncommon stock of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by referenceprice to the levelpublic of availability, with$32.50 per share. The net proceeds of the Applicable Margin for LIBO Rate loans ranging from 2.25%offering were approximately $12.2 million. The Company used $6.3 million of the proceeds to 2.75% and the Applicable Margin for Prime Rate loans ranging from 0.75% to 1.25%. In addition, a commitment fee ranging from 0.375% to 0.50% is also payable on unused commitments.Thepay down its Credit Facility contains customary affirmative and negative covenants, including restrictions on dividends and share repurchases, incurrence of additional indebtedness and acquisitions, covenants around the net
Facility.27number of store closings, and restrictions related to the payment of cash dividends, including limiting the amount of dividends and share repurchases to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment.Refer to footnote 9 in the interim condensed consolidated financial statements for further information regarding the Company’s Credit Facility.and thirty-nine weeks ended October 28, 2017,July 30, 2022, the Company made capital expenditures of $2.2$0.6 million. The Company currently plans to spend approximately $1.0 million and $6.4 million, respectively. The Company’s planned annual fiscal 2017for capital expenditures is approximately $8.0 million.POLICIES AND ESTIMATES28, 201729, 2022 includes a summary of the critical accounting policies and methods used by the Company in the preparation of its interim condensed consolidated financial statements. There have been no material changes or modificationsThe Company’s significant accounting policies are the same as those described in Note 1 to the policies sinceCompany’s Consolidated Financial Statements on Form 10-K for the fiscal year ended January 28, 2017.32, Recently Adopted Accounting Pronouncements section contained in Item 1, “Notes to Interim Condensed Consolidated Financial Statements”, is incorporated herein by reference.Non-GAAP Measures:This Form 10-Q contains certain non-GAAP metrics, including: adjusted operating income for the etailz segment and SG&A excluding depreciation, amortization, and acquisition related transaction and compensation expenses for each reporting segment. A non-GAAP measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. Non-GAAP items are provided because management believes that, when reconciled from the GAAP items to which they relate, they provide additional useful information to investors regarding the Company’s operational performance.The Company calculates etailz adjusted income from operations to evaluate its own operating performance and as an integral part of its planning process. The Company presents etailz adjusted income from operations as a supplemental measure because it believes such a measure provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.The Company calculates SG&A, excluding depreciation, amortization, and acquisition related compensation expenses to evaluate its own operating performance and as an integral part of its planning process. The Company presents SG&A, excluding depreciation, amortization, and acquisition related compensation expenses as a supplemental measure because it believes such a measure provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.28TRANS WORLD ENTERTAINMENT CORPORATIONItem 3 - Quantitative and Qualitative Disclosures about Market RiskTo the extent the Company borrows under its Credit Facility, the Company is subject to risk resulting from interest rate fluctuations since interest on the Company’s borrowings under its Credit Facility can be variable.InterestItem 3 - Quantitative and Qualitative Disclosures about Market Risk Credit Facility will accrue, at the electionrequirements of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability as defined in the Credit Agreement, with the Applicable Margin for LIBO Rate loans ranging from 2.25% to 2.75% and the Applicable Margin for Base Rate loans ranging from 0.75% to 1.25%. If interest rates on the Company’s Credit Facility were to increase by 25 basis points, and to the extent borrowings were outstanding, for every $1,000,000 outstanding on the facility, income before income taxes would be reduced by $2,500 per year. For a discussion of the Company’s accounting policies for financial instruments and further disclosures relating to financial instruments, see “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 28, 2017. The Company does not currently hold any derivative instruments.ChiefPrincipal Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of October 28, 2017,July 30, 2022, have concluded that as of such date the Company’s disclosure controls and procedures were effective and designed to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 (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 (ii) information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The acquisition of etailz was significant to There have been no changes in the Company and was consummated effective October 17, 2016. Upon consummation of the acquisition, etailz became a consolidated subsidiary of the Company. As of October 28, 2017 etailz operations are fully incorporated within the Company, includingCompany’s internal controls over financial reporting that occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.29TRANS WORLD ENTERTAINMENT CORPORATIONStore Manager Class ActionsTwo former Store Managers filed actions alleging claims of entitlement to unpaid compensation As a result, the liability for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).Specifically, Carol Spackcases listed below is remote.complaintlawsuit against Trans World Entertainment Corporation (Trans World)Kaspien Inc. in the United States District Court for the Eastern District of New Jersey,Washington (Case No. 2:21-cv-00192-SAB) concerning a Retailer Agreement that the parties entered into in September of 2020. Vijuve manufactures skin care products and face massagers. The parties agreed that Kaspien would sell Vijuve’s products on April 20, 2017 (Case No.: 3:17-cv-02687-BRM-LHG) allegingAmazon. The complaint alleged that sheKaspien breached the Retailer Agreement when it declined to acquiesce to Vijuve’s demand that Kaspien purchase over $700,000 of products. In total, Vijuve is entitledseeking $774,000 in damages. Kaspien denies that it breached the agreement. Moreover, on July 19, 2021, Kaspien filed counterclaims and alleged that Vijuve breached the contract, including by refusing to unpaid compensationbuy back inventory from Kaspien upon termination of the Retailer Agreement. Kaspien is seeking at least $229,000 from Vijuve for overtime underbreach of contract and/or specific performance. A trial on all of the federal Fair Labor Standards Act (FLSA). She brings a nationwide collective action underparties’ claims is scheduled for February 21, 2023. There is no determination of outcome, thus no contingencies are recognized as of the FLSA on behalf of all Store Managers and Senior Assistant Managers. She also brings class action claims under New Jersey and Pennsylvania law on behalf of all persons who worked as Store Managers in New Jersey or Senior Assistant Managers in Pennsylvania.May 19, 2017, Natasha RoperFebruary 17, 2022, CA Washington, LLC (“CA”) filed a complaintlawsuit against Trans WorldKaspien, Inc. in Wake County, North Carolina Superior Court (court file 22 CVS 2051). CA Washington, LLC claims that Kaspien, Inc. breached the contract between the parties by using CA’s technology platform to facilitate sales by third parties and by using CA’s technology to develop a competing platform. The lawsuit also includes an alternative claim for unjust enrichment and a claim for breach of North Carolina’s Unfair and Deceptive Trade Practices Act. CA seeks an unspecified amount of damages. Kaspien removed the lawsuit to federal court in the U.S. District Court for the NorthernEastern District of New York (Case No.: 1:17-cv-0553-TJM-CFH) in which she also alleges that sheNorth Carolina (case number 5:22-cv-00111), filed an Answer denying CA’s claims, and asserted a counterclaim against CA for breach of contract and breach of the covenant of good faith and fair dealing. There is entitled to unpaid compensation for overtime underno determination of outcome, thus no contingencies are recognized as of the FLSA. Ms. Roper brings a nationwide collective action under the FLSA on behalf of all similarly situated Store Managers.Item 1A – Risk FactorsItem 1A – Risk Factors 28, 2017.Item 2 – Unregistered Sales of Equity Securities and Use of ProceedsItem 2 – Unregistered Sales of Equity Securities and Use of Proceeds Item 3 – Defaults Upon Senior SecuritiesItem 3 – Defaults Upon Senior Securities Item 4 – Mine Safety DisclosureItem 4 – Mine Safety Disclosure Item 5 – Other InformationNone.30Item 5 –Other Information Exhibits (A) 1.Exhibits - Exhibit No. Description DescriptionCertificate of Amendment of Certificate of Incorporation of Kaspien Holdings Inc., dated March 8, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K dated March 8, 2022). 31.1 Amendment No. 4 to Bylaws of Kaspien Holdings Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K dated August 2, 2022). 10.1 Engagement Agreement dated July 11, 2022 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K dated July 14, 2022). 10.2 Securities Purchase Agreement (PIPE), dated July 12, 2022, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K dated July 14, 2022). Securities Purchase Agreement (Registered Offering), dated July 12, 2022, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated July 14, 2022). 10.4 Form of Investor Warrant (PIPE) (incorporated by reference to Exhibit 10.4 of the Company's Form 8-K dated July 14, 2022). Form of Pre-Funded Warrant (PIPE) (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated July 14, 2022). 10.6 Form of Pre-Funded Warrant (Registered Offering) (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K dated July 14, 2022). Registration Rights Agreement, dated July 12, 2022, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K dated July 14, 2022). 10.8 Form of Lockup Agreement (incorporated by reference to Exhibit 10.8 of the Company’s Form 8-K dated July 14, 2022). 10.9 Voting Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 2, 2022). 10.10 2005 Long Term Incentive and Share Award Plan, as amended and restated August 2, 2022 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 2, 2022). Form of Pre-Funded Warrant (Registered Offering) (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K dated July 14, 2022) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31TRANS WORLD ENTERTAINMENT CORPORATIONDecember 7, 2017KASPIEN HOLDINGS INC.September 13, 2022 By: /s/ Michael FeurerBrock Kowalchuk Michael FeurerBrock Kowalchuk ChiefPrincipal Executive Officer (Principal Executive Officer) December 7, 2017September 13, 2022By: /s/ John AndersonEdwin Sapienza John AndersonEdwin Sapienza 32