UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 2020
☐ |
TRANSITION Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _____________ to _______________
Commission File Number 001-33937
Live Ventures Incorporated
(Exact name of registrant as specified in its charter)
Nevada |
85-0206668 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
|
325 E. Warm Springs Road, Suite 102 Las Vegas, Nevada |
89119 |
(Address of principal executive offices) |
(Zip Code) |
(702) 997-5968
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.001 par value per share |
|
LIVE |
|
The NASDAQ Stock Market LLC (The NASDAQ Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
Emerging growth company |
☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the issuer’s common stock, par value $0.001 per share, outstanding as of February 8, 2021 was 1,555,175.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED DECEMBER 31, 2020
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Page |
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PART I |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of December 31, 2020 (Unaudited) and September 30, 2020 |
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3 |
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4 |
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5 |
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6 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3. |
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30 |
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Item 4. |
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30 |
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PART II |
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31 |
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Item 1. |
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31 |
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Item 1A. |
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31 |
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Item 2. |
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31 |
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Item 3. |
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32 |
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Item 4. |
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32 |
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Item 5. |
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32 |
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Item 6. |
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33 |
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34 |
2
PART I - FINANCIAL INFORMATION
LIVE VENTURES INCORPORATED
(dollars in thousands)
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
||
|
|
(Unaudited) |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
7,232 |
|
|
$ |
8,984 |
|
Trade receivables, net |
|
|
17,564 |
|
|
|
20,121 |
|
Inventories, net |
|
|
64,739 |
|
|
|
64,525 |
|
Prepaid expenses and other current assets |
|
|
1,305 |
|
|
|
1,778 |
|
Debtor in possession assets |
|
|
326 |
|
|
|
520 |
|
Total current assets |
|
|
91,166 |
|
|
|
95,928 |
|
Property and equipment, net |
|
|
31,127 |
|
|
|
30,376 |
|
Right of use asset - operating leases |
|
|
28,971 |
|
|
|
30,894 |
|
Deposits and other assets |
|
|
590 |
|
|
|
223 |
|
Deferred taxes |
|
|
— |
|
|
|
1,021 |
|
Intangible assets, net |
|
|
956 |
|
|
|
1,063 |
|
Goodwill |
|
|
37,754 |
|
|
|
37,754 |
|
Total assets |
|
$ |
190,564 |
|
|
$ |
197,259 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,227 |
|
|
$ |
9,117 |
|
Accrued liabilities |
|
|
12,896 |
|
|
|
14,822 |
|
Income taxes payable |
|
|
806 |
|
|
|
736 |
|
Lease obligation short term - operating leases |
|
|
6,958 |
|
|
|
7,176 |
|
Current portion of long-term debt |
|
|
12,066 |
|
|
|
11,986 |
|
Current portion of long-term debt related parties |
|
|
— |
|
|
|
1,297 |
|
Debtor in possession liabilities |
|
|
11,889 |
|
|
|
12,228 |
|
Total current liabilities |
|
|
52,842 |
|
|
|
57,362 |
|
Long-term debt, net of current portion |
|
|
57,961 |
|
|
|
63,390 |
|
Lease obligation long term - operating leases |
|
|
26,503 |
|
|
|
28,101 |
|
Long-term debt related parties, net of current portion |
|
|
4,000 |
|
|
|
4,000 |
|
Deferred tax liability |
|
|
269 |
|
|
|
— |
|
Other non-current obligations |
|
|
404 |
|
|
|
734 |
|
Total liabilities |
|
|
141,979 |
|
|
|
153,587 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
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Stockholders' equity: |
|
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|
|
|
|
|
Series B convertible preferred stock, $0.001 par value, 1,000,000 shares authorized, 214,244 shares issued and outstanding at December 31, 2020 and September 30, 2020 |
|
|
— |
|
|
|
— |
|
Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 47,840 shares issued and outstanding at December 31, 2020 and September 30, 2020, with a liquidation preference of $0.30 per share outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 10,000,000 shares authorized, 1,555,175 and 1,589,101 shares issued and outstanding at December 31, 2020 and September 30, 2020, respectively |
|
|
2 |
|
|
|
2 |
|
Paid in capital |
|
|
64,489 |
|
|
|
64,472 |
|
Treasury stock common 533,011 shares as of December 31, 2020 and 499,085 shares as of September 30, 2020 |
|
|
(4,481 |
) |
|
|
(4,098 |
) |
Treasury stock Series E preferred 50,000 shares as of December 31, 2020 and September 30, 2020 |
|
|
(7 |
) |
|
|
(7 |
) |
Accumulated deficit |
|
|
(11,016 |
) |
|
|
(16,429 |
) |
Equity attributable to Live stockholders |
|
|
48,987 |
|
|
|
43,940 |
|
Noncontrolling interest |
|
|
(402 |
) |
|
|
(268 |
) |
Total stockholders' equity |
|
|
48,585 |
|
|
|
43,672 |
|
Total liabilities and stockholders' equity |
|
$ |
190,564 |
|
|
$ |
197,259 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
3
LIVE VENTURES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per share)
|
|
Three Months Ended December 31, |
|
|||||
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|
2020 |
|
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2019 |
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||
Revenues |
|
$ |
62,454 |
|
|
$ |
42,001 |
|
Cost of revenues |
|
|
40,185 |
|
|
|
25,375 |
|
Gross profit |
|
|
22,269 |
|
|
|
16,626 |
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|
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|
|
|
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|
Operating expenses: |
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General and administrative expenses |
|
|
12,279 |
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|
10,809 |
|
Sales and marketing expenses |
|
|
2,699 |
|
|
|
2,330 |
|
Total operating expenses |
|
|
14,978 |
|
|
|
13,139 |
|
Operating income |
|
|
7,291 |
|
|
|
3,487 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,470 |
) |
|
|
(1,357 |
) |
Impairment charges |
|
|
— |
|
|
|
(1,207 |
) |
Gain on disposal of fixed assets |
|
|
129 |
|
|
|
— |
|
Other income (expense) |
|
|
779 |
|
|
|
(181 |
) |
Total other (expense) income, net |
|
|
(562 |
) |
|
|
(2,745 |
) |
Income before provision for income taxes |
|
|
6,729 |
|
|
|
742 |
|
Provision for income taxes |
|
|
1,450 |
|
|
|
195 |
|
Net income |
|
|
5,279 |
|
|
|
547 |
|
Net loss attributable to non-controlling interest |
|
|
134 |
|
|
|
— |
|
Net income attributable to Live stockholders |
|
$ |
5,413 |
|
|
$ |
547 |
|
Income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.45 |
|
|
$ |
0.30 |
|
Diluted |
|
$ |
1.63 |
|
|
$ |
0.15 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
1,568,213 |
|
|
|
1,806,746 |
|
Diluted |
|
|
3,318,728 |
|
|
|
3,540,953 |
|
Dividends declared - series B convertible preferred stock |
|
$ |
— |
|
|
$ |
— |
|
Dividends declared - series E convertible preferred stock |
|
$ |
— |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
4
LIVE VENTURES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
|
|
Three Months Ended December 31, |
|
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2020 |
|
|
2019 |
|
||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,279 |
|
|
$ |
547 |
|
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,714 |
|
|
|
1,085 |
|
Impairment charges |
|
|
— |
|
|
|
1,207 |
|
Gain on disposal of property and equipment |
|
|
(129 |
) |
|
|
47 |
|
Amortization of debt issuance cost |
|
|
266 |
|
|
|
108 |
|
Stock based compensation expense |
|
|
17 |
|
|
|
29 |
|
Warrant extension fair value adjustment |
|
|
— |
|
|
|
266 |
|
Change in deferred rent |
|
|
— |
|
|
|
370 |
|
Change in reserve for uncollectible accounts |
|
|
658 |
|
|
|
415 |
|
Change in reserve for obsolete inventory |
|
|
590 |
|
|
|
(170 |
) |
Change in deferred income taxes |
|
|
1,290 |
|
|
|
126 |
|
Change in other |
|
|
(344 |
) |
|
|
103 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables |
|
|
1,909 |
|
|
|
1,929 |
|
Inventories |
|
|
(716 |
) |
|
|
439 |
|
Income taxes receivable |
|
|
70 |
|
|
|
74 |
|
Prepaid expenses and other current assets |
|
|
478 |
|
|
|
290 |
|
Deposits and other assets |
|
|
(366 |
) |
|
|
9 |
|
Right-of-use assets |
|
|
1,923 |
|
|
|
1,628 |
|
Accounts payable |
|
|
(898 |
) |
|
|
(2,182 |
) |
Accrued liabilities |
|
|
(2,256 |
) |
|
|
(2,020 |
) |
Lease liabilities |
|
|
(1,817 |
) |
|
|
(1,301 |
) |
Net cash provided by operating activities |
|
|
7,668 |
|
|
|
2,999 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of intangible assets |
|
|
— |
|
|
|
(4 |
) |
Purchase of property and equipment |
|
|
(3,258 |
) |
|
|
(641 |
) |
Net cash provided by (used in) investing activities |
|
|
(3,258 |
) |
|
|
(645 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net borrowings (payments) under revolver loans |
|
|
(3,289 |
) |
|
|
(972 |
) |
Proceeds from issuance of notes payable |
|
|
2,130 |
|
|
|
— |
|
Purchase of common treasury stock |
|
|
(383 |
) |
|
|
(343 |
) |
Debtor in possession - cash |
|
|
92 |
|
|
|
(173 |
) |
Payments on long-term debt |
|
|
(4,712 |
) |
|
|
(2,042 |
) |
Net cash used in financing activities |
|
|
(6,162 |
) |
|
|
(3,533 |
) |
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(1,752 |
) |
|
|
(1,179 |
) |
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
8,984 |
|
|
|
2,681 |
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
7,232 |
|
|
$ |
1,502 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,223 |
|
|
$ |
1,187 |
|
Income taxes paid |
|
$ |
— |
|
|
$ |
— |
|
Noncash financing and investing activities: |
|
|
|
|
|
|
|
|
Settlement of debt in exchange for property and equipment |
|
$ |
1,000 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
5
LIVE VENTURES INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
|
|
Series B Preferred Stock |
|
|
Series E Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
Series E Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
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Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid-In Capital |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Accumulated Deficit |
|
|
Non-controlling interest |
|
|
Total Equity |
|
||||||||||||
Balance, September 30, 2020 |
|
|
214,244 |
|
|
$ |
— |
|
|
|
47,480 |
|
|
$ |
— |
|
|
|
1,589,101 |
|
|
$ |
2 |
|
|
$ |
64,472 |
|
|
$ |
(7 |
) |
|
$ |
(4,098 |
) |
|
$ |
(16,429 |
) |
|
$ |
(268 |
) |
|
$ |
43,672 |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
Purchase of common treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,926 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(383 |
) |
|
|
— |
|
|
|
— |
|
|
|
(383 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,413 |
|
|
|
(134 |
) |
|
|
5,279 |
|
Balance, December 31, 2020 |
|
|
214,244 |
|
|
$ |
— |
|
|
|
47,480 |
|
|
$ |
— |
|
|
|
1,555,175 |
|
|
$ |
2 |
|
|
$ |
64,489 |
|
|
$ |
(7 |
) |
|
$ |
(4,481 |
) |
|
$ |
(11,016 |
) |
|
$ |
(402 |
) |
|
$ |
48,585 |
|
|
|
Series B Preferred Stock |
|
|
Series E Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
Series E Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid-In Capital |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Accumulated Deficit |
|
|
Total Equity |
|
|||||||||||
Balance, September 30, 2019 |
|
|
214,244 |
|
|
$ |
— |
|
|
|
77,840 |
|
|
$ |
— |
|
|
|
1,826,009 |
|
|
$ |
2 |
|
|
$ |
63,924 |
|
|
$ |
(4 |
) |
|
$ |
(2,438 |
) |
|
$ |
(27,355 |
) |
|
$ |
34,129 |
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
Warrant extension fair value adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
266 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
266 |
|
Purchase of common treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,699 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(343 |
) |
|
|
— |
|
|
|
(343 |
) |
Purchase of Series E preferred stock |
|
|
— |
|
|
|
— |
|
|
|
(30,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
547 |
|
|
|
547 |
|
Balance, December 31, 2019 |
|
|
214,244 |
|
|
$ |
— |
|
|
|
47,840 |
|
|
$ |
— |
|
|
|
1,784,310 |
|
|
$ |
2 |
|
|
$ |
64,219 |
|
|
$ |
(7 |
) |
|
$ |
(2,781 |
) |
|
$ |
(26,808 |
) |
|
$ |
34,625 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6
LIVE VENTURES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(dollars in thousands, except per share)
Note 1: |
Background and Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation, and its subsidiaries (collectively, the “Company”). Commencing in fiscal year 2015, the Company began a strategic shift in its business plan away from providing online marketing solutions for small and medium sized business to acquiring profitable companies in various industries that have demonstrated a strong history of earnings power. The Company continues to actively develop, revise and evaluate its products, services and its marketing strategies in its businesses. The Company has three operating segments: Retail, Flooring Manufacturing and Steel Manufacturing. Included in the Retail segment: (i) Vintage Stock, Inc. (“Vintage Stock”), the Company is engaged in the retail sale of new and used movies, music, collectibles, comics, books, games, game systems and components and (ii) ApplianceSmart, Inc. (“ApplianceSmart”), the Company is engaged in the sale of new major appliances through a retail store. Included in the Flooring Manufacturing segment is Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floorcoverings. Included in the Steel Manufacturing Segment is Precision Industries, Inc. (“Precision Marshall”), which is engaged in the manufacture and sale of alloy and steel plates, ground flat stock and drill rods.
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of the Company’s management, this interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for three months ended December 31, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2021. This financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2020 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 13, 2021 (the “2020 10-K”).
Going concern
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to fund our operations, pay our scheduled loan payments, continue to repurchase shares, and pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.
Coronavirus
In March 2020, there was a global outbreak of COVID-19 (Coronavirus) which continues to create challenges and unprecedented conditions. Although there are effective vaccines for COVID-19 that have been approved for use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021. Accordingly, there remains significant uncertainty about the duration and the extent of the impact of the COVID-19 pandemic. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the Company’s supply chain partners, its employees and customers, customer sentiment in general, and traffic within shopping centers, and, where applicable, malls, containing its stores. Recommendations and/or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine have previously affected, and may continue to affect, traffic to the stores. As of March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage Stock began to reopen certain locations in compliance with government regulations and, at June 30, 2020, all Vintage Stock retail locations were reopened while maintaining compliance with government mandates. The Company is unable to predict if additional periods of store closures will be needed or mandated. During March and April 2020, Marquis conducted rolling layoffs for certain employees, however, during May 2020, most employees have returned to their respective locations. Continued impacts of the pandemic could materially adversely affect the near-term and long-term revenues, earnings, liquidity, and cash flows, and may require significant actions in response, including but not limited to, employee furloughs, reduced store hours, store closings, expense reductions or discounting of pricing of products, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on the business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S. and the effect of the vaccines, the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that the Company is not aware of currently.
7
Note 2: |
Summary of Significant Accounting Policies |
Principles of Consolidation
The accompanying consolidated financial statements represent the consolidated financial position, results of operations and cash flows for Live Ventures and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Additionally, the Company records noncontrolling interest for entities which the Company has determined itself to be the primarily beneficiary of the variable interest entity but does not have 100% ownership.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the estimate of dilution and fees associated with billings, the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, estimated warranty reserve, estimated fair value and forfeiture rates for stock-based compensation, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, current portion of notes payable, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.
Reclassifications
Certain amounts in the prior year have been reclassifies to confirm to the current year presentation.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.
Note 3: |
Leases |
The Company leases retail stores, warehouse facilities and office space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through 2040 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases percentage rent and require us to pay all insurance, taxes and other maintenance costs. As a result, they recognize 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.
8
The weighted average remaining lease term is 9.2 years. Our weighted average discount rate is 6.9%. Total cash payments for the three months ended December 31, 2020 was $2,178. We did not enter into any new leases during the three months ended December 31, 2020.
The following table details our right of use assets and lease liabilities as of December 31, 2020 and September 30, 2020:
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
||
Right of use asset - operating leases |
|
$ |
28,971 |
|
|
$ |
30,894 |
|
Operating lease liabilities: |
|
|
|
|
|
|
|
|
Current |
|
|
6,958 |
|
|
|
7,176 |
|
Long term |
|
|
26,503 |
|
|
|
28,101 |
|
Total present value of future lease payments as of December 31, 2020:
Twelve months ended December 31, |
|
|
|
|
2021 |
|
$ |
8,731 |
|
2022 |
|
|
6,871 |
|
2023 |
|
|
4,879 |
|
2024 |
|
|
3,953 |
|
2025 |
|
|
2,946 |
|
Thereafter |
|
|
13,660 |
|
Total |
|
|
41,040 |
|
Less implied interest |
|
|
(7,579 |
) |
Present value of payments |
|
$ |
33,461 |
|
During the three months ended December 31, 2019, the Company incurred $1,207 of impairment charges related to the decision to close additional ApplianceSmart retail locations resulting in a decrease to the associated right of use asset related to these leases. These locations physically closed during the three months ended March 31, 2020. There were no similar charges for the three months ended December 31, 2020.
9
Note 4: |
Balance Sheet Detail Information |
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
||
Trade receivables, current, net: |
|
|
|
|
|
|
|
|
Accounts receivable, current |
|
$ |
17,626 |
|
|
$ |
20,197 |
|
Less: Reserve for doubtful accounts |
|
|
(62 |
) |
|
|
(76 |
) |
|
|
$ |
17,564 |
|
|
$ |
20,121 |
|
Trade receivables , long term, net: |
|
|
|
|
|
|
|
|
Accounts receivable, long term |
|
$ |
— |
|
|
$ |
196 |
|
Less: Reserve for doubtful accounts |
|
|
— |
|
|
|
(196 |
) |
|
|
$ |
— |
|
|
$ |
— |
|
Total trade receivables, net: |
|
|
|
|
|
|
|
|
Gross trade receivables |
|
$ |
17,626 |
|
|
$ |
20,393 |
|
Less: Reserve for doubtful accounts |
|
|
(62 |
) |
|
|
(272 |
) |
|
|
$ |
17,564 |
|
|
$ |
20,121 |
|
Inventory, net |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
12,930 |
|
|
$ |
13,175 |
|
Work in progress |
|
|
11,031 |
|
|
|
11,747 |
|
Finished goods |
|
|
26,474 |
|
|
|
25,009 |
|
Merchandise |
|
|
16,891 |
|
|
|
17,729 |
|
|
|
|
67,326 |
|
|
|
67,660 |
|
Less: Inventory reserves |
|
|
(2,587 |
) |
|
|
(3,135 |
) |
|
|
$ |
64,739 |
|
|
$ |
64,525 |
|
Property and equipment, net: |
|
|
|
|
|
|
|
|
Building and improvements |
|
$ |
11,405 |
|
|
$ |
9,908 |
|
Transportation equipment |
|
|
122 |
|
|
|
480 |
|
Machinery and equipment |
|
|
29,719 |
|
|
|
27,217 |
|
Furnishings, fixtures, office equipment and other |
|
|
6,749 |
|
|
|
6,353 |
|
|
|
|
47,994 |
|
|
|
43,958 |
|
Less: Accumulated depreciation |
|
|
(16,868 |
) |
|
|
(13,582 |
) |
|
|
$ |
31,127 |
|
|
$ |
30,376 |
|
Intangible assets, net: |
|
|
|
|
|
|
|
|
Domain name and marketing related intangibles |
|
$ |
90 |
|
|
$ |
90 |
|
Customer relationship intangibles |
|
|
2,689 |
|
|
|
2,689 |
|
Purchased software |
|
|
121 |
|
|
|
121 |
|
|
|
|
2,900 |
|
|
|
2,900 |
|
Less: Accumulated amortization |
|
|
(1,944 |
) |
|
|
(1,837 |
) |
|
|
$ |
956 |
|
|
$ |
1,063 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Accrued payroll |
|
$ |
2,691 |
|
|
$ |
4,178 |
|
Accrued sales and use taxes |
|
|
1,574 |
|
|
|
1,251 |
|
Accrued property and other tax |
|
|
208 |
|
|
|
270 |
|
Accrued gift card and escheatment liability |
|
|
1,683 |
|
|
|
1,534 |
|
Accrued interest payable |
|
|
393 |
|
|
|
280 |
|
Accrued bank fees and overdrafts |
|
|
514 |
|
|
|
2,631 |
|
Accrued professional fees |
|
|
5,102 |
|
|
|
3,378 |
|
Customer deposits |
|
|
35 |
|
|
|
169 |
|
Accrued expenses - other |
|
|
695 |
|
|
|
1,131 |
|
|
|
$ |
12,896 |
|
|
$ |
14,822 |
|
10
Note 5:Long Term Debt
Long-term debt as of December 31, 2020 and September 30, 2020 consisted of the following: