What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-02-08 compared with 2023-08-10 · 79 added, 181 removed, 166 unchanged (61% 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, 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”).

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended December 31, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).

Note about Forward-Looking Statements

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Our Retail-Entertainment Segment is composed of Vintage Stock, Inc., doing business as Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”).

Vintage Stock is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books, comics, toys and collectibles, in a single location.

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.

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retail customers through its Flooring Liquidators retail stores, and builder and contractor customers through Elite Builder Services, Inc.

On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO, a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.

On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson, a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma and Joplin, Missouri.

Flooring Manufacturing Segment

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

(“Precision Marshall”), and its wholly-owned subsidiary The Kinetic Co., Inc.

(“Kinetic”) .

(“Precision Marshall”), its wholly-owned subsidiary The Kinetic Co., Inc.

(“Kinetic”), and Precision Metal Works, Inc.

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.

For over 75 years, Precision Marshall has served steel distributors through quick and accurate service.

Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs.

Founded in 1948, Precision Marshall has built a reputation of high integrity, speed of service and doing things the “Deluxe Way”.

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.

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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

is headquartered in Greendale, Wisconsin.

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 is headquartered in Greendale, Wisconsin.

Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each.

Kinetic employs approximately 100 non-union employees.

On July 20, 2023, we acquired PMW.

Founded nearly 76 years ago in 1947 in Louisville, Kentucky, PMW manufactures and supplies highly engineered parts and components across 400,000 square feet of manufacturing space.

PMW offers world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices.

Corporate and Other Segment

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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.

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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.

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):

Results of Operations Three Months Ended December 31, 2023 and 2022

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended December 31, 2023 and 2022 (in $000’s):

Three Months Ended

June 30, 2023 Three Months Ended

June 30, 2022

December 31, 2023 Three Months Ended

December 31, 2022

Revenue % of Total

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Interest expense, net 4,163 3.5 % 2,047 3.0 %

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.

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

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

Profit % of Total Revenue Gross

Profit % of Total Revenue

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 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.

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

Revenue % of Total

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 %

(Loss) income before provision for income taxes (906) (0.8 %) 2,459 3.6 %

(Benefit) provision for income taxes (224) (0.2 %) 615 0.9 %

Net (loss) income $ (682) (0.6 %) $ 1,844 2.7 %

Adjusted EBITDA (a)

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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

Total Revenue Net

Revenue % of Total

For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022

Retail-Entertainment $ 20,586 17.5 % $ 23,273 33.7 %

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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

For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022

Profit % of Total Revenue Gross

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Total Gross Profit $ 36,327 30.9 % $ 21,944 31.8 %

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.

Revenue increased approximately $48.6 million, or 70.5%, to approximately $117.6 million for the three months ended December 31, 2023, as compared to the corresponding prior year period.

The increase is primarily attributable to Flooring Liquidators and PMW, both of which were acquired after the first quarter of fiscal year 2023, as well as an increase of approximately $2.8 million in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenues of approximately $6.2 million in our other businesses.

Cost of Revenue

Cost of revenue as a percentage of revenue was 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.

Cost of revenue as a percentage of revenue was 69.1% for three months ended December 31, 2023 as compared to 68.2% for the three months ended December 31, 2022.

The increase was primarily attributable to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production, partially offset by the acquisition of Flooring Liquidators, which historically has generated higher margins.

General and Administrative Expense

General and Administrative expenses increased by 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.

General and Administrative expenses increased by 89.6% to approximately $27.9 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022.

The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.

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.

Sales and marketing expense increased by 83.9% to approximately $5.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased compensation for sales personnel acquired as part of the acquisition of the Harris Flooring Group® brands from Q.E.P, and increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Interest Expense, net

Interest expense, net, increased by approximately $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

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

Interest expense, net, increased by approximately $2.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased debt balances related to the acquisitions of Flooring Liquidators and PMW, and to fund operations, and increased interest rates during the period.

Results of Operations by Segment for the Three Months Ended December 31, 2023 and 2022

For the Three Months Ended December 31, 2023 For the Three Months Ended December 31, 2022

Retail-Entertainment Retail-Flooring Flooring

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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.

Revenue for the three months ended December 31, 2023 decreased by approximately $2.7 million, or 11.5%, as compared to the prior year, primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins.

The shift in sales mix also contributed to the increase in gross margin to 56.0% for the quarter ended December 31, 2023, compared to 52.5% for the prior year period.

Operating income for the quarter ended December 31, 2023, was approximately $3.1 million, compared to operating income of approximately $3.7 million for the prior year period.

Retail-Flooring Segment

Our Retail-Flooring segment consists of Flooring Liquidators, which we acquired in January 2023.

Revenue for the 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.

Revenue for the three months ended December 31, 2023 was $34.3 million, and cost of revenue as a percentage of revenue was 62.0%.

Operating income for the three months ended December 31, 2023 was approximately $90,000.

During the three months ended December 31, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO.

Additionally, during the three months ended December 31, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson.

Flooring Manufacturing Segment

Revenue for the 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.

Revenue for the three months ended December 31, 2023 increased by approximately $2.8 million, or 10.6%, as compared to the prior year period.

The gross margin was 22.0% for the quarter ended December 31, 2023, compared to 17.6% for the prior year period.

The increase in revenue and gross margin is primarily due to the buildup of the sales force as a result of the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023.

Operating income for the year ended December 31, 2023, was approximately $0.95 million, compared to operating income of approximately $0.75 million for the prior year.

Steel Manufacturing Segment

Revenue for the 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.

Revenue for the three months ended December 31, 2023 increased by approximately $15.4 million, or 85.5%, as compared to the prior year period.

The increase is primarily due to increased revenues of approximately $18.3 million at The Kinetic Co., Inc.

and PMW, partially offset by a $2.9 million decrease in our other Steel Manufacturing business.

This decrease is primarily due to reduced customer demand as a result of general economic conditions.

The gross margin was 15.8% for the quarter ended December 31, 2023, compared to 24.4% for the prior year period.

The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins and decreased margins in the Steel

Manufacturing segment due to reduced production.

Operating income for the year ended December 31, 2023, was approximately $1.0 million, compared to operating income of approximately $1.5 million in the prior year period.

Corporate and Other Segment

Revenues for the 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.

Revenues for the three months ended December 31, 2023 decreased by $1.2 million, or 93.2%, as compared to the prior year period.

The decrease was primarily due to the closure of SW Financial in May 2023.

Operating loss for the quarter ended December 31, 2023, was approximately $1.6 million, compared to a loss of approximately $1.3 million in the prior year.

Adjusted EBITDA Reconciliation

The following table presents a reconciliation of net income to Adjusted EBITDA for the three 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

The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2023 (in 000's):

For the Three Months Ended

December 31, 2023 December 31, 2022

Net (loss) income $ (682) $ 1,844

Depreciation and amortization 4,295 2,651

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Interest expense, net 4,163 2,047

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

Income tax (benefit) expense (224) 615

Debt refinancing costs 183 —

Acquisition costs 406 382

Other noncash charges 505 —

Adjusted EBITDA $ 8,696 $ 7,539

Adjusted EBITDA increased by approximately $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.

Adjusted EBITDA increased by approximately $1.2 million, or 15.3%, for the three months ended December 31, 2023, as compared to the prior year period.

The increase is primarily due to an increase in non-operating and other non-recurring expenses, partially offset by decreases in operating income, as discussed above.

Liquidity and Capital Resources

As of 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 of December 31, 2023, we had total cash on hand of approximately $5.6 million and approximately $39.4 million of available borrowing under our revolving credit facilities.

As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities.

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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.

We had working capital of approximately $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023;

a decrease of approximately $3.2 million.

The decrease is primarily due to increases in accrued liabilities and the current portion of operating lease obligations, and a decrease in prepaid expenses of approximately $8.6 million, partially offset by decreases in accounts payable, and increases in accounts receivable, inventories, and cash of approximately $5.3 million.

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.

The Company’s cash, as of December 31, 2023, was approximately $5.6 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $1.3 million.

Net cash provided by operations was approximately $7.9 million for the three months ended December 31, 2023, as compared to net cash provided by operations of approximately $6.3 million for the three months ended December 31, 2022.

The increase was primarily due to increases in accrued liabilities, depreciation and amortization expense, and allowance for obsolete inventory, partially offset by an increase in accounts receivable and decrease in deferred income tax liabilities.

Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings.

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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.

Our cash flows used in investing activities of approximately $3.2 million for the three months ended December 31, 2023 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment.

Our cash flows used in investing activities of approximately $1.3 million for the three months ended December 31, 2022 consisted of purchases of property and equipment.

Cash Flows from Financing Activities

Our cash flows 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.

Our cash flows used in financing activities of approximately $3.4 million during the three months ended December 31, 2023 consisted of payments on notes payable of approximately $1.8 million, purchases of treasury stock and payments for finance leases of approximately $900,000, and net payments under revolver loans of approximately $750,000.

Our cash flows provided by financing activities of approximately $3.2 million during the three months ended December 31, 2022 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.

Currently, we are not issuing common shares for liquidity purposes.

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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