Item 1.03 Bankruptcy or Receivership
On June 18, 2020, the Company filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy
Court for the Central District of California, case no. 2:20-bk-15501-ER. The
Court took jurisdiction over the Company's operations effective June 18, 2020,
the date the petition was filed.
Unlike a liquidating bankruptcy proceeding, a reorganization under Chapter 11 of
the U.S. Bankruptcy Code, 11 U.S.C. §§1101 et seq., is intended to allow a
company to continue as a going concern by presenting a plan to make
modifications to the company's debt obligations and equity securities to enhance
the company's likelihood of continuing as a going business. The Company will
present its plan for reorganization to the Bankruptcy Court and ultimately to
the holders of its debt obligations and equity securities for voting on the
acceptability of the proposed treatment of their class of debt or equity under
the proposed plan of reorganization.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
The filing for bankruptcy reorganization constitutes the failure to satisfy a
continued listing rule or standard for the OTC:QB market, on which the Company's
shares of common stock are listed for trading. The Company expects that the OTC
market will suspend trading of the Company's shares on the OTC:QB exchange as of
the filing of the Company's reorganization petition. The Company has notified
the OTC markets of the filing of the reorganization petition by copy of this
Current Report.
Item 3.03 Material Modification to Rights of Security Holders.
The Company's reorganization plan, if confirmed and approved by the Bankruptcy
Court, will materially modify the rights of all of the Company's security
holders. If approved, the Company's general creditors will receive preferred
equity having an equal face amount for their debt instruments, the preferred
shareholders will receive shares of common stock for their preferred stock at an
exchange rate to be determined and the current owners of common stock would be
substantially diluted under the reorganization plan if confirmed and approved..
Item 8.01 Other Events.
Suspension of Section 10 Filings.
The Company expects to file for a no-action letter from the Securities and
Exchange Commission authorizing the Company to suspend its filing of quarterly
reports on Form 10-Q and its annual report on Form 10-K during the pendency of
the reorganization proceeding. If the Commission grants the no-action letter,
the Company would not file an annual report on Form 10-K for the fiscal year
ended May 31, 2020 and would not file a quarterly report on Form 10-Q for
subsequent fiscal quarters while the Company's plan of reorganization is still
pending with the Bankruptcy Court. Instead, the Company will file monthly
reports with the Bankruptcy Court and will file copies of those monthly reports
with the Commission on a timely basis on a Current Report on Form 8-K.
Trading Securities
The Company cautions that acquiring the Company's loans or trading in the
Company's securities during the pendency of the reorganization is highly
speculative and poses substantial risks. The purchase or trading prices for the
Company's loans or securities may bear little or no relationship to the actual
recovery, if any, by holders of the Company's securities in the reorganization
and the holders should be prepared to bear the risk the loss of all or most of
the value of such loans or securities.
Press Release
The Company has issued a press release further designed to put the Company's
reorganization in perspective. That press release is enclosed as Exhibit 99.1.
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Item 9.01 Financial Statements and Exhibits
Exhibit Number Description
99.1 Press release dated June 18, 2020
Forward-Looking Statements
Certain statements herein and in the exhibits attached hereto, are
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements reflect the Company's current expectations or beliefs concerning
future events, and actual results of operations may differ materially from
historical results or current expectations. Any such forward-looking statements
are subject to various risks and uncertainties, including risks related to the
terms of and potential transactions contemplated by the Company's proposed plan
of reorganization, the anticipated mailing date of solicitation materials to the
Company's securities holders, the ability of the Company to obtain requisite
support for the reorganization from various stakeholders, the ability of the
proposed plan of reorganization to satisfy all the requirements necessary for
confirmation by the Bankruptcy Court, the ability of the Company to successfully
execute the transactions contemplated by the reorganization plan without
substantial disruption to the Company's business, the high costs of bankruptcy
proceedings and related fees, including the risk that the restructuring will
take longer than anticipated, the actions and decisions of the Company's
creditors and other third parties who have interests in the reorganization that
may be inconsistent with the Company's operational and strategic plans, the
ability of the Company to continue as a going concern, and the effects of
disruption from the proposed restructuring making it more difficult to maintain
business, financing and operational relationships and to retain key executives.
Forward-looking statements are also subject to various risks and uncertainties
related to the Company's business, such as its ability to anticipate and timely
respond to changes in trends and consumer preferences, the strength of the
global economy, competitive market conditions, its ability to attract and retain
key personnel, its ability to successfully develop, launch and grow its newer
concepts and execute on strategic initiatives, product offerings, sales channels
and businesses, its ability to implement its growth strategy, material
disruption to its information systems, compromises to its data security, its
ability to maintain the value of its brands and protect its trademarks, its
ability to implement its business strategy, changes in demographic patterns,
adverse or unseasonable weather or other interruptions in its operations, trade
restrictions or disruptions, the impact of potential global health emergencies
such as COVID-19 (coronavirus) pandemic, including potential negative impacts on
the global economy, product demand, foreign sourcing and operations generally
and other factors which are set forth in the section entitled "Risk Factors" and
elsewhere in the Company's Annual Report on Form 10-K for the May 31, 2019
fiscal year and in all filings with the Commission made subsequent to the filing
of the Form 10-K through today's date and any information that is otherwise
provided to investors. Because of the factors described above and the inherent
uncertainty of predicting future events, the Company cautions you against
relying on forward-looking statements.
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