What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-02-16 compared with 2020-08-14 · 158 added, 257 removed, 90 unchanged (82% of the section changed)

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”).

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, 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, 2020 (the “2020 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.

Specific forward-looking statements contained in this portion of the Quarterly Report include, but are not limited to:

(i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements about the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements.

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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.

We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power.

We currently have three segments to our business:

Retail, Flooring Manufacturing, and Steel Manufacturing.

Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies.

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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.

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 report Form 10-K) 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.

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.

Retail Segment

Our Retail 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.

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.

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:

ApplianceSmart, Inc.

(collectively “ApplianceSmart”) operates one store in Ohio.

ApplianceSmart is a household appliance retailer with two product categories:

one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, 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”).

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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.

In addition, 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:

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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.

Flooring Manufacturing Segment

Our Flooring Manufacturing segment is comprised of 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.

We focus on the residential, niche commercial, and hospitality end-markets and serve thousands of customers.

Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service.

Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace.

Marquis’s state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times.

Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.

Steel Manufacturing Segment

Our Steel Manufacturing segment is comprised of Precision Industries, Inc.

(“Precision Marshall”) .

Precision Marshall is the North American leader in providing and manufacturing pre-finished de-carb free tool and die steel.

For over 70 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.

Critical Accounting Policies

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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.

Results of Operations Three Months Ended June 30 , 2020 and 2019

For a summary of 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 the Company’s 10-K report as filed on January 13, 2021.

Results of Operations Three Months Ended December 31, 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

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Statement of Income Data:

Cost of revenues

General and administrative expenses

Sales and marketing expenses

Operating income

Interest expense, net

Gain on lease settlement, net

Other income (expense)

Income before provision for income taxes

Provision for income taxes

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

Used Movies, Music, Games and Other

New Movies, Music, Games and Other

Rentals, Concessions and Other

Retail Appliance

Hard Surface Products

Synthetic Turf Products

Directory Services

Total Revenue

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

Used Movies, Music, Games and Other

New Movies, Music, Games and Other

Rentals, Concessions and Other

Retail Appliance

Hard Surface Products

Synthetic Turf Products

Directory Services

Total Gross Profit

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 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 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.

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.

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

Statement of Income Data:

Cost of revenues

General and administrative expenses

Sales and marketing expenses

Operating income

Interest expense, net

Gain on lease settlement, net

Impairment charges

Gain on disposal of fixed assets

Other Income (expense)

Income before provision for income taxes

Net Income before Income Taxes

Provision for Income Taxes

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

Total Revenue

Used Movies, Music, Games and Other

New Movies, Music, Games and Other

Rentals, Concessions and Other

Retail Appliance

Hard Surface Products

Synthetic Turf Products

Directory Services

Net Income before Income Taxes

Net loss attributable to non-controlling interest

Net income attributable to Live stockholders

The following table sets forth revenues by segment:

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Movies, Music, Games and Other

Flooring Manufacturing

Steel Manufacturing

Corporate and other

Total Revenue

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

Used Movies, Music, Games and Other

New Movies, Music, Games and Other

Rentals, Concessions and Other

Retail Appliance

Hard Surface Products

Synthetic Turf Products

Directory Services

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment:

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Profit % of Total Revenue

Movies, Music, Games and Other

Flooring Manufacturing

Steel Manufacturing

Corporate and other

Total Gross Profit

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).

Revenue increased $20,453 or 49% to $62,454 for three months ended December 31, 2020 as compared to the three months ended December 31, 2019 of $42,001.

The in crease in Movies, Music, Games and Other of $ 1,799 was primarily due the higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19 .

Appliance revenue decreased $ 917 due to the closure of certain retail locations were incurring continual decreases in sales resulting from increased competition.

Flooring Manufacturing revenues increased $9,855 as a result of the development of new products and the acquisition of Lonesome Oak in January 2020.

Steel Manufacturing revenues were $9,735 due to the acquisition of Precision Marshall during July 2020.

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.

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.

Cost of revenue increased $14,810, or 58% for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, primarily due primarily to the increase in revenue.

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.

General and Administrative expense increased $1,470 or 14%, for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, primarily due to expenses associated with Precision which was acquired during July 2020 and higher warehouse costs at Marquis, partially offset by a decrease in compensation and other administrative costs.

Selling and Marketing Expense

Selling and marketing expense remained relatively flat for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

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 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.

Interest expense, net remained relatively flat for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, due to a decrease in certain interest rates and the continued efforts to repay certain debt obligations, offset by debt incurred as part of the Precision acquisition during July 2020.

Impairment charges

During the three months ended December 31, 2019, the Company incurred $1,207 of impairment charges related to the decision to close additional ApplianceSmart retail locations.

These locations physically closed during the three months ended March 31, 2020.

There were no similar transactions during the three months ended December 31, 2020.

Gain on disposal of fixed assets

During the three months ended December 31, 2020, the Company incurred a $129 gain related to the disposal of equipment.

There were no similar transactions during the three months ended December 31, 2019.

Other income (expense)

During the three months ended December 31, 2020, the Company’s other income of $779 is primarily related to the settlement of certain lease liabilities and other payables.

During the three months ended December 31, 2019, the Company’s other expense of $181 is primarily related to the warrant extension fair value adjustment.

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.

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

Manufacturing

Cost of Revenue

General and Administrative

Selling and Marketing

Operating Income

Three Months Ended June 30, 2020

Segments in % of Revenue

Three Months Ended June 30, 2019

Segments in % of Revenue

Manufacturing

Cost of Revenue

General and Administrative

Selling and Marketing

Operating Income

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.

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

Manufacturing

Cost of Revenue

Administrative Expense

Selling and Marketing

Operating Income

Nine Months Ended June 30, 2020

Segments in % of Revenue

Nine Months Ended June 30, 2019

Segments in % of Revenue

Manufacturing

Provision for income taxes was $1,450, for the three months ended December 31, 2020 as compared to $195 for the three months ended December 31, 2019 primarily due to the variance in net income.

Results of Operations by Segment

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Flooring Manufacturing

Steel Manufacturing

Corporate & Other

Flooring Manufacturing

Steel Manufacturing

Corporate & Other

Cost of Revenue

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Selling and Marketing

Operating Income

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.

Operating Income (Loss)

Retail Segment

Segment results for Retail include Vintage Stock and ApplianceSmart.

Revenue for the three months ended December 31, 2020 remained relatively flat, as compared to the prior year, primarily due to the closure of certain ApplianceSmart retail locations during 2019, offset by higher demand for home entertainment options as a result of public entertainment restrictions due to COVID-19.

Operating income for the three months ended December 31, 2020 was $4,493, as compared to operating income of $1,859 the prior year period, primarily due to the decrease in general and administrative expense of $1,348 due to the closure of certain ApplianceSmart retail locations during 2019 and other cost saving measures.

Flooring Manufacturing Segment

Segment results for Flooring Manufacturing includes Marquis.

Revenue for the three months ended December 31, 2020 increased $9,855, or 48 %, as compared to the prior year period, due to increased sales of carpets and hard surface products related to development of new products and the acquisition of Lonesome Oak.

Cost of revenue for the three months ended December 31, 2020 increased proportionately with revenue, as compared to the prior year period.

Operating income for the three months ended December 31, 2020 increased $1,747, or 73%, as compared to the prior year period.

Steel Manufacturing Segment

Segment results for Steel Manufacturing includes Precision Marshall.

The Company completed the acquisition of Precision Marshall in July 2020.

Corporate and Other Segment

Segment results for Corporate and Other includes our directory services business.

Revenues and operating income continue to decline due to decreasing renewals.

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Liquidity and Capital Resources

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;

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 fund our operations, pay our scheduled loan payments, 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.

We have the following three asset-based revolver lines of credit:

(i) Texas Capital Bank Revolver Loan (“TCB Revolver”) utilized by Vintage Stock, (ii) Bank of America Revolver Loan (“BofA Revolver”) utilized by Marquis, (iii) Encina Revolver Loan (“Encina Revolver”) utilized by Precision Marshall.

Additionally, we have an unsecured revolving line of credit with Isaac Capital Group (“ICG Revolver”) utilized by the Company.

As of December 31, 2020 , we had total cash on hand of $ 7,232 and an additional $ 32,811 of available borrowing under our revolving credit facilities .

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;

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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.

In March 2020, there was a global outbreak of COVID-19 (Coronavirus) which continues to create challenges and unprecedented conditions.

Although there are effective vaccines for COVID-19 that have been approved for use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021.

Accordingly, there remains significant uncertainty about the duration and the extent of the impact of the COVID-19 pandemic.

These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the Company’s supply chain partners, its employees and customers, customer sentiment in general, and traffic within shopping centers, and, where applicable, malls, containing its stores.

Recommendations and/or mandates from federal, state, and local authorities to avoid large gatherings of people or self-quarantine have previously affected, and may continue to affect, traffic to the 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.

Beginning May 1, 2020, Vintage Stock began to reopen certain locations in compliance with government regulations and, at June 30, 2020, all Vintage Stock retail locations were reopened while maintaining compliance with government mandates.

The Company is 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, most employees have returned to their respective locations.

Continued impacts of the pandemic could materially adversely affect the 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 products, all in an effort to mitigate such impacts.

The extent of the impact of the pandemic on the business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S.

and the effect of the vaccines, 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 the Company is not aware of currently.

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.

We had working capital of $38,324 as of December 31, 2020 as compared to working capital of $38,566 as of September 30, 2020.

Such changes in working capital were primarily attributable to the 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.

The Company’s cash and cash equivalents as of December 31, 2020 was $7,232 compared to $8,984 as of September 30, 2020, a decrease of $1,752.

Net cash provided by operations was $8,668 for the three months ended December 31, 2020 as compared to net cash provided by operations of $2,999 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.

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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.

Our cash flows used in investing activities of $3,258 for the three months ended December 31, 2020 consisted primarily of purchases of property and equipment.

Our cash flows used in investing activities of $645 for the three months ended December 31, 2019 consisted primarily of purchases of property and equipment.

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.

Our cash flows used in financing activities during the three months ended December 31, 2020 consisted of $3,289 in net payments under revolver loans, payment on notes payable of $5,712, partially offset by the issuance of notes payable of $2,130 primarily associated with the acquisition of a facility by Marquis.

Our cash flows used in financing activities during the three months ended December 31, 2019 consisted of $972 net payments under revolver loans, purchase of treasury stock $343, payment on notes payable $2,042 and cash classified as debtor in possession of $173.

Currently, the Company does not intend to issue shares of its 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.

We utilize cash on hand and cash generated from operations and have funds available to us under our revolving loan facilities 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 .

Vintage Stock may borrow funds for operations under the TCB Revolver subject to availability as described in Note 5 to the consolidated financial statements.

The following tables summarize the TCB Revolver for the period:

During the three months ended December 31,

Cumulative borrowing during the period

Cumulative repayment during the period

Maximum borrowed during the period

Weighted average interest for the period

December 31, 2020

September 30, 2020

Total availability

Total outstanding

BofA Revolver

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The following tables summarize the BofA Revolver for the period:

During the nine months ended June 30,

During the three months ended December 31,

Cumulative borrowing during the period

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Weighted average interest for the period

June 30, 2020

December 31, 2020

September 30, 2020

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Total outstanding

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,

Encina Revolver

Precision may borrow funds for operations under the Encina Revolver subject to availability as described in Note 5 to the consolidated financial statements.

During the three months ended December 31,

Cumulative borrowing during the period

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Weighted average interest for the period

June 30, 2020

December 31, 2020

September 30, 2020

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Total outstanding

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;

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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.

Other sources of financing may include stock issuances and 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.

At December 31, 2020, we had no off-balance sheet arrangements, commitments, or guarantees that require additional disclosure or measurement.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2020, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis