Note 5: Acquisitions

The Company seeks opportunities to acquire profitable and well-managed companies. During fiscal year ended September 30, 2021, the Company agreed to acquire 100% of the outstanding membership interests in SW Financial. See Note 4 regarding the consolidation of SW Financial. During the fiscal year ended September 30, 2020, the Company acquired Lonesome Oak and Precision Marshall.

Precision Industries, Inc.

On July 14, 2020 (the “Closing Date”), the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Precision Industries, Inc., a Pennsylvania corporation (otherwise known in the industry as “Precision Marshall”), President Merger Sub Inc., a Pennsylvania corporation and a wholly-owned subsidiary of Live Ventures (“Merger Sub”), and D. Jackson Milhollan, as shareholders’ representative, pursuant to which the Company acquired Precision Marshall by the consummation of a merger (the “Merger”) of its Merger Sub with and into Precision Marshall, with Precision Marshall surviving the Merger.

Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, at the closing of the Merger, Live Ventures paid Precision Marshall’s shareholders aggregate consideration of approximately $31.5 million in cash (the “Merger Consideration”), subject to (i) certain adjustments with respect to Precision Marshall’s cash, expenses incurred in connection with the Merger, debt, and net working capital balances at the closing of the Merger, (ii) the withholding of a portion of the Merger Consideration in connection with the Precision shareholders’ indemnification obligations under the Merger Agreement, and (iii) the withholding of a portion of the Merger Consideration as an expense account for the shareholders’ representative. At the effective time of the Merger (the “Effective Time”), shares of Precision Marshall’s outstanding common stock (the “Precision Common Stock”) were converted into the right to receive a portion of the Merger Consideration in accordance with the terms of the Merger Agreement.

The Merger Agreement contains customary representations, warranties, covenants, and agreements of the Company, Merger Sub, and Precision Marshall, including indemnification rights in favor of the Company that are customary for a transaction of this nature and magnitude.

In connection with the Merger, the Company formed Precision Affiliated Holdings LLC, a Delaware limited liability company (“Precision Holdings”), as its wholly-owned subsidiary for the purpose of its holding 100% of the issued and outstanding shares of capital stock of Precision Marshall. Pursuant to the terms of a Contribution Agreement (the “Contribution Agreement”) and in connection with the Merger and the financing of the acquisition of Precision, the Company caused the capital stock of Precision Marshall to be vested in Precision Holdings.

Under the purchase price allocation, the Company recognized a bargain purchase gain of approximately $1.5 million which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of July 14, 2020 as calculated by a third-part appraisal firm. The table below outlines the purchase price allocation of the purchase for Precision Marshall to the acquired identifiable assets, liabilities assumed and bargain purchase gain:

The Company expects to collect the accounts receivable balance. However, for any uncollectible accounts receivable the Company will reduce the amount of the holdback in an amount equal to the uncollectable accounts receivable.

The bargain purchase gain arising from the acquisition is nondeductible for tax purposes.

Revenues and expenses for the period of July 14, 2020 through September 30, 2020, and the year ended September 30, 2021, are detailed in Note 19. The assets acquired and liabilities assumed were classified within the fair value hierarchy table below in accordance with our fair value measurements policy (see Note 2).

Lonesome Oak Acquisition

On November 1, 2019, Marquis entered into a purchase agreement, as amended on January 31, 2020 (as amended, the “LOTC Purchase Agreement”), to acquire all of the outstanding capital stock of Lonesome Oak Trading Co., Inc. (“Lonesome Oak”). Pursuant to the LOTC Purchase Agreement, and on January 31, 2020, Marquis acquired from the sole stockholder of Lonesome Oak (the “LOTC Stockholder”) all of the issued and outstanding shares of capital stock of Lonesome Oak for $2.0 million and the assumption of approximately $12.5 million of debt. In connection with the closing of the acquisition, Lonesome Oak entered into a lease agreement with the LOTC Stockholder regarding certain properties that are used in Lonesome Oak’s operations and that are owned by affiliates of the LOTC Stockholder. Marquis held back approximately $1.5 million of the purchase price (the “Holdback Amount”) to satisfy claims for indemnity arising out of breaches of certain representations, warranties, and covenants, and certain other enumerated items, if any. In connection with the closing of the transaction, the LOTC Stockholder entered into an employment agreement with a five-year term and serves as an Executive Vice President of Lonesome Oak pursuant to the terms thereof. Subject to certain exceptions, the LOTC Stockholder agreed to indemnify Marquis for breaches of certain representations, warranties, and covenants, and certain other enumerated items, if any. Indemnification by the LOTC Stockholder for breaches of certain representations and warranties is generally limited to the Holdback Amount. The LOTC Stockholder is subject to a three-year non-competition and non-solicitation provisions. On March 2, 2020,

Lonesome Oak merged with and into Marquis, with Marquis surviving the merger and Lonesome Oak ceasing to exist as a separate entity. Because Lonesome Oak ceased to exist as a separate entity, the Company does not have the ability to breakout the revenues or expenses incurred since the acquisition date.

Under the purchase price allocation, the Company recognized goodwill of $807,000 which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of January 31, 2020 as calculated by a third-party appraisal firm. The table below outlines the purchase price allocation of the purchase for Lonesome Oak to the acquired identifiable assets, liabilities assumed and goodwill:

The Company expects to collect the accounts receivable balance. However, any uncollectible accounts receivable, the Company will reduce the amount of the holdback in an amount equal to the uncollectable accounts receivable. As of September 30, 2020, the holdback had been reduced to approximately $1.3 million due to unrecorded liabilities at the time of the acquisition. During July 2021, the holdback balance of approximately $1.3 million was written off due to inventory obsolescence. During December 2020, the note was paid in full.

Goodwill arising from the acquisition is expected to be fully deductible for tax purposes.