UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from _____________ to _______________
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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The |
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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 February 8, 2022 was
INDEX TO FORM 10-Q FILING
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
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Page |
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PART I |
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3 |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of December 31, 2021 (Unaudited) and September 30, 2021 |
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4 |
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5 |
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6 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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29 |
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Item 4. |
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29 |
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PART II |
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31 |
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Item 1. |
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31 |
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Item 1A. |
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31 |
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Item 2. |
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31 |
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Item 3. |
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31 |
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Item 4. |
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32 |
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Item 5. |
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32 |
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Item 6. |
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33 |
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34 |
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
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December 31, 2021 |
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September 30, 2021 |
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(Unaudited) |
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Assets |
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Cash |
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$ |
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$ |
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Trade receivables, net of allowance for doubtful accounts of $ |
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Inventories, net of reserves of approximately $ |
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Prepaid expenses and other current assets |
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Debtor in possession assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of approximately $ |
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Right of use asset - operating leases |
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Deposits and other assets |
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Intangible assets, net of accumulated amortization of approximately $ |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Income taxes payable |
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Current portion of lease obligations - operating leases |
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Current portion of long-term debt |
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Current portion of notes payable related parties |
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Debtor-in-possession liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Lease obligation long term - operating leases |
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Notes payable related parties, net of current portion |
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Deferred taxes |
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Total liabilities |
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Stockholders' equity: |
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Series B convertible preferred stock, $ |
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Series E convertible preferred stock, $0.001 par value, |
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Common stock, $ |
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Paid in capital |
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Treasury stock common |
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Treasury stock Series E preferred |
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Retained earnings |
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Equity attributable to Live stockholders |
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Non-controlling interest |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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For the Three Months Ended December 31, |
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2021 |
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2020 |
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Revenues |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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General and administrative expenses |
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Sales and marketing expenses |
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Total operating expenses |
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Operating income |
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Other (expense) income: |
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Interest expense, net |
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Gain on disposal of fixed assets |
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Loss on bankruptcy settlement |
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Other income |
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Total other expense, net |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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Net income attributable to non-controlling interest |
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Net income attributable to Live stockholders |
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$ |
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$ |
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Income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Dividends declared - series B convertible preferred stock |
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$ |
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$ |
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Dividends declared - series E convertible preferred stock |
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$ |
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$ |
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Dividends declared - common stock |
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$ |
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$ |
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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)
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For the Three Months Ended December 31, |
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2021 |
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2020 |
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Operating Activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition: |
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Depreciation and amortization |
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Gain or loss on disposal of property and equipment |
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Loss on bankruptcy settlement |
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Amortization of debt issuance cost |
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Stock based compensation expense |
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Amortization of right-of-use assets |
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Change in reserve for uncollectible accounts |
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Change in reserve for obsolete inventory |
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Changes in assets and liabilities: |
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Trade receivables |
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Inventories |
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Income taxes payable/receivable |
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( |
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Prepaid expenses and other current assets |
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( |
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Change in deferred income taxes |
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Deposits and other assets |
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( |
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Accounts payable |
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Accrued liabilities |
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( |
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Change in other |
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Net cash provided by operating activities |
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Investing Activities: |
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Purchase of property and equipment |
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Net cash used in investing activities |
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Financing Activities: |
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Net borrowings (payments) under revolver loans |
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Proceeds from issuance of notes payable |
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Purchase of common treasury stock |
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Debtor-in-possession cash |
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Payments on financing leases |
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Payments on notes payable |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Increase (decrease) in cash |
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Cash, beginning of period |
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Cash, end of period |
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$ |
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$ |
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Supplemental cash flow disclosures: |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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Noncash financing and investing activities: |
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Settlement of debt in exchange for property and equipment |
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$ |
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$ |
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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)
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Series B |
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Series E |
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Common Stock |
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Series E |
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Common |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Paid-In |
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Treasury |
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Treasury |
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Retained |
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Non-controlling Interest |
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Total |
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Balance, September 30, 2021 |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Stock based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, December 31, 2021 |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Series B |
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Series E |
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Common Stock |
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Series E |
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Common |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Paid-In |
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Treasury |
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Treasury |
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Accumulated |
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Non-controlling Interest |
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Total |
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Balance, September 30, 2020 |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Stock based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchase of common treasury stock |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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Balance, December 31, 2020 |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
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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 MONTHS ENDED DECEMBER 31, 2021 AND 2020
(dollars in thousands, except per share)
Note 1: Background and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation, and its subsidiaries (collectively, “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
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 months ended December 31, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2022. This financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2021 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 28, 2021 (the “2021 10-K”).
Coronavirus
The global outbreak of COVID-19 (Coronavirus) has resulted in changes in global supply of certain products. The outbreak or pandemic has continued to create significant uncertainties. The pandemic continues to have an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis. These significant uncertainties and unprecedented impacts include, but are not limited to, an adverse effect on the economy; the Company’s supply chain partners; its employees and customers; customer sentiment in general; and traffic within shopping centers, and, where applicable, malls, containing its stores. As the pandemic continues, consumer fear about becoming ill, as well as recommendations or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine, are continuing to increase; this has already affected, and may continue to affect, traffic to the stores. For example, by March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage Stock began to reopen certain locations in compliance with government regulations. Then, as of June 30, 2020, all Vintage Stock retail locations were reopened, while maintaining compliance with government mandates. The Company is unable to predict if additional periods of store closures will be needed or mandated. For the Company’s other segments, during March and April 2020, Marquis conducted rolling layoffs for certain employees; however, by May 2020, most employees returned to their respective locations. Continued impacts of the pandemic materially adversely affect the near-term and long-term revenues, earnings, liquidity, and cash flows, and may require a variety of responsive actions, including but not limited to, employee furloughs, reduced store hours, store closings, expense reductions or discounting of pricing of products—all in an effort to mitigate such impacts. The extent of the uncertainties and impacts of the pandemic on the Company’s business and financial results will depend largely on future developments, including the duration of the pandemic within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending—all of which are highly uncertain and cannot be predicted. This situation is changing rapidly and additional impacts of which the Company is not aware may arise.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control and a variable interest entity. 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.
Use of Estimates
The preparation of the 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
7
the date of the 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 consolidated financial statements include the estimated reserve for doubtful accounts, the estimated reserve for excess and obsolete inventory, estimated warranty reserve, estimated fair value for stock-based compensation, 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.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modified the impairment model for available-for-sale debt securities and provided a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and the interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company has implemented this update in the current quarter. The adoption of this ASU had no material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This update provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. This update is effective for the Company’s fiscal years beginning after December 15, 2021. The Company is currently assessing the impact of adopting this new accounting standard on its Consolidated Financial Statements and related disclosures.
Note 3: Leases
The Company leases retail stores, warehouse facilities, and office space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through 2040 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases percentage rent, and require us to pay all insurance, taxes, and other maintenance costs. As a result, the Company recognizes assets and liabilities for all leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable 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 December 31, 2021, the weighted average remaining lease term is and our weighted average discount rate is
8
The following table details our right of use assets and lease liabilities as of December 31, 2021 and September 30, 2021 (000's):
|
|
December 31, 2021 |
|
September 30, 2021 |
|
||
Right of use asset - operating leases |
|
$ |
|
$ |
|
||
Operating lease liabilities: |
|
|
|
|
|
||
Current |
|
|
|
|
|
||
Long term |
|
|
|
|
|
||
Total present value of future lease payments as of December 31, 2021:
Twelve months ended June 30, |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
|
|
|
Less implied interest |
|
|
( |
) |
Present value of payments |
|
$ |
|
|
During the three months ended December 31, 2021 and 2020, the Company recorded
Note 4: Inventory
The following table details the Company's inventory as of December 31, 2021 and September 30, 2021 (in 000's):
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Inventory, net |
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Merchandise |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Inventory reserves |
|
|
( |
) |
|
|
( |
) |
Total inventory, net |
|
$ |
|
|
$ |
|
||
Note 5: Property, Plant & Equipment
The following table details the Company's property, plant & equipment as of December 31, 2021 and September 30, 2021 (in 000's):
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Property and equipment, net: |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Building and improvements |
|
|
|
|
|
|
||
Transportation equipment |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Furnishings and fixtures |
|
|
|
|
|
|
||
Office, computer equipment and other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
9
Note 6: Goodwill
The following table details the Company's goodwill as of December 31, 2021 (in 000's):
|
|
Retail |
|
Flooring Manufacturing |
|
Steel Manufacturing |
|
Corporate |
|
Total |
|
|||||
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Additions |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Impairment |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
December 31, 2021 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
10
Note 7: Accrued Liabilities
The following table details the Company's accrued liabilities as of December 31, 2021 and September 30, 2021, respectively (in 000's):
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Accrued liabilities: |
|
|
|
|
|
|
||
Accrued payroll |
|
$ |
|
|
$ |
|
||
Accrued sales and use taxes |
|
|
|
|
|
|
||
Accrued property and other taxes |
|
|
|
|
|
|
||
Accrued rent |
|
|
|
|
|
|
||
Accrued gift card and escheatment liability |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Accrued accounts payable and bank overdrafts |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Customer deposits |
|
|
|
|
|
|
||
Accrued expenses - other |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
Note 8: Long Term Debt
Long-term debt as of December 31, 2021 and September 30, 2021 consisted of the following (in 000's):
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Bank of America Revolver Loan |
|
$ |
|
|
$ |
— |
|
|
Encina Business Credit Revolver Loan |
|
|
|
|
|
|
||
Texas Capital Bank Revolver Loan |
|
|
|
|
|
|
||
Encina Business Credit Term Loan |
|
|
|
|
|
|
||
Note Payable to the Sellers of Vintage Stock |
|
|
|
|
|
|
||
Note #3 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #4 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #5 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #6 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #7 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #8 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
|
||
Note #9 Payable to Banc of America Leasing & Capital LLC |
|
|
|
|
|
— |
|
|
Note Payable to Extruded Fibers |
|
|
|
|
|
|
||
Note Payable to the Sellers of Precision Marshall |
|
|
|
|
|
|
||
Note Payable to Store Capital Acquisitions, LLC |
|
|
|
|
|
|
||
Note payable to individuals, interest at |
|
|
|
|
|
|
||
Note payable to individual, interest at |
|
|
|
|
|
|
||
Note payable to individual, noninterest bearing, monthly payments of $ |
|
|
|
|
|
|
||
Note payable to individuals, interest at |
|
|
|
|
|
|
||
Note payable RSSI/(VSSS) |
|
|
|
|
|
|
||
Note Payable to JCM Holdings |
|
|
|
|
|
|
||
Total notes payable |
|
|
|
|
|
|
||
Less unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Net amount |
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
11
Future maturities of long-term debt at December 31, 2021, are as follows which does not include related party debt separately stated:
Twelve months ending December 31, |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total future maturities of long-term debt |
|
$ |
|
|
Bank of America Revolver Loan
On
Loans with Encina Business Credit, LLC
On July 14, 2020, Precision Marshall entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as Agent (the “Agent”). The Loan Agreement provides for secured revolving loans (the “Encina Revolver Loans”) in a principal amount not to exceed the lesser of (i) $
Texas Capital Bank Revolver Loan
On November 3, 2016, Vintage Stock entered into an amended $
Note payable to JCM Holdings
During October 2020, Marquis purchased a manufacturing facility for $
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 during the three months ended December 31, 2021:
Note #9 is for approximately $
Loan Covenant Compliance
As of December 31, 2021, the Company was in compliance with all covenants under its existing revolving and other loan agreements.
12
Note 9: Notes Payable, Related Parties
Long-term debt, related parties as of December 31, 2021 and September 30, 2021 consisted of the following (in 000's):
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Isaac Capital Group, LLC |
|
$ |
|
|
$ |
|
||
Spriggs Investments, LLC |
|
|
|
|
|
|
||
Total notes payable - related parties |
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term portion, related parties |
|
$ |
|
|
$ |
|
||
Twelve months ending December 31, |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total future maturities of long-term debt, related parties |
|
$ |
|
|
Note 10: Stockholders’ Equity
Series B Convertible Preferred Stock
As of December 31, 2021 and September 30, 2021, there were
Series E Convertible Preferred Stock
As of December 31, 2021, and September 30, 2021, respectively, there were
Treasury Stock
Note 11: 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
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.
13
The following table summarizes stock option activity for the fiscal year ended September 30, 2021 and the three months ended December 31, 2021:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Intrinsic |
|
||||
Outstanding at September 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
||||
Outstanding at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at September 30, 2021 |
|
|
|
|
$ |
18.81 |
|
|
|
|
|
$ |
|
|||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The Company recognized compensation expense of $
At December 31, 2021, the Company had $
The following table summarizes information about the Company’s non-vested shares outstanding as of December 31, 2021:
Non-vested Shares |
|
Number of |
|
|
Average |
|
||
Non-vested at September 30, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Non-vested at December 31, 2021 |
|
|
|
|
$ |
|
||
Note 12: Earnings Per Share
Net income (loss) 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 Consolidated Balance Sheet. Diluted net income (loss) 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.
14
The following table presents the computation of basic and diluted net earnings per share (in 000's):
|
|
Three Months Ended December 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Basic |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Less: preferred stock dividends |
|
|
|
|
|
|
||
Net income applicable to common stock |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted average common shares outstanding |
|
|
|
|
|
|
||
Basic earnings per share |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
Net income applicable to common stock |
|
$ |
|
|
$ |
|
||
Add: preferred stock dividends |
|
|
|
|
|
|
||
Net income applicable for diluted earnings per share |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted average common shares outstanding |
|
|
|
|
|
|
||
Add: Options |
|
|
|
|
|
|
||
Add: Series B Preferred Stock |
|
|
|
|
|
|
||
Add: Series B Preferred Stock Warrants |
|
|
|
|
|
|
||
Add: Series E Preferred Stock |
|
|
|
|
|
|
||
Assumed weighted average common shares outstanding |
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
|
|
$ |
|
||
There are
Note 13: Related Party Transactions
Transactions with Isaac Capital Fund and Capital Group LLC
As of December 31, 2021, Isaac Capital Group LLC (“ICG”) owned
ICG Term Loan
During 2015, Marquis entered into a mezzanine loan in the amount of up to $
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 $
15
Transactions with JanOne Inc.
Lease agreement
Customer Connexx LLC, a wholly-owned subsidiary of JanOne Inc. (“JanOne”), rents approximately
Note payable
On December 30, 2017, Appliance Smart Holdings ("ASH") entered into the Agreement with the Seller and ApplianceSmart, a subsidiary of the Seller. Pursuant to the Agreement, ASH purchased from the Seller all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for the Purchase Price. ASH was required to deliver the Purchase Price, and a portion of the Purchase Price was delivered, to the Seller prior to March 31, 2018. Between March 31, 2018 and April 24, 2018, ASH and the Seller negotiated in good faith the method of payment of the remaining outstanding balance of the Purchase Price.
On April 25, 2018, ASH delivered to the Seller the ApplianceSmart Note in the Original Principal Amount, as such amount may be adjusted per the terms of the ApplianceSmart Note. The ApplianceSmart Note is effective as of April 1, 2018 and matures on the Maturity Date. The ApplianceSmart Note bears interest at
On December 26, 2018, ASH and the Seller amended and restated the ApplianceSmart Note to, among other things, grant the Seller a security interest in the assets of ASH and ApplianceSmart in accordance with the terms of separate security agreements entered into between ASH and ApplianceSmart, respectively, and the Seller.
As stated in Note 14 below, on December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. See Note 11 for a complete discussion. As part of ApplianceSmart’s reorganization plan, ApplianceSmart agreed to deliver to JanOne a payment of
Transactions with Vintage Stock CEO
Note Payable to the Sellers of Vintage Stock
In connection with the purchase of Vintage Stock, on
Spriggs Promissory Note
On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note”) in favor of Spriggs Investments LLC (“Spriggs Investments”), a limited liability company whose sole member is 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 $
16
Note 14: Commitments and Contingencies
Litigation
SEC Investigation
On February 21, 2018, the Company received a subpoena from the 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 relate 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. 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. The Company and the Executives maintain that their actions were appropriate, and are vigorously defending against any and all allegations brought forth.
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.
The SEC Complaint alleges financial, disclosure and reporting violations against the Company under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. The SEC Complaint also alleges various claims against certain executive officers under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC seeks permanent injunctions and civil penalties against the Company. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from core business. On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motions on November 1, 2021. The defendants filed their reply responses to the SEC’s opposition on November 15, 2021. The motions to dismiss are now under submission and the court has not yet scheduled a hearing date. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery has been stayed pending the motions to dismiss.
ApplianceSmart Bankruptcy and Other ApplianceSmart Related Litigation Matters
On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of the Bankruptcy Code. The bankruptcy affects the Company's indirect subsidiary, ApplianceSmart, only, and does not affect any other subsidiary of Live Ventures, including, but not limited to ASH, or the Company itself.
ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under ApplianceSmart’s reserve-based revolving credit facility. The case is being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.
On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). A final decree is expected upon the full satisfaction of the Plan, at which time ApplianceSmart will emerge from Chapter 11.
17
ApplianceSmart’s balance sheets are shown below (in 000's). The debtor in possession assets and liabilities are primarily related to assets and liabilities incurred pre-petition and are subject to compromise.
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
|
(Unaudited) |
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|
|
|
||
Assets |
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|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Trade receivables, net |
|
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|
|
|
|
||
Inventories, net |
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|
||
Prepaid expenses and other current assets |
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||
Total debtor in possession assets |
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|
||
Right of use asset - operating leases |
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|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Stockholders' Deficit |
|
|
|
|
|
|
||
Liabilities: |
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|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Notes payable related parties, including current portion |
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||
Total debtor in possession liabilities |
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||
Accounts payable |
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|
|||
Accrued liabilities |
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|
||
Lease obligation - operating leases |
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|
||
Taxes payable |
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||
Total liabilities |
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||
Stockholders' equity: |
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|
||
Intercompany |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders' deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities and stockholders' deficit |
|
$ |
|
|
$ |
|
||
ApplianceSmart’s statements of operations for the three months ended December 31, 2021 and 2020 are shown below (in 000's):
|
|
Three months ended December 31, 2021 (unaudited) |
|
Three months ended December 31, 2020 (unaudited) |
|
||
Revenues |
|
$ |
|
$ |
|
||
Cost of revenues |
|
|
|
|
|
||
Gross profit |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
General and administrative expenses |
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
||
Operating income |
|
|
( |
) |
|
( |
) |
Other (expense) income: |
|
|
|
|
|
||
Interest expense, net |
|
|
|
|
( |
) |
|
Accounts payable settlement |
|
|
( |
) |
|
|
|
Other income (expense) |
|
|
|
|
|
||
Total other (expense) income, net |
|
|
( |
) |
|
|
|
Income before provision for income taxes |
|
$ |
( |
) |
$ |
|
|
18
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 consolidated financial position, results of operations or cash flows. Additionally, a number of claims have been filed against ApplianceSmart in connection with its bankruptcy, which have been stayed as a result of the Chapter 11 Case. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.
Warranties
During 2019, the Company became the principal for certain extended warranties, as a result, warranty reserves are included in accrued liabilities in our consolidated balance sheet.
Beginning balance, September 30, 2021 |
|
$ |
|
|
Warranties issued/accrued |
|
|
|
|
Warranty settlements |
|
|
( |
) |
Ending balance, December 31, 2021 |
|
$ |
|
Note 15: Segment Reporting
The Company operates in three operating segments which are characterized as: (1) Retail, (2) Flooring Manufacturing, and (3) Steel Manufacturing. The Retail segment consists of Vintage Stock and ApplianceSmart, the Flooring Manufacturing Segment consists of Marquis, and the Steel Manufacturing Segment consists of Precision Marshall.
19
The following tables summarize segment information (in 000's):
|
|
For the Three Months Ended December 31, |
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
||
Revenues |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
|
|
||
Corporate & Other |
|
|
|
|
|
|
|
||
Total revenues |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
|
|
||
Corporate & Other |
|
|
|
|
|
|
|
||
Total gross profit |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Operating income (loss) |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
|
|
||
Corporate & Other |
|
|
( |
) |
|
|
( |
) |
|
Total opertaing income |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
|
|
||
Corporate & Other |
|
|
|
|
|
|
|
||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Interest expenses |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
|
|
||
Corporate & Other |
|
|
|
|
|
|
|
||
Total interest expenses |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Net income (loss) before provision for income taxes |
|
|
|
|
|
|
|
||
Retail |
|
$ |
|
|
$ |
|
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
||
Steel Manufacturing |
|
|
|
|
|
( |
) |
|
|
Corporate & Other |
|
|
( |
) |
|
|
( |
) |
|
Total net income before provision for income taxes |
|
$ |
|
|
$ |
|
|
||
Note 16: 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.
20
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 months ended December 31, 2021, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the “2021 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 2021 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not part of this Quarterly Report.
Our Company
Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have three segments to our business: Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate & 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”.
Retail Segment
Our Retail Segment is composed of Vintage Stock, Inc. ("Vintage Stock") and ApplianceSmart, Inc. ("ApplianceSmart").
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,
21
electronics and collectibles through 66 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.
ApplianceSmart
ApplianceSmart operates one store in Reynoldsburg, Ohio. ApplianceSmart is a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others.
On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, or Live Ventures itself. ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under the reserve-based revolving credit facility. The case is being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.
At December 31, 2021, ApplianceSmart operated one store in Ohio. ApplianceSmart is a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, niche offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others.
On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). A final decree is expected upon the full satisfaction of the Plan, at which time ApplianceSmart will emerge from Chapter 11.
Flooring Manufacturing Segment
Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. ("Marquis").
Marquis Affiliated Holdings LLC and wholly-owned subsidiaries (“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.
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”).
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.
22
Precision Marshall provides four key products to over 500 steel distributors in four product categories: Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with 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 significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Stock Based Compensation, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of 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 28, 2021.
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.
23
Results of Operations Three Months Ended December 31, 2021 and 2020
The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended December 31, 2021 and 2020 (in 000's):
|
|
For the Three Months Ended December 31, 2021 |
|
|
For the Three Months Ended December 31, 2020 |
|
||||||||||
|
|
|
|
|
% of Total |
|
|
|
|
|
% of Total |
|
||||
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
75,158 |
|
|
|
100.0 |
% |
|
$ |
62,454 |
|
|
|
100.0 |
% |
Cost of revenues |
|
|
47,542 |
|
|
|
63.3 |
% |
|
|
40,185 |
|
|
|
64.3 |
% |
Gross profit |
|
|
27,616 |
|
|
|
36.7 |
% |
|
|
22,269 |
|
|
|
35.7 |
% |
General and administrative expenses |
|
|
14,157 |
|
|
|
18.8 |
% |
|
|
12,279 |
|
|
|
19.7 |
% |
Sales and marketing expenses |
|
|
3,052 |
|
|
|
4.1 |
% |
|
|
2,699 |
|
|
|
4.3 |
% |
Operating income |
|
|
10,407 |
|
|
|
13.8 |
% |
|
|
7,291 |
|
|
|
11.7 |
% |
Interest expense, net |
|
|
(1,017 |
) |
|
|
(1.4 |
)% |
|
|
(1,470 |
) |
|
|
(2.4 |
)% |
Gain on disposal of fixed assets |
|
|
— |
|
|
|
0.0 |
% |
|
|
129 |
|
|
|
0.2 |
% |
Other income |
|
|
116 |
|
|
|
0.2 |
% |
|
|
779 |
|
|
|
1.2 |
% |
Income before provision for income taxes |
|
|
9,506 |
|
|
|
12.6 |
% |
|
|
6,729 |
|
|
|
10.8 |
% |
Provision for income taxes |
|
|
2,960 |
|
|
|
3.9 |
% |
|
|
1,450 |
|
|
|
2.3 |
% |
Net income |
|
$ |
6,546 |
|
|
|
8.7 |
% |
|
$ |
5,279 |
|
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail business |
|
$ |
5,202 |
|
|
|
|
|
$ |
5,182 |
|
|
|
|
||
Flooring Manufacturing business |
|
|
5,255 |
|
|
|
|
|
|
5,098 |
|
|
|
|
||
Steel Manufacturing business |
|
|
1,844 |
|
|
|
|
|
|
497 |
|
|
|
|
||
Corporate & Other |
|
|
(199 |
) |
|
|
|
|
|
(847 |
) |
|
|
|
||
Total Adjusted EBITDA |
|
$ |
12,102 |
|
|
|
|
|
$ |
9,930 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA as a percentage of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail business |
|
|
19.8 |
% |
|
|
|
|
|
23.2 |
% |
|
|
|
||
Flooring Manufacturing business |
|
|
16.0 |
% |
|
|
|
|
|
16.9 |
% |
|
|
|
||
Steel Manufacturing business |
|
|
14.9 |
% |
|
|
|
|
|
5.1 |
% |
|
|
|
||
Corporate & Other |
|
|
-5.4 |
% |
|
|
|
|
|
-664.0 |
% |
|
|
|
||
Consolidated adjusted EBITDA as a percentage of revenue |
|
|
16.1 |
% |
|
|
|
|
|
15.9 |
% |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(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 December 31, 2021 |
|
|
For the Three Months Ended December 31, 2020 |
|
||||||||||
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Movies, Music, Games and Other |
|
$ |
26,115 |
|
|
|
34.7 |
% |
|
$ |
22,074 |
|
|
|
35.3 |
% |
Appliances |
|
|
96 |
|
|
|
0.1 |
% |
|
|
296 |
|
|
|
0.5 |
% |
Flooring Manufacturing |
|
|
32,872 |
|
|
|
43.7 |
% |
|
|
30,222 |
|
|
|
48.4 |
% |
Steel Manufacturing |
|
|
12,366 |
|
|
|
16.5 |
% |
|
|
9,735 |
|
|
|
15.6 |
% |
Corporate & Other |
|
|
3,709 |
|
|
|
4.9 |
% |
|
|
127 |
|
|
|
0.2 |
% |
Total Revenue |
|
$ |
75,158 |
|
|
|
100.0 |
% |
|
$ |
62,454 |
|
|
|
100.0 |
% |
24
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 December 31, 2021 |
|
|
For the Three Months Ended December 31, 2020 |
|
||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Movies, Music, Games and Other |
|
$ |
13,400 |
|
|
|
17.8 |
% |
|
$ |
11,916 |
|
|
|
19.1 |
% |
Appliances |
|
|
(10 |
) |
|
|
0.0 |
% |
|
|
131 |
|
|
|
0.2 |
% |
Flooring Manufacturing |
|
|
9,029 |
|
|
|
12.0 |
% |
|
|
8,325 |
|
|
|
13.3 |
% |
Steel Manufacturing |
|
|
3,615 |
|
|
|
4.8 |
% |
|
|
1,776 |
|
|
|
2.8 |
% |
Corporate & Other |
|
|
1,582 |
|
|
|
2.1 |
% |
|
|
121 |
|
|
|
0.2 |
% |
Total Gross Profit |
|
$ |
27,616 |
|
|
|
36.7 |
% |
|
$ |
22,269 |
|
|
|
35.7 |
% |
Revenue
Revenue increased approximately $12.7 million, or 20%, to $75.2 million for the three months ended December 31, 2021, as compared to the corresponding prior year period. The increase is primarily attributable to the increased revenue in the Retail Segment of $3.8 million and the consolidation of SW Financial in 2021 resulting in an increase of $3.6 million as compared to the prior year period. The increase in the retail segment was primarily due to increased retail pricing and the opening of three new stores during the three months ended December 31, 2021. Also contributing to the increase in revenue, were increases in the Flooring Manufacturing segment of $2.7 million and Steel Manufacturing Segment of $2.6 million. These increases were primarily attributable to increased sales pricing and increased demand.
Cost of Revenue
Cost of revenue increased by 18% to approximately $47.5 million for the three months ended December 31, 2021 as compared to approximately $40.2 million for the three months ended December 31, 2020. The increase is primarily attributable to the increases in revenues.
General and Administrative Expense
General and Administrative expenses increased by 15% to approximately $14.2 million for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020 primarily due to increases in employee compensation and related costs.
Selling and Marketing Expense
Selling and marketing expense increased by 13% to approximately $3.1 million for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, primarily due to increased compensation associated with the Marquis sales force.
Interest Expense, net
Interest expense, net decreased by 31% for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, primarily due to a decrease in certain interest rates and the continued efforts to repay certain debt obligations.
25
Results of Operations by Segment
|
|
For the Three Months Ended December 31, 2021 |
|
|
For the Three Months Ended December 31, 2020 |
|
||||||||||||||||||||||||||||||||||
|
|
Retail |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
|
Retail |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
||||||||||
Revenue |
|
$ |
26,211 |
|
|
$ |
32,872 |
|
|
$ |
12,366 |
|
|
$ |
3,709 |
|
|
$ |
75,158 |
|
|
$ |
22,370 |
|
|
$ |
30,222 |
|
|
$ |
9,735 |
|
|
$ |
127 |
|
|
$ |
62,454 |
|
Cost of Revenue |
|
|
12,821 |
|
|
|
23,843 |
|
|
|
8,751 |
|
|
|
2,127 |
|
|
|
47,542 |
|
|
|
10,323 |
|
|
|
21,897 |
|
|
|
7,959 |
|
|
|
6 |
|
|
|
40,185 |
|
Gross Profit |
|
|
13,390 |
|
|
|
9,029 |
|
|
|
3,615 |
|
|
|
1,582 |
|
|
|
27,616 |
|
|
|
12,047 |
|
|
|
8,325 |
|
|
|
1,776 |
|
|
|
121 |
|
|
|
22,269 |
|
General and |
|
|
8,454 |
|
|
|
1,639 |
|
|
|
1,821 |
|
|
|
2,243 |
|
|
|
14,157 |
|
|
|
7,420 |
|
|
|
1,941 |
|
|
|
1,527 |
|
|
|
1,391 |
|
|
|
12,279 |
|
Selling and |
|
|
126 |
|
|
|
2,782 |
|
|
|
140 |
|
|
|
4 |
|
|
|
3,052 |
|
|
|
134 |
|
|
|
2,234 |
|
|
|
105 |
|
|
|
226 |
|
|
|
2,699 |
|
Operating Income |
|
$ |
4,810 |
|
|
$ |
4,608 |
|
|
$ |
1,654 |
|
|
$ |
(665 |
) |
|
$ |
10,407 |
|
|
$ |
4,493 |
|
|
$ |
4,150 |
|
|
$ |
144 |
|
|
$ |
(1,496 |
) |
|
$ |
7,291 |
|
Retail Segment
Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the three months ended December 31, 2021 increased by approximately $4.0 million, or 17%, as compared to the prior year, primarily due to increased retail pricing and additional locations added at Vintage Stock, offset by decreasing sales by ApplianceSmart, primarily due to decreases in sales resulting from increased competition. Retail price increases were primarily due to higher product costs relating to inflationary pressures that were passed on to customers. Cost of revenue increased proportionately with the increase in revenue. Operating income for the three months ended December 31, 2021 was approximately $4.8 million, as compared to operating income of approximately $4.5 million for the prior year period.
Flooring Manufacturing Segment
Segment results for Flooring Manufacturing includes Marquis. Revenue for the three months ended December 31, 2021 increased by approximately $2.7 million, or 9%, as compared to the prior year period, primarily due to greater demand for various grades of flooring, as well increases in sales prices. The shift in demand in flooring grades was generally toward higher priced product. Sales price increases were primarily due to higher product costs relating to inflationary pressures that were passed on to customers. Cost of revenue for the three months ended December 31, 2021 increased proportionately with revenue, as compared to the prior year period. Operating income for the three months ended December 31, 2021 was approximately $4.6 million, as compared to operating income of approximately $4.2 million for the prior year period.
Steel Manufacturing Segment
Segment results for Steel Manufacturing includes Precision Marshall. Revenue for the three months ended December 31, 2021 increased by $2.6 million, or 27%, as compared to the prior year period, primarily due to increased sales prices resulting from rising costs. Cost of revenue for the three months ended December 31, 2021 decreased, as compared to the prior year period, as a percentage of sales due to improved manufacturing efficiencies and increased revenue due to price increases. Operating income for the three months ended December 31, 2021 was approximately $1.7 million, as compared to operating income of approximately $144,000 in the prior period. The increase in operating income is primarily due to an increase in gross profit.
Corporate and Other Segment
Segment results for Corporate and Other includes our directory services business and our investment in SW Financial. Revenues for the three months ended December 31, 2021 increased by $3.6 million primarily due to the addition of SW Financial as a VIE during fiscal 2021. Cost of revenue for the three months ended December 31, 2021 increased proportionately with revenue for the reason stated. Operating loss for the three months ended December 31, 2021 was approximately ($665,000), as compared to a loss of approximately ($1.5 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. We anticipate revenues from our investment in SW Financial to trend upward in the future.
Adjusted EBITDA Reconciliation
26
The following table presents a reconciliation of Adjusted EBITDA from net income (in 000's):
|
|
For the Three Months Ended |
|
|||||
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
Net income |
|
$ |
6,546 |
|
|
$ |
5,279 |
|
Depreciation and amortization |
|
|
1,549 |
|
|
|
1,714 |
|
Stock-based compensation |
|
|
18 |
|
|
|
17 |
|
Interest expense, net |
|
|
1,017 |
|
|
|
1,470 |
|
Income tax expense |
|
|
2,960 |
|
|
|
1,450 |
|
Other |
|
|
12 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
12,102 |
|
|
$ |
9,930 |
|
Liquidity and Capital Resources
As of December 31, 2021, we had total cash on hand of approximately $10.0 million and approximately $28.8 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 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 $42.5 million as of December 31, 2021, as compared to working capital of approximately $33.8 million as of September 30, 2021.
Cash Flows from Operating Activities
The Company’s cash, as of December 31, 2021, was approximately $10 million compared to approximately $4.7 million as of September 30, 2021, an increase of approximately $5.3 million. Net cash provided by operations was approximately $4.2 million for the three months ended December 31, 2021 as compared to net cash provided by operations of approximately $7.7 million for the three months ended December 31, 2020. The decrease was primarily due to purchases of inventory, as well as payments on accrued liabilities.
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 $3.1 million for the three months ended December 31, 2021 consisted of purchases of property and equipment. Our cash flows used in investing activities of approximately $3.3 million for the three months ended December 31, 2020 consisted primarily of purchases of property and equipment.
Cash Flows from Financing Activities
Our cash flows provided by financing activities of approximately $4.2 million during the three months ended December 31, 2021 consisted of net proceeds from notes payable of approximately $5.5 million, and approximately $2.0 million in net payments under revolver loans, partially offset by payments of notes payable and financing leases of approximately $3.4 million.
27
Our cash flows used in financing activities of approximately $6.2 million during the three months ended December 31, 2020 consisted of payments on notes payable of approximately $4.7 million, and approximately $3.3 million net payments under revolver loans, partially offset by the issuance of notes payable of approximately $2.1 million associated with the acquisition of a facility by Marquis, and purchases of treasury stock in the amount of $383,000.
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 and/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 may further dilute or otherwise impair the ownership interest of our existing stockholders.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2021, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision, and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure due to material weaknesses in internal control over financial reporting further described below.
Despite the identified material weaknesses, management concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP. Frazier & Deeter, LLC, the Company’s independent registered public accounting firm, has issued an unqualified opinion on our consolidated financial statements as of and for the year ended September 30, 2021. They were not engaged to perform, and did not perform, an audit of internal control over financial reporting. These material weaknesses have no impact on our consolidated financial statements in prior years.
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 CAO, 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 effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) of 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal controls over financial reporting were ineffective as of December 31, 2021. Management noted the following deficiencies that management believes to be material weaknesses:
In response to the above identified weaknesses in our internal control over financial reporting, we plan to improve the documentation of our internal control policies and procedures and develop an internal testing plan to document our evaluation of effectiveness of the internal controls. We expect to conclude these remediation initiatives during the fiscal year ended September 30, 2022. We continue to
29
evaluate testing of our internal control policies and procedures, including assessing internal and external resources that may be available to complete these tasks, but do not know when these tasks will be completed.
A material weakness (within the meaning of PCAOB Auditing Standard No. 2201) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A ""significant deficiency" is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
Please refer to "Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year ended September 30, 2021 for information regarding material pending legal proceedings. Except as set forth therein and below, there have been no new material legal proceedings and no material developments in the legal proceedings previously disclosed.
SEC Matter
On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation. On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation. The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart.
On August 2, 2021, the SEC filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and two of its executive officers as defendants (collectively, the "Defendants"). The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share, purported undisclosed stock promotion and trading, and undisclosed executive compensation from 2016 through 2018. The violations are brought under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933. The SEC seeks permanent injunctions against the Defendants, officer-and-director bars, disgorgement of profits, and civil penalties. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from its core business activities. On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motion on November 1, 2021. The defendants filed their reply responses to the SEC’s opposition on November 15, 2021. The motions to dismiss are now under submission and the court has not yet scheduled a hearing date. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery has been stayed pending the motions to dismiss.
The Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.
ApplianceSmart Bankruptcy and Other ApplianceSmart Litigation Matters
As stated in Item 2 and Note 14 above, on December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of the Bankruptcy Code. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). A final decree is expected upon the full satisfaction of the Plan, at which time ApplianceSmart will emerge from Chapter 11.
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. The Company did not repurchase any common stock under this program during the quarter ended December 31, 2021. As of December 31, 2021, the Company has approximately $6.8 million available for repurchases under this program.
ITEM 3. Defaults Upon Senior Securities
None.
31
ITEM 4. Mine Safety Disclosures
None.
ITEM 5. Other Information
None.
32
ITEM 6. Exhibits
The following exhibits are filed with or incorporated by reference into this Quarterly Report.
Exhibit Number |
|
Exhibit Description |
|
|
Form |
|
File |
|
Exhibit |
|
|
Filing Date |
3.1 |
|
|
|
8-K |
|
000-24217 |
|
3.1 |
|
|
08/15/07 |
|
3.2 |
|
|
|
8-K |
|
001-333937 |
|
3.1 |
|
|
09/07/10 |
|
3.3 |
|
|
|
8-K |
|
001-333937 |
|
3.1 |
|
|
03/11/13 |
|
3.4 |
|
|
|
10-Q |
|
001-333937 |
|
3.1 |
|
|
02/14/14 |
|
3.5 |
|
|
|
8-K |
|
001-333937 |
|
3.1.4 |
|
|
10/08/15 |
|
3.6 |
|
|
|
8-K |
|
001-333937 |
|
3.1.5 |
|
|
11/25/16 |
|
3.7 |
|
|
|
10-K |
|
001-333937 |
|
3.1.6 |
|
|
12/29/16 |
|
3.8 |
|
|
|
10-Q |
|
001-33937 |
|
3.8 |
|
|
08/14/18 |
|
31.1 |
* |
|
|
|
|
|
|
|
|
|
|
|
31.2 |
* |
|
|
|
|
|
|
|
|
|
|
|
32.1 |
* |
|
|
|
|
|
|
|
|
|
|
|
32.2 |
* |
|
|
|
|
|
|
|
|
|
|
|
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 |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
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* |
Filed herewith |
33
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.
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Live Ventures Incorporated |
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Dated: February 10, 2022 |
/s/ Jon Isaac |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Dated: February 10, 2022 |
/s/ David Verret |
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Chief Accounting Officer |
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(Principal Financial Officer) |
34