10-K 1 brhc10023271_10k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED JANUARY 30, 2021

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

FOR THE TRANSITION PERIOD FROM ………… TO …………

COMMISSION FILE NUMBER: 0-14818

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 Spokane, WA 99216		12203
Address of Principal Executive Offices		Zip Code

(855) 300-2710

Registrant’s Telephone Number, Including Area Code

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

Trans World Entertainment Corporation

38 Corporate Circle

Albany, NY 12203

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 Stock Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of August 1, 2020, the last business day of the Company’s most recently completed second fiscal quarter, 1,825,198 shares of the Registrant’s Common Stock were issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Registrant’s Common Stock on August 1, 2020, was $5.5 million. As of April 15, 2021, there were 2,478,752 shares of Common Stock issued and outstanding.

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 ☐

DOCUMENTS INCORPORATED BY REFERENCE:

None.

PART I

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to the Kaspien Holdings Inc.’s (“the Company’s”) future prospects, developments and business strategies. The statements contained in this document that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.

We have used the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, and similar terms and phrases, including references to assumptions, in this document to identify forward-looking statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control, that could cause actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from the Company’s forward-looking statements.

• continued operating losses;

• impact of the novel coronavirus identified as “COVID-19” on our business and operating results;

• the ability of the Company to satisfy its liabilities and to continue as a going concern;

• maintaining Kaspien’s relationship with Amazon;

• failure to sustain our revenue growth rate;

• decline in the Company’s stock price;

• the limited public float and trading volume for our Common Stock;

• new product introductions;

• advancements in technology;

• dependence on key employees, the ability to hire new employees and pay competitive wages;

• the Company’s level of debt and related restrictions and limitations;

• future cash flows;

• vendor terms;

• interest rate fluctuations;

• access to third party digital marketplaces;

• adverse publicity;

• product liability claims;

• changes in laws and regulations;

• breach of data security;

• increase in Amazon Marketplace fulfillment and storage fees;

• limitation on our acquisition and growth strategy as a result of our inability to raise necessary funding;

• the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and other sections of this Annual Report on Form 10-K

The reader should keep in mind that any forward-looking statement made by us in this document, or elsewhere, pertains only as of the date on which we make it. New risks and uncertainties come up from time-to-time and it is impossible for us to predict these events or how they may affect us. In light of these risks and uncertainties, you should keep in mind that any forward-looking statements made in this report or elsewhere might not occur.

In addition, the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions. These estimates and assumptions affect:

•

the reported amounts and timing of revenue and expenses,

•

the reported amounts and classification of assets and liabilities, and

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the disclosure of contingent assets and liabilities.

Actual results may vary from our estimates and assumptions. These estimates and assumptions are based on historical results, assumptions that we make, as well as assumptions by third parties.

Item 1.

BUSINESS

Company Background

Kaspien Holdings Inc (f/k/a Trans World Entertainment Corporation), which, together with its consolidated subsidiaries, is referred to herein as the “Company”, “we”, “us” and “our”, was incorporated in New York in 1972. We own 100% of the outstanding Common Stock of Kaspien Inc. See below for additional information.

Acquired in October 2016, Kaspien Inc. (“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.

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 fye business is reported as discontinued operations in our Consolidated Statements of Operation, 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 this Form 10-K relates to continuing operations. Refer to Notes 2 and 3 of the Notes to the Consolidated Financial Statements for additional information on discontinued operations.

Business Overview

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 such as Amazon, Walmart, eBay, Target, and others. 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 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.

By offering a one-stop-shop for all marketplace services, Kaspien intends to diversify its risk and leverage its assets to capture more market share across the seller services space.

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

Partner Obsession	Insights Driven
Simplicity	Innovation
Results	Ownership
Diversity and Teamwork

The Kaspien marketplace growth platform allows for a diversified go-to-market approach, enabling economies of scale for multiple operations. A high-level overview of the Kaspien platform is shown in Figure 1 below:

Figure 1: Kaspien platform of products and services

The Kaspien marketplace growth platform is improved with increased utilization. It is built upon a data engine that synthesizes roughly one billion data points daily from over ten million unique products. The below image showcases the Kaspien “flywheel.” As brands and products use more services on our platform, Kaspien accumulates more data and derives greater insights, thereby strengthening the value of our platform. With increased growth, partners layer on additional software tools, creating even stronger integration and ultimately driving a more robust value proposition for brands. For Kaspien, this positive flywheel effect leads to partner growth and improved lifetime value of our brand relationships. We measure our success through gross merchandise value growth across the Kaspien platform.

Figure 2: Kaspien flywheel

Partners

Kaspien views all brand customers of our platform as partners and defines them under this nomenclature. Our partners include brands, suppliers, distributors, liquidators, and affiliates such as venture capital firms and marketing agencies, as well as other industry brand aggregators. Our market sectors include but are not limited to: Pets/Sporting Goods, Tools/Office/Outdoors, Health & Personal Care and Home/Kitchen/Grocery. In fiscal 2020, these top categories made approximately 68% of our total revenue. We organize our operations by category, developing a deep understanding and subject matter expertise in these areas, powering our platform to drive better results across these category focal points.

The Company uses its proprietary data platform to identify brands that would be good strategic fits for its services. We utilize content marketing to strengthen its visibility within the industry. The Company’s public relations efforts consist of press releases, articles in industry publications, and articles on its website to build its brand. In addition, we regularly run advertisements on popular ad platforms such as Google, Facebook, Twitter and LinkedIn to bring leads into its sales funnels.

In addition, Kaspien recently adopted a brand acquisition strategy whereby we will deploy capital to acquire certain strategic brands, bring them onto our platform, increasing the scale of such brands.

Partnership Models

The Kaspien platform can be leveraged and engaged in three primary different business models.

Retail-as-a-Service (“RaaS”): We own inventory. We sell it.

In this model, Kaspien buys inventory and sells it on marketplaces such as Amazon, Walmart, Target, and eBay as a third-party seller. Additionally, Kaspien supports private label “dropship” integrations with various suppliers and distributors as well as incubates its own brands. At the end of fiscal 2019, Kaspien had a total of six (6) incubated brands – Jumpoff Jo, Brilliant Bee, Big Betty, Domestic Corner, Coy Beauty, Max Threads and Keto. In RaaS, our business model is the same as that of a wholesale retailer. During fiscal 2020, revenue per partner increased 40% to $237,000 from $169,000 in fiscal 2019.

Agency-as-a-Service(“AaaS”): Partner owns inventory. We sell it.

In this model, Kaspien serves as an extension of a partner’s e-commerce team, providing full service and managed services in the areas of inventory management, marketing management, creative, brand control, tax, compliance and other marketplace growth services. Kaspien charges a subscription fee and receives a small percentage of the revenue generated.

Software-as-a-Service (“SaaS”): Partner owns inventory and sells it.

In this model, Kaspien provides partners access to software through its platform of proprietary technology to empower partners to self-manage their marketplace channel. Kaspien charges a subscription fee and receives a percentage of the transaction.

The “Agency as a Service” and “Software as a Service” models are collectively called “Subscriptions.” The software products and tech-enabled services that form subscriptions are as follows:

Software:

- Ad Management

- Brand Protection and Seller Tracking

- Cost Recovery and Case Management

- Inventory Management and Advanced Supply Chain

- Dropship Automation

Services:

- Creative Services

- Tax Compliance

- Inventory Management & Supply Chain

- Digital Marketing

As of January 30, 2021, we had 825 partners across our portfolio of external brand partners, including nearly 693 retail partners and 132 subscriptions partners. The Company’s subscriptions partner base increased 207% compared to fiscal year 2019.

While used for different models, the platform is designed to benefit from network effects. The more partners on our platform, the more data and insights it can collect. The more insights it gets, more products and services it can serve its partners and more marketplace integrations it can support. The more marketplace providers that can be integrated, the greater the number of possible partners to engage in our services.

Technology and Integrations

The Company’s marketplace platform is a one stop shop insights driven platform built upon over a decade of marketplace selling data. The platform includes a variety of artificial intelligent, data science solutions spanning across brand protection services, logistics and supply chain optimization, automated pricing, advertising marketing management, creative and content services, tax and compliance services, among others. This is all accessible through the Kaspien platform and can be leveraged through a managed service or a software as a service model.

The platform uses an insight driven approach to digital marketplace retailing using proprietary software. Using data collected from marketplaces, optimal inventory thresholds and purchasing trends are calculated within its advanced inventory management software developed in-house. Kaspien also has proprietary software related to pricing, advertisement management, marketplace seller tracking and channel auditing.

Additionally, the Kaspien platform can be extended to our business and service providers that are synergistic to Kaspien. This enables a network of partner integrations that can be extended and expanded upon. The Kaspien platform has formed strategic relationships and partnerships with these other listed marketplace service providers, including Deliverr and MyFBAPrep in the logistics and fulfillment space, TaxCloud, a tax services provider, VantageBP, a brand protection agency, Levin Consulting, an electronics specialty retailer, and others.

Business Environment

Digital marketplaces allow consumers to shop from a variety of merchants in one place and have become an integral part of many brand manufacturers’ businesses.

According to the U.S. Census Bureau, total U.S. e-commerce sales in 2020 were $792 billion, up 32.4% from 2019 as the coronavirus pandemic and nationwide lockdowns pushed shoppers to rely on internet retailers for their consumer needs. Total retail sales in 2020 increased 3.4% from the prior year. As a result, e-commerce sales ended the year accounting for 14% of all U.S. retail sales, up from 11% in 2019.

According to emarketer.com, worldwide e-commerce sales in 2020 were $4.3 trillion, up 27.6% from 2019. Total worldwide retail sales declined 3.0% to $23.9 trillion. Worldwide e-commerce growth is projected to increase 14.3% in 2021. Although the growth will slow, e-commerce penetration of total global retail continues to rise and is predicted to be 19.5% of total retail.

In the United States, we sell on marketplaces that represent 50% of national e-commerce sales (Amazon.com, Walmart.com, eBay.com, Target.com, Google.com, Sears.com, jet.com, Pricefalls.com, Overstock.com, Wish.com). Internationally, we sell on marketplaces in the U.K. (Amazon.uk), Germany (Amazon.de), Canada (Amazon.ca) and India (Amazon.in). In 2021, Kaspien intends to begin selling its services in Japan and Mexico.

Competition and Strategic Positioning

Kaspien operates in a category within e-commerce called “Marketplace Growth Software and Services”. Businesses in this category provide services to brands and other sellers to facilitate growth on marketplaces. The market is very fragmented, and most providers are focused on a few focus areas where sellers have support needs. Subcategories in this market include: Account and Marketing Services, Supply Chain and Logistics Providers, Manufacturers and Product Suppliers, Legal Services and Accounting, Tax and Financial Services. In the Account and Marketing Services subcategory, services are further divided into retail services, agency services and software services. This is analogous to our business models – Retail as a Service, Agency as a Service and Software as a Service.

Kaspien positions itself as a comprehensive and fully customizable platform of software and services tailored towards online marketplace growth. Kaspien core focus is on the Account and Marketing Services subcategory and competes in this subcategory with Software Providers, Agencies and Retailers.

Our focus on the platform and subscriptions services has fueled strong growth in our subscription services, growing our partner base by 214% from 42 to 132 partners within our subscription platform. Our annual recurring revenue (“ARR”) in our subscriptions business grew by 181% from $0.7 million to $1.8 million from fiscal year 2019 to fiscal year 2020.

Revenue Distribution

Kaspien’s primary source of revenue is through its “Retail as a Service” business, specifically as a third-party seller on the Amazon US marketplace. In fiscal 2020, the share of our retail revenues generated from our Amazon US business was 86%, as compared to 91% in fiscal 2019. Our international retail business grew from 3.2% in fiscal year 2019 to 4.8% in fiscal year 2020. The remaining retail revenue is generated from other marketplaces including Amazon International, Walmart, eBay and Target+.

Kaspien focuses on a broad array of categories, including pet supplies, sporting goods, tools/office/outdoors, health & personal care and home/kitchen/grocery. In fiscal year 2020, these categories represented approximately 68% of our total revenue. Kaspien organizes our operations by category, developing a deep understanding and subject matter expertise in these areas, enabling us to drive better results across these categories.

Human Capital

As of January 30, 2021, the Company employed approximately 136 people, of whom approximately 130 were employed on a full-time basis. At the end of fiscal 2020, the Company had department heads in the areas of marketing, supply chain, private label, business development, account management, human resources, accounting, FP&A, warehouse operations, compliance, product management, data, and engineering. Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully

The Company believes that its success depends on the ability to attract, develop, retain and incentivize our existing and new employees, consultants, and key personnel. It also believes that the skills, experience and industry knowledge of its key personnel significantly benefits its operations and performance. The principal purposes of equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Employee health and safety in the workplace is one of the Company’s core values. The COVID-19 pandemic has underscored the importance of keeping employees safe and healthy. In response to the COVID-19 pandemic, the Company has taken actions aligned with the World Health Organization and the Centers for Disease Control and Prevention in an effort to protect the Company’s workforce so they can more safely and effectively perform their work. These actions include shutting down its headquarters for some months during 2020, wearing facemasks in common areas in the office, and allowing employees to work from home.

Customer Acquisition

Kaspien engages its partners through a combination of brand building, inbound digital marketing, and outbound sales, as well as using its proprietary data platform to identify brands that would be a strategic fit for its services. Kaspien utilizes content marketing to strengthen its visibility within the industry. Kaspien’s public relations efforts consist of press releases, articles in industry publications, and articles on its website to build its brand.

In addition, Kaspien regularly runs advertisements on popular ad platforms such as Google, Facebook, Twitter and LinkedIn to bring leads into its sales funnels.

Trademarks

The trademark Kaspien is registered with the U.S. Patent and Trademark Office and is owned by Kaspien. We believe that our rights to this trademark is adequately protected. We hold no material patents, licenses, franchises, or concessions; however, our established trademark is essential to maintaining our competitive position.

Available Information

The Company’s headquarters are located at 2818 N. Sullivan Road, Suite 130, Spokane Valley, WA 99216, and its telephone number is (855)-300-2710. The Company’s corporate website address is www.kaspien.com. The Company makes available, free of charge, its Exchange Act Reports (Forms 10-K, 10-Q, 8-K and any amendments thereto) on its web site as soon as practical after the reports are filed with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. This information can be obtained from the site http://www.sec.gov. The Company’s Common Stock, $0.01 par value, is listed on the NASDAQ Capital Market under the trading symbol “KSPN”.

Item 1A.

RISK FACTORS

The following is a discussion of certain factors, which could affect the financial results of the Company.

Risks Related to Our Business

If we cannot successfully implement our business strategy our growth and profitability could be adversely impacted.

Our future results will depend, among other things, on our success in implementing our business strategy.

During the third quarter of 2019, based on recurring losses from operations, the Company pursued several strategic initiatives towards its strategy of shifting its focus solely to the operation of Kaspien, improving profitability and meeting future liquidity needs and capital requirements. The following initiatives were completed during the first quarter of 2020:

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The sale of the For Your Entertainment (fye) business;

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The establishment of a new secured $25 million revolving credit facility (the “New Credit Facility”) with Encina Business Credit, LLC (“Encina”);

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The execution of a separate subordinated loan agreement for Kaspien (the “Subordinated Loan”); and

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The receipt by Kaspien of loan proceeds pursuant to the Paycheck Protection Plan (the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act.

Notwithstanding the foregoing, 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 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.

Continued increases in Amazon Marketplace fulfillment and storage fees could have an adverse impact on our profit margin and results of operations.

The Company utilizes Amazon’s Freight by Amazon (“FBA”) platform to store their products at the Amazon fulfillment center and to pack and distribute these products to customers. If Amazon continues to increase its FBA fees, our profit margin could be adversely affected.

Our business depends on our ability to build and maintain strong product listings on e-commerce platforms. We may not be able to maintain and enhance our product listings if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects.

Maintaining and enhancing our product listings is critical in expanding and growing our business. However, a significant portion of our perceived performance to the customer depends on third parties outside of our control, including suppliers and third-party delivery agents as well as online retailers such as Amazon and Walmart. Because our agreements with our online retail partners are generally terminable at will, we may be unable to maintain these relationships, and our results of operations could fluctuate significantly from period to period. Because we rely on third parties to deliver our products, we are subject to shipping delays or disruptions caused by inclement weather, natural disasters, labor activism, health epidemics or bioterrorism. We may also experience shipping delays or disruptions due to other carrier-related issues relating to their own internal operational capabilities. Further, we rely on the business continuity plans of these third parties to operate during pandemics, like the COVID-19 pandemic, and we have limited ability to influence their plans, prevent delays, and/or cost increases due to reduced availability and capacity and increased required safety measures.

Customer complaints or negative publicity about our products, delivery times, or marketing strategies, even if not accurate, especially on blogs, social media websites and third-party market sites, could rapidly and severely diminish consumer view of our product listings and result in harm to our brands. Customers may also make safety-related claims regarding products sold through our online retail partners, such as Amazon, which may result in an online retail partner removing the product from its marketplace. We have from time to time experienced such removals and such removals may materially impact our financial results depending on the product that is removed and length of time that it is removed. We also use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control.

A change in one or more of the Company’s partners’ policies or the Company’s relationship with those partners could adversely affect the Company’s results of operations.

The Company is dependent on its partners to supply merchandise in a timely and efficient manner. If a partner fails to deliver on its commitments, whether due to financial difficulties or other reasons, the Company could experience merchandise shortages that could lead to lost sales.

Historically, the Company has not experienced difficulty in obtaining satisfactory sources of supply and management believes that it will continue to have access to adequate sources of supply. No individual partner exceeded 10% of purchases in fiscal 2020.

Our revenue is dependent upon maintaining our relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations.

The Company generates substantially all of its revenue through the Amazon Marketplace. Therefore, we depend in large part on our relationship with Amazon for growth. In particular, we depend on our ability to offer products on the Amazon Marketplace. We also depend on Amazon for the timely delivery of products to customers. Any adverse change in our relationship with Amazon, including restrictions on the ability to offer products or termination of the relationship, could adversely affect our continued growth and financial condition and results of operations.

The terms of our asset-based revolving credit agreement impose certain restrictions on us that may impair our ability to respond to changing business and economic conditions, which could have a significant adverse impact on our business. Additionally, our business could suffer if our ability to acquire financing is reduced or eliminated.

On February 20, 2020, Kaspien entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina, as administrative agent, under which the lenders committed to provide up to $25 million in loans under a three-year, secured revolving credit facility (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 (including our Subordinated Debt) 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 borrowers and guarantors under the New Credit Facility 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, including our Subordinated Debt.

As of January 30, 2021, the Company had borrowings of $6.3 million under its credit facility with Encina.

Risks Related to Information Technology and Intellectual Property

Breach of data security could harm our business and standing with our customers.

The protection of our partner, employee and business data is critical to us. Our business, like that of most companies, involves confidential information about our employees, our suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means, including deceiving our employees or third-party service providers. The methods used to obtain unauthorized access, disable or degrade service, or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect. We have implemented and regularly review and update our control systems, processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Any security breach involving the misappropriation, loss or other unauthorized disclosure of customer payment card or personal information or employee personal or confidential information, whether by us or our vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations, harm our business and have an adverse impact upon our net sales and profitability. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and changing requirements applicable to our business, compliance with those requirements could also result in additional costs. Further, if we are unable to comply with the security standards established by banks and the credit card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect our retail operations.

Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business.

Any failure of our computer hardware or software systems that causes an interruption in our operations or a decrease in inventory tracking could result in reduced net sales and profitability. Additionally, if any data intrusion, security breach, misappropriation or theft were to occur, we could incur significant costs in responding to such event, including responding to any resulting claims, litigation or investigations, which could harm our operating results.

Our inability or failure to protect our intellectual property rights, or any claimed infringement by us of third-party intellectual rights, could have a negative impact on our operating results.

Our trademark, trade secrets and other intellectual property, including proprietary software, are valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our intellectual property could cause a decline in our revenue. In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property.

Risks Related to Human Capital

Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations.

The Company believes that its future prospects depend, to a significant extent, on the services of its executive officers. Our future success will also depend on our ability to attract and retain qualified key personnel. The loss of the services of certain of the Company’s executive officers and other key management personnel could adversely affect the Company’s results of operations.

In addition to our executive officers, the Company’s business is dependent on our ability to attract, train and retain qualified team members. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, health care costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations and support functions could suffer. Those factors, together with increased wage and benefit costs, could adversely affect our results of operations.

We may face difficulties in meeting our labor needs to effectively operate our business.

We are heavily dependent upon our labor workforce. Our compensation packages are designed to provide benefits commensurate with our level of expected service. However, we face the challenge of filling many positions at wage scales that are appropriate to the industry and competitive factors. We also face other risks in meeting our labor needs, including competition for qualified personnel, overall unemployment levels, and increased costs associated with complying with regulations relating to COVID-19. Changes in any of these factors, including a shortage of available workforce, could interfere with our ability to adequately service our customers and could result in increasing labor costs.

Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care.

Labor is one of the primary components in the cost of operating our business. Increased labor costs, whether due to competition, unionization, increased minimum wage, state unemployment rates, health care, or other employee benefits costs may adversely impact our operating expenses. Additionally, there is no assurance that future health care legislation will not adversely impact our results or operations.

Risks Related to Ownership of Our Common Stock.

The ownership of our Common Stock is concentrated, and entities affiliated with members of our Board of Directors have significant influence and control over the outcome of any vote of the Company’s Shareholders and may have competing interests.

The Robert J. Higgins TWMC Trust (the “Trust”) owns approximately 28.8% of the outstanding Common Stock and Neil Subin owns approximately 12.1% of the outstanding Common Stock, and as a result can significantly influence the outcome of most actions requiring shareholder approval. In addition, entities affiliated with each of the Trust and Mr. Subin, as well as one of our directors, Mr. Simpson, and certain of his affiliated entities, collectively hold approximately 50% of the outstanding Common Stock, and as a result can control the outcome of most actions requiring shareholder approval. These Shareholders entered into a voting agreement (as described in “Related Party Transactions”) and agreed to how their respective shares of the Company’s Common Stock held by the parties will be voted with respect to the designation, election, removal, and replacement of members of the Board. Pursuant to the voting agreement, Messrs. Marcus and Simpson were appointed as directors of the Company, and Mr. Reickert, a trustee of the Trust, remained as a director of the Company. Mr. Subin was also granted board observer rights. Entities affiliated with the Trust and Messrs. Marcus and Simpson are also lenders under our subordinated loan and security agreement, have received warrants to purchase shares of the Company’s Common Stock and 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 received by the Company in respect of certain intercompany indebtedness owing to it by Kaspien and/or its equity interest in Kaspien, each as described in “Related Party Transactions”. As a result, there may be instances in which the interest of Mr. Reickert, the Trust and its affiliated entities, Messrs. Marcus and Subin and their respective affiliated entities, and Mr. Simpson and his affiliated entities may conflict or be perceived as being in conflict with the interest of a holder of our securities or the interest of the Company.

The Company’s stock price has experienced and could continue to experience volatility and could decline, resulting in a substantial loss on your investment.

Our stock price has experienced, and could continue to experience in the future, substantial volatility as a result of many factors, including global economic conditions, broad market fluctuations and public perception of the prospects for the industries in which we operate and the value of our assets. We are reliant on the performance of Kaspien, and a failure to meet market expectations, particularly with respect to net revenues, operating margins and earnings per share, would likely result in a further decline in the market price of our stock.

If we do not meet the continued listing standards of the NASDAQ, our Common Stock could be delisted from trading, which could limit investors’ ability to make transactions in our Common Stock and subject us to additional trading restrictions.

Our common stock is listed on NASDAQ, which imposes continued listing requirements with respect to listed shares. On August 15, 2019, the Company effected a reverse stock split of its outstanding shares of Common Stock at a ratio of one-for-twenty pursuant to a Certificate of Amendment to the Company’s Certificate of Incorporation filed with the Secretary of State of the State of New York. The reverse stock split was reflected on NASDAQ beginning with the opening of trading on August 15, 2019. The primary purpose of the reverse stock split, which was approved by the Company’s shareholders at the Company’s Annual Stockholders Meeting on June 27, 2019, was to enable the Company to comply with the $1.00 minimum bid price requirement for continued listing on NASDAQ.

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 was not in compliance with the minimum stockholders’ equity requirement (the “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 $2.5 million 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.

On January 22, 2021, the Company received written notice from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company’s market value of listed securities was greater than $35 million for ten consecutive business days, from January 4, 2021 to January 21, 2021. Accordingly, the Company has regained compliance with the alternative requirement set forth under Nasdaq Listing Rule 5550(b)(2) and the matter is now closed.

If we fail to maintain compliance with the continued listing requirements in the future and NASDAQ determines to delist our Common Stock, the delisting could adversely affect the market price and liquidity of our Common Stock and reduce our ability to raise additional capital.

The limited public float and trading volume for our Common Stock may have an adverse impact and cause significant fluctuation of market price.

Historically, ownership of a significant portion of our outstanding shares of Common Stock has been concentrated in a small number of stockholders. Consequently, our Common Stock has a relatively small float and low average daily trading volume, which could affect a shareholder’s ability to sell our stock or the price at which it can be sold. In addition, future sales of substantial amounts of our Common Stock in the public market by those larger stockholders, or the perception that these sales could occur, may adversely impact the market price of the stock and our stock could be difficult for a shareholder to liquidate.

General Risk Factors

The Company’s business is influenced by general economic conditions.

The Company’s performance is subject to general economic conditions and their impact on levels of discretionary consumer spending. General economic conditions impacting discretionary consumer spending include, among others, wages and employment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors.

Consumer purchases of discretionary items generally decline during recessionary periods and other periods where disposable income is adversely affected. A downturn in the economy affects retailers disproportionately, as consumers may prioritize reductions in discretionary spending, which could have a direct impact on purchases of our products and services and adversely impact our results of operations. In addition, reduced consumer spending may drive us and our competitors to offer additional products at promotional prices, which would have a negative impact on gross profit.

Disruption of global capital and credit markets may have a material adverse effect on the Company’s liquidity and capital resources.

Distress in the financial markets has in the past and can in the future result in extreme volatility in security prices, diminished liquidity and credit availability. There can be no assurance that our liquidity will not be affected by changes in the financial markets and the global economy or that our capital resources will at all times be sufficient to satisfy our liquidity needs.

Because of our floating rate credit facility, we may be adversely affected by interest rate changes.

Our financial position may be affected by fluctuations in interest rates, as the New Credit Facility is subject to floating interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. As we borrow against our credit facility, a significant increase in interest rates could have an adverse effect on our financial position and results of operations.

The Company is dependent upon access to capital, including bank credit facilities and short-term vendor financing, for its liquidity needs.

The Company must have sufficient sources of liquidity to fund its working capital requirements and indebtedness. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and the Company’s credit rating, as well as the Company’s reputation with potential lenders. These factors could materially adversely affect the Company’s ability to fund its working capital requirements, costs of borrowing, and the Company’s financial position and results of operations would be adversely impacted.

We may complete a future significant strategic transaction that may not achieve intended results or could increase the number of our outstanding shares or amount of outstanding debt or result in a change of control.

We will evaluate and may in the future enter into strategic transactions. Any such transaction could happen at any time following the closing of the merger, could be material to our business and could take any number of forms, including, for example, an acquisition, merger or a sale of all or substantially all of our assets.

Evaluating potential transactions and integrating completed ones may divert the attention of our management from ordinary operating matters. The success of these potential transactions will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies through the successful integration of the businesses we acquire with our existing business. Even if we are successful in integrating the acquired businesses, we cannot assure you that these integrations will result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the expected time frames. In addition, acquired businesses may have unanticipated liabilities or contingencies.

If we complete an acquisition, investment or other strategic transaction, we may require additional financing that could result in an increase in the number of our outstanding shares or the aggregate principal amount of our debt. A strategic transaction may result in a change in control of our company or otherwise materially and adversely affect our business.

Historically, we have experienced declines, and we may continue to experience fluctuation in our level of sales and results from operations.

A variety of factors has historically affected, and will continue to affect, our sales results and profit margins. These factors include general economic conditions; competition; actions taken by our competitors; consumer trends and preferences; access to third party marketplaces; and new product introductions and changes in our product mix.

There is no assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on our business and results of operations.

The ability of the Company to satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain.

The Company has suffered recurring losses from operations and the Company’s primary sources of liquidity are borrowing capacity under its revolving credit facility, available cash and cash equivalents, all of which are limited. Therefore, the ability of the Company to meet its liabilities and to continue as a going concern is dependent on, among other things, 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 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.

Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company.

The Company is a party to contracts, transactions and business relationships with various third parties, including partners, vendors, suppliers, service providers and lenders, pursuant to which such third parties have performance, payment and other obligations to the Company. In some cases, the Company depends upon such third parties to provide essential products, services or other benefits, including with respect to merchandise, advertising, software development and support, logistics, other agreements for goods and services in order to operate the Company’s business in the ordinary course, extensions of credit, credit card accounts and related receivables, and other vital matters. Economic, industry and market conditions, including as a result of the COVID-19 pandemic, could result in increased risks to the Company associated with the potential financial distress or insolvency of such third parties. The Company is not currently able to accurately determine the extent and scope of the impact of the COVID-19 pandemic on such third parties. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, the rights and benefits of the Company in relation to its contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to the Company, or otherwise impaired. The Company cannot make any assurances that it would be able to arrange for alternate or replacement contracts, transactions or business relationships on terms as favorable as the Company’s existing contracts, transactions or business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s cash flows, financial condition and results of operations.

Failure to comply with legal and regulatory requirements could adversely affect the Company’s results of operations.

The Company’s business is subject to a wide array of laws and regulations. Significant legislative changes that impact our relationship with our workforce (none of which is represented by unions) could increase our expenses and adversely affect our operations. Examples of possible legislative changes impacting our relationship with our workforce include changes to an employer’s obligation to recognize collective bargaining units, the process by which collective bargaining units are negotiated or imposed, minimum wage requirements, health care mandates, and changes in overtime regulations.

Our policies, procedures and internal controls are designed to comply with all applicable laws and regulations, including those imposed by the Securities and Exchange Commission and the NASDAQ Capital Market, as well as applicable employment laws. Additional legal and regulatory requirements increase the complexity of the regulatory environment in which we operate and the related cost of compliance. Failure to comply with such laws and regulations may result in damage to our reputation, financial condition and market price of our stock.

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of litigation by employees, consumers, partners, suppliers, competitors, stockholders, government agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. We may incur losses relating to these claims, and in addition, these proceedings could cause us to incur costs and may require us to devote resources to defend against these claims that could adversely affect our results of operations. For a description of current legal proceedings, see “Part I, Item 3, Legal Proceedings.”

The effects of natural disasters, terrorism, acts of war, and public health issues may adversely affect our business.

Natural disasters, including earthquakes, hurricanes, floods, and tornadoes may affect store and distribution center operations. In addition, acts of terrorism, acts of war, and military action both in the United States and abroad can have a significant effect on economic conditions and may negatively affect our ability to purchase merchandise from suppliers for sale to our customers. Public health issues, such as flu or other pandemics, whether occurring in the United States or abroad, could disrupt our operations and result in a significant part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. Additionally, public health issues may disrupt, or have an adverse effect on, our suppliers’ operations, our operations, our customers, or customer demand. Our ability to mitigate the adverse effect of these events depends, in part, upon the effectiveness of our disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans will be adequate or implemented properly in the event of an actual disaster. We may be required to suspend operations in some or all our locations, which could have a material adverse effect on our business, financial condition, and results of operations. Any significant declines in public safety or uncertainties regarding future economic prospects that affect customer spending habits could have a material adverse effect on customer purchases of our products.

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business.

Our business, results of operations, and financial condition may be materially adversely impacted if a public health outbreak, including the recent COVID-19 pandemic, interferes with our ability, or the ability of our employees, contractors, suppliers, and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business.

The COVID-19 pandemic has adversely affected and may continue to adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition and results of operations. As a result, our ability to fund through public or private equity offerings, debt financings, and through other means at acceptable terms, if at all, may be disrupted, in the event our financing needs for the foreseeable future are not able to be met by our New Credit Facility, balances of cash, cash equivalents and cash generated from operations.

In addition, the continuation of the COVID-19 pandemic and various governmental responses in the United States has adversely affected and may continue to adversely affect our business operations, including our ability to carry on business development activities, restrictions in business-related travel, delays or disruptions in our on-going projects, and unavailability of the employees of the Company or third parties with whom we conduct business, due to illness or quarantines, among others. Our business was negatively impacted by disruptions in our supply chain, which limited our ability to source merchandise, and limits on products fulfillment placed by Amazon. For example, we may be unable to launch new products, replenish inventory for existing products, ship into or receive inventory in our third-party warehouses in each case on a timely basis or at all. During the fourth quarter of 2020 and first quarter of 2021, we have experienced production and shipment delays for certain of our products that could result in stock outs on the Amazon marketplace resulting in a decrease of net revenue. The extent to which COVID-19 could impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, and will depend on many factors, including the duration of the outbreak, the effect of travel restrictions and social distancing efforts in the United States and other countries, the scope and length of business closures or business disruptions, and the actions taken by governments to contain and treat the disease. As such, we cannot presently predict the scope and extent of any potential business shutdowns or disruptions. Possible effects may include, but are not limited to, disruption to our customers and revenue, absenteeism in our labor workforce, unavailability of products and supplies used in our operations, shutdowns that may be mandated or requested by governmental authorities, and a decline in the value of our assets, including various long-lived assets.

Item 1B.

UNRESOLVED SEC COMMENTS

None.

Item 2.

PROPERTIES

Corporate Offices and Distribution Center Facility

As of January 30, 2021, we leased the following office and distribution facilities:

Location	Square Footage	Owned or Leased	Use
Spokane, WA	30,700	Leased	Office administration
Spokane, WA	32,000	Leased	Distribution center

The distribution center supports the distribution to outside distribution facilities for sale on third-party marketplaces for Kaspien.

Item 3.

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.

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 have agreed on terms to resolve the matter fully and finally, and the appeal will be dismissed without material impact on the financial results of the Company.

In the event the Court of Appeals reinstates the case, the Company believes it has meritorious defenses to the plaintiffs’ claims and will vigorously defend the action.

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. Notices of the settlement have been issued to class members, and the settlement claims process is currently ongoing.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information: The Company’s Common Stock trades on the NASDAQ Capital Market under the symbol “KSPN.” As of April 15, 2021, there were 296 shareholders of record. The following table sets forth high and low last reported sale prices for each fiscal quarter during the period from February 3, 2019 through April 25, 2021.

	Closing Sales Prices

	High		Low
2019
1^st Quarter	$	12.48	$	5.77
2^nd Quarter	$	8.01	$	5.00
3^d Quarter	$	6.08	$	2.74
4^th Quarter	$	6.98	$	1.92

2020
1^st Quarter	$	5.35	$	2.39
2^nd Quarter	$	8.14	$	3.62
3^d Quarter	$	12.38	$	6.51
4^th Quarter	$	52.15	$	10.00


2021
1^st Quarter (through April 15, 2021)	$	46.00	$	21.50

On April 15, 2021, the reported sale price on the Common Stock on the NASDAQ Capital Market was $26.91. On August 15, 2019, the Company completed a 1-for-20 reverse stock split of outstanding Common Stock. All closing prices reflect the reverse stock split.

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.

Dividend Policy: The Company did not pay cash dividends in fiscal 2020 and fiscal 2019. The declaration and payment of any dividends is at the sole discretion of the board of directors and is not guaranteed.

Issuer Purchases of Equity Securities during the Quarter Ended January 30, 2021

During the three-month period ended January 30, 2021, the Company did not repurchase any shares under a share repurchase program.

Item 6.

SELECTED CONSOLIDATED FINANCIAL DATA

Not required under the requirements of a Smaller Reporting Company.

Item 7.

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 provide information that the Company’s management believes necessary to achieve an understanding of its financial condition 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 for the Company’s products and services; general economic factors in markets where the Company’s products and services are sold; and other factors including, but not limited to: cost of goods, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, interest rates, customer preferences, unemployment, labor costs, inflation, fuel and energy prices, weather patterns, climate change, catastrophic events, competitive pressures and insurance costs discussed in the Company’s filings with the Securities and Exchange Commission.

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.

Following the FYE Transaction, Kaspien is the Company’s only operating segment.

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.

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.

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, 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’ 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 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.

Key Performance Indicators

Management monitors a number of key performance indicators to evaluate its performance, including:

Net Revenue: The Company measures total year over year sales growth. Net sales performance is measured through several key performance indicators including number of partners and 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 and distribution costs. Distribution expenses include those costs associated with receiving, inspecting & warehousing merchandise, Amazon fulfillment fees, and costs associated with product returns to vendors.

Selling, General and Administrative (“SG&A”) Expenses: Included in SG&A expenses are payroll and related costs, general operating and overhead expenses and depreciation charges. SG&A expenses also include miscellaneous income and expense items, other than interest.

Balance Sheet and Ratios: The Company views cash, merchandise inventory, accounts payable leverage, and working capital as key indicators of its financial position. See “Liquidity and Capital Resources” for further discussion of these items.

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.

Fiscal Year Ended January 30, 2021 (“fiscal 2020”)

Compared to Fiscal Year Ended February 1, 2020 (“fiscal 2019”)

The Company’s fiscal year is a 52 or 53-week period ending the Saturday nearest to January 31. Fiscal 2020 and fiscal 2019 ended January 30, 2021 and February 1, 2020, respectively. Both fiscal 2020 and fiscal 2019 had 52 weeks.

Net Revenue. Net revenue increased 18.8% to $158.3 million compared to $133.2 million in fiscal 2019. The primary source of revenue is the Retail as a Service (“RaaS”) model, which represented 99% of net revenue. As part of the Company’s diversification strategic initiative, net revenue from non-Amazon US marketplaces increased to 5.4% of net revenue from 3.4% of net revenue in the comparable period from the prior year. The increase was attributable to Amazon International, Walmart and Other Marketplaces. Subscriptions and Other share of net revenue increased to 0.8% of net revenue from 0.4% of net revenue in the comparable period from the prior year. The increase was attributable an increase in the number of partners and higher gross merchandise value (“GMV”) of partner revenue flowing through the platform Amazon Marketplace. The following table sets forth net revenue by marketplace as a percentage of total net revenue:

	January 30, 2021		February 1, 2020		Change
Amazon US	$	148,526	$	128,114	$	20,412
Amazon International		7,646		4,201		3,445
Walmart & Other Marketplaces		884		362		522
Subtotal Retail		157,056		132,677		24,379
Subscriptions & Other		1,289		539		750
Total	$	158,345	$	133,216	$	25,129

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.

Annual platform GMV for fiscal year 2020 was $246 million. Fourth quarter 2020 GMV increased 86% to $73.9 million, compared to $39.7 million in the comparable year-ago period. Subscription GMV increased 886% to $26.9 million (36.3% of total GMV), compared to $2.7 million (6.9%% of total GMV) in the same year-ago period.

Gross Profit. Gross profit as a percentage of revenue was 10.3% in fiscal 2020 as compared to 8.1% in fiscal 2019. The increase in the gross profit rate was primarily due to an increase in merchandise margin to 46.4% in fiscal 2020 as compared to 46.1% in fiscal 2019 and the leveraging of fulfillment fees and commissions and warehousing and freight expenses on the higher sales. The following table sets forth a year-over-year comparison of the Company’s gross profit:

							Change
(amounts in thousands)	January 30, 2021			February 1, 2020			$			%

Merchandise margin	$	73,448		$	61,379		$	12,069		19.7	%
% of net revenue		46.4	%		46.1	%		0.3	%

Fulfillment fees and commissions		(49,158	)		(42,530	)		(6,628	)	15.6	%
Warehousing and freight		(7,986	)		(7,998	)		12		0.2	%
Gross profit	$	16,304		$	10,851		$	5,453		50.3	%

% of net revenue		10.3	%		8.1	%

Selling, General and Administrative Expenses. The following table sets forth a year-over-year comparison of the Company’s SG&A expenses:

							Change
(amounts in thousands)	January 30, 2021			February 1, 2020			$			%

Kaspien SG&A expenses	$	16,540		$	16,491		$	49		0.3	%
Corporate SG&A expenses		5,489			8,591			(3,102	)	(36.1	%)
Total SG&A expenses	$	22,029		$	25,082		$	(3,053	)	(12.2	%)

As a % of total revenue		13.9	%		18.8	%

SG&A expenses decreased $3.1 million, or 12.2%, primarily due to a 36% reduction in in Corporate SG&A expenses. SG&A expenses for Kaspien increased $49,000.

SG&A expenses as a percentage of net revenue decreased to 13.9% as compared to 18.8% in fiscal 2019. The decrease in the rate as a percentage of net revenue was primarily due to the decline in Corporate SG&A expenses and the leveraging of Kaspien SG&A expenses on the higher sales.

Depreciation and amortization expense. Consolidated depreciation and amortization expense increased $0.3 million.

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

Interest Expense. Interest expense in fiscal 2020 was $1.7 million, compared to interest income of $0.7 million in fiscal 2019.

Income Tax (Benefit) expense. The following table sets forth a year-over-year comparison of the Company’s income tax expense:

(amounts in thousands)							Change
	January 30, 2021			February 1, 2020				$

Income tax (benefit) expense	$	(3,542	)	$	44		$	(3,586	)

Effective tax rate		(47.6	%)		0.3	%		(47.9	%)

During fiscal 2020, based on the Company’s evaluation of new information that occurred in the current financial reporting period, the Company recorded an income tax benefit of $3.5 million related to the recognition of previously unrecognized income tax benefits pursuant to ASC 740-10-25, Accounting for Income Taxes – Recognition. Prior to the current financial reporting period, the Company had accrued the liabilities for unrecognized income tax benefits, including accrued interest and penalties related to tax positions created by the fye business. As a result of the FYE Transaction and a reorganization of the Company’s corporate structure, the Company will not utilize the tax attributes attributable to the tax positions and the corporate entities associated with the tax positions have been liquidated.

The fiscal 2019 income tax expense includes state taxes and the accrual of interest on the reserve for uncertain tax positions.

Loss From Discontinued Operations. For fiscal 2019, the Company recognized a loss from discontinued operations of $44.4 million related to the FYE Transaction.

See Note 2 to the Consolidated Financial Statements for more information on the loss from discontinued operations.

Net Loss. The following table sets forth a year-over-year comparison of the Company’s net loss:

(amounts in thousands)							Change
	January 30, 2021			February 1, 2020				$

Net loss	$	(3,892	)	$	(58,744	)	$	54,852

Net loss as a percentage of Net revenue		(2.5	%)		(44.1	%)

Net loss was $3.9 million for fiscal 2020, compared to $58.7 million for fiscal 2019. Included in the results for fiscal 2019 is a loss from the fye business of $44.4 million. The decrease in net loss was primarily due to improved loss from operations and the elimination of the loss from fye business.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Cash Flows:

The consolidated financial statements for the year ended January 30, 2021 were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and satisfy liabilities and commitments 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 continued implementation of the strategic initiative to reposition the Company as a platform of software and services, the availability of future funding and overcoming the impact of the COVID-19 pandemic.

The audited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The Company incurred net losses of $3.9 million and $58.7 million for the fiscal 2020 and fiscal 2019, respectively, and has an accumulated deficit of $112.9 million as of January 30, 2021. In addition, net cash used in operating activities during fiscal 2020 was $13.6 million. Net cash used in operating activities during fiscal 2019 was $15.8 million.

During the third quarter of fiscal 2019, in response to recurring losses from operations, the expectation of continuing operating losses, and uncertainty with respect to any available future funding, the Company pursued several strategic initiatives towards its strategy of shifting its focus solely to the operation of Kaspien, improving profitability and meeting future liquidity needs and capital requirements. Initiatives completed during the first quarter of fiscal 2020 include:

•

The sale of the For Your Entertainment (fye) business;

•

The establishment of a new secured $25 million revolving credit facility with Encina:

•

The execution of a separate subordinated loan agreement for Kaspien, Inc. (the “Subordinated Loan”); and

•

The receipt by Kaspien, Inc. of loan proceeds pursuant to the Paycheck Protection Plan under the Coronavirus Aid, Relief, and Economic Security Act.

The Company’s primary sources of liquidity are its borrowing capacity under its New 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.

In addition to the aforementioned current sources of existing working capital, the Company is continuing its efforts to generate additional sales and increase margins. There can be no assurance that any of the initiatives or strategic alternatives will be implemented, successful or consummated.

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

(amounts in thousands)		2020			2019			2020 vs. 2019
Operating Cash Flows		$	(13,391	)	$	(15,827	)	$	2,436
Investing Cash Flows			10,589			(2,696	)		13,285
Financing Cash Flows			505			13,149			(12,644	)

Capital Expenditures			(1,190	)		(2,823	)		1,633

End of Period Balances:
Cash, Cash Equivalents, and Restricted Cash	⁽¹⁾		6,555			8,852			(2,297	)
Merchandise Inventory			24,515			17,836			6,679
Working Capital			10,762			9,004			1,758

⁽¹⁾	Cash and cash equivalents per Consolidated Balance Sheets	$	1,809	$	2,977	(1,168	)
	Add: Restricted cash		4,746		5,875	(1,129	)
	Cash, cash equivalents, and restricted cash	$	6,555	$	8,852	(2,297	)

During fiscal 2020, cash used in operations was $13.4 million compared to $15.8 million in fiscal 2019. During 2020, cash used in operations consisted primarily of a net loss of $3.9 million, an increase of $6.7 million in inventory and the payment of $5.5 million in accounts payable partially offset by a decrease in prepaid expenses and accounts receivables. During 2019, cash used in operations consisted primarily of a net loss of $58.7 million offset by non-cash charges, including the $24.0 million impairment of long-lived assets, a $12.7 inventory net realizable adjustment and $11.5 million in depreciation and amortization and changes in operating assets and liabilities of $6.5 million. See the Consolidated Statement of Cash Flows for further detail.

The Company monitors various statistics to measure its management of inventory, including inventory turnover (annual cost of sales divided by average merchandise inventory balances), and accounts payable leverage (accounts payable divided by merchandise inventory). Inventory turnover measures the Company’s ability to sell merchandise and how many times it is replaced in a year. This ratio is important in determining the need for markdowns and planning future inventory levels and assessing customer response to our merchandise. Inventory turnover in fiscal 2020 and in fiscal 2019 was 4.0 and 3.3, respectively. Accounts payable leverage measures the percentage of inventory being funded by the Company’s product vendors. The percentage is important in determining the Company’s ability to fund its business. Accounts payable leverage on inventory for Kaspien was 36.3% as of January 30, 2021 compared with 29.2% as of February 1, 2020.

Cash provided by investing activities was $10.6 million in fiscal 2020, compared to cash used in investing activities of $2.7 million in fiscal 2019. During fiscal 2020, cash provided by investing activities consisted proceeds from the sale of the fye business of $11.8 million, partially offset by capital expenditures of $1.2 million. During fiscal 2019, cash used in investing activities consisted of $2.8 million in capital expenditures partially offset by a $127,000 capital distribution from a joint venture.

The Company has historically financed its capital expenditures through borrowings under its revolving credit facility and cash flow from operations. The Company anticipates capital spending of approximately $1.7 million in fiscal 2021.

Cash provided by financing activities was $505,000 in fiscal 2020, compared to $13.1 million in fiscal 2019. In fiscal 2020, cash provided by financing activities consisted of $6.3 million in proceeds from short term borrowings, $5.1 million in proceeds from long term borrowings, $2.0 million in proceeds from a PPP loan, partially offset by $13.1 million in payment of short-term borrowings. In fiscal 2019, cash provided by financing activities was primarily comprised of net short-term borrowings.

Off-Balance Sheet Arrangements. The Company has no off-balance sheet arrangements as defined by Item 303 (a) (4) of Regulation S-K.

Related Party Transactions.

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 following agreements with the Company entered into on March 30, 2020:

•

Subordinated Loan and Security Agreement, pursuant to which the Related Party Entities made a $5.2 million secured term loan ($2.7 million from Alimco, $0.5 million from Kick-Start, and $2.0 million from RJHDC) to Kaspien with a scheduled maturity date of May 22, 2023, interest accruing at the rate of twelve percent (12%) per annum and compounded on the last day of each calendar quarter by becoming a part of the principal amount, and secured by a second priority security interest in substantially all of the assets of the Company and Kaspien;

•

Common Stock Purchase Warrants (“Warrants”), pursuant to which 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 April 15, 2021, 236,993 warrants were exercised by the Related Party Entities and 7,539 remained outstanding;

•

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; and

•

Voting Agreement (the “Voting Agreement”), pursuant to which the Related Party Entities, the Trust, Mr. Simpson and their respective related entities agreed to how their respective shares of the Company’s capital stock held by the parties will be voted with respect to the designation, election, removal, and replacement of members of the Board. Pursuant to the Voting Agreement, Messrs. Marcus and Simpson were appointed as directors of the Company, and Mr. Reickert, a trustee of the Trust, remained as a director of the Company. Mr. Subin was also granted board observer rights.

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 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. Note 1 of the Notes to the Consolidated Financial Statements in this report includes a summary of the significant accounting policies and methods used by the Company in the preparation of its consolidated financial statements. Management believes that of the Company’s significant accounting policies and estimates, the following involve a higher degree of judgment or complexity:

Merchandise Inventory and Return Costs. Merchandise inventory is stated at the lower of cost or net realizable value under the average cost method. Inventory valuation requires significant judgment and estimates, including obsolescence and any adjustments to net realizable value, if net realizable value is lower than cost. For all merchandise categories, the Company records obsolescence and any adjustments to net realizable value (if lower than cost) based on current and anticipated demand, customer preferences, and market conditions.

Long-Lived Assets other than Goodwill: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset over its remaining useful life. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is generally measured based on discounted estimated future cash flows. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the lower of the carrying amount or fair value less disposition costs. As of January 30, 2020, for the purposes of the asset impairment test, the Company has one asset grouping.

During fiscal 2019, the Company concluded, based on continued operating losses for the Kaspien that a triggering event had occurred, and pursuant to FASB ASC 360, Property, Plant, and Equipment, an evaluation of the Kaspien fixed assets and intangible assets for impairment was required. For fiscal 2019, intangible assets related to vendor relationships were fully impaired resulting in the recognition of asset impairment charges of $0.8 million.

Recently Issued Accounting Pronouncements.

The information set forth above may be found under Notes to Consolidated Statements, Note 4.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under the requirements of a Smaller Reporting Company.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Exhibits and financial statement schedules to the Company’s Consolidated Financial Statements is included in Item 15, and the Consolidated Financial Statements follow the signature page to this report and are incorporated herein by reference.

The quarterly results of operations are included herein in Note 16 of Notes to the Consolidated Financial Statements in this report.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.

CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that the Company’s disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and as of the end of the period covered by this annual report, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit, under the Exchange Act, is recorded, processed, summarized, as appropriate, to allow timely decisions regarding required disclosure and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management including the principal executive officer and principal financial officer.

Management’s Report on Internal Control Over Financial Reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d – 15(f) under the Exchange Act, as amended). Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of January 30, 2021.

Changes in Controls and Procedures: As of January 30, 2021, there have been no changes in the Company’s internal controls over financial reporting that occurred during fiscal 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Item 9B.

OTHER INFORMATION

No events have occurred which would require disclosure under this Item 9B.

PART III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item is incorporated by reference from the information to be included in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A with the SEC on or about May 30, 2021, which information is incorporated by reference.

Item 11.

EXECUTIVE COMPENSATION

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Certain information required by this item is incorporated by reference from the information to be included in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A with the SEC on or about May 30, 2021, which information is incorporated by reference.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

15(a) (1) Financial Statements

The Consolidated Financial Statements and Notes are listed in the Consolidated Financial Statements on page F-1 of this report.

15(a) (2) Financial Statement Schedules

Consolidated Financial Statement Schedules not filed herein have been omitted as they are not applicable or the required information or equivalent information has been included in the Consolidated Financial Statements or the notes thereto.

15(a) (3) Exhibits

Exhibits are as set forth in the “ Index to Exhibits” which follows the Notes to the Consolidated Financial Statements and immediately precedes the exhibits filed.

Item 16.

Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KASPIEN HOLDINGS INC.
Date: April 30, 2021	By: /s/ Kunal Chopra
	Kunal Chopra Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Kunal Chopra		April 30, 2021
(Kunal Chopra)	Principal Executive Officer

/s/ Edwin Sapienza	Chief Financial Officer	April 30, 2021
(Edwin Sapienza)	(Principal Financial and Chief Accounting Officer)

/s/ Jonathan Marcus
(Jonathan Marcus)	Director	April 30, 2021

/s/ Michael Reickert
(Michael Reickert)	Director	April 30, 2021

/s/ Tom Simpson
(Tom Simpson)	Director	April 30, 2021

KASPIEN HOLDINGS INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

	Form 10-K Page No.


Reports of Independent Registered Public Accounting Firm	25

Consolidated Financial Statements

Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020	27

Consolidated Statements of Operations - fiscal years ended January 30, 2021 and February 1, 2020	28

Consolidated Statements of Comprehensive Loss - fiscal years ended January 30, 2021 and February 1, 2020	29

Consolidated Statements of Shareholders’ Equity - fiscal years ended January 30, 2021 and February 1, 2020	30

Consolidated Statements of Cash Flows - fiscal years ended January 30, 2021 and February 1, 2020	31

Notes to Consolidated Financial Statements	32

Index

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Kaspien Holdings, Inc. (f/k/a Trans World Entertainment Corporation)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Kaspien Holdings, Inc. and subsidiaries (“the Company”) as of January 30, 2021, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the fiscal year ended January 30, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021, and the results of its operations and its cash flows for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of inventory costs and reserves

Description of the Critical Audit Matter

As discussed in Note 1 to the financial statements, the Company periodically assess and estimates its allowances and reserves for stagnant, unfulfillable, or obsolete inventory based on current and anticipated demand, customer preference, or market conditions. Also discussed in Note 1 to the financial statements, the cost of inventory includes certain costs associated with preparation of inventory for resale, including inbound freight and handling costs. The recognition and evaluation of inventory costs and reserves involves significant complexity and judgment in applying the relevant accounting standards when auditing management’s estimates and conclusions on inventory transactions.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures to evaluate management’s calculation of capitalized inventory costs and reserves included, among other procedures, the following:

•

We evaluated the appropriateness and consistency of management’s methods and assumptions used in the identification, recognition, and measurement of the inventory costs and reserves in considering applicable generally accepted accounting standards.

•

We tested the significant inputs, sampled underlying transactions, and analyzed historical trends associated with management’s reserve estimates and recognition of inbound costs.

•

We evaluated whether management had appropriately considered new information that could significantly change the measurement or disclosure of the inventory valuation, and evaluated the disclosures related to the financial statement impacts of the transactions.

/s/ Fruci & Associates II, PLLC

We have served as the Company’s auditor since 2020.

Spokane, Washington

April 30, 2021

Index

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Kaspien Holdings Inc.

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the changes in accounting described in Note 1 – Nature of Operations and Summary of Significant Accounting Policies (Segment Information) and Note 2 – Discontinued Operations, the consolidated balance sheet of Kaspien Holdings Inc. (f/k/a Trans World Entertainment Corporation) and subsidiaries (the Company) as of February 1, 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the fiscal year ended February 1, 2020, and the related notes (collectively, the consolidated financial statements). The 2020 consolidated financial statements before the effects of the adjustments described in Note 1 – Nature of Operations and Summary of Significant Accounting Policies (Segment Information) and Note 2 – Discontinued Operations are not presented herein. In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively apply the changes in accounting described in Note 1 – Nature of Operations and Summary of Significant Accounting Policies (Segment Information) and Note 2 – Discontinued Operations, present fairly, in all material respects, the financial position of the Company as of February 1, 2020, and the results of its operations and its cash flows for the fiscal year ended February 1, 2020, in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the changes in accounting described in Note 1 – Nature of Operations and Summary of Significant Accounting Policies (Segment Information) and Note 2 – Discontinued Operations and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company continues to experience recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG LLP

We served as the Company’s auditor from 1994 to 2020.

Albany, New York
June 15, 2020

Index

KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share amounts)

	January 30, 2021		February 1, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,809	$	2,977
Restricted cash		1,184		950
Accounts receivable		2,718		4,139
Merchandise inventory		24,515		17,836
Prepaid expenses and other current assets		564		2,974
Assets held for discontinued operations		-		51,189
Total current assets		30,790		80,065

Restricted cash		3,562		4,925
Fixed assets, net		2,268		2,190
Operating lease right-of-use assets		2,742		3,311
Intangible assets, net		732		1,760
Cash surrender value		3,856		3,353
Other assets		1,342		2,202
TOTAL ASSETS	$	45,292	$	97,806

LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	8,894	$	14,447
Short-term borrowings		6,339		13,149
Accrued expenses and other current liabilities		2,512		3,521
Current portion of operating lease liabilities		596		534
Current portion of PPP loan		1,687		-
Liabilities held for discontinued operations		-		39,410
Total current liabilities		20,028		71,061

Operating lease liabilities		2,258		2,204
PPP loan		330		-
Long-term debt		5,000		-
Other long-term liabilities		16,187		20,026
TOTAL LIABILITIES		43,803		93,291

SHAREHOLDERS’ EQUITY

SEC Form 10-K filed by Kaspien Holdings Inc.