LIVE VENTURES Inc 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and nine months ended June 30, 2020, 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, 2019 (the “2019 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 relating to the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity, and (viii) the effect the Coronavirus crisis is having and will have on our business. 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 2019 Form 10-K under Item 1A “Risk Factors”, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not part of this Quarterly Report. Our Company Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate profitable companies in various industries that have demonstrated a strong history of earnings power. We currently have three segments to our business, Manufacturing, Retail and Online, and Services. Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We will work closely with consultants who will 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 on Form 10-Q) is located at www.liveventures.com. Our common stock trades on the NASDAQ Capital Market under the symbol “LIVE”. Manufacturing Segment Marquis Industries Our Manufacturing segment is composed of Marquis Affiliated Holdings LLC and wholly-owned subsidiaries (“Marquis”). Marquis is a leading carpet manufacturer and a manufacturer of innovative yarn products, as well as a reseller of 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 fibre category. We focus on the residential, niche commercial, and hospitality end-markets and serve over 2,000 customers. 35 Since commencing operations in 1995, Marquis has built a st rong 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. Retail and Online Segment Our Retail and Online Segment is composed of Vintage Stock and ApplianceSmart. Vintage Stock Vintage Stock Holdings LLC, Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively “Vintage Stock”) is an award-winning specialty entertainment retailer offering a large selection of entertainment products including new and pre-owned movies, video games and music products, as well as ancillary products such as books, comics, toys and collectibles all available 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 62 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, New Me xico, Oklahoma Texas and Utah. Due to the COIVD-19 pandemic As of March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage began to reopen certain locations in compliance with government regulations. Additionally, as of June 30, 2020, all Vintage retail locations were reopened while maintaining compliance with government mandates. We are unable to predict if additional periods of store closures will be needed or mandated. ApplianceSmart At December 31, 2019, ApplianceSmart Affiliated Holdings LLC, ApplianceSmart Inc. and ApplianceSmart Contracting, Inc (collectively “ApplianceSmart”) operated three stores: two in Minnesota and one Ohio. As of March 31, 2020, ApplianceSmart operates one store in Ohio. ApplianceSmart is a major household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, niche offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others. On April 22, 2020, the Company sold ApplianceSmart Contracting Inc. to a related party for $60 (see Note 13 to the consolidated financial statements for a complete discussion). On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, or Live Ventures itself. ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under the reserve-based revolving credit facility. The case is being administrated under the caption In re: ApplianceSmart, Inc . (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004. The Company will continue to consolidate ApplianceSmart as ApplianceSmart remains under the control of management and not the Bankruptcy Court. ApplianceSmart maintains its ability to operate under the normal course of business throughout the bankruptcy proceedings. The Company will continue to evaluate any triggering events that indicate a loss of control that may result in deconsolidation. Critical Accounting Policies Our unaudited 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, Stock Based Compensation, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of significant accounting policies and the means by which we develop estimates thereon, see (“Part 1, Item 1 of this 10-Q report – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies), which are an integral component of this filing. 36 Results of Operations Three Months Ended June 30 , 2020 and 2019 The following table sets forth certain statement of income items and as a percentage of revenue, for the periods indicated: For the Three Months Ended June 30, 2020 For the Three Months Ended June 30, 2019 % of Total Revenue % of Total Revenue Statement of Income Data: Revenues $ 42,472 100.0 % $ 47,043 100.0 % Cost of revenues 25,759 60.6 % 27,797 59.1 % Gross profit 16,713 39.4 % 19,246 40.9 % General and administrative expenses 8,221 19.4 % 12,191 25.9 % Sales and marketing expenses 2,502 5.9 % 3,246 6.9 % Operating income 5,990 14.1 % 3,809 8.1 % Interest expense, net (1,155 ) (2.7 )% (1,605 ) (3.4 )% Gain on lease settlement, net — 0.0 % — 0.0 % Other income (expense) 173 0.4 % (162 ) (0.3 )% Income before provision for income taxes 5,008 11.8 % 2,042 4.3 % Provision for income taxes 1,423 3.4 % 562 1.2 % Net income $ 3,585 8.4 % $ 1,480 3.1 % The following table sets forth revenues for key product categories revenue and percentages of total revenue for each key product category indicated: For the Three Months Ended June 30, 2020 For the Three Months Ended June 30, 2019 Net Revenue % of Total Revenue Net Revenue % of Total Total Revenue Revenue Used Movies, Music, Games and Other $ 7,544 17.8 % $ 10,140 21.6 % New Movies, Music, Games and Other 5,943 14.0 % 7,396 15.7 % Rentals, Concessions and Other 76 0.2 % 234 0.5 % Retail Appliance 696 1.6 % 6,203 13.2 % Carpets 19,290 45.4 % 14,937 31.8 % Hard Surface Products 8,789 20.7 % 7,650 16.3 % Synthetic Turf Products — 0.0 % 326 0.7 % Directory Services 134 0.3 % 157 0.3 % Total Revenue $ 42,472 100.0 % $ 47,043 100.0 % The following table sets forth gross profit earned by key product categories and gross profit as a percentage of revenue for each key product category indicated: For the Three Months Ended June 30, 2020 For the Three Months Ended June 30, 2019 Gross Profit Gross Profit % Gross Profit Gross Profit % Gross Profit Used Movies, Music, Games and Other $ 6,111 81.0 % $ 8,037 79.3 % New Movies, Music, Games and Other 1,727 29.1 % 1,651 22.3 % Rentals, Concessions and Other 29 38.5 % 155 66.2 % Retail Appliance 142 20.4 % 2,612 42.1 % Carpets 5,444 28.2 % 4,441 29.7 % Hard Surface Products 3,135 35.7 % 2,002 26.2 % Synthetic Turf Products — 0.0 % 201 61.7 % Directory Services 125 93.2 % 147 93.6 % Total Gross Profit $ 16,713 39.4 % $ 19,246 40.9 % 37 Revenue Revenue decreased $4,571 or 10% to $42,472 for the three months ended June 30, 2020 as compared to $47,043 for the three months ended June 30, 2019. Revenue from retail appliances decreased significantly due to ApplianceSmart declining sales and the closure of certain retail locations. Revenue from new and used movies, music, games and other decreased primarily due to retail location closures impacted by COVID-19. The decrease in retail revenue was offset by an increase in carpet and hard surface products as a result of the Lonesome Oak acquisition (see Note 4 to the condensed consolidated financial statements). Cost of Revenue Cost of revenue remained consistent at $25,759 for the three months ended June 30, 2020 as compared $27,797 for the three months ended June 30, 2019. Costs of revenue varied proportionately with the variance in revenue. Gross Profit Gross profit decreased $2,533 or 13% to $16,713 for the three months ended June 30, 2020 as compared to $19,246 for the three months ended June 30, 2019, primarily due to the decrease in revenue as discussed above. General and Administrative Expense General and Administrative expense decreased $3,970 or 33%, to $8,221 for the three months ended June 30, 2020 as compared to $12,191 for the three months ended June 30, 2019 primarily due to lower costs resulting from the decrease rent expense and employee costs associated with permanent closure of the ApplianceSmart retail locations and the temporary closure of Vintage retail locations due to COVID-19. Selling and Marketing Expense Selling and marketing expense decreased $744 or 23%, for the three months June 30, 2020 as compared to the three months ended June 30, 2019 primarily due to reduced marketing efforts related to the permanent ApplianceSmart retail location closures and reduced activities due to COVID-19. Operating Income Because of the factors described above, operating income of $5,990 for the three months ended June 30, 2020 represented an increase of $2,181 or 57% over the comparable prior year period of $3,809. Interest Expense, net Interest expense, net decreased $450 or 28% for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 due to a decrease in certain interest rates and the continued efforts to repay debt obligations. Other Income Other income of $173 for the three months ended June 30, 2020 was primarily related to the settlement of certain ApplianceSmart liabilities under bankruptcy. Other expense of $162 for the three months ended June 30, 2019 was driven by the disposal of certain assets . Provision for Income Taxes Provision for income taxes was $1,423, for the three months ended June 30, 2020 as compared to $562 for the three months ended June 30, 2019 primarily due to the variance in pre-tax net income. Net Income The factors described above led to net income of $3,585 for the three months ended June 30, 2020, which was an increase of $2,105 compared to net income of $1,480 for the three months ended June 30, 2019. 38 Results of Operations Nine Months Ended June 30 , 2020 and 2019 The following table sets forth certain statement of income items and as a percentage of revenue, for the periods indicated: For the Nine Months Ended June 30,2020 For the Nine Months Ended June 30,2019 % of Total Revenue % of Total Revenue Statement of Income Data: Revenues $ 130,904 100.0 % $ 147,212 100.0 % Cost of revenues 79,789 61.0 % 89,978 61.1 % Gross profit 51,115 39.0 % 57,234 38.9 % General and administrative expenses 30,731 23.5 % 37,886 25.7 % Sales and marketing expenses 7,839 6.0 % 11,403 7.7 % Operating income 12,545 9.6 % 7,945 5.4 % Interest expense, net (3,782 ) (2.9 )% (4,793 ) (3.3 )% Gain on lease settlement, net 223 0.2 % — 0.0 % Other income (expense) (133 ) -0.1 % 1,663 1.1 % Income before provision for income taxes 8,853 6.8 % 4,815 3.3 % Provision for income taxes 2,402 1.8 % 1,331 0.9 % Net income $ 6,451 4.9 % $ 3,484 2.4 % The following table sets forth revenues for key product categories revenue and percentages of total revenue for each key product category indicated: For the Nine Months Ended June 30,2020 For the Nine Months Ended June 30,2019 Net Revenue % of Total Revenue Net Revenue % of Total Total Revenue Revenue Used Movies, Music, Games and Other $ 27,475 21.0 % $ 32,082 21.8 % New Movies, Music, Games and Other 23,346 17.8 % 26,334 17.9 % Rentals, Concessions and Other 462 0.4 % 784 0.5 % Retail Appliance 3,450 2.6 % 21,166 14.4 % Carpets 52,174 39.9 % 43,275 29.4 % Hard Surface Products 23,403 17.9 % 21,287 14.5 % Synthetic Turf Products 170 0.1 % 1,796 1.2 % Directory Services 424 0.3 % 488 0.3 % Total Revenue $ 130,904 100.0 % $ 147,212 100.0 % The following table sets forth gross profit earned by key product categories and gross profit as a percentage of revenue for each key product category indicated: For the Nine Months Ended June 30,2020 For the Nine Months Ended June 30,2019 Gross Profit Gross Profit % Gross Profit Gross Profit % Gross Profit Used Movies, Music, Games and Other $ 22,168 80.7 % $ 25,846 80.6 % New Movies, Music, Games and Other 6,406 27.4 % 6,555 24.9 % Rentals, Concessions and Other 178 38.6 % 515 65.7 % Retail Appliance 712 20.6 % 5,857 27.7 % Carpets 14,628 28.0 % 12,048 27.8 % Hard Surface Products 6,544 28.0 % 5,547 26.1 % Synthetic Turf Products 83 48.8 % 406 22.6 % Directory Services 396 93.4 % 460 94.3 % Total Gross Profit $ 51,115 39.0 % $ 57,234 38.9 % 39 Revenue Revenue decreased $16,308 or 11% to $130,904 for the nine months ended June 30, 2020 as compared to $147,212 for the nine months ended June 30, 2019. Revenue from retail appliances decreased significantly due to ApplianceSmart declining sales and the closure of certain retail locations. New and used movies, music, games and other revenue slightly decreased due to retail location temporary closures as a result of COVID-19. Synthetic turf revenue decreased due to the sale of the equipment as the Company exits this division. Carpet and hard surface products as a result of the Lonesome Oak acquisition (see Note 4 to the condensed consolidated financial statements). Cost of Revenue Cost of revenue decreased $10,189 or 11% to $79,789 for the nine months ended June 30, 2020 as compared to $89,978 for the nine months ended June 30, 2019. Costs of revenue varied proportionately with the variance in revenue. Gross Profit The decrease in revenue and costs of revenues discussed above resulted in a decrease in gross profit of $6,119 or 11% for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019. General and Administrative Expense General and Administrative expense decreased $7,155 or 19% to $30,731 for the nine months ended June 30, 2020 as compared to $37,886 for the nine months ended June 30, 2019 primarily due to lower costs resulting from the decrease rent expense and employee costs associated with permanent closure of the ApplianceSmart retail locations and the temporary closure of Vintage retail locations due to COVID-19. Sales and Marketing Expense Sales and marketing expense decreased $3,564 or 31% to $7,839 for the nine months June 30, 2020 as compared to $11,403 for the nine months ended June 30, 2019 primarily due to reduced marketing efforts related to the permanent ApplianceSmart retail location closures and reduced activities due to COVID-19. Operating Income Because of the factors described above, operating income of $12,545 for the nine months ended June 30, 2020 represented an increase of $4,600 or 58% over the comparable prior year period of $7,945. Interest Expense, net Interest expense net decreased $1,011 or 21%, for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019 due to a decrease in certain interest rates and the continued efforts to repay debt obligations. Gain on lease settlement, net During the nine months ended June 30, 2020, the Company recorded a net gain on lease settlement of $223 which consisted of impairment charges of $614 related to the decision to close additional ApplianceSmart retail locations resulting in a decrease to the associated right of use asset related to these leases, offset by a gain on lease settlement of $837 resulting from the extinguishment of the lease liability associated with the closed retail locations. There were no such transactions during the nine months ended June 30, 2019. Other Income Other expense of $133 for the nine months ended June 30, 2020 was primarily related to the warrant extension fair value adjustment, offset by the settlement of certain ApplianceSmart liabilities under bankruptcy. Other income of $1,663 for the nine months ended June 30, 2019 was driven by $1,518 of gain on sale of the Marquis Synthetic Turf Products business during December 2018. Provision for Income Taxes Provision for income taxes was $2,402, for the nine months ended June 30, 2020 as compared to $1,331 for the nine months ended June 30, 2019 primarily due to the variance in pre-tax net income. 40 Net Income The factors described above led to net income of $6,451 for the nine months ended June 30, 2020, which was a $2,967 or 85% increase to net income of $3,484 for the nine months ended June 30, 2019 Segment Performance We report our business in the following segments: Retail and Online, Manufacturing and Services. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Our revenues and profits are driven through our physical stores, e-commerce, individual sales representatives and our internet services. Operating income by operating segment, is defined as income before net interest expense, other income and expense, provision for income taxes and income attributable to non-controlling interest. For the Three Months Ended June 30, 2020 For the Three Months Ended June 30, 2019 Retail & Online Manufacturing Services Total Retail & Online Manufacturing Services Total Revenue $ 14,259 $ 28,079 $ 134 $ 42,472 $ 23,973 $ 22,913 $ 157 $ 47,043 Cost of Revenue 6,250 19,500 9 25,759 11,518 16,269 10 27,797 Gross Profit 8,009 8,579 125 16,713 12,455 6,644 147 19,246 General and Administrative Expense 6,291 1,929 1 8,221 10,599 1,592 — 12,191 Selling and Marketing Expense 132 2,370 — 2,502 1,305 1,941 — 3,246 Operating Income $ 1,586 $ 4,280 $ 124 $ 5,990 $ 551 $ 3,111 $ 147 $ 3,809 Three Months Ended June 30, 2020 Segments in % of Revenue Three Months Ended June 30, 2019 Segments in % of Revenue Retail & Online Manufacturing Services Total Retail & Online Manufacturing Services Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Cost of Revenue 43.8 % 69.4 % 6.8 % 60.6 % 48.0 % 71.0 % 6.4 % 59.1 % Gross Profit 56.2 % 30.6 % 93.2 % 39.4 % 52.0 % 29.0 % 93.6 % 40.9 % General and Administrative Expense 44.1 % 6.9 % 1.8 % 19.4 % 44.2 % 6.9 % 0.0 % 25.9 % Selling and Marketing Expense 0.9 % 8.4 % 0.0 % 5.9 % 5.4 % 8.5 % 0.0 % 6.9 % Operating Income 11.1 % 15.2 % 92.1 % 14.1 % 2.3 % 13.6 % 93.6 % 8.1 % Retail and Online Segment Segment results for Retail and Online include Vintage Stock and ApplianceSmart. Revenue for the three months ended June 30, 2020 decreased $9,714, or 41%, as compared to the prior year, primarily due to the ApplianceSmart retail location closures during fiscal 2019 and the temporary closure of Vintage retail locations due to COVID-19. Cost of revenue for the three months ended June 30, 2020 decreased $5,268 or 46%, as compared to the prior year period, primarily due to the decrease in revenue. Operating income for the three months ended June 30, 2020 was $1,586, as compared to operating income of $551 the prior year period, primarily due to the decrease in gross profit, general and administrative costs and selling and marketing expenses due to ApplianceSmart retail location closures and COVID-19. Manufacturing Segment Segment results for Manufacturing include Marquis, which is our carpet, hard surface and synthetic turf products business. Revenue for the three months ended June 30, 2020 increased $5,166 or 23%, as compared to the prior year period, due to Lonesome Oak acquisition (see Note 4 to the condensed consolidated financial statements). Cost of revenue for the three months ended June 30, 2020 increased proportionately with revenue, as compared to the prior year period. Operating income for the three months ended June 30, 2020 of $4,280 increased $1,169 compared to the prior year period of $3,111. 41 Services Segment Segment results for Services include Telco results, which is our directory services business. Revenues and operating income continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business . For the Nine Months Ended June 30,2020 For the Nine Months Ended June 30,2019 Retail & Online Manufacturing Services Total Retail & Online Manufacturing Services Total Revenue $ 54,733 $ 75,747 $ 424 $ 130,904 $ 80,366 $ 66,358 $ 488 $ 147,212 Cost of Revenue 25,269 54,492 28 79,789 41,593 48,357 28 89,978 Gross Profit 29,464 21,255 396 51,115 38,773 18,001 460 57,234 General and Administrative Expense 25,630 5,099 2 30,731 33,269 4,614 3 37,886 Selling and Marketing Expense 1,064 6,775 — 7,839 5,320 6,083 — 11,403 Operating Income $ 2,770 $ 9,381 $ 394 $ 12,545 $ 184 $ 7,304 $ 457 $ 7,945 Nine Months Ended June 30, 2020 Segments in % of Revenue Nine Months Ended June 30, 2019 Segments in % of Revenue Retail & Online Manufacturing Services Total Retail & Online Manufacturing Services Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Cost of Revenue 46.2 % 71.9 % 6.6 % 61.0 % 51.8 % 72.9 % 5.7 % 61.1 % Gross Profit 53.8 % 28.1 % 93.4 % 39.0 % 48.2 % 27.1 % 94.3 % 38.9 % General and Administrative Expense 46.8 % 6.7 % 0.6 % 23.5 % 41.4 % 7.0 % 0.6 % 25.7 % Selling and Marketing Expense 1.9 % 8.9 % 0.0 % 6.0 % 6.6 % 9.2 % 0.0 % 7.7 % Operating Income 5.1 % 12.4 % 93.0 % 9.6 % 0.2 % 11.0 % 93.6 % 5.4 % Retail and Online Segment Segment results for Retail and Online include Vintage Stock and ApplianceSmart. Revenue for the nine months ended June 30, 2020 decreased $25,633, or 32%, as compared to the prior year, primarily due to the ApplianceSmart retail location closures during fiscal 2019 and the temporary closure of Vintage retail locations due to COVID-19. Cost of revenue for the nine months ended June 30, 2020 decreased $16,324 or 39%, as compared to the prior year period, primarily due to the decrease in revenue. Operating income for the nine months ended June 30, 2020 was $2.770, as compared to operating loss of $184 the prior year period, primarily due to the decrease in gross profit, general and administrative costs and selling and marketing expenses due to ApplianceSmart retail location closures and COIVD-19. Manufacturing Segment Segment results for Manufacturing include Marquis, which is our carpet, hard surface and synthetic turf products business. Revenue for the nine months ended June 30, 2020 increased $9,389, or 14%, as compared to the prior year period, due to the Lonesome Oak acquisition (see Note 4 to the condensed consolidated financial statements), partially offset by a decrease in synthetic turf products due to the sale of equipment for this division during December 2018. Cost of revenue for the nine months ended June 30, 2020 decreased proportionately with revenue, as compared to the prior year period. Operating income for the nine months ended June 30, 2020 increased $2,077 to $9,381 from $7,304 for the nine months ended June 30, 2019. Services Segment Segment results for Services include Telco results, which is our directory services business. Revenues and operating income continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business . 42 Liquidity and Capital Resources Overview Based on our operating plans as of June 30 , 2020, 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 fund our operations, pay our scheduled loan payments, fund our continued investments in store openings and remodelling activities, continue to repurchase shares, 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 . As of June 30 , 2020, we had total cash on hand of $5,689, an additional $22,455 of available borrowing under the BofA Revolver, an additional $5,681 of available borrowing under the TCB Revolver and an additional $1,000 under the ICG Revolver (as defined below). On May 4, 2020, Marquis entered into a promissory note (the “Promissory Note”) with Bank of America, N.A. that provides for a loan in the amount of $4,768 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures two years from the funding date of the PPP Loan and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company intends to apply for forgiveness of a portion of the loan in accordance with the terms of the CARES Act to the extent applicable. No assurance is provided that forgiveness for all or any portion of the PPP Loan will be obtained. On May 5, 2020, Marquis received the funds from the PPP Loan. Additionally, on April 9, 2020, the Company entered into an unsecured revolving line of credit promissory note whereby the Isaac Capital Group, LLC (“ICG”) agreed to provide the Company with a $1,000 revolving credit facility (the “ICG Revolver”) . The ICG Revolver bears interest at 10.0% per annum and provides for the payment of interest monthly in arrears and matures April 2023. The foregoing transaction did not include the issuance of any shares of the Company’s common stock, warrants, or other derivative securities. As of June 17, 2020, ICG is a record and beneficial owner of approximately 45.4% of the outstanding capital stock of the Company, and Jon Isaac, the Company’s President and Chief Executive Officer, and manager and sole member of ICG, is a record and beneficial owner of approximately 52.9% of the outstanding capital stock of the Company. 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 (including convertible debt) or equity securities. The amount, nature, and timing of any borrowings or sales of debt (including convertible 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. In March 2020, there was a global outbreak of COVID-19 (Coronavirus) that has resulted in changes in global supply of certain products. The pandemic is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the economy, our supply chain partners, our employees and customers, customer sentiment in general, and traffic within shopping centers, and, where applicable, malls, containing our stores. As the pandemic continues to grow, consumer fear about becoming ill with the virus and recommendations and/or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine are continuing to increase, which has already affected, and may continue to affect, traffic to our stores. As of March 31, 2020, Vintage Stock had closed all of its retail locations in response to the crisis. Beginning May 1, 2020, Vintage began to reopen certain locations in compliance with government regulations. Additionally, as of June 30, 2020, all Vintage retail locations were reopened while maintaining compliance with government mandates. We are unable to predict if additional periods of store closures will be needed or mandated. During March and April 2020, Marquis conducted rolling layoffs for certain employees, however, during May 2020, all employees have returned to their respective locations. Continued impacts of the pandemic could materially adversely affect our near-term and long-term revenues, earnings, liquidity, and cash flows, and may require significant actions in response, including but not limited to, employee furloughs, reduced store hours, store closings, expense reductions or discounting of pricing of our products, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently. 43 Working Capital We had working capital of $11,601 as of June 30, 2020 as compared to working capital of $20,727 as of September 30, 2019 with current assets increasing by $9,411 and current liabilities increasing by $18,537. Such changes in working capital were primarily attributable to the Lonesome Oak acquisition, increase in short term lease obligations due to the adoption of the new lease accounting standard, an increase in the current portion of debt, a decrease in trade receivables and net debtor-in-possession liabilities. Cash Flows from Operating Activities The Company’s cash and cash equivalents at June 30, 2020 was $5,689 compared to $2,681 at September 30, 2019, an increase of $3,088. Net cash provided by operations was $18,075 for the nine months ended June 30, 2020 as compared to net cash provided by operations of $14,786 for the same period in 2019 primarily due to the Result of operations discussed above. Our primary source of cash inflows is from customer receipts from sales on account, factor accounts receivable proceeds 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 $2,992 for the nine months ended June 30, 2020 consisted primarily of purchases of property and equipment of $2,357 and a $550 payment associated with the Lonesome Oak acquisition (see Note 4 to the condensed consolidated financial statements). Our cash flows provided by investing activities of $2,251 for the nine months ended June 30, 2019 consisted primarily of $4,382 proceeds from the sale of property and equipment, partially offset by purchases of property and equipment of $2,019. Cash Flows from Financing Activities Our cash flows used in financing activities during the nine months ended June 30, 2020 consisted of $5,169 net payments under revolver loans, purchase of treasury stock $1,433, payment on notes payable $15,152, proceeds on notes payable of $9,768 and cash classified as debtor-in-possession of $86. Our cash flows used in financing activities during the nine months ended June 30, 2019 consisted of $5,446 in net payments under revolver loans, $168 in payments of debt issuance costs, purchase of treasury stock of $631, $1,069 payment on related party notes payable and payment on notes payable of $10,048. Currently, the Company does not intend to issue shares of common stock 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 and or debt settlement. Sources of Liquidity We utilize cash on hand and cash generated from operations and have funds available to us under our three revolving loan facilities (the BofA Revolver, TCB Revolver, and ICG Revolver) to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks. Our term debt facilities are not revolving credit facilities and require scheduled payments of principal and interest . 44 BofA Revolver Marquis may borrow funds for operations under the BofA Revolver subject to availability as described in Note 7 to the consolidated financial statements. The following tables summarize the BofA Revolver for the period: During the nine months ended June 30, 2020 2019 Cumulative borrowing during the period $ 85,563 $ 63,942 Cumulative repayment during the period 87,919 71,542 Maximum borrowed during the period 11,347 8,071 Weighted average interest for the period 2.87 % 4.19 % June 30, 2020 September 30, 2019 Total availability $ 22,455 $ 14,914 Total outstanding — 13 TCB Revolver Vintage Stock may borrow funds for operations under the TCB Revolver subject to availability as described in Note 7 to the consolidated financial statements. The following tables summarize the TCB Revolver for the period: During the nine months ended June 30, 2020 2019 Cumulative borrowing during the period $ 46,792 $ 57,653 Cumulative repayment during the period 51,063 58,351 Maximum borrowed during the period 11,798 11,932 Weighted average interest for the period 3.59 % 4.71 % June 30, 2020 September 30, 2019 Total availability $ 5,681 $ 1,410 Total outstanding 6,319 10,590 ICG Revolver The Company may borrow funds for operations under the ICG Revolver subject to availability as described in Note 7 to the consolidated financial statements. As of June 30, 2020, the Company had not borrowed any funds and the full amount of $1,000 was available . Future Sources of Cash; New Products and Services We may require additional debt financing and or capital to finance new acquisitions, refinance existing indebtedness, or other strategic investments in our business. Other sources of financing may include stock issuances, additional loans, or other forms of financing. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders . Off-Balance Sheet Arrangements At June 30, 2020, we had no off-balance sheet arrangements, commitments, or guarantees that require additional disclosure or measurement.