| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation Our interim condensed consolidated financial statements are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”) Prior year shares and per share amounts on the condensed consolidated statements of operations and comprehensive income and condensed consolidated statements of shareholders’ equity have been restated to reflect the reverse stock split on November 9, 2020. Substantial Doubt about the Company’s Ability to Continue as a Going Concern In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern”, the Company’s management evaluated whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date of issuance of these financial statements. Although the following matters raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements have been issued, the Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern. In December 2019, the COVID-19 pandemic (“COVID-19”) emerged and subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic on March 11, 2020 resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. After close monitoring and taking into consideration the guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19, effective March 18, 2020, the Company closed all of its stores and its offices with employees working remotely where possible. The Company began reopening its stores in May 2020, with all stores having been reopened by late June 2020; however, operations of the stores may again be restricted by local guidelines. As a result of COVID-19, during Fiscal Year 2020 the Company’s revenues, results of operations and cash flows were materially adversely impacted, which resulted in a failure by us to comply with the financial covenants contained in our ABL Facility (as defined below) and Term Loan (as defined below). substantial doubt about the Company’s ability to continue as During 2020, the Company entered into forbearance agreements (the “Forbearance Agreements”) with the lenders under its ABL Facility and Term Loan. Under the Forbearance Agreements, the respective lenders agreed not to exercise any rights and remedies through the period of time that allowed the Company to enter into a Transaction Support Agreement (“TSA”) on August 31, 2020 with lenders holding greater than 70% of the Company’s Term Loan and a majority of our shareholders on the principal terms of a financial restructuring (“Transaction”). The Transaction was consented to by the requisite Term Loan lenders and was consummated on an out-of-court basis on September 30, 2020. The Transaction resulted in a waiver of any past non-compliance with the terms of the Company’s credit facilities, provided the Company with additional liquidity and extended the maturity of certain participating debt by two years, through May 2024. While the retail industry has begun to recover, the Company could experience other potential impacts because of COVID-19, including, but not limited to, additional charges from potential adjustments to the carrying amount of its inventory, goodwill, intangible assets, right-of-use assets, and long-lived assets as well as additional store closures. Actual results may differ materially from the Company’s current estimates as considerable risk remains related to the performance of stores, the resilience of the customer in an uncertain economic climate, the possibility of a resurgence of COVID-19 with its potential for future business disruption and the related impacts on the U.S. economy in the coming 12 months and the timing of receipt of our expected tax refunds. If one or more of these risks materialize, we believe that our current liquidity and capital may not be sufficient to finance our continued operations for at least the next 12 months. These risks raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these condensed consolidated financial statements have been issued. In response to the impacts of COVID-19, we improved our financial flexibility by restructuring our debt with an extended maturity. Additionally, we took actions to reduce expenses and we continue to manage working capital, primarily inventory levels and capital expenditures, to maximize cash on-hand. Cost of Goods Sold Cost of goods sold (“COGS”) consist of all costs of sold merchandise (net of purchase discounts and vendor allowances). These costs include:
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Direct costs of purchased merchandise;
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Adjustments to the carrying value of inventory related to realizability and shrinkage; and
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Inbound freight to our distribution center. Our COGS and Gross margin may not be comparable to other entities. Some entities, like us, exclude costs related to shipping products to their customers, as well as costs of their distribution network, buying function, store occupancy costs and depreciation and amortization expenses from COGS and include them in Selling, general and administrative expenses, whereas other entities include these costs in their COGS. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of:
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Payroll and payroll-related expenses;
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Store Occupancy expenses related to stores, distribution center and our headquarters location, including utilities;
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Depreciation of property and equipment and amortization of intangibles;
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Advertising expenses: print, digital and social media advertising and catalog production and distribution;
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Information technology and communication costs;
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Freight associated with shipping products to customers;
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Insurance costs; and
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Consulting and professional fees. Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” . The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2020, and interim periods within those annual periods. As an emerging growth company, the Company has elected to adopt the pronouncement following the effective date for private companies beginning with annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact that this standard will have on the condensed consolidated financial statements. The Company plans to adopt the pronouncement in Fiscal Year 2022. In March 2020, the FASB issued ASU No. 2020-04, “ Reference Rate Reform” , which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The guidance is currently effective and may be applied prospectively at any point through December 31, 2022. The Company is assessing what impact this guidance will have on the Company’s condensed consolidated financial statements. |
