What changed in this filing

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Item 1A. Risk Factors

2021-03-24 compared with 2020-03-25 · 255 added, 173 removed, 213 unchanged (67% of the section changed)

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In the case of such an event, the trading price of our common stock may decline and you may lose all or part of your investment.

Risks Related to our Business and Industry

RISK FACTOR SUMMARY

We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability and accessibility of our risk factor disclosures.

We encourage our stockholders to carefully review the full risk factors contained in this Form 10-K in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.

Risks Related to Business and Operations

The impact of COVID-19 on our business, operating results, cash flows, year-over-year performance and/or financial condition is significant and uncertain, and the impact could be material and adverse;

The impact of COVID-19 and the related testing and vaccination may result in us not being able to accurately forecast health care and other benefit costs, and we are uncertain whether future health care and other benefits costs could exceed our projections;

We may not be able to execute our opportunistic buying strategy;

Consumer confidence and spending may be reduced in light of factors beyond our control and our financial results may suffer;

Competition may increase in our segment of the retail market, which could put negative pressure on our results of operations and financial condition;

Identification of potential store locations and lease negotiations may not keep pace with our growth strategy;

We are a “brick and mortar only” retailer.

Our lack of an online shopping option may mean that we face challenges to grow and retain customers.

Our customers, including our loyalty program members, may determine to shop at other stores or through web-enabled services and therefore not be as likely to shop at our stores;

We may not be able to develop and operate our multiple distribution centers in an efficient or effective manner and that could mean that we do not have sufficient inventory in our store locations.

The loss or disruption of one or more of our distribution centers or disruption of our supply chain or third-party shipping carriers could also make it difficult for us to timely receive or distribute goods to our stores;

External economic pressures over which we have no or limited control, including inflation, occupancy costs, and transportation costs may reduce our profitability;

Inventory management and/or shrinkage or the loss or theft of inventory can result in material negative impacts on our results of operations;

We need to be able to hire and retain the right people to run our stores and our distribution centers.

We also need to hire and retain managerial personnel, a merchant team and executive officers.

If we are not effective in these areas, our results may suffer;

Comparable store sales and results of operations have fluctuated in the past and may do so again in the future.

Risks Related to Legal and Regulatory Issues

We are subject to governmental regulations, procedures and requirements that can lead to substantial penalties if we fail to achieve compliance;

We are subject to risks associated with laws and regulations generally applicable to retailers;

From time to time we are involved in legal proceedings from customers, suppliers, employees, governments or competitors;

From time to time we are involved in legal proceedings from stockholders.

Risks Related to Technology and Cybersecurity

We may fail to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers;

We may not adequately prepare for or respond to existing and future privacy legislation;

We may not be able to timely or adequately maintain or upgrade our technology systems needed for operations.

Risks Related to Accounting and Financial Matters

If our estimates or judgements relating to significant accounting policies prove to be incorrect, we could suffer negative financial results;

Changes to the accounting rules or regulations could have material adverse effects on our results of operations.

Risks Related to Ownership of Our Common Stock and Corporate Governance

There is risk associated with our fluctuating quarterly operating results and we may fall short of prior periods, our projections or the expectations of securities analysts or investors;

We may not declare dividends on our common stock in the foreseeable future;

There are provisions in our organizational documents that could delay or prevent a change of control.

Risks Related to Our Indebtedness and Capitalization

Our credit facility can limit our ability to find other sources of financing;

There are covenants contained in our credit facility that we must meet in order to be able to use it;

If we are unable to generate sufficient cash flow to meet debt service it could negatively impact our liquidity.

For a more complete discussion of the material risks facing our business, see below.

BUSINESS AND OPERATIONS

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which could have a material adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time.

During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine.

Over the course of 2020, we continued to operate our stores as we qualified under definitions of an “essential” business.

In response to the challenges of COVID-19, at times we have had to implement reduced store hours, limited the number of customers in our stores at any one time and have generally implemented social-distancing guidelines throughout our store operating space.

If the classification of what is an “essential” business changes in jurisdictions where our stores are located, or the restrictions on retail operations in our markets are reinstituted, or other government regulations are adopted pertaining to how we may operate our stores, we may be required to temporarily close or restrict operations at one or more, if not all, of our stores, which would significantly impact our sales and results of operations.

Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future, and subject us to costly litigation, enforcement actions and penalties.

COVID-19 has also impacted our supply chain for products we sell, particularly those products that are sourced internationally.

To the extent one or more of our vendors is negatively impacted by COVID-19, including due to the closure of its distribution centers or manufacturing facilities, we may be unable to maintain delivery schedules or adequate inventory in our stores.

We were generally able to remain open in 2020, including at times when some businesses were required to close or operate under severe restrictions.

This, coupled with measures taken by governmental authorities to stimulate consumer behavior, resulted in significant impacts on our operations, including, without limitation, on cash flows, inventory supply, operating results, and demand for products by our customers.

The factors listed above, together with the unprecedented environment created during the pandemic drove performance results during our most recently completed fiscal year that may not be a meaningful indicator of future results.

The impacts of the uncertainties surrounding the outbreak of COVID-19 also make it more challenging for us to estimate future performance of the business, predict customer acceptance of new products and offerings, and to develop growth strategies for the future.

We are continuing to monitor the spread of COVID-19 and the related risks to our business and operations.

The magnitude and duration of the pandemic and its impact on our business, results of operations, cash flows, financial position, employees, and customers are uncertain as this situation continues to evolve globally.

The extent to which the COVID-19 outbreak impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers, employees and vendors, the regulatory response and impact of stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume.

Even after the COVID-19 outbreak has subsided, we could experience materially adverse impacts to our business as a result of any economic disruption that has occurred or may occur in the future due to a continued erosion in consumer sentiment or the effect of unemployment on our consumer base.

Additionally, the consumer preferences for certain product categories that have driven positive sales during the COVID-19 outbreak may not continue after the outbreak has subsided, and any change in consumer preferences could negatively impact our results of operations.

Furthermore, the financial condition of our customers and vendors may be adversely impacted by the pandemic, which may result in a decrease in discretionary consumer spending and our store traffic and sales, and an increase in bankruptcies or insolvencies with respect to our vendors.

These events may, in turn, have a material adverse impact on our business, results of operations, liquidity and financial condition.

In the event of a prolonged material economic downturn, including circumstances that require us to close a large portion of our stores or cause us to experience a further reduction in store traffic, we may not be able to comply with the financial covenants in our credit facility, which could negatively impact our ability to borrow under that facility or with other lenders, negatively impact our liquidity position.

In addition to the many and varied costs that are associated with COVID-19, our ability to predict healthcare and other benefit costs may be limited.

COVID-19 and the related testing and vaccination costs are inherently uncertain and therefore very difficult to predict.

These costs, and the costs associated with other healthcare impacts of COVID-19, may significantly impair our ability to timely and accurately forecast health care and other benefit costs for this or further periods.

As a result, we may have difficulty establishing accurate budgetary reserves or estimates for these and other costs, which could in turn, negatively impact our results of operations and expenses.

We may not be able to execute our opportunistic buying strategy, adequately manage our supply of inventory or anticipate customer demand, which could have a material adverse effect on our business, financial condition and results of operations.

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We generally make individual purchase decisions for products that become available, and these purchases may be for large quantities that we may not be able to sell on a timely or cost-effective basis.

Due to economic uncertainties, governmental orders such as those issued by the state of California, or other challenges related to the current pandemic COVID-19 (coronavirus), one or more of our suppliers could become unable to continue supplying discounted or closeout merchandise on terms or in quantities acceptable or desirable to us.

To the extent that certain of our suppliers are better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of discount or closeout merchandise available to us could also be materially reduced, potentially compromising profit margin goals for procured merchandise.

Due to economic uncertainties, governmental orders, or other challenges relating to the ongoing COVID-19 pandemic, one or more of our suppliers could become unable to continue supplying discounted or closeout merchandise on terms or in quantities acceptable or desirable to us.

We also compete with other retailers, wholesalers and jobbers for discounted or closeout merchandise to sell in our stores.

Those businesses may be better able to anticipate customer demand or procure desirable goods.

Although we work with a range of suppliers, to the extent that certain of our suppliers are better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of discount or closeout merchandise available to us could also be materially reduced, potentially compromising profit margin goals for procured merchandise.

Shortages or disruptions in the availability of brand name or unbranded products of a quality acceptable to our customers and us could have a material adverse effect on our business, financial condition and results of operations and also may result in customer dissatisfaction.

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• energy and gasoline prices;

disposable income of our customers;

• disposable income of our customers, which may be impacted by unemployment levels, personal debt levels and minimum wages;

• discounts, promotions and merchandise offered by our competitors;

• negative reports and publicity about the discount retail industry;

outbreak of viruses or widespread illness, including COVID-19 caused by the novel coronavirus;

unemployment levels;

personal debt levels of our customers;

minimum wages;

• outbreak of viruses or widespread illness, including COVID-19, and behavioral changes from a fear of contracting such viruses or illness;

• general economic and industry conditions;

interest rates;

• food prices;

• interest rates and inflation;

• the state of the housing market;

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• natural disasters, war, terrorism and other hostilities.

Reduced customer confidence and spending cut backs may result in reduced demand for our merchandise, including discretionary items, and may force us to take inventory markdowns.

Reduced customer confidence and spending cutbacks may result in reduced demand for our merchandise, including discretionary items, and may force us to take inventory markdowns.

Reduced demand also may require increased selling and promotional expenses.

Adverse economic conditions and any related decrease in customer demand for our merchandise could have a material adverse effect on our business, financial condition and results of operations.

For example, recent fears of contagion or disease related to the widespread outbreak of COVID-19 (coronavirus) may cause customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores.

Similarly, negative economic conditions related to this outbreak may limit the amount of disposable income available to our customers, which may impact our consumer demand.

The Company has seen increased sales pressure in recent days.

For example, recent fears of contagion or disease related to the widespread outbreak of COVID-19 may cause customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores.

Similarly, negative economic conditions related to this outbreak may limit the amount of disposable income available to our customers, which may limit our consumer demand.

Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S.

dollar, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in other laws and regulations and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses, which could have a material adverse effect on our business, financial condition and results of operations.

We do not compete in the growing online retail marketplace, which could have a material adverse effect on our business, financial condition and results of operations.

Our long-term business strategy does not presently include the development of online retailing capabilities.

To the extent that we implement online operations, we would incur substantial expenses related to such activities and would be exposed to additional cybersecurity risks.

Furthermore, any development of an online retail marketplace is a complex undertaking, and there is no guarantee that any resources we apply to this effort will result in increased revenues or operating performance.

However, with the growing acceptance of online shopping, which may have accelerated as a result of the COVID-19 pandemic, both among consumers who previously shopped online and consumers who did not previously do so, or did not do so as frequently, we may continue to face challenges related to customers shopping in brick and mortar stores.

In addition, the increased proliferation of mobile devices, enhanced and robust connections to mobile networks, competition from other retailers in the online retail marketplace is expected to continue to increase and may negatively impact our results of operations.

Certain of our competitors and a number of pure online retailers have established robust online operations.

Increased competition from online retailers and our lack of an online retail presence may reduce our customers’ desire to purchase goods from us and could have a material adverse effect on our business, financial condition and results of operations.

If consumers determine to shop more online due to cultural or health concerns, they may be less likely to return to brick and mortar retailers in the future.

We face intense competition, which could limit our growth opportunities and adversely impact our financial performance.

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Our inability to respond effectively to competitive pressures, improved performance by our competitors and changes in the retail markets could result in lost market share and have a material adverse effect on our business, financial condition and results of operations.

If we fail to open new profitable stores on a timely basis or successfully enter new markets, our financial performance could be materially adversely affected.

If we fail to open new profitable stores on a timely basis, successfully enter new markets or implement other elements of our long-term growth strategy, our financial performance could be materially adversely affected.

Our primary growth strategy is to open new profitable stores and expand our operations into new geographic regions.

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If we are unable to retain the loyalty of our customers, our net sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our executive officers, our merchant team and other key personnel.

If we lose key personnel or are unable to hire additional qualified personnel, it could have a material adverse effect on our business, financial condition and results of operations.

Our future success depends to a significant degree on the skills, experience and efforts of our executive officers, our merchant team and other key personnel.

The unexpected loss of services of any of our executive officers or senior members of our merchant team could materially adversely affect our business and operations.

In December 2019, we announced the unexpected passing of Mark Butler, the then-Founder, Chairman of the Board, President and CEO of the Company.

While we have since appointed John Swygert as President and CEO and maintained our business strategies, we cannot ensure that the loss of Mr.

Butler will not negatively impact our business and operations.

Competition for skilled and experienced management in the retail industry is intense, and our future success will also depend on our ability to attract and retain qualified personnel, including our merchant team, which is responsible for purchasing and negotiating the terms of our merchandise.

Failure to attract and retain new qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

Our new store growth is dependent on our ability to successfully expand our distribution network capacity, and failure to achieve or sustain these plans could affect our performance adversely.

We maintain distribution centers in York, PA, Commerce, GA and Lancaster, TX to support our existing stores and our growth objectives.

We continuously assess ways to maximize the productivity and efficiency of our existing distribution facilities and evaluate opportunities for additional distribution centers.

Delays in ramping up operations at our Lancaster, TX distribution center or any future new distribution centers could adversely affect our future operations by slowing store growth, which could, in turn, reduce sales growth.

In addition, any distribution-related construction or expansion projects entail risks which could cause delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, weather interference, fires or other casualty losses and unanticipated cost increases.

The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons.

We cannot guarantee that any project will be completed on time or within established budgets.

The failure to timely acquire, develop, and open, the loss of, or disruption or interruption in the operations of, our centralized distribution centers could materially adversely affect our business and operations.

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We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers.

Increases in transportation costs (including increases in fuel costs), supplier-side delays, reductions in the capacity of carriers, changes in shipping companies, labor strikes or shortages in the transportation industry and unexpected delivery interruptions also have the potential to derail our orderly distribution process.

Increases in transportation costs (including increases in fuel costs), supplier-side delays, reductions in the capacity of carriers, changes in shipping companies, the impact of COVID-19 on our workforce, labor strikes or shortages in the transportation industry and unexpected delivery interruptions also have the potential to derail our orderly distribution process.

We also may not anticipate changing demands on our distribution system or timely develop and open any necessary additional facilities.

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Any repeated, intermittent, or long-term disruption in the operations of our distribution centers would hinder our ability to provide merchandise to our stores and could have a material adverse effect on our business, financial condition and results of operations.

We rely on third parties to move goods through ports and transport them from ports to our centralized distribution centers.

Our ability to timely and effectively deliver goods to our stores relies in part on shipping and transportation partners to timely and safely move our goods from manufacturing facilities to ports and then onto oceangoing carriers.

The demand for space onboard oceangoing vessels can vary and costs to secure space can vary greatly.

We may be subject to higher transportation costs or be unable to secure space for containers on economically reasonable terms.

In addition, there may be labor or other disputes at either ports of departure or at ports of entry that may delay or otherwise hinder the flow of goods.

Additional factors, such as customs or border control policies, may further delay or hinder transportation of goods or the costs to obtain them.

There are multiple factors in the transportation of goods from the manufacturer that are both outside of our control and which may negatively impact the cost of the goods or the timeframes in which we receive them.

Our new store growth is dependent on our ability to successfully expand our distribution network capacity, and failure to achieve or sustain these plans could affect our performance adversely.

We maintain distribution centers in York, PA, Commerce, GA and Lancaster, TX to support our existing stores and our growth objectives.

We continuously assess ways to maximize the productivity and efficiency of our existing distribution facilities and evaluate opportunities for additional distribution centers.

Processing delays or difficulties in operations at our existing distribution centers or any future new distribution centers could adversely affect our current operations by causing existing stores to have insufficient inventory, and affect future operations by slowing store growth, which could, in turn, reduce sales growth.

In addition, any distribution-related construction or expansion projects entail risks which could cause delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, COVID-19 or other strains or types of contagion, weather interference, fires or other casualty losses and unanticipated cost increases.

The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons.

We cannot guarantee that any project will be completed on time or within established budgets.

Factors such as inflation, cost increases and energy prices could have a material adverse effect on our business, financial condition and results of operations.

Future increases in costs, such as the cost of merchandise, shipping rates, freight costs and store occupancy costs, may reduce our profitability, given our pricing model.

Future increases in costs, such as the cost of merchandise, shipping rates, freight costs (including import costs) and store occupancy costs, may reduce our profitability, given our pricing model.

These cost increases may be the result of inflationary pressures, geopolitical factors or public policies, which could further reduce our sales or profitability.

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If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition and results of operations.

Our inventory balance represented 59.0% of our total assets exclusive of operating lease right-of-use assets, goodwill and trade name as of February 1, 2020.

Our inventory balance represented 37.2% of our total assets exclusive of operating lease right-of-use assets, goodwill and trade name as of January 30, 2021.

Efficient inventory management is a key component of our profitability and ability to generate revenue.

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If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition and results of operations.

Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.

We are subject to the risk of inventory loss and theft.

We cannot ensure that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking will effectively reduce the problem of inventory shrinkage.

Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs and other costs to combat inventory theft, it could have a material adverse effect on our business, financial condition and results of operations.

Epidemic or pandemic outbreaks such as COVID-19, natural disasters, whether or not caused by climate change, unusual weather conditions, terrorist acts and political events could disrupt business and result in lower sales and otherwise adversely affect our financial performance.

The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our stores are located could adversely affect our business and result in lower sales.

Epidemic or pandemic outbreaks, such as COVID-19 could impact our management and sales associates, our inventory supply, delivery schedules, our ability to keep our stores open due to mandatory governmental restrictions or may cause our customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores.

To the extent these events also impact one or more of our key suppliers or result in the closure of one or more of our centralized distribution centers or our corporate headquarters, we may be unable to maintain delivery schedules or provide other support functions to our stores.

This could have a sustained material adverse effect on our business, financial condition and results of operations.

In addition, severe weather, such as heavy snowfall or extreme temperatures, may discourage or restrict customers in a particular region from traveling to our stores, thereby reducing our sales and profitability.

If severe weather conditions occur during the second or fourth quarter of our fiscal year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a larger portion of our sales and profits during these periods.

Natural disasters, which may include tornadoes, hurricanes, floods and earthquakes may impact our store locations or other operations.

In addition, climate change may have an impact on the frequency and/or severity of such natural disasters.

We have a growing number of store locations in areas that may be impacted by weather events and natural disasters such as the types listed above.

To the extent that such weather events or natural disasters may damage our stores or other operations, we may be unable to operate stores or other facilitates and our consolidated financial results may be materially adversely affected.

Fluctuations in comparable store sales and results of operations, including fluctuations on a quarterly basis, could cause our business performance to decline substantially.

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national and regional economic trends in the United States;

challenges and the impact of COVID and related regulations;

changes in gasoline prices;

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If our future comparable store sales fail to meet expectations, then our cash flow and profitability could decline substantially, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be successful in the implementation of our long-term business strategy, which could materially adversely affect our business, results of operations, cash flows and financial condition.

Our success depends, to a significant degree, on our ability to successfully implement our long-term business strategy.

Our ability to successfully implement our business strategy depends on a significant number of factors, including, but not limited to, our ability to:

expand our store base and increase our customers;

access an adequate supply of quality brand name and closeout merchandise from suppliers at competitive prices;

achieve profitable sales and to make adjustments as market conditions change;

foster customer acceptance of our marketing and merchandise strategies;

respond to competitive pressures in our industry;

attract and retain store-level and management-level associates;

properly respond to the dynamics and demands of our market;

maintain our relationships with our suppliers and customers;

achieve positive cash flow, particularly during our peak inventory build-ups in advance of the holiday sales season;

adapt to any revised or new strategic initiatives and organizational structure.

Any failure to achieve any or all of our business strategies could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our executive officers, our merchant team and other key personnel.

If we lose key personnel or are unable to hire additional qualified personnel, it could have a material adverse effect on our business, financial condition and results of operations.

Our future success depends to a significant degree on the skills, experience and efforts of our executive officers, our merchant team and other key personnel.

The unexpected loss of services of any of our executive officers or senior members of our merchant team could materially adversely affect our business and operations.

Failure to attract and retain new qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to attract, train and retain highly qualified managerial personnel and sales associates in our stores and our distribution centers, our sales, financial performance and business operations may be materially adversely affected.

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If we are unable to attract and retain quality associates, and other management personnel, or fail to comply with the regulations and laws impacting personnel, it could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our marketing, advertising and promotional efforts.

If we are unable to implement them successfully, or if our competitors are more effective than we are, it could have a material adverse effect on our business, financial condition and results of operations.

We use marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers.

Although we use various media for our promotional efforts, including regular and Ollie’s Army mailers, email campaigns, radio and television advertisements and sports marketing, we primarily advertise our in-store offerings through printed flyers.

In 2020, approximately 62% of our advertising spend was for the printing and distribution of flyers.

If the efficacy of printed flyers as an advertising medium declines, or if we fail to successfully develop and implement new marketing, advertising and promotional strategies, such as an effective social media strategy, our competitors may be able to attract the interest of our customers, which could reduce customer traffic in our stores.

Changes in the amount and degree of promotional intensity or merchandising strategy by our competitors could cause us to have difficulties in retaining existing customers and attracting new customers.

If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, or if for any other reason we lose the loyalty of our customers, including our Ollie’s Army members, it could have a material adverse effect on our business, financial condition and results of operations.

Because our business is seasonal, with the highest volume of net sales during the holiday season, adverse events during our fourth fiscal quarter could materially adversely affect our business, operations, cash flows and financial condition.

We generally recognize our highest volume of net sales in connection with the holiday sales season, which occurs in the fourth quarter of our fiscal year.

In anticipation of the holiday sales season, we purchase substantial amounts of seasonal inventory and hire many part-time associates.

Because a significant percentage of our net sales and operating income are generated in our fourth fiscal quarter, we have limited ability to compensate for shortfalls in our fourth fiscal quarter sales or earnings by changing our operations or strategies in other fiscal quarters.

Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public transportation disruptions, errors in anticipating consumer demand for our products, or unanticipated adverse or unseasonable weather conditions could result in lower than planned sales during the holiday sales season.

If our fourth fiscal quarter sales results were substantially below expectations, we would realize less cash flows from operations, and may be forced to mark down our merchandise, especially our seasonal merchandise, which could have a material adverse effect on our business, financial condition and results of operations.

Our business requires that we lease substantial amounts of space and there can be no assurance that we will be able to continue to lease space on terms as favorable as the leases negotiated in the past.

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In addition, if we are not able to enter into new leases or renew existing leases on terms acceptable to us, this could have a material adverse effect on our business, financial condition and results of operations.

We do not compete in the growing online retail marketplace, which could have a material adverse effect on our business, financial condition and results of operations.

Our long-term business strategy does not presently include the development of online retailing capabilities.

To the extent that we implement online operations, we would incur substantial expenses related to such activities and would be exposed to additional cybersecurity risks.

However, with the growing acceptance of online shopping, the increased proliferation of mobile devices, enhanced and robust connections to mobile networks, competition from other retailers in the online retail marketplace is expected to increase.

Certain of our competitors and a number of pure online retailers have established robust online operations.

If consumers determine to shop more online due to cultural or health concerns, they may be less likely to return to brick and mortar retailers in the future.

Our success depends on our marketing, advertising and promotional efforts.

We use marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers.

In 2019, approximately 70% of our advertising spend was for the printing and distribution of flyers.

LEGAL AND REGULATORY

We are subject to governmental regulations, procedures and requirements.

A significant change in, or noncompliance with, these regulations could have a material adverse effect on our business, financial condition and results of operations.

We routinely incur significant costs in complying with federal, state and local laws and regulations.

The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to expanding and additional legal and regulatory requirements and increased enforcement efforts.

New laws or regulations, including those dealing with healthcare reform, product safety, consumer credit, privacy and information security and labor and employment, among others, or changes in existing federal, state and local laws and regulations, particularly those governing the sale of products and food safety and quality (including changes in labeling or disclosure requirements), federal or state wage requirements, employee rights, health care, social welfare or entitlement programs such as health insurance, paid leave programs, other changes in workplace regulation, and compliance with laws regarding public access to our stores, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business.

Untimely compliance or noncompliance with applicable laws or regulations or untimely or incomplete execution of a required product recall can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties, class action litigation or other litigation, in addition to reputational damage.

Additionally, changes in tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could materially adversely affect our effective tax rate and could have a material adverse effect on our business, financial condition and results of operations.

If we fail to protect our brand names, competitors may adopt trade names that dilute the value of these assets.

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Data protection requirements increase our operating costs and a breach in information privacy or other related risks could negatively impact our operations.

We have access to, collect or maintain private or confidential information regarding our customers, associates and suppliers, as well as our business.

The protection of our customer, associate, supplier and company data is critical to us.

In recent years, there has been increasing regulation, enforcement and litigation activity in the area of privacy, data protection and information security in the United States and in various other countries, with the frequent imposition of new and changing requirements across the many states in which we conduct our business.

For example, the European Union’s General Data Protection Regulation (“GDPR”), which went into effect on May 25, 2018, expands the scope of EU data protection law to all foreign companies processing personal data of EU residents and imposes a strict data protection compliance regime with significant monetary penalties.

The state of California recently passed the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect on January 1, 2020.

The CCPA imposed additional data protection obligations on companies considered to be doing business in California and provides for substantial fines for non-compliance and, in some cases, a private right of action to consumers who are victims of data breaches.

Complying with the GDPR, the CCPA and similar emerging and changing privacy, data protection and information security requirements may cause us to incur substantial costs or compliance risks due to, among other things, system changes and the development of new processes and business initiatives.

Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring and customer attrition.

In addition, our customers have a high expectation that we will adequately protect their personal information from cyber-attack or other security breaches.

We have procedures in place to evaluate the integrity of our systems, and to safeguard such data and information.

However, we may be unable to effectively anticipate attacks to or breaches of our security systems or implement adequate preventative measures.

A breach of customer, employee, supplier, or company data could attract a substantial amount of negative media attention, damage our customer and supplier relationships and our reputation, and result in lost sales, fines and/or lawsuits, any of which could have a material adverse effect on our business, financial condition and results of operations.

Any disruptions to our information technology systems or breaches of our network security could disrupt or interrupt our operations, compromise our reputation, expose us to litigation, government enforcement actions and costly response measures and could have a material adverse effect on our business, financial condition and results of operations.

We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure across our operations, including point-of-sale processing at our stores.

In connection with sales, we transmit encrypted confidential credit and debit card information.

As of the end of 2019, we are compliant with the Payment Card Industry Data Security Standard (the “PCI Standard”) issued by the Payment Card Industry Security Standards Council.

However, there can be no assurance that in the future we will be able to operate our facilities and our customer service and sales operations in accordance with PCI or other industry recommended or contractually required practices.

We expect to incur additional expenses, and the time and effort of our information technology staff, to maintain PCI compliance.

Even though we are compliant with such standards, we still may not be able to prevent or timely detect security breaches.

An increasingly significant portion of our sales depends on the continuing operation of our information technology and communications systems, including, but not limited to, our point-of-sale system and our credit card processing systems.

Our information technology, communication systems and electronic data may be vulnerable to damage or interruption from computer viruses, ransomware attacks, loss of data, unauthorized data breaches, usage errors by our associates or our contractors or other attempts to harm our systems, including cyber-security attacks or other breaches of cardholder data, earthquakes, acts of war or terrorist attacks, floods, fires, tornadoes, hurricanes, power loss and outages, computer and telecommunications failures.

Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities.

The occurrence of intentional sabotage, unauthorized access, natural disaster, or other unanticipated problems could result in lengthy interruptions in our service.

Any errors or vulnerabilities in our systems, or damage to or failure of our systems, could result in interruptions in our services, non-compliance with certain regulations, substantial remediation costs, and liability for lost or stolen information, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to maintain or upgrade our information technology systems or if we are unable to convert to alternate systems in an efficient and timely manner, our operations may be disrupted or become less efficient.

We depend on a variety of information technology systems for the efficient functioning of our business.

We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business.

Various components of our information technology systems, including hardware, networks and software, are licensed to us by third party vendors.

We rely extensively on our information technology systems to process transactions, summarize results and manage our business.

Additionally, because we accept debit and credit cards for payment, we are subject to the PCI Standard, which contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data.

We are in compliance with the PCI Standard as of the end of 2019, and compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention.

Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.

Any material interruptions or failures in our payment-related systems could have a material adverse effect on our business, financial condition and results of operations.

If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them.

If there are amendments to the PCI Standard, the cost of re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result.

In addition, we may have to upgrade our existing information technology systems from time to time in order for such systems to withstand the increasing needs of our expanding business.

Any material interruption experienced by our information technology systems could have a material adverse effect on our business, financial condition and results of operations.

Costs and potential interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of our existing systems could disrupt or reduce the efficiency of our business.

We generally recognize our highest volume of net sales in connection with the holiday sales season, which occurs in the fourth quarter of our fiscal year.

In anticipation of the holiday sales season, we purchase substantial amounts of seasonal inventory and hire many part-time associates.

The cost of compliance with product safety regulations and risks related to product liability claims and product recalls could damage our reputation, increase our cost of doing business and could have a material adverse effect on our business, financial condition and results of operations.

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If this occurs, it may be difficult for us to regain lost sales, which could have a material adverse effect on our business, financial condition and results of operations.

We face litigation risks from customers, associates and other third parties in the ordinary course of business.

Our business is subject to the risk of litigation by customers, current and former associates, suppliers, stockholders, intellectual property rights holders, government agencies and others through private actions, class actions, collective actions, administrative proceedings, regulatory actions, or other litigation.

From time to time, such lawsuits are filed against us and the outcome of any litigation, particularly class or collective action lawsuits and regulatory actions, is difficult to assess or quantify.

Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.

The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required.

There may also be negative publicity associated with litigation that could decrease customer acceptance of merchandise offerings, regardless of whether the allegations are valid or whether we are ultimately found liable.

As a result, litigation may adversely affect our business, financial condition, results of operations or liquidity.

Epidemic or pandemic outbreaks such as COVID-19 (coronavirus), natural disasters, whether or not caused by climate change, unusual weather conditions, terrorist acts and political events, could disrupt business and result in lower sales and otherwise adversely affect our financial performance.

Epidemic or pandemic outbreaks, such as COVID-19 (coronavirus) could impact our management and sales associates, our inventory supply, delivery schedules, our ability to keep our stores open due to mandatory governmental restrictions or may cause our customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores.

This could have a sustained material adverse effect on our business, financial condition and results of operations.

Natural disasters, including tornadoes, hurricanes, floods and earthquakes, may damage our stores or other operations, which may materially adversely affect our consolidated financial results.

Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.

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If we experience a greater number of these losses than we anticipate, it could have a material adverse effect on our business, financial condition and results of operations

Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.

We are subject to the risk of inventory loss and theft.

Although our inventory shrinkage rates have not been material, or fluctuated significantly in recent years, we cannot ensure that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking will effectively reduce the problem of inventory shrinkage.

Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, it could have a material adverse effect on our business, financial condition and results of operations.

Indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with our financial covenants, it could have a material adverse effect on our liquidity and our business, financial condition and results of operations.

On May 22, 2019, the Company completed a transaction in which it refinanced its credit facility (the “Credit Facility”) which includes a revolving credit facility (the “Revolving Credit Facility”).

As of February 1, 2020, we had no outstanding borrowings on the Revolving Credit Facility, with $90.8 million of borrowing availability.

We may, from time to time, incur additional indebtedness.

The agreements governing our Credit Facility place certain conditions on us, including that they:

increase our vulnerability to adverse general economic or industry conditions;

limit our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;

make us more vulnerable to increases in interest rates, as borrowings under our Credit Facility are at variable rates;

limit our ability to obtain additional financing in the future for working capital or other purposes;

require us to utilize our cash flow from operations to make payments on indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity and other general corporate purposes;

place us at a competitive disadvantage compared to our competitors that have less indebtedness.

Our Credit Facility places certain limitations on our ability to incur additional indebtedness.

However, subject to the qualifications and exceptions in our Credit Facility, we may be permitted to incur substantial additional indebtedness and may incur obligations that do not constitute indebtedness under the terms of the Credit Facility.

Our Credit Facility also places certain limitations on, among other things, our ability to enter into certain types of transactions, financing arrangements and investments, to make certain changes to our capital structure and to guarantee certain indebtedness.

Our Credit Facility also places certain restrictions on the payment of dividends and distributions and certain management fees.

These restrictions limit or prohibit, among other things, our ability to:

pay dividends on, redeem or repurchase our stock or make other distributions;

incur or guarantee additional indebtedness;

sell stock in our subsidiaries;

create or incur liens;

make acquisitions or investments;

transfer or sell certain assets or merge or consolidate with or into other companies;

make certain payments or prepayments of indebtedness subordinated to our obligations under our Credit Facility;

enter into certain transactions with our affiliates.

Failure to comply with certain covenants or the occurrence of a change of control under our Credit Facility could result in the acceleration of our obligations under the Credit Facility, which would materially adversely affect our liquidity, capital resources and results of operations.

Under certain circumstances, our Credit Facility requires us to comply with certain financial covenants regarding our fixed charge coverage ratio.

Failure to comply could result in a default and an acceleration of our obligations under the Credit Facility, which could have a material adverse effect on our liquidity and our business, financial condition and results of operations.

See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities.”

We may be unable to generate sufficient cash flows to satisfy debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to make principal and interest payments on and to refinance indebtedness will depend on our ability to generate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If our business does not generate sufficient cash flows from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition and results of operations could be materially adversely affected.

If we cannot generate sufficient cash flows from operations to make scheduled principal and interest payments in the future, we may need to refinance all or a portion of indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity.

The terms of future debt agreements, including our Credit Facility, may also restrict us from affecting any of these alternatives.

Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity.

If we are unable to refinance indebtedness on commercially reasonable terms or at all or to effect any other action relating to indebtedness on satisfactory terms or at all, it could have a material adverse effect on our business, financial condition and results of operations.

We face litigation risks from customers, associates, stockholders and other third parties in the ordinary course of business.

From time to time, such lawsuits are filed against us and the outcome of any litigation, particularly class or collective action lawsuits and regulatory actions, is difficult to assess or quantify.

The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required.

As a result, litigation may adversely affect our business, financial condition, results of operations or liquidity.

TECHNOLOGY AND CYBERSECURITY

We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure across our operations, including point-of-sale processing at our stores.

In connection with sales, we transmit encrypted confidential credit and debit card information.

As of the end of 2020, we are compliant with the Payment Card Industry Data Security Standard (“PCI”) issued by the Payment Card Industry Security Standards Council.

We expect to incur additional expenses, and the time and effort of our information technology staff, to maintain PCI compliance.

Even though we are compliant with such standards, we still may not be able to prevent or timely detect security breaches.

Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities.

The occurrence of intentional sabotage, unauthorized access, natural disaster, or other unanticipated problems could result in lengthy interruptions in our service.

Data protection requirements increase our operating costs and a breach in information privacy or other related risks could negatively impact our operations.

We have access to, collect or maintain private or confidential information regarding our customers, associates and suppliers, as well as our business.

The protection of our customer, associate, supplier and company data is critical to us.

For example, the European Union’s General Data Protection Regulation (“GDPR”) expands the scope of EU data protection law to all foreign companies processing personal data of EU residents and imposes a strict data protection compliance regime with significant monetary penalties.

The state of California passed the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect on January 1, 2020.

The CCPA and other state privacy acts have imposed and likely will impose additional data protection obligations on companies considered to be doing business in California and provides for substantial fines for non-compliance and, in some cases, a private right of action to consumers who are victims of data breaches.

In addition, our customers have a high expectation that we will adequately protect their personal information from cyber-attack or other security breaches.

We have procedures in place to evaluate the integrity of our systems, and to safeguard such data and information.

However, the landscape is evolving at a rapid pace, and we may be unable to effectively anticipate or respond to attacks to or breaches of our security systems or implement adequate preventative measures.

A breach of customer, employee, supplier, or company data could attract a substantial amount of negative media attention, damage our customer and supplier relationships and our reputation, and result in lost sales, costly fines, other expenses, and/or lawsuits, any of which could have a material adverse effect on our business, financial condition and results of operations.

We depend on a variety of information technology systems for the efficient functioning of our business.

We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business.

Various components of our information technology systems, including hardware, networks and software, are licensed to us by third party vendors.

We rely extensively on our information technology systems to process transactions, summarize results and manage our business.

We are in compliance with PCI as of the end of 2020, and compliance with PCI and implementing related procedures, technology and information security measures requires significant resources and ongoing attention.

Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with PCI or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.

Any material interruptions or failures in our payment-related systems could have a material adverse effect on our business, financial condition and results of operations.

If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them.

If there are amendments to PCI, the cost of re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result.

In addition, we may have to upgrade our existing information technology systems from time to time in order for such systems to withstand the increasing needs of our expanding business.

Any material interruption experienced by our information technology systems could have a material adverse effect on our business, financial condition and results of operations.

ACCOUNTING AND FINANCIAL

If our estimates or judgments relating to our significant accounting policies prove to be incorrect, our operating results could be adversely affected.

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Future changes to accounting rules or regulations could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Ownership of Our Common Stock

RISKS RELATED TO COMMON STOCK AND CORPORATE GOVERNANCE

The estate of our former Chief Executive Officer owns a substantial percentage of our outstanding common stock and the estate’s interests may be different from or conflict with those of our other stockholders.

As of April 30, 2020, the estate of Mark Butler, our former Chairman, President and Chief Executive Officer, beneficially owned approximately 13% of our outstanding common stock.

Accordingly, Mr.

Butler’s estate would be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction.

Our principal stockholder’s interests might not always coincide with our interests or the interests of our other stockholders.

As a public company, our management is required to devote substantial time to compliance initiatives.

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If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

As of February 1, 2020, the estate of Mark Butler, our former Chairman, President and Chief Executive Officer, beneficially owned 13.3% of our outstanding common stock.

Accordingly, Mr.

Our principal stockholder’s interests might not always coincide with our interests or the interests of our other stockholders.

Anti-takeover provisions in our third amended and restated certificate of incorporation and fourth amended and restated bylaws and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our third amended and restated certificate of incorporation and fourth amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management.

Our third amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

Our third amended and restated certificate of incorporation and fourth amended and restated bylaws include provisions that:

authorize our Board to issue, without further action by the stockholders, up to 50,000,000 shares of undesignated preferred stock;

subject to certain exceptions, require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

specify that special meetings of our stockholders can be called only by a majority of our Board or upon the request of the Chief Executive Officer;

specify that special meetings of our stockholders can be called only by a majority of our Board or upon the request of the Chairperson of the Board or the Chief Executive Officer;

establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our Board;

establish that our Board is divided into three classes, with each class serving three-year staggered terms;

establish that our Board is divided into three classes until the annual meeting of the stockholders to be held in 2022, with each director serving a one-year term;

prohibit cumulative voting in the election of directors;

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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management.

Our third amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could increase costs of bringing a claim, discourage claims, or limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Specifically, the certificate of incorporation provides that, unless we consent in writing in advance to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum, to the fullest extent provided by law, for the following types of actions or proceedings:

any derivative action or proceeding brought on behalf of the Company;

any action asserting a claim of breach of a fiduciary duty owed by, or any wrongdoing by, any director, officer or employee of the Company to the Company or the Company’s stockholders;

any action asserting a claim arising pursuant to any provision of the Delaware General Corporate Law, the certification of incorporation (including as it may be amended from time to time), or the fourth amended and restated bylaws;

any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or the fourth amended and restated bylaws;

any action asserting a claim governed by the internal affairs doctrine.

Application of the choice of forum provision may be limited in some instances by law.

Section 27 of the Securities Exchange Act of 1934 (“Exchange Act”) provides for exclusive federal court jurisdiction over Exchange Act claims.

Accordingly, to the extent the exclusive forum provision is held to cover a shareholder derivative action asserting claims under the Exchange Act, such claims could not be brought in the Delaware Court of Chancery and would instead be within the jurisdiction of the federal district court for the District of Delaware.

Section 22 of the Securities Act of 1933 (“Securities Act”) creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

Moreover, our stockholders will not be deemed by operation of our choice of forum provision to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.

It is also possible that, notwithstanding the forum selection clause, a court could rule that such a provision is inapplicable or unenforceable, which could adversely impact our results of operations, financial position and cash flows.

If securities analysts or industry analysts downgrade our shares, publish negative research or reports or do not publish reports about our business, our share price and trading volume could decline.

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Sales of substantial amounts of our common stock in the public market by our existing stockholders or upon the exercise of outstanding stock options or grant of stock options or restricted stock units in the future may cause the market price of our common stock to decrease significantly.

As of February 1, 2020, we have an aggregate of 3,406,238 shares of common stock issuable upon exercise of outstanding options and the vesting of restricted stock units under the 2015 Equity Incentive Plan (the “2015 Plan” and together with the 2012 Equity Incentive Plan, the “Equity Plans”) (2,455,473 of which are fully vested).

As of January 30, 2021, we have an aggregate of 1,393,073 shares of common stock issuable upon exercise of outstanding options and the vesting of restricted stock units under the 2015 Equity Incentive Plan (the “2015 Plan” and together with the 2012 Equity Incentive Plan, the “Equity Plans”) (450,577 of which are fully vested).

The perception that such sales could occur could also depress the market price of our common stock.

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Because Holdings conducts operations through subsidiaries, it depends on those entities for dividends and other payments to generate the funds necessary to meet financial obligations and to pay any dividends with respect to its common stock.

Legal and contractual restrictions in the Credit Facility and other agreements which may govern future indebtedness of subsidiaries, as well as the financial condition and operating requirements of subsidiaries, may limit its ability to obtain cash from subsidiaries.

Legal and contractual restrictions in the Credit Facility (defined below) and other agreements which may govern future indebtedness of subsidiaries, as well as the financial condition and operating requirements of subsidiaries, may limit its ability to obtain cash from subsidiaries.

The earnings from, or other available assets of, subsidiaries might not be sufficient to pay dividends or make distributions or loans to enable Holdings to pay any dividends on its common stock or other obligations.

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Accordingly, realization of any gain on our common stock will depend on the appreciation of the price of the shares of our common stock, which may never occur.

INDEBTEDNESS AND CAPITALIZATION

As of January 30, 2021, we had no outstanding borrowings on the Revolving Credit Facility, with $92.0 million of borrowing availability.

We may, from time to time, incur additional indebtedness.

The agreements governing our Credit Facility place certain conditions on us, including that they:

increase our vulnerability to adverse general economic or industry conditions;

limit our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;

make us more vulnerable to increases in interest rates, as borrowings under our Credit Facility are at variable rates;

limit our ability to obtain additional financing in the future for working capital or other purposes;

require us to utilize our cash flows from operations to make payments on indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity and other general corporate purposes;

place us at a competitive disadvantage compared to our competitors that have less indebtedness.

Our Credit Facility places certain limitations on our ability to incur additional indebtedness.

Our Credit Facility also places certain restrictions on the payment of dividends and distributions and certain management fees.

These restrictions limit or prohibit, among other things, our ability to:

pay dividends on, redeem or repurchase our stock or make other distributions;

incur or guarantee additional indebtedness;

sell stock in our subsidiaries;

create or incur liens;

make acquisitions or investments;

transfer or sell certain assets or merge or consolidate with or into other companies;

make certain payments or prepayments of indebtedness subordinated to our obligations under our Credit Facility;

enter into certain transactions with our affiliates.

Under certain circumstances, our Credit Facility requires us to comply with certain financial covenants regarding our fixed charge coverage ratio.

See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities.”

We may be unable to generate sufficient cash flows to satisfy debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations.

The terms of future debt agreements, including our Credit Facility, may also restrict us from affecting any of these alternatives.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors