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, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “2022 Form 10-K”). Note about Forward-Looking Statements This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vi) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity. Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in our 2022 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements except as required by federal securities laws. Any information contained on our website www.liveventures.com or any other websites referenced in this Quarterly Report are not incorporated into and should not be deemed a part of this Quarterly Report. Our Company Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have five segments to our business: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses. Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is (702) 939-0231, and our corporate website (which does not form part of this Quarterly Report Form 10-Q) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol “LIVE”. Retail-Entertainment Segment Our Retail-Entertainment Segment is composed of Vintage Stock, Inc., doing business as Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”). 30 Table of Contents Vintage Stock is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books, comics, toys and collectibles, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah. Retail-Flooring Segment Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”). Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the company has established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through two businesses: retail customers through its Flooring Liquidators retail stores, and builder and contractor customers through Elite Builder Services, Inc. Flooring Manufacturing Segment Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. (“Marquis”). Marquis is a leading carpet manufacturer and distributor of carpet and hard-surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers. Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion. On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement. Steel Manufacturing Segment Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), and its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”) . Precision Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For nearly 75 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs. Founded in 1948, Precision Marshall has built a reputation of high integrity, speed of service and doing things the “Deluxe Way”. The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee. Precision Marshall provides four key products to over 500 steel distributors in four product categories: Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling. On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a one-stop shop for in-house grinding, machining, and heat-treating. Kinetic was founded by the Masters family in 1948 and 31 Table of Contents is headquartered in Greendale, Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees. Corporate and Other Segment Our Corporate and Other segment consists of certain corporate general and administrative costs, Salomon Whitney LLC, which was shut down during the three months ended June 30, 2023, and operations of certain legacy products and service offerings for which we are no longer accepting new customers . Critical Accounting Policies Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management’s initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of our significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in our 2022 Form 10-K. Adjusted EBITDA We evaluate the performance of our operations based on financial measures such as “Adjusted EBITDA”, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of the business, including the business’ ability to fund acquisitions and other capital expenditures, and to service its debt. Additionally, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments. Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all of our cash needs. It is, however, a measurement that the Company believes is useful to investors in analyzing its operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP. As companies often define non-GAAP financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies. 32 Table of Contents Results of Operations Three Months Ended June 30, 2023 and 2022 The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended June 30, 2023 and 2022 (in $000’s): Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 % of Total Revenue % of Total Revenue Selected Data Revenues $ 91,516 $ 68,269 Cost of revenues 59,347 64.8 % 45,920 67.3 % General and administrative expenses 23,226 25.4 % 13,407 19.6 % Sales and marketing expenses 3,382 3.7 % 3,078 4.5 % Interest expense, net 3,485 3.8 % 674 1.0 % Income before provision for income taxes 1,357 1.5 % 4,837 7.1 % Provision for income taxes 297 0.3 % 1,365 2.0 % Net income $ 1,060 1.2 % $ 3,472 5.1 % Adjusted EBITDA (a) Retail-Entertainment $ 1,864 $ 2,456 Retail-Flooring 2,083 — Flooring Manufacturing 2,935 3,927 Steel Manufacturing 3,534 2,441 Corporate & Other (841) 16 Total Adjusted EBITDA $ 9,575 $ 8,840 Adjusted EBITDA as a percentage of revenue Retail-Entertainment 10.3 % 12.8 % Retail-Flooring 7.6 % N/A Flooring Manufacturing 10.7 % 12.2 % Steel Manufacturing 19.2 % 16.3 % Corporate & Other N/A 0.9 % Consolidated adjusted EBITDA as a percentage of revenue 10.5 % 12.9 % (a) See reconciliation of net income to Adjusted EBITDA below. 33 Table of Contents The following table sets forth revenues by segment (in $000's): For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 Net Revenue % of Total Revenue Net Revenue % of Total Revenue Revenue Retail-Entertainment $ 18,009 19.7 % $ 19,227 28.2 % Retail-Flooring 27,449 30.0 % — 0.0 % Flooring Manufacturing 27,424 30.0 % 32,188 47.1 % Steel Manufacturing 18,409 20.1 % 14,974 21.9 % Corporate & Other 225 0.2 % 1,880 2.8 % Total Revenue $ 91,516 100.0 % $ 68,269 100.0 % The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's): For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 Gross Profit Gross Profit % of Total Revenue Gross Profit Gross Profit % of Total Revenue Gross Profit Retail-Entertainment $ 9,845 10.8 % $ 10,226 15.0 % Retail-Flooring 10,386 11.3 % — — % Flooring Manufacturing 6,388 7.0 % 7,466 10.9 % Steel Manufacturing 5,381 5.9 % 4,010 5.9 % Corporate & Other 169 0.2 % 647 0.9 % Total Gross Profit $ 32,169 35.2 % $ 22,349 32.7 % Revenue Revenue increased approximately $23.2 million, or 34.1%, to approximately $91.5 million for the three months ended June 30, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to incremental revenue of approximately $34.4 million related to the recently acquired Flooring Liquidators and Kinetic. The increase was partially offset by decreased revenues of approximately $11.2 million in the other businesses, which is primarily due to reduced demand and inflationary pressures. Cost of Revenue Cost of revenue as a percentage of revenue was 64.8% for three months ended June 30, 2023 as compared to 67.3% for the three months ended June 30, 2022. The decrease is primarily attributable to the acquisitions of Flooring Liquidators and Kinetic, which historically have generated higher margins. General and Administrative Expense General and Administrative expenses increased by 73.2% to approximately $23.2 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $9.2 million in the Retail-Flooring segment due to the acquisitions of Flooring Liquidators and $1.4 million in the Steel Manufacturing segment due to the acquisition of Kinetic. 34 Table of Contents Sales and Marketing Expense Sales and marketing expense increased by 9.9% to approximately $3.4 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment and Retail-Flooring segment due to the acquisition of Flooring Liquidators. Interest Expense, net Interest expense, net, increased by approximately $2.8 million for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and increased interest rates during the period. Results of Operations Nine Months Ended June 30, 2023 and 2022 The following table sets forth certain statement of income items and as a percentage of revenue, for the nine months ended June 30, 2023 and 2022 (in $000's): For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 % of Total Revenue % of Total Revenue Statement of Income Data: Revenues $ 251,624 $ 213,133 Cost of revenues 165,903 65.9 % 138,215 64.8 % General and administrative expenses 60,443 24.0 % 40,718 19.1 % Sales and marketing expenses 10,198 4.1 % 9,480 4.4 % Interest expense, net 8,767 3.5 % 2,549 1.2 % Income before provision for income taxes 5,924 2.4 % 33,224 15.6 % Provision for income taxes 1,462 0.6 % 7,848 3.7 % Net income $ 4,462 1.8 % $ 25,376 11.9 % Adjusted EBITDA (a) Retail-Entertainment $ 8,519 $ 11,270 Retail-Flooring 3,194 — Flooring Manufacturing 8,082 13,761 Steel Manufacturing 9,729 7,113 Corporate & Other (3,224) (951) Total Adjusted EBITDA $ 26,300 $ 31,193 Adjusted EBITDA as a percentage of revenue Retail-Entertainment 14.1 % 17.0 % Retail-Flooring 6.6 % N/A Flooring Manufacturing 9.6 % 14.1 % Steel Manufacturing 17.3 % 17.2 % Corporate & Other N/A N/A Consolidated adjusted EBITDA as a percentage of revenue 10.5 % 14.6 % (a) See reconciliation of net income to Adjusted EBITDA below. 35 Table of Contents The following table sets forth revenues by segment (in $000's): For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 Net Revenue % of Total Revenue Net Revenue % of Total Revenue Revenue Retail-Entertainment $ 60,388 24.0 % $ 66,179 31.1 % Retail-Flooring 48,218 19.2 % — 0.0 % Flooring Manufacturing 84,195 33.5 % 97,832 45.9 % Steel Manufacturing 56,306 22.4 % 41,367 19.4 % Corporate & other 2,517 1.0 % 7,755 3.6 % Total Revenue $ 251,624 100.0 % $ 213,133 100.0 % The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's): For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 Gross Profit Gross Profit % of Total Revenue Gross Profit Gross Profit % of Total Revenue Gross Profit Retail-Entertainment $ 32,606 13.0 % $ 34,726 16.3 % Retail-Flooring 18,128 7.2 % — — % Flooring Manufacturing 18,377 7.3 % 25,075 11.8 % Steel Manufacturing 15,420 6.1 % 11,877 5.6 % Corporate & other 1,190 0.5 % 3,240 1.5 % Total Gross Profit $ 85,721 34.1 % 0.340671001176358 $ 74,918 35.2 % Revenue Revenue increased approximately $38.5 million, or 18.1%, to $251.6 million for the nine months ended June 30, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to the Flooring Liquidators and Kinetic acquisitions, which contributed incremental revenue of approximately $67.3 million, partially offset by decreased revenues in the other businesses of approximately $28.8 million. The decrease in revenues is primarily due to reduced demand. Cost of Revenue Cost of revenue as a percentage of revenue was 65.9% for the nine months ended June 30, 2023 as compared to 64.8% for the nine months ended June 30, 2022. The increase is primarily attributable to inflationary cost increases, partially offset by acquisitions of Flooring Liquidators and Kinetic, which historically have generated higher margins. General and Administrative Expense General and Administrative expenses increased by 48.4% to approximately $60.4 million for the nine months ended June 30, 2023, as compared to the nine months ended June 30, 2022. The increase is primarily due to increased General and Administrative expenses of approximately $19.3 million in the Retail-Flooring and Steel Manufacturing segments due to the acquisitions of Flooring Liquidators and Kinetic. Sales and Marketing Expense Sales and marketing expense increased by 7.6% to approximately $10.2 million for the nine months ended June 30, 2023, as compared to the nine months ended June 30, 2022, primarily due to convention and trade show activity in our Flooring Manufacturing segment and Retail-Flooring segment due to the acquisition of Flooring Liquidators. 36 Table of Contents Interest Expense, net Interest expense, net, increased by approximately $6.2 million for the nine months ended June 30, 2023, as compared to the nine months ended June 30, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and Kinetic, and to fund operations, and also increased interest rates during the period. Results of Operations by Segment for the Three Months Ended June 30, 2023 and 2022 For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Revenue $ 18,009 $ 27,449 $ 27,424 $ 18,409 $ 225 $ 91,516 $ 19,227 $ — $ 32,188 $ 14,974 $ 1,880 $ 68,269 Cost of Revenue 8,164 — 17,063 — 21,036 — 13,028 — 56 59,347 9,001 — — 24,722 — 10,964 — 1,233 45,920 Gross Profit 9,845 10,386 6,388 5,381 169 32,169 10,226 — 7,466 4,010 647 22,349 General and Administrative Expense 8,086 9,188 1,501 2,551 1,900 23,226 7,820 — 1,452 2,597 1,538 13,407 Selling and Marketing Expense 211 149 2,865 127 30 3,382 204 — 2,725 145 4 3,078 Operating Income (Loss) $ 1,548 $ 1,049 $ 2,022 $ 2,703 $ (1,761) $ 5,561 $ 2,202 $ — $ 3,289 $ 1,268 $ (895) $ 5,864 Retail-Entertainment Segment Revenue for the three months ended June 30, 2023 decreased by approximately $1.2 million, or 6.3%, as compared to the prior year, primarily due to reduced demand. Cost of revenue as a percentage of revenue was 45.3% for the three months ended June 30, 2023, as opposed to 46.8% for the three months ended June 30, 2022. Operating income for the three months ended June 30, 2023 was approximately $1.5 million, as compared to operating income of approximately $2.2 million for the prior year period. Retail-Flooring Segment Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended June 30, 2023 was $27.4 million, and cost of revenue as a percentage of revenue was 62.2%. Operating income for the three months ended June 30, 2023 was approximately $1.0 million. During the three months ended June 30, 2023, Flooring Liquidators acquired certain assets of Cal Coast Carpet Warehouse, Inc. Flooring Manufacturing Segment Revenue for the three months ended June 30, 2023 decreased by approximately $4.8 million, or 14.8%, as compared to the prior year period, primarily due to reduced customer demand. Cost of revenue as a percentage of revenue was 76.7% for the three months ended June 30, 2023, as opposed to 76.8% for the three months ended June 30, 2022. Operating income for the three months ended June 30, 2023 was approximately $2.0 million, as compared to operating income of approximately $3.3 million for the prior year period. Steel Manufacturing Segment Revenue for the three months ended June 30, 2023 increased by approximately $3.4 million, or 22.9%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Cost of revenue as a percentage of revenue was 70.8% for the three months ended June 30, 2023, as opposed to 73.2% for the three months ended June 30, 2022. Operating income for the three months ended June 30, 2023 was approximately $2.7 million, as compared to operating income of approximately $1.3 in the prior period. The increase is due to the acquisition of Kinetic. Corporate and Other Segment Revenues for the three months ended June 30, 2023 decreased by $1.7 million, or 88.0%, as compared to the prior year period. The decrease was primarily due to the shut-down of operations of SW Financial in May 2023. Cost of revenue was $56,000 for the three months ended June 30, 2023, as opposed to $1.2 million for the three months ended June 30, 2022. Operating loss for the three months ended June 30, 2023 was approximately $1.8 million, as compared to a loss of approximately $900,000 in the prior year period. As a result of the shut-down of operations of SW Financial, for the three months ended June 30, 2023, the Company recorded a gain on receipt of settlement amounts of $1.0 million and a loss on deconsolidation of SW Financial's assets and liabilities of approximately $1.7 million. Revenues and operating income for 37 Table of Contents our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business. Results of Operations by Segment for the Nine Months Ended June 30, 2023 and 2022 For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Retail-Entertainment Retail-Flooring Flooring Manufacturing Steel Manufacturing Corporate & Other Total Revenue $ 60,388 $ 48,218 $ 84,195 $ 56,306 $ 2,517 $ 251,624 $ 66,179 $ — $ 97,832 $ 41,367 $ 7,755 $ 213,133 Cost of Revenue 27,782 30,090 65,818 40,886 1,327 165,903 31,453 — 72,757 29,490 4,515 138,215 Gross Profit 32,606 18,128 18,377 15,420 1,190 85,721 34,726 — 25,075 11,877 3,240 74,918 General and Administrative Expense 24,528 17,061 4,430 8,019 6,405 60,443 24,162 — 4,677 5,813 6,066 40,718 Selling and Marketing Expense 536 234 8,768 429 231 10,198 420 — 8,626 423 11 9,480 Operating Income (Loss) $ 7,542 $ 833 $ 5,179 $ 6,972 $ (5,446) $ 15,080 $ 10,144 $ — $ 11,772 $ 5,641 $ (2,837) $ 24,720 Retail-Entertainment Segment Revenue for the nine months ended June 30, 2023 decreased by approximately $5.8 million, or 8.8%, as compared to the prior year, primarily due to reduced demand. Cost of revenue as a percentage of revenue was 46.0% for the nine months ended June 30, 2023, as opposed to 47.5% for the nine months ended June 30, 2022. Operating income for the nine months ended June 30, 2023 was approximately $7.5 million, as compared to operating income of approximately $10.1 million for the prior year period. Retail-Flooring Segment Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023. Revenue for the nine months ended June 30, 2023 was $48.2 million, and cost of revenue as a percentage of revenue was 62.4%. Operating income for the nine months ended June 30, 2023 was $833,000. Flooring Manufacturing Segment Revenue for the nine months ended June 30, 2023 decreased by approximately $13.6 million, or 13.9%, as compared to the prior year period, primarily due to reduced customer demand as a result of inflationary factors. Cost of revenue as a percentage of revenue was 78.2% for the nine months ended June 30, 2023, as opposed to 74.4% for the nine months ended June 30, 2022. Operating income for the nine months ended June 30, 2023 was approximately $5.2 million, as compared to operating income of approximately $11.8 million for the prior year period. Steel Manufacturing Segment Revenue for the nine months ended June 30, 2023 increased by $14.9 million, or 36.1%, as compared to the prior year period, primarily due to the acquisition of Kinetic. Cost of revenue as a percentage of revenue was 72.6% for the nine months ended June 30, 2023, as opposed to 71.3% for the nine months ended June 30, 2022. Operating income for the nine months ended June 30, 2023 was approximately $7.0 million, as compared to operating income of approximately $5.6 million in the prior period. Corporate and Other Segment Revenues for the nine months ended June 30, 2023 decreased by $5.2 million as compared to the prior year period. The decrease was primarily due to weakness at SW Financial, as well as the shut-down of its operations in May 2023. Cost of revenue as a percentage of revenue was 52.7% for the nine months ended June 30, 2023, as opposed to 58.2% for the nine months ended June 30, 2022. Operating loss for the nine months ended June 30, 2023 was approximately $5.4 million, as compared to a loss of approximately $2.8 million in the prior period. Revenues and operating income for our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business. 38 Table of Contents Adjusted EBITDA Reconciliation The following table presents a reconciliation of net income to Adjusted EBITDA for the three and nine months ended June 30, 2023 (in 000's): For the Three Months Ended For the Nine Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Net income $ 1,060 $ 3,472 $ 4,462 $ 25,376 Depreciation and amortization 3,683 1,571 9,978 4,616 Stock-based compensation 287 — 396 37 Interest expense, net 3,485 674 8,767 2,549 Income tax expense 297 1,365 1,462 7,848 Gain on bankruptcy settlement — — — (11,352) (Gain)/loss on extinguishment of debt — (279) — 84 SW Financial settlement gain (1,000) — (2,000) — Disposition of SW Financial 1,697 — 1,697 — Non-recurring costs for acquisitions 66 974 1,538 974 Write-off of fixed assets — 438 — 438 Write-off of ROU assets — 522 — 522 Other non-recurring company initiatives — 103 — 101 Adjusted EBITDA $ 9,575 $ 8,840 $ 26,300 $ 31,193 Adjusted EBITDA increased by approximately $735,000, or 8.3%, for the three months ended June 30, 2023, as compared to the prior year period. The increase is primarily due to a increases in non-operating and other non-recurring expenses, partially offset by decreases in operating income, as discussed above. Adjusted EBITDA decreased by approximately $4.9 million, or 15.7%, for the nine months ended June 30, 2023, as compared to the prior year period. The decrease is primarily due to decreases in operating income, as discussed above, partially offset by increases in non-operating and other non-recurring expenses. Liquidity and Capital Resources As of June 30, 2023, we had total cash on hand of approximately $3.5 million and approximately $28.8 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and, overall market conditions. Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to do the following: fund our operations; pay our scheduled loan payments; ability to repurchase shares under our share buyback program; and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months. Working Capital We had working capital of approximately $81.6 million as of June 30, 2023, as compared to working capital of approximately $78.4 million as of September 30, 2022; an increase of approximately $3.2 million. The increase is primarily due to increases in inventories, trade receivables, and prepaid expenses of approximately $19.8 million, partially offset by increases in the current portion of long-term debt, accrued liabilities, accounts payable, and the current portion operating lease obligations of approximately $16.2 million. 39 Table of Contents Cash Flows from Operating Activities The Company’s cash, as of June 30, 2023, was approximately $3.5 million compared to approximately $4.6 million as of September 30, 2022, a decrease of approximately $1.1 million. Net cash provided by operations was approximately $26.0 million for the nine months ended June 30, 2023, as compared to net cash provided by operations of approximately $10.8 million for the nine months ended June 30, 2022. The increase was primarily due to reduced purchases of inventory, reduced expenditures for prepaid expenses, and increased accounts receivable, partially offset by increased accrued liabilities, payments for deposits, and payments on accounts payable. Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings. Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition. Cash Flows from Investing Activities Our cash flows used in investing activities of approximately $38.7 million for the nine months ended June 30, 2023 consisted of the acquisitions of Flooring Liquidators and Cal Coast Carpets, and purchases of property and equipment. Our cash flows used in investing activities of approximately $32.7 million for the nine months ended June 30, 2022 consisted primarily of the Kinetic acquisition, as well as purchases of property and equipment. Cash Flows from Financing Activities Our cash flows provided by financing activities of approximately $11.7 million during the nine months ended June 30, 2023 consisted of proceeds from notes payable of approximately $9.9 million, proceeds from related party notes payable of approximately $7.0 million, net proceeds under revolver loans of approximately $3.1 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, debt acquisition costs and taxes paid for net settlement of stock options of approximately $7.3 million, and purchases of treasury stock in the amount of approximately $988,000. Our cash flows provided by financing activities of approximately $20.8 million during the nine months ended June 30, 2022 consisted of proceeds from notes payable of approximately $20.3 million, and approximately $18.2 million in net proceeds under revolver loans, partially offset by payments of notes payable and financing leases of approximately $15.2 million, and purchases of treasury stock in the amount of approximately $2.5 million. Proceeds from borrowings under revolver loans, and the issuance of notes payable was primarily associated with the acquisition of Kinetic. Currently, we are not issuing common shares for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done so historically. Occasionally, as our Company history has demonstrated, we will issue stock and derivative instruments linked to stock for services or debt settlement. Future Sources of Cash; New Products and Services We may require additional debt financing or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained by us may further dilute or otherwise impair the ownership interest of our existing stockholders.