# Regis Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Regis Corp](/companies/rgs.md) (CIK 716643)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 06:13 ET
- Period: 2023-09-30
- Accession: 0000716643-23-000044
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/716643/000071664323000044/rgs-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/716643/000071664323000044/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $53.4m | us-gaap:Revenues |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $7.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$148.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 47,243,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | −$2.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $163.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $9.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $34.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $580.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $117.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $615.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $179.7m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-09-30 | −$35.3m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 28,064 characters.

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in our June 30, 2023 Annual Report on Form 10-K and other documents filed or furnished with the SEC during the current fiscal year.

### MANAGEMENT'S OVERVIEW

Regis Corporation (NYSE:RGS) is a leader in the beauty salon industry. As of September 30, 2023, the Company franchised or owned 4,811 locations, primarily in North America. Our locations consisted of 4,745 franchised salons and 66 company-owned salons. Regis’ franchised and corporate locations operate under concepts such as Supercuts®, SmartStyle®, Cost Cutters®, Roosters® and First Choice Haircutters®. Regis maintains an ownership interest in Empire Education Group, Inc. in the United States. As of September 30, 2023, the Company had 425 employees worldwide.

### Merchandising Strategy

As part of the Company's transformation to focus on managing and nurturing its brands, and in line with its capital-light business, the Company shifted its product business from a wholesale model to a third-party distribution model in fiscal year 2022. Management expects the change will positively impact franchisees by providing them access to industry-leading pricing, loyalty programs, promotional benefits, educational assets, and ongoing support. The Company receives a fee from the third-party distributor, which is included in fees on the interim unaudited Condensed Consolidated Statements of Operations. As a result of the change, product sales to franchisees and cost of products sales to franchisees will continue to decrease and are expected to be immaterial for the remainder of fiscal year 2024.

### Corporate Strategy Update

On November 1, 2023, the Company announced that the Board has initiated a strategic review to proactively assess the Company’s capital structure. The Board has established a Special Committee to evaluate the various strategic alternatives and initiatives. There is no set timetable for this process, and there can be no assurances as to the results of the review. The Company does not intend to comment further on developments or status of this process until it deems further disclosure is appropriate or required by law. The Company is being advised by Jefferies, LLC as its financial advisor and Weil, Gotshal & Manges LLP as its legal advisor.

### CRITICAL ACCOUNTING POLICIES

The interim unaudited Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the interim unaudited Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the interim unaudited Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our interim unaudited Condensed Consolidated Financial Statements.

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, 2023 Annual Report on Form 10-K. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended June 30, 2023.

### RESULTS OF OPERATIONS

### System-wide results

Our results are impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company. While we do not record sales by franchisees as revenue, and such sales are not included in our unaudited Condensed Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance. In the three months ended September 30, 2023, a net 50 franchise salons have closed, which will reduce future royalty income.

The following table summarizes system-wide revenue and system-wide same-store sales by concept (1):

*(Dollars in Millions)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| System-wide revenue | $306.6 | $316.0 |
| Supercuts | 2.2% | 8.9% |
| SmartStyle | (2.0) | (3.2) |
| Portfolio Brands | 3.7 | 3.6 |
| Total system-wide same-store sales (1) | 1.8% | 4.5% |

(1) System-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

### Condensed Consolidated Results of Operations (Unaudited)

The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statements of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points. Variances calculated on amounts shown in millions may result in rounding differences.

*($ in millions)*

|  | Three Months Ended September 30, 2023 | 2022 | 2023 % of Total Revenues (1) | 2022 | 2023 Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Royalties | $16.5 | $17.2 | 30.9% | 27.9% | 300 |
| Fees | 2.6 | 2.6 | 4.9 | 4.2 | 70 |
| Product sales to franchisees | 0.4 | 0.4 | 0.8 | 0.6 | 20 |
| Advertising fund contributions | 7.2 | 8.3 | 13.5 | 13.4 | 10 |
| Franchise rental income | 24.7 | 30.3 | 46.3 | 48.9 | (260) |
| Company-owned salon revenue | 1.9 | 3.1 | 3.6 | 5.0 | (140) |
| Cost of product sales to franchisees | 0.4 | 0.5 | 100.0 | 125.0 | (2,500) |
| General and administrative | 10.7 | 14.4 | 20.1 | 23.3 | (320) |
| Rent | 1.1 | 1.8 | 2.1 | 2.9 | (80) |
| Advertising fund expense | 7.2 | 8.3 | 13.5 | 13.4 | 10 |
| Franchise rent expense | 24.7 | 30.3 | 46.3 | 48.9 | (260) |
| Company-owned salon expense (2) | 1.5 | 3.0 | 2.8 | 4.8 | (200) |
| Depreciation and amortization | 0.4 | 1.3 | 0.8 | 2.1 | (130) |
| Operating income (3) | 7.4 | 2.5 | 13.9 | 4.0 | 990 |
| Interest expense | (6.2) | (3.8) | (11.6) | (6.1) | (550) |
| Other, net | (0.2) | (0.5) | (0.4) | (0.8) | 40 |
| Income tax benefit (expense) (4) | 0.1 | — | (14.1) | (1.5) | N/A |
| Income (loss) from continuing operations | 1.2 | (1.8) | 2.3 | (2.9) | 520 |
| Income from discontinued operations | — | 3.3 | — | 5.3 | (530) |
| Net income (3) | 1.2 | 1.5 | 2.3 | 2.4 | (10) |

(1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees.

(2) Includes cost of service and product sold to guests in our Company-owned salons. Excludes general and administrative expense, rent and depreciation and amortization related to Company-owned salons.

(3) Total is a recalculation; line items calculated individually may not sum to total due to rounding.

(4) Computed as a percent of income (loss) from continuing operations before income taxes. The income tax basis point change is noted as not applicable (N/A) as the discussion within the MD&A is related to the effective income tax rate.

### Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

#### Royalties

During the three months ended September 30, 2023, royalties decreased $0.7 million, or 4.1%, primarily due to a decrease in franchise salon count.

#### Fees

During the three months ended September 30, 2023, fees were consistent with prior period. An increase in terminated franchise agreement fees was offset by a decline in product fees.

#### Product Sales to Franchisees

Product sales to franchisees in the three months ended September 30, 2023 were less than the three months ended September 30, 2022, primarily due to the Company's shift in its product business from a wholesale model to a third-party distribution model. Product sales to franchisees are not expected to be material in fiscal year 2024.

#### Advertising Fund Contributions

Advertising fund contributions decreased $1.1 million, or 13.3%, during the three months ended September 30, 2023, primarily due to the decrease in franchise salon count.

#### Franchise Rental Income

During the three months ended September 30, 2023, franchise rental income decreased $5.6 million, or 18.5%, primarily due to the decrease in franchise salon count.

#### Company-Owned Salon Revenue

During the three months ended September 30, 2023, company-owned salon revenue decreased $1.2 million, or 38.7%, due to the decrease in company-owned salon count.

#### Cost of Product Sales to Franchisees

The decrease in cost of product as a percent of product revenues during the three months ended September 30, 2023 was primarily due to lower freight charges. Cost of product sales to franchisees is not expected to be material in fiscal year 2024.

#### General and Administrative

General and administrative expense decreased $3.7 million, or 25.7%, during the three months ended September 30, 2023, primarily due to lower headcount resulting in lower compensation expense and lower legal, insurance and professional fees.

#### Rent

Rent expense decreased $0.7 million, or 38.9%, during the three months ended September 30, 2023, primarily due to a reduction in franchise rent due to lower lease termination fees, settling with landlords for less than previously accrued and the net reduction in the number of company-owned salons, partially offset by a reduction in the lease liability benefit. See Note 8 to the unaudited Condensed Consolidated Financial Statements.

#### Advertising Fund Expense

Advertising fund expense decreased $1.1 million, or 13.3%, during the three months ended September 30, 2023, primarily due to the decrease in franchise salon count.

#### Franchise Rent Expense

During the three months ended September 30, 2023, franchise rent expense decreased $5.6 million, or 18.5%, primarily due to the decrease in franchise salon count.

#### Company-Owned Salon Expense

Company-owned salon expense for the three months ended September 30, 2023 decreased $1.5 million, or 50.0%, primarily due to the reduction in company-owned salon count.

#### Depreciation and Amortization

Depreciation and amortization decreased $0.9 million, or 69.2%, during the three months ended September 30, 2023. The decrease in the three months ended September 30, 2023 was primarily due to a reduction in corporate office and IT assets and a reduction in asset retirement "white boxing" expense.

#### Interest Expense

The $2.4 million increase in interest expense for the three months ended September 30, 2023 was primarily due to the amortization of fees related to the credit amendment that was signed in the first quarter of fiscal year 2023 and a higher weighted average interest rate on outstanding borrowings, including non-cash interest and amortization of debt discount and financing costs of $1.4 million.

#### Other, Net

Other, net decreased $0.3 million for the three months ended September 30, 2023 primarily due to a lower foreign currency loss.

#### Income Tax Benefit (Expense)

During the three months ended September 30, 2023, the Company recognized a tax benefit of $0.1 million, with a corresponding effective tax rate of (14.1)%, as compared to recognizing a tax expense of $0.0 million, with a corresponding effective tax rate of (1.5)% during the three months ended September 30, 2022. See Note 5 to the unaudited Condensed Consolidated Financial Statements.

#### Income from Discontinued Operations

In the three months ended September 30, 2022, the Company recorded income from discontinued operations of $3.3 million due primarily to receipt of $4.0 million in sales proceeds. See Note 3 to the unaudited Condensed Consolidated Financial Statements.

### Results of Operations by Segment

Based on our internal management structure, we report two segments: Franchise and Company-owned salons. See Note 12 to the unaudited Condensed Consolidated Financial Statements. Significant results of continuing operations are discussed below with respect to each of these segments.

### Franchise Salons

*(Dollars in millions)*

|  | Three Months Ended September 30, 2023 | 2022 | (Decrease) Increase (1) |
| --- | ---: | ---: | ---: |
| Royalties | $16.5 | $17.2 | $(0.7) |
| Fees | 2.6 | 2.6 | — |
| Product sales to franchisees | 0.4 | 0.4 | — |
| Advertising fund contributions | 7.2 | 8.3 | (1.1) |
| Franchise rental income | 24.7 | 30.3 | (5.6) |
| Total franchise revenue (1) | $51.4 | $58.8 | $(7.4) |
| Franchise same-store sales (2) | 1.7% | 4.6% |  |
| Franchise adjusted EBITDA | $8.0 | $5.0 | $3.0 |
| Total franchise salons | 4,745 | 4,795 | (50) |

(1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.

(2) Franchise same-store sales are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

### Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

#### Franchise Revenue

Franchise revenue decreased $7.4 million during the three months ended September 30, 2023. The decrease in franchise revenue during the three months ended September 30, 2023 was primarily due to the decrease in franchise salon count. During the twelve months ended September 30, 2023, franchisees purchased zero salons from the Company and constructed (net of relocations) and closed 11 and 589 franchise salons, respectively.

#### Franchise Adjusted EBITDA

During the three months ended September 30, 2023, franchise adjusted EBITDA totaled $8.0 million, an improvement of $3.0 million compared to the three months ended September 30, 2022. The improvement was primarily due to a decrease in general and administrative expense due primarily to lower headcount, resulting in lower compensation expense, lower professional fees and a benefit in rent expense related to settling with landlords for less than previously accrued.

### Company-Owned Salons

*(Dollars in millions)*

|  | Three Months Ended September 30, 2023 | 2022 | (Decrease) Increase (1) |
| --- | ---: | ---: | ---: |
| Total revenue | $1.9 | $3.1 | $(1.2) |
| Company-owned salon adjusted EBITDA | $(0.5) | $(1.2) | $0.7 |
| Total Company-owned salons | 66 | 95 | (29) |

(1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.

### Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

#### Company-Owned Salon Revenue

Company-owned salon revenue decreased $1.2 million during the three months ended September 30, 2023, primarily due to the decrease in company-owned salon count.

#### Company-Owned Salon Adjusted EBITDA

During the three months ended September 30, 2023, company-owned salon adjusted EBITDA improved $0.7 million, primarily due to the closure of loss-generating company-owned salons.

### LIQUIDITY AND CAPITAL RESOURCES

Following the amendment of the Company's credit agreement in August 2022, the facility matures in August 2025. In addition to a $10.0 million minimum liquidity covenant, the amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See Note 9 to the unaudited Condensed Consolidated Financial Statements.

### Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity to meet its obligations in the next twelve months and until maturity of the credit agreement in August 2025. In conducting the Company’s current operations, all cash in excess of the amounts needed to support existing operating activities is used to pay the interest on the amounts outstanding under the credit agreement, and we are periodically borrowing additional amounts to cover these costs.

As of September 30, 2023, cash and cash equivalents were $9.3 million, with $8.6 and $0.7 million within the United States and Canada, respectively.

As of September 30, 2023, the Company's borrowing arrangements include a $172.1 million term loan, $2.0 million of paid-in-kind interest and a $55.0 million revolving credit facility that expires in August 2025. As of September 30, 2023, the unused available credit under the revolving credit facility was $33.1 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total liquidity per the agreement was $42.4 million. See Note 9 to the unaudited Condensed Consolidated Financial Statements.

Additionally, in February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its Class A common stock in "at-the-market offerings." Net proceeds from sales of shares under the "at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support our brands and franchisees. The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company. During the three months ended September 30, 2023 and 2022, the Company did not issue shares under the prospectus supplement. As of September 30, 2023, $11.6 million remains outstanding under the share issuance program.

### Uses of Cash

The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management. The Company has a disciplined approach to capital allocation, which focuses on ensuring we can meet our interest obligations and investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

### Cash Requirements

The Company's most significant contractual cash requirements as of September 30, 2023 were lease commitments and interest payments. See Notes 8 and 9 to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

### Cash Flows

#### Cash Flows from Operating Activities

During the three months ended September 30, 2023, cash used in operating activities was $2.8 million compared to $5.1 million in the prior year. Cash used in operating activities improved due primarily to our lower cost structure.

#### Cash Flows from Investing Activities

During the three months ended September 30, 2023, cash used in investing activities of $0.2 million primarily related to a salon capital improvements. During the three months ended September 30, 2022, cash provided by investing activities of $3.3 million was primarily due to cash received of $4.0 million from the sale of OSP, net of a $0.5 million transaction fee.

#### Cash Flows from Financing Activities

During the three months ended September 30, 2023, cash provided by financing activities was $1.7 million, primarily as a result of a net $1.8 million borrowing under the Company's revolving credit facility. During the three months ended September 30, 2022, cash used in financing activities was $3.8 million, primarily as a result of debt refinancing fees of $4.3 million, partially offset by a net $0.6 million borrowing under the Company's revolving credit facility.

### Financing Arrangements

See Note 9 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and Note 8 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 for additional information regarding our financing arrangements.

### Debt to Capitalization Ratio

Our debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, as a percentage of the principal amount of debt and shareholders' deficit at fiscal quarter end, was as follows:

|  | Debt to Capitalization (1) |
| --- | ---: |
| September 30, 2023 | 123.4% |
| June 30, 2023 | 125.1% |

(1) Excludes the long-term lease liability as that liability is offset by the ROU asset.

The decrease in the debt to capitalization ratio as of September 30, 2023 was primarily due to the increase in outstanding debt.

### Share Issuance Program

In February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. During the three months ended September 30, 2023, the Company did not issue shares under the prospectus supplement. As of September 30, 2023, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program.

### Share Repurchase Program

In May 2000, the Board approved a stock repurchase program with no stated expiration date. Since that time and through September 30, 2023, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During the three months ended September 30, 2023, the Company did not repurchase any shares. As of September 30, 2023, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program. The Company does not anticipate repurchasing shares of common stock for the foreseeable future.

### SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." These uncertainties include a potential material adverse impact on our business and results of operations as a result of changes in consumer shopping trends and changes in manufacturer distribution channels; laws and regulations could require us to modify current business practices and incur increased costs; our potential responsibility for Empire Education Group, Inc.'s liabilities; changes in general economic environment; changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns; compliance with New York Stock Exchange listing requirements; reliance on franchise royalties and overall success of our franchisees’ salons; our salons' dependence on a third-party supplier agreement for merchandise; our franchisees' ability to attract, train and retain talented stylists and salon leaders; the success of our franchisees, which operate independently; data security and privacy compliance and our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, franchisees, employees, vendors or Company information; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic to our franchisees' salons; the successful migration of our franchisees to the Zenoti salon technology platform; our ability to maintain and enhance the value of our brands; reliance on information technology systems; reliance on external vendors; the use of social media; the effectiveness of our enterprise risk management program; ability to generate sufficient cash flow to satisfy our debt service obligations; compliance with covenants in our financing arrangement, access to the existing revolving credit facility, and acceleration of our obligation to repay our indebtedness; the completion and/or results of the strategic alternatives review; limited resources to invest in our business; premature termination of agreements with our franchisees; financial performance of Empire Education Group, Inc.; our ability to close the sale of our ownership stake in Empire Education Group, Inc.; the continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings; continued ability to compete in our business markets; reliance on our management team and other key personnel; the continued ability to maintain an effective system of internal control over financial reporting; changes in tax exposure; the ability to use U.S. net operating loss carryforwards; potential litigation and other legal or regulatory proceedings; or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

## Market risk

As filed, 250 characters.

We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. There has been no material change to the factors discussed within Part II, Item 7A in the Company's June 30, 2023 Annual Report on Form 10-K.

## Controls and procedures

As filed, 1,350 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at the end of the period. Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.

### Changes in Internal Controls over Financial Reporting

There were no material changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 6,801 characters.

There have been no material changes in our risk factors, except as noted below, from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

***Empire Education Group, Inc. (EEG) may be unsuccessful and we may be unable to close the sale of our ownership stake in it, which could adversely affect our financial results.***

EEG has experienced, and continues to experience, poor financial performance. In 2020, we entered into an agreement to sell to the other owner our 55.1% ownership stake in EEG. The transaction is subject to approval by each of the states in which EEG’s schools operate, as well as EEG’s institutional accrediting agency, National Accrediting Commission of Career Arts and Sciences (NACCAS), and the Department of Education. Some state approvals and the NACCAS approval must be obtained prior to the closing of the transaction. Additionally, three state agencies have indicated that the pertinent EEG schools must post surety bonds as a condition of transaction approval and ongoing authorization to operate. The other owner of EEG has not obtained the required surety bonds to facilitate a closing of the transaction. The Department of Education similarly may require a letter of credit as a condition of EEG’s participation in the Title IV programs following the transaction. As a result of these conditions, there is no guarantee that we will be able to close the sale. If the transaction does not close, our financial results may be adversely affected.

### We may be responsible for Empire Education Group, Inc.'s liabilities.

The Company owns a majority stake in Empire Education Group Inc. (EEG). To be eligible to participate in Title IV programs,

the schools operated by EEG must comply with specific standards and procedures set forth in the Higher Education Act and the

regulations issued thereunder by the Department of Education. On October 10, 2023, the Department of Education issued a

final rule applicable to “gainful employment” programs, which under the Higher Education Act, include all programs offered

by the Empire Education Group schools and other proprietary institutions. Under this final rule, which becomes effective July

1, 2024, the continued Title IV eligibility of such programs will be based on meeting both a debt-to-earnings metric and an

earnings premium metric. A program that fails either metric in a single year will be required to provide warnings to current and

prospective students that it could be at risk of losing Title IV program eligibility. A program that fails to meet the same metric

twice in a three-year period will lose Title IV program eligibility. The first measurement will be assessed in fiscal year 2025. To the extent that EEG is unable to meet the required metrics for gainful employment programs, or it fails to comply with other existing or revised Title IV program regulations, its schools and programs may become ineligible for continued Title IV program participation. Upon a loss of institutional or programmatic eligibility, EEG’s students would lose access to Title IV program funds and that could be detrimental to EEG's business model. Additionally, EEG students who are unable to complete their educational program with EEG, or who do not accept a teach-out opportunity with another institution, may be eligible for discharges of their federal student loan debt. Those discharged loan amounts and other Title IV funds disbursed to EEG students that do not complete their program, as well as other Title IV program funds, may constitute liabilities to the Department of Education. Because the Company holds a majority ownership interest in EEG and is a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education, the Department of Education could hold the Company responsible for EEG's Title IV program liabilities.

***There are uncertainties introduced by our announcement of our exploration and evaluation of strategic alternatives to enhance value.***

On November 1, 2023, the Company announced that the Board has initiated a strategic review to proactively assess the Company's capital structure. The Board of Directors has established a Special Committee to evaluate various strategic alternatives and initiatives to enhance value. There is no set timetable for this process, and there can be no assurances as to the results of the review. The Company does not intend to comment further on developments or status of this process until it deems further disclosure is appropriate or required by law. We may also incur substantial costs in connection with the pursuit of strategic alternatives which are not ultimately consummated.

***We currently are not in compliance with New York Stock Exchange listing requirements.***

In June 2022, we received written notice from the New York Stock Exchange (NYSE) that we did not meet certain NYSE continued listing standards. Under the NYSE continued listing standards, the Company is required to maintain (a) a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days, and (b) an average market capitalization of at least $50.0 million over a period of 30 consecutive trading days, and at the same time, total stockholders' equity equal to or greater than $50.0 million. On September 1, 2022, we were notified we cured the minimum average closing price of $1.00 per share, but our average market capitalization was still non-compliant. On October 4, 2023, we received a second written notice from the NYSE that the Company no longer satisfies the continued listing compliance standards, because the average closing price of the Company's common stock was less than $1.00 per share over a period of 30 consecutive days. The Company also remains noncompliant with the market capitalization requirement of Section 802.01B of the NYSE Listed Company Manual as previously disclosed. If our average market capitalization is not greater than $50.0 million on December 13, 2023, we will be subject to the NYSE’s suspension and delisting procedures. We are closely monitoring the closing share price of our common stock and are considering all available options. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; limiting our ability to issue additional securities or obtain additional financing in the future; decreasing the amount of news and analyst coverage of us; and causing us reputational harm with investors, our employees, and parties conducting business with us.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0000716643-23-000044. Last ingested by Listed: Oct 30, 2026, 18:10 ET. No prices; not investment advice.