e
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
|
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
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or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
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Commission File Number: 001-39800
Legacy EJY, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
98-1566891 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
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3240 Hillview Avenue Palo Alto, CA |
|
94304 |
(Address of principal executive offices) |
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(Zip Code) |
(888) 463-6569
(Registrant’s telephone number, including area code)
Enjoy Technology, Inc.
(Former name or former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
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Name of each exchange on which registered |
Common stock, $0.0001 par value per share |
|
ENJYQ |
|
* |
Warrants to purchase common stock |
|
ENJYWQ |
|
* |
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☒ |
Smaller reporting company ☒ |
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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 accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares of registrant's common stock outstanding as of October 13, 2022 was 121,803,181.
* |
The registrant’s common stock and warrants began trading exclusively on the OTC Pink Marketplace on July 11, 2022 under the symbols “ENJYQ” and “ENJWQ”, respectively. |
TABLE OF CONTENTS
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Item 1. |
5 |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
5 |
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6 |
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7 |
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Condensed Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2022 and 2021 |
9 |
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11 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
35 |
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Item 3. |
50 |
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Item 4. |
50 |
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Item 1. |
53 |
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Item 1A. |
53 |
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Item 2. |
56 |
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Item 3. |
56 |
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Item 4. |
56 |
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Item 5. |
56 |
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Item 6. |
57 |
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Legacy EJY, Inc. (formerly Enjoy Technology, Inc.) (the “Company,” “we,” “us,” and “our”) contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our current financial position and the effects of the filing by the Company and certain of its wholly owned subsidiaries of voluntary petitions under Chapter 11 of the United States Bankruptcy Code, including our ability to successfully confirm and consummate a plan of reorganization or liquidation (the "Plan"). These statements constitute projections, forecasts and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of performance. They involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these statements. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When we discuss our strategies or plans, we are making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.
These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, statements related to:
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.
Many of the risks and factors that will determine these results and stockholder value are beyond our ability to control or predict. All such forward-looking statements speak only as of the date of this Quarterly Report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this Cautionary Statement Regarding Forward-Looking Statements.
SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties that represent challenges that we face in connection with the successful implementation of our strategy and the growth of our business. Investing in our common stock involves numerous risks, including the risks described in “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Below are some of these risks, among
3
others, which may have a negative effect on our financial condition or operating results, which could cause a material decline in the price of shares of our common stock or warrants and result in a loss of all or a portion of your investment:
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
LEGACY EJY, INC. (FORMERLY ENJOY TECHNOLOGY, INC.)
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
LEGACY EJY, INC. (FORMERLY ENJOY TECHNOLOGY, INC.)
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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||||
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2022 |
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|
2021 |
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|
2022 |
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|
2021 |
|
||||
Revenue |
|
$ |
18,960 |
|
|
$ |
17,161 |
|
|
$ |
39,723 |
|
|
$ |
32,677 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
26,449 |
|
|
|
19,687 |
|
|
|
56,255 |
|
|
|
38,325 |
|
Operations and technology |
|
|
22,555 |
|
|
|
17,499 |
|
|
|
45,359 |
|
|
|
33,071 |
|
General and administrative |
|
|
18,497 |
|
|
|
9,071 |
|
|
|
36,522 |
|
|
|
20,193 |
|
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
— |
|
Related party expense |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
— |
|
Restructuring expenses |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
— |
|
Total operating expenses |
|
|
92,111 |
|
|
|
46,257 |
|
|
|
162,746 |
|
|
|
91,589 |
|
Loss from operations |
|
|
(73,151 |
) |
|
|
(29,096 |
) |
|
|
(123,023 |
) |
|
|
(58,912 |
) |
Loss on convertible loans |
|
|
— |
|
|
|
(17,361 |
) |
|
|
— |
|
|
|
(19,226 |
) |
Interest expense |
|
|
(193 |
) |
|
|
(1,398 |
) |
|
|
(217 |
) |
|
|
(2,792 |
) |
Interest income |
|
|
25 |
|
|
|
2 |
|
|
|
27 |
|
|
|
4 |
|
Other income, net |
|
|
4,173 |
|
|
|
175 |
|
|
|
6,796 |
|
|
|
97 |
|
Loss before provision for income taxes |
|
|
(69,146 |
) |
|
|
(47,678 |
) |
|
|
(116,417 |
) |
|
|
(80,829 |
) |
Provision for income taxes |
|
|
(1 |
) |
|
|
39 |
|
|
|
16 |
|
|
|
157 |
|
Net loss from continuing operations |
|
$ |
(69,145 |
) |
|
$ |
(47,717 |
) |
|
$ |
(116,433 |
) |
|
$ |
(80,986 |
) |
Net loss from discontinued operations |
|
$ |
(14,108 |
) |
|
$ |
(8,242 |
) |
|
$ |
(22,065 |
) |
|
$ |
(14,439 |
) |
Net loss |
|
$ |
(83,253 |
) |
|
$ |
(55,959 |
) |
|
$ |
(138,498 |
) |
|
$ |
(95,425 |
) |
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
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|
||||
Cumulative translation adjustment |
|
|
(708 |
) |
|
|
(100 |
) |
|
|
(910 |
) |
|
|
(104 |
) |
Total comprehensive loss |
|
$ |
(83,961 |
) |
|
$ |
(56,059 |
) |
|
$ |
(139,408 |
) |
|
$ |
(95,529 |
) |
Net loss per share continuing operations, basic and diluted |
|
$ |
(0.57 |
) |
|
$ |
(2.16 |
) |
|
$ |
(0.97 |
) |
|
$ |
(3.69 |
) |
Net loss per share discontinued operations, basic and diluted |
|
$ |
(0.12 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.66 |
) |
Weighted average shares used in computing net loss per share, basic and |
|
|
120,719,489 |
|
|
|
22,079,802 |
|
|
|
120,260,245 |
|
|
|
21,919,563 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
LEGACY EJY, INC. (FORMERLY ENJOY TECHNOLOGY, INC.)
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands, except share amounts)
(Unaudited)
|
|
Redeemable |
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated Other |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares (1) |
|
|
Amount |
|
|
|
Shares (1) |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Deficit |
|
|
Equity |
|
||||||||
Balances at March 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
|
120,111,678 |
|
|
$ |
12 |
|
|
$ |
738,908 |
|
|
$ |
522 |
|
|
$ |
(697,787 |
) |
|
$ |
41,655 |
|
Issuance of common stock under stock plan, net of shares withheld for employee taxes |
|
|
— |
|
|
|
— |
|
|
|
|
1,691,503 |
|
|
|
— |
|
|
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
108 |
|
Issuance of common stock upon |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
5,158 |
|
|
|
— |
|
|
|
— |
|
|
|
5,158 |
|
Withholding taxes from stock plan |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
(57 |
) |
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(708 |
) |
|
|
— |
|
|
|
(708 |
) |
Deconsolidation of Enjoy UK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,442 |
) |
|
|
3,264 |
|
|
|
— |
|
|
|
1,822 |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(83,253 |
) |
|
|
(83,253 |
) |
Balances at June 30, 2022 |
|
|
— |
|
|
|
— |
|
|
|
|
121,803,181 |
|
|
$ |
12 |
|
|
$ |
742,675 |
|
|
$ |
3,078 |
|
|
$ |
(781,040 |
) |
|
$ |
(35,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balances at December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
119,624,679 |
|
|
$ |
12 |
|
|
$ |
734,142 |
|
|
$ |
724 |
|
|
$ |
(642,542 |
) |
|
$ |
92,336 |
|
Issuance of common stock under stock plan, net of shares withheld for employee taxes |
|
|
— |
|
|
|
— |
|
|
|
|
2,136,089 |
|
|
|
— |
|
|
|
226 |
|
|
|
— |
|
|
|
— |
|
|
|
226 |
|
Issuance of common stock upon |
|
|
— |
|
|
|
— |
|
|
|
|
42,413 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
10,279 |
|
|
|
— |
|
|
|
— |
|
|
|
10,279 |
|
Withholding taxes from stock plan |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
(530 |
) |
|
|
|
|
|
|
|
|
(530 |
) |
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(910 |
) |
|
|
— |
|
|
|
(910 |
) |
Deconsolidation of Enjoy UK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,442 |
) |
|
|
3,264 |
|
|
|
— |
|
|
|
1,822 |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(138,498 |
) |
|
|
(138,498 |
) |
Balances at June 30, 2022 |
|
|
— |
|
|
|
— |
|
|
|
|
121,803,181 |
|
|
$ |
12 |
|
|
$ |
742,675 |
|
|
$ |
3,078 |
|
|
$ |
(781,040 |
) |
|
$ |
(35,275 |
) |
7
|
|
Redeemable |
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated Other |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares (1) |
|
|
Amount |
|
|
|
Shares (1) |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Deficit |
|
|
Equity (Deficit) |
|
||||||||
Balances at March 31, 2021 |
|
|
52,880,354 |
|
|
$ |
368,692 |
|
|
|
|
21,807,808 |
|
|
$ |
1 |
|
|
$ |
44,684 |
|
|
$ |
880 |
|
|
$ |
(461,399 |
) |
|
$ |
(415,834 |
) |
Issuance of Series C redeemable convertible preferred stock (net of issuance costs) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of common stock under stock plan |
|
|
— |
|
|
|
— |
|
|
|
|
667,739 |
|
|
|
— |
|
|
|
1,082 |
|
|
|
— |
|
|
|
— |
|
|
|
1,082 |
|
Debt extinguishment of convertible loan |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
1,032 |
|
|
|
— |
|
|
|
— |
|
|
|
1,032 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(100 |
) |
|
|
— |
|
|
|
(100 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(55,959 |
) |
|
|
(55,959 |
) |
Balances at June 30, 2021 |
|
|
52,880,354 |
|
|
|
368,692 |
|
|
|
|
22,475,547 |
|
|
$ |
1 |
|
|
$ |
46,798 |
|
|
$ |
780 |
|
|
$ |
(517,358 |
) |
|
$ |
(469,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
|
|
|||||||
Balances at December 31, 2020 |
|
|
51,518,255 |
|
|
$ |
353,692 |
|
|
|
|
21,416,436 |
|
|
$ |
1 |
|
|
$ |
6,601 |
|
|
$ |
884 |
|
|
$ |
(421,933 |
) |
|
$ |
(414,447 |
) |
Issuance of Series C redeemable convertible preferred stock (net of issuance costs) |
|
|
1,362,099 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of common stock under stock plan |
|
|
— |
|
|
|
— |
|
|
|
|
1,059,111 |
|
|
|
— |
|
|
|
1,505 |
|
|
|
— |
|
|
|
— |
|
|
|
1,505 |
|
Debt extinguishment of convertible loan |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
36,782 |
|
|
|
— |
|
|
|
— |
|
|
|
36,782 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
1,910 |
|
|
|
— |
|
|
|
— |
|
|
|
1,910 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(104 |
) |
|
|
— |
|
|
|
(104 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(95,425 |
) |
|
|
(95,425 |
) |
Balances at June 30, 2021 |
|
|
52,880,354 |
|
|
|
368,692 |
|
|
|
|
22,475,547 |
|
|
$ |
1 |
|
|
$ |
46,798 |
|
|
$ |
780 |
|
|
$ |
(517,358 |
) |
|
$ |
(469,779 |
) |
(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the Merger (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 0.34456 established in the Merger as described in Note 4.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
LEGACY EJY, INC. (FORMERLY ENJOY TECHNOLOGY, INC.)
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(138,498 |
) |
|
$ |
(95,425 |
) |
Net loss from discontinued operations |
|
|
(22,065 |
) |
|
|
(14,439 |
) |
Net loss from continuing operations |
|
|
(116,433 |
) |
|
|
(80,986 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
1,742 |
|
|
|
1,161 |
|
Stock-based compensation |
|
|
9,635 |
|
|
|
1,910 |
|
Loss on asset disposal |
|
|
13 |
|
|
|
— |
|
Accretion of debt discount |
|
|
— |
|
|
|
639 |
|
Non-cash operating lease expense |
|
|
6,779 |
|
|
|
|
|
Revaluation of warrants |
|
|
(6,420 |
) |
|
|
(230 |
) |
Foreign currency transaction (gain) loss |
|
|
(380 |
) |
|
|
299 |
|
Unrealized loss on long-term convertible loan |
|
|
— |
|
|
|
19,226 |
|
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
Non-cash related party expense |
|
|
5,941 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
5,420 |
|
|
|
1,422 |
|
Prepaid expenses and other current assets |
|
|
(4,589 |
) |
|
|
(581 |
) |
Other assets |
|
|
(657 |
) |
|
|
(1,249 |
) |
Operating lease liabilities |
|
|
(6,678 |
) |
|
|
— |
|
Contract liability |
|
|
13,359 |
|
|
|
— |
|
Accounts payable |
|
|
3,098 |
|
|
|
875 |
|
Accrued expenses and other current liabilities |
|
|
1,852 |
|
|
|
(264 |
) |
Net cash used in operating activities - continuing operations |
|
|
(79,491 |
) |
|
|
(57,778 |
) |
Net cash used in operating activities - discontinued operations |
|
|
(12,197 |
) |
|
|
(14,066 |
) |
Net cash used in operating activities |
|
|
(91,688 |
) |
|
|
(71,844 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
(1,722 |
) |
|
|
(1,389 |
) |
Net cash used in investing activities - continuing operations |
|
|
(1,722 |
) |
|
|
(1,389 |
) |
Net cash used in investing activities - discontinued operations* |
|
|
(2,655 |
) |
|
|
|
|
Net cash used in investing activities |
|
|
(4,377 |
) |
|
|
(1,389 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from convertible loan |
|
|
|
|
|
60,200 |
|
|
Proceeds from issuance of redeemable convertible preferred stock |
|
|
|
|
|
15,000 |
|
|
Proceeds from exercises of stock options |
|
|
226 |
|
|
|
1,505 |
|
Proceeds from related party unsecured promissory note |
|
|
10,000 |
|
|
|
|
|
Proceeds from Bridge Loan |
|
|
2,500 |
|
|
|
— |
|
Payment of deferred financing costs |
|
|
|
|
|
(2,947 |
) |
|
Tax-related withholding of common stock |
|
|
(530 |
) |
|
|
|
|
Net cash provided by financing activities - continuing operations |
|
|
12,196 |
|
|
|
73,758 |
|
Net cash provided by financing activities - discontinued operations |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
12,196 |
|
|
|
73,758 |
|
Effect of exchange rate on cash, cash equivalents and restricted cash |
|
|
(191 |
) |
|
|
(320 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
(84,060 |
) |
|
|
205 |
|
Cash, cash equivalents and restricted cash, beginning of period** |
|
|
87,546 |
|
|
|
63,946 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
3,486 |
|
|
$ |
64,151 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
38 |
|
|
$ |
2,153 |
|
Supplemental disclosure of non-cash operating and financing activities: |
|
|
|
|
|
|
||
Property and equipment, net included in accounts payable |
|
$ |
— |
|
|
$ |
483 |
|
Operating lease ROU assets obtained in exchange for lease obligations |
|
$ |
3,730 |
|
|
$ |
|
|
Non-cash interest |
|
$ |
207 |
|
|
$ |
664 |
|
Gain on extinguishment of convertible loan |
|
$ |
— |
|
|
$ |
36,782 |
|
Deferred transaction costs included in accounts payable |
|
$ |
— |
|
|
$ |
580 |
|
Deferred transaction costs included in accrued expenses and other current liabilities |
|
$ |
— |
|
|
$ |
2,913 |
|
* Represents deconsolidation of Enjoy UK cash and cash equivalents.
9
** Includes cash of discontinued operations of $1.0 million and $2.3 million as of December 31, 2021 and 2020, respectively. There was no cash of discontinued operations as of June 30, 2022, as a result of the deconsolidation of Enjoy UK. The net decrease in cash, cash equivalents and restricted cash for discontinued operations does not reflect cash transfers from the parent to Enjoy UK to fund operations during the period in which Enjoy UK was a consolidated subsidiary.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
LEGACY EJY, INC. (FORMERLY ENJOY TECHNOLOGY, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts or as otherwise indicated)
(Unaudited)
Legacy EJY, Inc. (formerly Enjoy Technology, Inc.) (the “Company”) was incorporated in the state of Delaware in May 2014, and was headquartered in Palo Alto, California as of June 30, 2022. As of June 30, 2022, the Company operated mobile stores providing in home delivery, set up and a full shopping experience for technology and telecom companies in the United States of America, United Kingdom, and Canada.
On August 31, 2022, the Company filed an amendment to its Certificate of Incorporation with the Secretary of the State of Delaware in order to change its name from “Enjoy Technology, Inc.” to “Legacy EJY, Inc.”
Holding Company Reorganization – In January 2021, Enjoy Technology, Inc. filed documents with the Delaware Secretary of State to effect a holding company reorganization (the “Holding Company Reorganization”), which resulted in a newly formed Delaware corporation, Enjoy Technology Holding Company (“Enjoy Holdings”), owning all the capital stock of Enjoy Technology, Inc. Enjoy Holdings was initially a direct, wholly owned subsidiary of Enjoy Technology, Inc. Pursuant to the Holding Company Reorganization, the newly formed entity (“Merger Sub”), a direct, wholly owned subsidiary of Enjoy Holdings and an indirect, wholly owned subsidiary of Enjoy Technology, Inc., merged with and into Enjoy Technology, Inc., with Enjoy Technology, Inc., surviving as a direct, wholly owned subsidiary of Enjoy Holdings. Each share of each class of Enjoy Technology, Inc., stock issued and outstanding immediately prior to the Holding Company Reorganization was automatically converted into an equivalent corresponding share of Enjoy Holdings stock, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding share of Enjoy Technology, Inc., stock being converted. Accordingly, upon consummation of the Holding Company Reorganization, Enjoy Technology, Inc.’s current stockholders became stockholders of Enjoy Holdings. The stockholders of Enjoy Technology, Inc., did not recognize any gain or loss for U.S. federal income tax purposes upon the conversion of their shares in the Enjoy Holdings. Finally, Enjoy Technology, Inc. changed its name to Enjoy Technology LLC while Enjoy Holdings changed its name to Enjoy Technology, Inc. References to “Legacy Enjoy” refer to Enjoy Technology, Inc. prior to the completion of the Merger (as defined below).
Marquee Raine Acquisition Corp. Merger – On April 28, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Marquee Raine Acquisition Corp. ((“MRAC”), prior to the closing of the merger and “New Enjoy”, following the closing of the merger), a publicly traded Special Purpose Acquisition Company. On October 15, 2021 (the “Closing Date”), the Company and MRAC consummated the merger transaction contemplated by the Merger Agreement (the “Merger”), following approval at a special meeting of the stockholders of MRAC held on October 13, 2021.
See Note 4, “Reverse Recapitalization” for further details of the Merger.
Wind Down of United Kingdom and Canadian Operations and Restructuring – On June 29, 2022, Enjoy (UK) Limited (“Enjoy UK”), a wholly-owned subsidiary of the Company, commenced a reduction in force with respect to its U.K.-based employees. Similarly on June 30, 2022, Enjoy Technology Canada Ltd. ("Enjoy Canada"), a wholly-owned subsidiary of the Company, commenced a reduction in force with respect to its Canadian-based employees. Enjoy UK and Enjoy Canada filed for bankruptcy proceedings in their respective jurisdictions, on June 30, 2022 and on July 8, 2022, respectively.
Voluntary Petition – On June 30, 2022, (the “Petition Date") the Company and certain of its wholly owned subsidiaries, Legacy EJY Subsidiary LLC (f/k/a Enjoy Technology LLC) and Legacy EJY Operating Corp. (f/k/a Enjoy Technology Operating Corp.) (collectively, the "Debtors") filed voluntary petitions (the "Filings") under Chapter 11 of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for
11
the District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Chapter 11 Cases”). On July 1, 2022, the Bankruptcy Court entered an order authorizing the joint administration of the Chapter 11 Cases under the caption In re Enjoy Technology, Inc., et al., Case No. 22-10580 (JKS). On July 20, 2022, the Company received approval of its customary motions filed on the Petition Date seeking court authorization to continue business operations during the Chapter 11 proceedings, including among others, the continued payment of employee wages and benefits. As part of the Chapter 11 Cases, the Company and its domestic subsidiaries expect to file in the fourth quarter of 2022 their Chapter 11 plan of liquidation. On September 16, 2022, the Bankruptcy Court entered an order (Docket No. 431) authorizing the Debtors to change the case caption to In re Legacy EJY Inc., et al., Case No. 22-10580 (JKS) to reflect, among other things, the corporate name changes.
See Note 3, "Reorganization in Bankruptcy" for further details.
Asset Sale Agreement – On July 25, 2022, the Company and its domestic subsidiaries entered into an Asset Purchase Agreement (the "Purchase Agreement") with Asurion, LLC (“Asurion”) to sell substantially all of their U.S. assets pursuant to a sale conducted under Section 363 of the U.S. Bankruptcy Code. The 363 Sale (as defined below) was conducted under the provisions of Section 363 and was approved by the Bankruptcy Court on August 12, 2022. Pursuant to the Purchase Agreement, on August 31, 2022, the Company and its domestic subsidiaries completed their sale of substantially all of their U.S. assets to Asurion, LLC (the “363 Sale”) for approximately $110.0 million, subject to various deductions including a $23.8 million holdback amount.
See Note 3, "Reorganization in Bankruptcy" for further details.
Delisting and Transfer of Trading – On July 19, 2022, the Nasdaq Stock Market LLC ("Nasdaq") filed a Form 25 with the U.S. Securities and Exchange Commission (the “SEC”) to delist the Company's common stock, $0.0001 par value per share, and the warrants to purchase common stock, of the registrant from Nasdaq. The delisting became effective July 29, 2022. The deregistration of the common stock and warrants under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, after the filing date of the Form 25, at which point the common stock and warrants will be deemed deregistered under Section 12(b) of the Exchange Act. The registrant’s common stock and warrants began trading on the OTC Pink Marketplace on July 11, 2022 under the symbols “ENJYQ” and “ENJWQ”, respectively.
Basis of Presentation – The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the SEC. The condensed consolidated financial statements include the accounts of Legacy EJY, Inc. (formerly Enjoy Technology, Inc.) and its controlled subsidiaries. As permitted for interim reporting, certain footnotes or other financial information that are normally required by U.S. GAAP may be condensed or omitted, unless otherwise required by U.S. GAAP or SEC rules and regulations. These condensed consolidated financial statements were prepared on the same basis as and should be read in conjunction with the Company’s annual consolidated financial statements as of and for the year ended December 31, 2021 and notes thereto included in the Company's fiscal 2021 Annual Report on Form 10-K. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair statement have been included in these condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation except as described in "Deconsolidation of subsidiaries" below. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or future year. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited annual consolidated financial statements but does not include all information required by U.S. GAAP for annual consolidated financial statements.
Going Concern – Management has concluded that it is unable to continue as a going concern. See Note 3, "Reorganization in Bankruptcy," for further information. The condensed consolidated financial statements as of and for the periods ended June 30, 2022, have been prepared assuming the Company would continue as a going concern and do not include any adjustments to reflect the possible future effects of the recoverability
12
and classification of assets, or the amounts and classification of liabilities that may result from the outcome of the bankruptcy proceedings. The Company will apply the liquidation basis of accounting from the date that the liquidation becomes imminent, which criteria had not been met as of June 30, 2022.
Accounting During Bankruptcy – The Company has applied Financial Accounting Standards Board (FASB) Accounting Standards Codification ("ASC") Topic 852, Reorganizations ("Topic 852"), in the preparation of these unaudited condensed consolidated financial statements. For periods subsequent to the Filings, Topic 852 requires the financial statements to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Due to the timing of the filing of the Chapter 11 Cases on June 30, 2022, the amount of Reorganization items, net ("Reorganization items") for the three and six months ended June 30, 2022 is immaterial and have not been presented as Reorganization items within the unaudited condensed consolidated statements of operations and comprehensive loss.
In addition, prepetition obligations that may be impacted by the Chapter 11 proceedings have been classified as "Liabilities subject to compromise" on the unaudited condensed consolidated balance sheet as of June 30, 2022.
See Note 3, "Reorganization in Bankruptcy," for further information.
Deconsolidation of subsidiaries – Under FASB ASC Topic 810, Consolidation, ("Topic 810"), consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners, for instance, where the subsidiary is in legal reorganization or bankruptcy in another jurisdiction.
On June 30, 2022, Enjoy UK filed a petition for bankruptcy in the UK, whereby the Company's control of this subsidiary was ceded. The Company will not regain control of Enjoy UK and concluded that it was appropriate to deconsolidate the UK subsidiary effective as of June 30, 2022. The deconsolidation resulted in a net pretax gain of $7.9 million, which related to the deconsolidation of $12.4 million of liabilities, offset by $2.7 million in cash and $1.8 million of equity. The net pretax gain on deconsolidation is recognized within discontinued operations (see Note 16). The Company measured its retained noncontrolling investment at a fair value of zero, as it does not expect to realize any future cash flows from its investment.
Upon the deconsolidation, transactions with the UK subsidiary are no longer eliminated in consolidation and are treated as related party transactions. The related party payable to Enjoy UK amounting to $5.9 million is recognized under liabilities subject to compromise (see Note 3) in the condensed consolidated balance sheet as of June 30, 2022 with a corresponding related party expense in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022.
On July 8, 2022, Enjoy Canada filed a petition for bankruptcy in Canada, whereby the Company's control of this subsidiary was ceded. The Company will not regain control of Enjoy Canada and concluded that it was appropriate to deconsolidate this subsidiary effective July 8, 2022. The estimated pretax gain on deconsolidation amounts to $5.7 million. As the deconsolidation event occurred subsequent to June 30, 2022, Enjoy Canada is still fully consolidated within these condensed consolidated financial statements.
Reclassifications – In addition to the reclassifications related to discontinued operations, to conform to current presentation, the Company reclassified certain costs within each of its operating expense line items in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021. These changes have no impact on the Company’s previously reported consolidated net loss and comprehensive loss, cash flows, or basic and diluted net loss per share amounts for the periods presented.
13
Changes to the Company’s significant accounting policies as of and for the six months ended June 30, 2022, as compared to the significant accounting policies described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, are described below.
Restructuring Expenses – Under ASC 420, Exit or Disposal Cost Obligations, the Company accrues liabilities for one-time termination benefits when the plan of termination, including sufficient detail regarding the type and amount of benefits to be received upon involuntary termination, has been communicated to the impacted employee. If the employees are required to render service beyond the minimum retention period until they are terminated in order to receive the benefits, a liability is recognized ratably over the future service period.
Leases – Under ASC 842, Leases, a contract is or contains a lease when, (1) explicitly or implicitly identified assets have been identified in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company will determine if an arrangement is a lease at inception of the contract. For all leases (finance and operating leases), as of the lease commencement date the Company recognizes a liability on the balance sheet for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use. Leases with an initial term of 12 months or less meet the definition of a short-term lease which, as a result of the Company's accounting policy election, are not recorded on the balance sheet; and the lease expense for these leases is recognized on a straight-line basis over the lease term.
The lease liability for each lease is recognized at lease commencement based on the present value of the lease payments not yet paid. The initial balance of the right-of-use asset (“ROU asset”) for each lease is recorded at the amount equal to the initial measurement of lease liability, adjusted for balances of prepaid rent, lease incentives received and initial direct costs incurred.
Total lease payments are discounted to present value using the more readily determinable of (i) the rate implicit in the lease or (ii) the Company’s incremental borrowing rate (which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease). Because the Company’s leases generally do not provide an implicit rate, the Company estimates its incremental borrowing rate using information available at the lease commencement date, including but not limited to our credit rating, lease term, and the currency in which the arrangement is denominated.
The Company's lease terms may include periods under options to extend (or not terminate the lease) when it is reasonably certain that we will exercise that option. The Company generally uses the base, non-cancelable lease term when determining the lease assets and liabilities. The Company includes the option to renew (or not terminate) in its determination of the lease term when the option is deemed to be reasonably assured to be exercised. The Company accounts for changes in the expected lease term as a modification of the original contract.
For operating leases, expense is generally recognized on a straight-line basis over the lease term. For any finance leases, interest on the lease liability is recognized using the effective interest method, while the right-of-use asset is amortized on a straight-line basis, from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
See further discussion regarding the Company's accounting for leases following under "Recently Adopted Accounting Pronouncements."
14
Recently Adopted Accounting Pronouncements
In February 2016, FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in 'Leases (Topic 840)'. ASU 2016-02 modified lease accounting for lessees by requiring recognition of right-of-use assets and lease liabilities for all leases, other than the leases that meet the definition of short-term leases, at the option of the Company. The new lease accounting standard also requires enhanced disclosure about an entity's leasing arrangements, among other changes.
On January 1, 2022, the Company adopted the new lease accounting standard and recognized the cumulative effect of initially applying the guidance as an adjustment to the operating lease right-of-use assets and operating lease liabilities on its condensed consolidated balance sheet on January 1, 2022 without retrospective application to comparative periods. The Company's financial statements for the fiscal quarters and year ending December 31, 2022 and forward shall reflect the application of Topic 842.
Upon adoption:
Upon adoption, the Company recorded operating lease right-of-use assets and lease liabilities amounting to $43.6 million and $47.1 million, respectively, and corresponding reductions of $2.3 million to deferred rent, $1.2 million to lease incentive liability and $0.1 million to prepaid rent. The Company does not have any material finance leases. The adoption of the new lease accounting standard had no impact on cash provided by or used in operating, investing or financing activities in the Company’s condensed consolidated statements of cash flows.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in the updated guidance simplify the accounting for income taxes by removing certain exceptions and improving consistent application of other areas of the topic by clarifying the guidance. The new guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, 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 changes how entities account for convertible instruments and contracts in an entity’s own equity and simplifies the accounting for convertible instruments by removing the Beneficial Conversion Feature (“BCF”) and Cash Conversion Feature (“CCF”) separation models required under the current guidance. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for equity classification. Lastly, ASU 2020-06 changes the existing diluted earnings per share (“EPS”) calculation for convertible debt that contains a CCF and increases disclosure requirements for convertible instruments. The ASU is effective for public business entities that meet the definition of a SEC filer, for fiscal years beginning after December 15, 2021,
15
including interim periods within those fiscal years. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued various amendments. The guidance and related amendments modify the accounting for credit losses for most financial assets and require the use of an expected loss model replacing the currently used incurred loss method. Under this model, entities are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The guidance is effective for the Company for the year beginning after December 15, 2022. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU was issued to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination, whereas current GAAP requires that the acquirer measures such assets and liabilities at fair value on the acquisition date. The guidance is effective for the Company for the year beginning after December 15, 2023, with early adoption permitted. The Company will apply the guidance in ASU 2021-08 on a prospective basis for business combinations occurring during the fiscal year in which the Company adopts the amendments.
Voluntary Petition – On June 30, 2022, the Debtors filed voluntary petitions under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”).
On July 11, 2022, the United States Trustee for Region 3 appointed an official committee of unsecured creditors pursuant to section 1102 of the Bankruptcy Code. Generally, statutory committees and their legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to the Chapter 11 Cases. On July 20, 2022, the Debtors received approval of their customary motions filed on the Petition Date seeking court authorization to continue business operations during the Chapter 11 Cases, including the continued payment of employee wages and benefits.
On July 25, 2022, the Debtors entered into a secured super-priority debtor in possession credit, guaranty and security agreement (the “DIP Credit Agreement”) with Asurion, as lender, pursuant to which the Company borrowed $55.0 million in multiple drawings (the “DIP Loans”) from Asurion on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and the Company borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. The Company borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by the Company to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), for working capital and other general corporate purposes, and to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was to be added to the principal amount of the loan and accrue additional interest thereafter and was to be payable in kind. The DIP Loans had a scheduled maturity date of September 30, 2022, and were to be due and payable in full in cash on such date or such earlier date as provided in the DIP Credit Agreement. As described below in “Asset Sale Agreement”,
16
the DIP Loans were paid in full and the DIP Credit Agreement was terminated as part of the 363 Sale (as defined below).
Asset Sale Agreement – On July 25, 2022, the Debtors entered into an Asset Purchase Agreement (the "Purchase Agreement") with Asurion to sell substantially all of their assets in the United States pursuant to a sale conducted under Section 363 of the U.S. Bankruptcy Code. The Purchase Agreement provides for aggregate consideration in the amount of up to $110.0 million subject to various deductions including a $23.8 million holdback amount (the “Holdback”). The Holdback is comprised of deferred revenue, customer chargebacks, post-closing residuals and inventory losses, and such amount earned, if any, will be released to the Company within eight months following closing of the transaction.
Pursuant to the Purchase Agreement, on August 31, 2022, the Debtors completed their sale of substantially all of their assets in the United States to Asurion for approximately $110.0 million, subject to various deductions including a $23.8 million holdback amount. The 363 Sale was conducted under the provisions of Section 363 and was approved by the Bankruptcy Court on August 12, 2022. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Loans were repaid in full and such credit agreements were terminated.
Liabilities Subject to Compromise – The accompanying unaudited condensed consolidated balance sheet as of June 30, 2022 includes amounts classified as liabilities subject to compromise, which represent liabilities that have been recorded at their estimated allowed claim amount.
The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each Debtor, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline, or the bar date, for general claims, which was set by the Bankruptcy Court as September 19, 2022. The governmental bar date has been set as December 27, 2022.
The Debtors are in the process of reviewing, investigating, and reconciling proofs of claims filed against the Debtors with the amounts reflected in their books and records. The Debtors, and/or their successors-in-interest pursuant to a Chapter 11 plan, will continue the claims reconciliation process and object, as necessary, to asserted claims, including on the basis that they have been amended or superseded by subsequently filed proofs of claims, are without merit, have already been paid, are overstated or should be adjusted or expunged for other reasons. As a result of this process, the Debtors may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. As part of its ongoing review, the Company is not aware of any claims that may require a material adjustment to the accounts and balances as reported as of June 30, 2022.
The following table summarizes the components of liabilities subject to compromise included on the unaudited condensed consolidated balance sheet as of June 30, 2022 (in thousands):
(in thousands) |
|
June 30, 2022 |
|
|
Accounts payable |
|
$ |
6,794 |
|
Related party payable to Enjoy UK |
|
|
5,941 |
|
Accrued expenses and other current liabilities |
|
|
2,528 |
|
Contract liability(1) |
|
|
13,359 |
|
Related party unsecured promissory note |
|
|
10,000 |
|
Operating lease liabilities |
|
|
30,226 |
|
Liabilities subject to compromise |
|
$ |
68,848 |
|
17
(1) Contract liability as of June 30, 2022 relates to customer prepayments and customer chargebacks. A contract liability is recognized when the Company receives payment in advance from a customer but the Company has not yet satisfied its performance obligation. In addition, certain of the Company’s contracts contain provisions that allow for a chargeback by the customer of the Company’s fee for selling the incremental service if the Consumer cancels such services within a specified period from the visit. Chargebacks are recognized as a reduction of revenue, in the period such visit occurs, using an estimate derived from historical information regarding Consumer cancelations of specific services as well as real-time information provided by the customer. Chargeback estimates have historically been presented as a reduction to accounts receivables, net, in the consolidated balance sheets as the contractual right of offset existed, however, the amount is presented as liability as of June 30, 2022 given there were no outstanding receivables from the customer at the end of the period.
The Company will continue to evaluate the amount and classification of our pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of liabilities subject to compromise may change.
As of June 30, 2022, the principal and accrued interest associated with the Bridge Loan (as further discussed in Note 10) were not classified as liabilities subject to compromise as this obligation is fully collateralized.
Reorganization Items, net – Due to the timing of the filing of the Chapter 11 Cases on June 30, 2022, the amount of Reorganization items for the three and six months ended June 30, 2022 is immaterial and have not been presented within the financial statements and related footnote disclosures. There was no cash paid for Reorganization items for the three and six months ended June 30, 2022.
Restructuring Expenses – During the six months ended June 30, 2022, the Company incurred legal and professional fees and executed a reduction in workforce in the United States, U.K. and Canada as part of its restructuring efforts. The reductions in workforce were considered terminations without cause under certain employee’s respective employment agreements, which entitled them to certain termination benefits.
For the three and six months ended June 30, 2022, the Company incurred a total of $13.0 million in costs of which $2.2 million is included within discontinued operations. The following table summarizes the Restructuring expenses:
|
|
Continuing Operations |
|
|
Discontinued Operations |
|
||
Legal fees |
|
$ |
4,985 |
|
|
$ |
|
|
Professional fees |
|
|
2,460 |
|
|
|
|
|
Severance |
|
|
3,397 |
|
|
|
|
|
Payments in lieu of notice termination benefits |
|
|
|
|
|
2,153 |
|
|
Total restructuring expenses |
|
$ |
10,842 |
|
|
$ |
2,153 |
|
There was no restructuring liability balance as of the beginning of period. A significant portion of legal fees and professional fees incurred during the three and six months ended June 30, 2022, was paid as of June 30, 2022. The severance remains outstanding as of June 30, 2022. The termination benefits related to payment in lieu of notice was paid on June 30, 2022.
Condensed Combined Debtor-In-Possession Financial Information – The following condensed combined financial statements include Legacy EJY, Inc., Legacy EJY Operating Corp. and Legacy EJY Subsidiary LLC, which are debtors under US Chapter 11. As of June 30, 2022, Enjoy Canada and Enjoy UK are considered non-Debtor entities.
The financial information for the debtor entities is presented below in an unaudited condensed combined balance sheet as of June 30, 2022:
18
CONDENSED COMBINED DEBTORS BALANCE SHEET
(Amounts in thousands)
(Unaudited)
|
|
Debtor Entities |
|
|
|
|
June 30, 2022 |
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
440 |
|
Restricted cash |
|
|
2,530 |
|
Accounts receivable, net |
|
|
1,153 |
|
Prepaid expenses and other current assets |
|
|
7,670 |
|
Total current assets |
|
|
11,793 |
|
Property and equipment, net |
|
|
9,687 |
|
Operating lease right-of-use assets |
|
|
27,157 |
|
Intangible assets, net |
|
|
817 |
|
Other assets |
|
|
4,749 |
|
Total assets |
|
$ |
54,203 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
637 |
|
Payable to Enjoy Canada |
|
|
390 |
|
Accrued expenses and other current liabilities |
|
|
11,371 |
|
Bridge Loan |
|
|
2,500 |
|
Total current liabilities |
|
|
14,898 |
|
Derivative warrant liabilities |
|
|
157 |
|
Liabilities subject to compromise |
|
|
68,848 |
|
Total liabilities |
|
|
83,903 |
|
Total stockholders’ equity |
|
|
(29,700 |
) |
Total liabilities and stockholders’ equity |
|
$ |
54,203 |
|
The results of operations and cash flow activities for the debtor entities while in bankruptcy during the period ended June 30, 2022 are not material to the condensed consolidated financial statements of the Company.
Impairment of Assets – In connection with the winding down of the UK and Canadian operations, the Company recognized impairment of certain assets as shown below:
|
|
Continuing Operations |
|
|
Discontinued Operations |
|
||
Accounts receivable, net |
|
$ |
889 |
|
|
$ |
224 |
|
Prepaid expenses and other current assets |
|
|
101 |
|
|
|
1,102 |
|
Property and equipment, net |
|
|
1,709 |
|
|
|
3,574 |
|
Operating lease right-of-use assets |
|
|
4,685 |
|
|
|
6,399 |
|
Other assets |
|
|
443 |
|
|
|
1,508 |
|
Total assets impaired |
|
$ |
7,827 |
|
|
$ |
12,807 |
|
On the Closing Date, the Company and MRAC consummated the merger transaction contemplated by the Merger Agreement, following approval at an extraordinary general meeting of the shareholders of MRAC held on October 13, 2021.
19
In connection with the execution of the Merger Agreement, MRAC entered into subscription agreements (the “Subscription Agreements”) with certain investors (collectively, the “PIPE Investors”) pursuant to which the PIPE Investors agreed to purchase, in the aggregate, approximately 8 million shares of New Enjoy common stock at $10.00 per share for an aggregate commitment amount of approximately $80 million (the “PIPE Shares”). Pursuant to the Subscription Agreements, New Enjoy agreed to provide the PIPE Investors with certain registration rights with respect to the PIPE Shares. The PIPE investment was consummated substantially concurrently with the closing of the Merger.
On the Closing Date, certain investors purchased, in the aggregate, 5,500,906 shares of New Enjoy common stock (the “Backstop Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of approximately $55,009,060, pursuant to the backstop agreements, dated September 13, 2021 (the "Backstop Agreements"). Pursuant to the Backstop Agreements, New Enjoy agreed to provide certain registration rights to the Backstop Investors with respect to the Backstop Shares.
Immediately prior to the effective time of the Merger, (1) each share of Legacy Enjoy’s (a) Series A preferred stock, par value $0.00001 per share, (b) Series B preferred stock, par value $0.00001 per share, and (c) Series C preferred stock, par value $0.00001 per share (collectively, the “Enjoy Preferred Stock”), converted into one share of common stock, par value $0.00001 per share, of Legacy Enjoy and, together with Enjoy Preferred Stock, (the “Enjoy Capital Stock”) (2) all of the outstanding warrants to purchase shares of Enjoy Capital Stock were exercised in full, with the exception of the warrant to purchase 336,304 shares of Enjoy Preferred Stock held by TriplePoint Venture Growth BDC Corporation, which was converted into a warrant to purchase 115,875 shares of New Enjoy common stock at an exercise price of $6.90 per share.
At the time of the Merger, eligible Legacy Enjoy equity holders received or had the right to receive shares of MRAC’s Class A ordinary shares at a deemed value of $10.00 per share after giving effect to the exchange ratio of approximately 0.34456 as defined in the Merger Agreement (“Exchange Ratio”). Accordingly, immediately after giving effect to the Merger, the Backstop investment and the PIPE investment, there were 119,621,866 shares of common stock and 15,776,292 warrants outstanding.
As a result of the Merger transaction, the Company raised gross proceeds of $171.0 million, including the contribution of net cash held in MRAC’s trust account from its initial public offering of $36.0 million as well as additional proceeds from the PIPE Investors and Backstop Investors. The net proceeds were $112.6 million after repayment of certain loans and transaction costs, of which $10.4 million was direct and incremental to the merger which was accounted for as contra-equity upon the Closing Date. All periods prior to the Merger have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Closing to reflect the reverse recapitalization.
The following tables summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated financial statements (in thousands):
|
|
Fair Value Measurements at June 30, 2022 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative warrant liabilities - Public |
|
$ |
94 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
94 |
|
Derivative warrants liabilities - Private |
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
63 |
|
Total financial liabilities |
|
$ |
94 |
|
|
$ |
63 |
|
|
$ |
— |
|
|
$ |
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value Measurements at December 31, 2021 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative warrant liabilities - Public |
|
$ |
3,924 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,924 |
|
Derivative warrants liabilities - Private |
|
|
— |
|
|
|
2,653 |
|
|
|
— |
|
|
|
2,653 |
|
Total financial liabilities |
|
$ |
3,924 |
|
|
$ |
2,653 |
|
|
$ |
— |
|
|
$ |
6,577 |
|
20
The “Public Warrants” are the redeemable warrants (including those that underlie the units) that were offered and sold by MRAC in its initial public offering and the “Private Warrants” or “Private Placement Warrants” are the warrants issued by MRAC pursuant to a private placement substantially concurrently with the consummation of MRAC’s initial public offering which were then assumed by the Company upon the Merger.
The estimated fair value of the public warrants is disclosed as a Level 1 fair value measurement as the public warrants are publicly traded. The estimated fair value of the private warrants is disclosed as a Level 2 fair value measurement as the key inputs to the valuation model are observable from the public warrants' listed price.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, related party liabilities, and Bridge Loan approximate their fair values due to their short maturities.
As of June 30, 2022 and December 31, 2021, the Company had no transfers in or out of Level 3 of the fair value hierarchy of its assets measured at fair value.
The Company does not use derivative instruments to hedge its exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including issued warrants to purchase MRAC’s Class A ordinary shares, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
All of the Company’s outstanding warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as other expense, net in the consolidated statements of operations and comprehensive loss. The fair value of public warrants is measured based on the listed market price of such warrants. The fair value of the private placement warrants is estimated based on the listed market price of the public warrants.
Property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|
December 31, |
|
||
Leasehold improvements |
|
$ |
14,572 |
|
|
$ |
13,590 |
|
Furniture and fixtures |
|
|
2,218 |
|
|
|
2,006 |
|
Office equipment |
|
|
790 |
|
|
|
537 |
|
Computer equipment |
|
|
107 |
|
|
|
107 |
|
Vehicles |
|
|
66 |
|
|
|
66 |
|
Vehicle equipment |
|
|
283 |
|
|
|
283 |
|
|
|
|
18,036 |
|
|
|
16,589 |
|
Less: accumulated depreciation |
|
|
(6,640 |
) |
|
|
(5,322 |
) |
Less: impairment |
|
|
(1,709 |
) |
|
|
|
|
Property and equipment, net |
|
$ |
9,687 |
|
|
$ |
11,267 |
|
Total depreciation expense related to property and equipment, net was $0.9 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $1.7 million and $1.1 million for the six months ended June 30, 2022 and 2021, respectively.
21
In connection with the winding down of the Canadian and UK operations, property and equipment amounting to $1.7 million and $3.6 million related to continuing operations and discontinued operations, respectively, were fully impaired on June 30, 2022 (see Note 3 for further details). As discussed in Notes 1 and 16, Enjoy UK was deconsolidated effective June 30, 2022. The amount of property and equipment, net, as of December 31, 2021 related to Enjoy UK is disclosed in Note 16.
On August 31, 2022, substantially all of the remaining property and equipment in the United States were transferred to Asurion as part of the 363 Sale.
Intangible assets, net consist of the following (in thousands):
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|
December 31, |
|
||
Domain Name |
|
$ |
1,500 |
|
|
$ |
1,500 |
|
Less: accumulated amortization |
|
|
(683 |
) |
|
|
(633 |
) |
Intangible assets, net |
|
$ |
817 |
|
|
$ |
867 |
|
Total amortization expense was $25 thousand for the three months ended June 30, 2022 and 2021, respectively, and $50 thousand each for the six months ended June 30, 2022 and 2021, respectively.
On August 31, 2022, the intangible assets were transferred to Asurion as part of the 363 Sale.
The Company leases real estate, vehicle fleet and some equipment in the U.S. and internationally. The Company's real estate leases, which are responsible for the majority of the Company's aggregate ROU asset and liability balances, include leases for office space and other facilities. As of June 30, 2022, the Company's real estate and non-real estate leases have remaining lease terms ranging from 12 months to 6 years. Some of these leases contain options that allow the Company to extend or terminate the lease agreement. All of the Company's leases are classified as operating leases except for certain immaterial equipment finance leases.
The components of total lease expense related to operating leases are as follows (in thousands):
|
|
For the Three Months |
|
|
For The Six Months Ended June 30, 2022 |
|
||
Operating lease cost |
|
$ |
4,313 |
|
|
$ |
8,540 |
|
Variable lease cost |
|
|
915 |
|
|
|
1,807 |
|
Short-term lease cost |
|
|
1,830 |
|
|
|
3,644 |
|
Total |
|
|
7,058 |
|
|
|
13,991 |
|
Less: Discontinued operations |
|
|
(1,367 |
) |
|
|
(2,723 |
) |
Continuing operations |
|
$ |
5,691 |
|
|
$ |
11,268 |
|
Rent expense was $3.0 million and $5.6 million for the three and six months ended June 30, 2021, respectively. The Company has updated the amount of rent expense for the six months ended June 30, 2021 disclosure to include fleet vehicle lease expense that was previously inadvertently omitted.
The short-term lease cost disclosed above reasonably reflects the Company’s ongoing short-term lease commitments.
22
The following table provides balance sheet information related to the Company's operating leases (in thousands):
|
|
June 30, |
|
|
Assets |
|
|
|
|
Operating lease right-of-use assets |
|
$ |
27,157 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Operating lease liabilities, current |
|
$ |
1,255 |
|
Operating lease liabilities, non-current |
|
|
3,718 |
|
Total operating lease liabilities |
|
$ |
4,973 |
|
Total operating lease liabilities amounting to $30.2 million as of June 30, 2022 were included as liabilities subject to compromise (see Note 3 for further details).
The following table provides supplemental cash flow information related to the Company's operating leases (in thousands):
|
|
For The Six Months Ended June 30, 2022 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Cash flow from financing activities |
|
$ |
— |
|
Cash flow from operating activities |
|
|
3,416 |
|
Supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets: |
|
|
|
|
Lease liabilities arising from obtaining new ROU assets during the period |
|
|
3,730 |
|
Weighted average remaining lease term |
|
|
3.18 |
|
Weighted average discount rate |
|
|
3.73 |
% |
The maturities of lease liabilities as of June 30, 2022 were as follows (in thousands):
For the year |
|
Operating leases |
|
|
2022 |
|
$ |
6,558 |
|
2023 |
|
|
10,356 |
|
2024 |
|
|
9,218 |
|
2025 |
|
|
7,179 |
|
2026 |
|
|
4,163 |
|
Thereafter |
|
|
480 |
|
Total undiscounted lease payments |
|
|
37,954 |
|
Less: portion representing interest |
|
|
(2,755 |
) |
Net |
|
|
35,199 |
|
Operating lease liability presented under liabilities subject to compromise |
|
|
(30,226 |
) |
Total lease liability |
|
|
4,973 |
|
Operating lease right-of-use assets amounting to $4.7 million and $6.4 million related to continuing operations and discontinued operations, respectively, were fully impaired on June 30, 2022 (see Note 3 for further details).
As part of the Chapter 11 Cases and 363 Sale, many of the Debtors’ leases have been assumed and assigned to Asurion or otherwise rejected pursuant to Section 365 of the Bankruptcy Code, which was approved by the Bankruptcy Court.
23
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|
December 31, |
|
||
Accrued salaries and wages |
|
$ |
10,656 |
|
|
$ |
7,342 |
|
Deferred rent |
|
|
— |
|
|
|
3,524 |
|
Accrued payables |
|
|
261 |
|
|
|
4,238 |
|
Accrued tax |
|
|
177 |
|
|
|
101 |
|
Accrued vacation and benefits |
|
|
1,180 |
|
|
|
1,181 |
|
Accrued other |
|
|
2 |
|
|
|
112 |
|
Total accrued expenses and other current liabilities |
|
$ |
12,276 |
|
|
$ |
16,499 |
|
As discussed in Notes 1 and 16, Enjoy UK was deconsolidated effective June 30, 2022. The amount of accrued expenses and other current liabilities as of December 31, 2021 related to Enjoy UK is disclosed in Note 16.
Related Party Unsecured Promissory Note
On May 11, 2022, the Company issued a promissory note in an aggregate principal amount of $10.0 million (the “Note”) to Ron Johnson, chair of the Company’s board of directors, former Chief Executive Officer, and a beneficial owner of greater than 5% of the Company’s common stock (the “Holder”). The Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy. The Note has a scheduled maturity date of November 11, 2022 and is repayable upon written demand of the Holder at any time on or after such date. The Note bears interest at a rate of 10% per annum, compounding quarterly and payable at maturity. The Company may prepay the Note at any time without premium or penalty. The Note contains customary representations and warranties and events of default, including certain “change of control” events involving the Company. The Note does not restrict the incurrence of future indebtedness by the Company, and shall become subordinated in right of payment and lien priority upon the request of any future senior lender.
The Note was originally secured by substantially all of the assets of the Company. In connection with the Bridge Credit Agreement on June 29, 2022 as further discussed below, the Company entered into an amended and restated promissory note with the Holder, which amended and restated the Note to, among other things, remove the collateral pledge and subordinate the note to indebtedness owing to the lender. The Holder’s security interest in the assets of the Company granted under the Note was terminated thereafter, and as a result the amount of unsecured promissory note has been included in liabilities subject to compromise as of June 30, 2022 (see Note 3 for further details).
The interest expense related to the Note for the three and six months ended June 30, 2022 was $0.1 million.
Bridge Loan
On June 29, 2022, the Debtors, as borrowers, entered into a senior secured credit, guaranty and security agreement (the “Bridge Credit Agreement”) with Asurion, as lender, pursuant to which the Debtors borrowed $2.5 million (the “Bridge Loan”) from Asurion. The Bridge Loan had a scheduled maturity date of July 8, 2022 and was due and payable in full on such date or such earlier date as provided in the Bridge Credit Agreement unless the Bridge Loan was converted to loans under the DIP Credit Agreement. The Bridge Loan bore interest at a rate of 12% per annum, compounded monthly, and such interest was to be added to the principal amount of the Bridge Loan and accrue additional interest thereafter and was payable in kind. The Company and all of its domestic subsidiaries were jointly and severally liable for the Bridge Loan, and the Bridge Loan was secured by all assets of the Company and its domestic subsidiaries. On July 1, 2022, the
24
outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement (the “Roll-Up Loans”). See discussions in Note 3.
The interest expense related to the Bridge Loan for the three and six months ended June 30, 2022 was $2.0 thousand.
Warrant liabilities consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Public Warrants |
|
$ |
94 |
|
|
$ |
3,924 |
|
Private Placement Warrants |
|
|
63 |
|
|
|
2,653 |
|
Total warrant liabilities |
|
$ |
157 |
|
|
$ |
6,577 |
|
The Company recognized a $3.8 million gain for the three months ended June 30, 2022 and $6.4 million gain for the six months ended June 30, 2022 related to a change in fair value of warrant liabilities. The gain is recorded under other expense, net in the consolidated statements of operations and comprehensive loss.
Public Warrants and Private Placement Warrants— As of June 30, 2022, the Company has 9,343,750 public warrants and 6,316,667 private placement warrants outstanding.
The Company’s warrants have an exercise price of $11.50 per share, subject to adjustment, and will expire on October 15, 2026, five years after the completion of the Merger, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
Redemption of warrants when the price per share equals or exceeds $18.00.
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering the common stock issuable upon exercise of the warrants is effective and a current prospectus relating to that common stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by the Company, it may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable
25
state securities laws.
Except as set forth below, none of the private placement warrants will be redeemable by the Company so long as they are held by Marquee Raine Acquisition Sponsor LP (the "Sponsor) or its permitted transferees.
Redemption of warrants when the price per share equals or exceeds $10.00.
The Company may redeem the outstanding warrants (except as described herein with respect to the private placement warrants):
The “fair market value” of our common stock for the above purpose shall mean the volume-weighted average price of our common stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of common stock per warrant (subject to adjustment).
As of June 30, 2022 and December 31, 2021, the Company had common stock outstanding of 121,803,181 shares and 119,624,679 shares, respectively. As of both June 30, 2022 and December 31, 2021, the Company was authorized to issue 500,000,000 shares of common stock.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding. No such dividends have been declared since the Company’s inception.
26
As of each balance sheet date, the Company had reserved shares of common stock for issuance in connection with the following:
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|
December 31, |
|
||
Exercise of Public Warrants and Private Placement Warrants |
|
|
15,660,417 |
|
|
|
15,660,417 |
|
Warrants to purchase redeemable convertible and common stock |
|
|
|
|
|
115,875 |
|
|
Awards outstanding under the equity |
|
|
18,405,234 |
|
|
|
14,401,983 |
|
Awards available for future grant under the |
|
|
9,256,261 |
|
|
|
6,673,256 |
|
Awards available for future grant under the |
|
|
3,881,838 |
|
|
|
2,383,437 |
|
Total |
|
|
47,203,750 |
|
|
|
39,234,968 |
|
2014 Equity Incentive Plan
In June 2014, the Company adopted the 2014 Equity Incentive Plan (“the 2014 Plan”), which provided for the issuance of incentive stock options, nonstatutory stock options, stock appreciation rights, and restricted stock to eligible participants. Options granted under the 2014 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (ISO) may be granted only to the Company’s employees (including officers and directors). Nonqualified stock options (NSO) may be granted to the Company’s employees and consultants.
Under the 2014 Plan, options to purchase common stock awards were granted at no less than 100% of the fair value of the Company’s common stock on the date of the grant, as determined by the board of directors (100% of fair value for incentive stock options and 110% of fair value in certain instances). All options granted through June 30, 2022 and December 31, 2021 have been at 100% of the fair value of the Company’s common stock. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date, and the remainder vest in equal monthly installments over the following 36 months or the entire options vest in equal monthly installments over 48 months. Options generally vest over a four-year period and must be exercised within ten years after grant. In the event of voluntary or involuntary termination of employment with the Company for any reason, with or without cause, all unvested options are forfeited and all vested options must be exercised within a 90-day period or they are forfeited, although the board of directors can approve an extension of the exercise period beyond the 90 day limit. The Company has not granted any stock appreciation rights as of June 30, 2022 and December 31, 2021.
Upon adoption of the 2021 Equity Incentive Plan, the 2014 Plan was terminated, and no further grants will be made under the 2014 Plan. Any awards granted under the 2014 Plan will remain subject to the terms of the 2014 Plan and the applicable award agreement.
2021 Equity Incentive Plan
In October 2021, the Company adopted the 2021 Equity Incentive Plan (the "2021 Plan"), which provided for the issuance of incentive stock options, nonstatutory stock options, stock appreciation rights, and restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to eligible participants. Options granted under the 2021 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (ISO) may be granted only to the Company’s employees (including officers and directors). Nonqualified stock options (NSO) may be granted to the Company’s employees and
27
consultants.
As of June 30, 2022, only restricted stock units have been granted under the 2021 Plan. A restricted stock unit award may be settled by cash, delivery of shares of the Company’s common stock, a combination of cash and shares as determined by the board of directors, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement or by the board of directors, restricted stock unit awards that have not vested will be forfeited once the participant’s continuous service ends for any reason.
2021 Employee Stock Purchase Plan
In October 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP will allow eligible employees to purchase shares of the Company’s common stock at a discounted price, through payroll deductions of up to IRS allowable limit per calendar year. Once an offering date to purchase shares has been established, the purchase price will be set at the lower of (i) an amount equal to 85% of the fair value of the shares of the Company’s common stock on the offering date or (ii) 85% of the fair value of the shares of the Company’s common stock on the applicable purchase date. As of June 30, 2022, the Company has not granted any purchase rights under the ESPP.
The Company recognized stock-based compensation expense on all awards in the following categories in the consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
24 |
|
|
$ |
37 |
|
|
$ |
69 |
|
|
$ |
53 |
|
Operations and technology |
|
|
1,330 |
|
|
|
263 |
|
|
|
2,649 |
|
|
|
489 |
|
General and administrative |
|
|
3,675 |
|
|
|
732 |
|
|
|
6,917 |
|
|
|
1,368 |
|
Stock-based compensation expense - continuing operations |
|
|
5,029 |
|
|
|
1,032 |
|
|
|
9,635 |
|
|
|
1,910 |
|
Stock-based compensation expense - discontinued operations |
|
|
129 |
|
|
|
— |
|
|
|
644 |
|
|
|
— |
|
Total stock-based compensation expense |
|
$ |
5,158 |
|
|
$ |
1,032 |
|
|
$ |
10,279 |
|
|
$ |
1,910 |
|
Stock Options
28
A summary of the status of the stock options as of June 30, 2022, and changes during the six months then ended is presented below (in thousands except share and per share amounts):
|
|
Number of |
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
||||
Balance at December 31, 2021 |
|
|
8,843,297 |
|
|
|
4.12 |
|
|
|
6.75 |
|
|
$ |
16,632 |
|
Options granted |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Options exercised |
|
|
(137,437 |
) |
|
|
1.65 |
|
|
|
|
|
|
|
||
Options cancelled |
|
|
(935,919 |
) |
|
|
6.64 |
|
|
|
|
|
|
|
||
Balance at June 30, 2022 |
|
|
7,769,941 |
|
|
|
3.87 |
|
|
|
6.02 |
|
|
$ |
38 |
|
Options exercisable as of June 30, 2022 |
|
|
5,906,004 |
|
|
|
2.83 |
|
|
|
|
|
|
|
||
Vested and expected to vest—June 30, 2022 |
|
|
7,769,941 |
|
|
$ |
3.87 |
|
|
|
|
|
|
|
||
The total intrinsic value of options exercised during the three months ended June 30, 2022 and 2021 was $0.1 million and $5.4 million, respectively, and $0.1 million and $8.3 million for the six months ended June 30, 2022 and 2021, respectively.
The Company records compensation expense on a straight-line basis over the vesting period. As of June 30, 2022 and 2021, there was approximately $8.6 million and $18.4 million, respectively, of total unrecognized stock-based compensation expense related to unvested employee options, which is expected to be recognized over a weighted-average period of 2.5, and 3.4 years, respectively.
Restricted Stock Units (RSU)
The following table summarizes information pertaining to RSUs during the six months ended June 30, 2022 (in thousands, except for weighted-average grant-date fair value):
|
|
Number of RSUs |
|
|
Weighted-Average |
|
||
Nonvested at December 31, 2021 |
|
|
5,184,830 |
|
|
$ |
5.57 |
|
Granted |
|
|
9,800,037 |
|
|
|
2.68 |
|
Vested |
|
|
(1,850,234 |
) |
|
|
3.80 |
|
Cancelled/forfeited |
|
|
(2,499,340 |
) |
|
|
3.47 |
|
Nonvested at June 30, 2022 |
|
|
10,635,293 |
|
|
$ |
3.70 |
|
The fair value of the RSUs is based on the market value of the underlying shares at the date of grant. The RSU grants’ vesting periods are subject to a service-based condition. The service-based vesting requirements are satisfied either: a) 25% vesting on the first anniversary of the vesting commencement date, and the remaining 75% vesting in substantially equal quarterly installments for three years thereafter; b) one-third vesting on each of the first three anniversaries of the vesting commencement date; or c) awards vest in substantially equal quarterly installments for four years following the vesting start date, all subject to continued service through each vesting date. The Company records compensation expense related to RSUs on a straight-line basis over the vesting period.
As of June 30, 2022, there was a total of $37.4 million of unrecognized stock-based compensation expense related to RSUs.
The effective tax rate from continuing operations for the three months ended June 30, 2022 and 2021 was 0.0% and 0.1%, respectively, and the six months ended June 30, 2022 and 2021 was 0.0% and 0.2%, respectively. The effective tax rate differs from the federal statutory income tax rate primarily due to the full
29
valuation allowance recorded on our net federal and state deferred tax assets. The provision for the three and six months ended June 30, 2022 is comprised of income taxes in foreign jurisdictions.
The Company applies the discrete method provided in ASC 740 to calculate its interim tax provision.
The following table sets forth the computation of net loss per common share (in thousands except share and per share amounts):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss from continuing operations |
|
$ |
(69,145 |
) |
|
$ |
(47,717 |
) |
|
$ |
(116,433 |
) |
|
$ |
(80,986 |
) |
Net loss from discontinued operations |
|
$ |
(14,108 |
) |
|
$ |
(8,242 |
) |
|
$ |
(22,065 |
) |
|
$ |
(14,439 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares |
|
|
120,719,489 |
|
|
|
22,079,802 |
|
|
|
120,260,245 |
|
|
|
21,919,563 |
|
Net loss per share continuing operations—basic and diluted |
|
$ |
(0.57 |
) |
|
$ |
(2.16 |
) |
|
$ |
(0.97 |
) |
|
$ |
(3.69 |
) |
Net loss per share discontinued operations—basic and diluted |
|
$ |
(0.12 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.66 |
) |
The Company’s potentially dilutive securities, which include public warrants, private placement warrants, restricted stock units, stock options to purchase common stock and warrants to purchase redeemable convertible preferred stock and common stock, have been excluded from the computation of diluted net loss per share as the effect would be antidilutive. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
|
|
Six Months Ended June 30, |
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
||
Conversion of redeemable convertible preferred stock |
|
|
— |
|
|
|
52,880,354 |
|
|
Public Warrants and Private Placement Warrants |
|
|
15,660,417 |
|
|
|
— |
|
|
Warrants to purchase redeemable convertible |
|
|
— |
|
|
|
279,328 |
|
|
Options to purchase common stock |
|
|
7,769,941 |
|
|
|
10,530,781 |
|
|
Restricted stock units |
|
|
10,635,293 |
|
|
|
717,699 |
|
|
Conversion of convertible loan |
|
|
— |
|
|
|
9,848,683 |
|
|
Total common stock equivalents |
|
|
34,065,651 |
|
|
|
74,256,846 |
|
|
The shares of the Company's common and redeemable convertible preferred stock, prior to the Merger (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 0.34456 established in the Merger as described in Note 4.
Prior to the deconsolidation of Enjoy UK, the Company managed its operations through two operating and reportable segments that were based on geographic location: North America (United States and Canada operations) and Europe (United Kingdom operations by Enjoy UK). Enjoy UK was deconsolidated on June
30
30, 2022 due to the Company's ceding of its controlling interest as a result of Enjoy UK's insolvency filing. The deconsolidation event resulting from the disposition of controlling interest constitutes a disposal of a segment deemed to be a strategic shift having major effect on the Company’s operations and financial results, and accordingly the results of operations of Enjoy UK are presented as discontinued operations in the condensed statements of operations and comprehensive loss. Consequently, the results of North American operations are presented as continuing operations.
Entity-wide Disclosures
The Company’s revenue distribution for its North American operations was as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
|
94 |
% |
|
|
87 |
% |
|
|
92 |
% |
|
|
85 |
% |
Canada |
|
|
6 |
% |
|
|
13 |
% |
|
|
8 |
% |
|
|
15 |
% |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
During the three months ended June 30, 2022 and 2021, there were two and three customers, respectively, with revenues individually in excess of 10% of total consolidated net revenues, which are reported under continuing operations and discontinued operations. Net revenues for these customers were approximately $15.9 million and $3.2 million in the three months ended June 30, 2022 and approximately $14.0 million, $3.7 million, and $2.3 million in the three months ended June 30, 2021. During the three months ended June 30, 2022, one customer is reflected in the North American operations and one customer is reflected in the European operations. During three months ended June 30, 2021 two customers are reflected in the North American operations and one customer is reflected in the European operations.
During the six months ended June 30, 2022 and 2021, there were three customers with revenues individually in excess of 10% of total consolidated net revenues, which are reported under continuing operations and discontinued operations. Net revenues for these customers were approximately $31.7 million, $6.5 million, and $5.0 million in the six months ended June 30, 2022 and approximately $25.5 million, $7.5 million, and $4.8 million in the six months ended June 30, 2021. During the six months ended June 30, 2022, two customers are reflected in the North American operations and one customer is reflected in the European operations. During six months ended June 30, 2021 two customers are reflected in the North American operations and one customer is reflected in the European operations.
Income (loss) from Discontinued Operations
31
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
|
3,206 |
|
|
|
3,704 |
|
|
|
6,467 |
|
|
|
7,534 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
4,651 |
|
|
|
6,172 |
|
|
|
9,654 |
|
|
|
11,703 |
|
Operations and technology |
|
|
4,370 |
|
|
|
4,023 |
|
|
|
8,898 |
|
|
|
7,684 |
|
General and administrative |
|
|
1,163 |
|
|
|
1,727 |
|
|
|
2,819 |
|
|
|
2,703 |
|
Impairment charges |
|
|
12,807 |
|
|
|
— |
|
|
|
12,807 |
|
|
|
— |
|
Restructuring expenses |
|
|
2,153 |
|
|
|
— |
|
|
|
2,153 |
|
|
|
— |
|
Total operating expenses |
|
|
25,144 |
|
|
|
11,922 |
|
|
|
36,331 |
|
|
|
22,090 |
|
Loss from operations |
|
|
(21,938 |
) |
|
|
(8,218 |
) |
|
|
(29,864 |
) |
|
|
(14,556 |
) |
Interest expense |
|
|
(14 |
) |
|
|
(13 |
) |
|
|
(28 |
) |
|
|
(25 |
) |
Gain on deconsolidation |
|
|
7,853 |
|
|
|
— |
|
|
|
7,853 |
|
|
|
— |
|
Other income (expense), net |
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
|
|
197 |
|
Loss before provision for income taxes |
|
|
(14,099 |
) |
|
|
(8,246 |
) |
|
|
(22,039 |
) |
|
|
(14,384 |
) |
Provision/(benefit) for income taxes |
|
|
9 |
|
|
|
(4 |
) |
|
|
26 |
|
|
|
55 |
|
Loss from discontinued operations |
|
|
(14,108 |
) |
|
|
(8,242 |
) |
|
|
(22,065 |
) |
|
|
(14,439 |
) |
Restructuring expenses noted in the above table relate to payments in lieu of notice termination benefits.
Assets and Liabilities of Discontinued Operations as of December 31, 2021
|
|
December 31, |
|
|
|
|
2021 |
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
991 |
|
Accounts receivable, net |
|
|
2,501 |
|
Prepaid expenses and other current assets |
|
|
832 |
|
Total current assets |
|
|
4,324 |
|
Noncurrent assets: |
|
|
|
|
Property and equipment, net |
|
|
4,678 |
|
Other assets |
|
|
1,703 |
|
Total noncurrent assets |
|
|
6,381 |
|
Total assets |
|
$ |
10,705 |
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
1,039 |
|
Accrued expenses and other current liabilities |
|
|
3,611 |
|
Total current liabilities |
|
|
4,650 |
|
Total liabilities |
|
|
4,650 |
|
In January 2016, the Company adopted a 401(k) Plan that qualifies as a deferred salary arrangement under Section 401 of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pretax earnings not to exceed the maximum amount allowable. The Company has not made any matching contributions under the 401(k) Plan as of June 30, 2022 and 2021.
The Company also maintained a Group Personal Pension Plan (the “GPP Plan”) for all eligible employees in the Company’s United Kingdom offices. The GPP Plan was a defined contribution plan in which employees were eligible to contribute a portion of their salaries, subject to a maximum annual amount as established by Her Majesty’s Revenue and Customs. In 2022 and 2021, the Company matched 3% of employee
32
contributions. The Company contributed $0.1 million to the GPP Plan in the form of matching contributions in the three month periods ended June 30, 2022 and 2021, respectively, and $0.2 million each for the six months ended June 30, 2022 and 2021.
On September 22, 2022, the Bankruptcy Court entered an order authorizing the implementation of a key employee incentive program (the “KEIP”), approving the terms of the KEIP, and granting related relief. The KEIP provides cash incentive payments to the Debtors’ Chief Legal Officer and Corporate Secretary (the “KEIP Participant”). Under the KEIP, the Debtors will provide payments of (i) $250,000 upon the consummation of the 363 Sale (the “Sale KEIP Award”); (ii) $50,000 to $350,000 upon the effective date of the Debtors’ Chapter 11 plan (the “Winddown KEIP Award”), depending on the effective date of the Debtors’ Chapter 11 plan; and (iii) $250,000 if general unsecured creditors receive 100% recovery, to be paid upon final distribution to creditors or such time as the post-effective date debtors’ administrator or trustee determines is appropriate (the “Additional KEIP Award,” and together with the Sale KEIP Award and Winddown KEIP Award, the “KEIP Award”). The Winddown KEIP Award will be in the amount of $350,000 if the effective date of the Debtors’ Chapter 11 plan is prior to December 1, 2022, with a $25,000 reduction per week after such date. The KEIP Award would not be payable to the KEIP Participant, or otherwise would be subject to claw back, if the KEIP Participant does not remain employed by the Debtors until the effective date of the Debtors’ Chapter 11 plan. The KEIP Award is not in lieu of the KEIP Participant’s entitlement to contractual severance.
Standby Letters of Credit – As of June 30, 2022 and December 31, 2021, the Company had several letters of credit outstanding related to its operating leases and workers compensation totaling $2.5 million and $1.7 million, respectively. Collateral for all standby letters of credit are included in restricted cash in the consolidated balance sheet as of June 30, 2022 and December 31, 2021.
As of June 30, 2022 and December 31, 2021, security deposits to landlords totaling $2.5 million and $3.7 million, respectively, are included in other noncurrent assets in the consolidated balance sheet.
Legal Matters – The Company is party to certain claims in the normal course of business. While the results of these claims cannot be predicted with any certainty, the Company believes that the final outcome of these matters will not have a material adverse effect on the condensed consolidated financial position and results of operations. The Company records a liability when it believes that it is probable that a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. There were no such material matters as of June 30, 2022 and December 31, 2021.
Indemnifications – As an element of its standard commercial terms, the Company includes an indemnification clause in its agreements with business partners, investors, lenders and contractors that includes defense and indemnification of those parties against liability and damages (including legal defense costs) awarded against those parties arising from claims of infringement of U.S. patents, copyrights, and trademarks, and misappropriation of trade secrets of third parties by the Company’s services or materials. To date, the Company has not experienced any claims related to its indemnification provisions. As of June 30, 2022 and December 31, 2021, the Company has not established an indemnification loss reserve.
To the extent permitted under Delaware law, the Company has agreements whereby certain officers and directors are indemnified for certain events or occurrences while the director or officer is or was serving in such capacity. The indemnification period covers all pertinent events and so long as such officer or director may be subject to any possible claim. However, the Company maintains director and officer insurance coverage that reduces overall exposure and enables recovery of a portion of any future amounts paid. The estimated fair value of these indemnification agreements in excess of applicable insurance coverage is considered to be immaterial as of June 30, 2022 and December 31, 2021.
33
The Company has evaluated subsequent events through the date of issuance of these condensed consolidated financial statements.
The events associated with the voluntary petitions for bankruptcy, wind down of the UK and Canadian operations, and the Debtors' Chapter 11 Cases, including the 363 Asset Sale and repayment of the DIP Credit Agreement are discussed in Notes 1 and 3.
On September 30, 2022, in connection with the wind down of the Company’s operations and the resulting reduction of the Company’s workforce, the Company terminated the employment of its Chief Executive Officer, Ron Johnson, and its Chief Administrative Officer, Jonathan Mariner. As a result of their termination, neither Mr. Johnson nor Mr. Mariner serve as an officer or manager of the Company or any subsidiary or other affiliate of the Company. However, both Mr. Johnson and Mr. Mariner continue to serve as directors on the Company’s Board of Directors.
Other than those discussed above, there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.
*****
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with our financial statements, related notes and other financial information appearing elsewhere in this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below, elsewhere in this Quarterly Report, particularly in Part II, Item 1A, “Risk Factors”. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Recent Developments
Voluntary Petition and Completion of Disposition of Assets
On June 30, 2022 (the “Petition Date”), the Company and certain of its wholly owned subsidiaries, Legacy EJY Subsidiary LLC (f/k/a Enjoy Technology LLC) and Legacy EJY Operating Corp. (f/k/a Enjoy Technology Operating Corp.) (together with the Company, the “Debtors”) filed voluntary petitions (the “Filings”) under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (such court, the “Bankruptcy Court” and such cases, the “Chapter 11 Cases”).
During the Chapter 11 Cases we operate our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our vendors.
For the duration of the Chapter 11 Cases, our operations are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the amount and composition of our assets and liabilities could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and liquidity and capital resources included in this Quarterly Report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 Cases.
On July 25, 2022, the Debtors entered into an Asset Purchase Agreement (the “Purchase Agreement) with Asurion, LLC (the “Lender”) to sell substantially all of their assets pursuant to a sale conducted under Section 363 of the Bankruptcy Code. The Bankruptcy Court approved the 363 Sale on August 12, 2022 and the 363 Sale was completed on August 31, 2022. Pursuant to the Purchase Agreement, the Debtors completed the 363 Sale for approximately $110.0 million, subject to various deductions, including a $23.8 million holdback amount. In accordance with the requirement in the Purchase Agreement to discontinue the use of the Company’s prior name (and any other trade names) following the 363 Sale, the Company changed its name to Legacy EJY, Inc. on August 31, 2022.
Financing Arrangements
On June 29, 2022, the Debtors, as borrowers, entered into a senior secured credit, guaranty and security agreement (the “Bridge Credit Agreement”) with Asurion, pursuant to which the Debtors borrowed $2.5 million (the “Bridge Loan”) from the Lender. The Bridge Loan had a scheduled maturity date of July 8, 2022 and was due and payable in full on such date or such earlier date as provided in the Bridge Credit Agreement unless the Bridge Loan was converted to loans under the DIP Credit Agreement (as defined below) as further described below. The Bridge Loan bore interest at a rate of 12% per annum, compounded monthly, and such interest was to be added to the principal amount of the Bridge Loan and accrue additional interest thereafter and was payable in kind. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement (the “Roll-Up Loans”).
35
In connection with the Bridge Credit Agreement on June 29, 2022, the Company entered into an amended and restated promissory note (the “Note”) with Ron Johnson (the “Holder”), which amended and restated the secured promissory note, dated as of May 11, 2022 (the “Original Note”) for an aggregate principal amount of $10.0 million, between the Company and the Holder to, among other things, remove the collateral pledge and subordinate the note to indebtedness owing to the Lender. The Holder’s security interest in the assets of the Company granted under the Original Note was terminated thereafter. The Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy.
On July 25, 2022, the Debtors, as borrowers, entered into a secured super-priority debtor in possession credit, guaranty and security agreement (the “DIP Credit Agreement”) with Asurion, as lender, pursuant to which the Debtors borrowed $55.0 million in multiple drawings (the “DIP Loans”) from the Lender on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, (i) the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and (ii) the Debtors borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. The Debtors borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by the Debtors (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was added to the principal amount of the loan and accrued additional interest thereafter and was payable in kind. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement were repaid in full and such credit agreement was terminated.
Nasdaq Delisting
On the Petition Date, we received written notice from the staff of Nasdaq notifying us that, as a result of the Filings and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, our common stock and warrants were no longer suitable for listing on Nasdaq. Trading of our common stock and warrants were suspended at the opening of business on July 11, 2022 and a Form 25-NSE was filed with the SEC on July 19, 2022, which removed our common stock and warrants from listing on Nasdaq. Our common stock and warrants began trading on the OTC Pink Marketplace on July 11, 2022 under the symbols “ENJYQ” and “ENJWQ”, respectively.
Restructuring and Reduction in Force
In June 2022, we executed a reduction in force in the U.K. and Canada of approximately 411 and 145 employees, respectively, representing approximately 25% of our global workforce as of June 30, 2022, as part of our restructuring efforts. In connection with the reduction in force, the Company incurred approximately $2.2 million in expenses in the form of cash-based expenditures, substantially all of which was related to payment in lieu of notice termination benefits. The charges were recognized in the quarter ended June 30, 2022 and we did not modify the affected employees’ stock awards to accelerate the vesting of such awards or to otherwise modify such awards in a manner that would result in such charges.
Upon filing of bankruptcy in the U.S., the Company recognized $3.4 million as of June 30, 2022 related to employee severance. The Company executed a reduction in force in the U.S. in August and September 2022. As of October 3, 2022, only 10 employees remained to execute the process of winding down the Company.
The Company also incurred legal and professional fees totaling to $7.4 million for the three and six months ended June 30, 2022, as part of its restructuring efforts.
Deconsolidation of the Subsidiaries
On June 30, 2022, Enjoy UK filed for bankruptcy in the UK, whereby our control of this subsidiary was ceded. We will not regain control of Enjoy UK and concluded that it was appropriate to deconsolidate the UK subsidiary effective as of June 30, 2022. The deconsolidation resulted in a net pretax gain of $7.9 million, which related to the
36
deconsolidation of liabilities of $12.4 million, offset by cash of $2.7 million and equity of $1.8 million. The net pretax gain on deconsolidation is recognized within discontinued operations.
On July 8, 2022, Enjoy Canada filed for bankruptcy in Canada, whereby our control of this subsidiary was ceded. We will not regain control of Enjoy Canada and concluded that it was appropriate to deconsolidate this subsidiary effective July 8, 2022. The estimated pretax gain on deconsolidation amounts to $5.7 million. As the deconsolidation event occurred subsequent to June 30, 2022, Enjoy Canada is still recognized within our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Prior to the deconsolidation of Enjoy UK, we managed our operations through two operating and reportable segments that were based on geographic location: North America (United States and Canada operations) and Europe (United Kingdom operations by Enjoy UK). Enjoy UK was deconsolidated on June 30, 2022 due to our ceding of our controlling interest as a result of Enjoy UK's insolvency filing. The deconsolidation event resulting from the disposition of controlling interest constitutes a disposal of a segment, accordingly the results of operations of Enjoy UK are presented as discontinued operations in our unaudited condensed statements of operations and comprehensive loss included elsewhere in this Quarterly Report. Consequently, the results of North American operations are presented as continuing operations.
Overview
As discussed under “Recent Developments” above, on June 30, 2022, the Company filed the Chapter 11 Cases and on August 31, 2022, we completed the sale of substantially all of our U.S. assets. The discussion of our business and results of operations for the three and six months ended June 30, 2022 below reflect our historical operations prior to such developments as described under “Recent Developments” above.
The Company was incorporated in the state of Delaware in May 2014, and was headquartered in Palo Alto, California as of June 30, 2022. As of June 30, 2022, the Company operated Mobile Stores providing in home delivery, set up and a full shopping experience for companies.
As of June 30, 2022, we operated in over 70 locations across the United States and Canada.
The Company started with a simple question, “What if the best of the store could come to you?” Over the last eight years we built and optimized our Mobile Store, a new channel that pairs the convenience of online shopping with the personal touch of an in-store retail experience brought together in the comfort of end customers’ (the "Consumer") homes.
Over the past twenty five years, eCommerce has disrupted the retail industry in virtually every category, shifting commerce from physical stores to the home. While eCommerce channels greatly expanded choices and increased convenience with fulfillment to customers’ doorsteps, they have not addressed the importance of an interactive shopping experience that customers desire for products, such as technology. As of June 30, 2022, the Company provided set-up and activation, and also assisted customers in purchasing hardware, accessories, and subscription services in the comfort of the home. This Mobile Store shopping experience created a unique and deep retail experience for Consumers that does not exist with traditional retail channels.
As of June 30, 2022, we maintained multi-year contractual relationships with leading telecommunications and technology companies, which are our "Business Partners" or "Customers." Our revenue stemmed from a variety of service, set-up and delivery fees that were paid to us by our Customers. During a visit from our Mobile Store, the Consumer paid for products and services directly to our Customers via secure mobile point-of-sale devices. On confirmation of the purchase, our Customers then remitted our fees directly to us.
As of June 30, 2022, the Company delivered a broad assortment of telecommunications and technology products and accessories, which are provided by our Customers. Our mobile retail sales team (“Experts”) provided set-up, activation and demonstration of the products we delivered. We assisted Consumers in evaluating and selecting a myriad of accessories, media sources, protection, broadband, and other services. We also assisted in the trade-in and upgrade of our customers’ products. We strove to deliver our customers’ products with same-day or next-day frequency, matching the speed of traditional eCommerce channels but with an experience.
37
Consumers initiated their purchase on our Customers’ eCommerce sites, service centers or retail locations. The Consumer selected at-home delivery and a delivery window. Consumer orders flowed seamlessly from our Customers’ eCommerce sites to the Company via deeply integrated technology platforms. This resulted in near-zero Consumer acquisition costs for the Company.
Our inventory was 100% consigned to us by our Customers and maintained in secure warehouses at our market locations. These warehouse locations also served as the base of operations for our Mobile Store fleets and as the operating center for the market in which they served. Our warehouses also provided meeting, training and support services for our Experts. Our warehouses and Mobile Store vehicle fleet were fully leased. As of June 30, 2022, we operated in over 70 locations which provide access to over 50% of the population in the markets that we served, representing over 200 million addressable consumers.
Our business was enabled by highly sophisticated, proprietary sets of technology applications, systems and data science tools. To deliver and optimize millions of retail experiences, we built our technology platform from the ground up to support customer integrations, smart logistics and a variety of solutions to empower our Experts in providing the best and most personalized experience for every Consumer.
Our Experts were central to the at-home retail experience we provided for Consumers. Our Experts were 100% employees of the Company and had the skills and training to be deeply knowledgeable about the products and services that we offered. We believe our Experts brought a world-class and deeply engaging shopping experience to Consumers.
Key Performance Metrics
We regularly reviewed several metrics related to our continuing operations, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. The reasons we believe these key performance metrics are useful to investors are provided below.
Daily Mobile Stores – Daily Mobile Stores represent the number of Mobile Stores we operate on a given day. This is calculated by dividing the total number of visit-serving Expert shifts in a given reporting period by the number of calendar days in that period. A visit-serving Expert shift is defined as an Expert that is scheduled to serve Consumers on a given day. We believe this is the primary measure of scale and growth of our retail footprint.
Daily Revenue Per Mobile Store – Daily Revenue Per Mobile Store is defined as the average daily revenue generated per Daily Mobile Store. This metric is calculated by dividing the revenue generated in a given reporting period by the product of Daily Mobile Stores and the number of days in that given reporting period. We believe growth in Daily Revenue Per Mobile Store is a key driver for increasing the Company’s profitability.
Mobile Store Profit (Loss) and Mobile Store Margin – Mobile Store Profit (Loss) is a measure prepared in accordance with GAAP and is defined as revenue less cost of revenue. Mobile Store Margin is Mobile Store Profit (Loss) as a percentage of revenue. We view this metric as an important measure of business performance as it captures Mobile Store profitability and provides comparability across reporting periods.
Adjusted EBITDA – Adjusted EBITDA is defined as net loss from continuing operations, adjusted for interest expense, provision for income taxes, depreciation and amortization, stock-based compensation, loss on convertible loans, one time transaction related costs, interest income and other expenses not considered a core part of our operations. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA is a non-GAAP measure. Refer to the “Non-GAAP Measures” section below for further discussion
The following tables present our key performance metrics for the continuing operations for the period presented (in thousands except Daily Mobile Stores amounts):
38
|
|
Three Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Daily Mobile Stores |
|
|
592 |
|
|
|
438 |
|
Daily Revenue Per Mobile Store |
|
$ |
352 |
|
|
$ |
431 |
|
Mobile Store Loss |
|
$ |
(7,489 |
) |
|
$ |
(2,525 |
) |
Mobile Store Margin |
|
|
(39.5 |
)% |
|
|
(14.7 |
)% |
Loss from operations |
|
$ |
(73,151 |
) |
|
$ |
(29,096 |
) |
Adjusted EBITDA |
|
$ |
(42,576 |
) |
|
$ |
(27,176 |
) |
|
|
|
|
|
|
|
||
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Daily Mobile Stores |
|
|
621 |
|
|
|
433 |
|
Daily Revenue Per Mobile Store |
|
$ |
351 |
|
|
$ |
385 |
|
Mobile Store Loss |
|
$ |
(16,532 |
) |
|
$ |
(5,648 |
) |
Mobile Store Margin |
|
|
(41.6 |
)% |
|
|
(17.3 |
)% |
Loss from operations |
|
$ |
(123,023 |
) |
|
$ |
(58,912 |
) |
Adjusted EBITDA |
|
$ |
(87,036 |
) |
|
$ |
(55,330 |
) |
Results of Operations
Components of Results of Operations
Revenue
Revenue consists of service fees paid to us by our Customers for bringing their products and services to Consumers. These fees are comprised of fixed service fees per visit and variable fees based on the sale of accessories, solutions and subscription services. The composition of these fees and the rate of services paid vary by Customer per the terms of our contracts with them. Our fees are reduced by chargebacks and consigned inventory that is lost, damaged or stolen. Chargebacks are based upon Consumer cancellation of services and subscriptions within a pre-specified timeframe.
Cost of revenue
Cost of revenue primarily consists of salaries, benefits and other expenses related to the Company’s Experts, fleet vehicle costs, and other expenses directly related to the performance of each Expert field visit. These expenses have increased in proportion to the growth of our Mobile Stores.
Operations and technology
Operations and technology expenses primarily consist of technology, facility and overhead costs directly related to the operation of our Mobile Stores. This includes lease and operating expenses for our warehouses, inventory management and storage, facility supplies and depreciation expense. We also include costs for employees who directly or indirectly support our Experts, including supervisory and operations management, inventory management, fulfillment and research and development costs.
General and administrative
General and administrative expenses primarily consist of personnel-related expenses for our general corporate functions. This includes our leadership team, employees involved in finance, human resources, legal and workplace services, enterprise and financial information technology systems and marketing.
39
Impairment charges
Impairment charges primarily consist of expenses related to the impairment of Enjoy Canada's assets.
Related party expense
Upon the deconsolidation, transactions with the UK subsidiary are no longer eliminated in consolidation and are treated as related party transactions and recognized in the condensed consolidated financial statements.
Restructuring expenses
Restructuring expenses primarily consist of expenses related to legal fees, professional fees, and severance and termination benefits associated with reduction in workforce as part of its restructuring efforts.
Loss on convertible loans
Unrealized loss on convertible loans consists of the change in the fair value of our convertible loans. The convertible loans were converted to common stock as part of the Merger.
Interest income
Interest income consists of interest earned on our cash and cash equivalents.
Interest expense
Interest expense includes mainly the interest incurred on our outstanding indebtedness, as well as amortization of deferred financing costs, mainly debt origination and commitment fees.
Other income, net
Other income during the periods presented consisted primarily of fair value gains and losses related to the issued stock warrants as well as gains and losses from foreign currency transactions.
Income tax provision
Our provision for income taxes consists of state minimum taxes in the United States and foreign taxes. We have a full valuation allowance for our net United States federal and state deferred tax assets primarily consisting of net operating loss carryforwards, accruals, and reserves.
Discontinued operations
Our loss from discontinued operations represents the after tax loss of Enjoy UK where the workforce was reduced and operations were ceased. On June 30, 2022, Enjoy UK filed for insolvency in the UK.
40
Comparison of Results of Operations
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
The following table is a reference for the discussion that follows:
|
|
Three Months Ended |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
||||||||||||||||||||
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
Revenue |
|
$ |
18,960 |
|
|
$ |
17,161 |
|
|
$ |
1,799 |
|
|
|
10.5 |
% |
|
$ |
39,723 |
|
|
$ |
32,677 |
|
|
$ |
7,046 |
|
|
|
21.6 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of revenue* |
|
|
26,449 |
|
|
|
19,687 |
|
|
|
6,762 |
|
|
|
34.3 |
% |
|
|
56,255 |
|
|
|
38,325 |
|
|
|
17,930 |
|
|
|
46.8 |
% |
Operations and technology* |
|
|
22,555 |
|
|
|
17,499 |
|
|
|
5,056 |
|
|
|
28.9 |
% |
|
|
45,359 |
|
|
|
33,071 |
|
|
|
12,288 |
|
|
|
37.2 |
% |
General and administrative* |
|
|
18,497 |
|
|
|
9,071 |
|
|
|
9,425 |
|
|
|
103.9 |
% |
|
|
36,522 |
|
|
|
20,193 |
|
|
|
16,329 |
|
|
|
80.9 |
% |
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
100.0 |
% |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
100.0 |
% |
Related party expense |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
100.0 |
% |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
100.0 |
% |
Restructuring expenses |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
100.0 |
% |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
100.0 |
% |
Total operating expenses |
|
|
92,111 |
|
|
|
46,257 |
|
|
|
45,854 |
|
|
|
99.1 |
% |
|
|
162,746 |
|
|
|
91,589 |
|
|
|
71,157 |
|
|
|
77.7 |
% |
Loss from operations |
|
|
(73,151 |
) |
|
|
(29,096 |
) |
|
|
(44,055 |
) |
|
|
151.4 |
% |
|
|
(123,023 |
) |
|
|
(58,912 |
) |
|
|
(64,111 |
) |
|
|
108.8 |
% |
Loss on convertible loans |
|
|
— |
|
|
|
(17,361 |
) |
|
|
17,361 |
|
|
|
(100.0 |
)% |
|
|
— |
|
|
|
(19,226 |
) |
|
|
19,226 |
|
|
|
(100.0 |
)% |
Interest expense |
|
|
(193 |
) |
|
|
(1,398 |
) |
|
|
1,205 |
|
|
|
(86.2 |
)% |
|
|
(217 |
) |
|
|
(2,792 |
) |
|
|
2,575 |
|
|
|
(92.2 |
)% |
Interest income |
|
|
25 |
|
|
|
2 |
|
|
|
23 |
|
|
|
1150.0 |
% |
|
|
27 |
|
|
|
4 |
|
|
|
23 |
|
|
|
575.0 |
% |
Other income, net |
|
|
4,173 |
|
|
|
175 |
|
|
|
3,998 |
|
|
|
2284.6 |
% |
|
|
6,796 |
|
|
|
97 |
|
|
|
6,699 |
|
|
|
6906.2 |
% |
Loss before provision for income taxes |
|
|
(69,146 |
) |
|
|
(47,678 |
) |
|
|
(21,468 |
) |
|
|
45.0 |
% |
|
|
(116,417 |
) |
|
|
(80,829 |
) |
|
|
(35,588 |
) |
|
|
44.0 |
% |
Provision for income taxes |
|
|
(1 |
) |
|
|
39 |
|
|
|
(40 |
) |
|
|
(102.6 |
)% |
|
|
16 |
|
|
|
157 |
|
|
|
(141 |
) |
|
|
(89.8 |
)% |
Net loss from continuing operations |
|
|
(69,145 |
) |
|
|
(47,717 |
) |
|
|
(21,428 |
) |
|
|
44.9 |
% |
|
|
(116,433 |
) |
|
|
(80,986 |
) |
|
|
(35,447 |
) |
|
|
43.8 |
% |
Net loss from discontinued operations |
|
|
(14,108 |
) |
|
|
(8,242 |
) |
|
|
(5,866 |
) |
|
|
71.2 |
% |
|
|
(22,065 |
) |
|
|
(14,439 |
) |
|
|
(7,626 |
) |
|
|
52.8 |
% |
Net loss |
|
$ |
(83,253 |
) |
|
$ |
(55,959 |
) |
|
$ |
(27,294 |
) |
|
|
48.8 |
% |
|
$ |
(138,498 |
) |
|
$ |
(95,425 |
) |
|
|
(43,073 |
) |
|
|
45.1 |
% |
* In addition to the reclassifications related to discontinued operations, to conform to current presentation, the Company reclassified certain costs within each of its operating expense line items in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021. These changes have no impact on the Company’s previously reported consolidated net loss and comprehensive loss, cash flows, or basic and diluted net loss per share amounts for the periods presented.
Revenue
Revenue for the three months ended June 30, 2022 compared to the respective prior period increased by $1.8 million, or 10.5%, primarily due to an increase in our Daily Mobile Store count of 154 stores to 592 from 438 in 2021, partially offset by a decrease in our Daily Revenue Per Mobile Store of $79 to $352 for the three months ended June 30, 2022, down from $431 for the same period in 2021. The decrease in Daily Revenue Per Mobile Store was due to fewer deliveries than anticipated following the launch of the Smart Last Mile platform.
Revenue for the six months ended June 30, 2022 compared to the respective prior period increased by $7.0 million, or 21.6%, primarily due to an increase in our Daily Mobile Store count of 188 stores to 621 from 433 in 2021, partially offset by a decrease in our Daily Revenue Per Mobile Store of $34 to $351 for the six months ended June 30, 2022, down from $385 for the same period in 2021. The decrease in Daily Revenue Per Mobile Store was due to fewer deliveries than anticipated following the launch of the Smart Last Mile platform.
Cost of revenue
Cost of revenue for the three months ended June 30, 2022 compared to the respective prior period increased $6.8 million or 34.3%, primarily due to an increase in our Daily Mobile Store count by 154 stores to 592 from 438 in
41
2021. During 2021 we expanded our geographic market coverage within the United States and Canada and initiated services for a new Customer in the United States. Increased Mobile Stores were supported by a higher number of Experts, resulting in higher total salary and benefit costs. A greater number of Daily Mobile Stores also increased expenses associated with vehicle leases, fuel, vehicle insurance and other direct expenses. Cost of revenue, as a percentage of revenue, for the three months ended June 30, 2022 increased to 139.5%, compared to 114.7% for the three months ended June 30, 2021.
Cost of revenue for the six months ended June 30, 2022 compared to the respective prior period increased $17.9 million or 46.8%, primarily due to an increase in our Daily Mobile Store count by 188 stores to 621 from 433 in 2021. During 2021 we expanded our geographic market coverage within the United States and Canada and initiated services for a new Customer in the United States. Increased Mobile Stores were supported by a higher number of Experts, resulting in higher total salary and benefit costs. A greater number of Daily Mobile Stores also increased expenses associated with vehicle leases, fuel, vehicle insurance and other direct expenses. Cost of revenue, as a percentage of revenue, for the six months ended June 30, 2022 increased to 141.6%, compared to 117.3% for the six months ended June 30, 2021.
Operations and technology
Operations and technology expenses for the three months ended June 30, 2022 compared to the respective prior period increased $5.1 million, or 28.9%, primarily due to investments in our warehouse network to support our market expansions and our increased Mobile Store count. The total number of our warehouses increased by 10, to 71 during the three months ended June 30, 2022, from 61 for the three months ended June 30, 2021. The increase in the number of and relocation of certain warehouses we operated during 2022 versus 2021 increased our warehouse lease expenses, salaries and benefits associated with market-level Expert supervisory, training and development activities and facility investments. Expenses associated with developing the technologies that support our Mobile Store operations also increased as we expanded functions and features that support our global operations. Operations and technology expense as a percentage of revenue for the three months ended June 30, 2022 increased to 119.0%, from 102.0% for the three months ended June 30, 2021.
Operations and technology expenses for the six months ended June 30, 2022 compared to the respective prior period increased $12.3 million, or 37.2%, primarily due to investments in our warehouse network to support our market expansions and our increased Mobile Store count. The total number of our warehouses increased by 10, to 71 during the six months ended June 30, 2022, from 61 for the six months ended June 30, 2021. The increase in the number of warehouses we operated during 2022 versus 2021 increased our warehouse lease expenses, salaries and benefits associated with market-level Expert supervisory, training and development activities and facility investments. Expenses associated with developing the technologies that support our Mobile Store operations also increased as we expanded functions and features that support our global operations. Operations and technology expense as a percentage of revenue for the six months ended June 30, 2022 increased to 114.2%, from 101.2% for the six months ended June 30, 2021.
General and administrative
General and administrative expense for the three months ended June 30, 2022 compared to the respective prior period increased $9.4 million, or 103.9%, primarily due to increases of $3.0 million in stock-based compensation expense due to increased headcount, $0.8 million of payroll and other related costs, $0.6 million in computer software related costs, $1.8 million in dues and insurance, $3.2 million for professional and legal services, each due to scaling the business and market expansion. General and administrative expense as a percentage of revenue for the three months ended June 30, 2022 compared to the respective prior period increased to 97.6% from 52.9%.
General and administrative expense for the six months ended June 30, 2022 compared to the respective prior period increased $16.3 million, or 80.9%, primarily due to increases of $5.5 million in stock-based compensation expense due to increased headcount, $1.9 million of payroll and other related costs, $1.1 million in computer software related costs, $3.0 million in dues and insurance, $4.8 million for professional and legal services, each due to scaling the business and market expansion. General and administrative expense as a percentage of revenue for the six months ended June 30, 2022 compared to the respective prior period increased to 91.9% from 61.8%.
42
Impairment charges
Impairment charges for the three months ended June 30, 2022 compared to the respective prior period increased to $7.8 million in 2022 from $0 primarily due to the impairment of the Enjoy Canada's assets.
Related party expense
Upon the deconsolidation, transactions with the UK subsidiary are no longer eliminated in consolidation and are treated as related party transactions. The related party payable to Enjoy UK amounting to $5.9 million is recognized under liabilities subject to compromise in the condensed consolidated balance sheet as of June 30, 2022 with a corresponding related party expense in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022.
Restructuring expenses
Restructuring expenses consisting of legal fees, professional fees, and severance for the three months ended June 30, 2022 compared to the respective prior period increased to $10.8 million in 2022 from $0 primarily due to the filing of the Chapter 11 Cases.
Loss on convertible loans
Loss on convertible loans for the three months ended June 30, 2022 compared to the respective prior period decreased to $0 in 2022 from $17.4 million as the convertible loans we had with certain investors converted to common stock as part of the Merger.
Loss on convertible loans for the six months ended June 30, 2022 compared to the respective prior period decreased to $0 in 2022 from $19.2 million as the convertible loans we had with certain investors converted to common stock as part of the Merger.
Interest income
Interest income for the three months ended June 30, 2022 compared to the respective prior period increased $23 thousand, or 1,150.0%, primarily due to the decrease in the amount of cash held in interest bearing accounts.
Interest income for the six months ended June 30, 2022 compared to the respective prior period increased $23 thousand, or 575.0%, primarily due to the decrease in the amount of cash held in interest bearing accounts.
Interest expense
Interest expense for the three months ended June 30, 2022 compared to the respective prior period was lower by $1.2 million in 2021 due to interest related to our loan with Blue Torch Finance, LLC, which was repaid in the fourth quarter of 2021.
Interest expense for the six months ended June 30, 2022 compared to the respective prior period was lower by $2.6 million in 2021 due to interest related to our loan with Blue Torch Finance, LLC, which was repaid in the fourth quarter of 2021.
Other income, net
Other income, net for the three months ended June 30, 2022 compared to the respective prior period increased $4.0 million primarily due to the change in fair value of the stock warrants.
Other income, net for the six months ended June 30, 2022 compared to the respective prior period increased $6.7 million primarily due to the change in fair value of the stock warrants.
Provision for income taxes
43
The provision for income taxes for the three months ended June 30, 2022 compared to the respective prior period decreased $40 thousand. Provision for income taxes as a percentage of revenue was 0.0% for the three months ended June 30, 2022 and 0.2% for the three months ended June 30, 2021.
The provision for income taxes for the six months ended June 30, 2022 compared to the respective prior period decreased $141 thousand. Provision for income taxes as a percentage of revenue was 0% for the six months ended June 30, 2022 and 0.5% for the six months ended June 30, 2021.
Discontinued Operations
Net loss from discontinued operations was $14.1 million and $22.1 million for the three and six months ended June 30, 2022, respectively, which include impairment charges of $12.8 million and restructuring expenses of $2.2 million, net of net pretax gain on deconsolidation of $7.9 million recognized during the second quarter of 2022.
Net loss from discontinued operations was $8.2 million and $14.4 million for the three and six months ended June 30, 2021, respectively.
For more information about Enjoy UK's bankruptcy, see Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Non-GAAP Measures
In addition to net loss from continuing operations, which is a measure presented in accordance with GAAP, management believes that Adjusted EBITDA provides relevant and useful information to management and investors to assess our performance. Adjusted EBITDA is a supplemental measure of the Company’s performance that is neither required by nor presented in accordance with GAAP. This measure is limited in its usefulness and should not be considered a substitute for GAAP metrics such as loss from operations, net loss, or any other performance measures derived in accordance with GAAP and may not be comparable to similar measures used by other companies.
Adjusted EBITDA represents net loss from continuing operations adjusted for interest, taxes, depreciation and amortization, stock-based compensation expense, impairment charges, related party expense, restructuring expenses and certain expenses and income not considered a core part of our operations.
We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings (loss) before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure:
44
The reconciliations of net loss from continuing operations to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss from continuing operations |
|
$ |
(69,145 |
) |
|
$ |
(47,717 |
) |
|
$ |
(116,433 |
) |
|
$ |
(80,986 |
) |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
193 |
|
|
|
1,398 |
|
|
|
217 |
|
|
|
2,792 |
|
Provision for income taxes |
|
|
(1 |
) |
|
|
39 |
|
|
|
16 |
|
|
|
157 |
|
Depreciation and amortization |
|
|
936 |
|
|
|
605 |
|
|
|
1,742 |
|
|
|
1,161 |
|
Stock-based compensation |
|
|
5,029 |
|
|
|
1,032 |
|
|
|
9,635 |
|
|
|
1,910 |
|
Loss on convertible loans |
|
|
— |
|
|
|
17,361 |
|
|
|
— |
|
|
|
19,226 |
|
Impairment charges |
|
|
7,827 |
|
|
|
— |
|
|
|
7,827 |
|
|
|
— |
|
Related party expense |
|
|
5,941 |
|
|
|
— |
|
|
|
5,941 |
|
|
|
— |
|
Restructuring expenses |
|
|
10,842 |
|
|
|
— |
|
|
|
10,842 |
|
|
|
— |
|
Transaction-related costs (1) |
|
|
— |
|
|
|
283 |
|
|
|
— |
|
|
|
511 |
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
(25 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
|
|
(4 |
) |
Other income, net |
|
|
(4,173 |
) |
|
|
(175 |
) |
|
|
(6,796 |
) |
|
|
(97 |
) |
Adjusted EBITDA |
|
$ |
(42,576 |
) |
|
$ |
(27,176 |
) |
|
$ |
(87,036 |
) |
|
$ |
(55,330 |
) |
Liquidity and Capital Resources
Since inception, we have incurred net losses and cash outflows from operations. The Company had cash and cash equivalents of $1.0 million and an accumulated deficit of $781.0 million as of June 30, 2022 and a net loss of $138.5 million for the six months ended June 30, 2022.
On the Petition Date, we voluntarily initiated the Chapter 11 Cases in Bankruptcy Court. During the Chapter 11 Cases we operate our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our vendors.
On June 29, 2022, the Debtors, as borrowers, entered into the Bridge Credit Agreement with Asurion, as the Lender, pursuant to which the Debtors borrowed $2.5 million from the Lender. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement.
On July 25, 2022, subsequent to the fiscal quarter end, the Debtors, as borrowers, entered into the DIP Credit Agreement with Asurion, as the lender, pursuant to which the Debtors borrowed an additional $52.5 million from the Lender. The proceeds of the DIP Loans were used by us (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. Pursuant to the Purchase Agreement, the Debtors completed the 363 Sale for approximately $110.0 million, subject to various deduction including a $23.8 million holdback amount. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement of $55 million outstanding were repaid in full with the proceeds of the 363 Sale and such credit agreement was terminated.
During the Chapter 11 process, we expect that proceeds from the 363 Sale, together with cash on hand, if any, will be our primary source of capital to fund our wind-down and any other capital needs. We are unable to determine at
45
this time whether this will be adequate for us to meet our obligations as they become due. Our liquidity is dependent upon, among other things: (i) our ability to develop, confirm and consummate a Plan or other alternative liquidating transaction, and (ii) the cost, duration and outcome of the Chapter 11 Cases.
The following table presents the Company’s cash and cash equivalents, restricted cash, and accounts receivable, net, for the periods presented:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Cash and cash equivalents |
|
$ |
956 |
|
|
$ |
84,845 |
|
Restricted cash |
|
|
2,530 |
|
|
|
1,710 |
|
Accounts receivable, net |
|
|
1,153 |
|
|
|
7,476 |
|
Cash Flows
The following table presents cash provided by (used in) operating, investing, and financing activities during the periods presented:
|
|
Six Months Ended |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash used in operating activities |
|
$ |
(91,688 |
) |
|
$ |
(71,844 |
) |
Net cash used in investing activities |
|
|
(4,377 |
) |
|
|
(1,389 |
) |
Net cash provided by financing activities |
|
|
12,196 |
|
|
|
73,758 |
|
Effect of exchange rate on cash, cash equivalents and restricted cash |
|
|
(191 |
) |
|
|
(320 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(84,060 |
) |
|
$ |
205 |
|
Operating Activities
During the six months ended June 30, 2022, operating activities from continuing operations used $79.5 million of cash, resulting from our net loss of $116.4 million, offset by net cash provided by changes in our operating assets and liabilities of $11.8 million and net non-cash charges of $25.1 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2022, consisted primarily of a $5.4 million decrease in accounts receivable, a $4.6 million increase in prepaid expenses and other current assets, a decrease in operating lease liabilities of $6.7 million, and an increase in chargeback liability of $13.4 million, .
During the six months ended June 30, 2022 operating activities from discontinued operations used $12.2 million of cash.
During the six months ended June 30, 2021, operating activities from continuing operations used $57.8 million of cash, resulting from our net loss of $81.0 million, along with net cash provided by changes in our operating assets and liabilities of $0.2 million, and net non-cash charges of $23.0 million. Net cash provided by changes in our operating assets and liabilities were insignificant individually and in the aggregate. Non-cash charges consisted primarily of $1.2 million in depreciation and amortization, $1.9 million in stock-based compensation, and $19.2 million in fair market revaluation of our convertible debt.
During the six months ended June 30, 2021 operating activities from discontinued operations used $14.1 million of cash.
Investing Activities
During the six months ended June 30, 2022, investing activities from continuing operations used $1.7 million of cash, resulting from the purchases of property and equipment. During the six months ended June 30, 2022, the deconsolidation of Enjoy UK cash and cash equivalents amounting to $2.7 million resulted to cash outflow from investing activity related to discontinued operations.
46
During the six months ended June 30, 2021, investing activities used $1.4 million of cash, resulting from the purchases of property and equipment which are all related to continuing operations.
Financing Activities
During the six months ended June 30, 2022, financing activities from continuing operations provided $12.2 million of cash, primarily due to tax related withholding of common stock and borrowings under the Bridge Credit Agreement and related party promissory note. There were no financing activities related to discontinued operations.
During the six months ended June 30, 2021, financing activities from continuing operations provided $73.8 million of cash, resulting primarily from proceeds from the issuance of redeemable convertible preferred stock of $15.0 million and the issuance of convertible loan of $60.2 million offset by insignificant other financing activities. There were no financing activities related to discontinued operations.
Financing Arrangements
On May 11, 2022, we issued a promissory note in an aggregate principal amount of $10.0 million (the “Original Note”) to Ron Johnson, chair of the Company’s board of directors, former Chief Executive Officer, and a beneficial owner of greater than 5% of the Company’s common stock (the “Holder”). The Original Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy. The Original Note has a scheduled maturity date of November 11, 2022 and is be repayable upon written demand of the Holder at any time on or after such date. The Original Note bears interest at a rate of 10% per annum, compounding quarterly and payable at maturity. We may prepay the Original Note at any time without premium or penalty. The Original Note contains customary representations and warranties and events of default, including certain “change of control” events involving us. The Original Note does not restrict the incurrence of future indebtedness by us, and shall become subordinated in right of payment and lien priority upon the request of any future senior lender.
On June 29, 2022, we entered into the Bridge Credit Agreement with Asurion, pursuant to which we borrowed $2.5 million under the Bridge Loan from the Lender. The Bridge Loan had a scheduled maturity date of July 8, 2022 and was due and payable in full on such date or such earlier date as provided in the Bridge Credit Agreement unless the Bridge Loan is converted to loans under the DIP Credit Agreement. The Bridge Loan bore interest at a rate of 12% per annum, compounded monthly, and such interest was to be added to the principal amount of the Bridge Loan and accrue additional interest thereafter and was payable in kind. On July 1, 2022, the outstanding amount of the Bridge Loan was converted to obligations under the DIP Credit Agreement.
The Original Note was originally secured by substantially all of the assets of the Company. In connection with the Bridge Credit Agreement on June 29, 2022, we entered into the Note with the Holder, which amended and restated the Original Note, between us and the Holder to, among other things, remove the collateral pledge and subordinate the note to indebtedness owing to the Lender. The Holder’s security interest in our assets granted under the Original Note was terminated thereafter. The Note was approved by the Audit Committee of the Company’s board of directors pursuant to the Company’s Related Party Transaction Policy. (See Note 10, “Short-term Debt”, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the terms of the financing.)
On July 25, 2022, we entered into the DIP Credit Agreement with Asurion, as lender, pursuant to which we borrowed $55.0 million in DIP Loans from the Lender on terms and conditions consistent with those set forth in the DIP Credit Agreement. Upon entry by the Bankruptcy Court of the interim order authorizing and approving the DIP Loans on July 1, 2022, (i) the Roll-Up Loans were converted to obligations under the DIP Credit Agreement, and (ii) we borrowed approximately $20.0 million ($22.5 million less the amount of the Roll-Up Loans) under the DIP Credit Agreement. We borrowed the remaining balance of the DIP Loans in the amount of $32.5 million on July 26, 2022, upon entry by the Bankruptcy Court of the final order authorizing and approving the DIP Credit Agreement. The proceeds of the DIP Loans were used by us (i) to fund the costs of the administration of the Chapter 11 Cases (including professional fees and expenses and the Section 363 sale processes), (ii) for working capital and other
47
general corporate purposes, and (iii) to fund interest, fees and other payments related to the DIP Loans and DIP Credit Agreement, in each case subject to the applicable orders of the Bankruptcy Court. The DIP Loans bore interest at a rate of 12% per annum, accruing monthly, and such interest was added to the principal amount of the loan and accrue additional interest thereafter and was payable in kind. In connection with the consummation of the 363 Sale, on August 31, 2022, the obligations under the DIP Credit Agreement were repaid in full and such credit agreement was terminated.
Material Cash Requirements
Our material cash requirements, include amounts due under our contractual and other obligations, including under operating leases for monthly base rent under our lease agreement for office space for our headquarters in Palo Alto, California which began in September 2019 for a term of 90 months. We had previously required cash for office space throughout the United States and Canada and we also entered into vehicle lease agreements under Fleet Lease Agreements in the United States and Canada, with each vehicle lease having a typical term of 36 months. As part of the Chapter 11 Cases and 363 Sale, many of the Debtors’ leases have been assumed and assigned to Asurion or otherwise rejected pursuant to Section 365 of the Bankruptcy Code, which was approved by the Bankruptcy Court. Please refer to Note 8, “Leases”, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information on these operating leases and the amounts due thereunder.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. These estimates, assumptions, and judgments are necessary because future events and their effects on our consolidated financial statements cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could materially differ from those estimates. We believe that the accounting estimates discussed below relate to the more significant areas involving management’s judgments and estimates:
Revenue Recognition - The Company generates revenue through visit fees whereby its Experts provide delivery, set-up, and technological expertise services at the request of its Customers. Its Customers are primarily large telecommunication and technology companies that sell technology products and services and require a Mobile Store experience for their customers, who are referred to herein as “Consumers.” Revenue is recognized upon transfer of control of promised services to Customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those promised services.
Each Customer contract contains only one performance obligation, which is a stand-ready obligation for the Company’s Experts to provide visits to Consumers throughout the Company’s contractual term. The stand-ready obligation consists of a series of distinct services that are substantially the same and have the same pattern of transfer, represented as visits provided to Consumers satisfied over time.
The transaction prices of the Company’s contracts are entirely variable, as the number of visits and the specific services provided at each visit are unknown at contract inception. Each contract includes pricing whereby the
Company and the Customer agree to payments for various elements of a visit, which generally include the base fee for conducting the visit and delivering product, as well as incremental amounts for add-ons provided to Consumers. Due to the nature of the obligation, the variability of payment based on the number of visits performed, and the
48
specific services and products provided at each visit which are resolved as each visit is completed, the Company recognizes visit fees in revenue as such visits are provided. In addition, the Company is required to issue a credit to its Customer for the stipulated value of any consigned inventory that is under the Company’s control that is lost, damaged, or stolen. The Company recognizes the credit as a reduction in revenue when it identifies that the items were lost, damaged, or stolen.
From time to time, the Company’s Experts sell a Consumer incremental services on behalf of the Customer during a visit. Certain of the Company’s contracts contain provisions that allow for a chargeback by the Customer of the Company’s fee for selling the incremental service, if the Consumer cancels such services within a specified period from the visit. Chargebacks are recognized as a reduction of revenue, in the period such visit occurs, using an estimate derived from historical information regarding Consumer cancelations of specific services as well as real-time information provided by the Customer. The estimation of chargebacks for each performance obligation requires us to make subjective judgments and is subject to uncertainty. As of June 30, 2022 and December 31, 2021, the Company recorded $11.8 million and $8.1 million, respectively, in chargebacks.
Stock-Based Compensation
We account for stock-based compensation expense related to our stock option awards based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model. Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions which are subject to uncertainty. If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future. These assumptions and estimates used in the Black-Scholes option-pricing model are as follows:
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.
Emerging Growth Company
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as it qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
49
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates, inflation and foreign currency, as well as risks to the availability of funding sources, hazard events, and specific asset risks.
Interest Rate Risk
The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates.
Based upon our interest rates as of June 30, 2022, and December 31, 2021, a one percent (1%) increase subject to the floor in interest rates in our variable rate indebtedness would not have a material impact on the annual interest expense for both periods.
Inflation Risk
The Company does not believe that inflation has had, or currently has, a material effect on its business.
Foreign Currency Risk
The Company is exposed to foreign currency risk due to operations conducted in Canada and the United Kingdom. The Company does not believe that changes in foreign currency has had, or currently has, a material effect on its business.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule(s) 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2022 because of the material weaknesses in internal control over financial reporting described below.
In designing and evaluating disclosure controls and procedures, our management recognizes that any system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the desired control objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals in all future circumstances. Accordingly, our disclosure controls and procedures must be designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
Material Weaknesses in Internal Control Over Financial Reporting
As previously disclosed, in connection with the preparation of our previously issued financial statements, material weaknesses in our internal control over financial reporting were identified and continue to exist as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
50
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are as follows:
These material weaknesses contributed to the following additional material weaknesses:
The material weaknesses described above did not result in a misstatement to our annual or interim consolidated financial statements. However, each of these material weaknesses could result in a misstatement of our financial statement accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
The Company’s management had expended a substantial amount of effort and resources for the remediation of the previously identified material weaknesses. However, during the period ended June 30, 2022 we paused remediation
51
efforts given the Company’s filing for bankruptcy as discussed further in Note 3, “Reorganization in bankruptcy”, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We had taken the following actions towards remediation of the material weaknesses prior to pausing remediation efforts.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
52
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We have in the past and may in the future be subject to legal proceedings, claims and regulatory actions in the ordinary course of business. We do not anticipate that the ultimate liability, if any, arising out of any such matter will have a material effect on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
In the course of conducting our business operations, we are exposed to a variety of risks. Any of the risk factors we describe below have affected or could materially adversely affect our business, financial condition and results of operations. The market price of shares of our common stock could decline, possibly significantly or permanently, if one or more of these risks and uncertainties occurs. Certain statements in “Risk Factors” are forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
We will not be able to continue as a going concern and holders of our common stock could suffer a total loss of their investment.
We have concluded that we will not continue as a going concern. It is likely that our equity securities will be canceled and extinguished in connection with the Chapter 11 Cases, and that the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests.
Trading in our common stock and warrants during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. It is likely that our equity securities will be canceled or that holders of such equity will not receive any distribution with respect to, or be able to recover any portion of, their investments.
It is likely that our equity securities will be canceled, or that holders of such equity will not receive any distribution with respect to, or be able to recover any portion of, their investments. Any trading in our common stock and warrants during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock or warrants. See “–We will not be able to continue as a going concern and holders of our common stock could suffer a total loss of their investment.”
We are subject to the risks and uncertainties associated with the Chapter 11 Cases.
During the Chapter 11 Cases, we plan to wind down our business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Code. As a consequence of filing the Chapter 11 Cases, we will be subject to the risks and uncertainties associated with bankruptcy. These risks include, but are not limited to, the following:
53
Because of the risks and uncertainties associated with a voluntary filing for relief under Chapter 11 of the Bankruptcy Code and the related proceedings, we cannot accurately predict or quantify the ultimate impact that events that occur during the Chapter 11 Cases may have on ultimate recovery for stakeholders, including creditors. As mentioned above, it is likely that holders of our equity securities will not recover any portion of their investments.
If we are not able to obtain confirmation of a Plan, we could be required to liquidate under Chapter 7 of the Bankruptcy Code.
If confirmation by the Bankruptcy Court of a Chapter 11 Plan does not occur, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests or upon the showing of cause, the Bankruptcy Court may convert our Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.
Our common stock and warrants have been delisted from Nasdaq and experience the risks of trading in an over-the-counter market.
On the Petition Date, we received notification from Nasdaq that our common stock and warrants are no longer suitable for listing on Nasdaq. Trading of our common stock and warrants were suspended at the opening of business on July 11, 2022 and a Form 25-NSE was filed with the SEC on July 19, 2022 to delist the common stock and warrants from Nasdaq. The delisting became effective July 29, 2022. The deregistration of the common stock and warrants under 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, after the filing date of the Form 25. Upon deregistration of our common stock and warrants under Section 12(b) of the Exchange Act, our common stock and warrants will remain registered under Section 12(g) of the Exchange Act.
As a result of the suspension and expected delisting, our common stock and warrants began trading exclusively on the OTC Pink Marketplace under the symbols “ENJYQ” and “ENJWQ”, respectively on July 11, 2022. We can provide no assurance that our common stock and warrants will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock and warrants on this market, whether the trading volume of our common stock and warrants will be sufficient to provide for an efficient trading market or whether quotes for our common stock and warrants will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common stock and warrants. Furthermore, because of the limited market and generally low volume of trading in our common stock and warrants, the price of our common stock and warrants could be more likely to be affected by broad market fluctuations, general market conditions, changes in the markets’ perception of our securities, and announcements made by us or third parties with interests in the Chapter 11 Cases.
We depend on a few highly skilled key employees to navigate the Chapter 11 Cases, and if we are unable to retain, manage, and appropriately compensate them, the outcome of the Chapter 11 Cases could be adversely affected.
Our ability to consummate a successful Plan is based on continued service of our senior management team and other key employees, and on our ability to continue to motivate and appropriately compensate key employees. We may not be able to retain the services of our key employees, work for us on an at-will basis, in the future. If our key
54
employees fail to work together effectively and to execute our plans and strategies, the Chapter 11 Cases could be prolonged or adversely affected.
We identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect us.
As previously disclosed, in connection with the preparation of our previously issued financial statements, material weaknesses in our internal control over financial reporting were identified and continue to exist as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are as follows:
These material weaknesses contributed to the following additional material weaknesses:
55
The material weaknesses described above did not result in a misstatement to our annual or interim consolidated financial statements. However, each of these material weaknesses could result in a misstatement of our financial statement accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
The Company’s management had expended a substantial amount of effort and resources for the remediation of the previously identified material weaknesses. However, during the period ended June 30, 2022 we paused remediation efforts given the Company’s filing for bankruptcy as discussed further in Note 3, “Reorganization in bankruptcy”, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We had taken the following actions towards remediation of the material weaknesses prior to pausing remediation efforts.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
56
Item 6. Exhibits
Exhibit Number |
|
Description |
Schedule/Form |
File No. |
Exhibit |
Filing Date |
3.1 |
|
8-K |
001-39800 |
3.1 |
October 22, 2021 |
|
3.1.1 |
|
Certificate of Amendment of Certificate of Incorporation of the Company. |
8-K |
001-39800 |
3.1 |
September 1, 2022 |
3.2** |
|
Amended and Restated Certificate of Incorporation of the Company. |
|
|
|
|
3.3 |
|
8-K |
001-39800 |
3.2 |
October 22, 2021 |
|
10.1 |
|
8-K |
001-39800 |
10.1 |
May 16, 2022 |
|
10.2 |
|
8-K |
001-39800 |
10.1 |
June 30, 2022 |
|
10.3 |
|
8-K |
001-39800 |
10.2 |
June 30, 2022 |
|
10.4** |
|
Engagement Letter, dated July 5, 2022, by and between the Company and AP Services, LLC. |
|
|
|
|
10.5*** |
|
8-K |
001-39800 |
10.1 |
July 29, 2022 |
|
10.6** |
|
|
|
|
|
|
10.7 |
|
8-K |
001-39800 |
10.2 |
September 1, 2022 |
|
10.8*** |
|
8-K |
001-39800 |
10.2 |
July 29, 2022 |
|
31.1* |
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
32.2* |
|
|
|
|
|
57
101.INS** |
|
Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
|
|
|
|
|
|
|
|
|
|
|
* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, ae amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
** Filed herein.
*** Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules (or similar attachments) have been omitted. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule (or similar attachment) upon request by the SEC. Pursuant to Item 601(a)(6) of Regulation S-K, certain personally identifiable information contained in this document, marked by brackets as [***] has been omitted.
58
SIGNATURES
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.
|
LEGACY EJY, INC. |
|
|
|
|
Date: October 14, 2022 |
By: |
/s/ Tiffany N. Meriweather |
|
Name: |
Tiffany N. Meriweather |
|
Title: |
Chief Legal Officer and Corporate Secretary (Principal Executive Officer) |
|
|
|
Date: October 14, 2022 |
By: |
/s/ Todd Zoha |
|
Name: |
Todd Zoha |
|
Title |
Chief Financial Officer (Principal Financial and Accounting Officer) |
59
Exhibit 3.2
AMENDED AND RESTATED
OF
Legacy EJY, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of the Delaware (the “DGCL”), hereby certifies that:
ONE: The name of this company is Legacy EJY, Inc. The original name of this company was Enjoy Technology, Inc. and the date of filing the original Certificate of Incorporation of this company with the Secretary of State of the State of Delaware was October 14, 2021.
TWO: The Amended and Restated Certificate of Incorporation of this company, attached hereto as Exhibit A, is incorporated herein by reference, restates and integrates the provisions of the Certificate of Incorporation, as amended, of this company.
THREE: The Amended and Restated Certificate of Incorporation has been duly approved and adopted by the board of directors of this company pursuant to Section 245 of the DGCL.
The company has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized and elected officer on September 13, 2022.
LEGACY EJY, INC.
/s/ Ron Johnson
Ron Johnson, President and Chief Executive Officer
Exhibit A
Amended and Restated
Certificate of Incorpration
of
Legacy EJY, Inc.
I.
The name of the corporation is Legacy EJY, Inc. (the “Company”).
II.
The address of the registered office of the Company in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801, and the name of the Company’s registered agent at such address is The Corporation Trust Company.
III.
The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (“DGCL”).
IV.
A. The Company is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is 510,000,000 shares. 500,000,000 shares shall be Common Stock, each having a par value of one-hundredth of one cent ($0.0001). 10,000,000 shares shall be Preferred Stock, each having a par value of one-hundredth of one cent ($0.0001).
B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Company (the “Board of Directors”) is hereby expressly authorized to (i) provide for the issuance of all or any number of the shares of the Preferred Stock in one or more series, (ii) to determine or alter the voting powers for each such series and (iii) determine the designation, preferences, rights, qualifications, limitations or restrictions thereof, each of which shall be stated and expressed in the resolution(s) adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the
stock of the Company entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.
C. Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).
V.
For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of the Company shall be vested in the Board of Directors. The number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by at least a majority of the authorized number of directors constituting the Board of Directors.
2. BOARD OF DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided, with respect to the time for which its members severally hold office, into three classes, as nearly equal in number as possible and designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. The term of the initial Class I directors shall expire at the first annual meeting of the stockholders following the effectiveness of this Certificate of Incorporation, the term of the initial Class II directors shall expire at the second annual meeting of the stockholders following the effectiveness of this Certificate of Incorporation, and the term of the initial Class III directors shall expire at the third annual meeting of the stockholders following the effectiveness of this Certificate of Incorporation. At each succeeding annual meeting of the stockholders of the Company, beginning with the first annual meeting of the stockholders of the Company following the effectiveness of this Certificate of Incorporation, each of the successors elected to replace the class of directors whose term expires at that annual meeting shall be elected for a three-year term or until the election and qualification of their respective successors in office, subject to their earlier death, resignation or removal.
No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled unless required by applicable law at the time of such election. During such time or times that applicable law requires cumulative voting, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
The directors of the Company need not be elected by written ballot unless the Bylaws so provide. Notwithstanding the foregoing provisions of this section, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS. Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding or any limitations imposed by applicable law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of capital stock of the Company entitled to vote generally at an election of directors, considered for purposes of this Article V as one class. For purposes of this Article V, “cause” shall mean, with respect to any director, (x) the willful failure by such director to perform, or the gross negligence of such director in performing, the duties of a director, (y) the engaging by such director in willful or serious misconduct that is injurious to the Company or (z) the conviction of such director of, or the entering by such director of a plea of nolo contendere to, a crime that constitutes a felony.
4. VACANCIES. Subject to any limitations imposed by applicable law and subject to the rights of the holders of any series of Preferred Stock then outstanding, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless (a) the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders or (b) as otherwise provided by applicable law, be filled only by the affirmative vote of a majority of the directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.
B.
1. BYLAW AMENDMENTS. The Board of Directors is expressly empowered to adopt, amend, alter or repeal the bylaws of the Company (the “Bylaws”). Any adoption, amendment, alteration or repeal of the Bylaws by the Board of Directors shall require the approval of at least a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend, alter or repeal the Bylaws; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class.
2. Subject to the rights of the holders of shares of Preferred Stock to act by written consent, no action shall be taken by the stockholders of the Company except at a duly called annual or special meeting of stockholders called in accordance with the Bylaws, and no action shall be taken by the stockholders by written consent or electronic transmission.
3. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Company shall be given in the manner provided in the Bylaws.
4. Subject to the rights of the holders of shares of Preferred Stock permitting the holders of such series of Preferred Stock to call a special meeting of the holders of such series, special meetings of the stockholders of the Company may be called only by the chairperson of the Board of Directors, the chief executive officer of the Company or the Board of Directors, and the ability of the stockholders to call a special meeting of the stockholders is hereby specifically denied.
VI.
A. The liability of the directors for monetary damages shall be eliminated to the fullest extent permitted by applicable law.
B. To the fullest extent permitted by applicable law, the Company shall provide indemnification of (and advancement of expenses to) directors and officers of the Company through Bylaw provisions, agreements with such persons, vote of stockholders or disinterested directors or otherwise in excess of the indemnification and advancement otherwise permitted by such applicable law. If applicable law is amended after approval by the stockholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the Company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.
C. Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights or protections or increase the liability of any director under this Article VI in effect at the
time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.
D. This Article VI shall not limit the right of the Company, to the extent and in the manner authorized or permitted by law, to indemnify (and to advance expenses to) persons other than the indemnitees described herein.
VII.
A. Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (A) any derivative action or proceeding brought on behalf of the Company; (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company or any stockholder to the Company or the Company’s stockholders; (C) any action or proceeding asserting a claim against the Company or any current or former director, officer or other employee of the Company or any stockholder arising pursuant to any provision of the DGCL, the Certificate of Incorporation or the Bylaws of the Company (as each may be amended from time to time); (D) any action or proceeding to interpret, apply, enforce or determine the validity of the Certificate of Incorporation or the Bylaws of the Company (including any right, obligation or remedy thereunder); (E) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and (F) any action asserting a claim against the Company or any director, officer or other employee of the Company or any stockholder, governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. This Article VII shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934 or any other claim for which the federal courts have exclusive jurisdiction.
B. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act of 1933, as amended, including all causes of action asserted against any defendant named in such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by the Company, its officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.
C. Any person or entity holding, owning or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and to have consented to the provisions of this Article VII.
VIII.
A. The Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as
provided in paragraph B. of this Article VIII, and all rights conferred upon the stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Company required by law or by this Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI, VII and VIII.
C. If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever, the validity, legality and enforceability of such provision in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby.
IX.
To the extent allowed by law, the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to the Company or any of its officers or directors, or any of their respective affiliates, in circumstances where the application of any such doctrine would conflict with any fiduciary duties or contractual obligations they may have as of the date of this Certificate of Incorporation or in the future, and the Company renounces any expectancy that any of the directors or officers of the Company will offer any such corporate opportunity of which he or she may become aware to the Company, except, the doctrine of corporate opportunity shall apply with respect to any of the directors or officers of the Company with respect to a corporate opportunity that was offered to such person solely in his or her capacity as a director or officer of the Company and (i) such opportunity is one the Company is legally and contractually permitted to undertake and would otherwise be reasonable for the Company to pursue and (ii) the director or officer is permitted to refer that opportunity to the Company without violating any legal obligation.
* * * *
Exhibit 10.4
Ron Johnson July 5, 2022
Chief Executive Officer Enjoy Technology, Inc. 3240 Hillview Avenue Palo Alto, CA 94304
Re: Agreement for the Provision of Interim Management Services
Dear Mr. Johnson:
This letter, together with the attached Schedule(s), Exhibit and General Terms and Conditions, sets forth the agreement (“Agreement”) between AP Services, LLC (“APS”), and Enjoy Technology, Inc. and certain of its affiliates and subsidiaries (the “Company”) for the engagement of APS to provide certain temporary employees to the Company to assist the Company in its restructuring as described below.
All defined terms shall have the meanings ascribed to them in this letter and in the attached Schedule(s), Exhibit and General Terms and Conditions. The Company and APS are each a “party,” and together the “parties.”
The engagement of APS, including any APS employees who serve in Executive Officer positions, shall be under the supervision of the Chief Executive Officer and the Board of Directors of the Company.
Objectives and Tasks
Subject to APS’s (i) internal approval from its Risk Management Committee, (ii) confirmation the Company has a Directors and Officers Liability insurance policy in accordance with Section 7 of the General Terms and Conditions regarding Directors and Officers Liability Insurance coverage, and (iii) receipt of a copy of the signed Board of Directors’ resolution (or similar document as required by the Company's governance documents) as official confirmation of the appointment, APS will provide Todd Zoha to serve as the Company’s Chief Financial Officer ("CFO") reporting to you, the Company’s Chief Executive Officer. John Boken will act as Senior Strategic Advisor to the Company and its Board of Directors. In addition to Mr. Zoha and Mr. Boken, other APS employees will work collaboratively with the senior management team, the Board of Directors and other Company professionals to assist the Company with the following:
AP Services | 865 S. Figueroa | Suite 2310 | Los Angeles, CA 90017 | 213.437.7100 | alixpartners.com
Staffing
APS will provide the Company with the individuals set forth on Exhibit A (“Temporary Staff”), subject to the terms and conditions of this Agreement, with the titles, pay rates and other descriptions set forth therein.
The Temporary Staff may be assisted by or replaced by other professionals at various levels, as required, who shall also become Temporary Staff. APS will keep the Company informed as to APS’s staffing.
AP Services | 865 S. Figueroa | Suite 2310 | Los Angeles, CA 90017 | 213.437.7100 | alixpartners.com
Timing and Fees
Upon receipt of a copy of this executed Agreement and confirmation of the Company’s compliance with the requirements set forth in the first paragraph of the Objectives and Tasks section above, APS will commence providing services under this Agreement, and the services of AlixPartners, LLC under the engagement letter dated April 29, 2022 between Enjoy Technology, Inc. and AlixPartners, LLC (the “AP Engagement Letter”) shall be deemed complete.
The Company shall compensate APS for its services, and reimburse APS for expenses, as set forth on Schedule 1.
* * *
In the event the Company seeks protection under the U.S. Bankruptcy Code, the Company will promptly apply to the Bankruptcy Court to obtain approval of APS’s retention and retainer nunc pro tunc to the date of filing. APS acknowledges its retention and the terms thereof are subject to Bankruptcy Court approval.
If these terms meet with your approval, please sign and return a copy of this Agreement. We look forward to working with you.
Sincerely yours, AP SERVICES, LLC
/s/ John Boken
John Boken Managing Director
Acknowledged and Agreed to: ENJOY TECHNOLOGY, INC.
/s/ Ron Johnson
By: Ron Johnson
Its: Chief Executive Officer
Dated: 7/9/2022 | 8:16 AM PDT
AP Services | 865 S. Figueroa | Suite 2310 | Los Angeles, CA 90017 | 213.437.7100 | alixpartners.com
AP Services, LLC Exhibit A
[***]
Schedule 1 Fees and Expenses
[***]
AP Services | 865 S. Figueroa | Suite 2310 | Los Angeles, CA 90017 | 213.437.7100 | alixpartners.com
Data Protection Schedule Description of Transfer
[***]
AP Services, LLC
General Terms and Conditions
These General Terms and Conditions (“Terms”) are incorporated into the Agreement to which these Terms are attached. In case of conflict between the wording in the letter and/or schedule(s) and these Terms, the wording of the letter and/or schedule(s) shall prevail.
Section 1. Company Responsibilities
The Company will undertake responsibilities as set forth below:
APS’s delivery of the services and the fees charged are dependent on (i) the Company’s timely and effective completion of its responsibilities; and (ii) timely decisions and approvals made by the Company’s management.
Section 2. Retainer, Billing, Payments and Taxes
Retainer. Upon execution of the Agreement, the Company shall promptly pay APS the agreed-upon advance retainer as set forth on Schedule 1. Invoices shall be offset against the retainer. Payments of invoices will be used to replenish the retainer to the agreed-upon amount. Any unearned portion of the retainer will be applied against the final invoice or returned to the Company at the end of the engagement.
Billing and Payments. All payments to be made to APS shall be due and payable upon receipt of invoice via check or wire transfer to APS’s bank account, as shown on the invoice. All amounts invoiced are based on services rendered and expenses incurred to date, and are not contingent upon future services or Work Product (as defined below), or the outcome of any case or matter. “Fees,” as used in this Agreement, shall include all amounts payable by the Company to APS in accordance with Schedule 1, including any success fee or break fee, but excluding reimbursable expenses.
Taxes. APS’S fees are exclusive of taxes or similar charges, which shall be the responsibility of the Company (other than taxes imposed on APS’s income generally). If APS’s fees are subject to any taxes, such as State sales tax, Goods and Services Tax/Harmonized Sales Tax or Value Added Tax, then APS will include such taxes on its invoices as separate line items.
Section 3. Relationship of the Parties
The parties intend that an independent contractor relationship will be created by the Agreement. As an independent contractor, APS will have complete and exclusive charge of the management and operation of its business, including hiring and paying the wages and other compensation of all its employees and agents, and paying all bills, expenses and other charges incurred or payable with respect to the operation of its business. Employees of APS will not be entitled to receive from the Company any vacation pay, sick leave, retirement, pension or social security benefits, workers’ compensation, disability, unemployment insurance benefits or any other employee benefits. APS will be responsible for all employment, withholding, income and other taxes incurred in connection with the operation and conduct of its business.
APS is not an accounting firm and does not give accounting advice or guidance. While APS’s work may involve analysis of accounting, business and other related records, this engagement does not constitute an audit in accordance with either generally accepted auditing standards or the standards of the Public Company Accounting Oversight Board or any other similar governing body.
APS is not authorized to practice law or provide legal advice. No services provided under this Agreement are intended to be, nor should be construed to be, legal services.
Section 4. Confidentiality
Each party shall use reasonable efforts, but in no event less effort than it would use to protect its own confidential information, to keep confidential all non- public confidential or proprietary information obtained from the other party during the performance of APS’s services hereunder (the “Confidential Information”), and neither party will disclose any Confidential Information to any other person or entity. “Confidential Information” includes the terms of this Agreement, non-public confidential and proprietary data, plans, reports, schedules, drawings, accounts, records, calculations, specifications, flow sheets, computer programs, source or object codes, results, models or any work product relating to the business of either party, its subsidiaries,
distributors, affiliates, vendors, customers, employees, contractors and consultants.
The foregoing is not intended to prohibit, nor shall it be construed as prohibiting, APS from making such disclosures of Confidential Information that APS reasonably believes are required by law or any regulatory requirement or authority to clear client conflicts. APS may also disclose Confidential Information to its partners, directors, officers, employees, independent contractors and agents who have a need to know the Confidential Information as it relates to the services being provided under this Agreement, provided APS is responsible for any breach of these confidentiality obligations by any such parties. APS may make reasonable disclosures of Confidential Information to third parties, such as the Company’s suppliers and/or vendors, in connection with the performance of APS’S obligations and assignments hereunder, provided APS reasonably believes that such third party is bound by confidentiality obligations. In addition, APS will have the right to disclose to any person that it provided services to the Company or its affiliates and a general description of such services, but shall not provide any other information about its involvement with the Company. The obligations of the parties under this Section 4 shall survive the end of any engagement between the parties for a period of three (3) years.
Work Product (as defined in Section 5) may contain APS proprietary information or other information that is deemed to be Confidential Information for purposes of this Agreement, and the parties may not want to make public. Therefore, the parties acknowledge and agree that (i) all information (written or oral), including advice and Work Product (as defined in Section 5), generated by APS in connection with this engagement is intended solely for the benefit and use of the Company in connection with this Agreement, and (ii) no such information shall be used for any other purpose or disseminated to any third parties, or, quoted or referred to with or without attribution to APS at any time in any manner or for any purpose without APS’s prior approval (not to be unreasonably withheld or delayed), except as required by law. The Company may not rely on any draft or interim Work Product.
Section 5. Intellectual Property
All analyses, final reports, presentation materials, and other work product (other than any Engagement Tools, as defined below) that APS creates or develops specifically for the Company and delivers to the Company as part of this engagement (collectively known as “Work Product”) shall be owned by the Company and shall constitute Company Confidential Information as defined above. APS may retain copies of the Work Product and any Confidential Information necessary to support the Work Product subject to its confidentiality obligations in this Agreement.
All methodologies, processes, techniques, ideas, concepts, know-how, procedures, software, tools, templates, models, utilities and other intellectual property that APS has created, acquired or developed or will create, acquire or develop (collectively, “Engagement Tools”), are, and shall be, the sole and exclusive property of APS. The Company shall not acquire any interest in the Engagement Tools other than a limited worldwide, perpetual, non-transferable license to use the Engagement Tools to the extent they are contained in the Work Product.
The Company acknowledges and agrees, except as otherwise set forth in this Agreement, that any Engagement Tools provided to the Company are provided “as is” and without any warranty or condition of any kind, express, implied or otherwise, including, implied warranties of merchantability or fitness for a particular purpose.
Section 6. Framework of the Engagement
The Company acknowledges that it is retaining APS solely to assist and advise the Company as described in the Agreement. This engagement shall not constitute an audit, review or compilation, or any other type of financial statement reporting engagement.
Section 7. Indemnification and Other Matters
The Company shall indemnify, hold harmless and defend APS and its affiliates and its and their partners, directors, officers, employees and agents (collectively, the “APS Parties”) from and against all claims, liabilities, losses, expenses and damages arising out of or in connection with the engagement of APS that is the subject of the Agreement (collectively, the “Losses”), other than Losses finally determined or otherwise agreed by APS and the Company to be the direct result of gross negligence, fraud, willful misconduct, bad faith or self-dealing of APS. The Company shall pay damages and expenses as incurred, including reasonable legal fees and disbursements of counsel; provided that the Company shall not be liable for indirect, special and consequential damages, lost profits, lost data, reputational damages, punitive damages or any other similar damages under any circumstances, even if the Company has been advised of the possibility of such damages. If, in the opinion of counsel, representing both parties in the matter covered by this indemnification creates a potential conflict of interest, the APS Parties may engage separate counsel to represent them at the Company’s expense.
In addition to the above indemnification, APS employees serving as directors or officers of the Company or affiliates will receive the benefit of the most favorable indemnification provisions provided by the Company to its directors, officers and any equivalently placed employees, whether under the Company’s charter or by-laws, by contract or otherwise.
The Company shall specifically include and cover APS employees and agents serving as directors or officers of the Company or affiliates from time to time with direct coverage under the Company’s policy for liability insurance covering its directors, officers and any equivalently placed employees (“D&O insurance”). Prior to APS accepting any officer position, the Company shall, at the request of APS a copy of its current D&O policy, a certificate(s) of insurance evidencing the policy is in full force and effect, and a copy of the signed board resolutions and any other documents as APS may reasonably request evidencing
the appointment and coverage of the indemnitees. The Company will maintain such D&O insurance coverage for the period through which claims can be made against such persons. The Company disclaims a right to distribution from the D&O insurance coverage with respect to such persons. In the event that the Company is unable to include APS employees and agents under the Company’s policy or does not have first dollar coverage acceptable to APS in effect for at least $10 million (e.g., there are outstanding or threatened claims against officers and directors alleging prior acts that may give rise to a claim), APS may, at its option, attempt to purchase a separate D&O insurance policy that will cover APS employees and agents only. The cost of the policy shall be invoiced to the Company as an out-of-pocket expense. If APS is unable or unwilling to purchase such D&O insurance, then APS reserves the right to terminate the Agreement.
The Company’s indemnification obligations in this Section 7 shall be primary to, and without allocation against, any similar indemnification obligations that APS may offer to its personnel generally, and the Company’s D&O insurance coverage for the indemnitees shall be specifically primary to, and without allocation against, any other valid and collectible insurance coverage that may apply to the indemnitees (whether provided by APS or otherwise). APS is not responsible for any third-party products or services separately procured by the Company. The Company’s sole and exclusive rights and remedies with respect to any such third party products or services are against the third-party vendor and not against APS, whether or not APS is instrumental in procuring such third-party product or service.
Section 8. Governing Law and Arbitration
The Agreement is governed by and shall be construed in accordance with the laws of the State of New York with respect to contracts made and to be performed entirely therein and without regard to choice of law or principles thereof.
Any controversy or claim arising out of or relating to the Agreement, or the breach thereof, shall be settled by arbitration. Each party shall appoint one non-neutral arbitrator. The two party arbitrators shall select a third arbitrator. If within 30 days after their appointment the two party arbitrators do not select a third arbitrator, the third arbitrator shall be selected by the American Arbitration Association (AAA). The arbitration shall be conducted in New York, New York under the AAA’s Commercial Arbitration Rules, and the arbitrators shall issue a reasoned award. The arbitrators may award costs and attorneys’ fees to the prevailing party. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, any party may proceed directly to a court of competent jurisdiction to enforce the terms of this Agreement for any claim in connection with (i) the non-payment of Fees or expenses due under this Agreement, or (ii) the non-performance of obligations under Section 7.
In any court proceeding arising out of this Agreement, the parties hereby waive any right to trial by jury.
Section 9. Termination and Survival
The Agreement may be terminated at any time by written notice by one party to the other; provided, however, that notwithstanding such termination APS will be entitled to any Fees and expenses due under the provisions of the Agreement (for fixed fee engagements, fees will be pro rata based on the amount of time completed). Such payment obligation shall inure to the benefit of any successor or assignee of APS.
Additionally, unless the Agreement is terminated by the Company due to APS’s material breach (and such material breach continues after 30 days’ written notice thereof and opportunity to cure) APS shall remain entitled to the success fee(s), if any, that otherwise would be payable during the 12 months after the date of termination of the Agreement.
Sections 2, 4, 5, 7, 8, 9, 10, 11, 12 and 13 of these Terms, the provisions of Schedule 1 and the obligation to pay accrued fees and expenses shall survive the expiration or termination of the Agreement.
Section 10. Non-Solicitation of Employees
The Company acknowledges and agrees that APS has made a significant monetary investment recruiting, hiring and training its personnel. During the term of this Agreement and for a period of two years after the final invoice is rendered by APS with respect to this engagement (the “Restrictive Period”), the Company and its affiliates agree not to directly or indirectly hire, contract with, or solicit the employment of any of APS’s Managing Directors, Directors, or other employees/ contractors the Company or its affiliates had interactions with or gained knowledge about as a result of the services provided under this Agreement.
If during the Restrictive Period the Company or its affiliates directly or indirectly hires or contracts with any of APS’s Managing Directors, Directors, or other employees/contractors in violation of the preceding paragraph, the Company agrees to pay to APS as liquidated damages and not as a penalty the sum total of: (i) for a Managing Director, $1,000,000; (ii) for a Director, $500,000; and (iii) for any other employee/contractor, $250,000. The Company acknowledges and agrees that liquidated damages in such amounts are (x) fair, reasonable and necessary under the circumstances to reimburse APS for the costs of recruiting, hiring and training its employees as well as the lost profits and opportunity costs related to such personnel, and to protect the significant investment that APS has made in its Managing Directors, Directors, and other employees/ consultants; and (y) appropriate due to the difficulty of calculating the exact amount and value of that investment.
The provisions of this Section shall apply except to the extent the provisions conflict with applicable law.
Section 11. Limitation of Liability
THE APS PARTIES SHALL NOT BE LIABLE TO THE COMPANY, OR ANY PARTY ASSERTING CLAIMS ON BEHALF OF THE COMPANY, EXCEPT FOR DIRECT DAMAGES FOUND IN A FINAL DETERMINATION TO BE THE DIRECT RESULT OF THE GROSS NEGLIGENCE, BAD FAITH, SELF-DEALING OR INTENTIONAL MISCONDUCT OF APS PARTIES. THE APS PARTIES SHALL NOT BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES, LOST PROFITS, LOST DATA, REPUTATIONAL DAMAGES, PUNITIVE DAMAGES OR ANY OTHER SIMILAR DAMAGES UNDER ANY CIRCUMSTANCES, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE APS PARTIES’ AGGREGATE LIABILITY, WHETHER IN TORT, CONTRACT, OR OTHERWISE, IS LIMITED TO THE AMOUNT OF FEES PAID TO APS FOR SERVICES UNDER THIS AGREEMENT (OR IF THE CLAIM ARISES FROM AN ADDENDUM TO THIS AGREEMENT, UNDER THE APPLICABLE ADDENDUM) (THE “LIABILITY CAP”). The Liability Cap is the total limit of the APS Parties’ aggregate liability for any and all claims or demands by anyone pursuant to this Agreement, including liability to the Company, to any other parties hereto, and to any others making claims relating to the work performed by APS pursuant to this Agreement. Any such claimants shall allocate any amounts payable by the APS Parties among themselves as appropriate, but if they cannot agree on the allocation it will not affect the enforceability of the Liability Cap. Under no circumstances shall the aggregate of all such allocations or other claims against the APS Parties pursuant to this Agreement exceed the Liability Cap. Notwithstanding the foregoing, the Liability Cap shall not limit the liability of APS from claims directly resulting from APS’ gross negligence, fraud, self-dealing or willful misconduct or other liabilities that cannot be disclaimed under applicable law.
Section 12. General
Equitable Remedies. Each party acknowledges and agrees that money damages alone may not be an adequate remedy for a breach of the Agreement. Each party agrees that the non-breaching party shall have the right to seek a restraining order and/or an injunction for any breach of the Agreement. If any provision of the Agreement is found to be invalid or unenforceable, then it shall be deemed modified or restricted to the extent and in the manner necessary to render the same valid and enforceable.
Severability. If any portion of the Agreement shall be determined to be invalid or unenforceable, the remainder shall be valid and enforceable to the maximum extent possible.
Entire Agreement. This Agreement, including the letter, the Terms and the schedule(s), contains the entire understanding of the parties relating to the services to be rendered by APS and supersedes any other communications, agreements, understandings, representations, or estimates among the parties (relating to the subject matter hereof) with respect to such services. The Agreement, including the letter, the Terms and the schedule(s), may not be amended or modified in any respect except in a writing signed by the parties. APS is not responsible for performing any services not specifically described herein or in a subsequent writing signed by the parties.
Related Matters. If an APS Party is required by applicable law, legal process or government action to produce information or testimony as a witness with respect to this Agreement, the Company shall reimburse APS for any professional time and expenses (including reasonable external and internal legal costs and e-discovery costs) incurred to respond to the request, except in cases where an APS Party is a party to the proceeding or the subject of the investigation.
Joint and Several. If more than one party signs this Agreement, the liability of each party shall be joint and several. In addition, in the event more than one entity is included in the definition of Company under this Agreement, the Company shall cause each other entity which is included in the definition of Company to be jointly and severally liable for the Company’s liabilities and obligations set forth in this Agreement.
Third-Party Beneficiaries. The APS Parties shall be third-party beneficiaries with respect to Section 7 hereof.
Notices. All notices required or permitted to be delivered under the Agreement shall be sent, if to APS, to:
AlixPartners, LLP
2000 Town Center, Suite 2400
Southfield, MI 48075 Attention: General Counsel
and if to the Company, to the address set forth in the Agreement, to the attention of the Company’s General Counsel, or to such other name or address as may be given in writing to APS. All notices under the Agreement shall be sufficient only if delivered by overnight mail. Any notice shall be deemed to be given only upon actual receipt.
Section 13. Bankruptcy Related Matters
Notwithstanding any to the contrary in these Terms, in the event the Company files for protection under the U.S. Bankruptcy Code, the following provisions will prevail:
The Company shall promptly apply to the Bankruptcy Court for approval of the Company’s retention of APS under the terms of the Agreement. The form of retention application and proposed order shall be reasonably acceptable to APS. APS shall have
no obligation to provide any further services if the Company becomes a debtor under the U.S. Bankruptcy Code unless APS’s retention under the terms of the Agreement is approved by a final order of the Bankruptcy Court reasonably acceptable to APS. The Company shall assist, or cause its counsel to assist, with filing, serving and noticing of papers related to APS’s fee and expense matters.
The Company and APS agree that the Bankruptcy Court shall have exclusive jurisdiction over any and all matters arising under or in connection with this Agreement.
APS will have the right to obtain independent legal counsel to obtain advice with respect to its services under this engagement. The Company will reimburse APS’s for the reasonable fees and expenses of such independent legal counsel.
APS acknowledges that, during the pendency of any Bankruptcy Court approved retention, the indemnification provisions and Liability Cap set forth above may be subject to modification as stated within the Bankruptcy Court’s retention order.
Due to the ordinary course and unavoidable reconciliation of fees and submission of expenses immediately prior to, and subsequent to, the date of filing, APS may have incurred but not billed fees and reimbursable expenses which relate to the prepetition period. APS will seek Bankruptcy Court approval to apply the retainer to these amounts.
If APS finds it desirable to augment its consulting staff with independent contractors (an “I/C”) in this case, (i) APS will file, and require the I/C to file, 2014 affidavits indicating that the I/C has reviewed the list of the interested parties in this case, disclosing the I/C’s relationships, if any, with the interested parties and indicating that the I/C is disinterested; (ii) the I/C must remain disinterested during the time that APS is involved in providing services on behalf of the Company; and (iii) the I/C must represent that he/she will not work for the Company or other parties in interest in this case during the time APS is involved in providing services to the Company. APS’s standard practice is to charge for an I/C’s services at the rate equal to the compensation provided by APS to such I/C.
Section 14. Data Protection
To the extent applicable, the Company and APS shall comply with the terms of the APS Data Protection Addendum (located at: https://www.alixpartners.com/policies/processor-data-protection-addendum/), which form part of the Agreement. The Data Protection Schedule of this Agreement shall apply to the Data Protection Addendum.
Exhibit 10.6
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement (the “Amendment”) is made and entered into as of this 1st day of August, 2022, by and Asurion, LLC, a Delaware limited liability company (“Buyer”), and Enjoy Technology, Inc., a Delaware corporation (“Enjoy”), Enjoy Technology Operating Corp., a Delaware corporation (“Enjoy Operating”) and Enjoy Technology LLC, a Delaware limited liability company (“Enjoy LLC” and, together with Enjoy and Enjoy Operating, each a “Seller” and, collectively, “Sellers”). Buyer and Sellers are collectively referred to herein as the “Parties” and individually as a “Party”. Capitalized but undefined terms in this Amendment shall have the meanings given them in the Asset Purchase Agreement (the “Purchase Agreement”), dated as of July 25, 2022, by and among the Parties.
RECITALS:
AGREEMENT
For valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
(c) within 10 Business Days following the date of this Agreement, Sellers, on the one hand, and Buyer, on the other hand, shall each prepare and file, or cause to be prepared and filed, any notifications required to be filed under the HSR Act with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice, and request early termination of the waiting period under the HSR Act.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written
BUYER:
ASURION, LLC
By: /s/ Roger Anthony Detter Name: Roger Anthony Detter
Title: Chief Executive Officer
SELLERS:
ENJOY TECHNOLOGY, INC.
By: /s/ Ron Johnson Name: Ron Johnson
Title: Chief Executive Officer
ENJOY TECHNOLOGY OPERATING CORP.
By: /s/ Ron Johnson Name: Ron Johnson
Title: Chief Executive Officer
ENJOY TECHNOLOGY LLC
By: /s/ Ron Johnson Name: Ron Johnson
Title: Chief Executive Officer
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tiffany N. Meriweather, certify that:
Dated: October 14, 2022 |
By: |
/s/ Tiffany N. Meriweather |
|
|
Tiffany N. Meriweather |
|
|
Chief Legal Officer and Corporate Secretary (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Todd Zoha, certify that:
Dated: October 14, 2022 |
By: |
/s/ Todd Zoha |
|
|
Todd Zoha |
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Legacy EJY, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tiffany N. Meriweather, Chief Legal Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 14, 2022 |
By: |
/s/ Tiffany N. Meriweather |
|
|
Tiffany N. Meriweather |
|
|
Chief Legal Officer and Corporate Secretary (Principal Executive Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Legacy EJY, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd Zoha, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 14, 2022 |
By: |
/s/ Todd Zoha |
|
|
Todd Zoha |
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.