LIVE VENTURES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
_________________________
(Mark One)
For the quarterly period ended
December 31, 2023
For the transition period from _____________ to _______________
Commission File Number
001-33937
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
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| (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 | ||||||||||||
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The
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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
x
No
o
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
x
No
o
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 | o | Accelerated filer | o | ||||||||
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x | Smaller reporting company |
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| Emerging growth company |
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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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
The number of shares of the issuer’s common stock, par value $0.001 per share, outstanding as of February 2, 2024 was
3,159,561
.
INDEX TO FORM 10-Q FILING
FOR THE THREE MONTHS ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
| Page | ||||||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share amounts)
| December 31, 2023 | September 30, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Cash | $ |
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$ |
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Trade receivables, net of allowance for doubtful accounts of $
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| Inventories, net |
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| Income taxes receivable |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Right of use asset - operating leases |
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| Deposits and other assets |
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| Intangible assets, net |
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| Goodwill |
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| Total assets | $ |
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$ |
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| Liabilities and Stockholders' Equity | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Accrued liabilities |
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| Income taxes payable |
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| Current portion of lease obligations - operating leases |
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| Current portion of lease obligations - finance leases |
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| Current portion of long-term debt |
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| Current portion of notes payable related parties |
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| Total current liabilities |
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| Long-term debt, net of current portion |
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| Lease obligation long term - operating leases |
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| Lease obligation long term - finance leases |
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| Notes payable related parties, net of current portion |
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| Seller notes - related parties |
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| Deferred taxes |
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| Other non-current obligations |
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| Total liabilities |
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| Commitments and contingencies |
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| Stockholders' equity: | |||||||||||
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Series E convertible preferred stock, $
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Common stock, $
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| Paid in capital |
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Treasury stock common
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(
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(
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Treasury stock Series E preferred
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(
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(
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| Retained earnings |
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| Total stockholders' equity |
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| Total liabilities and stockholders' equity | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(UNAUDITED)
(dollars in thousands, except per-share amounts)
| For the Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | $ |
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$ |
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| Cost of revenues |
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| Gross profit |
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| Operating expenses: | |||||||||||
| General and administrative expenses |
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| Sales and marketing expenses |
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| Total operating expenses |
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| Operating income |
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| Other expense: | |||||||||||
| Interest expense, net |
(
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(
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| Other expense |
(
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(
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| Total other expense, net |
(
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(
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| (Loss) income before provision for income taxes |
(
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| (Benefit) provision for income taxes |
(
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| Net (loss) income | $ |
(
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$ |
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| (Loss) income per share: | |||||||||||
| Basic | $ |
(
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$ |
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| Diluted | $ |
(
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$ |
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| Weighted average common shares outstanding: | |||||||||||
| Basic |
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| Diluted |
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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 Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities: | |||||||||||
| Net (loss) income | $ |
(
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$ |
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| Adjustments to reconcile net (loss) income to net cash provided by operating activities, net of acquisition: | |||||||||||
| Depreciation and amortization |
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| Amortization of seller note discount |
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| Amortization of debt issuance cost |
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| Stock based compensation expense |
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| Amortization of right-of-use assets |
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| Change in reserve for uncollectible accounts |
(
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| Change in reserve for obsolete inventory |
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(
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| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Trade receivables |
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| Inventories |
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| Income taxes payable/receivable |
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| Prepaid expenses and other current assets |
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| Deposits and other assets |
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(
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| Accounts payable |
(
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(
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| Accrued liabilities |
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(
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| Change in deferred income taxes |
(
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| Other Liabilities |
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(
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| Net cash provided by operating activities |
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| Investing Activities: | |||||||||||
| Acquisition of CRO |
(
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| Acquisition of Johnson |
(
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| Purchase of property and equipment |
(
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(
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| Net cash used in investing activities |
(
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(
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| Financing Activities: | |||||||||||
| Net payments under revolver loans |
(
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(
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| Proceeds from issuance of notes payable |
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| Payments on notes payable |
(
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(
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| Purchase of common treasury stock |
(
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(
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| Payments on financing leases |
(
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(
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| Net cash (used in) provided by financing activities |
(
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| Increase in cash |
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| Cash, beginning of period |
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| Cash, end of period | $ |
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$ |
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| Supplemental cash flow disclosures: | |||||||||||
| Interest paid | $ |
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$ |
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| Income taxes received | $ |
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$ |
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| Noncash financing and investing activities: | |||||||||||
| Kinetic goodwill adjustment | $ |
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$ |
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| PMW goodwill adjustment | $ |
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$ |
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| Noncash items related to CRO acquisition | $ |
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$ |
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| Noncash items related to Johnson acquisition | $ |
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$ |
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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 E
Preferred Stock |
Common Stock |
Series E
Preferred Stock |
Common
Stock |
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| Shares | Amount | Shares | Amount |
Paid-In
Capital |
Treasury
Stock |
Treasury
Stock |
Retained
Earnings |
Non-controlling
Interest |
Total
Equity |
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| Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| Stock based compensation | — | — | — | — |
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— | — | — | — |
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| Purchase of common treasury stock | — | — |
(
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— | — | — |
(
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— | — |
(
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| Net loss | — | — | — | — | — | — | — |
(
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— |
(
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| Balance, December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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Series E
Preferred Stock |
Common Stock |
Series E
Preferred Stock |
Common
Stock |
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| Shares | Amount | Shares | Amount |
Paid-In
Capital |
Treasury
Stock |
Treasury
Stock |
Retained
Earnings |
Non-controlling
Interest |
Total
Equity |
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| Balance, September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
(
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$ |
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| Purchase of common treasury stock | — | — |
(
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— | — | — |
(
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— |
(
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| Net income | — | — | — | — | — | — | — |
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— |
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| Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
(
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$ |
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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 THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(dollars in thousands, except per-share amounts)
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
five
operating segments: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. The Retail-Entertainment segment includes 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. The Retail-Flooring segment includes Flooring Liquidators, Inc. (“Flooring Liquidators”), which is engaged in the retail sale and installation of floors, carpets, and countertops. The Flooring Manufacturing segment includes Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floor coverings. 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 Kinetic Co., Inc. (“Kinetic”), which is engaged in the production of industrial knives and hardened wear products for the tissue and metals industries, and Precision Metal Works, Inc. (“PMW”), which is engaged in metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices. PMW reports on a 13-week quarter, as opposed to the Company's calendar quarter reporting. However, the Company has determined that the difference in reporting periods has no material effect on its reported financial results.
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. 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 the three months ended December 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2024. The financial information included in these statements should be read in conjunction with the condensed consolidated financial statements and related notes thereto as of September 30, 2023 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 22, 2023 (the “2023 Form 10-K”).
Note 2:
Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed financial statements include the accounts of the Company and its majority owned subsidiaries over which the Company exercises control. All intercompany accounts and transactions have been eliminated in consolidation. These reclassifications have no material effect on the reported financial results.
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 condensed 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 consolidated financial statements include the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires, among other updates, enhanced disclosures about significant segment expenses that are regularly
7
provided to the CODM, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Note 3:
Acquisitions
Acquisition of CRO
On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of Carpet Remnant Outlet, Inc. (“CRO”), a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas. Total consideration for the acquisition was approximately $
1.8
million and was comprised of cash at close of approximately $
1.0
million, an indemnification holdback amount of $
300,000
, and additional consideration valued at $
425,000
.
The fair value of the purchase price components was $
1.8
million, as detailed below (in $000's):
| Cash | $ |
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| Additional consideration |
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| Holdback |
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| Purchase price | $ |
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Under the preliminary purchase price allocation, the Company recognized goodwill of $
425,000
, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of October 13, 2023, as calculated by an independent third-party firm. The value of the additional consideration was calculated by management. The Company anticipates the $
425,000
of goodwill arising from the acquisition to be fully deductible for tax purposes.
The table below outlines the purchase price allocation of the purchase for CRO to the acquired identifiable assets, liabilities assumed and goodwill as of December 31, 2023 (in $000’s):
| Total purchase price | $ |
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| Accounts payable |
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| Accrued liabilities |
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| Total liabilities assumed |
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| Total consideration |
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| Accounts receivable |
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| Inventory |
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| Property, plant and equipment |
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| Intangible assets | |||||||||||
| Non-compete agreement |
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| Subtotal intangible assets |
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| Other assets |
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| Total assets acquired |
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| Total goodwill | $ |
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Acquisition of Johnson
On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson Floor & Home (“Johnson”), a floor covering retailer and installer serving residential and commercial customers through
four
locations in
8
the Tulsa, Oklahoma area, and
one
in Joplin, Missouri. Total consideration for the acquisition was $
2.0
million, comprised of cash at close of $
500,000
, deferred consideration of $
1.2
million, with additional consideration paid in the form of an earnout valued at approximately $
300,000
. The deferred consideration is payable in
three
$
400,000
installments due annually on the first three anniversary dates following the closing date. Each installment will accrue interest at
6.0
% per annum until paid.
The fair value of the purchase price components outlined above was approximately $
2.0
million, as detailed below (in $000's):
| Cash | $ |
|
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| Deferred consideration |
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| Earnout |
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| Purchase price | $ |
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The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of November 30, 2023, as calculated by management.
The table below outlines the purchase price allocation of the purchase for Johnson to the acquired identifiable assets, liabilities assumed and goodwill as of December 31, 2023 (in $000’s):
| Total purchase price | $ |
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| Accounts payable |
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| Accrued liabilities |
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| Total liabilities assumed |
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| Total consideration |
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| Accounts receivable |
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| Inventory |
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| Property, plant and equipment |
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| Intangible assets | |||||||||||
| Customer relationships | $ |
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| Non-compete agreement |
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| Subtotal intangible assets |
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| Other assets |
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| Total assets acquired |
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| Total goodwill | $ |
|
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Acquisition of Harris Flooring Group® Brands
On September 20, 2023, Marquis acquired the Harris Flooring Group® brands from Q.E.P., a designer, manufacturer, and distributor of a broad range of best-in-class flooring and installation solutions for commercial and home improvement projects. Specifically, Marquis acquired the Harris Flooring Group brands, inventory, and book of business and intends to retain all sales representatives. The purchase price was $
10.1
million, consisting of $
3.0
million in cash at close, and the recording of a deferred payment of $
5.1
million and holdback of $
2.0
million. The acquisition was determined to be an asset acquisition for accounting purposes. The entirety of the purchase was allocated to inventory.
Acquisition of PMW
On July 20, 2023 (“Effective Date”), the Company acquired PMW, a Kentucky-based metal stamping and value-added manufacturing company. PMW was acquired for total consideration of approximately $
28
million, comprised of a $
25
million purchase price, plus closing cash, and subject to working capital adjustments, with additional consideration of up to $
3
million paid in the form of an earn-out. The purchase price was funded in part by a $
2.5
million seller note, borrowings under a credit facility of $
14.4
million, and proceeds under a sale and leaseback transaction of approximately $
8.6
million. The acquisition involved
no
issuance of stock of the Company.
As of the Effective Date, the Company entered into a sales and leaseback transaction for
two
properties acquired, one located in Frankfort, Kentucky, and the other located in Louisville, Kentucky, with Legacy West Kentucky Portfolio, LLC (“Lessor”). The aggregate sales price of the real estate was approximately $
14.5
million.
The Louisville, Kentucky
9
property was acquired on the Effective Date for $
5.1
million in connection with an option of PMW to purchase that property.
The provisions of each of the
two
lease agreements include a
20-year
lease term with
two
five-year
renewal options. The base rent under the Frankfort lease agreement is $
34,977
per month for the first year of the term and a
2
% per annum escalator thereafter. The base rent under the Louisville lease agreement is $
63,493
per month for the first year of the term and a
2
% per annum escalator thereafter. Both lease agreements are “net leases,” such that the lessees are also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the real property incurred by the lessor. Due to the highly specialized nature of the leased assets, the Company currently believes it is more likely than not that each of the
two
five-year
options will be exercised. The proceeds of $
14.5
million, net of closing fees, from the sale-leaseback were used to assist in funding the acquisition of PMW.
The fair value of the purchase price components outlined above was $
26.8
million due to fair value adjustments for the contingent consideration, cash acquired, and working capital adjustments, as detailed below (in $000's):
| Purchase price | $ |
|
||||||
| Fair value of earnout |
|
|||||||
| Cash from balance sheet |
|
|||||||
| Working capital adjustment |
(
|
|||||||
| Net purchase price | $ |
|
||||||
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $
4.0
million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of July 20, 2023, as calculated by an independent third-party firm. Because the transaction was considered a stock purchase for tax purposes,
none
of the goodwill arising from the acquisition will be deductible for tax purposes. During the three months ended December 31, 2023, the Company recorded noncash fair value adjustments related to inventory and other liabilities assumed, as well as an adjustment to deferred tax liabilities in the aggregate amount of $
652,000
.
The table below outlines the purchase price allocation of the purchase for PMW to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):
| Net purchase price | $ |
|
||||||
| Accounts payable |
|
|||||||
| Accrued liabilities |
|
|||||||
| Total liabilities assumed |
|
|||||||
| Total consideration |
|
|||||||
| Cash |
|
|||||||
| Accounts receivable |
|
|||||||
| Inventory |
|
|||||||
| Property, plant and equipment |
|
|||||||
| Intangible assets |
|
|||||||
| Other assets |
|
|||||||
| Total assets acquired |
|
|||||||
| Total goodwill | $ |
|
||||||
Acquisition of Cal Coast Carpets
On June 2, 2023, Flooring Liquidators acquired certain fixed assets and other intangible assets of Cal Coast Carpets, Inc. (“Cal Coast”), and its shareholders. No liabilities were assumed as part of either transaction. The purchase price for the fixed assets acquired from Cal Coast was $
35,000
, and the intangible assets acquired from the shareholders was approximately $
1.265
million, for a total combined purchase price of $
1.3
million. The intangible assets acquired were comprised of customer relationships, trade name, and non-compete agreements. The acquisition was determined to be an asset acquisition for accounting purposes and, as such, no goodwill was recorded as part of the transaction. The values assigned to the assets acquired are based on their estimates of fair value available as of June 2, 2023, as calculated by management.
10
The table below outlines the purchase price allocation of the purchase for Cal Coast to the acquired identifiable assets (in $000’s):
| Property, plant and equipment | $ |
|
||||||
| Intangible assets | ||||||||
| Customer relationships |
|
|||||||
| Trade name |
|
|||||||
| Non-compete agreement |
|
|||||||
| Total intangible assets |
|
|||||||
| Total assets acquired | $ |
|
||||||
Acquisition of Flooring Liquidators
On January 18, 2023, Live Ventures acquired
100
% of the issued and outstanding equity interests (the “Equity Interests”) of Flooring Liquidators, Inc., Elite Builder Services, Inc. (“EBS”), 7 Day Stone, Inc., Floorable, LLC, K2L Leasing, LLC, and SJ & K Equipment, Inc. (collectively, the “Acquired Companies”). The Acquired Companies are leading retailers and installers of floors, carpets, and countertops to consumers, builders and contractors in California and Nevada.
The acquisition was effected pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with an effective date of January 18, 2023 by and among the Company, and Stephen J. Kellogg, as the seller representative of the equity holders of the Acquired Companies and individually in his capacity as an equity holder of the Acquired Companies, and the other equity holders of the Acquired Companies (collectively, the “Seller”). The purchase price for the Equity Interests was $
83.8
million before any fair value considerations, and is comprised of the following:
•
$
41.8
million in cash to the Seller;
•
$
34.0
million (the “Note Amount”) to certain trusts for the benefit of Kellogg and members of his family (the “Kellogg Trusts”) pursuant to the issuance by the Company of a subordinated promissory note (the “Note”) in favor of the Kellogg Trusts;
•
$
4.0
million to the Kellogg 2022 Family Irrevocable Nevada Trust by issuance of
116,441
shares of Company Common Stock (as defined in the Purchase Agreement) (the “Share Amount”), calculated in the manner described in the Purchase Agreement;
•
$
2.0
million holdback; and
•
$
2.0
million of contingent consideration, comprised of $
1.0
million in cash and $
1.0
million in restricted stock units.
The fair value of the purchase price components outlined above was $
78.7
million due to fair value adjustments for the Note, and restricted stock, as detailed below (in $000's).
| Purchase price | $ |
|
||||||
| Fair value adjustment, sellers note |
(
|
|||||||
| Fair value adjustment, restricted stock |
(
|
|||||||
| Net purchase price | $ |
|
||||||
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $
31.4
million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of January 18, 2023, as calculated by an independent third-party firm. The Company anticipates approximately $
13.4
million of the goodwill arising from the acquisition to be fully deductible for tax purposes. During the three months ended December 31, 2023, the Company recorded a fair value adjustment related to its contingent
11
consideration of $
1
million.
The table below outlines the purchase price allocation, as revised, of the purchase for Flooring Liquidators to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):
| Purchase price | $ |
|
|||||||||
| Accounts payable |
|
||||||||||
| Accrued liabilities |
|
||||||||||
| Debt |
|
||||||||||
| Total liabilities assumed |
|
||||||||||
| Total consideration |
|
||||||||||
| Cash |
|
||||||||||
| Accounts receivable |
|
||||||||||
| Inventory |
|
||||||||||
| Property, plant and equipment |
|
||||||||||
| Intangible assets | |||||||||||
| Trade names | $ |
|
|||||||||
| Customer relationships |
|
||||||||||
| Non-compete agreements |
|
||||||||||
| Other |
|
||||||||||
| Subtotal intangible assets |
|
||||||||||
| Other |
|
||||||||||
| Total assets acquired |
|
||||||||||
| Total goodwill | $ |
|
|||||||||
Note 4:
Inventory
The following table details the Company's inventory as of December 31, 2023 and September 30, 2023 (in $000's):
| Inventory, net | December 31, 2023 | September 30, 2023 | |||||||||
| Raw materials | $ |
|
$ |
|
|||||||
| Work in progress |
|
|
|||||||||
| Finished goods |
|
|
|||||||||
| Merchandise |
|
|
|||||||||
|
|
|
||||||||||
| Less: Inventory reserves |
(
|
(
|
|||||||||
| Total inventory, net | $ |
|
$ |
|
|||||||
12
Note 5:
Property and Equipment
The following table details the Company's property and equipment as of December 31, 2023 and September 30, 2023 (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Property and equipment, net: | |||||||||||
| Land | $ |
|
$ |
|
|||||||
| Building and improvements |
|
|
|||||||||
| Transportation equipment |
|
|
|||||||||
| Machinery and equipment |
|
|
|||||||||
| Furnishings and fixtures |
|
|
|||||||||
| Office, computer equipment and other |
|
|
|||||||||
|
|
|
||||||||||
| Less: Accumulated depreciation |
(
|
(
|
|||||||||
| Total property and equipment, net | $ |
|
$ |
|
|||||||
Depreciation expense was $
3.1
million and $
2.4
million for the three months ended December 31, 2023 and 2022, respectively.
Note 6:
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 future dates with many agreements containing renewal options for additional periods. The agreements, which have been classified as either operating or finance leases, generally provide for minimum and, in some cases, percentage rent, and require the Company 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 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 affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
The following table details the Company's right of use assets and lease liabilities as of December 31, 2023 and September 30, 2023 (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Right of use asset - operating leases | $ |
|
$ |
|
|||||||
| Lease liabilities: | |||||||||||
| Current - operating |
|
|
|||||||||
| Current - finance |
|
|
|||||||||
| Long term - operating |
|
|
|||||||||
| Long term - finance |
|
|
|||||||||
As of December 31, 2023, the weighted average remaining lease term for operating leases is
10.3
years. The Company's weighted average discount rate for operating leases is
9.9
%. Total cash payments for operating leases for the three months ended December 31, 2023 and 2022 were approximately $
4.3
million and $
2.4
million, respectively. Additionally, the Company recognized approximately $
14.9
million in right of use assets and liabilities upon commencement of operating leases during the three months ended December 31, 2023.
As of December 31, 2023, the weighted average remaining lease term for finance leases is
27.4
years. The Company's weighted average discount rate for finance leases is
11.7
%. Total cash payments for finance leases for the three months
13
ended December 31, 2023 and 2022 were approximately $
793,000
and $
481,000
, respectively.
No
finance right-of-use assets or liabilities were recognized during the three months ended December 31, 2023.
The Company records finance lease right of use assets as property and equipment. The balance, as of December 31, 2023 and September 30, 2023 is as follows (in $000’s):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Property and equipment, at cost | $ |
|
$ |
|
|||||||
| Accumulated depreciation | $ |
(
|
$ |
(
|
|||||||
| $ |
|
$ |
|
||||||||
Total present value of future lease payments of operating leases as of December 31, 2023 (in $000's):
| Twelve months ended December 31, | |||||
| 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| Total |
|
||||
| Less implied interest |
(
|
||||
| Present value of payments | $ |
|
|||
Total present value of future lease payments of finance leases as of December 31, 2023 (in $000's):
| Twelve months ended December 31, | |||||
| 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| Total |
|
||||
| Less implied interest |
(
|
||||
| Present value of payments | $ |
|
|||
During the three months ended December 31, 2023 and 2022, the Company recorded
no
impairment charges relating to any of its leases.
14
Note 7:
Intangibles
The following table details the Company's intangibles as of December 31, 2023 and September 30, 2023 (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Intangible assets, net: | |||||||||||
| Intangible assets - Tradenames | $ |
|
$ |
|
|||||||
| Intangible assets - Customer relationships |
|
|
|||||||||
| Intangible assets - Other |
|
|
|||||||||
|
|
|
||||||||||
| Less: Accumulated amortization |
(
|
(
|
|||||||||
| Total intangibles, net | $ |
|
$ |
|
|||||||
Amortization expense was $
1.2
million and $
253,000
for the three months ended December 31, 2023 and 2022, respectively.
The following table summarizes estimated future amortization expense related to intangible assets that have net balances (in $000’s):
| Twelve months ending December 31, | |||||
| 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| $ |
|
||||
Note 8:
Goodwill
The following table details the Company's goodwill as of September 30, 2023 and December 31, 2023 (in $000's):
| Retail - Entertainment | Retail - Flooring | Flooring Manufacturing | Steel Manufacturing | Total | |||||||||||||||||||||||||
| September 30, 2023 |
|
|
|
|
|
||||||||||||||||||||||||
| CRO acquisition |
|
|
|
|
|
||||||||||||||||||||||||
| PMW adjustment |
|
|
|
(
|
(
|
||||||||||||||||||||||||
| Flooring Liquidators adjustment |
|
|
|
|
|
||||||||||||||||||||||||
| December 31, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
During the three months ended December 31, 2023, the Company made fair value adjustments, in the amount of approximately $
652,000
, related to the acquisition of PMW, and $
1.0
million related to the acquisition of Flooring Liquidators (see Note 3).
As of December 31, 2023, the Company did not identify any triggering events that would require impairment testing.
15
Note 9:
Accrued Liabilities
The following table details the Company's accrued liabilities as of December 31, 2023 and September 30, 2023, respectively (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Accrued liabilities: | |||||||||||
| Accrued payroll and bonuses | $ |
|
$ |
|
|||||||
| Accrued sales and use taxes |
|
|
|||||||||
| Accrued customer deposits |
|
|
|||||||||
| Accrued gift card and escheatment liability |
|
|
|||||||||
| Accrued interest payable |
|
|
|||||||||
| Accrued inventory |
|
|
|||||||||
| Accrued professional fees |
|
|
|||||||||
| Accrued expenses - other |
|
|
|||||||||
| Total accrued liabilities | $ |
|
$ |
|
|||||||
Note 10:
Long-Term Debt
Long-term debt as of December 31, 2023 and September 30, 2023 consisted of the following (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
| Revolver loans | $ |
|
$ |
|
|||||||
| Equipment loans |
|
|
|||||||||
| Term loans |
|
|
|||||||||
| Other notes payable |
|
|
|||||||||
| Total notes payable |
|
|
|||||||||
| Less: unamortized debt issuance costs |
(
|
(
|
|||||||||
| Net amount |
|
|
|||||||||
| Less: current portion |
(
|
(
|
|||||||||
| Total long-term debt | $ |
|
$ |
|
|||||||
Future maturities of long-term debt at December 31, 2023, are as follows which does not include related party debt separately stated (in $000's):
| Twelve months ending December 31, | |||||
| 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| Total future maturities of long-term debt | $ |
|
|||
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
16
calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with BofA. The BofA Revolver has a variable interest rate and matures in January 2025. As of December 31, 2023 and September 30, 2023, the outstanding balance was approximately $
6.5
million and $
6.1
million, respectively.
Loan with Fifth Third Bank (Precision Marshall)
On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank, and the balance outstanding was repaid. The refinanced credit facility, totaling $
29
million, is comprised of $
23.0
million in revolving credit, $
3.5
million in M&E lending, and $
2.5
million for Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR plus
200
basis points for lending under the revolving facility, and 30-day SOFR plus
225
basis points for M&E and Capex lending. The refinancing of the Borrower’s existing credit facility reduces interest costs and improves the availability and liquidity of funds by approximately $
3.0
million at the close. The facility terminates on
January 20, 2027
, unless terminated earlier in accordance with its terms.
In connection with the acquisition of Kinetic, the existing revolving facility was amended to add Kinetic as a borrower. In addition,
two
additional term loans were executed to fund the purchase of Kinetic. Approximately $
6.0
million was drawn from the revolving facility, and the two term loans were opened in the amounts of $
4.0
million and $
1.0
million, respectively. The $
4.0
million term loan (“Kinetic Term Loan #1”), which matures on
January 20, 2027
, bears interest on the same terms as for M&E term lending as stated above. The $
1.0
million term loan (“Kinetic Term Loan #2”), which matures on
June 28, 2025
, is a “Special Advance Term Loan”, and bears interest at SOFR plus
375
basis points.
As of December 31, 2023 and September 30, 2023, the outstanding balance on the revolving loan was approximately $
26.0
million and $
23.0
million, respectively, and the outstanding balance on the original M&E lending, which is documented as a term note, was approximately $
2.2
million and $
2.3
million, respectively. The revolving loan has a variable interest rate and matures in January 2027. As of December 31, 2023 and September 30, 2023, the outstanding balance on Kinetic Term Loan #1 was approximately $
3.1
million and $
3.3
million, respectively. As of September 30, 2023, the Kinetic Term Loan #2 was fully repaid.
On April 12, 2023, in connection with its existing credit facility with Fifth Third Bank, Precision Marshall took an advance against its Capex term lending in the amount of approximately $
1.4
million. The loan matures January 2027 and bears interest on the same terms as for Capex lending as stated above. The first payment under this loan is due in February 2024. The outstanding balance on the Capex loan was $
1.4
million as of each of December 31, 2023 and September 30, 2023.
Eclipse Business Capital Loans
In connection with the acquisition of Flooring Liquidators (see Note 3), on January 18, 2023, Flooring Liquidators entered into a credit facility with Eclipse Business Capital, LLC (“Eclipse”). The facility consists of $
25.0
million in revolving credit (“Eclipse Revolver”) and $
3.5
million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a
three-year
, asset-based facility that is secured by substantially all of Flooring Liquidators’ assets. Availability under the Eclipse Revolver is subject to a monthly borrowing base calculation. Flooring Liquidators’ ability to borrow under the Eclipse Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Eclipse. The Eclipse Revolver bears interest at
4.5
% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and
3.5
% per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at
6.0
% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and
5.0
% per annum in excess of Adjusted Term SOFR after April 1, 2023. The credit facility matures in January 2026. As of December 31, 2023 and September 30, 2023, the outstanding balance on the Eclipse Revolver was approximately $
8.8
million and $
8.2
million, respectively, and the outstanding balance on the Eclipse M&E loan was approximately $
2.3
million and $
2.4
million, respectively.
Loan with Fifth Third Bank (PMW)
In connection with the acquisition of PMW (see Note 3), on July 20, 2023, PMW entered into a revolving credit facility with Fifth Third Bank. The facility consists of $
15.0
million in revolving credit and approximately $
5.0
million in M&E lending. The Fifth-Third Revolver is a
three-year
, asset-based facility that is secured by substantially all of PMW's assets. Availability under the Fifth-Third Revolver is subject to a monthly borrowing base calculation. PMW's ability to borrow under the Fifth-Third Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Fifth-Third. Loans made under the Revolving Credit Facility are considered Reference Rate Loans, and bear interest at a rate equal to the sum of the Reference Rate plus the Applicable Margin. Reference Rate means the greater of (a)
3.0
% or (b) the Lender’s publicly announced prime rate (which is not intended to be Lender’s
17
lowest or most favorable rate in effect at any time) in effect from time to time. The Applicable Margin for revolving loans is
zero
, while for the M&E Term Loan or any Capital Expenditure Term Loan, it is
50
basis points (
0.5
%). The credit facility matures in July 2026. As of December 31, 2023 and September 30, 2023, the outstanding balance on the Fifth-Third Revolver was approximately $
10.2
million and $
11.0
million, respectively, and the balance on the Fifth-Third M&E loan was approximately $
4.7
million and $
4.8
million, respectively.
Bank Midwest Revolver Loan
On October 17, 2023, Vintage entered into a $
15.0
million credit agreement with Bank Midwest (“Bank Midwest Revolver”), replacing a revolving credit facility between Vintage and Texas Capital Bank (“TCB Revolver”), which was entered into in November 2016 and set to mature in November 2023. In connection with the entry into the Credit Agreement, the revolving credit facility between Vintage Stock and Texas Capital Bank was terminated and the balance outstanding was repaid. The Bank Midwest Revolver interest accrues daily on the outstanding principal at a rate of the greater of (a) the one-month forward-looking term rate based on SOFR, plus
2.36
% per annum, or (b)
6.5
% per annum, and matures on October 17, 2024. As of December 31, 2023, the outstanding balance on the Bank Midwest Revolver was approximately $
4.5
million. As of September 30, 2023, the outstanding balance on the TCB Revolver was approximately $
5.3
million.
Equipment Loans
On June 20, 2016 and August 5, 2016, Marquis entered into a transaction that provided for a master agreement and separate loan schedules (the “Equipment Loans”) with Banc of America Leasing & Capital, LLC that provided for the following as of December 31, 2023:
Note #3 is for approximately $
3.7
million, secured by equipment. The Equipment Loan #3 matured in December 2023, payable in
84
monthly payments of $
52,000
beginning January 2017, bearing interest rate at
4.8
% per annum. As of December 31, 2023 and September 30, 2023, the balance was $
0
and $
154,000
, respectively.
Note #4 is for approximately $
1.1
million, secured by equipment. The Equipment Loan #4 matured in December 2023, payable in
81
monthly payments of $
16,000
beginning April 2017, bearing interest at
4.9
% per annum. As of December 31, 2023 and September 30, 2023, the balance was $
0
and $
47,000
, respectively.
Note #5 is for approximately $
4.0
million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in
84
monthly payments of $
55,000
beginning January 2018, bearing interest at
4.7
% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $
643,000
and $
799,000
, respectively.
Note #6 is for $
913,000
, secured by equipment. The Equipment Loan #6 is due July 2024, payable in
60
monthly payments of $
14,000
beginning August 2019, with a final payment of $
197,000
, bearing interest at
4.7
% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $
277,000
and $
317,000
, respectively.
Note #7 is for $
5.0
million, secured by equipment. The Equipment Loan #7 is due February 2027, payable in
84
monthly payments of $
59,000
beginning March 2020, with the final payment of $
809,000
, bearing interest at
3.2
% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $
2.8
million and $
2.9
million, respectively.
Note #8 is for approximately $
3.4
million, secured by equipment. The Equipment Loan #8 is due September 2027, payable in
84
monthly payments of $
46,000
beginning October 2020, bearing interest at
4.0
%. As of December 31, 2023 and September 30, 2023, the balance was approximately $
1.9
million and $
2.0
million, respectively.
In December 2021, Marquis funded the acquisition of $
5.5
million of new equipment under Note #9 of its master agreement. The Equipment Loan #9, which is secured by the equipment, matures December 2026, and is payable in
60
monthly payments of $
92,000
beginning January 2022, with the final payment in the amount of approximately $
642,000
, bearing interest at
3.75
% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $
3.6
million and $
3.9
million, respectively.
In December 2022, Marquis funded the acquisition of $
5.7
million of new equipment under Note #10 of its master agreement. The Equipment Loan #10, which is secured by the equipment, matures December 2029, and is payable in
84
monthly payments of $
79,000
, beginning January 2023, with the final payment in the amount of approximately $
650,000
, bearing interest at
6.50
%. As of December 31, 2023 and September 30, 2023, the balance was approximately $
5.1
million and $
5.3
million.
18
Loan Covenant Compliance
As of December 31, 2023, the Company was in compliance with all covenants under its existing revolving and other loan agreements.
Note 11:
Notes Payable-Related Parties
Long-term debt payable to related parties (see Note 16) as of December 31, 2023 and September 30, 2023 consisted of the following (in $000's):
| December 31, 2023 | September 30, 2023 | ||||||||||
|
Isaac Capital Group, LLC,
|
$ |
|
$ |
|
|||||||
|
Spriggs Investments, LLC,
|
|
|
|||||||||
|
Spriggs Investments, LLC for Flooring Liquidators,
|
|
|
|||||||||
|
Isaac Capital Group, LLC revolver,
|
|
|
|||||||||
|
Isaac Capital Group, LLC for Flooring Liquidators,
|
|
|
|||||||||
| Total notes payable - related parties |
|
|
|||||||||
| Less: unamortized debt issuance costs |
(
|
(
|
|||||||||
| Net amount |
|
|
|||||||||
| Less: current portion |
(
|
(
|
|||||||||
| Total long-term portion, related parties | $ |
|
$ |
|
|||||||
| Twelve months ending December 31, | |||||
| 2024 | $ |
|
|||
| 2025 |
|
||||
| 2028 |
|
||||
| Total future maturities of long-term debt, related parties | $ |
|
|||
19
Note 12:
Related Party Seller Notes
Seller notes as of December 31, 2023 and September 30, 2023 consisted of the following (in $000’s):
|
December 31,
2023 |
September 30,
2023 |
||||||||||
|
Seller of Flooring Liquidators,
|
$ |
|
$ |
|
|||||||
|
Seller of PMW,
|
|
|
|||||||||
|
Seller of Kinetic,
|
|
|
|||||||||
| Total Related party seller notes payable |
|
|
|||||||||
| Unamortized debt premium (discount) |
|
(
|
|||||||||
| Net amount |
|
|
|||||||||
| Less current portion |
|
|
|||||||||
| Long-term portion of Related party seller notes payable | $ |
|
$ |
|
|||||||
Future maturities of seller notes at December 31, 2023 are as follows (in $000’s):
| Twelve months ending December 31, | |||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Total | $ |
|
|||
Note 13:
Stockholders’ Equity
Series E Convertible Preferred Stock
As of December 31, 2023 and September 30, 2023, there were
47,840
shares of Series E Convertible Preferred Stock issued and outstanding, respectively.
Treasury Stock
As of December 31, 2023 and September 30, 2023, the Company had
664,409
and
660,063
shares of Treasury Stock, respectively. During the three months ended December 31, 2023 and 2022, the Company repurchased
4,346
and
24,710
shares of its common stock for approximately $
106,532
and $
622,000
, respectively. During the three months ended December 31, 2023 and 2022, the average price paid per share was $
24.51
and $
25.16
, respectively.
Note 14:
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.
20
The following table summarizes stock option activity for the fiscal year ended September 30, 2023 and the three months ended December 31, 2023:
|
Number of
Shares |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life |
Intrinsic
Value |
||||||||||||||||||||
| Outstanding at September 30, 2022 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Outstanding at December 31, 2022 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Exercisable at December 31, 2022 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Outstanding at September 30, 2023 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Outstanding at December 31, 2023 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Exercisable at December 31, 2023 |
|
$ |
|
|
$ |
|
|||||||||||||||||
The Company recognized compensation expense of approximately $
50,000
and $
0
during the three months ended December 31, 2023 and 2022, respectively, related to stock option awards and restricted stock 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 December 31, 2023, the Company had
no
unrecognized compensation expense associated with stock option awards.
Note 15:
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 Condensed 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 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.
21
The following table presents the computation of basic and diluted net earnings per share (in $000's):
| Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Basic | |||||||||||
| Net (loss) income | $ |
(
|
$ |
|
|||||||
| Less: preferred stock dividends |
|
|
|||||||||
| Net (loss) income applicable to common stock | $ |
(
|
$ |
|
|||||||
| Weighted average common shares outstanding |
|
|
|||||||||
| Basic (loss) earnings per share | $ |
(
|
$ |
|
|||||||
| Diluted | |||||||||||
| Net (loss) income applicable to common stock | $ |
(
|
$ |
|
|||||||
| Add: preferred stock dividends |
|
|
|||||||||
| Net (loss) income applicable for diluted earnings per share | $ |
(
|
$ |
|
|||||||
| Weighted average common shares outstanding |
|
|
|||||||||
| Add: Options |
|
|
|||||||||
| Add: Series E Preferred Stock |
|
|
|||||||||
| Assumed weighted average common shares outstanding |
|
|
|||||||||
| Diluted (loss) earnings per share | $ |
(
|
$ |
|
|||||||
Basic earnings per common share ("EPS") is computed by dividing net income by the weighted average number of shares of Common Stock outstanding for the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of Common Stock outstanding and the effect of dilutive securities. No diluted EPS computation was made for the three months ended December 31, 2023, as the Company recorded a net loss. Had the Company calculated diluted EPS for the three months ended December 31, 2023, the total assumed weighted average common shares outstanding would have been
3,182,083
. For the three months ended December 31, 2022, there were
17,000
options to purchase shares of common stock that were anti-dilutive, and not included in the diluted EPS computation.
Note 16:
Related Party Transactions
Transactions with Isaac Capital Group, LLC
As of December 31, 2023, Isaac Capital Group, LLC (“ICG”) beneficially owns
48.9
% 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
219,177
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. Mr. Isaac's options to purchase
25,000
shares of common stock were originally scheduled to expire on January 15, 2023, but, as amended on January 13, 2023, the expiration date was extended to January 15, 2025.
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. 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. The ICG Loan bears interest at
12.5
% and matures in May 2025. As of December 31, 2023 and September 30, 2023, the outstanding balance on this note was $
2.0
million.
22
ICG Revolving Promissory Note
On April 9, 2020, the Company, as borrower, 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”). On June 23, 2022, as approved by unanimous consent of the Board of Directors of the Company, the amount of available revolving credit under the facility was increased to $
6.0
million. No other terms of the Note were changed. On April 1, 2023, the Company entered into the First Amendment of the ICG Revolver that extended the maturity date to April 8, 2024 and increased the interest rate from
10
% to
12
% per annum. As of each of December 31, 2023 and September 30, 2023, the the ICG Revolver was $
1.0
million.
ICG Flooring Liquidators Note
On January 18, 2023, in connection with the acquisition of Flooring Liquidators, Flooring Affiliated Holdings, LLC, a wholly-owned subsidiary of the Company, as borrower, entered into a promissory note for the benefit of ICG in the amount of $
5.0
million (“ICG Flooring Liquidators Loan”). The ICG Flooring Liquidators Loan matures on January 18, 2028, and bears interest at
12
%. Interest is payable in arrears on the last day of each calendar month. The note is fully guaranteed by the Company. As of December 31, 2023, the outstanding balance on this loan was $
5.0
million.
Transactions with JanOne Inc.
Tony Isaac, a member of the Company's board of directors, and father of the Company's CEO, Jon Isaac, is the Chief Executive Officer and a director of JanOne Inc.(“JanOne”). Richard Butler, a member of the Company's board of directors, is a director of JanOne.
Lease Agreement
Customer Connexx LLC, formerly a subsidiary of 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 $
36,000
and $
52,000
in rent and other reimbursed expenses for three months ended December 31, 2023 and 2022, respectively.
Purchase Agreement with ARCA Recycling
On April 5, 2022, the Company entered into a Purchasing Agreement with ARCA Recycling ("ARCA"), which was a wholly owned subsidiary of JanOne, Inc. until March 2023. Pursuant to the agreement, the Company agreed to purchase inventory from time to time for ARCA as set forth in submitted purchase orders. The inventory is owned by the Company until ARCA installs it in customer's homes, and payment by ARCA to the Company is due upon ARCA's receipt of payment from the customer. All purchases made by the Company shall be paid back by ARCA in full plus an additional
five
percent surcharge or broker-type fee. As of December 31, 2023, the Company has a full allowance of approximately $
690,000
recorded in the reserve for doubtful accounts for the amount due.
Transactions with Vintage Stock CEO
Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly owned subsidiary of the Company, is the sole member of Spriggs Investments, LLC (“Spriggs Investments”).
Spriggs Promissory Note I
On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note I”) in favor of Spriggs Investments that memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $
2.0
million (the “Spriggs Loan I”). The Spriggs Loan I originally matured on July 10, 2022; however, the maturity date was extended to July 10, 2023, pursuant to unanimous written consent of the Board of Directors. The Spriggs Promissory Note I bears simple interest at a rate of
10.0
% per annum. On January 19, 2023, the Company entered into a modification agreement of the Spriggs Loan I. Consequently, the Spriggs Promissory Note I will bear interest at a rate of
12
% per annum, and the maturity date was extended to July 31, 2024. As of December 31, 2023 and September 30, 2023, the amount owed was $
2.0
million.
Spriggs Promissory Note II
On January 19, 2023, in connection with the acquisition of Flooring Liquidators, the Company executed a promissory note in favor of Spriggs Investments in the initial principal amount of $
1.0
million (the “Spriggs Loan II”). The Spriggs Loan II matures on July 31, 2024, and bears interest at a rate of
12
% per annum. As of December 31, 2023 and September 30, 2023, the amount owed was $
1.0
million.
23
Transactions with Spyglass Estate Planning, LLC
Jon Isaac, the Company's President and Chief Executive Officer, is the sole member of Spyglass Estate Planning, LLC (“Spyglass”).
Building Leases
On July 1, 2022, in connection with its acquisition of Better Backers, Marquis entered into
two
building leases with Spyglass. The building leases are for
20
years with
two
options to renew for an additional
five years
each. The provisions of the lease agreements include an initial
24
-month month-to-month rental period, during which the lessee may cancel with
90-day
notice, followed by a
20-year
lease term with
two
five-year
renewal options. The Company has evaluated each lease and determined the rental amounts to be at market rates.
Transactions with Flooring Liquidators CEO
Stephen Kellogg is the Chief Executive Officer of Flooring Liquidators, Inc., a wholly owned subsidiary of the Company.
Flooring Liquidators leases
five
properties from K2L Property Management, and
one
from Railroad Investments, each of which Mr. Kellogg is a member. Additionally, Flooring Liquidators leases
two
properties from Stephen Kellogg and Kimberly Hendrick as a couple, and properties from each of The Stephen Kellogg and Kimberly Hendrick Trust, The Stephen Kellogg Trust, and Mr. Kellogg personally. Ms. Hendrick is Mr. Kellogg's spouse.
Sellers Notes
Note Payable to the Sellers of Kinetic
In connection with the purchase of Kinetic, on June 28, 2022, Kinetic entered into an employment agreement with the previous owner of Kinetic to serve as its Head of Equipment Operations. The employment agreement is for an initial term of
five years
and shall be automatically extended in
90-day
increments unless either party provides notice as required under the agreement. Additionally, Precision Marshall entered into a seller financed loan in the amount of $
3.0
million with the previous owner of Kinetic. The Sellers Subordinated Acquisition Note bears interest at
7.0
% per annum, with interest payable quarterly in arrears. The Sellers Subordinated Acquisition Note has a maturity date of September 27, 2027. As of December 31, 2023 and September 30, 2023, the remaining principal balance was $
3.0
million.
Note Payable to the Seller of Flooring Liquidators
In connection with the purchase of Flooring Liquidators (see Note 3), on January 18, 2023, the Company entered into an employment agreement with the previous owner of Flooring Liquidators to serve as its Chief Executive Officer. The employment agreement is for an initial term of
five years
and shall be automatically extended in
90-day
increments unless either party provides notice as required under the agreement. Additionally, the Company entered into a seller financed mezzanine loan, which is fully guaranteed by the Company, in the amount of $
34.0
million with the previous owners of Flooring Liquidators. The Seller Subordinated Acquisition Note bears interest at
8.24
% per annum, with interest payable monthly in arrears beginning on January 18, 2024. The Sellers Note has a maturity date of January 18, 2028. The fair value assigned to the Sellers Note, as calculated by an independent third-party firm, was $
31.7
million, or a discount of $
2.3
million. The $
2.3
million discount is being accreted to interest expense, using the effective interest rate method, as required by GAAP, over the term of the Sellers Note. As of December 31, 2023 and September 30, 2023, the carrying value of the Sellers Note was approximately $
34.2
million and $
33.5
million, respectively.
Note Payable to the Seller of PMW
In connection with the purchase of PMW (see Note 3), on July 20, 2023, the Company entered into an consulting agreement with the previous owner of PMW
to serve as part-time President and Chief Executive Officer
.
The consulting agreement commenced on the Effective Date and shall terminate upon the later of (i) Sellers’ receipt of earn-out payments in an aggregate amount equal to $
3.0
million and (ii) the full satisfaction and payment of all amounts due and to that are to become due under the seller note, unless earlier terminated in accordance with the terms set forth in the consulting agreement
. Additionally, PMW entered into
two
seller financed loans, in the aggregate amount of $
2.5
million, which are fully guaranteed by the Company. The seller financed loans bear interest at
8.0
% per annum, with interest payable quarterly in arrears. The seller financed loans have a maturity date of July 18, 2028. As of December 31, 2023 and September 30, 2023, the carrying value of the seller financed loans was approximately $
2.5
million.
Procedures for Approval of Related Party Transactions
In accordance with its charter, the Audit Committee reviews and determines whether to approve all related party transactions (as such term is defined for purposes of Item 404 of Regulation S-K). The Audit Committee participated in the review, approval, or ratification of the transactions described above.
24
Note 17:
Commitments and Contingencies
Litigation
SEC Investigation
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 was 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 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, Inc. 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 had 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. 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 in the United States District Court for the District of Nevada naming the Company and
two
of its executive officers - Jon Isaac, the Company’s current President and Chief Executive Officer, and Virland Johnson, the Company’s former Chief Financial Officer, as defendants (collectively, the “Company Defendants”) as well as certain other related third parties (the “SEC Complaint”). The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share data, purported undisclosed stock promotion and trading, purported inaccurate disclosure regarding beneficial ownership of common stock, and undisclosed executive compensation from 2016 through 2018. The violations are brought under Section 10(b) of 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 Company Defendants, permanent 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.
On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the SEC complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted
one
of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties participated in a mediation in June 2023. The mediation was not successful and the case is currently in the midst of discovery. Discovery deadlines have been extended because counsel for JanOne Inc. and Virland Johnson moved to withdraw on August 18, 2023, which motion the court granted on October 2, 2023. Since that time, JanOne Inc. and Virland Johnson have obtained new counsel who have appeared in the case. In light of the new counsel in this case, the Court approved a stipulated order to extend the discovery period approximately 45 days. Fact discovery is now set to be completed by May 20, 2024.
The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.
Sieggreen Class Action
On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated claimants ("Plaintiff"), filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming the Company, Jon Isaac, the Company's current President and Chief Executive Officer, and Virland Johnson, the Company's former Chief Financial Officer, as defendants (collectively, the "Company Defendants"). The allegations asserted are similar to those in the SEC Complaint. Among other sought relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As
25
of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed an Amended Complaint on March 6, 2023. On May 5, 2023, the Company Defendants filed a Motion to Dismiss the Amended Complaint, and the briefing on that motion is now complete. Discovery is automatically stayed in this case until after the disposition of the Motion to Dismiss. If the Motion to Dismiss is not successful, the case will proceed to discovery. The Company Defendants strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.
Holdback Matter
On October 10, 2022, a representative for the former shareholders of Precision Industries, Inc. filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleged that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $
2,500,000
. The Chancery Court dismissed that action for lack of jurisdiction. On January 12, 2023, the representative re-filed the same action in the United States District Court for the Western District of Pennsylvania. On October 26, 2023, the Company counterclaimed against the representative and all represented shareholders for fraudulently misrepresenting the seller’s inventory and accounting methodology and asserting damages in excess of $
4,500,000
. Several of the individual shareholders have moved to dismiss the counterclaim. The Company expects discovery to last for approximately
one year
.
Wage and Hour Matter
On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. The Court has set this for a Case Management Conference on September 30, 2024 after the parties have had a chance to exchange discovery regarding the claims. Elite Builders maintains that Ms. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding as we are in the early stages of discovery and the scope of class is not yet known.
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 condensed consolidated financial position, results of operations or cash flows. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.
Note 18:
Segment Reporting
The Company operates in
five
operating segments which are characterized as: (1) Retail-Entertainment, (2) Retail-Flooring, (3) Flooring Manufacturing, (4) Steel Manufacturing, and (5) Corporate and Other. The Retail-Entertainment segment consists of Vintage Stock; the Retail-Flooring segment consists of Flooring Liquidators; the Flooring Manufacturing Segment consists of Marquis; and the Steel Manufacturing Segment consists of Precision Marshall and Kinetic.
The following tables summarize segment information (in $000's):
| For the Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
|
|
|||||||||
| Flooring Manufacturing |
|
|
|||||||||
26
| Steel Manufacturing |
|
|
|||||||||
| Corporate & Other |
|
|
|||||||||
| Total revenues | $ |
|
$ |
|
|||||||
| Gross profit | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
|
|
|||||||||
| Flooring Manufacturing |
|
|
|||||||||
| Steel Manufacturing |
|
|
|||||||||
| Corporate & Other |
|
|
|||||||||
| Total gross profit | $ |
|
$ |
|
|||||||
| Operating income (loss) | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
|
|
|||||||||
| Flooring Manufacturing |
|
|
|||||||||
| Steel Manufacturing |
|
|
|||||||||
| Corporate & Other |
(
|
(
|
|||||||||
| Total operating income | $ |
|
$ |
|
|||||||
| Depreciation and amortization | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
|
|
|||||||||
| Flooring Manufacturing |
|
|
|||||||||
| Steel Manufacturing |
|
|
|||||||||
| Corporate & Other |
|
|
|||||||||
| Total depreciation and amortization | $ |
|
$ |
|
|||||||
| Interest expense | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
|
|
|||||||||
| Flooring Manufacturing |
|
|
|||||||||
| Steel Manufacturing |
|
|
|||||||||
| Corporate & Other |
|
|
|||||||||
| Total interest expense | $ |
|
$ |
|
|||||||
| Net (loss) income before provision for income taxes | |||||||||||
| Retail-Entertainment | $ |
|
$ |
|
|||||||
| Retail-Flooring |
(
|
|
|||||||||
| Flooring Manufacturing |
(
|
(
|
|||||||||
| Steel Manufacturing |
(
|
|
|||||||||
| Corporate & Other |
(
|
(
|
|||||||||
| Total (loss) net income before provision for income taxes | $ |
(
|
$ |
|
|||||||
Note 19:
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.
27
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 months ended December 31, 2023, 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, 2023 (the “2023 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 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 (vi) 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 2023 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 except as required by federal securities laws. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not incorporated into and should not be deemed a 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 five segments to our business: Retail-Entertainment, Retail-Flooring, 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”.
Retail-Entertainment Segment
Our Retail-Entertainment Segment is composed of Vintage Stock, Inc., doing business as Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”).
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,
28
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 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.
Retail-Flooring Segment
Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”).
Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the company has established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through two businesses: retail customers through its Flooring Liquidators retail stores, and builder and contractor customers through Elite Builder Services, Inc.
On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO, a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.
On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson, a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.
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.
On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”), and Precision Metal Works, Inc. (“PMW”)
.
Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For over 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.
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.
On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a
29
one-stop shop for in-house grinding, machining, and heat-treating. Kinetic is headquartered in Greendale, Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees.
On July 20, 2023, we acquired PMW. Founded nearly 76 years ago in 1947 in Louisville, Kentucky, PMW manufactures and supplies highly engineered parts and components across 400,000 square feet of manufacturing space. PMW offers world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices.
Corporate and Other Segment
Our Corporate and Other segment consists of certain corporate general and administrative costs, Salomon Whitney LLC, which was shut down during the three months ended June 30, 2023, and operations of certain legacy products and service offerings for which we are no longer accepting new customers
.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, 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 2023 Form 10-K.
Adjusted EBITDA
We evaluate the performance of our operations based on financial measures such as “Adjusted EBITDA”, which is a non-GAAP financial measure. We define Adjusted EBITDA 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 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. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies.
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Results of Operations Three Months Ended December 31, 2023 and 2022
The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended December 31, 2023 and 2022 (in $000’s):
|
Three Months Ended
December 31, 2023 |
Three Months Ended
December 31, 2022 |
||||||||||||||||||||||
|
% of Total
Revenue |
% of Total
Revenue |
||||||||||||||||||||||
| Selected Data | |||||||||||||||||||||||
| Revenues | $ | 117,593 | $ | 68,986 | |||||||||||||||||||
| Cost of revenues | 81,266 | 69.1 | % | 47,042 | 68.2 | % | |||||||||||||||||
| General and administrative expenses | 27,679 | 23.5 | % | 14,600 | 21.2 | % | |||||||||||||||||
| Sales and marketing expenses | 5,107 | 4.3 | % | 2,777 | 4.0 | % | |||||||||||||||||
| Interest expense, net | 4,163 | 3.5 | % | 2,047 | 3.0 | % | |||||||||||||||||
| (Loss) income before provision for income taxes | (906) | (0.8 | %) | 2,459 | 3.6 | % | |||||||||||||||||
| (Benefit) provision for income taxes | (224) | (0.2 | %) | 615 | 0.9 | % | |||||||||||||||||
| Net (loss) income | $ | (682) | (0.6 | %) | $ | 1,844 | 2.7 | % | |||||||||||||||
| Adjusted EBITDA (a) | |||||||||||||||||||||||
| Retail-Entertainment | $ | 3,667 | $ | 4,003 | |||||||||||||||||||
| Retail-Flooring | 1,303 | — | |||||||||||||||||||||
| Flooring Manufacturing | 1,877 | 1,785 | |||||||||||||||||||||
| Steel Manufacturing | 2,802 | 2,525 | |||||||||||||||||||||
| Corporate & Other | (953) | (774) | |||||||||||||||||||||
| Total Adjusted EBITDA | $ | 8,696 | $ | 7,539 | |||||||||||||||||||
| Adjusted EBITDA as a percentage of revenue | |||||||||||||||||||||||
| Retail-Entertainment | 17.8 | % | 17.2 | % | |||||||||||||||||||
| Retail-Flooring | 3.8 | % | N/A | ||||||||||||||||||||
| Flooring Manufacturing | 6.4 | % | 6.8 | % | |||||||||||||||||||
| Steel Manufacturing | 8.4 | % | 14.0 | % | |||||||||||||||||||
| Corporate & Other | N/A | N/A | |||||||||||||||||||||
| Consolidated adjusted EBITDA as a percentage of revenue | 7.4 | % | 10.9 | % | |||||||||||||||||||
(a)
See reconciliation of net income to Adjusted EBITDA below.
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The following table sets forth revenues by segment (in $000's):
| For the Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | ||||||||||||||||||||||
|
Net
Revenue |
% of
Total Revenue |
Net
Revenue |
% of
Total Revenue |
||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Retail-Entertainment | $ | 20,586 | 17.5 | % | $ | 23,273 | 33.7 | % | |||||||||||||||
| Retail-Flooring | 34,319 | 29.2 | % | — | 0.0 | % | |||||||||||||||||
| Flooring Manufacturing | 29,245 | 24.9 | % | 26,432 | 38.3 | % | |||||||||||||||||
| Steel Manufacturing | 33,354 | 28.4 | % | 17,981 | 26.1 | % | |||||||||||||||||
| Corporate & Other | 89 | 0.1 | % | 1,300 | 1.9 | % | |||||||||||||||||
| Total Revenue | $ | 117,593 | 100.0 | % | $ | 68,986 | 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 Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | ||||||||||||||||||||||
|
Gross
Profit |
Gross
Profit % of Total Revenue |
Gross
Profit |
Gross
Profit % of Total Revenue |
||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Retail-Entertainment | $ | 11,528 | 9.8 | % | $ | 12,210 | 17.7 | % | |||||||||||||||
| Retail-Flooring | 13,032 | 11.1 | % | — | — | % | |||||||||||||||||
| Flooring Manufacturing | 6,422 | 5.5 | % | 4,661 | 6.8 | % | |||||||||||||||||
| Steel Manufacturing | 5,262 | 4.5 | % | 4,392 | 6.4 | % | |||||||||||||||||
| Corporate & Other | 83 | 0.1 | % | 681 | 1.0 | % | |||||||||||||||||
| Total Gross Profit | $ | 36,327 | 30.9 | % | $ | 21,944 | 31.8 | % | |||||||||||||||
Revenue
Revenue increased approximately $48.6 million, or 70.5%, to approximately $117.6 million for the three months ended December 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to Flooring Liquidators and PMW, both of which were acquired after the first quarter of fiscal year 2023, as well as an increase of approximately $2.8 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenues of approximately $6.2 million in our other businesses.
Cost of Revenue
Cost of revenue as a percentage of revenue was 69.1% for three months ended December 31, 2023 as compared to 68.2% for the three months ended December 31, 2022. The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production, partially offset by the acquisition of Flooring Liquidators, which historically has generated higher margins.
General and Administrative Expense
General and Administrative expenses increased by 89.6% to approximately $27.9 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.
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Sales and Marketing Expense
Sales and marketing expense increased by 83.9% to approximately $5.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased compensation for sales personnel acquired as part of the acquisition of the Harris Flooring Group® brands from Q.E.P, and increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.
Interest Expense, net
Interest expense, net, increased by approximately $2.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.
Results of Operations by Segment for the Three Months Ended December 31, 2023 and 2022
| For the Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail-Entertainment | Retail-Flooring |
Flooring
Manufacturing |
Steel
Manufacturing |
Corporate
& Other |
Total | Retail-Entertainment | Retail-Flooring |
Flooring
Manufacturing |
Steel
Manufacturing |
Corporate
& Other |
Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 20,586 | $ | 34,319 | $ | 29,245 | $ | 33,354 | $ | 89 | $ | 117,593 | $ | 23,273 | $ | — | $ | 26,432 | $ | 17,981 | $ | 1,300 | $ | 68,986 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Revenue | 9,058 | — | 21,287 | — | 22,823 | — | 28,092 | — | 6 | 81,266 | 11,063 | — | — | 21,771 | — | 13,589 | — | 619 | 47,042 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 11,528 | 13,032 | 6,422 | 5,262 | 83 | 36,327 | 12,210 | — | 4,661 | 4,392 | 681 | 21,944 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and Administrative Expense | 8,200 | 12,019 | 1,605 | 4,157 | 1,698 | 27,679 | 8,385 | — | 1,491 | 2,792 | 1,932 | 14,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling and Marketing Expense | 185 | 923 | 3,872 | 123 | 4 | 5,107 | 161 | — | 2,419 | 145 | 52 | 2,777 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Income (Loss) | $ | 3,143 | $ | 90 | $ | 945 | $ | 982 | $ | (1,619) | $ | 3,541 | $ | 3,664 | $ | — | $ | 751 | $ | 1,455 | $ | (1,303) | $ | 4,567 | |||||||||||||||||||||||||||||||||||||||||||||||
Retail-Entertainment Segment
Revenue for the three months ended December 31, 2023 decreased by approximately $2.7 million, or 11.5%, as compared to the prior year, primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins. The shift in sales mix also contributed to the increase in gross margin to 56.0% for the quarter ended December 31, 2023, compared to 52.5% for the prior year period. Operating income for the quarter ended December 31, 2023, was approximately $3.1 million, compared to operating income of approximately $3.7 million for the prior year period.
Retail-Flooring Segment
Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended December 31, 2023 was $34.3 million, and cost of revenue as a percentage of revenue was 62.0%. Operating income for the three months ended December 31, 2023 was approximately $90,000. During the three months ended December 31, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO. Additionally, during the three months ended December 31, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson.
Flooring Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by approximately $2.8 million, or 10.6%, as compared to the prior year period. The gross margin was 22.0% for the quarter ended December 31, 2023, compared to 17.6% for the prior year period. The increase in revenue and gross margin is primarily due to the buildup of the sales force as a result of the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the year ended December 31, 2023, was approximately $0.95 million, compared to operating income of approximately $0.75 million for the prior year.
Steel Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by approximately $15.4 million, or 85.5%, as compared to the prior year period. The increase is primarily due to increased revenues of approximately $18.3 million at The Kinetic Co., Inc. and PMW, partially offset by a $2.9 million decrease in our other Steel Manufacturing business. This decrease is primarily due to reduced customer demand as a result of general economic conditions. The gross margin was 15.8% for the quarter ended December 31, 2023, compared to 24.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins and decreased margins in the Steel
33
Manufacturing segment due to reduced production. Operating income for the year ended December 31, 2023, was approximately $1.0 million, compared to operating income of approximately $1.5 million in the prior year period.
Corporate and Other Segment
Revenues for the three months ended December 31, 2023 decreased by $1.2 million, or 93.2%, as compared to the prior year period. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the quarter ended December 31, 2023, was approximately $1.6 million, compared to a loss of approximately $1.3 million in the prior year.
Adjusted EBITDA Reconciliation
The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2023 (in 000's):
| For the Three Months Ended | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| Net (loss) income | $ | (682) | $ | 1,844 | |||||||
| Depreciation and amortization | 4,295 | 2,651 | |||||||||
| Stock-based compensation | 50 | — | |||||||||
| Interest expense, net | 4,163 | 2,047 | |||||||||
| Income tax (benefit) expense | (224) | 615 | |||||||||
| Debt refinancing costs | 183 | — | |||||||||
| Acquisition costs | 406 | 382 | |||||||||
| Other noncash charges | 505 | — | |||||||||
| Adjusted EBITDA | $ | 8,696 | $ | 7,539 | |||||||
Adjusted EBITDA increased by approximately $1.2 million, or 15.3%, for the three months ended December 31, 2023, as compared to the prior year period. The increase is primarily due to an increase in non-operating and other non-recurring expenses, partially offset by decreases in operating income, as discussed above.
Liquidity and Capital Resources
As of December 31, 2023, we had total cash on hand of approximately $5.6 million and approximately $39.4 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 $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $3.2 million. The decrease is primarily due to increases in accrued liabilities and the current portion of operating lease obligations, and a decrease in prepaid expenses of approximately $8.6 million, partially offset by decreases in accounts payable, and increases in accounts receivable, inventories, and cash of approximately $5.3 million.
34
Cash Flows from Operating Activities
The Company’s cash, as of December 31, 2023, was approximately $5.6 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $1.3 million. Net cash provided by operations was approximately $7.9 million for the three months ended December 31, 2023, as compared to net cash provided by operations of approximately $6.3 million for the three months ended December 31, 2022. The increase was primarily due to increases in accrued liabilities, depreciation and amortization expense, and allowance for obsolete inventory, partially offset by an increase in accounts receivable and decrease in deferred income tax 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 $3.2 million for the three months ended December 31, 2023 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment. Our cash flows used in investing activities of approximately $1.3 million for the three months ended December 31, 2022 consisted of purchases of property and equipment.
Cash Flows from Financing Activities
Our cash flows used in financing activities of approximately $3.4 million during the three months ended December 31, 2023 consisted of payments on notes payable of approximately $1.8 million, purchases of treasury stock and payments for finance leases of approximately $900,000, and net payments under revolver loans of approximately $750,000.
Our cash flows provided by financing activities of approximately $3.2 million during the three months ended December 31, 2022 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.
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.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2023, 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 and principal financial officer, 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, as of December 31, 2023, we concluded that the Company's disclosure, controls, and procedures were effective.
35
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 design and effectiveness of our internal control over financial reporting as of December 31, 2023. 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, as of December 31, 2023, our management concluded that our internal controls over financial reporting were operating effectively.
There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
PART II – OTHER INFORMATION
ITEM 1.
Legal Proceedings
The information in response to this item is included in Note 17, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q. Please also refer to “Item 3. Legal Proceedings” in our 2023 Form 10-K for information regarding material pending legal proceedings. Except as set forth herein, there have been no new material legal proceedings and no material developments in the legal proceedings previously disclosed.
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 three months ended December 31, 2023, the Company made the following repurchases:
| Month | Number of Shares Purchased | Average Purchase Price Paid | Number of Shares Purchased as Part of a Publicly Announced Plan or Program | Maximum Amount that May be Purchased Under the Announced Plan or Program | ||||||||||||||||||||||
| October 2023 | — | $ | — | — | $ | 3,299,685 | ||||||||||||||||||||
| November 2023 | — | — | — | 3,299,685 | ||||||||||||||||||||||
| December 2023 | 4,346 | 24.51 | 4,346 | 3,193,153 | ||||||||||||||||||||||
| Totals | 4,346 | $ | 24.51 | 4,346 | $ | 3,193,153 | ||||||||||||||||||||
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4.
Mine Safety Disclosures
None.
ITEM 5.
Other Information
None.
37
ITEM 6.
Exhibits
The following exhibits are filed with or incorporated by reference into this Quarterly Report.
| 3.1 | 8-K | 001-33937 | 3.1 | 08/15/07 | ||||||||||||||||||||||||||||
| 3.8 | 10-Q | 001-33937 | 3.8 | 08/14/18 | ||||||||||||||||||||||||||||
| 10.122 | 8-K | 001-33937 | 10.122 | 10/23/23 | ||||||||||||||||||||||||||||
| 10.123 |
|
8-K | 001-33937 | 10.123 | 10/23/23 | |||||||||||||||||||||||||||
| 10.124 | 8-K | 001-33937 | 10.124 | 10/23/23 | ||||||||||||||||||||||||||||
| 10.125 | * | |||||||||||||||||||||||||||||||
| 10.126 |
*†
|
|||||||||||||||||||||||||||||||
| 10.127 |
*†
|
|||||||||||||||||||||||||||||||
| 10.128 |
*†
|
|||||||||||||||||||||||||||||||
| 31.1 | * | |||||||||||||||||||||||||||||||
| 31.2 | * | |||||||||||||||||||||||||||||||
| 32.1 | * | |||||||||||||||||||||||||||||||
| 32.2 | * | |||||||||||||||||||||||||||||||
| 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) | |||||||||||||||||||||||||||||||
_________________________
38
*
Filed herewith
† Indicates a management contract or compensatory plan or arrangement.
39
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: February 8, 2024
|
/s/ Jon Isaac | ||||
| President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
|
Dated: February 8, 2024
|
/s/ David Verret | ||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
40
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1: Background and Basis Of PresentationNote 2: Summary Of Significant Accounting PoliciesNote 3: AcquisitionsNote 4: InventoryNote 5: Property and EquipmentNote 6: LeasesNote 7: IntangiblesNote 8: GoodwillNote 9: Accrued LiabilitiesNote 10: Long-term DebtNote 11: Notes Payable-related PartiesNote 12: Related Party Seller NotesNote 13: Stockholders EquityNote 14: Stock-based CompensationNote 15: Earnings Per ShareNote 16: Related Party TransactionsNote 17: Commitments and ContingenciesNote 18: Segment ReportingNote 19: Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of FundsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits