KASPIEN HOLDINGS INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Management’s Discussion and Analysis of Financial Condition and
Results of Operations
July 31, 2021 and August 1, 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
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 30, 2021.
The Company operates Kaspien Inc., 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
• Insights Driven
• Simplicity
• Innovation
|
• Results
• Ownership
• Diversity and Teamwork
|
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”).
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 net revenue performance through
several key performance indicators including number of partners and active product listings and net revenue 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 revenues levels, mix of products sold, obsolescence, distribution costs and marketplace 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, marketplace
commissions, 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 and Twenty-Six Weeks Ended July 31, 2021
Compared to the Thirteen and Twenty-Six Weeks Ended August 1, 2020
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 31,
2021
|
August 1,
2020
|
$
|
%
|
|
July 31,
2021
|
August 1,
2020
|
|
$
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$ 34,890
|
$ 42,296
|
|
$ (7,406)
|
-17.5%
|
|
$ 75,507
|
$ 73,885
|
|
$1,622
|
2.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
8,835
|
10,685
|
|
(1,850)
|
-17.3%
|
|
18,631
|
18,602
|
|
29
|
0.2%
|
% to sales
|
|
25.3%
|
25.3%
|
|
|
|
|
24.7%
|
25.2%
|
|
|
|
Net Revenue. Net revenue was $34.9 million for the thirteen weeks ended July 31, 2021 a 17.5% decrease from the comparable prior year period
. The decrease in net revenue was primarily
attributable to ongoing supply chain challenges in the FBA US Segment. Total Active Partner count as of July 31, 2021 was 792, including 655 retail partners and 136 subscription partners.
Net revenue was $75.5 million for the twenty-six weeks ended July 31, 2021 a 2.2% increase from the comparable prior year period.
The primary source of revenue is the Retail as a Service (“RaaS”) model, which represented 98.7% of net revenue in the thirteen weeks ended July 31, 2021. Net revenue from
non-Amazon marketplaces increased to 1.5% of net revenue from 0.7% of net revenue in the comparable period from the prior year. The increase was attributable to Target, Walmart and Other Marketplaces. Subscriptions & Other share of net revenue
increased to 1.3% of net revenue during the thirteen weeks ended July 31, 2021. The increase was attributable to a 33.0% increase in Subscription GMV flowing through the platform Amazon Marketplace. Subscription GMV represented 42.2% of total GMV
during the thirteen weeks ended July 31, 2021. For the same period, Total GMV increased 0.5% compared to the thirteen weeks ending May 2, 2020 due to a 23% decline in Retail GMV. The following table sets forth net revenue by marketplace as a
percentage of total net revenue:
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
Jul 31, 2021
|
|
|
August 1, 2020
|
|
|
Change
|
|
|
Jul 31, 2021
|
|
|
August 1, 2020
|
|
|
Change
|
|
Amazon US
|
|
$
|
32,642
|
|
|
|
93.6
|
%
|
|
$
|
39,922
|
|
|
|
94.4
|
%
|
|
|
-18.2
|
%
|
|
$
|
70,158
|
|
|
|
92.9
|
%
|
|
$
|
69,887
|
|
|
|
94.6
|
%
|
|
|
0.4
|
%
|
Amazon International
|
|
|
1,289
|
|
|
|
3.7
|
%
|
|
|
1,783
|
|
|
|
4.2
|
%
|
|
|
-27.7
|
%
|
|
|
3,557
|
|
|
|
4.7
|
%
|
|
|
3,013
|
|
|
|
4.1
|
%
|
|
|
18.1
|
%
|
Other Marketplaces
|
|
|
507
|
|
|
|
1.5
|
%
|
|
|
294
|
|
|
|
0.7
|
%
|
|
|
72.4
|
%
|
|
|
885
|
|
|
|
1.2
|
%
|
|
|
519
|
|
|
|
0.7
|
%
|
|
|
70.5
|
%
|
Subtotal Retail as a Service
|
|
|
34,438
|
|
|
|
98.7
|
%
|
|
|
41,999
|
|
|
|
99.3
|
%
|
|
|
-18.0
|
%
|
|
|
74,600
|
|
|
|
98.8
|
%
|
|
|
73,419
|
|
|
|
99.4
|
%
|
|
|
1.6
|
%
|
Subscriptions
|
|
|
452
|
|
|
|
1.3
|
%
|
|
|
297
|
|
|
|
0.7
|
%
|
|
|
52.2
|
%
|
|
|
907
|
|
|
|
1.2
|
%
|
|
|
466
|
|
|
|
0.6
|
%
|
|
|
94.6
|
%
|
Net revenue
|
|
$
|
34,890
|
|
|
|
100.0
|
%
|
|
$
|
42,296
|
|
|
|
100.0
|
%
|
|
|
-17.5
|
%
|
|
$
|
75,507
|
|
|
|
100.0
|
%
|
|
$
|
73,885
|
|
|
|
100.0
|
%
|
|
|
2.2
|
%
|
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 31, 2021
|
|
|
August 1, 2020
|
|
|
$
|
|
|
|
%
|
|
|
July 31, 2021
|
|
|
August 1, 2020
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise margin
|
|
$
|
15,936
|
|
|
$
|
19,447
|
|
|
$
|
(3,510
|
)
|
|
|
-18.1
|
%
|
|
$
|
34,656
|
|
|
$
|
33,901
|
|
|
$
|
755
|
|
|
|
2.2
|
%
|
% of net revenue
|
|
|
45.7
|
%
|
|
|
46.0
|
%
|
|
|
-0.3
|
%
|
|
|
|
|
|
|
45.9
|
%
|
|
|
45.9
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulfillment fees
|
|
|
(5,393
|
)
|
|
|
(6,868
|
)
|
|
|
1,474
|
|
|
|
-21.5
|
%
|
|
|
(11,843
|
)
|
|
|
(11,865
|
)
|
|
|
22
|
|
|
|
-0.2
|
%
|
Warehousing and freight
|
|
|
(1,708
|
)
|
|
|
(1,894
|
)
|
|
|
187
|
|
|
|
-9.9
|
%
|
|
|
(4,182
|
)
|
|
|
(3,434
|
)
|
|
|
(748
|
)
|
|
|
21.8
|
%
|
Gross profit
|
|
$
|
8,835
|
|
|
$
|
10,685
|
|
|
$
|
(1,850
|
)
|
|
|
-17.3
|
%
|
|
$
|
18,631
|
|
|
$
|
18,602
|
|
|
$
|
29
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of net revenue
|
|
|
25.3
|
%
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
24.7
|
%
|
|
|
25.2
|
%
|
|
|
|
|
|
|
|
|
Gross profit was $8.8 million for the thirteen weeks ended July 31, 2021, as compared to $10.7 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. Gross profit as a percentage of net revenue was 25.3%, the same level as the thirteen weeks ended August 1, 2020. Merchandise margin for the thirteen week period ending
July 31, 2021 was 45.7% as compared to 46.0% for the comparable prior year period. The decline in merchandise margin rate was offset by the leveraging of Fulfillment fees and Warehousing and freight expenses.
Gross profit for the twenty-six weeks ended July 31, 2021 was $18.6 million, or 24.7% of net revenue, as compared to $18.6 million, or 25.2% 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 31, 2021
|
|
|
August 1, 2020
|
|
|
$
|
|
|
|
%
|
|
|
July 31, 2021
|
|
|
August 1, 2020
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
$
|
5,085
|
|
|
$
|
6,262
|
|
|
$
|
(1,177
|
)
|
|
|
-18.8
|
%
|
|
$
|
10,991
|
|
|
$
|
10,868
|
|
|
$
|
123
|
|
|
|
1.1
|
%
|
General and administrative expenses
|
|
|
5,125
|
|
|
|
4,916
|
|
|
|
209
|
|
|
|
4.3
|
%
|
|
|
9,877
|
|
|
|
13,406
|
|
|
|
(3,529
|
)
|
|
|
-26.3
|
%
|
Total SG&A expenses
|
|
$
|
10,210
|
|
|
$
|
11,178
|
|
|
$
|
(968
|
)
|
|
|
-8.7
|
%
|
|
$
|
20,868
|
|
|
$
|
24,274
|
|
|
$
|
(3,406
|
)
|
|
|
-14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of total revenue
|
|
|
29.3
|
%
|
|
|
26.4
|
%
|
|
|
|
|
|
|
|
|
|
|
27.6
|
%
|
|
|
32.9
|
%
|
|
|
|
|
|
|
|
|
For the thirteen weeks ended July 31, 2021, SG&A expenses decreased $1.0 million or 8.7%. The decrease in SG&A expenses was due to a $1.2 million decrease in
selling expenses related to the decline in net revenue.
Consolidated depreciation and amortization expense for the thirteen weeks ended July 31, 2021 was $0.6 million as compared to $0.5 million for the comparable prior year
period.
For the twenty-six weeks ended July 31, 2021, SG&A expenses decreased $3.4 million or 14.0%. The decrease in SG&A expenses was attributable to a $3.5 million
decline in General and administrative expenses.
Consolidated depreciation and amortization expense for the twenty-six weeks ended July 31, 2021 was $1.2 million as compared to $1.0 million for the comparable prior year
period.
Interest Expense. Interest expense was $0.5 million for the thirteen weeks ended July 31, 2021 compared to $0.4 million for the
thirteen weeks ended August 1, 2020.
Interest expense was $1.0 million for the twenty-six weeks ended July 31, 2021 compared to $0.6 million for the twenty-six weeks ended August 1, 2020. The increase in
interest expense was due to increased long-term borrowings. See Note 7 to the Condensed Consolidated Financial Statements for further detail on the Company’s debt.
Other Income. On June 15, 2021, the Small Business Administration (“SBA”) approved the Company’s application for forgiveness of
the PPP Loan. The amount of the forgiveness was $1.9 million in principal and interest, which was the amount requested in the forgiveness application and was less than the original principal balance due. Following the grant of forgiveness, an
outstanding balance of $76,452 was paid during the second quarter.
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 and twenty-six week periods ended July 31, 2021 and August 1, 2020.
Net income (loss). Net income for the thirteen weeks ended July 31, 2021 was $0.1 million as compared to a net loss of $0.9 million
for the comparable prior year period.
The net loss for the twenty-six weeks ended July 31, 2021 was $1.3 million as compared to $6.3 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 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.
As disclosed in the Company's Annual Report on Form 10-K filed April 30, 2021, the Company experienced negative cash flows from operations during fiscal 2020 and 2019 and we
expect to incur net losses in fiscal 2021.
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 will be successful in sustaining acceptable levels of
sales growth and profitability. The unaudited 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 twenty-six weeks ended July 31, 2021 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. 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 7 in the interim condensed consolidated financial statements.
The following table sets forth a summary of key components of cash flow and working capital:
|
|
|
|
|
As of or for the
|
|
|
Change
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
July 31,
2021
|
|
|
August 1,
2020
|
|
|
$
|
|
|
Operating Cash Flows
|
|
|
|
$
|
(4,934
|
)
|
|
$
|
(8,087
|
)
|
|
$
|
3,153
|
|
|
Investing Cash Flows
|
|
|
|
|
(743
|
)
|
|
|
11,191
|
|
|
|
(11,934
|
)
|
|
Financing Cash Flows
|
|
|
|
|
5,867
|
|
|
|
(3,307
|
)
|
|
|
9,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures(1)
|
|
|
|
|
(743
|
)
|
|
|
(588
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents, and Restricted Cash(2)
|
|
|
|
|
6,746
|
|
|
|
8,649
|
|
|
|
(1,903
|
)
|
|
Merchandise Inventory
|
|
|
|
|
25,024
|
|
|
|
20,576
|
|
|
|
4,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in Investing Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Cash and cash equivalents per condensed consolidated balance sheets
|
|
|
$
|
2,570
|
|
|
$
|
3,337
|
|
|
|
|
|
|
Add: restricted cash
|
|
|
|
|
4,176
|
|
|
|
5,312
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash
|
|
|
|
$
|
6,746
|
|
|
$
|
8,649
|
|
|
|
|
|
Cash used in operations was $5.0 million for the twenty-six weeks ended July 31, 2021, primarily due to net loss of $1.3 million, net of the PPP forgiveness of $1.9 million,
a $1.3 million increase in accounts payable, a $0.5 million increase in inventory and a $0.5 million decrease in prepaid expenses and other current assets.
Cash used in investing activities was $0.7 million for the twenty-six weeks ended July 31, 2021, which consisted entirely of capital expenditures. Cash provided by
investing activities was $11.2 million for the twenty-six weeks ended July 31, 2021, which primarily consisted from the sale of the fye business, partially offset by capital expenditures of $0.6 million.
Cash provided by financing activities was $5.9 million for the twenty-six 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. Cash used by
financing activities was $3.3 million for the twenty-six weeks ended August 1, 2020. The primary use of cash was the payoff of the Company’s previous credit facility. The payoff of the previous credit facility was partially offset by borrowings
under the Credit Facility of $2.2 million, the Subordinated Loan Agreement of $5.2 million and borrowings from the Payroll Protection Program of $2.0 million.
Capital Expenditures. During the twenty-six weeks ended July 31, 2021, the Company made capital expenditures of $0.7 million. The
Company currently plans to spend approximately $2.0 million for capital expenditures during fiscal 2021.
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 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. 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 July 31, 2021 were $5.1 million and commission fees of $6.3 million were reclassified for the 13-weeks ended August 1, 2020. Commission fees for the 26-week period ended
July 31, 2021 were $11.0 million and commission fees of $10.9 million were reclassified for the 26-weeks ended August 1, 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.
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
Item 1 –
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.
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 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 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 finally, and the appeal was dismissed on May 3, 2021,without material impact on the financial results of the 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, 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, which has received approval from the court. The Company reserved $0.4 million
for the settlement as of January 30, 2021. During the second quarter of fiscal 2021, the Company paid the final settlement and the matter is fully resolved as of June 17, 2021.
Retailer Agreement Dispute
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 believed, and still believes, that Vijuve attempted
to artificially inflate its sales on Amazon to support that demand. 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.
On August 9, 2021, Vijuve filed a motion to dismiss Kaspien’s counterclaims. On September 2, 2021, Kaspien filed a motion for judgment on the pleadings that seeks to
dismiss Vijuve’s complaint. Both motions will be entertained by the Court on October 22, 2021. The Court’s decisions on these two motions will dictate the course of the dispute going forward, including whether Vijuve still has a legal claim
against Kaspien. With the resolution of the motions currently pending, the impact on Kaspien (if any) is not presently known.