Annual report pursuant to Section 13 and 15(d)

Acquisitions

Acquisitions

12 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Note 4: Acquisitions

Acquisition of QEP

On September 20, 2023, Marquis acquired the Harris Flooring Group® brands from Q.E.P., a designer, manufacturer, and distributor of a broad range of best-in-class flooring and installation solutions for commercial and home improvement projects. Specifically, Marquis acquired the Harris Flooring Group brands, inventory, and book of business and intends to retain all sales representatives. The purchase price was $10.1 million, consisting of $3.0 million in cash at close, and the recording of a deferred payment of $5.1 million and holdback of $2.0 million. The acquisition was determined to be an asset acquisition for accounting purposes. The entirety of the purchase was allocated to inventory.

Acquisition of PMW

On July 20, 2023 (“Effective Date”), the Company acquired PMW, a Kentucky-based Metal Stamping and Value-Added Manufacturing Company. PMW was acquired for total consideration of approximately $28 million, comprised of a $25 million purchase price, plus closing cash, and subject to working capital adjustments, with additional consideration of up to $3 million paid in the form of an earn-out. The purchase price was funded in part by a $2.5 million seller note, borrowings under a credit facility of $14.4 million, and proceeds under a sale and leaseback transaction of approximately $8.6 million. The acquisition involved no issuance of stock of the Company.

As of the Effective Date, the Company entered into a sales and leaseback transaction for two properties acquired, one located in Frankfort, Kentucky, and the other located in Louisville, Kentucky, with Legacy West Kentucky Portfolio, LLC (“Lessor”). The aggregate sales price of the Real Estate was approximately $14.5 million. The Louisville, Kentucky property was acquired on the Effective Date for $5.1 million in connection with an option of the Acquired Company to purchase that property.

The provisions of each of the two lease agreements include a 20-year lease term with two five-year renewal options. The base rent under the Frankfort lease agreement is $34,977 per month for the first year of the term and a 2% per annum escalator thereafter. The base rent under the Louisville lease agreement is $63,493 per month for the first year of the term and a 2% per annum escalator thereafter. Both Lease Agreements are “net leases,” such that the lessees are also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the Real Property incurred by the lessor. Due to the highly specialized nature of the leased assets, the Company currently believes it is more likely than not that each of the two five-year options will be exercised. The proceeds of $14.5 million, net of closing fees, from the sale-leaseback were used to assist in funding the acquisition of PMW.

The fair value of the purchase price components outlined above was $26.8 million due to fair value adjustments for the contingent consideration, cash acquired, and working capital adjustments, as detailed below (in $000's):


Purchase price	$	25,000
Fair value of earnout	2,675
Cash from balance sheet	1,602
Working capital adjustment	(2,500)
Net purchase price	$	26,777

Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $4.7 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of July 20, 2023, as calculated by an independent third-party firm. Because the transaction was considered a stock purchase for tax purposes, none of the goodwill arising from the acquisition will deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for PMW to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):


Net purchase price	$	26,777
Accounts payable	10,788
Accrued liabilities	5,771
Total liabilities assumed	16,559
Total consideration	43,336
Cash	1,602
Accounts receivable	12,613
Inventory	6,390
Property, plant and equipment	13,616
Intangible assets	3,600
Other assets	849
Total assets acquired	38,670
Total goodwill	$	4,666

Proforma Information

The table below presents selected proforma information for the Company for the years ended September 30, 2023 and 2022, 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. 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 (in $000’s).


Year Ended September 30, 2023	As Reported				Adjustments		Proforma
	Live (1)		PMW (2)		Adjustments (3)		Total
Net revenue	$	355,171	$	63,136			$	418,307
Net income	$	(102)	$	462	$	(2,623)	$	(2,263)
Earnings per basic common share	$	(0.03)					$	(0.72)
Earnings per basic diluted share	$	(0.03)					$	(0.72)


Year Ended September 30, 2022	As Reported				Adjustments		Proforma
	Live (4)		PMW (5)		Adjustments (3)		Total
Net revenue	$	286,913	$	78,606			$	365,519
Net income	$	24,741	$	4,792	$	(3,264)	$	26,269
Earnings per basic common share	$	7.94					$	8.43
Earnings per basic diluted share	$	7.84					$	8.32

(1)Live for the year ended September 30, 2023. Includes PMW from July 20, 2023 through September 30, 2023.

(2)PMW from October 1, 2021 through the acquisition date of July 19, 2023.

(3)Reflects adjustments for (a) amortization expense of definite-lived intangible assets based on the preliminary fair value at the acquisition date, and (b) interest expense to include proforma interest expense that would have been incurred as a result of the acquisition financing obtained by the Company.

(4)Live for the year ended September 30, 2022.

(5) PMW for the period of October 1, 2021 through September 30, 2022.

Acquisition of Cal Coast Carpets

On June 2, 2023, Flooring Liquidators acquired certain fixed assets and other intangible assets of Cal Coast Carpets, Inc. (“Cal Coast”), and its Shareholders, which was effected through two Asset Purchase Agreements (“Agreement”, or collectively, “Agreements”). No liabilities were assumed as part of either transaction. The purchase price for the fixed assets acquired from Cal Coast was $35,000, and the intangible assets acquired from the Shareholders was approximately $1.265 million, for a total combined purchase price of $1.3 million. The intangible assets acquired were comprised of customer relationships, trade name, and non-compete agreements. The acquisition was determined to be an asset

acquisition for accounting purposes and, as such, no goodwill was recorded as part of the transaction. The values assigned to the assets acquired are based on their estimates of fair value available as of June 2, 2023, as calculated by management.

The table below outlines the purchase price allocation of the purchase for Cal Coast to the acquired identifiable assets (in $000’s):


Property, plant and equipment	$	35
Intangible assets
Customer relationships	785
Trade name	425
Non-compete agreement	55
Total intangible assets	1,265
Total assets acquired	$	1,300

Acquisition of Flooring Liquidators

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

The acquisition was effected pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with an effective date of January 18, 2023 by and among the Company, and 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 (collectively, the “Seller”). The purchase price for the Equity Interests was $83.8 million before any fair value considerations, and is comprised of the following:

•$41.8 million in cash to the Seller;

•$34.0 million (the “Note Amount”) to certain trusts for the benefit of Kellogg and members of his family (the “Kellogg Trusts”) pursuant to the issuance by the Company of a subordinated promissory note (the “Note”) in favor of the Kellogg Trusts;

•$4.0 million to the Kellogg 2022 Family Irrevocable Nevada Trust by issuance of 116,441 shares of Company Common Stock (as defined in the Purchase Agreement) (the “Share Amount”), calculated in the manner described in the Purchase Agreement;

•$2.0 million holdback; and

•$2.0 million of contingent consideration, comprised of $1.0 million in cash and $1.0 million in restricted stock units.

The fair value the purchase price components outlined above was $78.7 million due to fair value adjustments for the Note and restricted stock, as detailed below (in $000's):.


Purchase price	$	83,800
Fair value adjustment, sellers note	(3,300)
Fair value adjustment, restricted stock	(1,800)
Net purchase price	$	78,700

Under the purchase price allocation, the Company recognized goodwill of approximately $30.4 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of January 18, 2023, as calculated by an independent third-party firm. The Company anticipates approximately $13.4 million of the goodwill arising from the acquisition to be fully deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for Flooring Liquidators to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):


Net purchase price		$	78,700
Accounts payable		5,189
Accrued liabilities		9,700
Debt		60
Total liabilities assumed		14,949
Total consideration		93,649
Cash		9,131
Accounts receivable		4,824
Inventory		19,402
Property, plant and equipment		4,643
Intangible assets
Trade names	13,275
Customer relationships	7,700
Non-compete agreements	1,625
Other	49
Subtotal intangible assets		22,649
Other		2,581
Total assets acquired		63,230
Total goodwill		$	30,419

Proforma Information


Year Ended September 30, 2023	As Reported				Adjustments		Proforma
	Live (1)		Flooring Liquidators (2)		Adjustments (3)		Total
Net revenue	$	355,171	$	37,702			$	392,873
Net income	$	(102)	$	(1,033)	$	(2,226)	$	(3,361)
Earnings per basic common share	$	(0.03)					$	(1.07)
Earnings per basic diluted share	$	(0.03)					$	(1.07)


Year Ended September 30, 2022	As Reported				Adjustments		Proforma
	Live (4)		Flooring Liquidators (5)		Adjustments (3)		Total
Net revenue	$	286,913	$	127,645			$	414,558
Net income	$	24,741	$	10,890	$	(7,835)	$	27,796
Earnings per basic common share	$	7.94					$	8.92
Earnings per basic diluted share	$	7.84					$	8.81

(1)Live for the year ended September 30, 2023. Includes Flooring Liquidators from January 18, 2023 through September 30, 2023.

(2)Flooring Liquidators from October 1, 2021 through the acquisition date of January 17, 2023.

result of the acquisition financing obtained by the Company, and (c) Elimination of revenues and costs of revenues associated with sales between Flooring Liquidators and the Company prior to acquisition.

(4)Live for the year ended September 30, 2022.

(5) Flooring Liquidators for the period of October 1, 2021 through September 30, 2022.

Acquisition of Better Backers

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

In connection with the acquisition, Marquis entered into two 20-year building leases with Spyglass Estate Planning, LLC, a related party (see Note 16), with two options to renew for an additional five years each. The fair value of the buildings and improvement is approximately $9.3 million. The provisions of the lease agreements include an initial 24-month month-to-month rental period, during which the lessee may cancel with 90-day notice, followed by a 20-year lease term with two five-year renewal options. Due to the highly specialized nature of the leased assets, Marquis currently believes that it is unlikely that it will cancel during the initial 24-month term, and that each of the two five-year options will be exercised. The base rent under the lease agreements is approximately $73,000 and $32,000 per month, respectively, for the first year of the term, and a 2.5% per annum escalator. The lease agreements are each “net leases”, such that the lessee is also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the property. The Company has evaluated each lease and determined the rent amounts to be at market rates. These leases are being treated as finance leases for accounting purposes, as described in ASC 842 “Leases”.

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


Total purchase price	$	3,166
Inventory	748
Property, plant and equipment	2,118
Intangible assets	300
Total assets acquired	3,166

Acquisition of Kinetic

On June 28, 2022, Precision Marshall acquired 100% of the issued and outstanding shares of common stock of The Kinetic Co., Inc. (“Kinetic”), a Wisconsin corporation, which was accomplished through a Purchase Agreement (the “Purchase Agreement”). In connection with the Purchase Agreement, Precision Marshall also entered into a Real Estate Purchase Agreement with Plant B-6, LLC, an affiliate of Kinetic, pursuant to which Precision Marshall received all of Kinetic's right, title, and interest in and to the land and improvements (collectively, the “Real Estate”) that Kinetic uses in its operations. The combined purchase price for the Kinetic shares and Real Estate was approximately $24.7 million, which was funded with approximately $11.0 million in borrowings under the company’s credit facility, approximately $8.3 million in proceeds from a failed sale and leaseback of the Real Estate, a subordinated promissory note in the amount of $3.0 million for the benefit of the Seller of Kinetic, $1.7 million of cash on-hand, a contingent earn-out liability valued at $997,000, and a working capital adjustment of approximately $400,000, which was paid in cash and a final fair value adjustment of approximately $312,000, which was noncash. The sale of the Real Estate was determined to be a failed sales and leaseback because the transaction did not meet the criteria for sales accounting as prescribed under ASC 842 “Leases”. Consequently, the transaction was treated as a financing transaction.

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

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

Under the purchase price allocation, the Company recognized goodwill of approximately $3.0 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of June 28, 2022, as calculated by an independent third-party firm. Goodwill arising from the acquisition is expected to be fully deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for Kinetic to the acquired identifiable assets, liabilities assumed and goodwill as of September 30, 2023 (in $000’s):


Total purchase price	$	24,732
Accounts payable	571
Accrued liabilities	1,848
Total liabilities assumed	2,419
Total consideration	27,151
Cash	287
Accounts receivable	3,073
Inventory	6,429
Property, plant and equipment	12,855
Intangible assets	1,000
Other assets	480
Total assets acquired	24,124
Total goodwill	$	3,027

Proforma Information

The table below presents selected proforma information for the Company for the year ended September 30, 2022, assuming that the acquisition had occurred on October 1, 2021 (the beginning of the Company’s 2021 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.


Year Ended September 30, 2022	As Reported				Adjustments		Proforma
	Live (1)		Kinetic (2)		Adjustments (3)		Total
Net revenue	$	286,913	$	15,418			$	302,331
Net income	$	24,741	$	1,374	$	(207)	$	25,908
Earnings per basic common share	$	7.94					$	8.31
Earnings per basic diluted share	$	7.84					$	8.21

(1)Live for the year ended September 30, 2022. Includes Kinetic from June 29, 2022 through September 30, 2022.

(2)Kinetic from October 1, 2021 through the acquisition date of June 28, 2022.

(3)Reflects adjustments for (a) amortization expense of definite-lived intangible assets based on the preliminary fair value at the acquisition date, (b) interest expense to include proforma interest expense that would have been incurred as a result of the acquisition financing obtained by the Company, and (c) certain other expenses to reflect the post-acquisition operating environment.