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LIVE VENTURES Inc - Quarter Report: 2021 June (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

 

 QUARTERLY Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2021 

 

 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 001-33937

 

Live Ventures Incorporated

(Exact name of registrant as specified in its charter)

  

Nevada

85-0206668

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

 

325 E. Warm Springs Road, Suite 102

Las Vegas, Nevada

89119

(Address of principal executive offices)

(Zip Code)

 

(702) 997-5968

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

LIVE

 

The NASDAQ Stock Market LLC (The NASDAQ Capital Market)

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒  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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

 ☐

Accelerated filer 

 ☐

Non-accelerated filer 

 ☒

Smaller reporting company 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares of the issuer’s common stock, par value $0.001 per share, outstanding as of August 9, 2021 was 1,570,834.

 


 

INDEX TO FORM 10-Q FILING

FOR THE NINEMONTHS ENDED JUNE 30, 2021

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I

 

 

 

 

 

 

 

 

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and September 30, 2020

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended June 30, 2021 and 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended June 30, 2021 and 2020

 

6

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

35

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

37

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

 

 

 

 

 

Item 1A.

 

Risk Factors

 

37

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

 

38

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

38

 

 

 

 

 

Item 5.

 

Other Information

 

38

 

 

 

 

 

Item 6.

 

Exhibits

 

39

 

 

 

 

 

SIGNATURES

 

40

 

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LIVE VENTURES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)

 

 

 

June 30, 2021

 

 

September 30, 2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash

 

$

10,565

 

 

$

8,984

 

Trade receivables, net

 

 

19,376

 

 

 

20,121

 

Inventories, net

 

 

61,426

 

 

 

64,525

 

Prepaid expenses and other current assets

 

 

1,353

 

 

 

1,778

 

Debtor in possession assets

 

 

162

 

 

 

520

 

Total current assets

 

 

92,882

 

 

 

95,928

 

Property and equipment, net

 

 

32,942

 

 

 

30,376

 

Right of use asset - operating leases

 

 

27,803

 

 

 

30,894

 

Equity method investment

 

 

6,000

 

 

 

 

Deposits and other assets

 

 

583

 

 

 

223

 

Deferred taxes

 

 

 

 

 

1,021

 

Intangible assets, net

 

 

744

 

 

 

1,063

 

Goodwill

 

 

37,754

 

 

 

37,754

 

Total assets

 

$

198,708

 

 

$

197,259

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,889

 

 

$

9,117

 

Accrued liabilities

 

 

13,344

 

 

 

14,822

 

Income taxes payable

 

 

5,948

 

 

 

736

 

Current portion of lease obligations - operating leases

 

 

6,857

 

 

 

7,176

 

Current portion of long-term debt

 

 

8,100

 

 

 

11,986

 

Current portion of notes payable related parties

 

 

 

 

 

1,297

 

Debtor-in-possession liabilities

 

 

11,208

 

 

 

12,228

 

Total current liabilities

 

 

56,346

 

 

 

57,362

 

Long-term debt, net of current portion

 

 

44,844

 

 

 

63,390

 

Lease obligation long term - operating leases

 

 

25,212

 

 

 

28,101

 

Notes payable related parties, net of current portion

 

 

4,000

 

 

 

4,000

 

Deferred taxes

 

 

320

 

 

 

 

Other non-current obligations

 

 

405

 

 

 

734

 

Total liabilities

 

 

131,127

 

 

 

153,587

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 1,000,000 shares authorized,
   
315,790 and 214,244 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively

 

 

 

 

 

 

Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 47,840
  shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively, with a
  liquidation preference of $
0.30 per share outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized, 1,570,834 and 1,589,101 shares issued
   and outstanding at June 30, 2021 and September 30, 2020, respectively

 

 

2

 

 

 

2

 

Paid in capital

 

 

64,883

 

 

 

64,472

 

Treasury stock common 533,011 shares as of June 30, 2021 and 499,805 shares as of
   September 30, 2020

 

 

(4,507

)

 

 

(4,098

)

Treasury stock Series E preferred 50,000 shares as of June 30, 2021 and
   of September 30, 2020

 

 

(7

)

 

 

(7

)

Retained earnings (deficit)

 

 

7,656

 

 

 

(16,429

)

Equity attributable to Live stockholders

 

 

68,027

 

 

 

43,940

 

Non-controlling interest

 

 

(446

)

 

 

(268

)

Total stockholders' equity

 

 

67,581

 

 

 

43,672

 

Total liabilities and stockholders' equity

 

$

198,708

 

 

$

197,259

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

LIVE VENTURES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(dollars in thousands, except per share)

 

 

 

For the Three Months Ended June 30,

 

 

For the Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

 

$

69,095

 

 

$

42,472

 

 

$

202,439

 

 

$

130,904

 

Cost of revenues

 

 

44,029

 

 

 

25,759

 

 

 

128,614

 

 

 

79,789

 

Gross profit

 

 

25,066

 

 

 

16,713

 

 

 

73,825

 

 

 

51,115

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

13,794

 

 

 

8,221

 

 

 

38,638

 

 

 

30,731

 

Sales and marketing expenses

 

 

3,040

 

 

 

2,502

 

 

 

8,539

 

 

 

7,839

 

Total operating expenses

 

 

16,834

 

 

 

10,723

 

 

 

47,177

 

 

 

38,570

 

Operating income

 

 

8,232

 

 

 

5,990

 

 

 

26,648

 

 

 

12,545

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(938

)

 

 

(1,155

)

 

 

(4,057

)

 

 

(3,782

)

Gain on lease settlement, net

 

 

 

 

 

 

 

 

 

 

 

223

 

Gain on Payroll Protection Program loan forgiveness

 

 

4,768

 

 

 

 

 

 

6,150

 

 

 

 

Gain on disposal of fixed assets

 

 

 

 

 

 

 

 

 

 

 

 

Gain on bankruptcy settlement

 

 

650

 

 

 

 

 

 

1,765

 

 

 

 

Other income (expense)

 

 

(76

)

 

 

173

 

 

 

782

 

 

 

(133

)

Total other (expense) income, net

 

 

4,404

 

 

 

(982

)

 

 

4,640

 

 

 

(3,692

)

Income before provision for income taxes

 

 

12,636

 

 

 

5,008

 

 

 

31,288

 

 

 

8,853

 

Provision for income taxes

 

 

2,703

 

 

 

1,423

 

 

 

7,381

 

 

 

2,402

 

Net income

 

 

9,933

 

 

 

3,585

 

 

 

23,907

 

 

 

6,451

 

Net loss attributable to non-controlling interest

 

 

5

 

 

 

 

 

 

178

 

 

 

 

Net income attributable to Live stockholders

 

$

9,938

 

 

$

3,585

 

 

$

24,085

 

 

$

6,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

6.35

 

 

$

2.18

 

 

$

15.41

 

 

$

3.72

 

Diluted

 

$

3.01

 

 

$

1.07

 

 

$

7.31

 

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,566,064

 

 

 

1,646,836

 

 

 

1,563,025

 

 

 

1,735,416

 

Diluted

 

 

3,297,854

 

 

 

3,356,043

 

 

 

3,294,815

 

 

 

3,444,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared - series B convertible preferred stock

 

$

 

 

$

 

 

$

 

 

$

 

Dividends declared - series E convertible preferred stock

 

$

 

 

$

 

 

$

 

 

$

 

Dividends declared - common stock

 

$

 

 

$

 

 

$

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

LIVE VENTURES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(dollars in thousands)

 

 

 

 

For the Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

23,907

 

 

$

6,451

 

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,089

 

 

 

3,954

 

Gain on lease settlement, net

 

 

 

 

 

(223

)

Gain or loss on disposal of property and equipment

 

 

132

 

 

 

263

 

Gain on Payroll Protection Program loan forgiveness

 

 

(6,150

)

 

 

 

Gain on bankruptcy settlement

 

 

(1,765

)

 

 

 

Amortization of debt issuance cost

 

 

635

 

 

 

274

 

Stock based compensation expense

 

 

230

 

 

 

67

 

Warrant extension fair value adjustment

 

 

 

 

 

368

 

Amortization of right-to-use assets

 

 

125

 

 

 

985

 

Change in reserve for uncollectible accounts

 

 

451

 

 

 

424

 

Change in reserve for obsolete inventory

 

 

1,137

 

 

 

(84

)

Change in deferred income taxes

 

 

1,340

 

 

 

2,190

 

Change in other

 

 

(484

)

 

 

(316

)

Changes in assets and liabilities:

 

 

 

 

 

 

Trade receivables

 

 

295

 

 

 

2,702

 

Inventories

 

 

934

 

 

 

9,398

 

Income taxes

 

 

5,214

 

 

 

152

 

Prepaid expenses and other current assets

 

 

430

 

 

 

24

 

Deposits and other assets

 

 

(359

)

 

 

173

 

Accounts payable

 

 

3,010

 

 

 

(6,266

)

Accrued liabilities

 

 

(1,972

)

 

 

(2,461

)

Net cash provided by operating activities

 

 

32,199

 

 

 

18,075

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchase of intangible assets

 

 

 

 

 

(30

)

Lonesome Oak acquisition

 

 

 

 

 

(550

)

Investment

 

 

(6,000

)

 

 

 

Note receivable

 

 

 

 

 

(55

)

Purchase of property and equipment

 

 

(8,470

)

 

 

(2,357

)

Net cash used in investing activities

 

 

(14,470

)

 

 

(2,992

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Net borrowings (payments) under revolver loans

 

 

(3,247

)

 

 

(5,169

)

Purchase of series E preferred treasury stock

 

 

 

 

 

(3

)

Stock option exercise

 

 

181

 

 

 

 

Proceeds from issuance of notes payable

 

 

2,258

 

 

 

9,768

 

Purchase of common treasury stock

 

 

(409

)

 

 

(1,433

)

Payments on related party notes payable

 

 

(5,500

)

 

 

 

Debtor-in-possession cash

 

 

128

 

 

 

(86

)

Payments on notes payable

 

 

(9,559

)

 

 

(15,152

)

Net cash used in financing activities

 

 

(16,148

)

 

 

(12,075

)

 

 

 

 

 

 

INCREASE IN CASH AND CASH EQUIVALENTS

 

 

1,581

 

 

 

3,008

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

8,984

 

 

 

2,681

 

CASH AND CASH EQUIVALENTS, end of period

 

$

10,565

 

 

$

5,689

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Interest paid

 

$

3,481

 

 

$

3,415

 

Income taxes paid

 

$

736

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

LIVE VENTURES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(dollars in thousands)

 

 

 

 

Series B
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Common Stock

 

 

 

 

 

Series E
Preferred
Stock

 

 

Common
Stock

 

 

Retained

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Earnings
(Deficit)

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, March 31, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,555,175

 

 

$

2

 

 

$

64,759

 

 

$

(7

)

 

$

(4,481

)

 

$

(2,282

)

 

$

(441

)

 

$

57,550

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57

)

Stock option exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,668

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,009

)

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

 

 

 

(26

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,938

 

 

 

(5

)

 

 

9,933

 

Balance, June 30, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,570,834

 

 

$

2

 

 

$

64,883

 

 

$

(7

)

 

$

(4,507

)

 

$

7,656

 

 

$

(446

)

 

$

67,581

 

 

 

 

Series B
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Common Stock

 

 

 

 

 

Series E
Preferred
Stock

 

 

Common
Stock

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Earnings
(Deficit)

 

 

Total
Equity

 

Balance, March 31, 2020

 

 

214,244

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,719,442

 

 

$

2

 

 

$

64,340

 

 

$

(7

)

 

$

(3,197

)

 

$

(24,489

)

 

$

36,649

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(106,161

)

 

 

 

 

 

 

 

 

 

 

 

(674

)

 

 

 

 

 

(674

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,585

 

 

 

3,585

 

Balance, June 30, 2020

 

 

214,244

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,613,281

 

 

$

2

 

 

$

64,359

 

 

$

(7

)

 

$

(3,871

)

 

$

(20,904

)

 

$

39,579

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

LIVE VENTURES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(dollars in thousands)

 

 

 

Series B
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Common Stock

 

 

 

 

 

Series E
Preferred
Stock

 

 

Common
Stock

 

 

Retained

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Earnings
(Deficit)

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, September 30, 2020

 

 

214,244

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,589,101

 

 

$

2

 

 

$

64,472

 

 

$

(7

)

 

$

(4,098

)

 

$

(16,429

)

 

$

(268

)

 

$

43,672

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

230

 

Stock option exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,668

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181

 

Warrant exercise

 

 

101,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,935

)

 

 

 

 

 

 

 

 

 

 

 

(409

)

 

 

 

 

 

 

 

 

(409

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,085

 

 

 

(178

)

 

 

23,907

 

Balance, June 30, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,570,834

 

 

$

2

 

 

$

64,883

 

 

$

(7

)

 

$

(4,507

)

 

$

7,656

 

 

$

(446

)

 

$

67,581

 

 

 

 

Series B
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Common Stock

 

 

 

 

 

Series E
Preferred
Stock

 

 

Common
Stock

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Earnings
(Deficit)

 

 

Total
Equity

 

Balance, September 30, 2019

 

 

214,244

 

 

$

 

 

 

77,840

 

 

$

 

 

 

1,826,009

 

 

$

2

 

 

$

63,924

 

 

$

(4

)

 

$

(2,438

)

 

$

(27,355

)

 

$

34,129

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

 

 

 

67

 

Warrant extension fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

368

 

 

 

 

 

 

 

 

 

 

 

 

368

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(212,728

)

 

 

 

 

 

 

 

 

 

 

 

(1,433

)

 

 

 

 

 

(1,433

)

Purchase of Series E preferred stock

 

 

 

 

 

 

 

 

(30,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,451

 

 

 

6,451

 

Balance, June 30, 2020

 

 

214,244

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,613,281

 

 

$

2

 

 

$

64,359

 

 

$

(7

)

 

$

(3,871

)

 

$

(20,904

)

 

$

39,579

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

LIVE VENTURES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2021 AND 2020

(dollars in thousands, except per share)

Note 1: Background and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation, and its subsidiaries (collectively, the “Company”). Commencing in fiscal year 2015, the Company began a strategic shift in its business plan away from providing online marketing solutions for small and medium sized businesses to acquiring profitable companies in various industries that have demonstrated a strong history of earnings power. The Company continues to actively develop, revise, and evaluate its products, services and its marketing strategies in its businesses. The Company has three operating segments: Retail, Flooring Manufacturing, and Steel Manufacturing. Included in the Retail segment: (i) Vintage Stock, Inc. (“Vintage Stock”), through which the Company is engaged in the retail sale of new and used movies, music, collectibles, comics, books, games, game systems and components and (ii) ApplianceSmart, Inc. (“ApplianceSmart”), through which the Company is engaged in the sale of new major appliances through a retail store. Included in the Flooring Manufacturing segment is Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floorcoverings. Included in the Steel Manufacturing Segment is Precision Industries, Inc. (“Precision Marshall”), which is engaged in the manufacture and sale of alloy and steel plates, ground flat stock, and drill rods.

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of the Company’s management, this interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for three and nine months ended June 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2021. This financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2020 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 13, 2021 (the “2020 10-K”).

Going concern

Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to fund our operations, pay our scheduled loan payments, continue to repurchase shares to the extent that we do so, and pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.

Coronavirus

In March 2020, there was a global outbreak of COVID-19 (Coronavirus) which continues to create challenges and unprecedented conditions. Although there are effective vaccines for COVID-19 that have been approved for use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021. Accordingly, there remains significant uncertainty about the duration and the extent of the impact of the COVID-19 pandemic. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the Company’s supply chain partners, its employees and customers, customer sentiment in general, and traffic within shopping centers, and, where applicable, malls, containing its stores. Recommendations and/or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine have previously affected, and may continue to affect, traffic to the stores. As of March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage Stock began to reopen certain locations in compliance with government regulations and, at June 30, 2020, all Vintage Stock retail locations were reopened while maintaining compliance with government mandates. The Company is unable to predict if additional periods of store closures will be needed or mandated. During March and April 2020, Marquis conducted rolling layoffs for certain employees, however, during May 2020, most employees have returned to their respective locations. Continued impacts of the pandemic could materially adversely affect the near-term and long-term revenues, earnings, liquidity, and cash flows, and may require significant actions in response, including but not limited to, employee furloughs, reduced store hours, store closings, expense reductions or discounting of pricing of products, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on the business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S. and the effect of the vaccines, the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company is not aware of currently.

8


 

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements represent the consolidated financial position, results of operations and cash flows for Live Ventures and its wholly-owned subsidiaries. Additionally, the Company records noncontrolling interest for entities which the Company has determined itself to be the primarily beneficiary of the variable interest entity but does not have 100% ownership. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying consolidated financial statements include the estimate of dilution and fees associated with billings, the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, estimated warranty reserve, estimated fair value and forfeiture rates for stock-based compensation, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, current portion of notes payable, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.

Reclassifications

Certain amounts in the prior period have been reclassified to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures. 

Note 3: Leases

The Company leases retail stores, warehouse facilities, and office space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through 2040 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases percentage rent, and require us to pay all insurance, taxes, and other maintenance costs. As a result, the Company recognizes assets and liabilities for all leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable

9


 

payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.

As of June 30, 2021, the weighted average remaining lease term is 8.7 years and our weighted average discount rate is 6.8%. Total cash payments for the nine months ended June 30, 2021 and 2020 were $2,132 and $5,961, respectively. Additionally, we obtained right-of-use assets in exchange for lease liabilities of approximately $7,600 upon commencement of operating leases during the nine months ended June 30, 2021.

The following table details our right of use assets and lease liabilities as of June 30, 2021:

 

 

 

June 30, 2021

 

Right of use asset - operating leases

 

$

27,803

 

Operating lease liabilities:

 

 

 

Current

 

 

6,857

 

Long term

 

 

25,212

 

 

Total present value of future lease payments as of June 30, 2021:

 

Twelve months ended June 30,

 

 

 

2022

 

$

8,827

 

2023

 

 

6,747

 

2024

 

 

4,280

 

2025

 

 

3,772

 

2026

 

 

2,536

 

Thereafter

 

 

12,447

 

Total

 

 

38,609

 

Less implied interest

 

 

(6,540

)

Present value of payments

 

$

32,069

 

 

During the nine months ended June 30, 2020, the Company recorded a net gain on lease settlement of $223 which consisted of impairment charges of $614 related to the decision to close additional ApplianceSmart retail locations resulting in a decrease to the associated right of use asset related to these leases, offset by a gain on lease settlement of $837 resulting from the extinguishment of the lease liability associated with the closed retail locations. There were no similar charges for the nine months ended June 30, 2021.

10


 

Note 4: Balance Sheet Detail Information

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Trade receivables, current, net:

 

 

 

 

 

 

Accounts receivable, current

 

$

19,644

 

 

$

20,197

 

Less: Reserve for doubtful accounts

 

 

(268

)

 

 

(76

)

 

$

19,376

 

 

$

20,121

 

Trade receivables , long term, net:

 

 

 

 

 

 

Accounts receivable, long term

 

$

 

 

$

196

 

Less: Reserve for doubtful accounts

 

 

 

 

 

(196

)

 

$

 

 

$

 

Total trade receivables, net:

 

 

 

 

 

 

Gross trade receivables

 

$

19,644

 

 

$

20,393

 

Less: Reserve for doubtful accounts

 

 

(268

)

 

 

(272

)

 

$

19,376

 

 

$

20,121

 

Inventory, net

 

 

 

 

 

 

Raw materials

 

$

15,156

 

 

$

13,175

 

Work in progress

 

 

12,483

 

 

 

11,747

 

Finished goods

 

 

19,048

 

 

 

25,009

 

Merchandise

 

 

16,637

 

 

 

17,729

 

 

 

63,324

 

 

 

67,660

 

Less: Inventory reserves

 

 

(1,898

)

 

 

(3,135

)

 

$

61,426

 

 

$

64,525

 

Property and equipment, net:

 

 

 

 

 

 

Building and improvements

 

$

11,643

 

 

$

9,908

 

Transportation equipment

 

 

121

 

 

 

480

 

Machinery and equipment

 

 

34,078

 

 

 

27,217

 

Furnishings and fixtures

 

 

3,820

 

 

 

2,908

 

Office, computer equipment and other

 

 

2,727

 

 

 

3,445

 

 

 

52,391

 

 

 

43,958

 

Less: Accumulated depreciation

 

 

(19,447

)

 

 

(13,582

)

 

$

32,942

 

 

$

30,376

 

Intangible assets, net:

 

 

 

 

 

 

Domain name and marketing related intangibles

 

$

90

 

 

$

90

 

Customer relationship intangibles

 

 

2,689

 

 

 

2,689

 

Purchased software

 

 

120

 

 

 

121

 

 

 

2,899

 

 

 

2,900

 

Less: Accumulated amortization

 

 

(2,155

)

 

 

(1,837

)

 

$

744

 

 

$

1,063

 

Accrued liabilities:

 

 

 

 

 

 

Compensation and benefits

 

$

4,498

 

 

$

4,178

 

Accrued sales and use taxes

 

 

1,245

 

 

 

1,251

 

Accrued property taxes

 

 

1,993

 

 

 

270

 

Accrued gift card and escheatment liability

 

 

1,579

 

 

 

1,534

 

Accrued interest payable

 

 

221

 

 

 

280

 

Accrued accounts payable and bank overdrafts

 

 

903

 

 

 

3,818

 

Accrued professional fees

 

 

1,450

 

 

 

2,191

 

Customer deposits

 

 

206

 

 

 

169

 

Accrued expenses - other

 

 

1,249

 

 

 

1,131

 

 

$

13,344

 

 

$

14,822

 

 

Note 5: Investment in SW Financial

 

On June 14, 2021 (the “Execution Date”), the Company agreed to acquire 100% of the outstanding membership interests in Salomon Whitney LLC, a New York limited liability company d/b/a SW Financial (“SW Financial”), for approximately $7,000, as described below.  SW Financial is a broker-dealer that is registered with the U.S. Securities and Exchange Commission (“SEC”), as SEC #8-67688, and with the Financial Industry Regulatory Authority, Inc. (“FINRA”), having Central Registration Depository #145012.

 

11


 

On the Execution Date, SW Affiliated Holdings LLC, a Nevada limited liability company and a wholly-owned subsidiary of the Company (the “Purchaser”), entered into a definitive Membership Interest Purchase Agreement (the “Purchase Agreement”) with Angia Holdings LLC, a New York limited liability company (the “Seller”), and SW Financial.  Pursuant to the Purchase Agreement, the Purchaser agreed to acquire from the Seller all of the outstanding membership interests (the “Units”) in SW Financial on the following terms:    

 

on the Execution Date, the Purchaser acquired 24.9% of the Units in exchange for, among other consideration described in the Purchase Agreement, an initial payment to the Seller of approximately $1,700 and a non-refundable deposit to the Seller in the amount of approximately $4,200;

 

 

the remaining 75.1% of the Units (the “Remaining Units”) were deposited into escrow with the Seller’s legal counsel; and

 

 

an additional $1,000 will be paid to the Seller upon FINRA’s approval of the change in control of SW Financial, but no later than December 31, 2021.

 

The closing (the “Closing”) of the acquisition of the Remaining Units by the Purchaser is subject to customary conditions, including, approval by FINRA.  On the Execution Date, the Purchaser and the Seller entered into an amended and restated operating agreement (the “Operating Agreement”) of SW Financial that governs the management of SW Financial from and after the Effective Date.

 

On the Execution Date, the two principals of the Seller entered into employment agreements with SW Financial. Each employment agreement provides that each principal shall be entitled to, among other things, an annual base salary, a cash bonus equal to a specified percentage of SW Financial’s annual adjusted earnings before interest, income taxes, depreciation, and amortization for a specified period, and severance benefits contingent upon the relevant principal agreeing to a general release of claims in favor of SW Financial following termination of employment in certain circumstances.  Each employment agreement also contains confidentiality, non-competition, non-solicitation, and non-disparagement provisions.

 

The Purchase Agreement contains customary representations, warranties, covenants (including covenants relating to SW Financial’s operations under the rules and regulations of FINRA and restrictions on distributions by SW Financial until the Closing), and agreements of the Purchaser and the Seller, including indemnification rights in favor of the Purchaser.  The parties have agreed to use their reasonable best efforts to satisfy the conditions to Closing, including, but not limited to, obtaining FINRA approval.

 

The foregoing brief summary description of certain terms and provisions of the Purchase Agreement and the transactions contemplated therein do not purport to be complete and are qualified in their entirety by reference to the full text of the Purchase Agreement, a copy of which is attached as Exhibit 2.1 to this Current Report on Form 8-K filed on June 17, 2021.  The Operating Agreement is attached as an exhibit to the Purchase Agreement.

 

The Company utilizes the equity method of accounting for it's investment in SW Financial. There were no material gains or losses for the period of June 14, 2021 to June 30, 2021.

12


 

Note 6: Long Term Debt

Long-term debt as of June 30, 2021 and September 30, 2020 consisted of the following:

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Bank of America Revolver Loan

 

$

 

 

$

 

Encina Business Credit Revolver Loan

 

 

11,523

 

 

 

14,886

 

Texas Capital Bank Revolver Loan

 

 

7,497

 

 

 

7,115

 

Crossroads Financial Revolver Loan

 

 

 

 

 

883

 

Encina Business Credit Term Loan

 

 

1,405

 

 

 

1,663

 

Note Payable Comvest Term Loan

 

 

 

 

 

5,554

 

Note Payable to the Sellers of Vintage Stock

 

 

4,500

 

 

 

10,000

 

Note #1 Payable to Banc of America Leasing & Capital LLC

 

 

587

 

 

 

1,229

 

Note #3 Payable to Banc of America Leasing & Capital LLC

 

 

1,458

 

 

 

1,862

 

Note #4 Payable to Banc of America Leasing & Capital LLC

 

 

448

 

 

 

572

 

Note #5 Payable to Banc of America Leasing & Capital LLC

 

 

2,125

 

 

 

2,538

 

Note #6 Payable to Banc of America Leasing & Capital LLC

 

 

653

 

 

 

758

 

Note #7 Payable to Banc of America Leasing & Capital LLC

 

 

4,263

 

 

 

4,681

 

Note #8 Payable to Banc of America Leasing & Capital LLC

 

 

3,051

 

 

 

3,091

 

Note Payable to Extruded Fibers

 

 

1,000

 

 

 

2,900

 

Note Payable to JCM Holdings

 

 

1,876

 

 

 

 

Note Payable to the Sellers of Precision Marshall

 

 

2,500

 

 

 

2,500

 

Note Payable to Store Capital Acquisitions, LLC

 

 

9,218

 

 

 

9,243

 

Payroll Protection Program

 

 

 

 

 

6,151

 

JanOne Inc. (Note 11)

 

 

 

 

 

 

Isaac Capital Group

 

 

2,000

 

 

 

2,000

 

Spriggs Investments, LLC

 

 

2,000

 

 

 

2,000

 

Sellers of Lonesome Oak

 

 

 

 

 

1,297

 

Note payable to individuals, interest at 10-11% per annum, payable on a 90 day written notice,
   
unsecured

 

 

707

 

 

 

707

 

Note payable to individuals, interest at 7% per annum, unsecured

 

 

199

 

 

 

 

Note payable to individual, noninterest bearing, monthly payments of $19 through March 2023

 

 

553

 

 

 

810

 

Total notes payable

 

 

57,563

 

 

 

82,440

 

Less unamortized debt issuance costs

 

 

(619

)

 

 

(1,767

)

Net amount

 

 

56,944

 

 

 

80,673

 

Less current portion

 

 

(8,100

)

 

 

(13,283

)

Long-term portion

 

$

48,844

 

 

$

67,390

 

 

Future maturities of long-term debt at June 30, 2021, are as follows which does not include related party debt separately stated:

 

Twelve months ending June 30,

 

 

 

2022

 

$

8,100

 

2023

 

 

17,357

 

2024

 

 

14,755

 

2025

 

 

1,905

 

2026

 

 

3,487

 

Thereafter

 

 

11,959

 

Total

 

$

57,563

 

 

Bank of America Revolver Loan

On July 6, 2015 (as amended), Marquis entered into a $25,000 revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is an asset-based facility that matures on January 31, 2025 and is secured by substantially all of Marquis’ assets. Availability under the BofA Revolver is subject to a monthly borrowing base calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including satisfying all loan covenants under the credit agreement with BofA.    

13


 

The following tables summarize the BofA Revolver for the nine months ended June 30, 2021 and 2020 and as of June 30, 2021 and September 30, 2020:

 

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

99,137

 

 

$

85,563

 

Cumulative repayment during the period

 

 

102,854

 

 

 

87,919

 

Maximum borrowed during the period

 

 

 

 

 

11,347

 

Weighted average interest for the period

 

 

0.00

%

 

 

2.87

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

26,765

 

 

$

21,732

 

Total outstanding

 

 

 

 

 

 

 

Loans with Encina Business Credit, LLC

On July 14, 2020, Precision Marshall entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as Agent (the “Agent”).  The Loan Agreement provides for secured revolving loans (the “Encina Revolver Loans”) in a principal amount not to exceed the lesser of (i) $23,500 and (ii) a borrowing base equal to the sum of Precision’s (a) 85% of eligible accounts receivable, plus (b) 85% of eligible inventory, subject to an eligible inventory sublimit that begins at $14,000 and declines to $12,000 during the term of the Loan Agreement, minus (c) customary reserves. The Encina Revolver Loans mature on July 14, 2023.  

The following tables summarize the Encina Revolver Loans for the for the nine months ended June 30, 2021 and 2020 and as of June 30, 2021 and September 30, 2020:

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

32,711

 

 

$

 

Cumulative repayment during the period

 

 

36,338

 

 

 

 

Maximum borrowed during the period

 

 

1,250

 

 

 

 

Weighted average interest for the period

 

 

6.50

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

5,439

 

 

$

421

 

Total outstanding

 

 

11,523

 

 

 

14,886

 

Texas Capital Bank Revolver Loan

On November 3, 2016, Vintage Stock entered into a $12,000 credit agreement (as amended) with Texas Capital Bank (“TCB Revolver”). The TCB Revolver is a five-year, asset-based facility that is secured by substantially all of Vintage Stock’s assets. Availability under the TCB Revolver is subject to a monthly borrowing base calculation. The TCB Revolver matures November 3, 2023.

The following tables summarize the TCB Revolver for the nine months ended June 30, 2021 and 2020 and as of June 30, 2021 and September 30, 2020:

 

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

68,892

 

 

$

46,792

 

Cumulative repayment during the period

 

 

68,510

 

 

 

51,063

 

Maximum borrowed during the period

 

 

8,930

 

 

 

11,798

 

Weighted average interest for the period

 

 

2.38

%

 

 

3.59

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

4,503

 

 

$

5,520

 

Total outstanding

 

 

7,497

 

 

 

7,115

 

 

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Crossroads Revolver

On March 15, 2019, ApplianceSmart, Inc. (the “Borrower”), entered into a Loan and Security Agreement (the “Crossroads Revolver”) with Crossroads Financing, LLC (“Crossroads”), providing for a $4,000 revolving credit facility, subject to a borrowing base limitation (the “ABL Facility”). The borrowing base for the ABL Facility at any time equals the lower of (i) up to 75% of inventory cost or (ii) up to 85% of net orderly liquidation value, in each case as further described in the Loan Agreement.

On March 3, 2020, the Company executed a guaranty agreement to Crossroads to induce Crossroads to continue to extend financial accommodations and consent to use of cash collateral to ApplianceSmart (the "Live Guaranty").  The amount of the guaranty is $1,200.  In addition, certain executive officers of the Borrower have agreed to provide validity guarantees.

On May 28, 2021, Crossroads and the Company entered into an Assignment and Assumption of Loan and Security Agreement pursuant to which, among other things, Crossroads assigned the Company all of Crossroads' rights, claims, title, and interest in and to the Crossroads Revolver in exchange for the payment in full of the Crossroads Revolver. In addition, on May 28, 2021, the Live Guaranty was terminated.

On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. See Note 12 for a complete discussion.

As of June 30, 2021, the Company terminated the Crossroads Revolver and repaid the loan in full.

Note payable to JCM Holdings

During October 2020, Marquis purchased a manufacturing facility for $2,500. Marquis had previously been leasing this facility. Additionally, Marquis entered into a $2,000 loan agreement with the seller of the facility, which is secured by the facility, in order to complete the purchase of the facility. The loan bears interest at 6% due monthly and matures January 2030.

Comvest Loan

During January 2021, the Company paid the Comvest loan in full and, as a result, the loan agreement and the related instruments, documents, and agreements, were terminated.

Precision PPP Loan

During February 2021, Precision received notice that its $1,383 payroll protection program loan has been forgiven and no amounts are owed.

Marquis PPP Loan

During June 2021, Marquis received notice that its $4,768 payroll protection program loan has been forgiven and no amounts are owed.

Loan Covenant Compliance

We were in compliance as of June 30, 2021 with all covenants under our existing revolving and other loan agreements, with the exception of covenants related to the Crossroads Revolver.

Note 7: Stockholders’ Equity

Series E Convertible Preferred Stock

As of June 30, 2021, and September 30, 2020, there were 47,840 and 47,840 shares outstanding of Series a Preferred Stock, respectively. During the nine months ended June 30, 2020, the Company repurchased 30,000 shares of Series E Convertible Preferred Stock for an aggregate purchase price of $3. During July 2021, the Company paid all accrued and then outstanding Series E Convertible Preferred Stock dividends.

Treasury Stock

For the nine months ended June 30, 2021 and 2020, the Company purchased 34,935 and 212,728 shares of its common stock on the open market for $409 and $1,433, respectively.

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Note 8: Warrants

As of September 30, 2020 the Company had 118,029 warrants to purchase shares of Series B Convertible Preferred Stock outstanding with a weighted average exercise price of $20.80 expiring at various timeframes over the next two years. The Company and ICG previously entered into agreements whereby if the warrants were not exercised on or before the applicable expiration date, the applicable expiration date was deemed automatically extended for successive two-year periods, immediately prior to such expiration. During the nine months ended June 30, 2020, the Company recorded a fair value adjustment of $368 related to the extension of warrants that expired during this period. There was no such adjustment during the nine months ended June 30, 2021.

In January 2021, all of the warrants were exercised (via cashless exercise) for shares of Series B Convertible Preferred Stock.

Note 9: Stock-Based Compensation

Our 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) authorizes the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares to our directors, officer, employees, consultants and advisors. The Company has reserved up to 300,000 shares of common stock for issuance under the 2014 Plan. 

From time to time, the Company grants stock options to directors, officers, and employees. These awards are valued at the grant date by determining the fair value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the requisite service period.

The following table summarizes stock option activity for the twelve months ended September 30, 2020 and the nine months ended June 30, 2021:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual Life

 

 

Intrinsic
Value

 

Outstanding at September 30, 2019

 

 

200,418

 

 

$

16.37

 

 

 

2.40

 

 

$

27

 

Forfeited

 

 

(81,250

)

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2020

 

 

119,168

 

 

$

19.07

 

 

 

2.71

 

 

$

 

Exercisable at September 30, 2020

 

 

95,001

 

 

$

15.50

 

 

 

1.55

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2020

 

 

119,168

 

 

$

19.07

 

 

 

2.71

 

 

$

 

Granted

 

 

2,500

 

 

$

42.75

 

 

 

 

 

 

 

Exercised

 

 

(16,668

)

 

$

10.86

 

 

 

 

 

 

 

Outstanding at June 30, 2021

 

 

105,000

 

 

$

20.93

 

 

 

2.95

 

 

$

1,290

 

Exercisable at June 30, 2021

 

 

90,500

 

 

$

17.78

 

 

 

2.20

 

 

$

1,290

 

 

The Company recognized compensation expense of $(57) and $19 during the three months ended June 30, 2021 and 2020, respectively, and $230 and $67 during the nine months ended June 30, 2021 and 2020, respectively, related to stock option awards granted to certain employees and officers based on the grant date fair value of the awards, net of estimated forfeitures and the revaluation for existing options whereby the expiration date was extended.

At June 30, 2021, the Company had $69 of unrecognized compensation expense (net of estimated forfeitures) associated with stock option awards which the Company expects to recognize as compensation expense through December 2021.

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The exercise price for stock options outstanding and exercisable outstanding at June 30, 2021 is as follows:

 

Outstanding

 

 

Exercisable

 

Number of Options

 

 

Exercise Price ($)

 

 

Number of Options

 

 

Exercise Price ($)

 

 

25,000

 

 

 

10.00

 

 

 

25,000

 

 

 

10.00

 

 

6,250

 

 

 

12.50

 

 

 

6,250

 

 

 

12.50

 

 

6,250

 

 

 

15.00

 

 

 

6,250

 

 

 

15.00

 

 

25,000

 

 

 

15.18

 

 

 

25,000

 

 

 

15.18

 

 

8,000

 

 

 

23.41

 

 

 

8,000

 

 

 

23.41

 

 

1,250

 

 

 

23.89

 

 

 

 

 

 

 

 

8,000

 

 

 

27.60

 

 

 

8,000

 

 

 

27.60

 

 

8,000

 

 

 

31.74

 

 

 

8,000

 

 

 

31.74

 

 

8,000

 

 

 

36.50

 

 

 

4,000

 

 

 

36.50

 

 

8,000

 

 

 

41.98

 

 

 

 

 

 

 

 

1,250

 

 

 

61.60

 

 

 

 

 

 

 

 

105,000

 

 

 

 

 

 

90,500

 

 

 

 

 

The following table summarizes information about the Company’s non-vested shares outstanding as of June 30, 2021:

 

Non-vested Shares

 

Number of
Shares

 

 

Average
Grant-Date
Fair Value

 

Non-vested at September 30, 2020

 

 

24,167

 

 

$

33.10

 

Granted

 

 

2,500

 

 

$

23.89

 

Vested

 

 

(12,167

)

 

$

39.78

 

Non-vested at June 30, 2021

 

 

14,500

 

 

$

40.60

 

 

The following table depicts the Black-Scholes model valuation assumptions for the stock options granted during the nine months ended June 30, 2021. There were no stock option grants during the nine months ended June 30, 2020.

 

Risk-free interest rate

 

1.10%

Expected life of the options

 

6 years

Expected volatility

 

97%

Expected dividend yield

 

0%

 

Note 10: Earnings Per Share

Net earnings per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Diluted net earnings per share is computed using the weighted average number of shares of common stock outstanding and if dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of the additional shares of common stock issuable in respect of restricted share awards, stock options and convertible preferred stock. Preferred stock dividends are subtracted from net earnings to determine the amount available to common stockholders.

17


 

The following table presents the computation of basic and diluted net earnings per share:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,938

 

 

$

3,585

 

 

$

24,085

 

 

$

6,451

 

Less: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

9,938

 

 

$

3,585

 

 

$

24,085

 

 

$

6,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

1,566,064

 

 

 

1,646,836

 

 

 

1,563,025

 

 

 

1,735,416

 

Basic earnings per share

 

$

6.35

 

 

$

2.18

 

 

$

15.41

 

 

$

3.72

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

9,938

 

 

$

3,585

 

 

$

24,085

 

 

$

6,451

 

Add: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable for diluted earnings per share

 

$

9,938

 

 

$

3,585

 

 

$

24,085

 

 

$

6,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

1,566,064

 

 

 

1,646,836

 

 

 

1,563,025

 

 

 

1,735,416

 

Add: Options

 

 

105,000

 

 

 

 

 

 

105,000

 

 

 

 

Add: Series B Preferred Stock

 

 

1,578,950

 

 

 

1,071,220

 

 

 

1,578,950

 

 

 

1,071,220

 

Add: Series B Preferred Stock Warrants

 

 

 

 

 

590,147

 

 

 

 

 

 

590,147

 

Add: Series E Preferred Stock

 

 

47,840

 

 

 

47,840

 

 

 

47,840

 

 

 

47,840

 

Assumed weighted average common shares outstanding

 

 

3,297,854

 

 

 

3,356,043

 

 

 

3,294,815

 

 

 

3,444,623

 

Diluted earnings per share

 

$

3.01

 

 

$

1.07

 

 

$

7.31

 

 

$

1.87

 

 

There are nil and 119,168 options to purchase shares of common stock that are anti-dilutive that are not included in the nine months ended June 30, 2021 and 2020, diluted earnings per share computations, respectively.

Note 11: Related Party Transactions

Transactions with Isaac Capital Fund and Capital Group LLC

As of June 30, 2021, Isaac Capital Group LLC (“ICG”) owned 259,902 shares of Series B Preferred Stock that are convertible into 1,299,510 shares of common stock.  Jon Isaac is the President and sole member of ICG and accordingly has sole voting and dispositive power with respect to such shares. ICG beneficially owns 45.7% of the Company’s outstanding capital stock.  The holders of shares of the Series B Stock have agreed not to sell transfer, assign, hypothecate, pledge, margin, hedge, trade, or otherwise obtain or attempt to obtain any economic value from any of such shares or any shares into which they may be converted (e.g., common stock) or for which they may be exchanged. This “lockup” agreement expires on December 31, 2021.  Jon Isaac, the Company’s President and Chief Executive Officer, and manager and sole member of ICG, owns 213,677 shares of common stock and holds options to purchase up to 25,000 shares of common stock at an exercise price of $10.00 per share, all of which are currently exercisable.

ICG Term Loan

During 2015, Marquis entered into a mezzanine loan in the amount of up to $7,000 (the “ICF Loan”) with Isaac Capital Fund I, LLC (“ICF”), a private lender whose managing member is Jon Isaac, our President and Chief Executive Officer. On July 10, 2020, (i) ICF released and discharged Marquis from all obligations under the loan, (ii) ICF assigned all of its rights and obligations under the instruments, documents, and agreements with respect to the ICG Loan to ICG, of which Jon Isaac, our President and Chief Executive Officer, is the sole member, and (iii) Live Ventures borrowed $2.0 million (the “ICG Loan”) from ICG using substantially the documentation from the ICF Loan.  The ICG Loan matures on May 1, 2025 and bears interest at a rate of 12.5% Interest is payable in arrears on the last day of each month, commencing July 31, 2020.  As of June 30, 2021, and September 30, 2020, there was $2,000 outstanding on this loan.

ICG Revolving Promissory Note

On April 9, 2020, the Company entered into an unsecured revolving line of credit promissory note whereby ICG agreed to provide the Company with a $1,000 revolving credit facility (the “ICG Revolver”). The ICG Revolver bears interest at 10.0% per annum and provides for the payment of interest monthly in arrears and matures April 2023. As of June 30, 2021, the Company has not drawn on the revolving promissory note.

18


 

Series B Preferred Stock Warrants

As discussed in Note 8, the warrants were set to expire at various times over the next two years, subject to the automatic extension discussed in Note 8. All of these warrants were exercised by cashless exercise during January 2021.

Transactions with JanOne Inc.

Lease agreement

Customer Connexx LLC, a wholly-owned subsidiary of JanOne Inc. (“JanOne”), rents approximately 9,900 square feet of office space from the Company at its Las Vegas office which totals 16,500 square feet.  JanOne paid the Company $56 and $97 in rent and other reimbursed expenses for the three months ended June 30, 2021 and 2020, respectively. JanOne paid the Company $106 and $278 in rent and other reimbursed expenses for the nine months ended June 30, 2021 and 2020, respectively. Tony Isaac and Virland Johnson are President and Chief Executive Officer and Board of Directors member, and the Chief Financial Officer of JanOne, respectively.

Note payable

On December 30, 2017, ApplianceSmart Holdings Inc. (“ASH”) entered into a Stock Purchase Agreement (the “Agreement”) with Appliance Recycling Centers of America, Inc. (now JanOne Inc.) (the “Seller”) and ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of the Seller. Pursuant to the Agreement, ASH purchased (the “Transaction”) from the Seller all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for $6,500 (the “Purchase Price”). ASH was required to deliver the Purchase Price, and a portion of the Purchase Price was delivered, to the Seller prior to March 31, 2018. Between March 31, 2018 and April 24, 2018, ASH and the Seller negotiated in good faith the method of payment of the remaining outstanding balance of the Purchase Price.

On April 25, 2018, ASH delivered to the Seller that certain Promissory Note (the “ApplianceSmart Note”) in the original principal amount of $3,919 (the “Original Principal Amount”), as such amount may be adjusted per the terms of the ApplianceSmart Note. The ApplianceSmart Note is effective as of April 1, 2018 and matures on April 1, 2021 (the “Maturity Date”). The ApplianceSmart Note bears interest at 5% per annum with interest payable monthly in arrears. Ten percent of the outstanding principal amount will be repaid annually on a quarterly basis, with the accrued and unpaid principal due on the Maturity Date. ApplianceSmart has agreed to guaranty repayment of the ApplianceSmart Note. The remaining $2,581 of the Purchase Price was paid in cash by ASH to the Seller. ASH may reborrow funds, and pay interest on such re-borrowings, from the Seller up to the Original Principal Amount. As of March 31, 2021, and September 30, 2020, there was $2,826 principal outstanding on the ApplianceSmart Note.

On December 26, 2018, ASH and the Seller amended and restated the ApplianceSmart Note to, among other things, grant the Seller a security interest in the assets of ASH and ApplianceSmart in accordance with the terms of separate security agreements entered into between ASH and ApplianceSmart, respectively, and the Seller.

On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. See Note 12 for a complete discussion.

Transactions with Vintage Stock CEO

Note Payable to the Sellers of Vintage Stock

In connection with the purchase of Vintage Stock, on November 3, 2016, Vintage Stock entered into a seller financed mezzanine loan in the amount of $10,000 (as amended, the “Sellers Subordinated Acquisition Note”) with the previous owners of Vintage Stock, one of whom was Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly-owned subsidiary of the Company. The Sellers Subordinated Acquisition Note bears interest at 8% per annum, with interest payable monthly in arrears. The Sellers Subordinated Acquisition Note, has a maturity date of September 23, 2023. Mr. Spriggs holds a 41% interest in the Sellers Subordinated Acquisition Note. As of June 30, 2021, the amount owed was $4,500.

Spriggs Promissory Note

 On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note”) in favor of Spriggs Investments LLC (“Spriggs Investments”), a limited liability company whose sole member is Mr. Spriggs. The Spriggs Promissory Note memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $2,000 (the “Spriggs Loan”). The Spriggs Loan matures on July 10, 2022 and bears simple interest at a rate of 10.0% per annum. Interest is payable in arrears on the last day of each month, commencing July 31, 2020. the Company may prepay the Spriggs Loan in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid, together with accrued interest thereon to the date of prepayment.  The Company used the proceeds from the Spriggs Loan to finance, in part, the acquisition of Precision Marshall.  The Spriggs Promissory

19


 

Note contains events of default and other provisions customary for a loan of this type. The Spriggs Loan was guaranteed by Jon Isaac, Live Ventures’ President and Chief Executive Officer, and by ICG.

Note 12: Commitments and Contingencies

Litigation

SEC Investigation

On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation.  On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation.  The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart.

On August 2, 2021, the SEC filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and two of its executive officers as defendants (collectively, the "Defendants"). The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share, purported undisclosed stock promotion and trading, and undisclosed executive compensation from 2016 through 2018.  The violations are brought under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, Rule 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933.  The SEC seeks permanent injunctions against the Defendants, officer-and-director bars, disgorgement of profits, and civil penalties.  The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm. The Company disputes and denies the allegations and intends to vigorously defend against the claims. 

On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the Company’s Form 8-K filed on February 14, 2018.  The Company provided a response to the SEC on October 26, 2018.  The Company is cooperating with the SEC in its inquiry.

Class Action and Shareholder Derivative Lawsuit

On August 13, 2021, Daniel E. Sieggreen filed a individually and on behalf of all others similarly situated (the "Sieggreen Class Action"), filed a class action complaint for violations of federal securities laws in the United States District Court for the District of Nevada naming the Defendants, seeking to recover damages for alleged violations under Sections 10(b) and 20(a) the Exchange Act. The complaint alleges that the Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company's business, operations, and prospects. The Defendants dispute and deny the allegations and intend to vigorously defend themselves against the claims.

ApplianceSmart Bankruptcy and Other ApplianceSmart Related Litigation Matters

On August 4, 2020, Valassis Communications, Inc. and Valassis Digital Corp. (collectively, “Valassis”) filed suit against ApplianceSmart Holdings LLC ("ApplianceSmart Holdings") in the State of Michigan, Third Judicial Circuit, Wayne County, alleging, among other things, breach of contract and account stated and seeking damages of approximately $700.  On June 21, 2021, ApplianceSmart Holdings and Valassis entered into a Confidential Settlement Agreement and Release pursuant to which, among other things, ApplianceSmart Holdings caused $10 to be paid to Valassis in exchange for dismissal of this litigation with prejudice. In addition, Valassis released ApplianceSmart Holdings, ApplianceSmart, the Company and all of their respective subsidiaries and affiliates from all other claims Valassis may have, including in connection with the Chapter 11 Case (as defined below).

On December 12, 2019, Crossroads Center LLC served a lawsuit against ApplianceSmart in the District Court for the State of Minnesota, County of Olmsted, alleging, among other things, breach of contract and seeking damages in excess of $64.  This matter has been stayed as a result of the Chapter 11 Case.

On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, or Live Ventures itself.  ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the

20


 

Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under ApplianceSmart’s reserve-based revolving credit facility.  The case is being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.

ApplianceSmart’s balance sheet as of June 30, 2021 is below. The debtor in possession assets and liabilities are primarily related to assets and liabilities incurred pre-petition and are subject to compromise.

 

 

 

June 30, 2021

 

 

 

(Unaudited)

 

Assets

 

 

 

Cash

 

$

6

 

Inventories, net

 

 

156

 

Total debtor in possession assets

 

 

162

 

Right of use asset - operating leases

 

 

640

 

Other

 

 

10

 

Total assets

 

$

812

 

Liabilities and Stockholders' Equity

 

 

 

Liabilities:

 

 

 

Accounts payable

 

$

5,419

 

Accrued liabilities

 

 

2,963

 

        Notes payable related parties, including current portion

 

 

2,826

 

Total debtor in possession liabilities

 

 

11,208

 

Accounts payable

 

77

 

Accrued liabilities

 

 

635

 

        Lease obligation - operating leases

 

 

666

 

      Taxes payable

 

 

859

 

Total liabilities

 

 

13,445

 

Stockholders' equity:

 

 

 

Intercompany

 

 

2,434

 

Accumulated deficit

 

 

(15,067

)

Total stockholders' equity

 

 

(12,633

)

Total liabilities and stockholders' equity

 

$

812

 

 

ApplianceSmart’s statement of operations for the period of October 1, 2020 through June 30, 2021 is below:

 

 

 

Nine months ended June 30, 2021 (unaudited)

 

Revenues

 

$

876

 

Cost of revenues

 

 

484

 

Gross profit

 

 

392

 

 

 

 

Operating expenses:

 

 

 

General and administrative expenses

 

 

641

 

Total operating expenses

 

 

641

 

Operating income

 

 

(249

)

Other (expense) income:

 

 

 

Interest expense, net

 

 

(97

)

Accounts payable settlement

 

 

694

 

Other income (expense)

 

 

280

 

Total other (expense) income, net

 

 

877

 

Income before provision for income taxes

 

$

628

 

 

On November 22, 2019, Haier US Appliance Solutions, Inc. d/b/a GE Appliances filed suit against ApplianceSmart in the District Court for the State of Minnesota, County of Hennepin (the “Hennepin Court”) alleging, among other things, breach of contract and seeking damages in excess of $250.  This matter has been stayed as a result of the Chapter 11 Case.

21


 

On October 16, 2019, VanMile, LLC filed a lawsuit against ApplianceSmart in the Magistrate Court of Gwinnett County, State of Georgia alleging unpaid invoices and seeking damages therefor.  Plaintiff is seeking damages of $15.  This matter has been stayed as a result of the Chapter 11 Case.

On September 12, 2019, Fisher & Paykel Appliances, Inc. initiated an arbitration against ApplianceSmart in San Diego alleging breach of contract and seeking damages in excess of $100.  This matter has been stayed as a result of the Chapter 11 Case.

On July 22, 2019, Trustee Main/270, LLC (the “Reynoldsburg Landlord”) filed a lawsuit against ApplianceSmart and JanOne Inc. (formerly known as Appliance Recycling Centers of America, Inc.) (“JanOne”) in the Franklin County Common Pleas Court in Columbus, Ohio, alleging, with respect to ApplianceSmart, default under a lease agreement and, with respect to JanOne, guaranty of lease. The complaint sought damages of $1,530 attorney fees, and other charges.  On or about September 27, 2019, the parties entered into a second lease modification agreement and ratification of agreement (the “Second Lease Modification Agreement”) whereby the Reynoldsburg Landlord restored ApplianceSmart’s access to the property.  Pursuant to the terms of the Second Lease Modification Agreement, in exchange for such restored access, ApplianceSmart paid the Reynoldsburg Landlord $141 in partial satisfaction of past due rent and costs and the Reynoldsburg Landlord agreed to dismiss the lawsuit with prejudice.  In addition, the Reynoldsburg Landlord agreed to reduced minimum annual rent for the remainder of the term and waived the rent due for October 2019, December 2019, and January 2020.  In addition, JanOne ratified its guaranty under the lease.

On August 29, 2019, Martin Drive, LLC filed suit against ApplianceSmart in the Hennepin Court, alleging, among other things, breach of contract and failure to pay rent under the terms of a lease agreement.  The plaintiff was awarded a default judgment in the aggregate amount of $265.  This matter has been stayed as a result of the Chapter 11 Case.

On August 27, 2019, CH Robinson Worldwide, Inc. served a lawsuit against ApplianceSmart in the District Court for the State of Minnesota, County of Carver, alleging, among other things, breach of contract and seeking damages in excess of $140.  This matter has been stayed as a result of the Chapter 11 Case.

On June 19, 2019, Graceland Retail 2017 LLC filed suit against ApplianceSmart in the Court of Common Pleas in Franklin County, Ohio, alleging, among other things, breach of contract and failure to pay rent under the terms of a lease agreement.  The plaintiff was seeking damages of approximately $940.  This matter has been stayed as a result of the Chapter 11 Case.

Generally

We are involved in various claims and lawsuits arising in the normal course of business. The ultimate results of claims and litigation cannot be predicted with certainty. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Operating Leases and Service Contracts

The Company leases its office, retail, and warehouse space under various long-term operating leases expiring at various times through fiscal year 2040.

During fiscal 2019, as a result of our decision to close certain ApplianceSmart retail locations, we recorded a liability for the estimated remaining lease payments and early termination charges, as applicable, of $724. As of June 30, 2021, this amount has been reduced to $405.

Warranties

During 2019, the Company became the principal for certain extended warranties, as a result, warranty reserves are included in accrued liabilities in our consolidated balance sheet.  The following table summarizes the warranty reserve activity for the nine months ended June 30, 2021:

 

Beginning balance, September 30, 2020

 

$

206

 

Warranties issued/accrued

 

 

 

Warranty settlements

 

 

(61

)

Ending balance, June 30, 2021

 

$

145

 

 

22


 

Note 13: Segment Reporting

The Company operates in three segments which are characterized as: (1) Retail, (2) Flooring Manufacturing, and (3) Steel Manufacturing. The Retail segment consists of Vintage Stock and ApplianceSmart, the Flooring Manufacturing Segment consists of Marquis, and the Steel Manufacturing Segment consists of Precision Marshall.

The following tables summarize segment information for the three and nine months ended June 30, 2021 and 2020:

 

 

 

For the Three Months Ended June 30,

 

 

For the Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

21,719

 

 

$

14,259

 

 

$

68,092

 

 

$

54,733

 

Flooring Manufacturing

 

 

34,234

 

 

 

28,079

 

 

 

97,428

 

 

 

75,747

 

Steel Manufacturing

 

 

13,018

 

 

 

 

 

 

36,546

 

 

 

 

Corporate & other

 

 

124

 

 

 

134

 

 

 

373

 

 

 

424

 

 

$

69,095

 

 

$

42,472

 

 

$

202,439

 

 

$

130,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

11,684

 

 

$

8,009

 

 

$

36,701

 

 

$

29,464

 

Flooring Manufacturing

 

 

9,857

 

 

 

8,579

 

 

 

28,204

 

 

 

21,255

 

Steel Manufacturing

 

 

3,409

 

 

 

 

 

 

8,565

 

 

 

 

Corporate & other

 

 

116

 

 

 

125

 

 

 

355

 

 

 

396

 

 

$

25,066

 

 

$

16,713

 

 

$

73,825

 

 

$

51,115

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

3,860

 

 

$

2,285

 

 

$

13,424

 

 

$

5,481

 

Flooring Manufacturing

 

 

3,997

 

 

 

4,280

 

 

 

14,158

 

 

 

9,381

 

Steel Manufacturing

 

 

1,928

 

 

 

 

 

 

3,814

 

 

 

 

Corporate & other

 

 

(1,553

)

 

 

(575

)

 

 

(4,748

)

 

 

(2,317

)

 

$

8,232

 

 

$

5,990

 

 

$

26,648

 

 

$

12,545

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

372

 

 

$

455

 

 

$

1,110

 

 

$

1,404

 

Flooring Manufacturing

 

 

882

 

 

 

1,001

 

 

 

2,754

 

 

 

2,493

 

Steel Manufacturing

 

 

405

 

 

 

 

 

 

1,194

 

 

 

 

Corporate & other

 

 

11

 

 

 

20

 

 

 

31

 

 

 

57

 

 

$

1,670

 

 

$

1,476

 

 

$

5,089

 

 

$

3,954

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expenses

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

192

 

 

$

692

 

 

$

1,434

 

 

$

2,456

 

Flooring Manufacturing

 

 

378

 

 

 

440

 

 

 

1,436

 

 

 

1,270

 

Steel Manufacturing

 

 

233

 

 

 

 

 

 

789

 

 

 

 

Corporate & other

 

 

135

 

 

 

23

 

 

 

398

 

 

 

56

 

 

$

938

 

 

$

1,155

 

 

$

4,057

 

 

$

3,782

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) before provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

4,322

 

 

$

1,871

 

 

$

12,980

 

 

$

3,321

 

Flooring Manufacturing

 

 

8,271

 

 

 

3,690

 

 

 

17,164

 

 

 

7,681

 

Steel Manufacturing

 

 

1,431

 

 

 

 

 

 

3,727

 

 

 

 

Corporate & other

 

 

(1,388

)

 

 

(553

)

 

 

(2,583

)

 

 

(2,149

)

 

$

12,636

 

 

$

5,008

 

 

$

31,288

 

 

$

8,853

 

 

Note 14: Subsequent Events

The Company evaluated subsequent events through the date of this Quarterly Report noting no reportable events other than the SEC complaint discussed in Note 12.

 

23


 

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

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and nine months ended June 30, 2021, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (the “2020 Form 10-K”).

Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.

Specific forward-looking statements contained in this portion of the Quarterly Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements about the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.

Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in our 2020 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not part of this Quarterly Report.

Our Company

Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have three segments to our business: Retail, Flooring Manufacturing, and Steel Manufacturing.

Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with third party advisors who will help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses.

Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is (702) 939-0231, and our corporate website (which does not form part of this Quarterly Report Form 10-Q) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol “LIVE”.

Retail Segment

Our Retail Segment is composed of Vintage Stock, Inc. ("Vintage Stock") and ApplianceSmart, Inc. ("ApplianceSmart").

Vintage Stock

Vintage Stock is an award-winning specialty entertainment retailer offering a large selection of entertainment products including new and pre-owned movies, video games and music products, as well as ancillary products such as books, comics, toys and collectibles all available in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned

24


 

movies, music, video games, electronics and collectibles through more than 60 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, New Mexico, Oklahoma, Texas, and Utah.

ApplianceSmart

ApplianceSmart operates one store in Reynoldsburg, Ohio.  ApplianceSmart is a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others. 

On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, or Live Ventures itself.  ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under the reserve-based revolving credit facility. The case is being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.

Flooring Manufacturing Segment

Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. ("Marquis").

Marquis is a leading carpet manufacturer and distributor of carpet and hard surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers.

Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times. In addition, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.

Steel Manufacturing Segment

Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”).

Precision Marshall is a North American leader in providing and manufacturing pre-finished de-carb free tool and die steel. For over 70 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs.

Founded in 1948, Precision Marshall, “The Deluxe Company”, has built a reputation of high integrity, speed of service, and doing things the “Deluxe Way”. The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee.

Precision Marshall provides four key products to over 500 steel distributors in four product categories: deluxe alloy plate, deluxe tool steel plate, precision ground flat stock, and drill rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling. 

Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual

25


 

realized results may differ materially from management’s initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Stock Based Compensation, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in the Company’s 10-K report as filed on January 13, 2021.

Results of Operations Three Months Ended June 30, 2021 and 2020

The following table sets forth certain statement of income items and as a percentage of revenue, for the periods indicated:

 

 

 

For the Three Months Ended June 30,2021

 

 

For the Three Months Ended June 30,2020

 

 

 

 

 

 

% of Total
Revenue

 

 

 

 

 

% of Total
Revenue

 

Statement of Income Data:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

69,095

 

 

 

100.0

%

 

$

42,472

 

 

 

100.0

%

Cost of revenues

 

 

44,029

 

 

 

63.7

%

 

 

25,759

 

 

 

60.6

%

Gross profit

 

 

25,066

 

 

 

36.3

%

 

 

16,713

 

 

 

39.4

%

General and administrative expenses

 

 

13,794

 

 

 

20.0

%

 

 

8,221

 

 

 

19.4

%

Sales and marketing expenses

 

 

3,040

 

 

 

4.4

%

 

 

2,502

 

 

 

5.9

%

Operating income

 

 

8,232

 

 

 

11.9

%

 

 

5,990

 

 

 

14.1

%

Interest expense, net

 

 

(938

)

 

 

(1.4

)%

 

 

(1,155

)

 

 

(2.7

)%

Gain on Payroll Protection Program loan forgiveness

 

 

4,768

 

 

 

6.9

%

 

 

 

 

 

0.0

%

Gain on bankruptcy settlement

 

 

650

 

 

 

0.9

%

 

 

 

 

 

0.0

%

Other income (expense)

 

 

(76

)

 

 

(0.1

)%

 

 

173

 

 

 

0.4

%

Income before provision for income taxes

 

 

12,636

 

 

 

18.3

%

 

 

5,008

 

 

 

11.8

%

Provision for income taxes

 

 

2,703

 

 

 

3.9

%

 

 

1,423

 

 

 

3.4

%

Net income

 

$

9,933

 

 

 

14.4

%

 

$

3,585

 

 

 

8.4

%

 

The following table sets forth revenues by segment:

 

 

 

For the Three Months Ended June 30,2021

 

 

For the Three Months Ended June 30,2020

 

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

21,491

 

 

 

31.1

%

 

$

13,563

 

 

 

31.9

%

Appliances

 

 

228

 

 

 

0.3

%

 

 

696

 

 

 

1.6

%

Flooring Manufacturing

 

 

34,234

 

 

 

49.5

%

 

 

28,079

 

 

 

66.1

%

Steel Manufacturing

 

 

13,018

 

 

 

18.8

%

 

 

 

 

 

0.0

%

Corporate & other

 

 

124

 

 

 

0.2

%

 

 

134

 

 

 

0.3

%

Total Revenue

 

$

69,095

 

 

 

100.0

%

 

$

42,472

 

 

 

100.0

%

 

26


 

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment:

 

 

 

For the Three Months Ended June 30,2021

 

 

For the Three Months Ended June 30,2020

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

11,580

 

 

 

53.9

%

 

$

7,867

 

 

 

58.0

%

Appliances

 

 

104

 

 

 

45.6

%

 

 

142

 

 

 

20.4

%

Flooring Manufacturing

 

 

9,857

 

 

 

28.8

%

 

 

8,579

 

 

 

30.6

%

Steel Manufacturing

 

 

3,409

 

 

 

26.2

%

 

 

 

 

 

0.0

%

Corporate & other

 

 

116

 

 

 

93.5

%

 

 

125

 

 

 

93.3

%

Total Gross Profit

 

$

25,066

 

 

 

36.3

%

 

$

16,713

 

 

 

39.4

%

 

Revenue

Revenue increased by 63% to $69,095 for the three months ended June 30, 2021 as compared to $42,472 for the three months ended June 30, 2020.

Retail: The increase in Movies, Music, Games, and Other of $7,928 was primarily due the launch of new gaming systems and higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19. Appliance revenue decreased $468 due to the closure of certain retail locations were incurring continual decreases in sales resulting from increased competition.

Flooring Manufacturing revenues increased $6,155 as a result of the development of new products and higher demand by residential consumers.

Steel Manufacturing revenues were $13,018 due to the acquisition of Precision Marshall during July 2020. Steel manufacturing is experiencing higher demand as distributors look to replenish stock levels due to the stronger demand in the automotive market relating to new car platforms. In addition to higher demand, raw material prices and consumable costs have increased and have successfully been passed on to the market.

Cost of Revenue

Cost of revenue increased 71% to $44,029 for the three months ended June 30, 2021 as compared to $25,759 for the three months ended June 30, 2020, proportionately to the increase in revenue.

General and Administrative Expense

General and Administrative increased 68% to $13,794 for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 due the an increase in employee compensation, increase in sales tax expense and expenses associated with Precision Marshall's corporate activity. Precision Marshall was acquired during July 2020.

Selling and Marketing Expense

Selling and marketing expense increased 22% to $3,040 for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 increased compensation associated with the Marquis sales force.

Interest Expense, net

Interest expense, net decreased 19% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, due to a decrease in certain interest rates and the continued efforts to repay certain debt obligations, offset by debt incurred as part of the Precision acquisition during July 2020.

Gain on Payroll Protection Program

27


 

During the three months ended June 30, 2021, the Company recorded a gain of $4,768 due to the forgiveness of Marquis' PPP Loan. There were no similar transactions during the three months ended June 30, 2020.

Gain on Bankruptcy Settlement

During the three months ended June 30, 2021, the Company recorded a gain of $650 due to the discharge of certain payables from bankruptcy proceedings. There were no similar transactions during the three months ended June 30, 2020.

Results of Operations Nine Months Ended June 30, 2021 and 2020

The following table sets forth certain statement of income items and as a percentage of revenue, for the periods indicated:

 

 

 

For the Nine Months Ended June 30,2021

 

 

For the Nine Months Ended June 30,2020

 

 

 

 

 

 

% of Total
Revenue

 

 

 

 

 

% of Total
Revenue

 

Statement of Income Data:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

202,439

 

 

 

100.0

%

 

$

130,904

 

 

 

100.0

%

Cost of revenues

 

 

128,614

 

 

 

63.5

%

 

 

79,789

 

 

 

61.0

%

Gross profit

 

 

73,825

 

 

 

36.5

%

 

 

51,115

 

 

 

39.0

%

General and administrative expenses

 

 

38,638

 

 

 

19.1

%

 

 

30,731

 

 

 

23.5

%

Sales and marketing expenses

 

 

8,539

 

 

 

4.2

%

 

 

7,839

 

 

 

6.0

%

Operating income

 

 

26,648

 

 

 

13.2

%

 

 

12,545

 

 

 

9.6

%

Interest expense, net

 

 

(4,057

)

 

 

(2.0

)%

 

 

(3,782

)

 

 

(2.9

)%

Gain on lease settlement, net

 

 

 

 

 

0.0

%

 

 

223

 

 

 

0.2

%

Gain on Payroll Protection Program loan forgiveness

 

 

6,150

 

 

 

3.0

%

 

 

 

 

 

0.0

%

Gain on bankruptcy settlement

 

 

1,765

 

 

 

0.9

%

 

 

 

 

 

0.0

%

Other income (expense)

 

 

782

 

 

 

0.4

%

 

 

(133

)

 

 

-0.1

%

Income before provision for income taxes

 

 

31,288

 

 

 

15.5

%

 

 

8,853

 

 

 

6.8

%

Provision for income taxes

 

 

7,381

 

 

 

3.6

%

 

 

2,402

 

 

 

1.8

%

Net income

 

$

23,907

 

 

 

11.8

%

 

$

6,451

 

 

 

4.9

%

 

The following table sets forth revenues by segment:

 

 

 

For the Nine Months Ended June 30,2021

 

 

For the Nine Months Ended June 30,2020

 

 

 

Net
Revenue

 

 

% of
Total Revenue

 

 

Net
Revenue

 

 

% of Total
Total Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

67,216

 

 

 

33.2

%

 

$

51,283

 

 

 

39.2

%

Appliances

 

 

876

 

 

 

0.4

%

 

 

3,450

 

 

 

2.6

%

Flooring Manufacturing

 

 

97,428

 

 

 

48.1

%

 

 

75,747

 

 

 

57.9

%

Steel Manufacturing

 

 

36,546

 

 

 

18.1

%

 

 

 

 

 

0.0

%

Corporate & other

 

 

373

 

 

 

0.2

%

 

 

424

 

 

 

0.3

%

Total Revenue

 

$

202,439

 

 

 

100.0

%

 

$

130,904

 

 

 

100.0

%

 

28


 

 

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment:

 

 

 

For the Nine Months Ended June 30,2021

 

 

For the Nine Months Ended June 30,2020

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

36,309

 

 

 

54.0

%

 

$

28,752

 

 

 

56.1

%

Appliances

 

 

392

 

 

 

44.7

%

 

 

712

 

 

 

20.6

%

Flooring Manufacturing

 

 

28,204

 

 

 

28.9

%

 

 

21,255

 

 

 

28.1

%

Steel Manufacturing

 

 

8,565

 

 

 

23.4

%

 

 

 

 

 

0.0

%

Corporate & other

 

 

355

 

 

 

95.2

%

 

 

396

 

 

 

93.4

%

Total Gross Profit

 

$

73,825

 

 

 

36.5

%

 

$

51,115

 

 

 

39.0

%

 

Revenue

Revenue increased by 55% to $202,439 for the nine months ended June 30, 2021 as compared to $130,904 for the nine months ended June 30, 2020.

Retail: The increase in Movies, Music, Games and Other of $15,933 was primarily due the launch of new gaming systems and higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19. Appliance revenue decreased $2,574 due to the closure of certain retail locations were incurring continual decreases in sales resulting from increased competition.

Flooring Manufacturing revenues increased $21,681 as a result of the development of new products, higher demand from residential consumers and the acquisition of Lonesome Oak in January 2020.

Steel Manufacturing revenues were $36,546 due to the acquisition of Precision Marshall during July 2020. Steel manufacturing is experiencing higher demand as distributors look to replenish stock levels due to the stronger demand in the automotive market relating to new car platforms. In addition to higher demand, raw material prices and consumable costs have increased and have successfully been passed on to the market.

Cost of Revenue

Cost of revenue increased 61% to $128,614 for the nine months ended June 30, 2021 as compared to $79,789 for the nine months ended June 30, 2020, proportionately to the increase in revenue.

General and Administrative Expense

General and Administrative expense increased $7,907 or 26%, for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020, primarily due to expenses associated with Precision which was acquired during July 2020 and higher warehouse costs at Marquis, and an increase in other administrative costs.

Selling and Marketing Expense

Selling and marketing expense remained relatively flat for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020.

Interest Expense, net

Interest expense, net increased 7% for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020, due to a decrease in certain interest rates and the continued efforts to repay certain debt obligations, offset by debt incurred as part of the Precision acquisition during July 2020.

29


 

Gain on lease settlement, net

During the nine months ended June 30, 2020, the Company recorded a net gain on lease settlement of $223 which consisted of impairment charges of $614 related to the decision to close additional ApplianceSmart retail locations resulting in a decrease to the associated right of use asset related to these leases, offset by a gain on lease settlement of $837 resulting from the extinguishment of the lease liability associated with the closed retail locations. There were no similar gains during the nine months ended June 30, 2021.

Gain on Payroll Protection Program

During the nine months ended June 30, 2021, the Company recorded a gain of $6,150 due to the forgiveness of the PPP Loans. There were no similar transactions during the nine months ended June 30, 2020.

Gain on Bankruptcy Settlement

During the nine months ended June 30, 2021, the Company recorded a gain of $1,765 due to the discharge of certain payables from bankruptcy proceedings. There were no similar transactions during the nine months ended June 30, 2020.

Results of Operations by Segment

 

 

 

For the Three Months Ended June 30,2021

 

 

For the Three Months Ended June 30,2020

 

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

Revenue

 

$

21,719

 

 

$

34,234

 

 

$

13,018

 

 

$

124

 

 

$

69,095

 

 

$

14,259

 

 

$

28,079

 

 

$

 

 

$

134

 

 

$

42,472

 

Cost of Revenue

 

 

10,035

 

 

 

24,377

 

 

 

9,609

 

 

 

8

 

 

 

44,029

 

 

 

6,250

 

 

 

19,500

 

 

 

 

 

 

9

 

 

 

25,759

 

Gross Profit

 

 

11,684

 

 

 

9,857

 

 

 

3,409

 

 

 

116

 

 

 

25,066

 

 

 

8,009

 

 

 

8,579

 

 

 

 

 

 

125

 

 

 

16,713

 

General and
   Administrative
   Expense

 

 

7,751

 

 

 

3,025

 

 

 

1,353

 

 

 

1,665

 

 

 

13,794

 

 

 

5,595

 

 

 

1,929

 

 

 

 

 

 

697

 

 

 

8,221

 

Selling and
   Marketing
   Expense

 

 

73

 

 

 

2,835

 

 

 

128

 

 

 

4

 

 

 

3,040

 

 

 

129

 

 

 

2,370

 

 

 

 

 

 

3

 

 

 

2,502

 

Operating Income
   (Loss)

 

$

3,860

 

 

$

3,997

 

 

$

1,928

 

 

$

(1,553

)

 

$

8,232

 

 

$

2,285

 

 

$

4,280

 

 

$

 

 

$

(575

)

 

$

5,990

 

 

Retail Segment

Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the three months ended June 30, 2021 increased $7,460 or 52%, as compared to the prior year, primarily due to the launch of new gaming systems and higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19. Cost of revenue increased proportionately with the increase in revenue. Operating income for the three months ended June 30, 2021 was $3,860, as compared to operating income of $2,285 the prior year period.

Flooring Manufacturing Segment

Segment results for Flooring Manufacturing includes Marquis. Revenue for the three months ended June 30, 2021 increased $6,155, or 22%, as compared to the prior year period, due to increased sales of carpets and hard surface products related to development of new products. Cost of revenue for the three months ended June 30, 2021 increased proportionately with revenue, as compared to the prior year period. Operating income remained relatively flat for the three months ended June 30, 2021.

Steel Manufacturing Segment

Segment results for Steel Manufacturing includes Precision Marshall. The Company completed the acquisition of Precision Marshall in July 2020. Steel manufacturing is experiencing higher demand as distributors look to replenish stock levels due to the stronger demand in the automotive market relating to new car platforms. In addition to higher demand, raw material prices and consumable costs have increased and have successfully been passed on to the market. Precision Marshall had experienced a more challenging work environment to hire qualified hourly workers but has been successful in ramping up staffing needs to meet the higher demand.

30


 

Corporate and Other Segment

Segment results for Corporate and Other includes our directory services business. Revenues and operating income continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business.

 

 

 

For the Nine Months Ended June 30,2021

 

 

For the Nine Months Ended June 30,2020

 

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

Revenue

 

$

68,092

 

 

$

97,428

 

 

$

36,546

 

 

$

373

 

 

$

202,439

 

 

$

54,733

 

 

$

75,747

 

 

$

 

 

$

424

 

 

$

130,904

 

Cost of Revenue

 

 

31,391

 

 

 

69,224

 

 

 

27,981

 

 

 

18

 

 

 

128,614

 

 

 

25,269

 

 

 

54,492

 

 

 

 

 

 

28

 

 

 

79,789

 

Gross Profit

 

 

36,701

 

 

 

28,204

 

 

 

8,565

 

 

 

355

 

 

 

73,825

 

 

 

29,464

 

 

 

21,255

 

 

 

 

 

 

396

 

 

 

51,115

 

General and
   Administrative
   Expense

 

 

22,871

 

 

 

6,575

 

 

 

4,321

 

 

 

4,871

 

 

 

38,638

 

 

 

22,931

 

 

 

5,099

 

 

 

 

 

 

2,701

 

 

 

30,731

 

Selling and
   Marketing
   Expense

 

 

406

 

 

 

7,471

 

 

 

430

 

 

 

232

 

 

 

8,539

 

 

 

1,052

 

 

 

6,775

 

 

 

 

 

 

12

 

 

 

7,839

 

Operating Income
   (Loss)

 

$

13,424

 

 

$

14,158

 

 

$

3,814

 

 

$

(4,748

)

 

$

26,648

 

 

$

5,481

 

 

$

9,381

 

 

$

 

 

$

(2,317

)

 

$

12,545

 

Retail Segment

Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the nine months ended June 30, 2021 increased $13,359 or 24%, as compared to the prior year, primarily due to the launch of new gaming systems and higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19. Cost of revenue increased proportionately with the increase in revenue. Operating income for the nine months ended June 30, 2021 was $13,424, as compared to operating income of $5,481 the prior year period.

Flooring Manufacturing Segment

Segment results for Flooring Manufacturing includes Marquis. Revenue for the nine months ended June 30, 2021 increased $21,681, or 29%, as compared to the prior year period, due to increased sales of carpets and hard surface products related to development of new products and the acquisition of Lonesome Oak. Cost of revenue for the nine months ended June 30, 2021 increased proportionately with revenue, as compared to the prior year period. Operating income for the nine months ended June 30, 2021 increased $4,777, or 51%, as compared to the prior year period.

Steel Manufacturing Segment

Segment results for Steel Manufacturing includes Precision Marshall. The Company completed the acquisition of Precision Marshall in July 2020. Steel manufacturing is experiencing higher demand as distributors look to replenish stock levels due to the stronger demand in the automotive market relating to new car platforms. In addition to higher demand, raw material prices and consumable costs have increased and have successfully been passed on to the market. Precision Marshall had experienced a more challenging work environment to hire qualified hourly workers but has been successful in ramping up staffing needs to meet the higher demand.

Corporate and Other Segment

Segment results for Corporate and Other includes our directory services business. Revenues and operating income continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business.

Liquidity and Capital Resources

Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities, and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to fund our operations, pay our scheduled loan payments, repurchase shares under our share buyback program, if any, and pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.

We have the following three asset-based revolver lines of credit: (i) Texas Capital Bank Revolver Loan (“TCB Revolver”) utilized by Vintage Stock, (ii) Bank of America Revolver Loan (“BofA Revolver”) utilized by Marquis, and (iii) Encina Revolver Loan (“Encina Revolver”) utilized by Precision Marshall. Additionally, we have an unsecured revolving line of credit with Isaac Capital Group (“ICG Revolver”) available for use by the Company.

31


 

As of June 30, 2021, we had total cash on hand of $10,565 and an additional $37,707 of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions. 

Coronavirus

In March 2020, there was a global outbreak of COVID-19 (Coronavirus) which continues to create challenges and unprecedented conditions. Although there are effective vaccines for COVID-19 that have been approved for use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021. Accordingly, there remains significant uncertainty about the duration and the extent of the impact of the COVID-19 pandemic. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the Company’s supply chain partners, its employees and customers, customer sentiment in general, and traffic within shopping centers, and, where applicable, malls, containing its stores. Recommendations and/or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine have previously affected, and may continue to affect, traffic to the stores. As of March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage Stock began to reopen certain locations in compliance with government regulations and, at June 30, 2020, all Vintage Stock retail locations were reopened while maintaining compliance with government mandates. The Company is unable to predict if additional periods of store closures will be needed or mandated. During March and April 2020, Marquis conducted rolling layoffs for certain employees, however, during May 2020, most employees have returned to their respective locations. Continued impacts of the pandemic could materially adversely affect the near-term and long-term revenues, earnings, liquidity, and cash flows, and may require significant actions in response, including but not limited to, employee furloughs, reduced store hours, store closings, expense reductions or discounting of pricing of products, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on the business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S. and the effect of the vaccines, the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company is not aware of currently.

Working Capital

We had working capital of $36,794 as of June 30, 2021 as compared to working capital of $38,566 as of September 30, 2020.

Cash Flows from Operating Activities

The Company’s cash and cash equivalents as of June 30, 2021 was $10,565 compared to $8,984 as of September 30, 2020, an increase of $1,581. Net cash provided by operations was $32,199 for the nine months ended June 30, 2021 as compared to net cash provided by operations of $18,075 for the nine months ended June 30, 2020 primarily due to the Result of operations discussed above.

Our primary source of cash inflows is from customer receipts from sales on account, factor accounts receivable proceeds and net remittances from directory services customers processed in the form of ACH billings. Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.

Cash Flows from Investing Activities

Our cash flows used in investing activities of $14,470 for the nine months ended June 30, 2021 consisted primarily of purchases of property and equipment and the investment in SW Financial. Our cash flows used in investing activities of $2,992 for the nine months ended June 30, 2020 consisted primarily of purchases of property and equipment of $2,357 and a $550 payment associated with the Lonesome Oak acquisition.

Cash Flows from Financing Activities

Our cash flows used in financing activities during the nine months ended June 30, 2021 consisted of $3,247 in net payments under revolver loans, payment on notes payable of $15,059, purchase of treasury stock of $409, partially offset by the issuance of notes payable of $2,258 primarily associated with the acquisition of a facility by Marquis.

32


 

Our cash flows used in financing activities during the nine months ended June 30, 2020 consisted of $5,169 net payments under revolver loans, purchase of treasury stock $1,433, payment on notes payable $15,152, proceeds on notes payable of $9,768 and cash classified as debtor-in-possession of $86.

Currently, the Company does not intend to issue shares of its common stock for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done so historically.

Sources of Liquidity

We utilize cash on hand and cash generated from operations and have funds available to us under our revolving loan facilities to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks. Our term debt facilities are not revolving credit facilities and require scheduled payments of principal and interest.

TCB Revolver

Vintage Stock may borrow funds for operations under the TCB Revolver subject to availability as described in Note 6 to the consolidated financial statements. The following tables summarize the TCB Revolver for the period:

 

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

68,892

 

 

$

46,792

 

Cumulative repayment during the period

 

 

68,510

 

 

 

51,063

 

Maximum borrowed during the period

 

 

8,930

 

 

 

11,798

 

Weighted average interest for the period

 

 

2.38

%

 

 

3.59

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

4,503

 

 

$

5,520

 

Total outstanding

 

 

7,497

 

 

 

7,115

 

 

BofA Revolver

Marquis may borrow funds for operations under the BofA Revolver subject to availability as described in Note 6 to the consolidated financial statements. The following tables summarize the BofA Revolver for the period:

 

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

99,137

 

 

$

85,563

 

Cumulative repayment during the period

 

 

102,854

 

 

 

87,919

 

Maximum borrowed during the period

 

 

 

 

 

11,347

 

Weighted average interest for the period

 

 

0.00

%

 

 

2.87

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

26,765

 

 

$

21,732

 

Total outstanding

 

 

 

 

 

 

 

33


 

 

Encina Revolver

Precision may borrow funds for operations under the Encina Revolver subject to availability as described in Note 6 to the consolidated financial statements.

 

 

 

During the nine months ended June 30,

 

 

 

2021

 

 

2020

 

Cumulative borrowing during the period

 

$

32,711

 

 

$

 

Cumulative repayment during the period

 

 

36,338

 

 

 

 

Maximum borrowed during the period

 

 

1,250

 

 

 

 

Weighted average interest for the period

 

 

6.50

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

September 30, 2020

 

Total availability

 

$

5,439

 

 

$

421

 

Total outstanding

 

 

11,523

 

 

 

14,886

 

 

Future Sources of Cash; New Products and Services

We may require additional debt financing and/or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans or other forms of financing. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders.

34


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2021, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2021, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) of 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal controls over financial reporting were ineffective as of June 30, 2021. Management noted the following deficiencies that management believes to be material weaknesses:

The Company does not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and
Management has not established appropriate and rigorous procedures for evaluating internal controls over financial reporting at all of its subsidiaries. Due to limited resources documentation of the control structure has not been accomplished for all subsidiaries.

In response to the above identified weaknesses in our internal control over financial reporting, we plan to work on documenting in writing our internal control policies and procedures and develop an internal testing plan to document our evaluation of effectiveness of the internal controls. We expect to conclude these remediation initiatives during the fiscal year ended September 30, 2021. We continue to evaluate testing of our internal control policies and procedures, including assessing internal and external resources that may be available to complete these tasks, but do not know when these tasks will be completed.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim

35


 

financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this quarterly report.

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PART II – OTHER INFORMATION

Please refer to ‘‘Item 3. Legal Proceedings’’ in our Annual Report on Form 10-K for the year ended September 30, 2020 for information regarding material pending legal proceedings. Except as set forth therein and below, there have been no new material legal proceedings and no material developments in the legal proceedings previously disclosed.

SEC Matter

On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation.  On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation.  The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart.

On August 2, 2021, the SEC filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and two of its executive officers as defendants (collectively, the "Defendants"). The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share, purported undisclosed stock promotion and trading, and undisclosed executive compensation from 2016 through 2018.  The violations are brought under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, Rule 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933.  The SEC seeks permanent injunctions against the Defendants, officer-and-director bars, disgorgement of profits, and civil penalties.  The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm. The Defendants strongly dispute and deny the allegations and intend to vigorously defend themselves against the claims. 

 

Class Action and Shareholder Derivative Lawsuit

On August 13, 2021, Daniel E. Sieggreen filed a individually and on behalf of all others similarly situated (the "Sieggreen Class Action"), filed a class action complaint for violations of federal securities laws in the United States District Court for the District of Nevada naming the Defendants, seeking to recover damages for alleged violations under Sections 10(b) and 20(a) the Exchange Act. The complaint alleges that the Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company's business, operations, and prospects. The Defendants dispute and deny the allegations and intend to vigorously defend themselves against the claims.

ApplianceSmart Holdings

On August 4, 2020, Valassis filed suit against ApplianceSmart Holdings in the State of Michigan, Third Judicial Circuit, Wayne County, alleging, among other things, breach of contract and account stated and seeking damages of approximately $700.  On June 21, 2021, ApplianceSmart Holdings and Valassis entered into a Confidential Settlement Agreement and Release pursuant to which, among other things, ApplianceSmart Holdings caused $10,000 to be paid to Valassis in exchange for dismissal of this litigation with prejudice. In addition, Valassis released ApplianceSmart Holdings, ApplianceSmart, the Company and all of their respective subsidiaries and affiliates from all other claims Valassis may have, including in connection with the Chapter 11 Case.

ITEM 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.  However, in light of the SEC Complaint, the Company provides the following additional risk factor, which supplements the risk factors previously disclosed by the Company in Part I, Item 1A, Risk Factors, of the 2020 10-K.

 

Our previously disclosed SEC investigation has resulted in the filing by the SEC of the SEC Complaint and at least one shareholder derivative class action, which could divert management's focus, and/or result in substantial litigation expense. Adverse developments in our ongoing proceeding and/or future legal proceedings could have a material adverse effect on our business, reputation, financial condition, results of operations or stock price.

 

On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the

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Company’s Form 8-K filed on February 14, 2018.  On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation.  On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation.  On August 2, 2021, the SEC Complaint was filed and, on August 13, 2021, the Sieggreen Class Action was filed. 

 

We may be subject to additional investigations, arbitration proceedings, audits, regulatory inquiries and similar actions, including matters related to intellectual property, employment, securities laws, disclosures, tax, accounting, class action and product liability, as well as regulatory and other claims related to our business and our industry, which we refer to collectively as legal proceedings. We cannot predict the outcome of any particular proceeding, or whether ongoing investigations, will be resolved favorably or ultimately result in charges or material damages, fines or other penalties, enforcement actions, bars against serving as an officer or director, or practicing before the SEC, or civil or criminal proceedings against us or members of our senior management.

 

Legal proceedings in general, and securities and class action litigation and regulatory investigations in particular, can be expensive and disruptive. Our insurance, to the extent maintained, may not cover all claims that may be asserted against us and we are unable to predict how long the legal proceedings to which we are currently subject will continue. An unfavorable outcome of any legal proceeding may have an adverse impact on our business, financial condition and results of operations, prospects, or our stock price. Any proceeding could negatively impact our reputation among our stakeholders. Furthermore, publicity surrounding ongoing legal proceedings, even if resolved favorably for us, could result in additional legal proceedings against us, as well as damage our image.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of funds

On February 20, 2018, the Company announced a $10 million common stock repurchase program. The Company did not repurchase any common stock under this program during the quarter ended June 30, 2021. As of June 30, 2021, the Company has approximately $6.8 million available for repurchases under this program.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Effective August 13, 2021, the Company and Michael J. Stein, the Company’s Senior Vice President & General Counselagreed to a mutual separation of Mr. Stein’s employment from all positions he held at the Company and its subsidiaries.  The last day of Mr. Stein’s employment will be November 12, 2021, or such earlier date as mutually agreed by the Company and Mr. Stein.

 

 

 

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ITEM 6. Exhibits

The following exhibits are filed with or incorporated by reference into this Quarterly Report.

 

Exhibit

Number

 

Exhibit Description

 

 

Form

 

File
Number

 

Exhibit
Number

 

 

Filing Date

  3.1

 

Amended and Restated Articles of Incorporation

 

 

8-K

 

000-24217

 

3.1

 

 

08/15/07

  3.2

 

Certificate of Change

 

 

8-K

 

001-333937

 

3.1

 

 

09/07/10

  3.3

 

Certificate of Correction

 

 

8-K

 

001-333937

 

3.1

 

 

03/11/13

  3.4

 

Certificate of Change

 

 

10-Q

 

001-333937

 

3.1

 

 

02/14/14

  3.5

 

Articles of Merger

 

 

8-K

 

001-333937

 

3.1.4

 

 

10/08/15

  3.6

 

Certificate of Change

 

 

8-K

 

001-333937

 

3.1.5

 

 

11/25/16

  3.7

 

Certificate of Designation for Series B Convertible Preferred Stock filed with Secretary of State for the State of Nevada on December 23, 2016, and effective as of December 27, 2016

 

 

10-K

 

001-333937

 

3.1.6

 

 

12/29/16

  3.8

 

Bylaws of Live Ventures Incorporated

 

 

10-Q

 

001-33937

 

3.8 

 

 

08/14/18

10.1

 

Membership Interest Purchase Agreement, dated as of June 14, 2021 by and among Angia Holdings LLC, a New York limited liability company, Salomon Whitney LLC, d/b/a SW Financial, and SW Affiliated Holdings, LLC

 

 

8-K

 

001-33937

 

2.1

 

 

06/17/21

31.1

*

Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

31.2

*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.1

*

Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.2

*

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

101.INS

*

Inline XBRL Instance Document

 

 

 

 

 

 

 

 

 

 

101.SCH

*

Inline XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

 

101.CAL

*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

 

101.DEF

*

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

 

101.LAB

*

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

 

101.PRE

*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

 

 

 

 

 

 

 

 

 

 

 

*

Filed 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.

 

 

Live Ventures Incorporated

 

 

Dated:   August 16, 2021

/s/ Jon Isaac

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

Dated:    August 16, 2021

/s/ Virland A. Johnson

 

Chief Financial Officer

 

(Principal Financial Officer)

 

40