UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact Name of Registrant as Specified in its Charter) |
| ||
(State or Other Jurisdiction of |
| (IRS Employer |
Incorporation or Organization) |
| (Identification No.) |
|
|
|
| ||
(Address of Principal Executive Offices) |
| (Zip Code) |
(
(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 |
None |
|
|
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 ☐
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See definition 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: | ☐ |
☒ | 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 Act). Yes
As of August 14, 2024, the number of issued and outstanding common shares of the registrant was
KINGFISH HOLDING CORPORATION
TABLE OF CONTENTS
Item Number in |
|
|
|
|
Form 10‑Q |
|
| Page |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3 |
| ||
|
|
|
|
|
| Consolidated Balance Sheets – June 30, 2024 (Unaudited) and September 30, 2023 (Unaudited) |
| F-1 |
|
|
|
|
|
|
|
| F-2 |
| |
|
|
|
|
|
|
| F-3 |
| |
|
|
|
|
|
| Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 2024 and 2023 |
| F-4 |
|
|
|
|
|
|
|
| F-5 |
| |
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 4 |
| |
|
|
|
|
|
| 9 |
| ||
|
|
|
|
|
| 9 |
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 10 |
| ||
|
|
|
|
|
| 11 |
| ||
|
|
|
|
|
| 12 |
|
2 |
Table of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
3 |
Table of Contents |
KINGFISH HOLDING CORPORATION | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Accounts receivable, net |
|
|
|
|
|
| ||
Due from related party |
|
|
|
|
|
| ||
Loan to KSSH, related party |
|
|
|
|
|
| ||
Deferred income tax asset |
|
|
|
|
|
| ||
Inventory, net |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Right of use asset, net |
|
|
|
|
|
| ||
Property and equipment, net |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ |
|
| $ |
| ||
Accrued interest payable |
|
|
|
|
|
| ||
Related party loans |
|
|
|
|
|
| ||
Convertible notes payable to related party |
|
|
|
|
|
| ||
Taxes payable |
|
|
|
|
|
| ||
Lease liability - current |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long term liabilities: |
|
|
|
|
|
|
|
|
Lease liability |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (deficit) equity: |
|
|
|
|
|
|
|
|
Preferred stock, par $ |
|
|
|
|
|
| ||
Common stock, par $ |
|
|
|
|
|
| ||
Paid-in capital |
|
|
|
|
|
| ||
(Accumulated deficit) retained earnings |
|
| ( | ) |
|
|
| |
Total stockholders' (deficit) equity |
|
| ( | ) |
|
|
| |
Total liabilities and stockholders' (deficit) equity |
| $ |
|
| $ |
|
The accompanying notes are an integral part of the consolidated financial statements
F-1 |
Table of Contents |
KINGFISH HOLDING CORPORATION | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
UNAUDITED | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rent expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payroll expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from operations |
|
| ( | ) |
|
| |
|
|
| ( | ) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of asset |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total other income (expense) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share on net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Diluted |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements
F-2 |
Table of Contents |
KINGFISH HOLDING CORPORATION | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY - UNAUDITED | ||||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2024 AND 2023 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common Stock |
|
|
|
| Retained Earnings |
|
|
| ||||||||||
|
| Shares |
|
| Par $0.0001 |
|
| Paid In Capital |
|
| (Accumulated Deficit) |
|
| Total |
| |||||
Balance - September 30, 2023 (retroactively restated to effect recapitalization) |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of recapitalization |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2024 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
| Par |
|
| Paid In |
|
| Retained |
|
|
|
| |||||
|
| Shares |
|
| $0.0001 |
|
| Capital |
|
| Earnings |
|
| Total |
| |||||
Balance - September 30, 2022 (retroactively restated to effect recapitalization) |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2023 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
The accompanying notes are an integral part of the consolidated financial statements
F-3 |
Table of Contents |
KINGFISH HOLDING CORPORATION | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
UNAUDITED | ||||||||
|
|
|
|
| ||||
|
| For the Nine Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net (loss) income |
| $ | ( | ) |
| $ |
| |
Adjustment to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
| |
Inventory |
|
|
|
|
| ( | ) | |
Deferred tax asset |
|
| ( | ) |
|
| ( | ) |
Accounts payable |
|
|
|
|
|
| ||
Accrued interest payable |
|
| ( | ) |
|
|
| |
Taxes payable |
|
| ( | ) |
|
|
| |
Net change in operating activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
|
|
|
| ||
Business acquisition |
|
| ( | ) |
|
|
| |
Net change in investing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Advances from related party |
|
|
|
|
| ( | ) | |
Net change in financing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Cash - Beginning of the Period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash - End of the Period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flows |
|
|
|
|
|
|
|
|
Cash paid for Interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
|
The accompanying notes are an integral part of the consolidated financial statements
F-4 |
Table of Contents |
KINGFISH HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
(unaudited)
1. Business:
Our Business:
Kingfish Holding Corporation (the “Company”) was incorporated in the State of Delaware on April 11, 2006 as Offline Consulting, Inc. It became Kesselring Holding Corporation on June 8, 2007 and on November 25, 2014 it changed its name to Kingfish Holding Corporation.
The primary business of the Company is to serve the recycling needs of the south Tampa Bay region. The Company built a recycling center on 10 plus acres in the southern area of the county to service customers of Manatee and Sarasota Counties. The Company purchases and containerizes both ferrous and non-ferrous materials for resale to a variety of off-take partners in more than 60 product categories. Customers are both residential and commercial in nature.
As disclosed in the Company’s previous filings, on April 19, 2024 (the “Closing Date”), the Company and Renovo Resource Solutions, Inc., a Florida corporation (“Renovo”), consummated a merger transaction pursuant to which Renovo was merged with and into the Company (the “Merger”), with the Company being the legal successor or surviving corporation in the Merger (the “Closing”). As a condition to the Merger, on April 18, 2024, the Company effected a reverse stock split at a ratio of
2. Summary of Significant Accounting Policies:
Basis of presentation:
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), and pursuant to the rules and regulations of the SEC and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the three and nine months ended June 30, 2024 and 2023. They should be read in conjunction with the annual financial statements reported in the latest Form 10-K filed for the year ended September 30, 2023. The results of operations of any interim period are not necessarily indicative of the results for the full year. The fiscal year end is September 30.
Reclassification:
Certain minor reclassifications have been made to the consolidated comparative financial statements to conform to the classifications used in the current period.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash:
Cash is maintained at a financial institution and, at times, the balance may exceed federally insured limits. The Company has never experienced any losses related to the balance. Currently, the FDIC provides insurance coverage up to $
For purpose of the statements of cash flows, the Company considers all highly-liquid investments with a maturity of three months or less when purchased to be cash.
Inventories:
Inventories are stated at the lower of cost or market. Cost, which includes raw materials which is determined on a first-in, first-out basis. On a monthly basis, the Company analyzes its inventory levels and reserve for inventory that is expected to expire prior to being sold, inventory that has a cost basis in excess of its expected net realizable value, inventory in excess of expected net realizable value, inventory in excess of expected sales requirements, or inventory that fails to meet commercial sale specifications. Expired inventory is disposed of and the related costs are written off to inventory obsolescence.
F-5 |
Table of Contents |
Accounts Receivable and Credit Losses
Accounts receivable is stated at net realizable value. The Company estimates and record a provision for expected credit losses related to our financial instruments, including our trade receivables. The Company considers historical collection rates, the current financial status of our customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, the Company believes that the carrying value, net of expected losses, approximates fair value and therefore, we rely more on historical and current analysis of such financial instruments, including our trade receivables.
Further, the Company considers macroeconomic factors and the status of the technology industry to estimate if there are current expected credit losses within our trade receivables based on the trends and our expectation of the future status of such economic and industry-specific factors. Also, specific allowance amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have a higher probability of default.
Property and equipment, net:
Property and equipment are stated at cost at the date of purchase less accumulated depreciation. Depreciation is calculated using the accelerated methods over the lesser of the estimated useful lives of the assets or the lease term. The useful lives range from three to seven years. The Company’s policy is to capitalize renewals and betterments acquired for greater than $
Convertible Debentures
The Company adheres to the guidance in Accounting Standards Updated (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. Additionally, ASU 2020-06 removes the requirements for accounting for beneficial conversion features.
Fair Value of Financial Instruments:
The carrying amounts of cash and current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Management does not hold or issue financial instruments for trading purposes, nor does the Company utilize derivative instruments in the management of the Company’s foreign exchange, commodity price or interest rate market risks.
The Financial Accounting Standards Board (“FASB”) Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
F-6 |
Table of Contents |
| Level 1: | Quoted prices in active markets for identical assets or liabilities |
|
|
|
| Level 2: | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability |
|
|
|
| Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Revenue Recognition:
The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” and all related interpretations for recognition of our revenue from services. Revenue is recognized when the following criteria are met:
| · | identification of the contract, or contracts, with the customer; |
|
|
|
| · | identification of the performance obligations in the contract; |
|
|
|
| · | determination of the transaction price; |
|
|
|
| · | allocation of the transaction price to the performance obligations in the contract; and |
|
|
|
| · | recognition of revenue when, or as, the Company satisfies the performance obligation. |
The Company primarily generates revenue by purchasing scrap metal from businesses and retail customers, processing it, and selling the ferrous and non-ferrous metals to clients.
The Company realizes revenue upon the fulfillment of its performance obligations to customers. The performance obligation is fulfilled when the product is shipped or picked up by the customer.
Cost of Goods Sold:
Cost of goods sold is primarily comprised of direct costs of purchasing materials from customers, including hauling, freight and fuel.
F-7 |
Table of Contents |
Leases:
The Company accounts for leases in accordance with ASC 842, “Leases.”
Operating leases right-of use (“ROU”) assets represents the right to use the leased assets for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations.
Income Taxes:
Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Future tax benefits for net operating loss carry forwards are recognized to the extent that realization of these benefits is considered more likely than not. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits for all periods presented. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefit in interest expense and penalties in operating expenses.
Net income (loss) per share:
Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of outstanding common shares during the period of computation. Diluted loss per share gives effect to potentially dilutive common shares outstanding. The Company gives effect to these dilutive securities using the If-Converted Method. Potentially dilutive securities include convertible financial instruments.
At June 30, 2024 and 2023, convertible notes payable to related party of $
F-8 |
Table of Contents |
3. Going Concern
As reflected in the Company’s consolidated financial statements, the Company has an accumulated deficit of $
4. Reverse Merger and Reverse Recapitalization
Merger – Renovo Resource Solutions, Inc.:
On April 19, 2024, Kingfish completed the Merger with Renovo. On the Closing Date, the parties consummated the Merger whereby Renovo was merged with and into Kingfish with Kingfish as the surviving legal entity.
Pursuant to the merger, each share of Renovo’s stock issued and outstanding immediately prior to the Effective Time, subject to and upon the terms and conditions set forth in the Merger Agreement, was cancelled and extinguished and were collectively converted automatically into
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted as entities under common control. In ASC 805, control has the same meaning as controlling financial interest. A “controlling financial interest” is generally defined as ownership of a majority voting interest by one entity, directly or indirectly, of more than 50% of the outstanding voting shares of another entity. It was determined that James K. Toomey had a controlling interest in both Kingfish and Renovo. As a result the transaction has been accounted for as a reverse recapitalization with Renovo as the accounting acquirer and Kingfish as the accounting acquiree. The financial reporting will reflect the accounting from the perspective of Renovo, except for the legal capital, which have been retroactively adjusted to reflect the capital of Kingfish in accordance with ASC 805-40-45-1. The cost of the acquisition, which represents the consideration transferred to Kingfish’s stockholders in the Merger, was calculated based on the fair value of common stock of the combined company that Kingfish stockholders own as of the closing of the Merger on April 19, 2024.
The merger transaction is considered to be a capital transaction of the legal acquiree and is equivalent to the issuance of shares by the private entity for the net monetary assets of the public shell corporation accompanied by a recapitalization.
The number of shares of Common Stock issued immediately following the consummation of the Reverse Recapitalization were as follows:
|
| Number of |
| |
|
| shares |
| |
Common Stock outstanding at April 1, 2024 prior to Merger |
|
|
| |
Common stock issuable to Renovo Owners |
|
|
| |
Total shares of Common Stock as of close of Reverse Recapitalization |
|
|
|
F-9 |
Table of Contents |
Pro Forma Disclosures
The following unaudited pro forma financial results reflects the historical operating results of the Company, including the unaudited pro forma results of Renovo for the three and nine months ended June 30, 2024 and 2023, respectively, as if the Merger had occurred as of October 1, 2022. The pro forma financial information set forth below reflects adjustments to the historical data of the Company to give effect to the Merger and the related equity issuances as if each had occurred on October 1, 2022. The pro forma information presented below does not purport to represent what the actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations. The following tables summarize on an unaudited pro forma basis the Company’s results of operations for the three and nine months ended June 30, 2024 and 2023:
|
| For the nine months ended |
| |||||
|
| June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net revenue |
| $ |
|
| $ |
| ||
Net (loss) income |
| $ | ( | ) |
| $ |
| |
Net (loss) income per share- basic |
| $ | ( | ) |
| $ |
| |
Weighted average number of shares of common stock outstanding- basic |
|
|
|
|
|
| ||
Net (loss) income per share- diluted |
| $ | - |
|
| $ |
| |
Weighted average number of shares of common stock outstanding- diluted |
|
|
|
|
|
|
|
| For the three months ended |
| |||||
|
| June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net revenue |
| $ |
|
| $ |
| ||
Net (loss) income |
| $ | ( | ) |
| $ |
| |
Net (loss) income per share- basic |
| $ | ( | ) |
| $ |
| |
Weighted average number of shares of common stock outstanding- basic |
|
|
|
|
|
| ||
Net (loss) income per share- diluted |
| $ | ( | ) |
| $ |
| |
Weighted average number of shares of common stock outstanding- diluted |
|
|
|
|
|
|
The calculations of pro forma net revenue and pro forma net loss give effect to the Merger for the period from October 1, 2022 until the respective closing dates for (i) the historical net revenue and net income (loss), as applicable, of the acquired businesses, (ii) incremental depreciation and amortization for each business combination based on the fair value of property, equipment and identifiable intangible assets acquired and the related estimated useful lives, and (iii) recognition of accretion of discounts on obligations with extended payment terms that were assumed in the business combinations.
F-10 |
Table of Contents |
5. Operating Lease Right-of-Use Asset and Operating Lease Liability
In connection with the closing on the merger (See “Note 4”), the Company entered into a lease agreement with 6 LLC, a Florida limited liability company (“6 LLC”) on April 19, 2024. Under the terms of the Lease the Company is leasing the buildings and property (“Property”) on which the Company conducts its operations from 6 LLC for annual rent of $
Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is the incremental borrowing rate, estimated to be
Right-of-use asset is summarized below:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
Office lease |
| $ |
|
| $ |
| ||
Less: accumulated amortization |
|
| ( | ) |
|
|
| |
Right-of-use asset, net |
| $ |
|
| $ |
|
Operating lease liability is summarized below:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
Office lease |
| $ |
|
| $ |
| ||
Less: current portion |
|
| ( | ) |
|
|
| |
Long term portion |
| $ |
|
| $ |
|
F-11 |
Table of Contents |
Maturity of the lease liability is as follows:
|
| June 30, 2024 |
| |
Year ending September 30, 2024 |
| $ |
| |
Year ending September 30, 2025 |
|
|
| |
Year ending September 30, 2026 |
|
|
| |
Total future minimum lease payments |
|
|
| |
Less: imputed interest |
|
| ( | ) |
Present value of payments |
| $ |
|
6. Receivables from Related Parties:
The Company has paid operational expenses and debt on behalf of 6 LLC, a related party who holds the real estate on which the business operates. As of June 30, 2024 and September 30, 2023, the total paid on behalf of 6 LLC and payable to the Company is $
The above transactions and amounts are not necessarily what third parties would have agreed to.
7. Inventory:
The composition of the Company inventories at June 30, 2024 and September 30, 2023 are as follows:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
|
|
|
|
|
|
| ||
Raw Materials |
| $ |
|
| $ |
| ||
Inventories, at cost |
| $ |
|
| $ |
|
8. Property and Equipment:
Property and equipment consisted of the following at June 30, 2024 and September 30, 2023:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Software |
|
|
|
|
|
| ||
Furniture and equipment |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
|
During the nine months ended June 30, 2024 and 2023, the Company recorded $
F-12 |
Table of Contents |
9. Related Party Loans:
Related party loans (the “Related Party Loans”) consisted of the following at June 30, 2024 and September 30, 2023:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
Passing Through, LLC |
| $ |
|
| $ |
| ||
Conch and Shell Holding, Inc. |
|
|
|
|
|
| ||
J. Toomey and L. Toomey |
|
|
|
|
|
| ||
K. Toomey |
|
|
|
|
|
| ||
J. Toomey |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
The Company entered into a note with Passing Through, LLC, for $
The Company entered into a note with Conch And Shell Holdings, Inc, for $
The Company entered into a note with James K. and Lori M. Toomey, directors, for $
F-13 |
Table of Contents |
The Company entered into a note to convert prior advances in a note payable with Mr. Toomey, a director, for $
The Company entered into a note with Mr. Toomey, a director, for $
Certain of the Related Party Loans including the Company Security (as defined below), are subordinated to a loan between 6 LLC and Hancock Whitney Bank (the “Bank Loan”). The Related Party Loans are secured by all of the assets of the Company and certain of the Related Party Loans are secured by all of the assets of 6 LLC (the “6 LLC Security”). In addition, 6 LLC’s primary source of funds included loans made to 6 LLC by related parties and their affiliated entities (such loans collectively comprise the “6 LLC Affiliate Debt”). The 6 LLC Affiliate Debt, including the 6 LLC Security, is subordinated to the Bank Loan. The 6 LLC Affiliate Debt is secured by all of the assets of 6 LLC, and certain of the 6 LLC Affiliate Debt is secured by the assets of the Company (the “Company Security”).
Both the 6 LLC Affiliate Debt, and the Company Security thereof, and the Company Affiliate Debt, and the 6 LLC Security thereof are subordinated to the Bank Loan which has a senior secured security interest in all of the assets of the Company and 6 LLC. Although the Bank Loan is by and between Hancock Whitney Bank and 6 LLC, all of the assets of the Company and all of the assets of 6 LLC, including the property on which the Company conducts business, are used to secure the Bank Loan. As a result,
F-14 |
Table of Contents |
In the event that the Bank Loan is not extended or is otherwise terminated prematurely, and 6 LLC is unable to pay the outstanding balance of the Bank Loan, the Company may be required fulfil its obligations as a guarantor of the Bank Loan and repay the remaining outstanding balance of the Bank Loan, which may require the Company to sell its assets, seek equity investments, or replacement debt in order to raise sufficient capital. There is no assurance that the Company will be able to secure the necessary financing or funds to repay the Bank Loan or obtain such funds on favorable terms. If the Company is required to fulfil its obligations as a guarantor and is unable to secure the funds necessary to repay the Bank Loan, it may be difficult for us to continue our operations and if we do secure such funds, the terms thereof may be disadvantageous and have a significant negative impact on the Company’s financial position.
The above transactions and amounts are not necessarily what third parties would have agreed to.
10. Convertible Notes Payable to Related Party:
The Company entered into a convertible note with a director for $
The Company entered into a convertible note with a director for $
The Company entered into a convertible note with a director for $
The Company entered into a convertible note with a director for $
The above transactions and amounts are not necessarily what third parties would have agreed to.
F-15 |
Table of Contents |
11. Preferred Stock:
The Company is authorized to issue up to
12. Income Taxes:
The Company's expenses for income taxes consist of:
|
| For the nine months ended |
| |||||
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||
Current |
|
|
|
|
|
| ||
Federal |
| $ |
|
| $ |
| ||
State |
|
|
|
|
|
| ||
Foreign |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Deferred |
|
|
|
|
|
|
|
|
Federal |
|
| ( | ) |
|
| ( | ) |
State |
|
| ( | ) |
|
| ( | ) |
|
|
| ( | ) |
|
| ( | ) |
Total |
| $ | ( | ) |
| $ |
|
The components of the net deferred tax asset at June 30, 2024 and September 30, 2023 consist of:
|
| June 30, 2024 |
|
| September 30, 2023 |
| ||
|
|
|
|
|
|
| ||
Accounts receivable |
| $ | ( | ) |
| $ |
| |
Accounts payable |
|
|
|
|
|
| ||
Accrued interest payable |
|
|
|
|
|
| ||
Net operating loss |
|
| |
|
|
| |
|
Total |
| $ |
|
| $ |
|
F-16 |
Table of Contents |
The following is a reconciliation of the applicable federal income tax as computed at the federal statutory tax rate to the actual income taxes reflected in the Statements of Operations for the nine months ended March 31, 2024 and 2023
|
| Nine Months Ended June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Tax provision at U.S. federal income tax rate |
|
| % |
|
| % | ||
State income tax provision net of federal |
|
| % |
|
| % | ||
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
| ( | )% |
|
| ( | )% |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| % |
|
| % |
The Company’s earliest tax year that remains subject to examination by all tax jurisdictions was September 30, 2017.
13. Commitments and Contingencies:
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, “Contingencies”. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June 30, 2024 and September 30, 2023, the Company is not aware of any contingent liabilities that should be reflected in the financial statements.
Purchase Option Agreement
In connection with the closing of the Merger (See Note 4), the Company entered into the Purchase Option Agreement (the “Purchase Option Agreement”) on the Closing Date with 6 LLC, which is solely held by the Renovo Owners prior to the Merger, pursuant to which, the Company will have the exclusive option, subject to certain conditions, in its sole discretion, exercisable at any time within five (
The Fair Market Value will be determined by an independent appraisal of the fair market value of the 6 LLC assets (or, upon a bona fide offer with a firm price made by an unaffiliated third party within 12 months of an exercise of the Purchase Option by the Company).
F-17 |
Table of Contents |
Under the terms of the Purchase Option Agreement, the Company has the option to structure the Future Acquisition in any of the following structures:
| · | a purchase in cash by the Company or any wholly owned subsidiary of the Company of all of the outstanding equity interests of 6 LLC (“6 LLC Equity Interests”) from the owners of the 6 LLC Equity interests (the “6 LLC Owners”), including, without limitation, all units of membership interest, directly from all of the 6 LLC Owners; |
|
|
|
| · | an exchange transaction by the Company or any wholly owned subsidiary of Company to the 6 LLC Owners whereby all of the outstanding 6 LLC Equity Interests will be exchanged for shares of Common Stock or a combination of cash and Common Stock; |
|
|
|
| · | engage in a merger transaction by and between the 6 LLC and the Company or any wholly owned subsidiary of the Company (with the surviving subsidiary entity to be determined by Company) whereby 6 LLC Owners will receive their prorated share of the aggregate Purchase Price from the payment of the merger consideration, which merger consideration shall be payable in cash or shares of Common Stock, as determined by the Company; or |
|
|
|
| · | a purchase by the Company or any wholly owned subsidiary of the Company of all or substantially all of the assets of 6 LLC, which Purchase Price shall be payable in cash or shares of Common Stock, as determined by the Surviving Corporation. |
To the extent that any portion of the Bank Loan remains outstanding at the time of the Future Acquisition, either (i) the cash portion of the Purchase Price would be used to first payoff any such amount, or (ii) if the Company negotiates the assumption of the Bank Loan with the Bank, the dollar amount of the outstanding Bank Loan so assumed shall be applied to the payment of the Purchase Price. In each case, remaining Purchase Price proceeds (“Remaining Proceeds”) would be paid to the 6 LLC debt holders and then to the 6 LLC Owners or 6 LLC, depending on the structure of the transaction.
The Purchase Option Agreement contains customary representations, warranties and covenants made by 6 LLC, including, among other things, covenants (i) to conduct its business in the ordinary course consistent with past practice during the option period and consummation of a Future Acquisition transaction; (ii) not to engage in certain kinds of transactions during such period; (iii) not to amend or propose to amend any of its organizational documents; (iv) not to incur any additional debt obligations and (v) not to enter into, amend or modify any material contract. The Purchase Option Agreement also is subject to a number of customary closing conditions.
F-18 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the operating results and financial condition of the Company for the fiscal quarters ended June 30, 2024 and 2023. The discussion and analysis set forth below is intended to assist you in understanding the financial condition and results of our operations and should be read in conjunction with our financial statements and the accompanying notes included elsewhere in this quarterly report. Our results of operations and financial condition, as reflected in the accompanying statements and related notes, are subject to management’s evaluation and interpretations of business conditions, changing market conditions and other factors. Historical results and trends which might appear should not be taken as indicative of future operations.
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (including the exhibits hereto) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), such as statements relating to our financial condition, results of operations, plans, objectives, future performance or expectations, and business operations. These statements relate to expectations concerning matters that are not historical fact. Accordingly, statements that are based on management’s projections, estimates, assumptions, and judgments constitute forward-looking statements. These forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “approximately,” “intend,” “objective,” “goal,” “project,” and other similar words and expressions, or future or conditional verbs such as “will,” “should,” “would,” “could,” and “may.” These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and such statements involve inherent risks and uncertainties. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies, and other factors (many of which are outside our control) which may cause actual results, performance, or achievements to differ materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our expectations will in fact occur or that our estimates or assumptions will be correct, and we caution investors and all others not to place undue reliance on such forward-looking statements.
The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:
| · | the Company’s ability to generate sufficient cash proceeds from its operations or, alternatively, identify, secure and obtain suitable and sufficient financing to execute its business plan; |
|
|
|
| · | general economic, political and market conditions; |
|
|
|
| · | interest rate and inflation risk; |
|
|
|
| · | climate related or natural disaster-related events that increases the likelihood of catastrophic losses, disruption to our operations, and related cost of insurance coverage for entities with operations in high fire, hurricane or flood risk areas, including the Company’s operations which are located on the gulf coast of central Florida, a region which is susceptible to hurricanes; |
|
|
|
| · | government and industry regulation that might affect future operations; |
|
|
|
| · | potential change of control transactions resulting from any potential future merger, acquisition, or combination with another entity; |
|
|
|
| · | the potential dilution in our equity (both economically and in voting power) that might result from future financing or from merger, acquisition, or combination activities; |
|
|
|
| · | the Company’s ability to successfully integrate the operations of Renovo (as defined below) into the Company following the Merger (as defined below), and to operate profitably following such Merger; |
4 |
Table of Contents |
· | the Company’s ability to service its outstanding debt obligations and to continue to successfully negotiate economically beneficial annual extensions of its guarantor obligations to 6 LLC’s loan with Hancock Whitney Bank (as described below); | |
· | the Company’s expectations regarding the anticipated benefits of the Merger and the ability of the Company to achieve the anticipated potential benefits from the Merger, including statements of the plans, strategies and objectives of management with respect to operations of the Company following the Merger; | |
· | any statements regarding future economic conditions, growth rate, market opportunity or performance of the Company following the Merger; | |
· | economic, business, competitive, and/or regulatory factors affecting the business of the Company following the Merger; | |
· | the ability of the Company to obtain and maintain all licenses necessary to operate its business; and | |
· | statements of belief and any statement of assumptions underlying any of the foregoing. |
If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of the Company could differ materially from the forward-looking statements. All written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. The forward-looking statements included herein are only made as of the date of this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024 (this “Form 10-Q”). We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Explanatory Note
On April 19, 2024, Kingfish Holding Corporation (the “Company”), consummated the previously announced merger of Renovo Resource Solutions, Inc., a Florida corporation (“Renovo”), with and into the Company with the Company as the surviving entity (the “Merger”). For more information regarding the Merger, see the Company’s Current Report on Form 8-K filed on April 24, 2024.
Operations. The Company’s business currently consists solely of acquiring salvage and reselling scrap metals processed and unprocessed ferrous and nonferrous metals from a variety of sources including, manufacturing and industrial plants, metal fabrication plants, electric utilities, machine shops, factories, refineries, demolition businesses, wrecking companies, contractors, and retail individuals. Ferrous metals are those containing significant quantities of iron or steel. Non-ferrous metals, which do not contain significant quantities of iron or steel include, without limitation, copper, brass, aluminum, bronze, lead, zinc, nickel, and alloys thereof; but do not include precious metals (such as gold, silver, and platinum).
The primary business operations of the Company consist of accepting metals contained in radiators, insulated aluminum wire, automotive components (rotors, drums etc.), insulated copper wire, electric motors, stainless steel, scrap iron, appliances, aluminum cans, batteries (lead acid), and e-scrap. The Company utilizes specialized equipment to efficiently process significant volumes of insulated copper wire through granulation. With the exception of precious metals, our scrap metal processing facility processes almost all other types of metal.
5 |
Table of Contents |
The Company derives profit from quickly aggregating more than 60 product types and reselling the materials to larger transfer and processing partners in the state of Florida. The Company has operated under the guidelines of selling “mixed” truckloads of material as soon as they are aggregated in an effort to abate any changes in commodity pricing that may affect its margins in a negative manner. This buy/sell formula has preserved margins in the past but also curtails the Company’s ability to ship directly to non-ferrous mills due to smaller volumes of like materials or Full Truck Load (“FTL”) volumes resulting in lower prices received for materials.
Although the Company does have the capacity and volume to achieve FTL loads required by non-ferrous mills, based on market price fluctuations, the Company has taken a more conservative approach to protect its margins. Accordingly, the Company only ships less than a truckload (or “LTL”) of mixed commodities to go to multiple end users in an effort to mitigate any potential losses due to market fluctuations.
The Company does not engage in the business of fabricating or otherwise converting raw materials into products or prepared grades of materials having an existing or potential economic value.
Balance Sheet
At June 30, 2024 and September 30, 2023, the Company had total assets of $2,544,905 and $2,558,349, respectively, total liabilities of $2,704,185 and $1,770,794, respectively, and total stockholders’ (deficit) equity of $(159,280) and $787,555, respectively. The decrease of total assets of $13,444 of total assets from September 30, 2023 to June 30, 2024 was due primarily to a decrease in cash, inventory and related party advances offset by an increase in right of use asset. The increase of total liabilities of $933,391 from September 30, 2023 to June 30, 2024 was due primarily to an increase in related party loans and lease liability.
Results of Operations
Comparison of Three Months Ended June 30, 2024 and 2023
For the three months ended June 30, 2024 and 2023, the Company had total revenues of $950,039 and $793,503, respectively, and gross profits of $402,972 and $313,325, respectively. The primary driver of the Company’s revenues are steel prices and the prices of other metal commodities. When metal prices are higher, revenues increase assuming that volume is stable. The Company is primarily impacted by the price of steel, with the price of copper and the price of other metals also significantly contributing to the Company’s revenues and profits. The Company’s volume of sales increased in the three months ended June 30, 2024 when compared to the three months ended June 30, 2023 primarily due to decreases in commodity prices combined with stable material volume as well as an increase in the amount of aluminum. The Company anticipates that market conditions, inflation and the impact of an election year may have an adverse effect on scrap commodity prices for the remainder of 2024.
Cost of goods sold for the three months ended June 30, 2024 and 2023 were $547,067 and $480,178, respectively, resulting in a gross margin of 42% and 39%, respectively. Cost of goods sold consists primary of costs associated with purchasing salvage and scrap metal and increases as prices for these commodities fluctuate. The increase in cost of goods sold for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023 was primarily due to the corresponding increase in revenues.
The Company’s operating expenses increased from $237,534 for the three months ended June 30, 2023 to $505,266 for the three months ended June 30, 2024 due primarily to an increase in insurance, professional fees and rent expense. Other expenses increased from $19,073 for the three months ended June 30, 2023 to $19,433 for the three months ended June 30, 2024 primarily due to the Company recording less interest expense, offset by a loss on disposal of asset during the three months ended June 30, 2024 in the amount of $4,867.
As a result of increased operating expenses, we had a net loss of $85,619 for the three months ended June 30, 2024 compared to net income of $42,567 for the three months ended June 30, 2023. The Company anticipates that operating expenses, including those associated with professional fees will decrease in connection with the completion of the Merger in part due to a reduction in required legal work and Renovo no longer requiring separate legal counsel.
6 |
Table of Contents |
Comparison of Nine Months Ended June 30, 2024 and 2023
For the nine months ended June 30, 2024 and 2023, the Company had total revenues of $2,652,443 and $3,029,556, respectively, and gross profits of $1,078,911 and $1,408,327, respectively. The primary driver of the Company’s revenues are steel prices and the prices of other metal commodities. When metal prices are higher, revenues increase assuming that volume is stable. The Company is primarily impacted by the price of steel, with the price of copper and the price of other metals also significantly contributing to the Company’s revenues and profits. The Company’s volume of sales decreased in the nine months ended June 30, 2024 when compared to the nine months ended June 30, 2023 primarily due to decreases in commodity prices combined with stable material volume as well as an increase in the amount of aluminum. The Company anticipates that market conditions, inflation and the impact of an election year may have an adverse effect on scrap commodity prices for the remainder of 2024.
Cost of goods sold for the nine months ended June 30, 2024 and 2023 were $1,573,532 and $1,621,229, respectively, resulting in a gross margin of 41% and 46%, respectively. Cost of goods sold consists primary of costs associated with purchasing salvage and scrap metal and increases as prices for these commodities fluctuate. The decrease in cost of goods sold for the nine months ended June 30, 2024 when compared to the nine months ended June 30, 2023 was primarily due to the corresponding decrease in revenues.
The Company’s operating expenses increased from $637,569 for the nine months ended June 30, 2023 to $1,123,582 for the nine months ended June 30, 2024 due primarily to an increase in rent expense, insurance and professional fees. Other expenses increased from $57,218 for the nine months ended June 30, 2023 to $62,253 for the nine months ended June 30, 2024 primarily due to a slight increase in interest expense and a loss on disposal of asset in the amount of $4,867.
As a result of decreased sales and increased operating expenses, we had a net loss of $70,816 for the nine months ended June 30, 2024 compared to net income of $535,512 for the nine months ended June 30, 2023. The Company anticipates that operating expenses, including those associated with professional fees will decrease in connection with the completion of the Merger in part due to a reduction in required legal work and Renovo no longer requiring separate legal counsel.
Liquidity and Capital Resources
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
The Company’s principal sources of funds are funds generated by its operations and from loans made to Renovo by James K. Toomey, Lori M. Toomey, and Kristen Toomey, and their affiliated entities, including Conch and Shell Holdings, Inc., AMI Holdings, Inc., and Passing Through, LLC (collectively referred to herein as the “Toomey Debtholders”). Each such loan with one or more of the Toomey Debtholders is referred to herein as an “Affiliate Loan” and collectively, such loans, “Company Affiliate Debt”.
Affiliate Lender |
| Date of Original Loan |
| Principal Amount Borrowed |
|
| Annual Interest Rate |
|
| Accrued Interest |
|
| Maturity Date | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
James Toomey(1) |
| December 7, 2015 |
| $ | 20,000 |
|
|
| 3.50 | % |
| $ | 6,186 |
|
| Convertible(2) | |
James Toomey(1) |
| March 3, 2016 |
| $ | 20,000 |
|
|
| 3.50 | % |
| $ | 5,930 |
|
| Convertible(2) | |
Passing Through, LLC (Toomey family trust/estate) |
| July 1, 2016 |
| $ | 600,000 |
|
|
| 5.00 | % |
| $ | 246,950 |
|
| December 31, 2024 | |
James Toomey(1) |
| July 11, 2016 |
| $ | 30,000 |
|
|
| 3.50 | % |
| $ | 8,526 |
|
| Convertible(2) | |
James Toomey(1) |
| September 19, 2016 |
| $ | 20,000 |
|
|
| 3.50 | % |
| $ | 5,545 |
|
| Convertible(2) | |
Conch and Shell Holdings, Inc. (extended Toomey family) |
| November 20, 2018 |
| $ | 250,000 |
|
|
| 8.00 | % |
| $ | 9,896 |
|
| December 31, 2024 | |
James, Lori and Kristen Toomey |
| November 20, 2018 |
| $ | 365,000 |
|
|
| 5.00 | % |
| $ | 9,301 |
|
| December 31, 2024 | |
James Toomey(1) |
| February 1, 2021 |
| $ | 130,000 |
|
|
| 2.00 | % |
| $ | 9,710 |
|
| December 31, 2024 | |
James Toomey(1) |
| March 7, 2022 |
| $ | 50,000 |
|
|
| 2.00 | % |
| $ | 2,571 |
|
| December 31, 2024 |
| (1) | These notes were entered into by the Company prior to the Merger and therefore are not subordinated to the Bank Loan |
| (2) | The outstanding principal and accrued interest balance of the convertible notes is convertible into the Company’s shares of common stock at the conversion price of $500.00 per share |
7 |
Table of Contents |
The Company Affiliate Debt which was assumed by the Company in connection with the Merger, including the Company Security (as defined below), is subordinated to a loan between its landlord (“6 LLC”) and Hancock Whitney Bank (the “Bank Loan”) and secured by all of the assets of the Company and is secured by all of the assets of 6 LLC (the “6 LLC Security”). In addition, 6 LLC’s primary source of funds included loans made to 6 LLC by the Toomey Debtholders and their affiliated entities (such loans collectively comprise the “6 LLC Affiliate Debt”). The 6 LLC Affiliate Debt, including the 6 LLC Security, is subordinated to the Bank Loan. The 6 LLC Affiliate Debt is secured by all of the assets of 6 LLC, and certain of the 6 LLC Affiliate Debt is secured by the assets of the Company (the “Company Security”). As of June 30, 2024 the aggregate principal amount of the Renovo Security was approximately $1,913,270 and the accrued interest thereon was approximately $905,997.
Set forth below is the outstanding 6 LLC Affiliate Debt subject to the Company Security as of June 30, 2024.
Affiliate Lender |
| Principal Amount Outstanding |
| |
James K. Toomey |
| $ | 100,000 |
|
Lori Toomey |
| $ | 300,000 |
|
Lori Toomey |
| $ | 500,000 |
|
James and Lori Toomey |
| $ | 50,000 |
|
Passing Through, LLC |
| $ | 189,545 |
|
Passing Through, LLC |
| $ | 100,000 |
|
Passing Through, LLC |
| $ | 100,000 |
|
Conch and Shell Holdings, Inc. |
| $ | 100,000 |
|
Conch and Shell Holdings, Inc. |
| $ | 248,725 |
|
Lori Toomey, Conch and Shell Holdings, Inc., and AMI Holdings, Inc. |
| $ | 225,000 |
|
Both the 6 LLC Affiliate Debt, and the Company Security thereof, and the Company Affiliate Debt, and the 6 LLC Security thereof are subordinated to the Bank Loan which has a senior secured security interest in all of the assets of the Company and 6 LLC. Although the Bank Loan is by and between Hancock Whitney Bank and 6 LLC, all of the assets of the Company and all of the assets of 6 LLC, including the property on which the Company conducts business, are used to secure the Bank Loan. As a result, Lori Toomey (a director of the Company) has pledged her personal trust as additional collateral as security for the Bank Loan and she is required to maintain $1 million of liquid assets in her trust. The outstanding amount owed under the Bank Loan as of June 30, 2024 was approximately $1,749,078.74. Interest accrues on the Bank Loan at an annual rate of 7.36% and is currently being extended on a month-to-month basis pending discussions surrounding an extension of the Bank Loan. The Bank Loan has been on a year-to-year basis since 2019 and the parties historically have extended the Bank Loan and have entered into new loan agreements each year. However, there is no agreement to extend the Bank Loan each year and, as a result, there is a risk that the Bank Loan will not be extended beyond the current maturity date and, if it is extended, that the terms of such Bank Loan may be on terms more disadvantageous as those currently in place (i.e., higher interest rates to reflect current market conditions). In the event that the Bank Loan is not extended or is otherwise terminated prematurely, and 6 LLC is unable to pay the outstanding balance of the Bank Loan, the Company may be required fulfil its obligations as a guarantor of the Bank Loan and repay the remaining outstanding balance of the Bank Loan, which may require the Company to sell its assets, seek equity investments, or replacement debt in order to raise sufficient capital. There is no assurance that the Company will be able to secure the necessary financing or funds to repay the Bank Loan or obtain such funds on favorable terms. If the Company is required to fulfil its obligations as a guarantor and is unable to secure the funds necessary to repay the Bank Loan, it may be difficult for us to continue our operations and if we do secure such funds, the terms thereof may be disadvantageous and have a significant negative impact on the Company’s financial position.
8 |
Table of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “Smaller Reporting Company”, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedure
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report. Based upon that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of the end of such period, our disclosure controls and procedures were not effective as of June 30, 2024 due to material weakness in our internal control over financial reporting in providing reasonable assurance in timely alerting management to material information relating to the Company and that information required to be disclosed in our reports is recorded, processed, summarized, and reported as required to be included in our periodic filings with the Commission.
The Company is currently thoroughly evaluating a number of steps to enhance our disclosure controls and procedures, as well as our internal control over financial reporting, and address these material weaknesses, including: appointing specific financial reporting personnel with technical accounting and financial reporting experience, adopting policies to ensure proper internal communications and review in connection with non-routine transactions, enhancing our internal review procedures during the financial statement closing process, and designing and implementing journal entry procedures and controls. Following the completion of the Merger, the Company contracted with a financial consultant to assist with the review of the Company’s internal controls over financial reporting and is continuing to evaluate additional steps to enhance its disclosure controls and procedures. Despite the existence of these material weaknesses, the Company believes the financial information presented herein is materially correct and in accordance with generally accepted accounting principles in the United States.
Changes in Internal Control over Financial Reporting
There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the date of the above referenced evaluation. Furthermore, there was no change in our internal control over financial reporting or in other factors during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
9 |
Table of Contents |
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are presently no pending legal proceedings to which the Company, any of its subsidiaries, any executive officer, any owner of record or beneficially of more than five percent of any class of voting securities is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
ITEM 1A. RISK FACTORS
As a “Smaller Reporting Company”, the Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS ON SECURITIES
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
10 |
Table of Contents |
ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). * |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document * |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Document * |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase * |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document * |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document * |
|
|
|
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * |
* Exhibit Filed Herewith
11 |
Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KINGFISH HOLDING CORPORATION | ||
|
|
|
|
Date: September 4, 2024 | By: | /s/ Ted Sparling | |
|
| Ted Sparling |
|
|
| Chief Executive Officer |
|
|
| (Principal Executive Officer) |
|
12 |