UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K10-K

(Mark One)

For the fiscal year ended June 30, 2020July 2, 2022

or

Commission File Number 0‑19658001-40432

Tuesday Morning Corporation

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

* As previously disclosed, on May 27, 2020, Tuesday Morning Corporation (the “Company”) was notified by the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) that the Company’s common stock would be delisted from Nasdaq as a result of the Company’s filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code.  On June 8, 2020, trading in the Company’s common stock on Nasdaq was suspended, and the Company’s common stock began trading on the OTC Pink Market under the symbol “TUESQ”.  On July 1, 2020, Nasdaq filed a Form 25 with the SEC to delist the Company’s common stock.  The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) will be effective 90 days, or such shorter period as the SEC may determine, after filing of the Form 25. Upon deregistration of the common stock under Section 12(b) of the Exchange Act, the common stock will remain registered under Section 12(g) of the Exchange Act.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒

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 Regulation S‑T 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.

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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of itsinternal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firmthat prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒

The aggregate market value of shares of the registrant’s common stock held by non‑affiliates of the registrant at December 31, 20192021, wasapproximately $66,809,834$134,611,002 based upon the closing sale price on theThe Nasdaq Global SelectCapital Market reported for such date.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 ☐

As of the close of business on September 10, 2020,23, 2022, there were 46,957,928176,163,768 outstanding shares of the registrant’s common stock.

Table of Contents

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Cautionary Statement RegardingRegarding Forward‑Looking Statements

This Annual Report on Form 10‑K 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 Annual Report on Form 10‑K, particularly under the headings “Business” and “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 plans with respect to the Chapter 11 Cases, the Company’s plan to continue its operations while it works to complete the Chapter 11 process, the Company’s debtor-in-possession financings, the Company’s ability to continue as a going concern, the Company’s plans for store closures and lease renegotiations, financial projections and other statements regarding the Company’s proposed reorganization, 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.strategies, and projected benefits of the recently completed financing transaction and related transactions.

The terms “Tuesday Morning,” “the Company,” “we,” “us,” and “our” as used in this Annual Report on Form 10‑K refer to Tuesday Morning Corporation and its subsidiaries.

The factors listed below in Item 1A. under the heading “Risk Factors” and in other sections of this Annual Report on Form 10‑K provide 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:

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The forward‑looking statements made in this Annual Report on Form 10‑K relate only to events as of the date on which the statements are made. Except as may be required by law, we disclaim obligations to update any forward‑looking statements to reflect events or 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.

PART I

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PART I

Item 1. Business

Business Overview

One of the original off-price retailers, Tuesday Morning is a leading destination for unique home and lifestyle goods. We were established in 1974 and specialize in name-brand, better/best products for the home. We are known for irresistible finds at an incredible value, and we search the world for amazing deals to bring to our customers.

We are an off-price retailer, selling high-quality products at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Our customers come to us for an ever-changing, exceptional assortment of brand names at great prices. Our primary merchandise categories are upscale home textiles, home furnishings, housewares, gourmet food, pet supplies, bath and body products, toys and seasonal décor. We buy our inventory opportunistically from a variety of sources including direct from manufacturer, through closeout sellers and occasionally other retailers. We have strong supplier relationships, and we strive to make it easy for our vendors to do business with us, so that they will come to us first. Our goods are deeply-discounted,deeply discounted, but never seconds or irregulars.

Our customer is a savvy shopper with a 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, direct mail,and digital media and newspaper circulars.media.

With 685489 stores across the country as of June 30, 2020,July 2, 2022 (“fiscal 2022”), we are in the neighborhood in convenient, accessible locations. Our store layout is clean and simple, and the low-frills environment means we can pass even deeper savings on to our dedicated customer base. Our stores operate in both primary and secondary locations of major suburban markets, near our middle and upper‑income customers. We are generally able to obtain favorable lease terms due to our flexibility regarding site selection and our straightforward format, allowing us to use a wide variety of space configurations.

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.

We operatehave one operating segment and one reportable segment as our business aschief operating decision maker, the Executive Committee composed of the Chief Executive Officer, Chief Finance Officer, and other senior executives, reviews financial information on a single operating segment.consolidated basis for purposes of allocating resources and evaluating financial performance.

Updates on COVID-19 Pandemic Bankruptcy Filing and Going Concern

The COVID-19 pandemic has had and will continue to have, an adverse effect on our business operations, store traffic, employee availability, financial condition,conditions, results of operations, liquidity and cash flow. As ofOn March 25, 2020, we temporarily closed all of our stores nationwide, severely reducing revenues, and resulting in significant operating losses and the elimination of substantially all operating cash flow. Stores have gradually reopened asAs allowed by state and local jurisdictions, and all but two of our stores had re-opened bygradually reopened as of the end of June 2020. In accordance with our bankruptcy plan of reorganization, described below, we completed the permanent closure of 197 stores in the first quarter of fiscal year.  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 scopeextent 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 from the COVID-19 pandemic continue, how fast economies will fully recover from the COVID-19 pandemic, the timing and extent of any further impacts on traffic and consumer spending in our stores, the extent and duration of this pandemicongoing impacts to domestic and international supply chains and the related disruptionimpacts on the flow, and availability and cost of products.

Emergence from Chapter 11 Bankruptcy Proceedings

Business Strategy

In fiscal 2020,2022, we focused on resetting our merchandise strategy to our heritage of being an off-price retailer. We edited our assortment and drove our merchandising efforts to deliver our customers a treasure hunt and strong values that are representative of the off priceoff-price marketplace. Additionally, we worked to improve our supply chain efficiency, working capital management and inventory turns, and continued to optimize our marketing effectiveness, cost controls and infrastructure.

We adjusted our strategy in the spring of fiscal 2020, as a result of the COVID-19 pandemic and significant disruption to our business, which led to the filing of our Chapter 11 Cases.  For the duration of fiscal 2020, our focus was on safeguarding our assets, preserving liquidity, managing through bankruptcy proceedings, and planning for our anticipated emergence.

Competition & Seasonality

We believe the principal factors by which we compete are value, brand names, breadth and quality of our product offerings. Our prices are generally below those of department and specialty stores, catalog and on‑line retailers and we offer a broad assortment of high‑end, first quality, brand-name merchandise. We currently compete against a diverse group of retailers, including department, discount and specialty stores, e‑commerce and catalog retailers and mass merchants, which sell, among other products, home furnishings, housewares and related products. We also compete in particular markets with a substantial number of retailers that specialize in one or more types of home furnishing and houseware products that we sell. Some of these competitors have substantially greater financial resources that may, among other things, increase their ability to purchase inventory at lower costs or to initiate and sustain aggressive price competition.

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Our business is subject to seasonality, with a higher level of our net sales and operating income generated during the quarter ending December 31, which includes the holiday shopping season. Net sales in the quarters ended December 31, 2019, 2018,2021, 2020, and 20172019 accounted for approximately 37%34%, 34%29%, and 33%37% of our annual net sales for fiscal years 2020, 20192022, 2021 and 2018,2020, respectively. The rate for fiscal 20202022 is impacted by the reduced annual sales achieved due to the COVID-19 pandemic, which resultedchange in reduced sales in the second half of our fiscal year.calendar year as defined above.

Working Capital Items

Because of the seasonal nature of our business, our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end of December. Historically, the increase in working capital needs during this time was financedWe expect to fund our operations with funds generated from operating activities, available cash flow provided by operations and cash equivalents, and borrowings under our revolving credit facility. See Liquidity and Capital Resources section in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information, including information regarding our debtor-in-possession financing agreements, which are (1) the 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 other lenders, which provides for a super priority secured debtor-in-possession revolving credit facility in an aggregate amount of up to $100 million (the “DIP ABL Facility”), and (2) the Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement (the “DIP DDTL Agreement”) with the Franchise Group, Inc., which provides for delayed draw term loans up to an aggregate principal amount of $25 million (the “DIP Term Facility”).information.

Inventory is one of the largest assets on our balance sheet. Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels to meet our customers’ demands while keeping the inventory fresh and turning the inventory appropriately to optimize profitability.

Purchasing

We provide an outlet for manufacturers and other sources looking for effective ways to reduce excess inventory resulting from order cancellations by retailers, manufacturing overruns, bankruptcies, and excess capacity. Since our inception, we have not experienced significant difficulty in obtaining first quality, brand-name off‑price merchandise in adequate volumes and at competitive prices. We utilize a mix of both domestic and international suppliers. We generally pay our suppliers timely and generally do not request special consideration for markdowns, advertising or returns. During fiscal 2020,2022, our top ten vendors accounted for approximately 10.7%14.5% of total purchases, with no single vendor accounting for more than 1.6%1.9% of total purchases. We continue to build strong vendor relationships following our emergence from Chapter 11 and have had no significant supplier issues as a result of the bankruptcy filing.

Low CostLow-Cost Operations

It is our goal to operate with a low costlow-cost structure in comparison to many other retailers. We place great emphasis on expense management throughout the Company. Our stores have a “no frills” format and we are flexible in our site selection in order to maintain favorable lease terms.

Customer Shopping Experience

While we offer a “no frills” format in our stores, we have made progress in reorganizing and refreshing our stores to enhance our customers’ shopping experience. We offer a flexible return policy, and we accept all major payment methods including cash, checks, all major credit cards, gift cards and digital wallets. We continue to work on initiatives we believe will enhance our customers’ shopping experience.

Distribution Network

InDuring the fourth quarter of fiscal 2020, we utilized 1.2 million square feet of distribution center facilities in Dallas, Texas and areached the decision to close our 0.6 million square foot distribution center in Phoenix, Arizona, along with bypass facilities and a network of pool point facilities throughout the country which service all of our stores throughout the United States. The Phoenix distribution center commenced operations during the fourth quarter of fiscal 2016. We shipped approximately 98 million units to our stores during fiscal 2020, a significant reduction from the prior year, impacted by the COVID-19 pandemic.  In fiscal 2020, as the next step in our supply chain strategy, we began the retrofit of our existing Dallas-based distribution facility to accommodate our distribution requirements for our existing store base as well as for planned future growth.  Due to the impacts of COVID-19, the retrofit of the Dallas distribution center was ceased in the fourth quarter of fiscal 2020.  We also reached the decision in the fourth quarter of fiscal 2020 to close our Phoenix distribution center and consolidate operations in our Dallas-based facility, which we expect to bewas completed in the second quarter of fiscal 2021. In June 2021, we leased an additional 100,000 square foot warehouse in Dallas, Texas (the “Stemmons DC Facility”) to supplement our distribution network. On April 15, 2022, the Company decided to terminate the lease early fiscal 2021.at the Stemmons DC Facility prior to the expiration of the lease on June 30, 2023. The facility was previously utilized with the network of pool point facilities and as pack and hold storage to service all of our stores throughout the United States.

PricingOn December 1, 2021, the Company leased 156,205 square feet of space (the "FW Railhead Warehouse") to supplement our warehouse space for pack and hold storage.

Pricing

Our pricing policy is to sell merchandise generally below retail prices charged by department and specialty stores, catalog and on‑line retailers. Prices are determined centrally and are initially uniform at all of our stores. Once a price is determined for a particular item, labels displaying two‑tiered pricing are affixed to the product. A typical price tag displays a “Compare At” or “Compare Estimated Value” price, and “Our Price”. Our buyers determine and verify retail “Compare At” or “Compare Estimated Value” prices by reviewing prices published in advertisements, catalogs, on‑line and manufacturers’ suggested retail price lists and by visiting department or specialty stores selling similar merchandise. Our information systems provide daily sales and inventory information, which enables us to evaluate our prices and inventory levels and to adjust prices on unsold merchandise in a timely manner and on a periodic basis as dictated by sales volumes and incoming purchases,sell-through percentages, thereby effectively managing our inventory levels and offering competitive pricing.

Employees

Human Capital Management

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As of June 30, 2020,July 2, 2022, we employed 1,5551,601 persons on a full‑time basis and 5,8784,445 persons on a part‑time basis, which is a significant reduction from the prior year due to the impacts of COVID-19 and a resulting reduction in force we implemented in the fourth quarter of fiscal 2020.basis. Our employeesassociates are not represented by any labor unions. Weunions, and we have not experienced any work stoppage due to labor disagreements, and wedisagreements. We believe that our employee relationsassociate relationships are strong.strong, in part, due to the following areas of commitment to a loyal and inclusive associate base:

Associate Engagement

We have an engagement committee of which the associate members are diverse from across the organization. The committee focuses on communication and events to bring our associates together such as ongoing associate events, associate appreciation week, community volunteer opportunities, and charitable events. Our engagement team surveys the associates they work with periodically to collect feedback, which we use to improve the experience of our teams. Our leadership and human resources department maintain an open-door policy for associates to report concerns, and we provide an anonymous reporting hotline, available in multiple languages. Also, we conduct quarterly business meetings so that associates can directly hear about the business from senior leaders. We strive to deliver a workplace experience where the quality of our engagement with fellow associates, business partners and customers aligns with our company values.

Talent Development

We utilize an online training and education platform for all associates to be compliant with federal, state, privacy and cybersecurity laws as applicable. We also invest in our store associates through structured training programs for our assistant store managers and store managers that enable our associates to be more effective leaders and helps them strive towards achieving the career they envision for themselves. All associates are given detailed feedback about their performance on at least an annual basis through formal performance appraisals. Based on the associate’s career goals, leaders may work to design individual development plans. Upon completion of performance appraisals this fiscal year, the company will engage in succession planning to identify and develop talent within the organization.

Core Values

In an effort to ensure our company’s values accurately reflect our current business, we collaborated with internal focus groups to revitalize them. Our new values are foundational to our company operations and our interactions with each other and our customers:

Diversity, Equity, and Inclusion

Associate engagement and retention require an understanding of the needs of a diverse, creative, and purpose-driven workforce. We firmly believe that working in a culture focused on diversity, equity and inclusion spurs innovation, creates healthy and high-performing teams, and delivers superior customer experiences. We aim to provide equal opportunity for all employees. As of July 2, 2022, 74.7% of our total workforce identified as female and 44.0% were minorities. Additionally, 35.0% of our Vice-Presidents and above identified as female. We have a summer internship program at the corporate office that we look to expand to other areas of the business in the near future.

We remain focused on increasing the representation of minority talent through hiring and career development by striving to have our stores reflect the diversity in their communities. Our stores also offer a diverse range of products creating an inclusive shopping experience. Our passion for the deal extends to our commitment to providing our customers with a multicultural range of products at a variety of price points.

Safety/Health and Wellness

We are committed to providing a safe and healthy work environment for our associates and customers. Aligned with our values, we strive to continuously monitor our work environment to keep our associates and customers as safe as possible. We have an open-door policy for all associates to report concerns or safety issues. If an associate does not feel comfortable reporting an incident to their immediate manager or the human resources department, then the associate may contact the company’s ethics and compliance hotline via a toll-free number or access it via the web. The hotline is available 24 hours a day, 7 days a week. Our commitment to associate safety also include ongoing safety communications with safety topics, safety training and audits for review.

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During fiscal 2020, to address the safety and public health of our workforce and customers due to the unprecedented COVID-19 pandemic, we implemented a number of protocols that we continue to use today.

We offer a hybrid work schedule to all of our eligible associates that are able to work from home effectively.

We continue to offer a vaccination incentive program including offering vaccines onsite at the corporate office and distribution center which we started during the fourth quarter of fiscal year 2021. Further, we have made available, at no cost to our associates, on site COVID testing at our distribution center and select stores based on CDC guidelines.

Compensation and Benefits

We offer a benefits package designed to put our associates’ health and well-being, and that of their families, at the forefront. Depending on position and location, associates may be eligible for: 401(k) plan and other investment opportunities; paid vacations, holidays, and other time-off programs; health, dental and vision insurance; health and dependent care tax-free spending accounts; medical, family and bereavement leave; paid maternity/primary caregiver benefits; tax-free commuter benefits; wellness programs; time off to volunteer, and matching donations to qualifying nonprofit organizations.

Intellectual Property

The trade name “Tuesday Morning” is material to our business. We have registered the name “Tuesday Morning” as a service mark with the United States Patent and Trademark office. We have also registered other trademarks including but not limited to “Tuesday Morning Perks®”. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10‑K may appear without the ® or tm symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor, to these trademarks and trade names.

Corporate Information

Tuesday Morning Corporation is a Delaware corporation incorporated in 1991. Our principal executive offices are located at 6250 LBJ Freeway, Dallas, Texas 75240, and our telephone number is (972) 387‑3562.

We maintain a website at www.tuesdaymorning.com. Copies of our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reportscurrent reports on Form 8‑K and any amendments to such reports filed with, or furnished to, the Securities and Exchange Commission (the “SEC”) are available free of charge on our website under the Investor Relations section as soon as reasonably practicable after we electronically file such reports and amendments with, or furnish them to, the SEC. In addition, the SEC maintains a website, www.sec.gov, which contains the reports, proxy and information statements and other information which we file with, or furnish to, the SEC.

In addition, the SEC maintains a website, www.sec.gov, which contains the reports, proxy and information statements and other information which we file with, or furnish to, the SEC.

Stores and Store Operations

Store Locations. As of June 30, 2020,July 2, 2022, we operated 685489 stores in the following 3940 states:

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Site Selection. We continue to evaluate our current store base for potential enhancement or relocation of our store locations. As a result of this ongoing evaluation, we intend to pursue attractive relocation opportunities in our existing store base, close certain stores by allowing leases to expire for underperforming stores or where alternative locations in similar trade areas are not available at acceptable lease rates, and, when appropriate, open new stores. For both new stores and relocations, we negotiate for upgraded sites. As a result of the disruption to our business from the pandemic, and as part of our reorganization, we have accelerated the closure of a significant number of stores, as described above.  Additionally, we have reviewed all of our leases and renegotiated the terms, with favorable outcomes for many of our leases. We believe that this strategy will better position us for long‑term profitable growth.

Store Leases. We leaseconduct 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. Our existing store leases generally are for an initial term of five to ten years with two five-year renewal options and, in limited circumstances, our store leases involve a tenant allowance for leasehold improvements. We record rent expense ratablythat will expire over the life of the lease beginning with the date we take possession of or have the rightnext 1 to use the premises, and if our leases provide for a tenant allowance, we record the landlord reimbursement as a liability and ratably amortize the liability as a reduction to rent expense over the lease term beginning with the date we take possession of or control the physical access to the premises. Leases for new stores also typically allow us the ability to terminate a lease after approximately 60 months if store sales do not reach a stipulated amount stated in the lease. As a result, we generally do not operate locations with continued store‑level operating losses for an extended period of time. As a result of the disruption to our business from the COVID-19 pandemic, we have reviewed all10 years. Many of our leases and renegotiatedinclude options to renew at our discretion. We include the terms of manylease 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 obtaining more favorable terms.  New leases and amendments to existing leases are often for shorter terms than historically.  that generally expire within 5 years.

Store Layout. Our site selection process and “no frills” approach to presenting merchandise allow us to use a wide variety of space configurations. The size of our stores ranges from approximately 6,0006,100 to 30,00028,700 square feet, averaging on a per store basis approximately 12,40012,700 square feet as of June 30, 2020.July 2, 2022. Historically, we have designed our stores to be functional, with less emphasis placed upon fixtures and leasehold aesthetics. With our current real estate strategy, we continue to be focused on designing a very functional, easy to shop environment that also highlights the quality of the merchandise. We display all merchandise on counters, shelves, or racks while maintaining minimum inventory in our stockrooms.

Store Operations. Our stores are generally open seven days a week, excluding certain holidays. As noted above, we temporarily closed all stores as of March 25, 2020 due to the COVID-19 pandemic, and began the process to re-open in late April, and continued re-opening stores on a rolling basis with modified operating hours as appropriate.  By June 15, 2020, we had reopened all but two of our 687 store locations, and those stores have since been permanently closed. The timing and frequency of shipments of merchandise to our stores results in efficiency of receiving and restocking activities at our stores. The COVID-19 pandemic resulted in significant disruption to the inventory flow to our stores.  We attempt to align our part‑time employees’ labor hours with anticipated workload and with current sales. We generally conduct annual physical counts of our store merchandise staggered throughout the second half of our fiscal year. In the second half of fiscal 2020, due to the impact of the COVID-19 pandemic including our temporary store closures, we conducted physical inventories at a portion of ouryear, primarily when stores sufficient to validate the existence of inventory in our stores and the accuracy of our estimated shrink reserve rate.  are closed.

Store Management. Each store has a manager who is responsible for recruiting, training and supervising store personnel and assuring that the store is managed in accordance with our established guidelines and procedures. Store managers are full‑time employees. Our store managers are supported by district and regional level support. Store managers are responsible for centrally-directedcentrally directed store disciplines and routines. The store manager is assisted primarily by part‑time employees who generally serve as assistant managers and cashiers, and help with merchandise stocking efforts. Members of our management visit selected stores routinely to review inventory levels and merchandise presentation, personnel performance, expense controls, security and adherence to our policies and procedures. In addition, district and regional field managers periodically meet with senior management to review store policies and discuss purchasing, merchandising, advertising and other operational issues.

Item 1A. Risk Factors

Our business is subject to significant risks, including the risks and uncertainties described below. These risks and uncertainties and the other information in this Annual Report on Form 10‑K, including our consolidated financial statements and the notes to those statements, should be carefully considered. If any of the events described below actually occur, our business, financial condition or results of operations could be adversely affected in a material way.

Risks Related to Our Business

As a result of the filing of the Chapter 11 Cases, we are subject to the risks and uncertainties associated with bankruptcy proceedings, and operating under Chapter 11 may restrict our ability to pursue strategic and operational initiatives.

For the duration of the Chapter 11 Cases, our operations and our ability to execute our business strategy will be subject to the risks and uncertainties associated with bankruptcy.  These risks include:

Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 process may have on our business, financial condition and results of operations, and there is substantial doubt as to our ability to continue as a going concern.  We believe that our plans, already implemented and continuing to be implemented, will mitigate the conditions and events that have raised substantial doubt about the entity’s ability to continue as a going concern.  However, due to the uncertainty around the scope and duration of the COVID-19 pandemic and the related disruption to our business and financial impacts, and because our plans, including those in connection with the Chapter 11 Cases, are not yet finalized, fully executed, or approved by the Bankruptcy Court, they cannot be deemed probable of mitigating this substantial doubt.

Our common stock has been delisted from trading on Nasdaq, and is traded only in the over-the-counter market, which could negatively affect our stock price and liquidity. Additionally, trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.  Trading prices for the Company’s common stock may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common stock in the Chapter 11 Cases.

On May 27, 2020, the Company received a letter from the Listing Qualifications Department staff of The Nasdaq Stock Market (“Nasdaq”) notifying it that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq determined that the Company’s common stock would be delisted from Nasdaq.  On June 8, 2020, trading in the Company’s common stock on Nasdaq was suspended. On July 1, 2020, Nasdaq filed a Form 25 with the SEC to delist the Company’s common stock and the delisting was effective 10 days thereafter.  

On June 8, 2020, the Company’s common stock began trading on the OTC Pink marketplace under the symbol “TUESQ”. The Company can provide no assurance that the Company’s common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of the Company’s common stock on this market, whether the trading volume of the Company’s common stock will be sufficient to provide for an efficient trading market or whether quotes for the Company’s common stock will continue on this market in the future. The Company cautions that trading in the Company’s common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’s common stock may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common stock in the Chapter 11 Cases.

The pursuit of the Chapter 11 Cases has consumed and will continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the cases.  This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.

During the pendency of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition.  A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations.  The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

If we are not able to confirm a Chapter 11 plan of reorganization or liquidation or are not able to consummate a sale of the Company or certain of its material assets pursuant to Section 363 of the Bankruptcy Code, we could be required to liquidate under Chapter 7 of the Bankruptcy Code.

The Company intends to pursue, among other things, a Chapter 11 plan of reorganization or the consummation of a sale or other disposition of all or substantially all assets of the Company and certain of its subsidiaries pursuant to Section 363 of the Bankruptcy Code.  If we are not able to confirm a plan of reorganization or liquidation or consummate a Section 363 sale, we could be forced to liquidate under Chapter 7 of the Bankruptcy Code.

Upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code.  In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.  We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a Chapter 11 sale because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.

There can be no assurance that our current cash position and amounts of cash from future operations will be sufficient to fund operations. In the event that we do not have sufficient cash to meet our liquidity requirements, and our current financing is insufficient or exit financing is not available, we may be required to seek additional financing. There can be no assurance that such additional financing would be available, or, if available, would be available on acceptable terms.  Failure to secure any necessary exit financing or additional financing would have a material adverse effect on our operations and ability to continue as a going concern.

If we pursue a Chapter 11 plan of reorganization, our post-bankruptcy capital structure is yet to be determined, and any changes to our capital structure may have a material adverse effect on existing debt and security holders.

If we pursue a Chapter 11 plan of reorganization, our post-bankruptcy capital structure will be set pursuant to a plan that requires Bankruptcy Court approval.  Any reorganization of our capital structure may include exchanges of new debt or equity securities for our existing securities, and such new debt or equity securities may be issued at different interest rates, payment schedules and maturities than our existing creditors.  The success of a reorganization through any such exchanges or modifications will depend on approval by the Bankruptcy Court and the willingness of existing security holders to agree to the exchange or modification, and there can be no guarantee of success.  If such exchanges or modifications are successful, holders of our debt may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or may be modified or replaced by debt with a principal amount that is less than the outstanding principal amount, longer maturities and reduced interest rates.  There can be no assurance that any new debt or equity securities will maintain their value at the time of issuance.  If existing debt or equity holders are adversely affected by a reorganization, it may adversely affect our ability to issue new debt or equity in the future.

Any plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

Any plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances.  Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to change substantially our capital structure; (ii) our ability to obtain adequate liquidity and financing sources; (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them; (iv) our ability to obtain merchandise; (v) our ability to retain key employees, and (vi) the overall strength and stability of general economic conditions. The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.

In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, EBITDA, capital expenditures, debt service and cash flow.  Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate.  In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure.  Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated.  Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations.  The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

We may be unable to comply with restrictions imposed by our DIP ABL Facility and DIP Term Facility.

The DIP ABL Facility and the DIP Term Facility contain customary affirmative and negative covenants for debtor-in-possession financings, which include, among other things, restrictions on (i) indebtedness, (ii) liens, (iii) mergers, consolidations and dispositions, (iv) affiliate transactions, (v) changes in the nature of our businesses, (vi) dividends, distributions, and other restricted payments, (vii) the use of loan proceeds and cash on hand, (viii) entering into agreements that restrict our subsidiaries from paying dividends or distributions or that restrict us or our subsidiaries from granting security interests and other liens, (ix) advances, loans and investments, and (x) transactions with respect to our subsidiaries.  In addition, the DIP ABL Facility requires us to, among other things, maintain certain minimum liquidity requirements, and receive approval of a plan of reorganization or sale of substantially all of our assets through the Chapter 11 process pursuant to certain agreed upon deadlines. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply could result in an event of default under the DIP ABL Facility and DIP Term Facility.  On September 8, 2020, the lenders under the DIP ABL Facility agreed to extend the deadline contained in the court order approving the DIP ABL Credit Agreement for filing a plan of reorganization or motion to sell substantially all of our assets to September 17, 2020.  On September 9, 2020, the committee for the unsecured creditors in the Chapter 11 Cases filed an objection with the Bankruptcy Court asserting the extension was not valid.  The Company believes the objection is without merit and intends to vigorously oppose the objection.

We have substantial liquidity needs and may not be able to obtain sufficient liquidity during the pendency of the Chapter 11 proceedings or to confirm a plan of reorganization or liquidation.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred, and expect to continue to incur, significant professional fees and other costs in connection with our Chapter 11 proceedings.  While we believe the DIP ABL Facility and the DIP Term Facility will provide sufficient liquidity to fund anticipated cash requirements through the Chapter 11 proceedings, there can be no assurance that our liquidity will be sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of a Chapter 11 plan of reorganization or plan of liquidation.  We can provide no assurance that we will be able to secure additional interim financing or exit financing sufficient to meet our liquidity needs or, if sufficient funds are available, offered to us on acceptable terms.

We may be subject to claims that will not be discharged in our Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.

The Bankruptcy Code provides that the confirmation of a Chapter 11 plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation.  With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the plan of reorganization.  Any claims not ultimately discharged through a Chapter 11 plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.

Our financial results may be volatile and may not reflect historical trends.

During the Chapter 11 Cases, we expect our financial results to continue to be volatile as asset impairments, restructuring activities and expenses, contract terminations and rejections, and claims assessments may significantly impact our consolidated financial performance.  As a result, our historical financial performance is likely not indicative of our financial performance after the Petition Date.

In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization.  We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.

Operating in bankruptcy for a long period of time may harm our business.

A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations, and liquidity.  So long as the proceedings related to the Chapter 11 Cases continue, senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations.  A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success of our business.  In addition, the longer the proceedings related to the Chapter 11 Cases continue, the more likely it is that customers will lose confidence in our ability to reorganize our business successfully and will seek to establish alternative commercial relationships.

So long as the proceedings related to these cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases, including the cost of litigation.  In general, litigation can be expensive and time consuming to bring or defend against.  Such litigation could result in settlements or damages that could significantly affect our financial results.  It is also possible that certain parties will commence litigation with respect to the treatment of their claims under a plan of reorganization.  It is not possible to predict the potential litigation that we may become party to, nor the final resolution of such litigation.  The impact of any such litigation on our business and financial stability, however, could be material.

Should the Chapter 11 proceedings be protracted, we may also need to seek new financing to fund operations.  If we are unable to obtain such financing on favorable terms or at all, the chances of successfully reorganizing our business may be seriously jeopardized and the likelihood that we will instead be required to liquidate our assets may increase.

Outbreaks of communicable disease, or other public health emergencies, such as the current COVID-19 pandemic, could substantially harm our business.

The COVID-19 pandemic has had, and willcould continue to have, an adverse effect on our business operations, store traffic, employee availability, financial condition, results of operations, liquidity and cash flow.

As of March 25, 2020, we had temporarily closed all of our stores nationwide, severely reducing revenues and resulting in significant operating losses and the elimination of substantially all operating cash flow. Although stores have gradually reopened as allowed by state and local jurisdictions, and all but two of our stores had re-opened by the end of the fiscal year, the scope and duration of this pandemic and the related disruption to our business and financial impacts cannot be reasonably estimated at this time.  Further impacts may include, but are not limited to, both internal and external impacts to our supply chain, transportation capabilities, staffing ability, and self-insurance costs

Our customers may also be negatively affected by the consequences of COVID-19, which could negatively impact demand for our products as customers delay, reduce or eliminate discretionary purchases at our stores that have reopened or may reopen.stores. Any significant reduction in customer visits to, and spending at, our stores caused directly or indirectly by COVID-19 would result in a further loss of revenue and cash flows and negatively impact profitability and could result in other material adverse effects.

The extent to which the ongoing COVID-19 pandemic will continue to impact our business, results of operations, financial condition and liquidity is highly uncertain and difficult to predict considering the rapidly evolving environment and will depend on future developments, including future surges in incidences of COVID-19 and the potentialseverity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that impacts from the COVID-19 pandemic continue, how fast

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economies will fully recover from the COVID-19 pandemic, the timing and extent of any further geographic spreadimpacts 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.

Increases in fuel prices and changes in transportation industry regulations or conditions may increase our freight costs and thus our cost of sales, which could have a material adverse effect on our business and operations.

Our freight costs are impacted by changes in fuel prices through surcharges. Fuel prices and surcharges affect freight costs both on inbound shipments from vendors and outbound shipments to our stores. High fuel prices or surcharges, as well as stringent driver regulations and changes in transportation industry conditions, has increased freight costs and thereby increased our cost of sales.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

Merchandise manufactured and imported from overseas represents the majority of our total product purchases acquired both domestically and internationally. A disruption in the shipping of imported merchandise or an increase in the cost of those products may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Products from alternative sources may also be of lesser quality and more expensive than those we currently import.

Risks associated with our reliance on imported products include disruptions in the shipping and importation or increases in the costs of imported products because of factors such as:

The products we buy abroad are sometimes priced in foreign currencies and, therefore, we are affected by fluctuating exchange rates. We might not be able to successfully protect ourselves in the future against currency rate fluctuations, and our financial performance could suffer as a result.

Our results of operations will be negatively affected if we are unsuccessful in effectively managing our supply chain operations.

With few exceptions, all inventory is shipped directly from suppliers to our distribution network, primarily through our Dallas distribution center, where the inventory is then processed, sorted and shipped to our stores. We also use pool point facilities to distribute inventory to our stores. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers. External factors, such significant supply chain dislocation caused by COVID-19 pandemic and excessive market demand, can negatively impact our supply chain operations resulting in increased costs and delay. We may not anticipate all of the viruschanging demands which our operations will impose on our receiving and distribution system.

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The loss of, disruption in operations of, or increased costs in the actionsoperation of our distribution center facilities would have a material adverse effect on our business and operations.

Events beyond our control, such as disruptions in operations due to fire or other catastrophic events, labor disagreements, aging equipment failures, or shipping problems, may result in delays in the delivery of merchandise to our stores. In the event our distribution center is shut down for any reason, we cannot assure that mayour insurance will be takensufficient, or that insurance proceeds will be paid to us in a timely manner. The level of costs of our distributions center operations, and our related profitability, will be negatively impacted by various governmental authoritiesincreased wages as a result of competition to attract qualified employees and other third partiesadditional costs for repairs and maintenance of aged equipment to alleviate extended downtime or outages. In addition, any inefficiencies in responsethe operation of our distribution center facilities as well as delays in the delivery of merchandise to the pandemic.our stores will also negatively impact our profitability.

Changes in economic and political conditions may adversely affect consumer spending, which could significantly harm our business, results of operations, cash flows and financial condition.

The success of our business depends, to a significant extent, upon the level of consumer spending. A number of factors beyond our control affect the level of consumer spending on merchandise that we offer, including, among other things:

The merchandise we sell generally consists of discretionary items. Reduced consumer confidence and spending cut backscutbacks may result in reduced demand for our merchandise, including discretionary items, and may force us to take significant inventory markdowns. Reduced demand also may require increased selling and promotional expenses. Adverse economic conditions and any related decrease in consumer demand for our merchandise could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Failure to identify and respond to changes in consumer trends and preferences could significantly harm our business.

The retail home furnishings and housewares industry is subject to sudden shifts in consumer trends and consumer spending. Our sales and results of operations depend in part on our ability to predict or respond to changes in trends and consumer preferences in a timely manner. Although our business model allows us greater flexibility than many traditional retailers to meet consumer preferences and trends, we may not successfully do so. Any sustained failure to anticipate, identify and respond to emerging trends in consumer preferences could negatively affect our business and results of operations.

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Our sales depend on a volume of traffic to our stores, and a reduction in traffic to, or the closing of, anchor tenants and other destination retailers in the shopping centers in which our stores are located could significantly reduce our sales and leave us with excess inventory.

Most of our stores are located in shopping centers that benefit from varied and complementary tenants, whether specialty or mass retailers, and other destination retailers and attractions to generate sufficient levels of consumer traffic near our stores. Any decline in the volume of consumer traffic at shopping centers, whether because of consumer preferences to shop on the internet or at large warehouse stores, an economic slowdown, a decline in the popularity of shopping centers, the closing of anchor stores or other destination retailers or otherwise, could result in reduced sales at our stores and leave us with excess inventory, which could have a material adverse effect on our financial results or business.

We must continuously attract buying opportunities for off‑price merchandise and anticipate consumer demand as off‑price merchandise becomes available, and our failure to do so could adversely affect our performance.

By their nature, specific off‑price merchandise items are available from manufacturers or vendors generally on a non‑recurring basis. As a result, we do not have long‑term contracts with our vendors for supply, pricing or access to products, but make individual purchase decisions, which may be for large quantities. Due to economic uncertainties, some of our manufacturers and suppliers may cease operations or may otherwise become unable to continue supplying off‑price merchandise on terms acceptable to us. We cannot assure that manufacturers or vendors will continue to make off‑price merchandise available to us in quantities acceptable to us, which is especially true at present with the inherent supply chain issues caused by the COVID-19 pandemic, or that our buyers will continue to identify and take advantage of appropriate buying opportunities. In addition, if we misjudge consumer demand for products, we may significantly overstock unpopular products and be forced to take significant markdowns and miss opportunities to sell more popular products. An inability to acquire suitable off‑price merchandise in the future or to accurately anticipate consumer demand for such merchandise would have an adverse effect on our business, results of operations, cash flows and financial condition.

Our results of operations will be negatively affected if we are not successful in managing our inventory profitably.

Inventory is one of the largest assets on our balance sheet and represented approximately 23%42% of our total assets at June 30, 2020July 2, 2022, and 64%35% at June 30, 2019. Our inventory balance at June 30, 2020 is significantly lower than the prior year due to the COVID-19 disruption to our supply chain operations.  Also impacting the lower percentage for fiscal 2020 is the adoption of ASC 842 at the beginning of the fiscal year, which resulted in recognizing operating lease right-of-use assets on our balance sheet in the current year.  Inventory at June 30, 2020 represented 47% of total assets excluding our operating lease right-of use assets at that same date.2021. Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to store and hold the goods unduly impact our financial results. If our buying decisions do not accurately predict customer trends or purchasing actions, we may have to take unanticipated markdowns to dispose of the excess inventory, which also can adversely impact our financial results. We continue to focus on ways to reduce these risks, but we cannot assure that we will be successful in our inventory management. If we are not successful in managing our inventory balances, our results of operations may be negatively affected. We have recorded significant inventory write‑downs from time to time in the past and there can be no assurances that we will not record additional inventory charges in the future.

Our results of operations will be negatively affected if we are unsuccessful in effectively managing our supply chain operations.

With few exceptions, all inventory is shipped directly from suppliers to our distribution network, including our Dallas distribution center along with bypass and pool point facilities, where the inventory is then processed, sorted and shipped to our stores. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers. We may not anticipate all of the changing demands which our operations will impose on our receiving and distribution system.

The loss of, disruption in operations of, or increased costs in the operation of our distribution center facilities would have a material adverse effect on our business and operations.

Events beyond our control, such as disruptions in operations due to fire or other catastrophic events, labor disagreements or shipping problems, may result in delays in the delivery of merchandise to our stores. We also cannot assure that our insurance will be sufficient, or that insurance proceeds will be paid to us in a timely manner, in the event a distribution center is shut down for any reason.  As a result of the COVID-19 pandemic and impact to our business, we have announced that we will be closing our Phoenix distribution center.  We expect the closure to be completed in early fiscal 2021 and there can be no assurance there will be no delays in the delivery of merchandise to our stores.

The unplanned loss or departure of one or more members of our senior management or other key management could have a material adverse effect on our business.

Our future performance will depend in large part upon the efforts and abilities of our senior management and other key employees. The loss of service of these persons could have a material adverse effect on our business and future prospects. We do not maintain key person life insurance for our senior management. We cannot provide any assurance that we will not experience future turnover related to our senior management team.

Our business is intensely competitive, and a number of different competitive factors could have a material adverse effect on our business, results of operations, cash flows and financial condition.

The retail home furnishings and housewares industry is intensely competitive. As an off‑price retailer of home furnishings and housewares, we currently compete against a diverse group of retailers, including department stores and discount stores, specialty, on‑line, and catalog retailers and mass merchants, which sell, among other products, home furnishing, houseware and related products similar and often identical to those we sell. We also compete in particular markets with a substantial number of retailers that specialize in one or more types of home furnishing and houseware products that we sell. Many of these competitors have substantially greater financial resources that may, among other things, increase their ability to purchase inventory at lower costs or to initiate and sustain aggressive price competition.

A number of different competitive factors could have a material adverse effect on our business, results of operations, cash flows and financial condition, including:

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We cannot assure that we will be able to continue to compete successfully with our existing or new competitors, or that prolonged periods of deep discount pricing by our competitors will not materially harm our business. We compete for customers, employees, locations, merchandise, services and other important aspects of our business with many other local, regional, national and international retailers. We also face competition from alternative retail distribution channels such as catalogs and, increasingly, e‑commerce websites and mobile device applications. Changes in the merchandising, pricing and promotional activities of those competitors, and in the retail industry, in general, may adversely affect our performance.

If we are unable to maintain and protect our information technology systems and technologies, we could suffer disruptions in our business, damage to our reputation, increased costs and liability, and obstacles to our growth.

The operation of our business is heavily dependent upon the implementation, integrity, security, and successful functioning of our computer networks and information systems, including the point‑of‑sale systems in our stores, data centers that process transactions, and various software applications used in our operations. Our systems are subject to damage or interruption from weather events, power outages, telecommunications or computer failures, computer viruses, security breaches, employee errors and similar occurrences. A failure of our systems to operate effectively as a result of damage to, interruption, or failure of any of these systems could result in data loss, a failure to meet our reporting obligations, or material misstatements in our consolidated financial statements, or cause losses due to disruption of our business operations and loss of customer confidence. These adverse situations could also lead to loss of sales or profits or cause us to incur additional repair, replacement and development costs. Our inability to improve our information technology systems and technologies may continue to result in inefficiencies, fail to support our growth and may limit opportunities.

Increases in fuel prices and changes in transportation industry regulations or conditions may increase our freight costs and thus our cost of sales, which could have a material adverse effect on our business and operations.

Our freight costs are impacted by changes in fuel prices through surcharges. Fuel prices and surcharges affect freight costs both on inbound shipments from vendors and outbound shipments to our stores. In addition, the U.S. government requires drivers of over‑the‑road trucks to take certain rest periods which reduces the available amount of time they can drive during a 24‑hour period. Changes in trucking industry conditions, such as truck driver shortages and highway congestion, could increase freight costs. High fuel prices or surcharges, as well as stringent driver regulations and changes in transportation industry conditions, may increase freight costs and thereby increase our cost of sales.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

Merchandise manufactured and imported from overseas represents the majority of our total product purchases acquired both domestically and internationally. A disruption in the shipping of imported merchandise or an increase in the cost of those products may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Products from alternative sources may also be of lesser quality and more expensive than those we currently import.

Risks associated with our reliance on imported products include disruptions in the shipping and importation or increases in the costs of imported products because of factors such as:

The products we buy abroad are sometimes priced in foreign currencies and, therefore, we are affected by fluctuating exchange rates. We might not be able to successfully protect ourselves in the future against currency rate fluctuations, and our financial performance could suffer as a result.

Changes to federal tax policy may adversely impact our operations and financial performance.

Changes in U.S. tax or trade policy regarding merchandise produced in other countries could adversely affect our business. Changes in U.S. tariffs, quotas, trade relationships or tax provisions that reduce the supply or increase the relative cost of goods produced in other countries could increase our cost of goods and/or increase our effective tax rate. Although such changes would have implications across the entire industry, we may fail to effectively adapt and to manage the adjustments in strategy that would be necessary in response to those changes. In addition to the general uncertainty and overall risk from potential changes in U.S. laws and policies, as we make business decisions in the face of uncertainty as to potential changes, we may incorrectly anticipate the outcomes, miss out on business opportunities, or fail to effectively adapt our business strategies and manage the adjustments that are necessary in response to those changes. These risks could adversely affect our revenues, increase our effective tax rates, and reduce our profitability.

Our success depends partly upon our marketing, advertising and promotional efforts. If our marketing spend is inadequate, if we fail to implement programs successfully, or if our competitors are more effective than we are, our results of operations may be adversely affected.

Historically, we have used marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers. We use various media for our promotionalmarketing efforts, including email, direct mail, newspaper inserts, digital video, digital display, search and social networks. In fiscal 2020, due to the COVID-19 pandemic, we reduced our marketing spend, and anticipate spending at a reduced level for an unknown period of time.  If we are unable to increase our marketing spend appropriately, our business may suffer. If we fail to choose the appropriate medium for our efforts, or fail to implement and execute new marketing opportunities, our competitors may be able to attract some of our customers and cause them to decrease purchases from us and increase purchases elsewhere, which would negatively impact our net sales. Changes in the amount and degree of promotional intensity or merchandising strategy by our competitors could cause us to have some difficulties in retaining existing customers and attracting new customers.

If we do not attract, train and retain quality employees in appropriate numbers, including key employees and management, our performance could be adversely affected.

Our performance is dependent on recruiting, developing, training and retaining quality sales, distribution center and other employees in large numbers, as well as experienced buying and management personnel. Many of our store employees are in entry level or part‑time positions with historically high rates of turnover. Our ability to meet our labor needs while controlling costs is subject to external factors, such as unemployment levels, prevailing wage rates, minimum wage legislation, and changes in rules governing eligibility for overtime and changing demographics. In the event of increasing wage rates, if we do not increase our wages competitively, our staffing levels and customer service could suffer because of a declining quality of our workforce, or our earnings would decrease if we increaseincreased our wage rates, whether in response to market demands or new minimum wage legislation. In addition, the soaring inflation and economic uncertainty which may adversely affect the Company's stability may negatively impact our ability to attract and retain employees.

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Changes that adversely impact our ability to attract and retain quality employees and management personnel could adversely affect our performance.

Our results of operations are subject to seasonal and quarterly fluctuations, which could have a material adverse effect on our operating results or the market price of our common stock.

Our business is subject to seasonality with a higher level of net sales and operating income generated during the quarter ended December 31, which includes the holiday shopping season. Net sales in the quarters ended December 31, 2019, 2018,2021, 2020, and 20172019 accounted for approximately 37%34%, 34%29% and 33%37% of our annual net sales for fiscal years 2020, 20192022, 2021, and 2018,2020, respectively. For more information about our seasonality, please read Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quarterly Results and Seasonality.”

Because a significant percentage of our net sales and operating income are generated in the quarter ending December 31, we have limited ability to compensate for shortfalls in December quarter sales or earnings by changes in our operations or strategies in other quarters. A significant shortfall in results for the quarter ending December 31 of any year could have a material adverse effect on our annual results of operations and on the market price of our common stock. In addition, in anticipation of higher sales during this period, we purchase substantial amounts of seasonal inventory and hire many temporary employees. An excess of seasonal merchandise inventory could result if our net sales during this principal selling season were to fall below either seasonal norms or expectations. If our December quarter sales results are substantially below expectations, our financial performance and operating results could be adversely affected by unanticipated markdowns, particularly in seasonal merchandise. Lower than anticipated sales in the principal selling season would also negatively affect our ability to absorb the increased seasonal labor costs.

Our quarterly results of operations may also fluctuate significantly based on additional factors, such as:

These factors could also have a material adverse effect on our annual results of operations and on the market price of our common stock.

If we fail to protect the security of information about our business and our customers, suppliers, business partners and employees, we could damage our reputation and our business, incur substantial additional costs and become subject to litigation and government investigations and enforcement actions.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, on our computer networks and information systems. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure and that of our service providers may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. Any such attack or breach could compromise our security and remain undetected for a period of time, and confidential information could be misappropriated, resulting in a loss of customers’, suppliers’, business partners’ or employees’ personal information, negative publicity, harm to our business and reputation, and potentially causing us to incur costs to reimburse third parties for damages and potentially subjecting us to government investigations and enforcement actions. In addition, the regulatory environment surrounding data and information security and privacy is increasingly demanding, as new and revised requirements are frequently imposed across our business. Compliance with more demanding privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes and implementing new initiatives could result in system disruptions. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.

We are subject to various government regulations, changes in the existing laws and regulations and new laws and regulations which may adversely affect our operations and financial performance.

The development and operation of our stores are subject to various federal, state and local laws and regulations in many areas of our business, including, but not limited to, those that impose restrictions, levy a fee or tax, or require a permit or license, or other regulatory approval, and building and zoning requirements. Difficulties or failures in obtaining required permits, licenses or other regulatory

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approvals could delay or prevent the opening of a new store, and the suspension of, or inability to renew, a license or permit could interrupt operations at an existing store. We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, and other state and federal wage and hour regulations, regulations governing leaves of absence, health insurance mandates, working and safety conditions, and immigration status requirements. Additionally, changes in federal labor laws could result in portions of our workforce being subjected to greater organized labor influence. This could result in an increase to our labor costs. A significant portion of our store personnel are paid at rates related to the minimum wage established by federal, state and municipal law. Additionally, we are subject to certain laws and regulations that govern our handling of customers’ personal information. A failure to protect the integrity and security of our customers’ personal information could expose us to private litigation and government investigations and enforcement actions, as well as materially damage our reputation with our customers. While we endeavor to comply with all applicable laws and regulations, governmental and regulatory bodies may change such laws and regulations in the future which may require us to incur substantial cost increases. If we fail to comply with applicable laws and regulations, we may be subject to various sanctions, penalties or fines and may be required to cease operations until we achieve compliance which could have a material adverse effect on our consolidated financial results and operations.

We face risks to our corporate reputation from our customers, employees and other third parties.

Damage to our corporate reputation could adversely affect our sales results and profitability. Our reputation is partially based on perception. Any incident that erodes the trust or confidence of our customers or the general public could adversely affect our reputation and operating performance, particularly if the incident results in significant adverse publicity or governmental inquiry. An incident could include alleged acts, or omissions by, or situations involving our vendors, our landlords, or our employees outside of work, and may pertain to social or political issues or protests largely unrelated to our business. The use of social media platforms, including blogs, social media websites, and other forms of internet-based communications, which allow individuals access to a broad audience, continues to increase. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our Company may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, which could negatively affect our sales and profitability, diminish customer trust, reduce employee morale and productivity, and lead to difficulties in recruiting and retaining qualified employees. The harm may be immediate, without affording us an opportunity for redress or correction.

We face litigation risks from customers, employees, and other third parties in the ordinary course of business.

Our business is subject to the risk of litigation by customers, current and former employees, suppliers, stockholders and others through private actions, class actions, administrative proceedings, regulatory actions, or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of merchandise offerings, regardless of whether the allegations are valid or whether we are ultimately found liable.

We face risks with respect to product liability claims and product recalls, which could adversely affect our reputation, our business, and our consolidated results of operations.

We purchase merchandise from third parties and directly import a limited amount of product as importer of record and offer this merchandise to customers for sale. Merchandise could be subject to recalls and other actions by regulatory authorities. Changes in laws and regulations could also impact the type of merchandise we offer to customers. We have experienced, and may in the future experience, issues that result in recalls of merchandise. In addition, in the past, individuals have asserted claims, and may in the future assert claims, that they have sustained injuries from third‑party merchandise offered by us, and we may be subject to future lawsuits relating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside the scope of, our insurance coverage. Any of the issues mentioned above could result in damage to our reputation, diversion of development and management resources, or reduced sales and increased costs, any of which could harm our business.

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Our stores may be adversely affected by local conditions, natural disasters, and other events.

Certain regions in which our stores are located may be subject to adverse local conditions, natural disasters, and other events. If severe weather, such as heavy snowfall or extreme temperatures, discourages or restricts customers in a particular region from traveling to our stores, our sales could be adversely affected. If severe weather conditions occur during the second quarter of our fiscal year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a significant portion of our sales and profits during this period. Natural disasters including tornados, hurricanes, floods, and earthquakes may damage our stores, corporate office, and distribution facilities or other operations, which may adversely affect our financial results. Additionally, demographic shifts in the areas where our stores are located could adversely impact our financial results and operations.

Our results of operations may be negatively affected by inventory shrinkage.

We are subject to the risk of inventory loss and theft. Although our inventory shrinkage rates have not fluctuated significantly in recent years, we cannot assure that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, our results of operations could be affected adversely.

Our results of operations may be negatively impacted by exposure to unexpected costs related to our insurance programs.

Our insurance coverage is subject to deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on our overall operations. We may incur certain types of losses that we cannot insure or which we believe are not economically reasonable to insure, such as losses due to acts of war and terrorism, employee and certain other crime, and some natural disasters. If we incur these losses and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative cost trends in the insurance market, we may elect to self-insure, accept higher deductibles, or reduce the amount of coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers’ compensation, general liability, and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these self-insured losses, including potential increases in medical and indemnity costs, could result in significantly different expenses than expected under these programs, which could have a material adverse effect on our financial condition and results of operations. Although we continue to maintain property insurance for catastrophic events, we are self-insured for losses up to the amount of our deductibles. If we experience a greater number of self-insured losses than we anticipate, our financial performance could be adversely affected.

We are subject to customer payment-related risks that could increase operating costs or exposure to fraud or theft, subject us to potential liability and potentially disrupt our business.

We accept payments using a variety of methods, including cash, credit and debit cards, gift cards, gift certificates, store credits, and digital wallets. Acceptance of these payment options subjects us to rules, regulations, contractual obligations, and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. In October 2015, the payment card industry shifted liability for certain debit and credit card transactions to retailers who are not able to accept EMV chip technology transactions. Any disruption to our ability to accept EMV chip technology transactions may subject us to increased risk of liability for fraudulent transactions and may adversely affect our business and operating results.

For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could potentially disrupt our business. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. As a result, our business and operating results could be adversely affected.

If we failare not able to maintain an effective system of internal controls over financial reporting there is a reasonable possibility that a material misstatement ofgenerate cash flows from our annual or interim financial statementsoperations, remain in compliance with our debt agreements, and continue to access credit markets, we will not be preventedable to support capital expenditure requirements, operations or detecteddebt repayment.

Our business is dependent upon our operations generating sufficient cash flows to support capital expenditure requirements and general operating activities. We also have relied on a timely basis,revolving credit facility to support our liquidity needs. On May 9, 2022, we entered into

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the New ABL Credit Agreement, which could resultincreased our borrowing capacity with the addition of two first-in-last out term facilities in a lossan aggregate amount of investor confidence$10.0 million. The New ABL Credit Agreement includes customary conditions to borrowing, affirmative and negatively impact our business, resultsnegative covenants and events of operations, financial conditiondefault, and stock price.

Effective internal controls are necessary forrequires us to provide reliable and accurate financial statements andmaintain minimum borrowing availability under the New ABL Credit Agreement. On July 11, 2022, the New ABL Credit Agreement was amended in connection with our borrowing of an additional $5 million under the first-in-last out facilities. The amendment to effectively prevent fraud.  As furtherthe New ABL Credit Agreement also provided that, until certain minimum borrowing availability levels are satisfied as described in Part II Item 9A “Controlsthe amendment, we will be subject to additional reporting obligations, we will retain a third-party business consultant acceptable to the administrative agent, and Procedures”the administrative agent may elect to apply amounts in controlled deposit accounts to the repayment of this Annual Report, management has concluded that, becauseoutstanding borrowings. In addition, pursuant to the amendment, we agreed to enter into and maintain a supply agreement with Gordon Brothers Retail Partners, LLC (the “Program Agent”), an affiliate of a material weakness in internal control over financial reporting relatedfirst-in-last out lender, pursuant to ineffective assessmentwhich the Program Agent supplies inventory to us.

On September 20, 2022, the Company incurred additional indebtedness through the Convertible Debt. The Convertible Debt includes covenants and events of impairmentdefault customary for this type of long-lived assets, our disclosure controlsfinancing. In connection with the issuance of the Convertible Debt, the Company entered into an amendment to the New ABL Credit Agreement. The amendment restricts certain actions by the Company for the next two years, including making certain acquisitions and procedures were not effective as of June 30, 2020.  Specifically, management’s estimation of fair value did not appropriately utilize market participant assumptions, which was identifieddebt prepayments. In addition, the amendment requires that the Company engage and corrected prior to filing.  The material weakness will not be considered remediated untilretain (at the applicable remedial controls operateCompany’s expense) Gordon Brothers Retail Partners for a sufficientcertain period of time for the purpose of performing appraisal validations, monitoring and management has concluded, through testing, that these controls areevaluating the Company’s inventory mix and other services.

While we believe the New ABL Credit Agreement will provide us with sufficient liquidity for the next 12 months, our ability to meet our capital expenditure, operating effectively.  We cannot be certain that these measuresand debt service requirements will be successful ordependent upon our ability to generate sufficient cash flows, maintain compliance with the requirements of our debt agreements and continue to access the credit markets as necessary. If we are unable to generate sufficient cash flows and maintain compliance with the requirements of the New ABL Agreement, the Term Loan Credit Agreement and the Convertible Debt, we can provide no assurance that we will be able to preventsecure additional or alternative financing sufficient to meet our liquidity needs.

Risks Related to our Common Stock

Our common stock is subject to ownership and transfer restrictions intended to preserve our ability to use our net operating loss carryforwards and other tax attributes.

We have incurred significant net operating loss carryforwards and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations, and uncertainties. Our Amended and Restated Certificate of Incorporation imposes certain restrictions on the transferability and ownership of our common stock that were designed to reduce the possibility of an equity ownership shift that could result in limitations on our ability to utilize net operating loss carryforwards and other tax attributes from prior years for federal income tax purposes. Any acquisition or sale of our common stock that results in a stockholder being in violation of these restrictions may not be valid.

Subject to certain exceptions, these ownership restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our common stock, (ii) any transfer that would result in an increase of the ownership percentage of any person already owning 4.5% or more of our common stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our common stock. These restrictions will remain in effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of directors determines these restrictions are no longer necessary for preservation of the Company’s tax benefits, (ii) the beginning of a taxable year in which the board of directors determines no tax benefits may be carried forward, or (iii) such other date as shall be established by the board of directors. In order to allow completion of the Private Placement, the board of directors waived application of these restrictions to the securities purchased in the Private Placement. On September 21, 2022, following the closing of the Private Placement, the SPV elected to immediately convert a portion of the Convertible Debt into 90,000,000 shares of the Company’s common stock and acquired majority ownership of the Company’s common stock. As a result, a change of control of the Company occurred, which is triggering event for Section 382 of the Internal Revenue Code, its impact on the realization of positive tax attributes will be evaluated immediately. It is expected likely to result in restrictions on the Company’s ability to use of its net operating losses and certain other tax attributes in future significant deficienciesperiods.

We are a “controlled company” and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements. In addition, the SPV’s interests may conflict with our interests and the interests of other stockholders.

Following completion of the Private Placement, and the conversion of a portion of the Convertible Debt by the SPV into 90 million shares of the Company's common stock, the SPV acquired control of the voting power of a majority of our common stock. As a result, we are a “controlled company” within the meaning of the applicable stock exchange corporate governance standards. Under the rules of Nasdaq, a company of which more than 50% of the outstanding voting power is held by an individual, group or material weaknesses.  Any remediation efforts additionallyanother company is a “controlled company” and may require uselect not to incur unanticipated costs for various professional feescomply with certain stock exchange corporate governance requirements, including:

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So long as the SPV controls a majority of the voting power of our financial statements would damage their value to managementcommon stock, we may utilize these exemptions. As a result, we may not have a majority of independent directors and our Boardnominating and corporate governance and compensation functions may not be decided solely by independent directors. Accordingly, our stockholders would not have the same protections afforded to stockholders of Directors in making decisions ascompanies that are subject to all of the operationstock exchange corporate governance requirements.

The interests of SPV and its affiliates, which include REV, Pier 1 and Ayon Capital, could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by the SPV could delay, defer or prevent a change of control of our Company or impede a merger, takeover or other business could harmcombination which may otherwise be favorable for us and our reputationother stockholders. Additionally, the affiliates of the SPV are in the business of making investments in companies and cause investorsmay, from time to lose confidencetime, acquire and hold interests in businesses that compete, directly or indirectly with us. The SPV and its affiliates may also pursue acquisition opportunities that may be complementary to our reported financial information.business, and as a result, those acquisition opportunities may not be available to us. So long as the SPV continues to directly or indirectly own a significant amount of our common stock, even if such amount is less than a majority thereof, the SPV will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.

We may fail to satisfy all applicable requirements for continued listing on The Nasdaq Capital Market

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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Stores.

We lease all of our stores from unaffiliated third parties, except one Company‑owned store located adjacent to our existing distribution facility in Dallas, Texas.parties. A description of the location of our stores is provided in Item 1, “Business—Stores and Store Operations.” At June 30, 2020,July 2, 2022, the remaining terms of the majority of our store leases range from one month to five years. The average initial term of store leases executed under our real estate strategy is approximately ten years, typically with options available for renewal. We intend to continue to lease all of our new stores from unaffiliated third parties. Our store leases typically include “kick clauses,” which allow us, at our option, to exit the lease with no penalty approximately 60 months5 years after entering into the lease if store sales do not reach a stipulated amount stated in the lease.

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Distribution Facilities and Corporate Headquarters.

We ownpreviously owned a 104,675 square foot building which houses our corporate office in Dallas, Texas. OurTexas and a Dallas distribution center, utilizesof which we utilize approximately 1.2 million square feet, allfeet. On December 31, 2020, we sold our corporate office and Dallas distribution center properties and leased back those facilities. The lease of whichthe corporate office is owned. for a term of 10 years, and the lease of the distribution center is for an initial term of two and one-half years, with an option to extend the distribution center lease for one additional year. We believe it is reasonably certain the option to extend will be exercised.

During fiscal 2015, we executed a lease for approximately 0.6 million square feet related to our additional distribution center in Phoenix, Arizona which started operations in the fourth quarter of fiscal 2016.

We lease from unaffiliated third parties four parcels of land of approximately 538,250 square feet, for trailer parking and storage.

In fiscal 2020, as the next step in our supply chain strategy, we began the retrofit of our existing Dallas-based distribution facility to accommodate our distribution requirements for our existing store base as well as for planned future growth.  Due to the impacts of COVID-19, the retrofit of the Dallas distribution center was ceased in the fourth quarter of fiscal 2020.  We also reached the decision in the fourth quarter of fiscal 2020 to close our Phoenix distribution center and consolidate operations in our Dallas-based facility, which we expect to bewas completed in earlythe second quarter of fiscal 2021.

We also lease from unaffiliated third parties four parcels of land of approximately 538,250 square feet, for trailer parking and a 100,000 square foot warehouse in Dallas, Texas to supplement our distribution network. On April 15, 2022, the Company decided to terminate the lease early at the Stemmons DC Facility prior to the expiration of the lease on June 30, 2023. The facility was previously utilized along with the network of pool point facilities to service all of our stores throughout the United States.

On December 1, 2021, the Company leased 156,205 square feet of the FW Railhead Warehouse to supplement our warehouse space for pack and hold storage.

Item 3. Legal Proceedings

Information related to the Chapter 11 Cases that were filed on May 27, 2020 is included in Note 1 in the Notes to Consolidated Financial Statements.

In addition, weWe 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.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

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PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As a result

During the pendency of the filing of the Chapter 11 Cases, on June 8, 2020, trading inour bankruptcy proceedings, the Company’s common stock onwas delisted by the Nasdaq was suspended.  On July 1, 2020, Nasdaq filed a Form 25 with the SEC to delist the Company’s common stock.

On June 8, 2020, the Company’s common stockand began trading on the OTC Pink marketplace under the symbol “TUESQ”. Securities traded in the over-the-counter market generally have significantly less liquidity than securities traded on a national securities exchange.  Over-the-counter market quotations may reflect inter-dealer prices, without any retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  The Company cautions that trading inIn January 2021, following our emergence from bankruptcy, the Company’s common stock duringbegan trading on the pendencyOTCQX market under the ticker symbol “TUEM.”

On May 24, 2021, Nasdaq approved our application for the relisting of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’sCompany's common stock may bear little or no relationship toon The Nasdaq Capital Market. The Company's common stock was relisted and commenced trading on The Nasdaq Capital Market at the actual recovery, if any, by holdersopening of the market on Tuesday, May 25, 2021, under the ticker symbol “TUEM.”

On June 6, 2022, the Company received written notice from 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 in the Chapter 11 Cases. had been below $1.00 per share for 30 consecutive business days. See Item 1A. Risk Factors – “We may fail to satisfy all applicable requirements for continued listing on The Nasdaq Capital Market” for additional information.

As of September 10, 2020,23, 2022, there were approximately 155120 holders of record of our common stock.

Performance Graph

The following performance graph compares the cumulative total return to holders of our common stock, since January 13, 2021, with the cumulative total returns of the S&P 500 index and the S&P Specialty Retail index. The graph assumes that the value of the investment in the Company's common stock, S&P 500 index and S&P Specialty Retail index on January 13, 2021 and is calculated assuming the quarterly reinvestment of dividends as applicable. Due to our legal emergence from bankruptcy on December 31, 2020, information for our common stock is only available from January 13, 2021 (the date shares of our common stock began trading following our legal emergence from bankruptcy). The information is included for historical comparative purposes only, reflects a time period of very limited duration, and should not be considered indicative of future share performance.

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The information under the heading performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

Dividend Policy

During the fiscal years ended July 2, 2022, June 30, 2021, and June 30, 2020, 2019 and 2018, we did not declare or pay any cash dividends on our common stock. We do not presently have plans to pay dividends on our common stock. The DIP ABL Facility and DIP Term Facility do not permit usagreements relating to our outstanding indebtedness restrict our ability to pay dividends or repurchase our common stock. Additional details are provided in Item 7, “Management’s Discussion and Analysis of Financial ConditionConditions and Results of Operations—Operations – Liquidity and Capital Resources”Resources.”

Item 6. Selected Financial DataReserved

Not Required

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and related notes thereto included elsewherein Part IV, Item 15(a) in this Annual Report on Form 10‑K.

OverviewBackground

Bankruptcy Filing and Going Concern

Private Placement, see Note 12 to our consolidated financial statements.

ResultsKey Metrics for Fiscal 2022

Key operating metrics for continuing operations for the Yearyear ended June 30, 2020July 2, 2022, include:

Key balance sheet and liquidity metrics for the year ended July 2, 2022, include:

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Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data, expressed as a percentage of net sales, as well as the number of stores open at the end of each period.sales. There can be no assurance that the trends in sales or operating results will continue in the future.

See Note 12 in the Notes to Consolidated Financial Statements herein for a discussion of restructuring, impairment, and abandonment charges, as well as reorganization items.

2022 Compared with 2021

Net sales for fiscal 2022 were $749.8 million, an increase of 8.5%, compared to $690.8 million for the same period last year, primarily due to COVID-19 pandemic which negatively impacted the first six months of fiscal year 2021. New stores are included in the same store sales calculation starting with the sixteenth month following the date of the store opening. A store that relocates within the same geographic market or modifies its available retail space is generally considered the same store for purposes of this computation. Stores that are closed are included in the computation of comparable store sales until the month of closure. The increase in comparable store sales was due to 8.8% increase in average ticket and 1.9% increase in customer transactions. Further, we experienced store level inventory challenges due in part to an ongoing effort to overhaul the supply chain processes, and mitigations for the global disruptions to the supply chain. Non-comparable store sales increased by a total of $59.0 million. Non-comparable store sales include the net effect of sales from new stores and sales from stores that have closed. We expect inventory levels to increase throughout the fall and expect supply chain costs to remain elevated due to higher freight costs and other supply chain conditions.

Gross margin for fiscal 2022 was $191.8 million, a decrease of 6.9% compared to $206.0 million for fiscal 2021. As a percentage of net sales, gross margin decreased to 25.6% in fiscal 2022 compared with 29.8% in fiscal 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.

Selling, general and administrative expenses (“SG&A”) decreased $3.3 million to $240.9 million in fiscal 2022, compared to $244.2 million in fiscal 2021. The decrease was due to lower store expenses on a smaller store base, including a significant decrease in store rents for both closed stores and renegotiated rents for the ongoing store base. Subsequent to the filing of the Chapter 11 proceedings, we commenced negotiations with our landlords on substantially all of our ongoing leases, resulting in significant modifications and reduced lease costs. Labor costs and depreciation were also lower on the smaller base. Also contributing to the favorable comparison were reduced advertising costs and lower corporate expenses. As a percentage of net sales, SG&A decreased 320 basis points to 32.1% for fiscal 2022, compared to 35.3% in fiscal year 2021.

Restructuring, impairment, and abandonment charges were $2.5 million during fiscal 2022, compared to $10.8 million during fiscal 2021, related to a software impairment charge of $2.0 million as well as $0.5 million in employee retention costs. These costs during fiscal 2021, were charges primarily related to executive severance and employee retention cost of $3.6 million, and intangible impairment charge of $1.6 million, as well as abandonment costs of $5.6 million related to the permanent closure of our stores and the Phoenix distribution center. 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.

Our operating loss was $51.5 million during fiscal 2022 as compared to an operating loss of $49.0 million for fiscal 2021, an increase of $2.5 million. The operating loss in the current year was primarily the result of higher net sales, being driven by increased sales, lower restructuring, impairment, and abandonment charges, offset by lower margins from higher supply chain and transportation costs as discussed above.

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Non-GAAP Financial Measures

We define EBITDA as net income or net loss before interest, income taxes, depreciation, and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash items and other items that we believe are not representative of our core operating performance. These measures are not presentations made in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income or loss as a measure of operating performance. In addition, EBITDA and Adjusted EBITDA are not presented as, and should not be considered as, alternatives to cash flows as a measure of liquidity. EBITDA and Adjusted EBITDA should not be considered in isolation, or as substitutes for analysis of our results as reported under GAAP and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by such adjustments. We believe it is useful for investors to see these EBITDA and Adjusted EBITDA measures that management uses to evaluate our operating performance. These non-GAAP financial measures are included to supplement our financial information presented in accordance with GAAP and because we use these measures to monitor and evaluate the performance of our business as a supplement to GAAP measures and we believe the presentation of these non-GAAP measures enhances investors’ ability to analyze trends in our business and evaluate our performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The non-GAAP measures presented may not be comparable to similarly titled measures used by other companies.

The following table reconciles net loss,earnings (loss), the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA, each of which is a non-GAAP financial measure (in thousands):

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Fiscal Year EndedFor the year ended July 2, 2022, adjustments include restructuring and abandonment costs primarily related to a software impairment charge of $2.0 million and $0.5 million in employee retention costs. For the year ended June 30, 2020 Compared2021, adjustments include restructuring and abandonment costs primarily related to Fiscal Year Ended June 30, 2019

Our net sales for$3.6 million to executive severance and employee retention cost, intangible impairment charge of a $1.6 million as well as abandonment cost of $5.6 million related to the thirdpermanent closure of our stores and the Phoenix distribution center. Decisions regarding store closures and the Phoenix distribution center were made in the fourth quarter of fiscal 2020, were significantly negatively impacted byprior to filing the COVID-19 pandemic. Net sales were $874.9 million in fiscal 2020 compared to $1,007 million in fiscal 2019. On March 25, 2020, we temporarily closed all of our stores nationwide, severely reducing revenues and resulting in significant operating losses andChapter 11 Cases; however, the elimination of substantially all operating cash flow. Comparable store sales decreased 11.8%.  New stores are included in the same store sales calculation starting with the sixteenth month following the dateclosure of the store opening.  A store that relocates withinPhoenix distribution center was not completed until the same geographic market or modifies its available retail spacesecond quarter of fiscal 2021.

Fiscal Year Ended June 30, 2019 Compared to Fiscal Year Ended June 30, 2018

For a discussion of fiscal 2019 results of operations as compared to fiscal 2018 results of operations, please refer to Part II, Item 7, Management’s Discussion of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on August 22, 2019.

Liquidity and Capital Resources

Cash Flows from Operating Activities

In fiscal 2020,2022, cash provided byused in operating activities was $93.9$61.6 million, compared to $19.6cash used in operating activities of $158.1 million in the prior fiscal year. The increaseNet cash used in cash provided by operating activities foroperations in fiscal 20202022 was primarily driven by inventory purchases and payments of operating expenses as part of ordinary course of business. In fiscal 2021, net cash used in operations was primarily driven by payments for bankruptcy court approved pre-petition claims, legal and professional fees and payments to the result of a $126.4 million larger decrease inCompany’s vendors for inventory.  This increase was partially offset by our higher net loss of $153.9 million in fiscal 2020, adjusted for the non-cash impacts of asset impairment and abandonment charges, totaling $105.2 million, as well as a $9.6 million cash outlay for July rents, which were paid at the end of June, and a $4.5 million higher cash usage in accounts payable and accrued liabilities.

Cash Flowsflows from Investing Activities

Net cash used in investing activities for fiscal 2020 and 2019the year ended July 2, 2022, of $6.5 million related primarily to capital expenditures.  Our capital expenditures are generally associated within enhancements to our store relocations, expansionsfleet and new store openings, capital improvements to existing stores, as well as enhancementsinvestments in technology. Net cash provided by investing activities for fiscal 2021 of $66.7 million related primarily to $68.6 million of proceeds from the sale of our corporate office and Dallas distribution center facilities, equipment, and systemsproperties in a sale-leaseback transaction under our Plan of Reorganization, along with improvements related to technology$1.9 million of property and equipment.  Cash used in investing activities totaled $13.9equipment sold at the 197 stores that we permanently closed and was partially offset by $3.8 million and $16.3 million for fiscal 2020 and 2019, respectively.  Prior year spending primarily related to our store real estate strategy, while current year spending reflects reduced real estate project activity and increased investment in our distribution center facilities as well as in technology.of capital expenditures.

We currently expect to incur capital expenditures, net of construction allowances received from landlords, of approximately $6 million to $8 million in fiscal year 2021, which reflects reduced capital spending as one of the liquidity preservation measures we have taken due to the financial impact of the COVID-19 pandemic.

Cash Flows from Financing Activities

Net cash used inprovided by financing activities of $44.7$47.1 million infor fiscal 2020 was2022 related primarily to $34.6 in netthe proceeds of $55.2 million from borrowings of $921.5 million and repayments of $866.3 million on our new revolving credit facility, partially offset by the repurchase of a portion of the outstanding principal amount of the Term Loan for $5.0 million lower cash overdraft provision, and the payment of $4.9 million in financing costs related to obtaining debtor-in-possession financing. Net cash used in financing activitiesfees of $1.4 million in fiscal 2019 related to $3.8 million of net repayments on$3.1 million. For additional information regarding our revolving credit facility, $0.6 million of financing costs related to the January 2019 amendment and extension of ournew revolving credit facility and $0.2the term loan, see Notes 2, 3 and 7 to our consolidated financial statements. Net cash provided by financing activities of $73.6 million for fiscal 2021 related primarily to the proceeds of capital lease principal payments,$12.0 million from borrowings of $811.1 million and repayments of $799.1 million on our new revolving credit facility, $25.0 million from a term loan and $40.0 million from the Rights Offering, partially offset by athe payment of financing fees of $3.2 cash overdraft provision.  million.

Capital Resources and Plan of Operation and Funding

Pre-Petition ABL Credit Agreement

We are party to a credit agreement providing for an asset-based, five year senior secured revolving credit facility in the original amount of up to $180.0 million that 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 is secured by a lien on substantially all of our assets.

As of June 30, 2020, we had $0.1 million remaining outstanding under the Pre-Petition ABL Credit Agreement, as required by the DIP ABL Credit Agreement.  See Note 3 to the consolidated financial statements herein and “Liquidity” below for additional information.

Liquidity

Historically, we have financed our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under our Pre-Petition ABL Credit Agreement.

The COVID-19 pandemic has had, and will continue to have, an adverse effect on our business operations, store traffic, employee availability, financial condition, results of operations, liquidity and cash flow.  As of March 25, 2020, we temporarily closed allasset-based, senior secured revolving credit facility. During the pendency of our stores nationwide, severely reducing revenuesbankruptcy proceedings, we financed our operations with funds generated from operating activities and resulting in significant operating losses and the elimination of substantially all operating cash flow.

The filing of the Chapter 11 Cases was an event of default under the Pre-Petition ABL Credit Agreement, making all amounts outstanding under the Pre-Petition ABL Credit Agreement immediately due and payable and no additional borrowings are available under the Pre-Petition ABL Credit Agreement.  As of June 30, 2020, the remaining outstanding amounts under the existing agreement are reflected as a current liability in the Consolidated Balance Sheet.

To provide for liquidity during the Chapter 11 Cases, we have entered into agreements for debtor-in-possession financing.  On May 29, 2020, in accordance with an order of the Bankruptcy Court, Debtors entered into the DIP ABL Credit Agreement, which provides for a super priority secured debtor-in-possession revolving credit facility in an aggregate amount of up to $100 million.  Under the terms of the DIP ABL Credit Agreement, amounts available for advances are subject to a borrowing base generally consistent with the borrowing base under the Pre-Petition ABL Credit Agreement, subject to certain agreed upon exceptions. The DIP ABL Credit Agreement requires that all proceeds of advances under the DIP ABL Facility be used only for ordinary course general corporate and working capital purposes, costs of administration of the Chapter 11 Cases, certain professional fees and fees and expenses relating to the DIP ABL Facility, in each case, in accordance with a cash flow budget that will be updated periodically, subject to certain permitted variances. The DIP ABL Credit Agreement requires that all cash received by us (other than proceeds of the DIP ABL Facility) be applied to repay outstanding amounts under the Pre-Petition ABL Credit Agreement.

The DIP ABL Facility contains customary affirmative and negative covenants for debtor-in-possession financings.  In addition, the DIP ABL Facility requires us to, among other things, maintain certain minimum liquidity requirements, and receive approval of a plan of reorganization or sale of substantially all of our assets through the Chapter 11 process by agreed upon deadlines.

The commitments of the lenders under the DIP ABL Facility terminate and outstanding borrowings under the DIP ABL Facility mature at the earliest of the date which is one hundred eighty (180) days after the Petition Date; the date of consummation of the sale of all or substantially all of our assets; the effective date of a plan of reorganization; or upon the occurrence of an event of default under the DIP ABL Credit Agreement or such other date as the outstanding borrowings under the DIP Facility are accelerated.

As of June 30, 2020, cash and cash equivalents, and also had in place debtor-in-possession financing arrangements. We made no borrowings under our debtor-in-possession financing arrangements, and both were $46.7terminated on December 31, 2020, in connection with our legal emergence from bankruptcy.

Since the Company’s emergence from bankruptcy in December 2020, the Company’s results of operations have been negatively impacted by a variety of factors, including pandemic-related disruptions to supply chains and higher supply chain costs resulting from higher freight costs and other supply chain conditions, reduced store traffic and sales as a result of decades high inflation including increased fuel prices.

As described above, the Company entered into the New ABL Credit Agreement in May 2022 in order to bolster the Company’s liquidity. As of July 2, 2022, cash, and cash equivalents, excluding restricted cash, were $7.8 million and total liquidity, defined as cash and cash equivalents plus borrowingthe $10.3 million availability was $79.7 million as of June 30, 2020, which includes $33.0 million available for borrowing under the DIPNew ABL Facility and less $6.3 million in credit card receivables was $11.8 million.

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As described above, the Company made an early borrowing of $5 million under the FILO B Delayed Incremental Loan in July 2022. Subsequent to the July 2022 borrowing, the Company experienced a further deterioration in its financial condition and liquidity and began to withhold payments from vendors beginning in late August 2022 and until completion of the Private Placement on September 20, 2022. The proceeds of the Private Placement were used (i) repay $7.5 million of the FILO A term loans and FILO B term loans under the New ABL Credit Agreement; (ii) repay of a portion of the Borrower’s revolving loans under the New ABL Credit Agreement; and (iii) pay transaction costs not to exceed approximately $5.0 million. In addition, remaining proceeds will be used for working capital and other general corporate purposes of the Company and its subsidiaries.

Going forward, and after giving effect to the proceeds of the Private Placement, we expect to fund our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under the New ABL Facility. In early July 2020, an additional $25 million of additional borrowing capacity became available upon our execution of the DIP DDTL Agreement.

As discussed above, in mid-June 2020, we commenced the process to close 132 store locations in a first wave of store closings.  By the end of July, 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. We also began the process to close our Phoenix, Arizona distribution center and expect the closure to be completed early in fiscal 2021. These store closures will have an impact on our operating cash flows.

Please refer to Note 1, Note 3 and Note 12 in the Notes to Consolidated Financial Statements for additional information regarding the Chapter 11 Cases as well as forFor a discussion of material cash requirements, see “Contractual Obligations” below.

Our liquidity may continue to be impacted going forward by factors such as higher supply chain costs resulting from higher freight costs and other supply chain conditions, and reduced store traffic and sales as a result of general economic and inflationary conditions.

Capital expenditures are anticipated to be $5.0 million for fiscal year 2023.

We do not presently have any plans to pay dividends or repurchase shares of our common stock. Under the DIPterms of the New ABL Credit Agreement and the Term Loan and the Convertible Debt, we are subject to restrictions on our ability to pay dividends or repurchase shares of our common stock. Under the terms of the New ABL Credit Agreement and Term Loan, we must maintain certain minimum levels of borrowing availability, and do not anticipate any cash flows would be available for dividend payments.

Debt Covenants

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). The Term Loan also includes this minimum borrowing availability covenant.

At July 2, 2022, we were in compliance with covenants in the New ABL Facility and Term Loan respectively. After giving effect to completion of the DIP Term Facility.Private Placement, the Company expects to remain in compliance with such covenants over the next 12 months.

Although weImpact of Inflation

Global inflation has increased significantly over the past year. In the United States, the Consumer Price Index for All Urban Consumers increased 9.1% over the twelve months ended June 30, 2022, as reported by the Bureau of Labor Statistics. The Company has experienced inflationary impacts as the dollar declines in value, customers' concerns heighten to preserve existing cash to cover for essential needs, which then lead to decline in revenue and increased inventory. Supply chain costs such as freight and shipping are seekingparticularly subject to address our liquidity concerns throughinflationary pressures. We will continue to actively monitor the Chapter 11 Cases, the approvalimpact of a plan of reorganization or the sale of all or substantially all of our assets is not within our control and uncertainty remains as to whether the Bankruptcy Court will approve a plan of reorganization or a sale of all or substantially all of our assets.

We have concluded that our financial condition and our projected operating results, our need to satisfy certain financial and other covenants in our debtor-in-possession financing, our need to implement a restructuring plan and receive new financing,inflation and the risks and uncertainties surrounding the COVID-19 pandemic and the Chapter 11 Cases raise substantial doubt as tobroader economic outlook on our ability to continue as a going concern.  We believe that our plans, already implemented and continuing to be implemented, will mitigate the conditions and events that have raised substantial doubt about the entity’s ability to continue as a going concern.  However, due to the uncertainty around the scope and duration of the COVID-19 pandemic and the related disruption to our businessoperations and financial impacts,results and because our plans, including those in connection with the Chapter 11 Cases, are not yet finalized, fully executed, or approved by the Bankruptcy Court, they cannot bewill take actions as deemed probable of mitigating this substantial doubt.necessary.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our audited year end 2022 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inpursuant to the United States.rules and regulations of the SEC. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On a recurring basis, we evaluate our significant estimates which are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of Long-Lived Assets—We evaluate long-lived assets, principally property and equipment, and intangible assets, as well as lease right-of-use ("ROU") assets, subsequent to the adoption of ASC 842, for indicators of impairment whenever events or changes in circumstances indicate their carrying values may not be recoverable. Management's judgments regarding the existence of impairment indicators are based on market conditions and financial performance. Indicators of impairment may also include the planned closure of a store or facility, among others.  The results of our fourth quarter fiscal 2020 impairment analysis indicated an impairment of our property and equipment as well as operating lease right-of-use 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 statement of operations.  The impairments were the result of closing plans for these stores and the Phoenix distribution center.

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Impairment is indicated when the sum of the estimated future cash flows, on an undiscounted basis, is less than the asset’s (asset group’s) carrying amount. Then, when the fair value of the estimated future cash flows, on a discounted basis, is less than carrying amount, an impairment charge is recorded. The testing of an asset group for recoverability involves assumptions regarding the future cash flows of the asset group, the growth rate of those cash flows, and the remaining useful life over which an asset group is expected to generate cash flows. In the event we determine an asset group is not recoverable, the measurement of an estimated impairment loss involves a number of management judgments, including the selection of an appropriate discount rate, as well as various unobservable inputs incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Key market participant assumptions used for purposes of determining the fair value of our long-lived assets, including lease right-of-useROU assets, in connection with the fiscal 20202021 impairment discussed above included market rent assumptions and the discount rate.rate.

If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material. Additionally, we can provide no assurance that we will not have additional impairment charges in future periods as a result of changes in our operating results or assumptions.

Asset impairment and abandonment charges totaled $2.0 million and $5.6 million for fiscal 2022 and fiscal 2021, respectively, which were the result of a software abandonment charge, and our closing plans for stores and the Phoenix distribution center.

Our property and equipment, combined with our operating lease right-of-useROU assets totaled $327.1$185.4 million as of July 2, 2022, or approximately 52.3% of total assets, compared to $231.0 million as of June 30, 2020,2021, or approximately 65%55.3% of total assets, which reflects the impact of the $80.1 million impairment recorded in the fourth quarter of fiscal 2020.  Impairment charges recorded in fiscal 2019 were not material.assets.

Inventory—Our inventories consist of finished goods and are stated at the lower of cost or market 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 SKUstock-keeping unit (“SKU”) level. Inventory is relieved and cost of goods sold 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. The retail inventory method, which is used by a number of our competitors, involves management estimates with regard to items such as markdowns. Such estimates may significantly impact the ending inventory valuation at cost as well as the amount of gross margin recognized.

Our 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. In the second half of fiscal 2020, due to the impact of the COVID-19 pandemic including our temporary store closures, we conducted physical inventories at a portion of our stores sufficient to validate the existence of inventory in our stores and the accuracy of our estimated shrink reserve rate. We have loss prevention and inventory controls programs that we believe minimize shrink. The estimated shrink rate may require a favorable or unfavorable adjustment to actual results to the extent that our subsequent actual physical inventory results yield 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.

Inventory is one of the largest assets on our balance sheet and represented approximately 23%, 64%, and 62% of total assets at June 30, 2020, 2019, and 2018, respectively. Total inventory decreased $123.0 million or 51.7% from June 30, 2019 to June 30, 2020, as a result of the COVID-19 pandemic and the disruption to our retail and supply chain operations, including the liquidation of inventory at our closing stores. Total inventory increased 5.6%, or $12.5 million, from June 30, 2018 to June 30, 2019. On a per store basis, store inventory decreased 50.8% from June 30, 2019 to June 30, 2020 and increased 3.2% from June 30, 2018 to June 30, 2019.

Markdowns—We utilize markdowns to promote the effective and timely sale of merchandise which allows us to consistently provide new merchandise to our customers. We also utilize markdowns coupled with promotional events to drive traffic and stimulate sales. Markdowns may be temporary or permanent. Temporary markdowns are for a designated period of time with markdowns recorded to cost of sales based on quantities sold during the period. Permanent markdowns and damaged goods are recorded to inventory and charged to cost of sales immediately based on the total quantities on hand at the time of the markdown. Markdowns and damages were 5.9%4.2% in fiscal 20202022 and were 4.5%4.3% in fiscal 2019.  The increase in fiscal year 2020 was primarily related to the markdowns taken in conjunction with our store closure going out of business sales.2021. Markdowns may vary throughout the quarter or year in timing.

The effect of a 1.0%0.5% markdown in the value of our inventory at June 30, 2020July 2, 2022 would result in a decline in gross profitGross margin and a reduction in our diluted earnings per share for the fiscal year ended June 30, 20202022, of $1.1$0.7 million and $0.02,$0.01 respectively.

Leases— Upon the adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” starting in fiscal 2020, we determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments, and the ROU assets represent our right to use the underlying assets for the respective lease terms.

The operating lease liability is measured as the present value of the unpaid lease payments and the ROU asset is derived from the calculation of the operating lease liability. As our leases do not generally provide an implicit rate, we use our incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow over a similar term, on a collateralized basis in a similar economic environment.

Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses allocated on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expense in the period incurred. 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.

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Insurance and Self‑Insurance Reserves—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$0.5 million for workers’ compensation, $250,000$0.3 million for general liability, and $150,000$0.2 million 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 estimated reserves are identified, the liability will be adjusted accordingly in that period. Our self‑insurance reserves for workers’ compensation, general liability and medical were $8.4$6.9 million, $1.3$0.6 million, and $0.9$1.0 million, respectively, at July 2, 2022 and $7.3 million, $1.2 million, and $1.0 million, respectively, at June 30, 2020 and $8.2 million, $1.1 million, and $0.9 million, respectively, at June 30, 2019.2021.

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 paid reduce our reserves and our current period insurance expense is adjusted for the difference in prior period recorded reserves and actual payments. 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; $2.1 million, $2.3 million and $7.9 million, respectively, for the fiscal year ended June 30, 2019; and $5.3 million, $2.9 million and $6.4 million, respectively, for the fiscal year ended June 30, 2018.2020.

Income taxes—We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are recorded in our consolidated balance sheets. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. In assessing the need for a valuation allowance, all available evidence is considered including past operating results, future reversals of taxable temporary differences, estimates of future income and tax planning strategies. We have elected to utilize the “with and without” method for purposes of determining when excess tax benefits will be realized. We are subject to income tax in many jurisdictions, including the United States, various states and localities. At any point in time, we may not be subject to audit by any of the various jurisdictions; however, we record estimated reserves for uncertain tax benefits for potential domestic tax audits. The timing of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. If different assumptions had been used, our tax expense or benefit, assets and liabilities could have varied from recorded amounts. If actual results differ from estimated results or if we adjust these assumptions in the future, we may need to adjust our reserves for uncertain tax benefits or our deferred tax assets or liabilities, which could impact our effective tax rate.

Off‑BalanceOff-Balance Sheet Arrangements

We hadhave no off‑balanceoff-balance sheet arrangements as of June 30, 2020.July 2, 2022.

Contractual Obligations

The following table summarizesWe have 489 stores with total rent expense of $77.3 million, $73.5 million, and $118.3 million in fiscal 2022, fiscal 2021, and fiscal 2020 respectively. Our distribution center rent for fiscal 2022 was $9.1 million compared to $9.6 million in fiscal 2021 and $7.3 million in fiscal 2020. This is due to our contractual obligations at June 30, 2020having sold our corporate office and Dallas distribution center properties and land, in a sale-leaseback transaction and the effectsadditional rent incurred by that such obligations are expected to have on our liquiditychange and cash flowpartially offset by a decrease in future periods (in thousands):    rent associated with Phoenix distribution center.

Contractually required payments for maintenance, insurance and taxes on our leased properties are estimated as a percentage of rent based on historical trends. These amounts can vary based on multiple factors including inflation, macroeconomic conditions, various local tax rates and appraised values of our rental properties. The operating lease obligations include the lease obligations of our new, additionalcorporate office and Dallas distribution center in Phoenix, Arizona opened in the fourth quarter of fiscal 2016. properties. See Note 8 to our consolidated financial statements for further discussion.

We do not consider most merchandise purchase orders to be contractual obligations due to designated cancellation dates on the face of the purchase order.

Commitment feesOn May 9, 2022, the Company entered into the New ABL Credit Agreement and used a portion of the proceeds from borrowings under the New Facilities to repay all outstanding indebtedness under the Post-Emergence ABL Facility, along with accrued interest, expenses, and fees. 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. On July 11, 2022, pursuant to the Amendment of the New ABL Facility, the FILO B Lenders agreed to make the FILO B Delayed Incremental Loan to the Company in an aggregate amount of $5.0 million on July 11, 2022, instead of November 9, 2022.

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 and affiliates of Osmium Partners, LLC, entered into the Term Loan Credit Agreement, which provided for a Term Loan of $25.0 million to the Company.

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. The Term Loan is subject to optional prepayment after the first anniversary

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of the date of issuance at prepayment price equal to the greater of (1) the original principal amount of the Term Loan plus accrued interest thereon, and (2) 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. As of July 2, 2022, the outstanding principal balance of the Term Loan was $24.0 million, net of debt issuance costs. For additional information regarding the New ABL Facility and the Term Loan, see Note 3 to our consolidated financial statements.

On September 20, 2022, the Company incurred $7.5 million in borrowings under the FILO C Convertible Notes and $27.5 million of borrowings under the Junior Convertible Notes. The FILO C Convertible Notes and the Junior Convertible Notes bear interest at a rate of SOFR plus 6.50%. Interest on the Convertible Debt is payable semiannually. Under the terms of the Convertible Debt, during the two-year period following the closing of the Private Placement, the Borrower may elect to pay interest on the Pre-Petition ABL Credit Agreement were calculated based on contractual commitment fees, standby letterConvertible Debt “in kind” by increasing the principal of credit fees,the Convertible Debt by the amount of any such interest payable. The provisions of the intercreditor agreements relating to the Convertible Debt and interest based onother outstanding balances.  Asindebtedness of June 30, 2020, the outstanding balance on the Pre-Petition ABL Credit Agreement was $0.1 million and was no longerCompany require such payments to be made “in-kind” subject to unused commitment fees and interest.certain limited exceptions applicable after the second anniversary of the closing of the Private Placement. On September 21, in connection with the SPV’s election to immediately convert a portion of the Junior Convertible Notes for 90,000,000 shares of the Company’s commons stock, $6,930,000 in aggregate principal amount of the Junior Convertible Notes were retired.

Commitment fees and interest on the DIP ABL Credit Agreement are calculated based on contractual commitment fees, standby letter of credit fees, and interest based on any outstanding balances on the DIP ABL Credit Agreement.  As of June 30, 2020, there were no balances outstanding and letters of credit totaled 8.8 million. See "Liquidity and Capital Resources" above.  The interest and commitment fees onThough our DIP ABL Credit Agreement reflect the future cash requirements for interest payments until maturity and incorporates the interest rates in effect as of June 30, 2020. The interest on the letter of credit utilization and unused commitments are fixed at 3.125% and 0.5%, respectively.

We have not included other long-term liabilities related to self-insurance reserves in the contractual obligations table, as they do not represent cash requirements arising from contractual payment obligations. While self-insurance reserves represent an estimate of our future obligation and not a contractual payment obligation, we have disclosed our self-insurance reserves under "Critical Accounting Policies and Estimates - Insurance and Self-Insurance Reserves."

Quarterly Results and Seasonality

The tables in Note 10 in NotesOur business is subject to the Consolidated Financial Statements set forth certain quarterly financial data for the eight quarters ended June 30, 2020. The quarterly information is unaudited, but has been prepared on the same basis as the audited financial statements included elsewhere in this Form 10‑K. We believe that all necessary adjustments (consisting only of normal recurring adjustments) have been included to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10‑K. The results of operations for any quarter are not necessarily indicative of the results for any future period.  Please refer to Note 10 of the Consolidated Financial Statements.

Our quarterly results of operations may fluctuate based upon such factors as the number and timing of store openings, the amount of net sales contributed by new and existing stores, the mix of merchandise sold, pricing, store closings or relocations, competitive factors and general economic and weather‑related conditions. The timing of advertised and promotional events could impact the weighting of sales between quarters. We expect to continue to experience seasonal fluctuations in our business,seasonality, with a significant percentagehigher level of our net sales and operating income being generated induring the quarter ending December 31, which includes the holiday sellingshopping season. Our resultsNet sales in the quarters ended December 31, 2021, 2020, and 2019 accounted for the thirdapproximately 34%, 29%, and fourth quarters37% of our annual net sales for fiscal years 2022, 2021 and 2020, were negativelyrespectively. The rate for fiscal 2022 is impacted by the COVID-19 pandemic.change in calendar year as defined above.

Inflation

In our opinion, the overall impact of inflation has not had a material effect on our results of operations in any of the fiscal years of 2020, 2019, or 2018. We cannot assure that inflation will not materially affect our results of operations in the future.

Recent Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements.

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Item 7A. Quantitative and QualitativeQualitative Disclosures About Market Risk

Not required.We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates, such as interest rates. Based on our market risk sensitive instruments outstanding as of July 2, 2022, as described below, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such date. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements of Tuesday Morning Corporation and its subsidiaries and Report of Independent Registered Public Accounting Firm are included in this Form 10‑K and incorporated herein by reference.