Voluntary Petition – On June 30, 2022, the Debtors filed voluntary petitions under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”).

On July 11, 2022, the United States Trustee for Region 3 appointed an official committee of unsecured creditors pursuant to section 1102 of the Bankruptcy Code. Generally, statutory committees and their legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to the Chapter 11 Cases. On July 20, 2022, the Debtors received approval of their customary motions filed on the Petition Date seeking court authorization to continue business operations during the Chapter 11 Cases, including the continued payment of employee wages and benefits.

On July 25, 2022, the Debtors entered into a secured super-priority debtor in possession credit, guaranty and security agreement (the “DIP Credit Agreement”) with Asurion, as lender, pursuant to which the Company borrowed $55.0 million in multiple drawings (the “DIP Loans”) from Asurion on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and the Company borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. The Company borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by the Company to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), for working capital and other general corporate purposes, and to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was to be added to the principal amount of the loan and accrue additional interest thereafter and was to be payable in kind. The DIP Loans had a scheduled maturity date of September 30, 2022, and were to be due and payable in full in cash on such date or such earlier date as provided in the DIP Credit Agreement. As described below in “Asset Sale Agreement”,

the DIP Loans were paid in full and the DIP Credit Agreement was terminated as part of the 363 Sale (as defined below).

Asset Sale Agreement – On July 25, 2022, the Debtors entered into an Asset Purchase Agreement (the "Purchase Agreement") with Asurion to sell substantially all of their assets in the United States pursuant to a sale conducted under Section 363 of the U.S. Bankruptcy Code. The Purchase Agreement provides for aggregate consideration in the amount of up to $110.0 million subject to various deductions including a $23.8 million holdback amount (the “Holdback”). The Holdback is comprised of deferred revenue, customer chargebacks, post-closing residuals and inventory losses, and such amount earned, if any, will be released to the Company within eight months following closing of the transaction.

Pursuant to the Purchase Agreement, on August 31, 2022, the Debtors completed their sale of substantially all of their assets in the United States to Asurion for approximately $110.0 million, subject to various deductions including a $23.8 million holdback amount. The 363 Sale was conducted under the provisions of Section 363 and was approved by the Bankruptcy Court on August 12, 2022. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Loans were repaid in full and such credit agreements were terminated.

Liabilities Subject to Compromise – The accompanying unaudited condensed consolidated balance sheet as of June 30, 2022 includes amounts classified as liabilities subject to compromise, which represent liabilities that have been recorded at their estimated allowed claim amount.

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each Debtor, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline, or the bar date, for general claims, which was set by the Bankruptcy Court as September 19, 2022. The governmental bar date has been set as December 27, 2022.

The Debtors are in the process of reviewing, investigating, and reconciling proofs of claims filed against the Debtors with the amounts reflected in their books and records. The Debtors, and/or their successors-in-interest pursuant to a Chapter 11 plan, will continue the claims reconciliation process and object, as necessary, to asserted claims, including on the basis that they have been amended or superseded by subsequently filed proofs of claims, are without merit, have already been paid, are overstated or should be adjusted or expunged for other reasons. As a result of this process, the Debtors may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. As part of its ongoing review, the Company is not aware of any claims that may require a material adjustment to the accounts and balances as reported as of June 30, 2022.

The following table summarizes the components of liabilities subject to compromise included on the unaudited condensed consolidated balance sheet as of June 30, 2022 (in thousands):


(in thousands)	June 30, 2022
Accounts payable	$	6,794
Related party payable to Enjoy UK		5,941
Accrued expenses and other current liabilities		2,528
Contract liability(1)		13,359
Related party unsecured promissory note		10,000
Operating lease liabilities		30,226
Liabilities subject to compromise	$	68,848

(1) Contract liability as of June 30, 2022 relates to customer prepayments and customer chargebacks. A contract liability is recognized when the Company receives payment in advance from a customer but the Company has not yet satisfied its performance obligation. In addition, certain of the Company’s contracts contain provisions that allow for a chargeback by the customer of the Company’s fee for selling the incremental service if the Consumer cancels such services within a specified period from the visit. Chargebacks are recognized as a reduction of revenue, in the period such visit occurs, using an estimate derived from historical information regarding Consumer cancelations of specific services as well as real-time information provided by the customer. Chargeback estimates have historically been presented as a reduction to accounts receivables, net, in the consolidated balance sheets as the contractual right of offset existed, however, the amount is presented as liability as of June 30, 2022 given there were no outstanding receivables from the customer at the end of the period.

The Company will continue to evaluate the amount and classification of our pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of liabilities subject to compromise may change.

As of June 30, 2022, the principal and accrued interest associated with the Bridge Loan (as further discussed in Note 10) were not classified as liabilities subject to compromise as this obligation is fully collateralized.

Reorganization Items, net – Due to the timing of the filing of the Chapter 11 Cases on June 30, 2022, the amount of Reorganization items for the three and six months ended June 30, 2022 is immaterial and have not been presented within the financial statements and related footnote disclosures. There was no cash paid for Reorganization items for the three and six months ended June 30, 2022.

Restructuring Expenses – During the six months ended June 30, 2022, the Company incurred legal and professional fees and executed a reduction in workforce in the United States, U.K. and Canada as part of its restructuring efforts. The reductions in workforce were considered terminations without cause under certain employee’s respective employment agreements, which entitled them to certain termination benefits.

For the three and six months ended June 30, 2022, the Company incurred a total of $13.0 million in costs of which $2.2 million is included within discontinued operations. The following table summarizes the Restructuring expenses:


	Continuing Operations		Discontinued Operations
Legal fees	$	4,985	$	—
Professional fees		2,460		—
Severance		3,397		—
Payments in lieu of notice termination benefits		—		2,153
Total restructuring expenses	$	10,842	$	2,153

There was no restructuring liability balance as of the beginning of period. A significant portion of legal fees and professional fees incurred during the three and six months ended June 30, 2022, was paid as of June 30, 2022. The severance remains outstanding as of June 30, 2022. The termination benefits related to payment in lieu of notice was paid on June 30, 2022.

Condensed Combined Debtor-In-Possession Financial Information – The following condensed combined financial statements include Legacy EJY, Inc., Legacy EJY Operating Corp. and Legacy EJY Subsidiary LLC, which are debtors under US Chapter 11. As of June 30, 2022, Enjoy Canada and Enjoy UK are considered non-Debtor entities.

The financial information for the debtor entities is presented below in an unaudited condensed combined balance sheet as of June 30, 2022:

CONDENSED COMBINED DEBTORS BALANCE SHEET

(Amounts in thousands)

(Unaudited)


	Debtor Entities
	June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	440
Restricted cash		2,530
Accounts receivable, net		1,153
Prepaid expenses and other current assets		7,670
Total current assets		11,793
Property and equipment, net		9,687
Operating lease right-of-use assets		27,157
Intangible assets, net		817
Other assets		4,749
Total assets	$	54,203
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	637
Payable to Enjoy Canada		390
Accrued expenses and other current liabilities		11,371
Bridge Loan		2,500
Total current liabilities		14,898
Derivative warrant liabilities		157
Liabilities subject to compromise		68,848
Total liabilities		83,903
Total stockholders’ equity		(29,700	)
Total liabilities and stockholders’ equity	$	54,203

The results of operations and cash flow activities for the debtor entities while in bankruptcy during the period ended June 30, 2022 are not material to the condensed consolidated financial statements of the Company.

Impairment of Assets – In connection with the winding down of the UK and Canadian operations, the Company recognized impairment of certain assets as shown below:


	Continuing Operations		Discontinued Operations
Accounts receivable, net	$	889	$	224
Prepaid expenses and other current assets		101		1,102
Property and equipment, net		1,709		3,574
Operating lease right-of-use assets		4,685		6,399
Other assets		443		1,508
Total assets impaired	$	7,827	$	12,807