Item 8.01. Other Events.
In reliance
upon the Order of the Securities and Exchange Commission issued March 25, 2020, granting exemptions from specified provisions of
the Exchange Act and certain rules thereunder (Release No. 34-88465) (the “Order”), the Company will delay the filing
of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”), originally due
on May 11, 2020. The Company anticipates filing the Quarterly Report on or before June 25, 2020, which is 45 days after the original
due date.
Although
the Company is gradually reopening stores where allowed, the Company needs additional time to prepare and review the Quarterly
Report due to circumstances related to COVID-19, including the temporary shutdown of all of the Company’s stores and related
disruptions to the Company’s business and operations, and the uncertainty as to the extent and duration of the disruption
caused by COVID-19. In response to COVID-19, the Company has furloughed the majority of its employees, made targeted reductions
in discretionary operating expenses, and eliminated substantially all capital expenditures.
As of
March 31, 2020, the Company had approximately $91 million outstanding under its line of credit. The Company is also actively exploring
financing options. Without appropriate financing it remains unclear whether the Company has or can obtain sufficient liquidity
to withstand the COVID-19 disruptions.
See “Additional
Risk Factor Disclosure” below.
Additional
Risk Factor Disclosure
Our business has been disrupted and materially adversely affected
by the recent outbreak of COVID-19.
Accordingly, we are supplementing the risk factors previously
disclosed in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
June 30, 2019, as filed with the SEC on August 22, 2019 as follows:
Outbreaks of communicable disease, or other public health
emergencies, such as the current COVID-19 pandemic, could substantially harm our business.
The COVID-19 pandemic has had, and will continue to have, an
adverse effect on our business operations, store traffic, employee availability, financial conditions, results of operations, liquidity
and cash flow.
On March 25, 2020, we temporarily closed all of our stores nationwide,
a majority of which remain closed as of the date of this report, severely reducing revenues and resulting in significant operating
losses and the elimination of substantially all operating cash flow. The scope and duration of this pandemic and the related disruption
to our business and financial impacts cannot be reasonably estimated at this time.
At this time, we anticipate that the outbreak of COVID-19 and
resulting store closures will continue to cause severe reductions in revenue and cash flows for at least the next several weeks.
There can be no assurance that we will not be required by accepted safety practices or by landlords or governmental authorities
at the local, state or federal level to extend the period during which some or all of our stores are closed, or as to how long
any such closure would continue. We have suspended making substantially all lease payments, which entitles our landlords to terminate
leases and take other actions. There can be no assurance that we will have sufficient cash flows from operations or other sources
of liquidity to continue making required or scheduled payments when due, or that our efforts to reduce, offset or defer such obligations,
such as entering into deferral agreements with landlords or other creditors, will be successful.
Further, our customers may also be negatively affected by the
consequences of COVID-19, which could negatively impact demand for our products as customers delay, reduce or eliminate discretionary
purchases at our stores that have reopened or may reopen. Any significant reduction in customer visits to, and spending at, our
stores caused directly or indirectly by COVID-19 would result in a further loss of revenue and cash flows and negatively impact
profitability and could result in other material adverse effects.
The extent to which the ongoing COVID-19 pandemic will impact
our business, results of operations, financial condition and liquidity is highly uncertain and difficult to predict considering
the rapidly evolving environment and will depend on future developments, including the potential further geographic spread and
duration of the ongoing pandemic, the severity, containment, and management of the virus and the actions that may be taken by various
governmental authorities and other third parties in response to the pandemic.
While we continue to explore all options for preserving and
increasing sources of liquidity, expense reduction initiatives, and negotiations with landlords and suppliers to extend or otherwise
revise payment terms, we do not expect that these efforts will fully offset the adverse impact on us of the disruption to our business.
While we satisfied our financial covenants under our Revolving
Credit Agreement as of March 31, 2020, we expect that it will be difficult for us to do so in subsequent periods. Our ability to
do so likely will depend on our ability to obtain additional funding and relief from our covenant structure. We may be required
to implement additional cost-reduction measures going forward, which could further adversely affect our ability to manage and operate
our business.
We are actively exploring additional financing, however we currently
have no arrangements for additional capital and no assurances can be given that we will be able to raise sufficient capital when
needed, on acceptable terms, or at all. The effects of the COVID-19 pandemic on macroeconomic conditions and the capital markets
make it more challenging to raise capital. If we are unable to raise sufficient additional capital in the very near term, we may
default on our payment obligations or not satisfy our financial covenants under our Revolving Credit Agreement. Without
additional financing, it remains unclear whether the Company has or can obtain sufficient liquidity to withstand the COVID-19 disruptions.