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.) |
|
|
(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
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 |
☐ |
Accelerated filer |
☐ |
☒ |
Smaller reporting company |
|
|
Emerging growth company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the issuer’s common stock, par value $0.001 per share, outstanding as of May 8, 2023 was
INDEX TO FORM 10-Q FILING
FOR THE SIX MONTHS ENDED March 31, 2023
TABLE OF CONTENTS
|
|
|
|
Page |
|
|
PART I |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
Item 1. |
|
|
3 |
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and September 30, 2022 |
|
3 |
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
Notes to the Condensed Consolidated Financial Statements (Unaudited) |
|
7 |
|
|
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
27 |
|
|
|
|
|
Item 3. |
|
|
37 |
|
|
|
|
|
|
Item 4. |
|
|
37 |
|
|
|
|
|
|
|
|
PART II |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
Item 1. |
|
|
38 |
|
|
|
|
|
|
Item 1A. |
|
|
39 |
|
|
|
|
|
|
Item 2. |
|
|
39 |
|
|
|
|
|
|
Item 3. |
|
|
40 |
|
|
|
|
|
|
Item 4. |
|
|
40 |
|
|
|
|
|
|
Item 5. |
|
|
40 |
|
|
|
|
|
|
Item 6. |
|
|
41 |
|
|
|
|
|
|
|
44 |
|||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share amounts)
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Trade receivables, net of allowance for doubtful accounts of $ |
|
|
|
|
|
|
||
Inventories, net of reserves of $ |
|
|
|
|
|
|
||
Income taxes receivable |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net of accumulated depreciation of $ |
|
|
|
|
|
|
||
Right of use asset - operating leases |
|
|
|
|
|
|
||
Right of use asset - finance leases |
|
|
|
|
|
|
||
Deposits and other assets |
|
|
|
|
|
|
||
Intangible assets, net of accumulated amortization of $ |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Current portion of lease obligations - operating leases |
|
|
|
|
|
|
||
Current portion of lease obligations - finance leases |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Current portion of notes payable related parties |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt, net of current portion |
|
|
|
|
|
|
||
Lease obligation long term - operating leases |
|
|
|
|
|
|
||
Lease obligation long term - finance leases |
|
|
|
|
|
|
||
Notes payable related parties, net of current portion |
|
|
|
|
|
|
||
Deferred taxes |
|
|
|
|
|
|
||
Other non-current obligations |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|
|
||
Series E convertible preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Paid in capital |
|
|
|
|
|
|
||
Treasury stock common |
|
|
( |
) |
|
|
( |
) |
Treasury stock Series E preferred |
|
|
( |
) |
|
|
( |
) |
Retained earnings |
|
|
|
|
|
|
||
Equity attributable to Live stockholders |
|
|
|
|
|
|
||
Non-controlling interest |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per-share amounts)
|
|
For the Three Months Ended March 31, |
|
|
For the Six Months Ended March 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss on debt extinguishment |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Gain on disposal of fixed assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Gain on bankruptcy settlement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other expense, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income before provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Live stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
|
|
For the Six Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
(Gain)/loss on disposal of property and equipment |
|
|
( |
) |
|
|
|
|
Gain on bankruptcy settlement |
|
|
|
|
|
( |
) |
|
Amortization of debt issuance cost |
|
|
|
|
|
( |
) |
|
Stock based compensation expense |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Change in reserve for uncollectible accounts |
|
|
|
|
|
|
||
Change in reserve for obsolete inventory |
|
|
|
|
|
|
||
Change in deferred income taxes |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Trade receivables |
|
|
|
|
|
( |
) |
|
Inventories |
|
|
|
|
|
( |
) |
|
Income taxes payable/receivable |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Deposits and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Other Liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Acquisition of Flooring Liquidators, net of cash acquired |
|
|
( |
) |
|
|
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Financing Activities: |
|
|
|
|
|
|
||
Net borrowings (payments) under revolver loans |
|
|
|
|
|
|
||
Proceeds from issuance of notes payable |
|
|
|
|
|
|
||
Payments on notes payable |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuing related party notes payable |
|
|
|
|
|
|
||
Payments for debt acquisition costs |
|
|
( |
) |
|
|
|
|
Purchase of common treasury stock |
|
|
( |
) |
|
|
( |
) |
Payments on financing leases |
|
|
( |
) |
|
|
( |
) |
Payments on seller financing arrangements |
|
|
( |
) |
|
|
|
|
Debtor-in-possession cash |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Increase in cash |
|
|
( |
) |
|
|
|
|
Cash, beginning of period |
|
|
|
|
|
|
||
Cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental cash flow disclosures: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Noncash financing and investing activities: |
|
|
|
|
|
|
||
Noncash items related to Flooring Liquidators acquisition |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
|
|
Series B |
|
|
Series E |
|
|
Common Stock |
|
|
|
|
|
Series E |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid-In |
|
|
Treasury |
|
|
Treasury |
|
|
Retained |
|
|
Non-controlling Interest |
|
|
Total |
|
||||||||||||
Balance, September 30, 2022 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Purchase of common treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance, December 31, 2022 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Purchase of common treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance, March 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
|
|
Series B |
|
|
Series E |
|
|
Common Stock |
|
|
|
|
|
Series E |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid-In |
|
|
Treasury |
|
|
Treasury |
|
|
Retained |
|
|
Non-controlling Interest |
|
|
Total |
|
||||||||||||
Balance, September 30, 2021 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Balance, December 31, 2021 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Purchase of common treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Conversion of Series B preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance, March 31, 2022 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
LIVE VENTURES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(dollars in thousands, except per-share amounts)
Note 1: Background and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation, and its subsidiaries (collectively, “Live Ventures” or the “Company”). Live Ventures is a diversified holding company with a strategic focus on value-oriented acquisitions of domestic middle-market companies. The Company has five operating segments: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. The Retail-Entertainment segment includes Vintage Stock, Inc. (“Vintage Stock”), which is engaged in the retail sale of new and used movies, music, collectibles, comics, books, games, game systems and components. The Retail-Flooring segment includes Flooring Liquidators, Inc. (“Flooring Liquidators”), which is engaged in the retail sale and installation of floors, carpets, and countertops. The Flooring Manufacturing segment includes Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floor coverings. The Steel Manufacturing Segment includes Precision Industries, Inc. (“Precision Marshall”), which is engaged in the manufacture and sale of alloy and steel plates, ground flat stock and drill rods, and The Kinetic Co., Inc. (“Kinetic”), which is engaged in the production of industrial knives and hardened wear products for the tissue and metals industries.
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of the Company’s management, this interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for three and six months ended March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2023. The financial information included in these statements should be read in conjunction with the condensed consolidated financial statements and related notes thereto as of September 30, 2022 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 16, 2022 (the “2022 10-K”).
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed financial statements include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control, and a variable interest entity (“VIE”). The Company records a non-controlling interest within stockholders’ equity for the portion of the entity’s equity attributed to the consolidated entities that are not wholly owned. All intercompany accounts and transactions have been eliminated in consolidation. These reclassifications have no material effect on the reported financial results.
Reclassifications
Certain amounts in the prior period have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying condensed consolidated financial statements include the estimated reserve for doubtful accounts, the estimated reserve for excess and obsolete inventory, fair values of goodwill, other intangibles and long-lived assets in connection with an acquisition, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, and estimated useful lives for intangible assets and property and equipment.
7
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. Effective December 31, 2021, the Secured Overnight Financing Rate (“SOFR”) replaced the USD London Interbank-Offered Rate (“LIBOR”) for most financial benchmarking. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company has adopted this new accounting standard on its condensed consolidated financial statements and related disclosures; however, adoption of this ASU is anticipated to have no material impact on the Company's financial statements.
Note 3: Acquisitions
Acquisition of Flooring Liquidators
On January 18, 2023, Live Ventures acquired
The acquisition was pursuant to a Securities Purchase Agreement with an effective date of January 18, 2023 by and among the Company, Buyer, Stephen J. Kellogg, as the seller representative of the equity holders of the Acquired Companies and individually in his capacity as an equity holder of the Acquired Companies, and the other equity holders of the Acquired Companies. The purchase price for the Equity Interests was $
The fair value the purchase price components outlined above was $
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $
8
Total purchase price |
|
|
|
$ |
|
||
Less fair value of the holdback option |
|
|
|
|
— |
|
|
Net purchase price |
|
|
|
$ |
|
||
Accounts payable |
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
||
Debt |
|
|
|
|
|
||
Total liabilities assumed |
|
|
|
|
|
||
Total consideration |
|
|
|
|
|
||
Cash |
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
||
Inventory |
|
|
|
|
|
||
Property, plant and equipment |
|
|
|
|
|
||
Intangible assets |
|
|
|
|
|
||
Trade names |
|
$ |
|
|
|
||
Customer relationships |
|
|
|
|
|
||
Non-compete agreements |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Subtotal intangible assets |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total assets acquired |
|
|
|
|
|
||
Total goodwill |
|
|
|
$ |
|
||
Pro Forma Information
The table below presents selected proforma information for the Company for the three- and six-month periods ended March 31, 2023, assuming that the acquisition had occurred on October 1, 2021 (the beginning of the Company’s 2022 fiscal year), pursuant to ASC 805-10-50 (in $000's). This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on that date, nor does it purport to predict the results of operations for future periods.
9
|
|
As Reported |
|
|
Adjustments |
|
|
Proforma |
|
||||||
|
|
Live Unaudited Three Months Ended March 31, 2023 |
|
Flooring Liquidators Unaudited Three Months Ended March 31, 2023 |
|
|
Adjustments(1) |
|
|
LIVE for the Three Months Ended March 31, 2023 |
|
||||
Net revenue |
|
$ |
|
$ |
|
|
|
|
|
$ |
|
||||
Net income |
|
$ |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As Reported |
|
|
Adjustments |
|
|
Proforma |
|
||||||
|
|
Live Unaudited Three Months Ended March 31, 2022 |
|
Flooring Liquidators Unaudited Three Months Ended March 31, 2022 |
|
|
Adjustments(1) |
|
|
LIVE for the Three Months Ended March 31, 2022 |
|
||||
Net revenue |
|
$ |
|
$ |
|
|
|
|
|
$ |
|
||||
Net income |
|
$ |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As Reported |
|
|
Adjustments |
|
|
Proforma |
|
||||||
|
|
Live Unaudited Six Months Ended March 31, 2023 |
|
Flooring Liquidators Unaudited Six Months Ended March 31, 2023 |
|
|
Adjustments(1) |
|
|
LIVE for the Six Months Ended March 31, 2023 |
|
||||
Net revenue |
|
$ |
|
$ |
|
|
|
|
|
$ |
|
||||
Net income |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As Reported |
|
|
Adjustments |
|
|
Proforma |
|
||||||
|
|
Live Unaudited Six Months Ended March 31, 2022 |
|
Flooring Liquidators Unaudited Six Months Ended March 31, 2022 |
|
|
Adjustments(1) |
|
|
LIVE for the Six Months Ended March 31, 2022 |
|
||||
Net revenue |
|
$ |
|
$ |
|
|
|
|
|
$ |
|
||||
Net income |
|
$ |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
Earnings per basic |
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
(1) Adjustments are related to adjustments made for the following:
10
Acquisition of Kinetic
On June 28, 2022, Precision Marshall (“Precision”) acquired
As of the date of acquisition, Precision entered into a sale and leaseback agreement with a third-party, independent of the Kinetic sellers, for the Real Estate. The sale price of the Real Estate was approximately $
The provisions of the lease agreement include a
Under the purchase price allocation, the Company recognized goodwill of approximately $
Total purchase price |
|
$ |
|
|
Accounts payable |
|
|
|
|
Accrued liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Total consideration |
|
|
|
|
Cash |
|
|
|
|
Accounts receivable |
|
|
|
|
Inventory |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Total goodwill |
|
$ |
|
11
Acquisition of Better Backers
On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement (the “Asset Purchase Agreement”). No liabilities were assumed as part of the acquisition. The purchase price, which is subject to certain post-closing adjustments, was approximately $
In connection with the acquisition, Marquis entered into two 20-year building leases with Spyglass Estate Planning, LLC, a related party (see Note 15), with two options to renew for an additional five years each. The fair value of the buildings and improvement is approximately $
Under the purchase price allocation, no goodwill was recognized. The values assigned to the assets acquired are based on their estimates of fair value available as of July 1, 2022, as calculated by management. The table below outlines the purchase price allocation of the purchase for Better Backers to the acquired identifiable assets (in $000’s):
Total purchase price |
|
$ |
|
|
Inventory |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
|
|
Note 4: Leases
The Company leases retail stores, warehouse facilities, and office space. These assets and properties are generally leased under noncancelable agreements that expire at various future dates with many agreements containing renewal options for additional periods. The agreements, which have been classified as either operating or finance leases, generally provide for minimum and, in some cases, percentage rent, and require the Company to pay all insurance, taxes, and other maintenance costs. As a result, the Company recognizes assets and liabilities for all leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
As of March 31, 2023, the weighted average remaining lease term for operating leases is
As of March 31, 2023, the weighted average remaining lease term for finance leases is
12
The following table details our right of use assets and lease liabilities as of March 31, 2023 and September 30, 2022 (in $000's):
|
|
March 31, 2023 |
|
September 30, 2022 |
|
||
Right of use asset - operating leases |
|
$ |
|
$ |
|
||
Right of use asset - finance leases |
|
|
|
|
|
||
Lease liabilities: |
|
|
|
|
|
||
Current - operating |
|
|
|
|
|
||
Current - finance |
|
|
|
|
|
||
Long term - operating |
|
|
|
|
|
||
Long term - finance |
|
|
|
|
|
||
Total present value of future lease payments of operating leases as of March 31, 2023 (in $000's):
Twelve months ended March 31, |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
|
|
|
Less implied interest |
|
|
( |
) |
Present value of payments |
|
$ |
|
|
Total present value of future lease payments of finance leases as of March 31, 2023 (in $000's):
Twelve months ended March 31, |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
|
|
|
Less implied interest |
|
|
( |
) |
Present value of payments |
|
$ |
|
|
In connection with the acquisition of Flooring Liquidators (see Note 3), as of March 31, 2023, the Company has obtained right-of-use assets in exchange for operating lease liabilities of $
During the six months ended March 31, 2023 and 2022, the Company recorded
Note 5: Inventory
The following table details the Company's inventory as of March 31, 2023 and September 30, 2022 (in $000's):
Inventory, net |
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Merchandise |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Inventory reserves |
|
|
( | ) |
|
|
( | ) |
Total inventory, net |
|
$ |
|
|
$ |
|
||
13
Note 6: Property and Equipment
The following table details the Company's property and equipment as of March 31, 2023 and September 30, 2022 (in $000's):
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Property and equipment, net: |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Building and improvements |
|
|
|
|
|
|
||
Transportation equipment |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Furnishings and fixtures |
|
|
|
|
|
|
||
Office, computer equipment and other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation expense was $
Note 7: Intangibles
The following table details the Company's intangibles as of March 31, 2023 and September 30, 2022 (in $000's):
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Intangible assets, net: |
|
|
|
|
|
|
||
Intangible assets - Domain names |
|
$ |
|
|
$ |
|
||
Intangible assets - Customer relationships |
|
|
|
|
|
|
||
Intangible assets - Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total intangibles, net |
|
$ |
|
|
$ |
|
||
Amortization expense was $
The following table summarizes estimated future amortization expense related to intangible assets that have net balances (in $000’s):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
Note 8: Goodwill
The following table details the Company's goodwill as of March 31, 2023 (in $000's):
14
|
|
Retail |
|
Flooring Manufacturing |
|
Steel Manufacturing |
|
Corporate |
|
Total |
|
|||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Additions |
|
|
|
|
|
|
|
|
|
|
|
|||||
Kinetic fair value adjustment |
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|||
Flooring Liquidators acquisition |
|
|
|
|
|
|
|
|
|
|
|
|||||
Flooring Liquidators tax adjustment |
|
|
|
|
|
|
|
|
|
|
|
|||||
Impairment |
|
|
|
|
|
|
|
|
|
|
|
|||||
March 31, 2023 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
As of March 31, 2023, the Company did not identify any triggering events that would require impairment testing.
15
Note 9: Accrued Liabilities
The following table details the Company's accrued liabilities as of March 31, 2023 and September 30, 2022, respectively (in $000's):
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Accrued liabilities: |
|
|
|
|
|
|
||
Accrued payroll and bonuses |
|
$ |
|
|
$ |
|
||
Accrued sales and use taxes |
|
|
|
|
|
|
||
Accrued customer deposits |
|
|
|
|
|
|
||
Accrued gift card and escheatment liability |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Accrued accounts payable and bank overdrafts |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Accrued expenses - other |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
Note 10: Long-Term Debt
Long-term debt as of March 31, 2023 and September 30, 2022 consisted of the following (in $000's):
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Revolver loans |
|
$ |
|
|
$ |
|
||
Equipment loans |
|
|
|
|
|
|
||
Term loans |
|
|
|
|
|
|
||
Other notes payable |
|
|
|
|
|
|
||
Total notes payable |
|
|
|
|
|
|
||
Less: unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Net amount |
|
|
|
|
|
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
Future maturities of long-term debt at March 31, 2023, are as follows which does not include related party debt separately stated (in $000's):
Twelve months ending March 31, |
|
|
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future maturities of long-term debt |
|
$ |
|
|
Eclipse Business Capital Loans
In connection with the acquisition of Flooring Liquidators (see Note 3), on January 18, 2023, Flooring Liquidators entered into a credit facility with Eclipse Business Capital, LLC (“Eclipse”). The facility consists of $
16
Bank of America Revolver Loan
On
Loan with Fifth Third Bank
On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank, and the balance outstanding was repaid. The refinanced credit facility, totaling $
In connection with the acquisition of Kinetic, the existing revolving facility was amended to add Kinetic as a borrower. In addition, two additional term loans were executed to fund the purchase of Kinetic. Approximately $
As of March 31, 2023 and September 30, 2022, the outstanding balance on the revolving loan was approximately $
Texas Capital Bank Revolver Loan
On November 3, 2016, Vintage Stock entered into an amended $
Equipment Loans
On June 20, 2016 and August 5, 2016, Marquis entered into a transaction that provided for a master agreement and separate loan schedules (the “Equipment Loans”) with Banc of America Leasing & Capital, LLC that provided for the following as of March 31, 2023:
Note #3 is for approximately $
Note #4 is for approximately $
17
Note #5 is for approximately $
Note #6 is for $
Note #7 is for $
Note #8 is for approximately $
In December 2021, Marquis funded the acquisition of $
In December 2022, Marquis funded the acquisition of $
Loan Covenant Compliance
As of March 31, 2023, the Company was in compliance with all covenants under its existing revolving and other loan agreements.
Note 11: Notes Payable, Related Parties
Long-term debt, related parties as of March 31, 2023 and September 30, 2022 consisted of the following (in $000's):
|
|
March 31, 2023 |
|
|
September 30, 2022 |
|
||
Isaac Capital Group, LLC, |
|
$ |
|
|
$ |
|
||
Spriggs Investments, LLC, |
|
|
|
|
|
|
||
Spriggs Investments, LLC for Flooring Liquidators, |
|
|
|
|
|
|
||
Isaac Capital Group, LLC revolver, |
|
|
|
|
|
|
||
Isaac Capital Group, LLC for Flooring Liquidators, |
|
|
|
|
|
|
||
Seller of Flooring Liquidators, |
|
|
|
|
|
|
||
Seller of Kinetic, |
|
|
|
|
|
|
||
Total notes payable - related parties |
|
|
|
|
|
|
||
Less: unamortized debt issuance costs |
|
|
( |
) |
|
|
|
|
Net amount |
|
|
|
|
|
|
||
Less: current portion |
|
|
|
|
|
( |
) |
|
Total long-term portion, related parties |
|
$ |
|
|
$ |
|
||
18
Twelve months ending March 31, |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total future maturities of long-term debt, related parties |
|
$ |
|
|
Note 12: Stockholders’ Equity
Series E Convertible Preferred Stock
As of March 31, 2023 and September 30, 2022, there were
Treasury Stock
Note 13: Stock-Based Compensation
Our 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) authorizes the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares to our directors, officer, employees, consultants and advisors. The Company has reserved up to
From time to time, the Company grants stock options to directors, officers, and employees. These awards are valued at the grant date by determining the fair value of the instruments. The value of each award is amortized on a straight-line basis over the requisite service period.
The following table summarizes stock option activity for the fiscal year ended September 30, 2022 and the six months ended March 31, 2023:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Intrinsic |
|
||||
Outstanding at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The following table presents the number and weighted average fair value ("WAFV") of unvested restricted stock awards:
|
|
Series A Restricted Stock Awards |
|
|
WAFV |
|
||
Outstanding at September 30, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
|
|
$ |
|
||
Canceled |
|
|
|
|
$ |
— |
|
|
Non-vested at December 31, 2022 |
|
|
|
|
$ |
|
||
19
The Company recognized compensation expense of approximately $
As of March 31, 2023, the Company had approximately $
Note 14: Earnings Per Share
Net income per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Condensed Consolidated Balance Sheet. Diluted net income per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of restricted share awards, stock options and convertible preferred stock. Preferred stock dividends are subtracted from net earnings to determine the amount available to common stockholders.
The following table presents the computation of basic and diluted net earnings per share (in $000's):
|
|
Three Months Ended March 31, 2023 |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
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 15: Related Party Transactions
Transactions with Isaac Capital Group, LLC
As of March 31, 2023, Isaac Capital Group, LLC (“ICG”) beneficially owns
20
ICG Term Loan
As of March 31, 2023, the Company was a party to a term loan with ICG in the amount of $
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 $
ICG Flooring Liquidators Note
On January 18, 2023, in connection with the acquisition of Flooring Liquidators, the Company was a party to a term loan with ICG in the amount of $
Transactions with JanOne Inc.
Lease Agreement
Customer Connexx LLC, a wholly-owned subsidiary of JanOne Inc. (“JanOne”), rents approximately
Purchase Agreement with ARCA Recycling.
On April 5, 2022, the Company entered into a Purchasing Agreement with ARCA Recycling, Inc. (“ARCA”), then a wholly-owned subsidiary of JanOne. Pursuant to the agreement, the Company agrees to purchase inventory from time to time for ARCA as set forth in submitted purchase orders. The inventory is owned by the Company until ARCA installs it in customer's homes, and payment by ARCA to the Company is due upon ARCA's receipt of payment from the customer. All purchases made by the Company shall be paid back by ARCA in full plus an additional five percent surcharge or broker-type fee. The term of the Agreement is one year, and automatically renews if not terminated by either party. Due to significant doubt that the full balance due from ARCA will be paid, on March 31, 2023 the Company recorded an allowance of approximately $
Transactions with Vintage Stock CEO
Spriggs Promissory Note I
On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note I”) in favor of Spriggs Investments, LLC (“Spriggs Investments”), a limited liability company whose sole member is Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly-owned subsidiary of the Company, that memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $
Spriggs Promissory Note II
On January 19, 2023, in connection with the acquisition of Flooring Liquidators, the Company executed a promissory note in favor of Spriggs Investments in the initial principal amount of $
21
Transactions with Spyglass Estate Planning, LLC.
Building Leases
On July 1, 2022, in connection with its acquisition of Better Backers, Marquis entered into two building leases with Spyglass Estate Planning, LLC, a limited liability company whose sole member is Jon Isaac, the Company’s President and Chief Executive Officer. The building leases are for 20 years with two options to renew for an additional five years each. The provisions of the lease agreements include an initial 24-month month-to-month rental period, during which the lessee may cancel with 90-day notice, followed by a 20-year lease term with two five-year renewal options. The Company has evaluated each lease and determined the rental amounts to be at market rates.
Sellers Notes
Note Payable to the Sellers of Kinetic
In connection with the purchase of Kinetic (see Note 3), on June 28, 2022, Precision Marshall entered into a seller financed loan in the amount of $
Note Payable to the Seller of Flooring Liquidators
In connection with the purchase of Flooring Liquidators, on January 18, 2023, Flooring Affiliated Holdings, LLC (“Buyer”) entered into a seller financed mezzanine loan in the amount of $
Note 16: Commitments and Contingencies
Litigation
SEC Investigation
On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation. On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation. The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart, Inc. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives to allege certain violations of the federal securities laws. On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the Company’s Form 8-K filed on February 14, 2018. The Company cooperated fully with the SEC inquiry and provided a response to the SEC on October 26, 2018.
On August 2, 2021, the SEC filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and two of its executive officers as defendants (collectively, the "Company Defendants") as well as certain other third parties. The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share, purported undisclosed stock promotion and trading, and undisclosed executive compensation from 2016 through 2018. The violations are brought under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933. The SEC seeks permanent injunctions against the Company Defendants, officer-and-director bars, disgorgement of profits, and civil penalties. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
22
On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted one of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties have agreed to participate in a mediation and to continue the remainder of discovery until after the mediation, scheduled to take place in June 2023.
The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.
Sieggreen Class Action
On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated, filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming as defendants the Company and the two executive officers named in the SEC Complaint described above. The allegations asserted are similar to those in the SEC Complaint. Among other relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed his Amended Complaint on March 6, 2023. On May 5, 2023, the Company and its executives filed a Motion to Dismiss the Amended Complaint. They strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.
Holdback Matter
On October 10, 2022, a representative for the former shareholders of Precision Marshall filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleges that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $
On January 12, 2023, and after jurisdiction over the case was questioned by the Court of Chancery, State of Delaware, plaintiff filed a substantially identical complaint in the Western District of Pennsylvania. After the Delaware action was dismissed, plaintiff requested that counsel waive service of the Pennsylvania complaint. On April 19, 2023, the Company agreed to waive service. The Company’s response to the Complaint is now due on June 19, 2023. The Company intends to defend against these claims vigorously.
Wage and Hour Matter
On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. A Motion for Change of Venue to Stanislaus County was filed by Elite Builders on December 7, 2022. The hearing on the motion was heard on February 8, 2023. Elite Builders’ motion to change venue was granted. Company believes that Mr. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding since no discovery has commenced and the scope of class is not yet known.
Consumer Protection Act
On December 4, 2022, Sheila Thompson and Dennis Thompson filed a Complaint in the 21st Judicial Circuit Court of St. Louis County, Missouri asserting putative class claims arising under the Telephone Consumer Protection Act, 47 U.S.C. 227, and related Missouri state law claims pertaining to purportedly unsolicited text message advertisements. Vintage Stock, Inc. (“Vintage”) was served on December 13, 2022. On January 11, 2023, Vintage timely removed the case from the state court into federal court. On February 8, 2023, Vintage filed a Motion to Dismiss and Motion to Strike Class Allegations. On March 1, 2023, plaintiffs filed their First Amended Complaint that mooted the pending motion. On March 15, 2023, Vintage moved to dismiss and/or strike the First Amended Complaint.
23
The motion is fully briefed and stands submitted to the Court for decision. Vintage disputes the allegations and intends to defend itself vigorously against the claims in the First Amended Complaint. As the case is still in the pleading stage, it is premature to estimate potential liability.
Salomon Whitney Settlement
Effective March 31, 2023, the Company entered into a settlement agreement with the Principal ownership of Salomon Whitney, LLC to pay the Company $
Generally
The Company is involved in various claims and lawsuits arising in the normal course of business. The ultimate results of claims and litigation cannot be predicted with certainty. The Company currently believes that the ultimate outcome of such lawsuits and proceedings will not, individually, or in the aggregate, have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.
24
Note 17: Segment Reporting
The Company operates in
The following tables summarize segment information (in $000's):
|
|
For the Three Months Ended March 31, |
|
|
For the Six Months Ended March 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total gross profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income before provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Retail-Flooring |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Flooring Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Steel Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate & Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total net income before provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
25
Note 18: Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to disclosures in its condensed consolidated financial statements.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and six months ended March 31, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “2022 Form 10-K”).
Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.
Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements about the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.
Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in our 2022 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not part of this Quarterly Report.
Our Company
Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have four segments to our business: Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other.
Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses.
Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is (702) 939-0231, and our corporate website (which does not form part of this Quarterly Report Form 10-Q) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol “LIVE”.
27
Retail-Entertainment Segment
Our Retail-Entertainment Segment is composed of Vintage Stock, Inc. (“Vintage Stock”).
Vintage Stock Holdings LLC, Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”) is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books, comics, toys and collectibles, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.
Retail-Flooring Segment
Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”).
Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada. Founded by Steve Kellogg in 1997, Modesto, California-based Flooring Liquidators provides floor, cabinets, countertops, and installation services in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the company established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through three businesses: retail customers through its Flooring Liquidators retail stores, builder and contractor customers through Elite Builder Services, Inc., and residential and business customers through 7 Day Stone, Inc.
Flooring Manufacturing Segment
Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. (“Marquis”).
Marquis is a leading carpet manufacturer and distributor of carpet and hard-surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers.
Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.
On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), and its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”).
Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For nearly 75 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs.
Founded in 1948, Precision Marshall “The Deluxe Company” has built a reputation of high integrity, speed of service and doing things the “Deluxe Way”. The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee.
Precision Marshall provides four key products to over 500 steel distributors in four product categories: Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.
On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a one-stop shop for in-house grinding, machining, and heat-treating. Kinetic was founded by the Masters family in 1948 and is headquartered in Greendale,
28
Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management’s initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of our significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in our 10-K report as filed on December 16, 2022.
Adjusted EBITDA
We evaluate the performance of our operations based on financial measures such as revenue and “Adjusted EBITDA.” Adjusted EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of the business, including the business’ ability to fund acquisitions and other capital expenditures, and to service its debt. Additionally, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments. Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all of our cash needs. It is, however, a measurement that the Company believes is useful to investors in analyzing its operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by Live Ventures Incorporated, should not be compared to any similarly titled measures reported by other companies.
29
Results of Operations Three Months Ended March 31, 2023 and 2022
The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended March 31, 2023 and 2022 (in $000’s):
|
|
For the Three Months Ended March 31, 2023 |
|
|
For the Three Months Ended March 31, 2022 |
|
||||||||||
|
|
|
|
|
% of Total |
|
|
|
|
|
% of Total |
|
||||
Selected Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
91,122 |
|
|
|
|
|
$ |
69,706 |
|
|
|
|
||
Cost of revenues |
|
|
59,514 |
|
|
|
65.3 |
% |
|
|
44,753 |
|
|
|
64.2 |
% |
General and administrative expenses |
|
|
22,617 |
|
|
|
24.8 |
% |
|
|
13,154 |
|
|
|
18.9 |
% |
Sales and marketing expenses |
|
|
4,039 |
|
|
|
4.4 |
% |
|
|
3,350 |
|
|
|
4.8 |
% |
Interest expense, net |
|
|
3,235 |
|
|
|
3.6 |
% |
|
|
858 |
|
|
|
1.2 |
% |
Income before provision for income taxes |
|
|
2,108 |
|
|
|
2.3 |
% |
|
|
18,881 |
|
|
|
27.1 |
% |
Provision for income taxes |
|
|
550 |
|
|
|
0.6 |
% |
|
|
3,523 |
|
|
|
5.1 |
% |
Net income |
|
$ |
1,558 |
|
|
|
1.7 |
% |
|
$ |
15,358 |
|
|
|
22.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
2,652 |
|
|
|
|
|
$ |
3,610 |
|
|
|
|
||
Retail-Flooring |
|
|
1,111 |
|
|
|
|
|
|
— |
|
|
|
|
||
Flooring Manufacturing |
|
|
3,363 |
|
|
|
|
|
|
4,579 |
|
|
|
|
||
Steel Manufacturing |
|
|
3,670 |
|
|
|
|
|
|
2,828 |
|
|
|
|
||
Corporate & Other |
|
|
(1,609 |
) |
|
|
|
|
|
(762 |
) |
|
|
|
||
Total Adjusted EBITDA |
|
$ |
9,187 |
|
|
|
|
|
$ |
10,255 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA as a percentage of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
|
13.8 |
% |
|
|
|
|
|
17.4 |
% |
|
|
|
||
Retail-Flooring |
|
|
5.4 |
% |
|
|
|
|
N/A |
|
|
|
|
|||
Flooring Manufacturing |
|
|
11.1 |
% |
|
|
|
|
|
14.0 |
% |
|
|
|
||
Steel Manufacturing |
|
|
18.4 |
% |
|
|
|
|
|
20.2 |
% |
|
|
|
||
Corporate & Other |
|
N/A |
|
|
|
|
|
N/A |
|
|
|
|
||||
Consolidated adjusted EBITDA as a percentage of revenue |
|
|
10.1 |
% |
|
|
|
|
|
14.7 |
% |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(a) See reconciliation of net income to Adjusted EBITDA below.
The following table sets forth revenues by segment (in $000's):
|
|
For the Three Months Ended March 31, 2023 |
|
|
For the Three Months Ended March 31, 2022 |
|
||||||||||
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
19,188 |
|
|
|
21.1 |
% |
|
$ |
20,741 |
|
|
|
29.8 |
% |
Retail-Flooring |
|
|
20,769 |
|
|
|
22.8 |
% |
|
|
— |
|
|
|
0.0 |
% |
Flooring Manufacturing |
|
|
30,340 |
|
|
|
33.3 |
% |
|
|
32,772 |
|
|
|
47.0 |
% |
Steel Manufacturing |
|
|
19,916 |
|
|
|
21.9 |
% |
|
|
14,027 |
|
|
|
20.1 |
% |
Corporate & Other |
|
|
909 |
|
|
|
1.0 |
% |
|
|
2,166 |
|
|
|
3.1 |
% |
Total Revenue |
|
$ |
91,122 |
|
|
|
100.0 |
% |
|
$ |
69,706 |
|
|
|
100.0 |
% |
30
The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):
|
|
For the Three Months Ended March 31, 2023 |
|
|
For the Three Months Ended March 31, 2022 |
|
||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
10,654 |
|
|
|
11.7 |
% |
|
$ |
11,110 |
|
|
|
15.9 |
% |
Retail-Flooring |
|
|
7,742 |
|
|
|
8.5 |
% |
|
|
— |
|
|
|
0.0 |
% |
Flooring Manufacturing |
|
|
7,328 |
|
|
|
8.0 |
% |
|
|
8,580 |
|
|
|
12.3 |
% |
Steel Manufacturing |
|
|
5,647 |
|
|
|
6.2 |
% |
|
|
4,252 |
|
|
|
6.1 |
% |
Corporate & Other |
|
|
237 |
|
|
|
0.3 |
% |
|
|
1,011 |
|
|
|
1.5 |
% |
Total Gross Profit |
|
$ |
31,608 |
|
|
|
34.7 |
% |
|
$ |
24,953 |
|
|
|
35.8 |
% |
Revenue
Revenue increased approximately $21.4 million, or 30.7%, to approximately $91.2 million for the three months ended March 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to increased revenue in the Retail-Flooring and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic, offset by decreased revenues of approximately $3.7 million in the other businesses. The decreases in revenue are primarily due to reduced demand and inflationary pressures, as well as product mix at Vintage Stock in the Retail-Entertainment segment.
Cost of Revenue
Cost of revenue as a percentage of revenue was 65.3% for three months ended March 31, 2023 as compared to 64.2% for the three months ended March 31, 2022. The increase is primarily attributable to inflationary cost increases.
General and Administrative Expense
General and Administrative expenses increased by 71.9% to approximately $22.6 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $9.4 million in the Retail and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic.
Selling and Marketing Expense
Selling and marketing expense increased by 20.6% to approximately $4.0 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment.
Interest Expense, net
Interest expense, net, increased by approximately $2.4 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and increased interest rates during the period.
Results of Operations Six Months Ended March 31, 2023 and 2022
The following table sets forth certain statement of income items and as a percentage of revenue, for the six months ended March 31, 2023 and 2022 (in $000's):
31
|
|
For the Six Months Ended March 31, 2023 |
|
|
For the Six Months Ended March 31, 2022 |
|
||||||||||
|
|
|
|
|
% of Total |
|
|
|
|
|
% of Total |
|
||||
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
160,108 |
|
|
|
|
|
$ |
144,864 |
|
|
|
|
||
Cost of revenues |
|
|
106,556 |
|
|
|
66.6 |
% |
|
|
92,295 |
|
|
|
63.7 |
% |
General and administrative expenses |
|
|
37,217 |
|
|
|
23.2 |
% |
|
|
27,311 |
|
|
|
18.9 |
% |
Sales and marketing expenses |
|
|
6,816 |
|
|
|
4.3 |
% |
|
|
6,402 |
|
|
|
4.4 |
% |
Interest expense, net |
|
|
5,282 |
|
|
|
3.3 |
% |
|
|
1,875 |
|
|
|
1.3 |
% |
Income before provision for income taxes |
|
|
4,567 |
|
|
|
2.9 |
% |
|
|
28,387 |
|
|
|
19.6 |
% |
Provision for income taxes |
|
|
1,165 |
|
|
|
0.7 |
% |
|
|
6,483 |
|
|
|
4.5 |
% |
Net income |
|
$ |
3,402 |
|
|
|
2.1 |
% |
|
$ |
21,904 |
|
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
6,656 |
|
|
|
|
|
$ |
8,813 |
|
|
|
|
||
Retail-Flooring |
|
|
1,111 |
|
|
|
|
|
|
— |
|
|
|
|
||
Flooring Manufacturing |
|
|
5,147 |
|
|
|
|
|
|
9,834 |
|
|
|
|
||
Steel Manufacturing |
|
|
6,195 |
|
|
|
|
|
|
4,672 |
|
|
|
|
||
Corporate & Other |
|
|
(2,382 |
) |
|
|
|
|
|
(964 |
) |
|
|
|
||
Total Adjusted EBITDA |
|
$ |
16,727 |
|
|
|
|
|
$ |
22,355 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA as a percentage of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
|
15.7 |
% |
|
|
|
|
|
18.8 |
% |
|
|
|
||
Retail-Flooring |
|
|
5.4 |
% |
|
|
|
|
N/A |
|
|
|
|
|||
Flooring Manufacturing |
|
|
9.1 |
% |
|
|
|
|
|
15.0 |
% |
|
|
|
||
Steel Manufacturing |
|
|
16.3 |
% |
|
|
|
|
|
17.7 |
% |
|
|
|
||
Corporate & Other |
|
N/A |
|
|
|
|
|
N/A |
|
|
|
|
||||
Consolidated adjusted EBITDA as a percentage of revenue |
|
|
10.4 |
% |
|
|
|
|
|
15.4 |
% |
|
|
|
||
(a) See reconciliation of net income to Adjusted EBITDA below.
The following table sets forth revenues by segment (in $000's):
|
|
For the Six Months Ended March 31, 2023 |
|
|
For the Six Months Ended March 31, 2022 |
|
||||||||||
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of Total |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
42,461 |
|
|
|
26.5 |
% |
|
$ |
46,952 |
|
|
|
32.4 |
% |
Retail-Flooring |
|
|
20,769 |
|
|
|
13.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
Flooring Manufacturing |
|
|
56,772 |
|
|
|
35.5 |
% |
|
|
65,644 |
|
|
|
45.3 |
% |
Steel Manufacturing |
|
|
37,897 |
|
|
|
23.7 |
% |
|
|
26,393 |
|
|
|
18.2 |
% |
Corporate & other |
|
|
2,209 |
|
|
|
1.4 |
% |
|
|
5,875 |
|
|
|
4.1 |
% |
Total Revenue |
|
$ |
160,108 |
|
|
|
100.0 |
% |
|
$ |
144,864 |
|
|
|
100.0 |
% |
32
The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):
|
|
For the Six Months Ended March 31, 2023 |
|
|
For the Six Months Ended March 31, 2022 |
|
||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail-Entertainment |
|
$ |
22,864 |
|
|
|
14.3 |
% |
|
$ |
24,500 |
|
|
|
16.9 |
% |
Retail-Flooring |
|
|
7,742 |
|
|
|
4.8 |
% |
|
|
— |
|
|
|
0.0 |
% |
Flooring Manufacturing |
|
|
11,989 |
|
|
|
7.5 |
% |
|
|
17,609 |
|
|
|
12.2 |
% |
Steel Manufacturing |
|
|
10,040 |
|
|
|
6.3 |
% |
|
|
7,867 |
|
|
|
5.4 |
% |
Corporate & other |
|
|
917 |
|
|
|
0.6 |
% |
|
|
2,593 |
|
|
|
1.8 |
% |
Total Gross Profit |
|
$ |
53,552 |
|
|
|
33.4 |
% |
|
$ |
52,569 |
|
|
|
36.3 |
% |
Revenue
Revenue increased approximately $15.2 million, or 10.5%, to $160.1 million for the six months ended March 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to increased revenue in the Retail-Flooring and Steel Manufacturing segments due to Flooring Liquidators and Kinetic acquisitions, offset by decreased revenues in the other businesses. The decreases in revenue are primarily due to reduced demand and inflationary pressures, as well as product mix at Vintage Stock in the Retail-Entertainment segment.
Cost of Revenue
Cost of revenue as a percentage of revenue was 66.6% for the six months ended March 31, 2023 as compared to 63.7% for the six months ended March 31, 2022. The increase is primarily attributable to inflationary cost increases.
General and Administrative Expense
General and Administrative expenses increased by 36.3% to approximately $37.2 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $10.3 million in the Retail-Flooring and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic.
Selling and Marketing Expense
Selling and marketing expense increased by 6.5% to approximately $6.8 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment.
Interest Expense, net
Interest expense, net, increased by approximately $3.4 million for the six months ended March 31, 2023, as compared to the six months ended March 31, 2022. primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and also increased interest rates during the period.
Results of Operations by Segment
|
|
For the Three Months Ended March 31, 2023 |
|
|
For the Three Months Ended March 31, 2022 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
Retail-Entertainment |
|
|
Retail-Flooring |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
|
Retail-Entertainment |
|
|
Retail-Flooring |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
||||||||||||
Revenue |
|
$ |
19,188 |
|
|
$ |
20,769 |
|
|
$ |
30,340 |
|
|
$ |
19,916 |
|
|
$ |
909 |
|
|
$ |
91,122 |
|
|
$ |
20,741 |
|
|
$ |
— |
|
|
$ |
32,772 |
|
|
$ |
14,027 |
|
|
$ |
2,166 |
|
|
$ |
69,706 |
|
Cost of Revenue |
|
|
8,534 |
|
|
|
13,027 |
|
|
|
23,012 |
|
|
|
14,269 |
|
|
|
672 |
|
|
|
59,514 |
|
|
|
9,631 |
|
|
|
— |
|
|
|
24,192 |
|
|
|
9,775 |
|
|
|
1,155 |
|
|
|
44,753 |
|
Gross Profit |
|
|
10,654 |
|
|
|
7,742 |
|
|
|
7,328 |
|
|
|
5,647 |
|
|
|
237 |
|
|
|
31,608 |
|
|
|
11,110 |
|
|
|
— |
|
|
|
8,580 |
|
|
|
4,252 |
|
|
|
1,011 |
|
|
|
24,953 |
|
General and |
|
|
8,164 |
|
|
|
7,873 |
|
|
|
1,438 |
|
|
|
2,676 |
|
|
|
2,466 |
|
|
|
22,617 |
|
|
|
7,888 |
|
|
|
— |
|
|
|
1,586 |
|
|
|
1,395 |
|
|
|
2,285 |
|
|
|
13,154 |
|
Selling and |
|
|
163 |
|
|
|
85 |
|
|
|
3,484 |
|
|
|
157 |
|
|
|
150 |
|
|
|
4,039 |
|
|
|
90 |
|
|
|
— |
|
|
|
3,119 |
|
|
|
138 |
|
|
|
3 |
|
|
|
3,350 |
|
Operating Income |
|
$ |
2,327 |
|
|
$ |
(216 |
) |
|
$ |
2,406 |
|
|
$ |
2,814 |
|
|
$ |
(2,379 |
) |
|
$ |
4,952 |
|
|
$ |
3,132 |
|
|
$ |
— |
|
|
$ |
3,875 |
|
|
$ |
2,719 |
|
|
$ |
(1,277 |
) |
|
$ |
8,449 |
|
33
Retail-Entertainment Segment
Revenue for the three months ended March 31, 2023 decreased by approximately $1.6 million, or 7.5%, as compared to the prior year, primarily due to inflationary pressures, and overall product mix. Cost of revenue as a percentage of revenue was 44.5% for the three months ended March 31, 2023, as opposed to 46.4% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.3 million, as compared to operating income of approximately $3.1 million for the prior year period.
Retail-Flooring Segment
Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended March 31, 2023 was $20.8 million, and cost of revenue as a percentage of revenue was 62.7%. Operating loss for the three months ended March 31, 2023 was $216,000.
Flooring Manufacturing Segment
Revenue for the three months ended March 31, 2023 decreased by approximately $2.4 million, or 7.4%, as compared to the prior year period, primarily due to reduced customer demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 75.8% for the three months ended March 31, 2023, as opposed to 73.8% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.4 million, as compared to operating income of approximately $3.9 million for the prior year period.
Steel Manufacturing Segment
Revenue for the three months ended March 31, 2023 increased by approximately $5.9 million, or 42.0%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Revenue for Kinetic was $6.4 million, while Precision revenues decreased by approximately $0.5 million. Cost of revenue as a percentage of revenue was 71.6% for the three months ended March 31, 2023, as opposed to 69.7% for the three months ended March 31, 2022. Operating income for the three months ended March 31, 2023 was approximately $2.8 million, as compared to operating income of approximately $2.7 in the prior period.
Corporate and Other Segment
Revenues for the three months ended March 31, 2023 decreased by $1.3 million, or 58.0% primarily due to decreased revenue for SW Financial. The decrease was primarily due to a decrease in stock market trading activity due to decreased trade activity as a result of market uncertainty. Cost of revenue as a percentage of revenue was 73.9% for the three months ended March 31, 2023, as opposed to 53.3% for the three months ended March 31, 2022. Operating loss for the three months ended March 31, 2023 was approximately $2.4 million, as compared to a loss of approximately $1.3 million in the prior period. Revenues and operating income for our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business.
|
|
For the Six Months Ended March 31, 2023 |
|
|
For the Six Months Ended March 31, 2022 |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
Retail-Entertainment |
|
|
Retail-Flooring |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
|
Retail-Entertainment |
|
|
Retail-Flooring |
|
|
Flooring |
|
|
Steel |
|
|
Corporate |
|
|
Total |
|
||||||||||||
Revenue |
|
$ |
42,461 |
|
|
$ |
20,769 |
|
|
$ |
56,772 |
|
|
$ |
37,897 |
|
|
$ |
2,209 |
|
|
$ |
160,108 |
|
|
$ |
46,952 |
|
|
$ |
— |
|
|
$ |
65,644 |
|
|
$ |
26,393 |
|
|
$ |
5,875 |
|
|
$ |
144,864 |
|
Cost of Revenue |
|
|
19,597 |
|
|
|
13,027 |
|
|
|
44,783 |
|
|
|
27,857 |
|
|
|
1,292 |
|
|
|
106,556 |
|
|
|
22,452 |
|
|
|
— |
|
|
|
48,035 |
|
|
|
18,526 |
|
|
|
3,282 |
|
|
|
92,295 |
|
Gross Profit |
|
|
22,864 |
|
|
|
7,742 |
|
|
|
11,989 |
|
|
|
10,040 |
|
|
|
917 |
|
|
|
53,552 |
|
|
|
24,500 |
|
|
|
— |
|
|
|
17,609 |
|
|
|
7,867 |
|
|
|
2,593 |
|
|
|
52,569 |
|
General and |
|
|
16,549 |
|
|
|
7,873 |
|
|
|
2,928 |
|
|
|
5,468 |
|
|
|
4,399 |
|
|
|
37,217 |
|
|
|
16,342 |
|
|
|
— |
|
|
|
3,225 |
|
|
|
3,216 |
|
|
|
4,528 |
|
|
|
27,311 |
|
Selling and |
|
|
324 |
|
|
|
85 |
|
|
|
5,903 |
|
|
|
302 |
|
|
|
202 |
|
|
|
6,816 |
|
|
|
216 |
|
|
|
— |
|
|
|
5,901 |
|
|
|
278 |
|
|
|
7 |
|
|
|
6,402 |
|
Operating Income |
|
$ |
5,991 |
|
|
$ |
(216 |
) |
|
$ |
3,158 |
|
|
$ |
4,270 |
|
|
$ |
(3,684 |
) |
|
$ |
9,519 |
|
|
$ |
7,942 |
|
|
$ |
— |
|
|
$ |
8,483 |
|
|
$ |
4,373 |
|
|
$ |
(1,942 |
) |
|
$ |
18,856 |
|
Retail-Entertainment Segment
Revenue for the six months ended March 31, 2023 decreased by approximately $4.5 million, or 9.6%, as compared to the prior year, primarily due to inflationary pressures, and overall product mix. Cost of revenue as a percentage of revenue was 46.2% for the six months ended March 31, 2023, as opposed to 47.8% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $6.0 million, as compared to operating income of approximately $7.9 million for the prior year period.
34
Retail-Flooring Segment
Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the six months ended March 31, 2023 was $20.8 million, and cost of revenue as a percentage of revenue was 62.7%. Operating loss for the six months ended March 31, 2023 was $216,000.
Flooring Manufacturing Segment
Revenue for the six months ended March 31, 2023 decreased by approximately $8.9 million, or 13.5%, as compared to the prior year period, primarily due to reduced customer demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 78.9% for the six months ended March 31, 2023, as opposed to 73.2% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $3.2 million, as compared to operating income of approximately $8.5 million for the prior year period.
Steel Manufacturing Segment
Revenue for the six months ended March 31, 2023 increased by $11.5 million, or 43.6%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Revenue for Kinetic was $12.2 million, while Precision revenues decreased by approximately $0.6 million. Cost of revenue as a percentage of revenue was 73.5% for the six months ended March 31, 2023, as opposed to 70.2% for the six months ended March 31, 2022. Operating income for the six months ended March 31, 2023 was approximately $4.3 million, as compared to operating income of approximately $4.4 in the prior period.
Corporate and Other Segment
Revenues for the six months ended March 31, 2023 decreased by $3.7 million primarily due to decreased revenue for SW Financial. The decrease was primarily due to a decrease in stock market trading activity due to decreased trade activity as a result of market uncertainty. Cost of revenue as a percentage of revenue was 58.5% for the six months ended March 31, 2023, as opposed to 55.9% for the six months ended March 31, 2022. Operating loss for the six months ended March 31, 2023 was approximately $3.7 million, as compared to a loss of approximately $1.9 million in the prior period. Revenues and operating income for our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business.
Adjusted EBITDA Reconciliation
The following tables present a reconciliation of Adjusted EBITDA from net income for the three and six months ended March 31, 2023 (in 000's):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||||
Net income |
|
$ |
1,558 |
|
|
$ |
15,358 |
|
|
$ |
3,402 |
|
|
$ |
21,904 |
|
Depreciation and amortization |
|
|
3,647 |
|
|
|
1,496 |
|
|
|
6,298 |
|
|
|
3,045 |
|
Stock-based compensation |
|
|
109 |
|
|
|
19 |
|
|
|
109 |
|
|
|
37 |
|
Interest expense, net |
|
|
3,235 |
|
|
|
858 |
|
|
|
5,282 |
|
|
|
1,875 |
|
Income tax expense |
|
|
550 |
|
|
|
3,523 |
|
|
|
1,165 |
|
|
|
6,483 |
|
Gain on bankruptcy settlement |
|
|
— |
|
|
|
(11,362 |
) |
|
|
— |
|
|
|
(11,352 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
363 |
|
|
|
— |
|
|
|
363 |
|
SW Financial settlement gain |
|
|
(1,000 |
) |
|
|
— |
|
|
|
(1,000 |
) |
|
|
— |
|
Non-recurring costs for acquisitions |
|
|
1,088 |
|
|
|
— |
|
|
|
1,471 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
9,187 |
|
|
$ |
10,255 |
|
|
$ |
16,727 |
|
|
$ |
22,355 |
|
Adjusted EBITDA decreased by approximately $1.1 million, or 10.4%, for the three months ended March 31, 2023, as compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income, as discussed above.
Adjusted EBITDA decreased by approximately $5.6 million, or 25.2%, for the six months ended March 31, 2023, as compared to the prior year period. The decrease is primarily due to decreases in gross profit and operating income.
Liquidity and Capital Resources
35
As of March 31, 2023, we had total cash on hand of approximately $4.2 million and approximately $21.7 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and, overall market conditions.
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to do the following: fund our operations; pay our scheduled loan payments; ability to repurchase shares under our share buyback program; and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.
Working Capital
We had working capital of approximately $80.7 million as of March 31, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022; an increase of approximately $2.3 million. The increase is primarily due to increases in inventories, trade receivables, and prepaid expenses of approximately $23.6 million, partially offset by increases in the current portion of long-term debt, accrued liabilities, accounts payable, and the current portion operating lease obligations of approximately $18.7 million.
Cash Flows from Operating Activities
The Company’s cash, as of March 31, 2023, was approximately $4.2 million compared to approximately $4.6 million as of September 30, 2022, a decrease of approximately $432,000. Net cash provided by operations was approximately $14.2 million for the six months ended March 31, 2023, as compared to net cash provided by operations of approximately $5.3 million for the six months ended March 31, 2022. The increase was primarily due to reduced purchases of inventory, reduced expenditures for prepaid expenses, and increased accounts receivable, partially offset by payments on accounts payable.
Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings. Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.
Cash Flows from Investing Activities
Our cash flows used in investing activities of approximately $36.8 million for the six months ended March 31, 2023 consisted of the acquisition of Flooring Liquidators and purchases of property and equipment. Our cash flows used in investing activities of approximately $7.5 million for the six months ended March 31, 2022 consisted of purchases of property and equipment.
Cash Flows from Financing Activities
Our cash flows provided by financing activities of approximately $22.2 million during the six months ended March 31, 2023 consisted of proceeds from net proceeds under revolver loans of approximately $12.3 million, proceeds from notes payable of approximately $8.4 million, proceeds from related party notes payable of approximately $7.0 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, and debt acquisition costs of approximately $4.9 million, and purchases of treasury stock in the amount of approximately $639,000.
Our cash flows provided by financing activities of approximately $3.8 million during the six months ended March 31, 2022 consisted of proceeds from notes payable of approximately $9.0 million, and approximately $4.9 million in net proceeds under revolver loans, partially offset by payments of notes payable and financing leases of approximately $8.1 million, and purchases of treasury stock in the amount of approximately $2.1 million.
Currently, we are not issuing common shares for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done so historically. Occasionally, as our Company history has demonstrated, we will issue stock and derivative instruments linked to stock for services or debt settlement.
Future Sources of Cash; New Products and Services
We may require additional debt financing or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained by us may further dilute or otherwise impair the ownership interest of our existing stockholders.
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2023, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision, and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, as of December 31, 2022, we concluded that the Company's disclosure, controls, and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Our management assessed the design and effectiveness of our internal control over financial reporting as of March 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) of 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, as of March 31, 2023, our management concluded that our internal controls over financial reporting were operating effectively.
There were no changes in our internal control over financial reporting that occurred during the three or six months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
Please refer to “Item 3. Legal Proceedings” in our 2021 Annual Report on Form 10-K for information regarding material pending legal proceedings. Except as set forth therein and below, there have been no new material legal proceedings and no material developments in the legal proceedings previously disclosed.
SEC Investigation
On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation. On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation. The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart, Inc. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives to allege certain violations of the federal securities laws. On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the Company’s Form 8-K filed on February 14, 2018. The Company cooperated fully with the SEC inquiry and provided a response to the SEC on October 26, 2018.
On August 2, 2021, the SEC filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and two of its executive officers as defendants (collectively, the "Company Defendants") as well as certain other third parties. The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share, purported undisclosed stock promotion and trading, and undisclosed executive compensation from 2016 through 2018. The violations are brought under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933. The SEC seeks permanent injunctions against the Company Defendants, officer-and-director bars, disgorgement of profits, and civil penalties. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted one of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties have agreed to participate in a mediation and to continue the remainder of discovery until after the mediation, scheduled to take place in June 2023.
The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.
Sieggreen Class Action
On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated, filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming as defendants the Company and the two executive officers named in the SEC Complaint described above. The allegations asserted are similar to those in the SEC Complaint. Among other relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed his Amended Complaint on March 6, 2023. On May 5, 2023, the Company and its executives filed a Motion to Dismiss the Amended Complaint. They strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.
38
Holdback Matter
On October 10, 2022, a representative for the former shareholders of Precision Industries, Inc. filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleges that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $2,500,000. Plaintiff alleged that he effectuated service of the complaint on the Company, but the Company did not receive notification of the action until it received an Application for Default Judgment filed with the court on December 26, 2022. On December 28, 2022, the Court issued a letter order questioning its jurisdiction over the matter and directed plaintiff’s counsel to submit briefing as to why it believes jurisdiction is proper. Plaintiff filed its brief on January 13, 2023. On April 13, 2023, the Court dismissed the action in its entirety for lack of jurisdiction, rendering the Application for Default Judgment moot.
On January 12, 2023, and after jurisdiction over the case was questioned by the Court of Chancery, State of Delaware, plaintiff filed a substantially identical complaint in the Western District of Pennsylvania. After the Delaware action was dismissed, plaintiff requested that counsel waive service of the Pennsylvania complaint. On April 19, 2023, the Company agreed to waive service. The Company’s response to the Complaint is now due on June 19, 2023. The Company intends to defend against these claims vigorously.
Wage and Hour Matter
On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. A Motion for Change of Venue to Stanislaus County was filed by Elite Builders on December 7, 2022. The hearing on the motion was heard on February 8, 2023. Elite Builders’ motion to change venue was granted. Company believes that Mr. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding since no discovery has commenced and the scope of class is not yet known.
Consumer Protection Act
On December 4, 2022, Sheila Thompson and Dennis Thompson filed a Complaint in the 21st Judicial Circuit Court of St. Louis County, Missouri asserting putative class claims arising under the Telephone Consumer Protection Act, 47 U.S.C. 227, and related Missouri state law claims pertaining to purportedly unsolicited text message advertisements. Vintage Stock, Inc. (“Vintage”) was served on December 13, 2022. On January 11, 2023, Vintage timely removed the case from the state court into federal court. On February 8, 2023, Vintage filed a Motion to Dismiss and Motion to Strike Class Allegations. On March 1, 2023, plaintiffs filed their First Amended Complaint, that mooted the pending motion. On March 15, 2023, Vintage moved to dismiss and/or strike the First Amended Complaint. The motion is fully briefed and stands submitted to the Court for decision. Vintage disputes the allegations and intends to defend itself vigorously against the claims in the First Amended Complaint. As the case is still in the pleading stage, it is premature to estimate potential liability.
Salomon Whitney Settlement
Effective March 31, 2023, the Company entered into a settlement agreement with the Principal ownership of Salomon Whitney to pay the Company $1.0 million within 10 days of the effective date, and agreed to pay an additional $1.0 million within 45 days of the effective date if certain conditions of the settlement agreement are not met. The Company recorded a receivable for the initial payment of $1.0 million on March 31, 2023, which it has recorded as other income in its condensed consolidated statements of income, and payment was received during the first week of April 2023..
ITEM 1A. Risk Factors
None.
ITEM 2. Unregistered Sales of Equity Securities and Use of funds
On February 20, 2018, the Company announced a $10 million common stock repurchase program. During the six months ended March 31, 2023, the Company repurchased 25,384 shares of common stock under this program at a cost of approximately $639,000. As of March 31, 2023, the Company has approximately $3.4 million available for repurchases under this program.
39
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
None.
ITEM 5. Other Information
None.
40
ITEM 6. Exhibits
The following exhibits are filed with or incorporated by reference into this Quarterly Report.
41
10.104 |
|
Employment Agreement between Live Ventures Incorporated and Wayne Ipsen, effective October 24, 2022. |
|
|
8-K |
|
001-33937 |
|
10.104 |
|
|
10/28/22 |
10.105 |
|
|
|
8-K |
|
001-33937 |
|
10.105 |
|
|
01/24/23 |
|
10.106 |
|
|
|
8-K |
|
001-33937 |
|
10.106 |
|
|
01/24/23 |
|
10.107 |
|
|
|
8-K |
|
001-33937 |
|
10.107 |
|
|
01/24/23 |
|
10.108 |
|
|
|
8-K |
|
001-33937 |
|
10.108 |
|
|
01/24/23 |
|
10.109 |
|
|
|
8-K |
|
001-33937 |
|
10.109 |
|
|
01/24/23 |
|
10.110 |
|
|
|
8-K |
|
001-33937 |
|
10.110 |
|
|
01/24/23 |
|
10.111 |
|
|
|
8-K |
|
001-33937 |
|
10.111 |
|
|
01/24/23 |
|
10.112 |
|
|
|
8-K |
|
001-33937 |
|
10.112 |
|
|
01/24/23 |
|
10.113 |
* |
|
|
|
|
|
|
|
|
|
|
|
10.114 |
* |
First Amendment to ICG Unsecured Revolving Line of Credit dated April 9, 2020, dated April 1, 2023 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
101.LAB |
* |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
|
101.PRE |
* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
42
104 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
|
|
|
* |
Filed herewith |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Live Ventures Incorporated |
|
|
Dated: May 11, 2023 |
/s/ Jon Isaac |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
|
|
Dated: May 11, 2023 |
/s/ David Verret |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
44