10-Q 1 ef20012460_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

 ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2023
or
 

 ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 130
Spokane Valley, WA
  
99216
Address of Principal Executive Offices
  
Zip Code
 
(509)-900-6287
Registrant’s Telephone Number, Including Area Code

 
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
KSPN
 OTCQB

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒    No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒    No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
 
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐     No ☒
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.      Yes ☐    No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Common Stock, $.01 par value,
4,969,738 shares outstanding as of December 10, 2023
Kaspien Holdings Inc.

KASPIEN HOLDINGS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Form 10-Q
Page No.
PART I. FINANCIAL INFORMATION
 
 
 
Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited)
 
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
 
9
 
 
24
 
 
33
 
 
33
 
 
PART II.  OTHER INFORMATION
 
 
 
34
 
 
34
 
 
34
 
 
34
 
 
34
 
 
34
 
 
34
 
 
36

2
FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, particularly in the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding our ability to achieve profitability and meet future liquidity needs and capital requirements, future business, future results of operations or financial condition, and our business strategies. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “aim,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “predict,” “project,” “seek,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. Such risks and uncertainties include, among others, those risks discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10‑K, which was filed with the Securities and Exchange Commission (the “SEC”) on April 28, 2023 (the “2022 Form 10-K”), and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2022 Form 10‑K, this quarterly report on Form 10-Q and our other filings with the SEC. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. The forward-looking statements contained in this quarterly report on Form 10-Q are made only as of the date hereof, and we do not intend, and, except as required by law, we undertake no obligation to update any forward-looking statements contained herein after the date of this report to reflect actual results or future events or circumstances.

3
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 1 - Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Going Concern Basis)
(in thousands, except per share and share amounts)
(unaudited)

   
October 28,
    
January 28,
    
October 29,
  
   
2023
    
2023
    
2022
  
ASSETS  
Unaudited
          
Unaudited
  
CURRENT ASSETS
                  
Cash and cash equivalents
  
$
405
    
$
1,130
    
$
769
  
Restricted cash
    
1,158
      
1,158
      
1,158
  
Accounts receivable
    
1,572
      
1,969
      
2,796
  
Merchandise inventory
    
24,044
      
26,704
      
37,353
  
Prepaid expenses and other current assets
    
419
      
999
      
706
  
Total current assets
    
27,598
      
31,960
      
42,782
  
                         
Restricted cash
    
1,063
      
1,338
      
1,601
  
Fixed assets, net
    
1,637
      
1,999
      
2,140
  
Operating lease right-of-use assets
    
1,015
      
1,505
      
1,678
  
Cash Surrender Value
    
4,042
      
3,371
      
3,563
  
Other assets
    
566
      
566
      
682
  
TOTAL ASSETS
  
$
35,921
    
$
40,739
    
$
52,446
  
                         
LIABILITIES
                        
CURRENT LIABILITIES
                        
Accounts payable
  
$
5,705
    
$
7,044
    
$
12,648
  
Short-term borrowings
    
8,874
      
8,812
      
9,494
  
Short-term debt
     11,748       -       -  
Accrued expenses and other current liabilities
    
3,194
      
2,876
      
1,962
  
Current portion of operating lease liabilities
    
652
      
695
      
634
  
Total current liabilities
    
30,173
      
19,427
      
24,738
  
                         
Operating lease liabilities
    
588
      
1,019
      
1,253
  
Long-term debt
    
-
      
9,790
      
9,163
  
Other long-term liabilities
    
11,158
      
11,604
      
13,590
  
TOTAL LIABILITIES
    
41,919
      
41,840
      
48,744
  
                         
SHAREHOLDERS’ EQUITY (Deficit)
                        
Preferred stock  ($0.01 par value; 5,000,000 shares authorized; none issued)
    
-
      
-
      
-
  
Common stock ($0.01 par value; 200,000,000 shares authorized; 5,437,197 5,432,072 and 5,322,363 shares issued, respectively)
    
54
      
54
      
53
  
Additional paid-in capital
    
214,212
      
214,029
      
213,992
  
Treasury stock at cost (467,069, 467,459 and 1,410,378 shares, respectively)
    
(76,132
)
    
(76,132
)
    
(76,132
)
Accumulated other comprehensive loss
    
886
      
886
      
(910
)
Accumulated deficit
    
(145,018
)
    
(139,938
)
    
(133,301
)
TOTAL SHAREHOLDERS’ EQUITY (Deficit)
    
(5,998
)
    
(1,101
)
    
3,702
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (Deficit)
  
$
35,921
    
$
40,739
    
$
52,446
  

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

4
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Going Concern Basis)
(amounts in thousands)
(unaudited)

   
Thirteen Weeks Ended
    
Thirty-nine Weeks Ended
  
   
October 28,
    
October 29,
    
October 28,
    
October 29,
 
    2023
    2022     2023
     2022
  
                         
Net revenue
  
$
26,434
    
$
29,145
     $ 92,502     $ 94,843  
                                 
Cost of sales
    
20,318
      
22,570
       71,615       74,688  
Gross profit
    
6,116
      
6,575
       20,887       20,155  
Selling, general and administrative expenses
    
6,928
      
9,255
       23,888       29,975  
Loss from operations
    
(812
)
    
(2,680
)
     (3,001 )     (9,820 )
Interest expense
    
966
      
881
       2,814       2,544  
Other income
     (9 )     -       (786 )     -  
Loss before income tax expense
    
(1,769
)
    
(3,561
)
     (5,029 )     (12,364 )
Income tax expense
    
-
      
-
       51       43  
Net loss
  

(1,769
)
  

(3,561
)
  
(5,080 )  
(12,407 )
BASIC AND DILUTED LOSS PER SHARE:
                                
Basic and diluted loss per common share
   $ (0.36 )   $ (0.92 )   $ (1.02 )   $ (4.15 )
Weighted average number of common shares outstanding – basic and diluted
     4,968       3,865       4,966       2,990  

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

5
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Going Concern Basis)
(amounts in thousands)
(unaudited)

   
Thirteen Weeks Ended
     Thirty-nine Weeks Ended
  
   
October 28,
    
October 29,
    
October 28,
   
October 29,
 
    2023
     2022
     2023
     2022
  
                         
Net loss
  
$
(1,769
)
  
$
(3,561
)
   $ (5,080 )   $ (12,407 )
Amortization of pension gain
    
-
      
-
       -       -  
Comprehensive loss
  
$
(1,769
)
  
$
(3,561
)
   $ (5,080 )   $ (12,407 )

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

6
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Going Concern Basis)
(dollars and shares in thousands)
(unaudited)

    Thirteen Weeks Ended October 28, 2023  
   
Number of shares outstanding
              
Accumulated
  
Retained
      
               
Additional
  
Treasury
  
Other
  
Earnings
  
Shareholders’
  
   
Common
  
Treasury
  
Common
  
Paid-in
  
Stock
  
Comprehensive
  
(Accumulated
  
Equity
 
   
Shares
  
Shares
  
Stock
  
Capital
  
At Cost
  
Loss
  
Deficit)
  
(Deficit)
  
Balance as of July 29, 2023
    
5,432
      
(467
)
  
$
54
    
$
214,160
    
$
(76,132
)
  
$
886
    
$
(143,250
)
  
$
(4,281
)
Net Loss
    
-
      
-
      
-
      
-
      
-
      
-
      
(1,769
)
    
(1,769
)
Vested restricted shares
    5       -       -       -       -       -       -       -  
Amortization of unearned compensation/restricted stock amortization
    
-
      
-
      
-
      
52
      
-
      
-
      
-
      
52
  
Balance as of October 28, 2023
    
5,437
    
$
(467
)
  
$
54
    
$
214,212
    
$
(76,132
)
  
$
886
    
$
(145,019
)
  
$
(5,998
)

   
Thirty-nine Weeks Ended October 28, 2023
  
   
Number of shares outstanding
              
Accumulated
  
Retained
      
               
Additional
  
Treasury
  
Other
  
Earnings
  
Shareholders’
  
   
Common
  
Treasury
  
Common
  
Paid-in
  
Stock
  
Comprehensive
  
(Accumulated
  
Equity
  
   
Shares
  
Shares
  
Stock
  
Capital
  
At Cost
  
Loss
  
Deficit)
  
(Deficit)
  
Balance as of January 28, 2023
    
5,432
      
(467
)
  
$
54
    
$
214,029
    
$
(76,132
)
  
$
886
    
$
(139,938
)
  
$
(1,101
)
Net Loss
    
-
      
-
      
-
      
-
      
-
      
-
      
(5,080
)
    
(5,080
)
Vested restricted shares
    5       -       -       -       -       -       -       -  
Amortization of unearned compensation/restricted stock amortization
    
-
      
-
      
-
      
183
      
-
      
-
      
-
      
183
  
Balance as of October 28, 2023
    
5,437
    
$
(467
)
  
$
54
    
$
214,212
    
$
(76,132
)
  
$
886
    
$
(145,019
)
  
$
(5,998
)

   
Thirteen Weeks Ended October 29, 2022
  
   
Number of shares outstanding
              
Accumulated
  
Retained
      
               
Additional
  
Treasury
  
Other
  
Earnings
      
   
Common
  
Treasury
  
Common
  
Paid-in
  
Stock
  
Comprehensive
  
(Accumulated
  
Shareholders’
  
   
Shares
  
Shares
  
Stock
  
Capital
  
At Cost
  
Loss
  
Deficit)
  
Equity
  
Balance as of July 30, 2022    
3,912
      
(772
)
  
$
39
    
$
263,723
    
$
(125,906
)
  
$
(910
)
  
$
(129,740
)
  
$
7,206
  
Net Loss
    
-
      
-
      
-
      
-
      
-
      
-
      
(3,561
)
    
(3,561
)
Issuance of warrants
    -       -       -       -       -       -       -       -  
Exercise of warrants
    1,403       305       14       (49,788 )     49,774       -       -       -  
Vested restricted shares
    7       -       -       1       -       -       -       1  
Amortization of unearned compensation/restricted stock amortization
    
-
      
-
      
-
      
57
      
-
      
-
      
-
      
57
  
Balance as of October 29, 2022
    
5,322
    
$
(467
)
  
$
53
    
$
213,992
    
$
(76,132
)
  
$
(910
)
  
$
(133,301
)
  
$
3,702
  

 
Thirty-nine Weeks Ended October 29, 2022
  
 
Number of shares outstanding
              
Accumulated
  
Retained
      
             
Additional
  
Treasury
  
Other
  
Earnings
      
 
Common
  
Treasury
  
Common
  
Paid-in
  
Stock
  
Comprehensive
  
(Accumulated
  
Shareholders’
  
 
Shares
  
Shares
  
Stock
  
Capital
  
At Cost
  
Loss
  
Deficit)
  
Equity
  
Balance as of January 29, 2022
    
3,903
      
(1,410
)
  
$
39
    
$
359,220
    
$
(230,170
)
  
$
(910
)
  
$
(120,894
)
  
$
7,285
  
Net Loss
    
-
      
-
      
-
      
-
      
-
      
-
      
(12,407
)
    
(12,407
)
Issuance of shares, net of expenses
     -       638       -       (97,127 )     104,264       -       -       7,137  
Issuance of warrants
     -
       -
       -       1,518       -       -       -       1,518  
Exercise of warrants
    1,403       305       14       (49,788 )     49,774       -       -       -  
Vested restricted shares
    7       -       -       1       -       -       -       1  
Common stock issued- Director grants
    9       -       -       41       -       -       -       41  
Amortization of unearned compensation/restricted stock amortization
    
-
      
-
      
-
      
128
      
-
      
-
      
-
      
128
  
Balance as of October 29, 2022
    
5,322
      
(467
)
  
$
53
    
$
213,992
    
$
(76,132
)
  
$
(910
)
  
$
(133,301
)
  
$
3,702
  

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

7
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Going Concern Basis)
(amounts in thousands)
(unaudited)

    Thirty-nine Weeks Ended
  
   
October 28,
    
October 29,
  
    2023
     2022
  
OPERATING ACTIVITIES:
            
Net loss
  
$
(5,080
)
  
$
(12,407
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation of fixed assets
    
535
      
961
  
Stock-based compensation
    
184
      
169
  
Amortization of ROU asset
     490       466  
Amortization of warrant interest
     786       766  
Interest on long term debt
    
1,172
      
849
  
Change in cash surrender value
    
(671
)
    
591
  
Changes in operating assets and liabilities that provide (use) cash:
                
Accounts receivable
    
398
      
(461
)
Merchandise inventory
    
2,659
      
(8,075
)
Prepaid expenses and other current assets
    
580
      
(56
)
Other long-term assets
    
-
      
283
  
Accounts payable
    
(1,340
)
    
6,377
  
Accrued expenses and other current liabilities
    
274
      
(706
)
Other long-term liabilities
    
(877
)
    
(951
)
Net cash used in operating activities
    
(890
)
    
(12,194
)
                 
INVESTING ACTIVITIES:
                
Purchases of fixed assets
     (173 )     (766 )
Net cash provided by (used in) investing activities
     (173 )     (766 )
                 
FINANCING ACTIVITIES:
                
Payments of short term borrowings
     (8,812 )     (9,966 )
Proceeds from long term borrowings
    
-
      
5,000
  
Proceeds from short term borrowings
    8,874       9,494  
Proceeds from issuance of shares, net of expense
     -       7,137  
Net cash provided by (used in) financing activities
    
62
      
11,665
  
                 
Net increase (decrease) in cash, cash equivalents, and restricted cash
    
(1,001
)
    
(1,295
)
Cash, cash equivalents, and restricted cash, beginning of period
    
3,626
      
4,823
  
Cash, cash equivalents, and restricted cash, end of period
  
$
2,625
    
$
3,528
  
                 
Supplemental disclosures and non-cash investing and financing activities:
               
Interest paid
  $ 747
     $ 461  
Warrants issued with debt
  $ -     $ 1,633  

See Accompanying Notes to Interim Condensed Consolidated Financial Statements.

8
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 28, 2023 and October 29, 2022
Note 1. Nature of Operations

Kaspien Holdings Inc., which, together with its consolidated subsidiaries, is referred to herein as “Kaspien”, “the Company”, “we”, “us” and “our”, was incorporated in New York in 1972. We own 100% of the outstanding common stock of Kaspien Inc, through which our principal operations are conducted. Kaspien is a third-party marketplace retailer. The Company leverages in-house expertise, technology, and services to generate revenue through marketplace transactions. Kaspien provides account management, brand development, listings management, data reporting, joint business planning, and comprehensive marketing support services to our vendor partners. Our target partners are enterprise-level large growth brands that derive margins based on pricing.

Liquidity and Cash Flows:


The Company’s primary sources of liquidity are its borrowing capacity under its Credit Facility and available cash and cash equivalents. The Company incurred a net loss of $5.1 million and $12.4 million for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.  The decrease in the net loss was primarily attributable to an increase gross margin and a decrease in selling, general and administrative Expenses. In addition, the Company has an accumulated deficit of $145.0 million as of October 28, 2023 and net cash used in operating activities for the thirty-nine weeks ended October 28, 2023 was $0.9 million. Net cash used in operating activities for the thirty-nine weeks ended October 29, 2022 was $12.2 million.



As disclosed in the Company's Annual Report on Form 10-K filed April 28, 2023, the Company experienced negative cash flows from operations during fiscal 2022 and 2021 and we expect to incur net losses in fiscal 2023.



Subsequent to the balance sheet date, after an assessment of its current cash and liquidity position and near-term debt maturities, the Company has initiated a plan to wind down the Company’s operations in an orderly fashion (the “Plan”), which is expected to be substantially complete by May 1, 2024.  The Plan includes the following:


 
•
The sell through of current on hand inventory through the current channels;
 
•
the collection of outstanding receivables due to the Company;
 
•
a reduction in force of substantially all of our employees other than a core group of employees.  We expect to substantially complete the workforce reduction prior to the end of January 2024;
 
•
marketing for sale of unrecognized assets including private label brands, trademarks and other intangible assets; and
 
•
the settlement of all liabilities of the Company.


During the duration of the Plan, the Board may authorize the Company to pay all costs and expenses, including without limitation, retention and severance expenses, professional and other fees and expenses of persons rendering services, including legal counsel, accountants and tax advisors, to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of the plan. The Company intends to wind down its operations in an orderly manner without the need for a bankruptcy filing.



As a result of the approval of the Plan, the Company adopted the Liquidation Basis of Accounting. This basis of accounting is considered appropriate when, among other things, liquidation of the Company is imminent, as defined in ASC 205-30 “Presentation of Financial Statements – Liquidation Basis of Accounting”.  Under the Liquidation Basis of Accounting the following financial statements are no longer presented (except for periods prior to the adoption of the Liquidation Basis of Accounting): a consolidated condensed balance sheet, a consolidated condensed statement of operations and comprehensive loss and a consolidated condensed statement of cash flows. The consolidated condensed statement of net assets and the consolidated condensed statement of changes in net assets are the principal financial statements presented under the Liquidation Basis of Accounting.

9

Under the Liquidation Basis of Accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. These amounts are presented in the accompanying consolidated condensed statement of net assets.  These estimates will be periodically reviewed and adjusted as appropriate.  There can be no assurance that these estimated values will be realized.  Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution.  The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan.  The actual values and costs associated with carrying out the Plan are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty.  These differences may be material.  In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan.



The table below represents a Consolidated Condensed Statement of Net Assets presented on a liquidation basis:



CONSOLIDATED CONDENSED STATEMENT OF NET ASSETS

(Liquidation Basis)

(in thousands, except per share and share amounts)

(unaudited)


   
As of October 28, 2023
  
   
(unaudited)
  
Cash and cash equivalents and restricted cash
  
$
6,668
  
Accounts receivable
    
1,017
  
Inventory
    
17,497
  
Prepaid expenses and other
    
20
  
Other assets
    
9
  
Accounts payable, trade and other
    
(5,704
)
Short-term borrowings
    
(8,874
)
Short-term debt
    
(11,748
)
Accrued liquidation and other expenses
    
(5,067
)
Other long-term liabilities
    
(11,158
)
Operating lease liabilities
    
(1,240
)
NET ASSETS IN LIQUIDATION
  
$
(18,580
)

10
The table below presents the Consolidated Condensed Statement of Changes in Net Assets as of October 28, 2023:



KASPIEN HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN NET ASSETS

(Liquidation Basis)

(in thousands, except per share and share amounts)

(unaudited)


STOCKHOLDERS' DEFICIT AT OCTOBER 28, 2023 ON A GOING CONCERN BASIS
  
$
(5,998
)
         
Effects of adopting the liquidation basis of accounting:
        
Change in net realizable value of prepaid expenses
    
(399
)
Change in net realizable value of inventory
    
(6,547
)
Change in net realizable value of fixed assets
    
(1,637
)
Change in net realizable value of other assets
    
(557
)
Change in net realizable value of right of use assets
    
(1,015
)
Change in net realizable value of accounts receivable
    
(554
)
Accrued liquidation costs
    
(1,873
)
Total effects of adopting the liquidation basis of accounting
    
(12,582
)
NET ASSETS IN LIQUIDATION - OCTOBER 28, 2023
  
$
(18,580
)


11
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; and successful implementation of our strategy and planned activities. There can be no assurance that we will be successful in further implementing our business strategy or that the strategy, including the completed initiatives, will be successful in sustaining acceptable levels of sales growth and profitability. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The unaudited condensed consolidated financial statements for the thirty-nine weeks ended October 28, 2023 were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these unaudited condensed consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The ability of the Company to meet its liabilities and to continue as a going concern is dependent on improved profitability, the strategic initiatives for Kaspien and the availability of future funding. Based on recurring losses from operations, negative cash flows from operations, the expectation of continuing operating losses for the foreseeable future, and uncertainty with respect to any available future funding, the Company has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of October 28, 2023, we had cash and cash equivalents of $0.4 million, a net working deficit of $2.6 million, and $8.9 in borrowings on our revolving credit facility, as further discussed below.

As of January 28, 2023, the Company had borrowings of $8.8 million under the Credit Facility. As of October 28, 2023 and October 29, 2022, the Company had no outstanding letters of credit. The Company had $2.1 million and $7.7 million available for borrowing under the Credit Facility as of  October 28, 2023 and October 29, 2022, respectively.

Credit Facility
On February 20, 2020, Kaspien Inc. entered into a Loan and Security Agreement (as subsequently amended, the “Loan Agreement”) with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”), as administrative agent, under which the lenders party thereto committed to provide up to $25 million in loans under a four-year, secured revolving credit facility (the “Credit Facility”).

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


On April 7, 2021, the Loan Parties entered into Amendment No. 2 to the Loan Agreement (the “Second Amendment”. Pursuant to the Second Amendment, the In-Transit Inventory Sublimit (as defined in the Loan Agreement) was increased from $2,000,000 to $2,500,000.

12
On September 17, 2021, the Loan Parties entered into Amendment No. 3 to the Loan Agreement (the “Third Amendment”). Pursuant to the Third Amendment, among other things, (i) the maturity of the Credit Facility was extended to February 20, 2024, and the early termination fees were accordingly reset; (ii) the LIBOR floor was reduced to 1.00%; (iii) up to $4,000,000 of acquisitions are now allowed without Eclipse’s consent, subject to satisfaction of various conditions, including the Company having a trailing twelve month fixed charge coverage ratio of 1.20x and Excess Availability greater than the greater of (x) 20% of the average Borrowing Base for each 30 day period immediately prior to, and pro forma for, the purchase and (y) $1,500,000.


On March 2, 2022, the Loan Parties entered into Amendment No. 4 to the Loan Agreement (the “Fourth Amendment”). Pursuant to the Fourth Amendment, among other things, the Credit Facility was amended to permit the incurrence of the Additional Subordinated Loan (as defined below) under the Subordinated Loan Agreement (as defined below).



On November 1, 2022, the Loan Parties entered into Amendment No. 5 to the loan agreement (the “Fifth Amendment”). Pursuant to the Fifth Amendment, the Credit Facility was amended to replace LIBOR with the Secured Overnight Funding Rate (“SOFR”).

As of October 28, 2023 and October 29, 2022, the Company had borrowings of $8.9 and $9.5 million under the Credit Facility, respectively.

Subordinated Debt Agreement
On March 30, 2020, the Loan Parties entered into a Subordinated Loan and Security Agreement (the “Subordinated Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”) and TWEC Loan Collateral Agent, LLC (the “Collateral Agent”), as collateral agent for the Lenders, pursuant to which the Lenders made a $5.2 million secured term loan (the “Subordinated Loan”) to Kaspien with a scheduled maturity date of May 22, 2023. As of October 28, 2023, unamortized debt issuance costs of $0.1 million are included in “Long Term Debt” on the unaudited condensed consolidated balance sheet.

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


Amendment No. 2 to Subordinated Loan and Security Agreement

On March 2, 2022, the Loan Parties entered into that certain Amendment No. 2 to Subordinated Loan and Security Agreement (“Amendment No. 2”) with the “Lenders and the Collateral Agent. Pursuant to Amendment No. 2, among other things, Alimco Re Ltd. (the “Tranche B Lender”) made an additional $5,000,000 secured term loan (the “Additional Subordinated Loan”) with a scheduled maturity date of March 31, 2024, which is the same maturity date as the existing loans under the Subordinated Loan Agreement.

Interest on the Additional Subordinated Loan accrues, subject to certain terms and conditions under the Subordinated Loan Agreement, at the rate of fifteen percent (15.0%) per annum, compounded on the last day of each calendar quarter by becoming a part of the principal amount of the Additional Subordinated Loan.

13

The Additional Subordinated Loan is also secured by a second priority security interest in substantially all of the assets of the Loan Parties, including inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and guarantors under the Subordinated Loan Agreement. The Company will provide a limited guarantee of Kaspien’s obligations under the Additional Subordinated Loan.



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


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


The Loan Parties paid certain customary fees and expenses in connection with the Additional Subordinated Loan and Amendment No. 2.


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

Furthermore, broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds, should we require such additional funds.

Note 2. Basis of Presentation

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

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

14
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended January 28, 2023 contained in the Company's Annual Report on Form 10-K filed April 28, 2023. The results of operations for the thirteen weeks ended October 28, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year ending February 3, 2024.

The Company’s significant accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal year ended January 28, 2023.

Note 3. Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost. The model replaces the probable, incurred loss model for those assets and instead, broadens the information an entity must consider in developing its expected credit loss estimate for assets measured at amortized cost. This standard will be effective for smaller reporting companies for fiscal years beginning after December 15, 2022. We have completed our evaluation and have determined that the update will not have a material impact on our consolidated financial condition, results of operations, or cash flows.

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

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

Note 4. Depreciation and Amortization

Depreciation and amortization included in selling, general and administrative expenses of the interim condensed consolidated statements of operations for the thirteen weeks ended October 28, 2023 and October 29, 2022 was $0.2 million and $0.3 million, respectively.

Depreciation and amortization included in selling, general and administrative expenses of the interim condensed consolidated statements of operations for the thirty-nine weeks ended October 28, 2023 and October 29, 2022 was $0.5 million and $1.0 million, respectively.

15
Note 5. Restricted Cash

As a result of the death of its former Chairman, the Company holds $2.2 million in a rabbi trust, of which $1.2 million is classified as restricted cash in current assets and $1.0 million is classified as restricted cash in other assets on the accompanying interim condensed consolidated balance sheet as of October 28, 2023.

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

   
October 28,
    
January 28,
    
October 29,
  
     2023     2023     2022
 
Cash and cash equivalents
  
$
405
    
$
1,130
    
$
769
  
Restricted cash
    
2,220
      
2,496
      
2,759
  
Total cash, cash equivalents and restricted cash
  
$
2,625
    
$
3,626
    
$
3,528
  

Note 6.  Debt

Credit Facility
On February 20, 2020, Kaspien Inc. entered into a Loan and Security Agreement (as subsequently amended, the “Loan Agreement”) with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”), as administrative agent, under which the lenders party thereto committed to provide up to $25 million in loans under a four-year, secured revolving credit facility (the “Credit Facility”).

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

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

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

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

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

On March 30, 2020, the Company and Kaspien (the “Loan Parties”) entered into Amendment No. 1 to the Loan Agreement (the “Amendment”). Pursuant to the Amendment, among other things, (i) the Company was added as “Parent” under the Amended Loan Agreement, (ii) the Company granted a first priority security interest in substantially all of the assets of the Company, including inventory, accounts receivable, cash and cash equivalents and certain other collateral, and (iii) the Loan Agreement was amended to (a) permit the incurrence of certain subordinated indebtedness under the Subordinated Loan

16
Agreement (as defined below) and (b) limit the Company’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.
 
On April 7, 2021, Loan Parties entered into Amendment No. 2 to the Loan Agreement (the “Second Amendment”. Pursuant to the Second Amendment, the In-Transit Inventory Sublimit (as defined in the Loan Agreement) was increased from $2,000,000 to $2,500,000.

On September 17, 2021, the Loan Parties entered into Amendment No. 3 to the Loan Agreement (the “Third Amendment”). Pursuant to the Third Amendment, among other things, (i) the maturity of the Credit Facility was extended to February 20, 2024, and the early termination fees were accordingly reset; (ii) the LIBOR floor was reduced to 1.00%; (iii) up to $4,000,000 of acquisitions are now allowed without Eclipse’s consent, subject to satisfaction of various conditions, including the Company having a trailing twelve month fixed charge coverage ratio of 1.20x and Excess Availability greater than the greater of (x) 20% of the average Borrowing Base for each 30 day period immediately prior to, and pro forma for, the purchase and (y) $1,500,000.

On March 2, 2022, the Loan Parties entered into Amendment No. 4 to the Loan Agreement (“Fourth Amendment”). Pursuant to the Fourth Amendment, among other things, the Credit Facility was amended to permit the incurrence of the Additional Subordinated Loan (as defined below) under the Subordinated Loan Agreement (as defined below).

On November 1, 2022, the Loan Parties entered into Amendment No. 5 to the Loan Agreement (the “Fifth Amendment”). Pursuant to the Fifth Amendment, the Credit Facility was amended to replace LIBOR with the Secured Overnight Funding Rate (“SOFR”).

As of October 28, 2023, the Company had borrowings of $8.9 million under the Credit Facility. The Company had borrowings of $9.5 million as of October 29, 2022. As of October 28, 2023, unamortized debt issuance costs of $0.1 million related to the Credit Facility are included in Other assets on the unaudited condensed consolidated balance sheet.

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

Subordinated Loan Agreement

On March 30, 2020, the Loan Parties entered into a Subordinated Loan and Security Agreement (the “Subordinated Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”) and TWEC Loan Collateral Agent, LLC (the “Collateral Agent”), as collateral agent for the Lenders, pursuant to which the Lenders made a $5.2 million secured term loan (the “Subordinated Loan”) to Kaspien. On September 17, 2021, the Loan Parties entered into Amendment No. 1 to the Subordinated Loan Agreement which extended the maturity of the loan to March 31, 2024. As of October 28, 2022, unamortized debt issuance costs of $0.1 million are included in “Long-Term Debt” on the consolidated balance sheet.

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

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

17
Among other things, the Subordinated Loan Agreement limits the Loan Parties’ ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.
 
The Subordinated Loan Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, customary ERISA defaults, certain events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, change in control, cessation of business or the liquidation of material assets of the Second Lien Credit Facility Parties taken as a whole and the occurrence of an uninsured loss to a material portion of collateral.
 
In conjunction with the Subordinated Debt Agreement, the Company issued warrants to purchase up to 244,532 shares of Common Stock to the Related Party Entities (127,208 shares for Alimco, 23,401 shares for Kick-Start, and 93,923 shares for RJHDC), subject to adjustment in accordance with the terms of the Warrants, at an exercise price of $0.01 per share. As of October 28, 2023, 5,126 warrants remain outstanding.

The value of the warrants of $0.8 million was allocated against the principal proceeds of the Subordinated Debt Agreement, $0.1 million of which was unamortized as of October 28, 2023.

On March 2, 2022, the Loan Parties entered into that certain Amendment No. 2 to Subordinated Loan and Security Agreement (“Amendment No. 2”) the “Lenders and Collateral Agent. Pursuant to Amendment No. 2, among other things, Alimco Re Ltd. (the “Tranche B Lender”) made an additional $5,000,000 secured term loan (the “Additional Subordinated Loan”) with a scheduled maturity date of March 31, 2024, which is the same maturity date as the existing loans under the Subordinated Loan Agreement.

Interest on the Additional Subordinated Loan accrues, subject to certain terms and conditions under the Subordinated Loan Agreement, at the rate of fifteen percent (15.0%) per annum, compounded on the last day of each calendar quarter by becoming a part of the principal amount of the Additional Subordinated Loan.

The Additional Subordinated Loan is also secured by a second priority security interest in substantially all of the assets of the Loan Parties, including inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and guarantors under the Subordinated Loan Agreement. The Company will provide a limited guarantee of Kaspien’s obligations under the Additional Subordinated Loan.

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

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

18
In conjunction with the Subordinated Debt Agreement, the Company issued warrants to purchase up to 320,000 shares of common stock of the Company (subject to adjustment in accordance with the terms of the Warrants, the “Warrant Shares”) at an exercise price of $0.01 per share.  The Warrants are exercisable during the period commencing on March 2, 2022 and ending on the earlier of (a) 5:00 p.m. Eastern Standard Time on the five (5)-year anniversary thereof, or if such day is not a business day on the next succeeding business day, or (b) the occurrence of certain consolidations, mergers or similar extraordinary events involving the Company. As of October 28, 2023, all of the warrants remain outstanding.
 
The value of the warrants of $1.6 million was allocated against the principal proceeds of the Subordinated Debt Agreement, of which $0.5 million was unamortized as of October 28, 2023. The value of the warrants was recognized as a discount based on the relative fair value of the consideration received, as an offset to APIC, which will be amortized over the life of the loan.

Note 7. Stock Based Compensation

The Company has outstanding awards under four employee stock award plans: the 2005 Long Term Incentive and Share Award Plan; the Amended and Restated 2005 Long Term Incentive and Share Award Plan; the 2005 Long Term Incentive and Share Award Plan (as amended and restated April 5, 2017 (the “Old Plans”); and Kaspien Holdings Inc. 2005 Long Term Incentive and Share Award Plan (as amended and restated on August 2, 2022) (the “New Plan”). Collectively, these plans are referred to herein as the Stock Award Plans. The Company no longer issues stock options under the Old Plans.

Equity awards authorized for issuance under the New Plan total 500,000.  As of October 28, 2023, of the awards authorized for issuance under the Stock Award Plans, approximately 182,255 were granted and are outstanding, 35,979 of which were vested and exercisable. Shares available for future grants of options and other share-based awards under the New Plan as of January 28, 2023 were 398,762.
The following table summarizes stock award activity during the thirteen weeks ended October 28, 2023:

    Employee Stock Award Plans
 
   
Number of
Shares
Subject To
Option
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Other
Share
Awards (1)
    
Weighted
Average
Grant Fair
Value
 
Balance January 28, 2023
    
123,642
    
$
6.00
      
7.5
       19,500
     $ 18.35  
Granted
    
-
      
-
      
-
       60,000       0.61  
Forfeited
    
(12,637
)
    
(5.90
)
    
-
       (2,625 )     -  
Canceled
    
(500
)
    
(97.40
)
    
-
       -       -  
Exercised
    
-
      
-
      
-
       (5,125 )     -  
Balance October 28, 2023
    
110,505
    
$
6.01
      
8.1
       71,750     $ 4.96  
Exercisable October 28, 2023
    
35,979
    
$
13.06
      
6.7
       -       -  

 (1) Other Share Awards include deferred shares granted to executives and directors.

As of October 28, 2023, the intrinsic value of stock awards outstanding and stock awards exercisable was $0.

Note 8. Shareholders’ Equity

19
On July 12, 2022, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with a single institutional investor for a private placement offering (“Private Placement”) of the Company’s common stock (the “Common Stock”) or pre-funded warrants, with each pre-funded warrant exercisable for one share of Common Stock (the “Pre-Funded Warrants”), and warrants exercisable for one share of Common Stock (the “Investor Warrants”). Pursuant to the PIPE Purchase Agreement, the Company has agreed to issue and sell 1,818,182 shares (the “Shares”) of its Common Stock or Pre-Funded Warrants in lieu thereof together with Investor Warrants to purchase up to 2,457,160 shares of Common Stock. Each share of Common Stock and accompanying Investor Warrant will be sold together at a combined offering price of $3.30 per share.

As of October 28, 2023 all of the Prefunded Warrants were exercised in full.

The Investor Warrants have an exercise price of $3.13 per share (subject to adjustment as set forth in the warrant), are exercisable upon issuance and will expire five years from the date of issuance. The Investor Warrants contain standard adjustments to the exercise price including for stock splits, stock dividend, rights offerings and pro rata distributions.

The Private Placement closed on July 14, 2022. The Company received approximately $6 million in gross proceeds from the Private Placement, before deducting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the private placement for working capital and other general corporate purposes.

On July 12, 2022, the Company also entered into a Securities Purchase Agreement (the “Registered Purchase Agreement”) with a single institutional investor, pursuant to which the Company agreed to issue and sell 638,978 shares (the “Registered Shares”) of its Common Stock or Pre-Funded Warrants in lieu thereof, with each Pre-Funded Warrant exercisable for one share of Common Stock (the “Offering”). The Company received approximately $2 million in gross proceeds from the Offering, before deducting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the private placement for working capital and other general corporate purposes.

Net proceeds from the Private Placement and the Offering, after deducting placement agent fees and other estimated offering expenses payable by the Company of $0.9 million, were approximately $7.1 million.

The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company, all of which were exercisable, as of October 28, 2023:
Exercise
    
Number
  
Price
    
Outstanding
  
$
0.01
      
325,126
  
$
3.13
      
2,457,160
  
         
2,782,286
  

There were no warrant transactions during the quarter and the weighted average exercise price for the outstanding warrants is $2.77. As of October 28, 2023, the intrinsic value of the warrants was $43,000 with a weighted average remaining term of 4 years.

Note 9. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss that the Company reports in the interim condensed consolidated balance sheets represents net loss, adjusted for the difference between the accrued pension liability and accrued benefit cost, net of taxes, associated with the Company’s defined benefit plan. Comprehensive loss consists of net loss for all periods presented.

20


Note 10. Defined Benefit Plan



The Company maintains a non-qualified Supplemental Executive Retirement Plan (“SERP”) for certain executive officers of the Company.  The SERP provides eligible executives defined pension benefits that supplement benefits under other retirement arrangements.  As of February 28, 2020, no active employees were participants in the SERP. During the thirteen weeks ended October 28, 2023, the Company did not make any cash contributions to the SERP and presently expects to pay approximately $1.2 million in benefits relating to the SERP during fiscal 2023.



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

 

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


   
Thirteen Weeks Ended
    
Thirty-nine Weeks Ended
  
(amounts in thousands)
 
October 28,
    
October 29,
    
October 28,
    
October 29,

  2023
     2022
     2023
     2022
  
                         
Interest cost
  
$
139
    
$
89
    
$
417
    
$
267
  
Net periodic pension cost
  
$
139
    
$
89
    
$
417
    
$
267
  

Note 11. Basic and Diluted Loss Per Share

Basic loss per share is calculated by dividing net loss by the weighted average common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any.  It is computed by dividing net loss by the sum of the weighted average shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued for the Company’s common stock awards from the Company’s Stock Award Plans.
For the thirteen-week and thirty-nine week periods ended October 28, 2023 and October 29, 2022, the impact of all outstanding stock awards was not considered because the Company reported net losses in those periods and such impact would be anti-dilutive. Accordingly, basic and diluted loss per share was the same. Total anti-dilutive stock awards for the thirteen and thirty-nine weeks ended October 28, 2023 and thirteen and thirty-nine weeks ended October 28, 2023 were approximately 0.1 million shares for all periods.

Total anti-dilutive warrants for the thirteen weeks and thirty-nine week periods ended October 28, 2023 were approximately 2.8 million shares for both periods.

21
Note 12. Income Taxes

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based on available objective evidence, management concluded that a full valuation allowance should continue to be recorded against the Company’s deferred tax assets. Management will continue to assess the need for and amount of the valuation allowance against the deferred tax assets by considering all available evidence to the Company’s ability to generate future taxable income in its conclusion of the need for a full valuation allowance. Any reversal of the Company’s valuation allowance will favorably impact its results of operations in the period of reversal. The Company is currently unable to determine whether or when that reversal might occur, but it will continue to assess the realizability of its deferred tax assets and will adjust the valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will become realizable in the future. The Company has significant net operating loss carry forwards and other tax attributes that are available to offset projected taxable income and current taxes payable, if any, for the year ending January 28, 2023. The deferred tax impact resulting from the utilization of the net operating loss carry forwards and other tax attributes will be offset by a reduction in the valuation allowance. As of January 28, 2023, the Company had a net operating loss carry forward of $369.1 million for federal income tax purposes and approximately $224.4 million for state income tax purposes that expire at various times through 2040 and are subject to certain limitations and statutory expiration periods. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

Note 13. Commitments and Contingencies

Legal Proceedings

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

On June 18, 2021, Vijuve Inc. filed a lawsuit against Kaspien Inc. in the United States District Court for the Eastern District of Washington (Case No. 2:21-cv-00192-SAB) concerning a Retailer Agreement that the parties entered into in September of 2020. Vijuve manufactures skin care products and face massagers. The parties agreed that Kaspien would sell Vijuve’s products on Amazon. The complaint alleged that Kaspien breached the Retailer Agreement when it declined to acquiesce to Vijuve’s demand that Kaspien purchase over $700,000 of products. In total, Vijuve sought $774,000 in damages. Kaspien denied that it breached the agreement and filed various counterclaims. Kaspien sought at least $229,000 from Vijuve for breach of contract and/or specific performance. On June 26, 2023, the Court granted our motion for summary judgment and dismissed Vijuve’s claim against Kaspien.

Contingent Value Rights
 
On March 30, 2020, the Company entered into the Contingent Value Rights Agreement (the “CVR Agreement”), pursuant to which the Related Party Entities received contingent value rights (“CVRs”) representing the contractual right to receive cash payments from the Company in an amount equal, in the aggregate, to 19.9% of the proceeds (10.35% for Alimco, 1.90% for Kick-Start, and 7.64% for RJHDC) received by the Company in respect of certain intercompany indebtedness owing to it by Kaspien and/or its equity interest in Kaspien. The Company does not anticipate these contingencies being met in Fiscal 2023.

22
On March 2, 2022, the Company entered into a Contingent Value Rights Agreement (the “Second CVR Agreement”) with the Tranche B Lender under the Subordinated Loan Agreement, pursuant to which the Tranche B Lender received contingent value rights (“Second CVRs”) representing the contractual right to receive cash payments from the Company in an amount equal, in the aggregate, to 9.0% of the proceeds received by the Company in respect of certain distributions by the Company or Kaspien; recapitalizations or financings of the Company or Kaspien (with appropriate carve out for trade financing in the ordinary course); repayment of intercompany indebtedness owing to the Company by Kaspien; or sale or transfer of any stock of the Company or Kaspien.

The CVRs terminate upon the earlier to occur of (i) certain consolidations, mergers or similar extraordinary events involving Kaspien (and, if applicable, the making of a cash payment by the Company to the Lenders pursuant to the CVR Agreement in connection therewith) and (ii) March 2, 2032.

Note 14. Subsequent Events

After an assessment of its current cash and liquidity position and near-term debt maturities, the Company has initiated a plan to wind down the Company’s operations in an orderly fashion (the “Plan”), which is expected to be substantially complete by May 1, 2024.  The Plan includes the following:
 
 
•
The sell through of current on hand inventory through the current channels;
 
•
the collection of outstanding receivables due to the Company;
 
•
a reduction in force of substantially all of our employees other than a core group of employees.  We expect to substantially complete the workforce reduction prior to the end of January 2024;
 
•
marketing for sale of unrecognized assets including private label brands, trademarks and other intangible assets; and
 
•
the settlement of all liabilities of the Company.

During the duration of the Plan, the Board may authorize the Company to pay all costs and expenses, including without limitation, retention and severance expenses, professional and other fees and expenses of persons rendering services, including legal counsel, accountants and tax advisors, to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of the plan. The Company intends to wind down its operations in an orderly manner without the need for a bankruptcy filing.  Additional information is set forth in Note 1, Nature of Operations--Liquidity and Cash Flows, in this Form 10-Q.

In order to effect an orderly wind down of the Company and support the efforts to maximize the value of the Company’s business and assets, on December 14, 2023, Kaspien entered into a Senior Executive Retention Bonus & Severance Letter Agreement with Brock Kowalchuk, its Chief Executive Officer and the Principal Executive Officer of the Company.  Pursuant to the terms of the agreement, Mr. Kowalchuk will continue to serve as Chief Executive Officer until May 1, 2024. In addition, on December 17, 2023, Kaspien entered into a Senior Executive Retention Bonus & Severance Letter Agreement with Edwin Sapienza, its Chief Financial Officer and the Chief Financial Officer of the Company. Pursuant to the terms of the agreement, Mr. Sapienza will continue to serve as Chief Financial Officer until May 1, 2024. Further details regarding these agreements are as disclosed in the Current Report on Form 8-K of the Company filed on December 18, 2023.
 
Additionally, the Company intends to file a Form 25 with the U.S. Securities and Exchange Commission on or about December 28, 2023. As a result, the Company expects the delisting of its common stock from the OTCQB to become effective on or about January 8, 2024. The Company also will be taking steps to deregister as a public company under the Securities Exchange Act of 1934.

In addition, on December 12, 2023, the Company filed Form 12b-25 due to the Company’s inability to file timely, without unreasonable effort and expense, its Quarterly Report on Form 10-Q for the quarter ended October 28, 2023, because it was still in the process of compiling information required to complete the Quarterly Report and, accordingly, Fruci & Associates II, PLLC, the Company’s independent registered public accounting firm, required additional time to complete its review of the financial statements for the period ended October 28, 2023 to be incorporated in the Quarterly Report.
 
23
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Management’s Discussion and Analysis of Financial Condition and
Results of Operations
October 28, 2023 and October 29, 2022

Overview
Kaspien Holdings Inc., which, together with its consolidated subsidiaries, is referred to herein as “Kaspien”, “the Company”, “we”, “us” and “our”, was incorporated in New York in 1972. We own 100% of the outstanding common stock of Kaspien Inc, through which our principal operations are conducted. Kaspien is a third-party marketplace retailer. The Company leverages in-house expertise, technology, and services to generate revenue through marketplace transactions. Kaspien provides account management, brand development, listings management, data reporting, joint business planning, and comprehensive marketing support services to our vendor partners.  Our target partners are enterprise-level large growth brands that derive margins based on pricing.

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

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

Cost of Sales and Gross Profit:  Gross profit is calculated based on the cost of product in relation to its retail selling value. Changes in gross profit are impacted primarily by net sales levels, mix of products sold, obsolescence, distribution costs, and Amazon commissions and fulfillment fees.

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

24
Balance Sheet and Ratios:  The Company views cash and working capital (current assets less current liabilities) as relevant indicators of its financial position.  See Liquidity and Cash Flows section for further discussion of these items.

RESULTS OF OPERATIONS

Thirteen Weeks Ended October 28, 2023
Compared to the Thirteen Weeks Ended October 29, 2022

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

   
Thirteen Weeks Ended
    
Change
    
Thirty-nine Weeks Ended
    
Change
  
(amounts in thousands)
  
October 28,
2023
    
October 29,
2022
     $    

%
    
October 28, 2023
    
October 29, 2022
     $  
%
  
Net Revenue
  
$
26,434
    
$
29,145
    
$
(2,711
)
    
-9.3
%
  
$
92,502
    
$
94,843
    
$
(2,341
)
  
-2.5
%
                                                               
Gross profit
    
6,116
      
6,575
      
(459
)
    
-7.0
%
    
20,887
      
20,155
      
732
    
3.6
%
% to sales
    
23.1
%
    
22.6
%
                    
22.6
%
    
21.3
%
              

Net Revenue. Net revenue was $26.4 million for the thirteen weeks ended October 28, 2023 a 9.3% decrease from the comparable prior year period. Net revenue was $92.5 million for the thirty-nine weeks ended October 28, 2023 a 2.5% increase from the comparable prior year period.

The primary source of revenue is the Retail as a Service (“RaaS”) model, which represented 98.7% of net revenue in the thirteen weeks ended October 28, 2023. The Company generates revenue across a broad array of product lines primarily through the Amazon Marketplace. Categories include apparel, baby, beauty, health & personal care, home/kitchen/grocery and pet supplies.

Total active partner count as of October 28, 2023 was approximately 92.

         
Thirteen weeks ended
                
Thirty-nine weeks ended
        
   
October 28, 2023
    
October 29, 2022
    
Change
    
October 28, 2023
    
October 29, 2022
    
Change
  
Amazon US
  
$
25,861
      
97.8
%
  
$
27,883
      
95.7
%
    
-7.3
%
  
$
89,624
      
96.9
%
  
$
89,480
      
94.3
%
    
0.2
%
Amazon International
    
229
      
0.9
%
    
528
      
1.8
%
    
-56.6
%
    
1,255
      
1.4
%
    
2,807
      
3.0
%
    
-55.3
%
Other Marketplaces
    
333
      
1.3
%
    
350
      
1.2
%
    
-4.9
%
    
1,212
      
1.3
%
    
1,131
      
1.2
%
    
7.1
%
  Subtotal Retail as a Service
    
26,423
      
100.0
%
    
28,761
      
98.7
%
    
-8.1
%
    
92,091
      
99.6
%
    
93,418
      
98.5
%
    
-1.4
%
Subscriptions
    
11
      
0.0
%
    
384
      
1.3
%
    
-97.1
%
    
411
      
0.4
%
    
1,425
      
1.5
%
    
-71.1
%
Net revenue
  
$
26,434
      
100.0
%
  
$
29,145
      
100.0
%
    
-9.3
%
  
$
92,502
      
100.0
%
  
$
94,843
      
100.0
%
    
-2.5
%

On June 6, 2023, Kaspien entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which Kaspien sold substantially all of the assets of and certain of the liabilities relating to Kaspien’s agency business model through which Kaspien provides support services for account management, media planning, media analytics, search strategy, business planning, and data reporting to its partners (the “Business” and the transaction, the “Transaction”).  The Transaction closed on June 6, 2023.

25
Gross Profit. The following table sets forth a period over period comparison of the Company’s gross profit:

   
Thirteen Weeks Ended
    
Change
    
Thirty-nine Weeks Ended
    
Change
  
(amounts in thousands)
  
October 28,
2023
    
October 29,
2022
     $    

%
    
October 28,
2023
    
October 29,
2022
     $    

%
  
Merchandise margin
  
$
11,359
    
$
12,691
    
$
(1,332
)
    
-10.5
%
  
$
37,980
    
$
40,858
    
$
(2,878
)
    
-7.0
%
% of net revenue
    
43.0
%
    
43.5
%
    
-0.7
%
            
41.1
%
    
43.1
%
    
-2.0
%
        
                                                                 
Fulfillment fees
    
(3,325
)
    
(3,888
)
    
563
      
-14.5
%
    
(11,382
)
    
(13,110
)
    
1,728
      
-13.2
%
Warehousing and freight
    
(1,918
)
    
(2,228
)
    
310
      
-13.9
%
    
(5,711
)
    
(7,593
)
    
1,882
      
-24.8
%
Gross profit
  
$
6,116
    
$
6,575
    
$
(459
)
    
-7.0
%
  
$
20,887
    
$
20,155
    
$
732
      
3.6
%
                                                                 
% of net revenue
    
23.1
%
    
22.6
%
                    
22.6
%
    
21.3
%
                

Gross profit was $6.1 million for the thirteen weeks ended October 28, 2023, as compared to $6.6 million for the comparable prior year period. The decrease in gross profit was primarily attributable to lower sales and a decline in merchandise margin as a percentage of sales partially offset by a reduction in fulfillment fees and warehousing and freight expenses. Gross profit as a percentage of net revenue was 23.1% as compared to 22.6% for the thirteen weeks ended October 29, 2022. Merchandise margin for the thirteen-week period ending October 28, 2023 was 43.0% as compared to 43.5% for the comparable prior year period.

Gross profit for the thirty-nine weeks ended October 28, 2023 was $20.9 million, or 22.6% of net revenue, as compared to $20.2 million, or 21.3% of net revenue for the comparable prior year period as increased net revenue and reduced  warehousing and freight expenses were partially offset by a lower merchandise margin.

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

   
Thirteen Weeks Ended
    
Change
    
Thirty-Nine Weeks Ended
    
Change
  
(amounts in thousands)
  
October 28,
2023
    
October 29,
2022
     $    

%
    
October 28,
2023
    
October 29,
2022
     $    
%
  
Selling expenses
  
$
3,711
    
$
4,206
    
$
(495
)
    
-11.8
%
  
$
12,814
    
$
13,683
    
$
(869
)
    
-6.4
%
General and administrative expenses
    
3,217
      
5,049
      
(1,832
)
    
-36.3
%
    
11,074
      
16,292
      
(5,218
)
    
-32.0
%
 Total SG&A expenses
  
$
6,928
    
$
9,255
    
$
(2,327
)
    
-25.1
%
  
$
23,888
    
$
29,975
    
$
(6,087
)
    
-20.3
%
                                                                 
As a % of total revenue
    
26.2
%
    
31.8
%
                    
25.8
%
    
31.6
%
                

For the thirteen weeks ended October 28, 2023, SG&A expenses were $6.9 million as compared to  $9.3 million for the comparable prior year period. Selling expenses decreased $0.5 million for the thirteen weeks ended October 28, 2023. General and administrative expenses decreased $1.8 million for the thirteen weeks ended October 28, 2023 primarily due to lower payroll, marketing expenses and professional fees.

26
Consolidated depreciation and amortization expense for the thirteen weeks ended October 28, 2023 was $0.2 million as compared to $0.3 million for the comparable prior year period.

For the thirty-nine weeks ended October 28, 2023, SG&A expenses were $23.9 million as compared to $30.0 million for the comparable prior year period. Selling expenses decreased $0.9 million for the thirty-nine weeks ended October 28, 2023. General and administrative expenses decreased $5.2 million for the thirty-nine weeks ended October 29, 2022 primarily due to lower payroll, marketing expenses and professional fees.

Consolidated depreciation and amortization expense for the thirty-nine weeks ended October 29, 2022 was $0.5 million as compared to $1.0 million for the comparable prior year period.

Interest Expense.   Interest expense was $1.0 million for the thirteen weeks ended October 28, 2023 compared to $0.9 million for the thirteen weeks ended October 29, 2022.  The increase in interest expense was due to increased long-term borrowings and higher interest rates on short term borrowings.

Interest expense was $2.8 million for the thirty-nine weeks ended October 28, 2023 compared to $2.5 million for the thirty-nine weeks ended October 29, 2022.  The increase in interest expense was due to long-term borrowings and higher interest rates on short term borrowings.  See Note 6 to the Condensed Consolidated Financial Statements for further detail on the Company’s debt.

Other Income. Other income for the thirty-nine week periods ended October 28, 2023 was $0.8 million and represented proceeds from an insurance claim.

Income Tax Expense.   Based on available objective evidence, management concluded that a full valuation allowance should be recorded against the Company's deferred tax assets  As a result, there were insignificant tax expense amounts recorded during the thirteen weeks ended October 28, 2023 and October 29, 2022.
 
Net Loss. The net loss for the thirteen weeks ended October 28, 2023 was $1.8 million as compared to $3.6 million for the comparable prior year period.

LIQUIDITY

Liquidity and Cash Flows:
 
The Company’s primary sources of liquidity are its borrowing capacity under its Credit Facility and available cash and cash equivalents. The Company incurred a net loss of $5.1 million and $12.4 million for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.  The decrease in the net loss was primarily attributable to an increase gross margin and a decrease in selling, general and administrative Expenses. In addition, the Company has an accumulated deficit of $145.0 million as of October 28, 2023 and net cash used in operating activities for the thirty-nine weeks ended October 28, 2023 was $0.9 million. Net cash used in operating activities for the thirty-nine weeks ended October 29, 2022 was $12.2 million.

As disclosed in the Company's Annual Report on Form 10-K filed April 28, 2023, the Company experienced negative cash flows from operations during fiscal 2022 and 2021 and we expect to incur net losses in fiscal 2023.

Subsequent to the balance sheet date, after an assessment of its current cash and liquidity position and near-term debt maturities, the Company has initiated a plan to wind down the Company’s operations in an orderly fashion (the “Plan”), which is expected to be substantially complete by May 1, 2024.  The Plan includes the following:


 •
The sell through of current on hand inventory through the current channels;

•
the collection of outstanding receivables due to the Company;

•
a reduction in force of substantially all of our employees other than a core group of employees.  We expect to substantially complete the workforce reduction prior to the end of January 2024;

•
marketing for sale of unrecognized assets including private label brands, trademarks and other intangible assets; and

•
the settlement of all liabilities of the Company.

During the duration of the Plan, the Board may authorize the Company to pay all costs and expenses, including without limitation, retention and severance expenses, professional and other fees and expenses of persons rendering services, including legal counsel, accountants and tax advisors, to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of the plan. The Company intends to wind down its operations in an orderly manner without the need for a bankruptcy filing.

As a result of the approval of the Plan, the Company adopted the Liquidation Basis of Accounting. This basis of accounting is considered appropriate when, among other things, liquidation of the Company is imminent, as defined in ASC 205-30 “Presentation of Financial Statements – Liquidation Basis of Accounting”.  Under the Liquidation Basis of Accounting the following financial statements are no longer presented (except for periods prior to the adoption of the Liquidation Basis of Accounting): a consolidated condensed balance sheet, a consolidated condensed statement of operations and comprehensive loss and a consolidated condensed statement of cash flows. The consolidated condensed statement of net assets and the consolidated condensed statement of changes in net assets are the principal financial statements presented under the Liquidation Basis of Accounting.

27
Under the Liquidation Basis of Accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. These amounts are presented in the accompanying consolidated condensed statement of net assets.  These estimates will be periodically reviewed and adjusted as appropriate.  There can be no assurance that these estimated values will be realized.  Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution.  The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan.  The actual values and costs associated with carrying out the Plan are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty.  These differences may be material.  In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan.

The table below represents a Conasolidated Condensed Statement of Net Assets presented on a liquidation basis:

CONSOLIDATED CONDENSED STATEMENT OF NET ASSETS
(Liquidation Basis)
(in thousands, except per share and share amounts)
(unaudited)

   
As of October 28, 2023
  
   
(unaudited)
  
Cash and cash equivalents
  
$
6,668
  
Accounts receivable
    
1,017
  
Inventory
    
17,497
  
Prepaid expenses and other
    
20
  
Other assets
    
9
  
Accounts payable, trade and other
    
(5,704
)
Short-term borrowings
    
(8,874
)
Short-term debt
    
(11,748
)
Accrued liquidation and other expenses
    
(5,067
)
Other long-term liabilities
    
(11,158
)
Operating lease liabilities
    
(1,240
)
NET ASSETS IN LIQUIDATION
  
$
(18,581
)

28
The table below presents the Consolidated Condensed Statement of Changes in Net Assets as of October 28, 2023:

KASPIEN HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN NET ASSETS
(Liquidation Basis)
(in thousands, except per share and share amounts)
(unaudited)

STOCKHOLDERS' DEFICIT AT OCTOBER 28, 2023 ON A GOING CONCERN BASIS
  
$
(5,998
)
         
Effects of adopting the liquidation basis of accounting:
        
Change in net realizable value of prepaid expenses
    
(399
)
Change in net realizable value of inventory
    
(6,547
)
Change in net realizable value of fixed assets
    
(1,637
)
Change in net realizable value of other assets
    
(557
)
Change in net realizable value of right of use assets
    
(1,015
)
Change in net realizable value of accounts receivable
    
(554
)
Accrued liquidation costs
    
(1,873
)
Total effects of adopting the liquidation basis of accounting
    
(12,583
)
NET ASSETS IN LIQUIDATION - OCTOBER 28, 2023
  
$
(18,581
)
 
29
The unaudited condensed consolidated financial statements for the thirty-nine weeks ended October 28, 2023 were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these unaudited condensed consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The ability of the Company to meet its liabilities and to continue as a going concern is dependent on improved profitability, the strategic initiatives for Kaspien and the availability of future funding. Based on recurring losses from operations, negative cash flows from operations, the expectation of continuing operating losses for the foreseeable future, and uncertainty with respect to any available future funding, the Company has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of October 28, 2023, we had cash and cash equivalents of $0.4 million, a net working deficit of $2.6 million, and $8.9 million in borrowings on our revolving credit facility, as further discussed below. As of October 28, 2023 and October 29, 2022, the Company had no outstanding letters of credit. The Company had $2.1 million and $7.7 million available for borrowing under the Credit Facility as of October 28, 2023 and October 29, 2022, respectively.

On July 12, 2022, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with a single institutional investor for a private placement offering (“Private Placement”) of the Company’s common stock (the “Common Stock”) or pre-funded warrants, with each pre-funded warrant exercisable for one share of Common Stock (the “Pre-Funded Warrants”), and warrants exercisable for one share of Common Stock (the “Investor Warrants”). Pursuant to the PIPE Purchase Agreement, the Company has agreed to issue and sell 1,818,182 shares (the “Shares”) of its Common Stock or Pre-Funded Warrants in lieu thereof together with Investor Warrants to purchase up to 2,457,160 shares of Common Stock. Each share of Common Stock and accompanying Investor Warrant will be sold together at a combined offering price of $3.30 per share.

The Pre-Funded Warrants are immediately exercisable, at a nominal exercise price of $0.001, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. As of October 28, 2023 all Pre-Funded Warrants have been exercised.

The Investor Warrants have an exercise price of $3.13 per share (subject to adjustment as set forth in the warrant), are exercisable upon issuance and will expire five years from the date of issuance. The Investor Warrants contain standard adjustments to the exercise price including for stock splits, stock dividend, rights offerings and pro rata distributions.

30
The Private Placement closed on July 14, 2022. The gross proceeds to the Company from the Private Placement, after deducting placement agent fees and other estimated offering expenses payable by the Company, were approximately $7.1 million. The Company intends to use the net proceeds from the private placement for working capital and other general corporate purposes.

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

     
As of or for the
    
 
      
Thirty-nine Weeks Ended
    
Change
  
  
(amounts in thousands)
   
October 28,
2023
      
October 29,
2022
        $
  
 
Operating Cash Flows
  
$
(890
)
  
$
(12,193
)
  
$
11,303
  
 
Investing Cash Flows(1)
    
(173
)
    
(766
)
    
593
  
 
Financing Cash Flows
    
62
      
11,666
      
(11,604
)
                           
 
Capital Expenditures(1)
    
(173
)
    
(766
)
    
593
  
                           
 
Cash, Cash Equivalents, and Restricted Cash (2)
    
2,625
      
3,528
      
(903
)
 
Merchandise Inventory
    
24,044
      
37,353
      
(13,309
)
                           
(1)
Consists entirely of capital expenditures
                        
                           
(2)
Cash and cash equivalents per condensed consolidated balance sheets
  
$
405
    
$
769
    
$
(364
)
 
Add: restricted cash
    
2,220
      
2,759
      
(539
)
 
Cash, cash equivalents, and restricted cash
  
$
2,625
    
$
3,528
    
$
(903
)

Cash used in operations was $0.9 million for the thirty-nine weeks ended October 28, 2023, primarily due to net loss of $5.1 million partially offset by a $2.7 million reduction in inventory.

Cash used by investing activities was $0.2 million for the thirty-nine weeks periods ended October 28, 2023, which consisted entirely of capital expenditures.

Cash used by financing activities was $62,000 for the thirty-nine weeks ended October 28, 2023.

Cash provided by financing activities was $11.7 million for the thirty-nine weeks ended October 29, 2022.  The primary source of cash was $5.0 million raised from the issuance of subordinated debt and $7.1 million from the Private Placement offering partially offset by the payment of short-term borrowings of $6.1 million.

Capital Expenditures.  During the thirteen weeks ended October 28, 2023, the Company made capital expenditures of $0.2 million. The Company currently plans to spend approximately $0.4 million for capital expenditures during fiscal 2023.
 
31
CRITICAL ACCOUNTING ESTIMATES

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K as of and for the year ended January 28, 2023 includes a summary of the critical accounting policies and methods used by the Company in the preparation of its interim condensed consolidated financial statements.  The Company’s significant accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal year ended January 28, 2023.

Recent Accounting Pronouncements:

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

32
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not required under the requirements of a Smaller Reporting Company.

Item 4 – Controls and Procedures

 (a)    Evaluation of disclosure controls and procedures.    The Company’s Principal  Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of October 28, 2023, have concluded that as of such date the Company’s disclosure controls and procedures were not effective and designed to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 (b)    Changes in internal controls.    There have been no changes in the Company’s internal controls over financial reporting that occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

33
KASPIEN HOLDINGS INC. AND SUBSIDIARIES
 
PART II - OTHER INFORMATION

Item 1 – Legal Proceedings
The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated.  Although there can be no assurance as to the ultimate disposition of these matters, it is management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Company. As a result, the liability for the cases listed below is remote.

Retailer Agreement Dispute

On June 18, 2021, Vijuve Inc. filed a lawsuit against Kaspien Inc. in the United States District Court for the Eastern District of Washington (Case No. 2:21-cv-00192-SAB) concerning a Retailer Agreement that the parties entered into in September of 2020. Vijuve manufactures skin care products and face massagers. The parties agreed that Kaspien would sell Vijuve’s products on Amazon. The complaint alleged that Kaspien breached the Retailer Agreement when it declined to acquiesce to Vijuve’s demand that Kaspien purchase over $700,000 of products. In total, Vijuve sought $774,000 in damages. Kaspien denied that it breached the agreement and filed various counterclaims. Kaspien sought at least $229,000 from Vijuve for breach of contract and/or specific performance. On June 26, 2023, the Court granted our motion for summary judgment and dismissed Vijuve’s claim against Kaspien.

Item 1A – Risk Factors
Risks relating to the Company’s business and Common Stock are described in detail in Item 1A of the Company’s most recently filed Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3 – Defaults Upon Senior Securities
None.

Item 4 – Mine Safety Disclosure
Not Applicable.

Item 5 – Other Information
(c) Insider Trading Arrangements

During the quarter ended October 28, 2023, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) and (c), respectively, of Regulation S-K).

Item 6 - Exhibits

34
(A)
Exhibits -

Exhibit No.
Description
   
Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
XBRL Instance Document (furnished herewith)
   
101.SCH
XBRL Taxonomy Extension Schema (furnished herewith)
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase (furnished herewith)
   
101.LAB
XBRL Taxonomy Extension Label Linkbase (furnished herewith)
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)
   
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

35
SIGNATURES

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

KASPIEN HOLDINGS INC.




December 18, 2023
By: /s/ Brock Kowalchuk


Brock Kowalchuk

Principal Executive Officer

(Principal Executive Officer)

December 18, 2023
By: /s/ Edwin Sapienza

Edwin Sapienza

Chief Financial Officer

(Principal and Chief Accounting Officer)