0000950170-22-018973 | 10-K | XBRL Viewer

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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Jul. 02, 2022	Sep. 23, 2022	Dec. 31, 2021
Cover [Abstract]
Entity Registrant Name	TUESDAY MORNING CORP/DE
Entity Central Index Key	0000878726
Document Type	10-K
Document Period End Date	Jul. 02, 2022
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Trading Symbol	TUEM
Title of 12(b) Security	Common Stock, $0.01 par value per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Current Fiscal Year End Date	--07-02
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Filer Category	Accelerated Filer
Entity File Number	001-40432
Entity Tax Identification Number	75-2398532
Entity Address, Address Line One	6250 LBJ Freeway
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75240
City Area Code	972
Local Phone Number	387-3562
Entity Emerging Growth Company	false
Entity Small Business	true
ICFR Auditor Attestation Flag	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		176,163,768
Entity Public Float			$ 134,611,002
Document Annual Report	true
Document Transition Report	false
Entity Bankruptcy Proceedings, Reporting Current	true
Documents Incorporated by Reference	Documents Incorporated By Reference: Portions of the registrant’s definitive proxy statement to be filed in connection with 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
Auditor Name	GRANT THORNTON LLP
Auditor Location	Dallas, Texas
Auditor Firm Id	248

Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 02, 2022	Jun. 30, 2021
Current assets:
Cash and cash equivalents	$ 7,816	$ 6,534
Restricted cash	0	22,321
Inventories	148,462	145,075
Prepaid expenses	5,811	5,486
Other current assets	1,694	3,385
Total Current Assets	163,783	182,801
Property and equipment, net	28,442	37,784
Operating lease right of-use assets	156,945	193,244
Deferred financing costs	3,129	2,459
Other assets	1,877	1,596
Total Assets	354,176	417,884
Current liabilities:
Current portion of long term debt	250	0
Accounts payable	40,797	45,930
Accrued liabilities	33,491	46,454
Operating lease liabilities	52,258	54,632
Total Current Liabilities	126,796	147,016
Operating lease liabilities — non-current	115,926	156,240
Borrowings under revolving credit facility	62,191	12,000
Long term debt (see Note 3 for amounts due to related parties)	28,730	26,374
Other liabilities — non-current	1,546	4,453
Total Liabilities	335,189	346,083
Commitments and contingencies	0	0
Stockholders’ equity
Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; none issued or outstanding	0	0
Common stock, par value $0.01 per share, authorized 200,000,000 at July 2, 2022 and June 30, 2021; 87,663,769 shares issued and 85,880,108 shares outstanding at July 2, 2022 and 87,988,233 shares issued and 86,204,572 shares outstanding at June 30, 2021	859	862
Additional paid-in capital	311,690	305,498
Retained deficit	(286,750)	(227,747)
Less: 1,783,661 common shares in treasury, at cost, at July 2, 2022 and at June 30, 2021, respectively	(6,812)	(6,812)
Total Stockholders’ Equity	18,987	71,801
Total Liabilities and Stockholders’ Equity	$ 354,176	$ 417,884

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jul. 02, 2022	Jun. 30, 2021
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	87,663,769	87,988,233
Common stock, shares outstanding	85,880,108	86,204,572
Treasury stock, shares	1,783,661	1,783,661

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Jul. 02, 2022	Jun. 30, 2021	Jun. 30, 2020
Income Statement [Abstract]
Net sales	$ 749,809	$ 690,790	$ 874,895
Cost of sales	557,988	484,788	590,025
Gross margin	191,821	206,002	284,870
Selling, general and administrative expenses	240,870	244,155	330,572
Restructuring, impairment, and abandonment charges	2,462	10,834	113,492
Operating loss before interest, reorganization and other income (expense)	(51,511)	(48,987)	(159,194)
Other income (expense):
Interest expense	(7,177)	(8,169)	(3,845)
Reorganization items, net	(961)	60,015	(3,619)
Other income, net	719	414	551
Earnings (loss) before income taxes	(58,930)	3,273	(166,107)
Income tax provision	73	291	221
Net earnings (loss)	$ (59,003)	$ 2,982	$ (166,328)
Net earnings (loss) per common share:
Basic	$ (0.70)	$ 0.05	$ (3.68)
Diluted	$ (0.70)	$ 0.05	$ (3.68)
Weighted average number of common shares:
Basic	84,885	60,584	45,208
Diluted	84,885	61,689	45,208

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Cumulative Effect Period of Adoption Adjustment	Common Stock	Common Stock Rights Offering	Additional Paid-In Capital	Additional Paid-In Capital Rights Offering	Retained Earnings (Deficit)	Retained Earnings (Deficit) Cumulative Effect Period of Adoption Adjustment	Treasury Stock
Balance at Jun. 30, 2019	$ 171,309	$ (601)	$ 465		$ 241,456		$ (63,800)	$ (601)	$ (6,812)
Balance (in shares) at Jun. 30, 2019			46,683,000
Net earnings /(loss)	(166,328)						(166,328)
Shares issued in connection with exercises of employee stock options			$ (10)		10
Shares issued in connection with exercises of employee stock options (in shares)			658,000
Share-based compensation expense	2,555				2,555
Balance at Jun. 30, 2020	6,935		$ 455		244,021		(230,729)		(6,812)
Balance (in shares) at Jun. 30, 2020			47,341,000
Net earnings /(loss)	2,982						2,982
Shares issued in connection with a rights offering	59,959			$ 382		$ 59,577
Shares issued in connection with a rights offering (shares)				38,182,000
Shares issued or canceled in connection with employee stock incentive plans and related tax effect	74		$ 25		49
Shares issued or canceled in connection with employee stock incentive plans and related tax effect (in shares)			682,000
Share-based compensation expense	1,851				1,851
Balance at Jun. 30, 2021	$ 71,801		$ 862		305,498		(227,747)		(6,812)
Balance (in shares) at Jun. 30, 2021	86,204,572		86,205,000
Net earnings /(loss)	$ (59,003)						(59,003)
Shares issued or canceled in connection with employee stock incentive plans and related tax effect	308		$ (3)		311
Shares issued or canceled in connection with employee stock incentive plans and related tax effect (in shares)			(325,000)
Share-based compensation expense	5,881				5,881
Balance at Jul. 02, 2022	$ 18,987		$ 859		$ 311,690		$ (286,750)		$ (6,812)
Balance (in shares) at Jul. 02, 2022	85,880,108		85,880,000

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Jul. 02, 2022	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net earnings (loss)	$ (59,003)	$ 2,982	$ (166,328)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	13,388	15,412	27,019
Loss on impairment and abandonment of assets	2,126	5,638	105,158
Intangible impairment charge		1,639
Amortization of financing costs and interest expense	4,719	7,177	1,606
Loss (Gain) on disposal of assets	82	(1,389)	46
Gain on sale-leaseback		(49,639)
Stock-based compensation	5,881	2,054	2,720
Gain on repurchase of term loan	(939)
Loss on refinancing of revolving credit facility	588
Rights Offering and Backstop agreement		19,990
Gain on lease terminations		(93,278)
Deferred income taxes	(118)	24	311
Construction allowances from landlords	548	451	1,312
Change in operating assets and liabilities:
Inventories	(3,387)	(30,114)	122,825
Prepaid and other current assets	982	323	(2,547)
Operating lease assets and liabilities	(6,815)	(7,941)	2,941
Accounts payable	(4,841)	(43,051)	2,726
Accrued liabilities	(13,228)	10,082	(3,105)
Other liabilities—non-current	(1,596)	1,585	(814)
Net cash provided by (used in) operating activities	(61,613)	(158,055)	93,870
Cash flows from investing activities:
Capital expenditures	(6,537)	(3,783)	(15,825)
Purchase of intellectual property			(27)
Proceeds from sale-leaseback		68,566
Proceeds from sales of assets		1,897	1,950
Net cash provided by (used in) investing activities	(6,537)	66,680	(13,902)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	921,533	811,031	308,506
Repayments of borrowings under revolving credit facility	(866,342)	(799,131)	(343,056)
Change in cash overdraft			(4,996)
Repurchase of term loan	(5,000)
Proceeds from term loan		25,000
Proceeds from Rights Offering		40,000
Proceeds from the exercise of employee stock options	459	45
Tax payments related to vested deferred stock awards	(151)
Payments on finance leases	(124)	(217)	(224)
Payments of financing fees	(3,264)	(3,174)	(4,917)
Net cash provided by (used in) financing activities	47,111	73,554	(44,687)
Net increase (decrease) in cash, cash equivalents and restricted cash	(21,039)	(17,821)	35,281
Cash, cash equivalents and restricted cash, beginning of period	28,855	46,676	11,395
Cash, cash equivalents and restricted cash, end of period	7,816	28,855	46,676
Supplemental cash flow information:
Interest paid	5,857	2,623	2,141
Income taxes paid (refunded)	$ (352)	$ 478	$ (104)

Nature of Operations and Summary of Significant Accounting Policies

12 Months Ended

Jul. 02, 2022

Accounting Policies [Abstract]

Nature of Operations and Summary of Significant Accounting Policies

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Other General Principles

Tuesday Morning Corporation, a Delaware corporation, and its wholly-owned subsidiaries, (collectively referred to as “Tuesday Morning”, the “Company”, “we”, “us”, and “our”), is a leading off-price retailer, specializing in name-brand, high-quality products for the home, including upscale textiles, furnishings, housewares, gourmet food, toys and seasonal décor at prices generally below those charged by boutique, specialty and department stores, catalogs and on‑line retailers in the United States. We operated 489 discount retail stores in 40 states as of July 2, 2022 (“fiscal 2022”). We operated in 490 discount retail stores in 40 states as of June 30, 2021 (“fiscal 2021”). We operated 685 discount retail stores in 39 states at June 30, 2020 (“fiscal 2020”). Our customer is a savvy shopper with discerning taste for quality at a value. Our strong value proposition has established a loyal customer base, who we engage regularly with social media, email, and digital media.

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”).

Under Nasdaq Rule 5810(c)(3)(A), the Company will have a compliance period of 180 calendar days, or until December 5, 2022, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, during the 180-calendar day compliance period, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days. The notification of noncompliance had no immediate effect on the listing of the Company’s common stock, which continues to be listed and traded on The Nasdaq Capital Market under the symbol “TUEM.”

The Company has committed to Nasdaq to seek stockholder approval of a reverse stock split at its next meeting of stockholders and to implement a reverse stock split promptly following such stockholder approval in order to regain compliance with the Minimum Bid Price Requirement.

There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq listing criteria.

Updates on 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 stores were permanently closed during the fourth quarter of fiscal year 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.

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.

Liquidity and Going Concern

The consolidated balance sheets as of July 2, 2022, and June 30, 2021, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended July 2, 2022, June 30, 2021, and June 30, 2020 and the related notes (collectively referred to as the “consolidated financial statements”) were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business.

The Company’s results of operations for fiscal year ended July 2, 2022, have been negatively impacted by a variety of factors, including pandemic-related disruptions to supply chains, reduced store traffic and sales as a result of decades high inflation including increased fuel costs, higher freight costs, transportation and other supply chain conditions. As of July 2, 2022, the gross margin decreased from the previous year to 25.6% compared to 29.8% at June 30, 2021. The decrease in gross margin as a percentage of net sales was primarily a result of higher supply chain and transportation costs recognized in the current year, partially offset by lower markdowns. These conditions combined with limited remaining borrowing availability under the New ABL Credit Agreement raised substantial doubt as to the Company’s ability to continue as a going concern as of July 2, 2022.

In connection therewith, and as discussed further in Note 12 to the consolidated financial statements, the Company made an early borrowing of $5 million under the FILO B term loan facility under the New ABL Credit Agreement. In addition, over the last three months, the Company also engaged in an extensive process to obtain additional financing to support the Company’s capital needs. As described further in Note 12 to the consolidated financial statements, on September 20, 2022, the Company completed the Private Placement, which result in an issuance of $35 million of convertible debt securities. The proceeds of the Private Placement were used (i) to repay $7.5 million of the FILO A term loans and FILO B term loans under the New ABL Credit Agreement; (ii) repayment of a portion of the Borrower’s revolving loans under the New ABL Credit Agreement; and (iii) payment of transaction costs not to exceed $5 million. In addition, remaining proceeds will be used for working capital and other general corporate purposes of the Company and its subsidiaries.

In evaluating the criteria from ASC 205-40-50, the Company considered several key factors related to changing conditions that impacted the Company’s ability to continue as a going concern such as cash and cash equivalents, ABL availability, total liquidity and additional financing of $35 million, and a strategic partnership to bring in a new line of products.

Accordingly, the Company re-evaluated its potential going concern disclosure requirements in accordance with ASC 205-40-50 as of the date of filing. Upon completion of this evaluation, the Company has concluded that as a result of the funds generated from the Private Placement, and the funds expected to be generated from operating activities, 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. 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. The Company believes these actions alleviate the substantial doubt about the Company’s ability to continue as a going concern. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable, as of September 28, 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”). 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” to the consolidated financial statements 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 7 below) and the sale-leaseback transactions described in Note 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 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 7 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 Organization" in Note 7. 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.

Summary of Significant Accounting Policies

(a)

Principles of Consolidation and Basis of Presentation—The accompanying consolidated financial statements include the accounts of Tuesday Morning Corporation, and its wholly‑owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We have one operating segment and one reportable segment as our chief operating decision maker, the Executive Committee composed of the Chief Executive Officer, Chief Finance Officer, and other senior executives, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Certain reclassifications were made to prior period amounts to conform to the current period presentation. None of the reclassifications affected our net earnings/(loss) in any period. We do not present a separate statement of comprehensive income, as we have no other comprehensive income items. On February 23, 2022, the board of directors of the Company approved a change in the fiscal year end from a calendar year ending on June 30 to a 52-53-week year ending on the Saturday closest to June 30, effective beginning with fiscal year 2022. 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. The Company made the fiscal year change on a prospective basis and will not adjust operating results for prior periods.

(b)

Use of Estimates—The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP'') requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates.

(c)

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 July 2, 2022, and June 30, 2021, credit card receivables from third party consumer credit card providers were $6.3 million and $3.2 million, respectively. Such receivables generally are collected within one week of the balance sheet date.

(d)

Restricted Cash—There was no restricted cash as of July 2, 2022. 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).

(e)

Inventories—Inventories, consisting of finished goods, are stated at the lower of cost or net realizable value using the retail inventory method for store inventory and the specific identification method for warehouse inventory. We have a perpetual

inventory system that tracks on-hand inventory and inventory sold at a stock-keeping unit (“SKU”) level. Inventory is relieved and cost of sales is recorded based on the current calculated cost of the item sold. Buying, distribution, freight and certain other costs are capitalized as part of inventory and are charged to cost of sales as the related inventory is sold. We charged $112.2 million, $95.1 million, and $97.8 million of such capitalized inventory costs to cost of sales for the fiscal years ended July 2, 2022, June 30, 2021, and June 30, 2020, respectively. We have capitalized $29.0 million and $24.2 million of such costs in inventory at July 2, 2022, and June 30, 2021, respectively.

Stores conduct annual physical inventories, staggered during the second half of the fiscal year. During periods in which physical inventory observations do not occur, we utilize an estimate for recording inventory shrink based on the historical results of our previous physical inventories. The estimated shrink rate may require a favorable or unfavorable adjustment to costs of sales based on actual results to the extent that our subsequent actual physical inventory yields a different result. Although inventory shrink rates have not fluctuated significantly in recent years, if the actual rate were to differ from our estimates, then an adjustment to inventory shrink would be required.

We review our inventory during and at the end of each quarter to ensure that all necessary pricing actions are taken to adequately value our inventory at the lower of cost or net realizable by recording permanent markdowns to our on-hand inventory. Management believes these markdowns result in the appropriate prices necessary to stimulate demand for the merchandise. Actual recorded permanent markdowns could differ materially from management’s initial estimates based on future customer demand or economic conditions.

(f)

Property and Equipment—Property and equipment are recorded at cost less accumulated depreciation. Furniture, fixtures, leasehold improvements, finance leases and equipment are depreciated on a straight‑line basis over the estimated useful lives of the assets as follows:

Estimated Useful Lives


Furniture and fixtures		3 to 7 years
Leasehold improvements		Shorter of useful life or lease term
Equipment		5 to 10 years
Assets under finance lease		Shorter of useful life or lease term
Software		3 to 10 years

Upon sale or retirement of an asset, the related cost and accumulated depreciation are removed from our balance sheet and any gain or loss is recognized in the statement of operations. Expenditures for maintenance, minor renewals and repairs are expensed as incurred, while major replacements and improvements are capitalized.

(g)

Deferred Financing Costs— Deferred financing costs represent costs paid in connection with obtaining bank and other long‑term financing. These costs for the term loan are reported in the balance sheet as a direct deduction from the face amount of the term loan and the ABL credit agreements (defined in Note 3 below) are presented as deferred financing costs in the balance sheet.

(h)

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the date of enactment. Valuation allowances are established against deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur. Valuation allowances are released when positive evidence becomes available that future taxable income is sufficient to utilize the underlying deferred tax assets.

We file our annual federal income tax return on a consolidated basis. Furthermore, we recognize uncertain tax positions when we have determined it is more likely than not that a tax position will be sustained upon examination. However, new information may become available, or applicable laws or regulations may change, thereby resulting in a favorable or unfavorable adjustment to amounts recorded.

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 included certain corporate income tax provisions, which among other things, included a five-year carryback of net operating losses and acceleration of the corporate AMT credit. The Company has evaluated the CARES Act and it did not 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 continued to defer qualified payroll taxes through December 31, 2020. As of July 2, 2022, we have $2.6 million in current qualified deferred payroll taxes in “Accrued Liabilities" in the Consolidated Balance Sheets, which are due December 31, 2022.

(i)

Self-Insurance Reserves—We use a combination of insurance and self‑insurance plans to provide for the potential liabilities associated with workers’ compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability and employee health care benefits. Our stop loss limits per claim are $500,000 for workers’ compensation, $250,000 for general liability, and $150,000 for medical. Liabilities associated with the risks that are retained by us are estimated, in part, by historical claims experience, severity factors and the use of loss development factors by third-party actuaries.

The insurance liabilities we record are primarily influenced by the frequency and severity of claims and include a reserve for claims incurred but not yet reported. Our estimated reserves may be materially different from our future actual claim costs, and, when required adjustments to our estimate reserves are identified, the liability will be adjusted accordingly in that period. Our self‑insurance reserves for workers’ compensation, general liability and medical were $6.9 million, $0.6 million, and $1.0 million, respectively, at July 2, 2022, and $7.3 million, $1.2 million, and $1.0 million, respectively, at June 30, 2021.

We recognize insurance expenses based on the date of an occurrence of a loss including the actual and estimated ultimate costs of our claims. Claims are paid from our reserves and our current period insurance expense is adjusted for the difference in prior period recorded reserves and actual payments as well as changes in estimated reserves. Current period insurance expenses also include the amortization of our premiums paid to our insurance carriers. Expenses for workers’ compensation, general liability and medical insurance were $2.3 million, $3.4 million and $7.0 million, respectively, for the fiscal year ended July 2, 2022, $1.4 million, $3.7 million, and $7.8 million, respectively, for the fiscal year ended June 30, 2021, and $2.7 million, $3.3 million and $8.7 million, respectively, for the fiscal year ended June 30, 2020.

(j)

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 for our sales is due at the time of sale.

We maintain a reserve for estimated sales returns, and we use historical customer return behavior to estimate our reserve requirements. No impairment of the returns asset was indicated or recorded for the fiscal year ended July 2, 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 Consolidated Statements of Operations. Breakage income recognized was $0.7 million, $0.4 million, and $0.8 million for the fiscal years ended July 2, 2022, June 30, 2021, and 2020, respectively. The gift card liability totals $1.1 million and $1.0 million included in “Accrued Liabilities” in the Consolidated Balance Sheets at July 2, 2022 and June 30, 2021, respectively (See Note 5).

(k)

Advertising—Costs for direct mail, television, radio, newspaper, digital and other media are expensed as the advertised events take place. Advertising expenses for the fiscal years ended July 2, 2022, June 30, 2021, and 2020 were $6.6 million, $8.3 million, and $18.6 million, respectively. We do not and did not receive consideration from vendors to support our advertising expenditures during fiscal 2022, 2021 and 2020.

(l)

Share‑Based Compensation— The Company accounts for share-based compensation in accordance ASC 718, Compensation-Stock Compensation, which requires the fair value of share-based payments to be recognized in the consolidated financial statements as share-based compensation expense over the requisite service period. For time-based awards, share-based compensation expense is recognized on a straight-line basis, net of forfeitures, over the requisite service period for awards that actually vest. For performance-based awards, share-based compensation expense is estimated based on achievement of the performance condition and is recognized using the accelerated attribution method over the requisite service period for awards that actually vest. Share-based compensation expense is recorded in the selling, general and administrative expenses line in the consolidated statements of operations. ASC 718 also provides guidance for determining whether certain financial instruments awarded in share-based payment transactions are liabilities. The guidance requires that instruments that include conditions other than service, performance or market conditions that affect their fair value, exercisability or vesting be classified as a liability and be remeasured at fair value at each fiscal period (See Note 7 for further discussion on share-based compensation).

During fiscal years ended July 2, 2022, and June 30, 2021, no stock options were granted. The fair value of each stock option granted during the fiscal year ended June 30, 2020, was estimated at the date of grant using a Black‑Scholes option pricing model, using the following assumptions:


	Fiscal Years Ended
	July 2,		June 30,		June 30,
	2022		2021		2020
Risk-free interest rate		—		—	2.4%
Expected term (years)		—		—	4.6
Expected stock volatility		—		—	64.8%
Expected dividend yield		—		—	0.0%

•

Risk‑free interest rate - the risk‑free interest rate is the constant maturity risk-free interest rate for U.S. Treasury instruments with terms consistent with the expected lives of the awards.

•

Expected term - the expected term of an option is based on our historical review of employee exercise behavior based on the employee class (executive or non‑executive) and based on our consideration of the remaining contractual term if limited exercise activity existed for a certain employee class.

•

Expected stock volatility - the expected stock volatility is based on both the historical volatility of our stock based on our historical stock prices and implied volatility of our traded stock options.

•

Expected dividend yield - the expected dividend yield is based on our expectation of not paying dividends on our common stock for the foreseeable future.

(m)

Net Earnings/(Loss) Per Common Share—Basic net earnings/(loss) per common share for the fiscal years ended July 2, 2022, June 30, 2021, and 2020, was calculated by dividing net earnings/(loss) by the weighted average number of common shares outstanding for each period. Diluted net earnings/(loss) per common share for the fiscal years ended July 2, 2022, June 30, 2021, and 2020 was calculated by dividing net earnings/(loss) by the weighted average number of common shares including the impact of dilutive common stock equivalents and warrants (unless anti-dilutive) as shown in Note 10.

(n)

Impairment of Long‑Lived Assets and Long‑Lived Assets to Be Disposed Of—Long‑lived assets, principally property and equipment, including leasehold improvements, and lease right-of-use ("ROU") assets are reviewed for impairment when, in management’s judgment, events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. If the carrying value of the asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset group, the Company will write the carrying value down to the fair value in the period identified. Since there is typically no active market for our long-lived tangible assets, we estimate fair values based on the expected future cash flows. We estimate future cash flows based on store-level historical results, current trends, and operating and cash flow projections. We also perform an entity-wide assessment for impairment of shared assets such as our distribution center and corporate right of use assets using the residual cash flow method. While we believe our estimates and judgments about future cash flows are reasonable, future impairment charges may be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates.

Assets subject to fair value measurement under ASC 820, “Fair Value Measurement”, are categorized into one of three different levels of the fair value hierarchy depending on the observability of the inputs employed in the measurement, as follows:

•

Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets.

•

Level 2 – inputs that reflect quoted prices for identical assets in markets which are not active; quoted prices for similar assets in active markets; inputs other than quoted prices that are observable for the asset; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3 – unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. See Note 4 and Note 8 for additional information.

(o)

Intellectual Property—Our intellectual property primarily consists of indefinite-lived trademarks. We evaluate annually whether the trademarks continue to have an indefinite life. Trademarks and other intellectual property are reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of impairment are present.

Due to change in the Company’s management in the fourth quarter of fiscal 2021 and their future strategy related to the reduced use of certain intellectual properties, the Company concluded the related assets no longer held value which resulted in a $1.6 million impairment of the intangible assets.

(p)

Asset Retirement Obligations—We account for asset retirement obligations (“ARO”) in accordance with ASC 410, Asset Retirement and Environmental Obligations, which requires the recognition of a liability for the fair value of a legally required asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. Our ARO liabilities are associated with the disposal and retirement of leasehold improvements and removal of installed equipment, resulting from contractual obligations, at the end of a lease to restore a facility to a condition specified in the lease agreement.

For leases that contractually result in an ARO, we record the net present value of the ARO liability and also record a related capital asset, in an equal amount. The estimated ARO liability is based on a number of assumptions, including costs to return facilities back to specified conditions, inflation rates and discount rates. Accretion expense related to the ARO liability is recognized as operating expense in our Consolidated Statements of Operations. The capitalized asset is depreciated on a straight-line basis over the useful life of the related leasehold improvements. Upon ARO fulfillment, any difference between the actual retirement expense incurred and the recorded estimated ARO liability is recognized as an operating gain or loss in our Consolidated Statements of Operations. Our ARO liability, which totaled $1.1 million as of July 2, 2022, is included in “Other liabilities—non-current” on our Consolidated Balance Sheet at July 2, 2022. Our ARO liability, which totaled $1.0 million as of June 30, 2021, is included in “Other liabilities—non-current” on our Consolidated Balance Sheet at June 30, 2021.

(q)

Leases—We adopted ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”) effective July 1, 2019 using the modified retrospective adoption method, which resulted in an adjustment to opening retained earnings of $0.6 million as of July 1, 2019 to recognize impairment of the opening right-of-use asset balance for two stores for which assets had been previously impaired under ASC 360, “Property, Plant, and Equipment.” We utilized the simplified transition option available in ASC 842, which allowed the continued application of the legacy guidance in ASC 840, including disclosure requirements, in the comparative periods presented in the year of adoption.

We conduct substantially all operations from leased facilities, including our corporate offices in Dallas and the Dallas warehouse, distribution, and retail complex, which were leased on December 31, 2020, subsequent to the sale and leaseback of those facilities on that date. 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 under finance leases that generally expire within 5 years.

In addition, subsequent to the petition date noted above, we commenced negotiations with our landlords on substantially all of our ongoing leases, resulting in significant modifications and remeasurement recorded in the fiscal 2021. As a result of the remeasurements and terminations of rejected leases, we reduced our operating lease ROU assets by approximately $31.0 million and our operating lease liabilities by approximately $124.0 million, recording a gain of approximately $93 million, which would have been reduced by the $80.1 million impairment loss recorded on ROU assets in fiscal 2020, if the liability had been adjusted in the same fiscal year. The results of our fourth quarter fiscal 2020 impairment analysis indicated an impairment of our property and equipment as well as operating lease ROU assets at approximately 200 of our stores along with property and equipment of our Phoenix distribution center facility totaling $80.1 million, which is included in restructuring costs in the consolidated statement of operations for fiscal 2020. The impairments were the result of closing plans for these stores and the Phoenix distribution center. The $93 million gain was further reduced by an amount of estimated claims allowable by the bankruptcy court, resulting in a $66 million net gain which is included in Reorganization items, net (see Note 2) in the Consolidated Statement of Operations.

(r)

Legal Proceedings— Information related to the Chapter 11 Cases that were filed on May 27, 2020, is included in Note 1 (under the heading “Emergence from Chapter 11 Bankruptcy Proceedings”) and Note 2 in the Notes to Consolidated Financial Statements.

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.

(s)

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 adopted this standard in the first quarter of fiscal 2022 and it did not result in a material impact to the Company’s 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 adopted this standard in the first quarter of fiscal 2022 and it did not result in a material impact to the Company’s consolidated financial statements.

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 London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The guidance was effective upon issuance and may be applied prospectively to contract modifications made, hedging relationships entered into, and other transactions affected by reference rate reform, evaluated on or before December 31, 2022, beginning during the reporting period in which the guidance has been elected. We do not have any receivables, hedging relationships, or lease agreements that reference LIBOR or another reference rate expected to be discontinued. We are currently evaluating the impact of the new guidance on our consolidated financial statements; however, we have determined that, of our current debt commitments as outlined in detail in Note 3, only the obligations under the Post-Emergence ABL Facility may be impacted by ASU 2020-04. Our Term Loan described in Note 3 has fixed interest rate and our New ABL Credit Agreement bears interest at a variable rate based on adjusted term Secured Overnight Financing Rate ("SOFR").

Bankruptcy Accounting

12 Months Ended

Jul. 02, 2022

Reorganizations [Abstract]

Bankruptcy Accounting

2. BANKRUPTCY ACCOUNTING

FASB ASC 852, Reorganizations (“ASC 852”) require that the 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 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 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 (see Note 8) and the issuance of the Term Loan (as defined in Note 3), 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 7 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.

As of July 2, 2022, we had zero cash held in the Unsecured Creditor Claim Fund held on the balance sheet for the payment of claims. As of June 30, 2021, we had $22.3 million of cash held in the Unsecured Creditor Claim Fund, recorded as restricted cash on the balance sheet for the payment of claims.

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.

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, Impairment and Abandonment Charges

Restructuring, impairment and abandonment charges are as follows (in thousands):


	Fiscal Years Ended
	July 2,		June 30,		June 30,
	2022		2021		2020

Restructuring costs:
Severance and compensation related costs (adjustments)	$	499	$	3,557	$	3,122
Professional fees		—		—		5,212
Total restructuring costs	$	499	$	3,557	$	8,334

Impairment costs:
Corporate long-lived assets	$	1,963	$	—	$	—
Intangible asset		—		1,639		—
Operating lease right-of-use assets		—		—		51,626
Distribution center long-lived assets		—		—		16,794
Store long-lived assets		—		—		11,656
Total impairment costs	$	1,963	$	1,639	$	80,076

Abandonment costs:
Accelerated recognition of operating lease right-of-use assets	$	—	$	5,638	$	25,082
Total abandonment costs	$	—	$	5,638	$	25,082

Total restructuring, impairment and abandonment costs	$	2,462	$	10,834	$	113,492

For the year ended July 2, 2022, restructuring, impairment and abandonment charges of $2.5 million primarily relate to software abandonment charges of $2.0 million and $0.5 million in employee retention cost. For the year ended June 30, 2021, restructuring and abandonment costs of $10.8 million primarily related to $3.6 million of executive severance and employee retention costs, intangible impairment charge of $1.6 million, as well as abandonment cost of $5.6 million related to the permanent closure of our stores and the Phoenix distribution center. For the year ended June 30, 2020, restructuring, impairment and abandonment charges of $113.5 million primarily related to (i) $80.1 million in impairment cost and $25.1 million in abandonment cost relating to our permanent store closing plan along with our decision to close the Phoenix distribution center; (ii) $5.2 million in pre-filing incremental professional fees; and (iii) $3.1 million in compensation costs related to a reorganization reduction in force completed prior to the filing of the Chapter 11 Cases. Decisions regarding store closures and the Phoenix distribution center were made in the fourth quarter of fiscal 2020, prior to filing the Chapter 11 Cases; however, the closure of the Phoenix distribution center was not completed until the second quarter of fiscal 2021.

Reorganization Items

Reorganization items included in our consolidated statement of operations represent amounts resulting from the Chapter 11 Cases are as follows (in thousands):


	Fiscal Years Ended
	July 2,		June 30,			June 30,
	2022		2021			2020
Reorganization items, net:
Professional and legal fees	$	367	$	34,579		$	3,619
Claims related costs		594		1,302			—
Gains on lease termination, net of estimated claims		—		(66,247	)		—
Gain on sale-leaseback		—		(49,639	)		—
Rights Offering and Backstop Agreement		—		19,990			—
Total reorganization items, net	$	961	$	(60,015	)	$	3,619

For the year ended July 2, 2022, reorganization items, net charges related to $0.6 million in net claims related costs and $0.4 million in professional and legal fees. For the year ended June 30, 2021, Reorganization items, net was a net gain of $60.0 million due to a net gain of $66.2 million resulting from the store lease terminations and the termination of our Phoenix distribution center lease under our permanent closure plan, and a $49.6 million gain on the sale-leaseback transactions under our Plan of Reorganization (see Note 1 and Note 8). These gains were partially offset by $34.6 million in professional and legal fees related to our reorganization costs as well as $20.0 million of charges related to the execution of our Rights Offering (see Note 1 and 7). The proceeds of the sales-leaseback transaction, along with other sources of financing, continue to be used to satisfy allowed claims and are categorized as Reorganization items, net.

For the year ended June 30, 2020, reorganization costs represent amounts incurred from the Petition Date onward directly resulting from the Chapter 11 Cases and consist of professional fees of $3.6 million.

Debt

12 Months Ended

Jul. 02, 2022

Debt Disclosure [Abstract]

Debt

3. DEBT

Pre-Petition Financing Agreements

Through December 31, 2020, we were party to a credit agreement that provided for an asset-based, five-year senior secured revolving credit facility in the original amount of up to $180.0 million which was scheduled to mature on January 29, 2024 (the “Pre-Petition ABL Credit Agreement”). The availability of funds under the Pre-Petition ABL Credit Agreement was limited to the lesser of a calculated borrowing base and the lenders’ aggregate commitments under the Pre-Petition ABL Credit Agreement. Our indebtedness under the Pre-Petition ABL Credit Agreement was secured by a lien on substantially all of our assets.

As of December 31, 2020, we had no amounts outstanding under the Pre-Petition ABL Credit Agreement, and that agreement was terminated in connection with our legal emergence from bankruptcy.

Debtor-In-Possession Financing Agreements

On May 29, 2020, we entered into a Senior Secured Super Priority Debtor-in-Possession Credit Agreement (the “DIP ABL Credit Agreement”) among the Company, JPMorgan Chase Bank, N.A., as administrative agent, for itself and the other lenders, which provided for a super priority secured debtor-in-possession revolving credit facility in an aggregate amount of up to $100.0 million. On July 10, 2020, we entered into a Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement (the “DIP DDTL Agreement”) with the Franchise Group, Inc., which provided for delayed draw term loans in an amount not to exceed $25.0 million. We made no borrowings under the DIP ABL Credit Agreement or the DIP DDTL Agreement. On December 31, 2020, the DIP ABL Credit Agreement and the DIP DDTL Agreement were terminated in connection with our legal emergence from bankruptcy.

Post-Emergence Financing Arrangements

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. (collectively, the “Lenders”) 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 includes 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. We were not required to be compliant per the lender agreement until 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 December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein 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 SPV") 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 hold seats on the board and therefore Osmium and Tensile are related parties to the Company (see Note 11).

New ABL Credit Agreement

On May 9, 2022, the Company, 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 replaced the Post-Emergence ABL Facility. 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, to request (x) an additional incremental loan under the FILO B Facility in an aggregate amount not to exceed $5.0 million (“FILO B Delayed Incremental Loan”), 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.

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 1.25% to 1.75%, or (ii) the Base Rate (as defined below) plus a margin ranging from 0.25% to 0.75%, 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 ranging from 8.50% to 9.00%, or (ii) the Base Rate plus a margin ranging from 7.50% to 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.

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 9, 2027, and (ii) the date that is 91 days prior to maturity of the Term Loan.

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 principal amount of the outstanding indebtedness (the “Term Loan”) under that certain Credit Agreement, dated as of December 31, 2020, by and among the Company, the Borrower, each of the subsidiary guarantors party thereto, the lenders party thereto (including Tensile Capital Partners Master Fund LP and affiliates of Osmium Partners, LLC) (collectively, the “Term Loan Lenders”), and Alter Domus (US) LLC, as administrative agent (the “Term Loan Credit Agreement”) 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.

As of July 2, 2022, we had $3.1 million in deferred financing costs net of amortization for the New ABL Facility.

As of July 2, 2022, we had $57.2 million of borrowings outstanding under the New ABL Facility and, $14.6 million of letters of credit outstanding. We had borrowing availability of $10.3 million under the New ABL Facility, as of July 2, 2022.

As further described in Note 12 below, on July 11, 2022, we entered into an amendment to the New ABL Credit Agreement pursuant to which the FILO B lenders agreed to provide FILO B Delayed Incremental Loan on July 11, 2022, and we entered into an additional amendment to the New ABL Credit Agreement on September 20, 2022, in connection with the Private Placement (defined in Note 12 below).

Amendment to Term Loan Credit Agreement

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 (each, a “Test Period”) ending September 30, 2023, and for each subsequent Test Period ending on the last day of each fiscal month of the Company and TMI Holdings, Inc. (“Intermediate Holdings” and, together with the Company, “Holdings”) thereafter, Holdings shall not permit the Total Secured Net Leverage Ratio (as defined below) as of the last day for any such Test Period to be greater than (A) for any Test Period ending on or prior to the last day of Holdings’ December 2023 fiscal month, 8.00:1.00, or (B) for any Test Period ending on or after the last day of Holdings’ January 2024 fiscal month, 6.00:1.00. For purposes of the Term Loan Credit Agreement, “Total Secured Net Leverage Ratio” means, for any Test Period, Holdings and its subsidiaries’ Consolidated Secured Indebtedness (as defined in the Term Loan Credit Agreement) as of the last day of such Test Period divided by EBITDA (as defined in the Term Loan Credit Agreement) for such Test Period.

Pursuant to the terms of the Term Loan Credit Agreement, the Term Loan has a maturity date of December 31, 2024, and bears interest at a rate of 14% per annum, with interest payable in-kind (“PIK”). Under the terms of the Term Loan Credit Agreement, the Term Loan is secured by a second lien on the collateral securing the Post-Emergence ABL Facility and a first lien on certain other assets of the Company as described in the Term Loan Credit Agreement. The Term Loan is subject to optional prepayment after the first anniversary of the date of issuance at prepayment price equal to the greater of (i) the original principal amount of the Term Loan plus accrued interest thereon, and (ii) 125% of the original principal amount of the Term Loan. The Term Loan is subject to mandatory prepayment in connection with a change of control of the Company as described in the Term Loan Credit Agreement. The Term Loan Credit Agreement also includes customary covenants and events of default.

The following table provides details on our long-term debt (in thousands):


	July 2,			June 30,
	2022			2021
Term loan balance	$	24,400		$	25,000
Debt issuance costs, net		(420	)		(432	)
Accrued paid-in-kind interest		—			1,806
FILO A, non-current		4,750			—
Loan balance, ending	$	28,730		$	26,374

At July 2, 2022, we were in compliance with covenants in the New ABL Facility and Term Loan respectively.

As further described in Note 12 below, on July 11, 2022, we entered into an amendment to the Term Loan in connection with an amendment to New ABL Credit Agreement pursuant to which the FILO B lenders agreed to provide FILO B Delayed Incremental Loan on July 11, 2022, and we entered into an additional amendment to the Term Loan on September 20, 2022, in connection with the Private Placement.

Interest Expense

Interest expense for fiscal year 2022 for the New ABL Facility, the Post-Emergence ABL Facility, and the Term Loan of $7.2 million, was comprised of commitment fees of $2.2 million, amortization of financing fees of $1.6 million, and interest paid and PIK for the New ABL Facility and Post-Emergence ABL Facility of $3.4 million. Interest expense for fiscal year 2021 from the Post-Emergence ABL Facility, the DIP ABL Credit Agreement and the Term Loan of $8.2 million was comprised of the amortization of financing fees of $5.5 million, commitment fees of $0.8 million, and interest paid on the Post-Emergence ABL Facility and accrued PIK interest on the Term Loan of $1.9 million. Interest expense for fiscal year 2020 from the Pre-Petition ABL Credit Agreement of $1.9 million was comprised of interest of $1.5 million, commitment fees of $0.2 million, and the amortization of financing fees of $0.2 million.

Fair Value Measurements

The fair value of our Term Loan 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 carrying value of our long-term debt as of July 2, 2022, and June 30, 2021 was $28.7 million and $26.4 million, respectively. The fair value of our long-term debt as of July 2, 2022, and June 30, 2021, was $28.9 million and $29.6 million respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI https://asc.fasb.org/topic&trid=2208564

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1E
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (i)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

+ Details

Property and Equipment, Net

12 Months Ended

Jul. 02, 2022

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

4. PROPERTY AND EQUIPMENT, net

Property and equipment, net of accumulated depreciation, consisted of the following (in thousands):


	July 2,			June 30,
	2022			2021
Furniture and fixtures	$	47,501		$	47,587
Equipment		50,191			50,231
Software		41,880			41,575
Leasehold improvements		51,386			49,651
Assets under finance lease		680			681
		191,638			189,725
Less accumulated depreciation		(163,196	)		(151,941	)
Net property and equipment	$	28,442		$	37,784

In the second quarter fiscal 2021, we sold our corporate office and Dallas distribution center properties and land with a total net book value of $18.9 million in a sale-leaseback transaction (see further discussion in Note 8 below). Gains related to the sale or other disposal of such assets are presented in Reorganization items, net on our Consolidated Statement of Operations (See Note 2).

Accrued Liabilities

12 Months Ended

Jul. 02, 2022

Payables and Accruals [Abstract]

Accrued Liabilities

5. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):


	July 2,		June 30,
	2022		2021
Sales and use tax	$	3,854	$	2,698
Self-insurance reserves		8,451		9,405
Wages, benefits and payroll taxes		5,892		9,639
Property taxes		1,476		1,510
Freight and distribution		6,484		8,658
Capital expenditures		122		348
Utilities		1,261		1,466
Gift card liability		1,095		1,045
Reorganization expenses		20		6,337
Other expenses