KASPIEN
HOLDINGS INC. AND SUBSIDIARIES
PART 1.
FINANCIAL INFORMATION
Item 2 -
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
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 January 29,
2022.
Kaspien provides a platform of
software and services to empower brands to grow their online
distribution channels on digital marketplaces such as Amazon,
Walmart and Target, among others. The Company helps brands achieve
their online retail goals through its innovative and proprietary
technology, tailored strategies and mutually beneficial
partnerships.
We are guided by 5 core principles:
● |
We are partner obsessed. Our customers are our partners. Every
decision is focused on building mutually beneficial relationships
that deliver results.
|
● |
We are insights driven. We make data actionable. Our curiosity
drives us to discover opportunities early and often.
|
● |
We create simplicity. We challenge the status quo. We take the
complicated and simplify it.
|
● |
We take ownership. We make things happen. We hold ourselves
accountable and have a bias for action.
|
● |
We empower each other. We welcome and learn from diverse
experiences. Our empathy ignites innovation and empowers meaningful
change.
|
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, active product listings and sales per
listing.
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.
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 Ended July 30, 2022
Compared to the
Thirteen Weeks and Twenty-Six Ended July 31, 2021
Net revenue and Gross
profit. The following
table sets forth a year-over-year comparison of the Company’s Net
revenue and Gross profit:
|
|
Thirteen Weeks Ended
|
|
|
Change
|
|
|
Twenty-Six Weeks Ended
|
|
|
Change
|
|
(amounts in
thousands)
|
|
July 30,
2022
|
|
|
July 31,
2021
|
|
|
$ |
|
|
|
%
|
|
|
July 30,
2022
|
|
|
July 31,
2021
|
|
|
$ |
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
33,907
|
|
|
$
|
34,890
|
|
|
$
|
(983
|
)
|
|
|
-2.8
|
%
|
|
$
|
65,697
|
|
|
$
|
75,507
|
|
|
$
|
(9,810
|
)
|
|
|
-13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,729
|
|
|
|
8,835
|
|
|
|
(2,106
|
)
|
|
|
-23.8
|
%
|
|
|
13,579
|
|
|
|
18,631
|
|
|
|
(5,052
|
)
|
|
|
-27.1
|
%
|
% to
sales
|
|
|
19.8
|
%
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
20.7
|
%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
Net Revenue. Net
revenue was $33.9 million for the thirteen weeks ended July 30,
2022 a 2.8% decrease from the comparable prior year
period. Net revenue was
$65.7 million for the twenty-six weeks ended July 30, 2022 a 13.0%
decrease from the comparable prior year period.
The primary source of revenue is the Retail as a Service
(“RaaS”) model, which represented 98.3% of net revenue in the
thirteen weeks ended July 30, 2022. The Company generates revenue
across a broad array of product lines primarily through the Amazon
Marketplace. Categories include apparel, baby, beauty, electronics,
health & personal care, home/kitchen/grocery, pets, sporting
goods, toys & art.
Total active partner count as of July 30, 2022 was
approximately 172, including 150 retail partners and 22
subscription (Agency and Software as a Service) partners.
Platform GMV for the three months ended July 30, 2022 was
$72.4 million as compared to $63.5 million for the three months
ended July 31, 2021. Retail GMV decreased 2.5% to $35.7
million compared to $36.6 million in the comparable year-ago
period. Subscription GMV increased 36.4% to $36.7 million, or 50.7%
of total GMV, compared to $26.9 million, or 42.4% of total GMV, in
the comparable year-ago period.
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
July
30, 2022
|
|
|
July
31, 2021
|
|
|
Change
|
|
|
July
30, 2022
|
|
|
Jul
31, 2021
|
|
|
Change
|
|
Amazon US
|
|
$
|
31,978
|
|
|
|
94.3
|
%
|
|
$
|
32,642
|
|
|
|
93.6
|
%
|
|
|
-2.0
|
%
|
|
$
|
61,598
|
|
|
|
93.8
|
%
|
|
$
|
70,158
|
|
|
|
92.9
|
%
|
|
|
-12.2
|
%
|
Amazon International
|
|
|
992
|
|
|
|
2.9
|
%
|
|
|
1,289
|
|
|
|
3.7
|
%
|
|
|
-23.0
|
%
|
|
|
2,279
|
|
|
|
3.5
|
%
|
|
|
3,557
|
|
|
|
4.7
|
%
|
|
|
-35.9
|
%
|
Other Marketplaces
|
|
|
350
|
|
|
|
1.0
|
%
|
|
|
507
|
|
|
|
1.5
|
%
|
|
|
-31.0
|
%
|
|
|
780
|
|
|
|
1.2
|
%
|
|
|
885
|
|
|
|
1.2
|
%
|
|
|
-11.9
|
%
|
Subtotal Retail
as a Service
|
|
|
33,320
|
|
|
|
98.3
|
%
|
|
|
34,438
|
|
|
|
98.7
|
%
|
|
|
-3.2
|
%
|
|
|
64,657
|
|
|
|
98.4
|
%
|
|
|
74,600
|
|
|
|
98.8
|
%
|
|
|
-13.3
|
%
|
Subscriptions
|
|
|
587
|
|
|
|
1.7
|
%
|
|
|
452
|
|
|
|
1.3
|
%
|
|
|
29.8
|
%
|
|
|
1,040
|
|
|
|
1.6
|
%
|
|
|
907
|
|
|
|
1.2
|
%
|
|
|
14.7
|
%
|
Net revenue
|
|
$
|
33,907
|
|
|
|
100.0
|
%
|
|
$
|
34,890
|
|
|
|
100.0
|
%
|
|
|
-2.8
|
%
|
|
$
|
65,697
|
|
|
|
100.0
|
%
|
|
$
|
75,507
|
|
|
|
100.0
|
%
|
|
|
-13.0
|
%
|
Gross
Profit. The following
table sets forth a period over period comparison of the Company’s
gross profit:
|
|
Thirteen Weeks Ended
|
|
|
Change
|
|
|
Twenty six Weeks
|
|
|
Change
|
|
(amounts in
thousands)
|
|
July
30, 2022
|
|
|
July
31, 2021
|
|
|
$ |
|
|
|
%
|
|
|
July
30, 2022
|
|
|
Jul 31,
2021
|
|
|
$ |
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise margin
|
|
$
|
14,121
|
|
|
$
|
15,936
|
|
|
$
|
(1,815
|
)
|
|
|
-11.4
|
%
|
|
$
|
28,167
|
|
|
$
|
34,656
|
|
|
$
|
(6,489
|
)
|
|
|
-18.7
|
%
|
% of net revenue
|
|
|
41.6
|
%
|
|
|
45.7
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
42.9
|
%
|
|
|
45.9
|
%
|
|
|
-3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulfillment fees
|
|
|
(4,655
|
)
|
|
|
(5,393
|
)
|
|
|
738
|
|
|
|
-13.7
|
%
|
|
|
(9,222
|
)
|
|
|
(11,843
|
)
|
|
|
2,621
|
|
|
|
-22.1
|
%
|
Warehousing and freight
|
|
|
(2,739
|
)
|
|
|
(1,708
|
)
|
|
|
(1,031
|
)
|
|
|
60.4
|
%
|
|
|
(5,366
|
)
|
|
|
(4,182
|
)
|
|
|
(1,184
|
)
|
|
|
28.3
|
%
|
Gross
profit
|
|
$
|
6,727
|
|
|
$
|
8,835
|
|
|
$
|
(2,108
|
)
|
|
|
-23.9
|
%
|
|
$
|
13,579
|
|
|
$
|
18,631
|
|
|
$
|
(5,052
|
)
|
|
|
-27.1
|
%
|
% of net
revenue
|
|
|
19.8
|
%
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
20.7
|
%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
Gross profit was $6.7 million for the thirteen weeks ended
July 30, 2022, as compared to $8.8 million for the comparable prior
year period. The decrease in gross profit was primarily
attributable to a reduction in net revenue on the Amazon US
Platform, a decrease in merchandise margin and an increase in
warehousing and freight expenses. Gross profit as a percentage of
net revenue was 19.8% as compared to 25.3% for the thirteen weeks
ended July 31, 2022. Merchandise margin for the thirteen-week
period ending July 30, 2022 was 41.6% as compared to 42.9% for the
comparable prior year period.
Gross profit for the twenty-six
weeks ended July 30, 2022 was $13.6 million, or 20.7% of net
revenue, as compared to $18.6 million, or 24.7% of net revenue for
the comparable prior year period as increased net revenue was
offset by higher warehousing and freight expenses.
SG&A
Expenses. The following
table sets forth a period over period comparison of the Company’s
SG&A expenses:
|
|
Thirteen Weeks Ended
|
|
|
Change
|
|
|
Twenty-Six Weeks Ended
|
|
|
Change
|
|
(amounts in thousands)
|
|
July 30, 2022
|
|
|
July 31, 2021
|
|
|
$ |
|
|
|
%
|
|
|
July 30, 2022
|
|
|
July 31, 2021
|
|
|
$ |
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
$
|
4,876
|
|
|
$
|
5,085
|
|
|
$
|
(209
|
)
|
|
|
-4.1
|
%
|
|
$
|
9,477
|
|
|
$
|
10,991
|
|
|
$
|
(1,514
|
)
|
|
|
-13.8
|
%
|
General
and administrative expenses
|
|
|
5,325
|
|
|
|
5,125
|
|
|
|
200
|
|
|
|
3.9
|
%
|
|
|
11,242
|
|
|
|
9,877
|
|
|
|
1,365
|
|
|
|
13.8
|
%
|
Total
SG&A expenses
|
|
$
|
10,201
|
|
|
$
|
10,210
|
|
|
$
|
(9
|
)
|
|
|
-0.1
|
%
|
|
$
|
20,719
|
|
|
$
|
20,868
|
|
|
$
|
(149
|
)
|
|
|
-0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of
total revenue
|
|
|
30.1
|
%
|
|
|
29.3
|
%
|
|
|
|
|
|
|
|
|
|
|
31.5
|
%
|
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
For the thirteen weeks ended July
30, 2022, SG&A were $10.2 million, the same level as the
comparable prior year period. Selling expenses decreased $0.2
million for the thirteen weeks ended July 30, 2022. General and
administrative expenses increased $0.2 million for the thirteen
weeks ended July 30, 2022.
Consolidated depreciation and amortization expense for the
thirteen weeks ended July 30, 2022 was $0.3 million as compared to
$0.6 million for the comparable prior year period.
For the twenty-six weeks ended
July 30, 2022, SG&A were $20.7 million as compared to $20.9
million for the comparable prior year period. Selling expenses
decreased $1.5 million for the twenty-six weeks ended July 30,
2022. General and administrative expenses increased $1.3 million
for the twenty-six weeks ended July 31, 2021.
Consolidated depreciation and amortization expense for the
twenty-six weeks ended July 31, 2021 was $0.5 million as compared
to $1.2 million for the comparable prior year period.
Interest
Expense. Interest
expense was $0.9 million for the thirteen weeks ended July 30, 2022
compared to $0.5 million for the thirteen weeks ended July 31,
2021. The increase in interest expense was due to increased
short and long-term borrowings.
Interest expense was $1.7 million for the twenty-six weeks
ended July 30, 2022 compared to $1.0 million for the twenty-six
weeks ended July 31, 2021. The increase in interest expense
was due to increased short and long-term borrowings. See Note
7 to the Condensed Consolidated Financial Statements for further
detail on the Company’s debt.
Income Tax
Expense. Based on available objective evidence,
management concluded that a full valuation allowance should be
recorded against the Company's deferred tax assets As a
result, there were insignificant tax expense amounts recorded
during the thirteen weeks ended July 30, 2022 and July 31,
2021.
Net Loss. The net loss
for the thirteen weeks ended July 30, 2022 was $4.4 million as
compared to net income of $0.1 million for the comparable prior
year period. The net loss for the twenty-six weeks ended July
30,2022 was $8.8 million as compared to a net loss of $1.3 million
for the comparable prior year period.
LIQUIDITY
Liquidity and Cash Flows:
The Company’s primary sources of liquidity are its borrowing
capacity under its Credit Facility, available cash and cash
equivalents, and to a lesser extent, cash generated from
operations. Our cash requirements relate primarily to working
capital needed to operate Kaspien, including funding operating
expenses, the purchase of inventory and capital expenditures. 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 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 $8.8 million and $1.3
million for the twenty-six weeks ended July 30, 2022 and July 31,
2021, respectively. The increase in the net loss was
primarily attributable to a decrease in sales and gross margin. In
addition, the Company has an accumulated deficit of $129.7 million
as of July 30, 2022 and net cash used in operating activities for
the twenty-six weeks ended July 30, 2022 was $5.9 million. Net cash
used in operating activities for the twenty-six weeks ended July
31, 2021 was $2.5 million.
As disclosed in the Company's Annual Report on Form 10-K filed
April 29, 2022, the Company experienced negative cash flows from
operations during fiscal 2021 and 2020 and we expect to incur net
losses in fiscal 2022.
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 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.
There can be no assurance that we will be successful in further
implementing our business strategy or that the strategy, including
the completed initiatives, will be successful in sustaining
acceptable levels of sales growth and profitability. The condensed
consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
The unaudited condensed consolidated financial statements for
the thirteen weeks ended July 30, 2022 were prepared pursuant to
the rules and regulations of the Securities and Exchange
Commission. The information furnished in these unaudited 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 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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The ability of the Company to meet its liabilities and
to continue as a going concern is dependent on improved
profitability, the strategic initiatives for Kaspien and the
availability of future funding. Based on recurring losses from
operations, negative cash flows from operations, the expectation of
continuing operating losses for the foreseeable future, and
uncertainty with respect to any available future funding, the
Company has concluded that there is substantial doubt about the
Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
As of July 30, 2022, we had cash and cash equivalents of $1.3
million, net working capital of $20.4 million, and $3.9 million in
borrowings on our revolving credit facility, as further discussed
below. As of July 30, 2022 and July 31, 2021, the Company had no
outstanding letters of credit. The Company had $7.7 million and
$10.9 million available for borrowing under the Credit Facility as
of July 30, 2022 and July 31, 2021, respectively.
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 used the net proceeds from the offering for general
corporate purposes, including working capital to implement its
strategic plans, investments in technology to enhance its scalable
platform and its core retail business.
On July 12, 2022, the Company entered into a Securities
Purchase Agreement (the “PIPE Purchase Agreement”) with a single
institutional investor for a private placement offering (“Private
Placement”) of the Company’s common stock (the “Common Stock”) or
pre-funded warrants, with each pre-funded warrant exercisable for
one share of Common Stock (the “Pre-Funded Warrants”), and warrants
exercisable for one share of Common Stock (the “Investor
Warrants”). Pursuant to the PIPE Purchase Agreement, the Company
has agreed to issue and sell 1,818,182 shares (the “Shares”) of its
Common Stock or Pre-Funded Warrants in lieu thereof together with
Investor Warrants to purchase up to 2,457,160 shares of Common
Stock. Each share of Common Stock and accompanying Investor Warrant
will be sold together at a combined offering price of $3.30 per
share.
The Pre-Funded Warrants are immediately exercisable, at a
nominal exercise price of $0.001, and may be exercised at any time
until all of the Pre-Funded Warrants are exercised in full. As of
July 30, 2022 all Pre-Funded Warrants have been exercised.
The Investor Warrants have an exercise price of $3.13 per
share (subject to adjustment as set forth in the warrant), are
exercisable upon issuance and will expire five years from the date
of issuance. The Investor Warrants contain standard adjustments to
the exercise price including for stock splits, stock dividend,
rights offerings and pro rata distributions.
The Private Placement closed on July 14, 2022. The gross
proceeds to the Company from the Private Placement, after deducting
placement agent fees and other estimated offering expenses payable
by the Company, were approximately $7.1 million. The Company
intends to use the net proceeds from the private placement for
working capital and other general corporate purposes.
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
|
|
(amounts in
thousands)
|
|
|
July
30,
|
|
|
July
31,
|
|
|
|
|
|
|
2022
|
|
|
2021
|
|
|
$ |
|
Operating Cash Flows
|
|
|
$
|
(5,893
|
)
|
|
$
|
(4,934
|
)
|
|
$
|
(959
|
)
|
Investing Cash Flows
|
|
|
|
(616
|
)
|
|
|
(743
|
)
|
|
|
127
|
|
Financing Cash Flows
|
|
|
|
6,026
|
|
|
|
5,867
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures(1)
|
|
|
|
(616
|
)
|
|
|
(743
|
)
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents, and
Restricted Cash
|
(2 |
) |
|
4,340
|
|
|
|
6,746
|
|
|
|
(2,406
|
)
|
Merchandise Inventory (2)
|
|
|
|
26,672
|
|
|
|
25,024
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in Investing Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Cash and cash equivalents per condensed consolidated balance
sheets
|
|
|
$
|
1,309
|
|
|
$
|
2,570
|
|
|
$
|
(1,261
|
)
|
Add: restricted cash
|
|
|
|
3,031
|
|
|
|
4,176
|
|
|
|
(1,145
|
)
|
Cash, cash equivalents, and
restricted cash
|
|
|
$
|
4,340
|
|
|
$
|
6,746
|
|
|
$
|
(2,406
|
)
|
Cash used in operations was $5.9 million for the twenty-six
weeks ended July 30, 2022, primarily due to net loss of $8.8
million, a decrease of $0.9 million in accrued expenses and a
decrease of $0.6 million decrease in other long-term liabilities,
net of a $1.7 million increase in accounts payable.
Cash used by investing activities was $0.6 million and
$0.7 million for the twenty-six weeks periods ended July 30, 2022
and July 31, 2021, which consisted entirely of capital
expenditures.
Cash provided by financing activities was $6.0 million for the
twenty-six weeks ended July 30, 2022. The primary source of
cash was $5.0 million raised from the issuance of subordinated debt
and $7.1 million from the Private Placement offering partially
offset by the payment of short-term borrowings of $6.1
million.
Cash provided by financing activities was $5.9 million for the
thirteen weeks ended July 31, 2021. The primary source of
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.
Capital
Expenditures. During the thirteen weeks ended July 30,
2022, the Company made capital expenditures of $0.6 million. The
Company currently plans to spend approximately $1.0 million for
capital expenditures during fiscal 2022.
CRITICAL
ACCOUNTING 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 January 29, 2022 includes a summary of the
critical accounting policies and methods used by the Company in the
preparation of its interim condensed consolidated financial
statements. 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
29, 2022.
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.
KASPIEN
HOLDINGS INC. AND SUBSIDIARIES
PART I –
FINANCIAL INFORMATION
Item 3 -
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Not required under the requirements of a Smaller Reporting
Company.
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 July 30, 2022, have concluded that as of such
date the Company’s disclosure controls and procedures were
effective and designed to ensure that (i) information required to
be disclosed by the issuer in the reports that it files or submits
under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules
and forms and (ii) information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes
in internal controls. There 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.
KASPIEN
HOLDINGS INC. AND SUBSIDIARIES
PART II - OTHER
INFORMATION
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.
On June 18, 2021, Vijuve Inc.
filed a lawsuit against Kaspien Inc. in the United States District
Court for the Eastern District of Washington (Case No.
2:21-cv-00192-SAB) concerning a Retailer Agreement that the parties
entered into in September of 2020. Vijuve manufactures skin care
products and face massagers. The parties agreed that Kaspien would
sell Vijuve’s products on Amazon. The complaint alleged that
Kaspien breached the Retailer Agreement when it declined to
acquiesce to Vijuve’s demand that Kaspien purchase over $700,000 of
products. In total, Vijuve is seeking $774,000 in damages. Kaspien
denies that it breached the agreement. Moreover, on July 19, 2021,
Kaspien filed counterclaims and alleged that Vijuve breached the
contract, including by refusing to buy back inventory from Kaspien
upon termination of the Retailer Agreement. Kaspien is seeking at
least $229,000 from Vijuve for breach of contract and/or specific
performance. A trial on all of the parties’ claims is scheduled for
February 21, 2023. There is no determination of outcome, thus no
contingencies are recognized as of the reporting date.