UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~May 1, ~~2020~~2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number0-14818

~~Kaspien Holdings Inc.~~KASPIEN HOLDINGS INC.

(Exact Name of Registrant as Specified in its Charter)

New York		14-1541629
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

2818 N. Sullivan Rd. Ste 30
130 Spokane Valley, WA 99216		99216
Address of Principal Executive Offices		Zip Code

(855) 300-2710

Registrant’s Telephone Number, Including Area Code

~~Trans World Entertainment Corporation~~

~~38 Corporate Circle~~

~~Albany, New York~~

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	KSPN	NASDAQ ~~Capital~~Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value,

~~1,825,198~~2,487,752 shares outstanding as of ~~September 1, 2020~~June 10, 2021

Kaspien Holdings Inc.

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Form 10-Q Page No.

PART I. FINANCIAL INFORMATION

Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited)	3


Condensed Consolidated Balance Sheets at ~~August~~May 1, ~~2020, February 1, 2020~~2021, January 30, 2021 and ~~August 3, 2019~~May 2, 2020	3

	Condensed Consolidated Statements of Operations – Thirteen Weeks Ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020	4

	Condensed Consolidated Statements of Comprehensive Loss – Thirteen Weeks Ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020	5

	Condensed Consolidated Statements of Shareholders’ Equity – Thirteen Weeks Ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020	6

	Condensed Consolidated Statements of Cash Flows – Thirteen Weeks Ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020	7

	Notes to Interim Condensed Consolidated Financial Statements	8

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	2521

Item 3 – Quantitative and Qualitative Disclosures about Market Risk	3227

Item 4 – Controls and Procedures	3227

PART II. OTHER INFORMATION

Item 1 – Legal Proceedings	3228

Item 1A- Risk Factors	3328

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	3329

Item 3 – Defaults Upon Senior Securities	3329

Item 4 – Mine Safety Disclosures	3329

Item 5 – Other Information	3329

Item 6 – Exhibits	3329

Signatures	3530

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

PART 1. FINANCIAL INFORMATION

Item 1 - Interim Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share amounts)

August 1,
2020

February 1,
2020

August 3,
2019

ASSETS Unaudited Unaudited
CURRENT ASSETS
Cash and cash equivalents $ 3,337 $ 2,977 $ 3,635
Restricted cash 950 950 950
Accounts receivable 2,239 4,139 2,324
Merchandise inventory 20,576 17,836 20,185
Prepaid expenses and other current assets 1,085 2,974 983
Assets held for discontinued operations - 51,189 104,121
Total current assets 28,187 80,065 132,198

Restricted cash 4,362 4,925 5,345
Fixed assets, net 2,285 2,190 1,898
Operating lease right-of-use assets 3,030 3,311 3,586
Intangible assets, net 1,246 1,760 3,096
Cash Surrender Value 3,411 3,353 3,199
Other assets 2,036 2,202 851
TOTAL ASSETS $ 44,557 $ 97,806 $ 150,173

LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 9,857 $ 14,447 $ 9,285
Short-term borrowings 2,151 13,149 12,086
Accrued expenses and other current liabilities 3,812 3,521 2,084
Current portion of operating lease liabilites 571 534 511
Current portion of PPP loan
1,017
-
-

Liabilities held for discontinued operations - 39,410 56,204
Total current liabilities 17,408 71,061 80,170

Operating lease liabilities 2,564 2,204 2,614
PPP loan
1,001 - -
Long-term debt 4,401 - -
Other long-term liabilities 19,613 20,026 19,424
TOTAL LIABILITIES 44,987 93,291 102,208

SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) - - -
Common stock ($0.01 par value; 200,000,000 shares authorized; 3,235,576, 3,225,627 and 3,223,898 shares issued, respectively) 32 32 32
Additional paid-in capital 346,457 345,102 344,983
Treasury stock at cost (1,410,378, 1,409,316 and 1,408,043 shares, respectively) (230,169 ) (230,169 ) (230,168 )
Accumulated other comprehensive loss (1,473 ) (1,479 ) (725 )
Accumulated deficit (115,277 ) (108,971 ) (66,157 )
TOTAL SHAREHOLDERS' EQUITY (430 ) 4,515 47,965
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 44,557 $ 97,806 $ 150,173

(unaudited)

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

	May 1,			January 30,			May 2,
	2021			2021			2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,030		$	1,809		$	7,078
Restricted cash		1,184			1,184			950
Accounts receivable		3,113			2,718			2,644
Merchandise inventory		22,567			24,515			17,157
Prepaid expenses and other current assets		592			564			639
Total current assets		32,486			30,790			28,468

Restricted cash		3,277			3,562			4,648
Fixed assets, net		2,366			2,268			2,256
Operating lease right-of-use assets		2,595			2,742			3,171
Intangible assets, net		475			732			1,503
Cash Surrender Value		4,168			3,856			3,056
Other assets		1,230			1,342			2,138
TOTAL ASSETS	$	46,597		$	45,292		$	45,240

LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	5,682		$	8,894		$	5,938
Short-term borrowings		-			6,339			4,531
Accrued expenses and other current liabilities		2,640			2,512			5,046
Current portion of operating lease liabilities		609			596			551
Current portion of PPP loan		2,018			1,687			-
Total current liabilities		10,949			20,028			16,066

Operating lease liabilities		2,101			2,258			2,714
PPP Loan		-			330			2,018
Long-term debt		5,261			5,000			4,170
Other long-term liabilities		15,954			16,187			19,820
TOTAL LIABILITIES		34,265			43,803			44,788

SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)		-			-			-
Common stock ($0.01 par value; 200,000,000 shares authorized; 3,889,169, 3,336,576 and 3,235,576 shares issued, respectively)		39			33			32
Additional paid-in capital		358,749			346,495			346,442
Treasury stock at cost (1,410,417, 1,410,378 and 1,410,378 shares, respectively)		(230,170	)		(230,169	)		(230,169	)
Accumulated other comprehensive loss		(2,007	)		(2,007	)		(1,476	)
Accumulated deficit		(114,279	)		(112,863	)		(114,377	)
TOTAL SHAREHOLDERS' EQUITY		12,332			1,489			452
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	46,597		$	45,292		$	45,240

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

(unaudited)

	Thirteen Weeks Ended						Twenty-six Weeks Ended						Thirteen Weeks Ended
	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019			May 1, 2021			May 2, 2020

Net revenue		42,296			34,260			73,885			69,392		$	40,617		$	31,589

Cost of sales		37,873			31,173			66,151			63,528			30,821			23,671
Gross profit		4,423			3,087			7,734			5,864			9,796			7,918
Selling, general and administrative expenses		4,916			6,666			13,406			13,644			10,657			13,096
Loss from continuing operations		(493	)		(3,579	)		(5,672	)		(7,780	)
Loss from operations														(861	)		(5,178	)
Interest expense		406			172			634			308			555			228
Loss from continuing operations before income tax benefit		(899	)		(3,751	)		(6,306	)		(8,088	)
Loss from operations before income tax expense														(1,416	)		(5,406	)
Income tax expense		-			7			-			16			-			-
Loss from continued operations		(899	)		(3,758	)		(6,306	)		(8,104	)
Loss from fye business, net of tax		-			(4,370	)		-			(7,826	)
Net loss		(899	)		(8,128	)		(6,306	)		(15,930	)	$	(1,416	)	$	(5,406	)

BASIC AND DILUTED LOSS PER SHARE:
BASIC AND DILUTED INCOME PER SHARE:
Basic and diluted loss per common share	$	(0.49	)	$	(4.48	)	$	(3.46	)	$	(8.78	)	$	(0.61	)	$	(2.97	)

Weighted average number of common shares outstanding – basic and diluted		1,825			1,816			1,823			1,815			2,317			1,820

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(unaudited)

	Thirteen Weeks Ended						Twenty-six						Thirteen Weeks Ended
	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019			May 1, 2021			May 2, 2020

Net loss	$	(899	)	$	(8,128	)	$	(6,306	)	$	(15,930	)	$	(1,416	)	$	(5,406	)
Amortization of pension gain		1			5			2			10			-			1
Comprehensive loss	$	(898	)	$	(8,123	)	$	(6,304	)	$	(15,920	)	$	(1,416	)	$	(5,405	)

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars and shares in thousands)

~~(unaudited)~~

	Thirteen Weeks Ended May 1, 2021
	Number of shares outstanding												Accumulated			Retained
	Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Other Comprehensive Loss			Earnings (Accumulated Deficit)			Shareholders’ Equity
Balance as of January 30, 2021		3,337		(1,410	)	$	33	$	346,495	$	(230,169	)	$	(2,007	)	$	(112,863	)	$	1,489
Net Loss		-		-			-		-		-			-			(1,416	)		(1,416	)
Exercise of warrants		136		-			2		-		(1	)		-			-			1
Sale of shares, net of expenses		416		-			4		12,227		-			-			-			12,231
Amortization of unearned compensation/restricted stock amortization		-		-			-		27		-			-			-			27
Balance as of May 1, 2021		3,889	$	(1,410	)	$	39	$	358,749	$	(230,170	)	$	(2,007	)	$	(114,279	)	$	12,332

	Thirteen Weeks Ended August 1, 2020																					Thirteen Weeks Ended May 2, 2020
	Number of shares outstanding					Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Shareholders’ Equity			Number of shares outstanding													Accumulated			Retained
	Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Shareholders’ Equity			Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital			Treasury Stock At Cost			Other Comprehensive Loss			Earnings (Accumulated Deficit)			Shareholders’ Equity
Balance as of May 2, 2020		3,236		(1,410	)	$	32	$	346,442	$	(230,169	)	$	(1,476	)	$	(114,378	)	$	451
Balance as of February 1, 2020																							3,226		(1,409	)	$	32	$	345,102		$	(230,169	)	$	(1,479	)	$	(108,971	)	$	4,515
Net Loss		-		-			-		-		-			-			(899	)		(899	)		-		-			-		-			-			-			(5,406	)		(5,406	)
Other comprehensive income		-		-			-		-		-			3			-			3			-		-			-		-			-			3			-			3
Issuance of warrants		-		-			-		-		-			-			-			-			-		-			-		836			-			-			-			836
Vested restricted shares		-		-			-		-		-			-			-			-			4		(1	)		-		(9	)		-			-			-			(9	)
Common stock issued- Director grants		-		-			-		-		-			-			-			-			6		-			-		243			-			-			-			243
Amortization of unearned compensation/restricted stock amortization		-		-			-		15		-			-			-			15			-		-			-		269			-			-			-			269
Balance as of August 1, 2020		3,236	$	(1,410	)	$	32	$	346,457	$	(230,169	)	$	(1,473	)	$	(115,277	)	$	(430	)
Balance as of May 2, 2020																							3,236	$	(1,410	)	$	32	$	346,442		$	(230,169	)	$	(1,476	)	$	(114,377	)	$	452

Twenty-six Weeks Ended August 1, 2020

Number of shares outstanding
Common
Stock

Additional
Paid-in
Capital

Treasury
Stock
At Cost

Accumulated
Other
Comprehensive
Loss

Retained
Earnings
(Accumulated
Deficit)

Shareholders’
Equity

Common
Shares

Treasury
Shares

Balance as of February 1, 2020 3,226 (1,409 ) $ 32 $ 345,102 $ (230,169 ) $ (1,479 ) $ (108,971 ) $ 4,515
Net Loss - - - - - - (6,306 ) (6,306 )
Other comprehensive income - - - - - 6 - 6
Issuance of warrants - - - 836 - - - 836
Vested restricted shares 4
(1
)
- (9 ) - - - (9 )
Common stock issued- Director grants 6
- - 243 - - - 243
Amortization of unearned compensation/restricted stock amortization - - - 285 - - - 285
Balance as of August 1, 2020 3,236 $ (1,410 ) $ 32 $ 346,457 $ (230,169 ) $ (1,473 ) $ (115,277 ) $ (430 )

Thirteen Weeks Ended August 3, 2019

Number of shares outstanding
Common
Stock

Additional
Paid-in
Capital

Treasury
Stock
At Cost

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Shareholders’
Equity

Common
Shares

Treasury
Shares

Balance as of May 4, 2019 3,222 (1,409 ) $ 32 $ 344,905 $ (230,166 ) $ (730 ) $ (58,029 ) $ 56,012
Net Loss - - - - - - (8,128 ) (8,128 )
Other comprehensive income - - - - - 5 - 5
Vested restricted shares 2 - - 3 (2 ) - - 1
Amortization of unearned compensation/restricted stock amortization - - - 75 - - - 75
Balance as of August 3, 2019 3,224 (1,409 ) $ 32 $ 344,983 $ (230,168 ) $ (725 ) $ (66,157 ) $ 47,965

Twenty-six Weeks Ended August 3, 2019

Number of shares outstanding
Common
Stock

Additional
Paid-in
Capital

Treasury
Stock
At Cost

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Shareholders’
Equity

Common
Shares

Treasury
Shares

Balance as of February 2, 2019 3,222 (1,409 ) $ 32 $ 344,826 $ (230,166 ) $ (735 ) $ (50,227 ) $ 63,730
Net Loss - - - - - - (15,930 ) (15,930 )
Other comprehensive income - - - - - 10 - 10
Vested restricted shares 2 - - 3 (2 ) - - 1
Common stock issued-new grants - - - - - - - -
Balance as of August 3, 2019 3,224 (1,409 ) $ 32 $ 344,983 $ (230,168 ) $ (725 ) $ (66,157 ) $ 47,965

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Twenty-Six Weeks Ended

August 1,
2020

August 3,
2019 ⁽¹⁾

OPERATING ACTIVITIES:
Net income loss
$
(6,306
)

$
(15,930
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets
493

1,460

Amortization of intangible assets
514

572

Stock-based compensation
285

154

Loss on disposal of fixed assets
-

5

Write down investment
-

500

Amortization of ROU asset
281

Change in cash surrender value
(58
)

(175
)
Changes in operating assets and liabilities that provide (use) cash:
Accounts receivable
1,901

102

Merchandise inventory
(2,739
)

5,057

Prepaid expenses and other current assets
2,054

1,267

Other long-term assets
-

3,472

Accounts payable
1,978

(5,285
)
Accrued expenses and other current liabilities
(6,242
)

(995
)
Deferred revenue
-

(981
)
Other long-term liabilities
(49
)

(4,185
)
Net cash used in operating activities (7,888 ) (14,962 )

INVESTING ACTIVITIES:
Purchases of fixed assets (588 ) (1,541 )
Proceeds from sale of fye business 11,779 -
Capital distribution from joint venture - 121
Net cash provided by (used in) investing activities 11,191 (1,420 )

FINANCING ACTIVITIES:
Proceeds from short term borrowings 2,151 12,086
Proceeds from long term borrowings 4,401 -
Proceeds from issuance of warrants 836 -
Proceeds from PPP loan 2,018 -
Issuance of director deferred shares and RSUs 237 -
Payment of short term borrowings (13,149 ) -
Net cash provided by (used in) financing activities (3,506 ) 12,086

Net increase (decrease) in cash, cash equivalents, and restricted cash (203 ) (4,296 )
Cash, cash equivalents, and restricted cash, beginning of period 8,852 14,226
Cash, cash equivalents, and restricted cash, end of period $ 8,649 $ 9,930

~~(1)~~

~~The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. See footnote 3.~~

	Thirteen Weeks Ended
	May 1, 2021			May 2, 2020
OPERATING ACTIVITIES:
Net income loss	$	(1,416	)	$	(5,406	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets		346			234
Amortization of intangible assets		257			257
Stock-based compensation		27			269
Interest on long-term debt		242			-
Amortization of ROU asset		147			140
Change in cash surrender value		(312	)		297
Changes in operating assets and liabilities that provide (use) cash:
Accounts receivable		(396	)		1,496
Merchandise inventory		1,949			679
Prepaid expenses and other current assets		(28	)		2,180
Other long-term assets		113			-
Accounts payable		(3,211	)		(1,941	)
Accrued expenses and other current liabilities		147			(5,026	)
Other long-term liabilities		(378	)		305
Net cash provided by (used in) operating activities		(2,513	)		(6,516	)

INVESTING ACTIVITIES:
Purchases of fixed assets		(444	)		(300	)
Proceeds from sale of fye business		-			11,779
Net cash provided by (used in) investing activities		(444	)		11,479

FINANCING ACTIVITIES:
Proceeds from short term borrowings		-			4,531
Proceeds from long term borrowings		-			4,389
Proceeds from stock offering		12,231			-
Proceeds from issuance of warrants		-			836
Proceeds from PPP loan		-			2,017
Exercise of warrants		1			-
Issuance of director deferred shares and RSUs		-			237
Payment of short term borrowings		(6,339	)		(13,149	)
Net cash provided by (used in) financing activities		5,893			(1,139	)

Net decrease in cash, cash equivalents, and restricted cash		2,936			3,824
Cash, cash equivalents, and restricted cash, beginning of period		6,555			8,852
Cash, cash equivalents, and restricted cash, end of period	$	9,491		$	12,676

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020

Note 1. Nature of Operations

Kaspien Holdings Inc., ~~formerly Trans World Entertainment Corporation,~~ which, together with its consolidated subsidiaries, is referred to herein as “Kaspien”, “the Company”, “we”, “us” and “our”, was incorporated in New York in 1972. We own 100% of the outstanding common stock of Kaspien ~~Inc., formerly etailz,~~ Inc, ~~(“Kaspien”),~~ through which our principal operations are conducted. Kaspien provides a platform of software and services to empower brands to grow their online distribution channels on digital marketplaces such as Amazon, Walmart, Target, eBay, among others. The Company helps brands achieve their online retail goals through its innovative and proprietary technology, tailored strategies, and mutually beneficial partnerships.

Our mission is to optimize and grow brands on today’s leading online marketplaces. To deliver this mission, we provide a platform of software and services to empower brands to grow their online distribution channel on digital marketplaces. Our proprietary software platform of marketplace solutions has been developed with a tech-first approach over the last decade. Through our platform, more than a decade of marketplace expertise, and our subject matter expertise, Kaspien ~~is positioning~~empowers brands to achieve their online retail goals. Through our diversified and flexible partnership approach, Kaspien supports brands all across their brands' life cycle and maturity online.

The Company has positioned itself to be a brand’s ultimate online growth ~~partner and is~~partner. We are guided by seven core principles:

•	Partner Obsession	•	~~Results~~
•	Insights Driven
•Simplicity	Innovation
Results	Ownership
•	~~Simplicity~~	•	Diversity and Teamwork
•	~~Innovation~~

~~Previously, the Company also operated fye, a chain of retail entertainment stores and e-commerce sites,~~ ~~www.fye.com~~ ~~and~~ ~~www.secondspin.com~~. On February 20, 2020, the Company consummated the sale of substantially all of the assets and certain of the liabilities relating to fye to a subsidiary of 2428391 Ontario Inc. o/a Sunrise Records (“Sunrise Records”) pursuant to an Asset Purchase Agreement (as amended, the “Asset Purchase Agreement”) dated January 23, 2020, by and among the Company, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and Sunrise Records. (the “FYE Transaction”).

Liquidity and Cash Flows:

The Company’s primary sources of liquidity are its borrowing capacity under its revolving credit facility, available cash and cash equivalents, funds raised through equity offerings and to a lesser extent, cash generated from operations. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and the purchase of inventory. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and amount of our net revenue; the timing and amount of our operating expenses; the timing and costs of working capital needs; successful implementation of our strategy and planned activities; and our ability to overcome the impact of the COVID-19 pandemic.

The Company incurred a net loss of $1.4 million and $5.4 million for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The decrease in the net loss was primarily attributable to an increase in sales and lower SG&A expenses. In addition, the Company has an accumulated deficit of $114.3 million as of May 1, 2021 and net cash used in operating activities for the thirteen weeks ended May 1, 2021 was $2.5 million. Net cash used in operating activities for the thirteen weeks ended May 2, 2020 was $6.5 million.

Index

As disclosed in the ~~Company's~~Company’s Annual Report on Form 10-K filed ~~June 15, 2020,~~April 30, 2021, the Company experienced negative cash flows from operations during fiscal ~~2019~~2020 and ~~2018~~2019 and we expect to incur net losses in ~~2020.~~fiscal 2021.

~~The~~Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and amount of our revenue; the ~~Company to meet its liabilities~~timing and ~~to continue as a going concern is dependent on improved profitability,~~amount of our operating expenses; the ~~continued~~timing and costs of working capital needs; successful implementation of ~~the strategic initiative~~our strategy and planned activities; and our ability to reposition Kaspien as a platform of software and services, the availability of future funding, implementation of one or more corporate initiatives to reduce costs at the parent company level (which could include a voluntary delisting from NASDAQ and deregistering of our Common Stock in order to substantially eliminate the costs associated with being a public company), satisfying all unassumed liabilities of the fye segment and other strategic alternatives, including selling all or part of the remaining business or assets of the Company, and overcomingovercome the impact of the COVID-19 pandemic.

~~Index~~

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. In addition, the proceeds from the PPP Loan are subject to audit and there is a risk of repayment. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

On August 4, 2020, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500,000 and as of August 4, 2020, the Company did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.

The notification letter has no immediate effect on the Company’s listing on the Nasdaq Capital Market. Nasdaq has provided the Company with 45 calendar days, or until September 18, 2020, to submit a plan to regain compliance with the minimum stockholders’ equity standard. If the Company submits a plan to regain compliance that is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the notification letter to regain compliance. If the Company does not submit a plan to regain compliance or if such plan is not accepted, or if it is accepted and the Company does not regain compliance in the timeframe required by Nasdaq, the Nasdaq staff could provide notice that the Company’s Common Stock is subject to delisting.

The unaudited condensed consolidated financial statements for the thirteen weeks ended ~~August~~May 1, ~~2020~~2021 were prepared onpursuant to the ~~basis~~rules and regulations of ~~a going concern~~the Securities and Exchange Commission. The information furnished in these unaudited condensed consolidated financial statements reflects all normal, recurring adjustments which, ~~contemplates~~in the opinion of management, are necessary for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the ~~Company will be able to realize~~reported amounts of assets and ~~discharge~~ liabilities inand disclosure of contingent assets and liabilities at the ~~normal course of business. The ability~~date of the ~~Company to meet its liabilities and to continue as a going concern is dependent on continued improved profitability~~financial statements, and the ~~other factors set forth in~~reported amounts of revenues and expenses during the ~~preceding paragraph.~~reporting period. Actual results could differ from those estimates. For the next 12 months, management believes that the Company’s existing liquidity will be adequate to fund its working capital needs. The ability of the Company to meet its liabilities is dependent on continued improved profitability and the other factors set forth in the preceding paragraph. Management anticipates any cash requirements due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, as discussed in note 97 in the interim condensed consolidated financial statements.

~~At August~~As of May 1, ~~2020,~~2021, we had cash and cash equivalents of ~~$3.3~~$5.0 million, net working capital of ~~$10.8~~$21.5 million, and no outstanding borrowings ~~of $2.2 million~~ on our revolving credit facility, as further discussed below.

9As of January 30, 2021, the Company had borrowings of $6.3 million under the Credit Facility. As of May 1, 2021 and May 2, 2020, the Company had no outstanding letters of credit. The Company had $10.9 million and $5.0 million available for borrowing under the Credit Facility as of May 1, 2021 and May 2, 2020, respectively.

~~Index~~

On March 18, 2021, the Company closed an underwritten offering of 416,600 shares of common stock of the Company, at a price to the public of $32.50 per share. The gross proceeds of the offering were approximately $13.5 million, prior to deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the offering for general corporate purposes, including working capital to implement its strategic plans focused on brand acquisition, investments in technology to enhance its scalable platform and its core retail business.

~~New~~

Credit Facility

On February 20, 2020, Kaspien Inc. entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as administrative agent, under which the lenders party thereto committed to provide up to $25 million in loans under a three-year, secured revolving credit facility (the ~~“New Credit~~“Credit Facility”). ~~Concurrent with the FYE Transaction, the~~The Company borrowed $3.3 million under the ~~New~~ Credit Facility in order to satisfy the remaining obligations of the Company under ~~the aforementioned Credit Facility.~~its previous credit facility.

Index

The commitments by the lenders under the ~~New~~ Credit Facility are subject to borrowing base and availability restrictions. Up to $5.0 million of the ~~New~~ Credit Facility may be used for the making of swing line loans.

As of ~~August~~May 1, ~~2020,~~2021, the Company had no borrowings under the Credit ~~Facility were $2.2 million.~~Facility. The Company had ~~$6.5~~$10.9 million available for borrowing as of ~~August~~May 1, ~~2020. As of August 1, 2020, unamortized debt issuance costs of $1.0 million are included in “Other assets” on the unaudited condensed consolidated balance sheet.~~2021.

Subordinated Debt Agreement

On March 30, 2020, the Company and Kaspien (the “Loan Parties”) entered into Amendment No. 1 to the Loan Agreement (the “Amendment”). Pursuant to the Amendment, among other things, (i) the Company was added as “Parent” under the Amended Loan Agreement, (ii) the Company granted a first priority security interest in substantially all of the assets of the Company, including inventory, accounts receivable, cash and cash equivalents and certain other collateral, and (iii) the Loan Agreement was amended to (a) permit the incurrence of certain subordinated indebtedness under the Subordinated Loan Agreement (as defined below) and (b) limit the Company’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.

On March 30, 2020, the Loan Parties entered into a Subordinated Loan and Security Agreement (the “Subordinated Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”) and TWEC Loan Collateral Agent, LLC (“Collateral Agent”), as collateral agent for the Lenders, pursuant to which the Lenders made a $5.2 million secured term loan (the “Subordinated Loan”) to Kaspien with a scheduled maturity date of ~~August 12,~~May 22, 2023. As of ~~August~~May 1, ~~2020,~~2021, unamortized debt issuance costs of ~~$0.2~~$0.1 million are included in “Long Term Debt” on the unaudited condensed consolidated balance sheet.

Directors Jonathan Marcus, Thomas Simpson, and Michael Reickert are the chief executive officer of Alimco Re Ltd. (“Alimco”), the managing member of Kick-Start III, LLC and Kick-Start IV, LLC (“Kick-Start”), and a trustee of the Robert J. Higgins TWMC Trust (the “Trust”), an affiliate of RJHDC, LLC (“RJHDC” and together with Alimco and Kick-Start, “Related Party Entities”), respectively. The Related Party Entities are parties to the Subordinated Loan Agreement.

10On March 30, 2020, in conjunction with the Subordinated Loan Agreement, the Company issued warrants to purchase up to 244,532 shares of Common Stock with an aggregate grant date fair value of $0.8 million recorded as a discount to the Subordinated Loan Agreement, $0.5 million of which was unamortized as of January 30, 2021. As of May 1, 2021, 7,539 warrants remain outstanding.

~~Index~~

Paycheck Protection Program

On April 17, 2020, Kaspien received loan proceeds of $2.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP Loan, which was in the form of a promissory note (the “Note”), dated April 10, 2020, between Kaspien and First Interstate Bank, as the lender, matures on April 17, 2022, bears interest at a fixed rate of 1% per annum, and is payable in monthly installments of ~~$112,975.55 commencing on November 10, 2020.~~$112,976. While under the terms of the PPP, some or all of the PPP Loan amount may be forgiven if the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and the Note, such as payroll costs, benefits, rent, and utilities, there is no assurance that the Company will be successful in qualifying for and receiving forgiveness on the PPP Loan amount. ~~The~~On August 20, 2020, the Company submitted an application for forgiveness to the SBA. On October 30, 2020, the Company received a follow up letter requesting additional information related to its forgiveness application. The Company submitted the requested information on ~~August~~November 9, 2020. On January 4, 2021, the Company received another request for additional information. The Company submitted the requested information on January 14, ~~2020.~~2021. On April 14, 2021, the Company received another request for additional information. The Company submitted the requested information on April 26, 2021. As of June 10, 2021, the Company has not received a decision on its PPP Loan forgiveness request.

Index

In addition to the aforementioned current sources of existing working capital, the Company may explore certain other strategic alternatives that may become available to the Company, as well continuing our efforts to generate additional sales and increase margins. However, at this time the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all, should we require such additional funds. If the Company is unable to improve its operations, it may be required to obtain additional funding, and the Company’s financial condition and results of operations may be materially adversely affected.

Furthermore, broad market and industry factors may seriously harm the market price of our ~~Common Stock,~~common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds, should we require such additional funds. Similarly, if our Common Stock is delisted from the NASDAQ Capital Market, it may also limit our ability to raise additional funds.The unaudited condensed consolidated financial statements for the thirteen weeks ended August 1, 2020 were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. The ability of the Company to meet its liabilities and to continue as a going concern is dependent on improved profitability, the performance improvement plan implemented for the Kaspien segment and the availability of future funding. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

~~FYE Transaction~~

On February 20, 2020, the Company consummated the sale of substantially all of the assets and certain of the liabilities relating to fye to a subsidiary of Sunrise Records pursuant to an Asset Purchase Agreement dated January 23, 2020, by and among the Company, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and Sunrise Records.

The fye business is reported as discontinued operations in our Consolidated Statements of Income, and the related assets and liabilities have been presented as held-for-sale in the Consolidated Balance Sheets, through their dates of disposal. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 3 for additional information on discontinued operations.

Impact of COVID-19

To date, as a 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 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international customers and markets, which are highly uncertain and cannot be predicted at this time. Management is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the response to curb its spread, currently we are not able to estimate the effects of the COVID-19 outbreak to our results of operations, financial condition, or liquidity.

~~Index~~

In response to the rapidly evolving COVID-19 pandemic, we activated our business continuity program, led by our Executive Team in conjunction with Human Resources, to help us manage the situation. In mid-March of 2020, we transitioned our corporate office staff to work 100% remotely. This process was aided through the implementation of a flexible work from home policy rolled out to the organization in fiscal 2019, having a companywide communication platform for instant messaging and video conferencing, and cloud-based critical business applications. However, while our business is not dependent on physical office locations nor travel, having a 100% remote workforce does present increased operational risk. Our leadership team believes we have the necessary controls in place to mitigate these impacts and allow the team to continue to operate effectively remotely as long as required by State guidelines.

Index

While e-commerce has largely benefited from the closure of brick-and-mortar locations as consumer spending has been pushed online to marketplaces such as Amazon and Walmart, neither the industry nor our organization has been immune to the impact to our supply chains. For instance, in March 2020, Amazon reduced replenishment in their fulfillment centers to essential items which limited a significant percentage of SKUs carried by Kaspien and a number of Kaspien’s partners shut their warehouses or suffered limited processing capacity due to COVID-19. While Amazon has since lifted restrictions and the leadership team executed contingency plans to mitigate the adverse impact from these restrictions, this highlights the fluid nature of COVID-19 across supply chains.

Additionally, since the beginning of the pandemic, tens of millions of Americans have lost their jobs, significantly increasing the risk of near-term economic contraction in the United States that may affect e-commerce sales. The risk of ~~a second~~another wave or increased numbers of positive COVID-19 cases also presents further risk to supply chains. Leadership is actively monitoring the situation and potential impacts on its financial condition, liquidity, operations and workforce but the full extent of the impact is still highly uncertain.

Note 2. Basis of Presentation

The accompanying interim condensed consolidated financial statements consist of Kaspien Holdings Inc., its wholly owned subsidiaries, Kaspien NY, LLC (f/k/a Trans World NY Sub, Inc. (f/k/a Record Town, Inc. ~~(“Record Town”~~)~~, Record Town’s~~ and its subsidiaries, and Kaspien, Inc.~~, all of which are wholly owned.~~ All intercompany accounts and transactions have been eliminated.

The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these unaudited interim condensed consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements.

~~Index~~

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto and ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended ~~February 1, 2020~~January 30, 2021 contained in the ~~Company's~~Company’s Annual Report on Form 10-K filed ~~June 15, 2020.~~April 30, 2021. The results of operations for the thirteen weeks ended ~~August~~May 1, ~~2020~~2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending ~~February 3, 2021.~~January 29, 2022.

The Company’s significant accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal year ended ~~February~~January 30, 2021. In order to conform with industry practice, effective with the first quarter of fiscal year 2021, commission fees from online marketplaces, which were previously reported as cost of goods sold on the consolidated statements of operations, are now included in SG&A expense. Prior periods have been reclassified to conform to the current period presentation. Commission fees for the 13-week period ended May 1, 2021 were $5.9 million and commission fees of $4.6 million were reclassified for the 13-weeks ended May 2, 2020.

~~Note 3. Discontinued Operations~~

The results for fye were previously reported in the fye segment. Certain corporate overhead costs and segment costs previously allocated to fye for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations.

~~The following table summarizes the major line items for fye that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income:~~

Thirteen Weeks Ended Twenty-Six Weeks Ended
(In thousands)
August 1,
2020

August 3,
2019

August 1,
2020

August 3,
2019

Net revenue $ — $ 41,744 $ — $ 86,762
Cost of goods sold — 24,731 — 52,247
Selling, general and administrative expenses — 20,835 — 41,777
Interest expense — 22 — 18
Other expense — 462 — 419
Loss from discontinued operations before income taxes — (4,306 ) — (7,699 )
Income tax expense — 64 — 127
Loss from discontinued operations, net of tax $ — $ (4,370 ) $ — $ (7,826 )

1312

Index

~~The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:~~

(In thousands) August 1, 2020 February 1, 2020 August 3, 2019
Cash
$
—

$
—

$
—

Accounts receivable, net
—

62

2,957

Inventories
—

50,122

69,600

Other current assets
—

1,005

3,659

Property, plant and equipment, net
—

—

5,707

Operating lease right-to-use asset
—

—

21,118

Other assets
—

—

1,080

Total assets of discontinued operations
$
—

$
51,189

$
104,121

Accounts payable
$
—

$
9,769

19,759

Accrued liabilities
—

779

3,533

Deferred revenue
—

6,764

5,974

Current portion of lease liabilities
—

8,976

8,755

Operating lease liabilities
—

11,059

16,070

Other liabilities
—

2,063

2,113

Total liabilities of discontinued operations (a)
$
—

$
39,410

$
56,204

The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows. The following table summarizes the cash flows for discontinued operations that are included in the Consolidated Statements of Cash Flows:

Twenty-six Weeks Ended
(In thousands) August 1, 2020 August 3, 2019
Net cash used in operating activities $ — $ (11,555 )
Net cash provided by(used) in investing activities
—

(477
)

Depreciation and amortization
—

1,188

Purchases of fixed assets
—

(1,068
)

~~Note 4. Sale of fye business~~

Assets sold
Inventory
$
50,122

Accounts receivable
62

Prepaid expenses and other current assets
654

Other assets
351

fye business assets sold $ 51,189

Less liabilities assumed:
Accounts payable
(9,769
)
Deferred revenue
(6,764
)
Accrued expenses and other current liabilities
(779
)
Other long-term liabilities
(2,063
)
Operating lease liabilities
(20,035
)
fye business liabilities assumed $ 39,410

Net proceeds
$
11,779

~~Index~~

~~The Company did not recognize a gain/loss upon the sale of the fye business as the assets of fye were impaired to the fair value of the assets as of February 1, 2020.~~

Note 5.3. Recently Adopted ~~Accounting Pronouncements~~

~~Compensation – Retirement Benefits~~

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 was effective for the Company’s fiscal year beginning February 3, 2019. This standard did not have a material effect on the Company’s consolidated financial statements.

~~Compensation – Stock Compensation~~

In August 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 was effective for the Company for interim and annual periods in fiscal year beginning February 3, 2019. This standard did not have a material effect on the Company’s consolidated financial statements.

~~Recently Adopted and Issued~~ Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost. The model replaces the probable, incurred loss model for those assets and instead, broadens the information an entity must consider in developing its expected credit loss estimate for assets measured at amortized cost. This standard will be effective for smaller reporting companies for fiscal years beginning after December 15, 2022, however early adoption is permitted. We are currently evaluating the impact of this new standard on the consolidated financial statements.

~~Index~~

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework— Changes to the Disclosure Requirements for Defined Benefit Plans”, which removes certain disclosures that are no longer cost beneficial and also includes additional disclosures to improve the overall usefulness of the disclosure requirements to financial statement users. This standard will be effective for public entities for fiscal years beginning after December 15, 2020, however early adoption is permitted. ~~We are currently evaluating the~~This standard has an immaterial impact ~~of this new standard~~ on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for ~~intraperiod~~intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the enacted changes in tax laws or rates. This standard will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, however early adoption is permitted. ~~We are currently evaluating the~~This standard has an immaterial impact ~~of this new standard~~ on the consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 840, Leases, should be accounted for as a continuation of the existing contract; and, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in the de-designation of the instrument, provided certain criteria are met. The Company’s exposure to LIBOR rates includes its credit facility. The amendments are effective as of March 12, 2020 through December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the impact this update will have on its Condensed Consolidated Financial Statements.

Recent accounting pronouncements pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows.

Index

Note 6.4. Intangible Assets

The determination of the fair value of intangible assets acquired in a business acquisition, including the Company’s acquisition of Kaspien in 2016, is subject to many estimates and assumptions. Our identifiable intangible assets that resulted from our acquisition of Kaspien consist of ~~vendor relationships,~~ technology and tradenames. We review amortizable intangible asset groups for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

~~During fiscal 2019, the Company fully impaired its vendor relationships and the Company recognized an impairment loss of $0.8 million.~~

During fiscal 2018, the Company concluded, based on continued operating losses for the Kaspien segment driven by lower than expected operating results culminating in the fourth quarter of fiscal 2018 that a triggering event had occurred, and an evaluation of intangible assets for impairment was required. Intangible assets related to technology and vendor relationships were written down to their estimated fair value at the end of fiscal 2018 resulting in the recognition of asset impairment charges of $16.4 million.

~~Index~~

Identifiable intangible assets as of ~~August~~May 1, ~~2020~~2021 consisted of the following (amounts in thousands):

	August 1, 2020										May 1, 2021
	Weighted Average Amortization Period (in months)		Original Gross Carrying Amount		Accumulated Impairment		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period (in months)		Original Gross Carrying Amount		Accumulated Impairment		Accumulated Amortization		Net Carrying Amount

Vendor relationships		120	$	19,100	$	14,587	$	4,513	$	-
Technology		60		6,700		2,587		3,660		453		60		6,700		2,587		3,951		162
Trade names and trademarks		60		3,200		-		2,407		793		60		3,200		-		2,887		313
			$	29,000	$	17,174	$	10,580	$	1,246			$	9,900	$	2,587	$	6,838	$	475

The changes in net intangibles and goodwill from ~~February~~January 30, 2021 to May 1, ~~2010 to August 1, 2020~~2021 were as follows:

(amounts in thousands)	February 1, 2020		Impairment Expense		Amortization Expense		August 1, 2020		January 30, 2021		Impairment Expense		Amortization Expense		May 1, 2021

Amortized intangible assets:
Technology	$	647	$	-	$	194	$	453	$	259	$	-	$	97	$	162
Trade names and trademarks		1,113		-		320		793		473		-		160		313
Net amortized intangible assets	$	1,760	$	-	$	514	$	1,246	$	732	$	-	$	257	$	475

Amortization expense of intangible assets for the thirteen weeks ended May 1, 2021 and ~~twenty six week periods ended August 1,~~May 2, 2020 ~~and August 3, 2019~~ consisted of the following:

	Thirteen Weeks Ended				Twenty-Six Weeks Ended				Thirteen Weeks Ended
(amounts in thousands)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019		May 1, 2021		May 2, 2020

Amortized intangible assets:
Vendor relationships	$	-	$	29	$	-	$	58
Technology		97		97		194		194		97		97
Trade names and trademarks		160		160		320		320		160		160
Total amortization expense	$	257	$	286	$	514	$	572	$	257	$	257

~~Estimated~~The remaining amortization expense ~~for~~will be recognized in fiscal 2021, at which time all of the ~~remainder of fiscal 2020 and the five succeeding fiscal years and thereafter is as follows:~~other intangible assets will be fully amortized.

Fiscal Year Amortization

2020 $ 514
2021 732
2022 -
2023 -
2024 -
Thereafter -

~~Index~~

Note 7.5. Depreciation and Amortization

Depreciation and amortization included in selling, general and administrative expenses of the interim condensed consolidated statements of operations for the thirteen weeks ended ~~August~~May 1, 2021 and May 2, 2020 ~~and August 3, 2019~~ was ~~$0.5~~$0.6 million and ~~$0.4~~$0.5 million, respectively.

Depreciation and amortization included in selling, general and administrative expenses of the interim condensed consolidated statements of operations for the twenty - six ended August 1, 2020 and August 3, 2019 was $1.0 million and $0.8 million, respectively.

Index

Note 8.6. Restricted Cash

As a result of the death of its former Chairman, the Company holds ~~$5.3~~$4.5 million in a rabbi trust, of which ~~$1.0~~$1.2 million is classified as restricted cash in current assets and ~~$4.3~~$3.3 million is classified as restricted cash in other assets on the accompanying interim condensed consolidated balance sheet as of ~~August~~May 1, ~~2020.~~2021.

A summary of cash, cash equivalents and restricted cash is as follows (amounts in thousands):

	August 1, 2020		February 1, 2020		August 3, 2019		May 1, 2021		January 30, 2021		May 2, 2020
Cash and cash equivalents	$	3,337	$	2,977	$	3,635	$	5,030	$	1,809	$	7,078
Restricted cash		5,312		5,875		6,295		4,461		4,746		5,598
Total cash, cash equivalents and restricted cash	$	8,649	$	8,852	$	9,930	$	9,491	$	6,555	$	12,676

Note 9.7. Debt

~~Credit Facility~~

In January 2017, the Company amended and restated its revolving credit facility (“Credit Facility”). The Credit Facility provided for commitments of $50 million subject to increase up to $75 million during the months of October to December of each year, as needed.

On February 20, 2020, in conjunction with the FYE Transaction, the Company fully satisfied its obligations under the Credit Facility through proceeds received from the sale of the fye business and borrowings under the new Kaspien credit facility, as further discussed below, accordingly the Credit Facility is no longer available to the Company.

~~As of August 3, 2019, borrowings under the Credit Facility were $12.1 million.~~

~~New~~ Credit Facility

On February 20, 2020, Kaspien Inc. entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as administrative agent, under which the lenders party thereto committed to provide up to $25 million in loans under a three-year, secured revolving credit facility (the “ New Credit Facility”). ~~Concurrent with the sale of the fye business, the~~The Company borrowed $3.3 million under the ~~New~~ Credit Facility to satisfy the remaining obligations of the Company under ~~the aforementioned Credit Facility.~~its previous credit facility.

~~Index~~

Interest under the ~~New~~ Credit Facility accrues, subject to certain terms and conditions under the Loan Agreement, at a LIBOR Rate or Base Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of Availability as defined in the Loan Agreement, with the Applicable Margin for LIBOR Rate loans ranging from 4.00% to 4.50% and the Applicable Margin for Base Rate loans ranging from 3.00% to 3.50%.

The ~~New~~ Credit Facility is secured by a first priority security interest in substantially all of the assets of Kaspien , including inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and guarantors under the ~~New~~ Credit Facility (collectively, the “Credit Facility Parties”) and by a first priority pledge by the Company of its equity interests in ~~Kaspien.~~Kaspien . The Company will provide a limited guarantee of Kaspien’s obligations under the ~~New~~ Credit Facility.

Among other things, the Loan Agreement limits Kaspien’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets. The Loan Agreement also requires Kaspien to comply with a financial maintenance covenant.

The Loan Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, customary ERISA defaults, certain events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, change in control, cessation of business or the liquidation of material assets of the Credit Facility Parties taken as a whole, the occurrence of an uninsured loss to a material portion of collateral and failure of the obligations under the ~~New~~ Credit Facility to constitute senior indebtedness under any applicable subordination or intercreditor agreements.

Index

As of ~~August~~May 1, ~~2020,~~2021, the company had no borrowings under the ~~New~~ Credit ~~Facility were $2.2 million.~~Facility. The Company had ~~$6.5~~$10.9 million available for borrowing as of ~~August~~May 1, ~~2020. As of August 1, 2020, unamortized debt issuance costs of $1.0 million related to the New Credit Facility are included in Other assets on the unaudited condensed consolidated balance sheet.~~2021.

The Company records short term borrowings at cost, in which the carrying value approximates fair value due to its short-term maturity.

Subordinated Loan Agreement

~~Index~~

Interest on the Subordinated Loan accrues, subject to certain terms and conditions under the Subordinated Loan Agreement, at the rate of twelve percent (12.0%) per annum, compounded on the last day of each calendar quarter by becoming a part of the principal amount of the Subordinated Loan.

The Subordinated Loan is secured by a second priority security interest in substantially all of the assets of the Loan Parties, including inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and guarantors under the Subordinated Loan Agreement (collectively, the “Second Lien Credit Facility Parties”). The Company will provide a limited guarantee of ~~Kaspien’s~~Kaspien ’s obligations under the Subordinated Loan.

Among other things, the Subordinated Loan Agreement limits the Loan Parties’ ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.

The Subordinated Loan Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, customary ERISA defaults, certain events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, change in control, cessation of business or the liquidation of material assets of the Second Lien Credit Facility Parties taken as a whole and the occurrence of an uninsured loss to a material portion of collateral.

In conjunction with the Subordinated Debt Agreement, the Company issued warrants to purchase up to 244,532 shares of Common Stock to the Related Party Entities (127,208 shares for Alimco, 23,401 shares for Kick-Start, and 93,923 shares for RJHDC), subject to adjustment in accordance with the terms of the Warrants, at an exercise price of $0.01 per share. As of May 1, 2021, 7,539 warrants remain outstanding.

The value of the warrants of $0.8 million was allocated against the principal proceeds of the Subordinated Debt Agreement.

Index

Paycheck Protection Program

On April 17, 2020, Kaspien received loan proceeds of $2.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP Loan, which was in the form of a promissory note (the “Note”), dated April 10, 2020, between Kaspien and First Interstate Bank, as the lender, matures on April 17, 2022, bears interest at a fixed rate of 1% per annum, and is payable in monthly installments of ~~$112,976 commencing on November 10, 2020.~~$112,976. While under the terms of the PPP, some or all of the PPP Loan amount may be forgiven if the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and the Note, such as payroll costs, benefits, rent, and utilities, there is no assurance that the Company will be successful in qualifying for and receiving forgiveness on the PPP Loan amount. On August 20, 2020, the Company submitted an application for forgiveness to the SBA. On October 30, 2020, the Company received a follow up letter requesting additional information related to its forgiveness application. The Company submitted the requested information on November 9, 2020. On January 4, 2021, the Company received another request for additional information. The Company submitted the requested information on January 14, 2021. On April 14, 2021, the Company received another request for additional information. The Company submitted the requested information on April 26, 2021. As of June 10, 2021, the Company has not received a decision on its PPP Loan forgiveness request.

Note ~~10.~~8. Stock Based Compensation

The Company has outstanding awards under three employee stock award plans, the 2005 Long Term Incentive and Share Award Plan, the Amended and Restated 2005 Long Term Incentive and Share Award Plan (the “Old Plans”); and the 2005 Long Term Incentive and Share Award Plan (as amended and restated April 5, 2017 (the “New Plan”). Collectively, these plans are referred to herein as the Stock Award Plans. ~~Additionally, the Company had a stock award plan for non-employee directors (the “1990 Plan”).~~ The Company no longer issues stock options under the Old ~~Plans or the 1990 Plan.~~Plans.

The FYE Transaction in February 2020 constituted a change of control and vesting on all unvested options was accelerated. As a result, unrecognized compensation expense of $0.2 million was recognized in the first quarter of fiscal 2020. Total compensation expense recognized in the twenty-six weeks ended August 1, 2020 was $0.3 million.

~~Index~~

Equity awards authorized for issuance under the New Plan total 250,000. As of ~~August~~May 1, ~~2020,~~2021, of the awards authorized for issuance under the Stock Award Plans, ~~133,462~~131,956 options were granted and are outstanding, ~~46,900~~45,025 of which were vested and exercisable. Shares available for future grants of options and other share-based awards under the New Plan at ~~August~~May 1, ~~2020~~2021 were ~~152,188.~~145,519 million.

The following table summarizes stock award activity during the thirteen weeks ended ~~August~~May 1, ~~2020:~~2021:

Employee and Director 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 February 1, 2020 129,196 $ 52.11 5.8 9,945 $ 36.75
Granted 86,562 6.27 9.9 - -
Canceled (82,297 ) 54.92 - - -
Exercised - - - (9,945 ) 36.75
Balance August 1, 2020 133,461 $ 20.64 7.6 - $ -
Exercisable August 1, 2020 55,900 $ 47.18 3.3 - $ -

~~(1)~~

~~Other Share Awards include deferred shares granted to Directors and restricted share units granted to executive officers.~~

	Employee Stock Award Plans
	Number of Shares Subject To Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Balance January 30, 2021		133,356		$	20.41		7.3
Granted		2,887			32.54		-
Forfeited		(2,887	)		7.12		9.1
Canceled		(1,400	)		34.60		-
Exercised		-			-		-
Balance May 1, 2021		131,956		$	20.81		7.1
Exercisable May 1, 2021		45,025		$	45.94		2.7

As of ~~August~~May 1, ~~2020,~~2021, the intrinsic value of stock awards outstanding was ~~$22,400~~$1.4 million and the intrinsic value of stock awards exercisable was ~~$171,669.~~$112,850.

Index

Note ~~11.~~9. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss that the Company reports in the interim condensed consolidated balance sheets represents net loss, adjusted for the difference between the accrued pension liability and accrued benefit cost, net of taxes, associated with the Company’s defined benefit plan. For the thirteen weeks ended May 1, 2021, Comprehensive loss consists of net loss. For the thirteen weeks ended May 2, 2020, Comprehensive Loss consists of net loss and the amortization of pension gains associated with Company’s defined ~~benefit plan for the thirteen and twenty six weeks ended August 1, 2020 and August 3, 2019.~~benefit.

Note ~~12.~~10. Defined Benefit Plan

The Company maintains a non-qualified Supplemental Executive Retirement Plan (“SERP”) for certain executive officers of the Company. The SERP provides eligible executives defined pension benefits that supplement benefits under other retirement arrangements. As of February 28, 2020, no active employees were participants in the SERP. During the thirteen weeks ended ~~August~~May 1, ~~2020,~~2021, the Company did not make any cash contributions to the SERP and presently expects to pay approximately $1.2 million in benefits relating to the SERP during fiscal ~~2020.~~2021.

The measurement date for the SERP is the fiscal year end, using actuarial techniques which reflect estimates for mortality, turnover and expected retirement. In addition, management makes assumptions concerning future salary increases. Discount rates are generally established as of the measurement date using theoretical bond models that select high-grade corporate bonds with maturities or coupons that correlate to the expected payouts of the applicable liabilities.

~~Index~~

The following represents the components of the net periodic pension cost related to the Company’s SERP for the respective periods:

	Thirteen Weeks Ended						Twenty-Six Weeks Ended						Thirteen Weeks Ended
(amounts in thousands)	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019			May 1, 2021		May 2, 2020

Service cost	$	-		$	14		$	-		$	28
Interest cost		89			142			178			284		$	63	$	89
Amortization of net gain⁽¹⁾		(3	)		(5	)		(6	)		(10	)		-		(3	)
Net periodic pension cost	$	86		$	151		$	172		$	302		$	63	$	86

⁽¹⁾	The amortization of net gain is related to a director retirement plan previously provided by the Company.

Note ~~13.~~11. Basic and Diluted Loss Per Share

Basic loss per share is calculated by dividing net loss by the weighted average common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into ~~Common Stock~~common stock or resulted in the issuance of ~~Common Stock~~common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. It is computed by dividing net loss by the sum of the weighted average shares outstanding and additional ~~Common Shares~~common shares that would have been outstanding if the dilutive potential common shares had been issued for the Company’s ~~Common Stock~~common stock awards from the Company’s Stock Award Plans.

For the ~~thirteen and twenty-six week~~thirteen-week periods ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019,~~May 2, 2020, the impact of all outstanding stock awards was not considered because the Company reported net losses in both periods and such impact would be anti-dilutive. Accordingly, basic and diluted loss per share was the same. Total anti-dilutive stock awards for the thirteen weeks ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020 were approximately ~~128,462 and 129,946~~0.1 million shares ~~respectively. Total anti-dilutive stock awards~~ for ~~the twenty-six weeks ended August 1, 2020 and August 3, 2019 were approximately 127,079 and 134,433, respectively.~~both periods.

2218

Index

~~The following represents basic and diluted loss per share for continuing operations, loss from discontinued operations and net loss for the respective periods:~~

Thirteen Weeks Ended Twenty-Six Weeks Ended
(in thousands, except per share amounts)
August 1,
2020

August 3,
2019

August 1,
2020

August 3,
2019

Loss from continuing operations $ (899 ) $ (3,758 ) $ (6,306 ) $ (8,104 )
Basic and diluted loss per common share from continuing operations $ (0.49 ) $ (2.07 ) $ (3.46 ) $ (4.47 )

Loss from discontinued operations $ - $ (4,370 ) $ - $ (7,826 )
Basic and diluted loss per common share from discontinued operations $ - $ (2.41 ) $ - $ (4.31 )

Net loss $ (899 ) $ (8,128 ) $ (6,306 ) $ (15,930 )
Basic and diluted loss per common share $ (0.49 ) $ (4.48 ) $ (3.46 ) $ (8.78 )

Weighted average number of common shares outstanding – basic and diluted 1,825 1,816 1,823 1,815

Note ~~14.~~12. Income Taxes

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based on available objective evidence, management concluded that a full valuation allowance should continue to be recorded against the ~~Company's~~Company’s deferred tax assets. Management will continue to assess the need for and amount of the valuation allowance against the deferred tax assets by giving consideration to all available evidence to the Company’s ability to generate future taxable income in its conclusion of the need for a full valuation allowance. Any reversal of the Company’s valuation allowance will favorably impact its results of operations in the period of reversal. The Company is currently unable to determine whether or when that reversal might occur, but it will continue to assess the realizability of its deferred tax assets and will adjust the valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will become realizable in the future. The Company has significant net operating loss carry forwards and other tax attributes that are available to offset projected taxable income and current taxes payable, if any, for the year ending ~~February 1, 2020.~~January 30, 2021. The deferred tax impact resulting from the utilization of the net operating loss carry forwards and other tax attributes will be offset by a reduction in the valuation allowance. As of ~~February 1, 2020,~~January 30, 2021, the Company had a net operating loss carry forward of ~~$288.1~~$346.7 million for federal income tax purposes and approximately ~~$280.2~~$219.5 million for state income tax purposes that expire at various times through ~~2039~~2040 and are subject to certain limitations and statutory expiration 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.

Note ~~15.~~13. Commitments and Contingencies

Legal Proceedings

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Company. As a result, the liability for the cases listed below is remote.

~~Index~~

Loyalty Memberships and Magazine Subscriptions Class Action

On November 14, 2018, three consumers filed a punitive class action complaint against the Company and Synapse Group, Inc. in the United States District Court for the District of Massachusetts, Boston Division (Case No.1:18-cv-12377-DPW) concerning enrollment in the Company’s Backstage Pass VIP loyalty program and associated magazine subscriptions. The complaint alleged, among other things, that the Company’s “negative option marketing” misled consumers into enrolling for membership and subscriptions without obtaining the consumers’ consent. The complaint sought to represent a nationwide class of “all persons in the United States” who were enrolled in and/or charged for Backstage Pass VIP memberships and/or magazine subscriptions, and to obtain statutory and actual damages on their behalf.

On April 11, 2019, the plaintiffs voluntarily dismissed their lawsuit. On May 8, 2019, two of the plaintiffs from the dismissed lawsuit filed a similar ~~punitive~~putative class action in Massachusetts state court (Civ. Act. No. 197CV00331, Mass. Super. Ct. Hampden Cty.), based on the same allegations, but this time seeking to represent only a class of “FYE customers in Massachusetts” who were charged for VIP Backstage Pass Memberships and/or magazine subscriptions. The Company ~~believes it has meritorious defenses~~removed that lawsuit back to federal court on June 12, 2019, and then filed a motion to dismiss and/or strike the plaintiff’s class action allegations on June 28, 2019. On February 2, 2021 the court granted the Company’s motion, struck the class action allegations, and dismissed the individual plaintiffs’ claims for lack of jurisdiction. Plaintiffs appealed the court’s decision on February 24, 2021. The parties participated in a mandatory court-annexed mediation session on April 8, 2021. The parties agreed on terms to resolve the matter fully and iffinally, and the ~~new case is not~~appeal was dismissed ~~in full,~~without material impact on the ~~Company intends to vigorously defend~~financial results of the ~~action.~~Company.

Index

Store Manager Class Actions

There are two pending class actions. The first, Spack v. Trans World Entertainment Corp. was originally filed in the District of New Jersey, April 2017 (the “Spack Action”). The Spack Action alleges that the Company misclassified Store Managers (“SMs”) as exempt nationwide. It also alleges that Trans World improperly calculated overtime for Senior Assistant Managers (“SAMs”) nationwide, and that both SMs and SAMs worked “off-the-clock.” It also alleges violations of New Jersey and Pennsylvania State Law with respect to calculating overtime for SAMs. The second, Roper v. Trans World Entertainment Corp., was filed in the Northern District of New York, ~~August~~May 2017 (the “Roper Action”). The Roper Action also asserts a nationwide misclassification claim on behalf of SMs. Both actions were consolidated into the Northern District of New York, with the Spack Action being the lead case.

The Company has reached a settlement with the plaintiffs for both store manager class ~~actions.~~actions, which has received approval from the court. The Company reserved ~~$425,000~~$0.4 million for the settlement as of ~~August 1, 2020.~~January 30, 2021. Notices of the settlement have been issued to class members, and the settlement claims process is currently ongoing.

Contingent Value Rights

On March 30, 2020, the Company entered into the Contingent Value Rights Agreement (the “CVR Agreement”), pursuant to which the Related Party Entities received contingent value rights (“CVRs”) representing the contractual right to receive cash payments from the Company in an amount equal, in the aggregate, to 19.9% of the proceeds (10.35% for Alimco, 1.90% for Kick-Start, and 7.64% for RJHDC) received by the Company in respect of certain intercompany indebtedness owing to it by Kaspien and/or its equity interest in ~~Kaspien.~~Kaspien . The ~~Company~~company does not anticipate these contingencies being met in ~~Fiscal 2020.~~fiscal 2021.

2420

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

PART 1. FINANCIAL INFORMATION

Item 2 - Management’s Discussion and Analysis of Financial Condition and

Results of Operations

~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019~~May 2, 2020

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information that the Company’s management believes necessary to achieve an understanding of its financial statements and results of operations. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment, availability of new products, change in vendor policies or relationships, general economic factors in markets where the Company’s merchandise is sold; and other factors discussed in the Company’s filings with the Securities and Exchange Commission. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended ~~February 1, 2020.~~January 30, 2021.

The Company operates Kaspien , which provides a platform of software and services to grow a brand’s online distribution channel on digital marketplaces such as Amazon, Walmart, and eBay, among others. Kaspien empowers brands to achieve their online retail goals through its innovative, proprietary technology, tailored strategies, and mutually beneficial partnerships.

Kaspien is positioning itself to be a brand’s ultimate online growth partner and is guided by seven core principles:

•	Partner Obsession	•	Results
•	Insights Driven	•	Ownership
•	Simplicity	•	Diversity and Teamwork
•	Innovation

The Company’s results have been, and will continue to be, contingent upon management’s ability to understand industry trends and to manage the business in response to those trends and general economic trends. Management monitors several key performance indicators to evaluate its performance, including:

Net Revenue: The Company measures total year over year sales growth. The Company measures its sales performance through several key performance indicators including number of partners, ~~and~~ active product listings and sales per listing.

~~Index~~

Cost of Sales and Gross 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 net sales levels, mix of products sold, obsolescence, distribution costs, and Amazon commissions and fulfillment fees.

Gross Merchandise Value (“GMV”): The total 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 partners within our platform.

Index

Selling, General and Administrative (“SG&A”) Expenses: Included in SG&A expenses are payroll and related costs, occupancy charges, general operating and overhead expenses and depreciation charges.

Balance Sheet and Ratios: The Company views cash and working capital (current assets less current liabilities) as relevant indicators of its financial position. See Liquidity and Cash Flows section for further discussion of these items.

RESULTS OF OPERATIONS

Thirteen Weeks ~~and Twenty-Six Weeks~~ Ended ~~August~~May 1, ~~2020~~2021

Compared to the Thirteen ~~and Twenty-Six~~ Weeks Ended ~~August 3, 2019~~May 2, 2020

Net ~~revenue and Gross profit.~~revenue. The following table sets forth a year-over-year comparison of the Company’s Net ~~revenue and Gross profit:~~revenue:

Thirteen Weeks Ended Change Twenty-Six Weeks Ended Change
(amounts in thousands)
August 1,
2020

August 3,
2019
$
%
August 1,
2020

August 3,
2019
$
%

Net Revenue $ 42,296 $ 34,260 $ 8,036 23.5 % $ 73,885 $ 69,392 $ 4,493 6.5 %

Gross profit 4,423 3,087 1,336 43.3 % 7,734 5,864 1,870 31.9 %
% to sales 10.5 % 9.0 % 10.5 % 8.5 %

~~Net Revenue.~~ ~~Net revenue was $42.3 million for the thirteen weeks ended August 1, 2020 a 23.5% increase from the comparable prior year period~~. ~~The increase in net revenue was primarily attributable to increased velocity and improved average sales price for merchandise sold on the Fulfilled By Amazon US marketplace (“FBA US”).~~

	Thirteen weeks ended
	May 1, 2021				May 2, 2020
Amazon US	$	37,516	92.4	%	$	29,965	94.9	%
Amazon International		2,268	5.6	%		1,230	3.9	%
Walmart & other marketplaces		378	0.9	%		225	0.7	%
Subtotal Retail as a Service		40,162	98.9	%		31,420	99.5	%
Subscriptions		455	1.1	%		169	0.5	%
Total	$	40,617	100.0	%	$	31,589	100.0	%

Net revenue ~~was $73.9~~increased 28.6% to $40.6 million for the ~~twenty-six weeks~~three months ended ~~August~~May 1, ~~2020 a 6.5% increase from~~2021 compared to $31.6 million for the ~~comparable prior year period. The increase in net revenue was primarily attributable to strength on the Amazon US marketplace.~~

~~Index~~

three months ended May 2, 2020. The primary source of revenue is the Retail as a Service (“RaaS”) model, which represented ~~99.3%~~98.9% of net ~~revenue in the thirteen weeks ended August 1, 2020.~~revenue. As part of the Company’s diversification strategic initiative, net revenue from non-Amazon US marketplaces increased to ~~4.6%~~6.5% of net revenue from ~~3.2%~~4.6% of net revenue in the comparable period from the prior year. The increase was attributable to Amazon International, Walmart, Target and ~~Other~~other Marketplaces. Subscriptions and Other share of net revenue increased to ~~0.7%~~1.1% of ~~Total Revenue~~net revenue from 0.5% of net revenue in the comparable period ~~during~~from the ~~thirteen weeks ended August 1, 2020.~~prior year. The increase was attributable to an increase in the number of partners and higher gross merchandise value (“GMV”) of partner revenue flowing through the platform Amazon Marketplace. In

The Company generates revenue across a broad array of product lines primarily through the ~~thirteen weeks ending August~~Amazon Marketplace. Categories include apparel, baby, beauty, electronics, health & personal care, home/kitchen/grocery, pets, sporting goods, toys & art.

Total active partner count at year end was approximately 767, including 630 retail partners and 137 subscription (Agency and SaaS) partners. The Company’s subscriptions partner base as of May 1, ~~2020 total subscriptions GMV from subscription partners~~2021 increased ~~84%~~80% compared to the ~~thirteen weeks ending August 3, 2019. The following table sets forth net revenue by marketplace~~fiscal first quarter of 2020.

Platform GMV for the three months ended May 1, 2021 was $63.4 million as ~~a percentage~~compared to $42.9 million for the three months ended May 2, 2020. Retail GMV increased 30% to $42.6 million compared to $32.7 million in the comparable year-ago period. Subscription GMV increased 105% to $20.9 million, or 33.0% of total ~~net revenue:~~GMV, compared to $10.2 million, or 23.8% of total GMV, in the comparable year-ago period.

Thirteen Weeks Ended Twenty-Six Weeks Ended

August 1,
2020

August 3,
2019
Change
August 1,
2020

August 3,
2019
Change
Amazon US 94.7 % 96.4 % -1.7 % 94.8 % 96.1 % -1.3 %
Amazon International 4.2 % 3.0 % 1.2 % 4.1 % 3.2 % 0.9 %
Walmart and other Marketplaces 0.4 % 0.2 % 0.2 % 0.5 % 0.3 % 0.1 %
Subtotal Retail 99.3 % 99.6 % -0.3 % 99.4 % 99.6 % -0.3 %
Subscriptions and other 0.7 % 0.4 % 0.3 % 0.6 % 0.4 % 0.3 %
Total 100.0 % 100.0 % 0.0 % 100.0 % 100.0 % 0.0 %

Index

Gross Profit. Gross profit increased to ~~$4.4~~$9.8 million, or ~~10.5%~~24.1% of net revenue for the thirteen weeks ended ~~August~~May 1, ~~2020,~~2021, as compared to ~~$3.1~~$7.9 million, or ~~9.0%~~25.1% of net revenue for the comparable prior year period. The ~~increased~~increase in the gross profit was primarily ~~attributable~~due to ~~a reduction~~the increase in ~~the cost of sales on the Amazon US Platform and operational efficiencies.~~

~~Gross profit increased to $7.7 million, or 10.5% of~~ net revenue and an increase in merchandise margin to 46.7% for the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2020,~~2021 as compared to ~~$5.9 million, or 8.5% of net revenue~~46.2% for the ~~comparable prior year period.~~13 weeks ended May 2, 2020. The ~~increased profit was primarily attributable to operational efficiencies and improved inventory management.~~following table sets forth a year-over-year comparison of the Company’s gross profit:

	Thirteen Weeks Ended						Change
(amounts in thousands)	May 1, 2021			May 2, 2020			$			%

Merchandise margin	$	18,982		$	14,609		$	4,373		29.9	%
% of net revenue		46.7	%		46.2	%		0.5	%

Fulfillment fees		(6,449	)		(4,997	)		(1,452	)	29.1	%
Warehousing and freight		(2,737	)		(1,694	)		(1,043	)	61.6	%
Gross profit	$	9,796		$	7,918		$	1,878		33.7	%

% of net revenue		24.1	%		25.1	%

SG&A Expenses. The following table sets forth a period over period comparison of the Company’s SG&A expenses:

	May 1,		May 2,		Change
	2021		2020		$			%
Selling expenses	$	6,230	$	4,920	$	1,310		26.6	%
Reasearch and development		343		414		(71	)	-17.1	%
General and administrative		4,084		7,762		(3,678	)	-47.4	%
Total SG&A expense	$	10,657	$	13,096	$	(2,439	)	-18.6	%

Thirteen Weeks Ended Change Twenty-Six Weeks Ended Change
(amounts in thousands)
August 1,
2020

August 3,
2019
$

%
August 1,
2020

August 3,
2019
$
%

Kaspien SG&A $ 4,106 $ 3,833 $ 273 7.1 % $ 8,197 $ 8,084 $ 113 1.4 %
Corporate SG&A expenses 810 2,833
⁽¹⁾
(2,023 ) -71.4 % 5,209 5,560
⁽¹⁾
(351 ) -6.3 %
Total SG&A expenses $ 4,916 $ 6,666 $ (1,750 ) -26.3 % $ 13,406 $ 13,644 $ (238 ) -1.7 %

As a % of total revenue 11.6 % 19.5 % 18.1 % 19.7 %

~~For the thirteen weeks ended August 1, 2020,~~ SG&A expenses decreased ~~$1.8~~$2.4 million or ~~26.3%~~18.6%. The decrease in SG&A expenses was due to a ~~$2.0~~$3.7 million decline in ~~decrease~~general and administrative expenses partially offset by a $1.3 million increase in ~~corporate SG&A~~selling expenses.

~~Kaspien SG&A~~ The increase in selling expenses ~~increased $0.3 million for the thirteen weeks ended August 1, 2020 as compared~~is attributable to an increase in marketplace fees due to the ~~comparable prior year period.~~sales increase.

Consolidated depreciation and amortization expense for the ~~thirteen weeks~~thirteen-weeks ended ~~August~~May 1, ~~2020~~2021 was ~~$0.5~~$0.6 million as compared to ~~$0.4 million for the comparable prior year period.~~

~~For the twenty-six weeks ended August 1, 2020, SG&A expenses decreased $0.2 million or 1.8%.~~

~~Index~~

~~Kaspien SG&A expenses increased $0.1 million for the twenty-six weeks ended August 1, 2020 as compared to the comparable prior year period.~~

~~Consolidated depreciation and amortization expense for the twenty-six weeks ended August 1, 2020 was $1.0 million as compared to $0.8~~$0.5 million for the comparable prior year period.

Interest Expense. Interest expense was ~~$0.4~~$0.6 million for the thirteen weeks ended ~~August~~May 1, ~~2020~~2021 compared to $0.2 million for the thirteen weeks ended ~~August 3, 2019.~~May 2, 2020. The increase in interest expense was due to increased short and long-term borrowings.

Interest expense was $0.6 million for the twenty-six weeks ended August 1, 2020 compared to $0.3 million for the twenty-six weeks ended August 3, 2019. The increase in interest expense was due to increased long-term borrowings. See Note 97 to the Condensed Consolidated Financial Statements for further detail on the Company’s debt.

~~Loss From Discontinued Operations.~~ For the thirteen-weeks ended August 3, 2019, the Company recognized a loss from discontinued operations of $4.4 million related to the fye transaction. For the twenty-six weeks ended August 3, 2019, the Company recognized a loss from continuing operations of $7.8 million related to the fye transaction.

~~See Note 3 to the Condensed Consolidated Financial Statements for more information on the loss from discontinued operations.~~

Income Tax Expense. Based on available objective evidence, management concluded that a full valuation allowance should be recorded against the ~~Company's~~Company’s deferred tax assets As a result, there were insignificant tax expense amounts recorded during the thirteen weeks ended ~~August~~May 1, ~~2020~~2021 and ~~August 3, 2019.~~May 2, 2020.

Net Loss. The net loss for the ~~thirteen weeks~~thirteen-weeks ended ~~August~~May 1, ~~2020~~2021 was ~~$0.9~~$1.4 million as compared to ~~$8.1~~$5.4 million for the comparable prior year period.

~~The net loss for the twenty-six weeks ended August 1, 2020 was $6.3 million as compared to $15.9 million for the comparable prior year period.~~

Index

LIQUIDITY

Liquidity and Cash Flows:

The Company incurred a loss from continued operations of $1.4 million and $5.4 million for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The decrease in the loss from operations was primarily attributable to higher sales and lower SG&A expenses. In addition, the Company has an accumulated deficit of $114.3 million as of May 1, 2021 and net cash used in operating activities for the thirteen weeks ended May 1, 2021 was $2.5 million. Net cash used in operating activities for the thirteen weeks ended May 2, 2020 was $6.5 million.

As disclosed in the ~~Company's~~Company’s Annual Report on Form 10-K filed ~~June 15, 2020, The~~April 30, 2021, the Company experienced negative cash flows from operations during fiscal ~~2019~~2020 and ~~2018~~2019 and we expect to incur net losses in ~~2020.~~2021.

~~Index~~

The ability of the Company to meet its liabilities ~~and to continue as a going concern~~ is dependent on improved profitability, the continued implementation of the strategic initiative to reposition Kaspien as a platform of software and services, the availability of future funding implementation of one or more corporate initiatives to reduce costs at the parent company level (which could include a voluntary delisting from NASDAQ and deregistering of our Common Stock in order to substantially eliminate the costs associated with being a public company), satisfying all unassumed liabilities of the fye segment and other strategic alternatives, ~~including selling all or part of the remaining business or assets of the Company,~~ and overcoming the impact of the COVID-19 pandemic.

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. In addition, the proceeds from the PPP Loan are subject to audit and there is a risk of repayment. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

On ~~August 4, 2020,~~March 18, 2021, the Company ~~received~~closed an underwritten offering of 416,600 shares of common stock of the Company, at a ~~letter~~price to the public of $32.50 per share. The gross proceeds of the offering were approximately $13.5 million, prior to deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the ~~Listing Qualifications staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it is no longer~~offering for general corporate purposes, including working capital to implement its strategic plans focused on brand acquisition, investments in ~~compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies~~technology to ~~maintain stockholders’ equity of at least $2,500,000~~enhance its scalable platform and ~~as of August 4, 2020, the Company did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.~~

Furthermore, broad market and industry factors may seriously harm the market price of our Common Stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds, should we require such additional funds. Similarly, if our Common Stock is delisted from the NASDAQ Capital Market, it may also limit our ability to raise additional funds.

2924

Index

The following table sets forth a summary of key components of cash flow and working capital:

			As of or for the Twenty-Six Weeks Ended						Change					As of or for the Thirteen Weeks Ended						Change
	(amounts in thousands)		August 1, 2020			August 3, 2019				$		(amounts in thousands)		May 1, 2021			May 2, 2020				$
	Operating Cash Flows		$	(8,087	)	$	(14,962	)	$	6,875		Operating Cash Flows		$	(2,513	)	$	(6,516	)	$	4,003
	Investing Cash Flows			11,191			(1,420	)		12,611		Investing Cash Flows			(444	)		11,479			(11,923	)
	Financing Cash Flows			(3,307	)		12,086			(15,393	)	Financing Cash Flows			5,893			(1,139	)		7,032

	Capital Expenditures	⁽¹⁾		(588	)		(1,541	)		953		Capital Expenditures	⁽¹⁾		(444	)		(300	)		(144	)

	Cash, Cash Equivalents, and Restricted Cash	⁽²⁾		8,649			9,930			(1,281	)	Cash, Cash Equivalents, and Restricted Cash	⁽²⁾		9,491			12,676			(3,185	)
	Merchandise Inventory			20,576			20,185			391		Merchandise Inventory			22,567			17,157			5,410

⁽¹⁾	Included in Investing Cash Flows											Included in Investing Cash Flows

⁽²⁾	Cash and cash equivalents per condensed consolidated balance sheets		$	3,337		$	3,635					Cash and cash equivalents per condensed consolidated balance sheets		$	5,030		$	7,078			(2,048	)
	Add: restricted cash			5,312			6,295					Add: restricted cash			4,461			5,598			(1,137	)
	Cash, cash equivalents, and restricted cash		$	8,649		$	9,930					Cash, cash equivalents, and restricted cash		$	9,491		$	12,676		$	(3,185	)

Cash used in operations was ~~$8.1~~$2.5 million primarily due to net loss of ~~$6.3~~$1.4 million, ~~a $6.4 million decrease in accrued expenses~~ and a ~~$2.7~~$3.2 million ~~increase in inventory~~reduction of accounts payable partially offset by a $1.9 million decrease in ~~accounts receivable, a $2.0 million increase~~inventory. The decrease in accounts payable ~~and a $2.1 million decrease in prepaid expenses and other current assets. The decrease in accrued expenses in~~is primarily attributable to the payment of ~~obligations related to~~payables due for inventory purchased for the ~~fye business.~~holiday season.

Cash used by investing activities was $0.4 million for the thirteen weeks ended May 1, 2021, which consisted entirely of capital expenditures. Cash provided by investing activities was ~~$11.2~~$11.5 million for the ~~twenty-six~~thirteen weeks ended ~~August 1,~~May 2, 2020, which ~~primarily~~ consisted of proceeds from the sale of the fye business of $11.8 million, partially offset by capital expenditures of ~~$0.6~~$0.3 million.

Cash ~~used in investing~~provided by financing activities was ~~$1.4~~$5.9 million for the ~~twenty-six~~thirteen weeks ended ~~August 3, 2019, which primarily consisted~~May 1, 2021. The primary source of ~~capital expenditures.~~

cash was an underwritten offering of 416,600 shares of common stock of the Company, at a price to the public of $32.50 per share. The net proceeds of the offering were approximately $12.2 million. The Company used $6.3 million of the proceeds to pay down its Credit Facility. Cash used by financing ~~activities was $3.3 million~~operations for the ~~twenty-six~~thirteen weeks ended ~~August 1, 2020.~~May 2, 2020 was $1.1 million. The primary use of cash was the payoff of ~~the Credit Facility.~~a previous credit facility. The payoff of the ~~Credit Facility~~previous credit facility was partially offset by borrowings under the ~~New~~ Credit Facility of ~~$2.2~~$4.5 million, the Subordinated Loan Agreement of $5.2 million and borrowings from the Payroll Protection Program of $2.0 million. ~~Cash used in financing activities was $12.1 million for the twenty-six weeks ended August 3, 2019, which was comprised entirely of proceeds from short term borrowings.~~

Capital Expenditures. During the ~~twenty-six~~thirteen weeks ended ~~August~~May 1, ~~2020,~~2021, the Company made capital expenditures of ~~$0.6~~$0.4 million. The Company currently plans to spend approximately ~~$1.5~~$2.0 million for capital expenditures during fiscal ~~2020~~2021.

3025

Index

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires that management apply accounting policies and make estimates and assumptions that affect results of operations and the reported amounts of assets and liabilities in the financial statements. Management continually evaluates its estimates and judgments including those related to merchandise inventory and return costs and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K as of and for the year ended ~~February 1, 2020~~January 30, 2021 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~~The Company’s significant accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal year ended January 30, 2021. In order to conform with industry practice, effective with the first quarter of fiscal year 2021, commission fees from online marketplaces, which were previously reported as cost of goods sold on the consolidated statements of operations, are now included in SG&A expense. Prior periods have been ~~no material changes or modifications~~reclassified to conform to the ~~policies since February~~current period presentation. Commission fees for the 13-week period ended May 1, 2021 were $5.9 million and commission fees of $4.6 million were reclassified for the 13-weeks ended May 2, 2020.

Recent Accounting Pronouncements:

The information set forth under Note 2, Recently Adopted Accounting Pronouncements section contained in Item 1, “Notes to Interim Condensed Consolidated Financial Statements”, is incorporated herein by reference.

3126

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

The Company does not hold any financial instruments that expose it to significant market risk and does not engage in hedging activities. To the extent the Company borrows under its revolving credit facility, the Company is subject to risk resulting from interest rate fluctuations since interest on the Company’s borrowings under its credit facility can be variable. If interest rates on the Company’s revolving credit facility were to increase by 25 basis points, and to the extent borrowings were outstanding, for every $1,000,000 outstanding on the facility, interest expense would be increased 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 as of and for the year ended ~~February 1, 2020.~~January 30, 2021.

Item 4 – Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Company’s Principal 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 ~~August~~May 1, ~~2020,~~2021, 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.

(b) Changes in internal controls. The sale of the fye business was significant to the Company and was consummated on February 20, 2020. The Company intends to take a period of time to incorporate the impact of the transaction into its evaluation of internal control over financial reporting. In connection with the foregoing evaluation by the Company’s Principal Executive Officer and Chief Financial Officer, other than as noted above, thereThere have been no changes in the Company’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.

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

~~Index~~

Loyalty Memberships and Magazine Subscriptions Class Action

On April 11, 2019, the plaintiffs voluntarily dismissed their lawsuit. On May 8, 2019, two of the plaintiffs from the dismissed lawsuit filed a similar ~~punitive~~putative class action in Massachusetts state court (Civ. Act. No. 197CV00331, Mass. Super. Ct. Hampden Cty.), based on the same allegations, but this time seeking to represent only a class of “FYE customers in Massachusetts” who were charged for VIP Backstage Pass Memberships and/or magazine subscriptions. The Company ~~believes it has meritorious defenses~~removed that lawsuit back to federal court on June 12, 2019, and then filed a motion to dismiss and/or strike the plaintiff’s class action allegations on June 28, 2019. On February 2, 2021 the court granted the Company’s motion, struck the class action allegations, and dismissed the individual plaintiffs’ claims for lack of jurisdiction. Plaintiffs appealed the court’s decision on February 24, 2021. The parties participated in a mandatory court-annexed mediation session on April 8, 2021. The parties agreed on terms to resolve the matter fully and iffinally, and the ~~new case is not~~appeal will be dismissed ~~in full,~~without material impact on the ~~Company intends to vigorously defend~~financial results of the ~~action.~~Company.

Store Manager Class Actions

There are two pending class actions. The first, Spack v. Trans World Entertainment Corp. was originally filed in the District of New Jersey, April 2017 (the “Spack Action”). The Spack Action alleges that the Company misclassified Store Managers (“SMs”) as exempt nationwide. It also alleges that Trans World improperly calculated overtime for Senior Assistant Managers (“SAMs”) nationwide, and that both SMs and SAMs worked “off-the-clock.” It also alleges violations of New Jersey and Pennsylvania State Law with respect to calculating overtime for SAMs. The second, Roper v. Trans World Entertainment Corp., was filed in the Northern District of New York, ~~August 1017~~May 2017 (the “Roper Action”). The Roper Action also asserts a nationwide misclassification claim on behalf of SMs. Both actions were consolidated into the Northern District of New York, with the Spack Action being the lead case.

The Company has reached a settlement with the plaintiffs for both store manager class ~~actions.~~actions, which has received approval from the court. The Company reserved ~~$425,000~~$0.4 million for the settlement as of ~~February 2, 2020.~~January 30, 2021. Notices of the settlement have been issued to class members, and the settlement claims process is currently ongoing.

Item 1A – Risk Factors

Risks relating to the Company’s business and Common Stock are described in detail in Item 1A of the Company’s most recently filed Annual Report on Form 10-K for the fiscal year ended ~~February 1, 2020.~~January 30, 2021.

Index

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosure

Not Applicable.

Item 5 – Other Information

None.

Item 6 - Exhibits

~~Index~~

(A)

Exhibits -

–

Exhibit No.		Description
1.1	Underwriting Agreement, dated March 16, 2021, by and between Kaspien Holdings Inc. and Aegis Capital Corp. - incorporated herein by reference to Exhibit 1.1 to the Company’s Form 8-K filed on March 16, 2021. Commission File No. 0-14818

31.1		Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32		Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS		XBRL Instance Document (furnished herewith)

	101.SCH		XBRL Taxonomy Extension Schema (furnished herewith)

	101.CAL		XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)

	101.DEF		XBRL Taxonomy Extension Definition Linkbase (furnished herewith)

	101.LAB		XBRL Taxonomy Extension Label Linkbase (furnished herewith)

	101.PRE		XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)

3429

Index

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~KASPIEN HOLDINGS INC.~~

~~September~~KASPIEN HOLDINGS INC.

June 15, ~~2020~~2021	By: /s/ Kunal Chopra

	Kunal Chopra
	Principal Executive Officer
	(Principal Executive Officer)

~~September~~
June 15, ~~2020~~2021	By: /s/ Edwin Sapienza

	Edwin Sapienza
	Chief Financial Officer
	(Principal and Chief Accounting Officer)

3530

	Twenty-six Weeks Ended August 1, 2020
	Number of shares outstanding					Common Stock		Additional Paid-in Capital			Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Shareholders’ Equity
	Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital			Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Shareholders’ Equity
Balance as of February 1, 2020		3,226		(1,409	)	$	32	$	345,102		$	(230,169	)	$	(1,479	)	$	(108,971	)	$	4,515
Net Loss		-		-			-		-			-			-			(6,306	)		(6,306	)
Other comprehensive income		-		-			-		-			-			6			-			6
Issuance of warrants		-		-			-		836			-			-			-			836
Vested restricted shares		4		(1	)		-		(9	)		-			-			-			(9	)
Common stock issued- Director grants		6		-			-		243			-			-			-			243
Amortization of unearned compensation/restricted stock amortization		-		-			-		285			-			-			-			285
Balance as of August 1, 2020		3,236	$	(1,410	)	$	32	$	346,457		$	(230,169	)	$	(1,473	)	$	(115,277	)	$	(430	)

	Thirteen Weeks Ended August 3, 2019
	Number of shares outstanding					Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
	Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
Balance as of May 4, 2019		3,222		(1,409	)	$	32	$	344,905	$	(230,166	)	$	(730	)	$	(58,029	)	$	56,012
Net Loss		-		-			-		-		-			-			(8,128	)		(8,128	)
Other comprehensive income		-		-			-		-		-			5			-			5
Vested restricted shares		2		-			-		3		(2	)		-			-			1
Amortization of unearned compensation/restricted stock amortization		-		-			-		75		-			-			-			75
Balance as of August 3, 2019		3,224		(1,409	)	$	32	$	344,983	$	(230,168	)	$	(725	)	$	(66,157	)	$	47,965

	Twenty-six Weeks Ended August 3, 2019
	Number of shares outstanding					Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
	Common Shares		Treasury Shares			Common Stock		Additional Paid-in Capital		Treasury Stock At Cost			Accumulated Other Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
Balance as of February 2, 2019		3,222		(1,409	)	$	32	$	344,826	$	(230,166	)	$	(735	)	$	(50,227	)	$	63,730
Net Loss		-		-			-		-		-			-			(15,930	)		(15,930	)
Other comprehensive income		-		-			-		-		-			10			-			10
Vested restricted shares		2		-			-		3		(2	)		-			-			1
Common stock issued-new grants		-		-			-		-		-			-			-			-
Balance as of August 3, 2019		3,224		(1,409	)	$	32	$	344,983	$	(230,168	)	$	(725	)	$	(66,157	)	$	47,965

	Twenty-Six Weeks Ended
	August 1, 2020			August 3, 2019 ⁽¹⁾
OPERATING ACTIVITIES:
Net income loss	$	(6,306	)	$	(15,930	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets		493			1,460
Amortization of intangible assets		514			572
Stock-based compensation		285			154
Loss on disposal of fixed assets		-			5
Write down investment		-			500
Amortization of ROU asset		281
Change in cash surrender value		(58	)		(175	)
Changes in operating assets and liabilities that provide (use) cash:
Accounts receivable		1,901			102
Merchandise inventory		(2,739	)		5,057
Prepaid expenses and other current assets		2,054			1,267
Other long-term assets		-			3,472
Accounts payable		1,978			(5,285	)
Accrued expenses and other current liabilities		(6,242	)		(995	)
Deferred revenue		-			(981	)
Other long-term liabilities		(49	)		(4,185	)
Net cash used in operating activities		(7,888	)		(14,962	)

INVESTING ACTIVITIES:
Purchases of fixed assets		(588	)		(1,541	)
Proceeds from sale of fye business		11,779			-
Capital distribution from joint venture		-			121
Net cash provided by (used in) investing activities		11,191			(1,420	)

FINANCING ACTIVITIES:
Proceeds from short term borrowings		2,151			12,086
Proceeds from long term borrowings		4,401			-
Proceeds from issuance of warrants		836			-
Proceeds from PPP loan		2,018			-
Issuance of director deferred shares and RSUs		237			-
Payment of short term borrowings		(13,149	)		-
Net cash provided by (used in) financing activities		(3,506	)		12,086

Net increase (decrease) in cash, cash equivalents, and restricted cash		(203	)		(4,296	)
Cash, cash equivalents, and restricted cash, beginning of period		8,852			14,226
Cash, cash equivalents, and restricted cash, end of period	$	8,649		$	9,930

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
(In thousands)	August 1, 2020		August 3, 2019			August 1, 2020		August 3, 2019
Net revenue	$	—	$	41,744		$	—	$	86,762
Cost of goods sold		—		24,731			—		52,247
Selling, general and administrative expenses		—		20,835			—		41,777
Interest expense		—		22			—		18
Other expense		—		462			—		419
Loss from discontinued operations before income taxes		—		(4,306	)		—		(7,699	)
Income tax expense		—		64			—		127
Loss from discontinued operations, net of tax	$	—	$	(4,370	)	$	—	$	(7,826	)

(In thousands)	August 1, 2020		February 1, 2020		August 3, 2019
Cash	$	—	$	—	$	—
Accounts receivable, net		—		62		2,957
Inventories		—		50,122		69,600
Other current assets		—		1,005		3,659
Property, plant and equipment, net		—		—		5,707
Operating lease right-to-use asset		—		—		21,118
Other assets		—		—		1,080
Total assets of discontinued operations	$	—	$	51,189	$	104,121


Accounts payable	$	—	$	9,769		19,759
Accrued liabilities		—		779		3,533
Deferred revenue		—		6,764		5,974
Current portion of lease liabilities		—		8,976		8,755
Operating lease liabilities		—		11,059		16,070
Other liabilities		—		2,063		2,113
Total liabilities of discontinued operations (a)	$	—	$	39,410	$	56,204

Assets sold
Inventory	$	50,122
Accounts receivable		62
Prepaid expenses and other current assets		654
Other assets		351
fye business assets sold	$	51,189


Less liabilities assumed:
Accounts payable		(9,769	)
Deferred revenue		(6,764	)
Accrued expenses and other current liabilities		(779	)
Other long-term liabilities		(2,063	)
Operating lease liabilities		(20,035	)
fye business liabilities assumed	$	39,410

Net proceeds	$	11,779

Fiscal Year	Amortization

2020	$	514
2021		732
2022		-
2023		-
2024		-
Thereafter		-

	Employee and Director 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 February 1, 2020		129,196		$	52.11		5.8		9,945		$	36.75
Granted		86,562			6.27		9.9		-			-
Canceled		(82,297	)		54.92		-		-			-
Exercised		-			-		-		(9,945	)		36.75
Balance August 1, 2020		133,461		$	20.64		7.6		-		$	-
Exercisable August 1, 2020		55,900		$	47.18		3.3		-		$	-

	Thirteen Weeks Ended						Twenty-Six Weeks Ended
(in thousands, except per share amounts)	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019

Loss from continuing operations	$	(899	)	$	(3,758	)	$	(6,306	)	$	(8,104	)
Basic and diluted loss per common share from continuing operations	$	(0.49	)	$	(2.07	)	$	(3.46	)	$	(4.47	)

Loss from discontinued operations	$	-		$	(4,370	)	$	-		$	(7,826	)
Basic and diluted loss per common share from discontinued operations	$	-		$	(2.41	)	$	-		$	(4.31	)

Net loss	$	(899	)	$	(8,128	)	$	(6,306	)	$	(15,930	)
Basic and diluted loss per common share	$	(0.49	)	$	(4.48	)	$	(3.46	)	$	(8.78	)

Weighted average number of common shares outstanding – basic and diluted		1,825			1,816			1,823			1,815