Item 1. Financial Statements
Item 1. Financial Statements
LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share amounts)
December 31, 2023 September 30, 2023
(Unaudited)
Assets
Cash $ 5,569 $ 4,309
Trade receivables, net of allowance for doubtful accounts of $ 1.5 million at December 31, 2023 and $ 1.6 million at September 30, 2023
42,350 41,194
Inventories, net 132,455 131,314
Income taxes receivable — 1,116
Prepaid expenses and other current assets 4,751 4,919
Total current assets 185,125 182,852
Property and equipment, net 79,683 80,703
Right of use asset - operating leases 65,799 54,544
Deposits and other assets 1,240 1,282
Intangible assets, net 28,163 26,568
Goodwill 76,639 75,866
Total assets $ 436,649 $ 421,815
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 25,406 $ 27,190
Accrued liabilities 39,123 31,826
Income taxes payable 431 —
Current portion of lease obligations - operating leases 12,799 11,369
Current portion of lease obligations - finance leases 361 359
Current portion of long-term debt 21,223 23,077
Current portion of notes payable related parties 4,000 4,000
Total current liabilities 103,343 97,821
Long-term debt, net of current portion 78,357 78,710
Lease obligation long term - operating leases 58,291 48,156
Lease obligation long term - finance leases 32,981 32,942
Notes payable related parties, net of current portion 6,919 6,914
Seller notes - related parties 39,672 38,998
Deferred taxes 11,714 14,035
Other non-current obligations 5,975 4,104
Total liabilities 337,252 321,680
Commitments and contingencies
Stockholders' equity:
Series E convertible preferred stock, $ 0.001 par value, 200,000 shares authorized, 47,840 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively, with a liquidation preference of $ 0.30 per share outstanding
— —
Common stock, $ 0.001 par value, 10,000,000 shares authorized, 3,159,984 and 3,164,330 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively
2 2
Paid in capital 69,437 69,387
Treasury stock common 664,409 and 660,063 shares as of December 31, 2023 and September 30, 2023, respectively
( 8,312 ) ( 8,206 )
Treasury stock Series E preferred 80,000 shares as of December 31, 2023 and September 30, 2023, respectively
( 7 ) ( 7 )
Retained earnings 38,277 38,959
Total stockholders' equity 99,397 100,135
Total liabilities and stockholders' equity $ 436,649 $ 421,815
The accompanying notes are an integral part of these condensed consolidated financial statements.
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LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(UNAUDITED)
(dollars in thousands, except per-share amounts)
For the Three Months Ended December 31,
2023 2022
Revenues $ 117,593 $ 68,986
Cost of revenues 81,266 47,042
Gross profit 36,327 21,944
Operating expenses:
General and administrative expenses 27,679 14,600
Sales and marketing expenses 5,107 2,777
Total operating expenses 32,786 17,377
Operating income 3,541 4,567
Other expense:
Interest expense, net ( 4,163 ) ( 2,047 )
Other expense ( 284 ) ( 61 )
Total other expense, net ( 4,447 ) ( 2,108 )
(Loss) income before provision for income taxes ( 906 ) 2,459
(Benefit) provision for income taxes ( 224 ) 615
Net (loss) income $ ( 682 ) $ 1,844
(Loss) income per share:
Basic $ ( 0.22 ) $ 0.60
Diluted $ ( 0.22 ) $ 0.60
Weighted average common shares outstanding:
Basic 3,163,541 3,059,035
Diluted 3,163,541 3,089,741
The accompanying notes are an integral part of these condensed consolidated financial statements.
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LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
For the Three Months Ended December 31,
2023 2022
Operating Activities:
Net (loss) income $ ( 682 ) $ 1,844
Adjustments to reconcile net (loss) income to net cash provided by operating activities, net of acquisition:
Depreciation and amortization 4,295 2,651
Amortization of seller note discount 673 —
Amortization of debt issuance cost 21 16
Stock based compensation expense 50 —
Amortization of right-of-use assets 1,143 540
Change in reserve for uncollectible accounts ( 32 ) 20
Change in reserve for obsolete inventory 1,001 ( 48 )
Changes in assets and liabilities, net of acquisitions:
Trade receivables 386 5,066
Inventories 267 223
Income taxes payable/receivable 1,547 558
Prepaid expenses and other current assets 468 100
Deposits and other assets 42 ( 173 )
Accounts payable ( 3,572 ) ( 3,416 )
Accrued liabilities 3,700 ( 1,050 )
Change in deferred income taxes ( 1,435 ) 56
Other Liabilities — ( 133 )
Net cash provided by operating activities 7,872 6,254
Investing Activities:
Acquisition of CRO ( 1,034 ) —
Acquisition of Johnson ( 500 ) —
Purchase of property and equipment ( 1,655 ) ( 1,282 )
Net cash used in investing activities ( 3,189 ) ( 1,282 )
Financing Activities:
Net payments under revolver loans ( 756 ) ( 51 )
Proceeds from issuance of notes payable — 5,709
Payments on notes payable ( 1,767 ) ( 1,362 )
Purchase of common treasury stock ( 107 ) ( 622 )
Payments on financing leases ( 793 ) ( 481 )
Net cash (used in) provided by financing activities ( 3,423 ) 3,193
Increase in cash 1,260 8,165
Cash, beginning of period 4,309 4,600
Cash, end of period $ 5,569 $ 12,765
Supplemental cash flow disclosures:
Interest paid $ 3,271 $ 1,927
Income taxes received $ 346 $ —
Noncash financing and investing activities:
Kinetic goodwill adjustment $ — $ 312
PMW goodwill adjustment $ 233 $ —
Noncash items related to CRO acquisition $ 725 $ —
Noncash items related to Johnson acquisition $ 1,501 $ —
The accompanying notes are an integral part of these condensed consolidated financial statements.
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LIVE VENTURES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
Series E
Preferred Stock Common Stock Series E
Preferred
Stock Common
Stock
Shares Amount Shares Amount Paid-In
Capital Treasury
Stock Treasury
Stock Retained
Earnings Non-controlling
Interest Total
Equity
Balance, September 30, 2023 47,840 $ — 3,164,330 $ 2 $ 69,387 $ ( 7 ) $ ( 8,206 ) $ 38,959 $ — $ 100,135
Stock based compensation — — — — 50 — — — — 50
Purchase of common treasury stock — — ( 4,346 ) — — — ( 106 ) — — ( 106 )
Net loss — — — — — — — ( 682 ) — ( 682 )
Balance, December 31, 2023 47,840 $ — 3,159,984 $ 2 $ 69,437 $ ( 7 ) $ ( 8,312 ) $ 38,277 $ — $ 99,397
Series E
Preferred Stock Common Stock Series E
Preferred
Stock Common
Stock
Shares Amount Shares Amount Paid-In
Capital Treasury
Stock Treasury
Stock Retained
Earnings Non-controlling
Interest Total
Equity
Balance, September 30, 2022 47,840 $ — 3,074,833 $ 2 $ 65,321 $ ( 7 ) $ ( 7,215 ) $ 39,509 $ ( 448 ) $ 97,162
Purchase of common treasury stock — — ( 24,710 ) — — — ( 621 ) — ( 621 )
Net income — — — — — — — 1,844 — 1,844
Balance, December 31, 2022 47,840 $ — 3,050,123 $ 2 $ 65,321 $ ( 7 ) $ ( 7,836 ) $ 41,353 $ ( 448 ) $ 98,385
The accompanying notes are an integral part of these condensed consolidated financial statements.
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LIVE VENTURES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(dollars in thousands, except per-share amounts)
Note 1: Background and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation, and its subsidiaries (collectively, “Live Ventures” or the “Company”). Live Ventures is a diversified holding company with a strategic focus on value-oriented acquisitions of domestic middle-market companies. The Company has five operating segments: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other. The Retail-Entertainment segment includes Vintage Stock, Inc. (“Vintage Stock”), which is engaged in the retail sale of new and used movies, music, collectibles, comics, books, games, game systems and components. The Retail-Flooring segment includes Flooring Liquidators, Inc. (“Flooring Liquidators”), which is engaged in the retail sale and installation of floors, carpets, and countertops. The Flooring Manufacturing segment includes Marquis Industries, Inc. (“Marquis”), which is engaged in the manufacture and sale of carpet and the sale of vinyl and wood floor coverings. The Steel Manufacturing Segment includes Precision Industries, Inc. (“Precision Marshall”), which is engaged in the manufacture and sale of alloy and steel plates, ground flat stock and drill rods, The Kinetic Co., Inc. (“Kinetic”), which is engaged in the production of industrial knives and hardened wear products for the tissue and metals industries, and Precision Metal Works, Inc. (“PMW”), which is engaged in metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices. PMW reports on a 13-week quarter, as opposed to the Company's calendar quarter reporting. However, the Company has determined that the difference in reporting periods has no material effect on its reported financial results.
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for audited financial statements. In the opinion of the Company’s management, this interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2024. The financial information included in these statements should be read in conjunction with the condensed consolidated financial statements and related notes thereto as of September 30, 2023 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 22, 2023 (the “2023 Form 10-K”).
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed financial statements include the accounts of the Company and its majority owned subsidiaries over which the Company exercises control. All intercompany accounts and transactions have been eliminated in consolidation. These reclassifications have no material effect on the reported financial results.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, fair values in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires, among other updates, enhanced disclosures about significant segment expenses that are regularly
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provided to the CODM, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Note 3: Acquisitions
Acquisition of CRO
On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of Carpet Remnant Outlet, Inc. (“CRO”), a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas. Total consideration for the acquisition was approximately $ 1.8 million and was comprised of cash at close of approximately $ 1.0 million, an indemnification holdback amount of $ 300,000 , and additional consideration valued at $ 425,000 .
The fair value of the purchase price components was $ 1.8 million, as detailed below (in $000's):
Cash $ 1,034
Additional consideration 425
Holdback 300
Purchase price $ 1,759
Under the preliminary purchase price allocation, the Company recognized goodwill of $ 425,000 , which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of October 13, 2023, as calculated by an independent third-party firm. The value of the additional consideration was calculated by management. The Company anticipates the $ 425,000 of goodwill arising from the acquisition to be fully deductible for tax purposes. The table below outlines the purchase price allocation of the purchase for CRO to the acquired identifiable assets, liabilities assumed and goodwill as of December 31, 2023 (in $000’s):
Total purchase price $ 1,759
Accounts payable 770
Accrued liabilities 1,298
Total liabilities assumed 2,068
Total consideration 3,827
Accounts receivable 259
Inventory 1,406
Property, plant and equipment 261
Intangible assets
Non-compete agreement 1,190
Subtotal intangible assets 1,190
Other assets 286
Total assets acquired 3,402
Total goodwill $ 425
Acquisition of Johnson
On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson Floor & Home (“Johnson”), a floor covering retailer and installer serving residential and commercial customers through four locations in
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the Tulsa, Oklahoma area, and one in Joplin, Missouri. Total consideration for the acquisition was $ 2.0 million, comprised of cash at close of $ 500,000 , deferred consideration of $ 1.2 million, with additional consideration paid in the form of an earnout valued at approximately $ 300,000 . The deferred consideration is payable in three $ 400,000 installments due annually on the first three anniversary dates following the closing date. Each installment will accrue interest at 6.0 % per annum until paid.
The fair value of the purchase price components outlined above was approximately $ 2.0 million, as detailed below (in $000's):
Cash $ 500
Deferred consideration 1,200
Earnout 301
Purchase price $ 2,001
The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of November 30, 2023, as calculated by management. The table below outlines the purchase price allocation of the purchase for Johnson to the acquired identifiable assets, liabilities assumed and goodwill as of December 31, 2023 (in $000’s):
Total purchase price $ 2,001
Accounts payable 1,017
Accrued liabilities 1,141
Total liabilities assumed 2,158
Total consideration 4,159
Accounts receivable 1,252
Inventory 1,127
Property, plant and equipment 157
Intangible assets
Customer relationships $ 1,301
Non-compete agreement 306
Subtotal intangible assets 1,607
Other assets 16
Total assets acquired 4,159
Total goodwill $ —
Acquisition of Harris Flooring Group® Brands
On September 20, 2023, Marquis acquired the Harris Flooring Group® brands from Q.E.P., a designer, manufacturer, and distributor of a broad range of best-in-class flooring and installation solutions for commercial and home improvement projects. Specifically, Marquis acquired the Harris Flooring Group brands, inventory, and book of business and intends to retain all sales representatives. The purchase price was $ 10.1 million, consisting of $ 3.0 million in cash at close, and the recording of a deferred payment of $ 5.1 million and holdback of $ 2.0 million. The acquisition was determined to be an asset acquisition for accounting purposes. The entirety of the purchase was allocated to inventory.
Acquisition of PMW
On July 20, 2023 (“Effective Date”), the Company acquired PMW, a Kentucky-based metal stamping and value-added manufacturing company. PMW was acquired for total consideration of approximately $ 28 million, comprised of a $ 25 million purchase price, plus closing cash, and subject to working capital adjustments, with additional consideration of up to $ 3 million paid in the form of an earn-out. The purchase price was funded in part by a $ 2.5 million seller note, borrowings under a credit facility of $ 14.4 million, and proceeds under a sale and leaseback transaction of approximately $ 8.6 million. The acquisition involved no issuance of stock of the Company.
As of the Effective Date, the Company entered into a sales and leaseback transaction for two properties acquired, one located in Frankfort, Kentucky, and the other located in Louisville, Kentucky, with Legacy West Kentucky Portfolio, LLC (“Lessor”). The aggregate sales price of the real estate was approximately $ 14.5 million. The Louisville, Kentucky
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property was acquired on the Effective Date for $ 5.1 million in connection with an option of PMW to purchase that property.
The provisions of each of the two lease agreements include a 20-year lease term with two five-year renewal options. The base rent under the Frankfort lease agreement is $ 34,977 per month for the first year of the term and a 2 % per annum escalator thereafter. The base rent under the Louisville lease agreement is $ 63,493 per month for the first year of the term and a 2 % per annum escalator thereafter. Both lease agreements are “net leases,” such that the lessees are also obligated to pay all taxes, insurance, assessments, and other costs, expenses, and obligations of ownership of the real property incurred by the lessor. Due to the highly specialized nature of the leased assets, the Company currently believes it is more likely than not that each of the two five-year options will be exercised. The proceeds of $ 14.5 million, net of closing fees, from the sale-leaseback were used to assist in funding the acquisition of PMW.
The fair value of the purchase price components outlined above was $ 26.8 million due to fair value adjustments for the contingent consideration, cash acquired, and working capital adjustments, as detailed below (in $000's):
Purchase price $ 25,000
Fair value of earnout 2,675
Cash from balance sheet 1,602
Working capital adjustment ( 2,500 )
Net purchase price $ 26,777
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $ 4.0 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of July 20, 2023, as calculated by an independent third-party firm. Because the transaction was considered a stock purchase for tax purposes, none of the goodwill arising from the acquisition will be deductible for tax purposes. During the three months ended December 31, 2023, the Company recorded noncash fair value adjustments related to inventory and other liabilities assumed, as well as an adjustment to deferred tax liabilities in the aggregate amount of $ 652,000 . The table below outlines the purchase price allocation of the purchase for PMW to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):
Net purchase price $ 26,777
Accounts payable 10,788
Accrued liabilities 4,995
Total liabilities assumed 15,783
Total consideration 42,560
Cash 1,602
Accounts receivable 12,613
Inventory 6,266
Property, plant and equipment 13,616
Intangible assets 3,600
Other assets 849
Total assets acquired 38,546
Total goodwill $ 4,014
Acquisition of Cal Coast Carpets
On June 2, 2023, Flooring Liquidators acquired certain fixed assets and other intangible assets of Cal Coast Carpets, Inc. (“Cal Coast”), and its shareholders. No liabilities were assumed as part of either transaction. The purchase price for the fixed assets acquired from Cal Coast was $ 35,000 , and the intangible assets acquired from the shareholders was approximately $ 1.265 million, for a total combined purchase price of $ 1.3 million. The intangible assets acquired were comprised of customer relationships, trade name, and non-compete agreements. The acquisition was determined to be an asset acquisition for accounting purposes and, as such, no goodwill was recorded as part of the transaction. The values assigned to the assets acquired are based on their estimates of fair value available as of June 2, 2023, as calculated by management.
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The table below outlines the purchase price allocation of the purchase for Cal Coast to the acquired identifiable assets (in $000’s):
Property, plant and equipment $ 35
Intangible assets
Customer relationships 785
Trade name 425
Non-compete agreement 55
Total intangible assets 1,265
Total assets acquired $ 1,300
Acquisition of Flooring Liquidators
On January 18, 2023, Live Ventures acquired 100 % of the issued and outstanding equity interests (the “Equity Interests”) of Flooring Liquidators, Inc., Elite Builder Services, Inc. (“EBS”), 7 Day Stone, Inc., Floorable, LLC, K2L Leasing, LLC, and SJ & K Equipment, Inc. (collectively, the “Acquired Companies”). The Acquired Companies are leading retailers and installers of floors, carpets, and countertops to consumers, builders and contractors in California and Nevada.
The acquisition was effected pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with an effective date of January 18, 2023 by and among the Company, and Stephen J. Kellogg, as the seller representative of the equity holders of the Acquired Companies and individually in his capacity as an equity holder of the Acquired Companies, and the other equity holders of the Acquired Companies (collectively, the “Seller”). The purchase price for the Equity Interests was $ 83.8 million before any fair value considerations, and is comprised of the following:
• $ 41.8 million in cash to the Seller;
• $ 34.0 million (the “Note Amount”) to certain trusts for the benefit of Kellogg and members of his family (the “Kellogg Trusts”) pursuant to the issuance by the Company of a subordinated promissory note (the “Note”) in favor of the Kellogg Trusts;
• $ 4.0 million to the Kellogg 2022 Family Irrevocable Nevada Trust by issuance of 116,441 shares of Company Common Stock (as defined in the Purchase Agreement) (the “Share Amount”), calculated in the manner described in the Purchase Agreement;
• $ 2.0 million holdback; and
• $ 2.0 million of contingent consideration, comprised of $ 1.0 million in cash and $ 1.0 million in restricted stock units.
The fair value of the purchase price components outlined above was $ 78.7 million due to fair value adjustments for the Note, and restricted stock, as detailed below (in $000's).
Purchase price $ 83,800
Fair value adjustment, sellers note ( 3,300 )
Fair value adjustment, restricted stock ( 1,800 )
Net purchase price $ 78,700
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $ 31.4 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of January 18, 2023, as calculated by an independent third-party firm. The Company anticipates approximately $ 13.4 million of the goodwill arising from the acquisition to be fully deductible for tax purposes. During the three months ended December 31, 2023, the Company recorded a fair value adjustment related to its contingent
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consideration of $ 1 million. The table below outlines the purchase price allocation, as revised, of the purchase for Flooring Liquidators to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):
Purchase price $ 78,700
Accounts payable 5,189
Accrued liabilities 10,700
Debt 60
Total liabilities assumed 15,949
Total consideration 94,649
Cash 9,131
Accounts receivable 4,824
Inventory 19,402
Property, plant and equipment 4,643
Intangible assets
Trade names $ 13,275
Customer relationships 7,700
Non-compete agreements 1,625
Other 49
Subtotal intangible assets 22,649
Other 2,581
Total assets acquired 63,230
Total goodwill $ 31,419
Note 4: Inventory
The following table details the Company's inventory as of December 31, 2023 and September 30, 2023 (in $000's):
Inventory, net December 31, 2023 September 30, 2023
Raw materials $ 29,690 $ 32,590
Work in progress 9,682 9,028
Finished goods 51,806 50,082
Merchandise 46,098 43,438
137,276 135,138
Less: Inventory reserves ( 4,821 ) ( 3,824 )
Total inventory, net $ 132,455 $ 131,314
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Note 5: Property and Equipment
The following table details the Company's property and equipment as of December 31, 2023 and September 30, 2023 (in $000's):
December 31, 2023 September 30, 2023
Property and equipment, net:
Land $ 2,029 $ 2,029
Building and improvements 36,417 35,684
Transportation equipment 2,088 2,062
Machinery and equipment 68,202 67,575
Furnishings and fixtures 6,287 6,028
Office, computer equipment and other 4,941 4,569
119,964 117,947
Less: Accumulated depreciation ( 40,281 ) ( 37,244 )
Total property and equipment, net $ 79,683 $ 80,703
Depreciation expense was $ 3.1 million and $ 2.4 million for the three months ended December 31, 2023 and 2022, respectively.
Note 6: Leases
The Company leases retail stores, warehouse facilities, and office space. These assets and properties are generally leased under noncancelable agreements that expire at various future dates with many agreements containing renewal options for additional periods. The agreements, which have been classified as either operating or finance leases, generally provide for minimum and, in some cases, percentage rent, and require the Company to pay all insurance, taxes, and other maintenance costs. As a result, the Company recognizes assets and liabilities for all leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
The following table details the Company's right of use assets and lease liabilities as of December 31, 2023 and September 30, 2023 (in $000's):
December 31, 2023 September 30, 2023
Right of use asset - operating leases $ 65,799 $ 54,544
Lease liabilities:
Current - operating 12,799 11,369
Current - finance 361 359
Long term - operating 58,291 48,156
Long term - finance 32,981 32,942
As of December 31, 2023, the weighted average remaining lease term for operating leases is 10.3 years. The Company's weighted average discount rate for operating leases is 9.9 %. Total cash payments for operating leases for the three months ended December 31, 2023 and 2022 were approximately $ 4.3 million and $ 2.4 million, respectively. Additionally, the Company recognized approximately $ 14.9 million in right of use assets and liabilities upon commencement of operating leases during the three months ended December 31, 2023.
As of December 31, 2023, the weighted average remaining lease term for finance leases is 27.4 years. The Company's weighted average discount rate for finance leases is 11.7 %. Total cash payments for finance leases for the three months
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ended December 31, 2023 and 2022 were approximately $ 793,000 and $ 481,000 , respectively. No finance right-of-use assets or liabilities were recognized during the three months ended December 31, 2023.
The Company records finance lease right of use assets as property and equipment. The balance, as of December 31, 2023 and September 30, 2023 is as follows (in $000’s):
December 31, 2023 September 30, 2023
Property and equipment, at cost $ 22,526 $ 22,526
Accumulated depreciation $ ( 861 ) $ ( 702 )
Property and equipment, net $ 21,665 $ 21,824
Total present value of future lease payments of operating leases as of December 31, 2023 (in $000's):
Twelve months ended December 31,
2024 $ 18,564
2025 16,784
2026 14,155
2027 12,252
2028 8,107
Thereafter 36,737
Total 106,599
Less implied interest ( 35,509 )
Present value of payments $ 71,090
Total present value of future lease payments of finance leases as of December 31, 2023 (in $000's):
Twelve months ended December 31,
2024 $ 3,167
2025 3,197
2026 3,241
2027 3,320
2028 3,425
Thereafter 104,066
Total 120,416
Less implied interest ( 87,074 )
Present value of payments $ 33,342
During the three months ended December 31, 2023 and 2022, the Company recorded no impairment charges relating to any of its leases.
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Note 7: Intangibles
The following table details the Company's intangibles as of December 31, 2023 and September 30, 2023 (in $000's):
December 31, 2023 September 30, 2023
Intangible assets, net:
Intangible assets - Tradenames $ 14,940 $ 14,940
Intangible assets - Customer relationships 15,175 13,874
Intangible assets - Other 3,811 2,316
33,926 31,130
Less: Accumulated amortization ( 5,763 ) ( 4,562 )
Total intangibles, net $ 28,163 $ 26,568
Amortization expense was $ 1.2 million and $ 253,000 for the three months ended December 31, 2023 and 2022, respectively.
The following table summarizes estimated future amortization expense related to intangible assets that have net balances (in $000’s):
Twelve months ending December 31,
2024 $ 4,984
2025 4,984
2026 4,945
2027 4,866
2028 4,335
Thereafter 4,049
$ 28,163
Note 8: Goodwill
The following table details the Company's goodwill as of September 30, 2023 and December 31, 2023 (in $000's):
Retail - Entertainment Retail - Flooring Flooring Manufacturing Steel Manufacturing Total
September 30, 2023 36,947 30,419 807 7,693 75,866
CRO acquisition — 425 — — 425
PMW adjustment — — — ( 652 ) ( 652 )
Flooring Liquidators adjustment — 1,000 — — 1,000
December 31, 2023 $ 36,947 $ 31,844 $ 807 $ 7,041 $ 76,639
During the three months ended December 31, 2023, the Company made fair value adjustments, in the amount of approximately $ 652,000 , related to the acquisition of PMW, and $ 1.0 million related to the acquisition of Flooring Liquidators (see Note 3).
As of December 31, 2023, the Company did not identify any triggering events that would require impairment testing.
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Note 9: Accrued Liabilities
The following table details the Company's accrued liabilities as of December 31, 2023 and September 30, 2023, respectively (in $000's):
December 31, 2023 September 30, 2023
Accrued liabilities:
Accrued payroll and bonuses $ 5,775 $ 5,802
Accrued sales and use taxes 1,921 1,529
Accrued customer deposits 6,093 4,579
Accrued gift card and escheatment liability 1,873 1,819
Accrued interest payable 697 669
Accrued inventory 7,262 5,700
Accrued professional fees 5,454 3,146
Accrued expenses - other 10,048 8,582
Total accrued liabilities $ 39,123 $ 31,826
Note 10: Long-Term Debt
Long-term debt as of December 31, 2023 and September 30, 2023 consisted of the following (in $000's):
December 31, 2023 September 30, 2023
Revolver loans $ 56,022 $ 56,779
Equipment loans 14,419 15,486
Term loans 13,669 14,290
Other notes payable 16,011 15,789
Total notes payable 100,121 102,344
Less: unamortized debt issuance costs ( 541 ) ( 557 )
Net amount 99,580 101,787
Less: current portion ( 21,223 ) ( 23,077 )
Total long-term debt $ 78,357 $ 78,710
Future maturities of long-term debt at December 31, 2023, are as follows which does not include related party debt separately stated (in $000's):
Twelve months ending December 31,
2024 $ 21,223
2025 7,504
2026 28,217
2027 31,134
2028 1,306
Thereafter 10,196
Total future maturities of long-term debt $ 99,580
Bank of America Revolver Loan
On January 31, 2020, Marquis entered into an amended $ 25.0 million revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a five-year , asset-based facility that is secured by substantially all of Marquis’ assets. Availability under the BofA Revolver is subject to a monthly borrowing base
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calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with BofA. The BofA Revolver has a variable interest rate and matures in January 2025. As of December 31, 2023 and September 30, 2023, the outstanding balance was approximately $ 6.5 million and $ 6.1 million, respectively.
Loan with Fifth Third Bank (Precision Marshall)
On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank, and the balance outstanding was repaid. The refinanced credit facility, totaling $ 29 million, is comprised of $ 23.0 million in revolving credit, $ 3.5 million in M&E lending, and $ 2.5 million for Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR plus 200 basis points for lending under the revolving facility, and 30-day SOFR plus 225 basis points for M&E and Capex lending. The refinancing of the Borrower’s existing credit facility reduces interest costs and improves the availability and liquidity of funds by approximately $ 3.0 million at the close. The facility terminates on January 20, 2027 , unless terminated earlier in accordance with its terms.
In connection with the acquisition of Kinetic, the existing revolving facility was amended to add Kinetic as a borrower. In addition, two additional term loans were executed to fund the purchase of Kinetic. Approximately $ 6.0 million was drawn from the revolving facility, and the two term loans were opened in the amounts of $ 4.0 million and $ 1.0 million, respectively. The $ 4.0 million term loan (“Kinetic Term Loan #1”), which matures on January 20, 2027 , bears interest on the same terms as for M&E term lending as stated above. The $ 1.0 million term loan (“Kinetic Term Loan #2”), which matures on June 28, 2025 , is a “Special Advance Term Loan”, and bears interest at SOFR plus 375 basis points.
As of December 31, 2023 and September 30, 2023, the outstanding balance on the revolving loan was approximately $ 26.0 million and $ 23.0 million, respectively, and the outstanding balance on the original M&E lending, which is documented as a term note, was approximately $ 2.2 million and $ 2.3 million, respectively. The revolving loan has a variable interest rate and matures in January 2027. As of December 31, 2023 and September 30, 2023, the outstanding balance on Kinetic Term Loan #1 was approximately $ 3.1 million and $ 3.3 million, respectively. As of September 30, 2023, the Kinetic Term Loan #2 was fully repaid.
On April 12, 2023, in connection with its existing credit facility with Fifth Third Bank, Precision Marshall took an advance against its Capex term lending in the amount of approximately $ 1.4 million. The loan matures January 2027 and bears interest on the same terms as for Capex lending as stated above. The first payment under this loan is due in February 2024. The outstanding balance on the Capex loan was $ 1.4 million as of each of December 31, 2023 and September 30, 2023.
Eclipse Business Capital Loans
In connection with the acquisition of Flooring Liquidators (see Note 3), on January 18, 2023, Flooring Liquidators entered into a credit facility with Eclipse Business Capital, LLC (“Eclipse”). The facility consists of $ 25.0 million in revolving credit (“Eclipse Revolver”) and $ 3.5 million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a three-year , asset-based facility that is secured by substantially all of Flooring Liquidators’ assets. Availability under the Eclipse Revolver is subject to a monthly borrowing base calculation. Flooring Liquidators’ ability to borrow under the Eclipse Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Eclipse. The Eclipse Revolver bears interest at 4.5 % per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 3.5 % per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at 6.0 % per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 5.0 % per annum in excess of Adjusted Term SOFR after April 1, 2023. The credit facility matures in January 2026. As of December 31, 2023 and September 30, 2023, the outstanding balance on the Eclipse Revolver was approximately $ 8.8 million and $ 8.2 million, respectively, and the outstanding balance on the Eclipse M&E loan was approximately $ 2.3 million and $ 2.4 million, respectively.
Loan with Fifth Third Bank (PMW)
In connection with the acquisition of PMW (see Note 3), on July 20, 2023, PMW entered into a revolving credit facility with Fifth Third Bank. The facility consists of $ 15.0 million in revolving credit and approximately $ 5.0 million in M&E lending. The Fifth-Third Revolver is a three-year , asset-based facility that is secured by substantially all of PMW's assets. Availability under the Fifth-Third Revolver is subject to a monthly borrowing base calculation. PMW's ability to borrow under the Fifth-Third Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Fifth-Third. Loans made under the Revolving Credit Facility are considered Reference Rate Loans, and bear interest at a rate equal to the sum of the Reference Rate plus the Applicable Margin. Reference Rate means the greater of (a) 3.0 % or (b) the Lender’s publicly announced prime rate (which is not intended to be Lender’s
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lowest or most favorable rate in effect at any time) in effect from time to time. The Applicable Margin for revolving loans is zero , while for the M&E Term Loan or any Capital Expenditure Term Loan, it is 50 basis points ( 0.5 %). The credit facility matures in July 2026. As of December 31, 2023 and September 30, 2023, the outstanding balance on the Fifth-Third Revolver was approximately $ 10.2 million and $ 11.0 million, respectively, and the balance on the Fifth-Third M&E loan was approximately $ 4.7 million and $ 4.8 million, respectively.
Bank Midwest Revolver Loan
On October 17, 2023, Vintage entered into a $ 15.0 million credit agreement with Bank Midwest (“Bank Midwest Revolver”), replacing a revolving credit facility between Vintage and Texas Capital Bank (“TCB Revolver”), which was entered into in November 2016 and set to mature in November 2023. In connection with the entry into the Credit Agreement, the revolving credit facility between Vintage Stock and Texas Capital Bank was terminated and the balance outstanding was repaid. The Bank Midwest Revolver interest accrues daily on the outstanding principal at a rate of the greater of (a) the one-month forward-looking term rate based on SOFR, plus 2.36 % per annum, or (b) 6.5 % per annum, and matures on October 17, 2024. As of December 31, 2023, the outstanding balance on the Bank Midwest Revolver was approximately $ 4.5 million. As of September 30, 2023, the outstanding balance on the TCB Revolver was approximately $ 5.3 million.
Equipment Loans
On June 20, 2016 and August 5, 2016, Marquis entered into a transaction that provided for a master agreement and separate loan schedules (the “Equipment Loans”) with Banc of America Leasing & Capital, LLC that provided for the following as of December 31, 2023:
Note #3 is for approximately $ 3.7 million, secured by equipment. The Equipment Loan #3 matured in December 2023, payable in 84 monthly payments of $ 52,000 beginning January 2017, bearing interest rate at 4.8 % per annum. As of December 31, 2023 and September 30, 2023, the balance was $ 0 and $ 154,000 , respectively.
Note #4 is for approximately $ 1.1 million, secured by equipment. The Equipment Loan #4 matured in December 2023, payable in 81 monthly payments of $ 16,000 beginning April 2017, bearing interest at 4.9 % per annum. As of December 31, 2023 and September 30, 2023, the balance was $ 0 and $ 47,000 , respectively.
Note #5 is for approximately $ 4.0 million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in 84 monthly payments of $ 55,000 beginning January 2018, bearing interest at 4.7 % per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 643,000 and $ 799,000 , respectively.
Note #6 is for $ 913,000 , secured by equipment. The Equipment Loan #6 is due July 2024, payable in 60 monthly payments of $ 14,000 beginning August 2019, with a final payment of $ 197,000 , bearing interest at 4.7 % per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 277,000 and $ 317,000 , respectively.
Note #7 is for $ 5.0 million, secured by equipment. The Equipment Loan #7 is due February 2027, payable in 84 monthly payments of $ 59,000 beginning March 2020, with the final payment of $ 809,000 , bearing interest at 3.2 % per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 2.8 million and $ 2.9 million, respectively.
Note #8 is for approximately $ 3.4 million, secured by equipment. The Equipment Loan #8 is due September 2027, payable in 84 monthly payments of $ 46,000 beginning October 2020, bearing interest at 4.0 %. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 1.9 million and $ 2.0 million, respectively.
In December 2021, Marquis funded the acquisition of $ 5.5 million of new equipment under Note #9 of its master agreement. The Equipment Loan #9, which is secured by the equipment, matures December 2026, and is payable in 60 monthly payments of $ 92,000 beginning January 2022, with the final payment in the amount of approximately $ 642,000 , bearing interest at 3.75 % per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 3.6 million and $ 3.9 million, respectively.
In December 2022, Marquis funded the acquisition of $ 5.7 million of new equipment under Note #10 of its master agreement. The Equipment Loan #10, which is secured by the equipment, matures December 2029, and is payable in 84 monthly payments of $ 79,000 , beginning January 2023, with the final payment in the amount of approximately $ 650,000 , bearing interest at 6.50 %. As of December 31, 2023 and September 30, 2023, the balance was approximately $ 5.1 million and $ 5.3 million.
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Loan Covenant Compliance
As of December 31, 2023, the Company was in compliance with all covenants under its existing revolving and other loan agreements.
Note 11: Notes Payable-Related Parties
Long-term debt payable to related parties (see Note 16) as of December 31, 2023 and September 30, 2023 consisted of the following (in $000's):
December 31, 2023 September 30, 2023
Isaac Capital Group, LLC, 12.5 % interest rate, matures May 2025
$ 2,000 $ 2,000
Spriggs Investments, LLC, 10 % interest rate, matures July 2024
2,000 2,000
Spriggs Investments, LLC for Flooring Liquidators, 12 % interest rate, matures July 2024
1,000 1,000
Isaac Capital Group, LLC revolver, 12 % interest rate, matures April 2024
1,000 1,000
Isaac Capital Group, LLC for Flooring Liquidators, 12 % interest rate, matures January 2028
5,000 5,000
Total notes payable - related parties 11,000 11,000
Less: unamortized debt issuance costs ( 81 ) ( 86 )
Net amount 10,919 10,914
Less: current portion ( 4,000 ) ( 4,000 )
Total long-term portion, related parties $ 6,919 $ 6,914
Twelve months ending December 31,
2024 $ 4,000
2025 2,000
2028 5,000
Total future maturities of long-term debt, related parties $ 11,000
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Note 12: Related Party Seller Notes
Seller notes as of December 31, 2023 and September 30, 2023 consisted of the following (in $000’s):
December 31,
2023 September 30,
2023
Seller of Flooring Liquidators, 8.24 % interest rate, matures January 2028
$ 34,000 $ 34,000
Seller of PMW, 8.0 % interest rate, matures July 2028
2,500 2,500
Seller of Kinetic, 7.0 % interest rate, matures September 2027
3,000 3,000
Total Related party seller notes payable 39,500 39,500
Unamortized debt premium (discount) 172 ( 502 )
Net amount 39,672 38,998
Less current portion — —
Long-term portion of Related party seller notes payable $ 39,672 $ 38,998
Future maturities of seller notes at December 31, 2023 are as follows (in $000’s):
Twelve months ending December 31,
2026 500
2027 3,500
2028 35,672
Total $ 39,672
Note 13: Stockholders’ Equity
Series E Convertible Preferred Stock
As of December 31, 2023 and September 30, 2023, there were 47,840 shares of Series E Convertible Preferred Stock issued and outstanding, respectively.
Treasury Stock
As of December 31, 2023 and September 30, 2023, the Company had 664,409 and 660,063 shares of Treasury Stock, respectively. During the three months ended December 31, 2023 and 2022, the Company repurchased 4,346 and 24,710 shares of its common stock for approximately $ 106,532 and $ 622,000 , respectively. During the three months ended December 31, 2023 and 2022, the average price paid per share was $ 24.51 and $ 25.16 , respectively.
Note 14: Stock-Based Compensation
Our 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) authorizes the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares to our directors, officer, employees, consultants and advisors. The Company has reserved up to 300,000 shares of common stock for issuance under the 2014 Plan.
From time to time, the Company grants stock options to directors, officers, and employees. These awards are valued at the grant date by determining the fair value of the instruments. The value of each award is amortized on a straight-line basis over the requisite service period.
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The following table summarizes stock option activity for the fiscal year ended September 30, 2023 and the three months ended December 31, 2023:
Number of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual Life Intrinsic
Value
Outstanding at September 30, 2022 87,500 $ 18.81 0.78 $ 771
Outstanding at December 31, 2022 87,500 $ 18.81 0.52 $ 1,201
Exercisable at December 31, 2022 87,500 $ 18.81 0.52 $ 1,201
Outstanding at September 30, 2023 53,750 $ 21.51 1.54 $ 540
Outstanding at December 31, 2023 53,750 $ 21.51 1.29 $ 450
Exercisable at December 31, 2023 53,750 $ 21.51 1.29 $ 450
The Company recognized compensation expense of approximately $ 50,000 and $ 0 during the three months ended December 31, 2023 and 2022, respectively, related to stock option awards and restricted stock awards granted to certain employees and officers based on the grant date fair value of the awards, and the revaluation for existing options whereby the expiration date was extended.
As of December 31, 2023, the Company had no unrecognized compensation expense associated with stock option awards.
Note 15: Earnings Per Share
Net income per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Condensed Consolidated Balance Sheet. Diluted net income per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of restricted share awards, stock options and convertible preferred stock. Preferred stock dividends are subtracted from net earnings to determine the amount available to common stockholders.
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The following table presents the computation of basic and diluted net earnings per share (in $000's):
Three Months Ended December 31,
2023 2022
Basic
Net (loss) income $ ( 682 ) $ 1,844
Less: preferred stock dividends — —
Net (loss) income applicable to common stock $ ( 682 ) $ 1,844
Weighted average common shares outstanding 3,163,541 3,059,035
Basic (loss) earnings per share $ ( 0.22 ) $ 0.60
Diluted
Net (loss) income applicable to common stock $ ( 682 ) $ 1,844
Add: preferred stock dividends — —
Net (loss) income applicable for diluted earnings per share $ ( 682 ) $ 1,844
Weighted average common shares outstanding 3,163,541 3,059,035
Add: Options — 30,467
Add: Series E Preferred Stock — 239
Assumed weighted average common shares outstanding 3,163,541 3,089,741
Diluted (loss) earnings per share $ ( 0.22 ) $ 0.60
Basic earnings per common share ("EPS") is computed by dividing net income by the weighted average number of shares of Common Stock outstanding for the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares of Common Stock outstanding and the effect of dilutive securities. No diluted EPS computation was made for the three months ended December 31, 2023, as the Company recorded a net loss. Had the Company calculated diluted EPS for the three months ended December 31, 2023, the total assumed weighted average common shares outstanding would have been 3,182,083 . For the three months ended December 31, 2022, there were 17,000 options to purchase shares of common stock that were anti-dilutive, and not included in the diluted EPS computation.
Note 16: Related Party Transactions
Transactions with Isaac Capital Group, LLC
As of December 31, 2023, Isaac Capital Group, LLC (“ICG”) beneficially owns 48.9 % of the Company’s issued and outstanding capital stock. Jon Isaac, the Company's President and Chief Executive Officer, is the President and sole member of ICG, and, accordingly, has sole voting and dispositive power with respect to these shares. Mr. Isaac also personally owns 219,177 shares of common stock and holds options to purchase up to 25,000 shares of common stock at an exercise price of $ 10.00 per share, all of which are currently exercisable. Mr. Isaac's options to purchase 25,000 shares of common stock were originally scheduled to expire on January 15, 2023, but, as amended on January 13, 2023, the expiration date was extended to January 15, 2025.
ICG Term Loan
During 2015, Marquis entered into a mezzanine loan in the amount of up to $ 7.0 million (the “ICF Loan”) with Isaac Capital Fund I, LLC (“ICF”), a private lender whose managing member is Jon Isaac. On July 10, 2020, (i) ICF released and discharged Marquis from all obligations under the loan, (ii) ICF assigned all of its rights and obligations under the instruments, documents, and agreements with respect to the ICF Loan to ICG, of which Jon Isaac, the Company’s President and Chief Executive Officer, is the sole member, and (iii) Live Ventures borrowed $ 2.0 million (the “ICG Loan”) from ICG. The ICG Loan bears interest at 12.5 % and matures in May 2025. As of December 31, 2023 and September 30, 2023, the outstanding balance on this note was $ 2.0 million.
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ICG Revolving Promissory Note
On April 9, 2020, the Company, as borrower, entered into an unsecured revolving line of credit promissory note whereby ICG agreed to provide the Company with a $ 1.0 million revolving credit facility (the “ICG Revolver”). On June 23, 2022, as approved by unanimous consent of the Board of Directors of the Company, the amount of available revolving credit under the facility was increased to $ 6.0 million. No other terms of the Note were changed. On April 1, 2023, the Company entered into the First Amendment of the ICG Revolver that extended the maturity date to April 8, 2024 and increased the interest rate from 10 % to 12 % per annum. As of each of December 31, 2023 and September 30, 2023, the the ICG Revolver was $ 1.0 million.
ICG Flooring Liquidators Note
On January 18, 2023, in connection with the acquisition of Flooring Liquidators, Flooring Affiliated Holdings, LLC, a wholly-owned subsidiary of the Company, as borrower, entered into a promissory note for the benefit of ICG in the amount of $ 5.0 million (“ICG Flooring Liquidators Loan”). The ICG Flooring Liquidators Loan matures on January 18, 2028, and bears interest at 12 %. Interest is payable in arrears on the last day of each calendar month. The note is fully guaranteed by the Company. As of December 31, 2023, the outstanding balance on this loan was $ 5.0 million.
Transactions with JanOne Inc.
Tony Isaac, a member of the Company's board of directors, and father of the Company's CEO, Jon Isaac, is the Chief Executive Officer and a director of JanOne Inc.(“JanOne”). Richard Butler, a member of the Company's board of directors, is a director of JanOne.
Lease Agreement
Customer Connexx LLC, formerly a subsidiary of JanOne, rents approximately 9,900 square feet of office space from the Company at its Las Vegas office, which totals 16,500 square feet. JanOne paid the Company $ 36,000 and $ 52,000 in rent and other reimbursed expenses for three months ended December 31, 2023 and 2022, respectively.
Purchase Agreement with ARCA Recycling
On April 5, 2022, the Company entered into a Purchasing Agreement with ARCA Recycling ("ARCA"), which was a wholly owned subsidiary of JanOne, Inc. until March 2023. Pursuant to the agreement, the Company agreed to purchase inventory from time to time for ARCA as set forth in submitted purchase orders. The inventory is owned by the Company until ARCA installs it in customer's homes, and payment by ARCA to the Company is due upon ARCA's receipt of payment from the customer. All purchases made by the Company shall be paid back by ARCA in full plus an additional five percent surcharge or broker-type fee. As of December 31, 2023, the Company has a full allowance of approximately $ 690,000 recorded in the reserve for doubtful accounts for the amount due.
Transactions with Vintage Stock CEO
Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly owned subsidiary of the Company, is the sole member of Spriggs Investments, LLC (“Spriggs Investments”).
Spriggs Promissory Note I
On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note I”) in favor of Spriggs Investments that memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $ 2.0 million (the “Spriggs Loan I”). The Spriggs Loan I originally matured on July 10, 2022; however, the maturity date was extended to July 10, 2023, pursuant to unanimous written consent of the Board of Directors. The Spriggs Promissory Note I bears simple interest at a rate of 10.0 % per annum. On January 19, 2023, the Company entered into a modification agreement of the Spriggs Loan I. Consequently, the Spriggs Promissory Note I will bear interest at a rate of 12 % per annum, and the maturity date was extended to July 31, 2024. As of December 31, 2023 and September 30, 2023, the amount owed was $ 2.0 million.
Spriggs Promissory Note II
On January 19, 2023, in connection with the acquisition of Flooring Liquidators, the Company executed a promissory note in favor of Spriggs Investments in the initial principal amount of $ 1.0 million (the “Spriggs Loan II”). The Spriggs Loan II matures on July 31, 2024, and bears interest at a rate of 12 % per annum. As of December 31, 2023 and September 30, 2023, the amount owed was $ 1.0 million.
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Transactions with Spyglass Estate Planning, LLC
Jon Isaac, the Company's President and Chief Executive Officer, is the sole member of Spyglass Estate Planning, LLC (“Spyglass”).
Building Leases
On July 1, 2022, in connection with its acquisition of Better Backers, Marquis entered into two building leases with Spyglass. The building leases are for 20 years with two options to renew for an additional five years each. The provisions of the lease agreements include an initial 24 -month month-to-month rental period, during which the lessee may cancel with 90-day notice, followed by a 20-year lease term with two five-year renewal options. The Company has evaluated each lease and determined the rental amounts to be at market rates.
Transactions with Flooring Liquidators CEO
Stephen Kellogg is the Chief Executive Officer of Flooring Liquidators, Inc., a wholly owned subsidiary of the Company.
Flooring Liquidators leases five properties from K2L Property Management, and one from Railroad Investments, each of which Mr. Kellogg is a member. Additionally, Flooring Liquidators leases two properties from Stephen Kellogg and Kimberly Hendrick as a couple, and properties from each of The Stephen Kellogg and Kimberly Hendrick Trust, The Stephen Kellogg Trust, and Mr. Kellogg personally. Ms. Hendrick is Mr. Kellogg's spouse.
Sellers Notes
Note Payable to the Sellers of Kinetic
In connection with the purchase of Kinetic, on June 28, 2022, Kinetic entered into an employment agreement with the previous owner of Kinetic to serve as its Head of Equipment Operations. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, Precision Marshall entered into a seller financed loan in the amount of $ 3.0 million with the previous owner of Kinetic. The Sellers Subordinated Acquisition Note bears interest at 7.0 % per annum, with interest payable quarterly in arrears. The Sellers Subordinated Acquisition Note has a maturity date of September 27, 2027. As of December 31, 2023 and September 30, 2023, the remaining principal balance was $ 3.0 million.
Note Payable to the Seller of Flooring Liquidators
In connection with the purchase of Flooring Liquidators (see Note 3), on January 18, 2023, the Company entered into an employment agreement with the previous owner of Flooring Liquidators to serve as its Chief Executive Officer. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, the Company entered into a seller financed mezzanine loan, which is fully guaranteed by the Company, in the amount of $ 34.0 million with the previous owners of Flooring Liquidators. The Seller Subordinated Acquisition Note bears interest at 8.24 % per annum, with interest payable monthly in arrears beginning on January 18, 2024. The Sellers Note has a maturity date of January 18, 2028. The fair value assigned to the Sellers Note, as calculated by an independent third-party firm, was $ 31.7 million, or a discount of $ 2.3 million. The $ 2.3 million discount is being accreted to interest expense, using the effective interest rate method, as required by GAAP, over the term of the Sellers Note. As of December 31, 2023 and September 30, 2023, the carrying value of the Sellers Note was approximately $ 34.2 million and $ 33.5 million, respectively.
Note Payable to the Seller of PMW
In connection with the purchase of PMW (see Note 3), on July 20, 2023, the Company entered into an consulting agreement with the previous owner of PMW to serve as part-time President and Chief Executive Officer . The consulting agreement commenced on the Effective Date and shall terminate upon the later of (i) Sellers’ receipt of earn-out payments in an aggregate amount equal to $ 3.0 million and (ii) the full satisfaction and payment of all amounts due and to that are to become due under the seller note, unless earlier terminated in accordance with the terms set forth in the consulting agreement . Additionally, PMW entered into two seller financed loans, in the aggregate amount of $ 2.5 million, which are fully guaranteed by the Company. The seller financed loans bear interest at 8.0 % per annum, with interest payable quarterly in arrears. The seller financed loans have a maturity date of July 18, 2028. As of December 31, 2023 and September 30, 2023, the carrying value of the seller financed loans was approximately $ 2.5 million.
Procedures for Approval of Related Party Transactions
In accordance with its charter, the Audit Committee reviews and determines whether to approve all related party transactions (as such term is defined for purposes of Item 404 of Regulation S-K). The Audit Committee participated in the review, approval, or ratification of the transactions described above.
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Note 17: Commitments and Contingencies
Litigation
SEC Investigation
On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it was conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation. On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the SEC investigation. The Wells Notices related to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart, Inc. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff had made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives to allege certain violations of the federal securities laws. On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the Company’s Form 8-K filed on February 14, 2018. The Company cooperated fully with the SEC inquiry and provided a response to the SEC on October 26, 2018.
On August 2, 2021, the SEC filed a civil complaint in the United States District Court for the District of Nevada naming the Company and two of its executive officers - Jon Isaac, the Company’s current President and Chief Executive Officer, and Virland Johnson, the Company’s former Chief Financial Officer, as defendants (collectively, the “Company Defendants”) as well as certain other related third parties (the “SEC Complaint”). The SEC Complaint alleges various financial, disclosure, and reporting violations related to income and earnings per share data, purported undisclosed stock promotion and trading, purported inaccurate disclosure regarding beneficial ownership of common stock, and undisclosed executive compensation from 2016 through 2018. The violations are brought under Section 10(b) of the Exchange Act and Rule 10b-5; Sections 13(a), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-14, 13a-13, 13b2-1, 13b2-2; Section 14(a) of the Exchange Act and Rule 14a-3; and Section 17(a) of the Securities Act of 1933. The SEC seeks permanent injunctions against the Company Defendants, permanent officer-and-director bars, disgorgement of profits, and civil penalties. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
On October 1, 2021, the Company Defendants and third-party defendants moved to dismiss the SEC complaint. On September 7, 2022, the court denied the Company Defendants’ motion to dismiss, but granted one of the third-party defendant’s motions to dismiss, granting the SEC leave to file an amended complaint. On September 21, 2022, the SEC filed an amended complaint to which the Company Defendants filed an answer on October 11, 2022, denying liability. The court subsequently entered a discovery scheduling order and the parties exchanged initial disclosures. The parties participated in a mediation in June 2023. The mediation was not successful and the case is currently in the midst of discovery. Discovery deadlines have been extended because counsel for JanOne Inc. and Virland Johnson moved to withdraw on August 18, 2023, which motion the court granted on October 2, 2023. Since that time, JanOne Inc. and Virland Johnson have obtained new counsel who have appeared in the case. In light of the new counsel in this case, the Court approved a stipulated order to extend the discovery period approximately 45 days. Fact discovery is now set to be completed by May 20, 2024.
The Company Defendants strongly dispute and deny the allegations and intend to continue to defend themselves vigorously against the claims.
Sieggreen Class Action
On August 13, 2021, Daniel E. Sieggreen, individually and on behalf of all others similarly situated claimants ("Plaintiff"), filed a class action complaint for violation of federal securities laws in the United States District Court for the District of Nevada, naming the Company, Jon Isaac, the Company's current President and Chief Executive Officer, and Virland Johnson, the Company's former Chief Financial Officer, as defendants (collectively, the "Company Defendants"). The allegations asserted are similar to those in the SEC Complaint. Among other sought relief, the complaint seeks damages in connection with the purchases and sales of the Company’s securities between December 28, 2016 and August 3, 2021. As
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of December 17, 2021, the judge granted a stipulation to stay proceedings pending the resolutions of the motions to dismiss in the SEC Complaint. On February 1, 2023, the final motion to dismiss relating to the SEC Complaint was denied, which was subsequently noticed in the Sieggreen action on February 2, 2023. Plaintiff filed an Amended Complaint on March 6, 2023. On May 5, 2023, the Company Defendants filed a Motion to Dismiss the Amended Complaint, and the briefing on that motion is now complete. Discovery is automatically stayed in this case until after the disposition of the Motion to Dismiss. If the Motion to Dismiss is not successful, the case will proceed to discovery. The Company Defendants strongly dispute and deny the allegations at issue in this case and intend to continue to defend themselves vigorously against these claims.
Holdback Matter
On October 10, 2022, a representative for the former shareholders of Precision Industries, Inc. filed a civil complaint in the Court of Chancery of the State of Delaware. The complaint alleged that the Company violated the terms of an agreement and plan of merger dated July 14, 2020, by failing to pay the shareholders a certain indemnity holdback of $ 2,500,000 . The Chancery Court dismissed that action for lack of jurisdiction. On January 12, 2023, the representative re-filed the same action in the United States District Court for the Western District of Pennsylvania. On October 26, 2023, the Company counterclaimed against the representative and all represented shareholders for fraudulently misrepresenting the seller’s inventory and accounting methodology and asserting damages in excess of $ 4,500,000 . Several of the individual shareholders have moved to dismiss the counterclaim. The Company expects discovery to last for approximately one year .
Wage and Hour Matter
On July 27, 2022, Irma Sanchez, a former employee of Elite Builder Services, Inc. (“Elite Builders”), filed a class action complaint against Elite Builders in the Superior Court of California, County of Alameda. The complaint alleges that Elite Builders failed to pay all minimum and overtime wages, failed to provide lawful meal periods and rest breaks, failed to provide accurate itemized wage statements, and failed to pay all wages due upon separation as required by California law. The complaint was later amended as a matter of right on October 4, 2022. Further, Ms. Sanchez has put the Labor & Workforce Development Agency on notice to exhaust administrative remedies and enable her to bring an additional claim under the California Labor Code Private Attorneys General Act, which permits an employee to assert a claim for violations of certain California Labor Code provisions on behalf of all aggrieved employees to recover statutory penalties. The Court has set this for a Case Management Conference on September 30, 2024 after the parties have had a chance to exchange discovery regarding the claims. Elite Builders maintains that Ms. Sanchez’s claims lack merit and intends to defend this action vigorously. The Company is currently unable to estimate the range of possible losses associated with this proceeding as we are in the early stages of discovery and the scope of class is not yet known.
Generally
The Company is involved in various claims and lawsuits arising in the normal course of business. The ultimate results of claims and litigation cannot be predicted with certainty. The Company currently believes that the ultimate outcome of such lawsuits and proceedings will not, individually, or in the aggregate, have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows. As applicable, liabilities pertaining to these matters, that are probable and estimable, have been accrued.
Note 18: Segment Reporting
The Company operates in five operating segments which are characterized as: (1) Retail-Entertainment, (2) Retail-Flooring, (3) Flooring Manufacturing, (4) Steel Manufacturing, and (5) Corporate and Other. The Retail-Entertainment segment consists of Vintage Stock; the Retail-Flooring segment consists of Flooring Liquidators; the Flooring Manufacturing Segment consists of Marquis; and the Steel Manufacturing Segment consists of Precision Marshall and Kinetic.
The following tables summarize segment information (in $000's):
For the Three Months Ended December 31,
2023 2022
Revenues
Retail-Entertainment $ 20,586 $ 23,273
Retail-Flooring 34,319 —
Flooring Manufacturing 29,245 26,432
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Steel Manufacturing 33,354 17,981
Corporate & Other 89 1,300
Total revenues $ 117,593 $ 68,986
Gross profit
Retail-Entertainment $ 11,528 $ 12,210
Retail-Flooring 13,032 —
Flooring Manufacturing 6,422 4,661
Steel Manufacturing 5,262 4,392
Corporate & Other 83 681
Total gross profit $ 36,327 $ 21,944
Operating income (loss)
Retail-Entertainment $ 3,143 $ 3,664
Retail-Flooring 90 —
Flooring Manufacturing 945 751
Steel Manufacturing 982 1,455
Corporate & Other ( 1,619 ) ( 1,303 )
Total operating income $ 3,541 $ 4,567
Depreciation and amortization
Retail-Entertainment $ 266 $ 311
Retail-Flooring 1,352 —
Flooring Manufacturing 1,056 1,111
Steel Manufacturing 1,617 1,093
Corporate & Other 4 136
Total depreciation and amortization $ 4,295 $ 2,651
Interest expense
Retail-Entertainment $ 164 $ 154
Retail-Flooring 1,200 —
Flooring Manufacturing 984 987
Steel Manufacturing 1,622 787
Corporate & Other 193 119
Total interest expense $ 4,163 $ 2,047
Net (loss) income before provision for income taxes
Retail-Entertainment $ 3,055 $ 3,538
Retail-Flooring ( 1,628 ) —
Flooring Manufacturing ( 163 ) ( 313 )
Steel Manufacturing ( 1,018 ) 268
Corporate & Other ( 1,152 ) ( 1,034 )
Total (loss) net income before provision for income taxes $ ( 906 ) $ 2,459
Note 19: Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to disclosures in its condensed consolidated financial statements.
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