Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt

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Long-Term Debt
 9 Months Ended
Jun. 30, 2024
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term Debt
Long-term debt as of June 30, 2024 and September 30, 2023 consisted of the following (in $000's):
June 30, 2024 September 30, 2023
Revolver loans $ 58,769  $ 56,779 
Equipment loans 12,659  15,486 
Term loans 15,045  14,290 
Other notes payable 16,108  15,789 
Total notes payable 102,581  102,344 
Less: unamortized debt issuance costs (508) (557)
Net amount 102,073  101,787 
Less: current portion (42,186) (23,077)
Total long-term debt $ 59,887  $ 78,710 
Future maturities of long-term debt at June 30, 2024, are as follows which does not include related party debt separately stated (in $000's):
Twelve months ending June 30,
2025 $ 42,186 
2026 5,328 
2027 39,412 
2028 4,418 
2029 1,208 
Thereafter 9,521 
Total future maturities of long-term debt $ 102,073 
Bank of America Revolver Loan
On January 31, 2020, Marquis entered into an amended $25.0 million revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a five-year, asset-based facility that is secured by substantially all of Marquis’ assets. Availability under the BofA Revolver is subject to a monthly borrowing base calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with BofA. The BofA Revolver has a variable interest rate and matures in January 2025. As of June 30, 2024 and September 30, 2023, the outstanding balance was approximately $13.7 million and $6.1 million, respectively.
Loan with Fifth Third Bank (Precision Marshall)
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 $29 million, is comprised of $23.0 million in revolving credit, $3.5 million in M&E lending, and $2.5 million for Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR plus 200 basis points for lending under the revolving facility, and 30-day SOFR plus 225 basis points for M&E and Capex lending. The refinancing of the Borrower’s existing credit facility reduces interest costs and improves the availability and liquidity of funds by approximately $3.0 million at the close. The facility terminates on January 20, 2027, unless terminated earlier in accordance with its terms.
In connection with the acquisitions of Kinetic and Central Steel, the existing revolving facility was amended to add Kinetic and Central Steel as borrowers. In addition, two additional term loans were executed to fund the purchase of Kinetic. Approximately $6.0 million was drawn from the revolving facility, and the two term loans were opened in the amounts of $4.0 million and $1.0 million, respectively. The $4.0 million term loan (“Kinetic Term Loan #1”), which matures on January 20, 2027, bears interest on the same terms as for M&E term lending as stated above. The $1.0 million term loan (“Kinetic Term Loan #2”), which matures on June 28, 2025, is a “Special Advance Term Loan”, and bears interest at SOFR plus 375 basis points.
As of June 30, 2024 and September 30, 2023, the outstanding balance on the revolving loan was approximately $22.8 million and $23.0 million, respectively, and the outstanding balance on the original M&E lending, which is documented as a term note, was approximately $2.0 million and $2.3 million, respectively. The revolving loan has a variable interest rate and matures in January 2027. As of June 30, 2024 and September 30, 2023, the outstanding balance on Kinetic Term Loan #1 was approximately $2.9 million and $3.3 million, respectively. As of September 30, 2023, the Kinetic Term Loan #2 was fully repaid.
On April 12, 2023, in connection with its existing credit facility with Fifth Third Bank, Precision Marshall took an advance against its Capex term lending in the amount of approximately $1.4 million. Additionally, during June 2024, in connection with Kinetic's acquisition of Midwest Grinding (see Note 3), Precision Marshall took an additional advance against its Capex term lending in the amount of approximately $403,000. The loan matures January 2027 and bears interest on the same terms as for Capex lending as stated above. As of June 30, 2024 and September 30, 2023, the outstanding balance on the Capex loan was approximately $1.7 million and 1.4 million, respectively.
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 $25.0 million in revolving credit (“Eclipse Revolver”) and $3.5 million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a three-year, asset-based facility that is secured by substantially all of Flooring Liquidators’ assets. Availability under the Eclipse Revolver is subject to a monthly borrowing base calculation. Flooring Liquidators’ ability to borrow under the Eclipse Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Eclipse. The Eclipse Revolver bears interest at 4.5% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 3.5% per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at 6.0% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 5.0% per annum in excess of Adjusted Term SOFR after April 1, 2023. The credit facility matures in January 2026. As of June 30, 2024 and September 30, 2023, the outstanding balance on the Eclipse Revolver was approximately $9.3 million and $8.2 million, respectively, and the outstanding balance on the Eclipse M&E loan was approximately $1.9 million and $2.4 million, respectively.
Loan with Fifth Third Bank (PMW)
In connection with the acquisition of PMW (see Note 3), on July 20, 2023, PMW entered into a revolving credit facility with Fifth Third Bank (the "Revolving Credit Facility"). The facility consists of $15.0 million in revolving credit ("Fifth Third Revolver") and approximately $5.0 million in M&E lending (the "Fifth Third M&E Loan"). The Fifth Third Revolver is a three-year, asset-based facility that is secured by substantially all of PMW's assets. Availability under the Fifth Third Revolver is subject to a monthly borrowing base calculation. PMW's ability to borrow under the Fifth Third Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Fifth Third. Loans made under the Revolving Credit Facility are considered Reference Rate Loans, and bear interest at a rate equal to the sum of the Reference Rate plus the Applicable Margin. Reference Rate means the greater of (a) 3.0% or (b) the Lender’s publicly announced prime rate (which is not intended to be Lender’s lowest or most favorable rate in effect at any time) in effect from time to time. The Applicable Margin for revolving loans is zero, while for the M&E Term Loan or any Capital Expenditure Term Loan, it is 50 basis points (0.5%). The credit facility matures in July 2026. As of June 30, 2024, the Company concluded that PMW was in default of its Fixed Cost Coverage Ratio (“FCCR”) covenant, as specified in the credit agreement governing the Revolving Credit Facility. This default provides the creditor rights to accelerate and made immediately due the borrowings under the Revolving Credit Facility and Fifth Third M&E Loan. As of the date of the filing of this 10-Q, Fifth Third Bank has not exercised these rights and management is actively working with Fifth Third Bank to resolve the default. As such, as of June 30, 2024, PMW’s long-term debt balances, in the amount of approximately $15.1 million, have been reclassified to current liabilities. As of June 30, 2024 and September 30, 2023, the outstanding balance on the Revolving Credit Facility was approximately $11.2 million and $11.0 million, respectively, and the balance on the Fifth Third M&E loan was approximately $4.3 million and $4.8 million, respectively.
Bank Midwest Revolver Loan
On October 17, 2023, Vintage entered into a $15.0 million credit agreement with Bank Midwest (“Bank Midwest Revolver”), replacing a revolving credit facility between Vintage and Texas Capital Bank (“TCB Revolver”), which was entered into in November 2016 and set to mature in November 2023. In connection with the entry into the Credit Agreement, the revolving credit facility between Vintage Stock and Texas Capital Bank was terminated and the balance outstanding was repaid. The Bank Midwest Revolver interest accrues daily on the outstanding principal at a rate of the greater of (a) the one-month forward-looking term rate based on SOFR, plus 2.36% per annum, or (b) 6.5% per annum, and
matures on October 17, 2024. As of June 30, 2024, the outstanding balance on the Bank Midwest Revolver was approximately $1.7 million. As of September 30, 2023, the outstanding balance on the TCB Revolver was approximately $5.3 million.
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 June 30, 2024:
Note #3 was for approximately $3.7 million, secured by equipment. The Equipment Loan #3 matured in December 2023. As of June 30, 2024 and September 30, 2023, the balance was $0 and $154,000, respectively.
Note #4 was for approximately $1.1 million, secured by equipment. The Equipment Loan #4 matured in December 2023. As of June 30, 2024 and September 30, 2023, the balance was $0 and $47,000, respectively.
Note #5 is for approximately $4.0 million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in 84 monthly payments of $55,000 beginning January 2018, bearing interest at 4.7% per annum. As of June 30, 2024 and September 30, 2023, the balance was approximately $325,000 and $799,000, respectively.
Note #6 is for $913,000, secured by equipment. The Equipment Loan #6 is due July 2024, payable in 60 monthly payments of $14,000 beginning August 2019, with a final payment of $197,000, bearing interest at 4.7% per annum. As of June 30, 2024 and September 30, 2023, the balance was approximately $196,000 and $317,000, respectively.
Note #7 is for $5.0 million, secured by equipment. The Equipment Loan #7 is due February 2027, payable in 84 monthly payments of $59,000 beginning March 2020, with the final payment of $809,000, bearing interest at 3.2% per annum. As of June 30, 2024 and September 30, 2023, the balance was approximately $2.5 million and $2.9 million, respectively.
Note #8 is for approximately $3.4 million, secured by equipment. The Equipment Loan #8 is due September 2027, payable in 84 monthly payments of $46,000 beginning October 2020, bearing interest at 4.0%. As of June 30, 2024 and September 30, 2023, the balance was approximately $1.7 million and $2.0 million, respectively.
In December 2021, Marquis funded the acquisition of $5.5 million of new equipment under Note #9 of its master agreement. The Equipment Loan #9, which is secured by the equipment, matures December 2026, and is payable in 60 monthly payments of $92,000 beginning January 2022, with the final payment in the amount of approximately $642,000, bearing interest at 3.75% per annum. As of June 30, 2024 and September 30, 2023, the balance was approximately $3.1 million and $3.9 million, respectively.
In December 2022, Marquis funded the acquisition of $5.7 million of new equipment under Note #10 of its master agreement. The Equipment Loan #10, which is secured by the equipment, matures December 2029, and is payable in 84 monthly payments of $79,000, beginning January 2023, with the final payment in the amount of approximately $650,000, bearing interest at 6.50%. As of June 30, 2024 and September 30, 2023, the balance was approximately $4.8 million and $5.3 million.
Loan Covenant Compliance
As of June 30, 2024, the Company and its subsidiaries were in compliance with all covenants under their respective existing revolving and other loan agreements, with the exception of PMW which was in default under its Revolving Credit Facility and Fifth Third M&E Loan with Fifth Third Bank, as discussed above.
Related Party Seller Notes
Seller notes as of June 30, 2024 and September 30, 2023 consisted of the following (in $000’s):
June 30,
2024		 September 30,
2023
Seller of Flooring Liquidators, 8.24% interest rate, matures January 2028
 $ 34,000  $ 34,000 
Seller of PMW, 8.0% interest rate, matures July 2028
 2,500  2,500 
Seller of Kinetic, 7.0% interest rate, matures September 2027
 3,000  3,000 
Seller of Central Steel, 8.0% interest rate, matures May 2029
 1,114  — 
Total Related party seller notes payable 40,614  39,500 
Unamortized debt premium (discount) 1,547  (502)
Net amount 42,161  38,998 
Less current portion (2,500) — 
Long-term portion of Related party seller notes payable $ 39,661  $ 38,998 
Future maturities of seller notes at June 30, 2024 are as follows (in $000’s):
Twelve months ending June 30,
2025 $ 2,500 
2026 1,115 
2027 3,000 
2028 35,546 
Total $ 42,161 
Kinetic
In connection with the purchase of Kinetic, on June 28, 2022, Kinetic entered into an employment agreement with the previous owner of Kinetic to serve as its Head of Equipment Operations. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, Precision Marshall entered into a seller financed loan in the amount of $3.0 million with the previous owner of Kinetic. The Seller Subordinated Acquisition Note bears interest at 7.0% per annum, with interest payable quarterly in arrears (the "Seller Subordinated Acquisition Note"). The Seller Subordinated Acquisition Note has a maturity date of September 27, 2027. As of June 30, 2024 and September 30, 2023, the remaining principal balance was $3.0 million.
Flooring Liquidators
In connection with the purchase of Flooring Liquidators (see Note 3), on January 18, 2023, the Company entered into an employment agreement with the previous owner of Flooring Liquidators to serve as its Chief Executive Officer. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, the Company entered into a seller financed mezzanine loan (the "Seller Note"), which is fully guaranteed by the Company, in the amount of $34.0 million with the previous owners of Flooring Liquidators. The Seller Note bears interest at 8.24% per annum, with interest payable monthly in arrears beginning on January 18, 2024. The Seller Note has a maturity date of January 18, 2028. The fair value assigned to the Selles Note, as calculated by an independent third-party firm, was $31.7 million, or a discount of $2.3 million. The $2.3 million discount is being accreted to interest expense, using the effective interest rate method, as required by GAAP, over the term of the Seller Note. As of June 30, 2024 and September 30, 2023, the carrying value of the Seller Note was approximately $35.4 million and $33.5 million, respectively.
PMW
In connection with the purchase of PMW (see Note 3), on July 20, 2023, the Company entered into a consulting agreement with the previous owner of PMW to serve as its part-time President and Chief Executive Officer. The consulting agreement shall terminate upon the later of (i) Sellers’ receipt of earn-out payments in an aggregate amount equal to $3.0 million and (ii) the full satisfaction and payment of all amounts due and to that are to become due under the seller note, unless earlier terminated in accordance with the terms set forth in the consulting agreement. Additionally, PMW entered into two seller financed loans, in the aggregate amount of $2.5 million, which are fully guaranteed by the Company (the "Seller Financed
Loans"). The Seller Financed Loans bear interest at 8.0% per annum, with interest payable quarterly in arrears. As of June 30, 2024, the Company concluded that PMW was in default of its Fixed Cost Coverage Ratio (“FCCR”) covenant, as specified in the credit agreement governing the Revolving Credit Facility (see Note 10). The Seller Financed Loans stipulate that payment of the notes will be due and payable upon any event of default under the Revolving Credit Facility, and the Live Ventures Incorporated guarantee shall go into effect. Consequently, as of June 30, 2024, the balances on the Seller Financed Loans, in the amount of $2.5 million in the aggregate, have been reclassified to current liabilities. The Company is in the process of resolving the default with Fifth Third Bank. The Seller Financed Loans have a maturity date of July 18, 2028. As of June 30, 2024 and September 30, 2023, the carrying value of the seller financed loans was approximately $2.5 million.
Central Steel
In connection with the purchase of Central Steel, on May 15, 2024, Precision Marshall entered into an employment agreement with the previous owner of Central Steel to serve as its President. The employment agreement is for an initial term of two years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, Precision Marshall entered into a seller financed loan in the amount of $1.1 million with the previous owner of Central Steel (the "Sellers Subordinated Promissory Note"). The Sellers Subordinated Promissory Note bears interest at 8.0% per annum, with interest payable quarterly in arrears. The Sellers Subordinated Promissory Note has a maturity date of May 15, 2029. As of June 30, 2024, the remaining principal balance was $1.1 million.