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.

Background

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. 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. In accordance with our bankruptcy Plan of
Reorganization, described below, we completed the permanent closure of 197
stores in the first quarter of 2021 and the closure of our Phoenix, Arizona
distribution center ("Phoenix distribution center") in the second quarter of
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.

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

Emergence from Chapter 11 Bankruptcy Proceedings

•


In May 2020, we filed voluntary petitions under Chapter 11 of the Bankruptcy
Code. 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.

•


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

•


On December 23, 2020, the Bankruptcy Court entered an order confirming our Plan
of Reorganization. On December 31, 2020, all of the conditions precedent to the
Plan of Reorganization were satisfied and we legally emerged from bankruptcy,
resolving all material conditions precedent listed in the Plan of
Reorganization. However, the closing of the Rights Offering was considered a
critical component to the execution of our confirmed Plan of Reorganization,
therefore, we continued to apply the requirements of ASC 852 - Reorganizations
until that transaction closed on February 9, 2021. In connection with our legal
emergence from bankruptcy on December 31, 2020, we completed the debt financing
and sale-leaseback transactions contemplated by the Plan of Reorganization. See
Notes 1, 2, 3, 6 and 8 to the condensed consolidated financial statements herein
for additional information.

•


In February 2021, the Company completed the equity financing transaction
contemplated by the Plan of Reorganization with a $40 million Rights Offering
that expired in February, 2021. Eligible holders of our common stock subscribed
to purchase approximately $19.8 million of shares, at $1.10 per share, with the
Backstop Party purchasing the remaining $20.2 million of shares. The Company
closed on the Rights Offering and in February, 2021, recorded proceeds of $40.0
million and recognized a non-cash charge of approximately $14.5 million for a
change in fair value of the Company's common stock issued to the Backstop Party.
See Notes 1 and 6 to the condensed consolidated financial statements herein for
additional information.

•


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
these claims for approximately $14 million less than the amounts reserved and
retained in an escrow account. 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.
                                       24
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Key Metrics for the Three and Nine Months Ended April 2, 2022

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

•


Net sales for the three months ended April 2, 2022 were $159.6 million, an
increase of $6.3 million or 4.1%, compared to $153.3 million for the three
months ended March 31, 2021. Net sales for the nine months ended April 2, 2022
were $587.9 million, an increase of $74.3 million or 14.5%, compared to $513.5
million for the nine months ended March 31, 2021. Comparable store sales for the
three and nine months ended April 2, 2022, increased 0.6% and 18.1%,
respectively.

•

Gross margin for the three months ended April 2, 2022 was 24.4%, compared to 31.4% for the three months ended March 31, 2021. Gross margin for the nine months ended April 2, 2022 was 27.5%, compared to 31.0% for the nine months ended March 31, 2021.

•


Selling, general and administrative expenses ("SG&A") for the three months ended
April 2, 2022 decreased $3.6 million or 6.1% to $55.6 million, from $59.2
million for the three months ended March 31, 2021. As a percentage of sales for
the three months ended April 2, 2022, SG&A was 34.8% compared to 38.6% for the
three months ended March 31, 2021. Selling, general and administrative expenses
("SG&A") for the nine months ended April 2, 2022 decreased $1.1 million or 0.6%
to $183.5 million, from $184.6 million for the nine months ended March 31, 2021.
As a percentage of sales for the nine months ended April 2, 2022, SG&A was 31.2%
compared to 35.9% for the nine months ended March 31, 2021.

•


Restructuring, impairment and abandonment charges for the three months ended
April 2, 2022 were a net benefit of $0.3 million, compared to a charge $1.0
million for the three months ended March 31, 2021. Restructuring, impairment and
abandonment charges for the nine months ended April 2, 2022 were $2.6 million,
compared to $7.6 million for the nine months ended March 31, 2021, which related
to our permanent store closing plan along with our decision to close our Phoenix
distribution center.

•


Reorganization items, net for the three months ended April 2, 2022 were a net
benefit of $0.1 million compared to a net charge of $23.6 million for the three
months ended March 31, 2021. Reorganization items, net for the nine months ended
April 2, 2022 were a loss of $0.9 million compared to a net benefit of $62.2
million for the nine months ended March 31, 2021.

•


Our net loss for the three months ended April 2, 2022 was $18.2 million, or
diluted net loss per share of $0.21 compared to a net loss for the three months
ended March 31, 2021of $37.1 million, or diluted loss per share of $0.55. 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 earnings per share of $0.41.

•


As shown under the heading "Non-GAAP Financials Measures" below, EBITDA for the
three months ended April 2, 2022 was a negative $12.8 million compared to a
negative $31.9 million for the three months ended March 31, 2021. Adjusted
EBITDA for the three months ended April 2, 2022 was a negative $11.9 million
compared to a negative $6.9 million for the three months ended March 31, 2021.
EBITDA for the nine months ended April 2, 2022 was a negative $15.2 million
compared to a positive $41.2 million for the nine months ended March 31, 2021.
Adjusted EBITDA for the nine months ended April 2, 2022 was negative $8.2
million compared to a negative $12.1 million for the nine months ended March 31,
2021.

                                       25
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Key balance sheet and liquidity metrics for the nine months ended April 2, 2022 include:

•


Cash, cash equivalents, and restricted cash decreased by $20.4 million to $8.5
million at April 2, 2022 from $28.9 million at June 30, 2021. The decrease in
cash, cash equivalents and restricted cash were primarily driven by payments for
bankruptcy court approved petition claims, legal and professional fees and
payments to the Company's vendors for inventory. See Note 2 to our condensed
consolidated financial statements herein for additional information.

•


As of April 2, 2022, total liquidity, defined as cash and cash equivalents plus
$26.6 million availability for borrowing under our Post-Emergence ABL Facility,
was $35.0 million. In addition, we had $54.1 million of borrowings outstanding
under our Post-Emergence ABL Facility and $14.6 million of letters of credit
outstanding.

•


Inventory levels increased by $39.3 million at April 2, 2022 to $176.6 million
from $137.4 million at March 31, 2021. As of April 2, 2022, inventory levels
increased by 28.6% due to the incremental deceleration in topline performance
beginning in March 2022 as well as earlier than expected timing of receipts.
Last year, inventory level challenges were due in part to the closure of much of
our merchant and supply chain operations during the height of the COVID outbreak
as well as pandemic-related disruptions to the supply chain.

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.

Store Data

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



                                                                   Store Openings/Closings
                                     Three Months      Three Months      Nine Months      Nine Months      Fiscal Year
                                         Ended             Ended            Ended            Ended        Ended June 30,
                                     April 2, 2022       March 31,         April 2,        March 31,           2021
                                                           2021              2022            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



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.

Results of Operations

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, 2022 Compared to the Three Months Ended March 31, 2021



Net sales for the three months ended April 2, 2022 were $159.6 million, with an
increase of 4.1%, compared to $153.3 million for the three months ended March
31, 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.
Comparable store sales for the three months ended April 2, 2022, increased 0.6%
due to 6.7% 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.

                                       26
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Gross margin for the three months ended April 2, 2022 was $38.9 million, a
decrease of 19.3% compared to $48.2 million for the three months ended March 31,
2021. As a percentage of net sales, gross margin decreased to 24.4% in the third
quarter of fiscal 2022 compared with 31.4% in the second quarter of fiscal 2021.
The decrease in gross margin as a percentage of net sales was primarily a result
of higher supply chain and transportation costs recognized in the three months
ended April 2, 2022.

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

Restructuring, impairment and abandonment charges were a net benefit of $0.3
million during the three months ended April 2, 2022, compared to net charge of
$1.0 million during the three months ended March 31, 2021. During the three
months ended April 2, 2022, adjustments related to compensation adjustments for
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 million for the three months ended April 2, 2022 as
compared to an operating loss of $12.0 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.

Interest expense increased $0.5 million to $1.9 million for the three months
ended April 2, 2022 compared to $1.4 million for the three months ended March
31, 2021. Interest expense for the three 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 three months ended March 31, 2021 was primarily due to accrued
PIK interest on the Term Loan along with amortization of financing fees incurred
on the Post-Emergence ABL Facility. 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 the three
months ended April 2, 2022 compared to a net charge of $23.6 million in the
three months ended March 31, 2021, related to $0.2 million benefit on claims
related cost, offset by $43 thousand 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, 2022 was $0.1 million to
an income tax expense of $0.2 million in the three months ended March 31, 2021.
The effective tax rates for the three months ended April 2, 2022 and March 31,
2021 were (0.4%) and (0.5%), 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 three months ended April 2, 2022 was $18.2 million, or diluted net losses per share of $0.21 compared to a net loss for the three months ended March 31, 2021 of $37.1 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.

                                       27
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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.



Non-GAAP Financial Measures

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.

                                       28
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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):



                                           Three Months Ended           Nine Months Ended
                                         April 2,      March 31,     April 2,      March 31,
                                           2022          2021          2022          2021
Net earnings/(loss) (GAAP)               $ (18,151 )   $ (37,119 )   $ (30,860 )   $  21,844
Depreciation and amortization                3,369         3,627        10,175        11,933
Interest expense, net                        1,919         1,404         5,520         6,671
Income tax expense                              69           172            11           715
EBITDA (non-GAAP)                        $ (12,794 )   $ (31,916 )   $ (15,154 )   $  41,163
Share based compensation expense (1)         1,600           382         4,645         1,347
Restructuring, impairment and
abandonment charges (2)                       (278 )       1,047         2,588         7,554
Reorganization items, net (3)                 (128 )      23,597           923       (62,169 )
Other (4)                                     (265 )           -        (1,219 )           -
Adjusted EBITDA (non-GAAP)               $ (11,865 )   $  (6,890 )   $  (8,217 )   $ (12,105 )

(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 April 2, 2022, a net benefit in 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 are
primarily related to software abandonment charges and employee retention cost. During the
three months ended March 31, 2021, the restructuring, impairment and abandonment charges are
primarily related to employee retention costs and severance cost. During the nine months
ended March 31, 2021, the charges are primarily related to abandonment costs due to the
permanent closure of our stores and Phoenix, Arizona distribution center and 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. See Notes 2 to the condensed consolidated financial statements
herein for additional information.

(3) For the three months ended April 2, 2022, reorganization items, net benefit from claims
related cost, partially offset by professional and legal fees. For the nine months ended
April 2, 2022, reorganization items, net charges is from claims-related costs including
professional and legal fees. During the three months ended March 31, 2021, reorganization
items, net is primarily non-cash charges related to the execution of our Rights Offering
(defined in Note 6), professional fees and claims-related costs. For the nine months ended
March 31, 2021, reorganization items, net benefit was primarily due to a net gain 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 professional and legal fees related to our
reorganization, claims-related costs as well as non-cash charges from the Rights Offering.
See Notes 1, 2, 6 and 8 to the condensed consolidated financial statements herein for
additional information.

(4) For the three and nine months ended April 2, 2022, adjustments included non-cash expense (benefit) recognized related to cash settled awards in our long-term incentive plan.

Liquidity and Capital Resources

Cash Flows for the Nine Months Ended April 2, 2022

Cash Flows from Operating Activities



In the nine months ended April 2, 2022, net cash used in operating activities
was $57.6 million, compared to cash used in operating activities of $114.5
million in the same period last year. Net cash used in operating activities in
the nine months ended April 2, 2022 was primarily driven by the inventory
purchases and payments of operating expenses as part of 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.

Cash Flows from Investing Activities



Net cash used in investing activities for the nine months ended April 2, 2022 of
$5.2 million 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.

Cash Flows from Financing Activities



Net cash provided by financing activities of $42.4 million for the nine months
ended April 2, 2022 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.
                                       29
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Liquidity

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.

Post-Emergence ABL Credit Agreement



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.

New ABL Credit Agreement

On May 9, 2022 (the "Refinancing Closing Date"), Tuesday Morning Corporation
("Parent"), Tuesday Morning, Inc. (the "Borrower") and each other subsidiary of
Parent 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, 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 13 to our unaudited condensed consolidated financial statements herein.

Term Loan Credit Agreement



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
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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.

Recent Liquidity Developments and Outlook



At April 2, 2022 we are in compliance with covenants in the Post-Emergence ABL
Facility and Term Loan. As of April 2, 2022, we had $54.1 million of borrowings
outstanding under our Post-Emergence ABL Facility and, $14.6 million of letters
of credit outstanding. We currently have borrowing availability of $26.6 million
under our Post-Emergence ABL Facility, as of April 2, 2022. Liquidity, defined
as cash and cash equivalents plus the $26.6 million availability for borrowing
under our Post-Emergence ABL Facility, was $35.0 million as of April 2, 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 million in the first nine
months of fiscal 2022. Capital expenditures are anticipated to be $6.7 million
total for fiscal year 2022. 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.

Off-Balance Sheet Arrangements and Contractual Obligations

We had no off-balance sheet arrangements as of April 2, 2022.

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.


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Critical Accounting Policies



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, 2022, 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 quarter of
fiscal 2022 were 4.4% 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% 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, 2022 would result in a decline in gross
margin and diluted earnings per share for the third quarter of fiscal 2022 of
$0.9 million and $0.01, respectively.

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.

Recent Accounting Pronouncements

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

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