What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2024-02-08 · 176 added, 66 removed, 179 unchanged (57% 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 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”).

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and six months ended March 31, 2024, 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.

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.

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.

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 locations in Tulsa, Oklahoma and Joplin, Missouri.

Flooring Manufacturing Segment

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

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, Inc., a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

Steel Manufacturing Segment

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Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod.

With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.

With over 5,000 distinct size grade combinations in

stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.

On June 28, 2022, Precision Marshall acquired Kinetic.

Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a

one-stop shop for in-house grinding, machining, and heat-treating.

Kinetic 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.

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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 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):

Results of Operations Three Months Ended March 31, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended March 31, 2024 and 2023 (in $000’s):

Three Months Ended

December 31, 2023 Three Months Ended

December 31, 2022

March 31, 2024 Three Months Ended

March 31, 2023

Revenue % of Total

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Retail-Entertainment 12.8 % 13.8 %

Retail-Flooring 3.8 % N/A

Retail-Flooring (5.8 %) 5.3 %

Flooring Manufacturing 8.5 % 11.1 %

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

The following table sets forth revenue by segment (in $000’s):

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

Retail-Entertainment $ 16,842 14.2 % $ 19,188 21.1 %

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

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

Profit % of Total Revenue Gross

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Total Gross Profit $ 35,467 29.9 % $ 31,608 34.7 %

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.

Revenue increased approximately $27.5 million, or 30.2%, to approximately $118.6 million for the quarter ended March 31, 2024, compared to revenue of approximately $91.1 million in the prior year period.

The increase is primarily attributable to the acquisitions of PMW, which was acquired during the fourth quarter of fiscal year 2023, and Flooring Liquidators, which was acquired during the second quarter of fiscal year 2023 which collectively added approximately $29.6 million, as well as an increase of approximately $3.8 million in revenue in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $5.9 million in the Company’s other business segments due to general economic conditions.

Cost of Revenue

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.

Cost of revenue as a percentage of revenue was 70.1% for three months ended March 31, 2024 as compared to 65.3% for the three months ended March 31, 2023.

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 due to a slow down in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins.

General and Administrative Expense

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.

General and Administrative expenses increased by 31.9% to approximately $29.8 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

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 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.

Sales and marketing expense increased by 60.5% to approximately $6.5 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to expanding the sales force in connection with the acquisition of the Harris Flooring Group® brands from Q.E.P, 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 $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

Interest expense, net, increased by approximately $925,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, 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 Six Months Ended March 31, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the six months ended March 31, 2024 and 2023 (in $000’s):

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Revenue % of Total

Statement of Income Data:

Revenues $ 236,219 $ 160,108

Cost of revenues 164,425 69.6 % 106,556 66.6 %

General and administrative expenses 57,503 24.3 % 37,217 23.2 %

Sales and marketing expenses 11,588 4.9 % 6,816 4.3 %

Interest expense, net 8,330 3.5 % 5,282 3.3 %

Income before provision for income taxes (5,404) (2.3 %) 4,567 2.9 %

Provision for income taxes (1,441) (0.6 %) 1,165 0.7 %

Net income $ (3,963) (1.7 %) $ 3,402 2.1 %

Adjusted EBITDA (a)

Retail-Entertainment $ 5,867 $ 6,656

Retail-Flooring (546) 1,111

Flooring Manufacturing 4,774 5,147

Steel Manufacturing 5,133 6,195

Corporate & Other (2,075) (2,382)

Total Adjusted EBITDA $ 13,153 $ 16,727

Adjusted EBITDA as a percentage of revenue

Retail-Entertainment 15.7 % 15.7 %

Retail-Flooring (0.8 %) 5.4 %

Flooring Manufacturing 7.5 % 9.1 %

Steel Manufacturing 7.5 % 16.3 %

Corporate & Other N/A N/A

Consolidated adjusted EBITDA as a percentage of revenue 5.6 % 10.4 %

(a) See reconciliation of net income to Adjusted EBITDA below.

The following table sets forth revenue by segment (in $000’s):

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Total Revenue Net

Revenue % of Total

Retail-Entertainment $ 37,428 15.8 % $ 42,461 26.5 %

Retail-Flooring 66,351 28.1 % 20,769 13.0 %

Flooring Manufacturing 63,425 26.9 % 56,772 35.5 %

Steel Manufacturing 68,841 29.1 % 37,897 23.7 %

Corporate & other 174 0.1 % 2,209 1.4 %

Total Revenue $ 236,219 100.0 % $ 160,108 100.0 %

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 Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Profit % of Total Revenue Gross

Profit % of Total Revenue

Retail-Entertainment $ 21,364 9.0 % $ 22,864 14.3 %

Retail-Flooring 24,734 10.5 % 7,742 4.8 %

Flooring Manufacturing 15,182 6.4 % 11,989 7.5 %

Steel Manufacturing 10,352 4.4 % 10,040 6.3 %

Corporate & other 162 0.1 % 917 0.6 %

Total Gross Profit $ 71,794 30.4 % 0.30392982782926 $ 53,552 33.4 %

Revenue increased approximately $76.1 million, or 47.5%, to $236.2 million for the six months ended March 31, 2024, as compared to the prior year period revenue of $160.1 million.

The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $81.4 million, as well as an increase of approximately $6.7 million in revenue in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $11.9 million in the Company’s other business segments due to general economic conditions.

Cost of Revenue

Cost of revenue as a percentage of revenue was 69.6% for six months ended March 31, 2024 as compared to 66.6% for the six months ended March 31, 2023.

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 due to a slow down in sales, partially offset by an increase in margins in our Flooring Manufacturing segment due to increased sales of Harris Flooring Group® brands, which generates higher margins.

General and Administrative Expense

General and Administrative expenses increased by 54.5% to approximately $57.5 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023.

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 70.0% to approximately $11.6 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023, primarily due to expanding the sales force in connection with the

acquisition of the Harris Flooring Group® brands from Q.E.P, 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 $3.0 million for the six months ended March 31, 2024, as compared to the six months ended March 31, 2023, 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 March 31, 2024 and 2023

For the Three Months Ended March 31, 2024 For the Three Months Ended March 31, 2023

Retail-Entertainment Retail-Flooring Flooring

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Retail-Entertainment Segment

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-Entertainment segment revenue for the quarter ended March 31, 2024 was approximately $16.8 million, a decrease of approximately $2.3 million, or 12.2%, compared to prior year period revenue of approximately $19.2 million.

Revenue decreased 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 58.4% for the quarter ended March 31, 2024, compared to 55.5% for the prior year period.

Operating income for the quarter ended March 31, 2024 was approximately $1.8 million, compared to operating income of approximately $2.3 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 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.

The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023.

Revenue for the quarter ended March 31, 2024, was approximately $32.0 million, an increase of approximately $11.3 million, or 54.2%, compared to prior year period revenue of approximately $20.8 million.

The increase is due to the acquisition of Flooring Liquidators in the second quarter of fiscal year 2023 and the acquisitions of CRO and Johnson by Flooring Liquidators during the first quarter of fiscal year 2024.

The gross margin for the quarter ended March 31, 2024 was 36.5%, compared to 37.3% for the prior year period.

Operating loss for the quarter ended March 31, 2024 was approximately $3.0 million, compared to an operating loss of approximately $0.2 million for the prior year period.

The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson in the current period.

Flooring Manufacturing Segment

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.

Revenue for the quarter ended March 31, 2024 was approximately $34.2 million, an increase of approximately $3.8 million, or 12.7%, compared to prior year period revenue of approximately $30.3 million.

The gross margin was 25.6% for the quarter ended March 31, 2024, compared to 24.2% for the prior year period.

The revenue and gross margin increases are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023.

Operating income for the quarter ended March 31, 2024 was approximately $2.0 million, compared to operating income of approximately $2.4 million for the prior year.

Steel Manufacturing Segment

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.

Revenue for the quarter ended March 31, 2024 was approximately $35.5 million, an increase of approximately $15.6 million or 78.2%, compared to the prior year period revenue of approximately $19.9 million.

The increase is primarily due to increased revenue of approximately $18.3 million at PMW, partially offset by a $2.9 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 14.3% for the quarter ended March 31, 2024, compared to 28.4% for the prior year period.

The increase is primarily due to increased revenue of approximately $18.3 million at

PMW, partially offset by a $2.9 million decrease in the Company’s other Steel Manufacturing business.

The gross margin was 14.3% for the quarter ended March 31, 2024, compared to 28.4% for the prior year period.

The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as an overall decrease in margins in the Steel Manufacturing segment due to reduced production efficiencies as a result of lower demand.

Operating income for the quarter ended March 31, 2024 was approximately $0.9 million, compared to operating income of approximately $2.8 million in the prior year period.

Corporate and Other Segment

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

Revenue for the quarter ended March 31, 2024 was approximately $0.1 million, a decrease of approximately $0.8 million, or 90.8%, compared to the prior year period revenue of approximately $0.9 million.

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

Operating loss for both quarters ended March 31, 2024 and March 31, 2023 was approximately $2.4 million.

Results of Operations by Segment for the Six Months Ended March 31, 2024 and 2023

For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023

Retail-Entertainment Retail-Flooring Flooring

Manufacturing Steel

Manufacturing Corporate

& Other Total Retail-Entertainment Retail-Flooring Flooring

Manufacturing Steel

Manufacturing Corporate

& Other Total

Revenue $ 37,428 $ 66,351 $ 63,425 $ 68,841 $ 174 $ 236,219 $ 42,461 $ 20,769 $ 56,772 $ 37,897 $ 2,209 $ 160,108

Cost of Revenue 16,064 41,617 48,243 58,489 12 164,425 19,597 13,027 44,783 27,857 1,292 106,556

Gross Profit 21,364 24,734 15,182 10,352 162 71,794 22,864 7,742 11,989 10,040 917 53,552

General and Administrative Expense 16,074 25,491 3,471 8,204 4,263 57,503 16,549 7,873 2,928 5,468 4,399 37,217

Selling and Marketing Expense 317 2,178 8,788 293 12 11,588 324 85 5,903 302 202 6,816

Operating Income (Loss) $ 4,973 $ (2,935) $ 2,923 $ 1,855 $ (4,113) $ 2,703 $ 5,991 $ (216) $ 3,158 $ 4,270 $ (3,684) $ 9,519

Retail-Entertainment Segment

Retail-Entertainment segment revenue for the six months ended March 31, 2024 was approximately $37.4 million, a decrease of approximately $5.0 million, or 11.9%, compared to the prior year period revenue of approximately $42.5 million.

The decrease in revenue is 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 57.1% for the six months ended March 31, 2024, compared to 53.8% for the prior year period.

Operating income for the six months ended March 31, 2024 was approximately $5.0 million, compared to operating income of approximately $6.0 million for the prior year period.

Retail-Flooring Segment

The Retail-Flooring segment consists of Flooring Liquidators, which was acquired in January 2023.

Revenue for the six months ended March 31, 2024 was approximately $66.4 million, an increase of approximately $45.6 million, or 219.5%, compared to the prior year period revenue of $20.8 million.

The gross margin for both of the six months ended March 31, 2024 and March 31, 2023 was 37.3%.

Operating loss for the six months ended March 31, 2024 was approximately $2.9 million, compared to an operating loss of approximately $0.2 million for the prior year period.

The increase in operating loss was primarily due to temporary inefficiencies associated with the acquisitions of CRO and Johnson in the current period.

Flooring Manufacturing Segment

Revenue for the six months ended March 31, 2024 was approximately $63.4 million, an increase of approximately $6.7 million, or 11.7%, compared to the prior year period revenue of approximately $56.8 million.

The gross margin was 23.9% for the six months ended March 31, 2024, compared to 21.1% for the prior year period.

The increase in revenue and gross margin are primarily due to increased sales associated with the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023.

Operating income for the six months ended March 31, 2024 was approximately $2.9 million, compared to operating income of approximately $3.2 million for the prior year period.

Steel Manufacturing Segment

Revenue for the six months ended March 31, 2024 increased approximately $31.0 million or 81.7% to approximately $68.8 million, as compared to the prior year period revenue of $35.8 million.

The increase is primarily due to increased revenue

of approximately $35.8 million at PMW, partially offset by a $4.8 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 15.0% for the six months ended March 31, 2024, compared to 26.5% for the prior year period.

The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins, as well as overall decreased margins in the Steel Manufacturing segment due to reduced production.

Operating income for the six months ended March 31, 2024 was approximately $1.9 million, compared to operating income of approximately $4.3 in the prior year period.

Corporate and Other Segment

Revenue for the six months ended March 31, 2024 decreased by approximately $2.0 million.

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.

Operating loss for the six months ended March 31, 2024 was approximately $4.1 million, compared to a loss of approximately $3.7 million in the prior year period.

Adjusted EBITDA Reconciliation

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

The following table presents a reconciliation of net income to Adjusted EBITDA for the three and six months ended March 31, 2024 and 2023 (in 000's):

For the Three Months Ended For the Six Months Ended

March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023

Net (loss) income $ (3,281) $ 1,558 $ (3,963) $ 3,402

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Income tax (benefit) expense (1,217) 550 (1,441) 1,165

Debt refinancing costs 183 —

SW Financial settlement gain — (1,000) — (1,000)

Acquisition costs 468 1,088 874 1,472

Other noncash charges 505 —

Debt acquisition costs — — 183 —

Other non-recurring charges 82 — 587 —

Adjusted EBITDA $ 4,457 $ 9,187 $ 13,153 $ 16,727

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.

Adjusted EBITDA¹ for the quarter ended March 31, 2024 was approximately $4.5 million, a decrease of approximately $4.7 million, or 51.5%, compared to the prior year period.

The decrease is primarily due to decreases in gross profit and operating income.

Adjusted EBITDA for the six months ended March 31, 2024 was $13.2 million, a decrease of approximately $3.6 million, or 21.4%, compared to the prior year period.

The decrease is primarily due to decreases in gross profit and operating income.

Liquidity and Capital Resources

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 of March 31, 2024, we had total cash on hand of approximately $4.5 million and approximately $31.5 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 $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023;

We had working capital of approximately $79.0 million as of March 31, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023;

a decrease of approximately $6.0 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.

The decrease is primarily due to increases in accrued liabilities, the current portion of long-term debt, and the current portion of operating lease obligations, and a decrease in income taxes receivable, partially offset by decreases in the current portion of notes payable to related parties and accounts payable, and an increase in accounts receivable.

Cash Flows from Operating Activities

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.

The Company’s cash, as of March 31, 2024, was approximately $4.5 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.2 million.

Net cash provided by operations was approximately $2.1 million and $14.2 million for the six months ended March 31, 2024 and 2023, respectively.

The decrease was primarily due to decreases in net income and deferred income tax liabilities, and an increase in accounts receivable, partially offset by increases in depreciation and amortization expense, reserve for inventory obsolescence and income taxes payable.

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

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Cash Flows from Investing Activities

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.

Our cash flows used in investing activities of approximately $4.9 million for the six months ended March 31, 2024 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 $36.8 million for the six months ended March 31, 2023 consisted of purchases of property and equipment.

Cash Flows from Financing Activities

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.

Our cash flows used in financing activities of approximately $3.0 million during the six months ended March 31, 2024 consisted of net borrowings under revolver loans of approximately $7.7 million, payments on notes payable of approximately $3.4 million, proceeds from related parties of $1.0 million, purchases of treasury stock and payments for finance leases of approximately $0.4 million, and payments of related party notes payable of $0.6 million.

Our cash flows provided by financing activities of approximately $22.2 million during the six months ended March 31, 2023 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