UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
|
||
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
Incorporation or Organization) |
|
Identification Number) |
(Address of principal executive offices) (Zip code)
(
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
|
|
The |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
☒ |
|
|
|
|
|
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
|
|
|
|
|
|
|
|
|
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at November 18, 2022 |
Common Stock, par value $0.01 per share |
|
Table of Contents
PART I. |
4 |
|
|
|
|
ITEM 1. |
4 |
|
|
|
|
|
Condensed Consolidated Balance Sheets as of October 1, 2022 and July 2, 2022 |
4 |
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
|
|
|
7 |
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
8 |
|
|
|
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
|
|
|
ITEM 3. |
33 |
|
|
|
|
ITEM 4. |
33 |
|
|
|
|
PART II. |
34 |
|
|
|
|
ITEM 1. |
34 |
|
|
|
|
ITEM 1A. |
34 |
|
|
|
|
ITEM 5. |
34 |
|
|
|
|
ITEM 6. |
35 |
|
|
|
|
|
36 |
|
|
|
|
2
Forward-Looking Statements
This Form 10-Q contains forward looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management’s current expectations, estimates and projections. These statements may be found throughout this Form 10-Q, particularly under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others. Forward looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward looking statements are expressed differently. You should consider statements that contain these words or words that state other “forward looking” information carefully because they describe our current expectations, plans, strategies and goals and our beliefs concerning future business conditions, future results of operations, future financial positions, and our current business outlook. Forward looking statements also include statements regarding the Company’s strategy, future operations, performance and prospects, sales and growth expectations, our liquidity, capital expenditure plans, future store openings and closings, our inventory management plans and merchandising and marketing strategies.
The terms “Tuesday Morning,” “the Company,” “we,” “us,” and “our” as used in this Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.
Reference is hereby made to the Company’s filings with the Securities and Exchange Commission, including, but not limited to, "Item 1A. Risk Factors" of the Company's most Annual Report on Form 10-K for the fiscal year ended July 2, 2022, for examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following: the effects and length of the COVID-19 pandemic; changes in economic and political conditions which may adversely affect consumer spending, including the impact of current inflationary pressures; our ability to realize anticipated benefits from the Pier 1 licensing arrangement, including disruptions in the shipping and importation or increases in the costs of imported products; our ability to identify and respond to changes in consumer trends and preferences; our ability to mitigate reductions of customer traffic in shopping centers where our stores are located; increases in the cost or a disruption in the flow of our products, including the extent and duration of the ongoing impacts to domestic and international supply chains from the COVID-19 pandemic; impacts to general economic conditions and supply chains from the disruption in Europe; impacts of inflation and increasing interest rates; our ability to continuously attract buying opportunities for off-price merchandise and anticipate consumer demand; our ability to obtain merchandise on varying payment terms; our ability to successfully manage our inventory balances profitably; our ability to effectively manage our supply chain operations; loss of, disruption in operations of, or increased costs in the operation of our distribution center facility; our ability to generate sufficient cash flows, maintain compliance with our debt agreements and continue to access the capital markets; unplanned loss or departure of one or more members of our senior management or other key management; increased or new competition; our ability to maintain and protect our information technology systems and technologies and related improvements to support our growth; increases in fuel prices and changes in transportation industry regulations or conditions; changes in federal tax policy including tariffs; the success of our marketing, advertising and promotional efforts; our ability to attract, train and retain quality employees in appropriate numbers, including key employees and management; increased variability due to seasonal and quarterly fluctuations; our ability to protect the security of information about our business and our customers, suppliers, business partners and employees; our ability to comply with existing, changing and new government regulations; our ability to manage risk to our corporate reputation from our customers, employees and other third parties; our ability to manage litigation risks from our customers, employees and other third parties; our ability to manage risks associated with product liability claims and product recalls; the impact of adverse local conditions, natural disasters and other events; our ability to manage the negative effects of inventory shrinkage; our ability to manage exposure to unexpected costs related to our insurance programs; increased costs or exposure to fraud or theft resulting from payment card industry related risk and regulations; our ability to meet all applicable requirements for continued listing of our common stock on The Nasdaq Stock Market, including the minimum bid requirement of $1.00 per share, and our ability to remediate our material weakness in internal control over financial reporting and to maintain an effective system of internal controls over financial reporting. The Company’s filings with the SEC are available at the SEC’s web site at www.sec.gov.
The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements were made. Except as may be required by law, the Company disclaims obligations to update any forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events. Investors are cautioned not to place undue reliance on any forward-looking statements.
3
PART I — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Tuesday Morning Corporation
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share data)
|
|
October 1, |
|
|
July 2, |
|
||
|
|
2022 |
|
|
2022 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total Current Assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Deferred financing costs |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Current portion of long term debt |
|
$ |
|
|
$ |
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Total Current Liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Operating lease liabilities — non-current |
|
|
|
|
|
|
||
Borrowings under revolving credit facility |
|
|
|
|
|
|
||
Long term debt (see Note 3 for amounts due to related parties) |
|
|
|
|
|
|
||
Derivative liability |
|
|
|
|
|
|
||
Other liabilities — non-current |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, par value $ |
|
|
|
|
|
|
||
Common stock, par value $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Retained deficit |
|
|
( |
) |
|
|
( |
) |
Less: |
|
|
( |
) |
|
|
( |
) |
Total Stockholders’ Equity |
|
|
|
|
|
|
||
Total Liabilities and Stockholders’ Equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Tuesday Morning Corporation
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
|
|
Three Months Ended |
|
|||||
|
|
October 1, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Cost of sales |
|
|
|
|
|
|
||
Gross margin |
|
|
|
|
|
|
||
Selling, general and administrative expenses |
|
|
|
|
|
|
||
Restructuring and impairment charges |
|
|
|
|
|
|
||
Operating loss before interest, reorganization and other expense |
|
|
( |
) |
|
|
( |
) |
Other income/(expense): |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Reorganization items, net |
|
|
|
|
|
( |
) |
|
Gain on derivative |
|
|
|
|
|
|
||
Loss on debt extinguishment |
|
|
( |
) |
|
|
|
|
Other income/(expense), net |
|
|
( |
) |
|
|
|
|
Other income/(expense) total |
|
|
( |
) |
|
|
( |
) |
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Income tax expense/(benefit) |
|
|
|
|
|
( |
) |
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings Per Share |
|
|
|
|
|
|
||
Net loss per common share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average number of common shares: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Tuesday Morning Corporation
Condensed Consolidated Statements of Stockholders' Equity (unaudited)
(In thousands)
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Total |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at July 2, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares issued on conversion of debt |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Shares issued or canceled in connection with |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Balance at October 1, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Total |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at June 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares issued or canceled in connection with |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Tuesday Morning Corporation
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
|
|
Three Months Ended |
|
|||||
|
|
October 1, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net earnings/(loss) to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Loss on impairment of assets |
|
|
|
|
|
|
||
Amortization of financing costs and interest expense |
|
|
|
|
|
|
||
(Gain)/loss on disposal of assets |
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Gain on derivatives |
|
|
( |
) |
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Construction allowances from landlords |
|
|
|
|
|
|
||
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
( |
) |
|
Prepaid and other current assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
( |
) |
|
Operating lease assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Other liabilities — non-current |
|
|
|
|
|
( |
) |
|
Net cash provided by/(used) in operating activities |
|
|
|
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from borrowings under revolving credit facility |
|
|
|
|
|
|
||
Repayments of borrowings under revolving credit facility |
|
|
( |
) |
|
|
( |
) |
Issuance of convertible debt |
|
|
|
|
|
|
||
Payment of FILO A and B facilities |
|
|
( |
) |
|
|
|
|
Proceeds from FILO B facility |
|
|
|
|
|
|
||
Proceeds from exercise of employee stock options |
|
|
|
|
|
|
||
Tax payments related to vested stock awards |
|
|
( |
) |
|
|
( |
) |
Payments on finance leases |
|
|
|
|
|
( |
) |
|
Payment of financing fees |
|
|
( |
) |
|
|
|
|
Net cash provided by/(used in) financing activities |
|
|
( |
) |
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid (refunded) |
|
|
|
|
|
( |
) |
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
||
Conversion of debt to |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Tuesday Morning Corporation
Notes to Condensed Consolidated Financial Statements (unaudited)
The terms “Tuesday Morning,” the “Company,” “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries. Other than as disclosed in this document, please refer to our Annual Report on Form 10-K for the fiscal year ended July 2, 2022 for our critical accounting policies.
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation — The condensed consolidated financial statements herein include the accounts of Tuesday Morning Corporation and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. We do not present a consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods.
Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended July 2, 2022. The consolidated balance sheet at July 2, 2022 has been derived from the audited consolidated financial statements at that date. The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.
The Company is in a fiscal year end with 52-53 week year ending on the Saturday closest to June 30. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks.
(A) Cash and Cash Equivalents—Cash and cash equivalents include credit card receivables and all highly liquid instruments with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. At October 1, 2022 and July 2, 2022, credit card receivables from third party consumer credit card providers were $
(B) Restricted Cash—There was
(C) Fair Value Measurements—The Company applies the provisions of ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
Liquidity
The Company has evaluated its going concern disclosure requirements as of October 1, 2022, under ASC-205 “Going Concern”. The Company determined that as of July 2, 2022, there was substantial doubt about the Company’s ability to remain a going concern. However, the Company concluded that as a result of the funds generated from the Private Placement (as defined in Note 3 below), and the funds expected to be generated from operating activities in fiscal 2023, available cash and cash equivalents and borrowings under the New ABL Facility will be sufficient to fund its planned operations and capital expenditure requirements for at least twelve months, and comply with its debt covenant of maintaining $
8
Management's expected plans to generate adequate funds from operating activities, include cost management of payroll, reductions in year over year distribution costs, the sale of new product categories, and better alignment of merchandise purchases and receipts with sales demand, among others. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable, as of November 22, 2022.
Emergence from Chapter 11 Bankruptcy Proceedings
In response to the impacts of the COVID-19 pandemic, on
In early June 2020, in accordance with orders of the Bankruptcy Court, we commenced the process to close
On November 16, 2020, the Company and its subsidiaries filed with the Bankruptcy Court a proposed Revised Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Amended Plan”) and a proposed Amended Disclosure Statement (the “Amended Disclosure Statement”) in support of the Amended Plan describing the Amended Plan and the solicitation of votes to approve the same from certain of the Debtors’ creditors with respect to the Chapter 11 Cases. The Amended Plan and the Amended Disclosure Statement contemplated the debt financing transactions described in Note 3 below under the caption “ABL Credit Agreements,” the exchange and Rights Offering (defined in Note 12 below) and the sale-leaseback transactions described in Note 8 below.
On December 23, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Amended Plan, with certain modifications described in the Confirmation Order (as modified and confirmed, the “Plan of Reorganization”). On December 31, 2020, all of the conditions precedent to the Plan of Reorganization were satisfied and the Company completed the debt financing and sale-leaseback contemplated in the Plan of Reorganization. However, the closing of the Rights Offering was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of Accounting Standards Codification ("ASC") 852 – Reorganizations until that transaction closed on February 9, 2021.
In accordance with the Plan of Reorganization, effective December 31, 2020 (the “Effective Date”), the Company’s board of directors was comprised of
Pursuant to the Plan of Reorganization, each outstanding share of the Company’s common stock as of the close of business on January 4, 2021 was exchanged for (1)
On September 29, 2021, the U.S. Bankruptcy Court issued a final decree (the “Final Decree”) closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of the claims for approximately $
See Note 2 regarding Bankruptcy Accounting for further discussion.
9
Listing
During the pendency of our bankruptcy proceedings, the Company’s common stock was delisted by the Nasdaq Stock Market, LLC (“Nasdaq”) and began trading on the OTC Pink marketplace under the symbol “TUESQ”. In January 2021, following our emergence from bankruptcy, the Company’s common stock began trading on the OTCQX market under the ticker symbol “TUEM.”
On May 24, 2021, Nasdaq approved our application for the relisting of the Company's common stock on the Nasdaq Capital Market. The Company's common stock was relisted and commenced trading on the Nasdaq Capital Market at the opening of the market on May 25, 2021, under the ticker symbol "TUEM."
On June 6, 2022, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company was not in compliance with the Nasdaq’s Listing Rule 5550(a)(2), as the closing bid price of the Company’s common stock had been below $
Under Nasdaq Rule 5810(c)(3)(A),
In the event the Company does not regain compliance with the Minimum Bid Price Requirement within the 180-calendar day compliance period, the Company may be eligible for additional time. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and will need to provide written notice of its intention to cure the deficiency during an additional 180-calendar day compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days. However, if it appears to the staff of Nasdaq that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.
The Company committed to Nasdaq to implement a reverse stock split promptly following such stockholder approval in order to regain compliance with the Minimum Bid Price Requirement.
On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer. Mr. Berger previously served as a member of the Audit Committee of the Board of Directors. In connection with his appointment as Chief Executive Officer, Mr. Berger resigned from his position on the Audit Committee. As a result, the Audit Committee has been reduced to
The Company intends to appoint an additional independent director to the Board of Directors and the Audit Committee as soon as practicable and prior to the expiration of the cure period under Nasdaq Listing Rule 5605(c)(4)(B).
10
Updates on the COVID-19 Pandemic
The COVID-19 pandemic has had an adverse effect on our business operations, store traffic, employee availability, financial conditions, results of operations, liquidity and cash flow. On March 25, 2020, we temporarily closed all of our stores nationwide, severely reducing revenues, resulting in significant operating losses and the elimination of substantially all operating cash flow. As allowed by state and local jurisdictions, our stores gradually reopened as of the end of June 2020. In accordance with our Plan of Reorganization, described below, we completed the permanent closure of
The extent to which the COVID-19 pandemic impacts our business, results of operations, cash flows and financial condition will depend on future developments, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that impacts of the COVID-19 pandemic continue, how fast economies will fully recover from the COVID-19 pandemic, the timing and extent of further impacts on traffic and consumer spending in our stores, the extent and duration of ongoing impacts to domestic and international supply chains and the related impacts on the flow, and availability and cost of products.
Accounting Pronouncements Recently Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We this standard in the first quarter of fiscal 2022 and it did result in a material impact to the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, which includes the Company, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
In March 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815w-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This update is intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange and is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. We are currently evaluating the impact of the new guidance on the Company's consolidated financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
11
2. BANKRUPTCY ACCOUNTING
Reorganizations require that the condensed consolidated financial statements, for periods subsequent to the filing of the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. During the pendency of the Chapter 11 Cases until we qualified for emergence under ASC 852, the condensed consolidated financial statements were prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business and reflect the application of ASC 852. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings were recorded in Reorganization items, net in our condensed consolidated statements of operations.
Pursuant to the Plan of Reorganization, an escrow account (the “Unsecured Creditor Claim Fund”) was established for the benefit of holders of allowed general unsecured claims. Upon the closing of the sale and leaseback of the Corporate Office and the Dallas Distribution Center properties and the issuance of the Term Loan (as defined in Note 3 below), net proceeds of $
On September 29, 2021, the U.S. Bankruptcy Court issued a Final Decree closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of these claims for approximately $
As of October 1, 2022, we had
We were not required to apply fresh start accounting based on the provisions of ASC 852 as there was no change in control and the entity’s reorganization value immediately before the date of confirmation was more than the total of all its post-petition liabilities and allowed claims.
Restructuring and Impairment Charges
Restructuring and impairment charges are as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
October 1, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Restructuring costs: |
|
|
|
|
|
|
||
Severance and compensation related costs (adjustments) |
|
$ |
|
|
$ |
|
||
Total restructuring costs |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Impairment costs: |
|
|
|
|
|
|
||
Corporate long-lived assets |
|
$ |
|
|
$ |
|
||
Total impairment costs |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Total restructuring and impairment costs |
|
$ |
|
|
$ |
|
||
Reorganization Items
Reorganization items included in our condensed consolidated statement of operations represent amounts directly resulting from the Chapter 11 Cases are as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
October 1, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Reorganization items, net: |
|
|
|
|
|
|
||
Professional and legal fees |
|
$ |
|
|
$ |
|
||
Claims related costs |
|
|
|
|
|
|
||
Total reorganization items, net |
|
$ |
|
|
$ |
|
||
12
3. DEBT
ABL Credit Agreements
On December 31, 2020, the Company and its subsidiaries entered into a Credit Agreement (the “Post-Emergence ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. that provided for a revolving credit facility in an aggregate amount of $
Under the terms of the Post-Emergence ABL Credit Agreement, amounts available for advances would be subject to a borrowing base as described in the Post-Emergence ABL Credit Agreement. Under the Post-Emergence ABL Credit Agreement, borrowings initially bore interest at a rate equal to the adjusted LIBOR rate plus a spread of
The Post-Emergence ABL Facility was secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). The commitments of the lenders under the Post-Emergence ABL Facility were due to terminate and outstanding borrowings under the Post-Emergence ABL Facility was due to mature on
On May 9, 2022, the Company, Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of the Company (together with the Company and the Borrower, the "Company Credit Parties") entered into a Credit Agreement (the “New ABL Credit Agreement”) with the lenders named therein (the “ABL Lenders”), Wells Fargo Bank, National Association, as administrative agent (the “ABL Administrative Agent”), and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement replaced the Post-Emergence ABL Credit Agreement. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $
On May 9, 2022, the Borrower borrowed approximately $
Pursuant to an amendment to the New ABL Credit Agreement dated July 11, 2022, the lenders under the FILO B Facility (the "FILO B Lenders") agreed to make the FILO B Delayed Incremental Loan to the Borrower on July 11, 2022. The amendment also provides that, until certain minimum borrowing availability levels are satisfied as described in the amendment, the Borrower will be subject to additional reporting obligations, the Borrower will retain a third-party business consultant acceptable to the ABL Administrative Agent, and the ABL Administrative Agent may elect to apply amounts in controlled deposit accounts to the repayment of outstanding borrowings under the New ABL Facility. The July 11, 2022 amendments to the New ABL Agreement were accounted for as a debt modification. In addition, pursuant to the amendment, certain subsidiaries of the Borrower agreed to enter into and maintain a supply agreement with Gordon Brothers Retail Partners, LLC (the “Program Agent”), an affiliate of a FILO B Lender, pursuant to which the Program Agent supplies inventory to the Borrower and certain of its subsidiaries.
On September 20, 2022, the New ABL Credit Agreement was further amended in connection with the Private Placement (defined below). The amendment restricts certain actions by the Company for the next two years, including making certain acquisitions and debt prepayments. The amendment requires that the Company engage and retain (at the Company’s expense) Gordon Brothers Retail Partners for a certain period of time for the purpose of performing appraisal validations, monitoring and evaluating the Company’s inventory mix and other services. The amendment also permitted the change in control caused by the issuance of shares to the SPV (as defined below) upon exchange of the Convertible Debt (as defined below) for shares. On September 20, 2022, $
13
Amounts available for advances under the New Facilities are subject to borrowing bases as described in the New ABL Credit Agreement. Borrowings under the New ABL Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR (as defined below) plus a margin ranging from
During the three months ended October 1, 2022, we had $
The New Facilities are secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 10, 2027, and (ii) the date that is 91 days prior to maturity of the Term Loan.
As of October 1, 2022, we had $
As of October 1, 2022, we had $
Term Loan
On December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein (the "Term Loan Lenders"), including Tensile Capital Partners Master Fund LP ("Tensile") and affiliates of Osmium Partners, LLC, ("Osmium"), entered into a Credit Agreement (as amended from time to time, the “Term Loan Credit Agreement”) to provide a term loan of $
In accordance with the Plan of Reorganization, on December 31, 2020,
On May 9, 2022, the Company, the Borrower, certain subsidiaries of the Company, certain of the Term Loan Lenders (the “Consenting Lenders”), and Alter Domus (US) LLC, as administrative agent, entered into an amendment to the Term Loan Credit Agreement (the “Term Loan Credit Agreement Amendment”), pursuant to which, among other things, (i) each Consenting Lender agreed to the Loan Repurchase, (ii) concurrently with the consummation of the Loan Repurchase, each Consenting Lender agreed to waive and forgive an amount of the accrued and unpaid interest owed to such Consenting Lender , (iii) it was agreed that immediately, automatically and permanently upon the consummation of the Loan Repurchase, the Term Loans assigned pursuant to the Loan Repurchase would be deemed cancelled and of no further force and effect and (iv) the Term Loan Credit Agreement was amended to, among other things, (x) provide that the Borrower and its subsidiaries shall not permit the borrowing availability under the New ABL Facility to be less than the greater of (A) $
In July 2022, the Term Loan Credit Agreement was further amended to permit the early borrowing of the FILO B Delayed Incremental Loan and to make other changes to conform to the New ABL Credit Agreement, accounted for as debt modification as there are no changes in the borrowing capacity. In addition, on September 20, 2022, the Term Loan Credit Agreement was further amended to permit the Private Placement to be completed and to make certain other amendments, including removal of the total secured net leverage ratio covenant from the Term Loan Credit Agreement and permitting the change in control caused by the issuance of shares to the SPV upon conversion of the Convertible Debt for shares.
14
The amendments to the Term Loan agreement in September 2022 were accounted for as a debt modification. The Term Loan will be carried net of the associated debt issuance costs which will be amortized and recorded as interest expense using the effective interest rate based on the amendments. The third party issuance costs of $
As of October 1, 2022, we have $
September 2022 Private Placement
On September 20, 2022, the Company, the Borrower, certain members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV”), a special purpose entity formed by Retail Ecommerce Ventures LLC (“REV”) and Ayon Capital L.L.C., and TASCR Ventures CA, LLC, as collateral agent, entered into an Amended and Restated Note Purchase Agreement dated as of September 20, 2022 (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, on September 20, 2022, the SPV purchased: (i) $
The Convertible Debt was issued by the Company and guaranteed by the Company's subsidiaries.
The Convertible Debt is convertible into shares of the Company’s common stock at a conversion price of $
The Convertible Debt is subject to customary anti-dilution adjustments for structural events, such as splits, distributions, dividends or combinations, and customary anti-dilution protections with respect to issuances of equity securities at a price below the applicable conversion price of the Convertible Debt. A portion of the Convertible Debt issued to the SPV was immediately convertible for up to
In connection with the Private Placement, the Company entered into a registration rights agreement with the purchasers of the Convertible Debt, pursuant to which the purchasers received customary shelf registration, piggyback and demand registration rights with respect to the resale of shares of the Company’s common stock acquired upon conversion or exchange of the Convertible Debt.
15
In accordance with the terms of the Note Purchase Agreement, the SPV designated each of Tai Lopez, Alexander Mehr, Maya Burkenroad, Sandip Patel and James Harris (collectively, the “SPV Designees”) to serve as directors of the Company effective upon the closing of the Private Placement on September 20, 2022. In connection with the election the SPV Designees to the Company’s board of directors, each of Douglas J. Dossey, Frank M. Hamlin, W. Paul Jones, John Hartnett Lewis and Sherry M. Smith resigned from the Company’s board of directors. Each of the remaining incumbent directors Fred Hand, Anthony F. Crudele, Marcelo Podesta and Reuben E. Slone continued to serve on the board following the closing of the Private Placement. Each of Messrs. Crudele, Podesta and Slone resigned from the board of directors on September 28, 2022 and in connection therewith each of Andrew T. Berger, Michael Onghai and Z. John Zhang were elected as directors. See Note 14 – Subsequent Events below for additional information.
The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and has received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company.
As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions.
The proceeds of the Private Placement were used to (i) repay $
In connection with its approval of the Private Placement, the board of directors approved a waiver of the ownership restrictions in Article 11 of the Company’s certificate of incorporation with respect to the securities issuable in the Private Placement. Article 11 generally prohibits any person or group from acquiring more than
FILO C Convertible Notes. In connection with the Private Placement, pursuant to the Note Purchase Agreement, the SPV purchased the FILO C Convertible Notes. The FILO C Convertible Notes will mature upon the earlier of (i) December 31, 2027, or (ii) the maturity of the FILO B term loan under the ABL Credit Agreement. Interest will accrue on the FILO C Convertible Notes at a rate equal to the secured overnight financing rate (“SOFR”) plus
The FILO C Convertible Note is secured by the same collateral that secures (i) the revolving loans and FILO A and FILO B term loans under the ABL Credit Agreement (collectively, the "ABL Obligations"), (ii) the term loan issued under the Term Loan Credit Agreement, and (iii) the Junior Convertible Notes. With respect to the collateral as to which borrowings under the New ABL Credit Agreement have a first priority lien, the ABL Obligations have a first priority lien, the lien on such collateral securing the FILO C Convertible Note ranks junior to the lien securing the ABL Obligations and senior to the Term Loan and the Junior Convertible Notes. With respect to the collateral as to which Term Loan has a first priority lien, the lien on such collateral securing the FILO C Note ranks junior to the liens securing the ABL Obligations and the Term Loan and senior to the lien securing the Junior Convertible Notes. With respect to payment priority, the FILO C Convertible Note is subordinate to the ABL Obligations, pari passu with the Term Loan, and senior to the Junior Convertible Notes.
For the three months ended October 1, 2022, we had $
The FILO C Convertible Notes contain covenants and events of default that are customary for this type of financing.
Junior Convertible Notes. The Junior Convertible Notes will mature on December 31, 2027. Interest will accrue on the Junior Convertible Notes at a rate equal to SOFR plus
The Junior Convertible Notes are secured by the same collateral that secures the revolving loans and FILO B term loans under the ABL Credit Agreement, the Term Loan and the FILO C Convertible Notes (the “Other Secured Debt”). The liens securing the Junior Convertible Notes rank junior to the liens securing the Other Secured Debt. With respect to payment priority, the Junior Convertible Notes are subordinated to all of the Other Secured Debt.
16
For the three months ended October 1, 2022, we had $
For the three months ended October 1, 2022, we had $
The Junior Convertible Notes contain covenants and events of default that are customary for this type of financing.
The following table provides details on our Long term debt (in thousands):
|
|
|
|
|||||
|
|
October 1, 2022 |
|
|
July 2, 2022 |
|
||
Principal Balances of long term debt |
|
|
|
|
|
|
||
Term loan balance |
|
$ |
|
|
$ |
|
||
FILO A |
|
|
|
|
|
|
||
FILO B |
|
|
|
|
|
|
||
FILO C, excluding embedded derivative |
|
|
|
|
|
|
||
SPV Junior secured convertible notes, excluding embedded derivative |
|
|
|
|
|
|
||
Management convertible notes, excluding embedded derivative |
|
|
|
|
|
|
||
Principal Balances of long term debt |
|
|
|
|
|
|
||
Deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Current portion of long term debt, FILO A |
|
|
|
|
|
( |
) |
|
Current portion of long term debt, FILO B |
|
|
( |
) |
|
|
|
|
Accrued Paid-in-kind interest (Term Loan) |
|
|
|
|
|
|
||
Long term debt, ending |
|
$ |
|
|
$ |
|
||
As of October 1, 2022, we are in compliance with covenants in the New ABL Facility, the Term Loan, and the Convertible Debt.
Interest Expense
Interest expense for the three months ended October 1, 2022 was $
The fair value of our long term debt was determined based on observable market data provided by a third party for similar types of debt which are considered Level 2 inputs within the fair value hierarchy.
|
|
October 1, 2022 |
|
|
July 2, 2022 |
|
||
Term loan balance |
|
$ |
|
|
$ |
|
||
FILO A |
|
|
|
|
|
|
||
FILO B |
|
|
|
|
|
|
||
FILO C, excluding embedded derivatives |
|
|
|
|
|
|
||
SPV Junior secured convertible notes, excluding embedded derivatives |
|
|
|
|
|
|
||
Management held convertible notes, excluding embedded derivatives |
|
|
|
|
|
|
||
Fair value of long term debt |
|
$ |
|
|
$ |
|
||
17
4. REVENUE RECOGNITION
Our revenue is earned from sales of merchandise within our stores and is recorded at the point of sale and conveyance of merchandise to customers. Revenue is measured based on the amount of consideration that we expect to receive, reduced by point of sale discounts and estimates for sales returns, and excludes sales tax. Payment is due at the time of sale. We maintain a reserve for estimated returns, as well as a corresponding returns asset in “Other Assets” in the condensed consolidated balance sheets, and we use historical customer return behavior to estimate our reserve requirements.
18
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
|
|
October 1, |
|
|
July 2, |
|
||
|
|
2022 |
|
|
2022 |
|
||
Sales and use tax |
|
$ |
|
|
$ |
|
||
Self-insurance reserves |
|
|
|
|
|
|
||
Wages, benefits and payroll taxes |
|
|
|
|
|
|
||
Property taxes |
|
|
|
|
|
|
||
Freight and distribution |
|
|
|
|
|
|
||
Capital expenditures |
|
|
|
|
|
|
||
Utilities |
|
|
|
|
|
|
||
Gift card liability |
|
|
|
|
|
|
||
Reorganization expenses |
|
|
|
|
|
|
||
Other expenses |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
Self-insurance reserves were primarily comprised of our worker's compensation liability reserve, followed by our medical liability reserve and general liability reserve.
6. COMMON STOCK & SHARE-BASED INCENTIVE PLANS
Increase in Authorized Capital Stock
As provided in the Plan of Reorganization, the Company’s Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) increased the number of authorized shares of the Company’s common stock, par value $
In order to continue to assist the Company in preserving certain tax attributes (the “Tax Benefits”), the Company’s Amended and Restated Certificate of incorporation imposes certain restrictions on the transferability and ownership of the Company’s capital stock (the “Ownership Restrictions”). Subject to certain exceptions, the Ownership Restrictions restrict (i) any transfer that would result in any person acquiring
The Ownership Restrictions will remain in effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of directors determines the Ownership Restrictions are no longer necessary for preservation of the Tax Benefits, (ii) the beginning of a taxable year in which the board of directors determines no Tax Benefits may be carried forward, or (iii) such other date as shall be established by the board of directors.
In order to allow completion of the Private Placement, the board of directors waived these restrictions with respect to the securities purchased in the Private Placement. On September 21, 2022, following the closing of the Private Placement, the SPV elected to immediately convert a portion of the Convertible Debt into
19
Share-Based Incentive Plans
For a discussion of our share-based incentive plans, please see Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
Restricted Stock Awards/Units
The Tuesday Morning Corporation 2008 Long-Term Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation Long-Term Incentive Plan (the “2014 Plan” and together with the 2008 Plan, the “Plans”) authorize the grant of restricted stock awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan. Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. Shares are valued at the fair market value of our common stock at the date of award. Shares and units may be subject to time-vesting and/or certain performance requirements. If the time-vesting and/or performance requirements are not met, the restricted shares are forfeited. The 2014 Plan also authorizes the grant of time-vesting and performance-based restricted stock units. Restricted stock units do not provide voting and dividend rights. Shares of common stock are issued upon the vesting of restricted units.
In addition to the Plans, the Company has granted certain inducement awards of time-based and performance-based restricted stock units to Fred Hand, Marc Katz and Paul Metcalf. See Note 7 to the consolidated financial statements in our Annual Report on Form 10-K and Note 14 Subsequent Events below for additional information.
The following table summarizes the activity of time-vesting restricted stock units, performance-based restricted stock units, time-vesting restricted stock awards and performance-based restricted stock awards for the three months ended October 1, 2022:
|
|
Time and Performance-Based Restricted Stock Units Number of Shares |
|
|
Weighted- |
|
|
Time and Performance-Based Restricted Stock Awards Number of Shares |
|
|
Weighted- |
|
||||
Outstanding at July 2, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted during the year |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Vested during the year |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited during the year |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Outstanding at October 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of October 1, 2022, there were
Cash Settled Awards
We have granted stock-based awards to certain employees, which vest over a period of to
The following table summarizes the activity of cash settled awards for the three months ended October 1, 2022:
|
|
Performance-Based |
|
|
Service-Based |
|
|
Total |
|
|||
Outstanding at July 2, 2022 |
|
|
|
|
|
|
|
|
|
|||
Granted during the year |
|
|
— |
|
|
|
|
|
|
|
||
Vested during the year |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Forfeited during the year |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Outstanding at October 1, 2022 |
|
|
|
|
|
|
|
|
|
|||
The liability associated with the cash settled awards was $
Share-based Compensation Costs
Share-based compensation costs consisted of the following (in thousands):
|
Three Months Ended |
|
|||||
|
October 1, |
|
|
September 30, |
|
||
|
2022 |
|
|
2021 |
|
||
Amortization of share-based compensation during the period |
$ |
|
|
$ |
|
||
Amounts capitalized in ending inventory |
|
( |
) |
|
|
( |
) |
Amounts recognized and charged to cost of sales |
|
|
|
|
|
||
Amounts charged against selling, general and administrative expense |
$ |
|
|
$ |
|
||
20
7. COMMITMENTS AND CONTINGENCIES
Information related to the Chapter 11 Cases that were filed on May 27, 2020 is included in Notes 1 and 2 above.
Like many retailers, the Company has been named in a potential class or collective actions on behalf of groups alleging violations of federal and state wage and hour and other labor statutes, and other statutes. In the normal course of business, we are also party to representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. In addition, we are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established when a loss is considered probable and are based on management’s best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations.
8. LEASES
We conduct substantially all operations from leased facilities. Our retail store locations, our corporate office and our distribution center are under operating leases that will expire over the next
In accordance with the Plan of Reorganization, on December 31, 2020, we sold our corporate office and Dallas distribution center properties and leased back those facilities. The lease of the corporate office is for a term of
The
In accordance with ASC 842, we determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the right-of-use (“ROU”) assets represent our right to use the underlying assets for the respective lease terms.
The operating lease liability is measured as the present value of the unpaid lease payments and the ROU asset is derived from the calculation of the operating lease liability. As our leases do not generally provide an implicit rate, we use our incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow over a similar term, on a collateralized basis in a similar economic environment.
Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses allocated on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expense in the period incurred. The ROU asset is adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities.
Our lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements.
The components of lease cost are as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
October 1, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Variable lease cost |
|
|
|
|
|
|
||
Finance lease cost: |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
— |
|
|
|
|
|
Total lease cost |
|
$ |
|
|
$ |
|
||
21
The table below presents additional information related to the Company’s leases:
|
|
As of |
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
Operating leases |
|
|
|
|
Weighted average discount rate |
|
|
|
|
Operating leases |
|
|
% |
|
Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
October 1, 2022 |
|
|
September 30, 2021 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
|
— |
|
|
|
|
|
Financing cash flows from finance leases |
|
|
— |
|
|
|
|
|
Right-of-use assets obtained in exchange |
|
|
|
|
|
|
||
Maturities of lease liabilities were as follows as of October 1, 2022 (in thousands):
|
Operating |
|
|
Fiscal year: |
|
|
|
2023 (remaining) |
$ |
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
Total lease payments |
$ |
|
|
Less: Interest |
|
|
|
Total lease liabilities |
$ |
|
|
Less: Current lease liabilities |
|
|
|
Non-current lease liabilities |
$ |
|
|
As of October 1, 2022, there were
9. EARNINGS PER COMMON SHARE
The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with non-forfeitable rights to dividends or dividend equivalents (referred to as participating securities). Basic EPS is computed using the weighted average number of common shares outstanding during each of the respective years. Diluted EPS is computed using the weighted average number of common and common equivalent shares outstanding during each of the respective years using the more dilutive of either the treasury stock method or two-class method. The difference between basic and diluted shares, if any, largely results from common equivalent shares, which represents the dilutive effect of the assumed exercise of certain outstanding share options and warrants, the assumed vesting of restricted stock granted to employees and directors, or the satisfaction of certain necessary conditions for contingently issuable shares.
|
Three Months Ended |
|
|||||
|
October 1, |
|
|
September 30, |
|
||
|
2022 |
|
|
2021 |
|
||
Net loss attributable to common shares |
$ |
( |
) |
|
$ |
( |
) |
Weighted average number of common shares |
|
|
|
|
|
||
Net loss per common share — basic |
$ |
( |
) |
|
$ |
( |
) |
Net loss per common share — diluted |
$ |
( |
) |
|
$ |
( |
) |
For the three months ended October 1, 2022 and September 30, 2021,
22
10. PROPERTY AND EQUIPMENT, NET
Accumulated depreciation of owned property and equipment as of October 1, 2022 and July 2, 2022 was $
We evaluate long-lived assets, principally property and equipment, and intangible assets, as well as lease ROU assets, for indicators of impairment whenever events or changes in circumstances indicate their carrying values may not be recoverable. Management's judgments regarding the existence of impairment indicators are based on market conditions and financial performance. As of October 1, 2022, there are no indicators of impairment identified that requires interim impairment assessments be performed.
11. INCOME TAXES
The Company or
On March 27, 2020, in an effort to mitigate the economic impact of the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act includes certain corporate income tax provisions, which among other things, included a five-year carryback of net operating losses and acceleration of the corporate alternative minimum tax credit. The Company has evaluated the CARES Act and it is not expected to have a material impact on the income tax provision. The CARES Act also contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the pandemic. As a result of the CARES Act, we had deferred qualified payroll taxes through December 31, 2020. As of October 1, 2022, we have $
The effective tax rate for the three months ended October 1, 2022 and September 30, 2021 were (
23
12. RELATED PARTY
Osmium/Tensile
On November 16, 2020, following approval of the Bankruptcy Court, the Company and Osmium entered into a backstop commitment agreement, pursuant to which Osmium Partners agreed that they or an affiliate would serve as the backstop party (the “Backstop Party”) and purchase all unsubscribed shares for a price of $
In accordance with the Plan of Reorganization and the Commitment Letter, on December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein, including Tensile and an affiliate of Osmium, entered into the Term Loan Credit Agreement described in Note 3 above which provided for the $
In accordance with the Plan of Reorganization and the backstop commitment agreement, on December 31, 2020, the Company, Osmium and Larkspur (collectively, the “Osmium Group”) entered into an agreement pursuant to which the Osmium Group was entitled to appoint
On February 9, 2021, the Company received proceeds of approximately $
On September 20, 2022, the Director Agreement was terminated.
In connection with the Private Placement, the Company entered into a voting agreement, dated as of September 12, 2022 (the "Voting Agreement"), with Larkspur. Pursuant to the Voting Agreement,
Based on Schedule 13D filings made by Osmium and Tensile, and their respective affiliates, on September 2022, Osmium and Tensile each are deemed to beneficially own the
Private Placement
On September 20, 2022, pursuant to the terms of the Note Purchase Agreement, the SPV purchased $
In addition, pursuant to the Note Purchase Agreement, the Management Purchasers purchased $
In connection with the Private Placement, the Company entered into a license agreement with Pier 1 Imports, pursuant to which the Company may sell Pier 1 products and will pay customary license fees in connection with such sales. Pier 1 Imports is owned by REV.
24
The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company. As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions. See Note 3 above for additional information regarding the terms of the Convertible Debt.
13. FAIR VALUE MEASUREMENTS
Derivative Liability
As described in Note 3, the Company issued Convertible Notes that contained a conversion feature that qualifies as an embedded derivative. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date, at the date of conversions to equity, and as of each subsequent reporting period.
As of the inception date, the Company recorded a derivative liability associated with the conversion option of $
Upon the conversion of a portion of the Convertible Notes on September 22, 2022 (approximately $
For the three months ended October 1, 2022, the Company recorded a loss on derivative liability of $
Level 3 valuation information: Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our derivative liability as of October 1, 2022 may differ materially from values that would have been used had a readily available market financial instrument were evident.
The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):
|
October 1, 2022 |
|
|
September 30, 2021 |
|
||||||||||||||||||||
|
Fair Value |
|
Hierarchy Level |
|
|
Fair Value |
|
Hierarchy Level |
|
||||||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bifurcated embedded derivative on FILO C |
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Bifurcated embedded derivative on SPV junior secured convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bifurcated embedded derivative on management notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 2 within the fair value hierarchy (in thousands):
|
Amount |
|
|
Balance as of July 2, 2022 |
$ |
|
|
Embedded derivative issued in connection with Private Placement |
|
|
|
Change in fair value on September 22, 2022 of bifurcated embedded derivatives, reported in earnings |
|
( |
) |
Conversion of junior secured convertible notes |
|
( |
) |
Change in fair value on October 1, 2022 of bifurcated embedded derivatives, reported in earnings |
|
( |
) |
Balance as of October 1, 2022 |
$ |
|
|
25
The fair value of the bifurcated embedded derivatives on convertible notes was determined using the following significant unobservable inputs:
|
October 1, 2022 |
Bifurcated embedded derivative on convertible notes: |
|
Market yield |
|
Calibration discount rate |
Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.
Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liabilities recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as a derivative instrument liabilities, we use the Binomial Lattice model through a Goldman Sachs implementation to estimate the fair value associated with the instrument. This model requires assumptions related to the remaining term of the instrument, risk-free rates of return, our current common stock price and the expected volatility of our Common Stock price over the life of the derivative. The Company determined that as of the assessment date, October 1, 2022, the fair value of the bifurcated embedded derivatives is $
If an embedded conversion option in a convertible debt instrument no longer meets the bifurcation criteria in this Subtopic, an issuer shall account for the previously bifurcated conversion option reclassifying the carrying amount of the liability for the conversion option (that is, its fair value on the date of reclassification) to shareholders’ equity. Any debt discount recognized when the conversion option was bifurcated from the convertible debt instrument shall continue to be amortized.
Due to their short maturity, the carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses and other long-term liabilities approximated their fair values as of October 1, 2022.
14. SUBSEQUENT EVENTS
On
In addition, the Company entered a transition agreement with each of Marc Katz and Paul Metcalf (the "Katz Transition Agreement," and the "Metcalf Transition Agreement" individually, and, together with the Hand Transition Agreement, the "Transition Agreements"), pursuant to which (i) the Company and Mr. Katz agreed that Mr. Katz's employment as Principal and Chief Operating Officer and Interim Chief Financial Officer would terminate on the Separation Date, and (ii) the Company and Mr. Metcalf agreed that Mr. Metcalf's employment as Principal and Chief Merchant would terminate on the Separation Date.
Under the terms of the Transition Agreements, (i) each of the individuals will provide transition services to the Company through June 30, 2023, (ii) the Company will make transition payments of $
On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer of the Company. Mr. Berger's employment agreement provides for a one-time grant of restricted stock units. Mr. Berger has served as a director of the Company since September 28, 2022 and will continue to serve as a member of the board of directors. As a result of his appointment as Chief Executive Officer, Mr. Berger will no longer serve on the Audit Committee of the board of directors.
In addition, William M. Baumann was appointed Chief Operating Officer and Interim Chief Merchant of the Company. Mr. Baumann's employment agreement provides for a one-time grant of restricted stock units. Mr. Baumann, previously served as Executive Vice President and Chief Information Officer of the Company from July 2021 to November 4, 2022.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We encourage you to read this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended July 2, 2022.
Background
We are one of the original off-price retailers and a leading destination for unique home and lifestyle goods, selling high-quality products at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Our customers come to us for an ever-changing, exceptional assortment of brand names at great prices. Our strong value proposition has established a loyal customer base, who we engage regularly with social media, email and digital media.
The COVID-19 pandemic has had an adverse effect on our business operations, store traffic, employee availability, financial conditions, results of operations, liquidity and cash flow. On March 25, 2020, we temporarily closed all of our stores nationwide, severely reducing revenues, resulting in significant operating losses and the elimination of substantially all operating cash flow. In May 2020, we filed voluntary petitions under Chapter 11 of the Bankruptcy Code. During the pendency of our Chapter 11 proceedings, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. As allowed by state and local jurisdictions, our stores gradually reopened as of the end of June 2020. In accordance with our bankruptcy plan of reorganization, described below, we completed the permanent closure of 197 stores in the first quarter of fiscal 2021 and the closure of our Phoenix, Arizona distribution center (“Phoenix distribution center”) in second quarter of fiscal 2021. In addition, as part of our restructuring, we secured financing to pay creditors in accordance with the plan of reorganization and to fund planned operations and expenditures. We emerged from our Chapter 11 proceedings on December 31, 2020. See Notes 1, 2, 3, 7, 8 and 11 to our consolidated financial statements for additional information regarding our Chapter 11 proceedings and related financings.
The extent to which the COVID-19 pandemic impacts our business, results of operations, cash flows and financial condition will depend on future developments, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that impacts of the COVID-19 pandemic continue, how fast economies will fully recover from the COVID-19 pandemic, the timing and extent of further impacts on traffic and consumer spending in our stores, the extent and duration of ongoing impacts to domestic and international supply chains and the related impacts on the flow, and availability and cost of products.
September 2022 Private Placement
27
Key Metrics for the Three Months Ended October 1, 2022
Key operating metrics for continuing operations for the three months ended October 1, 2022 include:
28
Key balance sheet and liquidity metrics for the three months ended October 1, 2022 include:
Store Data
The following table presents information with respect to our stores in operation during each of the fiscal periods:
|
|
Store Openings (Closings) |
|
|||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Fiscal Year Ended July 2, 2022 |
|
|||
Open at beginning of period |
|
489 |
|
|
490 |
|
|
|
490 |
|
||
Opened |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Closed |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
Open at end of period |
|
|
487 |
|
|
|
489 |
|
|
|
489 |
|
New stores are included in the same store sales calculation starting with the sixteenth month following the date of the store opening. A store that relocates within the same geographic market or modifies its available retail space is generally considered the same store for purposes of this computation. Stores that are closed are included in the computation of comparable store sales until the month of closure.
Results of Operations
Our business is highly seasonal, with a significant portion of our net sales and most of our operating income generated in the second quarter of each fiscal year.
There can be no assurance that the trends in sales or operating results will continue in the future.
Three Months Ended October 1, 2022 Compared to the Three Months Ended September 30, 2021
Net sales for the three months ended October 1, 2022 were $157.1 million, with a decrease of 11.2%, compared to $176.9 million for the three months ended September 30, 2021, primarily driven by economic conditions, inflation and recession rumors. Comparable store sales for the three months ended October 1, 2022, decreased 10.4% due to 13.1% decrease in customer transactions offset by a 3.9% increase in average ticket primarily due to incremental inflationary pressures.
Gross margin for the three months ended October 1, 2022 was $34.6 million, a decrease of 32.1% compared to $51.0 million for the three months ended September 30, 2021. As a percentage of net sales, gross margin decreased to 22.0% in the first quarter of fiscal 2022 compared with 28.8% in the first quarter of fiscal 2021. The decrease in gross margin as a percentage of net sales was primarily a result of increased recognized costs related to supply chain and transportation expenses in the three months ended October 1, 2022.
SG&A increased $0.2 million to $60.5 million in the three months ended October 1, 2022, compared to $60.3 million for the three months ended September 30, 2021. As a percentage of net sales, SG&A increased 440 basis points to 38.5% for the three months ended October 1, 2022, compared to 34.1% for the three months ended September 30, 2021, due to deleveraging related to the sales decrease.
Restructuring and impairment charges were not incurred during the three months ended October 1, 2022, compared to net charge of $2.4 million during the three months ended September 30, 2021. During the three months ended September 30, 2021, adjustments include a software impairment charge of $2.1 million as well as $0.3 million in employee retention cost.
Our operating loss was $25.9 million for the three months ended October 1, 2022 as compared to an operating loss of $11.7 million for the three months ended September 30, 2021.
Interest expense increased $0.3 million to $2.0 million for the three months ended October 1, 2022 compared to $1.7 million for the three months ended September 30, 2021. Interest expense for the three months ended October 1, 2022 was primarily due to the interest and amortization of financing fees incurred on our New ABL Facility. Interest expense for the three months ended September 30, 2021 was primarily due to interest and amortization of financing fees incurred on the Post-Emergence ABL Facility and accrued interest on our term load. See Note 3 to our unaudited condensed consolidated financial statements herein for additional information.
Reorganization items were not incurred during the three months ended October 1, 2022 since our exit from bankruptcy had concluded in the fiscal year 2022. The reorganization items, net charge of $1.3 million in the three months ended September 30, 2021, related to $1.1 million loss of claims related cost and $0.2 million of professional and legal fees related to our reorganization.
29
Income tax expense for the three months ended October 1, 2022 was $149.0 thousand compared to an income tax benefit of $49.0 thousand in the three months ended September 30, 2021. The effective tax rates for the three months ended October 1, 2022 and September 30, 2021 were (0.5%) and 0.3%, respectively. Income tax expense is driven mainly by Texas franchise tax and Oregon commercial activity tax. We currently believe the expected effects on future year effective tax rates to continue to be nominal until the cumulative losses and valuation allowance are fully utilized.
Our net loss for the three months ended October 1, 2022 was $28.2 million, or diluted net losses per share of $0.29 which included an $8.8 million benefit related to the mark-to-market adjustments of the convertible notes issued in conjunction with the strategic investment received in September 2022, and an $8.4 million loss related to the extinguishment of debt from conversion of notes into common stock, compared to a net loss for the three months ended September 30, 2021 of $14.6 million, or diluted net losses per share of $0.17.
Non-GAAP Financial Measures
We define EBITDA as net earnings or net loss before interest, income taxes, depreciation, and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash items and other items that we believe are not representative of our core operating performance. These measures are not presentations made in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives to net earnings or loss as a measure of operating performance. In addition, EBITDA and Adjusted EBITDA are not presented as, and should not be considered as a measure of liquidity. EBITDA and Adjusted EBITDA should not be considered in isolation, or as substitutes for analysis of our results as reported under GAAP and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by such adjustments. We believe it is useful for investors to see these EBITDA and Adjusted EBITDA measures that management uses to evaluate our operating performance. These non-GAAP financial measures are included to supplement our financial information presented in accordance with GAAP and because we use these measures to monitor and evaluate the performance of our business as a supplement to GAAP measures and we believe the presentation of these non-GAAP measures enhances investors’ ability to analyze trends in our business and evaluate our performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The non-GAAP measures presented may not be comparable to similarly titled measures used by other companies.
The following table reconciles net earnings/(loss), the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA, each of which is a non-GAAP financial measure (in thousands):
|
Three Months Ended |
|
|||||
|
October 1, |
|
|
September 30, |
|
||
|
2022 |
|
|
2021 |
|
||
Net earnings/(loss) (GAAP) |
$ |
(28,163 |
) |
|
$ |
(14,603 |
) |
Depreciation and amortization |
|
3,315 |
|
|
|
3,397 |
|
Interest expense, net |
|
2,027 |
|
|
|
1,716 |
|
Income tax expense |
|
149 |
|
|
|
(49 |
) |
EBITDA (non-GAAP) |
$ |
(22,672 |
) |
|
$ |
(9,539 |
) |
Share based compensation expense (1) |
|
1,565 |
|
|
|
1,173 |
|
Restructuring and impairment charges (2) |
|
— |
|
|
|
2,430 |
|
Reorganization items, net (3) |
|
— |
|
|
|
1,292 |
|
Gain on derivative (4) |
|
(8,780 |
) |
|
|
— |
|
Loss on extinguishment of debt (5) |
|
8,382 |
|
|
|
— |
|
Other (6) |
|
1,548 |
|
|
|
(1,017 |
) |
Adjusted EBITDA (non-GAAP) |
$ |
(19,957 |
) |
|
$ |
(5,661 |
) |
(1) Adjustment includes charges related to share-based compensation programs, which vary from period to period depending on volume, timing and vesting of awards. We adjust for these charges to facilitate comparisons from period to period
(2) For the three months ended September 30, 2021, adjustments included restructuring and impairment charges related to software impairment charges and employee retention cost. See note 2 to our unaudited consolidated financial statements herein for further discussion.
(3) For the three months ended September 30, 2021, adjustments included claims related cost as well as professional and legal fees related to our reorganization. See note 2 to our unaudited consolidated financial statements herein for further discussion.
(4) For the three months ended October 1, 2022, adjustments included non-cash gains related to the mark-to-market adjustments of the derivative liability issued in conjunction with the strategic investment received in September 2022. See note 3 to our unaudited consolidated financial statements herein for further discussion.
(5) For the three months ended October 1, 2022, loss on extinguishment of debt related to the conversion of debt to common stock and repayment of FILO A facility. See note 3 to our unaudited consolidated financial statements herein for further discussion.
(6) For the three months ended October 1, 2022, adjustments included third party expenses incurred for the modification of the Term Loan directly expensed, non-cash benefit recognition related to cash settled awards in our long-term incentive plan. See note 3 to our
30
unaudited consolidated financial statements herein for further discussion. For the three months ended September 30, 2021, adjustments included non-cash benefit recognized related to cash settled awards in our long-term incentive plan.
Liquidity and Capital Resources
Cash flows for the three months ended October 1, 2022
Cash Flows from Operating Activities
In the three months ended October 1, 2022, net cash provided by operating activities was $2.3 million, compared to cash used in operating activities of $33.2 million in the same period last year. Net cash used in operating activities in the three months ended October 1, 2022 was primarily driven by a reduction in inventory purchases and payments of operating expenses. See “Recent Liquidity Developments and Outlook” below for additional information. Net cash used in operating activities in the three months ended September 30, 2021 was primarily driven by the increase in inventory purchases and payments of operating expenses as part of the ordinary course of business.
Cash Flows from Investing Activities
Net cash used in investing activities for the three months ended October 1, 2022 and three months ended September 30, 2021 was $1.3 million and $1.8 million respectively. Investing activity related primarily to capital expenditures in enhancements to our store fleet and new stores, as well as investments in technology.
Cash Flows from Financing Activities
Net cash used in financing activities of $1.9 million for the three months ended October 1, 2022 related primarily to net payments under our New ABL Facility, the paydown of FILO A and the prepayment of FILO B, largely offset by the issuance of the Convertible Debt. See note 3 to our unaudited consolidated financial statements herein for further discussion. Net cash provided by financing activities of $10.8 million for the three months ended September 30, 2021 related primarily to net borrowings under our Post-Emergence ABL Facility
Liquidity
Historically, we have financed our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under an asset-based, senior secured revolving credit facility.
New ABL Credit Agreement
On May 9, 2022, Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of the Company entered into a Credit Agreement (the “New ABL Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $110.0 million (the “New ABL Facility”), which includes a $10.0 million sublimit for swingline loans and a $25.0 million sublimit for letters of credit, (ii) a first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO A Facility”) and (iii) an additional first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO B Facility” and, collectively with the New ABL Facility and the FILO A Facility, the “New Facilities”). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 10, 2027 and (ii) the date that is 91 days prior to maturity of the Term Loan.
The New ABL Credit Agreement includes conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. In addition, the Borrower and its subsidiaries must maintain borrowing availability under the New ABL Facility at least equal to the greater of (i) $7.5 million and (ii) 7.5% of the Modified Revolving Loan Cap (as defined in the New ABL Credit Agreement). For additional information regarding the New ABL Credit Agreement and the New Facilities, see Note 3 to our unaudited condensed consolidated financial statements herein.
Recent Liquidity Developments and Outlook
Subsequent to the July 2022 borrowing, the Company experienced a further deterioration in its financial condition and liquidity and began to withhold payments from vendors beginning in late August 2022 and until completion of the Private Placement on September 20, 2022. The proceeds of the Private Placement were used (i) to repay all of the outstanding principal amount of $5.0 million of the FILO A term loans under the New ABL Credit Agreement; (ii) to repay $2.5 million of the FILO B term loans under the New ABL Credit Agreement; (iii) to repay a portion of the revolving loans under the New ABL Credit Agreement; and (iv) to pay transaction costs. The proceeds of the Private Placement will also be used for working capital and other general corporate purposes of the Company and its subsidiaries.
At October 1, 2022 we are in compliance with covenants in the New ABL Facility, the Term Loan and the Convertible Debt. As of October 1, 2022, we had $31.4 million of borrowings outstanding under our New ABL Facility and, $14.6 million of letters of credit outstanding. We currently have borrowing availability of $25.3 million under our New ABL Facility, as of October 1, 2022. Liquidity,
31
defined as cash and cash equivalents plus the $25.3 million availability for borrowing under our New ABL Facility and less $5.6 million in credit cards receivables, was $26.6 million as of October 1, 2022.
Going forward, we expect to fund our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under the New ABL Facility.
We incurred capital expenditures of approximately $1.1 million, net of landlord contributions in the first three months of fiscal 2023. Capital expenditures are anticipated to be about $5.0 million total for fiscal year 2023. The amounts include costs to enhance our existing store fleet, investment in technology as well as our Dallas distribution center.
We do not presently have any plans to pay dividends or repurchase shares of our common stock. Under the terms of the New ABL Credit Agreement and the Term Loan, we are subject to restrictions on our ability to pay dividends or repurchase shares of our common stock, and must maintain certain minimum levels of borrowing availability.
Off-Balance Sheet Arrangements and Contractual Obligations
We had no off-balance sheet arrangements as of October 1, 2022.
There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared pursuant to the rules and regulations of the SEC. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On a recurring basis, we evaluate our significant estimates which are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates.
Other than as described in Note 1 of our unaudited condensed consolidated financial statements herein, as of October 1, 2022 and the derivative liability discussed below, there were no changes to our critical accounting policies from those listed in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
Under the retail inventory method, permanent markdowns result in cost reductions in inventory at the time the markdowns are taken. We also utilize promotional markdowns for specific marketing efforts used to drive higher sales volume and customer transactions for a specified period of time. Promotional markdowns do not impact the value of unsold inventory and thus do not impact cost of sales until the merchandise is sold. Markdowns and damages during the first quarter of fiscal 2023 were 5.0% of sales compared to 3.5% of sales for the same period last year. If our sales forecasts are not achieved, we may be required to record additional markdowns that could exceed historical levels. The effect of a 0.5% markdown in the value of our inventory at October 1, 2022 would result in a decline in gross margin and diluted earnings per share for the first quarter of fiscal 2023 of $0.7 million and $0.01, respectively.
Derivative Liability
On September 20, 2022, the Company issued the Convertible Debt, which contains a conversion feature. When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.
We determined that, as of the date of issuance of the Convertible Notes, the conversion feature in the Convertible Notes met the requirements to be treated as a derivative and must be separated from the host instrument. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date, at the date of conversions to equity, and as of each subsequent reporting period. As of the inception date, the Company recorded a derivative liability associated with the conversion option of $22.4 million within our condensed consolidated balance sheets. This amount was reduced by $2.8 million upon re-valuation of the derivative liability on the day of conversion, prior to recording of the conversion. Upon the conversion of a portion of the Convertible Notes on September 22, 2022, (approximately $6.9 million in principal amount), the Company recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and loss on extinguishment of debt of $7.7 million, and a resulting impact of $13.5 million to stockholders’ equity to reflect the conversion from debt to common stock and amortization of debt issuance cost of $0.6 million.
Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liabilities recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as a derivative instrument liabilities, we use the Binomial Lattice model through a Goldman Sachs implementation to estimate the fair value associated with the instrument. This model requires assumptions related to the remaining term of the instrument, risk-free rates of return, our current common stock price and the expected volatility of our Common Stock price over the life of the
32
derivative. The Company determined that as of the assessment date, October 1, 2022, the fair value of the bifurcated embedded derivatives is $9.8 million. For the three months ended October 1, 2022, the Company recorded a gain on derivative liability of $8.8 million within our condensed consolidated statements of operations, and a resulting decrease to our derivative liability within our condensed consolidated balance sheets.
As of the end of each reporting period, we will be required to reassess whether the embedded conversion option in the Convertible Debt continues to meet the bifurcation criteria. If we determine the embedded conversion option in the Convertible Notes no longer meets the bifurcation criteria, we will be required to account for the previously bifurcated conversion option reclassifying the carrying amount of the liability for the conversion option (that is, its fair value on the date of reclassification) to shareholders’ equity. Any debt discount recognized when the conversion option was bifurcated from the Convertible Debt instrument shall continue to be amortized.
For a further discussion of the judgments we make in applying our accounting policies, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
Recent Accounting Pronouncements
Please refer to Note 1 of our unaudited condensed consolidated financial statements herein for a summary of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of October 1, 2022, was conducted under the supervision and with the participation of management, including our Chief Executive Officer. Based on that evaluation, the Chief Executive Officer concluded that the disclosure controls and procedures were not effective as of October 1, 2022, due to the existence of a material weakness in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures). We believe that the unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the period, presented, in conformity with U.S. GAAP.
Management identified a deficiency in the design and operating effectiveness of the Company’s internal controls as of October 1, 2022, that represented a material weakness in our internal control over financial reporting. The deficiency is the result of individual control deficiencies related to existing controls failing to operate effectively. Specifically, the Company did not maintain a sufficient complement of personnel with appropriate accounting knowledge, experience and training to oversee the application of certain manual process controls or to maintain adequate segregation of duties. The Company recently completed a financing transaction that resulted in a change of control and the Company has experienced significant turnover in its accounting and finance functions in recent months. Management is in the process of designing and implementing remediation efforts intended to address the material weakness. The remediation efforts will be focused on immediate hiring and training of qualified resources. Management will develop a comprehensive remediation plan, including a detailed plan and timetable for implementation.
There were no restatements of prior period financial statements and no change in previously released financial results were required as the result of the control deficiency.
Changes in Internal Control over Financial Reporting
Other than as described below, there have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the first quarter ended October 1, 2022, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information related to the Chapter 11 Cases that were filed on May 27, 2020 is included in Note 1 and Note 2 to our unaudited condensed consolidated financial statements herein.
See Note 7 to our unaudited condensed consolidated financial statements herein for additional information.
Item 1A. Risk Factors
Except as described below, we believe there have been no material changes from our risk factors previously disclosed in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
If we fail to maintain an effective system of internal controls over financial reporting there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis, which could result in a loss of investor confidence and negatively impact our business, results of operations, financial condition and stock price.
Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud. As further described in Part I Item 4 “Controls and Procedures” of this report, management has concluded that, because of a material weakness in internal control over financial reporting related to individual control deficiencies related to existing controls failing to operate effectively. Specifically, the Company did not maintain a sufficient complement of personnel with appropriate accounting knowledge, experience and training to oversee the application of certain manual process controls or to maintain adequate segregation of duties. The material weakness will not be considered remediated until the Company has hired and trained qualified resources, its internal controls subsequently operate effectively for a sufficient period time and management has concluded, through testing, that its internal controls are operating effectively. We cannot be certain that these measures will be successful or that we will be able to prevent future significant deficiencies or material weaknesses. Any remediation efforts additionally may require us to incur unanticipated costs for various professional fees and services. Material inaccuracies in our financial statements would damage their value to management and our Board of Directors in making decisions as to the operation of our business, could harm our reputation and cause investors to lose confidence in our reported financial information.
Item 5. Other Information
On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer of the Company. Mr. Berger has served as a director of the Company since September 28, 2022 and continues to serve as a member of the board of directors. In addition, since his appointment as Chief Executive Officer, Mr. Berger has served as interim Chief Financial Officer until the Company completes its search for a permanent Chief Financial Officer.
Biographical and compensation related information for Mr. Berger was included in the Company’s Current Reports on Form 8-K filed on November 4, 2022 and November 10, 2022 and is incorporated by reference herein.
34
Item 6. Exhibits
Exhibit |
|
Description |
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
31.1 |
|
|
|
|
|
32.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* The certifications attached hereto as Exhibit 32.1 are furnished with this Quarterly Report on Form 10-Q and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
TUESDAY MORNING CORPORATION |
||
|
(Registrant) |
||
|
|
|
|
DATE: November 22, 2022 |
By: |
|
/s/ Andrew Berger |
|
|
|
Andrew Berger Chief Executive Officer and Interim Chief Financial Officer
|
36
EXHIBIT 31.1
CERTIFICATION
I, Andrew Berger, certify that:
Date: November 22, 2022 |
By: |
/s/ Andrew Berger |
|
|
Andrew Berger |
|
|
Chief Executive Officer and Interim Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF TUESDAY MORNING CORPORATION PURSUANT TO
18 U.S.C. §1350
I, Andrew Berger, the Chief Executive Officer and Interim Chief Financial Officer of Tuesday Morning Corporation, hereby certify that to the best of my knowledge and belief:
Date: November 22, 2022 |
By: |
/s/ Andrew Berger |
|
|
Andrew Berger |
|
|
Chief Executive Officer and Interim Chief Financial Officer |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Oct. 01, 2022 |
Jul. 02, 2022 |
|---|---|---|
| Stockholders’ equity: | ||
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 178,480,309 | 87,663,769 |
| Common stock, shares outstanding | 176,696,648 | 85,880,108 |
| Treasury stock, shares | 1,783,661 | 1,783,661 |
Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Income Statement [Abstract] | ||
| Net sales | $ 157,105 | $ 176,872 |
| Cost of sales | 122,469 | 125,858 |
| Gross margin | 34,636 | 51,014 |
| Selling, general and administrative expenses | 60,523 | 60,277 |
| Restructuring and impairment charges | 0 | 2,430 |
| Operating loss before interest, reorganization and other expense | (25,887) | (11,693) |
| Other income/(expense): | ||
| Interest expense | (2,027) | (1,716) |
| Reorganization items, net | 0 | (1,292) |
| Gain on derivative | 8,780 | 0 |
| Loss on debt extinguishment | (8,382) | 0 |
| Other income/(expense), net | (498) | 49 |
| Other income/(expense) total | (2,127) | (2,959) |
| Loss before income taxes | (28,014) | (14,652) |
| Income tax expense/(benefit) | 149 | (49) |
| Net loss | $ (28,163) | $ (14,603) |
| Net loss per common share: | ||
| Basic | $ (0.29) | $ (0.17) |
| Diluted | $ (0.29) | $ (0.17) |
| Weighted average number of common shares: | ||
| Basic | 96,645 | 84,310 |
| Diluted | 96,645 | 84,310 |
Condensed Consolidated Statements of Cash Flows (Parenthetical) |
3 Months Ended |
|---|---|
|
Oct. 01, 2022
shares
| |
| Noncash Investing and Financing Items [Abstract] | |
| Conversion of Common stock | 90,000,000 |
Nature of Operations and Significant Accounting Policies |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Accounting Policies [Abstract] | |
| Nature of Operations and Summary of Significant Accounting Policies | 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Basis of presentation — The condensed consolidated financial statements herein include the accounts of Tuesday Morning Corporation and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. We do not present a consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods. Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended July 2, 2022. The consolidated balance sheet at July 2, 2022 has been derived from the audited consolidated financial statements at that date. The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates. The Company is in a fiscal year end with 52-53 week year ending on the Saturday closest to June 30. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. (A) Cash and Cash Equivalents—Cash and cash equivalents include credit card receivables and all highly liquid instruments with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. At October 1, 2022 and July 2, 2022, credit card receivables from third party consumer credit card providers were $5.6 million and $6.3 million, respectively. Such receivables generally are collected within one week of the balance sheet date. (B) Restricted Cash—There was no restricted cash as of October 1, 2022. (C) Fair Value Measurements—The Company applies the provisions of ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: • Level 1 inputs to the valuation methodology are quoted, unadjusted prices for identical assets or liabilities in active markets. • Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, as well as other than quoted prices for identical assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. Liquidity The Company has evaluated its going concern disclosure requirements as of October 1, 2022, under ASC-205 “Going Concern”. The Company determined that as of July 2, 2022, there was substantial doubt about the Company’s ability to remain a going concern. However, the Company concluded that as a result of the funds generated from the Private Placement (as defined in Note 3 below), and the funds expected to be generated from operating activities in fiscal 2023, available cash and cash equivalents and borrowings under the New ABL Facility will be sufficient to fund its planned operations and capital expenditure requirements for at least twelve months, and comply with its debt covenant of maintaining $7.5 million in availability under its New ABL Facility. The financial statements have been prepared on a going concern basis.
Management's expected plans to generate adequate funds from operating activities, include cost management of payroll, reductions in year over year distribution costs, the sale of new product categories, and better alignment of merchandise purchases and receipts with sales demand, among others. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable, as of November 22, 2022. Emergence from Chapter 11 Bankruptcy Proceedings In response to the impacts of the COVID-19 pandemic, on May 27, 2020 (the “Petition Date”), we filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the “Bankruptcy Court”). On December 31, 2020, we legally emerged from bankruptcy following Bankruptcy Court approval and resolution of all material conditions precedent listed in our Plan of Reorganization (as defined below). However, the closing of an equity financing transaction was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of Accounting Standards Codification ("ASC') 852 – Reorganizations until that transaction closed on February 9, 2021. In connection with our legal emergence from bankruptcy on December 31, 2020, the Company completed certain debt financings (including an asset-based revolving credit facility and a term loan) and sale-leaseback transactions of our corporate office and Dallas distribution center properties contemplated by the Plan of Reorganization. The Chapter 11 Cases were jointly administered for procedural purposes. During the pendency of the Chapter 11 Cases, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In accordance with orders of the Bankruptcy Court, we entered into certain debtor-in-possession financing arrangements to provide financing during the pendency of the Chapter 11 Cases. See "Debtor-In-Possession Financing Arrangements" in Note 3 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022 for additional information regarding these debtor-in-possession financing arrangements. In early June 2020, in accordance with orders of the Bankruptcy Court, we commenced the process to close 132 store locations. By the end of July 2020, all of these stores were permanently closed. In mid-July 2020, we began the process to close an additional 65 stores following negotiations with our landlords, and those store closures were completed in August 2020. In total, we permanently closed 197 stores during the first quarter of fiscal 2021. In addition, we closed our Phoenix, Arizona distribution center (“Phoenix distribution center”) in the second quarter of fiscal 2021. On November 16, 2020, the Company and its subsidiaries filed with the Bankruptcy Court a proposed Revised Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Amended Plan”) and a proposed Amended Disclosure Statement (the “Amended Disclosure Statement”) in support of the Amended Plan describing the Amended Plan and the solicitation of votes to approve the same from certain of the Debtors’ creditors with respect to the Chapter 11 Cases. The Amended Plan and the Amended Disclosure Statement contemplated the debt financing transactions described in Note 3 below under the caption “ABL Credit Agreements,” the exchange and Rights Offering (defined in Note 12 below) and the sale-leaseback transactions described in Note 8 below. On December 23, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Amended Plan, with certain modifications described in the Confirmation Order (as modified and confirmed, the “Plan of Reorganization”). On December 31, 2020, all of the conditions precedent to the Plan of Reorganization were satisfied and the Company completed the debt financing and sale-leaseback contemplated in the Plan of Reorganization. However, the closing of the Rights Offering was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of Accounting Standards Codification ("ASC") 852 – Reorganizations until that transaction closed on February 9, 2021. In accordance with the Plan of Reorganization, effective December 31, 2020 (the “Effective Date”), the Company’s board of directors was comprised of nine members, including five continuing directors of the Company, three new directors appointed by the Backstop Party (as defined in Note 12 below) and one director appointed by the equity committee in the Chapter 11 Cases. Pursuant to the Plan of Reorganization, each outstanding share of the Company’s common stock as of the close of business on January 4, 2021 was exchanged for (1) one new share of the Company’s stock and (2) a share purchase right entitling the holder to purchase its pro rata portion of shares available to eligible holders in the Rights Offering described under the caption “Equity Financing under the Plan of Reorganization” in Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022. On February 9, 2021, the Company completed the equity financing contemplated by the Plan of Reorganization. On September 29, 2021, the U.S. Bankruptcy Court issued a final decree (the “Final Decree”) closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of the claims for approximately $14 million less than the amounts reserved and retained in the Unsecured Creditor Claim Fund. Upon entry of the Final Decree, the approximately $14 million remaining in the escrow account was returned to the Company to make a repayment on its ABL credit facility and the Chapter 11 Cases are now final. See Note 2 regarding Bankruptcy Accounting for further discussion.
Listing During the pendency of our bankruptcy proceedings, the Company’s common stock was delisted by the Nasdaq Stock Market, LLC (“Nasdaq”) and began trading on the OTC Pink marketplace under the symbol “TUESQ”. In January 2021, following our emergence from bankruptcy, the Company’s common stock began trading on the OTCQX market under the ticker symbol “TUEM.” On May 24, 2021, Nasdaq approved our application for the relisting of the Company's common stock on the Nasdaq Capital Market. The Company's common stock was relisted and commenced trading on the Nasdaq Capital Market at the opening of the market on May 25, 2021, under the ticker symbol "TUEM." On June 6, 2022, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company was not in compliance with the Nasdaq’s Listing Rule 5550(a)(2), as the closing bid price of the Company’s common stock had been below $1.00 per share for 30 consecutive business days (the “Minimum Bid Price Requirement”).
In the event the Company does not regain compliance with the Minimum Bid Price Requirement within the 180-calendar day compliance period, the Company may be eligible for additional time. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and will need to provide written notice of its intention to cure the deficiency during an additional 180-calendar day compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days. However, if it appears to the staff of Nasdaq that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.
On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer. Mr. Berger previously served as a member of the Audit Committee of the Board of Directors. In connection with his appointment as Chief Executive Officer, Mr. Berger resigned from his position on the Audit Committee. As a result, the Audit Committee has been reduced to two members, each of whom is an independent director pursuant to the Nasdaq Listing Rules. Accordingly, the Company currently is not compliant with Nasdaq Listing Rule 5605(c)(2), which requires that the audit committee of a Nasdaq listed company consist of at least three members, each of whom is an independent director pursuant to the Nasdaq Listing Rules. In accordance with the Nasdaq Listing Rules, on November 7, 2022, the Company notified Nasdaq of Mr. Berger’s appointment as Chief Executive Officer and resignation from the Audit Committee and the resulting non-compliance with Nasdaq Listing Rule 5605(c)(2). The Company also received a letter from Nasdaq indicating the Company was not in compliance with Nasdaq Listing Rule 5605 and noting that the Company would, in accordance with Nasdaq Listing Rule 5605(c)(4)(B), have a cure period until the earlier of its next annual meeting of stockholders or May 3, 2023 to regain compliance. The Company intends to appoint an additional independent director to the Board of Directors and the Audit Committee as soon as practicable and prior to the expiration of the cure period under Nasdaq Listing Rule 5605(c)(4)(B). Updates on the COVID-19 Pandemic The COVID-19 pandemic has had an adverse effect on our business operations, store traffic, employee availability, financial conditions, results of operations, liquidity and cash flow. On March 25, 2020, we temporarily closed all of our stores nationwide, severely reducing revenues, resulting in significant operating losses and the elimination of substantially all operating cash flow. As allowed by state and local jurisdictions, our stores gradually reopened as of the end of June 2020. In accordance with our Plan of Reorganization, described below, we completed the permanent closure of 197 stores in the first quarter of fiscal 2021 and the closure of our Phoenix, Arizona distribution center (“Phoenix distribution center”) in second quarter of fiscal 2021. In addition, as part of our restructuring, we secured financing to pay creditors in accordance with the plan of reorganization and to fund planned operations and expenditures. The extent to which the COVID-19 pandemic impacts our business, results of operations, cash flows and financial condition will depend on future developments, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that impacts of the COVID-19 pandemic continue, how fast economies will fully recover from the COVID-19 pandemic, the timing and extent of further impacts on traffic and consumer spending in our stores, the extent and duration of ongoing impacts to domestic and international supply chains and the related impacts on the flow, and availability and cost of products. Accounting Pronouncements Recently Adopted In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We this standard in the first quarter of fiscal 2022 and it did result in a material impact to the Company’s consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, which includes the Company, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
|
Bankruptcy Accounting |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reorganizations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bankruptcy Accounting | 2. BANKRUPTCY ACCOUNTING Reorganizations require that the condensed consolidated financial statements, for periods subsequent to the filing of the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. During the pendency of the Chapter 11 Cases until we qualified for emergence under ASC 852, the condensed consolidated financial statements were prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business and reflect the application of ASC 852. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings were recorded in Reorganization items, net in our condensed consolidated statements of operations. Pursuant to the Plan of Reorganization, an escrow account (the “Unsecured Creditor Claim Fund”) was established for the benefit of holders of allowed general unsecured claims. Upon the closing of the sale and leaseback of the Corporate Office and the Dallas Distribution Center properties and the issuance of the Term Loan (as defined in Note 3 below), net proceeds of $67.5 million, after payment of property taxes, and $18.8 million, respectively, were deposited directly into the Unsecured Creditor Claim Fund that was administered by an independent unsecured claims disbursing agent. The remaining proceeds from the Term Loan that were not deposited into the Unsecured Creditor Claim Fund were deposited into our operating account. In addition, $14.2 million of additional cash was deposited into a segregated bank account at Wells Fargo Bank and was restricted for use in paying compensation for services rendered by professionals on or after the Petition date and prior to the approval of the Effective Date. The closing of the Rights Offering described in Note 12 below provided approximately $40.0 million of cash that was deposited to the Unsecured Creditor Claim Fund and recorded as restricted cash. During the fiscal 2021, all services rendered by professionals were paid and the Wells Fargo Restricted Fund account was closed with all of the applicable funds disbursed. Net cash remaining of $1.9 million was deposited directly into our unrestricted cash account during the fourth quarter of fiscal 2021. On September 29, 2021, the U.S. Bankruptcy Court issued a Final Decree closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of these claims for approximately $14 million less than the amounts reserved and retained in the Unsecured Creditor Claim Fund. Upon entry of the Final Decree, the approximately $14 million remaining in the Unsecured Creditor Claim Fund was returned to the Company to make a repayment on its ABL credit facility and the Chapter 11 Cases are final. As of October 1, 2022, we had zero cash held in the Unsecured Creditor Claim Fund held on the balance sheet for the payment of claims. We were not required to apply fresh start accounting based on the provisions of ASC 852 as there was no change in control and the entity’s reorganization value immediately before the date of confirmation was more than the total of all its post-petition liabilities and allowed claims. Restructuring and Impairment Charges Restructuring and impairment charges are as follows (in thousands):
Reorganization Items Reorganization items included in our condensed consolidated statement of operations represent amounts directly resulting from the Chapter 11 Cases are as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | 3. DEBT ABL Credit Agreements On December 31, 2020, the Company and its subsidiaries entered into a Credit Agreement (the “Post-Emergence ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. that provided for a revolving credit facility in an aggregate amount of $110.0 million (the “Post-Emergence ABL Facility”). The Post-Emergence ABL Credit Agreement included conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. The Post-Emergence ABL Credit Agreement required the Company to maintain a minimum fixed charge coverage ratio if borrowing availability fell below certain minimum levels, after the first anniversary of the agreement. Under the terms of the Post-Emergence ABL Credit Agreement, amounts available for advances would be subject to a borrowing base as described in the Post-Emergence ABL Credit Agreement. Under the Post-Emergence ABL Credit Agreement, borrowings initially bore interest at a rate equal to the adjusted LIBOR rate plus a spread of 2.75% or the Commercial Bank Floating Bank rate plus a spread of 1.75%. The Post-Emergence ABL Facility was secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). The commitments of the lenders under the Post-Emergence ABL Facility were due to terminate and outstanding borrowings under the Post-Emergence ABL Facility was due to mature on December 31, 2023. On May 9, 2022, the Company, Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of the Company (together with the Company and the Borrower, the "Company Credit Parties") entered into a Credit Agreement (the “New ABL Credit Agreement”) with the lenders named therein (the “ABL Lenders”), Wells Fargo Bank, National Association, as administrative agent (the “ABL Administrative Agent”), and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement replaced the Post-Emergence ABL Credit Agreement. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $110.0 million (the “New ABL Facility”), which includes a $10.0 million sublimit for swingline loans and a $25.0 million sublimit for letters of credit, (ii) a first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO A Facility”) and (iii) an additional first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO B Facility” and, collectively with the New ABL Facility and the FILO A Facility, the “New Facilities”). In addition, under the original terms of the New ABL Credit Agreement, the Borrower had the right, on and following November 9, 2022 (the “FILO B Delayed Incremental Loan”), to request (x) an additional incremental loan under the FILO B Facility in an aggregate amount not to exceed $5.0 million, and (y) additional incremental commitments from the FILO B lenders to make additional loans in an aggregate amount not to exceed $5.0 million, subject to the satisfaction of certain conditions. On May 9, 2022, the Borrower borrowed approximately $75.2 million under the New ABL Facility, $5.0 million under the FILO A Facility and $5.0 million under the FILO B Facility (collectively, the “Closing Date Loans”). A portion of the aggregate proceeds from the Closing Date Loans was used to (i) repay all outstanding indebtedness (the “Existing ABL Loans”) under the Post-Emergence ABL Facility, along with accrued interest, expenses and fees, (ii) purchase of a portion of the Term Loan for the aggregate purchase price of $5.0 million (the “Loan Repurchase”), and (iii) pay transaction costs related to the transactions described in the foregoing clauses (i) and (ii) and the execution and delivery of the New ABL Credit Agreement and related loan documents. The remainder of the proceeds from the Closing Date Loans, as well as the proceeds from future borrowings, will be used for working capital needs and other general corporate purposes. Pursuant to an amendment to the New ABL Credit Agreement dated July 11, 2022, the lenders under the FILO B Facility (the "FILO B Lenders") agreed to make the FILO B Delayed Incremental Loan to the Borrower on July 11, 2022. The amendment also provides that, until certain minimum borrowing availability levels are satisfied as described in the amendment, the Borrower will be subject to additional reporting obligations, the Borrower will retain a third-party business consultant acceptable to the ABL Administrative Agent, and the ABL Administrative Agent may elect to apply amounts in controlled deposit accounts to the repayment of outstanding borrowings under the New ABL Facility. The July 11, 2022 amendments to the New ABL Agreement were accounted for as a debt modification. In addition, pursuant to the amendment, certain subsidiaries of the Borrower agreed to enter into and maintain a supply agreement with Gordon Brothers Retail Partners, LLC (the “Program Agent”), an affiliate of a FILO B Lender, pursuant to which the Program Agent supplies inventory to the Borrower and certain of its subsidiaries. On September 20, 2022, the New ABL Credit Agreement was further amended in connection with the Private Placement (defined below). The amendment restricts certain actions by the Company for the next two years, including making certain acquisitions and debt prepayments. The amendment requires that the Company engage and retain (at the Company’s expense) Gordon Brothers Retail Partners for a certain period of time for the purpose of performing appraisal validations, monitoring and evaluating the Company’s inventory mix and other services. The amendment also permitted the change in control caused by the issuance of shares to the SPV (as defined below) upon exchange of the Convertible Debt (as defined below) for shares. On September 20, 2022, $7.5 million of the borrowings under the FILO A Facility and FILO B Facility were repaid. See “September 2020 Private Placement” below for additional information. The New ABL Credit Agreement includes conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. Pursuant to the New ABL Credit Agreement, the Borrower and its subsidiaries must maintain borrowing availability under the New ABL Facility at least equal to the greater of (i) $7.5 million and (ii) 7.5% of the Modified Revolving Loan Cap, as defined in the New ABL Credit Agreement. Amounts available for advances under the New Facilities are subject to borrowing bases as described in the New ABL Credit Agreement. Borrowings under the New ABL Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR (as defined below) plus a margin ranging from 1.75% to 2.25%, or (ii) the Base Rate (as defined below) plus a margin ranging from 0.75% to 1.25%, in each case with such margins depending on the Borrower’s average quarterly borrowing availability under the New ABL Facility. Borrowings under the FILO A Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus 3.00%, or (ii) the Base Rate plus 2.00%. Borrowings under the FILO B Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus a margin of 9.00%, or (ii) the Base Rate plus a margin of 8.00%, in each case with such margins depending on seasonal periods. The “Adjusted Term SOFR” is the term SOFR plus a term SOFR adjustment of 0.10% for loans under the New ABL Facility or a term SOFR adjustment of 0.00% for loans under the FILO A Facility and the FILO B Facility. The “Base Rate” is the greatest of (i) the federal funds effective rate plus 0.50%, (ii) the term SOFR plus 1.00%, and (iii) the prime rate of Wells Fargo Bank, National Association. Each of the Adjusted Term SOFR and the Base Rate is subject to a 0.00% floor with respect to the New ABL Facility and a 1.00% floor for each of the FILO A Facility and the FILO B Facility. During the three months ended October 1, 2022, we had $2.0 million additional deferred financing costs for the FILO B, classified as long term debt in the condensed consolidated balance sheet. The New Facilities are secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 10, 2027, and (ii) the date that is 91 days prior to maturity of the Term Loan. As of October 1, 2022, we had $31.4 million of borrowings outstanding under the New ABL Facility and, $14.6 million of letters of credit outstanding. We had borrowing availability of $25.3 million under the New ABL Facility as of October 1, 2022. As of October 1, 2022, we had $6.7 million in deferred financing costs net of amortization for the New ABL Facility, of which $4.1 million was incurred this quarter for the amendment to the New ABL. Of this amount, $3.7 million was paid from the proceeds of the private placement and $0.4 million was accrued as of October 1, 2022. Term Loan On December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein (the "Term Loan Lenders"), including Tensile Capital Partners Master Fund LP ("Tensile") and affiliates of Osmium Partners, LLC, ("Osmium"), entered into a Credit Agreement (as amended from time to time, the “Term Loan Credit Agreement”) to provide a term loan of $25.0 million to the Company (the “Term Loan”). In accordance with the Plan of Reorganization, on December 31, 2020, three new directors were selected for membership on the Board of Directors by Osmium Partners (Larkspur SPV), LP, ("Larkspur") an affiliate of Tensile and Osmium. Pursuant to the Term Loan Credit Agreement, Tensile and affiliates of Osmium held $19.0 million and $1.0 million, respectively, of the $25.0 million outstanding Term Loan. Representatives of Osmium and Tensile both held seats on the board from December 31, 2020 to September 20, 2022 and therefore Osmium and Tensile were related parties to the Company (see Note 12). On May 9, 2022, the Company, the Borrower, certain subsidiaries of the Company, certain of the Term Loan Lenders (the “Consenting Lenders”), and Alter Domus (US) LLC, as administrative agent, entered into an amendment to the Term Loan Credit Agreement (the “Term Loan Credit Agreement Amendment”), pursuant to which, among other things, (i) each Consenting Lender agreed to the Loan Repurchase, (ii) concurrently with the consummation of the Loan Repurchase, each Consenting Lender agreed to waive and forgive an amount of the accrued and unpaid interest owed to such Consenting Lender , (iii) it was agreed that immediately, automatically and permanently upon the consummation of the Loan Repurchase, the Term Loans assigned pursuant to the Loan Repurchase would be deemed cancelled and of no further force and effect and (iv) the Term Loan Credit Agreement was amended to, among other things, (x) provide that the Borrower and its subsidiaries shall not permit the borrowing availability under the New ABL Facility to be less than the greater of (A) $7.5 million and (B) 7.5% of the Modified Revolving Loan Cap, (y) permit the Borrower to borrow on the $5.0 million committed FILO B accordion, subject to certain conditions, on and following November 9, 2022, and (z) provide that, commencing with the 12-month period ending September 30, 2023, the Company would be subject to compliance with a total secured leverage ratio. In July 2022, the Term Loan Credit Agreement was further amended to permit the early borrowing of the FILO B Delayed Incremental Loan and to make other changes to conform to the New ABL Credit Agreement, accounted for as debt modification as there are no changes in the borrowing capacity. In addition, on September 20, 2022, the Term Loan Credit Agreement was further amended to permit the Private Placement to be completed and to make certain other amendments, including removal of the total secured net leverage ratio covenant from the Term Loan Credit Agreement and permitting the change in control caused by the issuance of shares to the SPV upon conversion of the Convertible Debt for shares. The amendments to the Term Loan agreement in September 2022 were accounted for as a debt modification. The Term Loan will be carried net of the associated debt issuance costs which will be amortized and recorded as interest expense using the effective interest rate based on the amendments. The third party issuance costs of $0.7 million incurred from the refinancing of the term loan was expensed for the period ended October 1, 2022. As of October 1, 2022, we have $25.3 million of borrowings outstanding under the Term Loan Credit Agreement, including PIK interest of $0.9 million. September 2022 Private Placement On September 20, 2022, the Company, the Borrower, certain members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV”), a special purpose entity formed by Retail Ecommerce Ventures LLC (“REV”) and Ayon Capital L.L.C., and TASCR Ventures CA, LLC, as collateral agent, entered into an Amended and Restated Note Purchase Agreement dated as of September 20, 2022 (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, on September 20, 2022, the SPV purchased: (i) $7.5 million in aggregate principal amount of a junior secured convertible notes issued by the Company (the “FILO C Convertible Notes”), and (ii) $24.5 million in aggregate principal amount of junior secured convertible notes (the “SPV Convertible Notes”). In addition, the Management Purchasers purchased $3.0 million in aggregate principal amount of junior secured convertible notes issued by the Company (the “Management Convertible Notes” and, together with the SPV Convertible Notes, the “Junior Convertible Notes”). The FILO C Convertible Notes and the Junior Convertible Notes are referred to herein as the “Convertible Debt” and the issuance of the Convertible Debt is referred to herein as the “Private Placement.” The Convertible Debt was issued by the Company and guaranteed by the Company's subsidiaries. The Convertible Debt is convertible into shares of the Company’s common stock at a conversion price of $0.077 per share. Accordingly, 415,584,415 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt purchased by the SPV. In addition, 38,961,039 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt to be purchased by the Management Purchasers. Because the Company does not currently have a sufficient number of authorized and unreserved shares of common stock to issue upon conversion of all of the Convertible Debt, as described below, only a portion of the Convertible Debt was immediately convertible into common stock. The remaining portion of the Convertible Debt cannot be converted into common stock unless and until the Company’s certificate of incorporation is amended to increase the number of authorized shares of common stock to permit such conversion and/or provide for a reverse stock split of the common stock. The conversion feature within the Convertible Debt represents an embedded derivative. See "Derivative Liabilities" below for additional information. The Convertible Debt is subject to customary anti-dilution adjustments for structural events, such as splits, distributions, dividends or combinations, and customary anti-dilution protections with respect to issuances of equity securities at a price below the applicable conversion price of the Convertible Debt. A portion of the Convertible Debt issued to the SPV was immediately convertible for up to 90,000,000 shares of the Company's common stock. On September 21, 2022, the SPV elected to immediately convert a portion of the Convertible Debt into 90,000,000 shares of the Company's common stock, and through such conversion, acquired ownership of a majority of the Company's outstanding common stock. On September 28, 2022, the SPV approved an amendment to the Company's certificate of incorporation to (i) increase the number of authorized shares to allow for conversion in full of the remaining Convertible Debt, and provide such additional authorized shares as deemed appropriate by the Company's board of directors and/or (ii) provide for a reverse stock split of the common stock (the "Certificate of Incorporation Amendment"). See “Listing” under Note 1 above for additional information. Upon conversion in full of the Convertible Debt and based on the Company's outstanding shares on a fully diluted basis as of September 28, 2022, the SPV would hold approximately 75% and the SPV and the Management Purchasers collectively would hold 81% of the total diluted voting power of the Company's common stock (not including any additional Convertible Debt that may be issued as a result of the Company being required or electing to make in-kind payments of interest as described further below). In connection with the conversion of the portion of the Convertible Debt that was immediately convertible, approximately $6.9 million in principal amount of the SPV Convertible Notes were retired. In connection therewith, we recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and loss on extinguishment of $7.7 million, and a resulting impact of $13.5 million from stockholders' equity to reflect the conversion from debt to common stock and amortization of debt issuance cost of $0.6 million. The conversion of the Convertible Notes to common stock on September 22, 2022, resulted in a change of control of the Company given the SPV held greater than 50% of the outstanding voting common stock and control of the Company’s Board as discussed below. In connection with the Private Placement, the Company entered into a registration rights agreement with the purchasers of the Convertible Debt, pursuant to which the purchasers received customary shelf registration, piggyback and demand registration rights with respect to the resale of shares of the Company’s common stock acquired upon conversion or exchange of the Convertible Debt.
In accordance with the terms of the Note Purchase Agreement, the SPV designated each of Tai Lopez, Alexander Mehr, Maya Burkenroad, Sandip Patel and James Harris (collectively, the “SPV Designees”) to serve as directors of the Company effective upon the closing of the Private Placement on September 20, 2022. In connection with the election the SPV Designees to the Company’s board of directors, each of Douglas J. Dossey, Frank M. Hamlin, W. Paul Jones, John Hartnett Lewis and Sherry M. Smith resigned from the Company’s board of directors. Each of the remaining incumbent directors Fred Hand, Anthony F. Crudele, Marcelo Podesta and Reuben E. Slone continued to serve on the board following the closing of the Private Placement. Each of Messrs. Crudele, Podesta and Slone resigned from the board of directors on September 28, 2022 and in connection therewith each of Andrew T. Berger, Michael Onghai and Z. John Zhang were elected as directors. See Note 14 – Subsequent Events below for additional information. The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and has received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company. As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions. The proceeds of the Private Placement were used to (i) repay $7.5 million of the FILO A term loans and FILO B term loans under the New ABL Credit Agreement; (ii) repay of a portion of the Borrower’s revolving loans under the New ABL Credit Agreement; and (iii) payment of transaction costs. In addition, the remaining proceeds will be used for working capital and other general corporate purposes of the Company and its subsidiaries. In connection with its approval of the Private Placement, the board of directors approved a waiver of the ownership restrictions in Article 11 of the Company’s certificate of incorporation with respect to the securities issuable in the Private Placement. Article 11 generally prohibits any person or group from acquiring more than 4.5% of the Company’s outstanding common stock and restricts transfers in securities owned by holders of 4.5% or more of the Company’s outstanding common stock. FILO C Convertible Notes. In connection with the Private Placement, pursuant to the Note Purchase Agreement, the SPV purchased the FILO C Convertible Notes. The FILO C Convertible Notes will mature upon the earlier of (i) December 31, 2027, or (ii) the maturity of the FILO B term loan under the ABL Credit Agreement. Interest will accrue on the FILO C Convertible Notes at a rate equal to the secured overnight financing rate (“SOFR”) plus 6.50% and will be payable semiannually. Under the terms of the FILO C Convertible Notes, during the two-year period following the closing of the Private Placement, the Company may elect to pay interest on the FILO C Convertible Notes “in kind” by increasing the principal of the FILO C Convertible Notes by the amount of any such interest payable. The provisions of the intercreditor agreements relating to the FILO C Convertible Notes and other outstanding indebtedness of the Company require such payments to be made “in-kind" subject to certain limited exceptions applicable after the second anniversary of the Private Placement.
For the three months ended October 1, 2022, we had $0.7 million in deferred financing costs net of amortization for the FILO C Convertible Notes.
Junior Convertible Notes. The Junior Convertible Notes will mature on December 31, 2027. Interest will accrue on the Junior Convertible Notes at a rate equal to SOFR plus 6.50% and will be payable semiannually. Under the terms of the Junior Convertible Notes, during the two-year period following the closing of the Private Placement, the Company may elect to pay interest on the Junior Convertible Notes “in kind.” The provisions of the intercreditor agreements relating to the Junior Convertible Notes and other outstanding indebtedness of the Company will require such payments to be made “in-kind” subject to certain limited exceptions applicable after the second anniversary of the Private Placement. The Junior Convertible Notes are secured by the same collateral that secures the revolving loans and FILO B term loans under the ABL Credit Agreement, the Term Loan and the FILO C Convertible Notes (the “Other Secured Debt”). The liens securing the Junior Convertible Notes rank junior to the liens securing the Other Secured Debt. With respect to payment priority, the Junior Convertible Notes are subordinated to all of the Other Secured Debt. For the three months ended October 1, 2022, we had $1.5 million in deferred financing costs for the SPV Junior Convertible Notes. This amount is net of extinguishment of unamortized issuance cost of $0.6 million proportionate to the conversion of the SPV Convertible Notes to common stock on September 22, 2022. For the three months ended October 1, 2022, we had $0.3 million in deferred financing costs of Management Convertible Notes. The Junior Convertible Notes contain covenants and events of default that are customary for this type of financing.
The following table provides details on our Long term debt (in thousands):
As of October 1, 2022, we are in compliance with covenants in the New ABL Facility, the Term Loan, and the Convertible Debt. Interest Expense Interest expense for the three months ended October 1, 2022 was $2.0 million, and was comprised of $0.9 million in interest on the New ABL Facility and PIK interest on the Term Loan, the FILO C Convertible Notes, and the Junior Convertible Notes, $0.2 million amortization of financing fees, and $0.9 million commitment fees. Interest expense for the three months ended September 30, 2021 was $1.7 million and was comprised of $1.0 million in interest on the Post-Emergence ABL Facility and PIK interest on the Term Loan, and was comprised of $0.3 million amortization of financing fees and $0.4 million of commitment fees. The fair value of our long term debt was determined based on observable market data provided by a third party for similar types of debt which are considered Level 2 inputs within the fair value hierarchy. The following table provides the fair values on our long-term debt (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Revenue from Contract with Customer [Abstract] | |
| Revenue Recognition | 4. REVENUE RECOGNITION Our revenue is earned from sales of merchandise within our stores and is recorded at the point of sale and conveyance of merchandise to customers. Revenue is measured based on the amount of consideration that we expect to receive, reduced by point of sale discounts and estimates for sales returns, and excludes sales tax. Payment is due at the time of sale. We maintain a reserve for estimated returns, as well as a corresponding returns asset in “Other Assets” in the condensed consolidated balance sheets, and we use historical customer return behavior to estimate our reserve requirements. No impairment of the returns asset was identified or recorded as of October 1, 2022. Gift cards are sold to customers in our stores and we issue gift cards for merchandise returns in our stores. Revenue from sales of gift cards and issuances of merchandise credits is recognized when the gift card is redeemed by the customer, or if the likelihood of the gift card being redeemed by the customer is remote (gift card breakage). The gift card breakage rate is determined based upon historical redemption patterns. An estimate of the rate of gift card breakage is applied over the period of estimated performance and the breakage amounts are included in net sales in the condensed consolidated statement of operations. Breakage income recognized was $0.1 million and $0.1 million for the three months ended October 1, 2022 and September 30, 2021, respectively. The gift card liability is included in “Accrued liabilities” in the condensed consolidated balance sheets. We will continue to evaluate whether and how store closures may affect customer behavior with respect to sales returns and gift card redemption and related breakage. |
Accrued Liabilities |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Liabilities | 5. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands):
Self-insurance reserves were primarily comprised of our worker's compensation liability reserve, followed by our medical liability reserve and general liability reserve. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock & Share-Based Incentive Plans |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock & Share-Based Incentive Plans | 6. COMMON STOCK & SHARE-BASED INCENTIVE PLANS Increase in Authorized Capital Stock As provided in the Plan of Reorganization, the Company’s Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) increased the number of authorized shares of the Company’s common stock, par value $0.01 per share, to 200,000,000 shares. The Company had 176,696,648 shares of common stock outstanding as of October 1, 2022. See Note 3 for information regarding the issuance of additional common stock in connection with the Private Placement. Ownership RestrictionsIn order to continue to assist the Company in preserving certain tax attributes (the “Tax Benefits”), the Company’s Amended and Restated Certificate of incorporation imposes certain restrictions on the transferability and ownership of the Company’s capital stock (the “Ownership Restrictions”). Subject to certain exceptions, the Ownership Restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our Common Stock, (ii) any transfer that would result in an increase of the ownership percentage of any person already owning 4.5% or more of our Common Stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our Common Stock. Pursuant to the Company’s Amended and Restated Certificate of Incorporation, any transferee receiving shares of our Common Stock that would result in a violation of the Ownership Restrictions will not be recognized as a stockholder of the Company or entitled to any rights of stockholders. The Company’s Amended and Restated Certificate of Incorporation allows the Ownership Restrictions to be waived by the Company’s board of directors on a case by case basis. The Board of Directors has taken action to waive the restrictions with respect to sale of shares acquired in the Rights Offering by the Backstop Party. The Ownership Restrictions will remain in effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of directors determines the Ownership Restrictions are no longer necessary for preservation of the Tax Benefits, (ii) the beginning of a taxable year in which the board of directors determines no Tax Benefits may be carried forward, or (iii) such other date as shall be established by the board of directors. In order to allow completion of the Private Placement, the board of directors waived these restrictions with respect to the securities purchased in the Private Placement. On September 21, 2022, following the closing of the Private Placement, the SPV elected to immediately convert a portion of the Convertible Debt into 90 million shares of the Company’s common stock and acquired majority ownership of the Company’s common stock. As a result, the Company experienced an ownership change as defined in Section 382 of the Internal Revenue Code (Section 382) as of September 22, 2022. Section 382 contains rules that limit the ability of a company that undergoes an ownership change to utilize its net operating loss carryforwards (NOLs), tax credits, and interest limitation carryforwards. The Company has significant NOLs, tax credits, and interest limitation carryforwards that are impacted by the ownership change. The Company has evaluated the financial statement impact of the ownership change under Section 382 in the current quarter, and has determined there is no material impact on the financials due to the valuation allowance the Company has set up previously on its deferred tax asset.
Share-Based Incentive Plans For a discussion of our share-based incentive plans, please see Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022. Restricted Stock Awards/Units The Tuesday Morning Corporation 2008 Long-Term Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation Long-Term Incentive Plan (the “2014 Plan” and together with the 2008 Plan, the “Plans”) authorize the grant of restricted stock awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan. Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. Shares are valued at the fair market value of our common stock at the date of award. Shares and units may be subject to time-vesting and/or certain performance requirements. If the time-vesting and/or performance requirements are not met, the restricted shares are forfeited. The 2014 Plan also authorizes the grant of time-vesting and performance-based restricted stock units. Restricted stock units do not provide voting and dividend rights. Shares of common stock are issued upon the vesting of restricted units. In addition to the Plans, the Company has granted certain inducement awards of time-based and performance-based restricted stock units to Fred Hand, Marc Katz and Paul Metcalf. See Note 7 to the consolidated financial statements in our Annual Report on Form 10-K and Note 14 Subsequent Events below for additional information. The following table summarizes the activity of time-vesting restricted stock units, performance-based restricted stock units, time-vesting restricted stock awards and performance-based restricted stock awards for the three months ended October 1, 2022:
As of October 1, 2022, there were 5,536,064 unvested performance-based restricted stock awards and performance-based restricted stock units to be settled in stock. Cash Settled Awards We have granted stock-based awards to certain employees, which vest over a period of to four years, and will be settled in cash (“cash settled awards”). Both performance-based and time-based awards were granted. Except for the performance based awards which have been deemed unlikely to vest, the fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be re-measured at each reporting period until the awards are settled. The following table summarizes the activity of cash settled awards for the three months ended October 1, 2022:
The liability associated with the cash settled awards was $0.1 million and $0.2 million at October 1, 2022 and July 2, 2022, respectively. Share-based Compensation Costs Share-based compensation costs consisted of the following (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 7. COMMITMENTS AND CONTINGENCIES Information related to the Chapter 11 Cases that were filed on May 27, 2020 is included in Notes 1 and 2 above. Like many retailers, the Company has been named in a potential class or collective actions on behalf of groups alleging violations of federal and state wage and hour and other labor statutes, and other statutes. In the normal course of business, we are also party to representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings including, among others, commercial, product, product safety, employee, customer, intellectual property and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. In addition, we are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established when a loss is considered probable and are based on management’s best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations. |
Leases |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 8. LEASES We conduct substantially all operations from leased facilities. Our retail store locations, our corporate office and our distribution center are under operating leases that will expire over the next 1 to 10 years. Many of our leases include options to renew at our discretion. We include the lease renewal option periods in the calculation of our operating lease assets and liabilities when it is reasonably certain that we will renew the lease. We also lease certain equipment leases that generally expire within three years. In accordance with the Plan of Reorganization, on December 31, 2020, we sold our corporate office and Dallas distribution center properties and leased back those facilities. The lease of the corporate office is for a term of ten years, and the lease of the distribution center is for an initial term of , with an option to extend the distribution center lease for one additional year. We believe it is reasonably certain the option to extend will be exercised. We determined the sale price represented the fair value of the underlying assets sold and have no continuing involvement with the properties sold other than a normal leaseback. The consideration received for the sale, as reduced by the closing and transaction costs, was $68.5 million, and the net book value of the properties sold was $18.9 million, resulting in a $49.6 million gain, which was recognized as of December 31, 2020. Cash proceeds, net of property taxes, were deposited directly into the Unsecured Creditor Claim Fund (See Note 2). The two leases, associated with the transaction, were recorded as operating leases. As of October 1, 2022, we will pay approximately $7.4 million in fixed rents and in-substance fixed rents, over the remaining lease term for the corporate office and we will pay approximately $7.5 million in fixed rents and in-substance fixed rents for the Dallas distribution center property over the remaining lease term, including the one-year option period as noted above. Fixed rents and in-substance fixed rents for each lease were discounted using the incremental borrowing rate we established for the respective term of each lease. In accordance with ASC 842, we determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the right-of-use (“ROU”) assets represent our right to use the underlying assets for the respective lease terms. The operating lease liability is measured as the present value of the unpaid lease payments and the ROU asset is derived from the calculation of the operating lease liability. As our leases do not generally provide an implicit rate, we use our incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow over a similar term, on a collateralized basis in a similar economic environment. Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses allocated on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expense in the period incurred. The ROU asset is adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities. Our lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements. The components of lease cost are as follows (in thousands):
The table below presents additional information related to the Company’s leases:
Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):
Maturities of lease liabilities were as follows as of October 1, 2022 (in thousands):
As of October 1, 2022, there were no operating lease payments for legally binding minimum lease payments for leases signed but not yet commenced. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Common Share |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Common Share | 9. EARNINGS PER COMMON SHARE The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with non-forfeitable rights to dividends or dividend equivalents (referred to as participating securities). Basic EPS is computed using the weighted average number of common shares outstanding during each of the respective years. Diluted EPS is computed using the weighted average number of common and common equivalent shares outstanding during each of the respective years using the more dilutive of either the treasury stock method or two-class method. The difference between basic and diluted shares, if any, largely results from common equivalent shares, which represents the dilutive effect of the assumed exercise of certain outstanding share options and warrants, the assumed vesting of restricted stock granted to employees and directors, or the satisfaction of certain necessary conditions for contingently issuable shares. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):
For the three months ended October 1, 2022 and September 30, 2021, 7.6 million and 1.8 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings/(loss) per common share, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Property, Plant and Equipment [Abstract] | |
| Property and Equipment, Net | 10. PROPERTY AND EQUIPMENT, NET Accumulated depreciation of owned property and equipment as of October 1, 2022 and July 2, 2022 was $166.1 million and $163.2 million, respectively. We evaluate long-lived assets, principally property and equipment, and intangible assets, as well as lease ROU assets, for indicators of impairment whenever events or changes in circumstances indicate their carrying values may not be recoverable. Management's judgments regarding the existence of impairment indicators are based on market conditions and financial performance. As of October 1, 2022, there are no indicators of impairment identified that requires interim impairment assessments be performed. |
Income Taxes |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 11. INCOME TAXES The Company or one of its subsidiaries files income tax returns in the U.S. federal, state and local taxing jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to state and local income tax examinations for years prior to fiscal 2017 and are no longer subject to federal income tax examinations for years prior to fiscal 2013. On March 27, 2020, in an effort to mitigate the economic impact of the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act includes certain corporate income tax provisions, which among other things, included a five-year carryback of net operating losses and acceleration of the corporate alternative minimum tax credit. The Company has evaluated the CARES Act and it is not expected to have a material impact on the income tax provision. The CARES Act also contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the pandemic. As a result of the CARES Act, we had deferred qualified payroll taxes through December 31, 2020. As of October 1, 2022, we have $2.1 million in current qualified deferred payroll taxes in “Accrued Liabilities in the condensed consolidated balance sheet, which are due December 31, 2022. The effective tax rate for the three months ended October 1, 2022 and September 30, 2021 were (0.5%) and 0.3% respectively. A full valuation allowance is currently recorded against substantially all of the Company’s deferred tax assets. A deviation from the customary relationship between income tax expense and (benefit) and pretax income/(loss) results from the effects of the valuation allowance. |
Related Party |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party | 12. RELATED PARTY Osmium/Tensile On November 16, 2020, following approval of the Bankruptcy Court, the Company and Osmium entered into a backstop commitment agreement, pursuant to which Osmium Partners agreed that they or an affiliate would serve as the backstop party (the “Backstop Party”) and purchase all unsubscribed shares for a price of $1.10 per share in a $40 million rights offering, pursuant to which eligible holders of the Company’s common stock could purchase up to $24 million of shares of the Company’s common stock for a price of $1.10 per share. The rights offering is described in more detail in Note 7 to our Annual Report on Form 10-K for the year ended July 2, 2022. Larkspur, jointly owned by Osmium and Tensile, was formed to serve as the Backstop Party. In addition, on November 15, 2020, the Company and Tensile entered into a commitment letter (the “Commitment Letter”) pursuant to which Tensile agreed to provide $25 million in subordinated debt financing to the Company. See Note 3 for a discussion of certain amendments to the Term Loan Credit Agreement. In accordance with the Plan of Reorganization and the Commitment Letter, on December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein, including Tensile and an affiliate of Osmium, entered into the Term Loan Credit Agreement described in Note 3 above which provided for the $25 million Term Loan to the Company. In accordance with the Plan of Reorganization and the backstop commitment agreement, on December 31, 2020, the Company, Osmium and Larkspur (collectively, the “Osmium Group”) entered into an agreement pursuant to which the Osmium Group was entitled to appoint three directors to the Company’s Board of Directors (the “Directors Agreement”). Pursuant to the Directors Agreement, Douglas J. Dossey of Tensile Capital Management LP, John H. Lewis of Osmium and W. Paul Jones were appointed as members of the Company’s Board of Directors. The Directors Agreement provided that the Osmium Group may appoint one additional member of the Board of Directors under certain circumstances. The Directors Agreement also specified various other board-related and voting-related procedures and included a standstill provision limiting certain actions by the Osmium Group. On February 9, 2021, the Company received proceeds of approximately $40 million upon the closing of the rights offering, as contemplated by the Plan of Reorganization. In accordance with the terms of the backstop commitment agreement, Larkspur purchased 18,340,411 shares of the Company’s common stock in the rights offering for an aggregate purchase price of approximately $20.2 million. In addition, in accordance with the Plan of Reorganization and the backstop commitment agreement, Larkspur received (1) 1,818,182 additional shares of the Company’s common stock as payment of the commitment fee for serving as Backstop Party in the rights offering, and (2) a warrant to purchase 10 million additional shares of the Company’s common stock at a purchase price of $1.65 per share. On September 20, 2022, the Director Agreement was terminated. In connection with the Private Placement, the Company entered into a voting agreement, dated as of September 12, 2022 (the "Voting Agreement"), with Larkspur. Pursuant to the Voting Agreement, Larkspur has agreed to vote the 20,158,593 shares of the Company's common stock it beneficially owns (the "Owned Shares") to approve, at any meeting of stockholders or by written consent, the Certificate of Incorporation Amendment. Larkspur further agreed not to transfer the Owned Shares or enter into any hedging transactions with respect to the Owned Shares during the term of the Voting Agreement. The Voting Agreement will terminate upon the earliest to occur of the effectiveness of the Certificate of Incorporation Amendment and December 31, 2022. Based on Schedule 13D filings made by Osmium and Tensile, and their respective affiliates, on September 2022, Osmium and Tensile each are deemed to beneficially own the 30,158,593 shares of the Company’s stock beneficially owned by Larkspur. Based on the Schedule 13D filings with the SEC, Osmium beneficially owns an additional 2,026,840 shares of the Company’s common stock. Private Placement On September 20, 2022, pursuant to the terms of the Note Purchase Agreement, the SPV purchased $32.0 million in aggregate principal amount of the Convertible Debt. As described above, the SPV is a special purpose entity that was formed by Ayon Capital and REV. In connection with the closing of the Private Placement, each of Messrs. Lopez, Mehr and Patel and Ms. Burkenroad were appointed to the Board of Directors. Each of Messrs. Lopez, Mehr and Burkenroad are affiliated with REV and Mr. Patel is affiliated with Ayon Capital. In addition, pursuant to the Note Purchase Agreement, the Management Purchasers purchased $3.0 million in aggregate principal amount of the Convertible Debt. In particular, Mr. Hand purchased $1.7 million in principal amount of the Convertible Debt, Mr. Katz purchased $0.3 million in principal amount of the Convertible Debt and Mr. Metcalf purchase $0.6 million in principal amount of the Convertible Debt. See Note 14 below. In connection with the Private Placement, the Company entered into a license agreement with Pier 1 Imports, pursuant to which the Company may sell Pier 1 products and will pay customary license fees in connection with such sales. Pier 1 Imports is owned by REV.
The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company. As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions. See Note 3 above for additional information regarding the terms of the Convertible Debt. |
Fair Value Measurements |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | 13. FAIR VALUE MEASUREMENTS Derivative Liability As described in Note 3, the Company issued Convertible Notes that contained a conversion feature that qualifies as an embedded derivative. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date, at the date of conversions to equity, and as of each subsequent reporting period. As of the inception date, the Company recorded a derivative liability associated with the conversion option of $22.4 million within our condensed consolidated balance sheets. Upon the conversion of a portion of the Convertible Notes on September 22, 2022 (approximately $6.9 million in principal amount), the Company recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and loss on extinguishment of debt of $7.7 million, and a resulting impact of $13.5 million to stockholders’ equity to reflect the conversion from debt to common stock and amortization of debt issuance cost of $0.6 million. For the three months ended October 1, 2022, the Company recorded a loss on derivative liability of $8.8 million within our condensed consolidated statements of operations, and resulting from the change in fair value on our derivative liability within our condensed consolidated balance sheets. Level 3 valuation information: Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our derivative liability as of October 1, 2022 may differ materially from values that would have been used had a readily available market financial instrument were evident. The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):
The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 2 within the fair value hierarchy (in thousands):
The fair value of the bifurcated embedded derivatives on convertible notes was determined using the following significant unobservable inputs:
Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement. Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liabilities recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as a derivative instrument liabilities, we use the Binomial Lattice model through a Goldman Sachs implementation to estimate the fair value associated with the instrument. This model requires assumptions related to the remaining term of the instrument, risk-free rates of return, our current common stock price and the expected volatility of our Common Stock price over the life of the derivative. The Company determined that as of the assessment date, October 1, 2022, the fair value of the bifurcated embedded derivatives is $9.8 million. For the three months ended October 1, 2022, the Company recorded a gain on derivative liability of $8.8 million within our condensed consolidated statements of operations, and a resulting decrease to our derivative liability within our condensed consolidated balance sheets. If an embedded conversion option in a convertible debt instrument no longer meets the bifurcation criteria in this Subtopic, an issuer shall account for the previously bifurcated conversion option reclassifying the carrying amount of the liability for the conversion option (that is, its fair value on the date of reclassification) to shareholders’ equity. Any debt discount recognized when the conversion option was bifurcated from the convertible debt instrument shall continue to be amortized. Due to their short maturity, the carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses and other long-term liabilities approximated their fair values as of October 1, 2022. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subsequent Events |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 14. SUBSEQUENT EVENTS
On November 4, 2022 (the "Separation Date"), the Company entered into a transition agreement with Fred Hand (the "Hand Transition Agreement"), pursuant to which the Company and Mr. Hand agreed that Mr. Hand's employment as Chief Executive Officer of the Company would terminate and resign from the board of directors of the Company. In addition, the Company entered a transition agreement with each of Marc Katz and Paul Metcalf (the "Katz Transition Agreement," and the "Metcalf Transition Agreement" individually, and, together with the Hand Transition Agreement, the "Transition Agreements"), pursuant to which (i) the Company and Mr. Katz agreed that Mr. Katz's employment as Principal and Chief Operating Officer and Interim Chief Financial Officer would terminate on the Separation Date, and (ii) the Company and Mr. Metcalf agreed that Mr. Metcalf's employment as Principal and Chief Merchant would terminate on the Separation Date. Under the terms of the Transition Agreements, (i) each of the individuals will provide transition services to the Company through June 30, 2023, (ii) the Company will make transition payments of $2.3 million, $0.9 million and $0.8 million, (iii) the Company agreed to reimburse certain legal fees incurred in connection with the Transition Agreements, and (iv) each of the individuals will be entitled to accelerated vesting of their time-vesting restricted stock units, approximately $3.7 million, $1.2 million and $0.9 million. The Transition services include, (i) fully informing the Company of all activities in which the executive was involved prior to the Separation Date and of the status of any projects, (ii) transferring or otherwise making available to the Company to the extent possible, all of the executive's knowledge and experience regarding the Executive's duties, (iii) accomplishing a smooth transition of the executive's responsibilities and cooperating with the Company through June 30, 2023, and (iv) complying with the applicable Transition Agreement, and acting in good faith at all times in performing services. On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer of the Company. Mr. Berger's employment agreement provides for a one-time grant of restricted stock units. Mr. Berger has served as a director of the Company since September 28, 2022 and will continue to serve as a member of the board of directors. As a result of his appointment as Chief Executive Officer, Mr. Berger will no longer serve on the Audit Committee of the board of directors. In addition, William M. Baumann was appointed Chief Operating Officer and Interim Chief Merchant of the Company. Mr. Baumann's employment agreement provides for a one-time grant of restricted stock units. Mr. Baumann, previously served as Executive Vice President and Chief Information Officer of the Company from July 2021 to November 4, 2022. |
Nature of Operations and Significant Accounting Policies (Policies) |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation | Basis of presentation — The condensed consolidated financial statements herein include the accounts of Tuesday Morning Corporation and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. We do not present a consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods. Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended July 2, 2022. The consolidated balance sheet at July 2, 2022 has been derived from the audited consolidated financial statements at that date. The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates. The Company is in a fiscal year end with 52-53 week year ending on the Saturday closest to June 30. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. |
| Cash and Cash Equivalents | (A) Cash and Cash Equivalents—Cash and cash equivalents include credit card receivables and all highly liquid instruments with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. At October 1, 2022 and July 2, 2022, credit card receivables from third party consumer credit card providers were $5.6 million and $6.3 million, respectively. Such receivables generally are collected within one week of the balance sheet date. |
| Restricted Cash | (B) Restricted Cash—There was no restricted cash as of October 1, 2022. |
| Fair Value Measurements | (C) Fair Value Measurements—The Company applies the provisions of ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: • Level 1 inputs to the valuation methodology are quoted, unadjusted prices for identical assets or liabilities in active markets. • Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, as well as other than quoted prices for identical assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. |
| Liquidity | Liquidity The Company has evaluated its going concern disclosure requirements as of October 1, 2022, under ASC-205 “Going Concern”. The Company determined that as of July 2, 2022, there was substantial doubt about the Company’s ability to remain a going concern. However, the Company concluded that as a result of the funds generated from the Private Placement (as defined in Note 3 below), and the funds expected to be generated from operating activities in fiscal 2023, available cash and cash equivalents and borrowings under the New ABL Facility will be sufficient to fund its planned operations and capital expenditure requirements for at least twelve months, and comply with its debt covenant of maintaining $7.5 million in availability under its New ABL Facility. The financial statements have been prepared on a going concern basis.
Management's expected plans to generate adequate funds from operating activities, include cost management of payroll, reductions in year over year distribution costs, the sale of new product categories, and better alignment of merchandise purchases and receipts with sales demand, among others. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable, as of November 22, 2022. |
| Accounting Pronouncements Recently Adopted | Accounting Pronouncements Recently Adopted In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We this standard in the first quarter of fiscal 2022 and it did result in a material impact to the Company’s consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, which includes the Company, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. |
Bankruptcy Accounting (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reorganizations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Restructuring, and Impairment Charges | Restructuring and impairment charges are as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reorganization Items | Reorganization items included in our condensed consolidated statement of operations represent amounts directly resulting from the Chapter 11 Cases are as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Term Loan | The following table provides details on our Long term debt (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value on Long Term Debt | The following table provides the fair values on our long-term debt (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities | Accrued liabilities consisted of the following (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock & Share-Based Incentive Plans (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Activity of Time-Vesting and Performance-Based Restricted Stock Units and Restricted Stock Awards | The following table summarizes the activity of time-vesting restricted stock units, performance-based restricted stock units, time-vesting restricted stock awards and performance-based restricted stock awards for the three months ended October 1, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Activity of Cash Settled Awards | The following table summarizes the activity of cash settled awards for the three months ended October 1, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Share Based Compensation Costs | Share-based compensation costs consisted of the following (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Lease Cost | The components of lease cost are as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Additional Information Related to Leases | The table below presents additional information related to the Company’s leases:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Information Related to Leases Including Supplemental Disclosures of Cash Flow Information | Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Maturities of Lease Liabilities | Maturities of lease liabilities were as follows as of October 1, 2022 (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Common Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Computation of Basic and Diluted Earnings Per Common Share | The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value of financial liabilities measured on recurring basis | The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of liabilities within the fair value hierarchy | The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 2 within the fair value hierarchy (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value of the bifurcated embedded derivatives on convertible notes by unobservable inputs | The fair value of the bifurcated embedded derivatives on convertible notes was determined using the following significant unobservable inputs:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bankruptcy Accounting - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Sep. 29, 2021 |
Oct. 01, 2022 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Bankruptcy Accounting [Line Items] | |||||
| Proceeds from issuance of term loan under sale and leaseback after payment of property taxes | $ 67,500 | ||||
| Proceeds from issuance of term loan under sale and leaseback | 18,800 | ||||
| Restricted cash deposits | 14,200 | ||||
| Net cash remaining deposited in unrestricted cash account | $ 1,900 | ||||
| Additional contribution to unsecured creditor claim fund | 40,000 | ||||
| Maximum amounts reserved and retained in unsecured creditor claim fund | $ 14,000 | ||||
| Remaining unsecured creditor claim fund | $ 14,000 | ||||
| Bankruptcy claims, amount of claim fund to be distributed | 0 | ||||
| Reorganization items, net | 0 | $ 1,292 | |||
| Claim related cost (benefit) | $ 0 | $ 1,063 | |||
| Sale leaseback gain recognized | $ 49,600 | ||||
Bankruptcy Accounting - Schedule of Restructuring, Impairment Charges (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Restructuring costs: | ||
| Severance and compensation related costs (adjustments) | $ 0 | $ 341 |
| Total restructuring costs | 0 | 341 |
| Impairment costs: | ||
| Corporate long-lived assets | 0 | 2,089 |
| Total impairment costs | 0 | 2,089 |
| Total restructuring and impairment costs | $ 0 | $ 2,430 |
Bankruptcy Accounting - Schedule of Reorganization Items (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Reorganization items, net: | ||
| Professional and legal fees | $ 0 | $ 229 |
| Claims related costs | 0 | 1,063 |
| Total reorganization items, net | $ 0 | $ 1,292 |
Debt - Schedule of Fair Value on Long Term Debt (Details) - Fair Value - USD ($) $ in Thousands |
Oct. 01, 2022 |
Jul. 02, 2022 |
|---|---|---|
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | $ 41,555 | $ 28,942 |
| Term Loan Credit Agreement | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | 24,808 | 25,476 |
| FILO A Facility | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | 0 | 3,466 |
| FILO B Facility | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | 6,675 | 0 |
| FILO C Facility | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | 3,808 | 0 |
| Management Convertible Notes | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | 914 | 0 |
| SPV Junior Secured Convertible Notes | ||
| Line Of Credit Facility [Line Items] | ||
| Fair value of long term debt | $ 5,350 | $ 0 |
Revenue Recognition - Narrative (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
Apr. 02, 2022 |
|
| Disaggregation Of Revenue [Line Items] | |||
| Impairment charges | $ 0 | $ 2,089,000 | |
| Returns Asset | |||
| Disaggregation Of Revenue [Line Items] | |||
| Impairment charges | $ 0 | ||
| Breakage | |||
| Disaggregation Of Revenue [Line Items] | |||
| Breakage income recognized | $ 100,000 | $ 100,000 | |
Accrued Liabilities - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands |
Oct. 01, 2022 |
Jul. 02, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Sales and use tax | $ 4,253 | $ 3,854 |
| Self-insurance reserves | 8,549 | 8,451 |
| Wages, benefits and payroll taxes | 6,684 | 5,892 |
| Property taxes | 2,067 | 1,476 |
| Freight and distribution | 6,407 | 6,484 |
| Capital expenditures | 31 | 122 |
| Utilities | 816 | 1,261 |
| Gift card liability | 1,072 | 1,095 |
| Reorganization expenses | 20 | 20 |
| Other expenses | 5,701 | 4,836 |
| Total accrued liabilities | $ 35,600 | $ 33,491 |
Common Stock & Share-Based Incentive Plans - Summary of Activity of Cash Settled Awards (Details) - Cash Settled Awards |
3 Months Ended |
|---|---|
|
Oct. 01, 2022
shares
| |
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
| Outstanding at the beginning balance | 794,527 |
| Granted during the year | 0 |
| Vested during the year | (227,449) |
| Forfeited during the year | (101,047) |
| Outstanding at the ending balance | 466,031 |
| Performance-Based | |
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
| Outstanding at the beginning balance | 59,450 |
| Outstanding at the ending balance | 59,450 |
| Service-Based | |
| Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
| Outstanding at the beginning balance | 735,077 |
| Granted during the year | 0 |
| Vested during the year | (227,449) |
| Forfeited during the year | (101,047) |
| Outstanding at the ending balance | 406,581 |
Common Stock & Share-Based Incentive Plans - Schedule of Share Based Compensation Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Share-based incentive plans | ||
| Amounts capitalized in ending inventory | $ (312) | $ (239) |
| Share Based Compensation Amortization | ||
| Share-based incentive plans | ||
| Share-based compensation | 1,544 | 1,155 |
| Cost of Sales | ||
| Share-based incentive plans | ||
| Share-based compensation | 333 | 257 |
| Selling, General and Administrative Expense | ||
| Share-based incentive plans | ||
| Share-based compensation | $ 1,565 | $ 1,173 |
Leases - Components of Lease Cost (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Leases [Abstract] | ||
| Operating lease cost | $ 17,431 | $ 16,528 |
| Variable lease cost | 2,366 | 2,272 |
| Amortization of right-of-use assets | 33 | |
| Total lease cost | $ 19,797 | $ 18,833 |
Leases - Schedule of Additional Information Related to Leases (Detail) |
Oct. 01, 2022 |
|---|---|
| Weighted average remaining lease term (in years) | |
| Operating leases | 4 years 1 month 6 days |
| Operating leases | 9.50% |
Leases - Schedule of Other Information Related to Leases Including Supplemental Disclosures of Cash Flow Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Cash paid for amounts included in the measurement of lease liabilities: | ||
| Operating cash flows from operating leases | $ 17,249 | $ 17,050 |
| Operating cash flows from finance leases | 9 | |
| Financing cash flows from finance leases | 217 | |
| Right-of-use assets obtained in exchange for operating lease liabilities | $ 12,687 | $ 4,304 |
Leases - Schedule of Maturities of Lease Liabilities (Details) $ in Thousands |
Oct. 01, 2022
USD ($)
|
|---|---|
| Operating Leases Fiscal year: | |
| 2023 (remaining) | $ 49,305 |
| 2024 | 53,018 |
| 2025 | 39,606 |
| 2026 | 25,400 |
| 2027 | 19,208 |
| 2028 | 9,599 |
| Thereafter | 6,566 |
| Total lease payments | 202,702 |
| Less: Interest | 35,747 |
| Total lease liabilities | 166,955 |
| Less: Current lease liabilities | 46,390 |
| Non-current lease liabilities | $ 120,565 |
Earnings Per Common Share - Computation of Basic and Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Earnings Per Share [Abstract] | ||
| Net earnings/(loss) attributable to common shares | $ (28,163) | $ (14,603) |
| Weighted average number of common shares outstanding — basic | 96,645 | 84,310 |
| Weighted average number of common shares outstanding — diluted | 96,645 | 84,310 |
| Net earnings/(loss) per common share - basic | $ (0.29) | $ (0.17) |
| Net earnings/(loss) per common share - diluted | $ (0.29) | $ (0.17) |
Earnings Per Common Share - Narrative (Details) - shares shares in Millions |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2021 |
|
| Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares of common stock excluded from calculation of diluted earnings (loss) per common share | 7.6 | 1.8 |
Property and Equipment, Net - Narrative (Details) - USD ($) $ in Millions |
Oct. 01, 2022 |
Jul. 02, 2022 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Accumulated depreciation | $ 166.1 | $ 163.2 |
Income Taxes - Narrative (Details) $ in Millions |
3 Months Ended | |
|---|---|---|
|
Oct. 01, 2022
USD ($)
Subsidiary
|
Sep. 30, 2021 |
|
| Income Tax Disclosure [Abstract] | ||
| Number of subsidiaries filing income tax returns in the U.S. federal jurisdiction, and various state jurisdictions | Subsidiary | 1 | |
| Effective tax rate | (0.50%) | 0.30% |
| Current qualified deferred payroll taxes CARES Act | $ | $ 2.1 | |
Fair Value Measurements - Schedule of reconciliation of liabilities within the fair value hierarchy (Details) - Level 2 - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Oct. 01, 2022 |
Sep. 22, 2022 |
|
| Embedded Derivative [Line Items] | ||
| Balance as of July 2, 2022 | $ 0 | $ 0 |
| Embedded derivative issued in connection with Private Placement | 22,441 | |
| Change in fair value of bifurcated embedded derivatives, reported in earnings | (6,004) | $ (2,775) |
| Conversion of junior secured convertible notes | (3,894) | |
| Balance as of October 1, 2022 | $ 9,768 | |
Fair Value Measurements - Schedule of fair value of the bifurcated embedded derivatives on convertible notes by unobservable inputs (Details) |
3 Months Ended |
|---|---|
Oct. 01, 2022 | |
| Embedded Derivative [Abstract] | |
| Percentage of market yield | 17.10% |
| Calibration discount rate | 70.00% |
Fair Value Measurements - Narrative (Details) - USD ($) |
3 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 28, 2022 |
Sep. 22, 2022 |
Oct. 01, 2022 |
Sep. 30, 2021 |
Jul. 02, 2022 |
|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
| Embedded derivative | $ 8,800 | ||||
| Loss on extinguishment of debt | 8,382,000 | $ 0 | |||
| Derivative liability | 9,768,000 | $ 0 | |||
| Gain on derivative | 8,780,000 | $ 0 | |||
| Convertible Notes | |||||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
| Embedded derivative | $ 22,400,000 | ||||
| Reduction in debt | $ 2,500,000 | $ 2,500,000 | |||
| Reduction in derivative liability | $ 3,900,000 | 3,900,000 | |||
| Loss on extinguishment of debt | (7,700,000) | ||||
| Amortization of financing fees | 600,000 | ||||
| Debt instrument principal amount | 6,900,000 | ||||
| Convertible Notes | Common Stock | |||||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
| Stockholders equity to conversion from debt to common stock | $ 13,500,000 | ||||
Subsequent Events - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Nov. 04, 2022 |
Oct. 01, 2022 |
|
| Subsequent Event [Line Items] | ||
| Subsequent events date | Nov. 04, 2022 | |
| Subsequent Event [Member] | Fred Hand | ||
| Subsequent Event [Line Items] | ||
| Transition payments | $ 2.3 | |
| Share based compensation, Amount of time vesting restricted stock units | 3.7 | |
| Subsequent Event [Member] | Marc Katz | ||
| Subsequent Event [Line Items] | ||
| Transition payments | 0.9 | |
| Share based compensation, Amount of time vesting restricted stock units | 1.2 | |
| Subsequent Event [Member] | Paul Metcalf | ||
| Subsequent Event [Line Items] | ||
| Transition payments | 0.8 | |
| Share based compensation, Amount of time vesting restricted stock units | $ 0.9 |