10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED December 31, 2021

OR

 

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

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-40432

 

TUESDAY MORNING CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

75-2398532

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

6250 LBJ Freeway

Dallas, Texas 75240

(Address of principal executive offices) (Zip code)

(972) 387-3562

(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

Common Stock, $0.01 par value per share

 

TUEM

 

The Nasdaq Capital Market

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 ☐

 

Accelerated filer

 ☒

 

 

 

 

 

Non-accelerated filer

 ☐

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial 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 No ☐

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 January 31, 2022

Common Stock, par value $0.01 per share

 

85,741,828

 

 

 


Table of Contents

 

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

ITEM 1.

Condensed Financial Statements (Unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021

4

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2021 and 2020

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2021 and 2020

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021 and 2020

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

ITEM 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

30

 

 

 

ITEM 1.

Legal Proceedings

30

 

 

 

ITEM 1A.

Risk Factors

30

 

 

 

ITEM 6.

Exhibits

31

 

 

 

SIGNATURES

 

32

 

 

 

 

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 June 30, 2021, 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; 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; 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; 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; and our ability 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)

 

 

 

December 31,

 

 

June 30,

 

 

 

2021

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,321

 

 

$

6,534

 

Restricted cash

 

 

 

 

 

22,321

 

Inventories

 

 

157,067

 

 

 

145,075

 

Prepaid expenses

 

 

5,319

 

 

 

5,486

 

Other current assets

 

 

5,149

 

 

 

3,385

 

Total Current Assets

 

 

171,856

 

 

 

182,801

 

Property and equipment, net

 

 

32,131

 

 

 

37,784

 

Operating lease right-of-use assets

 

 

178,794

 

 

 

193,244

 

Deferred financing costs

 

 

1,968

 

 

 

2,459

 

Other assets

 

 

1,686

 

 

 

1,596

 

Total Assets

 

$

386,435

 

 

$

417,884

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

36,579

 

 

$

45,930

 

Accrued liabilities

 

 

45,194

 

 

 

46,454

 

Operating lease liabilities

 

 

57,838

 

 

 

54,632

 

Total Current Liabilities

 

 

139,611

 

 

 

147,016

 

 

 

 

 

 

 

 

Operating lease liabilities — non current

 

 

136,181

 

 

 

156,240

 

Borrowings under revolving credit facility

 

 

17,860

 

 

 

12,000

 

Long term debt (see Note 3 for amounts due to related parties)

 

 

28,448

 

 

 

26,374

 

Asset retirement obligation — non-current

 

 

1,085

 

 

 

1,021

 

Other liabilities — non-current

 

 

719

 

 

 

3,432

 

Total Liabilities

 

 

323,904

 

 

 

346,083

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.01 per share, authorized 10,000,000 shares;
   
none issued or outstanding

 

 

 

 

 

 

Common stock, par value $0.01 per share, authorized 200,000,000 shares;
  
87,549,090 shares issued and 85,765,429 shares outstanding at
  December 31, 2021 and
87,988,233 shares issued and 86,204,572 shares
   outstanding at June 30, 2021

 

 

858

 

 

 

862

 

Additional paid-in capital

 

 

308,941

 

 

 

305,498

 

Retained deficit

 

 

(240,456

)

 

 

(227,747

)

Less: 1,783,661 common shares in treasury, at cost, at December 31, 2021
   and at June 30, 2021, respectively

 

 

(6,812

)

 

 

(6,812

)

Total Stockholders’ Equity

 

 

62,531

 

 

 

71,801

 

Total Liabilities and Stockholders’ Equity

 

$

386,435

 

 

$

417,884

 

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

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

251,382

 

 

$

198,625

 

 

$

428,254

 

 

$

360,171

 

Cost of sales

 

 

179,838

 

 

 

138,571

 

 

 

305,696

 

 

 

249,047

 

Gross margin

 

 

71,544

 

 

 

60,054

 

 

 

122,558

 

 

 

111,124

 

Selling, general and administrative expenses

 

 

67,662

 

 

 

63,348

 

 

 

127,939

 

 

 

125,418

 

Restructuring, impairment and abandonment charges

 

 

436

 

 

 

1,018

 

 

 

2,866

 

 

 

6,507

 

Operating income/(loss) before interest, reorganization and other income/(expense)

 

 

3,446

 

 

 

(4,312

)

 

 

(8,247

)

 

 

(20,801

)

Other income/(expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,885

)

 

 

(2,514

)

 

 

(3,601

)

 

 

(5,267

)

Reorganization items, net

 

 

241

 

 

 

48,142

 

 

 

(1,051

)

 

 

85,766

 

Other income, net

 

 

83

 

 

 

(198

)

 

 

132

 

 

 

(192

)

Other income/(expense) total

 

 

(1,561

)

 

 

45,430

 

 

 

(4,520

)

 

 

80,307

 

Earnings/(loss) before income taxes

 

 

1,885

 

 

 

41,118

 

 

 

(12,767

)

 

 

59,506

 

Income tax expense/(benefit)

 

 

(9

)

 

 

779

 

 

 

(58

)

 

 

543

 

Net earnings/(loss)

 

$

1,894

 

 

$

40,339

 

 

$

(12,709

)

 

$

58,963

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings/(loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.88

 

 

$

(0.15

)

 

$

1.29

 

Diluted

 

$

0.02

 

 

$

0.88

 

 

$

(0.15

)

 

$

1.29

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

84,677

 

 

 

45,511

 

 

 

84,494

 

 

 

45,460

 

Diluted

 

 

89,398

 

 

 

45,511

 

 

 

84,494

 

 

 

45,460

 

 

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
Paid-In

 

 

Retained

 

 

Treasury

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

 

86,205

 

 

$

862

 

 

$

305,498

 

 

$

(227,747

)

 

$

(6,812

)

 

$

71,801

 

Net loss

 

 

 

 

 

 

 

 

 

 

(14,603

)

 

 

 

 

 

(14,603

)

Share-based compensation

 

 

 

 

 

 

 

1,155

 

 

 

 

 

 

 

 

 

1,155

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(434

)

 

 

(4

)

 

 

455

 

 

 

 

 

 

 

 

 

451

 

Balance at September 30, 2021

 

85,771

 

 

$

858

 

 

$

307,108

 

 

$

(242,350

)

 

$

(6,812

)

 

$

58,804

 

Net earnings

 

 

 

 

 

 

 

 

 

 

1,894

 

 

 

 

 

 

1,894

 

Share-based compensation

 

 

 

 

 

 

 

1,833

 

 

 

 

 

 

 

 

 

1,833

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

85,765

 

 

$

858

 

 

$

308,941

 

 

$

(240,456

)

 

$

(6,812

)

 

$

62,531

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Treasury

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance at June 30, 2020

 

47,341

 

 

$

455

 

 

$

244,021

 

 

$

(230,729

)

 

$

(6,812

)

 

$

6,935

 

Net earnings

 

 

 

 

 

 

 

 

 

 

18,624

 

 

 

 

 

 

18,624

 

Share-based compensation

 

 

 

 

 

 

 

428

 

 

 

 

 

 

 

 

 

428

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(490

)

 

 

(5

)

 

 

5

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

46,851

 

 

$

450

 

 

$

244,454

 

 

$

(212,105

)

 

$

(6,812

)

 

$

25,987

 

Net earnings

 

 

 

 

 

 

 

 

 

 

40,339

 

 

 

 

 

 

40,339

 

Share-based compensation

 

 

 

 

 

 

 

315

 

 

 

 

 

 

 

 

 

315

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

46,846

 

 

$

450

 

 

$

244,769

 

 

$

(171,766

)

 

$

(6,812

)

 

$

66,641

 

 

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)

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings/(loss)

 

$

(12,709

)

 

$

58,963

 

Adjustments to reconcile net earnings/(loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

6,806

 

 

 

8,306

 

Loss on impairment and abandonment of assets

 

 

2,126

 

 

 

5,638

 

Amortization of financing costs and interest expense

 

 

2,565

 

 

 

4,747

 

(Gain)/loss on disposal of assets

 

 

69

 

 

 

(1,429

)

Gain on sale-leaseback

 

 

 

 

 

(49,639

)

Share-based compensation

 

 

3,045

 

 

 

964

 

Gain on lease terminations

 

 

 

 

 

(93,264

)

Deferred income taxes

 

 

(118

)

 

 

 

Construction allowances from landlords

 

 

449

 

 

 

120

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Inventories

 

 

(12,048

)

 

 

260

 

Prepaid and other current assets

 

 

(1,597

)

 

 

(6,715

)

Other assets

 

 

(91

)

 

 

 

Accounts payable

 

 

(9,060

)

 

 

23,440

 

Accrued liabilities

 

 

(1,569

)

 

 

42,673

 

Operating lease assets and liabilities

 

 

(2,729

)

 

 

(5,914

)

Other liabilities — non-current

 

 

(2,535

)

 

 

1,232

 

Income taxes payable

 

 

183

 

 

 

 

Net cash used in operating activities

 

 

(27,213

)

 

 

(10,618

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(3,536

)

 

 

(1,392

)

Proceeds from sale-leaseback

 

 

 

 

 

68,566

 

Proceeds from sales of assets

 

 

 

 

 

1,896

 

Net cash provided by/(used in) investing activities

 

 

(3,536

)

 

 

69,070

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

471,990

 

 

 

424,659

 

Repayments of borrowings under revolving credit facility

 

 

(466,130

)

 

 

(424,759

)

Proceeds from term loan

 

 

 

 

 

25,000

 

Proceeds from exercise of employee stock options

 

 

467

 

 

 

 

Tax payments related to vested stock awards

 

 

(12

)

 

 

 

Payments on finance leases

 

 

(100

)

 

 

(120

)

Payment of financing fees

 

 

 

 

 

(3,174

)

Net cash provided by financing activities

 

 

6,215

 

 

 

21,606

 

Net increase/(decrease) in cash, cash equivalents and restricted cash

 

 

(24,534

)

 

 

80,058

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

28,855

 

 

 

46,676

 

Cash, cash equivalents and restricted cash, end of period

 

$

4,321

 

 

$

126,734

 

 

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 June 30, 2021 for our critical accounting policies.

 

1. Nature of Operations and Significant Accounting Policies

 

Basis of presentation — The unaudited interim 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 condensed 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 condensed 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 unaudited interim 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 June 30, 2021. The condensed consolidated balance sheet at June 30, 2021 has been derived from the audited consolidated financial statements at that date. The preparation of the condensed 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.

 

Our fiscal year ends on June 30 and we operate our business as a single operating segment.

 

(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 December 31, 2021 and June 30, 2021, credit card receivables from third party consumer credit card providers were $2.7 million and $3.2 million, respectively. Such receivables generally are collected within one week of the balance sheet date.

 

(B) Restricted Cash—Restricted cash was $22.3 million, as of June 30, 2021, which was held in the Unsecured Creditor Claims Fund (defined below in Note 2).

 

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”). 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 Note 3 “Debt” below 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 “Post-Emergence Debt Financing Arrangements,” the exchange and Rights Offering (defined in Note 12 below) and the sale-leaseback transactions described in Note 8 below.

 

 

8


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 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 condensed consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. 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."

 

9


Impact of 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 687 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, 685 of our stores gradually reopened as of the end of June 2020, and two were permanently closed during the quarter. 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 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.

 

Future impacts from the COVID-19 pandemic will depend on the potential further geographic spread and duration of the ongoing pandemic, the timing and extent of recovery in 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, availability and cost of products, the production and administration of effective medical treatments and vaccines, and the actions that may be taken by various governmental authorities and other third parties in response to the pandemic.

 

Accounting Pronouncement Recently Adopted

 

In March 2021, the Financial Accounting Standards Board (“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 815-40): 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 adopted this standard in the first quarter of fiscal 2022 and it did not result in a material impact to the Company’s condensed consolidated financial statements.

 

In December 2019, the FASB issued 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 adopted this standard in the first quarter of fiscal 2022 and it did not result in a material impact to the Company’s condensed consolidated financial statements.

 

Recent Accounting Pronouncement Not Yet Adopted

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. This guidance, which became effective on March 12, 2020, and can be applied through December 31, 2022. While there has been no material effect to our financial condition, results of operations, or cash flows from reference rate reform as of December 31, 2021, we continue to monitor our contracts and transactions for potential application of this ASU. 

 

10


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 date of our Plan of Reorganization by the court (“Effective Date”) (“Wells Fargo Restricted Fund”). The closing of the Rights Offering described in Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 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.

 

Our Plan of Reorganization was confirmed on December 23, 2020, and all listed material conditions precedent were resolved by the December 31, 2020 legal effective date of emergence as governed by the Bankruptcy Court. However, the closing of our Rights Offering was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of ASC 852 until that transaction closed on February 9, 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 now final.

 

Restructuring, Impairment and Abandonment Charges

 

Restructuring, impairment and abandonment charges for the three and six months ended December 31, 2021 and 2020, respectively are as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Restructuring costs:

 

 

 

 

 

 

 

 

 

 

 

 

Severance and compensation related costs

 

$

436

 

 

$

184

 

 

$

777

 

 

$

869

 

Total restructuring costs

 

$

436

 

 

$

184

 

 

$

777

 

 

$

869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment costs:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate long-lived assets

 

$

 

 

$

 

 

$

2,089

 

 

$

 

Total impairment costs

 

$

 

 

$

 

 

$

2,089

 

 

$