(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

This Form 10-Q contains forward looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management’s current expectations, estimates and projections. These statements may be found throughout this Form 10-Q, particularly under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others. Forward looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward looking statements are expressed differently. You should consider statements that contain these words or words that state other “forward looking” information carefully because they describe our current expectations, plans, strategies and goals and our beliefs concerning future business conditions, future results of operations, future financial positions, and our current business outlook. Forward looking statements also include statements regarding the Company’s strategy, future operations, performance and prospects, sales and growth expectations, our liquidity, capital expenditure plans, future store openings and closings, our inventory management plans and merchandising and marketing strategies.

The terms “Tuesday Morning,” “the Company,” “we,” “us,” and “our” as used in this Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.

Reference is hereby made to the Company’s filings with the Securities and Exchange Commission, including, but not limited to, "Item 1A. Risk Factors" of the Company's most Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021,~~July 2, 2022, for examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following: the effects and length of the COVID-19 pandemic; changes in economic and political conditions which may adversely affect consumer ~~spending;~~spending, including the impact of current inflationary pressures; our ability to realize anticipated benefits from the Pier 1 licensing arrangement, including disruptions in the shipping and importation or increases in the costs of imported products; our ability to identify and respond to changes in consumer trends and preferences; our ability to mitigate reductions of customer traffic in shopping centers where our stores are located; increases in the cost or a disruption in the flow of our products, including the extent and duration of the ongoing impacts to domestic and international supply chains from the COVID-19 pandemic; impacts to general economic conditions and supply chains from the disruption in Europe; impacts of inflation and increasing interest rates; our ability to continuously attract buying opportunities for off-price merchandise and anticipate consumer demand; our ability to obtain merchandise on varying payment terms; our ability to successfully manage our inventory balances profitably; our ability to effectively manage our supply chain operations; loss of, disruption in operations of, or increased costs in the operation of our distribution center facility; our ability to generate sufficient cash flows, maintain compliance with our debt agreements and continue to access the capital markets; unplanned loss or departure of one or more members of our senior management or other key management; increased or new competition; our ability to maintain and protect our information technology systems and technologies and related improvements to support our growth; increases in fuel prices and changes in transportation industry regulations or conditions; changes in federal tax policy including tariffs; the success of our marketing, advertising and promotional efforts; our ability to attract, train and retain quality employees in appropriate numbers, including key employees and management; increased variability due to seasonal and quarterly fluctuations; our ability to protect the security of information about our business and our customers, suppliers, business partners and employees; our ability to comply with existing, changing and new government regulations; our ability to manage risk to our corporate reputation from our customers, employees and other third parties; our ability to manage litigation risks from our customers, employees and other third parties; our ability to manage risks associated with product liability claims and product recalls; the impact of adverse local conditions, natural disasters and other events; our ability to manage the negative effects of inventory shrinkage; our ability to manage exposure to unexpected costs related to our insurance programs; increased costs or exposure to fraud or theft resulting from payment card industry related risk and regulations; our ability to meet all applicable requirements for continued listing of our common stock on The Nasdaq Stock Market, including the minimum bid requirement of $1.00 per share, and our ability to remediate our material weakness in internal control over financial reporting and to maintain an effective system of internal controls over financial reporting. The Company’s filings with the SEC are available at the SEC’s web site at www.sec.gov.

The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements were made. Except as may be required by law, the Company disclaims obligations to update any forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events. Investors are cautioned not to place undue reliance on any forward-looking statements.


	April 2,			June 30,			October 1,			July 2,
	2022			2021			2022			2022
ASSETS
Current assets:
Cash and cash equivalents	$	8,457		$	6,534		$	6,912		$	7,816
Restricted cash		0			22,321
Inventories		176,650			145,075			132,464			148,462
Prepaid expenses		5,073			5,486			5,477			5,811
Other current assets		1,862			3,385			3,015			1,694
Total Current Assets		192,042			182,801			147,868			163,783
Property and equipment, net		30,365			37,784			26,423			28,442
Operating lease right-of-use assets		162,320			193,244			156,705			156,945
Deferred financing costs		1,816			2,459			6,702			3,129
Other assets		1,641			1,596			3,137			1,877
Total Assets	$	388,184		$	417,884		$	340,835		$	354,176
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long term debt							$	313		$	250
Accounts payable	$	42,950		$	45,930			52,071			40,797
Accrued liabilities		39,082			46,454			35,600			33,491
Operating lease liabilities		54,165			54,632			46,390			52,258
Total Current Liabilities		136,197			147,016			134,374			126,796

Operating lease liabilities — non-current		120,711			156,240			120,565			115,926
Borrowings under revolving credit facility		54,077			12,000			31,355			62,191
Long term debt (see Note 3 for amounts due to related parties)		29,531			26,374			37,443			28,730
Asset retirement obligation — non-current		1,056			1,021
Derivative liability								9,768			—
Other liabilities — non-current		607			3,432			1,497			1,546
Total Liabilities		342,179			346,083			335,002			335,189
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; NaN issued or outstanding		0			0
Common stock, par value $0.01 per share, authorized 200,000,000 shares; 87,536,863 shares issued and 85,732,726 shares outstanding at April 2, 2022 and 87,988,233 shares issued and 86,204,572 shares outstanding at June 30, 2021		858			862
Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; none issued or outstanding								—			—
Common stock, par value $0.01 per share, authorized 200,000,000 shares; 178,480,309 shares issued and 176,696,648 shares outstanding at October 1, 2022 and 87,663,769 shares issued and 85,880,108 shares outstanding at July 2, 2022								1,767			859
Additional paid-in capital		310,566			305,498			325,791			311,690
Retained deficit		(258,607	)		(227,747	)		(314,913	)		(286,750	)
Less: 1,783,661 common shares in treasury, at cost, at April 2, 2022 and at June 30, 2021, respectively		(6,812	)		(6,812	)
Less: 1,783,661 common shares in treasury, at cost, at October 1, 2022 and at July 2, 2022, respectively								(6,812	)		(6,812	)
Total Stockholders’ Equity		46,005			71,801			5,833			18,987
Total Liabilities and Stockholders’ Equity	$	388,184		$	417,884		$	340,835		$	354,176

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Three Months Ended						Nine Months Ended						Three Months Ended
	April 2,			March 31,			April 2,			March 31,			October 1,			September 30,
	2022			2021			2022			2021			2022			2021
Net sales	$	159,621		$	153,345		$	587,875		$	513,516		$	157,105		$	176,872
Cost of sales		120,700			105,145			426,396			354,192			122,469			125,858
Gross margin		38,921			48,200			161,479			159,324			34,636			51,014
Selling, general and administrative expenses		55,568			59,183			183,507			184,600			60,523			60,277
Restructuring, impairment and abandonment charges		(278	)		1,047			2,588			7,554
Operating loss before interest, reorganization and other income/(expense)		(16,369	)		(12,030	)		(24,616	)		(32,830	)
Restructuring and impairment charges														—			2,430
Operating loss before interest, reorganization and other expense														(25,887	)		(11,693	)
Other income/(expense):
Interest expense		(1,919	)		(1,409	)		(5,520	)		(6,676	)		(2,027	)		(1,716	)
Reorganization items, net		128			(23,597	)		(923	)		62,169			—			(1,292	)
Gain on derivative														8,780			—
Loss on debt extinguishment														(8,382	)		—
Other income/(expense), net		78			89			210			(104	)		(498	)		49
Other income/(expense) total		(1,713	)		(24,917	)		(6,233	)		55,389			(2,127	)		(2,959	)
Earnings/(loss) before income taxes		(18,082	)		(36,947	)		(30,849	)		22,559
Income tax expense		69			172			11			715
Net earnings/(loss)	$	(18,151	)	$	(37,119	)	$	(30,860	)	$	21,844
Loss before income taxes														(28,014	)		(14,652	)
Income tax expense/(benefit)														149			(49	)
Net loss													$	(28,163	)	$	(14,603	)
Earnings Per Share
Net earnings/(loss) per common share:
Net loss per common share:
Basic	$	(0.21	)	$	(0.55	)	$	(0.36	)	$	0.41		$	(0.29	)	$	(0.17	)
Diluted	$	(0.21	)	$	(0.55	)	$	(0.36	)	$	0.41		$	(0.29	)	$	(0.17	)
Weighted average number of common shares:
Basic		85,097			67,584			84,695			52,741			96,645			84,310
Diluted		85,097			67,584			84,695			52,741			96,645			84,310

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Tuesday Morning Corporation
Condensed Consolidated Statements of Stockholders' Equity (unaudited)
(In thousands)


	Common Stock						Additional Paid-In			Retained			Treasury			Total Stockholders'			Common Stock				Additional Paid-In			Retained			Treasury			Total Stockholders'
	Shares			Amount			Capital			Deficit			Stock			Equity			Shares		Amount		Capital			Deficit			Stock			Equity

Balance at June 30, 2021		86,205		$	862		$	305,498		$	(227,747	)	$	(6,812	)	$	71,801
Balance at July 2, 2022																				85,880	$	859	$	311,690		$	(286,750	)	$	(6,812	)	$	18,987
Net loss		—			—			—			(14,603	)		—			(14,603	)		—		—		—			(28,163	)		—			(28,163	)
Share-based compensation		—			—			1,155			—			—			1,155			—		—		1,544			—			—			1,544
Shares issued on conversion of debt																				90,000		900		12,600			—			—			13,500
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(434	)		(4	)		455			—			—			451			817		8		(43	)		—			—			(35	)
Balance at September 30, 2021		85,771		$	858		$	307,108		$	(242,350	)	$	(6,812	)	$	58,804
Net earnings		—			—			—			1,894			—			1,894
Share-based compensation		—			—			1,833			—			—			1,833
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(6	)		—			—			—			—			—
Balance at December 31, 2021		85,765		$	858		$	308,941		$	(240,456	)	$	(6,812	)	$	62,531
Net loss		—			—			—			(18,151	)		—			(18,151	)
Share-based compensation		—			—			1,678			—			—			1,678
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		2			—			(53	)		—			—			(53	)
Balance at April 2, 2022		85,767		$	858		$	310,566		$	(258,607	)	$	(6,812	)	$	46,005
Balance at October 1, 2022																				176,697	$	1,767	$	325,791		$	(314,913	)	$	(6,812	)	$	5,833


	Common Stock						Additional Paid-In		Retained			Treasury			Total Stockholders'			Common Stock						Additional Paid-In		Retained			Treasury			Total Stockholders'
	Shares			Amount			Capital		Deficit			Stock			Equity			Shares			Amount			Capital		Deficit			Stock			Equity
Balance at June 30, 2020		47,341		$	455		$	244,021	$	(230,729	)	$	(6,812	)	$	6,935
Net earnings		—			—			—		18,624			—			18,624
Balance at June 30, 2021																			86,205		$	862		$	305,498	$	(227,747	)	$	(6,812	)	$	71,801
Net loss																			—			—			—		(14,603	)		—			(14,603	)
Share-based compensation		—			—			428		—			—			428			—			—			1,155		—			—			1,155
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(490	)		(5	)		5		—			—			—			(434	)		(4	)		455		—			—			451
Balance at September 30, 2020		46,851		$	450		$	244,454	$	(212,105	)	$	(6,812	)	$	25,987
Net earnings		—			—			—		40,339			—			40,339
Share-based compensation		—			—			315		—			—			315
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(5	)		—			—		—			—			—
Balance at December 31, 2020		46,846		$	450		$	244,769	$	(171,766	)	$	(6,812	)	$	66,641
Net loss		—			—			—		(37,119	)		—			(37,119	)
Share-based compensation		—			—			409		—			—			409
Shares issued in connection with rights offering		38,182			382			58,607		—			—			58,989
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		1,167			—			13		—			—			13
Balance at March 31, 2021		86,195		$	832		$	303,798	$	(208,885	)	$	(6,812	)	$	88,933
Balance at September 30, 2021																			85,771		$	858		$	307,108	$	(242,350	)	$	(6,812	)	$	58,804

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Nine Months Ended						Three Months Ended
	April 2,			March 31,			October 1,			September 30,
	2022			2021			2022			2021
Cash flows from operating activities:
Net earnings/(loss)	$	(30,860	)	$	21,844
Net loss							$	(28,163	)	$	(14,603	)
Adjustments to reconcile net earnings/(loss) to net cash used in operating activities:
Depreciation and amortization		10,175			11,933			3,315			3,397
Loss on impairment and abandonment of assets		2,126			5,638
Loss on impairment of assets								—			2,089
Amortization of financing costs and interest expense		3,900			5,949			1,157			1,267
(Gain)/loss on disposal of assets		71			(1,403	)		(15	)		68
Gain on sale-leaseback		—			(49,639	)
Loss on extinguishment of debt								8,382			—
Gain on derivatives								(8,780	)		—
Share-based compensation		4,666			1,347			1,544			1,173
Rights Offering and Backstop Agreement		—			18,990
Gain on lease terminations		—			(93,281	)
Deferred income taxes		(118	)		—			—			(118	)
Construction allowances from landlords		472			401			245			426
Change in operating assets and liabilities:
Inventories		(31,575	)		(22,650	)		15,998			(29,092	)
Prepaid and other current assets		1,891			(2,952	)		(2,247	)		(2,002	)
Accounts payable		(2,689	)		(42,899	)		11,274			10,884
Accrued liabilities		(7,710	)		37,295			923			(4,448	)
Operating lease assets and liabilities		(5,421	)		(6,538	)		(5,873	)		(1,875	)
Other liabilities — non-current		(2,779	)		1,481			4,589			(382	)
Income taxes payable		265			—
Net cash used in operating activities		(57,586	)		(114,484	)
Net cash provided by/(used) in operating activities								2,349			(33,216	)
Cash flows from investing activities:
Capital expenditures		(5,164	)		(2,342	)		(1,315	)		(1,761	)
Proceeds from sale-leaseback		—			68,566
Proceeds from sale of assets		—			1,896
Net cash provided by/(used in) investing activities		(5,164	)		68,120
Net cash used in investing activities								(1,315	)		(1,761	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility		675,171			613,370			192,792			209,314
Repayments of borrowings under revolving credit facility		(633,094	)		(613,470	)		(218,628	)		(198,924	)
Proceeds from term loan		—			25,000
Proceeds from Rights Offering		—			40,000
Issuance of convertible debt								35,000			—
Payment of FILO A and B facilities								(7,500	)		—
Proceeds from FILO B facility								5,000			—
Proceeds from exercise of employee stock options		459			12			—			467
Tax payments related to vested stock awards		(63	)		—			(35	)		(12	)
Payments on finance leases		(121	)		(167	)		—			(36	)
Payment of financing fees		—			(3,174	)		(8,567	)		—
Net cash provided by financing activities		42,352			61,571
Net increase/(decrease) in cash, cash equivalents and restricted cash		(20,398	)		15,207
Net cash provided by/(used in) financing activities								(1,938	)		10,809
Net decrease in cash, cash equivalents and restricted cash								(904	)		(24,168	)
Cash, cash equivalents and restricted cash, beginning of period		28,855			46,676			7,816			28,855
Cash, cash equivalents and restricted cash, end of period	$	8,457		$	61,883		$	6,912		$	4,687
Supplemental cash flow information:
Interest paid							$	1,726		$	1,307
Income taxes paid (refunded)								42			(53	)
Non-cash financing and investing activities:
Conversion of debt to 90,000,000 shares of common stock								13,500			—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

The terms “Tuesday Morning,” the “Company,” “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries. Other than as disclosed in this document, please refer to our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021~~July 2, 2022 for our critical accounting policies.

1. ~~Nature of Operations and Significant Accounting Policies~~

NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The condensed consolidated financial statements herein include the accounts of Tuesday Morning Corporation and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the ~~condensed~~ consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. We do not present a ~~condensed~~ consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods.

Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended ~~June 30, 2021.~~July 2, 2022. The ~~condensed~~ consolidated balance sheet at ~~June 30, 2021~~July 2, 2022 has been derived from the audited consolidated financial statements at that date. The preparation of the ~~condensed~~ consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.

~~On February 23, 2022, the board of directors of the~~The Company ~~approved~~is in a ~~change in the~~ fiscal year end ~~from a calendar year ending on June 30 to a~~with 52-53 week year ending on the Saturday closest to June ~~30, effective beginning with fiscal year 2022.~~30. In a 52 week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. ~~The Company made the fiscal year change on a prospective basis and will not adjust operating results for prior periods.~~

~~We operate our business as a single operating segment.~~

(A) Cash and Cash Equivalents—Cash and cash equivalents include credit card receivables and all highly liquid instruments with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. At ~~April~~October 1, 2022 and July 2, 2022, ~~and June 30, 2021,~~ credit card receivables from third party consumer credit card providers were $~~6.8~~5.6 million and $~~3.2~~6.3 million, respectively. Such receivables generally are collected within one week of the balance sheet date.

(B) Restricted Cash—~~Restricted~~There was no restricted cash as of October 1, 2022.

(C) Fair Value Measurements—The Company applies the provisions of ASC Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

•

Level 1 inputs to the valuation methodology are quoted, unadjusted prices for identical assets or liabilities in active markets.

•

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, as well as other than quoted prices for identical assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

Liquidity

The Company has evaluated its going concern disclosure requirements as of October 1, 2022, under ASC-205 “Going Concern”. The Company determined that as of July 2, 2022, there was substantial doubt about the Company’s ability to remain a going concern. However, the Company concluded that as a result of the funds generated from the Private Placement (as defined in Note 3 below), and the funds expected to be generated from operating activities in fiscal 2023, available cash and cash equivalents and borrowings under the New ABL Facility will be sufficient to fund its planned operations and capital expenditure requirements for at least twelve months, and comply with its debt covenant of maintaining $~~22.3~~7.5 million in availability under its New ABL Facility. The financial statements have been prepared on a going concern basis.

Management's expected plans to generate adequate funds from operating activities, include cost management of payroll, reductions in year over year distribution costs, the sale of new product categories, and better alignment of merchandise purchases and receipts with sales demand, among others. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable, as of ~~June 30, 2021, which was held in the Unsecured Creditor Claims Fund (defined below in Note 2).~~November 22, 2022.

Emergence from Chapter 11 Bankruptcy Proceedings

In response to the impacts of the COVID-19 pandemic, on May 27, 2020 (the “Petition Date”), we filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the “Bankruptcy Court”). On December 31, 2020, we legally emerged from bankruptcy following Bankruptcy Court approval and resolution of all material conditions precedent listed in our Plan of Reorganization (as defined below). However, the closing of an equity financing transaction was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of Accounting Standards Codification ("ASC') 852 – Reorganizations until that transaction closed on February 9, 2021. In connection with our legal emergence from bankruptcy on December 31, 2020, the Company completed certain debt financings (including an asset-based revolving credit facility and a term loan) and sale-leaseback transactions of our corporate office and Dallas distribution center properties contemplated by the Plan of Reorganization. The Chapter 11 Cases were jointly administered for procedural purposes. During the pendency of the Chapter 11 Cases, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In accordance with orders of the Bankruptcy Court, we entered into certain debtor-in-possession financing arrangements to provide financing during the pendency of the Chapter 11 Cases. See "Debtor-In-Possession Financing Arrangements" in Note 3 ~~“Debt” below~~to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022 for additional information regarding these debtor-in-possession financing arrangements.

In early June 2020, in accordance with orders of the Bankruptcy Court, we commenced the process to close 132 store locations. By the end of July 2020, all of these stores were permanently closed. In mid-July 2020, we began the process to close an additional 65 stores following negotiations with our landlords, and those store closures were completed in August 2020. In total, we permanently closed 197 stores during the first quarter of fiscal 2021. In addition, we closed our Phoenix, Arizona distribution center (“Phoenix distribution center”) in the second quarter of fiscal 2021.

On November 16, 2020, the Company and its subsidiaries filed with the Bankruptcy Court a proposed Revised Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Amended Plan”) and a proposed Amended Disclosure Statement (the “Amended Disclosure Statement”) in support of the Amended Plan describing the Amended Plan and the solicitation of votes to approve the same from certain of the Debtors’ creditors with respect to the Chapter 11 Cases. The Amended Plan and the Amended

Disclosure Statement contemplated the debt financing transactions described in Note 3 below under the caption ~~“Post-Emergence Debt Financing Arrangements,~~“ABL Credit Agreements,” the exchange and Rights Offering (defined in Note 612 below) and the sale-leaseback transactions described in Note 8 below.

On December 23, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Amended Plan, with certain modifications described in the Confirmation Order (as modified and confirmed, the “Plan of Reorganization”). On December 31, 2020, all of the conditions precedent to the Plan of Reorganization were satisfied and the Company completed the debt financing and sale-leaseback contemplated in the Plan of Reorganization. However, the closing of the Rights Offering was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of Accounting Standards Codification ("ASC") 852 – Reorganizations until that transaction closed on February 9, 2021.

In accordance with the Plan of Reorganization, effective December 31, 2020 (the “Effective Date”), the Company’s board of directors was comprised of 9nine members, including 5five continuing directors of the Company, 3three new directors appointed by the Backstop Party (as defined in Note 612 below) and 1one director appointed by the equity committee in the Chapter 11 Cases.

Pursuant to the Plan of Reorganization, each outstanding share of the Company’s common stock as of the close of business on January 4, 2021 was exchanged for (1) 1one new share of the Company’s stock and (2) a share purchase right entitling the holder to purchase its pro rata portion of shares available to eligible holders in the Rights Offering described under the caption “Equity Financing under the Plan of Reorganization” in Note ~~6 below.~~7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022. On February 9, 2021, the Company completed the equity financing contemplated by the Plan of Reorganization.

On September 29, 2021, the U.S. Bankruptcy Court issued a final decree (the “Final Decree”) closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of the claims for approximately $14 million less than the amounts reserved and retained in the Unsecured Creditor Claim Fund. Upon entry of the Final Decree, the approximately $14 million remaining in the escrow account was returned to the Company to make a repayment on its ABL credit facility and the Chapter 11 Cases are now final.

See Note 2 regarding Bankruptcy Accounting for further discussion.

~~Listing~~

Listing

During the pendency of our bankruptcy proceedings, the Company’s common stock was delisted by the Nasdaq Stock Market, LLC (“Nasdaq”) and began trading on the OTC Pink marketplace under the symbol “TUESQ”. In January 2021, following our emergence from bankruptcy, the Company’s common stock began trading on the OTCQX market under the ticker symbol “TUEM.”

On May 24, 2021, Nasdaq approved our application for the relisting of the Company's common stock on the Nasdaq Capital Market. The Company's common stock was relisted and commenced trading on the Nasdaq Capital Market at the opening of the market on May 25, 2021, under the ticker symbol "TUEM."

On June 6, 2022, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company was not in compliance with the Nasdaq’s Listing Rule 5550(a)(2), as the closing bid price of the Company’s common stock had been below $1.00 per share for 30 consecutive business days (the “Minimum Bid Price Requirement”).

9
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 10 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.”

In the event the Company does not regain compliance with the Minimum Bid Price Requirement within the 180-calendar day compliance period, the Company may be eligible for additional time. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and will need to provide written notice of its intention to cure the deficiency during an additional 180-calendar day compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days. However, if it appears to the staff of Nasdaq that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.

The Company committed to Nasdaq to implement a reverse stock split promptly following such stockholder approval in order to regain compliance with the Minimum Bid Price Requirement. On September 28, 2022, the majority stockholder of the Company approved an amendment to the Company’s certificate of incorporation for a reverse stock split at a ratio within the range of 1 share for 20 shares to 1 share for 100 shares, subject to approval of the Board of Directors of the final ratio and timing of the reverse stock split. Pursuant to SEC Rule 14c-2, the approval of the majority stockholder could not become effective until November 14, 2022 (the 20th calendar day following mailing of an information statement to the Company’s stockholders). The reverse stock split remains subject to final board approval and the filing of the certificate of amendment with the Delaware Secretary of State. While the Company expects the reverse stock split to become effective in November, 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.

On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer. Mr. Berger previously served as a member of the Audit Committee of the Board of Directors. In connection with his appointment as Chief Executive Officer, Mr. Berger resigned from his position on the Audit Committee. As a result, the Audit Committee has been reduced to two members, each of whom is an independent director pursuant to the Nasdaq Listing Rules. Accordingly, the Company currently is not compliant with Nasdaq Listing Rule 5605(c)(2), which requires that the audit committee of a Nasdaq listed company consist of at least three members, each of whom is an independent director pursuant to the Nasdaq Listing Rules. In accordance with the Nasdaq Listing Rules, on November 7, 2022, the Company notified Nasdaq of Mr. Berger’s appointment as Chief Executive Officer and resignation from the Audit Committee and the resulting non-compliance with Nasdaq Listing Rule 5605(c)(2). The Company also received a letter from Nasdaq indicating the Company was not in compliance with Nasdaq Listing Rule 5605 and noting that the Company would, in accordance with Nasdaq Listing Rule 5605(c)(4)(B), have a cure period until the earlier of its next annual meeting of stockholders or May 3, 2023 to regain compliance.

The Company intends to appoint an additional independent director to the Board of Directors and the Audit Committee as soon as practicable and prior to the expiration of the cure period under Nasdaq Listing Rule 5605(c)(4)(B).

~~Impact of~~Updates on the COVID-19 Pandemic

~~Future~~The extent to which the COVID-19 pandemic impacts our business, results of operations, cash flows and financial condition will depend on future developments, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that impacts of the COVID-19 pandemic continue, how fast economies will fully recover from the COVID-19 ~~pandemic will depend on the potential further geographic spread and duration of the ongoing~~ pandemic, the timing and extent of ~~recovery in~~further impacts on traffic and consumer spending in our stores, the extent and duration of ongoing impacts to domestic and international supply chains and the related impacts on the flow, and availability and cost of products, the production and administration of effective medical treatments and vaccines, and the actions that may be taken by various governmental authorities and other third parties in response to the pandemic.

products.

Accounting ~~Pronouncement~~Pronouncements Recently Adopted

In ~~March 2021,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") ~~No. 2021-04,~~ Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This update is intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange and is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.~~Early adoption is permitted for all entities, including adoption in an interim period. We~~ ~~adopted~~ ~~this standard in the first quarter of fiscal 2022 and it did~~ ~~not~~ ~~result in a material impact to the Company’s condensed consolidated financial statements.~~

~~In December 2019, the FASB issued ASU~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We adopted this standard in the first quarter of fiscal 2022 and it did not result in a material impact to the Company’s ~~condensed~~ consolidated financial statements.

In ~~March~~August 2020, the FASB issued ASU ~~2020-04,~~ 2020-06~~Reference Rate Reform (Topic 848): Facilitation~~,Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, which includes the Company, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the ~~Effects~~beginning of ~~Reference Rate Reform~~its annual fiscal year. The Company is currently evaluating the impact this ASU will have on ~~Financial Reporting~~its consolidated financial statements.

In March 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), ~~which provides optional expedients~~Compensation—Stock Compensation (Topic 718), and ~~exceptions~~Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815w-40): Issuer’s Accounting for ~~applying U.S. GAAP~~Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This update is intended to ~~contract~~clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange and ~~hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance was~~is effective ~~upon issuance and may be applied prospectively to contract modifications made, hedging relationships entered into, and other transactions affected by reference rate reform, evaluated on or before~~for all entities for fiscal years beginning after December ~~31, 2022, beginning during the reporting period~~15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in ~~which the guidance has been elected. We do not have any receivables, hedging relationships, or lease agreements that reference LIBOR or another reference rate expected to be discontinued.~~an interim period. We are currently evaluating the impact of the new guidance on ~~our condensed~~the Company's consolidated financial ~~statements; however,~~statements.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we ~~have determined~~will adopt those that ~~of our current debt commitments as outlined in detail in Note 3, only the obligations~~are applicable under the Post-Emergence ABL Facility may be impacted by ASU 2020-04. Our Term Loan described in Note 3 has fixed interest rate and our New ABL Credit Agreement bears interest at a variable rate based on adjusted term Secured Overnight Financing Rate ("SOFR").circumstances.

Reorganizations require that the condensed consolidated financial statements, for periods subsequent to the filing of the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. During the pendency of the Chapter 11 Cases until we qualified for emergence under ASC 852, the condensed consolidated financial statements were prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business and reflect the application of ASC 852. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings were recorded in Reorganization items, net in our condensed consolidated statements of operations.

Pursuant to the Plan of Reorganization, an escrow account (the “Unsecured Creditor Claim Fund”) was established for the benefit of holders of allowed general unsecured claims. Upon the closing of the sale and leaseback of the Corporate Office and the Dallas Distribution Center properties and the issuance of the Term Loan (as defined in Note 3 below), net proceeds of $67.5 million, after payment of property taxes, and $18.8 million, respectively, were deposited directly into the Unsecured Creditor Claim Fund that was administered by an independent unsecured claims disbursing agent. The remaining proceeds from the Term Loan that were not deposited into the Unsecured Creditor Claim Fund were deposited into our operating account. In addition, $14.2 million of additional cash was deposited into a segregated bank account at Wells Fargo Bank and was restricted for use in paying compensation for services rendered by professionals on or after the Petition date and prior to the approval of the Effective Date. The closing of the Rights Offering described in Note 612 below provided approximately $40.0 million of cash that was deposited to the Unsecured Creditor Claim Fund and recorded as restricted cash. During the fiscal 2021, all services rendered by professionals were paid and the Wells Fargo Restricted Fund account was closed with all of the applicable funds disbursed. Net cash remaining of $1.9 million was deposited directly into our unrestricted cash account during the fourth quarter of fiscal 2021.

Our Plan of Reorganization was confirmed on December 23, 2020, and all listed material conditions precedent were resolved by the December 31, 2020 legal effective date of emergence as governed by the Bankruptcy Court. However, the closing of our Rights Offering was considered a critical component to the execution of our confirmed Plan of Reorganization, therefore, we continued to apply the requirements of ASC 852 until that transaction closed on February 9, 2021.

On September 29, 2021, the U.S. Bankruptcy Court issued a Final Decree closing the Chapter 11 Cases of the Company and its subsidiaries. While the Company emerged from bankruptcy proceedings on December 31, 2020, the Chapter 11 Cases remained opened pending final resolution of all claims of general unsecured creditors. The Company was able to resolve all of these claims for approximately $14 million less than the amounts reserved and retained in the Unsecured Creditor Claim Fund. Upon entry of the Final Decree, the approximately $14 million remaining in the Unsecured Creditor Claim Fund was returned to the Company to make a repayment on its ABL credit facility and the Chapter 11 Cases are ~~now~~ final.

As of October 1, 2022, we had zero cash held in the Unsecured Creditor Claim Fund held on the balance sheet for the payment of claims.

We were not required to apply fresh start accounting based on the provisions of ASC 852 as there was no change in control and the entity’s reorganization value immediately before the date of confirmation was more than the total of all its post-petition liabilities and allowed claims.

Restructuring and Impairment ~~and Abandonment~~ Charges

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

Three Months Ended

Nine Months Ended

April 2,

March 31,

April 2,

March 31,

2022

2021

2022

2021

Restructuring costs:

Severance and compensation related costs (adjustments)

$
(278
)

$
1,047

$
499

$
1,916

Total restructuring costs

$
(278
)

$
1,047

$
499

$
1,916

Impairment costs:

Corporate long-lived assets

$
—

$
—

$
2,089

$
—

Total impairment costs

$
—

$
—

$
2,089

$
—

Abandonment costs:

Accelerated recognition of operating right-of-use assets

$
—

$
—

$
—

$
5,638

Total abandonment costs

$
—

$
—

$
—

$
5,638

Total restructuring, impairment and abandonment costs

$
(278
)

$
1,047

$
2,588

$
7,554


	Three Months Ended
	October 1,		September 30,
	2022		2021
Restructuring costs:
Severance and compensation related costs (adjustments)	$	—	$	341
Total restructuring costs	$	—	$	341

Impairment costs:
Corporate long-lived assets	$	—	$	2,089
Total impairment costs	$	—	$	2,089

Total restructuring and impairment costs	$	—	$	2,430

~~For the three months ended April 2, 2022, a net benefit of $0.3~~ million of restructuring, impairment and abandonment costs is related to compensation adjustments for employee retention. During the nine months ended April 2, 2022, restructuring, impairment and abandonment charges of $~~2.1~~ ~~million primarily relate to software abandonment charges and $0.5~~ ~~million in employee retention cost.~~

~~During the three months ended March 31, 2021, the restructuring, impairment and abandonment charges are primarily related to employee retention costs of $0.3~~ ~~million and severance cost of $0.7~~ ~~million. During the nine months ended March 31, 2021, the restructuring, impairment and abandonment charges of $7.6~~ ~~million are primarily related to abandonment costs of $5.6~~ ~~million due to the permanent closure of our stores and Phoenix, Arizona distribution center and $1.9~~ million in severance and employee retention costs. Decisions regarding store closures and the Phoenix distribution center were made in the fourth quarter of fiscal 2020, prior to filing the Chapter 11 Cases; however, the closure of the Phoenix distribution center was not completed until the second quarter of fiscal 2021.

Reorganization Items

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

Three Months Ended

Nine Months Ended

April 2,

March 31,

April 2,

March 31,

2022

2021

2022

2021

Reorganization items, net:

Professional and legal fees

$
43

$
3,733

$
329

$
33,853

Claims related costs

(171
)

874

594

874

Gain on lease terminations, net of estimated claims

—

—

—

(66,247
)
Gain on sale-leaseback

—

—

—

(49,639
)
Rights Offering and Backstop Agreement

—

18,990

—

18,990

Total reorganization items, net

$
(128
)

$
23,597

$
923

$
(62,169
)

~~For the three months ended April 2, 2022, reorganization items, net benefit related to $0.2~~ ~~million in claims related cost, offset by about $~~43 ~~thousand in professional and legal fees. For the nine months ended April 2, 2022, reorganization items, net charges related to $0.6~~ ~~million in net claims related costs and $0.3~~ ~~million in professional and legal fees.~~

~~During the three months ended March 31, 2021, reorganization items, net primarily related to the execution of our Rights Offering (defined in Note 6) of $19.0~~ ~~million, related professional fees of $3.7~~ ~~million and $0.9~~ million in claims related costs. For the nine months ended March 31, 2021, reorganization items, net benefit were primarily related to the leases for store locations related to our permanent closure plan, as well as the lease for our Phoenix distribution center, which were rejected and the related lease liabilities were reduced to the amount of estimated claims allowable by the Bankruptcy Court, resulting in the $~~66.2~~ million gain for the nine months ended March 31, 2021. In the second quarter of fiscal 2021, we also executed a sale-leaseback agreement on our owned real estate as part of our Plan of Reorganization, recognizing a gain of $~~49.6~~ million (see Note 1 and Note 8), the proceeds of which, along with other sources of financing, were utilized to satisfy allowed claims and are thus categorized as a reorganization item. These gains partially offset the costs of Rights Offering of $~~19.0~~ ~~million, professional fees of $34.0~~ ~~million and claims related cost of $0.9~~ ~~million for the nine months ended March 31, 2021.~~

~~On May 29, 2020, we entered into a Senior Secured Super Priority Debtor-in-Possession Credit Agreement (the “DIP~~ 3. DEBT

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

~~Post-Emergence Financing Arrangements~~

Agreements

On December 31, 2020, the Company and its subsidiaries entered into a Credit Agreement (the “Post-Emergence ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. ~~(collectively, the “Lenders”)~~ that provided for a revolving credit facility in an aggregate amount of $110.0 million (the “Post-Emergence ABL Facility”). The Post-Emergence ABL Credit Agreement included conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. The Post-Emergence ABL Credit Agreement required the Company to maintain a minimum fixed charge coverage ratio if borrowing availability fell below certain minimum levels, after the first anniversary of the agreement. ~~We were not required to be compliant per the lender agreement until after the first anniversary of the agreement.~~

Under the terms of the Post-Emergence ABL Credit Agreement, amounts available for advances would be subject to a borrowing base as described in the Post-Emergence ABL Credit Agreement. Under the Post-Emergence ABL Credit Agreement, borrowings initially bore interest at a rate equal to the adjusted LIBOR rate plus a spread of 2.75% or the Commercial Bank Floating Bank rate plus a spread of 1.75%.

The Post-Emergence ABL Facility was secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). The commitments of the ~~Lenders~~lenders under the Post-Emergence ABL Facility were due to terminate and outstanding borrowings under the Post-Emergence ABL Facility was due to mature on December 31, 2023.

On May 9, 2022, the Company, Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of the Company (together with the Company and the Borrower, the "Company Credit Parties") entered into a Credit Agreement (the “New ABL Credit Agreement”) with the lenders named therein (the “ABL Lenders”), Wells Fargo Bank, National Association, as administrative agent (the “ABL Administrative Agent”), and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement replaced the Post-Emergence ABL Credit Agreement. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $110.0 million (the “New ABL Facility”), which includes a $10.0 million sublimit for swingline loans and a $25.0 million sublimit for letters of credit, (ii) a first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO A Facility”) and (iii) an additional first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO B Facility” and, collectively with the New ABL Facility and the FILO A Facility, the “New Facilities”). In addition, under the original terms of the New ABL Credit Agreement, the Borrower had the right, on and following November 9, 2022 (the “FILO B Delayed Incremental Loan”), to request (x) an additional incremental loan under the FILO B Facility in an aggregate amount not to exceed $5.0 million, and (y) additional incremental commitments from the FILO B lenders to make additional loans in an aggregate amount not to exceed $5.0 million, subject to the satisfaction of certain conditions.

AsOn May 9, 2022, the Borrower borrowed approximately $75.2 million under the New ABL Facility, $5.0 million under the FILO A Facility and $5.0 million under the FILO B Facility (collectively, the “Closing Date Loans”). A portion of ~~April 2,~~the aggregate proceeds from the Closing Date Loans was used to (i) repay all outstanding indebtedness (the “Existing ABL Loans”) under the Post-Emergence ABL Facility, along with accrued interest, expenses and fees, (ii) purchase of a portion of the Term Loan for the aggregate purchase price of $5.0 million (the “Loan Repurchase”), and (iii) pay transaction costs related to the transactions described in the foregoing clauses (i) and (ii) and the execution and delivery of the New ABL Credit Agreement and related loan documents. The remainder of the proceeds from the Closing Date Loans, as well as the proceeds from future borrowings, will be used for working capital needs and other general corporate purposes.

Pursuant to an amendment to the New ABL Credit Agreement dated July 11, 2022, the lenders under the FILO B Facility (the "FILO B Lenders") agreed to make the FILO B Delayed Incremental Loan to the Borrower on July 11, 2022. The amendment also provides that, until certain minimum borrowing availability levels are satisfied as described in the amendment, the Borrower will be subject to additional reporting obligations, the Borrower will retain a third-party business consultant acceptable to the ABL Administrative Agent, and the ABL Administrative Agent may elect to apply amounts in controlled deposit accounts to the repayment of outstanding borrowings under the New ABL Facility. The July 11, 2022 amendments to the New ABL Agreement were accounted for as a debt modification. In addition, pursuant to the amendment, certain subsidiaries of the Borrower agreed to enter into and maintain a supply agreement with Gordon Brothers Retail Partners, LLC (the “Program Agent”), an affiliate of a FILO B Lender, pursuant to which the Program Agent supplies inventory to the Borrower and certain of its subsidiaries.

On September 20, 2022, the New ABL Credit Agreement was further amended in connection with the Private Placement (defined below). The amendment restricts certain actions by the Company for the next two years, including making certain acquisitions and debt prepayments. The amendment requires that the Company engage and retain (at the Company’s expense) Gordon Brothers Retail Partners for a certain period of time for the purpose of performing appraisal validations, monitoring and evaluating the Company’s inventory mix and other services. The amendment also permitted the change in control caused by the issuance of shares to the SPV (as defined below) upon exchange of the Convertible Debt (as defined below) for shares. On September 20, 2022, $7.5 million of the borrowings under the FILO A Facility and FILO B Facility were repaid. See “September 2020 Private Placement” below for additional information.

The New ABL Credit Agreement includes conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. Pursuant to the New ABL Credit Agreement, the Borrower and its subsidiaries must maintain borrowing availability under the New ABL Facility at least equal to the greater of (i) $7.5 million and (ii) 7.5% of the Modified Revolving Loan Cap, as defined in the New ABL Credit Agreement.

Amounts available for advances under the New Facilities are subject to borrowing bases as described in the New ABL Credit Agreement. Borrowings under the New ABL Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR (as defined below) plus a margin ranging from 1.75% to 2.25%, or (ii) the Base Rate (as defined below) plus a margin ranging from 0.75% to 1.25%, in each case with such margins depending on the Borrower’s average quarterly borrowing availability under the New ABL Facility. Borrowings under the FILO A Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus 3.00%, or (ii) the Base Rate plus 2.00%. Borrowings under the FILO B Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus a margin of 9.00%, or (ii) the Base Rate plus a margin of 8.00%, in each case with such margins depending on seasonal periods. The “Adjusted Term SOFR” is the term SOFR plus a term SOFR adjustment of 0.10% for loans under the New ABL Facility or a term SOFR adjustment of 0.00% for loans under the FILO A Facility and the FILO B Facility. The “Base Rate” is the greatest of (i) the federal funds effective rate plus 0.50%, (ii) the term SOFR plus 1.00%, and (iii) the prime rate of Wells Fargo Bank, National Association. Each of the Adjusted Term SOFR and the Base Rate is subject to a 0.00% floor with respect to the New ABL Facility and a 1.00% floor for each of the FILO A Facility and the FILO B Facility.

During the three months ended October 1, 2022, we had $~~54.1~~2.0 million additional deferred financing costs for the FILO B, classified as long term debt in the condensed consolidated balance sheet.

The New Facilities are secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 10, 2027, and (ii) the date that is 91 days prior to maturity of the Term Loan.

As of October 1, 2022, we had $31.4 million of borrowings outstanding under the ~~Post-Emergence~~New ABL Facility and, $14.6 million of letters of credit outstanding. We had borrowing availability of $~~26.6~~25.3 million under the ~~Post-Emergence~~New ABL Facility as of ~~April 2,~~October 1, 2022.

As ~~further described in Note 13 below, on May 9,~~of October 1, 2022, we ~~entered into~~had $6.7 million in deferred financing costs net of amortization for the New ABL ~~Credit Agreement (as defined in Note 13) and used a portion~~Facility, of which $4.1 million was incurred this quarter for the amendment to the New ABL. Of this amount, $3.7 million was paid from the proceeds of the ~~proceeds from borrowings under the New Facilities (as defined in Note 13) to repay all outstanding indebtedness under the Post-Emergence ABL Facility, along with~~private placement and $0.4 million was accrued ~~interest, expenses and fees. See Note 13 below for additional information regarding the New ABL Credit Agreement.~~as of October 1, 2022.

Term Loan

On December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein (the "Term Loan Lenders"), including Tensile Capital Partners Master Fund LP ("Tensile") and affiliates of Osmium Partners, LLC, ("Osmium"), entered into a Credit Agreement (as amended from time to time, the “Term Loan Credit Agreement”) to provide a term loan of $25.0 million to the Company (the “Term Loan”).

In accordance with the Plan of Reorganization, on December 31, 2020, 3three new directors were selected for membership on the Board of Directors by Osmium Partners (Larkspur SPV), LP, ("~~Larkspur SPV"~~Larkspur") an affiliate of Tensile and Osmium. Pursuant to the Term Loan Credit Agreement, Tensile and affiliates of Osmium held $19.0 million and $1.0 million, respectively, of the $25.0 million outstanding Term Loan. Representatives of Osmium and Tensile both ~~hold~~held seats on the board from December 31, 2020 to September 20, 2022 and therefore Osmium and Tensile ~~are~~were related parties to the ~~Company.~~Company (see Note 12).

~~Pursuant~~On May 9, 2022, the Company, the Borrower, certain subsidiaries of the Company, certain of the Term Loan Lenders (the “Consenting Lenders”), and Alter Domus (US) LLC, as administrative agent, entered into an amendment to ~~the terms of~~ the Term Loan Credit Agreement (the “Term Loan Credit Agreement Amendment”), pursuant to which, among other things, (i) each Consenting Lender agreed to the Loan Repurchase, (ii) concurrently with the consummation of the Loan Repurchase, each Consenting Lender agreed to waive and forgive an amount of the accrued and unpaid interest owed to such Consenting Lender , (iii) it was agreed that immediately, automatically and permanently upon the consummation of the Loan Repurchase, the Term Loans assigned pursuant to the Loan ~~has a maturity date~~Repurchase would be deemed cancelled and of ~~December 31, 2024~~no further force and ~~bears interest at a rate of~~ 14~~% per annum, with interest payable in-kind (“PIK”). Under the terms of~~effect and (iv) the Term Loan Credit Agreement was amended to, among other things, (x) provide that the ~~Term~~Borrower and its subsidiaries shall not permit the borrowing availability under the New ABL Facility to be less than the greater of (A) $7.5 million and (B) 7.5% of the Modified Revolving Loan ~~is secured by a second lien~~Cap, (y) permit the Borrower to borrow on the ~~collateral securing~~$5.0 million committed FILO B accordion, subject to certain conditions, on and following November 9, 2022, and (z) provide that, commencing with the ~~New Facilities (as defined in Note 13) and a first lien on certain other assets of~~12-month period ending September 30, 2023, the Company ~~as described in~~would be subject to compliance with a total secured leverage ratio.

In July 2022, the Term Loan Credit ~~Agreement.~~Agreement was further amended to permit the early borrowing of the FILO B Delayed Incremental Loan and to make other changes to conform to the New ABL Credit Agreement, accounted for as debt modification as there are no changes in the borrowing capacity. In addition, on September 20, 2022, the Term Loan Credit Agreement was further amended to permit the Private Placement to be completed and to make certain other amendments, including removal of the total secured net leverage ratio covenant from the Term Loan Credit Agreement and permitting the change in control caused by the issuance of shares to the SPV upon conversion of the Convertible Debt for shares.

The amendments to the Term Loan agreement in September 2022 were accounted for as a debt modification. The Term Loan will be carried net of the associated debt issuance costs which will be amortized and recorded as interest expense using the effective interest rate based on the amendments. The third party issuance costs of $0.7 million incurred from the refinancing of the term loan was expensed for the period ended October 1, 2022.

As of October 1, 2022, we have $25.3 million of borrowings outstanding under the Term Loan Credit Agreement, including PIK interest of $0.9 million.

September 2022 Private Placement

On September 20, 2022, the Company, the Borrower, certain members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV”), a special purpose entity formed by Retail Ecommerce Ventures LLC (“REV”) and Ayon Capital L.L.C., and TASCR Ventures CA, LLC, as collateral agent, entered into an Amended and Restated Note Purchase Agreement dated as of September 20, 2022 (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, on September 20, 2022, the SPV purchased: (i) $7.5 million in aggregate principal amount of a junior secured convertible notes issued by the Company (the “FILO C Convertible Notes”), and (ii) $24.5 million in aggregate principal amount of junior secured convertible notes (the “SPV Convertible Notes”). In addition, the Management Purchasers purchased $3.0 million in aggregate principal amount of junior secured convertible notes issued by the Company (the “Management Convertible Notes” and, together with the SPV Convertible Notes, the “Junior Convertible Notes”). The FILO C Convertible Notes and the Junior Convertible Notes are referred to herein as the “Convertible Debt” and the issuance of the Convertible Debt is referred to herein as the “Private Placement.”

The Convertible Debt was issued by the Company and guaranteed by the Company's subsidiaries.

The Convertible Debt is convertible into shares of the Company’s common stock at a conversion price of $0.077 per share. Accordingly, 415,584,415 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt purchased by the SPV. In addition, 38,961,039 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt to be purchased by the Management Purchasers. Because the Company does not currently have a sufficient number of authorized and unreserved shares of common stock to issue upon conversion of all of the Convertible Debt, as described below, only a portion of the Convertible Debt was immediately convertible into common stock. The remaining portion of the Convertible Debt cannot be converted into common stock unless and until the Company’s certificate of incorporation is amended to increase the number of authorized shares of common stock to permit such conversion and/or provide for a reverse stock split of the common stock. The conversion feature within the Convertible Debt represents an embedded derivative. See "Derivative Liabilities" below for additional information.

The Convertible Debt is subject to ~~optional prepayment after~~customary anti-dilution adjustments for structural events, such as splits, distributions, dividends or combinations, and customary anti-dilution protections with respect to issuances of equity securities at a price below the ~~first anniversary~~applicable conversion price of the ~~date~~Convertible Debt. A portion of ~~issuance at~~the Convertible Debt issued to the SPV was immediately convertible for up to 90,000,000 shares of the Company's common stock. On September 21, 2022, the SPV elected to immediately convert a ~~prepayment price equal~~portion of the Convertible Debt into 90,000,000 shares of the Company's common stock, and through such conversion, acquired ownership of a majority of the Company's outstanding common stock. On September 28, 2022, the SPV approved an amendment to ~~(1)~~ the Company's certificate of incorporation to (i) increase the number of authorized shares to allow for conversion in full of the remaining Convertible Debt, and provide such additional authorized shares as deemed appropriate by the Company's board of directors and/or (ii) provide for a reverse stock split of the common stock (the "Certificate of Incorporation Amendment"). See “Listing” under Note 1 above for additional information. Upon conversion in full of the Convertible Debt and based on the Company's outstanding shares on a fully diluted basis as of September 28, 2022, the SPV would hold approximately 75% and the SPV and the Management Purchasers collectively would hold 81% of the total diluted voting power of the Company's common stock (not including any additional Convertible Debt that may be issued as a result of the Company being required or electing to make in-kind payments of interest as described further below). In connection with the conversion of the portion of the Convertible Debt that was immediately convertible, approximately $6.9 million in principal amount of the ~~Term Loan, plus (2) accrued~~SPV Convertible Notes were retired. In connection therewith, we recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and ~~unpaid interest~~loss on extinguishment of $7.7 million, and a resulting impact of $13.5 million from stockholders' equity to reflect the ~~date~~conversion from debt to common stock and amortization of ~~prepayment, plus (3) the prepayment premium, if any.~~ debt issuance cost of $0.6 million.

The ~~prepayment premium (which may not be less than zero) is equal to (1) 125%~~conversion of the ~~original principal amount of the Term Loan, minus (2) the aggregate principal amount of the loans advanced as of the prepayment date, plus all accrued interest thereon accrued as of such date~~. ~~The Term Loan is subject~~Convertible Notes to

~~mandatory prepayment~~ common stock on September 22, 2022, resulted in ~~connection with~~ a change of control of the Company given the SPV held greater than 50% of the outstanding voting common stock and control of the Company’s Board as ~~described~~discussed below.

In connection with the Private Placement, the Company entered into a registration rights agreement with the purchasers of the Convertible Debt, pursuant to which the purchasers received customary shelf registration, piggyback and demand registration rights with respect to the resale of shares of the Company’s common stock acquired upon conversion or exchange of the Convertible Debt.

In accordance with the terms of the Note Purchase Agreement, the SPV designated each of Tai Lopez, Alexander Mehr, Maya Burkenroad, Sandip Patel and James Harris (collectively, the “SPV Designees”) to serve as directors of the Company effective upon the closing of the Private Placement on September 20, 2022. In connection with the election the SPV Designees to the Company’s board of directors, each of Douglas J. Dossey, Frank M. Hamlin, W. Paul Jones, John Hartnett Lewis and Sherry M. Smith resigned from the Company’s board of directors. Each of the remaining incumbent directors Fred Hand, Anthony F. Crudele, Marcelo Podesta and Reuben E. Slone continued to serve on the board following the closing of the Private Placement. Each of Messrs. Crudele, Podesta and Slone resigned from the board of directors on September 28, 2022 and in connection therewith each of Andrew T. Berger, Michael Onghai and Z. John Zhang were elected as directors. See Note 14 – Subsequent Events below for additional information.

The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and has received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company.

As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions.

The proceeds of the Private Placement were used to (i) repay $7.5 million of the FILO A term loans and FILO B term loans under the New ABL Credit Agreement; (ii) repay of a portion of the Borrower’s revolving loans under the New ABL Credit Agreement; and (iii) payment of transaction costs. In addition, the remaining proceeds will be used for working capital and other general corporate purposes of the Company and its subsidiaries.

In connection with its approval of the Private Placement, the board of directors approved a waiver of the ownership restrictions in Article 11 of the Company’s certificate of incorporation with respect to the securities issuable in the Private Placement. Article 11 generally prohibits any person or group from acquiring more than 4.5% of the Company’s outstanding common stock and restricts transfers in securities owned by holders of 4.5% or more of the Company’s outstanding common stock.

FILO C Convertible Notes. In connection with the Private Placement, pursuant to the Note Purchase Agreement, the SPV purchased the FILO C Convertible Notes. The FILO C Convertible Notes will mature upon the earlier of (i) December 31, 2027, or (ii) the maturity of the FILO B term loan under the ABL Credit Agreement. Interest will accrue on the FILO C Convertible Notes at a rate equal to the secured overnight financing rate (“SOFR”) plus 6.50% and will be payable semiannually. Under the terms of the FILO C Convertible Notes, during the two-year period following the closing of the Private Placement, the Company may elect to pay interest on the FILO C Convertible Notes “in kind” by increasing the principal of the FILO C Convertible Notes by the amount of any such interest payable. The provisions of the intercreditor agreements relating to the FILO C Convertible Notes and other outstanding indebtedness of the Company require such payments to be made “in-kind" subject to certain limited exceptions applicable after the second anniversary of the Private Placement.

The FILO C Convertible Note is secured by the same collateral that secures (i) the revolving loans and FILO A and FILO B term loans under the ABL Credit Agreement (collectively, the "ABL Obligations"), (ii) the term loan issued under the Term Loan Credit ~~Agreement. The~~Agreement, and (iii) the Junior Convertible Notes. With respect to the collateral as to which borrowings under the New ABL Credit Agreement have a first priority lien, the ABL Obligations have a first priority lien, the lien on such collateral securing the FILO C Convertible Note ranks junior to the lien securing the ABL Obligations and senior to the Term Loan ~~Credit Agreement also includes customary~~and the Junior Convertible Notes. With respect to the collateral as to which Term Loan has a first priority lien, the lien on such collateral securing the FILO C Note ranks junior to the liens securing the ABL Obligations and the Term Loan and senior to the lien securing the Junior Convertible Notes. With respect to payment priority, the FILO C Convertible Note is subordinate to the ABL Obligations, pari passu with the Term Loan, and senior to the Junior Convertible Notes.

For the three months ended October 1, 2022, we had $0.7 million in deferred financing costsnet of amortization for the FILO C Convertible Notes.

The FILO C Convertible Notes contain covenants and events of ~~default.~~default that are customary for this type of financing.

Junior Convertible Notes. The Junior Convertible Notes will mature on December 31, 2027. Interest will accrue on the Junior Convertible Notes at a rate equal to SOFR plus 6.50% and will be payable semiannually. Under the terms of the Junior Convertible Notes, during the two-year period following the closing of the Private Placement, the Company may elect to pay interest on the Junior Convertible Notes “in kind.” The provisions of the intercreditor agreements relating to the Junior Convertible Notes and other outstanding indebtedness of the Company will require such payments to be made “in-kind” subject to certain limited exceptions applicable after the second anniversary of the Private Placement.

The Junior Convertible Notes are secured by the same collateral that secures the revolving loans and FILO B term loans under the ABL Credit Agreement, the Term Loan and the FILO C Convertible Notes (the “Other Secured Debt”). The liens securing the Junior Convertible Notes rank junior to the liens securing the Other Secured Debt. With respect to payment priority, the Junior Convertible Notes are subordinated to all of the Other Secured Debt.

For the three months ended October 1, 2022, we had $1.5 million in deferred financing costs for the SPV Junior Convertible Notes. This amount isnet of extinguishment of unamortized issuance cost of $0.6 million proportionate to the conversion of the SPV Convertible Notes to common stock on September 22, 2022.

For the three months ended October 1, 2022, we had $0.3 million in deferred financing costs of Management Convertible Notes.

The Junior Convertible Notes contain covenants and events of default that are customary for this type of financing.

The following table provides details on our ~~Term Loan~~Long term debt (in thousands):

Term Loan

April 2, 2022

June 30, 2021

Loan balance

$
25,000

$
25,000

Debt issuance costs

(269
)

(432
)
Accrued paid-in-kind interest

4,800

1,806

Loan balance, ending

$
29,531

$
26,374



	October 1, 2022			July 2, 2022
Principal Balances of long term debt
Term loan balance	$	24,400		$	24,400
FILO A		—			5,000
FILO B		7,500			—
FILO C, excluding embedded derivative		3,808			—
SPV Junior secured convertible notes, excluding embedded derivative		5,350			—
Management convertible notes, excluding embedded derivative		914			—
Principal Balances of long term debt		41,972			29,400
Deferred financing costs		(5,067	)		(420	)
Current portion of long term debt, FILO A		—			(250	)
Current portion of long term debt, FILO B		(313	)		—
Accrued Paid-in-kind interest (Term Loan)		851			—
Long term debt, ending	$	37,443		$	28,730

~~As further described in Note 13 below, the Term Loan Credit Agreement was amended on May 9, 2022 and $5.0~~ ~~million borrowed under the New Facilities was used to repurchase a portion of principal amount of the Term Loan for an aggregate purchase price of $5.0~~ ~~million.~~

As of ~~April 2,~~October 1, 2022, we are in compliance with covenants in the ~~Post-Emergence~~New ABL Facility, the Term Loan, and ~~Term Loan.~~

the Convertible Debt.

Interest Expense

Interest expense for the three months ended ~~April 2,~~October 1, 2022 was $2.0 million, and was comprised of $0.9 million in interest on the New ABL Facility and PIK interest on the Term Loan, the FILO C Convertible Notes, and the Junior Convertible Notes, $0.2 million amortization of financing fees, and $0.9 million commitment fees. Interest expense for the three months ended September 30, 2021 was $1.7 million and was comprised of $1.0 million in interest on the Post-Emergence ABL Facility and PIK interest on the Term Loan, and was comprised of $~~0.4~~0.3 million amortization of financing fees and $~~0.6~~ ~~million commitment fees. Interest expense for the three months ended March 31, 2021 was $1.4~~ ~~million from the DIP ABL Credit Agreement and the DIP Term Facility, and was comprised of $1.2~~ ~~million amortization of financing fees and $0.2~~0.4 million of commitment fees.

~~Interest expense for the nine months ended April 2, 2022 was $5.5~~ ~~million and was comprised of $3.0~~ ~~million in interest on the Post-Emergence ABL Facility and PIK interest on the Term Loan, $1.0~~ ~~million amortization of financing fees, and $1.5~~ ~~million commitment fees. Interest expense for the nine months ended March 31, 2021 was $6.7~~ ~~million from the Post-Emergence ABL Facility, DIP ABL Credit Agreement, and the Term loan, and was comprised of $5.2~~ ~~million amortization of financing fees, $0.6~~ ~~million of commitment fees, and accrued PIK interest on the Term Loan of $0.9~~ ~~million.~~

~~Fair Value Measurements~~

The fair value of our ~~Term Loan~~long term debt was determined based on observable market data provided by a third party for similar types of debt which are considered Level 2 inputs within the fair value hierarchy. The ~~carrying value of our Term Loan as of April 2, 2022 and June 30, 2021 was $29.5~~following ~~million and $26.4~~ ~~million, respectively. The~~table provides the fair ~~value of~~values on our ~~Term Loan as of April 2, 2022 and June 30, 2021 was $~~long-term debt (in thousands):~~30.0~~ ~~million and $29.6~~ ~~million, respectively.~~


	October 1, 2022		July 2, 2022
Term loan balance	$	24,808	$	25,476
FILO A		—		3,466
FILO B		6,675		—
FILO C, excluding embedded derivatives		3,808		—
SPV Junior secured convertible notes, excluding embedded derivatives		5,350		—
Management held convertible notes, excluding embedded derivatives		914		—
Fair value of long term debt	$	41,555	$	28,942

5. ~~Accrued Liabilities~~

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):


	April 2,		June 30,		October 1,		July 2,
	2022		2021		2022		2022
Sales and use tax	$	4,524	$	2,698	$	4,253	$	3,854
Self-insurance reserves		9,165		9,405		8,549		8,451
Wages, benefits and payroll taxes		7,142		9,639		6,684		5,892
Property taxes		879		1,510		2,067		1,476
Freight and distribution		10,190		8,658		6,407		6,484
Capital expenditures		308		348		31		122
Utilities		966		1,466		816		1,261
Gift card liability		1,080		1,045		1,072		1,095
Reorganization expenses		80		6,337		20		20
Other expenses		4,748		5,348		5,701		4,836
Total accrued liabilities	$	39,082	$	46,454	$	35,600	$	33,491

Self-insurance reserves were primarily comprised of our worker's compensation liability reserve, followed by our medical liability reserve and general liability reserve.

In order to continue to assist the Company in preserving certain tax attributes (the “Tax Benefits”), the Company’s Amended and Restated Certificate of incorporation imposes certain restrictions on the transferability and ownership of the Company’s capital stock

~~(the~~ (the “Ownership Restrictions”). Subject to certain exceptions, the Ownership Restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our Common Stock, (ii) any transfer that would result in an increase of the ownership percentage of any person already owning 4.5% or more of our Common Stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our Common Stock. Pursuant to the Company’s Amended and Restated Certificate of Incorporation, any transferee receiving shares of our Common Stock that would result in a violation of the Ownership Restrictions will not be recognized as a stockholder of the Company or entitled to any rights of stockholders. The Company’s Amended and Restated Certificate of Incorporation allows the Ownership Restrictions to be waived by the Company’s board of directors on a case by case basis. The Board of Directors has taken action to waive the restrictions with respect to sale of shares acquired in the Rights Offering by the Backstop Party.

The Ownership Restrictions will remain in effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of directors determines the Ownership Restrictions are no longer necessary for preservation of the Tax Benefits, (ii) the beginning of a taxable year in which the board of directors determines no Tax Benefits may be carried forward, or (iii) such other date as shall be established by the board of directors.

In order to allow completion of the Private Placement, the board of directors waived these restrictions with respect to the securities purchased in the Private Placement. On September 21, 2022, following the closing of the Private Placement, the SPV elected to immediately convert a portion of the Convertible Debt into 90 million shares of the Company’s common stock and acquired majority ownership of the Company’s common stock. As a result, the Company experienced an ownership change as defined in Section 382 of the Internal Revenue Code (Section 382) as of September 22, 2022. Section 382 contains rules that limit the ability of a company that undergoes an ownership change to utilize its net operating loss carryforwards (NOLs), tax credits, and interest limitation carryforwards. The Company has significant NOLs, tax credits, and interest limitation carryforwards that are impacted by the ownership change. The Company has evaluated the financial statement impact of the ownership change under Section 382 in the current quarter, and has determined there is no material impact on the financials due to the valuation allowance the Company has set up previously on its deferred tax asset.

Share-Based Incentive Plans

For a discussion of our share-based incentive plans, please see Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021.~~

July 2, 2022.

Restricted Stock Awards/Units

The Tuesday Morning Corporation 2008 Long-Term Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation Long-Term Incentive Plan (the “2014 Plan” and together with the 2008 Plan, the “Plans”) authorize the grant of restricted stock awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan. Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. Shares are valued at the fair market value of our common stock at the date of award. Shares and units may be subject to time-vesting and/or certain performance requirements. If the time-vesting and/or performance requirements are not met, the restricted shares are forfeited. The 2014 Plan also authorizes the grant of time-vesting and performance-based restricted stock units. Restricted stock units do not provide voting and dividend rights. Shares of common stock are issued upon the vesting of restricted units.

~~On September 15, 2021, Marc Katz was awarded~~ ~~867,052~~In addition to the Plans, the Company has granted certain inducement awards of time-based and~~867,052~~ ~~performance-based restricted stock units as an incentive to become Principal and Chief Operating Officer and Paul Metcalf was awarded~~ ~~289,017~~ ~~time-based and~~ ~~578,035~~ performance-based restricted stock units to ~~become~~Fred Hand, Marc Katz and Paul Metcalf. See Note 7 to the ~~Principal~~consolidated financial statements in our Annual Report on Form 10-K and Chief Merchant (the “Inducement Awards”). In addition, during the first quarter of fiscal 2022, the fiscal 2022 long-term incentive awards were approved by the Board of Directors and time-vesting and performance-based restricted stock units were granted under the 2014 Long-Term Incentive Plan. Under the Plans and the Inducement Awards, as of April 2, 2022, there were ~~500,895~~ ~~shares of restricted stock awards and~~ ~~8,419,829~~ ~~restricted stock units outstanding with award vesting periods, both performance-based and service-based, of~~ ~~one~~ to ~~five years~~ ~~and a weighted average grant date fair value of $1.70~~ ~~and $2.29~~ ~~per share, respectively.~~

Note 14 Subsequent Events below for additional information.

The following table summarizes the activity of time-vesting restricted stock units, performance-based restricted stock units, time-vesting restricted stock awards and performance-based restricted stock awards for the ~~nine~~three months ended ~~April 2,~~October 1, 2022:

Time and Performance-Based Restricted Stock Units
Number of Shares

Weighted-
Average
Fair Value at
Date of Grant

Time and Performance-Based Restricted Stock Awards
Number of Shares

Weighted-
Average
Fair Value at
Date of Grant

Outstanding at June 30, 2021

3,021,924

$
2.83

1,708,368

$
1.94

Granted during the year

5,580,713

2.02

—

—

Vested during the year

(106,443
)

3.18

(791,359
)

1.70

Forfeited during the year

(76,365
)

2.72

(416,114
)

2.69

Outstanding at April 2, 2022

8,419,829

$
2.29

500,895

$
1.70


	Time and Performance-Based Restricted Stock Units Number of Shares			Weighted- Average Fair Value at Date of Grant		Time and Performance-Based Restricted Stock Awards Number of Shares			Weighted- Average Fair Value at Date of Grant
Outstanding at July 2, 2022		7,634,279		$	2.21		238,711		$	1.84
Granted during the year		3,637			0.20		—
Vested during the year		(1,009,453	)		2.33		(63,187	)		2.67
Forfeited during the year		(216,365	)		2.72		(3,437	)		2.72
Outstanding at October 1, 2022		6,412,098		$	2.17		172,087		$	1.51

As of ~~April 2,~~October 1, 2022, there were ~~3,839,496~~5,536,064 unvested performance-based restricted stock awards and performance-based restricted stock units to be settled in stock.

Cash Settled Awards

We have granted stock-based awards to certain employees, which vest over a period of three to four years, and will be settled in cash (“cash settled awards”). Both performance-based and time-based awards were granted. Except for the performance based awards which have been deemed unlikely to vest, the fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be re-measured at each reporting period until the awards are settled.

The following table summarizes the activity of cash settled awards for the ~~nine~~three months ended ~~April 2,~~October 1, 2022:

Performance-Based

Service-Based

Total

Outstanding at June 30, 2021

143,675

547,698

691,373

Granted during the year

—

565,492

565,492

Vested during the year

—

(177,719
)

(177,719
)
Forfeited during the year

—

(131,505
)

(131,505
)
Outstanding at April 2, 2022

143,675

803,966

947,641


	Performance-Based		Service-Based			Total
Outstanding at July 2, 2022		59,450		735,077			794,527
Granted during the year		—		—			—
Vested during the year		—		(227,449	)		(227,449	)
Forfeited during the year		—		(101,047	)		(101,047	)
Outstanding at October 1, 2022		59,450		406,581			466,031

The liability associated with the cash settled awards was $~~0.4~~0.1 million and $~~1.7~~0.2 million at ~~April~~October 1, 2022 and July 2, 2022, ~~and June 30, 2021,~~ respectively.

Share-based Compensation Costs

Share-based compensation costs consisted of the following (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	April 2,			March 31,			April 2,			March 31,			October 1,			September 30,
	2022			2021			2022			2021			2022			2021
Amortization of share-based compensation during the period	$	1,679		$	409		$	4,666		$	1,152		$	1,544		$	1,155
Amounts capitalized in ending inventory		(338	)		(93	)		(947	)		(259	)		(312	)		(239	)
Amounts recognized and charged to cost of sales		259			66			926			454			333			257
Amounts charged against selling, general and administrative expense	$	1,600		$	382		$	4,645		$	1,347		$	1,565		$	1,173

8. ~~Leases~~LEASES

We conduct substantially all operations from leased facilities. Our retail store locations, our corporate office and our distribution center are under operating leases that will expire over the next 1 to 10 years. Many of our leases include options to renew at our discretion. We include the lease renewal option periods in the calculation of our operating lease assets and liabilities when it is reasonably certain that we will renew the lease. We also lease certain equipment ~~under finance~~ leases that generally expire within 4three years ~~years.~~

In accordance with the Plan of Reorganization, on December 31, 2020, we sold our corporate office and Dallas distribution center properties and leased back those facilities. The lease of the corporate office is for a term of 10ten 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. We determined the sale price represented the fair value of the underlying assets sold and have no continuing involvement with the properties sold other than a normal leaseback. The consideration received for the sale, as reduced by the closing and transaction costs, was $68.5 million, and the net book value of the properties sold was $18.9 million, resulting in a $49.6 million gain, which was recognized as of December 31, 2020. Cash proceeds, net of property taxes, were deposited directly into the Unsecured Creditor Claim Fund (See Note 2).

The 2two leases, associated with the transaction, were recorded as operating leases. As of ~~April 2,~~October 1, 2022, we will pay approximately $~~7.8~~7.4 million in fixed rents and in-substance fixed rents, over the remaining lease term for the corporate office and we will pay approximately $~~9.7~~7.5 million in fixed rents and in-substance fixed rents for the Dallas distribution center property over the remaining lease term, including the one-year option period as noted above. Fixed rents and in-substance fixed rents for each lease were discounted using the incremental borrowing rate we established for the respective term of each lease.

In accordance with ASC 842, we determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the right-of-use (“ROU”) assets represent our right to use the underlying assets for the respective lease terms.

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

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

Our lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements.

The components of lease cost are as follows (in thousands):


	Three Months Ended
	October 1,		September 30,
	2022		2021
Operating lease cost	$	17,431	$	16,528
Variable lease cost		2,366		2,272
Finance lease cost:
Amortization of right-of-use assets		—		33
Total lease cost	$	19,797	$	18,833

Three Months Ended

Nine Months Ended

April 2,

March 31,

April 2,

March 31,

2022

2021

2022

2021

Operating lease cost

$
17,036

$
16,142

$
50,614

$
46,429

Variable lease cost

2,324

2,342

7,021

9,308

Finance lease cost:

Amortization of right-of-use assets

22

49

121

161

Interest on lease liabilities

0

1

1

7

Total lease cost

$
19,382

$
18,534

$
57,757

$
55,905

The table below presents additional information related to the Company’s leases:


	As of ~~April 2,~~October 1, 2022
Weighted average remaining lease term (in years)
Operating leases		~~4.2~~4.1
~~Finance leases~~		~~0.1~~
Weighted average discount rate
Operating leases		~~8.9~~	%
~~Finance leases~~		~~4.5~~9.5	%

Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):

April 2, 2022

March 31, 2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$
57,775

$
47,692

Operating cash flows from finance leases

1

8

Financing cash flows from finance leases

121

167

Right-of-use assets obtained in exchange
for operating lease liabilities

12,010

(108,423
)


	Three Months Ended
	October 1, 2022		September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,249	$	17,050
Operating cash flows from finance leases		—		9
Financing cash flows from finance leases		—		217
Right-of-use assets obtained in exchange for operating lease liabilities		12,687		4,304

Maturities of lease liabilities were as follows as of ~~April 2,~~October 1, 2022 (in thousands):

Operating
Leases

Finance
Leases

Total

Fiscal year:

2022 (remaining)
$
18,070

$
2

$
18,072

2023

62,643

—

62,643

2024

45,479

—

45,479

2025

34,099

—

34,099

2026

21,101

—

21,101

2027

15,410

—

15,410

Thereafter

14,472

—

14,472

Total lease payments
$
211,274

$
2

$
211,276

Less: Interest

36,398

1

36,399

Total lease liabilities
$
174,876

$
1

$
174,877

Less: Current lease liabilities

54,165

1

54,166

Non-current lease liabilities
$
120,711

$
—

$
120,711


	Operating Leases
Fiscal year:
2023 (remaining)	$	49,305
2024		53,018
2025		39,606
2026		25,400
2027		19,208
2028		9,599
Thereafter		6,566
Total lease payments	$	202,702
Less: Interest		35,747
Total lease liabilities	$	166,955
Less: Current lease liabilities		46,390
Non-current lease liabilities	$	120,565

~~Current and non-current finance lease liabilities are recorded in “Accrued liabilities” and “Other liabilities – non-current,” respectively, on our condensed consolidated balance sheet.~~ As of ~~April 2,~~October 1, 2022, there were 0no operating lease payments for legally binding minimum lease payments for leases signed but not yet commenced.

9. ~~Earnings per common share~~EARNINGS PER COMMON SHARE

The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with non-forfeitable rights to dividends or dividend equivalents (referred to as participating securities). Basic EPS is computed using the weighted average number of common shares outstanding during each of the respective years. Diluted EPS is computed using the weighted average number of common and common equivalent shares outstanding during each of the respective years using the more dilutive of either the treasury stock method or two-class method. The difference between basic and diluted shares, if any, largely results from common equivalent shares, which represents the dilutive effect of the assumed exercise of certain outstanding share options and warrants, the assumed vesting of restricted stock granted to employees and directors, or the satisfaction of certain necessary conditions for contingently issuable shares. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

April 2,

March 31,

April 2,

March 31,

2022

2021

2022

2021

Net earnings/(loss)
$
(18,151
)

$
(37,119
)

$
(30,860
)

$
21,844

Less: Income to participating securities

—

—

—

(311
)
Net earnings/(loss) attributable to common shares
$
(18,151
)

$
(37,119
)

$
(30,860
)

$
21,533

Weighted average number of common shares
outstanding — basic

85,097

67,584

84,695

52,741

Effect of dilutive stock equivalents

—

—

—

—

Weighted average number of common shares
outstanding — diluted
$
85,097

$
67,584

$
84,695

$
52,741

Net earnings/(loss) per common share — basic
$
(0.21
)

$
(0.55
)

$
(0.36
)

$
0.41

Net earnings/(loss) per common share — diluted
$
(0.21
)

$
(0.55
)

$
(0.36
)

$
0.41


	Three Months Ended
	October 1,			September 30,
	2022			2021
Net loss attributable to common shares	$	(28,163	)	$	(14,603	)
Weighted average number of common shares outstanding — basic and diluted		96,645			84,310
Net loss per common share — basic	$	(0.29	)	$	(0.17	)
Net loss per common share — diluted	$	(0.29	)	$	(0.17	)

For the three months ended ~~April 2,~~October 1, 2022 and ~~March 31,~~September 30, 2021, ~~5.9~~7.6 million and ~~2.3~~1.8 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings/(loss) per common share, respectively. ~~For the nine months ended April 2, 2022 and March 31, 2021,~~ ~~3.1~~ ~~million and~~ ~~2.6~~ million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings/(loss) per common share, respectively. On February 9, 2021, as part of the Rights Offering, the Company issued warrants to purchase 10 ~~million shares of common stock with an exercise price of $1.65~~ ~~and a~~ ~~five year~~ ~~term, all which remained outstanding and anti-dilutive as of April 2, 2022.~~

21On September 20, 2022, pursuant to the terms of the Note Purchase Agreement, the SPV purchased $32.0 million in aggregate principal amount of the Convertible Debt. As described above, the SPV is a special purpose entity that was formed by Ayon Capital and REV. In connection with the closing of the Private Placement, each of Messrs. Lopez, Mehr and Patel and Ms. Burkenroad were appointed to the Board of Directors. Each of Messrs. Lopez, Mehr and Burkenroad are affiliated with REV and Mr. Patel is affiliated with Ayon Capital.

In addition, pursuant to the Note Purchase Agreement, the Management Purchasers purchased $3.0 million in aggregate principal amount of the Convertible Debt. In particular, Mr. Hand purchased $1.7 million in principal amount of the Convertible Debt, Mr. Katz purchased $0.3 million in principal amount of the Convertible Debt and Mr. Metcalf purchase $0.6 million in principal amount of the Convertible Debt. See Note 14 below.

In connection with the Private Placement, the Company entered into a license agreement with Pier 1 Imports, pursuant to which the Company may sell Pier 1 products and will pay customary license fees in connection with such sales. Pier 1 Imports is owned by REV.

The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company. As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions. See Note 3 above for additional information regarding the terms of the Convertible Debt.

13. ~~Subsequent Events~~FAIR VALUE MEASUREMENTS

Derivative Liability

~~New ABL Facility~~As described in Note 3, the Company issued Convertible Notes that contained a conversion feature that qualifies as an embedded derivative. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date, at the date of conversions to equity, and ~~FILO Facilities~~as of each subsequent reporting period.

As of the inception date, the Company recorded a derivative liability associated with the conversion option of $22.4 million within our condensed consolidated balance sheets.

Upon the conversion of a portion of the Convertible Notes on September 22, 2022 (approximately $6.9 million in principal amount), the Company recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and loss on extinguishment of debt of $7.7 million, and a resulting impact of $13.5 million to stockholders’ equity to reflect the conversion from debt to common stock and amortization of debt issuance cost of $0.6 million.

For the three months ended October 1, 2022, the Company recorded a loss on derivative liability of $8.8 million within our condensed consolidated statements of operations, and resulting from the change in fair value on our derivative liability within our condensed consolidated balance sheets.

Level 3 valuation information: Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our derivative liability as of October 1, 2022 may differ materially from values that would have been used had a readily available market financial instrument were evident.

The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):


	October 1, 2022								September 30, 2021
	Fair Value		Hierarchy Level						Fair Value		Hierarchy Level
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Liabilities:
Bifurcated embedded derivative on FILO C	$	2,937	$	—	$	—	$	2,937	$	—	$	—	$	—	$	—
Bifurcated embedded derivative on SPV junior secured convertible notes		5,835		—		—		5,835		—		—		—		—
Bifurcated embedded derivative on management notes		996		—		—		996		—		—		—		—
Total	$	9,768	$	—	$	—	$	9,768	$	—	$	—	$	—	$	—

The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 2 within the fair value hierarchy (in thousands):


	Amount
Balance as of July 2, 2022	$	—
Embedded derivative issued in connection with Private Placement		22,441
Change in fair value on September 22, 2022 of bifurcated embedded derivatives, reported in earnings		(2,775	)
Conversion of junior secured convertible notes		(3,894	)
Change in fair value on October 1, 2022 of bifurcated embedded derivatives, reported in earnings		(6,004	)
Balance as of October 1, 2022	$	9,768

The fair value of the bifurcated embedded derivatives on convertible notes was determined using the following significant unobservable inputs:


	October 1, 2022
Bifurcated embedded derivative on convertible notes:
Market yield	17.1%
Calibration discount rate	70.0%

Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.

Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liabilities recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as a derivative instrument liabilities, we use the Binomial Lattice model through a Goldman Sachs implementation to estimate the fair value associated with the instrument. This model requires assumptions related to the remaining term of the instrument, risk-free rates of return, our current common stock price and the expected volatility of our Common Stock price over the life of the derivative. The Company determined that as of the assessment date, October 1, 2022, the fair value of the bifurcated embedded derivatives is $9.8 million. For the three months ended October 1, 2022, the Company recorded a gain on derivative liability of $8.8 million within our condensed consolidated statements of operations, and a resulting decrease to our derivative liability within our condensed consolidated balance sheets.

If an embedded conversion option in a convertible debt instrument no longer meets the bifurcation criteria in this Subtopic, an issuer shall account for the previously bifurcated conversion option reclassifying the carrying amount of the liability for the conversion option (that is, its fair value on the date of reclassification) to shareholders’ equity. Any debt discount recognized when the conversion option was bifurcated from the convertible debt instrument shall continue to be amortized.

Due to their short maturity, the carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses and other long-term liabilities approximated their fair values as of October 1, 2022.

14. SUBSEQUENT EVENTS

On ~~May 9,~~November 4, 2022 (the ~~“Refinancing Closing Date”~~"Separation Date"), ~~Tuesday Morning Corporation (the “Company”), Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of~~ the Company entered into a ~~Credit Agreement~~transition agreement with Fred Hand (the “New ABL Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $~~110.0~~ ~~million (the “New ABL Facility”), which includes a $10.0~~ ~~million sublimit for swingline loans and a $25.0~~ ~~million sublimit for letters of credit, (ii) a first-in last-out term loan facility in an aggregate amount of $5.0~~ ~~million (the “FILO A Facility”) and (iii) an additional first-in last-out term loan facility in an aggregate amount of $5.0~~ million (the “FILO B Facility” and, collectively with the New ABL Facility and the FILO A Facility, the “New Facilities”). In addition, the Borrower has the right, on and following November 9, 2022, to request (x) an additional incremental loan under the FILO B Facility in an aggregate amount not to exceed $~~5.0~~ million, which, subject to the satisfaction of certain conditions, the FILO B lenders have committed to provide, and (y) additional incremental commitments from the FILO B lenders to make additional loans in an aggregate amount not to exceed $~~5.0~~ ~~million, subject to the satisfaction of certain conditions.~~

The New ABL Credit Agreement includes conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. Pursuant to the New ABL Credit Agreement, the Borrower and its subsidiaries must maintain borrowing availability under the New ABL Facility at least equal to the greater of (i) $~~7.5~~ ~~million and (ii)~~ ~~7.5% of the Modified Revolving Loan Cap (as defined in the New ABL Credit Agreement).~~

Amounts available for advances under the New Facilities are subject to borrowing bases as described in the New ABL Credit Agreement. Borrowings under the New ABL Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR (as defined below) plus a margin ranging from ~~1.25% to~~ ~~1.75%, or (ii) the Base Rate (as defined below) plus a margin ranging from~~ ~~0.25% to~~ ~~0.75~~%, in each case with such margins depending on the Borrower’s average quarterly borrowing availability under the New ABL Facility. Borrowings under the FILO A Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus ~~3.00%, or (ii) the Base Rate plus~~ ~~2.00%. Borrowings under the FILO B Facility will bear interest at a rate equal to, at the option of the Borrower, (i) the Adjusted Term SOFR plus a margin ranging from~~ ~~8.50% to~~ ~~9.00%, or (ii) the Base Rate plus a margin ranging from~~ ~~7.50% to~~ ~~8.00%, in each case with such margins depending on seasonal periods. The “Adjusted Term SOFR” is the term SOFR plus a term SOFR adjustment of~~ ~~0.10% for loans under the New ABL Facility or a term SOFR adjustment of~~ ~~0.00% for loans under the FILO A Facility and the FILO B Facility. The “Base Rate” is the greatest of (i) the federal funds effective rate plus~~ ~~0.50%, (ii) the term SOFR plus~~ ~~1.00%, and (iii) the prime rate of Wells Fargo Bank, National Association. Each of the Adjusted Term SOFR and the Base Rate is subject to a~~ ~~0.00% floor with respect to the New ABL Facility and a~~ ~~1.00% floor for each of the FILO A Facility and the FILO B Facility.~~

The New Facilities are secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 9, 2027 and (ii) the date that is 91 days prior to maturity of the Term Loan.

~~On the Refinancing Closing Date, the Borrower borrowed approximately $75.2~~ ~~million under the New ABL Facility, $5.0~~ ~~million under the FILO A Facility and $5.0~~ million under the FILO B Facility (collectively, the “Closing Date Loans”). A portion of the aggregate proceeds from the Closing Date Loans was used to (i) repay all outstanding indebtedness (the “Existing ABL Loans”) under that certain Credit Agreement, dated as of December 31, 2020, among the Company, the Borrower, each of the subsidiary guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Existing ABL Credit Agreement”), along with accrued interest, expenses and fees, (ii) purchase of a portion of the principal amount of the outstanding indebtedness (the “Term Loan”) under that certain Credit Agreement, dated as of December 31, 2020, by and among the Company, the Borrower, each of the subsidiary guarantors party thereto, the lenders party thereto (including Tensile Capital Partners Master Fund LP and affiliates of Osmium Partners, LLC) (collectively, the “Term Loan Lenders”), and Alter Domus (US) LLC, as administrative agent (the “Term Loan Credit Agreement”) for the aggregate purchase price of $~~5.0~~ million (the “Loan Repurchase”), and (iii) pay transaction costs related to the transactions described in the foregoing clauses (i) and (ii) and the execution and delivery of the New ABL Credit Agreement and related loan documents. The remainder of the proceeds from the Closing Date Loans, as well as the proceeds from future borrowings, will be used for working capital needs and other general corporate purposes.

~~Amendment to Term Loan Credit Agreement~~

On the Refinancing Closing Date, the Company, the Borrower, certain subsidiaries of the Company, certain of the Term Loan Lenders (the “Consenting Lenders”), and Alter Domus (US) LLC, as administrative agent, entered into an amendment to the Term Loan Credit Agreement (the “Term Loan Credit Agreement Amendment”"Hand Transition Agreement"), pursuant to which ~~among other things, (i) each Consenting Lender agreed to~~ the ~~Loan Repurchase, (ii) concurrently with the consummation of the Loan Repurchase, each Consenting Lender agreed to~~

~~waive~~Company and ~~forgive an amount of the accrued and unpaid interest owed to such Consenting Lender , (iii) it was~~Mr. Hand agreed that immediately, automatically and permanently upon the consummation of the Loan Repurchase, the Term Loans assigned pursuant to the Loan Repurchase would be deemed cancelled and of no further force and effect and (iv) the Term Loan Credit Agreement was amended to, among other things, (x) provide that the Borrower and its subsidiaries shall not permit the borrowing availability under the New ABL Facility to be less than the greater of (A) $~~7.5~~ ~~million and (B)~~ ~~7.5% of the Modified Revolving Loan Cap, (y) permit the Borrower to borrow on the $5.0~~ million committed FILO B accordion, subject to certain conditions, on and following November 9, 2022, and (z) provide that, commencing with the 12-month period (each, a “Test Period”) ending September 30, 2023, and for each subsequent Test Period ending on the last day of each fiscal monthMr. Hand's employment as Chief Executive Officer of the Company would terminate and ~~TMI Holdings, Inc. (“Intermediate Holdings”~~resign from the board of directors of the Company.

In addition, the Company entered a transition agreement with each of Marc Katz and Paul Metcalf (the "Katz Transition Agreement," and the "Metcalf Transition Agreement" individually, and, together with the Hand Transition Agreement, the "Transition Agreements"), pursuant to which (i) the Company ~~“Holdings”)thereafter, Holdings shall not permit~~and Mr. Katz agreed that Mr. Katz's employment as Principal and Chief Operating Officer and Interim Chief Financial Officer would terminate on the ~~Total Secured Net Leverage Ratio (as defined below)~~Separation Date, and (ii) the Company and Mr. Metcalf agreed that Mr. Metcalf's employment as Principal and Chief Merchant would terminate on the Separation Date.

Under the terms of the ~~last day for any such Test Period~~Transition Agreements, (i) each of the individuals will provide transition services to the Company through June 30, 2023, (ii) the Company will make transition payments of $2.3 million, $0.9 million and $0.8 million, (iii) the Company agreed to reimburse certain legal fees incurred in connection with the Transition Agreements, and (iv) each of the individuals will be ~~greater than (A) for any Test Period ending on or~~entitled to accelerated vesting of their time-vesting restricted stock units, approximately $3.7 million, $1.2 million and $0.9 million. The Transition services include, (i) fully informing the Company of all activities in which the executive was involved prior to the ~~last day of Holdings’ December 2023 fiscal month,~~ ~~8.00:1.00, or (B) for any Test Period ending on or after the last day of Holdings’ January 2024 fiscal month,~~ ~~6.00:1.00. For purposes~~Separation Date and of the ~~Term Loan Credit Agreement, “Total Secured Net Leverage Ratio” means, for~~status of any ~~Test Period, Holdings and its subsidiaries’ Consolidated Secured Indebtedness (as defined in~~projects, (ii) transferring or otherwise making available to the ~~Term Loan Credit Agreement) as~~Company to the extent possible, all of the ~~last day~~executive's knowledge and experience regarding the Executive's duties, (iii) accomplishing a smooth transition of ~~such Test Period divided by EBITDA (as defined~~the executive's responsibilities and cooperating with the Company through June 30, 2023, and (iv) complying with the applicable Transition Agreement, and acting in good faith at all times in performing services.

On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer of the ~~Term Loan Credit Agreement)~~Company. Mr. Berger's employment agreement provides for ~~such Test Period.~~a one-time grant of restricted stock units. Mr. Berger has served as a director of the Company since September 28, 2022 and will continue to serve as a member of the board of directors. As a result of his appointment as Chief Executive Officer, Mr. Berger will no longer serve on the Audit Committee of the board of directors.

In addition, William M. Baumann was appointed Chief Operating Officer and Interim Chief Merchant of the Company. Mr. Baumann's employment agreement provides for a one-time grant of restricted stock units. Mr. Baumann, previously served as Executive Vice President and Chief Information Officer of the Company from July 2021 to November 4, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We encourage you to read this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended ~~June 30, 2021.~~

We are one of the original off-price retailers and a leading destination for unique home and lifestyle goods, selling high-quality products at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Our customers come to us for an ever-changing, exceptional assortment of brand names at great prices. Our strong value proposition has established a loyal customer base, who we engage regularly with social media, email and digital media.

The COVID-19 pandemic has had an adverse effect on our business operations, store traffic, employee availability, financial conditions, results of operations, liquidity and cash flow. On March 25, 2020, we temporarily closed all of our ~~687~~ stores nationwide, severely reducing revenues, ~~and~~ resulting in significant operating losses and the elimination of substantially all operating cash flow. In May 2020, we filed voluntary petitions under Chapter 11 of the Bankruptcy Code. During the pendency of our Chapter 11 proceedings, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. As allowed by state and local jurisdictions, ~~685 of~~ our stores gradually reopened as of the end of June ~~2020 and two stores were permanently closed during the quarter.~~2020. In accordance with our bankruptcy ~~Plan~~plan of ~~Reorganization,~~reorganization, described below, we completed the permanent closure of 197 stores in the first quarter of fiscal 2021 and the closure of our Phoenix, Arizona distribution center ("(“Phoenix distribution ~~center"~~center”) in ~~the~~ second quarter of fiscal 2021. In addition, as part of our restructuring, we secured financing to pay ~~the~~ creditors in accordance with the plan of reorganization and to fund planned operations and expenditures. We emerged from our Chapter 11 proceedings on December 31, 2020. See Notes 1, 2, 3, 7, 8 and 11 to our consolidated financial statements for additional information regarding our Chapter 11 proceedings and related financings.

Key operating metrics for continuing operations for the three ~~and nine~~ months ended ~~April 2,~~October 1, 2022 include:

Key balance sheet and liquidity metrics for the ~~nine~~three months ended ~~April 2,~~October 1, 2022 include:

Subsequent to April 2, 2022, the Company and its subsidiaries entered into the New ABL Credit Agreement as part of a refinancing. See Note 13 to the condensed consolidated financial statements and “Liquidity and Capital Resources – Liquidity” herein for additional information.

The following table presents information with respect to our stores in operation during each of the fiscal periods:

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.

Our business is highly seasonal, with a significant portion of our net sales and most of our operating income generated in the second quarter of each fiscal year.

There can be no assurance that the trends in sales or operating results will continue in the future.

Three Months Ended ~~April 2,~~October 1, 2022 Compared to the Three Months Ended ~~March 31,~~September 30, 2021

Net sales for the three months ended ~~April 2,~~October 1, 2022 were ~~$159.6~~$157.1 million, with ~~an increase~~a decrease of ~~4.1%~~11.2%, compared to ~~$153.3~~$176.9 million for the three months ended ~~March 31,~~September 30, 2021, primarily driven by ~~the two additional days in quarter ended April 2, 2022 as a result of a change from a calendar year as defined in Note 1.~~ economic conditions, inflation and recession rumors.Comparable store sales for the three months ended ~~April 2,~~October 1, 2022, ~~increased 0.6%~~decreased 10.4% due to ~~6.7%~~13.1% decrease in customer transactions offset by a 3.9% increase in average ticket ~~offset by a 6.6% decrease in customer transactions~~ primarily due to ~~the Easter shift, lapping stimulus and as a result of general economic impacts starting March 2022 following disruption in Europe and~~ incremental inflationary pressures.

Gross margin for the three months ended ~~April 2,~~October 1, 2022 was ~~$38.9~~$34.6 million, a decrease of ~~19.3%~~32.1% compared to ~~$48.2~~$51.0 million for the three months ended ~~March 31,~~September 30, 2021. As a percentage of net sales, gross margin decreased to ~~24.4%~~22.0% in the ~~third~~first quarter of fiscal 2022 compared with ~~31.4%~~28.8% in the ~~second~~first quarter of fiscal 2021. The decrease in gross margin as a percentage of net sales was primarily a result of ~~higher~~increased recognized costs related to supply chain and transportation ~~costs recognized~~expenses in the three months ended ~~April 2,~~October 1, 2022.

SG&A ~~decreased $3.6~~increased $0.2 million to ~~$55.6~~$60.5 million in the three months ended ~~April 2,~~October 1, 2022, compared to ~~$59.2~~$60.3 million for the three months ended ~~March 31, 2021 primarily mainly due to lower employee-related incentive pay.~~September 30, 2021. As a percentage of net sales, SG&A ~~decreased 380~~increased 440 basis points to ~~34.8%~~38.5% for the three months ended ~~April 2,~~October 1, 2022, compared to ~~38.6%~~34.1% for the three months ended ~~March 31,~~September 30, 2021, ~~leveraging of store occupancy cost as percentage of net sales.~~

Restructuring ~~impairment~~ and ~~abandonment~~impairment charges were anot incurred during the three months ended October 1, 2022, compared to net ~~benefit~~charge of ~~$0.3~~$2.4 million during the three months ended ~~April 2, 2022, compared to net charge of $1.0 million during the three months ended March 31,~~September 30, 2021. During the three months ended ~~April 2, 2022,~~September 30, 2021, adjustments ~~related to compensation adjustments for~~include a software impairment charge of $2.1 million as well as $0.3 million in employee retention cost. During the three months ended March 31, 2021, adjustments include restructuring, impairment and abandonment charges of $1.0 million primarily related to employee retention cost of $0.3 million and severance cost of $0.7 million.

Our operating loss was ~~$16.4~~$25.9 million for the three months ended ~~April 2,~~October 1, 2022 as compared to an operating loss of ~~$12.0~~$11.7 million for the three months ended March 31, 2021, resulting to decline of $4.3 million. The operating loss in the current year was primarily the result of higher supply chain and transportation costs partially offset by lower restructuring, impairment and abandonment charges as discussed above.September 30, 2021.

Interest expense increased ~~$0.5~~$0.3 million to ~~$1.9~~$2.0 million for the three months ended ~~April 2,~~October 1, 2022 compared to ~~$1.4~~$1.7 million for the three months ended ~~March 31,~~September 30, 2021. Interest expense for the three months ended ~~April 2,~~October 1, 2022 was primarily due to the interest and amortization of financing fees incurred on our ~~Post-Emergence~~New ABL ~~Facility and accrued PIK interest on our Term loan.~~Facility. Interest expense for the three months ended ~~March 31,~~September 30, 2021 was primarily due to ~~accrued PIK~~ interest ~~on the Term Loan along with~~and amortization of financing fees incurred on the Post-Emergence ABL ~~Facility.~~Facility and accrued interest on our term load. See Note 3 to our unaudited condensed consolidated financial statements herein for additional information.

Reorganization items ~~net~~ were ~~a net benefit of $0.1 million for~~not incurred during the three months ended ~~April 2,~~October 1, 2022 ~~compared to a~~since our exit from bankruptcy had concluded in the fiscal year 2022. The reorganization items, net charge of ~~$23.6~~$1.3 million in the three months ended ~~March 31,~~September 30, 2021, related to ~~$0.2~~$1.1 million ~~benefit on~~loss of claims related cost ~~offset by $43 thousand~~and $0.2 million of professional and legal fees related to our reorganization. The reorganization items, net charge of $23.6 million in the three months ended March 31, 2021, was due to $19.0 million net charge from the Rights Offering and Backstop Agreement, $0.9 million in claims related costs, and $3.8 million in professional and legal fees related to our reorganization.

Income tax expense for the three months ended ~~April 2,~~October 1, 2022 was ~~$0.1 million~~$149.0 thousand compared to an income tax ~~expense~~benefit of ~~$0.2 million~~$49.0 thousand in the three months ended ~~March 31,~~September 30, 2021. The effective tax rates for the three months ended ~~April 2,~~October 1, 2022 and ~~March 31,~~September 30, 2021 were ~~(0.4%~~(0.5%) and ~~(0.5%)~~0.3%, respectively. Income tax expense is driven mainly by Texas franchise tax and Oregon commercial activity tax. We currently believe the expected effects on future year effective tax rates to continue to be nominal until the cumulative losses and valuation allowance are fully utilized.

Our net loss for the three months ended ~~April 2,~~October 1, 2022 was ~~$18.2~~$28.2 million, or diluted net losses per share of ~~$0.21~~$0.29 which included an $8.8 million benefit related to the mark-to-market adjustments of the convertible notes issued in conjunction with the strategic investment received in September 2022, and an $8.4 million loss related to the extinguishment of debt from conversion of notes into common stock, compared to a net loss for the three months ended ~~March 31,~~September 30, 2021 of ~~$37.1~~$14.6 million, or diluted net losses per share of ~~$0.55.~~

~~Nine Months Ended April 2, 2022 Compared to the Nine Months Ended March 31, 2021~~

Net sales for the nine months ended April 2, 2022 were $587.9 million, an increase of 14.5%, compared to $513.5 million for the nine months ended March 31, 2021, primarily due to more stores in operation for fiscal year 2022 and completion of bankruptcy proceedings. Comparable store sales for the nine months ended April 2, 2022, increased 18.1% due to a 10.5% increase in average ticket and 6.4% increase in customer transactions.

Gross margin for the nine months ended April 2, 2022 was $161.5 million, an increase of 1.4% compared to $159.3 million for the nine months ended March 31, 2021. As a percentage of net sales, gross margin decreased to 27.5% in the nine months ended April 2, 2022 compared with 31.0% in the nine months ended March 31, 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 nine months ended April 2, 2022.

SG&A decreased slightly by $1.1 million to $183.5 million in the nine months ended April 2, 2022, compared to $184.6 million for the nine months ended March 31, 2021 primarily mainly due to lower employee-related incentive pay partially offset by increased share-based compensation. As a percentage of net sales, SG&A decreased 470 basis points to 31.2% for the nine months ended April 2, 2022, compared to 35.9% for the nine months ended March 31, 2021. The decrease in SG&A, as a percentage of net sales, was primarily due to leveraging of store occupancy cost as a percentage of sales.

Restructuring, impairment and abandonment charges were $2.6 million during the nine months ended April 2, 2022, compared to $7.6 million during the nine months ended March 31, 2021. During the nine months ended April 2, 2022, charges include a software impairment charge of $2.1 million as well as $0.5 million in employee retention cost. During the nine months ended March 31, 2021, charges include restructuring, impairment and abandonment charges of $7.6 million primarily related to abandonment cost of $5.6 million due to our permanent store and Phoenix, Arizona distribution center closing plans as well as $1.9 million in severance and employee retention cost. 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 $24.6 million for the nine months ended April 2, 2022 as compared to an operating loss of $32.8 million for the nine months ended March 31, 2021, an improvement of $8.2 million. The operating loss in the current year was primarily the result of increased sales, lower restructuring, impairment and abandonment charges, offset by lower margins from higher supply chain and transportation costs as discussed above.

Interest expense decreased $1.2 million to $5.5 million for the nine months ended April 2, 2022 compared to $6.7 million for the nine months ended March 31, 2021. Interest expense for the nine months ended April 2, 2022 was primarily due to the interest and amortization of financing fees incurred on our Post-Emergence ABL Facility and accrued PIK interest on our Term loan. Interest expense for the nine months ended March 31, 2021 was primarily due to amortization of financing fees incurred for the Post-Emergence ABL Facility, the DIP ABL Credit Agreement and accrued PIK interest on Term loan. See Note 3 to our unaudited condensed consolidated financial statements herein for additional information.

Reorganization items, net were $0.9 million for the nine months ended April 2, 2022 compared to a net benefit of $62.2 million for the nine months ended March 31, 2021, related to $0.6 million loss of claims related cost and $0.3 million of professional and legal fees related to our reorganization. The net benefit of $62.2 million in the nine months ended March 31, 2021, was primarily due to a net gain of $115.8 million resulting from store lease terminations and the termination of our Phoenix distribution center lease under our permanent closure plan and sale-leaseback transactions pursuant to the Plan of Reorganization, partially offset by $33.8 million in professional and legal fees related to our reorganization, $0.9 million in claims related costs as well as $19.0 million in non-cash charges from the Rights Offering.

Income tax expense for the nine months ended April 2, 2022 was $11,000 compared to an income tax expense of $0.7 million in the nine months ended March 31, 2021. The effective tax rates for the nine months ended April 2, 2022 and March 31, 2021 were 0.0% and 3.2%, respectively. We currently believe the expected effects on future year effective tax rates to continue to be nominal until the cumulative losses and valuation allowance are fully utilized.

Our net loss for the nine months ended April 2, 2022 was $30.9 million, or diluted net loss per share of $0.36 compared to a net earnings for the nine months ended March 31, 2021 of $21.8 million, or diluted net earnings per share of $0.41.

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

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

(1) Adjustment includes charges related to share-based compensation programs, which vary from period to period depending on volume, timing and vesting of awards. We adjust for these charges to facilitate comparisons from period to period

(2) For the three months ended September 30, 2021, adjustments included restructuring and impairment charges related to software impairment charges and employee retention cost. See note 2 to our unaudited consolidated financial statements herein for further discussion.

(3) For the three months ended September 30, 2021, adjustments included claims related cost as well as professional and legal fees related to our reorganization. See note 2 to our unaudited consolidated financial statements herein for further discussion.

(4) For the three months ended October 1, 2022, adjustments included non-cash gains related to the mark-to-market adjustments of the derivative liability issued in conjunction with the strategic investment received in September 2022. See note 3 to our unaudited consolidated financial statements herein for further discussion.

(5) For the three months ended October 1, 2022, loss on extinguishment of debt related to the conversion of debt to common stock and repayment of FILO A facility. See note 3 to our unaudited consolidated financial statements herein for further discussion.

(6) For the three months ended October 1, 2022, adjustments included third party expenses incurred for the modification of the Term Loan directly expensed, non-cash benefit recognition related to cash settled awards in our long-term incentive plan. See note 3 to our

unaudited consolidated financial statements herein for further discussion. For the three months ended September 30, 2021, adjustments included non-cash benefit recognized related to cash settled awards in our long-term incentive plan.

Cash ~~Flows~~flows for the ~~Nine Months Ended April 2,~~three months ended October 1, 2022

In the ~~nine~~three months ended ~~April 2,~~October 1, 2022, net cash ~~used in~~provided by operating activities was ~~$57.6~~$2.3 million, compared to cash used in operating activities of ~~$114.5~~$33.2 million in the same period last year. Net cash used in operating activities in the ~~nine~~three months ended ~~April 2,~~October 1, 2022 was primarily driven by a reduction in inventory purchases and payments of operating expenses. See “Recent Liquidity Developments and Outlook” below for additional information. Net cash used in operating activities in the three months ended September 30, 2021 was primarily driven by the increase in inventory purchases and payments of operating expenses as part of the ordinary course of business. Net cash used in operating activities in the nine months ended March 31, 2021 was primarily driven by the increase in inventory purchases, decrease in payables, reorganization expenses, and bankruptcy court approved pre-petition claims, legal, and professional fees.

Net cash used in investing activities for the ~~nine~~three months ended ~~April 2,~~October 1, 2022 ~~of $5.2~~and three months ended September 30, 2021 was $1.3 million and $1.8 million respectively. Investing activity related primarily to capital expenditures in enhancements to our store fleet and new stores, as well as investments in technology. Net cash provided by investing activities for the nine months ended March 31, 2021 of $68.1 million was related primarily from $68.6 million of proceeds from sale-leaseback transactions and $1.9 million of proceeds from the sale of property and equipment at the 197 stores that we permanently closed, and was partially offset by $2.3 million of capital expenditures.

Net cash used in financing activities of $1.9 million for the three months ended October 1, 2022 related primarily to net payments under our New ABL Facility, the paydown of FILO A and the prepayment of FILO B, largely offset by the issuance of the Convertible Debt. See note 3 to our unaudited consolidated financial statements herein for further discussion. Net cash provided by financing activities of ~~$42.4~~$10.8 million for the ~~nine~~three months ended ~~April 2, 2022~~September 30, 2021 related primarily to net borrowings under our Post-Emergence ABL Facility. Net cash provided by financing activities of $61.6 million for the nine months ended March 31, 2021 related primarily to $25.0 million in proceeds from the term loan and $40.0 million of proceeds from the Rights Offering, offset by $3.2 million from payments of financing fees.

Historically, we have financed our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under an asset-based, senior secured revolving credit facility.

On December 31, 2020, as contemplated by our Plan of Reorganization, the Company and its subsidiaries entered into a Credit Agreement (the “Post-Emergence ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. that provides for a revolving credit facility in an aggregate amount of $110.0 million (the “Post-Emergence ABL Facility”). The Post-Emergence ABL Credit Agreement included conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. The Post-Emergence ABL Credit Agreement required the Company to maintain a minimum fixed charge coverage ratio if borrowing availability fell below certain minimum levels, after the first anniversary of the agreement. For additional information regarding the Post-Emergence ABL Facility, see Note 3 to our unaudited condensed consolidated financial statements herein.

As further described below, on May 9, 2022, we entered into the New ABL Credit Agreement (as defined below) and used a portion of the proceeds from borrowings under the New Facilities (as defined below) to repay all outstanding indebtedness under the Post-Emergence ABL Facility, along with accrued interest, expenses and fees.

On May 9, 2022, ~~(the “Refinancing Closing Date”), Tuesday Morning Corporation (“Parent”),~~ Tuesday Morning, Inc. (the “Borrower”) and each other subsidiary of ~~Parent~~the Company entered into a Credit Agreement (the “New ABL Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and 1903P Loan Agent, LLC, as FILO B documentation agent. The New ABL Credit Agreement provides for (i) a revolving credit facility in an aggregate amount of $110.0 million (the “New ABL Facility”), which includes a $10.0 million sublimit for swingline loans and a $25.0 million sublimit for letters of credit, (ii) a first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO A Facility”) and (iii) an additional first-in last-out term loan facility in an aggregate amount of $5.0 million (the “FILO B Facility” and, collectively with the New ABL Facility and the FILO A Facility, the “New Facilities”). Each of the New Facilities will terminate, and outstanding borrowings thereunder will mature, on the earlier of (i) May 9,10, 2027 and (ii) the date that is 91 days prior to maturity of the Term Loan.

The New ABL Credit Agreement includes conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. In addition, the Borrower and its subsidiaries must maintain borrowing availability under the New ABL Facility at least equal to the greater of (i) $7.5 million and (ii) 7.5% of the Modified Revolving Loan Cap (as defined in the New ABL Credit Agreement). For additional information regarding the New ABL Credit Agreement and the New Facilities, see Note 133 to our unaudited condensed consolidated financial statements herein.

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 a Credit Agreement (as amended from time to time, the “Term Loan Credit Agreement”) to provide a term loan of $25.0 million to the Company (the “Term Loan”). 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. Under the terms of the Term Loan Credit Agreement, the Term Loan is secured by a second lien on the collateral securing the New Facilities and a first lien on certain other assets of the Company as described in the Term Loan Credit Agreement. The Term Loan is subject to optional prepayment after the first anniversary of the date of issuance at a prepayment price equal to (1) the outstanding principal amount of the Term Loan, plus (2) accrued and unpaid interest to the date of prepayment, plus (3) the prepayment premium, if any. The prepayment premium (which may not be less than zero) is equal to (1) 125% of the original principal amount of the Term Loan, minus (2) the aggregate principal amount of the loans advanced as of the prepayment date, plus all accrued interest thereon accrued as of such date. 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 April 2, 2022, the outstanding principal balance of the Term Loan was $29.5 million, net of debt issuance costs.

On the Refinancing Closing Date, (i) each Consenting Lender agreed to the Loan Repurchase, (ii) concurrently with the consummation of the Loan Repurchase, each Consenting Lender agreed to waive and forgive an amount of the accrued and unpaid interest owed to such Consenting Lender, (iii) it was agreed that immediately, automatically and permanently upon the consummation of the Loan Repurchase, the Term Loans assigned pursuant to the Loan Repurchase would be deemed cancelled and of no further force and effect, and (iv) the Term Loan Credit Agreement was amended to, among other things, (x) require us to maintain the same minimum level of

borrowing availability under the New ABL Facility as required by the New ABL Credit Agreement, (y) permit the Borrower to borrow on the $5.0 million committed FILO B accordion, subject to certain conditions, on and following November 9, 2022, and (z) require us to maintain a minimum total secured net leverage ratio beginning with the 12-month period ending September 30, 2023.

~~For additional information regarding the Term Loan, see Note 3 and Note 15 to our unaudited condensed consolidated financial statements herein.~~

Subsequent to the July 2022 borrowing, the Company experienced a further deterioration in its financial condition and liquidity and began to withhold payments from vendors beginning in late August 2022 and until completion of the Private Placement on September 20, 2022. The proceeds of the Private Placement were used (i) to repay all of the outstanding principal amount of $5.0 million of the FILO A term loans under the New ABL Credit Agreement; (ii) to repay $2.5 million of the FILO B term loans under the New ABL Credit Agreement; (iii) to repay a portion of the revolving loans under the New ABL Credit Agreement; and (iv) to pay transaction costs. The proceeds of the Private Placement will also be used for working capital and other general corporate purposes of the Company and its subsidiaries.

At ~~April 2,~~October 1, 2022 we are in compliance with covenants in the ~~Post-Emergence~~New ABL Facility, the Term Loan and ~~Term Loan.~~the Convertible Debt. As of ~~April 2,~~October 1, 2022, we had ~~$54.1~~$31.4 million of borrowings outstanding under our ~~Post-Emergence~~New ABL Facility and, $14.6 million of letters of credit outstanding. We currently have borrowing availability of ~~$26.6~~$25.3 million under our ~~Post-Emergence~~New ABL Facility, as of ~~April 2,~~October 1, 2022. Liquidity,

defined as cash and cash equivalents plus the ~~$26.6~~$25.3 million availability for borrowing under our ~~Post-Emergence~~New ABL Facility and less $5.6 million in credit cards receivables, was ~~$35.0~~$26.6 million as of ~~April 2,~~October 1, 2022.

Going forward, we expect to fund our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under the New ABL Facility.

On the Refinancing Closing Date, the Borrower borrowed approximately $75.2 million under the New ABL Facility, $5.0 million under the FILO A Facility and $5.0 million under the FILO B Facility (collectively, the “Closing Date Loans”). A portion of the aggregate proceeds from the Closing Date Loans was used to (i) repay all outstanding indebtedness (the “Existing ABL Loans”) under that certain Credit Agreement, dated as of December 31, 2020, among the Company, the Borrower, each of the subsidiary guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Existing ABL Credit Agreement”), along with accrued interest, expenses and fees, (ii) purchase of a portion of the principal amount of the outstanding indebtedness (the “Term Loan”) under that certain Credit Agreement, dated as of December 31, 2020, by and among the Company, the Borrower, each of the subsidiary guarantors party thereto, the lenders party thereto (including Tensile Capital Partners Master Fund LP and affiliates of Osmium Partners, LLC) (collectively, the “Term Loan Lenders”), and Alter Domus (US) LLC, as administrative agent (the “Term Loan Credit Agreement”) for the aggregate purchase price of $5.0 million (the “Loan Repurchase”), and (iii) pay transaction costs related to the transactions described in the foregoing clauses (i) and (ii) and the execution and delivery of the New ABL Credit Agreement and related loan documents. The remainder of the proceeds from the Closing Date Loans, as well as the proceeds from future borrowings, will be used for working capital needs and other general corporate purposes.

We currently have $85.2 million of aggregate borrowings outstanding under the New Facilities and aggregate borrowing availability of $26.0 million under the New ABL Facility, in each case as of May 9, 2022. In addition, we have the right to request (i) an additional incremental loan under the FILO B Facility in an aggregate amount not to exceed $5.0 million, which, subject to the satisfaction of certain conditions, the FILO B lenders have committed to provide, and (ii) additional incremental commitments from the FILO B lenders to make additional loans in an aggregate amount not to exceed $5.0 million, subject to the satisfaction of certain conditions.

We incurred capital expenditures of approximately ~~$5.2~~$1.1 million, net of landlord contributions in the first ~~nine~~three months of fiscal ~~2022.~~2023. Capital expenditures are anticipated to be ~~$6.7~~about $5.0 million total for fiscal year ~~2022.~~2023. The amounts include ~~the expected costs to open three new stores, reopen a Hurricane-damaged store,~~ costs to enhance our existing store fleet, investment in technology as well as our Dallas distribution center.

We do not presently have any plans to pay dividends or repurchase shares of our common stock. Under the terms of the ~~our~~ New ABL Credit Agreement and the Term Loan, we are subject to restrictions on our ability to pay dividends or repurchase shares of our common stock, ~~including a $2.0 million limit on such payments imposed by the Term Loan Credit Agreement,~~ and must maintain certain minimum levels of borrowing availability.

There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021.~~July 2, 2022.

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

Other than as described in Note 1 of our unaudited condensed consolidated financial statements herein, as of ~~April 2,~~October 1, 2022 and the derivative liability discussed below, there were no changes to our critical accounting policies from those listed in our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021.~~

Under the retail inventory method, permanent markdowns result in cost reductions in inventory at the time the markdowns are taken. We also utilize promotional markdowns for specific marketing efforts used to drive higher sales volume and customer transactions for a specified period of time. Promotional markdowns do not impact the value of unsold inventory and thus do not impact cost of sales until the merchandise is sold. Markdowns and damages during the ~~third~~first quarter of fiscal ~~2022~~2023 were ~~4.4%~~5.0% of sales compared to ~~4.0% of sales for the same period last year. Markdowns and damages during the first nine months of fiscal 2022 were 3.3% of sales compared to 3.9%~~3.5% of sales for the same period last year. If our sales forecasts are not achieved, we may be required to record additional markdowns that could exceed historical levels. The effect of a 0.5% markdown in the value of our inventory at ~~April 2,~~October 1, 2022 would result in a decline in gross margin and diluted earnings per share for the ~~third~~first quarter of fiscal ~~2022~~2023 of ~~$0.9~~$0.7 million and $0.01, respectively.

On September 20, 2022, the Company issued the Convertible Debt, which contains a conversion feature. When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.

We determined that, as of the date of issuance of the Convertible Notes, the conversion feature in the Convertible Notes met the requirements to be treated as a derivative and must be separated from the host instrument. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date, at the date of conversions to equity, and as of each subsequent reporting period. As of the inception date, the Company recorded a derivative liability associated with the conversion option of $22.4 million within our condensed consolidated balance sheets. This amount was reduced by $2.8 million upon re-valuation of the derivative liability on the day of conversion, prior to recording of the conversion. Upon the conversion of a portion of the Convertible Notes on September 22, 2022, (approximately $6.9 million in principal amount), the Company recorded a reduction of $2.5 million in debt, $3.9 million from our derivative liability, and loss on extinguishment of debt of $7.7 million, and a resulting impact of $13.5 million to stockholders’ equity to reflect the conversion from debt to common stock and amortization of debt issuance cost of $0.6 million.

derivative. The Company determined that as of the assessment date, October 1, 2022, the fair value of the bifurcated embedded derivatives is $9.8 million. For the three months ended October 1, 2022, the Company recorded a gain on derivative liability of $8.8 million within our condensed consolidated statements of operations, and a resulting decrease to our derivative liability within our condensed consolidated balance sheets.

As of the end of each reporting period, we will be required to reassess whether the embedded conversion option in the Convertible Debt continues to meet the bifurcation criteria. If we determine the embedded conversion option in the Convertible Notes no longer meets the bifurcation criteria, we will be required to account for the previously bifurcated conversion option reclassifying the carrying amount of the liability for the conversion option (that is, its fair value on the date of reclassification) to shareholders’ equity. Any debt discount recognized when the conversion option was bifurcated from the Convertible Debt instrument shall continue to be amortized.

For a further discussion of the judgments we make in applying our accounting policies, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021.~~

Please refer to Note 1 of our unaudited condensed consolidated financial statements herein for a summary of recent accounting pronouncements.

~~The Company's management,~~An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of October 1, 2022, was conducted under the supervision and with the participation of the Company's principal executive officer ("CEO") and principal financial officer ("CFO"), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report.management, including our Chief Executive Officer. Based on ~~this~~that evaluation, the ~~CEO and CFO have~~Chief Executive Officer concluded that ~~as of~~ the ~~end of such period, the Company's~~ disclosure controls and procedures were not effective as of October 1, 2022, due to ~~ensure information~~the existence of a material weakness in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures). We believe that the unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the period, presented, in conformity with U.S. GAAP.

Management identified a deficiency in the design and operating effectiveness of the Company’s internal controls as of October 1, 2022, that represented a material weakness in our internal control over financial reporting. The deficiency is ~~required~~the result of individual control deficiencies related to ~~be disclosed by~~existing controls failing to operate effectively. Specifically, the Company did not maintain a sufficient complement of personnel with appropriate accounting knowledge, experience and training to oversee the application of certain manual process controls or to maintain adequate segregation of duties. The Company recently completed a financing transaction that resulted in a change of control and the Company has experienced significant turnover in its accounting and finance functions in recent months. Management is in the ~~reports it files or submits under~~process of designing and implementing remediation efforts intended to address the ~~Exchange Act is (i) recorded, processed, summarized~~material weakness. The remediation efforts will be focused on immediate hiring and ~~reported, within the time periods specified in the SEC's rules~~training of qualified resources. Management will develop a comprehensive remediation plan, including a detailed plan and ~~forms and (ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.~~timetable for implementation.

There were no restatements of prior period financial statements and no change in previously released financial results were required as the result of the control deficiency.

~~There were no~~Other than as described below, there have not been any changes in ~~our~~the Company’s internal control over financial reporting ~~that occurred~~(as defined in Exchange Act Rule 13a-15(f)) during the first quarter ended ~~April 2,~~October 1, 2022, that have materially affected or are reasonably likely to materially affect ~~our~~the Company’s internal control over financial reporting.

Information related to the Chapter 11 Cases that were filed on May 27, 2020 is included in Note 1 and Note 2 to our unaudited condensed consolidated financial statements herein.

See Note 7 to our unaudited condensed consolidated financial statements herein for additional information.

Except as ~~set forth~~described below, we believe there have been no material changes from our risk factors previously disclosed in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended ~~June 30, 2021.~~

If we ~~are not able~~fail to ~~generate cash flows from~~maintain an effective system of internal controls over financial reporting there is a reasonable possibility that a material misstatement of our ~~operations, remain in compliance with our debt agreements, and continue to access credit markets, we~~annual or interim financial statements will not be ~~able to support capital expenditure requirements,~~prevented or detected on a timely basis, which could result in a loss of investor confidence and negatively impact our business, results of operations, ~~or debt repayment.~~financial condition and stock price.

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 revolving credit facility to support our liquidity needs. On May 9, 2022, we entered into the New ABL Credit Agreement, which increased our borrowing capacity with the addition of two first-in-last out term facilities in an aggregate amount of $10.0 million. The New ABL Credit Agreement includes customary conditions to borrowing, affirmative and negative covenants and events of default, and requiresEffective internal controls are necessary for us to ~~maintain minimum borrowing availability under the New ABL Credit Agreement. In addition,~~provide reliable and accurate financial statements and to effectively prevent fraud. As further described in ~~connection with the New ABL Credit Agreement, the Term Loan Credit Agreement was amended to require satisfaction~~Part I Item 4 “Controls and Procedures” of this report, management has concluded that, because of a ~~total secured net leverage ratio beginning~~material weakness in internal control over financial reporting related to individual control deficiencies related to existing controls failing to operate effectively. Specifically, the Company did not maintain a sufficient complement of personnel with appropriate accounting knowledge, experience and training to oversee the ~~12-month~~application of certain manual process controls or to maintain adequate segregation of duties. The material weakness will not be considered remediated until the Company has hired and trained qualified resources, its internal controls subsequently operate effectively for a sufficient period ~~ending September 30, 2023. Our failure to satisfy any of~~time and management has concluded, through testing, that its internal controls are operating effectively. We cannot be certain that these ~~requirements may result in an event of default under the New ABL Credit Agreement and the Term Loan Credit Agreement.~~

~~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 and debt service requirements~~measures will be dependent 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 and the Term Loan Credit Agreement, we can provide no assurancesuccessful or that we will be able to ~~secure additional~~prevent future significant deficiencies or ~~alternative financing sufficient~~material weaknesses. Any remediation efforts additionally may require us to ~~meet~~incur unanticipated costs for various professional fees and services. Material inaccuracies in our ~~liquidity needs.~~financial statements would damage their value to management and our Board of Directors in making decisions as to the operation of our business, could harm our reputation and cause investors to lose confidence in our reported financial information.

On November 4, 2022, Andrew T. Berger was appointed as Chief Executive Officer of the Company. Mr. Berger has served as a director of the Company since September 28, 2022 and continues to serve as a member of the board of directors. In addition, since his appointment as Chief Executive Officer, Mr. Berger has served as interim Chief Financial Officer until the Company completes its search for a permanent Chief Financial Officer.

Biographical and compensation related information for Mr. Berger was included in the Company’s Current Reports on Form 8-K filed on November 4, 2022 and November 10, 2022 and is incorporated by reference herein.

* The certifications attached hereto as Exhibit 32.1 ~~and Exhibit 32.2~~ are furnished with this Quarterly Report on Form 10-Q and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware		75-2398532
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Class		Outstanding at ~~May 9,~~November 18, 2022
Common Stock, par value $0.01 per share		~~85,767,021~~178,354,379


PART I.	FINANCIAL INFORMATION	4

ITEM 1.	Condensed Financial Statements (Unaudited)	4

	Condensed Consolidated Balance Sheets as of ~~April~~October 1, 2022 and July 2, 2022 ~~and June 30, 2021~~	4

	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~April 2,~~October 1, 2022 and ~~March 31,~~September 30, 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~April 2,~~October 1, 2022 and ~~March 31,~~September 30, 2021	6

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~April 2,~~October 1, 2022 and ~~March 31,~~September 30, 2021	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2427

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3233

ITEM 4.	Controls and Procedures	32

~~PART II.~~	~~OTHER INFORMATION~~	33

PART II.	OTHER INFORMATION	34

ITEM 1.	Legal Proceedings	3334

ITEM 1A.	Risk Factors	3334

ITEM 5.	Other Information	34

ITEM 6.	Exhibits	3435

SIGNATURES		3536


	Store Openings (Closings)
	Three Months Ended October 1, 2022			Three Months Ended September 30, 2021			Fiscal Year Ended July 2, 2022
Open at beginning of period	489			490				490
Opened		—			—			3
Closed		(2	)		(1	)		(4	)
Open at end of period		487			489			489


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


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


Term Loan
	April 2, 2022			June 30, 2021
Loan balance	$	25,000		$	25,000
Debt issuance costs		(269	)		(432	)
Accrued paid-in-kind interest		4,800			1,806
Loan balance, ending	$	29,531		$	26,374


	April 2, 2022		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	57,775	$	47,692
Operating cash flows from finance leases		1		8
Financing cash flows from finance leases		121		167
Right-of-use assets obtained in exchange for operating lease liabilities		12,010		(108,423	)


	Operating Leases		Finance Leases		Total
Fiscal year:
2022 (remaining)	$	18,070	$	2	$	18,072
2023		62,643		—		62,643
2024		45,479		—		45,479
2025		34,099		—		34,099
2026		21,101		—		21,101
2027		15,410		—		15,410
Thereafter		14,472		—		14,472
Total lease payments	$	211,274	$	2	$	211,276
Less: Interest		36,398		1		36,399
Total lease liabilities	$	174,876	$	1	$	174,877
Less: Current lease liabilities		54,165		1		54,166
Non-current lease liabilities	$	120,711	$	—	$	120,711


	Store Openings/Closings
	Three Months Ended April 2, 2022			Three Months Ended March 31, 2021		Nine Months Ended April 2, 2022			Nine Months Ended March 31, 2021			Fiscal Year Ended June 30, 2021
Open at beginning of period	492			490			490			685			685
Opened		—			—		3			2			2
Closed		(2	)		—		(3	)		(197	)		(197	)
Open at end of period		490			490		490			490			490


Exhibit Number		Description

4.1		Registration Rights Agreement, dated as of September 20, 2022 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

4.2		FILO C Note, dated as of September 20, 2022, from Tuesday Morning Corporation to TASCR Ventures, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

4.3		Form of Junior Secured Convertible Note, dated as of September 20, 2022, from Tuesday Morning Corporation to TASCR Ventures, LLC (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

4.4		Form of Junior Secured Convertible Note, dated as of September 20, 2022, from Tuesday Morning Corporation to certain members of management (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

10.1		Second Amendment to Credit Agreement, dated as of ~~May 9,~~September 20, 2022, ~~by and~~ among Tuesday Morning, ~~Corporation,~~Inc., Tuesday Morning Corporation, TMI Holdings, Inc., ~~each~~the subsidiary ~~guarantor from time to time~~guarantors party thereto, the lenders ~~from time to time~~ party thereto, Wells Fargo Bank, National Association, as administrative agent and collateral agent, and 1903P Loan Agent, LLC, as documentation agent for the FILO B ~~documentation~~Facility (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

10.2		Fifth Amendment to Credit Agreement, dated as of September 20, 2022, among Tuesday Morning, Inc., Tuesday Morning Corporation, TMI Holdings, Inc., the lenders party thereto, and Alter Domus (US), LLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 001-40432) filed with the Commission on September 22, 2022)

10.3		Amended and Restated Note Purchase Agreement, dated as of September 20, 2022, among Tuesday Morning Corporation, Tuesday Morning, Inc., the purchasers named therein, and TASCR Ventures CA, LLC, as collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-40432) as filed with the ~~Securities and Exchange~~ Commission ~~(the “Commission”)~~ on ~~May 12,~~September 22, 2022)
~~10.2~~
10.4		~~Second Amendment to Credit Agreement and First Amendment to Guaranty and Collateral~~Voting Agreement, dated as of ~~May 9,~~September 12, 2022, bybetween the Company and ~~among Tuesday Morning Corporation, Tuesday Morning, Inc.~~Osmium Partners (Larkspur SPV), ~~TMI Holdings, Inc., Alter Domus (US), LLC, as administrative agent, and the lenders named therein~~LP (incorporated by reference to Exhibit ~~10.2~~99.6 to the ~~Company’s Form 8-K~~Schedule 13D/A of Osmium Partners LLC (File No. ~~001-40432) as filed with the Securities and Exchange Commission (the “Commission”~~005-42341)) ~~on May 12, 2022)~~

31.1		Certification by the Chief Executive Officer ~~of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~		~~Certification by the~~and Interim Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

~~32.2~~		~~Certification of the~~and Interim Chief Financial Officer of the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

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	TUESDAY MORNING CORPORATION
	(Registrant)

DATE: ~~May 12,~~November 22, 2022	By:	/s/ ~~Jennifer N. Robinson~~Andrew Berger
		~~Jennifer N. Robinson~~Andrew Berger Chief Executive ~~Vice President~~Officer and Interim Chief Financial Officer ~~(Principal Financial Officer)~~