WASHINGTON,
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2020 |
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ___________ to ___________ |
COMMISSION FILE NUMBER:
| New York | 14-1541629 | |
| I.R.S. Employer Identification | ||
| 2818 N. Sullivan Rd. Ste 30 | ||
| Spokane, WA 99216 | 99216 | |
| Address of Principal Executive Offices | Zip Code |
(
(518) 452-1242
(Registrant’s telephone number, including area code)
the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $.01 par value per share | KSPN | NASDAQ Capital Market |
Large accelerated filer | Accelerated filer |
Non-accelerated filer | |
Smaller reporting company | |
Emerging growth company ☐ |
Indicate by check mark whether the registrant is
Emerging growth company o
Indicateindicate 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.o☐
36,208,844
TRANS WORLD ENTERTAINMENT CORPORATION
(unaudited)
| October 28, | January 28, | October 29, | ||||||||||
| 2017 | 2017 | 2016 | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | $ | 3,924 | $ | 27,974 | $ | 4,708 | ||||||
| Restricted cash | 1,503 | - | - | |||||||||
| Merchandise inventory | 144,754 | 126,004 | 157,827 | |||||||||
| Prepaid expenses and other assets | 13,184 | 15,356 | 13,903 | |||||||||
| Total current assets | 163,365 | 169,334 | 176,438 | |||||||||
| Restricted cash | 10,731 | 16,103 | 16,100 | |||||||||
| Net fixed assets | 43,472 | 45,097 | 41,902 | |||||||||
| Goodwill | 39,191 | 39,191 | 39,800 | |||||||||
| Net intangible assets | 24,940 | 27,857 | 28,737 | |||||||||
| Other assets | 7,247 | 10,228 | 10,272 | |||||||||
| TOTAL ASSETS | $ | 288,946 | $ | 307,810 | $ | 313,249 | ||||||
| LIABILITIES | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | $ | 45,378 | $ | 52,307 | $ | 61,956 | ||||||
| Short-term borrowings | 5,000 | - | 5,936 | |||||||||
| Accrued expenses and other current liabilities | 9,805 | 9,198 | 9,116 | |||||||||
| Deferred revenue | 7,231 | 9,228 | 7,813 | |||||||||
| Total current liabilities | 67,414 | 70,733 | 84,821 | |||||||||
| Contingent consideration | 2,115 | 8,552 | 10,381 | |||||||||
| Other long-term liabilities | 29,236 | 30,589 | 28,927 | |||||||||
| TOTAL LIABILITIES | 98,765 | 109,874 | 124,129 | |||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) | - | - | - | |||||||||
| Common stock ($0.01 par value; 200,000,000 shares authorized; 64,255,171, 64,252,671 and 64,252,671 shares issued, respectively) | 643 | 643 | 643 | |||||||||
| Additional paid-in capital | 340,391 | 338,075 | 337,439 | |||||||||
| Treasury stock at cost (28,138,116, 28,137,283 and 28,137,283 shares, respectively) | (230,144 | ) | (230,144 | ) | (230,144 | ) | ||||||
| Accumulated other comprehensive loss | (788 | ) | (802 | ) | (658 | ) | ||||||
| Retained earnings | 80,079 | 90,164 | 81,840 | |||||||||
| TOTAL SHAREHOLDERS’ EQUITY | 190,181 | 197,936 | 189,120 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 288,946 | $ | 307,810 | $ | 313,249 | ||||||
October 31, 2020 | February 1, 2020 | November 2, 2019 | ||||||||||
| ASSETS | Unaudited | Unaudited | ||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | $ | 2,396 | $ | 2,977 | $ | 3,073 | ||||||
| Restricted cash | 950 | 950 | 950 | |||||||||
| Accounts receivable | 2,465 | 4,139 | 2,182 | |||||||||
| Merchandise inventory | 27,204 | 17,836 | 22,522 | |||||||||
| Prepaid expenses and other current assets | 836 | 2,974 | 857 | |||||||||
| Assets held for discontinued operations | - | 51,189 | 94,286 | |||||||||
| Total current assets | 33,851 | 80,065 | 123,870 | |||||||||
| Restricted cash | 4,082 | 4,925 | 5,139 | |||||||||
| Fixed assets, net | 2,343 | 2,190 | 2,102 | |||||||||
| Operating lease right-of-use assets | 2,887 | 3,311 | 3,404 | |||||||||
| Intangible assets, net | 989 | 1,760 | 2,810 | |||||||||
| Cash Surrender Value | 3,438 | 3,353 | 3,212 | |||||||||
| Other assets | 1,787 | 2,202 | 943 | |||||||||
| TOTAL ASSETS | $ | 49,377 | $ | 97,806 | $ | 141,480 | ||||||
| LIABILITIES | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | $ | 8,559 | $ | 14,447 | $ | 10,169 | ||||||
| Short-term borrowings | 8,483 | 13,149 | 27,771 | |||||||||
| Accrued expenses and other current liabilities | 4,745 | 3,521 | 1,717 | |||||||||
| Current portion of operating lease liabilities | 583 | 534 | 523 | |||||||||
| Current portion of PPP loan | 1,356 | - | - | |||||||||
| Liabilities held for discontinued operations | - | 39,410 | 54,138 | |||||||||
| Total current liabilities | 23,726 | 71,061 | 94,318 | |||||||||
| Operating lease liabilities | 2,412 | 2,204 | 2,952 | |||||||||
| PPP loan | 662 | - | - | |||||||||
| Long-term debt | 4,581 | - | - | |||||||||
| Other long-term liabilities | 15,857 | 20,026 | 19,335 | |||||||||
| TOTAL LIABILITIES | 47,238 | 93,291 | 116,605 | |||||||||
| SHAREHOLDERS' EQUITY | ||||||||||||
| Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued) | - | - | - | |||||||||
| Common stock ($0.01 par value; 200,000,000 shares authorized; 3,235,576, 3,225,627 and 3,225,627 shares issued, respectively) | 32 | 32 | 32 | |||||||||
| Additional paid-in capital | 346,470 | 345,102 | 345,043 | |||||||||
| Treasury stock at cost (1,410,378, 1,409,316 and 1,409,316 shares, respectively) | (230,169 | ) | (230,169 | ) | (230,168 | ) | ||||||
| Accumulated other comprehensive loss | (1,470 | ) | (1,479 | ) | (720 | ) | ||||||
| Accumulated deficit | (112,724 | ) | (108,971 | ) | (89,312 | ) | ||||||
| TOTAL SHAREHOLDERS' EQUITY | 2,139 | 4,515 | 24,875 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 49,377 | $ | 97,806 | $ | 141,480 | ||||||
thousands)
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | 91,817 | $ | 65,039 | $ | 293,482 | $ | 203,127 | ||||||||
| Other revenue | 1,184 | 1,242 | 3,964 | 3,232 | ||||||||||||
| Total revenue | 93,001 | 66,281 | 297,446 | 206,359 | ||||||||||||
| Cost of sales | 61,420 | 39,409 | 194,390 | 121,960 | ||||||||||||
| Gross profit | 31,581 | 26,872 | 103,056 | 84,399 | ||||||||||||
| Selling, general and administrative expenses | 40,558 | 34,680 | 122,763 | 97,415 | ||||||||||||
| Income from joint venture | (866 | ) | - | (1,038 | ) | - | ||||||||||
| Loss from operations | (8,111 | ) | (7,808 | ) | (18,669 | ) | (13,016 | ) | ||||||||
| Interest expense | 83 | 179 | 200 | 523 | ||||||||||||
| Other income | (59 | ) | (51 | ) | (8,824 | ) | (1,068 | ) | ||||||||
| Loss before income tax expense | (8,135 | ) | (7,936 | ) | (10,045 | ) | (12,471 | ) | ||||||||
| Income tax (benefit) expense | (64 | ) | (7,452 | ) | 40 | (7,358 | ) | |||||||||
| Net loss | $ | (8,071 | ) | $ | (484 | ) | $ | (10,085 | ) | $ | (5,113 | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||
| Basic and diluted loss per share | $ | (0.22 | ) | $ | (0.02 | ) | $ | (0.28 | ) | $ | (0.17 | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | 36,190 | 31,434 | 36,181 | 30,854 | ||||||||||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | |||||||||||||
| Net revenue | $ | 38,913 | $ | 28,616 | $ | 112,799 | $ | 98,008 | ||||||||
| Cost of sales | 35,022 | 25,896 | 101,173 | 89,424 | ||||||||||||
| Gross profit | 3,891 | 2,720 | 11,626 | 8,584 | ||||||||||||
| Selling, general and administrative expenses | 4,503 | 5,604 | 17,909 | 19,248 | ||||||||||||
| Loss from continuing operations | (612 | ) | (2,884 | ) | (6,283 | ) | (10,664 | ) | ||||||||
| Interest expense | 381 | 200 | 1,015 | 508 | ||||||||||||
| Loss from continuing operations before income tax benefit | (993 | ) | (3,084 | ) | (7,298 | ) | (11,172 | ) | ||||||||
| Income tax (benefit) expense | (3,545 | ) | 10 | (3,545 | ) | 26 | ||||||||||
| Income (loss) from continued operations | 2,552 | (3,094 | ) | (3,753 | ) | (11,198 | ) | |||||||||
| Loss from fye business, net of tax | - | (20,061 | ) | - | (27,887 | ) | ||||||||||
| Net income (loss) | $ | 2,552 | $ | (23,155 | ) | (3,753 | ) | (39,085 | ) | |||||||
| BASIC INCOME (LOSS) PER SHARE: | ||||||||||||||||
| Basic and diluted income (loss) per common share | $ | 1.40 | $ | (12.73 | ) | $ | (2.06 | ) | $ | (21.51 | ) | |||||
| Weighted average number of common shares outstanding – basic | 1,825 | 1,819 | 1,823 | 1,817 | ||||||||||||
| DILUTED LOSS PER SHARE: | ||||||||||||||||
| Diluted income (loss) per common share | $ | 1.39 | $ | (12.73 | ) | $ | (2.06 | ) | $ | (21.51 | ) | |||||
| Weighted average number of common shares outstanding – diluted | 1,829 | 1,819 | 1,823 | 1,817 | ||||||||||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net loss | $ | (8,071 | ) | $ | (484 | ) | $ | (10,085 | ) | $ | (5,113 | ) | ||||
| Amortization of pension costs | (5 | ) | 51 | (15 | ) | 154 | ||||||||||
| Comprehensive loss | $ | (8,076 | ) | $ | (433 | ) | $ | (10,100 | ) | $ | (4,959 | ) | ||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | |||||||||||||
| Net income (loss) | $ | 2,552 | $ | (23,155 | ) | $ | (3,753 | ) | $ | (39,085 | ) | |||||
| Amortization of pension gain | 1 | 5 | 3 | 15 | ||||||||||||
| Comprehensive income (loss) | $ | 2,553 | $ | (23,150 | ) | $ | (3,750 | ) | $ | (39,070 | ) | |||||
| Thirteen Weeks Ended October 31, 2020 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Common Stock | Additional Paid-in Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Shareholders’ Equity | ||||||||||||||||||||||||||
Common Shares | Treasury Shares | |||||||||||||||||||||||||||||||
| Balance as of May 2, 2020 | 3,236 | (1,410 | ) | $ | 32 | $ | 346,457 | $ | (230,169 | ) | $ | (1,473 | ) | $ | (115,276 | ) | $ | (430 | ) | |||||||||||||
| Net income | - | - | - | - | - | - | 2,552 | 2,552 | ||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 3 | - | 3 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 13 | - | - | - | 13 | ||||||||||||||||||||||||
| Balance as of October 31, 2020 | 3,236 | $ | (1,410 | ) | $ | 32 | $ | 346,470 | $ | (230,169 | ) | $ | (1,470 | ) | $ | (112,724 | ) | $ | 2,139 | |||||||||||||
| Thirty-nine Weeks Ended October 31, 2020 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Common Stock | Additional Paid-in Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Shareholders’ Equity | ||||||||||||||||||||||||||
Common Shares | Treasury Shares | |||||||||||||||||||||||||||||||
| Balance as of February 1, 2020 | 3,226 | (1,409 | ) | $ | 32 | $ | 345,102 | $ | (230,169 | ) | $ | (1,479 | ) | $ | (108,971 | ) | $ | 4,515 | ||||||||||||||
| Net Loss | - | - | - | - | - | - | (3,753 | ) | (3,753 | ) | ||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 9 | - | 9 | ||||||||||||||||||||||||
| Issuance of warrants | - | - | - | 836 | - | - | - | 836 | ||||||||||||||||||||||||
| Vested restricted shares | 4 | (1 | ) | - | (9 | ) | - | - | - | (9 | ) | |||||||||||||||||||||
| Common stock issued- Director grants | 6 | - | - | 243 | - | - | - | 243 | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 298 | - | - | - | 298 | ||||||||||||||||||||||||
| Balance as of October 31, 2020 | 3,236 | $ | (1,410 | ) | $ | 32 | $ | 346,470 | $ | (230,169 | ) | $ | (1,470 | ) | $ | (112,724 | ) | $ | 2,139 | |||||||||||||
| Thirteen Weeks Ended November 2, 2019 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Common Stock | Additional Paid-in Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Loss | Accumulated Deficit | Shareholders’ Equity | ||||||||||||||||||||||||||
Common Shares | Treasury Shares | |||||||||||||||||||||||||||||||
| Balance as of August 3, 2019 | 3,224 | (1,409 | ) | $ | 32 | $ | 344,983 | $ | (230,168 | ) | $ | (725 | ) | $ | (66,157 | ) | $ | 47,965 | ||||||||||||||
| Net Loss | - | - | - | - | - | - | (23,155 | ) | (23,155 | ) | ||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 5 | - | 5 | ||||||||||||||||||||||||
| Vested restricted shares | 2 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 60 | - | - | - | 60 | ||||||||||||||||||||||||
| Balance as of November 2, 2019 | 3,226 | (1,409 | ) | $ | 32 | $ | 345,043 | $ | (230,168 | ) | $ | (720 | ) | $ | (89,312 | ) | $ | 24,875 | ||||||||||||||
| Thirty-nine Weeks Ended November 2, 2019 | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Common Stock | Additional Paid-in Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Loss | Accumulated Deficit | Shareholders’ Equity | ||||||||||||||||||||||||||
Common Shares | Treasury Shares | |||||||||||||||||||||||||||||||
| Balance as of February 2, 2019 | 3,222 | (1,409 | ) | $ | 32 | $ | 344,826 | $ | (230,166 | ) | $ | (735 | ) | $ | (50,227 | ) | $ | 63,730 | ||||||||||||||
| Net Loss | - | - | - | - | - | - | (39,085 | ) | (39,085 | ) | ||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 15 | - | 15 | ||||||||||||||||||||||||
| Vested restricted shares | 4 | - | - | 3 | (2 | ) | - | - | 1 | |||||||||||||||||||||||
| Amortization of unearned compensation/restricted stock amortization | - | - | - | 214 | - | - | - | 214 | ||||||||||||||||||||||||
| Balance as of November 2, 2019 | 3,226 | (1,409 | ) | $ | 32 | $ | 345,043 | $ | (230,168 | ) | $ | (720 | ) | $ | (89,312 | ) | $ | 24,875 | ||||||||||||||
| As of or for the | ||||||||
| Thirty-nine Weeks Ended | ||||||||
| October 28, 2017 | October 29, 2016 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | ($ | 10,085 | ) | ($ | 5,113 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of fixed assets | 7,558 | 5,436 | ||||||
| Amortization of intangible assets | 2,917 | 174 | ||||||
| Amortization of lease valuations, net | (12 | ) | - | |||||
| Deferred tax benefit | - | (7,502 | ) | |||||
| Long term incentive compensation | 2,314 | 670 | ||||||
| Adjustment to contingent consideration | (1,437 | ) | - | |||||
| Loss on disposal of fixed assets | 459 | 703 | ||||||
| Gain on sale of investments | - | (800 | ) | |||||
| Increase in cash surrender value | (227 | ) | (790 | ) | ||||
| Gain on insurance proceeds | (8,733 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Merchandise inventory | (18,750 | ) | (23,111 | ) | ||||
| Prepaid expenses and other current assets | 2,172 | (5,311 | ) | |||||
| Other assets | (497 | ) | 6,359 | |||||
| Accounts payable | (6,929 | ) | 5,281 | |||||
| Accrued expenses, deferred revenue and other current liabilities | (1,390 | ) | (8,345 | ) | ||||
| Other long-term liabilities | (1,307 | ) | 2,470 | |||||
| Net cash used in operations | (33,947 | ) | (29,879 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Acquisition of a business | - | (36,600 | ) | |||||
| Purchases of fixed assets | (6,392 | ) | (16,726 | ) | ||||
| Proceeds from company owned life insurance and SERP death benefits | 14,363 | - | ||||||
| Investment in joint venture | (2,575 | ) | - | |||||
| Proceeds from sale of investments | - | 1,600 | ||||||
| Purchases of investments | - | (500 | ) | |||||
| Capital distributions from joint venture | 632 | - | ||||||
| Net cash provided by (used in) investing activities | 6,028 | (52,226 | ) | |||||
| FINANCING ACTIVITIES: | ||||||||
| Exercise of long term equity awards | - | 39 | ||||||
| Payments to shareholders | (5,000 | ) | - | |||||
| Payments of long term borrowings | - | (4,727 | ) | |||||
| Proceeds from short term borrowings | 5,000 | 5,936 | ||||||
| Purchase of treasury stock | - | (2,646 | ) | |||||
| Net cash provided by (used in) financing activities | - | (1,398 | ) | |||||
| Net decrease in cash and cash equivalents | (27,919 | ) | (83,503 | ) | ||||
| Cash, cash equivalents, and restricted cash, beginning of year | 44,077 | 104,311 | ||||||
| Cash, cash equivalents, and restricted cash, end of year | $ | 16,158 | $ | 20,808 | ||||
| Supplemental disclosures and non-cash investing and financing activities: | ||||||||
| Interest paid | $ | 200 | $ | 523 | ||||
| Fair value of assets acquired, including cash acquired | - | 93,152 | ||||||
| Liabilities assumed | - | (24,256 | ) | |||||
| Net assets acquired | - | 68,896 | ||||||
| Less: Contingent consideration not yet paid | - | (10,381 | ) | |||||
| Less: Fair value of shares issued as consideration | - | (20,415 | ) | |||||
| Less: Indemnity liability not yet paid | - | (1,500 | ) | |||||
| Acquisition of a business | $ | - | $ | 36,600 | ||||
| Issuance of restricted performance based awards / deferred / restricted shares under deferred / restricted stock agreements | - | 6,074 | ||||||
| Thirty-nine Weeks Ended | ||||||||
October 31, 2020 | November 2, 2019 (1) | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income loss | $ | (3,753 | ) | $ | (39,085 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of fixed assets | 783 | 2,272 | ||||||
| Amortization of intangible assets | 771 | 858 | ||||||
| Stock-based compensation | 296 | 214 | ||||||
| Loss on disposal of fixed assets | - | 27 | ||||||
| Write down investment | - | 500 | ||||||
| Loss on impairment of long-lived assets | - | 16,035 | ||||||
| Amortization of ROU asset | 424 | - | ||||||
| Change in cash surrender value | (84 | ) | (189 | ) | ||||
| Reversal of ASC 740 liability | (3,545 | ) | ||||||
| Changes in operating assets and liabilities that provide (use) cash: | ||||||||
| Accounts receivable | 1,695 | 1,099 | ||||||
| Merchandise inventory | (9,367 | ) | (6,288 | ) | ||||
| Prepaid expenses and other current assets | 2,531 | 1,190 | ||||||
| Other long-term assets | - | 5,274 | ||||||
| Accounts payable | 679 | (4,335 | ) | |||||
| Accrued expenses and other current liabilities | (5,295 | ) | (852 | ) | ||||
| Deferred revenue | - | (966 | ) | |||||
| Other long-term liabilities | (407 | ) | (6,576 | ) | ||||
| Net cash used in operating activities | (15,272 | ) | (30,822 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of fixed assets | (935 | ) | (2,128 | ) | ||||
| Proceeds from sale of fye business | 11,779 | - | ||||||
| Capital distribution from joint venture | - | 115 | ||||||
| Net cash provided by (used in) investing activities | 10,844 | (2,013 | ) | |||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from short term borrowings | 8,483 | 27,771 | ||||||
| Proceeds from long term borrowings | 4,581 | - | ||||||
| Proceeds from issuance of warrants | 836 | - | ||||||
| Proceeds from PPP loan | 2,018 | - | ||||||
| Issuance of director deferred shares and RSUs | 235 | - | ||||||
| Payment of short-term borrowings | (13,149 | ) | - | |||||
| Net cash provided by (used in) financing activities | 3,004 | 27,771 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (1,424 | ) | (5,064 | ) | ||||
| Cash, cash equivalents, and restricted cash, beginning of period | 8,852 | 14,226 | ||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 7,428 | $ | 9,162 | ||||
| (1) | The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows. See footnote 3. |
28, 201731, 2020 and October 29, 2016November 2, 2019
| • | Partner Obsession | • | Results |
| • | Insights Driven | • | Ownership |
| • | Simplicity | • | Diversity and Teamwork |
| • | Innovation |
“Asset Purchase Agreement”) dated January 23, 2020, by and among the Company, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and Sunrise Records. (the “FYE Transaction”).
needs. Management anticipates any cash requirements due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, as discussed in note 9 in the interim condensed consolidated financial statements.
In connection
in accordance with U.S. GAAPaccounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements.
2021.
There23, 2020, by and among the Company, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and Sunrise Records.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (In thousands) | October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | ||||||||||||
| Net revenue | $ | — | $ | 40,840 | $ | — | $ | 127,602 | ||||||||
| Cost of goods sold | — | 24,685 | — | 76,932 | ||||||||||||
| Selling, general and administrative expenses | — | 20,114 | — | 61,891 | ||||||||||||
| Impairment of long-lived assets | — | 16,035 | — | 16,035 | ||||||||||||
| Interest expense | — | 28 | — | 46 | ||||||||||||
| Other expense (income) | — | (31 | ) | — | 388 | |||||||||||
| Loss from discontinued operations before income taxes | — | (19,991 | ) | — | (27,690 | ) | ||||||||||
| Income tax expense | — | 70 | — | 197 | ||||||||||||
| Loss from discontinued operations, net of tax | $ | — | $ | (20,061 | ) | $ | — | $ | (27,887 | ) | ||||||
| (In thousands) | October 31, 2020 | February 1, 2020 | November 2, 2019 | |||||||||
| Cash | $ | — | $ | — | $ | — | ||||||
| Accounts receivable, net | — | 62 | 2,102 | |||||||||
| Inventories | — | 50,122 | 78,608 | |||||||||
| Other current assets | — | 1,005 | 3,862 | |||||||||
| Property, plant and equipment, net | — | — | 2,885 | |||||||||
| Operating lease right-to-use asset | — | — | 5,574 | |||||||||
| Other assets | — | — | 1,255 | |||||||||
| Total assets of discontinued operations | $ | — | $ | 51,189 | $ | 94,286 | ||||||
| Accounts payable | $ | — | $ | 9,769 | $ | 19,825 | ||||||
| Accrued liabilities | — | 779 | 3,867 | |||||||||
| Deferred revenue | — | 6,764 | 5,989 | |||||||||
| Current portion of lease liabilities | — | 8,976 | 8,917 | |||||||||
| Operating lease liabilities | — | 11,059 | 13,275 | |||||||||
| Other liabilities | — | 2,063 | 2,265 | |||||||||
| Total liabilities of discontinued operations | $ | — | $ | 39,410 | $ | 54,138 | ||||||
are included in the Consolidated Statements of Cash Flows. The following table summarizes the cash flows for discontinued operations that are included in the Consolidated Statements of Cash Flows:
| Thirty-nine Weeks Ended | ||||||||
| (In thousands) | October 31, 2020 | November 2, 2019 | ||||||
| Net cash used in operating activities | $ | — | $ | (26,022 | ) | |||
| Net cash used in investing activities | — | (883 | ) | |||||
| Depreciation and amortization | — | 1,822 | ||||||
| Purchases of fixed assets | — | 883 | ||||||
In June 2014,4. Sale of fye business
| Assets sold | ||||
| Inventory | $ | 50,122 | ||
| Accounts receivable | 62 | |||
| Prepaid expenses and other current assets | 654 | |||
| Other assets | 351 | |||
| fye business assets sold | $ | 51,189 | ||
| Less liabilities assumed: | ||||
| Accounts payable | (9,769 | ) | ||
| Deferred revenue | (6,764 | ) | ||
| Accrued expenses and other current liabilities | (779 | ) | ||
| Other long-term liabilities | (2,063 | ) | ||
| Operating lease liabilities | (20,035 | ) | ||
| fye business liabilities assumed | $ | 39,410 | ||
| Net proceeds | $ | 11,779 | ||
In February 2016,fye business as the FASB issued ASU No. 2016-02, “Leases”, which will replace most existing lease accounting guidance in U.S. GAAP. The core principleassets of this ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. The new standard requires qualitative and specific quantitative disclosuresfye were impaired to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. The new standard will be effective for the Company’s fiscal year beginning February 3, 2019, and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining the method and timing of adoption and assessing the impact of ASU 2016-02 on its consolidated financial statements. Given the nature of the operating leases for the Company’s home office, distribution center, and stores, the Company expects an increase to the carrying value of its assets and liabilities.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment
by eliminating step two from the goodwill impairment test whereby a goodwill impairment loss is determined by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Rather, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for the Company in fiscal 2020, applied on a prospective basis, and early adoption is allowed for interim or annual goodwill impairment tests performed on testing dates after Januaryassets as of February 1, 2017.
2020.
statements.
Note 4. Acquisition and Investment
Business Combination-etailz
On October 17, 2016,consolidated financial statements.
LIBOR rates includes its credit facility. The amendments are effective as of March 12, 2020 through December 31, 2022. Adoption is permitted at any time. The Company paid $32.3 million inis currently evaluating the impact this update will have on its Condensed Consolidated Financial Statements.
During the Company’s second quarter, the share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the earnout escrow account and the $3.1 million
remaining in the earnout escrow account may be payable in cash to the selling shareholders in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.
The amount released from escrow was disbursed during the Company’s second quarter as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and $1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee retention bonus plan from $4.2 million to $5.7 million).
During the Company’s second quarter, the Company recorded a $1.4 million benefit related to its contingent consideration liability. The decrease in the value of the contingent consideration liability resulted from the actual financial results of etailz and the amendment of the earnout agreement as described in the paragraph above. This benefit is recorded in selling, general, and administrative expenses in the Company’s condensed consolidated statements of operations.
The results of operations of etailz are reported in the Company’s etailz segment and have been included in the consolidated results of operations of the Company from the date of acquisition. The following unaudited pro forma financial information for the thirteen and thirty-nine weeks ended October 29, 2016, presents consolidated information as if the etailz acquisition had occurred on February 1, 2016. Because of different fiscal period ends, and in order to present results for comparable periods, the unaudited pro forma consolidated financial information for the thirty-nine weeks ended October 29, 2016, combines (i) the Company’s historical statement of operations for the thirty-nine weeks ended October 29, 2016, and (ii) etailz historical statement of income for the period from January 1, 2016 through August 31, 2016 and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information for the thirteen weeks ended October 29, 2016, combines (i) the Company’s historical statement of operations for the thirteen weeks ended October 29, 2016; and (ii) etailz historical statement of income for the period from July 1, 2016 through August 31, 2016 and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information is presented after giving effect to certain adjustments for acquisition-related costs, depreciation, amortization of definite lived intangible assets, interest expense on acquisition financing, and related income tax effects. The unaudited pro forma financial information is based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor does it project the Company’s financial position or results of operations at any future date or for any future period.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||
| October 29, 2016 | October 29, 2016 | |||||||
| Pro forma total revenue | $ | 90,655 | $ | 287,060 | ||||
| Pro forma net loss | (6,945 | ) | (13,513 | ) | ||||
| Pro forma basic and diluted loss per share | $ | (0.19 | ) | $ | (0.37 | ) | ||
| Pro forma weighted average number of common shares outstanding – basic and diluted | 36,157 | 36,257 | ||||||
Joint Venture
On April 11, 2017, the Company entered into an agreement with another party for the purpose of acquiring and selling certain retail merchandise. etailz holds a 50% economic interest in the arrangement as of October 28, 2017. The initial cash investment was $2.6 million dollars. During the thirty-nine weeks ended October 28, 2017, the Company received distributions in the amount of $1.7 million from the joint venture, of which $0.7 million was a return of capital and $1.0 million was the Company’s share of joint venture income. The remaining investment of $1.9 million was included in other assets in the interim condensed consolidated balance sheets as of October 28, 2017.
Note 5. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in eacha business combination.
Determiningacquisition, including the fair valueCompany’s acquisition of a reporting unit requires the use of significantKaspien in 2016, is subject to many estimates and assumptions, including revenue growth rates, operating margins, discount rates,assumptions. Our identifiable intangible assets that resulted from our acquisition of Kaspien consist of vendor relationships, technology and future market conditions, among others. Goodwill and other long-lived assets are reviewedtradenames. We review amortizable intangible asset groups for impairment ifwhenever events or changes in circumstances indicate that the related carrying amountamounts may not be recoverable.
We are continuing to amortize certain
vendor relationships were written down to their estimated fair value at the end of fiscal 2018 resulting in the recognition of asset impairment charges of $16.4 million.
| October 28, 2017 | ||||||||||||||||
| Amortization Period (in months) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
| Vendor relationships | 120 | $ | 19,100 | $ | 2,010 | $ | 17,090 | |||||||||
| Technology | 60 | 6,700 | 1,403 | 5,297 | ||||||||||||
| Trade names and trademarks | 60 | 3,200 | 647 | 2,553 | ||||||||||||
| $ | 29,000 | $ | 4,060 | $ | 24,940 | |||||||||||
| The changes in net intangibles and goodwill from January 28, 2017 to October 28, 2017 were as follows: | ||||||||||||||||
| (in thousands) | January 28, 2017 | Amortization | October 28, 2017 | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Vendor relationships | $ | 18,522 | $ | 1,432 | $ | 17,090 | ||||||||||
| Technology | 6,302 | 1,005 | 5,297 | |||||||||||||
| Trade names and trademarks | 3,033 | 480 | 2,553 | |||||||||||||
| Net amortized intangible assets | $ | 27,857 | $ | 2,917 | $ | 24,940 | ||||||||||
| Unamortized intangible assets: | ||||||||||||||||
| Goodwill | $ | 39,191 | - | $ | 39,191 | |||||||||||
| Total unamortized intangible assets | $ | 39,191 | - | $ | 39,191 | |||||||||||
October 31, 2020 Vendor relationships 120 $ 19,100 $ 14,587 $ 4,513 $ - Technology 60 6,700 2,587 3,757 356 Trade names and trademarks 60 3,200 - 2,567 633 $ 29,000 $ 17,174 $ 10,837 $ 989
| (amounts in thousands) | February 1, 2020 | Impairment Expense | Amortization Expense | October 31, 2020 | ||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Technology | $ | 647 | $ | - | $ | 291 | $ | 356 | ||||||||
| Trade names and trademarks | 1,113 | - | 480 | 633 | ||||||||||||
| Net amortized intangible assets | $ | 1,760 | $ | - | $ | 771 | $ | 989 | ||||||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (amounts in thousands) | October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | ||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Vendor relationships | $ | - | $ | 29 | $ | - | $ | 87 | ||||||||
| Technology | 97 | 97 | 291 | 291 | ||||||||||||
| Trade names and trademarks | 160 | 160 | 480 | 480 | ||||||||||||
| Total amortization expense | $ | 257 | $ | 286 | $ | 771 | $ | 858 | ||||||||
| Year | Annual Amortization | |||
| ( in thousands) | ||||
| 2017 | $ | 971 | ||
| 2018 | 3,890 | |||
| 2019 | 3,890 | |||
| 2020 | 3,890 | |||
| 2021 | 3,325 | |||
| 2022 | 1,910 | |||
| Thereafter | 7,064 | |||
Fiscal Year Amortization 2020 $ 257 2021 732 2022 - 2023 - 2024 - Thereafter -
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Cost of sales | $ | 163 | $ | 104 | $ | 474 | $ | 301 | ||||||||
| Selling, general and administrative expenses | 3,425 | 2,222 | 9,989 | 5,309 | ||||||||||||
| Total | $ | 3,588 | $ | 2,326 | $ | 10,463 | $ | 5,610 | ||||||||
Note 7. Segment Data
As describedfor the thirteen weeks ended October 31, 2020 and November 2, 2019 was $0.5 million for both periods.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (in thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||
| Total Revenue | ||||||||||||||||
| fye | $ | 52,105 | $ | 62,457 | $ | 176,006 | $ | 202,535 | ||||||||
| etailz | 40,896 | 3,824 | $ | 121,440 | $ | 3,824 | ||||||||||
| Total Company | $ | 93,001 | $ | 66,281 | $ | 297,446 | $ | 206,359 | ||||||||
| Gross Profit | ||||||||||||||||
| fye | $ | 21,347 | $ | 25,932 | $ | 73,342 | $ | 83,459 | ||||||||
| etailz | 10,234 | 940 | 29,714 | 940 | ||||||||||||
| Total Company | $ | 31,581 | $ | 26,872 | $ | 103,056 | $ | 84,399 | ||||||||
| Loss From Operations | ||||||||||||||||
| fye | $ | (7,858 | ) | $ | (5,083 | ) | $ | (17,703 | ) | $ | (10,291 | ) | ||||
| etailz | (253 | ) | (2,725 | ) | (966 | ) | (2,725 | ) | ||||||||
| Total Company | $ | (8,111 | ) | $ | (7,808 | ) | $ | (18,669 | ) | $ | (13,016 | ) | ||||
| Total Assets | ||||||||||||||||
| fye | $ | 186,869 | $ | 222,362 | ||||||||||||
| etailz | 102,077 | 90,887 | ||||||||||||||
| Total Company | $ | 288,946 | $ | 313,249 | ||||||||||||
In connection with the acquisition of etailz and under the terms of the share purchase agreement, as amended (see Note 4), the Company designated $1.5 million of the restricted cash to be made available to satisfy any indemnification claims within 18 months from the date of acquisition and $3.2 million of the restricted cash to equal the maximum earn-out amount that could be paid to the selling shareholders of etailz in accordance with the share purchase agreement, as amended.
In addition, as a result of the death of its former Chairman, the Company received $7.5holds $5.0 million which is held in a rabbi trust, and wasof which $1.0 million is classified as restricted cash in current assets and $4.0 million is classified as restricted cash in other assets on the accompanying interim condensed consolidated balance sheet as of October 28, 2017.
31, 2020.
| October 28, | January 28, | October 29, | ||||||||||
| 2017 | 2017 | 2016 | ||||||||||
| Cash and cash equivalents | $ | 3,924 | $ | 27,974 | $ | 4,708 | ||||||
| Restricted cash | 12,234 | 16,103 | 16,100 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 16,158 | $ | 44,077 | $ | 20,808 | ||||||
October 31, 2020 | February 1, 2020 | November 2, 2019 | ||||||||||
| Cash and cash equivalents | $ | 2,396 | $ | 2,977 | $ | 3,073 | ||||||
| Restricted cash | 5,032 | 5,875 | 6,089 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 7,428 | $ | 8,852 | $ | 9,162 | ||||||
Facility
Interestobligations under the Credit Facility will accrue, atthrough proceeds received from the electionsale of the fye business and borrowings under the new Kaspien credit facility, as further discussed below. Accordingly, the Credit Facility is no longer available to the Company.
PPP Loan amount may be forgiven if the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and the Note, such as payroll costs, benefits, rent, and utilities, there is no assurance that the Company will be successful in qualifying for and receiving forgiveness on the PPP Loan amount. On August 20, 2020, the Company submitted an application for forgiveness to the SBA. On October 30, 2020, the Company received a follow up letter requesting additional information related to its forgiveness application. The Company submitted the requested information on November 9, 2020. As of October 28, 2017,December 15, 2020, the Company had $5.0 million in outstanding borrowings under the revolving credit facility and $49.0 million was available for borrowing. As of October 29, 2016, the Company had $5.9 million in outstanding borrowings under the revolving credit facility and $53.7 million was available for borrowing. The weighted average interest ratehas not received a decision on total, LIBO Rate and Prime Rate, outstanding borrowings for the thirteen week period ended October 28, 2017 and October 29, 2016 was 2.69% and 3.73%, respectively.
As ofrecognized in the thirty-nine weeks ended October 28, 2017, stock31, 2020 was $0.2 million.
The table below outlines the assumptions that the Company used to estimate the fair value of stock based awards granted during the thirty-nine weeks ended October 28, 2017:
155,075.
| 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, 2017 | 2,459,564 | $ | 3.58 | 7.3 | 170,927 | $ | 3.87 | |||||||||||||
| Granted | 620,000 | 1.84 | - | 65,000 | 1.85 | |||||||||||||||
| Forfeited | (288,750 | ) | 3.07 | - | - | - | ||||||||||||||
| Cancelled | (164,150 | ) | 5.43 | - | (5,000 | ) | 3.53 | |||||||||||||
| Exercised | - | - | - | (52,500 | ) | 3.50 | ||||||||||||||
| Balance October 28, 2017 | 2,626,664 | $ | 3.11 | 7.2 | 178,427 | $ | 3.26 | |||||||||||||
| Exercisable October 28, 2017 | 1,361,164 | $ | 3.32 | 5.8 | 63,427 | $ | 4.50 | |||||||||||||
| Employee and Director Stock Award Plans | ||||||||||||||||||||
Number of Shares Subject To Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Other Share Awards (1) | Weighted Average Grant Fair Value | ||||||||||||||||
| Balance February 1, 2020 | 129,196 | $ | 52.11 | 5.8 | 9,945 | $ | 36.75 | |||||||||||||
| Granted | 90,402 | 7.04 | 9.9 | - | - | |||||||||||||||
| Canceled | (89,024 | ) | 51.31 | - | - | - | ||||||||||||||
| Exercised | - | - | - | (9,945 | ) | 36.75 | ||||||||||||||
| Balance October 31, 2020 | 130,574 | $ | 21.46 | 7.0 | - | $ | - | |||||||||||||
| Exercisable October 31, 2020 | 46,900 | $ | 47.18 | 3.0 | - | $ | - | |||||||||||||
| (1) | Other Share Awards include deferred shares granted to Directors and restricted share units granted to executive officers. |
In connection with the acquisition of etailz, the Company issued 1,572,552 restricted shares of Company stock to a key etailz employee, with a grant date fairintrinsic value of $3.56 per share. These shares vest ratably through January 2019. As of October 28, 2017, the Company recognized $2.6 million of compensation cost related to these shares, of which $1.9 millionstock awards exercisable was recorded in fiscal 2017. As of October 28, 2017, there was approximately $3.0 million of unrecognized compensation cost related to these restricted shares that is expected to be recognized as expense over the next 15 months.
November 2, 2019.
2020.
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| October 28, | October 29, | October 28, | October 29, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Service cost | $ | 16 | $ | 15 | $ | 48 | $ | 45 | ||||||||
| Interest cost | 139 | 137 | 417 | 411 | ||||||||||||
| Amortization of prior service costs | 4 | 55 | 12 | 166 | ||||||||||||
| Amortization of net gain(1) | (9 | ) | (4 | ) | (27 | ) | (12 | ) | ||||||||
| Net periodic pension cost | $ | 150 | $ | 203 | $ | 450 | $ | 610 | ||||||||
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (amounts in thousands) | October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | ||||||||||||
| Service cost | $ | - | $ | 14 | $ | - | $ | 42 | ||||||||
| Interest cost | 89 | 142 | 267 | 426 | ||||||||||||
Amortization of net gain(1) | (3 | ) | (5 | ) | (9 | ) | �� | (30 | ) | |||||||
| Net periodic pension cost | $ | 86 | $ | 151 | $ | 258 | $ | 438 | ||||||||
| (1) | The amortization of net gain is related to a director retirement plan previously provided by the Company. |
compared to 1.9 million shares
respective periods:
| Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
| (in thousands, except per share amounts) | October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | ||||||||||||
| Income (loss) from continuing operations | $ | 2,552 | $ | (3,094 | ) | $ | (3,753 | ) | $ | (11,198 | ) | |||||
| Basic income (loss) per common share from continuing operations | $ | 1.40 | $ | (1.70 | ) | $ | (2.06 | ) | $ | (6.16 | ) | |||||
| Diluted income (loss) per common share from continuing operations | $ | 1.39 | $ | (1.70 | ) | $ | (2.06 | ) | $ | (6.16 | ) | |||||
| Loss from discontinued operations | $ | - | $ | (20,061 | ) | $ | - | $ | (27,887 | ) | ||||||
| Basic and diluted loss per common share from discontinued operations | $ | - | $ | (11.03 | ) | $ | - | $ | (15.35 | ) | ||||||
| Net income (loss) | $ | 2,552 | $ | (23,155 | ) | $ | (3,753 | ) | $ | (39,085 | ) | |||||
| Basic income (loss) per common share | $ | 1.40 | $ | (12.73 | ) | $ | (2.06 | ) | $ | (21.51 | ) | |||||
| Weighted average number of common shares outstanding – basic | 1,825 | 1,819 | 1,823 | 1,817 | ||||||||||||
| Diluted income (loss) per common share | $ | 1.39 | $ | (12.73 | ) | $ | (2.06 | ) | $ | (21.51 | ) | |||||
| Weighted average number of common shares outstanding – diluted | 1,829 | 1,819 | 1,823 | 1,817 | ||||||||||||
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.
Store Manager As a result, the liability for the cases listed below is remote.
Two former Store Managers filed actions alleging claims of entitlement to unpaid compensation for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).
Specifically, Carol SpackAction
On May 19, 2017, NatashaState Law with respect to calculating overtime for SAMs. The second, Roper filed a complaint againstv. Trans World Entertainment Corp., was filed in the U.S. District Court for the Northern District of New York, (Case No.: 1:17-cv-0553-TJM-CFH) in which sheAugust 2017 (the “Roper Action”). The Roper Action also alleges that she is entitled to unpaid compensation for overtime under the FLSA. Ms. Roper bringsasserts a nationwide collective action under the FLSAmisclassification claim on behalf of all similarly situated Store Managers.
TRANS WORLD ENTERTAINMENT CORPORATION
November 2, 2019
February 1, 2020.
| • | Partner Obsession | • | Results |
| • | Insights Driven | • | Ownership |
| • | Simplicity | • | Diversity and Teamwork |
| • | Innovation |
Asset Purchase Agreement dated January 23, 2020, by and among the Company, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and Sunrise Records.
fees. charges. 31, 2020 November 2, 2019 improved inventory management. debt. needs. Management anticipates any cash requirements due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, as discussed in capital expenditures. thirty-nine weeks ended November 2, 2019, which was comprised entirely of proceeds from short term borrowings. during fiscal 2020 February 1, 2020. February 1, 2020. SMs. Both actions were consolidated into the Northern District of New York, with the Spack Action being the lead case. February 1, 2020.thenet sales levels, mix of products sold, by discounts negotiated with vendors, discounts offered to customers,obsolescence, distribution costs and Amazon commissions and fulfillment fees paid to Amazon. The Company records its distribution and product shrink expenses in cost of sales. Distribution expenses include those costs associated with receiving, shipping, inspecting and warehousing product and costs associated with product returns to vendors. Warehousing cost of sales also includes obsolescence costs and is reduced by the benefit of vendor allowances, net of direct reimbursements of expense.Amazon commissions, general operating and overhead expenses and depreciation charges (excluding those related to distribution operations, as disclosed in Note 6 to the condensed consolidated financial statements). Selling, general and administrative expenses also include fixed asset write offs associated with store closures and change in square footage, if any, gift card breakage, and etailz related amortization and compensation costs. net inventory investment (merchandise inventory less accounts payable) and working capital (current assets less current liabilities) as relevant indicators of its financial position. See Liquidity and Capital ResourcesCash Flows section for further discussion of these items.1928, 2017October 29, 2016Segment Highlights:etailz results included in the tables below are for the period when etailz was acquired, therefore, etailz results are only included in the thirteenNet revenue and thirty-nine weeks ended October 28, 2017Gross profit. . Thirteen Weeks Ended Thirty-nine Weeks Ended October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016 Total Revenue fye $ 52,105 $ 62,457 $ 176,006 $ 202,535 etailz 40,896 3,824 121,440 3,824 Total Company $ 93,001 $ 66,281 $ 297,446 $ 206,359 Gross Profit fye $ 21,347 $ 25,932 $ 73,342 $ 83,459 etailz 10,234 940 29,714 940 Total Company $ 31,581 $ 26,872 $ 103,056 $ 84,399 Loss From Operations fye $ (7,858 ) $ (5,083 ) $ (17,703 ) $ (10,291 ) etailz (253 ) (2,725 ) (966 ) (2,725 ) Total Company $ (8,111 ) $ (7,808 ) $ (18,669 ) $ (13,016 ) Reconciliation of etailz Loss from Operations to etailz Adjusted Income (Loss) from Operations etailz loss from operations $ (253 ) $ (2,725 ) $ (966 ) $ (2,725 ) Acquisition related transaction expenses - 2,228 - 2,228 Acquisition related amortization and compensation expenses (1) 2,087 $ 303 4,613 303 etailz adjusted income (loss) from operations (2) $ 1,834 $ (194 ) $ 3,647 $ (194 ) (1)Acquisition related expenses for the thirteen weeks ended October 28, 2017 consisted of amortization expense of intangible assets of $1 million and compensation expense of $1.1 million. Acquisition related expenses for the thirty-nine weeks ended October 28, 2017 consisted of amortization expense of intangible assets of $2.9 million and compensation expense of $3.1million, net of a $1.4 million benefit resulted from a contingent consideration liability adjustment.(2)In addition to the results of operations determined in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we reported non-GAAP adjusted operating income for the etailz segment as shown above.Total Revenue.The following table sets forth a year-over-year comparison of the Company’s total revenue: Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) fye revenue $ 52,105 $ 62,457 $ (10,352 ) -16.6 % $ 176,006 $ 202,535 $ (26,529 ) -13.1 % etailz revenue 40,896 3,824 37,072 n/a 121,440 3,824 117,616 n/a Total revenue $ 93,001 $ 66,281 $ 26,720 40.3 % $ 297,446 $ 206,359 $ 91,087 44.1 % TotalNet revenue increased 40.3% and 44.1% for the thirteen and thirty-nine weeks ended October 28, 2017 as compared to the same period last year. The increaseGross profit: Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change (amounts in thousands) $ % $ % Net Revenue $ 38,913 $ 28,616 $ 10,297 36.0 % $ 112,799 $ 98,008 $ 14,791 15.1 % Gross profit 3,891 2,720 1,171 43.1 % 11,626 8,584 3,042 35.4 % % to sales 10.0 % 9.5 % 10.3 % 8.8 % driven by $40.9 million and $121.4 million in revenue for the thirteen and thirty-nine weeks ended October 28, 2017 as a result of the acquisition of etailz in October 2016, which offsets the decline in fye revenue.20fye SegmentThe following table sets forth a period over period comparison of net fye sales by merchandise category: Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change October 28,
2017 October 29,
2016 $ % Comp
Store Net
Sales October 28,
2017 October 29,
2016 $ % Comp
Store Net
Sales(in thousands, except store data) fye net sales $ 50,921 61,215 $ (10,294 ) -16.8 % -11.0 % $ 172,042 199,303 $ (27,261 ) -13.7 % -8.0 % Other revenue 1,184 1,242 (58 ) (4.7 %) 3,964 3,232 732 22.6 % Total revenue $ 52,105 $ 62,457 $ (10,352 ) -16.6 % $ 176,006 $ 202,535 $ (26,529 ) -13.1 % As a % of fye net sales Lifestyle 38.0 % 32.3 % 0.2 % 35.4 % 28.6 % 9.2 % Video 32.3 % 35.2 % -15.4 % 32.9 % 37.3 % -15.8 % Music 18.9 % 21.7 % -23.0 % 20.4 % 23.8 % -20.6 % Electronics 10.4 % 10.1 % -4.3 % 10.8 % 9.4 % 4.3 % Video Games 0.4 % 0.7 % -41.0 % 0.5 % 0.9 % -43.9 % Store Count: 268 294 (26 ) -8.8 % Total Square footage (in thousands) 1,491 1,649 (158 ) -9.6 % Net sales. Net sales decreased 16.8% and 13.7% during the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, as compared to the same period last year. The decline in net sales resulted from an 8.8% decline in total stores in operation for the thirty-nine weeks ended October 28, 2017 as compared to the same period last year, and an 11.0% and 8.0% decline in comparable store net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.Lifestyle:Comparable store net sales in the lifestyle (trend) category increased 0.2% during the thirteen weeks ended October 28, 2017. During the thirty-nine weeks ended October 28, 2017, lifestyle category increased 9.2%. Lifestyle products represented 38.0% and 35.4% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 32.3% and 28.6% in the comparable periods last year. The Company is focused on identifying, creating and delivering merchandise that differentiates its customer experience and brand with unique and engaging products.Media Categories:Media categories, which consist of Video and Music, continue to experience industry wide declines due to non-physical options. As a result, the fye segment is shifting its product mix to growing categories of entertainment and pop culture related merchandise, which is categorized as Lifestyle.Video:Comparable store sales in the video category decreased 15.4% and 15.8% during the thirteen and thirty-nine week periods ended October 28, 2017, respectively. The video category represented 32.3% and 32.9% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 35.2% and 37.3% in the comparable periods last year.Music:During the thirteen and thirty-nine weeks ended October 28, 2017, music sales in comparable stores decreased 23.0% and 20.6%, respectively, versus the thirteen and thirty-nine weeks ended October 29, 2016. The music category represented 18.9% and 20.4% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 21.7% and 23.8% for the thirteen and thirty-nine weeks ended October 29, 2016.21Electronics:Comparable store net sales in the electronics category decreased 4.3% and increased 4.3% during the thirteen and thirty-nine weeks ended October 28, 2017, respectively due to lower average retail prices. Electronics net sales represented 10.4% and 10.8% of total net sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to 10.1% and 9.4% in the comparable periods last year.Other Revenue.Other revenue, which was primarily related to commissions and fees earned from third parties, was approximately $1.2 million and $4.0 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to $1.2 million and $3.2 million in the comparable periods last year.etailz Segmentetailz reported $40.9 million and $121.4 million sales for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. etailz generates revenue across a broad array of product lines primarily through the Amazon Marketplace.22Gross Profit.The following table sets forth a year-over-year comparison of the Company’s gross profit: Thirteen Weeks ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) (in thousands) fye gross profit $ 21,347 $ 25,932 ($ 4,585 ) -17.7 % $ 73,342 $ 83,459 ($ 10,117 ) -12.1 % etailz gross profit 10,234 940 $ 9,294 n/a 29,714 940 $ 28,774 n/a Total gross profit $ 31,581 $ 26,872 $ 4,709 17.5 % $ 103,056 $ 84,399 $ 18,657 22.1 % fye gross profit as a % of fye revenue 41.0 % 41.5 % 41.7 % 41.2 % etailz gross profit as a % of etailz revenue 25.0 % 24.6 % 24.5 % 24.6 % Total gross profit as a % of total revenue 34.0 % 40.5 % 34.6 % 40.9 % Gross profit increased 17.5% to $31.6$38.9 million for the thirteen weeks ended October 28, 2017 compared31, 2020, a 36.0% increase from the comparable prior year period. The increase in net revenue was primarily attributable to $26.9increased velocity and improved average sales price for merchandise sold on the Fulfilled By Amazon US marketplace (“FBA US”). Thirteen Weeks Ended Thirty-Nine Weeks Ended October 31, 2020 November 2, 2019 Change October 31, 2020 November 2, 2019 Change Amazon US 93.2 % 96.1 % -2.9 % 94.3 % 96.0 % -1.7 % Amazon International 5.3 % 3.3 % 2.0 % 4.5 % 3.3 % 1.2 % Walmart & Other Marketplaces 0.5 % 0.2 % 0.3 % 0.5 % 0.3 % 0.2 % Subtotal Retail 99.0 % 99.6 % -0.6 % 99.3 % 99.6 % -0.4 % Subscriptions & Other 1.0 % 0.4 % 0.6 % 0.7 % 0.4 % 0.4 % Total 100.0 % 100.0 % 100.0 % 100.0 % 29, 2016. For31, 2020, as compared to $2.7 million, or 9.5% of net revenue for the comparable prior year period. The increased profit was primarily attributable to a reduction in the cost of sales on the Amazon US Platform and operational efficiencies.28, 2017, gross profit increased 22.1% to $103.131, 2020, as compared to $84.4$8.6 million, or 8.8% of net revenue for the comparable period last year.prior year period. The increase in grossincreased profit iswas primarily the result of the acquisition of etailz in October 2016, which offset the decline in fye gross profit.fye SegmentTotal gross profit as a percentage of total revenue for the thirteenattributable to operational efficiencies and thirty-nine weeks ended October 28, 2017 was 41.0% and 41.7%, respectively, compared to 41.5% and 41.2% for the comparable periods last year.etailz Segmentetailz reported gross profit of $10.2 million and $29.7 million for the thirteen and thirty-nine weeks ended October 28, 2017. etailz gross profit as a percentage of revenue was 25.0% and 24.5% for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.23 Thirteen Weeks ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ % October 28,
2017 October 29,
2016 $ % (in thousands) (in thousands) fye SG&A, excluding depreciation, amortization, and acquistion related transaction costs $ 26,790 $ 28,968 $ (2,178 ) -7.5 % $ 84,102 $ 88,616 ($ 4,514 ) -5.1 % As a % of total FYE revenue 51.4 % 46.4 % 5.0 % 47.8 % 43.8 % 4.0 % etailz SG&A, excluding depreciation, amortization, and acquistion related compensation expenses 9,225 959 8,266 n/a 26,964 959 26,005 n/a etailz acquisition related compensation expenses, net of a contingency adjustment 1,118 303 815 n/a 1,708 303 1,405 n/a Depreciation and amortization 3,425 2,222 1,203 54.1 % 9,989 5,309 4,680 88.2 % etailz acquisition related transaction costs - 2,228 (2,228 ) n/a - 2,228 (2,228 ) n/a Total SG&A $ 40,558 $ 34,680 $ 5,878 16.9 % $ 122,763 $ 97,415 $ 25,348 26.0 % As a % of total revenue 43.6 % 52.3 % 41.3 % 47.2 % Thirteen Weeks Ended Change Thirty-nine Weeks Ended Change (amounts in thousands) $ % $ % Kaspien SG&A $ 4,123 $ 4,139 $ (16 ) (0.4 )% $ 12,320 $ 12,223 $ 97 0.1 % Corporate SG&A expenses 380 1,465 (1,085 ) (74.1 )% 5,589 7,025 (1,436 ) (20.4 )% Total SG&A expenses $ 4,503 $ 5,604 $ (1,101 ) (19.6 )% $ 17,909 $ 19,248 $ (1,339 ) (7.0 )% As a % of total revenue 11.6 % 19.6 % 15.9 % 19.6 % $5.9$97,000 for the thirty-nine weeks ended October 31, 2020 as compared to the comparable prior year period.28, 2017 due31, 2020, as compared to expenses$0.2 million for etailz, acquisition related compensation expenses, and higher depreciation and amortization expenses, offset slightly by lower fye expenses. SG&A expenses increased $25.3the thirteen weeks ended November 2, 2019.28, 201731, 2020 compared to $0.5 million for the thirty-nine weeks ended November 2, 2019. The increase in interest expense was due to expenses for etailz, acquisition related compensation expenses, and higher depreciation and amortization expenses, offset slightly by lower fye expenses, and a benefit recordedincreased long-term borrowings. See Note 9 to the Condensed Consolidated Financial Statements for further detail on the Company’s contingent consideration.SegmentSG&A excluding depreciation, amortization, and acquisitiontransaction. For the thirty-nine weeks ended November 2, 2019, the Company recognized a loss from continuing operations of $27.9 million related transaction costs decreased $2.2 million, or 7.5%, and $4.5 million, or 5.1%,to the fye transaction.28, 2017, respectively. As a percentage31, 2020, based on the Company’s on an evaluation of fye revenue, SG&A expenses, excluding depreciation, amortization, and acquisition related transaction costs for the thirteen and thirty-nine weeks ended October 28, 2017 were 51.4% and 47.8% compared to 46.4% and 43.8% for the same period last year. The increasenew information that occurred in the rate was primarily due to the comp sales decline and expenses to support the upgrading of the Company’s digital and data capability, including the re-platforming of fye.com.etailz Segmentetailz reported SG&A, excluding depreciation, amortization, and acquisition related compensation expenses, of $9.2 million and $27.0 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, which primarily includes commission fees and payroll costs.Depreciation and Amortization.Consolidated depreciation and amortization expense increased $1.2 million and $4.7 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Amortization of intangibles, as described in Note 5 to the condensed consolidatedcurrent financial statements, increased $0.8 million and $2.8 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Depreciation expense increased $0.4 million and $1.9 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, primarily due to the fye segment’s investments in technology enhancements, new and remodeled stores and the chain wide rollout of new marketplace fixtures to support the fye segment’s shift in merchandising assortment from media categories to its lifestyle category.24Income from Joint Venture.etailz segment is a party to a Joint Venture Agreement as described in Note 4 to the Company’s condensed consolidated financial statements. Income from the joint venture was $866 thousand and $1,038 thousand for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.Interest Expense.Interest expense was $83 thousand and $200 thousand during the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Interest expense consisted primarily of unused commitment fees and the amortization of fees related to the Company’s credit facility. Interest expense during the thirteen and thirty-nine weeks ended October 29, 2016 was $179 thousand and $523 thousand, respectively. The reduction in interest expense was due to lower commitment fees and lower interest rates resulted from the amendment of the credit facility as discussed in Note 9 to the interim condensed consolidated financial statements.Gain (Loss) on Insurance Proceeds.The gain on insurance proceeds related to the death of the Company’s former Chairman was $8.7 million during the thirty-nine weeks ended October 28, 2017, which consisted of an $8.8 million gain recorded during the first fiscal quarter of 2017 and a loss of $129 thousand recorded during the second fiscal quarter of 2017.Other Income. Other income was $59 thousand and $91 thousand during the thirteen and thirty-nine weeks ended October 28, 2017, respectively, compared to $51 thousand and $1.1 million for the same periods last year. Other income for the thirty-nine weeks ended October 29, 2016 included an $800 thousand gain on the sale of an investment.Income Tax Expense. During the third quarter of fiscal 2016, in connection with the acquisition of etailz,reporting period, the Company recognized arecorded an income tax benefit of $7.5$3.5 million related to the reductionrecognition of its valuation allowance equivalentpreviously unrecognized income tax benefits pursuant to ASC 740-10-25, Accounting for Income Taxes – Recognition. Prior to the net deferredcurrent financial reporting period, the Company had accrued the liabilities for unrecognized income tax liabilities recorded onbenefits, including accrued interest and penalties related to tax positions created by the etailz opening balance sheet. In assessing the realizabilityfye business. As a result of the net deferred tax assets at the timefye transaction and a reorganization of the acquisition of etailz, management considered whether it is more likely than not that some portion or all ofCompany’s corporate structure, the remaining deferred tax assetsCompany will not be realizable. Management consideredutilize the scheduled reversal of taxable temporary differences, projected future taxable income when combining Trans World Entertainment projected income or losstax attributes attributable to the tax positions and the corporate entities associated with etailz projected income or loss, andthe tax planning strategies when making this assessment. positions have been liquidated. the available objective evidence, management concluded that a full valuation allowance should be recorded against itsthe Company's deferred tax assets net of the deferred tax liabilities recorded in connection with the etailz acquisition. As a result, there were insignificant tax expense (benefit) amounts recorded during the thirteen weeks ended November 2, 2019 and the thirty-nine weeks ended November 2, 2019.28, 2017.
31, 2020 was $3.8 million as compared to $39.1 million for the comparable prior year period.25Net Loss. The following table sets forth a period over period comparison of the Company’s net loss: Thirteen Weeks Ended Thirty-nine Weeks Ended Change Change October 28,
2017 October 29,
2016 $ October 28,
2017 October 29,
2016 $ (in thousands) (in thousands) Loss before income tax $ (8,135 ) $ (7,936 ) $ (199 ) $ (10,045 ) $ (12,471 ) $ 2,426 Income tax expense (benefit) (64 ) (7,452 ) 7,388 40 (7,358 ) 7,398 Net loss $ (8,071 ) $ (484 ) $ (7,587 ) $ (10,085 ) $ (5,113 ) $ (4,972 ) For the thirteen and thirty-nine weeks ended October 28, 2017, the Company’s net loss increased $7.6 million and $5.0 million, respectively. The increase in net loss was primarily due to the income tax benefit recorded in the third quarter of 2016.In connection withpreparationpurchase of inventory. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and amount of our net revenue; the timing and amount of our operating expenses; the timing and costs of working capital needs; successful implementation of our strategy and planned activities; and our ability to overcome the impact of the condensed consolidated financial statements,COVID-19 pandemic.conducted an evaluation as to whether there were conditionsmeet its liabilities and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year afteris dependent on improved profitability, the datecontinued implementation of the issuance, orstrategic initiative to reposition Kaspien as a platform of software and services, the date of availability of future funding, implementation of one or more corporate initiatives to reduce costs at the parent company level (which could include a voluntary delisting from NASDAQ and deregistering of our Common Stock in order to substantially eliminate the costs associated with being a public company), satisfying all unassumed liabilities of the fye segment and other strategic alternatives, including selling all or part of the remaining business or assets of the Company, and overcoming the impact of the COVID-19 pandemic.be issued, noting that theremaintain stockholders’ equity of at least $2,500,000 and as of August 4, 2020, the Company did not appearmeet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations.evidenceable to realize assets and discharge liabilities in the normal course of substantial doubtbusiness. The ability of the entity’s abilityCompany to meet its liabilities and to continue as a going concern.Theconcern is dependent on continued improved profitability and the other factors set forth in the preceding paragraph. For the next 12 months, management believes that the Company’s primary sources of working capital are cash provided by operations and borrowing capacity under its revolving credit facility. The Company’s cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory purchases and returns, the related terms on the purchases and capital expenditures. Management believes itexisting liquidity will havebe adequate resources to fund its cash needs for the foreseeable future, including itsworking capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments.Notenote 9 toin the Company’s interim condensed consolidated financial statements.26 As of or for the
Thirty-nine Weeks Ended Change (in thousands) October 28,
2017 October 29,
2016 $ Operating Cash Flows (33,947 ) (29,879 ) (4,068 ) Investing Cash Flows 6,028 (52,226 ) 58,254 Financing Cash Flows - (1,398 ) 1,398 Capital Expenditures (1) (6,392 ) (16,726 ) 10,334 Purchases of business, net of cash acquired (1) - (36,600 ) 36,600 Cash, Cash Equivalents, and Restricted Cash (2) 16,158 20,808 (4,650 ) Merchandise Inventory 144,754 157,827 (13,073 ) Working Capital 95,951 91,617 4,334 (1) Included in Investing Cash Flows (2) Cash and cash equivalents per condensed consolidated balance sheets $ 3,924 $ 4,708 $ (784 ) Add: restricted cash 12,234 16,100 (3,866 ) Cash, cash equivalents, and restricted cash $ 16,158 $ 20,808 $ (4,650 ) Change (amounts in thousands) $ Operating Cash Flows $ (15,272 ) $ (39,085 ) $ 23,813 Investing Cash Flows 10,884 (2,013 ) 12,897 Financing Cash Flows 3,004 27,771 (24,767 ) Capital Expenditures (935 ) (2,128 ) 1,193 Cash, Cash Equivalents, and Restricted Cash 7,428 9,162 (1,734 ) Merchandise Inventory 27,204 22,522 4,682 Included in Investing Cash Flows Cash and cash equivalents per condensed consolidated balance sheets $ 2,396 $ 3,073 (677 ) Add: restricted cash 5,032 6,089 (1,057 ) Cash, cash equivalents, and restricted cash $ 7,428 $ 9,162 $ (1,734 ) $34.0$15.3 million primarily due to net loss of $3.8 million, a $5.3 million decrease in accrued expenses and a $9.4 million increase in inventory partially offset by a $1.7 million decrease in accounts receivable, and a $2.5 million decrease in prepaid expenses and other current assets. The decrease in accrued expenses is primarily attributable to the payment of obligations related to the fye business.28, 201731, 2020, which primarily due to a net lossconsisted proceeds from the sale of $10.1the fye business, partially offset by capital expenditures of $0.9 million. Cash used in investing activities was $2.0 million adding back depreciation and amortizationfor the thirty-nine weeks ended November 2, 2019, which primarily consisted of $10.5 million and non-cash compensation of $2.3 million, less seasonable increase in merchandise inventory of $18.7 million, the adjustment to the contingent consideration liability of $1.4 million, the gain on insurance proceeds of $8.7 million, and reductions in accounts payable and deferred revenue of $6.9 million and $2.9 million respectively.investingfinancing activities was $6.0$30 million for the thirty-nine weeks ended October 28, 2017, which consisted31, 2020. The primary source of Company owned life insurancecash was borrowings from the New Credit Facility of $8.5 million, the Subordinated Loan Agreement of $5.2 million and SERP benefits proceedsborrowings from the PPP of $14.4$2.0 million less $6.4 million in capital expenditures, and a $2.6 million investment in a joint venture.Cash providedpartially offset by financing activities was comprisedthe payoff of $5.0 million proceeds from short-term borrowings.the Credit Facility of $13.1 million. Cash used in financing activities was comprised of $5.0$27.8 million payment to the etailz shareholders in connection with the amendment to the share purchase agreement.In January 2017, the Company entered into a $50 million asset based credit facility (“Credit Facility”) which amended the previous credit facility. The availability under the Credit Facility is subject to limitations based on inventory levels. The principal amount of all outstanding loans under the Credit Facility, together with any accrued but unpaid interest, are due and payable in January 2022, unless otherwise paid earlier pursuant to the terms of the Credit Facility. Payments of amounts due under the Credit Facility are secured by the assets of the Company. The Credit Facility contains a provision to increase availability to $75 million during October to December of each year, as needed. During the third quarter of fiscal 2017, the Company exercised the right to increase its borrowing base to $60 million, subject to the same limitations noted above.Interest under the Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability, with the Applicable Margin for LIBO Rate loans ranging from 2.25% to 2.75% and the Applicable Margin for Prime Rate loans ranging from 0.75% to 1.25%. In addition, a commitment fee ranging from 0.375% to 0.50% is also payable on unused commitments.The Credit Facility contains customary affirmative and negative covenants, including restrictions on dividends and share repurchases, incurrence of additional indebtedness and acquisitions, covenants around the net27number of store closings, and restrictions related to the payment of cash dividends, including limiting the amount of dividends and share repurchases to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment.Refer to footnote 9 in the interim condensed consolidated financial statements for further information regarding the Company’s Credit Facility. thirteen and thirty-nine weeks ended October 28, 2017,31, 2020, the Company made capital expenditures of $2.2$0.9 million. The Company currently plans to spend approximately $1.5 million and $6.4 million, respectively. The Company’s planned annual fiscal 2017for capital expenditures is approximately $8.0 million.January 28, 2017February 1, 2020 includes a summary of the critical accounting policies and methods used by the Company in the preparation of its interim condensed consolidated financial statements. There have been no material changes or modifications to the policies since January 28, 2017.32, Recently Adopted Accounting Pronouncements section contained in Item 1, “Notes to Interim Condensed Consolidated Financial Statements”, is incorporated herein by reference.Non-GAAP Measures:This Form 10-Q contains certain non-GAAP metrics, including: adjusted operating income for the etailz segment and SG&A excluding depreciation, amortization, and acquisition related transaction and compensation expenses for each reporting segment. A non-GAAP measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. Non-GAAP items are provided because management believes that, when reconciled from the GAAP items to which they relate, they provide additional useful information to investors regarding the Company’s operational performance.The Company calculates etailz adjusted income from operations to evaluate its own operating performance and as an integral part of its planning process. The Company presents etailz adjusted income from operations as a supplemental measure because it believes such a measure provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.The Company calculates SG&A, excluding depreciation, amortization, and acquisition related compensation expenses to evaluate its own operating performance and as an integral part of its planning process. The Company presents SG&A, excluding depreciation, amortization, and acquisition related compensation expenses as a supplemental measure because it believes such a measure provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.28TRANS WORLD ENTERTAINMENT CORPORATIONCredit Facility,revolving credit facility, the Company is subject to risk resulting from interest rate fluctuations since interest on the Company’s borrowings under its Credit Facilitycredit facility can be variable.Interest under the Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability as defined in the Credit Agreement, with the Applicable Margin for LIBO Rate loans ranging from 2.25% to 2.75% and the Applicable Margin for Base Rate loans ranging from 0.75% to 1.25%.variable. If interest rates on the Company’s Credit Facilityrevolving credit facility were to increase by 25 basis points, and to the extent borrowings were outstanding, for every $1,000,000 outstanding on the facility, income before income taxesinterest expense would be reducedincreased by $2,500 per year. For a discussion of the Company’s accounting policies for financial instruments and further disclosures relating to financial instruments, see “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended January 28, 2017. The Company does not currently hold any derivative instruments.ChiefPrincipal 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, 2017,31, 2020, have concluded that as of such date the Company’s disclosure controls and procedures were effective and designed to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The acquisition of etailz was significant to There have been no changes in the Company and was consummated effective October 17, 2016. Upon consummation of the acquisition, etailz became a consolidated subsidiary of the Company. As of October 28, 2017 etailz operations are fully incorporated within the Company, includingCompany’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.29TRANS WORLD ENTERTAINMENT CORPORATIONStore Manager As a result, the liability for the cases listed below is remote.ActionsTwo former Store Managers filed actions alleging claims of entitlement to unpaid compensation for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).Specifically, Carol SpackActionTrans World Entertainment Corporation (Trans World)the Company and Synapse Group, Inc. in the United States District Court for the District of Massachusetts, Boston Division (Case No.1:18-cv-12377-DPW) concerning enrollment in the Company’s Backstage Pass VIP loyalty program and associated magazine subscriptions. The complaint alleged, among other things, that the Company’s “negative option marketing” misled consumers into enrolling for membership and subscriptions without obtaining the consumers’ consent. The complaint sought to represent a nationwide class of “all persons in the United States” who were enrolled in and/or charged for Backstage Pass VIP memberships and/or magazine subscriptions, and to obtain statutory and actual damages on their behalf.on April 20, 2017 (Case No.: 3:17-cv-02687-BRM-LHG) alleging(the “Spack Action”). The Spack Action alleges that she is entitled to unpaid compensation for overtime under the federal Fair Labor Standards Act (FLSA). She brings a nationwide collective action under the FLSA on behalf of allCompany misclassified Store Managers and(“SMs”) as exempt nationwide. It also alleges that Trans World improperly calculated overtime for Senior Assistant Managers. SheManagers (“SAMs”) nationwide, and that both SMs and SAMs worked “off-the-clock.” It also brings class action claims underalleges violations of New Jersey and Pennsylvania law on behalf of all persons who worked as Store Managers in New Jersey or Senior Assistant Managers in Pennsylvania.On May 19, 2017, NatashaState Law with respect to calculating overtime for SAMs. The second, Roper filed a complaint againstv. Trans World Entertainment Corp., was filed in the U.S. District Court for the Northern District of New York, (Case No.: 1:17-cv-0553-TJM-CFH) in which sheAugust 2017 (the “Roper Action”). The Roper Action also alleges that she is entitled to unpaid compensation for overtime under the FLSA. Ms. Roper bringsasserts a nationwide collective action under the FLSAmisclassification claim on behalf of all similarly situated Store Managers.January 28, 2017.None.30
None.(A) Exhibits - Description31.1 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) 31TRANS WORLD ENTERTAINMENT CORPORATIONDecember 7, 201715, 2020By: /s/ Michael FeurerKunal Chopra Michael FeurerKunal Chopra ChiefPrincipal Executive Officer (Principal Executive Officer) December 7, 201715, 2020By: /s/ John AndersonEdwin Sapienza John AndersonEdwin Sapienza Chief Financial Officer (Principal and Chief Accounting Officer) 32