UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: March 31, 2016

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

For the transition period from ____________ to ____________

Commission File Number: 333-193618

901 West Main Street, Suite A, Auburn, WA 98001

(Address of principal executive offices, Zip Code)

1-800-447-2993

(Registrant's telephone number, including area code)

____________________________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

The number of shares outstanding of each of the issuer's classes of common stock, as of May 16, 2016 is as follows:

Peekay Boutiques, Inc.

Quarterly Report on Form 10-Q

 Period Ended March 31, 2016

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PEEKAY BOUTIQUES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

At the close of business on December 31, 2014, Christals Acquisition, LLC and its members entered into a securities exchange agreement ("Exchange Agreement") with DICO, Inc. a Nevada corporation, pursuant to which DICO acquired 100% of the issued and outstanding equity capital of Christals Acquisition in exchange for 420,812 shares of DICO common stock, par value $0.0001 per share, which constituted 70.5% of the issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Exchange Agreement. In addition, at the closing of the share exchange, Christals paid DICO $350,000 in cash. This cash was immediately used for the following purposes (i) to pay down all of DICO's outstanding liabilities, (ii) $308,436 of this cash was used as a partial payment toward the redemption of a total of 2,500,000 of DICO restricted shares from David Lazar, the former Chief Operating Officer and Secretary of DICO, pursuant to a redemption agreement entered into with Mr. Lazar on December 31, 2014, and (iii) to satisfy aggregate purchase price payable to holders of a total of 175,433 shares of DICO common stock, which shares were transferred to the members of Christals Acquisition as a condition to the closing of the exchange transaction. In addition to receiving the $308,436 payment for the redemption of his 2,500,000 shares of DICO common stock, DICO also transferred to Mr. Lazar the remaining inventory of loose diamonds pursuant to a bill of sale and assignment agreement as the balance of the consideration for the redemption of his shares. Immediately following the closing of the exchange transaction and the related transactions described above, the former members of Christals Acquisition and certain equity owners of such members who immediately received distributions of such securities, became the owners of 596,245 shares of our common stock, constituting 99.9% of DICO's issued and outstanding common stock as of such closing. For accounting purposes, the exchange transaction with Christals Acquisition was treated as a reverse acquisition, with Christals Acquisition as the acquirer and DICO, Inc. as the acquired party. In January 2015, DICO, Inc. changed its name to Peekay Boutiques, Inc. On October 28, 2015, the Company effected a one-for-six reverse split of our authorized and outstanding common stock, and all share and per share information has been adjusted to reflect this reverse split.

Christals Acquisition, LLC, a Delaware limited liability company, was formed in January 2012 to acquire existing limited liability companies operating retail stores in the sexual health and wellness category. The financial statements of Christals Acquisition, LLC and Subsidiaries ("the Company") include the following fully owned subsidiaries: Peekay Acquisition, LLC, Peekay SPA, LLC; ZJ Gift F-2, LLC, ZJ Gift F-3, LLC, ZJ Gifts F-4, LLC, ZJ Gifts F-5, LLC, ZJ Gifts F-6, LLC, ZJ Gifts I-1, LLC, ZJ Gifts M-1, LLC, ZJ Gifts M-2, LLC, and ZJ Gifts M- 3, LLC, which operate stores in Iowa, Texas and Tennessee under the Christals brand; and Peekay, Inc., ConRev, Inc., Condom Revolution, Inc. and Charter Smith Sanhueza Retail, Inc., which operate stores in Washington, Oregon and California under the Lovers, ConRev and A Touch of Romance brands.

Basis of Presentation – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During 2014 and 2015, the Company incurred net losses of $4,181,890 and $46,690,915 (including a $40,585,386 impairment charge), respectively, largely as a result of interest expense on its outstanding debt of almost $51 million, which exceeds the operating profits generated through the operations of its business. Approximately $38.2 million in senior secured debt matured on February 15, 2016, and the Company does not have the resources necessary to pay this debt and has not been able to raise the capital necessary or source refinancing to satisfy this obligation and is operating under a Forbearance Agreement.

The ability of the Company to continue its operations and execute its business plan is dependent on its ability to refinance this debt and/or to raise sufficient capital to pay this debt and other obligations as they come due (or are extended through a refinancing) and to provide sufficient capital to operate its business as contemplated. Management is in the process of exploring refinancing options, and raising additional equity capital through either a private placement of its securities, a public offering or a strategic transaction.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Information regarding significant accounting policies relating to Peekay Boutiques and its subsidiaries is contained in Note 2, "Significant Accounting Policies," to the financial statements of Peekay Boutiques contained in the Annual Report on Form 10-K for the year ended December 31, 2015. Presented below in this and the following notes is supplemental information that should be read in conjunction with "Notes to Financial Statements" in the Annual Report on Form 10-K.

Basis of Presentation

The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission ("SEC"), for interim financial information and include the accounts of the Peekay Boutiques, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.

The Company's business is subject to seasonal fluctuation. Significant portions of the Company's net revenue and operating income are realized during the first and fourth quarters of the fiscal year, corresponding to the Valentine Day and Holiday shopping seasons, respectively. The results of the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2016, or for any other future interim period or for any future year.

These interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Fiscal Year End

The Company has adopted a fiscal year end of December 31^st, and its quarters end on March 31^st, June 30^th, September 30^th and December 31^st.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The Company's most significant areas of estimation and assumption are:

Recent Accounting Pronouncements and Account Changes

In February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09"), which will supersede Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company must recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. This standard is effective beginning in fiscal year 2017 and allows for either full retrospective or modified retrospective adoption. We are monitoring the evolving interpretations and implementation guidance. Our preliminary assessment is that we do not expect the new standard to have a material impact on our reported financial position or results of operations.

Our company made no accounting changes during the three months ended March 31, 2016.

NOTE 3 – NOTES PAYABLE

Unsecured Subordinated Promissory Notes

Acquisition of the Christals Stores - On October 9, 2012, Christals Acquisition, LLC issued four promissory notes, two at $1,550,000 and two at $150,000 to the former owners of the Christals stores. These notes bear interest at a rate of 12% and are due at maturity on January 7, 2017. Interest is only payable prior to note maturity, if the stores sold as part of this agreement reach a certain quarterly EBITDA threshold. During 2014 and 2015, the stores reached that threshold for one quarter and $45,000 in interest was paid to the holders. These notes are subject to certain covenants that are defined in the purchase agreement.

Acquisition of the Peekay Stores - On December 31, 2012, Peekay Acquisition, LLC and Peekay SPA, LLC, each a Delaware limited liability company, jointly and severally promised to pay to the "Subordinated Lenders" the principal amount of $6,000,000 and $3,300,000 pursuant to a Common Stock Purchase Agreement, dated as of December 31, 2012, with interest at the rate of 9% and 12% per annum respectively. The notes mature on December 31, 2016. Subject to the Subordination Provisions and all other rights of the Senior Creditors arising in connection with the Senior Obligations, all unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, will be due and payable in cash on the earlier of the Maturity Date, and the date when, upon the occurrence and during the continuance of an Event of Default, such amounts are declared due and payable in cash by the Majority Lenders or become automatically due and payable in cash hereunder, in each case, in accordance with the terms hereof.

Payments of accrued and unpaid interest on the Subordinated Notes is due and payable in cash in arrears on the earlier of the Maturity Date or the acceleration during the occurrence of an Event of Default. Accrued but unpaid interest shall be compounded quarterly on each March 1, June 1, September 1, and December 1, commencing on March 1, 2013 (each such date an "Interest Payment Date"). All such interest shall be paid by accretion thereof to the outstanding principal balance of the Subordinated Notes as PIK interest. Notwithstanding anything herein to the contrary, on each Interest Payment Date, 45% of the interest then accrued in respect to the three months then ending shall be due as Cash Interest, and if permitted by provisions of the Subordination Agreement, shall be payable as Cash Interest rather than PIK interest. By giving the Subordinated Lender five days written notice, the Company may prepay the debt, in whole or in part, without penalty or premium, with amounts paid applied to accrued, unpaid interest and then to principal. These notes contain certain covenants that restrict the amount of distributions and dividends that the Company can make.

Financing Agreement

On December 31, 2012, Christals Acquisition, LLC, a Delaware limited liability company (the "Parent"), Peekay Acquisition, LLC, a Delaware limited liability company ("Peekay Acquisition"), the subsidiaries of Peekay Acquisition listed as "Borrowers", entered into a financing agreement with Cortland Capital Marketing Services, LLC, collateral agent for the lenders.

The Lenders issued a term loan to the Borrowers initially in the aggregate principal amount of $38,215,939, consisting of a tranche A term loan for the principal amount of $27,000,000 which expires on December 27, 2015, and bears interest at a rate of 12% per annum, and a tranche B term loan for the principal amount of $11,215,930 which expires on December 27, 2015, and bears interest at a rate of 15% per annum. The proceeds of the loans shall be used by Peekay Acquisition to make a loan to the Parent, which will use proceeds to repay certain existing indebtedness, and to finance a portion of the purchase price payable by Peekay SPA, LLC for the purchase of the issued and outstanding shares of stock of Peekay, Inc. and ConRev, Inc., each a Washington corporation (the "Acquisition Peekay"), and by the Borrowers to fund working capital of Peekay Acquisition and its subsidiaries and to pay fees and expenses related to this Agreement and the Acquisition Peekay.

The Borrowers agree to pay the following fees associated with the loans:

The loans are covered by the following covenants:

The loans are guaranteed by Christals Acquisition, LLC and all its subsidiaries.

During the year ended December 31, 2014, the Company obtained three covenant waivers through Amendments to the Financing Agreements dated March 31, 2014, September 30, 2014 and December 31, 2014, which cover covenant requirements through April 30, 2015. The Company agreed to pay waiver fees totaling $955,398. A total of $191,080 in fees was paid in cash during 2014; $573,239 and $95,540 was paid in cash to the lenders on February 20, 2015 and March 31, 2015, respectively. The remaining $95,540 is due at maturity.

We obtained a fourth covenant waiver on June 30, 2015, for the period ending September 30, 2015 and, a fifth covenant waiver on October 31, 2015 for the period ending November 30, 2015. We obtained a sixth covenant waiver on November 30, 2015 for the period ending December 27, 2015 and a seventh covenant waiver on December 16, 2015 for the period ending December 31, 2015.

At the same time we entered into the fifth amendment to the financing agreement to obtain the fifth covenant waiver, we also entered into a sixth amendment to our financing agreement. The sixth amendment will only become effective if we close the Public Offering and satisfy the other conditions to the sixth amendment, which are described below. We refer to the date that the sixth amendment becomes effective as the sixth amendment effective date. On the sixth amendment effective date the financing agreement will be further modified as follows:

On December 16, 2015, we entered into the eighth amendment to the financing agreement. The eighth amendment extends the final maturity date of the financing agreement to February 15, 2016, in order to allow for the completion of the Public Offering. The eighth amendment also waives, until February 15, 2016, any noncompliance due to (a) the payment to Christals Management, LLC of quarterly management fees in advance, rather than arrears from January 2013 through June 2015, and (b) failure to meet the required leverage ratio and minimum equity covenants set forth in the financing agreement.

An amendment fee equal to 0.50% of the aggregate principal amount of the outstanding loans will be payable on the earlier of the final maturity date and the date on which all the loan obligations are repaid or must be repaid, and the borrowers must pay a $150,000 legal expense advance. The eighth amendment also proscribes payment of accrued, unpaid management fees until the earlier of the final maturity date or the date on which all the loan obligations are repaid or must be repaid, except that upon the closing of a qualified public offering, including the offering contemplated by this prospectus, we may pay management fees of $325,000 to CP IV SPV, LLC.

On February 26, 2016, the Company, the Company's subsidiaries, Christals Acquisition, LLC ("Parent"), Peekay Acquisition, LLC, each of the subsidiaries of Peekay Acquisition, LLC (collectively, the "Loan Parties") and certain of the Company's senior secured lenders (the "Consenting Term A Lenders") entered into the Forbearance and Ninth Amendment Agreement (the "Ninth Amendment"), which amends the financing agreement relating to the Company's senior secured debt.

Under the Ninth Amendment, among other things, the Loan Parties agreed (a) that on or before February 29, 2016, the Company would grant to the Consenting Term A Lenders warrants (the "Warrants") to purchase up to an aggregate of 2.5% of the common shares of the Company on a fully diluted basis and (b) to enter into a non-binding term sheet with respect to a Step Two Restructuring Transaction by March 15, 2016 (the "Step Two Restructuring Term Sheet"). A Step Two Restructuring Transaction is generally defined in the Ninth Amendment as an out-of-court restructuring on terms and conditions acceptable to the Consenting Term A Lenders or a pre-arranged Chapter 11 bankruptcy on terms and conditions acceptable to the Consenting Term A Lenders.

As previously reported by the Company in a current report on Form 8-K filed with the SEC on March 18, 2016, on March 14, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to a ten-day extension of the deadline to grant the Warrants and enter into the Step Two Restructuring Term Sheet until March 24, 2016. This extension is conditioned on the agreement by the Company and the Loan Parties of the following conditions, which conditions were accepted by the Company and the other Loan Parties:

On March 24, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to further extend the deadline to grant the Warrants and enter into the Step Two Restructuring Term Sheet until March 30, 2016.

On March 31, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to further extend the deadline to grant the Warrants and enter into the Step Two Restructuring Term Sheet until April 11, 2016. After April 11, 2016, this extension will automatically renew unless the Company receives 24 hours' notice from the Consenting Term A Lenders of the termination of the extension. The Company agreed to the following conditions:

Counsel to the Consenting Term A Lenders also confirmed by email correspondence that its clients will not require the Company to make further administrative agent fee payments to Cortland Capital Market Services LLC until a further agreement has been reached as to its fee.

There can be no assurance that we will be able to obtain additional waivers, or that we will continue to be in compliance with the terms and conditions of the agreements with our secured and other lenders. If we fail to obtain waivers or default on our secured debt, then our lenders may be able to accelerate such debt or take other action against us, which would have material adverse consequences on our financial condition and our ability to continue to operate.

NOTE 4 – FAIR VALUE MEASUREMENTS

The carrying value of cash and equivalents, deposit held in escrow and accounts payable approximates their estimated fair values due to the short maturities of these instruments.

Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:

NOTE 5 – SUBSEQUENT EVENTS

We evaluated all events or transactions that occurred after December 31, 2015 up through May 13, 2016, the date we issued these statements. During this period, we did not have any other material subsequent events that impacted our financial statements, which are not already disclosed herein.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as "believe," "expect," "anticipate," "project," "target," "plan," "optimistic," "intend," "aim," "will" or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements about potential financing transactions, debt restructurings, or transactions with strategic partners, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A "Risk Factors" included in Exhibit 99.1 to our Annual Report on Form 10-K filed April 14, 2016, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of our company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

Overview

Based on our management's belief and experience in the industry, we believe we are a leading retailer of lingerie, sexual health and wellness products. Our company was founded in 1981 in Auburn, WA by a mother and daughter team with a focus on creating a comfortable and inviting store environment catering to women and couples. We are dedicated to creating both a place and attitude of acceptance and education for our customers. Today, our company is a leader in changing the perception of sexual health and wellness throughout the United States with 47 locations across six states.

Our stores offer a broad selection of lingerie, sexual health and wellness products and accessories. We offer over 5,000 stock keeping units, or SKUs. We strive to create a visually inspiring environment at our stores and employ highly trained, knowledgeable sales staff, which ensures that our customers leave our stores enlightened by new information, great ideas and fun products.

Our mission is to provide a warm and welcoming retail environment for individuals and couples to explore sexual wellness.

Principal Factors Affecting our Financial Performance

Our operating results are primarily affected by the following factors:

Our business is also materially impacted by certain covenants contained in our senior financing agreements and our inability to repay our indebtedness under such agreements, which has already come due. We have sought and obtained several waivers of the leverage ratio and/or minimum liquidity covenants. We are currently in default under our financing agreement with our senior lenders and have entered into a forbearance agreement with our senior lenders. If we are unable to satisfy the demands of our senior lenders for the repayment of all amounts owned to them, raise capital to repay our indebtedness to our senior lenders or enter into a strategic transaction and related restructuring, we could be forced to file for bankruptcy protection. Our continued need to obtain waivers and forbearance from our lenders as needed, or to refinance our existing indebtedness, could have a material impact on our financial condition and operations.

Recent Developments

Amendment No. 1 to Stockholder Rights Agreement

On December 31, 2014, we completed a reverse acquisition of Christals pursuant to a Share Exchange Agreement among the Company, Christals and the former members of Christals, which we refer to as the Share Exchange Agreement. In connection with entering into the Share Exchange Agreement the parties adopted the Stockholder Rights Agreement, which appears as Annex C to the Share Exchange Agreement, which we refer to as the Stockholder Rights Agreement. On January 28, 2016 the Company, Christals and certain former members of Christals who formerly held a majority in interest of the Christals common units, who we refer to as the Members, entered into Amendment No. 1 to Stockholder Rights Agreement, which we refer to as the Stockholder Rights Agreement Amendment. Under the Stockholder Rights Agreement Amendment, the parties agreed to eliminate the right of first refusal, drag along right, tag along right and certain other provisions of the Stockholder Rights Agreement.

As a result of the Stockholder Rights Agreement Amendment, the Company-imposed stop transfer order on Company Common Stock held by the former members of Christals has been removed and the former members of Christals will be able to sell their Common Stock subject to applicable restrictions under state and federal securities laws.

Copies of the Share Exchange Agreement and Stockholder Rights Agreement are included as Exhibit 2.1 to the Form 8-K filed by the Company with the Securities and Exchange Agreement on January 6, 2015, and are incorporated by reference herein.

The foregoing is a summary description of certain terms of the Stockholder Rights Agreement Amendment, and by its nature is incomplete. A copy of the Stockholder Rights Agreement Amendment is filed as Exhibit 10.1 to this report and is incorporated into this report by reference. All readers are encouraged to read the entire text of the Amendment.

Financing Agreement Amendment and Forbearance

The Company's subsidiaries, Christals, Peekay Acquisition, and each of the subsidiaries of Peekay Acquisition, or collectively, the Loan Parties, entered into the eighth amendment to the financing agreement with their senior secured lenders, or the Financing Agreement, on December 16, 2015, pursuant to which the final maturity date of the Loan Parties' obligations arising under the Financing Agreement was extended to February 15, 2016.

On February 14, 2016, counsel to a majority of the Term A Lenders (as defined in the Financing Agreement), confirmed by email correspondence on behalf of the Term A Lenders holding at least a majority of the Term A Loans (as defined in the Financing Agreement) that the Term A Lenders agree to a preliminary forbearance period until February 22, 2016 at 11:59 PM (ET). The preliminary forbearance period was intended to provide the parties with the time necessary to negotiate a more detailed forbearance agreement with respect to the maturity of the obligations of the Loan Parties arising under the Financing Agreement.

On February 22, 2016, the Company, the Company's subsidiaries, Christals Acquisition, Peekay Acquisition, each of the subsidiaries of Peekay Acquisition, or collectively, the Loan Parties, and certain of the Company's senior secured lenders, or the Consenting Term A Lenders, entered into the Forbearance and Ninth Amendment Agreement, or the Ninth Amendment, which amends the Financing Agreement.

Please see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financing Agreement; Amendments and Waivers" for a description of the Ninth Amendment and certain additional waivers to its provisions

Appointment of Independent Director

On February 22, 2016, in satisfaction of a requirement to appoint the Independent Director under the Ninth Amendment, the Board of Directors of the Company appointed Matthew R. Kahn as a new independent director of the Company.

The Board determined that Mr. Kahn meets the criteria for independent directors and audit committee members as set forth in NASDAQ Listing Rules 5605(a)(2) and 5605(c)(2)(A). Mr. Kahn is entitled to monthly compensation of $7,000 for his services as a director of the Company.

Mr. Kahn has approximately 20 years experience in private equity, structured lending, and credit investing, and four years of operating experience as a senior financial executive of two public companies. Since July 2012, Mr. Kahn has acted as Special Advisor and Consultant for MRSAKAHN LLC, in which Mr. Kahn has advised various parties in a number of corporate acquisition and restructuring transactions. Mr. Kahn has also been a member of the board of directors of Hovensa LLC, Grafton Fraser Inc., Sager Creek Vegetable Company, and City Fresh. Prior to that, Mr. Kahn was Principal and Managing Director of GB Merchant Partners, LLC, a division of Gordon Brothers, from 1995 to June 2012. During his tenure, Mr. Kahn led private equity acquisitions by 1903 Equity Fund, LP and structured lending by 1903 Debt Fund, LP. From 1997 to 2006, in connection with his service with Gordon Brothers Group, Mr. Kahn was Chairman of the Board of Party America and oversaw its growth and sale to Party City (NYSE: PRTY). In addition, Mr. Kahn has served as director and a member of the Audit Committee for Ashley Stewart, Bargain Shop, Como, and Spencer Gifts and as a director of McNaughton Apparel, formerly a public company, and Party City (NYSE: PRTY). From 1994 to 1995, Mr. Kahn was Chief Financial Officer of Jos. A. Bank Clothiers, Inc. (NASDAQ: JOSB). From 1992 to 1994, Mr. Kahn was Senior Financial Officer of Nature Food Centres, Inc. In addition, from 1987 to 1991, Mr. Kahn was Vice President, Principal Investments, of Trump Group; from 1986 to 1987, Associate, Mergers & Acquisitions, Citicorp Investment Banking; and from 1981 to 1983, Staff Accountant, Audit Division, of Arthur Anderson. Mr. Kahn completed his Master of Business Administration program at University of Virginia (Darden School) in 1985 and Bachelor of Science in Business Administration, magna cum laude, at Georgetown University in 1981.

Other than in connection with the satisfaction of requirements of the Ninth Amendment as disclosed above, there are no arrangements or understandings between Mr. Kahn and any other persons pursuant to which he was selected as a director and there are no transactions between the Company and Mr. Kahn that would require disclosure under Item 404(a) of Regulation S-K.

Amendment No. 2 to Janet Mathews Employment Agreement

On March 1, 2016, the Company and Janet Mathews, the Company's Chief Financial Officer, Treasurer and Secretary, entered into Amendment No. 2 to Ms. Mathews' employment agreement. The Company and Ms. Mathews originally entered into the employment agreement on December 31, 2014. The employment agreement was amended on December 29, 2015.

The employment agreement, as amended, provides that Ms. Mathews will be entitled to a special bonus in the amount of $100,000 upon the completion of either a Step One Restructuring Transaction or a Step Two Restructuring Transaction (each term as defined in the Ninth Amendment. As amended, the employment agreement also now provides that if the Company completes a Step One Restructuring Transaction or a Step Two Restructuring Transaction and Ms. Mathews resigns at any time following 12 months of the completion of such transaction, the Company must pay Ms. Mathews $8,333.33 per month for up to twelve months provided that the Company's obligation to make these payments will cease upon Ms. Mathews obtaining other employment. The employment agreement was otherwise unmodified.

The foregoing is a summary description of certain terms of Amendment No. 2 to Ms. Mathews' employment agreement, and, by its nature, is incomplete. A copy of Amendment No. 2 to Ms. Mathews' Employment Agreement is filed as Exhibit 10.5 to this report and is incorporated into this report by reference. All readers are encouraged to read the entire text of Amendment No. 2 to Ms. Mathews' employment agreement.

Going Concern

Our auditor has raised substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During 2014 and 2015, we incurred net losses of $4.2 million and $46.7 million (including a $40.6 million goodwill impairment charge), respectively. Our net losses are largely a result of interest expense on the approximately $51 million of debt, which exceeds the operating profits generated through the operations of our business. Approximately $38.2 million in senior secured debt matured on February 15, 2016, and we do not have the resources necessary to pay this debt and we have been unable to find replacement financing. We are currently operating under a Ninth Amendment providing for certain forbearance treatment (see above) with our lenders, but we may be forced to file for bankruptcy and/or liquidate our assets if we are unable to meet the terms of the agreement. Our ability to continue our operations and execute our business plan is dependent on our ability to refinance this debt and/or to raise sufficient capital to pay this debt and other obligations as they come due (or are extended through a refinancing) and to provide sufficient capital to operate our business as contemplated. If we are unable to refinance our existing senior debt or raise equity capital we may have to cease operations and liquidate our assets and the holders of our equity may lose all or a significant portion of the value of their equity.

Emerging Growth Company

We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

Results of Operations

Comparison of Three Months Ended March 31, 2016 and 2015

The following table sets forth key components of our results of operations for the three months ended March 31, 2016 and 2015.

Net revenue. For the three months ended March 31, 2016, net revenue decreased $0.4 million, or 3.7%, to $11.3 million, as compared to the same period in 2015. Our same store sales decreased $0.5 million, or 4.2%, to $11 million, for the three months ended March 31, 2016 as compared to the same period in 2015. For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Sales of our private label products declined $0.3 million for the three months ended March 31, 2016, as compared to the comparable period in 2015, as we finish selling through the remaining products imported in 2013 and early 2014, while DVD sales were $0.2 million lower than 2015, as we discontinued distribution of DVDs in the third quarter of 2015. Total revenue, as adjusted for these assortment changes, would have increased by 0.8% over Q1 2015, which was the highest quarterly revenue in the Company's history.

Gross profit. Gross profit for the three months ended March 31, 2016 was $7.3 million, a decrease of $0.3 million or 3.8% over the same period in 2015. Gross profit, expressed as a percentage of net revenue, declined 10 basis points from 64.9% for the three months ended March 31, 2015 to 64.8% for the three months ended March 31, 2016, due to changes in product assortment associated with our revised media strategy, and a reduction in the number of products in our private label program.

Selling, general and administrative expense. For the three months ended March 31, 2016, selling, general and administrative expenses totaled $5.4 million, a decrease of $0.2 million over the same period in 2015. The decrease in operating expenses resulted primarily from a reduction in marketing and advertising costs from the first quarter of 2015 to comparable period in 2016. The company tested theater advertisement during the Fifty Shades of Grey movie release and pre-release in 2015.

Depreciation and amortization. Depreciation and amortization for the three months ended March 31, 2016 was $0.9 million, $0.2 million higher than for the same period in 2015, primarily due to an increase in the amortization of fees associated with our senior credit facility, and increased depreciation associated with new store construction in 2014 and 2015.

Interest and tax expense. Interest expense for the three months ended March 31, 2016 and 2015 was $1.8 million, an increase of $0.2 million over the comparable 2015 period due to the incurrence of default interest on the senior notes. No measurable income tax expense was recognized for the three months ended March 31, 2016 or 2015.

Net loss. As a result of the foregoing, the net loss for the three months ended March 31, 2016 was $0.9 million as compared to a loss $0.5 million for the same period in 2015.

Liquidity and Capital Resources

 
As of March 31, 2016, we had cash and cash equivalents of $1.2 million. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

Cash Flow

(In Thousands)

Operating activities. Operating activities consist of net income, adjusted for certain non-cash items, including depreciation and amortization, and the effect of changes in working capital. We generated $0.3 million and $0.4 million in cash from operating activities for the three months ended March 31, 2016 and 2015, respectively, due primarily to increases in accounts payable and accrued expenses associated with unpaid loan fees and accrued interest.

Investing activities. Historically, we have used cash primarily to make acquisitions, and to remodel and build new stores. During the three months ended March 31, 2015, we used $0.1 million for leasehold improvements and equipment for our new store in Valencia, California.

Financing activities. During the three months ended March 31, 2015, we used $0.7 million to pay loan waiver fees on our senior facility.

Loan Commitments

As of March 31, 2016, the amount, maturity date and term of each of our notes payable are as follows:

Under the Ninth Amendment and Forbearance Agreement entered into on February 26, 2016, the interest rates on both the Tranche A and Tranche B debt is increased by 2% per annum to 14% and 17%, respectively.

Financing Agreement; Amendments and Waivers

On December 31, 2012, our subsidiaries, Christals Acquisition, Peekay Acquisition and the subsidiaries of Christals Acquisition and Peekay Acquisition, as the borrowers and guarantors, entered into a financing agreement with Cortland Capital Marketing Services, LLC, as collateral agent for the several secured lenders.

The lenders made a term loan to the borrowers initially in the aggregate principal amount of $38,215,939, consisting of a tranche A term loan for the principal amount of $27,000,000, which expires on December 27, 2015, and bears interest at a rate of 12% per annum, and a tranche B term loan for the principal amount of $11,215,930, which expires on December 27, 2015, and bears interest at a rate of 15% per annum. The maturity date of the loans made under the financing agreement was extended to February 15, 2016 pursuant to the eighth amendment to the financing agreement, which is described below. The proceeds of the loans were used to repay then existing indebtedness, to finance a portion of the purchase price payable in connection with our acquisition of Peekay and ConRev, to fund working capital requirements and to pay fees and expenses related to the Peekay and ConRev acquisition.

This debt matured on February 15, 2016, and we do not have the resources necessary to pay this debt and we have been unable to find replacement financing. We are currently operating under a forbearance agreement with our lenders, which is described below, but we may be forced to file for bankruptcy and/or liquidate our assets if we are unable to meet the terms of the forbearance agreement.

Our subsidiaries paid the following fees in connection with the financing agreement:

The financing agreement contains several financial covenants and other affirmative and negative covenants, including, without limitation, the following:

The obligations of the borrowers under the financing agreement are guaranteed by Christals Acquisition and all its subsidiaries as guarantors.

Although our company, Peekay Boutiques, Inc., is not a party to the financing agreement, since we are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries, who are all parties to the financing agreement as either borrowers or guarantors, as a practical matter, we are restricted by the terms of the financing agreement. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends to our shareholders is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The financing agreement restricts the circumstances under which our subsidiaries may pay dividends to us or make intercompany loans to us.

During 2014, we obtained three covenant waivers through amendments to our financing agreement with our secured lenders, dated March 31, 2014, September 30, 2014 and December 31, 2014. These waivers covered covenant requirements through April 30, 2015. We obtained a fourth covenant waiver on June 30, 2015, for the period ending September 30, 2015 and, a fifth covenant waiver on October 31, 2015 for the period ending November 30, 2015. We obtained a sixth covenant waiver on November 30, 2015 for the period ending December 27, 2015 and a seventh covenant waiver on December 16, 2015 for the period ending December 31, 2015.

At the same time we entered into the fifth amendment to the financing agreement to obtain the fifth covenant waiver, we also entered into a sixth amendment to our financing agreement. The sixth amendment will only become effective if we close our proposed underwritten public offering as described in the Company's registration statement on Form S-1 (Registration No. 333-203870), or the Public Offering, and satisfy the other conditions to the sixth amendment, which are described below. We refer to the date that the sixth amendment becomes effective as the sixth amendment effective date. On the sixth amendment effective date the financing agreement will be further modified as follows:

On December 16, 2015, we entered into the eighth amendment to the financing agreement. The eighth amendment extended the final maturity date of the financing agreement to February 15, 2016, in order to allow for the completion of the Public Offering. The eighth amendment also waived, until February 15, 2016, any noncompliance due to (a) the payment to Christals Management, LLC of quarterly management fees in advance, rather than arrears from January 2013 through June 2015, and (b) failure to meet the required leverage ratio and minimum equity covenants set forth in the financing agreement.

An amendment fee equal to 0.50% of the aggregate principal amount of the outstanding loans will be payable on the earlier of the final maturity date and the date on which all the loan obligations are repaid or must be repaid, and the borrowers must pay a $150,000 legal expense advance. The eighth amendment also proscribed payment of accrued, unpaid management fees until the earlier of the final maturity date or the date on which all the loan obligations are repaid or must be repaid, except that upon the closing of a qualified public offering, including the Public Offering, we may pay management fees of $325,000 to CP IV SPV, LLC.

On February 22, 2016, we and certain of the Company's senior secured lenders, who we refer to as the Consenting Term A Lenders, entered into the Forbearance and Ninth Amendment Agreement, which we refer to as the Ninth Amendment. The Ninth Amendment further amends the financing agreement as described below.

The Ninth Amendment provides the Loan Parties with necessary forbearance from the enforcement by the secured lenders of default-related rights and remedies with respect to existing Financing Agreement defaults of the Loan Parties specified in the Ninth Amendment, or the Specified Defaults, until July 31, 2016.

Under the Ninth Amendment, the Loan Parties have the following obligations, among others. As applicable, after each obligation identified below, the Company is disclosing its current compliance status.

The foregoing is a summary description of certain terms of the Ninth Amendment, and by its nature is incomplete. A copy of the Ninth Amendment is filed as Exhibit 10.2 to this report and is incorporated into this report by reference. All readers are encouraged to read the entire text of the Amendment.

On March 14, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to a ten-day extension of the deadline to grant the Warrants and enter into the Step Two Restructuring Term Sheet until March 24, 2016. This extension is conditioned on the agreement by the Company and the Loan Parties of the following conditions, which conditions were accepted by the Company and the other Loan Parties:

On March 24, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to further extend the deadline to grant the warrants and enter into the Step Two Restructuring Term Sheet until March 30, 2016.

On March 31, 2016, counsel to the Consenting Term A Lenders confirmed by email correspondence on behalf of the Consenting Term A Lenders that the Consenting Term A Lenders agreed to further extend the deadline to grant the warrants and enter into the Step Two Restructuring Term Sheet until April 11, 2016. After April 11, 2016, this extension will automatically renew unless the Company receives 24 hours' notice from the Consenting Term A Lenders of the termination of the extension. The Company agreed to the following conditions:

Counsel to the Consenting Term A Lenders also confirmed by email correspondence that its clients will not require the Company to make further administrative agent fee payments to Cortland Capital Market Services LLC until a further agreement has been reached as to its fee.

There can be no assurance that we will be able to obtain additional waivers, or that we will continue to be in compliance with the terms and conditions of the agreements with our secured and other lenders. If we fail to obtain waivers or default on our secured debt, then our lenders may be able to accelerate such debt or take other action against us, which would have material adverse consequences on our financial condition and our ability to continue to operate.

Obligations Under Material Contracts

Except with respect to the loan obligations disclosed above, and the minimum amounts due under various lease arrangements for our stores, corporate headquarter and warehouse (which are more fully described in Note 5 of the Condensed Notes to the Consolidated Financial Statements contained herein), we have no material obligations to pay cash or deliver cash to any other party.

Impact of Inflation and Changing Prices

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future could have an adverse effect on our ability to maintain current levels of gross profit and could result in an increase in operating expenses, as a percentage of revenue, if we cannot increase our retail prices to cover these increased costs. In addition, inflation could materially increase the interest rates that we are able to obtain, if we were to refinance our debt or increase our borrowings.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our business is subject to seasonal fluctuation. Significant portions of our net sales and profits are realized during the fourth quarter of the fiscal year due to the holiday selling season. To a lesser extent, our business is also affected by Valentine's Day. Any decrease in sales during these higher sales volume periods could have an adverse effect on our business, financial condition, or operating results for the entire fiscal year. Our quarterly results of operations have varied in the past and are likely to do so again in the future. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of our future performance.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Inventory

Inventory consists of merchandise acquired for resale and is valued at the lower of cost or market, with cost determined on a FIFO basis, and includes costs to purchase and distribute the goods, net of any markdowns or volume discounts. We maintain reserves for potential obsolescence and shrinkage.

Vendor Allowances

We receive allowances from vendors in the normal course of business, including markdown allowances, purchase volume discounts and rebates, and other merchandise credits. Vendor allowances are recorded as a reduction of the vendor's product cost and are recognized in cost of sales as the product is sold.

Fair Value of Financial Instruments

Our management believes the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value due to their short maturity.

Long-Lived Assets

Property and equipment are stated at cost. Maintenance and repair costs are charged to expense as incurred. Depreciation is provided using the straight-line method with estimated useful lives as indicate below:

Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the related assets or the leases term, and this amortization is included in depreciation.

Impairment of Long-Lived Assets

We review long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted cash flows. If long-lived assets are impaired, an impairment loss is recognized and is measured as the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future undiscounted cash flows from operating activities requires significant estimates of factors that include future sales growth and gross margin performance. Management believes they have appropriately determined future cash flows and operating performance; however, should actual results differ from those expected, additional impairment may be required. No significant impairment charges have been recognized in fiscal 2016 or 2015.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets acquired using acquisition accounting and is not amortized.

Under FASB ASC 350, Intangibles - Goodwill and Other ("ASC 350"), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment. Acquired intangible assets with definite lives are amortized over their individual useful lives.

On at least an annual basis, management assesses whether there has been any impairment in the value of goodwill by first comparing the fair value to the net carrying value. If the carrying value exceeds its estimated fair value, a second step is performed to compute the amount of the impairment. An impairment loss is recognized if the implied fair value of the asset being tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill impairment testing are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.

At December 31, 2015, we took a $40.6 million goodwill impairment charge.

Finance Costs, Net

We are a party to debt agreements that contain non-interest fees and expenses, such as underwriting and covenant waiver fees. These fees are accrued as incurred and amortized over the life of the financing agreement.

Revenue Recognition

We derive revenues from sale of merchandise and upon the following: (1) there is persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered, (3) the seller's price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.

Cost of Goods Sold

Cost of goods sold consists primarily of the merchandise cost of products sold, including inbound freight, duties and packaging.

Recent Accounting Pronouncements

See Note 2 to our unaudited consolidated financial statements included elsewhere in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Ms. Lisa Berman, and Chief Financial Officer, Ms. Janet Mathews, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2016. Based upon, and as of the date of this evaluation, Mmes. Berman and Mathews determined that, because of the material weaknesses described in Item 9A "Controls and Procedures" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which we are still in the process of remediating as of March 31, 2016, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for the description of these weaknesses.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of March 31, 2016, our management identified material weaknesses associated with separation of duties, internal control process documentation and testing of controls. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, our management has identified the steps necessary to address the material weaknesses and will continue with the design and implementation of remedial procedures to address these weaknesses. Certain changes associated with the lack of separation of duties will not be implemented until we have restructured our debt and are able to hire the additional staff necessary to bring our Company into compliance.

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of fiscal 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 1A.RISK FACTORS.

Not applicable as we are a smaller reporting company. See, however, the risk factors contained in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2015. Please also see the risk factors contained in our Form S-1/A, dated October 30, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We did not sell any equity securities during the first quarter of fiscal year 2016 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.

During the three-month period ended March 31, 2016, we did not repurchase any shares of our common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the first quarter of fiscal year 2016, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

The following exhibits are filed with this report, except those indicated as having previously been filed with the SEC and are incorporated by reference to another report, registration statement or form. As to any stockholder of record requesting a copy of this report, we will furnish any exhibit indicated in the list below as filed with this report upon payment to us of our expenses in furnishing the information.

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. 

EXHIBIT INDEX

34