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LIVE VENTURES Inc - Quarter Report: 2023 March (Form 10-Q)

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 March 31, 2023

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 May 8, 2023 was 3,165,890.


 

INDEX TO FORM 10-Q FILING

FOR THE SIX MONTHS ENDED March 31, 2023

TABLE OF CONTENTS

 

 

Page

PART I

 

 

FINANCIAL INFORMATION

 

3

 

Item 1.

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and September 30, 2022

 

3

 

 

Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended March 31, 2023 and 2022

 

4

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended March 31, 2023 and 2022

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended March 31, 2023 and 2022

 

6

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

Item 2.

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

 

27

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

37

 

 

Item 4.

Controls and Procedures

 

37

 

 

PART II

 

 

 

 

OTHER INFORMATION

 

38

 

 

Item 1.

Legal Proceedings

 

38

 

 

Item 1A.

Risk Factors

 

39

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

Item 3.

Defaults upon Senior Securities

 

40

 

 

Item 4.

Mine Safety Disclosures

 

40

 

 

Item 5.

Other Information

 

40

 

 

Item 6.

Exhibits

 

41

 

 

SIGNATURES

 

44

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LIVE VENTURES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per-share amounts)

 

 

 

March 31, 2023

 

 

September 30, 2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash

 

$

4,168

 

 

$

4,600

 

Trade receivables, net of allowance for doubtful accounts of $482,000 at March 31, 2023 and $132,000 at September 30, 2022

 

 

29,703

 

 

 

25,665

 

Inventories, net of reserves of $2.6 million at March 31, 2023 and $2.4 million at September 30, 2022

 

 

115,050

 

 

 

97,659

 

Income taxes receivable

 

 

4,237

 

 

 

4,403

 

Prepaid expenses and other current assets

 

 

2,748

 

 

 

2,477

 

Total current assets

 

 

155,906

 

 

 

134,804

 

Property and equipment, net of accumulated depreciation of $31.7 million at March 31, 2023, and $26.7 million at September 30, 2022

 

 

67,098

 

 

 

64,590

 

Right of use asset - operating leases

 

 

45,504

 

 

 

33,659

 

Right of use asset - finance leases

 

 

387

 

 

 

 

Deposits and other assets

 

 

1,741

 

 

 

647

 

Intangible assets, net of accumulated amortization of $3.4 million at March 31, 2023 and $2.1 million at September 30, 2022

 

 

25,249

 

 

 

3,844

 

Goodwill

 

 

69,506

 

 

 

41,093

 

Total assets

 

$

365,391

 

 

$

278,637

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,420

 

 

$

10,899

 

Accrued liabilities

 

 

21,465

 

 

 

16,486

 

Current portion of lease obligations - operating leases

 

 

10,688

 

 

 

7,851

 

Current portion of lease obligations - finance leases

 

 

341

 

 

 

217

 

Current portion of long-term debt

 

 

30,288

 

 

 

18,935

 

Current portion of notes payable related parties

 

 

 

 

 

2,000

 

Total current liabilities

 

 

75,202

 

 

 

56,388

 

Long-term debt, net of current portion

 

 

67,530

 

 

 

59,704

 

Lease obligation long term - operating leases

 

 

39,611

 

 

 

30,382

 

Lease obligation long term - finance leases

 

 

19,930

 

 

 

19,568

 

Notes payable related parties, net of current portion

 

 

45,675

 

 

 

5,000

 

Deferred taxes

 

 

12,986

 

 

 

8,818

 

Other non-current obligations

 

 

1,222

 

 

 

1,615

 

Total liabilities

 

 

262,156

 

 

 

181,475

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 47,840
  shares issued and outstanding at March 31, 2023 and September 30, 2022, respectively, with a
  liquidation preference of $
0.30 per share outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 10,000,000 shares authorized, 3,165,890 and 3,074,833 shares issued
   and outstanding at March 31, 2023 and September 30, 2022, respectively

 

 

2

 

 

 

2

 

Paid in capital

 

 

68,630

 

 

 

65,321

 

Treasury stock common 646,355 and 620,971 shares as of March 31, 2023 and September 30, 2022, respectively

 

 

(7,853

)

 

 

(7,215

)

Treasury stock Series E preferred 80,000 shares as of March 31, 2023 and
   of September 30, 2022, respectively

 

 

(7

)

 

 

(7

)

Retained earnings

 

 

42,911

 

 

 

39,509

 

Equity attributable to Live stockholders

 

 

103,683

 

 

 

97,610

 

Non-controlling interest

 

 

(448

)

 

 

(448

)

Total stockholders' equity

 

 

103,235

 

 

 

97,162

 

Total liabilities and stockholders' equity

 

$

365,391

 

 

$

278,637

 

 

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 amounts)

 

 

 

For the Three Months Ended March 31,

 

 

For the Six Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

 

$

91,122

 

 

$

69,706

 

 

$

160,108

 

 

$

144,864

 

Cost of revenues

 

 

59,514

 

 

 

44,753

 

 

 

106,556

 

 

 

92,295

 

Gross profit

 

 

31,608

 

 

 

24,953

 

 

 

53,552

 

 

 

52,569

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

22,617

 

 

 

13,154

 

 

 

37,217

 

 

 

27,311

 

Sales and marketing expenses

 

 

4,039

 

 

 

3,350

 

 

 

6,816

 

 

 

6,402

 

Total operating expenses

 

 

26,656

 

 

 

16,504

 

 

 

44,033

 

 

 

33,713

 

Operating income

 

 

4,952

 

 

 

8,449

 

 

 

9,519

 

 

 

18,856

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(3,235

)

 

 

(858

)

 

 

(5,282

)

 

 

(1,875

)

Loss on debt extinguishment

 

 

 

 

 

(363

)

 

 

 

 

 

(363

)

Gain on disposal of fixed assets

 

 

7

 

 

 

(1

)

 

 

7

 

 

 

(1

)

Gain on bankruptcy settlement

 

 

 

 

 

11,362

 

 

 

 

 

 

11,352

 

Other income (expense)

 

 

384

 

 

 

292

 

 

 

323

 

 

 

418

 

Total other expense, net

 

 

(2,844

)

 

 

10,432

 

 

 

(4,952

)

 

 

9,531

 

Income before provision for income taxes

 

 

2,108

 

 

 

18,881

 

 

 

4,567

 

 

 

28,387

 

Provision for income taxes

 

 

550

 

 

 

3,523

 

 

 

1,165

 

 

 

6,483

 

Net income

 

 

1,558

 

 

 

15,358

 

 

 

3,402

 

 

 

21,904

 

Net income attributable to Live stockholders

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

 

$

4.90

 

 

$

1.10

 

 

$

6.96

 

Diluted

 

$

0.49

 

 

$

4.84

 

 

$

1.08

 

 

$

6.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

3,143,911

 

 

 

3,134,540

 

 

 

3,101,007

 

 

 

3,148,059

 

Diluted

 

 

3,184,982

 

 

 

3,172,881

 

 

 

3,137,625

 

 

 

3,187,123

 

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 Six Months Ended March 31,

 

 

 

2023

 

 

2022

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

3,402

 

 

$

21,904

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

6,297

 

 

 

3,045

 

(Gain)/loss on disposal of property and equipment

 

 

(7

)

 

 

1

 

Gain on bankruptcy settlement

 

 

 

 

 

(11,501

)

Amortization of debt issuance cost

 

 

105

 

 

 

(112

)

Stock based compensation expense

 

 

109

 

 

 

37

 

Amortization of right-of-use assets

 

 

1,397

 

 

 

55

 

Change in reserve for uncollectible accounts

 

 

350

 

 

 

27

 

Change in reserve for obsolete inventory

 

 

169

 

 

 

146

 

Change in deferred income taxes

 

 

4,168

 

 

 

2,257

 

Changes in assets and liabilities:

 

 

 

 

 

 

Trade receivables

 

 

436

 

 

 

(698

)

Inventories

 

 

2,384

 

 

 

(8,658

)

Income taxes payable/receivable

 

 

166

 

 

 

(148

)

Prepaid expenses and other current assets

 

 

3,453

 

 

 

(422

)

Deposits and other assets

 

 

(1,095

)

 

 

(116

)

Accounts payable

 

 

(3,668

)

 

 

3,911

 

Accrued liabilities

 

 

(3,547

)

 

 

(4,500

)

Other Liabilities

 

 

59

 

 

 

23

 

Net cash provided by operating activities

 

 

14,178

 

 

 

5,251

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Acquisition of Flooring Liquidators, net of cash acquired

 

 

(33,929

)

 

 

 

Purchase of property and equipment

 

 

(2,900

)

 

 

(7,503

)

Net cash used in investing activities

 

 

(36,829

)

 

 

(7,503

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Net borrowings (payments) under revolver loans

 

 

12,312

 

 

 

4,887

 

Proceeds from issuance of notes payable

 

 

8,449

 

 

 

9,000

 

Payments on notes payable

 

 

(3,679

)

 

 

(8,020

)

Proceeds from issuing related party notes payable

 

 

7,000

 

 

 

 

Payments for debt acquisition costs

 

 

(96

)

 

 

 

Purchase of common treasury stock

 

 

(639

)

 

 

(2,084

)

Payments on financing leases

 

 

(1,077

)

 

 

(80

)

Payments on seller financing arrangements

 

 

(51

)

 

 

 

Debtor-in-possession cash

 

 

 

 

 

75

 

Net cash provided by financing activities

 

 

22,219

 

 

 

3,778

 

 

 

 

 

 

 

Increase in cash

 

 

(432

)

 

 

1,526

 

Cash, beginning of period

 

 

4,600

 

 

 

4,664

 

Cash, end of period

 

$

4,168

 

 

$

6,190

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Interest paid

 

$

4,602

 

 

$

1,823

 

Income taxes paid

 

$

43

 

 

$

4,458

 

Noncash financing and investing activities:

 

 

 

 

 

 

Noncash items related to Flooring Liquidators acquisition

 

$

36,900

 

 

$

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Retained
 Earnings

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, September 30, 2022

 

 

 

 

$

 

 

 

47,840

 

 

$

 

 

 

3,074,833

 

 

$

2

 

 

$

65,321

 

 

$

(7

)

 

$

(7,215

)

 

$

39,509

 

 

$

(448

)

 

$

97,162

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,710

)

 

 

 

 

 

 

 

 

 

 

 

(621

)

 

 

 

 

 

 

 

 

(621

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,844

 

 

 

 

 

 

1,844

 

Balance, December 31, 2022

 

 

 

 

$

 

 

 

47,840

 

 

$

 

 

 

3,050,123

 

 

$

2

 

 

$

65,321

 

 

$

(7

)

 

$

(7,836

)

 

$

41,353

 

 

$

(448

)

 

$

98,385

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(674

)

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

 

 

(17

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116,441

 

 

 

 

 

 

3,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,200

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,558

 

 

 

 

 

 

1,558

 

Balance, March 31, 2023

 

 

 

 

$

 

 

 

47,840

 

 

$

 

 

 

3,165,890

 

 

$

2

 

 

$

68,630

 

 

$

(7

)

 

$

(7,853

)

 

$

42,911

 

 

$

(448

)

 

$

103,235

 

 

 

 

Series B
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Common Stock

 

 

 

 

 

Series E
Preferred
Stock

 

 

Common
Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Treasury
Stock

 

 

Treasury
Stock

 

 

Retained
 Earnings

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, September 30, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,582,334

 

 

$

2

 

 

$

65,284

 

 

$

(7

)

 

$

(4,519

)

 

$

14,768

 

 

$

(448

)

 

$

75,080

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,546

 

 

 

 

 

 

6,546

 

Balance, December 31, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,582,334

 

 

$

2

 

 

$

65,302

 

 

$

(7

)

 

$

(4,519

)

 

$

21,314

 

 

$

(448

)

 

$

81,644

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,668

)

 

 

 

 

 

 

 

 

 

 

 

(2,084

)

 

 

 

 

 

 

 

 

(2,084

)

Conversion of Series B preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,578,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,358

 

 

 

 

 

 

15,358

 

Balance, March 31, 2022

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

3,095,616

 

 

$

2

 

 

$

65,321

 

 

$

(7

)

 

$

(6,603

)

 

$

36,672

 

 

$

(448

)

 

$

94,937

 

 

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

6


 

LIVE VENTURES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2023 AND 2022

(dollars in thousands, except per-share amounts)

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, “Live Ventures” or the “Company”). Live Ventures is a diversified holding company with a strategic focus on value-oriented acquisitions of domestic middle-market companies. The Company has five operating segments: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. The Retail-Entertainment segment includes Vintage Stock, Inc. (“Vintage Stock”), which is engaged in the retail sale of new and used movies, music, collectibles, comics, books, games, game systems and components. The Retail-Flooring segment includes Flooring Liquidators, Inc. (“Flooring Liquidators”), which is engaged in the retail sale and installation of floors, carpets, and countertops. The Flooring Manufacturing segment includes Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floor coverings. The Steel Manufacturing Segment includes Precision Industries, Inc. (“Precision Marshall”), which is engaged in the manufacture and sale of alloy and steel plates, ground flat stock and drill rods, and The Kinetic Co., Inc. (“Kinetic”), which is engaged in the production of industrial knives and hardened wear products for the tissue and metals industries.

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 six months ended March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2023. The financial information included in these statements should be read in conjunction with the condensed consolidated financial statements and related notes thereto as of September 30, 2022 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 December 16, 2022 (the “2022 10-K”).

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation

The unaudited condensed financial statements include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control, and a variable interest entity (“VIE”). The Company records a non-controlling interest within stockholders’ equity for the portion of the entity’s equity attributed to the consolidated entities that are not wholly owned. All intercompany accounts and transactions have been eliminated in consolidation. These reclassifications have no material effect on the reported financial results.

Reclassifications

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

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s 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 condensed consolidated financial statements, as well as 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 condensed consolidated financial statements include the estimated reserve for doubtful accounts, the estimated reserve for excess and obsolete inventory, fair values of goodwill, other intangibles and long-lived assets in connection with an acquisition, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, and estimated useful lives for intangible assets and property and equipment.

7


 

Recently Issued Accounting Pronouncements

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. Effective December 31, 2021, the Secured Overnight Financing Rate (“SOFR”) replaced the USD London Interbank-Offered Rate (“LIBOR”) for most financial benchmarking. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company has adopted this new accounting standard on its condensed consolidated financial statements and related disclosures; however, adoption of this ASU is anticipated to have no material impact on the Company's financial statements.

 

Note 3: Acquisitions

Acquisition of Flooring Liquidators

On January 18, 2023, Live Ventures acquired 100% of the issued and outstanding equity interests of Flooring Liquidators, Inc., Elite Builder Services, Inc., 7 Day Stone, Inc., Floorable, LLC, K2L Leasing, LLC, and SJ & K Equipment, Inc. (collectively, the “Acquired Companies”). The Acquired Companies are leading retailers and installers of floors, carpets, and countertops to consumers, builders and contractors in California and Nevada.

The acquisition was pursuant to a Securities Purchase Agreement with an effective date of January 18, 2023 by and among the Company, Buyer, Stephen J. Kellogg, as the seller representative of the equity holders of the Acquired Companies and individually in his capacity as an equity holder of the Acquired Companies, and the other equity holders of the Acquired Companies. The purchase price for the Equity Interests was $83.8 million before any fair value considerations, and is comprised of the following:

$41.8 million in cash to the Seller;
$34.0 million (the “Note Amount”) to certain trusts for the benefit of Kellogg and members of his family (the “Kellogg Trusts”) pursuant to the issuance by Buyer of a subordinated promissory note (the “Note”) in favor of the Kellogg Trusts;
$4.0 million to the Kellogg 2022 Family Irrevocable Nevada Trust by issuance of 116,441 shares of Parent Common Stock (as defined in the Purchase Agreement) (the “Share Amount”), calculated in the manner described in the Purchase Agreement;
$2.0 million holdback; and
$2.0 million of contingent consideration, comprised of $1.0 million in cash and $1.0 million in restricted stock units.

 

The fair value the purchase price components outlined above was $78.7 million due to fair value adjustments for the seller note, restricted stock, and contingent consideration.

Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $28.7 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of January 18, 2023, as calculated by an independent third-party firm. The Company anticipates approximately $13.4 million of the goodwill arising from the acquisition to be fully deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for Flooring Liquidators to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):

 

8


 

Total purchase price

 

 

 

$

78,700

 

Less fair value of the holdback option

 

 

 

 

 

Net purchase price

 

 

 

$

78,700

 

Accounts payable

 

 

 

 

5,189

 

Accrued liabilities

 

 

 

 

9,182

 

Debt

 

 

 

 

60

 

   Total liabilities assumed

 

 

 

 

14,431

 

Total consideration

 

 

 

 

93,131

 

Cash

 

 

 

 

7,871

 

Accounts receivable

 

 

 

 

4,824

 

Inventory

 

 

 

 

19,944

 

Property, plant and equipment

 

 

 

 

4,678

 

Intangible assets

 

 

 

 

 

Trade names

 

$

13,275

 

 

 

Customer relationships

 

 

7,700

 

 

 

Non-compete agreements

 

 

1,625

 

 

 

Other

 

 

49

 

 

 

Subtotal intangible assets

 

 

 

 

22,649

 

Other

 

 

 

 

4,440

 

Total assets acquired

 

 

 

 

64,406

 

Total goodwill

 

 

 

$

28,725

 

 

Pro Forma Information

The table below presents selected proforma information for the Company for the three- and six-month periods ended March 31, 2023, assuming that the acquisition had occurred on October 1, 2021 (the beginning of the Company’s 2022 fiscal year), pursuant to ASC 805-10-50 (in $000's). This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on that date, nor does it purport to predict the results of operations for future periods.

 

9


 

 

 

As Reported

 

 

Adjustments

 

 

Proforma

 

 

 

Live Unaudited Three Months Ended March 31, 2023

 

Flooring Liquidators Unaudited Three Months Ended March 31, 2023

 

 

Adjustments(1)

 

 

LIVE for the Three Months Ended March 31, 2023

 

Net revenue

 

$

91,122

 

$

4,222

 

 

 

 

 

$

95,344

 

Net income

 

$

1,558

 

$

(2,188

)

 

$

(300

)

 

$

(930

)

Earnings per basic
 common share

 

$

0.50

 

 

 

 

 

 

 

$

(0.30

)

Earnings per basic
 diluted share

 

$

0.49

 

 

 

 

 

 

 

$

(0.29

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

 

Adjustments

 

 

Proforma

 

 

 

Live Unaudited Three Months Ended March 31, 2022

 

Flooring Liquidators Unaudited Three Months Ended March 31, 2022

 

 

Adjustments(1)

 

 

LIVE for the Three Months Ended March 31, 2022

 

Net revenue

 

$

69,706

 

$

29,205

 

 

 

 

 

$

98,911

 

Net income

 

$

15,358

 

$

1,886

 

 

$

(1,946

)

 

$

15,298

 

Earnings per basic
 common share

 

$

4.90

 

 

 

 

 

 

 

$

4.88

 

Earnings per basic
 diluted share

 

$

4.84

 

 

 

 

 

 

 

$

4.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

 

Adjustments

 

 

Proforma

 

 

 

Live Unaudited Six Months Ended March 31, 2023

 

Flooring Liquidators Unaudited Six Months Ended March 31, 2023

 

 

Adjustments(1)

 

 

LIVE for the Six Months Ended March 31, 2023

 

Net revenue

 

$

160,108

 

$

37,702

 

 

 

 

 

$

197,810

 

Net income

 

 

3,402

 

$

(1,033

)

 

$

(2,226

)

 

$

143

 

Earnings per basic
 common share

 

$

1.10

 

 

 

 

 

 

 

$

0.05

 

Earnings per basic
 diluted share

 

$

1.08

 

 

 

 

 

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

 

Adjustments

 

 

Proforma

 

 

 

Live Unaudited Six Months Ended March 31, 2022

 

Flooring Liquidators Unaudited Six Months Ended March 31, 2022

 

 

Adjustments(1)

 

 

LIVE for the Six Months Ended March 31, 2022

 

Net revenue

 

$

144,864

 

$

59,850

 

 

 

 

 

$

204,714

 

Net income

 

$

21,904

 

$

5,221

 

 

$

(3,818

)

 

$

23,307

 

Earnings per basic
 common share

 

$

6.96

 

 

 

 

 

 

 

$

7.40

 

Earnings per basic
 diluted share

 

$

6.87

 

 

 

 

 

 

 

$

7.31

 

(1) Adjustments are related to adjustments made for the following:

Amortization expense of definite-lived intangible assets has been adjusted based on the preliminary fair value at the acquisition date.
Interest expense has been adjusted to include proforma interest expense that would have been incurred as a result of the acquisition financing obtained by the Company.
Elimination of revenues and costs of revenues associated with sales between Flooring Liquidators and the Company prior to acquisition.

10


 

Acquisition of Kinetic

On June 28, 2022, Precision Marshall (“Precision”) acquired 100% of the issued and outstanding shares of common stock of The Kinetic Co., Inc. (“Kinetic”), a Wisconsin corporation, which was accomplished through a Purchase Agreement (the “Purchase Agreement”). In connection with the Purchase Agreement, Precision also entered into a Real Estate Purchase Agreement with Plant B-6, LLC, an affiliate of Kinetic, pursuant to which Precision received all of Kinetic's right, title, and interest in and to the land and improvements (collectively, the “Real Estate”) that Kinetic uses in its operations. The combined purchase price for the Kinetic shares and Real Estate was approximately $24.7 million, which was funded with approximately $11.0 million in borrowings under the company’s credit facility, approximately $8.3 million in proceeds from sale and leaseback of the Real Estate, a subordinated promissory note in the amount of $3.0 million to the Seller of Kinetic, $1.7 million of cash on-hand, a contingent earn-out liability valued at $997,000, a working capital adjustment of approximately $400,000, which was paid in cash, and a final fair value adjustment of approximately $312,000, which was noncash.

As of the date of acquisition, Precision entered into a sale and leaseback agreement with a third-party, independent of the Kinetic sellers, for the Real Estate. The sale price of the Real Estate was approximately $8.9 million, subject to closing fees of approximately $547,000.

The provisions of the lease agreement include a 20-year lease term with two five-year renewal options. The base rent under the lease agreement is $600,000 for the first year of the term and a 2% per annum escalator. The Lease Agreement is a “net lease,” such that the lessees are also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the Real Property incurred by the lessor. Due to the highly specialized nature of the leased assets, the Company currently believes that it is more likely than not that each of the two five-year options will be exercised. The proceeds, net of closing fees, from the sale-leaseback were used to assist in funding the acquisition of Kinetic.

Under the purchase price allocation, the Company recognized goodwill of approximately $3.0 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of June 28, 2022, as calculated by an independent third-party firm. Goodwill arising from the acquisition is expected to be fully deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for Kinetic to the acquired identifiable assets, liabilities assumed and goodwill as of March 31, 2023 (in $000’s):

 

Total purchase price

 

$

24,732

 

Accounts payable

 

 

571

 

Accrued liabilities

 

 

1,848

 

   Total liabilities assumed

 

 

2,419

 

Total consideration

 

 

27,151

 

Cash

 

 

287

 

Accounts receivable

 

 

3,073

 

Inventory

 

 

6,429

 

Property, plant and equipment

 

 

12,855

 

Intangible assets

 

 

1,000

 

Other assets

 

 

480

 

   Total assets acquired

 

 

24,124

 

    Total goodwill

 

$

3,027

 

 

11


 

Acquisition of Better Backers

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement (the “Asset Purchase Agreement”). No liabilities were assumed as part of the acquisition. The purchase price, which is subject to certain post-closing adjustments, was approximately $3.2 million, which is comprised of $1.8 million that was paid upon closing, and the $1.4 million present value of $1.5 million of non-compete payments to be made over a 24-month period. In order to expedite the transaction, the acquisition was originally made by Live, and the $1.8 million paid upon closing was funded with borrowings under Live’s credit line with Isaac Capital Group (“ICG”). On August 18, 2022, Marquis repaid the $1.8 million to ICG and assumed ownership of Better Backers.

In connection with the acquisition, Marquis entered into two 20-year building leases with Spyglass Estate Planning, LLC, a related party (see Note 15), with two options to renew for an additional five years each. The fair value of the buildings and improvement is approximately $9.3 million. The provisions of the lease agreements include an initial 24-month month-to-month rental period, during which the lessee may cancel with 90-day notice, followed by a 20-year lease term with two five-year renewal options. Due to the highly specialized nature of the leased assets, the Company currently believes that it is more likely than not that it will not cancel during the initial 24-month term, and that each of the two five-year options will be exercised. The base rent under the lease agreements is approximately $73,000 and $32,000 per month, respectively, for the first year of the term, and a 2.5% per annum escalator. The lease agreements are each “net leases”, such that the lessee is also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the property. The Company has evaluated each lease and determined the rent amounts to be at market rates. These leases are being treated as finance leases for accounting purposes, as described in ASC 842 “Leases”.

Under the purchase price allocation, no goodwill was recognized. The values assigned to the assets acquired are based on their estimates of fair value available as of July 1, 2022, as calculated by management. The table below outlines the purchase price allocation of the purchase for Better Backers to the acquired identifiable assets (in $000’s):

 

Total purchase price

 

$

3,166

 

Inventory

 

 

748

 

Property, plant and equipment

 

 

2,118

 

Intangible assets

 

 

300

 

   Total assets acquired

 

 

3,166

 

 

Note 4: 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 future dates with many agreements containing renewal options for additional periods. The agreements, which have been classified as either operating or finance leases, generally provide for minimum and, in some cases, percentage rent, and require the Company 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 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 March 31, 2023, the weighted average remaining lease term for operating leases is 8.6 years. The Company's weighted average discount rate for operating leases is 8.1%. Total cash payments for operating leases for the six months ended March 31, 2023 and 2022 were approximately $3.9 million and $4.9 million, respectively. Additionally, we obtained right-of-use assets in exchange for operating lease liabilities of approximately $15.6 million upon commencement of operating leases during the six months ended March 31, 2023.

As of March 31, 2023, the weighted average remaining lease term for finance leases is 27.1 years. The Company's weighted average discount rate for finance leases is 13.2%. Total cash payments for finance leases for the six months ended March 31, 2023 and 2022 were approximately $1.1 million and $0, respectively. Additionally, we obtained right-of-use assets in exchange for finance lease liabilities of approximately $387,000 upon commencement of operating leases during the six months ended March 31, 2023.

12


 

The following table details our right of use assets and lease liabilities as of March 31, 2023 and September 30, 2022 (in $000's):

 

 

 

March 31, 2023

 

September 30, 2022

 

Right of use asset - operating leases

 

$

45,504

 

$

33,659

 

Right of use asset - finance leases

 

 

387

 

 

 

Lease liabilities:

 

 

 

 

 

Current - operating

 

 

10,688

 

 

7,851

 

Current - finance

 

 

341

 

 

217

 

Long term - operating

 

 

39,611

 

 

30,382

 

Long term - finance

 

 

19,930

 

 

19,568

 

 

Total present value of future lease payments of operating leases as of March 31, 2023 (in $000's):

 

Twelve months ended March 31,

 

 

 

2023

 

$

10,688

 

2024

 

 

8,941

 

2025

 

 

7,580

 

2026

 

 

6,167

 

2027

 

 

4,796

 

Thereafter

 

 

15,338

 

Total

 

 

53,510

 

Less implied interest

 

 

(3,211

)

Present value of payments

 

$

50,299

 

 

Total present value of future lease payments of finance leases as of March 31, 2023 (in $000's):

 

Twelve months ended March 31,

 

 

 

2023

 

$

341

 

2024

 

 

850

 

2025

 

 

753

 

2026

 

 

681

 

2027

 

 

617

 

Thereafter

 

 

29,913

 

Total

 

 

33,155

 

Less implied interest

 

 

(12,884

)

Present value of payments

 

$

20,271

 

In connection with the acquisition of Flooring Liquidators (see Note 3), as of March 31, 2023, the Company has obtained right-of-use assets in exchange for operating lease liabilities of $14.7 million, and right-of-use assets in exchange for finance lease liabilities of $387,000.

During the six months ended March 31, 2023 and 2022, the Company recorded no gain or loss settlements, nor did it record impairment charges relating to any of its leases.

Note 5: Inventory

The following table details the Company's inventory as of March 31, 2023 and September 30, 2022 (in $000's):

 

Inventory, net

 

March 31, 2023

 

 

September 30, 2022

 

Raw materials

 

$

32,656

 

 

$

35,829

 

Work in progress

 

 

8,694

 

 

 

7,539

 

Finished goods

 

 

33,802

 

 

 

32,814

 

Merchandise

 

 

43,316

 

 

 

23,900

 

 

 

118,468

 

 

 

100,082

 

Less: Inventory reserves

 

 

(2,749

)

 

 

(2,423

)

Total inventory, net

 

$

115,719

 

 

$

97,659

 

 

13


 

Note 6: Property and Equipment

The following table details the Company's property and equipment as of March 31, 2023 and September 30, 2022 (in $000's):

 

 

March 31, 2023

 

 

September 30, 2022

 

Property and equipment, net:

 

 

 

 

 

 

Land

 

$

2,064

 

 

$

2,029

 

Building and improvements

 

 

24,408

 

 

 

26,761

 

Transportation equipment

 

 

3,038

 

 

 

622

 

Machinery and equipment

 

 

55,685

 

 

 

53,739

 

Furnishings and fixtures

 

 

6,036

 

 

 

4,407

 

Office, computer equipment and other

 

 

7,564

 

 

 

3,699

 

 

 

98,795

 

 

 

91,257

 

Less: Accumulated depreciation

 

 

(31,697

)

 

 

(26,667

)

 

$

67,098

 

 

$

64,590

 

Depreciation expense was $2.7 million and $1.3 million, respectively, for the three months ended March 31, 2023 and 2022, and $5.1 million and $2.5 million for the six months ended March 31, 2023 and 2022.

Note 7: Intangibles

The following table details the Company's intangibles as of March 31, 2023 and September 30, 2022 (in $000's):

 

 

March 31, 2023

 

 

September 30, 2022

 

Intangible assets, net:

 

 

 

 

 

 

Intangible assets - Domain names

 

$

14,082

 

 

$

808

 

Intangible assets - Customer relationships

 

 

12,298

 

 

 

4,598

 

Intangible assets - Other

 

 

2,261

 

 

 

587

 

 

 

28,641

 

 

 

5,993

 

Less: Accumulated amortization

 

 

(3,392

)

 

 

(2,149

)

Total intangibles, net

 

$

25,249

 

 

$

3,844

 

Amortization expense was $992,000 and $210,000, respectively, for the three months ended March 31, 2023 and 2022, and $1.2 million and $496,000 for the six months ended March 31, 2023 and 2022.

The following table summarizes estimated future amortization expense related to intangible assets that have net balances (in $000’s):

 

2024

 

$

4,308

 

2025

 

 

4,207

 

2026

 

 

4,207

 

2027

 

 

4,139

 

2028

 

 

3,835

 

Thereafter

 

 

4,553

 

 

$

25,249

 

 

Note 8: Goodwill

The following table details the Company's goodwill as of March 31, 2023 (in $000's):

 

14


 

 

 

Retail

 

Flooring Manufacturing

 

Steel Manufacturing

 

Corporate

 

Total

 

September 30, 2022

 

 

36,947

 

 

807

 

 

3,339

 

 

 

 

41,093

 

Additions

 

 

 

 

 

 

 

 

 

 

 

Kinetic fair value adjustment

 

 

 

 

 

 

(312

)

 

 

 

(312

)

Flooring Liquidators acquisition

 

 

25,394

 

 

 

 

 

 

 

 

25,394

 

Flooring Liquidators tax adjustment

 

 

3,331

 

 

 

 

 

 

 

 

3,331

 

Impairment

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

$

65,672

 

$

807

 

$

3,027

 

$

 

$

69,506

 

As of March 31, 2023, the Company did not identify any triggering events that would require impairment testing.

15


 

Note 9: Accrued Liabilities

 

The following table details the Company's accrued liabilities as of March 31, 2023 and September 30, 2022, respectively (in $000's):

 

 

 

March 31, 2023

 

 

September 30, 2022

 

Accrued liabilities:

 

 

 

 

 

 

Accrued payroll and bonuses

 

$

4,657

 

 

$

4,838

 

Accrued sales and use taxes

 

 

1,862

 

 

 

1,905

 

Accrued customer deposits

 

 

3,996

 

 

 

 

Accrued gift card and escheatment liability

 

 

1,780

 

 

 

1,696

 

Accrued interest payable

 

 

963

 

 

 

390

 

Accrued accounts payable and bank overdrafts

 

 

1,008

 

 

 

1,731

 

Accrued professional fees

 

 

1,054

 

 

 

1,924

 

Accrued expenses - other

 

 

6,145

 

 

 

4,002

 

Total accrued liabilities

 

$

21,465

 

 

$

16,486

 

 

Note 10: Long-Term Debt

Long-term debt as of March 31, 2023 and September 30, 2022 consisted of the following (in $000's):

 

 

 

March 31, 2023

 

 

September 30, 2022

 

Revolver loans

 

$

55,419

 

 

$

43,107

 

Equipment loans

 

 

17,525

 

 

 

13,716

 

Term loans

 

 

9,288

 

 

 

7,941

 

Other notes payable

 

 

16,176

 

 

 

14,501

 

Total notes payable

 

 

98,408

 

 

 

79,265

 

Less: unamortized debt issuance costs

 

 

(590

)

 

 

(626

)

Net amount

 

 

97,818

 

 

 

78,639

 

Less: current portion

 

 

(30,288

)

 

 

(18,935

)

Total long-term debt

 

$

67,530

 

 

$

59,704

 

 

Future maturities of long-term debt at March 31, 2023, are as follows which does not include related party debt separately stated (in $000's):

 

Twelve months ending March 31,

 

 

 

2024

 

$

30,288

 

2025

 

 

5,723

 

2026

 

 

15,290

 

2027

 

 

5,299

 

2028

 

 

30,281

 

Thereafter

 

 

10,937

 

Total future maturities of long-term debt

 

$

97,818

 

 

Eclipse Business Capital Loans

In connection with the acquisition of Flooring Liquidators (see Note 3), on January 18, 2023, Flooring Liquidators entered into a credit facility with Eclipse Business Capital, LLC (“Eclipse”). The facility consists of $25.0 million in revolving credit (“Eclipse Revolver”) and $3.5 million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a three-year, asset-based facility that is secured by substantially all of Flooring Liquidators’ assets. Availability under the Eclipse Revolver is subject to a monthly borrowing base calculation. Flooring Liquidators’ ability to borrow under the Eclipse Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Eclipse. The Eclipse Revolver bears interest at 4.5% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 3.5% per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at 6.0% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 5.0% per annum in excess of Adjusted Term SOFR after April 1, 2023. The credit facility matures in January 2026. As of March 31, 2023, the outstanding balance on the Eclipse Revolver was approximately $9.7 million, and the outstanding balance on the Eclipse M&E loan was approximately $2.8 million.

 

16


 

Bank of America Revolver Loan

On January 31, 2020, Marquis entered into an amended $25.0 million revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a five-year, asset-based facility that 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 meeting all loan covenants under the credit agreement with BofA. The BofA Revolver has a variable interest rate and matures in January 2025. As of March 31, 2023 and September 30, 2022, the outstanding balance was approximately $10.7 million and $10.1 million, respectively.

Loan with Fifth Third Bank

On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank, and the balance outstanding was repaid. The refinanced credit facility, totaling $29 million, is comprised of $23.0 million in revolving credit, $3.5 million in M&E lending, and $2.5 million for capital Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR plus 200 basis points for lending under the revolving facility, and 30-day SOFR plus 225 basis points for M&E and Capex lending (Effective December 31, 2021, SOFR replaced the USD LIBOR for most financial benchmarking). The refinancing of the Borrower’s existing credit facility reduces interest costs and improves the availability and liquidity of funds by approximately $3.0 million at the close. The facility terminates on January 20, 2027, unless terminated earlier in accordance with its terms.

In connection with the acquisition of Kinetic, the existing revolving facility was amended to add Kinetic as a borrower. In addition, two additional term loans were executed to fund the purchase of Kinetic. Approximately $6.0 million was drawn from the revolving facility, and the term loans were opened in the amounts of $4.0 million and $1.0 million, respectively. The $4.0 million term loan, which matures on January 20, 2027, carries the same terms for M&E term lending as stated above. The $1.0 million term loan, which matures on June 28, 2025, is a “Special Advance Term Loan”, and bears interest at SOFR plus 375 basis points.

As of March 31, 2023 and September 30, 2022, the outstanding balance on the revolving loan was approximately $27.1 million and $23.6 million, respectively, and the outstanding balance on the original term note was approximately $2.9 million and $3.2 million, respectively. The revolving loan has a variable interest rate and matures in January 2027. As of March 31, 2023 and September 30, 2022, the outstanding balances on the two term loans to fund the Kinetic acquisition were approximately $3.6 million and $4.8 million, respectively. As of March 31, 2023, the “Special Advance Term Loan” was fully repaid.

Texas Capital Bank Revolver Loan

On November 3, 2016, Vintage Stock entered into an amended $12.0 million credit agreement 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 has a variable interest rate and matures in November 2023. The effective rate, as of March 31, 2023, was 6.79%. As of March 31, 2023 and September 30, 2022, the balance outstanding was approximately $7.5 million and $9.4 million, respectively.

Equipment Loans

On June 20, 2016 and August 5, 2016, Marquis entered into a transaction that provided for a master agreement and separate loan schedules (the “Equipment Loans”) with Banc of America Leasing & Capital, LLC that provided for the following as of March 31, 2023:

Note #3 is for approximately $3.7 million, secured by equipment. The Equipment Loan #3 is due December 2023, payable in 84 monthly payments of $52,000 beginning January 2017, bearing interest rate at 4.8% per annum. As of March 31, 2023 and September 30, 2022, the balance was approximately $456,000 and $751,000, respectively.

Note #4 is for approximately $1.1 million, secured by equipment. The Equipment Loan #4 is due December 2023, payable in 81 monthly payments of $16,000 beginning April 2017, bearing interest at 4.9% per annum. As of March 31, 2023 and September 30, 2022, the balance was approximately $140,000 and $231,000, respectively.

17


 

Note #5 is for approximately $4.0 million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in 84 monthly payments of $55,000 beginning January 2018, bearing interest at 4.7% per annum. As of March 31, 2023 and September 30, 2022, the balance was approximately $1.1 million and $1.4 million, respectively.

Note #6 is for $913,000, secured by equipment. The Equipment Loan #6 is due July 2024, payable in 60 monthly payments of $14,000 beginning August 2019, with a final payment of $197,000, bearing interest at 4.7% per annum. As of March 31, 2023 and September 30, 2022, the balance was approximately $395,000 and $471,000, respectively.

Note #7 is for $5.0 million, secured by equipment. The equipment loan #7 is due February 2027, payable in 84 monthly payments of $59,000 beginning March 2020, with the final payment of $809,000, bearing interest at 3.2% per annum. As of March 31, 2023 and September 30, 2022, the balance was approximately $3.2 million and $3.5 million, respectively.

Note #8 is for approximately $3.4 million, secured by equipment. The equipment loan #8 is due September 2027, payable in 84 monthly payments of $46,000 beginning October 2020, bearing interest at 4.0%. As of March 31, 2023 and September 30, 20222, the balance was approximately $2.3 million and $2.5 million, respectively.

In December 2021, Marquis funded the acquisition of $5.5 million of new equipment under Note #9 of its master agreement. The note, which is secured by the equipment, matures December 2026, and is payable in 60 monthly installments of $92,000, with the final payment in the amount of approximately $642,000, beginning January 2022, bearing interest at 3.75%. As of March 31, 2023 and September 30, 2022, the balance was approximately $4.3 million and $4.8 million, respectively.

In December 2022, Marquis funded the acquisition of $5.7 million of new equipment under note #10 of its master agreement. The note, which is secured by the equipment, matures December 2029, and is payable in 84 monthly installments of $79,000, with the final payment in the amount of approximately $650,000, beginning January 2023, bearing interest at 6.50%. As of March 31, 2023, the balance was approximately $5.6 million.

Loan Covenant Compliance

As of March 31, 2023, the Company was in compliance with all covenants under its existing revolving and other loan agreements.

Note 11: Notes Payable, Related Parties

Long-term debt, related parties as of March 31, 2023 and September 30, 2022 consisted of the following (in $000's):

 

 

 

March 31, 2023

 

 

September 30, 2022

 

Isaac Capital Group, LLC, 12.5% interest rate, matures May 2025

 

$

2,000

 

 

$

2,000

 

Spriggs Investments, LLC, 10% interest rate, matures July 2024

 

 

2,000

 

 

 

2,000

 

Spriggs Investments, LLC for Flooring Liquidators, 12% interest rate, matures July 2024

 

 

1,000

 

 

 

 

Isaac Capital Group, LLC revolver, 12% interest rate, matures April 2024

 

 

1,000

 

 

 

 

Isaac Capital Group, LLC for Flooring Liquidators, 12% interest rate, matures January 2028

 

 

5,000

 

 

 

 

Seller of Flooring Liquidators, 8.24% interest rate, matures January 2028

 

 

34,000

 

 

 

 

Seller of Kinetic, 7.% interest rate, matures September 2027

 

 

3,000

 

 

 

3,000

 

Total notes payable - related parties

 

 

48,000

 

 

 

7,000

 

Less: unamortized debt issuance costs

 

 

(2,325

)

 

 

 

Net amount

 

 

45,675

 

 

 

7,000

 

Less: current portion

 

 

 

 

 

(2,000

)

Total long-term portion, related parties

 

$

45,675

 

 

$

5,000

 

 

 

18


 

Twelve months ending March 31,

 

 

 

2023

 

$

 

2024

 

 

4,000

 

2025

 

 

2,000

 

2026

 

 

 

2027

 

 

3,000

 

Thereafter

 

 

39,000

 

Total future maturities of long-term debt, related parties

 

$

48,000

 

 

Note 12: Stockholders’ Equity

Series E Convertible Preferred Stock

As of March 31, 2023 and September 30, 2022, there were 47,840 shares of Series E Convertible Preferred Stock issued and outstanding, respectively.

Treasury Stock

As of March 31, 2023 and September 30, 2022, the Company had 646,355 and 620,971 shares of Treasury Stock, respectively. During the six months ended March 31, 2023 and 2022, respectively, the Company purchased 25,384 and 65,668 shares of its common stock on the open market for approximately $639,000 and approximately $2.1 million, respectively.

Note 13: 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. 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 fiscal year ended September 30, 2022 and the six months ended March 31, 2023:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual Life

 

 

Intrinsic
Value

 

Outstanding at September 30, 2021

 

 

87,500

 

 

$

18.81

 

 

 

1.78

 

 

$

1,626

 

Outstanding at September 30, 2022

 

 

87,500

 

 

$

18.81

 

 

 

0.78

 

 

$

771

 

Exercisable at September 30, 2022

 

 

87,500

 

 

$

18.81

 

 

 

0.78

 

 

$

771

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2022

 

 

87,500

 

 

$

18.81

 

 

 

0.78

 

 

$

771

 

Outstanding at March 31, 2023

 

 

87,500

 

 

$

18.81

 

 

 

0.85

 

 

$

1,160

 

Exercisable at March 31, 2023

 

 

87,500

 

 

$

18.81

 

 

 

0.85

 

 

$

1,160

 

The following table presents the number and weighted average fair value ("WAFV") of unvested restricted stock awards:

 

 

 

Series A Restricted Stock Awards

 

 

WAFV

 

Outstanding at September 30, 2022

 

 

 

 

$

 

Granted

 

 

27,307

 

 

$

36.62

 

Vested

 

 

 

 

$

 

Canceled

 

 

 

 

$

 

Non-vested at December 31, 2022

 

 

27,307

 

 

$

36.62

 

 

19


 

The Company recognized compensation expense of approximately $109,000 and $19,000 during the three months ended March 31, 2023 and 2022, respectively, and approximately $109,000 and $37,000 during the six months ended March 31, 2023 and 2022, respectively, related to stock option awards and restricted stock awards granted to certain employees and officers based on the grant date fair value of the awards, and the revaluation for existing options whereby the expiration date was extended.

As of March 31, 2023, the Company had approximately $960,000 of unrecognized compensation expense associated with stock option awards and Restricted Stock Units outstanding.

Note 14: Earnings Per Share

Net income per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Condensed Consolidated Balance Sheet. Diluted net income per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares 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.

The following table presents the computation of basic and diluted net earnings per share (in $000's):

 

 

 

Three Months Ended March 31, 2023

 

 

Six Months Ended March 31,
2023

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

Less: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

3,143,911

 

 

 

3,134,540

 

 

 

3,101,007

 

 

 

3,148,059

 

Basic earnings per share

 

$

0.50

 

 

$

4.90

 

 

$

1.10

 

 

$

6.96

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

Add: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable for diluted earnings per share

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

3,143,911

 

 

 

3,134,540

 

 

 

3,101,007

 

 

 

3,148,059

 

Add: Options

 

 

40,832

 

 

 

38,102

 

 

 

36,379

 

 

 

38,825

 

Add: Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

Add: Series B Preferred Stock Warrants

 

 

 

 

 

 

 

 

 

 

 

 

Add: Series E Preferred Stock

 

 

239

 

 

 

239

 

 

 

239

 

 

 

239

 

Assumed weighted average common shares outstanding

 

 

3,184,982

 

 

 

3,172,881

 

 

 

3,137,625

 

 

 

3,187,123

 

Diluted earnings per share

 

$

0.49

 

 

$

4.84

 

 

$

1.08

 

 

$

6.87

 

 

There are 17,000 and 0 options to purchase shares of common stock that are anti-dilutive, and are not included in the three months ended March 31, 2023 and 2022 diluted earnings per share computations, respectively.

Note 15: Related Party Transactions

Transactions with Isaac Capital Group, LLC

As of March 31, 2023, Isaac Capital Group, LLC (“ICG”) beneficially owns 48.8% of the Company’s issued and outstanding capital stock. Jon Isaac, the Company's President and Chief Executive Officer, is the President and sole member of ICG, and, accordingly, has sole voting and dispositive power with respect to these shares. Mr. Isaac also personally owns 219,177 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. Mr. Isaac's options to purchase 25,000 shares of common stock were originally scheduled to expire on January 15, 2023, but, as amended on January 13, 2023, the expiration date was extended to January 15, 2025.

20


 

ICG Term Loan

As of March 31, 2023, the Company was a party to a term loan with ICG in the amount of $2.0 million (the “ICG 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. As of March 31, 2023 and September 30, 2022, the outstanding balance on this loan was $2.0 million.

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 $1.0 million 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. On April 1, 2023, the Company entered into the First Amendment of the ICG Revolver that extended the maturity to April 8, 2024 and increased the interest rate to 12% per annum. As of March 31, 2023 and September 30, 2022, the outstanding balance on this note was $1.0 million and $0, respectively.

ICG Flooring Liquidators Note

On January 18, 2023, in connection with the acquisition of Flooring Liquidators, the Company was a party to a term loan with ICG in the amount of $5.0 million (“ICG Flooring Liquidators Loan”). The ICG Flooring Liquidators Loan matures on January 18, 2028, and bears interest at 12%. Interest is payable in arrears on the last day of each calendar month. The note is fully guaranteed by the Company. As of March 31, 2023, the outstanding balance on this loan was $5.0 million.

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 $112,000 and $75,000 in rent and other reimbursed expenses for three months ended March 31, 2023 and 2022 and $256,000 and $144,000 in rent and other reimbursed expenses for the six months ended March 31, 2023 and 2022, respectively. Tony Isaac is the Chief Executive Officer, President, Secretary, and a member of the Board of Directors of JanOne.

Purchase Agreement with ARCA Recycling.

On April 5, 2022, the Company entered into a Purchasing Agreement with ARCA Recycling, Inc. (“ARCA”), then a wholly-owned subsidiary of JanOne. Pursuant to the agreement, the Company agrees to purchase inventory from time to time for ARCA as set forth in submitted purchase orders. The inventory is owned by the Company until ARCA installs it in customer's homes, and payment by ARCA to the Company is due upon ARCA's receipt of payment from the customer. All purchases made by the Company shall be paid back by ARCA in full plus an additional five percent surcharge or broker-type fee. The term of the Agreement is one year, and automatically renews if not terminated by either party. Due to significant doubt that the full balance due from ARCA will be paid, on March 31, 2023 the Company recorded an allowance of approximately $267,000 against the amount due. Consequently, as of March 31, 2023, the amount due from ARCA was approximately $267,000, net of the allowance recorded, and the inventory balance was approximately $99,000.

Transactions with Vintage Stock CEO

Spriggs Promissory Note I

On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note I”) in favor of Spriggs Investments, LLC (“Spriggs Investments”), a limited liability company whose sole member is Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly-owned subsidiary of the Company, that memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $2.0 million (the “Spriggs Loan I”). The Spriggs Loan I originally matured on July 10, 2022; however, the maturity date was extended to July 10, 2023, pursuant to unanimous consent of the Board of Directors. The Spriggs Promissory Note I bears simple interest at a rate of 10.0% per annum. On January 19, 2023, the Company entered into a modification agreement of the Spriggs Loan I. Consequently, the Spriggs Promissory Note I will bear interest at a rate of 12% per annum, and the maturity date was extended to July 31, 2024. As of March 31, 2023 and September 30, 2022, the amount owed was $2.0 million.

Spriggs Promissory Note II

On January 19, 2023, in connection with the acquisition of Flooring Liquidators, the Company executed a promissory note in favor of Spriggs Investments in the initial principal amount of $1.0 million (the “Spriggs Loan II”). The Spriggs Loan II matures on July 31, 2024, and bears interest at a rate of 12% per annum. As of March 31, 2023, the amount owed was $1.0 million.

21


 

Transactions with Spyglass Estate Planning, LLC.

Building Leases

On July 1, 2022, in connection with its acquisition of Better Backers, Marquis entered into two building leases with Spyglass Estate Planning, LLC, a limited liability company whose sole member is Jon Isaac, the Company’s President and Chief Executive Officer. The building leases are for 20 years with two options to renew for an additional five years each. The provisions of the lease agreements include an initial 24-month month-to-month rental period, during which the lessee may cancel with 90-day notice, followed by a 20-year lease term with two five-year renewal options. The Company has evaluated each lease and determined the rental amounts to be at market rates.

Sellers Notes

Note Payable to the Sellers of Kinetic

In connection with the purchase of Kinetic (see Note 3), on June 28, 2022, Precision Marshall entered into a seller financed loan in the amount of $3.0 million with the previous owners of Kinetic. The Sellers Subordinated Acquisition Note bears interest at 7.0% per annum, with interest payable quarterly in arrears. The Sellers Subordinated Acquisition Note has a maturity date of September 27, 2027. As of March 31, 2023, the remaining principal balance was $3.0 million.

Note Payable to the Seller of Flooring Liquidators

In connection with the purchase of Flooring Liquidators, on January 18, 2023, Flooring Affiliated Holdings, LLC (“Buyer”) entered into a seller financed mezzanine loan in the amount of $34.0 million with the previous owners of Flooring Liquidators. The Seller Subordinated Acquisition Note (“Sellers Note”) bears interest at 8.24% per annum, with interest payable monthly in arrears beginning on January 18, 2024. The Sellers Note, has a maturity date of January 18, 2028. The fair value assigned to the Sellers Note, as calculated by an independent third-party firm, was $31.7 million, or a discount of $2.3 million. The $2.3 million discount is being accreted to interest expense, using the effective interest rate method, as required by GAAP, over the term of the Sellers Note. As of March 31, 2023, the carrying value of the Sellers Note was approximately $31.8 million.

 

Note 16: 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, Inc. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives to allege certain violations of the federal securities laws. 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 cooperated fully with the SEC inquiry and provided a response to the SEC on October 26, 2018.

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 "Company Defendants") as well as certain other third parties. 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, 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 Company 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.

22


 

On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted one of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties have agreed to participate in a mediation and to continue the remainder of discovery until after the mediation, scheduled to take place in June 2023.

The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.

Sieggreen Class Action

On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated, filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming as defendants the Company and the two executive officers named in the SEC Complaint described above. The allegations asserted are similar to those in the SEC Complaint. Among other relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed his Amended Complaint on March 6, 2023. On May 5, 2023, the Company and its executives filed a Motion to Dismiss the Amended Complaint. They strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.

Holdback Matter

On October 10, 2022, a representative for the former shareholders of Precision Marshall filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleges that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $2,500,000. Plaintiff alleged that he effectuated service of the complaint on the Company, but the Company did not receive notification of the action until it received an Application for Default Judgment filed with the court on December 26, 2022. On December 28, 2022, the Court issued a letter order questioning its jurisdiction over the matter and directed plaintiff’s counsel to submit briefing as to why it believes jurisdiction is proper. Plaintiff filed its brief on January 13, 2023. On April 13, 2023, the Court dismissed the action in its entirety for lack of jurisdiction, rendering the Application for Default Judgment moot.

On January 12, 2023, and after jurisdiction over the case was questioned by the Court of Chancery, State of Delaware, plaintiff filed a substantially identical complaint in the Western District of Pennsylvania. After the Delaware action was dismissed, plaintiff requested that counsel waive service of the Pennsylvania complaint. On April 19, 2023, the Company agreed to waive service. The Company’s response to the Complaint is now due on June 19, 2023. The Company intends to defend against these claims vigorously.

Wage and Hour Matter

On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. A Motion for Change of Venue to Stanislaus County was filed by Elite Builders on December 7, 2022. The hearing on the motion was heard on February 8, 2023. Elite Builders’ motion to change venue was granted. Company believes that Mr. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding since no discovery has commenced and the scope of class is not yet known.

Consumer Protection Act

On December 4, 2022, Sheila Thompson and Dennis Thompson filed a Complaint in the 21st Judicial Circuit Court of St. Louis County, Missouri asserting putative class claims arising under the Telephone Consumer Protection Act, 47 U.S.C. 227, and related Missouri state law claims pertaining to purportedly unsolicited text message advertisements. Vintage Stock, Inc. (“Vintage”) was served on December 13, 2022. On January 11, 2023, Vintage timely removed the case from the state court into federal court. On February 8, 2023, Vintage filed a Motion to Dismiss and Motion to Strike Class Allegations. On March 1, 2023, plaintiffs filed their First Amended Complaint that mooted the pending motion. On March 15, 2023, Vintage moved to dismiss and/or strike the First Amended Complaint.

23


 

The motion is fully briefed and stands submitted to the Court for decision. Vintage disputes the allegations and intends to defend itself vigorously against the claims in the First Amended Complaint. As the case is still in the pleading stage, it is premature to estimate potential liability.

Salomon Whitney Settlement

Effective March 31, 2023, the Company entered into a settlement agreement with the Principal ownership of Salomon Whitney, LLC to pay the Company $1.0 million within 10 days of the effective date, and agreed to pay an additional $1.0 million within 45 days of the effective date if certain conditions of the settlement agreement are not met. The Company recorded a receivable for the initial payment of $1.0 million on March 31, 2023, which it has recorded as other income in its condensed consolidated statements of income, and payment was received on April 17, 2023.

Generally

The Company is 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. The Company currently believes that the ultimate outcome of such lawsuits and proceedings will not, individually, or in the aggregate, have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.

24


 

Note 17: Segment Reporting

The Company operates in four operating segments which are characterized as: (1) Retail-Entertainment, (2) Retail-Flooring, (3) Flooring Manufacturing, (4) Steel Manufacturing, and (5) Corporate and Other. The Retail-Entertainment segment consists of Vintage Stock; the Retail-Flooring segment consists of Flooring Liquidators,; the Flooring Manufacturing Segment consists of Marquis; and the Steel Manufacturing Segment consists of Precision Marshall and Kinetic.

The following tables summarize segment information (in $000's):

 

 

 

For the Three Months Ended March 31,

 

 

For the Six Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

19,188

 

 

$

20,741

 

 

$

42,461

 

 

$

46,952

 

Retail-Flooring

 

 

20,769

 

 

 

 

 

 

20,769

 

 

 

 

Flooring Manufacturing

 

 

30,340

 

 

 

32,772

 

 

 

56,772

 

 

 

65,644

 

Steel Manufacturing

 

 

19,916

 

 

 

14,027

 

 

 

37,897

 

 

 

26,393

 

Corporate & Other

 

 

909

 

 

 

2,166

 

 

 

2,209

 

 

 

5,875

 

Total revenues

 

$

91,122

 

 

$

69,706

 

 

$

160,108

 

 

$

144,864

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

10,654

 

 

$

11,110

 

 

$

22,864

 

 

$

24,500

 

Retail-Flooring

 

 

7,742

 

 

 

 

 

 

7,742

 

 

 

 

Flooring Manufacturing

 

 

7,328

 

 

 

8,580

 

 

 

11,989

 

 

 

17,609

 

Steel Manufacturing

 

 

5,647

 

 

 

4,252

 

 

 

10,040

 

 

 

7,867

 

Corporate & Other

 

 

237

 

 

 

1,011

 

 

 

917

 

 

 

2,593

 

Total gross profit

 

$

31,608

 

 

$

24,953

 

 

$

53,552

 

 

$

52,569

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

2,327

 

 

$

3,132

 

 

$

5,991

 

 

$

7,942

 

Retail-Flooring

 

 

(216

)

 

 

 

 

 

(216

)

 

 

 

Flooring Manufacturing

 

 

2,406

 

 

 

3,875

 

 

 

3,158

 

 

 

8,483

 

Steel Manufacturing

 

 

2,814

 

 

 

2,719

 

 

 

4,270

 

 

 

4,373

 

Corporate & Other

 

 

(2,379

)

 

 

(1,277

)

 

 

(3,684

)

 

 

(1,942

)

Total operating income

 

$

4,952

 

 

$

8,449

 

 

$

9,519

 

 

$

18,856

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

321

 

 

$

296

 

 

$

633

 

 

$

636

 

Retail-Flooring

 

 

995

 

 

 

 

 

 

995

 

 

 

 

Flooring Manufacturing

 

 

1,082

 

 

 

780

 

 

 

2,193

 

 

 

1,559

 

Steel Manufacturing

 

 

1,114

 

 

 

281

 

 

 

2,207

 

 

 

515

 

Corporate & Other

 

 

133

 

 

 

139

 

 

 

269

 

 

 

335

 

Total depreciation and amortization

 

$

3,645

 

 

$

1,496

 

 

$

6,297

 

 

$

3,045

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

152

 

 

$

84

 

 

$

306

 

 

$

236

 

Retail-Flooring

 

 

1,021

 

 

 

 

 

 

1,021

 

 

 

 

Flooring Manufacturing

 

 

1,067

 

 

 

462

 

 

 

2,054

 

 

 

893

 

Steel Manufacturing

 

 

841

 

 

 

182

 

 

 

1,628

 

 

 

479

 

Corporate & Other

 

 

154

 

 

 

130

 

 

 

273

 

 

 

267

 

Total interest expenses

 

$

3,235

 

 

$

858

 

 

$

5,282

 

 

$

1,875

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income before provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

2,178

 

 

$

14,593

 

 

$

5,716

 

 

$

19,293

 

Retail-Flooring

 

 

(1,390

)

 

 

 

 

 

(1,390

)

 

 

 

Flooring Manufacturing

 

 

1,214

 

 

 

3,337

 

 

 

901

 

 

 

7,382

 

Steel Manufacturing

 

 

1,715

 

 

 

2,002

 

 

 

1,983

 

 

 

3,315

 

Corporate & Other

 

 

(1,609

)

 

 

(1,051

)

 

 

(2,643

)

 

 

(1,603

)

Total net income before provision for income taxes

 

$

2,108

 

 

$

18,881

 

 

$

4,567

 

 

$

28,387

 

 

25


 

 

Note 18: Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to disclosures in its condensed consolidated financial statements.

 

26


 

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 six months ended March 31, 2023, 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, 2022 (the “2022 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 Annual 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 2022 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 four segments to our business: Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other.

Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who 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”.

27


 

Retail-Entertainment Segment

Our Retail-Entertainment Segment is composed of Vintage Stock, Inc. (“Vintage Stock”).

Vintage Stock Holdings LLC, Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”) is an award-winning specialty entertainment retailer that offers 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, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.

Retail-Flooring Segment

Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”).

Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada. Founded by Steve Kellogg in 1997, Modesto, California-based Flooring Liquidators provides floor, cabinets, countertops, and installation services in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the company established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through three businesses: retail customers through its Flooring Liquidators retail stores, builder and contractor customers through Elite Builder Services, Inc., and residential and business customers through 7 Day Stone, Inc.

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. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

Steel Manufacturing Segment

Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), and its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”).

Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For nearly 75 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.

On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a one-stop shop for in-house grinding, machining, and heat-treating. Kinetic was founded by the Masters family in 1948 and is headquartered in Greendale,

28


 

Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees.

Critical Accounting Policies

Our 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 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, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of our 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 our 10-K report as filed on December 16, 2022.

Adjusted EBITDA

We evaluate the performance of our operations based on financial measures such as revenue and “Adjusted EBITDA.” Adjusted EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of the business, including the business’ ability to fund acquisitions and other capital expenditures, and to service its debt. Additionally, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments. Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all of our cash needs. It is, however, a measurement that the Company believes is useful to investors in analyzing its operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by Live Ventures Incorporated, should not be compared to any similarly titled measures reported by other companies.

29


 

Results of Operations Three Months Ended March 31, 2023 and 2022

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended March 31, 2023 and 2022 (in $000’s):

 

 

 

For the Three Months Ended March 31, 2023

 

 

For the Three Months Ended March 31, 2022

 

 

 

 

 

 

% of Total
Revenue

 

 

 

 

 

% of Total
Revenue

 

Selected Data

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

91,122

 

 

 

 

 

$

69,706

 

 

 

 

Cost of revenues

 

 

59,514

 

 

 

65.3

%

 

 

44,753

 

 

 

64.2

%

General and administrative expenses

 

 

22,617

 

 

 

24.8

%

 

 

13,154

 

 

 

18.9

%

Sales and marketing expenses

 

 

4,039

 

 

 

4.4

%

 

 

3,350

 

 

 

4.8

%

Interest expense, net

 

 

3,235

 

 

 

3.6

%

 

 

858

 

 

 

1.2

%

Income before provision for income taxes

 

 

2,108

 

 

 

2.3

%

 

 

18,881

 

 

 

27.1

%

Provision for income taxes

 

 

550

 

 

 

0.6

%

 

 

3,523

 

 

 

5.1

%

Net income

 

$

1,558

 

 

 

1.7

%

 

$

15,358

 

 

 

22.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (a)

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

2,652

 

 

 

 

 

$

3,610

 

 

 

 

Retail-Flooring

 

 

1,111

 

 

 

 

 

 

 

 

 

 

Flooring Manufacturing

 

 

3,363

 

 

 

 

 

 

4,579

 

 

 

 

Steel Manufacturing

 

 

3,670

 

 

 

 

 

 

2,828

 

 

 

 

Corporate & Other

 

 

(1,609

)

 

 

 

 

 

(762

)

 

 

 

Total Adjusted EBITDA

 

$

9,187

 

 

 

 

 

$

10,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

 

13.8

%

 

 

 

 

 

17.4

%

 

 

 

Retail-Flooring

 

 

5.4

%

 

 

 

 

N/A

 

 

 

 

Flooring Manufacturing

 

 

11.1

%

 

 

 

 

 

14.0

%

 

 

 

Steel Manufacturing

 

 

18.4

%

 

 

 

 

 

20.2

%

 

 

 

Corporate & Other

 

N/A

 

 

 

 

 

N/A

 

 

 

 

Consolidated adjusted EBITDA as a percentage of revenue

 

 

10.1

%

 

 

 

 

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) See reconciliation of net income to Adjusted EBITDA below.

The following table sets forth revenues by segment (in $000's):

 

 

 

For the Three Months Ended March 31, 2023

 

 

For the Three Months Ended March 31, 2022

 

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

19,188

 

 

 

21.1

%

 

$

20,741

 

 

 

29.8

%

Retail-Flooring

 

 

20,769

 

 

 

22.8

%

 

 

 

 

 

0.0

%

Flooring Manufacturing

 

 

30,340

 

 

 

33.3

%

 

 

32,772

 

 

 

47.0

%

Steel Manufacturing

 

 

19,916

 

 

 

21.9

%

 

 

14,027

 

 

 

20.1

%

Corporate & Other

 

 

909

 

 

 

1.0

%

 

 

2,166

 

 

 

3.1

%

Total Revenue

 

$

91,122

 

 

 

100.0

%

 

$

69,706

 

 

 

100.0

%

 

30


 

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):

 

 

 

For the Three Months Ended March 31, 2023

 

 

For the Three Months Ended March 31, 2022

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

10,654

 

 

 

11.7

%

 

$

11,110

 

 

 

15.9

%

Retail-Flooring

 

 

7,742

 

 

 

8.5

%

 

 

 

 

 

0.0

%

Flooring Manufacturing

 

 

7,328

 

 

 

8.0

%

 

 

8,580

 

 

 

12.3

%

Steel Manufacturing

 

 

5,647

 

 

 

6.2

%

 

 

4,252

 

 

 

6.1

%

Corporate & Other

 

 

237

 

 

 

0.3

%

 

 

1,011

 

 

 

1.5

%

Total Gross Profit

 

$

31,608

 

 

 

34.7

%

 

$

24,953

 

 

 

35.8

%

Revenue

Revenue increased approximately $21.4 million, or 30.7%, to approximately $91.2 million for the three months ended March 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to increased revenue in the Retail-Flooring and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic, offset by decreased revenues of approximately $3.7 million in the other businesses. The decreases in revenue are primarily due to reduced demand and inflationary pressures, as well as product mix at Vintage Stock in the Retail-Entertainment segment.

Cost of Revenue

Cost of revenue as a percentage of revenue was 65.3% for three months ended March 31, 2023 as compared to 64.2% for the three months ended March 31, 2022. The increase is primarily attributable to inflationary cost increases.

General and Administrative Expense

General and Administrative expenses increased by 71.9% to approximately $22.6 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $9.4 million in the Retail and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic.

Selling and Marketing Expense

Selling and marketing expense increased by 20.6% to approximately $4.0 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment.

Interest Expense, net

Interest expense, net, increased by approximately $2.4 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and increased interest rates during the period.

Results of Operations Six Months Ended March 31, 2023 and 2022

The following table sets forth certain statement of income items and as a percentage of revenue, for the six months ended March 31, 2023 and 2022 (in $000's):

 

31


 

 

 

For the Six Months Ended March 31, 2023

 

 

For the Six Months Ended March 31, 2022

 

 

 

 

 

 

% of Total
Revenue

 

 

 

 

 

% of Total
Revenue

 

Statement of Income Data:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

160,108

 

 

 

 

 

$

144,864

 

 

 

 

Cost of revenues

 

 

106,556

 

 

 

66.6

%

 

 

92,295

 

 

 

63.7

%

General and administrative expenses

 

 

37,217

 

 

 

23.2

%

 

 

27,311

 

 

 

18.9

%

Sales and marketing expenses

 

 

6,816

 

 

 

4.3

%

 

 

6,402

 

 

 

4.4

%

Interest expense, net

 

 

5,282

 

 

 

3.3

%

 

 

1,875

 

 

 

1.3

%

Income before provision for income taxes

 

 

4,567

 

 

 

2.9

%

 

 

28,387

 

 

 

19.6

%

Provision for income taxes

 

 

1,165

 

 

 

0.7

%

 

 

6,483

 

 

 

4.5

%

Net income

 

$

3,402

 

 

 

2.1

%

 

$

21,904

 

 

 

15.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (a)

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

6,656

 

 

 

 

 

$

8,813

 

 

 

 

Retail-Flooring

 

 

1,111

 

 

 

 

 

 

 

 

 

 

Flooring Manufacturing

 

 

5,147

 

 

 

 

 

 

9,834

 

 

 

 

Steel Manufacturing

 

 

6,195

 

 

 

 

 

 

4,672

 

 

 

 

Corporate & Other

 

 

(2,382

)

 

 

 

 

 

(964

)

 

 

 

Total Adjusted EBITDA

 

$

16,727

 

 

 

 

 

$

22,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

 

15.7

%

 

 

 

 

 

18.8

%

 

 

 

Retail-Flooring

 

 

5.4

%

 

 

 

 

N/A

 

 

 

 

Flooring Manufacturing

 

 

9.1

%

 

 

 

 

 

15.0

%

 

 

 

Steel Manufacturing

 

 

16.3

%

 

 

 

 

 

17.7

%

 

 

 

Corporate & Other

 

N/A

 

 

 

 

 

N/A

 

 

 

 

Consolidated adjusted EBITDA as a percentage of revenue

 

 

10.4

%

 

 

 

 

 

15.4

%

 

 

 

(a) See reconciliation of net income to Adjusted EBITDA below.

The following table sets forth revenues by segment (in $000's):

 

 

 

For the Six Months Ended March 31, 2023

 

 

For the Six Months Ended March 31, 2022

 

 

 

Net
Revenue

 

 

% of
Total Revenue

 

 

Net
Revenue

 

 

% of Total
Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

42,461

 

 

 

26.5

%

 

$

46,952

 

 

 

32.4

%

Retail-Flooring

 

 

20,769

 

 

 

13.0

%

 

 

 

 

 

0.0

%

Flooring Manufacturing

 

 

56,772

 

 

 

35.5

%

 

 

65,644

 

 

 

45.3

%

Steel Manufacturing

 

 

37,897

 

 

 

23.7

%

 

 

26,393

 

 

 

18.2

%

Corporate & other

 

 

2,209

 

 

 

1.4

%

 

 

5,875

 

 

 

4.1

%

Total Revenue

 

$

160,108

 

 

 

100.0

%

 

$

144,864

 

 

 

100.0

%

 

32


 

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):

 

 

For the Six Months Ended March 31, 2023

 

 

For the Six Months Ended March 31, 2022

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail-Entertainment

 

$

22,864

 

 

 

14.3

%

 

$

24,500

 

 

 

16.9

%

Retail-Flooring

 

 

7,742

 

 

 

4.8

%

 

 

 

 

 

0.0

%

Flooring Manufacturing

 

 

11,989

 

 

 

7.5

%

 

 

17,609

 

 

 

12.2

%

Steel Manufacturing

 

 

10,040

 

 

 

6.3

%

 

 

7,867

 

 

 

5.4

%

Corporate & other

 

 

917

 

 

 

0.6

%

 

 

2,593

 

 

 

1.8

%

Total Gross Profit

 

$

53,552

 

 

 

33.4

%

 

$

52,569

 

 

 

36.3

%

Revenue

Revenue increased approximately $15.2 million, or 10.5%, to $160.1 million for the six months ended March 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to increased revenue in the Retail-Flooring and Steel Manufacturing segments due to Flooring Liquidators and Kinetic acquisitions, offset by decreased revenues in the other businesses. The decreases in revenue are primarily due to reduced demand and inflationary pressures, as well as product mix at Vintage Stock in the Retail-Entertainment segment.

Cost of Revenue

Cost of revenue as a percentage of revenue was 66.6% for the six months ended March 31, 2023 as compared to 63.7% for the six months ended March 31, 2022. The increase is primarily attributable to inflationary cost increases.

General and Administrative Expense

General and Administrative expenses increased by 36.3% to approximately $37.2 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $10.3 million in the Retail-Flooring and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic.

Selling and Marketing Expense

Selling and marketing expense increased by 6.5% to approximately $6.8 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment.

Interest Expense, net

Interest expense, net, increased by approximately $3.4 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022. primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and also increased interest rates during the period.

Results of Operations by Segment

 

 

 

For the Three Months Ended March 31, 2023

 

 

For the Three Months Ended March 31, 2022

 

 

 

Retail-Entertainment

 

 

Retail-Flooring

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

 

Retail-Entertainment

 

 

Retail-Flooring

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

Revenue

 

$

19,188

 

 

$

20,769

 

 

$

30,340

 

 

$

19,916

 

 

$

909

 

 

$

91,122

 

 

$

20,741

 

 

$

 

 

$

32,772

 

 

$

14,027

 

 

$

2,166

 

 

$

69,706

 

Cost of Revenue

 

 

8,534

 

 

 

13,027

 

 

 

23,012

 

 

 

14,269

 

 

 

672

 

 

 

59,514

 

 

 

9,631

 

 

 

 

 

 

24,192

 

 

 

9,775

 

 

 

1,155

 

 

 

44,753

 

Gross Profit

 

 

10,654

 

 

 

7,742

 

 

 

7,328

 

 

 

5,647

 

 

 

237

 

 

 

31,608

 

 

 

11,110

 

 

 

 

 

 

8,580

 

 

 

4,252

 

 

 

1,011

 

 

 

24,953

 

General and
   Administrative
   Expense

 

 

8,164

 

 

 

7,873

 

 

 

1,438

 

 

 

2,676

 

 

 

2,466

 

 

 

22,617

 

 

 

7,888

 

 

 

 

 

 

1,586

 

 

 

1,395

 

 

 

2,285

 

 

 

13,154

 

Selling and
   Marketing
   Expense

 

 

163

 

 

 

85

 

 

 

3,484

 

 

 

157

 

 

 

150

 

 

 

4,039

 

 

 

90

 

 

 

 

 

 

3,119

 

 

 

138

 

 

 

3

 

 

 

3,350

 

Operating Income
   (Loss)

 

$

2,327

 

 

$

(216

)

 

$

2,406

 

 

$

2,814

 

 

$

(2,379

)

 

$

4,952

 

 

$

3,132

 

 

$

 

 

$

3,875

 

 

$

2,719

 

 

$

(1,277

)

 

$

8,449

 

 

33


 

Retail-Entertainment Segment

Revenue for the three months ended March 31, 2023 decreased by approximately $1.6 million, or 7.5%, as compared to the prior year, primarily due to inflationary pressures, and overall product mix. Cost of revenue as a percentage of revenue was 44.5% for the three months ended March 31, 2023, as opposed to 46.4% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.3 million, as compared to operating income of approximately $3.1 million for the prior year period.

Retail-Flooring Segment

Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended March 31, 2023 was $20.8 million, and cost of revenue as a percentage of revenue was 62.7%. Operating loss for the three months ended March 31, 2023 was $216,000.

Flooring Manufacturing Segment

Revenue for the three months ended March 31, 2023 decreased by approximately $2.4 million, or 7.4%, as compared to the prior year period, primarily due to reduced customer demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 75.8% for the three months ended March 31, 2023, as opposed to 73.8% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.4 million, as compared to operating income of approximately $3.9 million for the prior year period.

Steel Manufacturing Segment

Revenue for the three months ended March 31, 2023 increased by approximately $5.9 million, or 42.0%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Revenue for Kinetic was $6.4 million, while Precision revenues decreased by approximately $0.5 million. Cost of revenue as a percentage of revenue was 71.6% for the three months ended March 31, 2023, as opposed to 69.7% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.8 million, as compared to operating income of approximately $2.7 in the prior period.

Corporate and Other Segment

Revenues for the three months ended March 31, 2023 decreased by $1.3 million, or 58.0% primarily due to decreased revenue for SW Financial. The decrease was primarily due to a decrease in stock market trading activity due to decreased trade activity as a result of market uncertainty. Cost of revenue as a percentage of revenue was 73.9% for the three months ended March 31, 2023, as opposed to 53.3% for the three months ended March 31, 2022. Operating loss for the three months ended March 31, 2023 was approximately $2.4 million, as compared to a loss of approximately $1.3 million in the prior period. Revenues and operating income for our directory services business 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 Six Months Ended March 31, 2023

 

 

For the Six Months Ended March 31, 2022

 

 

 

Retail-Entertainment

 

 

Retail-Flooring

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

 

Retail-Entertainment

 

 

Retail-Flooring

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
& Other

 

 

Total

 

Revenue

 

$

42,461

 

 

$

20,769

 

 

$

56,772

 

 

$

37,897

 

 

$

2,209

 

 

$

160,108

 

 

$

46,952

 

 

$

 

 

$

65,644

 

 

$

26,393

 

 

$

5,875

 

 

$

144,864

 

Cost of Revenue

 

 

19,597

 

 

 

13,027

 

 

 

44,783

 

 

 

27,857

 

 

 

1,292

 

 

 

106,556

 

 

 

22,452

 

 

 

 

 

 

48,035

 

 

 

18,526

 

 

 

3,282

 

 

 

92,295

 

Gross Profit

 

 

22,864

 

 

 

7,742

 

 

 

11,989

 

 

 

10,040

 

 

 

917

 

 

 

53,552

 

 

 

24,500

 

 

 

 

 

 

17,609

 

 

 

7,867

 

 

 

2,593

 

 

 

52,569

 

General and
   Administrative
   Expense

 

 

16,549

 

 

 

7,873

 

 

 

2,928

 

 

 

5,468

 

 

 

4,399

 

 

 

37,217

 

 

 

16,342

 

 

 

 

 

 

3,225

 

 

 

3,216

 

 

 

4,528

 

 

 

27,311

 

Selling and
   Marketing
   Expense

 

 

324

 

 

 

85

 

 

 

5,903

 

 

 

302

 

 

 

202

 

 

 

6,816

 

 

 

216

 

 

 

 

 

 

5,901

 

 

 

278

 

 

 

7

 

 

 

6,402

 

Operating Income
   (Loss)

 

$

5,991

 

 

$

(216

)

 

$

3,158

 

 

$

4,270

 

 

$

(3,684

)

 

$

9,519

 

 

$

7,942

 

 

$

 

 

$

8,483

 

 

$

4,373

 

 

$

(1,942

)

 

$

18,856

 

Retail-Entertainment Segment

Revenue for the six months ended March 31, 2023 decreased by approximately $4.5 million, or 9.6%, as compared to the prior year, primarily due to inflationary pressures, and overall product mix. Cost of revenue as a percentage of revenue was 46.2% for the six months ended March 31, 2023, as opposed to 47.8% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $6.0 million, as compared to operating income of approximately $7.9 million for the prior year period.

34


 

Retail-Flooring Segment

Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the six months ended March 31, 2023 was $20.8 million, and cost of revenue as a percentage of revenue was 62.7%. Operating loss for the six months ended March 31, 2023 was $216,000.

Flooring Manufacturing Segment

Revenue for the six months ended March 31, 2023 decreased by approximately $8.9 million, or 13.5%, as compared to the prior year period, primarily due to reduced customer demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 78.9% for the six months ended March 31, 2023, as opposed to 73.2% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $3.2 million, as compared to operating income of approximately $8.5 million for the prior year period.

Steel Manufacturing Segment

Revenue for the six months ended March 31, 2023 increased by $11.5 million, or 43.6%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Revenue for Kinetic was $12.2 million, while Precision revenues decreased by approximately $0.6 million. Cost of revenue as a percentage of revenue was 73.5% for the six months ended March 31, 2023, as opposed to 70.2% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $4.3 million, as compared to operating income of approximately $4.4 in the prior period.

Corporate and Other Segment

Revenues for the six months ended March 31, 2023 decreased by $3.7 million primarily due to decreased revenue for SW Financial. The decrease was primarily due to a decrease in stock market trading activity due to decreased trade activity as a result of market uncertainty. Cost of revenue as a percentage of revenue was 58.5% for the six months ended March 31, 2023, as opposed to 55.9% for the six months ended March 31, 2022. Operating loss for the six months ended March 31, 2023 was approximately $3.7 million, as compared to a loss of approximately $1.9 million in the prior period. Revenues and operating income for our directory services business 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.

Adjusted EBITDA Reconciliation

The following tables present a reconciliation of Adjusted EBITDA from net income for the three and six months ended March 31, 2023 (in 000's):

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

March 31, 2023

 

 

March 31, 2022

 

Net income

 

$

1,558

 

 

$

15,358

 

 

$

3,402

 

 

$

21,904

 

Depreciation and amortization

 

 

3,647

 

 

 

1,496

 

 

 

6,298

 

 

 

3,045

 

Stock-based compensation

 

 

109

 

 

 

19

 

 

 

109

 

 

 

37

 

Interest expense, net

 

 

3,235

 

 

 

858

 

 

 

5,282

 

 

 

1,875

 

Income tax expense

 

 

550

 

 

 

3,523

 

 

 

1,165

 

 

 

6,483

 

Gain on bankruptcy settlement

 

 

 

 

 

(11,362

)

 

 

 

 

 

(11,352

)

Loss on extinguishment of debt

 

 

 

 

 

363

 

 

 

 

 

 

363

 

SW Financial settlement gain

 

 

(1,000

)

 

 

 

 

 

(1,000

)

 

 

 

Non-recurring costs for acquisitions

 

 

1,088

 

 

 

 

 

 

1,471

 

 

 

 

Adjusted EBITDA

 

$

9,187

 

 

$

10,255

 

 

$

16,727

 

 

$

22,355

 

Adjusted EBITDA decreased by approximately $1.1 million, or 10.4%, for the three months ended March 31, 2023, as compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income, as discussed above.

Adjusted EBITDA decreased by approximately $5.6 million, or 25.2%, for the six months ended March 31, 2023, as compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income.

Liquidity and Capital Resources

35


 

As of March 31, 2023, we had total cash on hand of approximately $4.2 million and approximately $21.7 million 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.

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 do the following: fund our operations; pay our scheduled loan payments; ability to repurchase shares under our share buyback program; 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.

Working Capital

We had working capital of approximately $80.7 million as of March 31, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022; an increase of approximately $2.3 million. The increase is primarily due to increases in inventories, trade receivables, and prepaid expenses of approximately $23.6 million, partially offset by increases in the current portion of long-term debt, accrued liabilities, accounts payable, and the current portion operating lease obligations of approximately $18.7 million.

Cash Flows from Operating Activities

The Company’s cash, as of March 31, 2023, was approximately $4.2 million compared to approximately $4.6 million as of September 30, 2022, a decrease of approximately $432,000. Net cash provided by operations was approximately $14.2 million for the six months ended March 31, 2023, as compared to net cash provided by operations of approximately $5.3 million for the six months ended March 31, 2022. The increase was primarily due to reduced purchases of inventory, reduced expenditures for prepaid expenses, and increased accounts receivable, partially offset by payments on accounts payable.

Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, 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 approximately $36.8 million for the six months ended March 31, 2023 consisted of the acquisition of Flooring Liquidators and purchases of property and equipment. Our cash flows used in investing activities of approximately $7.5 million for the six months ended March 31, 2022 consisted of purchases of property and equipment.

Cash Flows from Financing Activities

Our cash flows provided by financing activities of approximately $22.2 million during the six months ended March 31, 2023 consisted of proceeds from net proceeds under revolver loans of approximately $12.3 million, proceeds from notes payable of approximately $8.4 million, proceeds from related party notes payable of approximately $7.0 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, and debt acquisition costs of approximately $4.9 million, and purchases of treasury stock in the amount of approximately $639,000.

Our cash flows provided by financing activities of approximately $3.8 million during the six months ended March 31, 2022 consisted of proceeds from notes payable of approximately $9.0 million, and approximately $4.9 million in net proceeds under revolver loans, partially offset by payments of notes payable and financing leases of approximately $8.1 million, and purchases of treasury stock in the amount of approximately $2.1 million.

Currently, we are not issuing common shares 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. Occasionally, as our Company history has demonstrated, we will issue stock and derivative instruments linked to stock for services or debt settlement.

Future Sources of Cash; New Products and Services

We may require additional debt financing 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 by us may further dilute or otherwise impair the ownership interest of our existing stockholders.

36


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2023, 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. 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, as of December 31, 2022, we concluded that the Company's disclosure, controls, and procedures were effective.

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 errors 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 design and effectiveness of our internal control over financial reporting as of March 31, 2023. 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, as of March 31, 2023, our management concluded that our internal controls over financial reporting were operating effectively.

There were no changes in our internal control over financial reporting that occurred during the three or six months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Please refer to “Item 3. Legal Proceedings” in our 2021 Annual Report on Form 10-K 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 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, Inc. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives to allege certain violations of the federal securities laws. 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 cooperated fully with the SEC inquiry and provided a response to the SEC on October 26, 2018.

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 "Company Defendants") as well as certain other third parties. 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, 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 Company 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.

On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted one of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties have agreed to participate in a mediation and to continue the remainder of discovery until after the mediation, scheduled to take place in June 2023.

The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.

Sieggreen Class Action

On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated, filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming as defendants the Company and the two executive officers named in the SEC Complaint described above. The allegations asserted are similar to those in the SEC Complaint. Among other relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed his Amended Complaint on March 6, 2023. On May 5, 2023, the Company and its executives filed a Motion to Dismiss the Amended Complaint. They strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.

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Holdback Matter

On October 10, 2022, a representative for the former shareholders of Precision Industries, Inc. filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleges that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $2,500,000. Plaintiff alleged that he effectuated service of the complaint on the Company, but the Company did not receive notification of the action until it received an Application for Default Judgment filed with the court on December 26, 2022. On December 28, 2022, the Court issued a letter order questioning its jurisdiction over the matter and directed plaintiff’s counsel to submit briefing as to why it believes jurisdiction is proper. Plaintiff filed its brief on January 13, 2023. On April 13, 2023, the Court dismissed the action in its entirety for lack of jurisdiction, rendering the Application for Default Judgment moot.

On January 12, 2023, and after jurisdiction over the case was questioned by the Court of Chancery, State of Delaware, plaintiff filed a substantially identical complaint in the Western District of Pennsylvania. After the Delaware action was dismissed, plaintiff requested that counsel waive service of the Pennsylvania complaint. On April 19, 2023, the Company agreed to waive service. The Company’s response to the Complaint is now due on June 19, 2023. The Company intends to defend against these claims vigorously.

Wage and Hour Matter

On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. A Motion for Change of Venue to Stanislaus County was filed by Elite Builders on December 7, 2022. The hearing on the motion was heard on February 8, 2023. Elite Builders’ motion to change venue was granted. Company believes that Mr. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding since no discovery has commenced and the scope of class is not yet known.

Consumer Protection Act

On December 4, 2022, Sheila Thompson and Dennis Thompson filed a Complaint in the 21st Judicial Circuit Court of St. Louis County, Missouri asserting putative class claims arising under the Telephone Consumer Protection Act, 47 U.S.C. 227, and related Missouri state law claims pertaining to purportedly unsolicited text message advertisements. Vintage Stock, Inc. (“Vintage”) was served on December 13, 2022. On January 11, 2023, Vintage timely removed the case from the state court into federal court. On February 8, 2023, Vintage filed a Motion to Dismiss and Motion to Strike Class Allegations. On March 1, 2023, plaintiffs filed their First Amended Complaint, that mooted the pending motion. On March 15, 2023, Vintage moved to dismiss and/or strike the First Amended Complaint. The motion is fully briefed and stands submitted to the Court for decision. Vintage disputes the allegations and intends to defend itself vigorously against the claims in the First Amended Complaint. As the case is still in the pleading stage, it is premature to estimate potential liability.

Salomon Whitney Settlement

Effective March 31, 2023, the Company entered into a settlement agreement with the Principal ownership of Salomon Whitney to pay the Company $1.0 million within 10 days of the effective date, and agreed to pay an additional $1.0 million within 45 days of the effective date if certain conditions of the settlement agreement are not met. The Company recorded a receivable for the initial payment of $1.0 million on March 31, 2023, which it has recorded as other income in its condensed consolidated statements of income, and payment was received during the first week of April 2023..

ITEM 1A. Risk Factors

None.

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. During the six months ended March 31, 2023, the Company repurchased 25,384 shares of common stock under this program at a cost of approximately $639,000. As of March 31, 2023, the Company has approximately $3.4 million available for repurchases under this program.

39


 

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

 

 

40


 

ITEM 6. Exhibits

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

 

41


 

10.104

 

Employment Agreement between Live Ventures Incorporated and Wayne Ipsen, effective October 24, 2022.

 

 

8-K

 

001-33937

 

10.104

 

 

10/28/22

10.105

 

Securities Purchase Agreement by and among Flooring Affiliated Holdings, LLC, Stephen J. Kellogg, the other equity holders of the Acquired Companies listed on Exhibit A thereto and, solely for the purposes of Section 3.4 thereof, Live Ventures Incorporated, dated January 18, 2023.

 

 

8-K

 

001-33937

 

10.105

 

 

01/24/23

10.106

 

Employment Agreement by and between Flooring Liquidators, Inc. and Stephen J. Kellogg, dated January 18, 2023.

 

 

8-K

 

001-33937

 

10.106

 

 

01/24/23

10.107

 

Employment Agreement by and between Elite Builder Services, Inc. and Benjamin Rowe, dated January 18, 2023.

 

 

8-K

 

001-33937

 

10.107

 

 

01/24/23

10.108

 

Restricted Stock Unit Agreement between Live Ventures Incorporated and Benjamin Rowe, dated January 18, 2023.

 

 

8-K

 

001-33937

 

10.108

 

 

01/24/23

10.109

 

Subordinated Promissory Note dated January 18, 2023 issued by Flooring Affiliated Holdings, LLC in favor of (i) the Stephen J. Kellogg Revocable Trust Dated April 17, 2015, (ii) the Kaitlyn Kellogg 2022 Irrevocable Trust, (iii) the Augustus Kellogg 2022 Irrevocable Trust, and (iv) the Kellogg 2022 Family Irrevocable Nevada Trust.

 

 

8-K

 

001-33937

 

10.109

 

 

01/24/23

10.110

 

Subordinated Promissory Note dated January 18, 2023 issued by Flooring Affiliated Holdings, LLC in favor of Isaac Capital Group, LLC.

 

 

8-K

 

001-33937

 

10.110

 

 

01/24/23

10.111

 

Subordinated Promissory Note dated January 18, 2023 issued by Live Ventures Incorporated in favor of Spriggs Investments LLC.

 

 

8-K

 

001-33937

 

10.111

 

 

01/24/23

10.112

 

Loan and Security Agreement by and among Flooring Affiliated Holdings, LLC, Flooring Liquidators, Inc., Elite Builder Services, Inc., 7 Day Stone, Inc., K2L Leasing, LLC, SJ & K Equipment, Inc. and Eclipse Business Capital LLC, dated January 18, 2023.

 

 

8-K

 

001-33937

 

10.112

 

 

01/24/23

10.113

*

Second Amendment to ICG Promissory Note dated April 9, 2020, and as Amended June 23, 2022, dated April 1, 2023

 

 

 

 

 

 

 

 

 

 

10.114

*

First Amendment to ICG Unsecured Revolving Line of Credit dated April 9, 2020, dated April 1, 2023

 

 

 

 

 

 

 

 

 

 

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

42


 

104

 

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

 

 

 

 

 

 

 

 

 

 

 

*

Filed herewith

 

 

43


 

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: May 11, 2023

/s/ Jon Isaac

President and Chief Executive Officer

(Principal Executive Officer)

Dated: May 11, 2023

/s/ David Verret

Chief Financial Officer

(Principal Financial Officer)

 

44