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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 March 31, 2022

 

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 May 6, 2022 was 3,095,616.

 


 

INDEX TO FORM 10-Q FILING

FOR THE SIX MONTHS ENDED MARCH 31, 2022

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I

 

 

 

 

 

 

 

 

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and September 30, 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended March 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

30

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

32

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

 

32

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

33

 

 

 

 

 

Item 5.

 

Other Information

 

33

 

 

 

 

 

Item 6.

 

Exhibits

 

34

 

 

 

 

 

SIGNATURES

 

35

 

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, 2022

 

 

September 30, 2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash

 

$

6,190

 

 

$

4,664

 

Trade receivables, net of allowance for doubtful accounts of approximately $34,000 at March 31, 2022 and $61,000 at September 30, 2021

 

 

22,204

 

 

 

21,559

 

Inventories, net of reserves of approximately $1.7 million at March 31, 2022, and approximately $1.8 million at September 30, 2021

 

 

79,364

 

 

 

70,747

 

Prepaid expenses and other current assets

 

 

2,064

 

 

 

1,640

 

Debtor in possession assets

 

 

 

 

 

180

 

Total current assets

 

 

109,822

 

 

 

98,790

 

Property and equipment, net of accumulated depreciation of approximately $23.1 million at March 31, 2022, and approximately $20.6 million at September 30, 2021

 

 

40,585

 

 

 

35,632

 

Right of use asset - operating leases

 

 

28,415

 

 

 

30,466

 

Deposits and other assets

 

 

798

 

 

 

682

 

Intangible assets, net of accumulated amortization of approximately $2.7 million at March 31, 2022, and approximately $2.2 million at September 30, 2021

 

 

4,201

 

 

 

4,697

 

Goodwill

 

 

41,471

 

 

 

41,471

 

Total assets

 

$

225,292

 

 

$

211,738

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

14,597

 

 

$

10,644

 

Accrued liabilities

 

 

12,117

 

 

 

17,048

 

Income taxes payable

 

 

728

 

 

 

876

 

Current portion of lease obligations - operating leases

 

 

7,311

 

 

 

7,202

 

Current portion of long-term debt

 

 

20,032

 

 

 

16,055

 

Current portion of notes payable related parties

 

 

2,000

 

 

 

2,000

 

Debtor-in-possession liabilities

 

 

 

 

 

11,135

 

Total current liabilities

 

 

56,785

 

 

 

64,960

 

Long-term debt, net of current portion

 

 

39,359

 

 

 

37,559

 

Lease obligation long term - operating leases

 

 

27,158

 

 

 

29,343

 

Notes payable related parties, net of current portion

 

 

2,000

 

 

 

2,000

 

Deferred taxes

 

 

5,053

 

 

 

2,796

 

Total liabilities

 

 

130,355

 

 

 

136,658

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 1,000,000 shares authorized,
   
0 and 315,790 shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively

 

 

 

 

 

 

Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 47,840
  shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively, with a
  liquidation preference of $
0.30 per share outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 10,000,000 shares authorized, 3,095,616 and 1,582,334 shares issued
   and outstanding at March 31, 2022 and September 30, 2021, respectively

 

 

2

 

 

 

2

 

Paid in capital

 

 

65,321

 

 

 

65,284

 

Treasury stock common 600,188 shares as of March 31, 2022 and 534,520 shares as of September 30, 2021, respectively

 

 

(6,603

)

 

 

(4,519

)

Treasury stock Series E preferred 50,000 shares as of March 31, 2022 and
   of September 30, 2021, respectively

 

 

(7

)

 

 

(7

)

Retained earnings

 

 

36,672

 

 

 

14,768

 

Equity attributable to Live stockholders

 

 

95,385

 

 

 

75,528

 

Non-controlling interest

 

 

(448

)

 

 

(448

)

Total stockholders' equity

 

 

94,937

 

 

 

75,080

 

Total liabilities and stockholders' equity

 

$

225,292

 

 

$

211,738

 

 

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)

 

 

 

For the Three Months Ended March 31,

 

 

For the Six Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

69,706

 

 

$

70,890

 

 

$

144,864

 

 

$

133,344

 

Cost of revenue

 

 

44,753

 

 

 

44,400

 

 

 

92,295

 

 

 

84,585

 

Gross profit

 

 

24,953

 

 

 

26,490

 

 

 

52,569

 

 

 

48,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

13,154

 

 

 

12,565

 

 

 

27,311

 

 

 

24,844

 

Sales and marketing expenses

 

 

3,350

 

 

 

2,800

 

 

 

6,402

 

 

 

5,499

 

Total operating expenses

 

 

16,504

 

 

 

15,365

 

 

 

33,713

 

 

 

30,343

 

Operating income

 

 

8,449

 

 

 

11,125

 

 

 

18,856

 

 

 

18,416

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(858

)

 

 

(1,649

)

 

 

(1,875

)

 

 

(3,119

)

Gain on Payroll Protection Program loan forgiveness

 

 

 

 

 

1,382

 

 

 

 

 

 

1,382

 

Loss on debt extinguishment

 

 

(363

)

 

 

 

 

 

(363

)

 

 

 

Loss on disposal of fixed assets

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Gain on bankruptcy settlement

 

 

11,362

 

 

 

1,115

 

 

 

11,352

 

 

 

1,115

 

Other income (expense)

 

 

292

 

 

 

(50

)

 

 

418

 

 

 

858

 

Total other income, net

 

 

10,432

 

 

 

798

 

 

 

9,531

 

 

 

236

 

Income before provision for income taxes

 

 

18,881

 

 

 

11,923

 

 

 

28,387

 

 

 

18,652

 

Provision for income taxes

 

 

3,523

 

 

 

3,228

 

 

 

6,483

 

 

 

4,678

 

Net income

 

 

15,358

 

 

 

8,695

 

 

 

21,904

 

 

 

13,974

 

Net income attributable to non-controlling interest

 

 

 

 

 

39

 

 

 

 

 

 

173

 

Net income attributable to Live stockholders

 

$

15,358

 

 

$

8,734

 

 

$

21,904

 

 

$

14,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.90

 

 

$

5.62

 

 

$

6.96

 

 

$

9.22

 

Diluted

 

$

4.84

 

 

$

2.66

 

 

$

6.87

 

 

$

4.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

3,134,540

 

 

 

1,555,175

 

 

 

3,148,059

 

 

 

1,534,287

 

Diluted

 

 

3,172,881

 

 

 

3,284,133

 

 

 

3,187,124

 

 

 

3,263,245

 

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,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

21,904

 

 

$

13,974

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,045

 

 

 

3,420

 

Gain or loss on disposal of property and equipment

 

 

1

 

 

 

(23

)

Gain on Payroll Protection Program loan forgiveness

 

 

 

 

 

(1,382

)

Gain on bankruptcy settlement

 

 

(11,501

)

 

 

(1,115

)

Amortization of debt issuance cost

 

 

(112

)

 

 

612

 

Stock based compensation expense

 

 

37

 

 

 

287

 

Amortization of right-of-use assets

 

 

55

 

 

 

125

 

Change in reserve for uncollectible accounts

 

 

27

 

 

 

658

 

Change in reserve for obsolete inventory

 

 

146

 

 

 

964

 

Changes in assets and liabilities:

 

 

 

 

 

 

Trade receivables

 

 

(698

)

 

 

(2,499

)

Inventories

 

 

(8,658

)

 

 

1,935

 

Income taxes payable/receivable

 

 

(148

)

 

 

2,763

 

Prepaid expenses and other current assets

 

 

(422

)

 

 

529

 

Change in deferred income taxes

 

 

2,257

 

 

 

1,334

 

Deposits and other assets

 

 

(116

)

 

 

(235

)

Accounts payable

 

 

3,911

 

 

 

2,594

 

Accrued liabilities

 

 

(4,500

)

 

 

(2,882

)

Change in other

 

 

23

 

 

 

(148

)

Net cash provided by operating activities

 

 

5,251

 

 

 

20,911

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(7,503

)

 

 

(5,469

)

Net cash used in investing activities

 

 

(7,503

)

 

 

(5,469

)

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Net borrowings (payments) under revolver loans

 

 

4,887

 

 

 

(4,554

)

Proceeds from issuance of notes payable

 

 

9,000

 

 

 

2,258

 

Purchase of common treasury stock

 

 

(2,084

)

 

 

(383

)

Payments on related party notes payable

 

 

 

 

 

(2,000

)

Debtor-in-possession cash

 

 

75

 

 

 

112

 

Payments on financing leases

 

 

(80

)

 

 

 

Payments on notes payable

 

 

(8,020

)

 

 

(7,931

)

Net cash provided by (used in) financing activities

 

 

3,778

 

 

 

(12,498

)

 

 

 

 

 

 

 

Increase in cash

 

 

1,526

 

 

 

2,944

 

Cash, beginning of period

 

 

4,664

 

 

 

8,984

 

Cash, end of period

 

$

6,190

 

 

$

11,928

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Interest paid

 

$

1,823

 

 

$

2,516

 

Income taxes paid

 

$

4,458

 

 

$

369

 

 

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
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

 

 

Retained Earnings

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, September 30, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,582,334

 

 

$

2

 

 

$

65,284

 

 

$

(7

)

 

$

(4,519

)

 

$

14,768

 

 

$

(448

)

 

$

75,080

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,546

 

 

 

 

 

 

6,546

 

Balance, December 31, 2021

 

 

315,790

 

 

 

 

 

 

47,840

 

 

 

 

 

 

1,582,334

 

 

 

2

 

 

 

65,302

 

 

 

(7

)

 

 

(4,519

)

 

 

21,314

 

 

 

(448

)

 

 

81,644

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,668

)

 

 

 

 

 

 

 

 

 

 

 

(2,084

)

 

 

 

 

 

 

 

 

(2,084

)

Conversion of Series B preferred stock

 

 

(315,790

)

 

 

 

 

 

 

 

 

 

 

 

1,578,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,358

 

 

 

 

 

 

15,358

 

Balance, March 31, 2022

 

 

 

 

$

 

 

 

47,840

 

 

$

 

 

 

3,095,616

 

 

$

2

 

 

$

65,321

 

 

$

(7

)

 

$

(6,603

)

 

$

36,672

 

 

$

(448

)

 

$

94,937

 

 

 

 

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

 

 

Non-controlling Interest

 

 

Total
Equity

 

Balance, September 30, 2020

 

 

214,244

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,589,101

 

 

$

2

 

 

$

64,472

 

 

$

(7

)

 

$

(4,098

)

 

$

(16,429

)

 

$

(268

)

 

$

43,672

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Warrant exercise

 

 

101,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,926

)

 

 

 

 

 

 

 

 

 

 

 

(383

)

 

 

 

 

 

 

 

 

(383

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,413

 

 

 

(134

)

 

 

5,279

 

Balance, December 31, 2020

 

 

315,790

 

 

 

 

 

 

47,840

 

 

 

 

 

 

1,555,175

 

 

 

2

 

 

 

64,489

 

 

 

(7

)

 

 

(4,481

)

 

 

(11,016

)

 

 

(402

)

 

 

48,585

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,734

 

 

 

(39

)

 

 

8,695

 

Balance, March 31, 2021

 

 

315,790

 

 

$

 

 

 

47,840

 

 

$

 

 

 

1,555,175

 

 

$

2

 

 

$

64,759

 

 

$

(7

)

 

$

(4,481

)

 

$

(2,282

)

 

$

(441

)

 

$

57,550

 

 

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 SIX MONTHS ENDED MARCH 31, 2022 AND 2021

(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, “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 four operating segments: Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. The Retail segment includes (i) 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 and (ii) ApplianceSmart, Inc. (“ApplianceSmart”), which is engaged in the sale of new major appliances through a retail store. The Flooring Manufacturing segment included Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floorcoverings. 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.

The unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, the financial statements 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, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2022. The financial information included in these statements should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2021 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 28, 2021 (the “2021 10-K”).

Coronavirus

The global outbreak of COVID-19 (Coronavirus) has resulted in changes in global supply of certain products. The outbreak or pandemic has continued to create significant uncertainties. The pandemic continues to have an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis. These significant uncertainties and unprecedented impacts include, but are not limited to, an adverse effect on the economy; 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. As the pandemic continues, consumer fear about becoming ill, as well as recommendations or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine, are continuing to increase; this has already affected, and may continue to affect, traffic to the stores. For example, by 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. By June 30, 2020, all Vintage Stock retail locations had reopened, while maintaining compliance with government mandates. The Company is unable to predict if additional periods of store closures for Vintage Stock will be needed or mandated. For the Company’s other segments, during March and April 2020, Marquis conducted rolling layoffs for certain employees; however, by May 2020, most employees returned to their respective locations. The continued impacts of the pandemic could materially adversely affect the near-term and long-term revenues, earnings, liquidity, and cash flows, and may require a variety of responsive actions, 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 uncertainties and impacts of the pandemic on the Company’s business and financial results will depend largely on future developments, including the duration of the pandemic within the U.S., 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 with the pandemic is continually changing and additional impacts of which the Company is not aware may arise.

Note 2: Summary of Significant Accounting Policies

Principles of Consolidation

The unaudited condensed consolidated 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.

7


 

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 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 unaudited condensed consolidated financial statements include the estimated reserve for doubtful accounts, the estimated reserve for excess and obsolete inventory, estimated warranty reserve, estimated fair value for stock-based compensation, 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.

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 modified the impairment model for available-for-sale debt securities and provided 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 the 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; however, adoption of this ASU is anticipated to have no material impact on the Company's financial statements.

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 implemented this update as of December 31, 2021. The adoption of this ASU had no material impact on the Company’s consolidated financial statements.

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 is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures, however, adoption of this ASU is anticipated to have no material impact on the Company's financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This update provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. This update is effective for the Company’s fiscal years beginning after December 15, 2021. The Company is currently assessing the impact of adopting this new accounting standard on its 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: 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, the Company recognizes assets and liabilities for all leases with lease terms greater than 12 months. The amounts that are 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 only affect the lease term used for determining lease asset value if the option is reasonably certain to be exercised.

8


 

As of March 31, 2022, the weighted average remaining lease term is 8.09 years and our weighted average discount rate is 6.45%. Total cash payments for the six months ended March 31, 2022 and 2021 were approximately $4.9 million and $1.7 million, respectively. Additionally, we obtained right-of-use assets in exchange for lease liabilities of approximately $2.8 million upon commencement of operating leases during the six months ended March 31, 2022.

The following table details our right of use assets and lease liabilities as of March 31, 2022 and September 30, 2021 (in $000's):

 

 

 

March 31, 2022

 

September 30, 2021

 

Right of use asset - operating leases

 

$

28,415

 

$

30,466

 

Operating lease liabilities:

 

 

 

 

 

Current

 

 

7,311

 

 

7,202

 

Long term

 

 

27,158

 

 

29,343

 

 

Total present value of future lease payments as of March 31, 2022 (in $000's):

 

Twelve months ended March 31,

 

 

 

2023

 

$

9,353

 

2024

 

 

7,613

 

2025

 

 

5,738

 

2026

 

 

4,046

 

2027

 

 

2,881

 

Thereafter

 

 

14,571

 

Total

 

 

44,202

 

Less implied interest

 

 

(9,733

)

Present value of payments

 

$

34,469

 

 

During the six months ended March 31, 2022 and 2021, the Company recorded no gain or loss settlements, nor did it record impairment charges relating to any of its leases.

Note 4: Inventory

The following table details the Company's inventory as of March 31, 2022 and September 30, 2021 (in $000's):

 

 

 

March 31, 2022

 

 

September 30, 2021

 

Inventory, net

 

 

 

 

 

 

Raw materials

 

$

27,610

 

 

$

18,604

 

Work in progress

 

 

6,500

 

 

 

12,404

 

Finished goods

 

 

26,513

 

 

 

22,584

 

Merchandise

 

 

20,435

 

 

 

18,948

 

 

 

 

81,058

 

 

 

72,540

 

Less: Inventory reserves

 

 

(1,694

)

 

 

(1,793

)

Total inventory, net

 

$

79,364

 

 

$

70,747

 

 

9


 

Note 5: Property and Equipment

The following table details the Company's property and equipment as of March 31, 2022 and September 30, 2021 (in $000's):

 

 

March 31, 2022

 

 

September 30, 2021

 

Property and equipment, net:

 

 

 

 

 

 

Land

 

$

2,029

 

 

$

2,029

 

Building and improvements

 

 

11,900

 

 

 

11,737

 

Transportation equipment

 

 

450

 

 

 

450

 

Machinery and equipment

 

 

42,235

 

 

 

35,284

 

Furnishings and fixtures

 

 

4,074

 

 

 

3,907

 

Office, computer equipment and other

 

 

3,007

 

 

 

2,792

 

 

 

 

63,695

 

 

 

56,199

 

Less: Accumulated depreciation

 

 

(23,110

)

 

 

(20,567

)

Total property and equipment, net

 

$

40,585

 

 

$

35,632

 

Depreciation expense was $1.3 million and $1.6 million, respectively, for the three months ended March 31, 2022 and 2021, and $2.5 million and $3.2 million for the six months ended March 31, 2022 and 2021.

Note 6: Goodwill

The following table details the Company's goodwill as of March 31, 2022 (in $000's):

 

 

 

Retail

 

Flooring Manufacturing

 

Steel Manufacturing

 

Corporate

 

Total

 

September 30, 2021

 

$

36,947

 

$

807

 

$

 

$

3,717

 

$

41,471

 

Additions

 

 

 

 

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

$

36,947

 

$

807

 

$

 

$

3,717

 

$

41,471

 

As of March 31, 2022, the Company did not identify any triggering events that would require impairment testing.

10


 

Note 7: Accrued Liabilities

 

The following table details the Company's accrued liabilities as of March 31, 2022 and September 30, 2021, respectively (in $000's):

 

 

 

March 31, 2022

 

 

September 30, 2021

 

Accrued liabilities:

 

 

 

 

 

 

Accrued payroll

 

$

3,175

 

 

$

4,765

 

Accrued sales and use taxes

 

 

1,196

 

 

 

1,692

 

Accrued property and other taxes

 

 

172

 

 

 

293

 

Accrued gift card and escheatment liability

 

 

1,768

 

 

 

1,593

 

Accrued interest payable

 

 

175

 

 

 

372

 

Accrued accounts payable and bank overdrafts

 

 

943

 

 

 

503

 

Accrued professional fees

 

 

2,808

 

 

 

4,937

 

Customer deposits

 

 

316

 

 

 

241

 

Accrued expenses  other

 

 

1,564

 

 

 

2,652

 

Total accrued liabilities

 

$

12,117

 

 

$

17,048

 

 

Note 8: Long-Term Debt

Long-term debt as of March 31, 2022 and September 30, 2021 consisted of the following (in $000's):

 

 

 

March 31, 2022

 

 

September 30, 2021

 

Bank of America Revolver Loan

 

$

3,729

 

 

$

 

Encina Business Credit Revolver Loan

 

 

 

 

 

12,735

 

Texas Capital Bank Revolver Loan

 

 

8,594

 

 

 

8,794

 

Fifth-Third Bank Revolver

 

 

14,094

 

 

 

 

Fifth-Third Bank Term Loan

 

 

3,417

 

 

 

 

Encina Business Credit Term Loan

 

 

 

 

 

1,319

 

Note Payable to the Sellers of Vintage Stock

 

 

 

 

 

4,200

 

Note #3 Payable to Banc of America Leasing & Capital LLC

 

 

1,039

 

 

 

1,320

 

Note #4 Payable to Banc of America Leasing & Capital LLC

 

 

319

 

 

 

406

 

Note #5 Payable to Banc of America Leasing & Capital LLC

 

 

1,699

 

 

 

1,985

 

Note #6 Payable to Banc of America Leasing & Capital LLC

 

 

545

 

 

 

618

 

Note #7 Payable to Banc of America Leasing & Capital LLC

 

 

3,834

 

 

 

4,121

 

Note #8 Payable to Banc of America Leasing & Capital LLC

 

 

2,724

 

 

 

2,943

 

Note #9 Payable to Banc of America Leasing & Capital LLC

 

 

5,274

 

 

 

 

Note Payable to Extruded Fibers

 

 

 

 

 

700

 

Note Payable to the Sellers of Precision Marshall

 

 

2,500

 

 

 

2,500

 

Note Payable to Store Capital Acquisitions, LLC

 

 

9,202

 

 

 

9,209

 

Note payable to individuals, interest at 10-11% per annum, payable on a 90 day written notice,
   
unsecured

 

 

207

 

 

 

207

 

Note payable to individual, interest at 10% per annum, payable on a 90 day
   written notice,
unsecured

 

 

500

 

 

 

500

 

Note payable to individual, noninterest bearing, monthly payments of $19 through March 2023

 

 

306

 

 

 

472

 

Note payable to individuals, interest at 7% per annum, unsecured

 

 

198

 

 

 

198

 

Note payable RSSI/(VSSS)

 

 

130

 

 

 

130

 

Note Payable to JCM Holdings

 

 

1,746

 

 

 

1,833

 

Total notes payable

 

 

60,057

 

 

 

54,190

 

Less unamortized debt issuance costs

 

 

(666

)

 

 

(576

)

Net amount

 

 

59,391

 

 

 

53,614

 

Less current portion

 

 

(20,032

)

 

 

(16,055

)

Total long-term debt

 

$

39,359

 

 

$

37,559

 

 

11


 

 

Future maturities of long-term debt at March 31, 2022, are as follows which does not include related party debt separately stated (in $000's):

 

Twelve months ending March 31,

 

 

 

2023

 

$

20,162

 

2024

 

 

4,161

 

2025

 

 

3,642

 

2026

 

 

2,969

 

2027

 

 

19,048

 

Thereafter

 

 

10,075

 

Total future maturities of long-term debt

 

$

60,057

 

 

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. As of March 31, 2022, the outstanding balance was approximately $3.7 million.

Loans with Encina Business Credit, LLC

On July 14, 2020, Precision Marshall entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as Agent (the “Agent”). The Loan Agreement provides for secured revolving loans (the “Encina Revolver Loans”) in a principal amount not to exceed the lesser of (i) $23.5 million and (ii) a borrowing base equal to the sum of (a) 85% of Precision's eligible accounts receivable, plus (b) 85% of Precision's eligible inventory, subject to an eligible inventory sublimit that begins at $14.0 million and declines to $12.0 million during the term of the Loan Agreement, minus (c) customary reserves. The Encina Revolver Loans mature on July 14, 2023. On January 20, 2022, the Precision Marshall refinanced these loans with Fifth-Third Bank (see below). The refinanced credit facility, totaling $29 million, is comprised of $23.0 million in revolving credit, $3.5 million in machinery and equipment (“M&E”) lending, and $2.5 million for capital expenditure (“Capex”) lending.

Loan with Fifth Third Bank

On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank (see above), 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 capital 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 (Effective December 31, 2021, SOFR replaced the USD LIBOR for most financial benchmarking). 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. As of March 31, 2022, the outstanding balance on the revolving loan was approximately $14.1 million, and the outstanding balance on the term note was approximately $3.4 million.

Texas Capital Bank Revolver Loan

On November 3, 2016, Vintage Stock entered into an amended $12.0 million credit agreement with Texas Capital Bank (“TCB Revolver”). The TCB Revolver is a five-year, asset-based facility that is secured by substantially all of Vintage Stock’s assets. Availability under the TCB Revolver is subject to a monthly borrowing base calculation. The TCB Revolver matures, as amended September 30, 2020, on November 3, 2023. As of March 31, 2022, the balance outstanding was approximately $8.6 million.

12


 

Note payable to JCM Holdings

During October 2020, Marquis purchased a manufacturing facility for $2.5 million. Marquis had previously been leasing this facility. Additionally, Marquis entered into a $2.0 million note in favor of the seller of the facility for the balance of the purchase price, which note is secured by the facility. The note bears interest at 6%, and matures in January 2030. Principal and interest payments are due monthly, and the note is fully amortized at maturity. As of March 31, 2022, the remaining principal balance was approximately $1.7 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 during the six months ended March 31, 2022:

In December 2021, Marquis funded the acquisition of $5.5 million of new equipment under note #9 of its master agreement. The note, which is secured by the equipment, matures December 2026, and is payable in 60 monthly installments of $92,000 beginning January 2022, bearing interest at 3.75%.

Loan Covenant Compliance

As of March 31, 2022, the Company was in compliance with all covenants under its existing revolving and other loan agreements.

Note 9: Notes Payable, Related Parties

Long-term debt, related parties as of March 31, 2022 and September 30, 2021 consisted of the following (in $000's):

 

 

 

March 31, 2022

 

 

September 30, 2021

 

Isaac Capital Group LLC

 

$

2,000

 

 

$

2,000

 

Spriggs Investments, LLC

 

 

2,000

 

 

 

2,000

 

Total notes payable - related parties

 

 

4,000

 

 

 

4,000

 

Less current portion

 

 

(2,000

)

 

 

(2,000

)

Total long-term portion, related parties

 

$

2,000

 

 

$

2,000

 

 

 

Twelve months ending March 31,

 

 

 

2023

 

$

2,000

 

2024

 

 

 

2025

 

 

2,000

 

Total future maturities of long-term debt, related parties

 

$

4,000

 

 

Note 10: Stockholders’ Equity

Series B Convertible Preferred Stock

In March 2022, the existing 315,790 shares of Series B Convertible Preferred Stock were converted into 1,578,950 common shares, in accordance with Series B Convertible Preferred Stock agreements. Of the 315,790 existing shares of Series B Convertible Preferred Stock converted, Isaac Capital Group LLC (“ICG”) held 259,902 of these shares, and converted them into 1,299,510 common shares. Jon Isaac, the Company's President and Chief Executive Officer, is the President and sole member of ICG, and, accordingly, has sole voting and dispositive power with respect to these shares. As of March 31, 2022 and September 30, 2021, there were 0 and 315,790 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.

Series E Convertible Preferred Stock

As of March 31, 2022, and September 30, 2021, there was 47,840 shares of Series E Convertible Preferred Stock, issued and outstanding, respectively.

13


 

Treasury Stock

As of March 31, 2022 and September 30, 2021, the Company had 600,188 and 534,520 shares of Treasury Stock, respectively. During the six months ended March 31, 2022 and 2021, respectively, the Company purchased 65,668 and 33,926 shares of its common stock on the open market for approximately $2.1 million and approximately $400,000, respectively.

Note 11: 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 300,000 shares of common stock for issuance under the 2014 Plan.

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, 2021 and the six months ended March 31, 2022:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual Life

 

 

Intrinsic
Value

 

Outstanding at September 30, 2020

 

 

119,168

 

 

$

15.76

 

 

 

2.71

 

 

$

 

Granted

 

 

7,500

 

 

 

40.92

 

 

 

 

 

 

 

Exercised

 

 

(28,668

)

 

11.25

 

 

 

 

 

 

 

Forfeited

 

 

(10,500

)

 

20.56

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

87,500

 

 

$

18.81

 

 

 

1.78

 

 

$

1,626

 

Exercisable at September 30, 2021

 

 

78,500

 

 

$

16.29

 

 

 

1.72

 

 

$

1,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

87,500

 

 

$

18.81

 

 

 

1.78

 

 

$

1,626

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding at March 31, 2022

 

 

87,500

 

 

$

18.81

 

 

 

1.28

 

 

$

2,193

 

Exercisable at March 31, 2022

 

 

82,500

 

 

$

17.53

 

 

 

1.23

 

 

$

2,144

 

 

The Company recognized compensation expense of approximately $19,000 and $270,000 during the three months ended March 31, 2022 and 2021, respectively, and approximately $37,000 and $287,000 during the six months ended March 31, 2022 and 2021, respectively, related to stock option awards granted to certain employees and officers based on the grant date fair value of the awards, and the revaluation for existing options whereby the expiration date was extended.

As of March 31, 2022, the Company had no unrecognized compensation expense associated with stock option awards.

The following table summarizes information about the Company’s non-vested shares outstanding as of March 31, 2022:

 

Non-vested Shares

 

Number of
Shares

 

 

Average
Grant-Date
Fair Value

 

Non-vested at September 30, 2021

 

 

9,000

 

 

$

17.57

 

Granted

 

 

 

 

$

 

Vested

 

 

(4,000

)

 

$

20.74

 

Non-vested at March 31, 2022

 

 

5,000

 

 

$

15.04

 

 

Note 12: 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 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

14


 

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,

 

 

For the Six Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,358

 

 

$

8,734

 

 

$

21,904

 

 

$

14,147

 

Less: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

15,358

 

 

$

8,734

 

 

$

21,904

 

 

$

14,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

3,134,540

 

 

 

1,555,175

 

 

 

3,148,059

 

 

 

1,534,287

 

Basic earnings per share

 

$

4.90

 

 

$

5.62

 

 

$

6.96

 

 

$

9.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

15,358

 

 

$

8,734

 

 

$

21,904

 

 

$

14,147

 

Add: preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable for diluted earnings per share

 

$

15,358

 

 

$

8,734

 

 

$

21,904

 

 

$

14,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

3,134,540

 

 

 

1,555,175

 

 

 

3,148,059

 

 

 

1,534,287

 

Add: Options

 

 

38,102

 

 

 

87,168

 

 

 

38,825

 

 

 

87,168

 

Add: Series B Preferred Stock

 

 

 

 

 

1,593,950

 

 

 

 

 

 

1,593,950

 

Add: Series E Preferred Stock

 

 

239

 

 

 

47,840

 

 

 

239

 

 

 

47,840

 

Assumed weighted average common shares outstanding

 

 

3,172,881

 

 

 

3,284,133

 

 

 

3,187,124

 

 

 

3,263,245

 

Diluted earnings per share

 

$

4.84

 

 

$

2.66

 

 

$

6.87

 

 

$

4.34

 

 

There are 0 and 33,250 options to purchase shares of common stock that are anti-dilutive, and are not included in the six months ended March 31, 2022 and 2021, diluted earnings per share computations, respectively.

Note 13: Related Party Transactions

Transactions with Isaac Capital Fund and Capital Group LLC

As of March 31, 2022, ICG beneficially owns 48.5% of the Company’s issued and outstanding capital stock. Jon Isaac, the Company's President and Chief Executive Officer, is the President and sole member of ICG, and, accordingly, has sole voting and dispositive power with respect to these shares. Mr. Isaac also personally owns 217,177 shares of common stock and holds options to purchase up to 25,000 shares of common stock at an exercise price of $10.00 per share, all of which are currently exercisable.

ICG Term Loan

During 2015, Marquis entered into a mezzanine loan in the amount of up to $7.0 million (the “ICF Loan”) with Isaac Capital Fund I, LLC (“ICF”), a private lender whose managing member is Jon Isaac, the Company’s President and Chief Executive Officer. On July 10, 2020, (i) ICF released and discharged Marquis from all obligations under the loan, (ii) ICF assigned all of its rights and obligations under the instruments, documents, and agreements with respect to the ICF Loan to ICG, of which Jon Isaac, the Company’s President and Chief Executive Officer, is the sole member, and (iii) Live Ventures borrowed $2.0 million (the “ICG Loan”) from ICG using essentially the same documentation from the ICF Loan. There was no balance outstanding on the note as of the date of assignment. The ICG Loan matures on May 1, 2025 and bears interest at a rate of 12.5%. Interest is payable in arrears on the last day of each month, commencing July 31, 2020. As of March 31, 2022, and September 30, 2021, there was $2.0 million outstanding on this loan.

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 $1.0 million revolving credit facility (the “ICG Revolver”). The ICG Revolver bears interest at 10.0% per annum and provides for the payment of interest monthly in arrears and matures April 2023. As of March 31, 2022, the Company has not drawn on the ICG Revolver.

15


 

Transactions with JanOne Inc.

Lease agreement

Customer Connexx LLC, a wholly-owned subsidiary of JanOne Inc. (“JanOne”), rents approximately 9,900 square feet of office space from the Company at its Las Vegas office, which totals 16,500 square feet. JanOne paid the Company $75,000 and $50,000 in rent and other reimbursed expenses for three months ended March 31, 2022 and 2021 and $144,000 and $88,000 in rent and other reimbursed expenses for the six months ended March 31, 2022 and 2021, respectively. Tony Isaac is the Chief Executive Officer, President, Secretary, and a member of the Board of Directors of JanOne.

Transactions with Vintage Stock CEO

Note Payable to the Sellers of Vintage Stock

In connection with the purchase of Vintage Stock, on November 3, 2016, Vintage Stock Affiliated Holdings, LLC (“VSAH”) and Vintage Stock entered into a seller financed mezzanine loan in the amount of $10.0 million with the previous owners of Vintage Stock. The Company executed a promissory note (the “Sellers Subordinated Acquisition Note”), which bears interest at 8% per annum, with interest payable monthly in arrears. The Sellers Subordinated Acquisition Note, as amended, has a maturity date of September 23, 2023. As of March 31, 2022, the amount was fully repaid.

Spriggs Promissory Note

On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note”) 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 $2.0 million (the “Spriggs Loan”). The Spriggs Loan matures on July 10, 2022 and bears simple interest at a rate of 10.0% per annum. As of March 31, 2022, the amount owed was $2.0 million.

Note 14: Commitments and Contingencies

Litigation

SEC Investigation

On February 21, 2018, the Company received a subpoena from the 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 relate 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. 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. The Company and the Executives maintain that their actions were appropriate, and are vigorously defending against any and all allegations brought forth.

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.

The SEC Complaint alleges financial, disclosure and reporting violations against the Company under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. The SEC Complaint also alleges various claims against certain executive officers under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC seeks permanent injunctions and civil penalties against the Company. 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.

16


 

The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from core business. On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motions on November 1, 2021. The defendants filed their reply to the SEC’s opposition on November 15, 2021. The motions to dismiss are now under submission and the court has not yet scheduled a hearing date. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery has been stayed pending the motions to dismiss.

ApplianceSmart Bankruptcy and Other ApplianceSmart Related Litigation Matters

On Feb 28, 2022, the court approved ApplianceSmart’s plan for reorganization (the “Plan”), discharging ApplianceSmart of certain debts according to the Plan resulting in the Company recording a gain of approximately $11.4 million, which includes a write-off or adjustment of approximately $11.5 million on the settlement of debts and other liabilities, offset by payments subject to the bankruptcy that were not included as debtor-in-possession liabilities of approximately $149,000.

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 consolidated financial position, results of operations or cash flows. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.

Warranties

During 2019, the Company became the principal for certain extended warranties; as a result, warranty reserves are included in accrued liabilities in our consolidated balance sheet. The following table summarizes the warranty reserve activity for the six months ended March 31, 2022:

 

Beginning balance, September 30, 2021

 

$

105

 

Warranties issued/accrued

 

 

 

Warranty settlements

 

 

 

Ending balance, March 31, 2022

 

$

105

 

 

Note 15: Segment Reporting

The Company operates in four operating segments which are characterized as: (1) Retail, (2) Flooring Manufacturing, (3) Steel Manufacturing, and (4) Corporate and Other. The Retail segment consists of Vintage Stock and ApplianceSmart; the Flooring Manufacturing Segment consists of Marquis; and the Steel Manufacturing Segment consists of Precision Marshall.

17


 

The following tables summarize segment information (in $000's):

 

 

 

For the Three Months Ended March 31,

 

 

For the Six Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

20,741

 

 

$

24,003

 

 

$

46,952

 

 

$

46,373

 

Flooring Manufacturing

 

 

32,772

 

 

 

32,972

 

 

 

65,644

 

 

 

63,194

 

Steel Manufacturing

 

 

14,027

 

 

 

13,793

 

 

 

26,393

 

 

 

23,528

 

Corporate and Other

 

 

2,166

 

 

 

122

 

 

 

5,875

 

 

 

249

 

Total revenues

 

$

69,706

 

 

$

70,890

 

 

$

144,864

 

 

$

133,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

11,110

 

 

$

12,970

 

 

$

24,500

 

 

$

25,017

 

Flooring Manufacturing

 

 

8,580

 

 

 

10,022

 

 

 

17,609

 

 

 

18,347

 

Steel Manufacturing

 

 

4,252

 

 

 

3,380

 

 

 

7,867

 

 

 

5,156

 

Corporate and Other

 

 

1,011

 

 

 

118

 

 

 

2,593

 

 

 

239

 

Total gross profit

 

$

24,953

 

 

$

26,490

 

 

$

52,569

 

 

$

48,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

3,132

 

 

$

5,071

 

 

$

7,942

 

 

$

9,564

 

Flooring Manufacturing

 

 

3,875

 

 

 

6,011

 

 

 

8,483

 

 

 

10,161

 

Steel Manufacturing

 

 

2,719

 

 

 

1,742

 

 

 

4,373

 

 

 

1,886

 

Corporate and Other

 

 

(1,277

)

 

 

(1,699

)

 

 

(1,942

)

 

 

(3,195

)

Total operating income

 

$

8,449

 

 

$

11,125

 

 

$

18,856

 

 

$

18,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

296

 

 

$

391

 

 

$

636

 

 

$

738

 

Flooring Manufacturing

 

 

780

 

 

 

907

 

 

 

1,559

 

 

 

1,872

 

Steel Manufacturing

 

 

281

 

 

 

396

 

 

 

515

 

 

 

789

 

Corporate and Other

 

 

139

 

 

 

11

 

 

 

335

 

 

 

21

 

Total depreciation and amortization

 

$

1,496

 

 

$

1,705

 

 

$

3,045

 

 

$

3,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expenses

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

84

 

 

$

582

 

 

$

236

 

 

$

1,242

 

Flooring Manufacturing

 

 

462

 

 

 

648

 

 

 

893

 

 

 

1,058

 

Steel Manufacturing

 

 

182

 

 

 

288

 

 

 

479

 

 

 

556

 

Corporate and Other

 

 

130

 

 

 

131

 

 

 

267

 

 

 

263

 

Total interest expenses

 

$

858

 

 

$

1,649

 

 

$

1,875

 

 

$

3,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) before provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

14,593

 

 

$

4,485

 

 

$

19,293

 

 

$

8,658

 

Flooring Manufacturing

 

 

3,337

 

 

 

5,171

 

 

 

7,382

 

 

 

8,893

 

Steel Manufacturing

 

 

2,002

 

 

 

2,460

 

 

 

3,315

 

 

 

2,296

 

Corporate and Other

 

 

(1,051

)

 

 

(193

)

 

 

(1,602

)

 

 

(1,195

)

Total net income before provision for income taxes

 

$

18,881

 

 

$

11,923

 

 

$

28,388

 

 

$

18,652

 

 

Note 16: 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.

 

18


 

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, 2022, 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, 2021 (the “2021 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 2021 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”.

19


 

Retail Segment

Our Retail Segment is composed of Vintage Stock, Inc. (“Vintage Stock”) and ApplianceSmart, Inc. (“ApplianceSmart”).

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 66 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.

ApplianceSmart

ApplianceSmart is a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others.

On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affected Live Ventures’ indirect subsidiary ApplianceSmart only and did not affect any other subsidiary of Live Ventures, or Live Ventures itself. ApplianceSmart expected to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserved its right to file a motion seeking authority to use cash collateral of the lenders under the reserve-based revolving credit facility. The case was being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.

On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). On February 28, 2022, the court approved ApplianceSmart’s plan for reorganization (the “Plan”), discharging ApplianceSmart of certain debts according to the Plan resulting in the Company recording a gain of approximately $11.4 million, which includes a write-off or adjustment of approximately $11.5 million on the settlement of debts and other liabilities, offset by payments subject to the bankruptcy that were not included as debtor-in-possession liabilities of approximately $149,000.

As of March 31, 2022 ApplianceSmart operates one store in Reynoldsburg, Ohio.

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.

Steel Manufacturing Segment

Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”).

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.

20


 

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.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with 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 significant accounting policies include Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Stock Based Compensation, 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 2021 10-K.

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.

21


 

Results of Operations Three Months Ended March 31, 2022 and 2021

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended March 31, 2022 and 2021 (in $000’s):

 

 

 

For the Three Months Ended March 31, 2022

 

 

For the Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

Selected Data:

 

 

 

 

 

 

Revenue

 

$

69,706

 

 

$

70,890

 

Cost of revenue

 

 

44,753

 

 

 

44,400

 

General and administrative expenses

 

 

13,154

 

 

 

12,565

 

Sales and marketing expenses

 

 

3,350

 

 

 

2,800

 

Interest expense, net

 

 

(858

)

 

 

(1,649

)

Provision for income taxes

 

 

3,523

 

 

 

3,228

 

Net income

 

$

15,358

 

 

$

8,695

 

 

 

 

 

 

 

 

Adjusted EBITDA (a)

 

 

 

 

 

 

Retail business

 

$

3,610

 

 

$

5,456

 

Flooring Manufacturing business

 

 

4,579

 

 

 

6,726

 

Steel Manufacturing business

 

 

2,828

 

 

 

2,034

 

Corporate and Other

 

 

(762

)

 

 

(894

)

Total Adjusted EBITDA

 

$

10,255

 

 

$

13,322

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of revenue

 

 

 

 

 

 

Retail business

 

 

17.4

%

 

 

22.7

%

Flooring Manufacturing business

 

 

14.0

%

 

 

20.4

%

Steel Manufacturing business

 

 

20.2

%

 

 

14.7

%

Corporate and Other

 

 

-35.2

%

 

 

-732.8

%

Consolidated adjusted EBITDA as a percentage of revenue

 

 

14.7

%

 

 

18.8

%

 

(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, 2022

 

 

For the Three Months Ended March 31, 2021

 

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

 

Net
Revenue

 

 

% of
Total
Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

20,616

 

 

 

29.6

%

 

$

23,651

 

 

 

33.4

%

Appliances

 

 

125

 

 

 

0.2

%

 

 

352

 

 

 

0.5

%

Flooring Manufacturing

 

 

32,772

 

 

 

47.0

%

 

 

32,972

 

 

 

46.5

%

Steel Manufacturing

 

 

14,027

 

 

 

20.1

%

 

 

13,793

 

 

 

19.5

%

Corporate and Other

 

 

2,166

 

 

 

3.1

%

 

 

122

 

 

 

0.2

%

Total Revenue

 

$

69,706

 

 

 

100.0

%

 

$

70,890

 

 

 

100.0

%

 

22


 

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, 2022

 

 

For the Three Months Ended March 31, 2021

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

11,003

 

 

 

15.8

%

 

$

12,813

 

 

 

18.1

%

Appliances

 

 

107

 

 

 

0.2

%

 

 

157

 

 

 

0.2

%

Flooring Manufacturing

 

 

8,580

 

 

 

12.3

%

 

 

10,022

 

 

 

14.1

%

Steel Manufacturing

 

 

4,252

 

 

 

6.1

%

 

 

3,380

 

 

 

4.8

%

Corporate and Other

 

 

1,011

 

 

 

1.5

%

 

 

118

 

 

 

0.2

%

Total Gross Profit

 

$

24,953

 

 

 

35.8

%

 

$

26,490

 

 

 

37.4

%

Revenue

Revenue decreased approximately $1.2 million, or 1.7%, to approximately $70.0 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The decrease is primarily attributable to decreased revenue in the Retail segment of approximately $3.3 million, offset by increased revenue in Corporate and Other of approximately $2.0 million. The decrease in revenue in the Retail segment was primarily due to additional stimulus payments and timely tax refunds received by our Retail segment customer base during Q2 2021 that allowed for more discretionary consumer spending. The increase in revenue in the Corporate and Other segment as compared to the prior year period was due to the consolidation of SW Financial in June 2021.

 

Cost of Revenue

Cost of revenue increased by 0.8% to approximately $44.8 million for the three months ended March 31, 2022, as compared to approximately $44.4 million for the three months ended March 31, 2021. Cost of revenue remained relatively unchanged from the prior year period. The increase is due to inflationary pressures, and the consolidation of SW Financial in June 2021.

General and Administrative Expense

General and Administrative expenses increased by 4.7% to approximately $13.2 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to increases in employee compensation and related costs as a result of our Retail segment opening new locations.

Selling and Marketing Expense

Selling and marketing expense increased by 19.6% to approximately $3.4 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to increased convention and trade show activity, which was largely canceled during COVID, as well as compensation associated with the Marquis sales force.

Interest Expense, net

Interest expense, net, decreased by 48% to approximately $858,000 for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The decrease is primarily due to the payoff of debt and related debt discount, favorable interest rates obtained from Precision's credit facility refinancing (see Note 8 of the unaudited consolidated financial statements), and the forgiveness of loans received under the Paycheck Protection Program (“PPP loan”).

Results of Operations Six Months Ended March 31, 2022 and 2021

The following table sets forth certain statement of income items and as a percentage of revenue, for the six months ended March 31, 2022 and 2021 (in $000's):

 

23


 

 

 

For the Six Months Ended March 31, 2022

 

 

 

For the Six Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Select Data:

 

 

 

 

 

 

 

 

Revenue

 

$

144,864

 

 

 

$

133,344

 

 

Cost of revenue

 

 

92,295

 

 

 

 

84,585

 

 

General and administrative expenses

 

 

27,311

 

 

 

 

24,844

 

 

Sales and marketing expenses

 

 

6,402

 

 

 

 

5,499

 

 

Operating income

 

 

18,856

 

 

 

 

18,416

 

 

Interest expense, net

 

 

(1,875

)

 

 

 

(3,119

)

 

Provision for income taxes

 

 

6,483

 

 

 

 

4,678

 

 

Net income

 

$

21,904

 

 

 

$

13,974

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (a)

 

 

 

 

 

 

 

 

Retail business

 

$

8,813

 

 

 

$

10,594

 

 

Flooring Manufacturing business

 

 

9,834

 

 

 

 

11,824

 

 

Steel Manufacturing business

 

 

4,672

 

 

 

 

2,531

 

 

Corporate and Other

 

 

(964

)

 

 

 

(1,697

)

 

Total Adjusted EBITDA

 

$

22,355

 

 

 

$

23,252

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of revenue

 

 

 

 

 

 

 

 

Retail business

 

 

18.8

%

 

 

 

22.8

%

 

Flooring Manufacturing business

 

 

15.0

%

 

 

 

18.7

%

 

Steel Manufacturing business

 

 

17.7

%

 

 

 

10.8

%

 

Corporate and Other

 

 

-16.4

%

 

 

 

-681.5

%

 

Consolidated adjusted EBITDA as a percentage of revenue

 

 

15.4

%

 

 

 

17.4

%

 

(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, 2022

 

 

For the Six Months Ended March 31, 2021

 

 

 

Net
Revenue

 

 

% of
Total Revenue

 

 

Net
Revenue

 

 

% of Total
Total Revenue

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

46,731

 

 

 

32.3

%

 

$

45,725

 

 

 

34.3

%

Appliances

 

 

221

 

 

 

0.2

%

 

 

648

 

 

 

0.5

%

Flooring Manufacturing

 

 

65,644

 

 

 

45.3

%

 

 

63,194

 

 

 

47.4

%

Steel Manufacturing

 

 

26,393

 

 

 

18.2

%

 

 

23,528

 

 

 

17.6

%

Corporate and Other

 

 

5,875

 

 

 

4.1

%

 

 

249

 

 

 

0.2

%

Total Revenue

 

$

144,864

 

 

 

100.0

%

 

$

133,344

 

 

 

100.0

%

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, 2022

 

 

For the Six Months Ended March 31, 2021

 

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

 

Gross
Profit

 

 

Gross
Profit % of Total Revenue

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

Movies, Music, Games and Other

 

$

24,403

 

 

 

52.2

%

 

$

24,729

 

 

 

54.1

%

Appliances

 

 

97

 

 

 

43.9

%

 

 

288

 

 

 

44.4

%

Flooring Manufacturing

 

 

17,609

 

 

 

26.8

%

 

 

18,347

 

 

 

29.0

%

Steel Manufacturing

 

 

7,867

 

 

 

29.8

%

 

 

5,156

 

 

 

21.9

%

Corporate and Other

 

 

2,593

 

 

 

44.1

%

 

 

239

 

 

 

96.0

%

Total Gross Profit

 

$

52,569

 

 

 

36.3

%

 

$

48,759

 

 

 

36.6

%

 

24


 

Revenue

Revenue increased approximately $11.5 million, or 8.6%, to $144.9 million for the six months ended March 31, 2022, as compared to the corresponding prior year period. The increase is primarily attributable to the increased revenue in Corporate and Other of approximately $5.6 million, the Steel Manufacturing Segment of approximately $2.9 million, and the Flooring Manufacturing segment of approximately $2.5 million. The increase in revenue for Corporate and Other is primarily due to the consolidation of SW Financial in fiscal 2021. The increase in revenue in the Steel Manufacturing and Flooring Manufacturing segments was primarily due to increased customer demand, as well as the passing on of product cost increases to customers.

Cost of Revenue

Cost of revenue increased by 9.1% to approximately $92.3 million for the six months ended March 31, 2022, as compared to approximately $84.6 million for the six months ended March 31, 2021. The increase is primarily attributable to the increases in revenues.

General and Administrative Expense

General and Administrative expenses increased by 9.9% to approximately $27.3 million for the six months ended March 31, 2022, as compared to the six months ended March 31, 2021, primarily due to increases in employee compensation and related costs as a result of our Retail segment opening new locations.

Selling and Marketing Expense

Selling and marketing expense increased by 16.4% to approximately $6.4 million for the six months ended March 31, 2022, as compared to the six months ended March 31, 2021, primarily due to increased convention and trade show activity, which was largely canceled during COVID, as well as compensation associated with the Marquis sales force.

Interest Expense, net

Interest expense, net, decreased by 39.9% to approximately $1.9 million for the six months ended March 31, 2022, as compared to the six months ended March 31, 2021. The decrease is primarily due to the payoff of debt and related debt discount, favorable interest rates obtained from Precision's credit facility refinancing (see Note 8 of the unaudited consolidated financial statements), and the forgiveness of loans received under the Paycheck Protection Program (“PPP loan”).

Results of Operations by Segment

 

 

 

For the Three Months Ended March 31, 2022

 

 

For the Three Months Ended March 31, 2021

 

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
and Other

 

 

Total

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
and Other

 

 

Total

 

Revenue

 

$

20,741

 

 

$

32,772

 

 

$

14,027

 

 

$

2,166

 

 

$

69,706

 

 

$

24,003

 

 

$

32,972

 

 

$

13,793

 

 

$

122

 

 

$

70,890

 

Cost of Revenue

 

 

9,631

 

 

 

24,192

 

 

 

9,775

 

 

 

1,155

 

 

 

44,753

 

 

 

11,033

 

 

 

22,950

 

 

 

10,413

 

 

 

4

 

 

 

44,400

 

Gross Profit

 

 

11,110

 

 

 

8,580

 

 

 

4,252

 

 

 

1,011

 

 

 

24,953

 

 

 

12,970

 

 

 

10,022

 

 

 

3,380

 

 

 

118

 

 

 

26,490

 

General and
   Administrative
   Expense

 

 

7,888

 

 

 

1,586

 

 

 

1,395

 

 

 

2,285

 

 

 

13,154

 

 

 

7,700

 

 

 

1,609

 

 

 

1,441

 

 

 

1,815

 

 

 

12,565

 

Selling and
   Marketing
   Expense

 

 

90

 

 

 

3,119

 

 

 

138

 

 

 

3

 

 

 

3,350

 

 

 

199

 

 

 

2,402

 

 

 

197

 

 

 

2

 

 

 

2,800

 

Operating Income
   (Loss)

 

$

3,132

 

 

$

3,875

 

 

$

2,719

 

 

$

(1,277

)

 

$

8,449

 

 

$

5,071

 

 

$

6,011

 

 

$

1,742

 

 

$

(1,699

)

 

$

11,125

 

 

Retail Segment

Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the three months ended March 31, 2022 decreased by approximately $3.3 million, or 14%, as compared to the prior year, primarily due to additional stimulus payments and timely tax refunds received by our Retail segment customer base during the second quarter of 2021, that allowed for more discretionary consumer spending at our Vintage Stock locations. Additionally, sales by ApplianceSmart continued to decrease, primarily due to increased competition. Cost of revenue decreased proportionately with the decrease in revenue. Operating income for the three months ended March 31, 2022 was approximately $3.1 million, as compared to operating income of approximately $5.1 million for the prior year period.

25


 

Flooring Manufacturing Segment

Segment results for Flooring Manufacturing includes Marquis. Revenue for the three months ended March 31, 2022 decreased by approximately $200,000, or 1%, as compared to the prior year period, primarily due to reduced customer demand. Cost of revenue for the three months ended March 31, 2022 increased, as compared to the prior year period, primarily due to increases in raw material costs. Sales and marketing expenses increased by approximately $717,000 for the three months ended March 31, 2022 primarily due to increased convention and trade show activity, as well as increased compensation associated with the Marquis sales force. Operating income for the three months ended March 31, 2022 was approximately $3.9 million, as compared to operating income of approximately $6.0 million for the prior year period.

Steel Manufacturing Segment

Segment results for Steel Manufacturing includes Precision Marshall. Revenue for the three months ended March 31, 2022 increased by approximately $234,000, or 2%, as compared to the prior year period, primarily due to increased sales prices resulting from rising costs. Cost of revenue for the three months ended March 31, 2022 decreased, as compared to the prior year period, as a percentage of sales due to improved manufacturing efficiencies and increased revenue due to price increases. Operating income for the three months ended March 31, 2022 was approximately $2.7 million, as compared to operating income of approximately $1.7 in the prior period. The increase in operating income is primarily due to an increase in gross profit.

Corporate and Other Segment

Segment results for Corporate and Other includes our directory services business and our investment in SW Financial. Revenues for the three months ended March 31, 2022 increased by $2.0 million primarily due to the addition of SW Financial as a VIE during fiscal 2021. Cost of revenue for the three months ended March 31, 2022 increased proportionately with revenue for the reason stated. Operating loss for the three months ended March 31, 2022 was approximately $1.3 million, as compared to a loss of approximately $1.7 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. We anticipate revenues from our investment in SW Financial to trend upward in the future

 

 

 

 

For the Six Months Ended March 31, 2022

 

 

For the Six Months Ended March 31, 2021

 

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
and Other

 

 

Total

 

 

Retail

 

 

Flooring
Manufacturing

 

 

Steel
Manufacturing

 

 

Corporate
and Other

 

 

Total

 

Revenue

 

$

46,952

 

 

$

65,644

 

 

$

26,393

 

 

$

5,875

 

 

$

144,864

 

 

$

46,373

 

 

$

63,194

 

 

$

23,528

 

 

$

249

 

 

$

133,344

 

Cost of Revenue

 

 

22,452

 

 

 

48,035

 

 

 

18,526

 

 

 

3,282

 

 

 

92,295

 

 

 

21,356

 

 

 

44,847

 

 

 

18,372

 

 

 

10

 

 

 

84,585

 

Gross Profit

 

 

24,500

 

 

 

17,609

 

 

 

7,867

 

 

 

2,593

 

 

 

52,569

 

 

 

25,017

 

 

 

18,347

 

 

 

5,156

 

 

 

239

 

 

 

48,759

 

General and
   Administrative
   Expense

 

 

16,342

 

 

 

3,225

 

 

 

3,216

 

 

 

4,528

 

 

 

27,311

 

 

 

15,120

 

 

 

3,550

 

 

 

2,968

 

 

 

3,206

 

 

 

24,844

 

Selling and
   Marketing
   Expense

 

 

216

 

 

 

5,901

 

 

 

278

 

 

 

7

 

 

 

6,402

 

 

 

333

 

 

 

4,636

 

 

 

302

 

 

 

228

 

 

 

5,499

 

Operating Income
   (Loss)

 

$

7,942

 

 

$

8,483

 

 

$

4,373

 

 

$

(1,942

)

 

$

18,856

 

 

$

9,564

 

 

$

10,161

 

 

$

1,886

 

 

$

(3,195

)

 

$

18,416

 

Retail Segment

Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the six months ended March 31, 2022 increased by approximately $579,000, or 1%, as compared to the prior year, primarily due to increased retail pricing and additional locations added at Vintage Stock, offset by decreasing sales by ApplianceSmart, primarily due to decreases in sales resulting from increased competition. Retail price increases were primarily due to higher product costs relating to inflationary pressures that were passed on to customers. Retail sales at our Vintage Stock locations during the six months ended March 31, 2022 were impacted by the lack of stimulus payments and timely tax refunds customers received during the six months ended March 31, 2021. Cost of revenue increased due to changes in product mix, as well as other inflationary pressures. Operating income for the six months ended March 31, 2022 was approximately $7.9 million, as compared to operating income of approximately $9.6 million for the prior year period.

26


 

Flooring Manufacturing Segment

Segment results for Flooring Manufacturing includes Marquis. Revenue for the six months ended March 31, 2022 increased by approximately $2.5 million, or 4%, as compared to the prior year period, primarily due to greater demand for various grades of flooring, as well increases in sales prices. The shift in demand in flooring grades was generally toward higher priced product. Sales price increases were primarily due to higher product costs relating to inflationary pressures that were passed on to customers. Cost of revenue for the six months ended March 31, 2022 increased primarily due to increases in raw material costs, as compared to the prior year period. Sales and marketing expenses increased by approximately $1.3 million for the six months ended March 31, 2022 primarily due to increased convention and trade show activity, as well as increased compensation associated with the Marquis sales force. Operating income for the six months ended March 31, 2022 was approximately $8.5 million, as compared to operating income of approximately $10.2 million for the prior year period.

Steel Manufacturing Segment

Segment results for Steel Manufacturing includes Precision Marshall. Revenue for the six months ended March 31, 2022 increased by $2.9 million, or 12%, as compared to the prior year period, primarily due to increased sales prices resulting from rising costs. Cost of revenue for the six months ended March 31, 2022 increased moderately, as compared to the prior year period, as a percentage of sales due to improved manufacturing efficiencies and increased revenue due to price increases. Operating income for the six months ended March 31, 2022 was approximately $4.4 million, as compared to operating income of approximately $1.9 in the prior period. The increase in operating income is primarily due to an increase in gross profit.

Corporate and Other Segment

Results for Corporate and Other includes our directory services business and our investment in SW Financial. Revenues for the six months ended March 31, 2022 increased by $5.6 million primarily due to the addition of SW Financial as a VIE during fiscal 2021. Cost of revenue for the six months ended March 31, 2022 increased proportionately with revenue due to inflationary pressures and the consolidation of SW Financial in June 2021. Operating loss for the six months ended March 31, 2022 was approximately $1.9 million, as compared to a loss of approximately $3.2 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. We anticipate revenues from our investment in SW Financial to trend upward in the future.

Adjusted EBITDA Reconciliation

The following tables present a reconciliation of Adjusted EBITDA from net income for the three and six months ended March 31, 2022 (in 000's):

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

 

March 31, 2022

 

 

March 31, 2021

 

Net income

 

$

15,358

 

 

$

8,695

 

 

$

21,904

 

 

$

13,974

 

Depreciation and amortization

 

 

1,496

 

 

 

1,706

 

 

 

3,045

 

 

 

3,420

 

Stock-based compensation

 

 

19

 

 

 

270

 

 

 

37

 

 

 

287

 

Interest expense, net

 

 

858

 

 

 

1,649

 

 

 

1,875

 

 

 

3,119

 

Income tax expense

 

 

3,523

 

 

 

3,228

 

 

 

6,483

 

 

 

4,678

 

Gain on bankruptcy settlement

 

 

(11,362

)

 

 

(1,115

)

 

 

(11,352

)

 

 

(1,115

)

Gain/loss on extinguishment of debt

 

 

363

 

 

 

(1,382

)

 

 

363

 

 

 

(1,382

)

Non-recurring loan costs

 

 

 

 

 

271

 

 

 

 

 

 

271

 

Adjusted EBITDA

 

$

10,255

 

 

$

13,322

 

 

$

22,355

 

 

$

23,252

 

 

27


 

Adjusted EBITDA decreased by approximately $3.1 million, or 23%, for the three months ended March 31, 2022, as compared to the prior year period. The decrease is primarily due to decreases in revenue and increases in SG&A expenses, as discussed above.

Adjusted EBITDA decreased by approximately $900,000, or 4%, for the six months ended March 31, 2022, as compared to the prior year period. The decrease is primarily due to increases in cost of revenue and increases in SG&A expenses, as discussed above.

Liquidity and Capital Resources

As of March 31, 2022, we had total cash on hand of approximately $6.2 million and approximately $31.8 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 $53.0 million as of March 31, 2022, as compared to working capital of approximately $33.8 million as of September 30, 2021; an increase of approximately $19.2 million. The increase is primarily due to increases in cash and inventories of approximately $10.1 million, and decreases in debtor-in-possession liabilities and accrued liabilities of approximately $16.1 million, partially offset by increases in accounts payable and the current portion of long-term debt of approximately $7.9 million.

Cash Flows from Operating Activities

The Company’s cash, as of March 31, 2022, was approximately $6.2 million compared to approximately $4.7 million as of September 30, 2021, an increase of approximately $1.5 million. Net cash provided by operations was approximately $5.3 million for the six months ended March 31, 2022, as compared to net cash provided by operations of approximately $20.9 million for the six months ended March 31, 2021. The decrease was primarily due to purchases of inventory, as well as payments on accrued liabilities.

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 $7.5 million for the six months ended March 31, 2022 consisted of purchases of property and equipment. Our cash flows used in investing activities of approximately $5.5 million for the six months ended March 31, 2021 consisted of purchases of property and equipment.

Cash Flows from Financing Activities

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.

Our cash flows used in financing activities of approximately $12.5 million during the six months ended March 31, 2021 consisted of payments on notes payable and related notes payable of approximately $9.9 million, net borrowings under revolver loans of approximately $4.6 million, and purchases of treasury stock in the amount of approximately $383,000, partially offset by the issuance of notes payable of approximately $2.3 million associated with the acquisition of a facility by Marquis.

28


 

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.

29


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2022, 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 (our CEO) and principal financial officer (our CFO), 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, our principal executive officer and principal financial officer concluded that, as of March 31, 2022, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure due to material weaknesses in internal control over financial reporting further described below.

Despite the identified material weaknesses, management concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP. Frazier & Deeter, LLC, the Company’s independent registered public accounting firm, has issued an unqualified opinion on our consolidated financial statements as of and for the year ended September 30, 2021. They were not engaged to perform, and did not perform, an audit of internal control over financial reporting. These material weaknesses had no impact on our consolidated financial statements in prior years.

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 effectiveness of our internal control over financial reporting as of March 31, 2022. 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, our management concluded that our internal controls over financial reporting was ineffective as of March 31, 2022. Management noted the following deficiencies that management believes to be material weaknesses:

The Company does not have sufficient written documentation of our internal control policies and procedures. Written documentation of key internal control over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act;
Management has not established appropriate and rigorous procedures for evaluating internal control over financial reporting for all of its subsidiaries; and
Management does not have sufficient resources to maintain adequate segregation of duties and maintain its internal control environment.

30


 

In response to the above identified weaknesses in our internal control over financial reporting, we plan to improve the documentation of our internal control policies and procedures and develop an internal testing plan to document our evaluation of effectiveness of our internal controls. We expect to conclude these remediation initiatives during the fiscal year ended September 30, 2022. We continue to evaluate testing of our internal control policies and procedures, including assessing internal and external resources that may be available to complete these tasks, but do not know when these tasks will be completed.

A material weakness (within the meaning of PCAOB Auditing Standard No. 2201) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A ""significant deficiency" is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

31


 

PART II – OTHER INFORMATION

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 Matter

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.

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 "Defendants"). 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 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.

The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from its core business activities. On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motion on November 1, 2021. The defendants filed their reply to the SEC’s opposition on November 15, 2021. The motions to dismiss are now under submission and the court has not yet scheduled a hearing date. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery has been stayed pending the motions to dismiss.

The Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.

ApplianceSmart Bankruptcy and Other ApplianceSmart Litigation Matters

As stated above, on October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). On Feb 28, 2022, the court approved ApplianceSmart’s plan for reorganization (the “Plan”), discharging ApplianceSmart of certain debts according to the Plan resulting in the Company recording a gain of approximately $11.4 million, which includes a write-off or adjustment of approximately $11.5 million on the settlement of debts and other liabilities, offset by payments subject to the bankruptcy that were not included as debtor-in-possession liabilities of approximately $149,000.

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, 2022, the Company repurchased 65,668 shares of common stock under this program at a cost of approximately $2.1 million. As of March 31, 2022, the Company has approximately $4.6 million available for repurchases under this program.

ITEM 3. Defaults Upon Senior Securities

None.

32


 

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

 

 

 

33


 

ITEM 6. Exhibits

The following exhibits are filed with or incorporated by reference into this Quarterly Report.

 

10.92

 

Credit and Security Agreement, dated as of January 20, 2022, between Fifth Third Bank, National Association, and Precision Industries, Inc.

 

 

8-K

 

001-33937

 

10.92

 

 

01/25/22

10.93

 

Trademark Security Agreement, dated as of January 20, 2022, by and between Precision Industries, Inc., and Fifth Third Bank, National Association

 

 

8-K

 

001-33937

 

10.93

 

 

01/25/22

10.94

 

Guaranty, dated as of January 20, 2022, by Precision Affiliated Holdings LLC for the benefit of Fifth Third Bank, National Association

 

 

8-K

 

001-33937

 

10.94

 

 

01/25/22

10.95

 

Guarantor Security Agreement, dated as of January 20, 2022, by and between Precision Affiliated Holdings LLC, and Fifth Third Bank, National Association

 

 

8-K

 

001-33937

 

10.95

 

 

01/25/22

10.96

 

Stock Pledge Agreement, made as of January 20, 2022, by Precision Affiliated Holding LLC, to Fifth Third Bank, National Association

 

 

8-K

 

001-33937

 

10.96

 

 

01/25/22

31.1

*

Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

31.2

*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.1

*

Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

32.2

*

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

 

 

 

 

 

 

 

 

 

 

 

*

Filed herewith

 

 

34


 

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, 2022

/s/ Jon Isaac

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

Dated: May 11, 2022

/s/ David Verret

 

Chief Financial Officer

 

(Principal Financial Officer)

 

35