What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-08-08 · 94 added, 199 removed, 163 unchanged (64% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and nine months ended June 30, 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”).

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, 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, 2024 (the “2024 Form 10-K”).

Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.

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

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

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

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

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

comics, toys and collectibles, in a single location.

With its integrated buy-sell-trade business model, Vintage Stock buys, sells, and trades new and pre-owned movies, music, video games, electronics, and collectibles through 73 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 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.

On May 24, 2024, CRO entered into an asset purchase agreement with the original Seller of Johnson under which the original Seller agreed to purchase certain assets and assume certain obligations acquired by CRO under the original asset purchase agreement.

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, Inc., a Georgia corporation, which was accomplished through an Asset Purchase Agreement.

Steel Manufacturing Segment

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

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

(“Kinetic”), CSF Holdings, LLC (“Central Steel”), and Precision Metal Works, Inc.

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

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

(“PMW”), and Central Steel Fabricators, LLC.

("Central Steel") .

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

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Kinetic employs approximately 100 non-union employees.

On July 20, 2023, Precision Marshall acquired PMW.

On July 20, 2023, we acquired PMW.

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

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

On May 17, 2024, we acquired Central Steel.

On May 17, 2024, Precision Marshall acquired Central Steel.

Founded in 1969 in Chicago, Illinois, Central Steel is a manufacturer of specialized fabricated metal products.

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Its extensive product line, primarily for data centers, includes cable racks, auxiliary framing, hardware, insulation products, and network bays.

On June 10, 2024, Kinetic acquired certain assets and assumed certain liabilities of Midwest Grinding.

On June 10, 2024, Kinetic acquired certain assets and assumed certain liabilities of Midwest Grinding Corp.

("Midwest Grinding").

Founded in 1961 in Milwaukee, Wisconsin, Midwest Grinding is a grinding house dedicated to precision Blanchard and specialty surface grinding of small to extra-large capacity.

Corporate and Other Segment

Our Corporate and Other segment consists of certain corporate general and administrative costs, Salomon Whitney LLC, which was shut down during the three months ended June 30, 2023, and operations of certain legacy products and service offerings for which we are no longer accepting new customers .

Our Corporate and Other segment consists of certain corporate general and administrative costs, and operations of certain legacy products and service offerings for which we are no longer accepting new customers.

Critical Accounting Policies

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Preparation of these statements requires us to make judgments and estimates.

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Our actual realized results may differ materially from management’s initial estimates as reported.

Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes, Segment Reporting and Concentrations of Credit Risk.

Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes.

For a summary of our significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in our 2024 Form 10-K.

Adjusted EBITDA

We evaluate the performance of our operations based on financial measures such as “Adjusted EBITDA”, which is a non-GAAP financial measure.

We evaluate the performance of our operations based on financial measures such as “Adjusted EBITDA”, which is a non-U.S.

GAAP financial measure.

We define Adjusted EBITDA as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges.

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Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments.

Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all our cash needs.

Adjusted EBITDA does not represent cash flows from operations, as defined by U.S.

GAAP, and should not be construed as an alternative to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all our cash needs.

It is, however, a measurement that the Company believes is useful to investors in analyzing its operating performance.

Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities, and other measures of financial performance prepared in accordance with GAAP.

As companies often define non-GAAP

financial measures differently, Adjusted EBITDA, as calculated by the Company, should not be compared to any similarly titled measures reported by other companies.

Results of Operations Three Months Ended June 30, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the three months ended June 30, 2024 and 2023 (in $000’s):

As companies often define non-U.S.

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, 2024 and 2023

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

Three Months Ended

June 30, 2024 Three Months Ended

June 30, 2023

December 31, 2024 Three Months Ended

December 31, 2023

Revenue % of Total

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Revenue $ 111,508 $ 117,593

Cost of revenue 86,833 70.1 % 59,347 64.8 %

General and administrative expenses 30,062 24.3 % 23,226 25.4 %

Sales and marketing expenses 5,852 4.7 % 3,382 3.7 %

Interest expense, net 4,233 3.4 % 3,485 3.8 %

(Loss) income before provision for income taxes (3,823) (3.1 %) 1,357 1.5 %

(Benefit) provision for income taxes (968) (0.8 %) 297 0.3 %

Net (loss) income $ (2,855) (2.3 %) $ 1,060 1.2 %

Adjusted EBITDA (a)

Retail-Entertainment $ 1,575 $ 1,864

Retail-Flooring (258) 2,083

Flooring Manufacturing 2,797 2,935

Steel Manufacturing 3,102 3,534

Corporate & Other (1,093) (841)

Total Adjusted EBITDA $ 6,123 $ 9,575

Adjusted EBITDA as a percentage of revenue

Retail-Entertainment 9.5 % 10.3 %

Retail-Flooring (0.7 %) 7.6 %

Flooring Manufacturing 8.9 % 10.7 %

Steel Manufacturing 7.9 % 19.2 %

Corporate & Other N/A N/A

Consolidated adjusted EBITDA as a percentage of revenue 4.9 % 10.5 %

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

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

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Retail-Entertainment $ 16,503 13.3 % $ 18,009 19.7 %

Retail-Flooring 36,981 29.9 % 27,449 30.0 %

Flooring Manufacturing 31,264 25.2 % 27,424 30.0 %

Steel Manufacturing 39,047 31.5 % 18,409 20.1 %

Corporate & Other 83 0.1 % 225 0.2 %

Total Revenue $ 123,878 100.0 % $ 91,516 100.0 %

The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000’s):

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Profit % of Total Revenue Gross

Profit % of Total Revenue

Retail-Entertainment $ 9,552 7.7 % $ 9,845 10.8 %

Retail-Flooring 13,525 10.9 % 10,386 11.3 %

Flooring Manufacturing 7,731 6.2 % 6,388 7.0 %

Steel Manufacturing 6,161 5.0 % 5,381 5.9 %

Corporate & Other 76 0.1 % 169 0.2 %

Total Gross Profit $ 37,045 29.9 % $ 32,169 35.2 %

Revenue increased approximately $32.3 million, or 35.4%, to approximately $123.9 million for the quarter ended June 30, 2024, compared to revenue of approximately $91.5 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 Central Steel, which was acquired in May 2024, which collectively added approximately $21.1 million, an increase of approximately $9.5 million in the Flooring Retail segment, as well as an increase of approximately $3.8 million in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $2.2 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 70.1% for three months ended June 30, 2024 as compared to 64.8% for the three months ended June 30, 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 related to a slowdown 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 29.4% to approximately $30.1 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The increase is primarily due to the acquisition of PMW during fiscal 2023, as well as increased expenses in our Flooring Retail segment.

Sales and Marketing Expense

Sales and marketing expense increased by 73.0% to approximately $5.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to expanding our sales force in connection with the acquisition of the Harris Flooring Group® brands, increased convention and trade show activity in our Flooring Manufacturing segment, as well as increased sales force in our Retail Flooring segment.

Interest Expense, net

Interest expense, net, increased by approximately $750,000 to $4.3 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to increased debt balances related to the acquisition of PMW, and for our Retail Flooring segment, and to fund operations, and increased interest rates during the period.

Results of Operations Nine Months Ended June 30, 2024 and 2023

The following table sets forth certain statement of income items and as a percentage of revenue, for the nine months ended June 30, 2024 and 2023 (in $000’s):

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Revenue % of Total

Statement of Income Data:

Revenue $ 360,097 $ 251,624

Cost of revenue 251,258 69.8 % 165,903 65.9 %

Gross Profit 35,362 31.7 % 36,327 30.9 %

General and administrative expenses 30,071 27.0 % 27,679 23.5 %

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Interest expense, net 4,162 3.7 % 4,163 3.5 %

Income before provision for income taxes (9,227) (2.6 %) 5,924 2.4 %

Provision for income taxes (2,409) (0.7 %) 1,462 0.6 %

Net income $ (6,818) (1.9 %) $ 4,462 1.8 %

Income (loss) before provision for income taxes 573 0.5 % (906) (0.8 %)

Provision (benefit) for income taxes 81 0.1 % (224) (0.2 %)

Net income (loss) $ 492 0.4 % $ (682) (0.6 %)

Adjusted EBITDA (a)

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

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Total Revenue Net

Revenue % of Total

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

Retail-Entertainment $ 21,273 19.1 % $ 20,586 17.5 %

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The following table sets forth gross profit earned by segment and gross profit as a percentage of total revenue for each segment (in $000's):

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

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

Profit % of Total Revenue Gross

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Total Gross Profit $ 35,362 31.7 % $ 36,327 30.9 %

Revenue increased approximately $108.5 million, or 43.1%, to $360.1 million for the nine months ended June 30, 2024, as compared to the prior year period revenue of $251.6 million.

The increase is primarily attributable to the acquisitions of PMW and Flooring Liquidators, which collectively added $110.2 million, as well as an increase of approximately $10.5 million in the Flooring Manufacturing segment.

The increase was partially offset by decreased revenue of approximately $12.2 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 69.8% for nine months ended June 30, 2024 as compared to 65.9% for the nine months ended June 30, 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.

Revenue decreased approximately $6.1 million, or 5.2%, to approximately $111.5 million for the three months ended December 31, 2024, as compared to the corresponding prior year period.

The decrease is primarily attributable to Flooring Manufacturing, Retail Flooring, and Steel Manufacturing, which decreased by approximately $6.7 million in aggregate.

Gross profit was 31.7% for three months ended December 31, 2024 as compared to 30.9% for the three months ended December 31, 2023.

The increase was primarily attributable to increased margins in our Steel Manufacturing segment primarily due to improved efficiencies, as well as the acquisition of Central Steel during May 2024, which has historically generated higher margins.

General and Administrative Expense

General and administrative expenses increased by 44.9% to approximately $87.6 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023.

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

General and Administrative expenses increased by 8.6% to approximately $30.1 million for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023.

The increase is primarily due to increased compensation expense related to new store openings at Flooring Liquidators.

Sales and Marketing Expense

Sales and marketing expense increased by 71.0% to approximately $17.4 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, primarily due to expanding our sales force in connection with the

acquisition of the Harris Flooring Group® brands, increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.

Sales and marketing expense decreased by 11.3% to approximately $4.5 million for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023, primarily due to reduced sales and marketing activities at Flooring Liquidators.

Interest Expense, net

Interest expense, net, increased by approximately $3.8 million for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 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 June 30, 2024 and 2023

For the Three Months Ended June 30, 2024 For the Three Months Ended June 30, 2023

Retail-Entertainment Retail-Flooring Flooring

Manufacturing Steel

Manufacturing Corporate

& Other Total Retail-Entertainment Retail-Flooring Flooring

Manufacturing Steel

Manufacturing Corporate

& Other Total

Revenue $ 16,503 $ 36,981 $ 31,264 $ 39,047 $ 83 $ 123,878 $ 18,009 $ 27,449 $ 27,424 $ 18,409 $ 225 $ 91,516

Cost of Revenue 6,951 — 23,456 — 23,533 — 32,886 — 7 86,833 8,164 17,063 — 21,036 — 13,028 — 56 59,347

Gross Profit 9,552 13,525 7,731 6,161 76 37,045 9,845 10,386 6,388 5,381 169 32,169

General and Administrative Expense 8,043 13,760 1,662 4,596 2,001 30,062 8,086 9,188 1,501 2,551 1,900 23,226

Selling and Marketing Expense 177 1,263 4,213 195 4 5,852 211 149 2,865 127 30 3,382

Operating Income (Loss) $ 1,332 $ (1,498) $ 1,856 $ 1,370 $ (1,929) $ 1,131 $ 1,548 $ 1,049 $ 2,022 $ 2,703 $ (1,761) $ 5,561

Retail-Entertainment Segment

Retail-Entertainment segment revenue for the quarter ended June 30, 2024 was approximately $16.5 million, a decrease of approximately $1.5 million, or 8.4%, compared to prior year period revenue of approximately $18.0 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 57.9% for the quarter ended June 30, 2024, compared to 54.7% for the prior year period.

Operating income for the quarter ended June 30, 2024 was approximately $1.3 million, compared to operating income of approximately $1.5 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 quarter ended June 30, 2024, was approximately $37.0 million, an increase of approximately $9.5 million, or 34.7%, compared to prior year period revenue of approximately $27.4 million.

The increase is primarily due to increased revenue in Flooring Liquidator's builder design and installation segment, EBS, 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 June 30, 2024 was 36.6%, compared to 37.8% for the prior year period.

Operating loss for the quarter ended June 30, 2024 was approximately $1.5 million, compared to operating income of approximately $1.0 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.

Flooring Manufacturing Segment

Revenue for the quarter ended June 30, 2024 was approximately $31.3 million, an increase of approximately $3.8 million, or 14.0%, compared to prior year period revenue of approximately $27.4 million.

The gross margin was 24.7% for the quarter ended June 30, 2024, compared to 23.3% 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 June 30, 2024 was approximately $1.9 million, compared to operating income of approximately $2.0 million for the prior year.

Steel Manufacturing Segment

Revenue for the quarter ended June 30, 2024 was approximately $39.0 million, an increase of approximately $20.6 million or 112.1%, compared to the prior year period revenue of approximately $18.4 million.

The increase is primarily due to increased revenue of approximately $19.2 million at PMW, which was acquired during July 2023, and approximately $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $0.5 million decrease in the Company’s other Steel Manufacturing businesses.

The gross margin was 15.8% for the quarter ended June 30, 2024, compared to

29.2% 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 June 30, 2024 was approximately $1.4 million, compared to operating income of approximately $2.7 million in the prior year period.

Corporate and Other Segment

Revenue for the quarter ended June 30, 2024 was approximately $0.1 million, a decrease of approximately $0.1 million, or 63.1%, compared to the prior year period revenue of approximately $0.2 million.

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

Operating loss for the quarter ended June 30, 2024 was approximately $1.9 million, compared to an operating loss of approximately $1.8 million in the prior year period.

Results of Operations by Segment for the Nine Months Ended June 30, 2024 and 2023

For the Nine Months Ended June 30, 2024 For the Nine Months Ended June 30, 2023

Interest expense, net, remained consistent at approximately $4.2 million for the three months ended December 31, 2024 and 2023.

Results of Operations by Segment for the Three Months Ended December 31, 2024 and 2023

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

Retail-Entertainment Retail-Flooring Flooring

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Retail-Entertainment Segment

Retail-Entertainment segment revenue for the nine months ended June 30, 2024 was approximately $53.9 million, a decrease of approximately $6.5 million, or 10.7%, compared to the prior year period revenue of approximately $60.4 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 57.3% for the nine months ended June 30, 2024, compared to 54.0% for the prior year period.

Operating income for the nine months ended June 30, 2024 was approximately $6.3 million, compared to operating income of approximately $7.5 million for the prior year period.

Retail-Entertainment segment revenue for the quarter ended December 31, 2024 was approximately $21.3 million, an increase of approximately $0.7 million, or 3.3%, compared to prior year period revenue of approximately $20.6 million.

Revenue increased primarily due to increased consumer demand for used products.

The increase in used products contributed to the increase in gross margin to 56.6% for the quarter ended December 31, 2024, compared to 56.0% for the prior year period.

Operating income for the quarter ended December 31, 2024 was approximately $3.4 million, compared to operating income of approximately $3.1 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 nine months ended June 30, 2024 was approximately $103.3 million, an increase of approximately $55.1 million, or 114.3%, compared to the prior year period revenue of $48.2 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 nine months ended June 30, 2024 was 37.0%, compared to 37.6% for the prior year period.

Operating loss for the nine months ended June 30, 2024 was approximately $4.4 million, compared to operating income of approximately $0.8 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.

The Retail-Flooring segment revenue for the quarter ended December 31, 2024, was approximately $31.7 million, a decrease of approximately $2.6 million, or 7.5%, compared to the prior year period revenue of approximately $34.3 million.

The decrease was primarily due to reduced demand.

Gross margin for the quarter ended December 31, 2024 was 37.2%, compared to 38.0% for the prior year period.

The decrease in gross margin was primarily driven by a change in product mix.

Operating loss for the quarter ended December 31, 2024 was approximately $2.2 million, compared to operating income of approximately $0.1 million for the prior year period.

The increase in operating loss was primarily due to additional wages and other costs related to new store openings during the quarter ended December 31, 2024.

Flooring Manufacturing Segment

Revenue for the nine months ended June 30, 2024 was approximately $94.7 million, an increase of approximately $10.5 million, or 12.5%, compared to the prior year period revenue of approximately $84.2 million.

The gross margin was 24.2% for the nine months ended June 30, 2024, compared to 21.8% 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 nine months ended June 30, 2024 was approximately $4.8 million, compared to operating income of approximately $5.2 million for the prior year period.

Revenue for the quarter ended December 31, 2024 was approximately $26.0 million, a decrease of approximately $3.2 million, or 11.1%, compared to prior year period revenue of approximately $29.2 million.

The decrease in revenue was primarily due to reduced consumer demand.

Gross margin was 21.2% for the quarter ended December 31, 2024, compared to 22.0% for the prior year period.

The decrease in gross margin was primarily due to changes in product mix.

Operating loss for the quarter ended December 31, 2024 was approximately $0.1 million, compared to operating income of approximately $0.9 million for the prior year period.

Steel Manufacturing Segment

Revenue for the nine months ended June 30, 2024 increased approximately $51.6 million or 91.6% to approximately $107.9 million, as compared to the prior year period revenue of $56.3 million.

The increase is primarily due to increased revenue of approximately $55.1 million at PMW, which was acquired during Q4 2023, and $1.9 million at Central Steel, which was acquired during May 2024, partially offset by a $5.4 million decrease in the Company’s other Steel

Manufacturing businesses.

The gross margin was 15.3% for the nine months ended June 30, 2024, compared to 27.4% 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 overall decreased margins in the Steel Manufacturing segment due to reduced production.

Operating income for the nine months ended June 30, 2024 was approximately $3.2 million, compared to operating income of approximately $7.0 million in the prior year period.

Revenue for the quarter ended December 31, 2024 was approximately $32.4 million, a decrease of approximately $0.9 million or 2.8%, compared to prior year period revenue of approximately $33.4 million.

The decrease was primarily due to reduced customer demand, partially offset by revenue of $3.1 million at Central Steel Fabricators, LLC (“Central Steel”), which was acquired in May 2024.

Gross margin was 18.3% for the quarter ended December 31, 2024, compared to 15.8% for the prior year period.

The i ncrease in gross margin was primarily due to price increases, as well as the acquisition of Central Steel.

Operating income for the quarter ended December 31, 2024 was approximately $1.2 million, compared to operating income of approximately $1.0 million in the prior year period

Corporate and Other Segment

Revenue for the nine months ended June 30, 2024 decreased by approximately $2.3 million.

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

Operating loss for the nine months ended June 30, 2024 was approximately $6.0 million, compared to a loss of approximately $5.4 million in the prior year period.

Revenue for the quarter ended December 31, 2024 was approximately $57,000, a decrease of approximately $32,000, or 36.0%, compared to prior year period revenue of approximately $89,000.

Operating loss for the quarters ended December 31, 2024 and 2023 were approximately $1.6 million.

Adjusted EBITDA Reconciliation

The following table presents a reconciliation of net income to Adjusted EBITDA for the three and nine months ended June 30, 2024 and 2023 (in 000's):

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net (loss) income $ (2,855) $ 1,060 $ (6,818) $ 4,462

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

For the Three Months Ended

December 31, 2024 December 31, 2023

Net income (loss) $ 492 $ (682)

Depreciation and amortization 4,415 4,295

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Interest expense, net 4,162 4,163

Income tax (benefit) expense (968) 297 (2,409) 1,462

SW Financial settlement gain — (1,000) — (2,000)

Disposition of SW Financial — 1,697 — 1,697

Income tax expense (benefit) 81 (224)

Debt refinancing costs — 183

Gain on extinguishment of debt (713) —

Gain on settlement of earnout liability (2,840) —

Acquisition costs 97 406

Debt acquisition costs — — 183 —

Disposition of Johnson 301 — 301 —

Other non-recurring charges — — 587 —

Adjusted EBITDA $ 5,744 $ 8,696

Adjusted EBITDA for the quarter ended June 30, 2024 was approximately $6.1 million, a decrease of approximately $3.5 million, or 36.1%, compared to the prior year period.

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

Adjusted EBITDA for the nine months ended June 30, 2024 was $19.3 million, a decrease of approximately $7.0 million, or 26.7%, compared to the prior year period.

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

Adjusted EBITDA decreased by approximately $3.0 million, or 33.9%, for the three months ended December 31, 2024, as compared to the prior year period.

The decrease was primarily due to an overall decrease in operating income, as discussed above.

Liquidity and Capital Resources

As of June 30, 2024, we had total cash on hand of approximately $4.7 million and approximately $29.7 million of available borrowing under our revolving credit facilities.

As of December 31, 2024, we had total cash on hand of approximately $7.4 million and approximately $23.7 million of available borrowing under our revolving credit facilities.

As of December 31, 2024, the Company concluded that PMW was in default of its Fixed Cost Coverage Ratio (“FCCR”) covenant, as specified in the credit agreement governing the Revolving Credit Facility.

This default provides the creditor rights to accelerate and made immediately due the borrowings under the Revolving Credit Facility and Fifth Third M&E Loan.

As of the date of the filing of this 10-K, Fifth Third Bank has not exercised these rights and management is actively working with Fifth Third Bank to resolve the default.

As such, as of December 31, 2024, PMW’s long-term debt balances, in the amount of approximately $13.0 million, have been classified as current liabilities.

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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and overall market conditions.

Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to do the following:

fund our operations;

pay our scheduled loan payments;

ability to repurchase shares under our share buyback program;

and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.

repurchase shares under our share buyback program;

and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors.

Working Capital

We had working capital of approximately $57.5 million as of June 30, 2024, as compared to working capital of approximately $85.0 million as of September 30, 2023;

We had working capital of approximately $51.0 million as of December 31, 2024, as compared to working capital of approximately $52.3 million as of September 30, 2024;

a decrease of approximately $1.3 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.

The decrease is primarily due to decreases in accounts receivable prepaid and other expenses, and inventories, and an increase in the current portion of related party notes payable, income taxes payable, and the current portion of lease obligations of approximately $14.5

million in aggregate, partially offset by an increase in cash, and decreases in accounts payable, accrued liabilities the current portion of long-term debt, and the current portion of seller notes of approximately $13.2 million in the aggregate.

Cash Flows from Operating Activities

The Company’s cash, as of June 30, 2024, was approximately $4.7 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $0.4 million.

Net cash provided by operations was approximately $13.8 million and $26.0 million for the nine months ended June 30, 2024 and 2023, respectively.

The decrease was primarily due to decreases in net income, deferred income tax liabilities, prepaids and other current assets, and trades receivables, partially offset by increases in accrued liabilities, depreciation and amortization expense, and accounts payable.

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

The Company’s cash, as of December 31, 2024, was approximately $7.4 million compared to approximately $4.6 million as of September 30, 2024, an increase of approximately $2.8 million.

Net cash provided by operations was approximately $9.4 million for the three months ended December 31, 2024, as compared to net cash provided by operations of approximately $7.9 million for the three months ended December 31, 2023.

The increase was primarily due to increases in net income, accounts receivable, inventories, accounts payable of approximately $13.6 million in aggregate, partially offset by decreases in adjustments to net income, accrued liabilities, and income taxes receivable of approximately $12.1 million in aggregate.

Our primary sources of cash inflows are from customer receipts from sales on account and factored accounts receivable proceeds.

Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.

Cash Flows from Investing Activities

Our cash flows used in investing activities of approximately $18.0 million for the nine months ended June 30, 2024 consisted of the acquisitions of CRO by Flooring Liquidators, Johnson by CRO, Central Steel by Precision Marshall, Midwest Grinding by Kinetic, and purchases of property and equipment.

Our cash flows used in investing activities of approximately $38.7 million for the nine months ended June 30, 2023 consisted of the acquisitions of Flooring Liquidators and Cal Coast Carpets, and purchases of property and equipment.

Our cash flows used in investing activities of approximately $1.8 million for the three months ended December 31, 2024 consisted of the purchases of property and equipment.

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

Cash Flows from Financing Activities

Our cash flows provided by financing activities of approximately $4.6 million during the nine months ended June 30, 2024 consisted of proceeds from failed sales and leaseback transactions of approximately $7.9 million, proceeds from the issuance of notes payable of approximately $2.7 million, net borrowings under revolver loans of approximately $2.0 million, and net borrowings under related party revolver loans of approximately $1.3 million, partially offset by payments on notes payable of approximately $5.1 million, payments for finance leases of approximately $2.5 million, payments of related party notes payable of $0.9 million, and purchases of treasury stock of approximately $860,000.

Our cash flows provided by financing activities of approximately $11.7 million during the nine months ended June 30, 2023 consisted of proceeds from notes payable of approximately $9.9 million, proceeds from related party notes payable of approximately $7.0 million, net proceeds under revolver loans of approximately $3.1 million, partially offset by payments of notes payable, financing leases, seller financing arrangements, debt acquisition costs and taxes paid for net settlement of stock options of approximately $7.3 million, and purchases of treasury stock in the amount of approximately $988,000.

Our cash flows used in financing activities of approximately $4.8 million during the three months ended December 31, 2024 consisted of net borrowings under revolver loans of approximately $3.1 million, cash paid for the settlement of seller notes of $1.9 million, payments on notes payable of approximately $1.8 million, payments for finance leases of approximately $1.0 million, payments on related party notes payable of approximately $0.3 million, and purchases of treasury stock of approximately $0.2 million, partially offset by proceeds from the issuance of related party notes payable of approximately $1.9 million, and net borrowings under related party revolver loans of approximately $1.6 million.

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 $0.9 million, and net payments under revolver loans of approximately $0.8 million.

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