UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-−Q

(Mark One)

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

For the quarterly period ended: ~~September~~March 3031, ~~2015~~2016

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

For the transition period from ____________ to ____________

Commission File Number: 333-193618

PEEKAY BOUTIQUES, INC.

(Exact name of registrant as specified in its charter)

Nevada		46-4007972
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)

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

(Address of principal executive offices, Zip Code)

1-800-447-2993

(Registrant's telephone number, including area code)

~~_____________________________________________________________~~____________________________________________________________

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

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

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

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting ~~companyx~~ company x (Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the issuer's classes of common stock, as of ~~October~~May 2816, ~~2015~~2016 is as follows:

Class of Securities		Shares Outstanding
Common Stock, $0.0001 par value		600,~~917~~949

Peekay Boutiques, Inc.

Quarterly Report on Form 10-Q

Period Ended ~~September~~March 3031, ~~2015~~2016

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	414
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	1330
Item 4.	Controls and Procedures.	1330
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings.	1431
Item 1A.	Risk Factors.	1431
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	1431
Item 3.	Defaults Upon Senior Securities.	1431
Item 4.	Mine Safety Disclosures.	1431
Item 5.	Other Information.	1431
Item 6.	Exhibits.	1532

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PEEKAY BOUTIQUES, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED ~~FINANCIAL~~BALANCE ~~STATEMENTS~~SHEETS

	Page
	March 31,2016			December 31,2015
Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	F-1
	(Unaudited)
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	F-2
ASSETS
Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2015 and 2014	F-3
Current asset
Notes to Unaudited Consolidated Financial Statements	F-4
Cash and cash equivalents	$	1,211,052		$	899,205
Accounts receivable		77,844			48,630
Inventory, net of allowances		4,881,704			4,659,487
Prepaid expenses and other		501,018			374,766
Total current assets		6,671,618			5,982,088
Property and equipment, net		1,493,960			1,599,312
Finance costs, net		139,541			305,313
Deposits and other assets		683,036			683,036
TOTAL ASSETS	$	8,988,155		$	8,569,749
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	2,564,765		$	2,168,208
Accrued expenses		7,642,319			5,076,971
Customer deposits		456,618			584,818
Short-term debt		50,915,939			47,515,939
Total current liabilities		61,579,641			55,345,936
Long-term debt		-			3,400,000
Deferred tax liabilities, net and other		950,932			2,477,286
TOTAL LIABILITIES		62,530,573			61,223,222
SHAREHOLDERS EQUITY (DEFICIT)
Common stock, $0.0001 par value, 50,000,000 shares authorized; 600,949 shares issued and outstanding		60			60
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares outstanding
Additional paid in capital		796,535			796,535
Retained deficit		(54,339,013	)		(53,450,068	)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(53,542,418	)		(52,653,473	)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)	$	8,988,155		$	8,569,749

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2015			December 31,2014 (1)
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents		1,004,497			1,126,887
Accounts receivable		84,800			141,000
Inventory, net of allowances		4,435,841			4,939,998
Prepaid expenses and other		730,508			635,717
Total current assets		6,255,646			6,843,602
Property and equipment, net		1,615,900			1,912,728
Goodwill		40,825,147			40,825,147
Finance costs, net		406,460			2,323,714
Deposits and other		520,036			527,975
TOTAL ASSETS		49,623,189			52,433,166
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		2,036,918			1,762,014
Accrued expenses		3,583,163			3,059,895
Customer deposits		497,606			396,541
Short-term debt, net of original issue discount		38,162,899			38,012,580
Total current liabilities		44,280,586			43,231,030
Long-term debt, net of original issue discount		12,700,000			12,700,000
Deferred tax liabilities, net and other		3,143,961			2,543,583
TOTAL LIABILITIES		60,124,547			58,474,613
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value, 50,000,000 shares authorized, 600,928 and 597,090 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, no shares outstanding		60			58
Additional paid-in capital		796,535			717,648
Retained earnings (deficit)		(11,297,953	)		(6,759,153	)
TOTAL EQUITY		(10,501,358	)		(6,041,447	)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY		49,623,189			52,433,166

(1) Combined/Consolidated Balance Sheets of Peekay Boutiques, Inc. (fka Dico, Inc.) and Christals Acquisition, LLC and Subsidiaries at December 31, 2014

The accompanying condensed notes, together with the Notes to Consolidated Financial Statements contained in Form 10-K and 8-K/A for the fiscal year ended December 31, 2014, are an integral part of these financial statements.

F-1

PEEKAY BOUTIQUES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	For the Three Months Ended
	September 30, 2015			September 30, 2014		(1)	September 30, 2015			September 30, 2014		(1)
	March 31,2016			March 31,2015
REVENUE	$	9,684,107		$	9,341,631		$	30,886,743		$	29,371,182
Revenue	$	11,269,075		$	11,704,843
Cost of goods sold		3,~~457~~961,~~210~~658			34,~~291~~108,~~188~~174			~~11,051,591~~			~~10,125,276~~
GROSS PROFIT		6,226,897			6,050,443			19,835,152			19,245,906
Gross profit		7,307,417			7,596,669
OPERATING EXPENSES
Selling, general & administrative expenses		5,434,374			5,636,685
Selling, general and administrative expenses		5,458,441			5,162,541			16,451,427			15,511,633
Depreciation and amortization		918,498			767,176
Depreciation and amortization		1,352,556			492,937			2,899,032			1,471,743
Income from operations		954,545			1,192,808
OPERATING INCOME (LOSS)		(584,100	)		394,965			484,693			2,262,530
Other income (expense)
OTHER INCOME (EXPENSE)
Other income (expense)		(27,832	)		1,702
Other income (expense)		9,463			(5,447	)		13,123			(29,384	)
Interest expense		(1,770,658	)		(1,633,782	)
Interest income (expense)		(1,667,329	)		(1,675,448	)		(4,965,946	)		(4,948,405	)
Total other income (expense)		(1,798,490	)		(1,632,080	)
Total other income (expense)		(1,657,866	)		(1,680,895	)		(4,952,823	)		(4,977,789	)
Income tax expense		45,000			47,000
INCOME TAX EXPENSE		23,670			-			70,670			569
Net loss	$	(888,945	)	$	(486,272	)
NET LOSS	$	(2,265,636	)	$	(1,285,930	)	$	(4,538,800	)	$	(2,715,828	)
Net loss per share – basic and diluted:
LOSS PER SHARE (BASIC AND DILUTED):
Loss per share attributable to common stockholders	$	(1.48	)	$	(0.81	)
Loss per share attributable to common shareholders	$	(3.78	)	$	(2.16	)	$	(7.59	)	$	(4.55	)
Weighted average number of common shares outstanding		600,949			597,111
Weighted average shares outstanding during period		598,946			596,245			597,711			596,245

~~(1)~~The ~~Combined/Consolidated~~accompanying ~~Statements~~notes ofare ~~Operations~~an ofintegral ~~Peekay~~part ~~Boutiques,~~of ~~Inc.~~these ~~(fka~~financial ~~Dico, Inc.) and Christals Acquisition, LLC and Subsidiaries for the Three and Nine Months Ended September 30, 2014~~statements

F-2

PEEKAY BOUTIQUES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH~~SHAREHOLDERS' ~~FLOWS~~ EQUITY

(Unaudited)

	For the Nine Months Ended
	Shares			Common			Additional		Retained
	September 30, 2015			September 30, 2014		(1)
	Outstanding			Stock			Paid in Capital		Deficit			Total
CASH FLOWS FROM OPERATING ACTIVITIES
Balance – December 31, 2015		600,949		$	60		$	796,535	$	(53,450,068	)	$	(52,653,473	)
Net loss		~~(4,538,800~~	)		~~(2,715,828~~	)				(888,945	)		(888,945	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Balance – March 31, 2016		600,949		$	60		$	796,535	$	(54,339,013	)	$	(53,542,418	)
Depreciation and amortization		2,899,032			1,471,743
Changes in operating assets and liabilities
Net change in accounts receivable		56,200			6,048
Net change in inventory		504,157			8,766
Net change in prepaid and other assets		(86,852	)		(277,070	)
Net change in accounts payable & accrued liabilities		997,133			1,275,142
Net cash flow (used in) operating activities		(169,130	)		(231,199	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions		-			(23,982	)
Purchase of property and equipment		(111,772	)		(971,351	)
Net cash flow (used in) investing activities		(111,772	)		(995,333	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		150,319			179,445
Shareholder contributions (distributions)		8,193			21,252
Net cash flow provided by financing activities		158,512			200,697
NET INCREASE (DECREASE) IN CASH		(122,390	)		(1,025,835	)
Cash and cash equivalents, beginning of period		1,126,887			3,308,498
Cash and cash equivalents, end of period		1,004,497			2,282,663

~~(1)~~The ~~Combined/Consolidated~~accompanying ~~Statements~~notes ofare ~~Cash~~an ~~Flows~~integral part of ~~Peekay~~these ~~Boutiques,~~financial ~~Inc. (fka Dico, Inc.) and Christals Acquisition, LLC and Subsidiaries at September 30, 2014~~statements

F-3

PEEKAY BOUTIQUES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended
	March 31, 2016			March 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(888,945	)	$	(486,272	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		918,498			767,176
Original loan issue discount amortization		-			53,040
Changes in operating assets and liabilities
Net change in accounts receivable		(29,214	)		30,210
Net change in inventory		(222,217	)		(1,252,531	)
Net change in prepaid and other assets		(126,252	)		(275,845	)
Net change in accounts payable & accrued liabilities		659,977			1,572,691
Net cash flow provided by operating activities		311,847			408,469

CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of property and equipment		-			(108,513	)
Net cash flow (used in) investing activities		-			(108,513	)


CASH FLOWS (USED IN) FINANCING ACTIVITIES
Loan waiver fees disbursed to lenders		-			(668,779	)
Shareholder contributions		-			8,193
Net cash flow (used in) financing activities		-			(660,586	)

NET INCREASE (DECREASE) IN CASH		311847			(360,630	)

Cash and cash equivalents, beginning of period		899,205			1,126,887
Cash and cash equivalents, end of period	$	1,211,052		$	766,257

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	4,800		$	--
Interest paid	$	666,353		$	1,334,188

The accompanying notes are an integral part of these financial statements

PEEKAY BOUTIQUES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

At the close of business on December 31, 2014, Christals Acquisition, LLC and its members entered into a securities exchange agreement ("Exchange Agreement") with DICO, Inc. a Nevada corporation, pursuant to which DICO acquired 100% of the issued and outstanding equity capital of Christals Acquisition in exchange for 420,812 shares of DICO common stock, par value $0.0001 per share, which constituted 70.5% of the issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Exchange Agreement. In addition, at the closing of the share exchange, Christals paid DICO $350,000 in cash. This cash was immediately used for the following purposes (i) to pay down all of DICO's outstanding liabilities, (ii) $308,436 of this cash was used as a partial payment toward the redemption of a total of 2,500,000 of DICO restricted shares from David Lazar, the former Chief Operating Officer and Secretary of DICO, pursuant to a redemption agreement entered into with Mr. Lazar on December 31, 2014, and (iii) to satisfy aggregate purchase price payable to holders of a total of 175,433 shares of DICO common stock, which shares were transferred to the members of Christals Acquisition as a condition to the closing of the exchange transaction. In addition to receiving the $308,436 payment for the redemption of his 2,500,000 shares of DICO common stock, DICO also transferred to Mr. Lazar the remaining inventory of loose diamonds pursuant to a bill of sale and assignment agreement as the balance of the consideration for the redemption of his shares. Immediately following the closing of the exchange transaction and the related transactions described above, the former members of Christals Acquisition and certain equity owners of such members who immediately received distributions of such securities, became the owners of 3596,~~577,470~~245 shares of our common stock, constituting 99.9% of DICO's issued and outstanding common stock as of such closing. For accounting purposes, the exchange transaction with Christals Acquisition was treated as a reverse acquisition, with Christals Acquisition as the acquirer and DICO, Inc. as the acquired party. In January 2015, DICO, Inc. changed its name to Peekay Boutiques, Inc. On October 28, 2015, the Company effected a one-for-six reverse split of our authorized and outstanding common stock, and all share and per share information has been adjusted to reflect this reverse split.

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

Basis of Presentation – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During ~~2013~~2014 and ~~2014~~2015, the Company incurred net losses of $24,~~577~~181,~~263~~890 and $446,~~150~~690,~~367~~915 (including a $40,585,386 impairment charge), respectively, largely as a result of interest expense on its outstanding debt of almost $~~6.6~~51 million ~~annually~~, which exceeds the operating profits generated through the operations of its business. Approximately $38.2 million in senior secured debt ~~matures~~matured on ~~December~~February 3115, ~~2015~~2016, and the Company does not have the ~~resourced~~resources necessary to pay this debt asand ithas ~~comes~~not ~~due~~been able to raise the capital necessary or source refinancing to satisfy this obligation and is operating under a Forbearance Agreement.

The ability of the Company to continue its operations and execute its business plan is dependent on its ability to refinance this debt and/or to raise sufficient capital to pay this debt and other obligations as they come due (or are extended through a refinancing) and to provide sufficient capital to operate its business as contemplated. ~~These~~Management ~~factors,~~is ~~amount~~in ~~others, raise substantial doubt about~~ the ~~Company's~~process ~~ability~~of toexploring ~~continue~~refinancing asoptions, aand ~~going~~raising ~~concern.~~additional ~~The~~equity ~~accompanying~~capital ~~financial~~through ~~statements~~either doa ~~not~~private ~~include~~placement ~~any~~of ~~adjustments~~its ~~that~~securities, ~~might~~a ~~result~~public ~~from~~offering ~~the~~or ~~outcome~~a ofstrategic ~~this uncertainty~~transaction.

~~The~~These ~~Company~~factors ~~has~~raise ~~filed~~substantial adoubt ~~registration~~about ~~statement (Form S-1) with~~ the ~~Securities~~Company's ~~and~~ability ~~Exchange Commission~~ to ~~sell~~continue ~~3,125,000~~as ~~shares~~a ofgoing ~~common~~concern. ~~stock~~The ataccompanying anfinancial ~~estimated~~statements ~~price~~do ofnot $8include toany ~~$10~~adjustments ~~per~~that ~~share,~~might ~~and~~result ~~plans~~from ~~to use~~ the ~~proceeds~~outcome to reduce its Senior Debt facility to approximately $22 million and extend the facility for three additional years, and use the remaining proceeds for general corporate purposes. Simultaneously with the closing of ~~the~~this ~~IPO, the subordinated debt holders would convert their outstanding principal and accrued interest of approximately $15~~uncertainty.~~6 million to common stock. Management believes that the going concern clause will no longer be necessary, if these transactions are completed.~~

~~F-4~~7

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Information regarding ~~the Company's~~ significant accounting policies relating to Peekay Boutiques and its subsidiaries is contained in Note 2, "~~Summary~~Significant ofAccounting ~~significant accounting policies~~Policies," to the financial statements of Peekay Boutiques contained in the ~~Company's~~ Annual Report on Form 10-K ~~and 8-K/A~~ for the year ended December 31, ~~2014~~2015. Presented below in this and the following notes is supplemental information that should be read in conjunction with "Notes to Financial Statements" in the Annual Report on Form 10-K.

Basis of Presentation

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

The Company's business is subject to seasonal fluctuation. Significant portions of the Company's net revenue and operating income are realized during the first and fourth quarters of the fiscal year, corresponding to the Valentine Day and Holiday shopping seasons, respectively. The results of the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, ~~2015~~2016, or for any other future interim period or for any future year.

These interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K ~~and 8-K/A~~ for the year ended December 31, ~~2014~~2015.

Fiscal Year End

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

Use of Estimates

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

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

· determination of the appropriate amount and timing of markdowns to clear unproductive or slow-moving retail inventory and overall inventory obsolescence; · estimation of future cash flows used to assess the recoverability of long-lived assets,

~~Fiscal Quarters and Year End~~8

~~The~~Recent ~~Company~~Accounting ~~has~~Pronouncements ~~adopted a fiscal year end of December 31st,~~ and ~~its~~Account ~~quarters end on March 31st, June 30th, September 30th and December 31st.~~Changes

FIn February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-502, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

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

InOur ~~May~~company ~~2014,~~made ~~the~~no ~~Financial~~accounting ~~Accounting~~changes ~~Standards~~during ~~Board~~the ~~issued~~three ~~Accounting~~months ~~Standards~~ended ~~Update~~March ~~No. 2014-09~~31, ~~Revenue from Contracts with Customers, ("ASU 2014-09"), which will supersede Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition~~2016. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company must recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. This standard is effective beginning in fiscal year 2017 and allows for either full retrospective or modified retrospective adoption. The Company has not yet selected a transition method nor determined the effect of the new standard on its financial statements.

The Company made no accounting changes during the nine months ended September 30, 2015.

NOTE 3 – NOTES PAYABLE

Unsecured Subordinated Promissory Notes

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

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

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

Financing Agreement

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

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

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

· An Underwriting fee on the Term A loan equal to 2% of the total loan, and 3% on the total Term B loan. · An administrative fee of .24% of the average amount of the aggregate amount of the principal balance of the loans outstanding paid each quarter. · Borrowers shall pay to the Term A Agent, quarterly in arrears on the last day of each calendar quarter and on the date the Obligations are paid in full, an administrative fee, which shall be equal to $15,000 (or a pro rata portion of such amount, in the case of the final payment of such fee).

· Certain reporting requirements · Maintain a Key Man life insurance policy for $2,000,000. · Restriction on amount of capital assets that can be purchased during the year · Restrictions of paying dividends or other distributions · Meeting certain financial covenants including an adjusted EBITDA leverage ratio and minimum liquidity requirement The loans are ~~guaranteed~~covered by ~~Christals~~the ~~Acquisition,~~following ~~LLC and all its subsidiaries.~~covenants:

~~During~~· ~~the~~Certain ~~year~~reporting ~~ended~~requirements ~~December~~· ~~31,~~Maintain ~~2014,~~a ~~the~~Key ~~Company~~Man ~~obtained~~life ~~three~~insurance ~~covenant~~policy ~~waivers~~for ~~through Amendments to the Financing Agreements dated March 31~~$2, ~~2014~~000, ~~September 30, 2014 and December 31, 2014, which cover covenant requirements through April 30, 2015~~000. ~~The~~· ~~Company~~Restriction ~~agreed~~on toamount ~~pay waiver fees totaling $955,398. A total~~ of ~~$191,080~~capital inassets ~~fees~~that ~~was~~can ~~paid~~be inpurchased ~~cash~~ during ~~2014. During~~ the ~~first~~year ~~quarter~~· Restrictions of ~~2015,~~paying ~~$573,239~~dividends ~~and~~or ~~$95,540~~other ~~was~~distributions ~~paid~~· toMeeting ~~the~~certain ~~lenders~~financial oncovenants ~~February~~including ~~20,~~an ~~2015~~adjusted ~~and~~EBITDA ~~March~~leverage ~~31,~~ratio ~~2015,~~and ~~respectively.~~minimum ~~The~~liquidity ~~remaining $95,540 is due at maturity.~~requirement

~~F-6~~The loans are guaranteed by Christals Acquisition, LLC and all its subsidiaries.

OnDuring ~~June~~the 30year ended December 31, ~~2015~~2014, the Company ~~entered~~obtained ~~into~~three ~~the~~covenant ~~Fourth~~waivers ~~Amendment~~through Amendments to ~~its~~the Financing ~~Agreement~~Agreements dated March 31, 2014, September 30, 2014 and December 31, 2014, which cover covenant requirements through April 30, 2015. ~~Pursuant~~The Company agreed to ~~the~~pay ~~Fourth~~waiver ~~Amendment~~fees totaling $955,398. ~~the~~A ~~lenders~~total ~~consented~~of to$191,080 ~~and~~in ~~waived~~fees ~~any~~was ~~event~~paid ofin ~~default~~cash ~~relating~~during to2014; ~~noncompliance~~$573,239 ~~with~~and $95,540 was paid in cash to the ~~Financial~~lenders ~~Covenants~~on February 20, ~~through~~2015 ~~September~~and 30March 31, 2015, ~~subject~~respectively. toThe ~~the~~remaining ~~following~~$95,540 ~~provisions:~~ is due at maturity.

~~(1)~~We ifobtained ~~any~~a offourth ~~our~~covenant orwaiver ~~other~~on ~~borrowers'~~June ~~or guarantors' Obligations (as defined in the Financing Agreement) remain outstanding as of November 15~~30, 2015, ~~then we and they must satisfy othe original leverage ratio requirement under the Financing Agreement~~ for the period ~~of four fiscal quarters~~ ending September 30, 2015 asand, ~~set~~a ~~forth~~fifth incovenant ~~Section~~waiver ~~7.03(a)~~on ofOctober ~~the Financing Agreement~~31, ~~and othe~~2015 ~~liquidity~~for ~~test at~~ the ~~end~~period ~~of the fiscal quarter~~ ending ~~September~~November 30, 2015 ~~as set forth in Section 7~~.~~03(b)~~ ofWe ~~the~~obtained ~~Financing~~a ~~Agreement;~~sixth ~~and (2)~~covenant wewaiver ~~and~~on ~~the~~November other borrowers and guarantors may not make certain Permitted Management Fee (as defined in the Financing Agreement) payments until the Financial Covenants have been satisfied and all Obligations of our Company and the other borrowers and guarantors and Commitments (as defined in the Financing Agreement) have been satisfied or terminated30, ~~but~~2015 ~~such Permitted Management Fees shall continue to accrue; and (3) we agreed to pay to the Administrative Agent (as defined in the Financing Agreement) an exit fee (the "Exit Fee"),~~ for the ~~account~~period ofending ~~each~~December ~~consenting lender~~27, ~~in an amount equal to the sum of 0.25% of the aggregate principal amount of the outstanding loans of such consenting lender, calculated on each of (i) the 15th day of July~~ 2015 and ~~the~~a ~~15th~~seventh ~~day~~covenant ofwaiver ~~each calendar month thereafter (if any Obligations remain outstanding~~ on ~~such~~December ~~day)~~16, ~~and~~2015 (ii) the last day of July and the last day of each calendar month thereafter (if any Obligations remain outstanding on such day). The Exit Fee is nonrefundable and deemed fully earned as of the 15th day and last day of each calendar month for the ~~Exit~~period ~~Fee~~ending ~~that~~December ~~accrues~~31, ~~on such day and until paid shall constitute "Obligations" that are secured by "Collateral" (as defined in the Financing Agreement)~~2015. The Exit Fee is due on the earlier to occur of (A) the Final Maturity Date (as defined in the Financing Agreement) and (B) the date which all of the other Obligations are repaid or required to be repaid in full in cash.

These waivers cover covenant requirements through June 30, 2015. We do not expect to be able to repay or otherwise satisfy or terminate all of our obligations and comply with the Financial Covenants as of November 15, 2015. We are therefore seeking to refinance the debt underlying the Financing Agreement, as amended, before this date. If we determine that we will be unable to refinance the debt by such date, we will seek to obtain additional waivers under the Financing Agreement, as amended. 10

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

	·	The maturity date will be extended to the earliest of (i) the third anniversary of the sixth amendment effective date, (ii) the date on which the loans under the financing agreement otherwise become due and payable in accordance with the terms of the financing agreement, and (iii) the date that payment in full of all obligations under the financing agreement and termination of all commitments occurs;

	·	The original leverage ratio requirement under the financing agreement will be modified to (i) reduce the numerator of the ratio by the amount of liquidity as of the last day of the applicable period, and (ii) change the leverage ratio requirement to be, for any period of four fiscal quarters measured as of the end of any fiscal quarter, no greater than 3.50:1.00;

	·	Provisions for requesting certain additional term loans under the financing agreement will be deleted;

	·	The applicable interest rate for loans under the financing agreement will be amended for Term A Loans to be 8.75% from the sixth amendment effective date up to the first anniversary thereof, 10.75% from the first anniversary of the sixth amendment effective date up to the second anniversary of the sixth amendment effective date, 12.75% from the second anniversary of the sixth amendment effective date until the final maturity date, and for Term B Loans to be 9.75% from the sixth amendment effective date up to the first anniversary thereof, 11.75% from the first anniversary of the sixth amendment effective date up to the second anniversary of the sixth amendment effective date, and 13.75% from the second anniversary of the sixth amendment effective date until the final maturity date;

	·	The exit fee required by the fifth amendment to the financing agreement will be amended so that it becomes due on the earlier to occur of (A) the final maturity date, (B) the date which all of the other obligations are repaid or required to be repaid in full in cash, and (C) the date that our company receives net cash proceeds of at least $20,000,000 from the public offering of our company's common stock (including the Public Offering). Once the accrued and unpaid exit fee is paid, it will be deemed satisfied in full and no additional amounts attributable to the exit fee will accrue or be payable;

	·	We agreed to pay to the administrative agent a nonrefundable fee, or the bridge exit fee, for the account of each consenting lender, accruing (i) on the sixth amendment effective date in an amount equal to 1.50% of the aggregate principal amount of the outstanding loans of such consenting lender (after giving effect to the prepayment of Term A Loans contemplated under the sixth amendment to the financing agreement as described below), (ii) on the first anniversary of the sixth amendment effective date in an amount equal to 2.50% of the aggregate principal amount of the loans outstanding as of such anniversary, and (iii) on the second anniversary of the sixth amendment effective date in an amount equal to 3.50% of the aggregate principal amount of the loans outstanding as of such anniversary. The bridge exit fee would be due on the earliest to occur of (A) the final maturity date, and (B) the date which all of the other obligations are repaid or required to be repaid in full in cash;

	·	The negative covenant relating to capital expenditures will be amended so that our subsidiaries can make capital expenditures up to the following limits: $2,400,000 for any fiscal quarter during the period January 1, 2016 - December 31, 2016, $3,140,000 for any fiscal quarter during the period January 1, 2017 - December 31, 2017, and $4,300,000 for any fiscal quarter during the period January 1, 2018 - December 31, 2018;

	·	The negative covenant regarding the opening of new stores will be deleted;

	·	The conditions to the effectiveness of the sixth amendment to the financing agreement include, among others, the following:

	·	Upon the closing of the Public Offering we must prepay not less than $16,000,000 of Term A Loans, together with accrued and unpaid interest on the amount prepaid and we must also pay certain accrued and unpaid fees owed to the secured lenders.

	·	Our outstanding seller notes must be converted into common stock on terms and conditions satisfactory to the origination agent; and

	·	We must pay to the administrative agent for the ratable benefit of each consenting lender an amendment fee in an amount equal to 1.0% of the aggregate principal amount of the loans outstanding as of the sixth amendment effective date (after giving effect to the prepayment described above).

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

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

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

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

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

	1.	The Company and its subsidiaries will not amend the compensation arrangements of their key employees, executives, officers and directors without the prior written consent of the Consenting Term A Lenders.

	2.	Upon receipt of Indication of Interest letters or other communications from third parties with respect to a potential Step One Restructuring Transaction (as defined in the Ninth Amendment), all such communications will be promptly provided to the Consenting Term A Lenders and their counsel.

	3.	In addition to the requirement in Section 3(e) of the Forbearance Agreement for periodic updates, the Consenting Term A Lenders may from time to time contact executives, officers and directors of the Company and its subsidiaries to discuss the business of the Company and its subsidiaries and their ongoing restructuring efforts.

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

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

	1.	On or before the close of business on April 1, 2016, the Company shall make an interest payment to the Term A Lenders in the amount of $325,500.

	2.	On or before the close of business on April 1, 2016, the Company shall wire $75,000 to counsel to the Consenting Term A Lenders, as a retainer pursuant to the terms of the Engagement Letter dated as of January 27, 2016 between counsel to the Consenting Term A Lenders, the Company and the Consenting Term A Lenders. As previously reported by the Company in a current report on Form 8-K filed with the SEC on February 26, 2016, the Company was required to agree to pay the reasonable fees and expenses of counsel to the Consenting Term A Lenders under the Ninth Amendment.

	3.	No further extension shall be provided unless the Company shall have entered into an engagement letter with a Chief Restructuring Officer on or before April 11, 2016, which engagement letter shall be in form and substance acceptable to the Consenting Term A Lenders.

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

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

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

· Level 1 – observable inputs such as quoted prices for identical instruments in active markets. · Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data. · Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

· Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

· Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

NOTE 5 – SUBSEQUENT EVENTS

OnWe ~~October~~evaluated ~~28,~~all ~~2015,~~events ~~the~~or ~~Company~~transactions ~~filed~~that aoccurred ~~Certificate~~after ofDecember ~~Change~~31, ~~with~~2015 ~~the~~up ~~Nevada~~through ~~Secretary~~May of13, ~~State~~2016, ~~to effect a one (1)-for-six (6) reverse stock split of~~ the ~~authorized,~~date we issued ~~and~~these ~~outstanding common stock, $0~~statements.~~0001~~ ~~par~~During ~~value~~this ~~per share~~period, ofwe ~~the~~did ~~Company.~~not ~~Pursuant~~have toany ~~the~~other ~~filing~~material ofsubsequent ~~the~~events ~~Certificate~~that ofimpacted ~~Change,~~our ~~the~~financial ~~reverse~~statements, ~~split~~which ~~became~~are ~~effective~~not ~~after~~already ~~the~~disclosed ~~close of trading on October 28, 2015~~herein.

On May 5, 2015, the Company filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission. The Company intends to sell up to 3,125,000 shares of common stock (post reverse split) at approximately $8 - $10 per share, and use approximately $16 million of the proceeds to reduce its obligation under the Senior Debt Facility and enter into a three year extension. Simultaneous with the closing the IPO, the Company plans to convert the principal and outstanding interest payable to its subordinated debt holders totaling approximately $15.6 million to common stock.13

F-7

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

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as "believe," "expect," "anticipate," "project," "target," "plan," "optimistic," "intend," "aim," "will" or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements about potential financing transactions, debt restructurings, or transactions with strategic partners, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A "Risk Factors" included in Exhibit 99.1 to our ~~Current~~Annual Report on Form 810-K/A filed April 2314, ~~2015~~2016, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of our company to differ materially from those expressed or implied by such forward-looking statements.

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

Use of Terms

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

· "we," "us," "our," "our company," or the "Company" are to the combined business of Peekay Boutiques, Inc. (formerly Dico, Inc.) and its consolidated subsidiaries, Christals Acquisition, Peekay Acquisition, Peekay SPA, Peekay, Conrev, Condom Revolution, Charter Smith and the Christals Stores; · "Christals Acquisition" are to Christals Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Peekay Boutiques, Inc. · "Peekay Acquisition" are to Peekay Acquisition, LLC, a Delaware limited liability company and wholly-owned subsidiary of Christals Acquisition; · "Peekay SPA" are to Peekay SPA, LLC, a Delaware limited liability company and the wholly-owned subsidiary of Peekay Acquisition; · "Peekay" are to Peekay, Inc., a Washington corporation and wholly-owned subsidiary of Peekay SPA; · "Conrev" are to Conrev, Inc., a Washington corporation and wholly-owned subsidiary of Peekay; · "Condom Revolution" are to Condom Revolution, Inc., a California corporation and wholly-owned subsidiary of Conrev; · "Charter Smith" are to Charter Smith Sanhueza Retail, Inc., a California corporation and wholly-owned subsidiary of Conrev; · "Christals Stores" are to the following entities which each operate one store: ZJ Gifts F-2, L.L.C, ZJ Gifts F-3, L.L.C, ZJ Gifts F-4, L.L.C, ZJ Gifts F-5, L.L.C, ZJ Gifts F-6, L.L.C, ZJ Gifts I-1, L.L.C, ZJ Gifts M-1, L.L.C, ZJ Gifts M-2, L.L.C, and ZJ Gifts M-3, L.L.C. · "SEC" are to the Securities and Exchange Commission; · "Exchange Act" are to the Securities Exchange Act of 1934, as amended; · "Securities Act" re to the Securities Act of 1933, as amended; · "U.S. dollars," "dollars" and "$" are to the legal currency of the United States.

414

	·	"SEC" are to the Securities and Exchange Commission;

	·	"Exchange Act" are to the Securities Exchange Act of 1934, as amended;

	·	"Securities Act" re to the Securities Act of 1933, as amended;

	·	"U.S. dollars," "dollars" and "$" are to the legal currency of the United States.

Overview

Based on our management's belief and experience in the industry, we believe we are a leading retailer of lingerie, sexual health and wellness products. Our company was founded in 1981 in Auburn, WA by a mother and daughter team with a focus on creating a comfortable and inviting store environment catering to women and couples. We are dedicated to creating both a place and attitude of acceptance and education for our customers. Today, our company is a leader in changing the perception of sexual health and wellness throughout the United States with 4847 locations across six states.

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

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

Principal Factors Affecting our Financial Performance

Our operating results are primarily affected by the following factors:

	·	Current economic conditions and their impact on customer spending levels;

	·	Our current leverage ratio and minimum liquidity and our ability to continue to obtain waivers from our lenders as needed or to refinance our existing indebtedness.

	·	Competition;

	·	Effectiveness of our customer acquisition and retention marketing programs;

	·	The sourcing and introduction of new products and brands;

	·	Maintenance and/or enhancement of our current vendor relationships and product margins;

	·	Our ability to respond on a timely basis to changes in consumer preferences and/or the marketplace;

	·	The location, timing and number of new stores; and

	·	Our ability to increase traffic, conversion and the average ticket value in our existing stores.

Our business is also impacted by certain covenants contained in our senior financing agreements. We have sought and obtained four waivers of the leverage ratio and/or minimum liquidity covenants. However, our continued ability to obtain waivers from our lenders as needed, or to refinance our existing indebtedness, could have a material impact on our operations.15

5Our business is also materially impacted by certain covenants contained in our senior financing agreements and our inability to repay our indebtedness under such agreements, which has already come due. We have sought and obtained several waivers of the leverage ratio and/or minimum liquidity covenants. We are currently in default under our financing agreement with our senior lenders and have entered into a forbearance agreement with our senior lenders. If we are unable to satisfy the demands of our senior lenders for the repayment of all amounts owned to them, raise capital to repay our indebtedness to our senior lenders or enter into a strategic transaction and related restructuring, we could be forced to file for bankruptcy protection. Our continued need to obtain waivers and forbearance from our lenders as needed, or to refinance our existing indebtedness, could have a material impact on our financial condition and operations.

Recent Developments

Amendment No. 1 to Stockholder Rights Agreement

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

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

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

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

Financing Agreement Amendment and Forbearance

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

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

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

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

Appointment of Independent Director

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

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

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

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

Amendment No. 2 to Janet Mathews Employment Agreement

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

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

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

Going Concern

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

Emerging Growth Company

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

	·	have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

	·	comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

	·	submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and

	·	disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.

Results of Operations

Comparison of Three Months Ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015

The following table sets forth key components of our results of operations for the three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015.

	Three Months Ended September 30, 2015						Three Months Ended September 30, 2014
	Three Months EndedMarch 31, 2016						Three Months EndedMarch 31, 2015
	Amount (in thousands)			Percentage of Revenue			Amount (in thousands)			Percentage of Revenue
	Amount(in thousands)			Percentage of Revenue			Amount(in thousands)			Percentage of Revenue
Net revenue	$	911,~~684~~269			100.0		$	911,~~342~~705			100.0
Cost of goods sold		3,~~457~~962			35.72			34,~~291~~108			35.21
Gross profit		67,~~227~~307			64.38			67,~~051~~597			64.89
Selling, general & administrative expense		5,~~458~~434			5648.32			5,~~163~~637			5548.32
Depreciation and amortization		~~1,353~~918			148.02			~~493~~767			56.36
Operating income (loss)		~~(584~~955	)		(68.05	)		~~395~~1,193			410.2
Interest expense and other		1,~~658~~799			1716.10			1,~~681~~632			1813.09
Income tax expense		2445			0.34			-47			-0.4
Net loss	$	(~~2,266~~889	)		(237.49	)	$	(~~1,286~~486	)		(134.82	)

Net revenue. For the three months ended September 30, 2015, net revenue increased $0.3 million, or 3.7%, to $9.7 million, as compared to the same period in 2014. Our same store sales increased $0.2 million, or 1.8%, to $9.4million, for the three months ended September 30, 2015 as compared to the same period in 2014. For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Sales of our private label products declined $0.3 million for the three months ended September 30, 2015, as compared to the comparable period in 2014, as we finish selling through the remaining products imported in 2013 and early 2014. We have not replenished this stock since the beginning of 2014, as we are in the process of changing manufacturers and planning to relaunch the private label program in 2016 with a higher quality, improved assortment.18

~~Gross~~Net ~~profit~~revenue. ~~Gross~~For ~~profit for~~ the three months ended ~~September~~March 3031, ~~2015~~2016, ~~was~~net revenue decreased $60.24 million, anor ~~increase~~3.7%, ofto $11.3 million, as compared to the same period in 2015. Our same store sales decreased $0.25 million, or 24.92%, ~~over~~to $11 million, for the three months ended March 31, 2016 as compared to the same period in ~~2014~~2015. ~~Gross~~For ~~profit~~the purpose of calculating our same store sales metrics, ~~expressed~~we compare the current period sales for stores open for 14 months or longer as aof ~~percentage~~the last day of ~~net~~a ~~revenue,~~month ~~declined~~with 50the ~~basis~~sales ~~points~~for ~~from~~these ~~64.8%~~stores for the ~~three~~comparable ~~months~~period ~~ended~~in ~~September~~the ~~30,~~prior ~~2014~~fiscal toyear. 64Sales of our private label products declined $0.3% million for the three months ended ~~September~~March 3031, ~~2015~~2016, ~~due~~as compared to ~~changes~~the comparable period in ~~product~~2015, ~~assortment~~as ~~associated~~we ~~with~~finish ~~our~~selling ~~revised~~through ~~media~~the ~~strategy,~~remaining products imported in 2013 and aearly ~~reduction~~2014, while DVD sales were $0.2 million lower than 2015, as we discontinued distribution of DVDs in the ~~number~~third quarter of ~~products~~2015. inTotal ~~our~~revenue, ~~private~~as ~~label~~adjusted ~~program~~for these assortment changes, would have increased by 0.8% over Q1 2015, which was the highest quarterly revenue in the Company's history.

~~Selling,~~Gross ~~general~~profit. ~~and~~Gross ~~administrative~~profit ~~expense.~~for ~~For~~ the three months ended ~~September~~March 3031, ~~2015,~~2016 ~~selling,~~was ~~general and administrative expenses totaled~~ $57.53 million, ana ~~increase~~decrease of $0.3 million or 3.8% over the same period in ~~2014~~2015. ~~The~~Gross ~~increase~~profit, ~~includes~~expressed ~~operating~~as ~~expenses~~a ~~for~~percentage ~~the~~of ~~six~~net ~~new~~revenue, ~~stores~~declined ~~opened~~10 inbasis ~~2014~~points ~~and~~from ~~2015, which totaled $0~~64.39% ~~million~~for ~~during~~ the three months ended ~~September~~March 3031, 2015, anto ~~increase~~64.8% offor ~~$0.2~~the ~~million~~three ~~over~~months ~~2014.~~ended ~~General~~March ~~and~~31, ~~administrative~~2016, ~~expenses~~due ~~for~~to ~~the~~changes ~~three~~in ~~months~~product ~~ended~~assortment ~~September~~associated ~~30,~~with ~~2015~~our ~~were~~revised ~~flat~~media asstrategy, ~~compared~~and toa reduction in the ~~same~~number ~~period~~of products in ~~2014~~our private label program.

6Selling, general and administrative expense. For the three months ended March 31, 2016, selling, general and administrative expenses totaled $5.4 million, a decrease of $0.2 million over the same period in 2015. The decrease in operating expenses resulted primarily from a reduction in marketing and advertising costs from the first quarter of 2015 to comparable period in 2016. The company tested theater advertisement during the Fifty Shades of Grey movie release and pre-release in 2015.

Depreciation and amortization. Depreciation and amortization for the three months ended ~~September~~March 3031, ~~2015~~2016 was $10.49 million, $0.92 million higher than for the same period in ~~2014~~2015, primarily due to an increase in the amortization of fees associated with our senior credit facility, and increased depreciation associated with new store construction in 2014 and 2015.

Interest and tax expense. Interest expense for the three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015 was $1.78 million, inan ~~both~~increase ~~years~~of $0.2 million over the comparable 2015 period due to the incurrence of default interest on the senior notes. No measurable income tax expense was recognized for the three months ended ~~September~~ 30March 31, ~~2015~~2016 or ~~2014~~2015.

Net loss. As a result of the foregoing, the net loss for the three months ended ~~September~~March 3031, ~~2015~~2016 was $20.39 million as compared to a loss $10.35 million for the same period in ~~2014~~2015.

Comparison of Nine Months Ended September 30, 2015 and 2014

The following table sets forth key components of our results of operations for the nine months ended Septmber 30, 2015 and 2014.

	Nine Months Ended September 30, 2015						Nine Months Ended September 30, 2014
	Amount (in thousands)			Percentage of Revenue			Amount (in thousands)			Percentage of Revenue
Net revenue	$	30,887			100.0		$	29,371			100.0
Cost of goods sold		11,052			35.8			10,125			34.5
Gross profit		19,835			64.2			19,246			65.5
Selling, general & administrative expense		16,451			53.3			15,512			52.8
Depreciation and amortization		2,899			9.4			1,472			5.0
Operating income		485			1.5			2,262			7.7
Interest expense and other		4,953			16.0			4,978			17.0
Income tax expense		71			0.2			-			-
Net loss	$	(4,539	)		(14.7	)	$	(2,716	)		(9.3	)

Net revenue. For the nine months ended September 30, 2015, net revenue increased $1.5 million, or 5.2% to $30.9 million, as compared to the same period in 2014. Our same store sales increased $1.0 million, or 3.6%, to $29.6 million, for the nine months ended September 30, 2015 as compared to the same period in 2014. For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year.

During fiscal year 2014 and the first nine months of 2015, we opened six new stores. Revenue generated by these stores increased by $0.8 million or 184% for the nine months ended September 30, 2015, as compared to the same period in 2014.

Gross profit. Gross profit for the nine months ended September 30, 2015 was $19.8 million, an increase of $0.6million or 3.1% over the same period in 2014. Gross profit, expressed as a percentage of net revenue, declined 130 basis points from 65.5% for the nine months ended September 30, 2014 to 64.2% for the nine months ended September 30, 2015, due to changes in product assortment associated with our revised media strategy, a reduction in the number of products in our private label program, and higher discounting and promotional activities in our new stores.

Selling, general and administrative expense. For the nine months ended September 30, 2015, selling, general and administrative expenses totaled $16.5 million, an increase of $0.9 million over the same period in 2014. The increase includes operating expenses for the six new stores opened in 2014 and 2015, which totaled $1.0 million during the nine months ended September 30, 2015, an increase of $0.6 million over 2014. We also increased our spend on advertising, marketing and merchandising materials by $0.4 million during the first six months of 2015 to promote our Valentine's Day business and capitalize on the 50 Shades of Gray movie release. General and administrative expenses for the nine months ended September 30, 2015 were flat as compared to the same period in 2014.

Depreciation and amortization. Depreciation and amortization for the nine months ended September 30, 2015 was $2.9 million, $1.3 million higher than for the same period in 2014, primarily due to an increase in the amortization of fees associated with our senior credit facility, and increased depreciation associated with new store construction in 2014 and 2015.

Interest and tax expense. Interest expense for the nine months ended September 30, 2015 and 2014 was $5.0 million in both periods. No measurable income tax expense was recognized for the nine months ended September 30, 2015 or 2014.

Net loss. As a result of the foregoing, the net loss for the nine months ended September 30, 2015 was $4.5 million, as compared to $2.7 million for the same period in 2014.

Liquidity and Capital Resources

As of ~~September~~March 3031, ~~2015~~2016, we had cash and cash equivalents of $1.02 million. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

Cash Flow

	Nine Months Ended September 30,
	2015			2014
Net cash (used) in operating activities	$	(169,130	)	$	(231,199	)
Net cash used in investing activities		(111,772	)		(995,333	)
Net cash provided by financing activities		158,512			200,697
Net (decrease) in cash and cash equivalents		(122,390	)		(1,025,835	)
Cash and cash equivalents at beginning of the year		1,126,887			3,308,498
Cash and cash equivalent at end of the year	$	1,004,497		$	2,282,663

(In Thousands)

	Three Months Ended March 31,
	2016		2015
Net cash provided by operating activities	$	312	$	408
Net cash used in investing activities		-		(109	)
Net cash used by financing activities		-		(661	)
Net (decrease) in cash and cash equivalents		312		(361	)
Cash and cash equivalents at beginning of the year		899		1,127
Cash and cash equivalent at end of the year	$	1,211	$	766

Operating activities. Operating activities consist of net income, adjusted for certain non-cash items, including depreciation and amortization, and the effect of changes in working capital. We used $0.2 million in cash from operating activities for during both the nine months ended September 30, 2015 and 2014, to fund a portion of the net cash losses of $1.6 and $1.2 million, respectively. 19

~~Investing~~Operating activities. WeOperating ~~have~~activities ~~used~~consist ~~cash~~of ~~primarily~~net toincome, ~~make~~adjusted ~~acquisitions,~~for ~~and~~certain tonon-cash ~~remodel~~items, ~~and~~including ~~build~~depreciation ~~new~~and ~~stores.~~amortization, ~~During~~and the ~~nine~~effect ~~months~~of ~~ended~~changes ~~September~~in ~~30,~~working ~~2015,~~capital. weWe ~~used~~generated $0.13 million ~~for~~and ~~leasehold~~$0.4 ~~improvements~~million ~~and~~in ~~equipment~~cash from operating activities for ~~our~~the ~~new~~three ~~store~~months inended ~~Valencia~~March 31, ~~California.~~2016 ~~During~~and ~~the~~2015, ~~same~~respectively, ~~period~~due primarily to increases in ~~2014,~~accounts wepayable ~~used~~and ~~$1.0~~accrued ~~million~~expenses ~~for~~associated ~~new~~with ~~store~~unpaid ~~construction,~~loan ~~remodels,~~fees and ~~equipment~~accrued ~~purchases~~interest.

~~Financing~~Investing activities. Historically, we have used cash primarily to make acquisitions, and to remodel and build new stores. During the ~~nine~~three months ended ~~September~~March 3031, 2015 ~~and 2014~~, we ~~generated~~used ~~approximately~~ $0.21 million infor ~~cash~~leasehold ~~from~~improvements ~~financing~~and ~~activities~~equipment ~~due~~for toour ~~increases~~new store in ~~our~~Valencia, ~~senior debt facility~~California.

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

Loan Commitments

As of ~~September~~March 3031, ~~2015~~2016, the amount, maturity date and term of each of our notes payable are as follows:

Notes Payable	Amount*	Maturity Date	Interest Rate	Duration
Tranche A Term Loan	$27.0 million	December 27, 2015	12%	3 years
Tranche B Term Loan	$11.2 million	December 27, 2015	15%	3 years
Christals Seller Notes	$3.4 million	January 9, 2017	12%	4.25 years
Peekay Seller Notes	$9.3 million	December 31, 2016	9% on $6 million ~~and 12~~and12% on $3.3 million	4 years

~~During~~Under the ~~year~~Ninth ~~ended~~Amendment ~~December~~and ~~31,~~Forbearance ~~2014,~~Agreement weentered ~~obtained~~into ~~three~~on ~~covenant~~February ~~waivers through Amendments to the Financing Agreements dated March 31~~26, ~~2014~~2016, ~~September~~the ~~30,~~interest ~~2014~~rates ~~and~~on ~~December~~both ~~31,~~the ~~2014,~~Tranche ~~which cover covenant requirements through April 30, 2015. The Company agreed to pay waiver fees totaling $955,398.~~ A ~~total~~and ofTranche ~~$191,080~~B indebt ~~fees~~is ~~was~~increased ~~paid~~by in2% ~~cash~~per ~~during~~annum ~~2014; $573,239 and $95,540 was paid in cash~~ to ~~the~~14% ~~lenders on February 20, 2015~~ and ~~March 31~~17%, ~~2015,~~ respectively. ~~The remaining $95,540 is due at loanmaturity.~~

~~We obtained a fourth covenant waiver to the~~ Financing Agreement; ~~under~~Amendments ~~the~~and ~~Fourth Amendment to Financing Agreement, dated June 30, 2015, for the period ending September 30, 2015.~~Waivers

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

~~nthat~~The welenders ~~maintain~~made a ~~certain~~term ~~leverage~~loan ~~ratio~~to ~~for~~the ~~each~~borrowers ~~period~~initially in the aggregate principal amount of ~~four~~$38,215,939, ~~fiscal~~consisting ~~quarters~~of ~~ending~~a tranche A term loan for the principal amount of $27,000,000, which expires on ~~June~~December 3027, 2015, and ~~September~~bears 30interest at a rate of 12% per annum, and a tranche B term loan for the principal amount of $11,215,930, which expires on December 27, 2015;, and ~~nthat~~ webears ~~have~~interest ~~liquidity~~at a rate of at15% ~~least~~per $1annum. The maturity date of the loans made under the financing agreement was extended to February 15,~~500~~ 2016 pursuant to the eighth amendment to the financing agreement,~~000~~ atwhich ~~all~~is ~~times~~described ~~from~~below. ~~June~~The 30proceeds of the loans were used to repay then existing indebtedness, ~~2015~~to ~~through~~finance ~~September~~a 30portion of the purchase price payable in connection with our acquisition of Peekay and ConRev, ~~2015~~to (fund working capital requirements and to pay fees and expenses related to the ~~"Financial~~Peekay ~~Covenants")~~and ConRev acquisition.

9This debt matured on February 15, 2016, and we do not have the resources necessary to pay this debt and we have been unable to find replacement financing. We are currently operating under a forbearance agreement with our lenders, which is described below, but we may be forced to file for bankruptcy and/or liquidate our assets if we are unable to meet the terms of the forbearance agreement.

Pursuant to the Fourth Amendment, the lenders consented to, and waived any event of default relating to noncompliance with, the Financial Covenants, through September 30, 2015, subject to the following provisions:20

~~(1)~~Our ifsubsidiaries any of our or other borrowers' or guarantors' Obligations (as defined in the Financing Agreement) remain outstanding as of November 15, 2015, then we and they must satisfy othe original leverage ratio requirement under the Financing Agreement for the period of four fiscal quarters ending September 30, 2015 as set forth in Section 7.03(a) of the Financing Agreement, and othe liquidity test at the end of the fiscal quarter ending September 30, 2015 as set forth in Section 7.03(b) of the Financing Agreement; and (2) we and the other borrowers and guarantors may not make certain Permitted Management Fee (as defined in the Financing Agreement) payments until the Financial Covenants have been satisfied and all Obligations of our Company and the other borrowers and guarantors and Commitments (as defined in the Financing Agreement) have been satisfied or terminated, but such Permitted Management Fees shall continue to accrue; and (3) we agreed to pay to the Administrative Agent (as defined in the Financing Agreement) an exit fee (the "Exit Fee"), for the account of each consenting lender, in an amount equal to the sum of 0.25% of the aggregate principal amount of the outstanding loans of such consenting lender, calculated on each of (i) the 15th day of July 2015 and the 15th day of each calendar month thereafter (if any Obligations remain outstanding on such day), and (ii) the last day of July and the last day of each calendar month thereafter (if any Obligations remain outstanding on such day). The Exit Fee is nonrefundable and deemed fully earned as of the 15th day and last day of each calendar month for the Exit Fee that accrues on such day and until paid ~~shall constitute "Obligations" that are secured by "Collateral" (as defined in~~ the ~~Financing~~following ~~Agreement).~~fees ~~The Exit Fee is due on the earlier to occur of (A) the Final Maturity Date (as defined~~ in ~~the~~connection ~~Financing~~with ~~Agreement) and (B)~~ the ~~date~~financing ~~which all of the other Obligations are repaid or required to be repaid in full in cash.~~agreement:

We· ~~expect~~An ~~that~~underwriting wefee ~~will~~equal ~~need~~to ~~additional~~2% ~~covenant~~of ~~waivers~~the interm ~~future~~A ~~periods.~~loan ~~There~~amount ~~can~~and be3% noon ~~assurance~~the ~~that~~total weterm ~~will~~B beloan ~~able~~amount; to· ~~obtain~~An ~~these~~administrative orfee ~~other~~of ~~waivers,~~0.24% orof ~~that~~the weaverage ~~will~~aggregate ~~continue~~principal tobalance beof inthe ~~compliance~~loans ~~with~~outstanding ~~the~~paid ~~terms~~each quarter; and ~~conditions~~· ofA ~~our~~quarterly ~~debt~~administrative ~~agreements~~fee of $15,000.

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

		·		A requirement to maintain a leverage ratio during each fiscal quarter of the loan, which leverage ratio is 3.00:1.00 for the fiscal quarter ended December 31, 2015, where leverage ratio is defined as the ratio of (a) aggregate principal amount of the term A loans and term B loans outstanding and the aggregate principal amount of any other loans outstanding under the financing agreement to (b) the twelve trailing month consolidated EBITDA for such period;

		·		A requirement to have liquidity of not less than $1,500,000, where liquidity is defined as cash of Peekay Acquisition and its subsidiaries that is unrestricted less payables of Peekay Acquisition and its subsidiaries aged 60 days or greater and held checks of Peekay Acquisition and its subsidiaries at such time;

		·		A requirement to provide financial reports and other information to the lenders and to permit the lenders to inspect and audit our business;

		·		A requirement to maintain a key man life insurance policy for $2,000,000 on the life of our Chief Executive Officer.

		·		A restriction on incurring any liens on the property and other assets of the borrowers;

		·		A restriction on incurring any indebtedness other than specified permitted indebtedness described in the financing agreement;

	·		A restriction on winding up, liquidating our business, merging or consolidating with another person or selling or licensing all or any part of its business other than sales of inventory in the ordinary course of business subject to the other limitations in the financing agreement, licensing on a nonexclusive basis of intellectual property rights in the ordinary course of business, dispositions of cash and cash equivalents in the ordinary course of business and in a manner not prohibited by the financing agreement, leasing or subleasing of assets in the ordinary course of business, disposing of obsolete or worn-out equipment in the ordinary course of business with certain limitations, and selling or otherwise disposing of other property or assets for cash in an aggregate amount not less than the fair market value of such property or assets with certain limitations;

	·		A restriction on making changes in the nature of our business;

	·		A restriction on making loans, advances or investments except for certain specified permitted investments;

	·		A restriction on the types of leases that can be entered into;

	·	A restriction on amount of capital expenditures that can that can be made in any fiscal quarter, which for fiscal year 2015 is $1,000,000 plus any carryover amount relating to prior fiscal quarters;

	·	A restriction on entering into transactions with affiliates with certain exceptions;

	·	A restriction on the borrowers paying dividends (other than dividends payable in equity interests) or other distributions, making repurchases or redemptions of equity interests, making any payment or retiring any warrants, options or other similar rights, or paying any management fees other than paying dividends or distributions necessary to cover tax obligations, if there is no event of default, paying dividends or distributions sufficient to pay accrued and unpaid interest on the Peekay and Christals seller notes with certain specified limitations, and so long as there is no event of default, paying dividends or distributions for payment of permitted management fees;

	·	A restriction on the borrowers or guarantors issuing equity interests with certain exceptions;

	·	A restriction on amending the terms of, or prepaying, any indebtedness;

	·	A restriction on (a) the number of new stores that the borrowers may open that is limited to five new stores in the aggregate, provided that the borrowers may thereafter open up follow-on stores if the first five stores had gross sales of at least $40,000 per month and a minimum of 30% store level EBITDA (after certain adjustments) on average and over a period of six consecutive calendar months (such test being referred to as the last store test) and the first five stores and all such follow-on stores on average satisfy the last store test, (b) the size of new stores, which cannot exceed 3,500 square feet or have an opening budget of more than $175,000 or rent payable in excess of $35 per square foot, and (c) the overall opening of stores to no more than 20 stores in any calendar year with the ability to carryover to the next year any shortfall in aggregate store openings; and

	·	A restriction on the borrowers' ability to acquire inventory to the extent that after acquiring such inventory the aggregate value (based on cost) of total inventory owned by the borrowers would exceed (i) the historical seasonally adjusted store-level stock amount of $175,000, multiplied by (ii) the number of stores expected to be in operation on the last business day of the current calendar month.

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

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

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

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

		·		The maturity date will be extended to the earliest of (i) the third anniversary of the sixth amendment effective date, (ii) the date on which the loans under the financing agreement otherwise become due and payable in accordance with the terms of the financing agreement, and (iii) the date that payment in full of all obligations under the financing agreement and termination of all commitments occurs;

		·		The original leverage ratio requirement under the financing agreement will be modified to (i) reduce the numerator of the ratio by the amount of liquidity as of the last day of the applicable period, and (ii) change the leverage ratio requirement to be, for any period of four fiscal quarters measured as of the end of any fiscal quarter, no greater than 3.50:1.00;

		·		Provisions for requesting certain additional term loans under the financing agreement will be deleted;

	·		The applicable interest rate for loans under the financing agreement will be amended for Term A Loans to be 8.75% from the sixth amendment effective date up to the first anniversary thereof, 10.75% from the first anniversary of the sixth amendment effective date up to the second anniversary of the sixth amendment effective date, 12.75% from the second anniversary of the sixth amendment effective date until the final maturity date, and for Term B Loans to be 9.75% from the sixth amendment effective date up to the first anniversary thereof, 11.75% from the first anniversary of the sixth amendment effective date up to the second anniversary of the sixth amendment effective date, and 13.75% from the second anniversary of the sixth amendment effective date until the final maturity date;

	·		The exit fee required by the fifth amendment to the financing agreement will be amended so that it becomes due on the earlier to occur of (A) the final maturity date, (B) the date which all of the other obligations are repaid or required to be repaid in full in cash, and (C) the date that our company receives net cash proceeds of at least $20,000,000 from the public offering of our company's common stock (including the Public Offering). Once the accrued and unpaid exit fee is paid, it will be deemed satisfied in full and no additional amounts attributable to the exit fee will accrue or be payable;

	·		We agreed to pay to the administrative agent a nonrefundable fee, or the bridge exit fee, for the account of each consenting lender, accruing (i) on the sixth amendment effective date in an amount equal to 1.50% of the aggregate principal amount of the outstanding loans of such consenting lender (after giving effect to the prepayment of Term A Loans contemplated under the sixth amendment to the financing agreement as described below), (ii) on the first anniversary of the sixth amendment effective date in an amount equal to 2.50% of the aggregate principal amount of the loans outstanding as of such anniversary, and (iii) on the second anniversary of the sixth amendment effective date in an amount equal to 3.50% of the aggregate principal amount of the loans outstanding as of such anniversary. The bridge exit fee would be due on the earliest to occur of (A) the final maturity date, and (B) the date which all of the other obligations are repaid or required to be repaid in full in cash;

	·	The negative covenant relating to capital expenditures will be amended so that our subsidiaries can make capital expenditures up to the following limits: $2,400,000 for any fiscal quarter during the period January 1, 2016 - December 31, 2016, $3,140,000 for any fiscal quarter during the period January 1, 2017 - December 31, 2017, and $4,300,000 for any fiscal quarter during the period January 1, 2018 - December 31, 2018;

	·	The negative covenant regarding the opening of new stores will be deleted;

	·	The conditions to the effectiveness of the sixth amendment to the financing agreement include, among others, the following:

	·	Upon the closing of the Public Offering we must prepay not less than $16,000,000 of Term A Loans, together with accrued and unpaid interest on the amount prepaid and we must also pay certain accrued and unpaid fees owed to the secured lenders.

	·	Our outstanding seller notes must be converted into common stock on terms and conditions satisfactory to the origination agent; and

	·	We must pay to the administrative agent for the ratable benefit of each consenting lender an amendment fee in an amount equal to 1.0% of the aggregate principal amount of the loans outstanding as of the sixth amendment effective date (after giving effect to the prepayment described above).

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

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

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

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

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

	·	The Company must appoint an independent director, or the Independent Director, nominated by the Consenting Term A Lenders to the Board of Directors of the Company and the applicable equivalent Board of each of the Company's subsidiaries. On February 22, 2016, the Loan Parties appointed Matthew R. Kahn as independent director in satisfaction of this requirement. See below for further information about Mr. Kahn.

	·	The Company must adopt a policy, or the Board Policy, of (i) scheduling meetings of the Board of Directors at least every two weeks from and after February 22, 2016 and until the Term A Loans and Term B Loans (each as defined in the Financing Agreement) have been indefeasibly paid in full in cash or otherwise restructured in a manner acceptable to the Consenting Term A Lenders, (ii) requiring management to present the Board of Directors of the Company with frequent updates as to the condition of the business and the status of the milestones described in the Ninth Amendment, and (iii) requiring management to provide prompt responses to the questions of any member of the Board of Directors. The Company adopted the Board Policy on February 24, 2016 in satisfaction of this requirement.

	·	The Loan Parties must enter into deposit account control agreements requested by the Consenting Term A Lenders. The Loan Parties expect that they will be able to comply with this requirement.

	·	The Loan Parties must retain an investment bank acceptable to the Consenting Term A Lenders on terms and conditions acceptable to the Consenting Term A Lenders, to advise the Loan Parties in connection with a Qualified Refinancing and/or Qualified Private Sale. A Qualified Refinancing is generally defined in the Ninth Amendment as a refinancing transaction resulting in cash proceeds that are sufficient to pay all obligations of the Term A Lenders or that is otherwise acceptable to the Consenting Term A Lenders and the Independent Director and a Qualified Private Sale is generally defined in the Ninth Amendment as a sale of all or a portion of the Loan Parties that results in net proceeds that are sufficient to pay all obligations of the Term A Lenders or that is otherwise acceptable to the Consenting Term A Lenders and the Independent Director. The Company engaged an investment bank on February 22, 2016 in satisfaction of this requirement.

	·	The Loan Parties must provide the collateral agent and the Consenting Term A Lenders with an updated perfection certificate on or before February 29, 2016. The Company delivered a perfection certificate on February 29, 2016.

	·	The Company must issue warrants to the Consenting Term A Lenders for the purchase of up to an aggregate of 2.5% of the common shares of the Company on a fully diluted basis. See below for further discussion of this requirement.

	·	The Loan Parties must pay an amendment fee to each Consenting Term A Lender equal to 0.25% of the aggregate principal amount of such Consenting Term A Lender's outstanding loans (both Term A Loans and Term B Loans). The Loan Parties paid the amendment fee in satisfaction of this requirement.

	·	The Company and Loan Parties must pay the reasonable fees and expenses of counsel and other costs and expenses requested by the Consenting Term A Lenders and up to $15,000 in costs and expenses to the Term B Lenders. The Loan Parties have paid a $150,000 retainer to the counsel of the Consenting Term A Lenders, as required.

	·	The Loan Parties must enter into a non-binding term sheet, on terms and conditions that are acceptable to the Consenting Term A Lenders, with respect to a Step Two Restructuring Transaction by March 15, 2016. A Step Two Restructuring Transaction is general defined in the Ninth Amendment as an out-of-court restructuring on terms and conditions acceptable to the Consenting Term A Lenders or a pre-arranged Chapter 11 bankruptcy on terms and conditions acceptable to the Consenting Term A Lenders. See below for further discussion of this requirement.

	·	The Company is required to consummate before April 15, 2016 a Step One Restructuring Transaction, which consists of either an initial public offering where the allocation of proceeds is approved by the Consenting Term A Lenders and the Independent Director, a Qualified Refinancing, or a Qualified Private Sale, as described above. If a Step One Restructuring Transaction has not been consummated on or before April 15, 2016, the Company and the holders of at least two-thirds of the aggregate principal amount of the Company's outstanding subordinated seller notes (the "Seller Notes") must enter into a restructuring support agreement in form and substance acceptable to the Consenting Term A Lenders in order to implement the Step Two Restructuring Transaction. The Company continues to use its commercially reasonable efforts to seek to accomplish a Step One Restructuring Transaction and the Lenders have granted the Company a rolling extension to the April 15, 2016 deadline.

	·	Starting on February 15, 2016, the Loan Parties must pay interest at the default rate under the Financing Agreement (generally equal to the applicable rate plus 2.00%). This default interest must be paid in cash to the Term A Lenders, and accrued and added to the principal balance for Term B Loans. The Loan Parties have complied with this requirement.

	·	Upon request by the Consenting Term A Lenders, the existing engagement letter between the Loan Parties and the consulting firm engaged to provide a chief restructuring officer must be amended to include additional services and responsibilities requested by the Consenting Term A Loans which are consistent with the fiduciary duties of the Company and the Loan Parties. Upon the request of the Consenting Term A Lenders, the Company will comply with this requirement.

	·	The Loan Parties must provide cash forecasts starting February 29, 2016 and every twenty days after the last day of each calendar month for the upcoming 13-week period. Starting March 16, 2016, the Loan Parties must also provide a bi-weekly report stating their actual cash receipts and disbursements for the immediately preceding week and a reconciliation between actual and projected cash receipts and disbursements and explanation for causes for variations. The Company has complied with this requirement and does not expect any compliance issues with respect to the same in the future.

	·	The Loan Parties are prohibited from making any cash payments for accrued and unpaid interest on or principal of the Seller Notes. The Company intends to comply with this requirement and does not expect any compliance issues with respect to the same.

	·	Unless a Step One Restructuring Transaction or a Step Two Restructuring Transaction has occurred or the Term A Loans and the Term B Loans have been paid in full in cash or otherwise restructured in a manner acceptable to the Consenting Term A Lenders prior to the first to occur of a Termination Event or the outside date of July 31, 2016, the Company must deliver the membership interests of Christals Acquisition, LLC to the collateral agent of for further distribution to the Term A Lenders and Term B Lenders in a manner consistent with the Financing Agreement. A Termination Event is generally defined in the Ninth Amendment as a default or event of default other than the Specified Defaults, a failure to comply with the other requirements of the Ninth Amendment, the pursuit of an alternative transaction that is inconsistent with the Ninth Amendment as determined by the Consenting Term A Lenders, the breach of any representation or warranty in the Ninth Amendment and certain other breaches or defaults specified in the Ninth Amendment. The Company expects that a Step One Restructuring Transaction or a Step Two Restructuring Transaction will occur prior to a Termination Event or the July 31, 2016 outside date, however, if the same does not occur, then the Company intends to comply with this requirement.

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

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

	1.	The Company and its subsidiaries will not amend the compensation arrangements of their key employees, executives, officers and directors without the prior written consent of the Consenting Term A Lenders.

	2.	Upon receipt of Indication of Interest letters or other communications from third parties with respect to a potential Step One Restructuring Transaction (as defined in the Ninth Amendment), all such communications will be promptly provided to the Consenting Term A Lenders and their counsel.

	3.	In addition to the requirement in Section 3(e) of the Ninth Amendment for periodic updates, the Consenting Term A Lenders may from time to time contact executives, officers and directors of the Company and its subsidiaries to discuss the business of the Company and its subsidiaries and their ongoing restructuring efforts.

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

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

	1.	On or before the close of business on April 1, 2016, the Company shall make an interest payment to the Term A Lenders in the amount of $325,500. The Company has complied with this requirement.

	2.	On or before the close of business on April 1, 2016, the Company shall wire $75,000 to counsel to the Consenting Term A Lenders, as a retainer pursuant to the terms of the Engagement Letter dated as of January 27, 2016 between counsel to the Consenting Term A Lenders, the Company and the Consenting Term A Lenders. The Company wired these fees on April 1, 2016. As previously reported by the Company in a current report on Form 8-K filed with the SEC on February 26, 2016, the Company was required to agree to pay the reasonable fees and expenses of counsel to the Consenting Term A Lenders under the Ninth Amendment.

	3.	No further extension shall be provided unless the Company shall have entered into an engagement letter with a Chief Restructuring Officer on or before April 11, 2016, which engagement letter shall be in form and substance acceptable to the Consenting Term A Lenders. The Company has received a rolling extension on this requirement from the Consenting Term A lenders, and will promptly enter into an engagement letter upon notification from the Consenting Term A lenders.

Obligations Under Material Contracts

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

Impact of Inflation and Changing Prices

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

Off-Balance Sheet Arrangements

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

Seasonality

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

Critical Accounting Policies

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

Inventory

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

Vendor Allowances

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

Fair Value of Financial Instruments

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

Long-Lived Assets

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

Furniture and equipment	7 years
Software	3 years
Computer equipment	5 years
Leasehold improvements	15 years

Furniture and equipment			7 years

Software			3 years

Computer equipment			5 years

Leasehold improvements			15 years

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

Impairment of Long-Lived Assets

We review long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted cash flows. If long-lived assets are impaired, an impairment loss is recognized and is measured as the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future undiscounted cash flows from operating activities requires significant estimates of factors that include future sales growth and gross margin performance. Management believes they have appropriately determined future cash flows and operating performance; however, should actual results differ from those expected, additional impairment may be required. No significant impairment charges have been recognized in fiscal ~~2015~~2016 or ~~2014~~2015.

Goodwill

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

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

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

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

Finance Costs, Net

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

Revenue Recognition

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

Cost of Goods Sold

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

Recent Accounting Pronouncements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Ms. Lisa Berman, and Chief Financial Officer, Ms. Janet Mathews, of the effectiveness of the design and operation of our disclosure controls and procedures, as of ~~September~~March 3031, ~~2015~~2016. Based upon, and as of the date of this evaluation, Mmes. Berman and Mathews determined that, because of the material weaknesses described in Item 9A "Controls and Procedures" of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014~~2015, which we are still in the process of remediating as of ~~September~~March 3031, ~~2015~~2016, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014~~2015 for the description of these weaknesses.

Changes in Internal Control Over Financial Reporting

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

During its evaluation of the effectiveness of internal control over financial reporting as of ~~September~~March 3031, ~~2015~~2016, our management identified material weaknesses associated with separation of duties, internal control process documentation and testing of controls. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014~~2015, our management has identified the steps necessary to address the material weaknesses and will continue with the design and implementation of remedial procedures to address these weaknesses. Certain changes associated with the lack of separation of duties will not be implemented until we have restructured our debt and are able to hire the additional staff necessary to bring our Company into compliance.

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

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PART ~~IIOTHER INFORMATION~~II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not applicable as we are a smaller reporting company. See, however, the risk factors contained in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, ~~2014 and our current report on Form 8-K/A, dated April 23,~~ 2015~~, containing risk factors relating to Christals Acquisition and its subsidiaries in Item 1A thereof~~. Please also see the risk factors contained in our ~~registration statement on~~ Form S-1/A, ~~filed~~dated onOctober ~~September 18~~30, 2015.

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

We did not sell any equity securities during the ~~third~~first quarter of fiscal year ~~2015~~2016 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.

During the three-month period ended ~~September~~March 3031, ~~2015~~2016, we did not repurchase any shares of our common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the ~~third~~first quarter of fiscal year ~~2015~~2016, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

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ITEM 6. EXHIBITS.

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

Exhibit No.		Description
10.1		Fourth Amendment to Financing Agreement, dated June 30, 2015 (incorporated by reference to Exhibit 10.14 to the Company's Current Report on Form 8-K filed on July 7, 2015)
2.1		Securities Exchange Agreement, dated December 31, 2014, among the Company, Christals Acquisition, LLC and the members of Christals Acquisition, LLC (incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the Company with the Securities and Exchange Agreement on January 6, 2015)
10.1		Amendment No. 1 to Stockholder Rights Agreement, dated January 28, 2016, between the Company, Christals Acquisition, LLC, and the members of Christals Acquisition, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company with the Securities and Exchange Agreement on February 2, 2016)
10.2		Forbearance and Ninth Amendment Agreement, dated as of February 22, 2016 (incorporated by reference to Exhibit 10.31 to the Form 8-10 filed by the Company with the Securities and Exchange Agreement on April 14, 2016)
10.3		Employment Agreement, dated December 31, 2014, between the Company and Janet Mathews (incorporated by reference to Exhibit 10.24 to the Company's Current Report on Form 8-K filed on January 6, 2015)
10.4		Amendment Number 1 to Employment Agreement, dated December 29, 2015, between Janet Mathews and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 31, 2015)
10.5		Amendment Number 2 to Employment Agreement, dated March 1, 2016, between Janet Mathews and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 7, 2016)
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PEEKAY BOUTIQUES, INC.
Date: November 3, 2015	By:	/s/ Lisa Berman
Date: May 16, 2016	By:	/s/ Lisa Berman
	Name:	Lisa Berman
	Title:	Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Janet Mathews
	Name:	Janet Mathews
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.		Description
2.1		Securities Exchange Agreement, dated December 31, 2014, among the Company, Christals Acquisition, LLC and the members of Christals Acquisition, LLC (incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the Company with the Securities and Exchange Agreement on January 6, 2015)
10.1		Amendment No. 1 to Stockholder Rights Agreement, dated January 28, 2016, between the Company, Christals Acquisition, LLC, and the members of Christals Acquisition, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company with the Securities and Exchange Agreement on February 2, 2016)
10.2		Forbearance and Ninth Amendment Agreement, dated as of February 22, 2016 (incorporated by reference to Exhibit 10.31 to the Form 8-10 filed by the Company with the Securities and Exchange Agreement on April 14, 2016)
10.3		Employment Agreement, dated December 31, 2014, between the Company and Janet Mathews (incorporated by reference to Exhibit 10.24 to the Company's Current Report on Form 8-K filed on January 6, 2015)
10.4		Amendment Number 1 to Employment Agreement, dated December 29, 2015, between Janet Mathews and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 31, 2015)
10.5		Amendment Number 2 to Employment Agreement, dated March 1, 2016, between Janet Mathews and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 7, 2016)
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith).

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Filing Compare · Peekay Boutiques, Inc.