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3: EX-10.126 Material Contract HTML 35K
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8: EX-32.1 Certification -- §906 - SOA'02 HTML 29K
9: EX-32.2 Certification -- §906 - SOA'02 HTML 28K
15: R1 Cover Page HTML 80K
16: R2 Condensed Consolidated Balance Sheets HTML 153K
17: R3 Condensed Consolidated Balance Sheets HTML 60K
(Parenthetical)
18: R4 Condensed Consolidated Statements of (Loss) Income HTML 106K
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19: R5 Condensed Consolidated Statements of Cash Flows HTML 131K
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20: R6 Condensed Consolidated Statements of Changes in HTML 78K
Stockholders' Equity (Unaudited)
21: R7 Background and Basis of Presentation HTML 33K
22: R8 Summary of Significant Accounting Policies HTML 33K
23: R9 Acquisitions HTML 113K
24: R10 Inventory HTML 38K
25: R11 Property, Plant & Equipment HTML 41K
26: R12 Leases HTML 89K
27: R13 Intangibles HTML 42K
28: R14 Goodwill HTML 45K
29: R15 Accrued Liabilities HTML 40K
30: R16 Long Term Debt HTML 79K
31: R17 Notes Payable, Related Parties HTML 44K
32: R18 Related Party Seller Notes HTML 79K
33: R19 Stockholders' Equity HTML 34K
34: R20 Stock-Based Compensation HTML 47K
35: R21 Earnings Per Share HTML 49K
36: R22 Related Party Transactions HTML 49K
37: R23 Commitments and Contingencies HTML 41K
38: R24 Segment Reporting HTML 87K
39: R25 Subsequent Events HTML 29K
40: R26 Summary of Significant Accounting Policies HTML 39K
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56: R42 Acquisitions - Fair Value of Purchase Price HTML 50K
Components (Details)
57: R43 Acquisitions - Schedule of Purchase Price HTML 107K
Allocation of Purchase of Acquired Identifiable
Assets, Liabilities Assumed and Goodwill (Details)
58: R44 Acquisitions - Purchase Price Allocation for the HTML 41K
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59: R45 Acquisitions - Fair Value Adjustment of Purchase HTML 37K
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62: R48 Property, Plant & Equipment - Additional HTML 29K
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67: R53 Leases - Present Value of Future Lease Payments of HTML 46K
Finance Leases (Details)
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(Exact name of registrant as specified in its charter)
iNevada
i85-0206668
(State
or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
i325 E. Warm Springs Road, iSuite 102
iLas
Vegas, iNevada
i89119
(Address of principal executive offices)
(Zip Code)
(i702)
i997-5968
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
iCommon Stock, $0.001 par value per share
iLIVE
The iNasdaq
Stock Market LLC (The Nasdaq Capital Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
iNon-accelerated
filer
x
Smaller reporting company
ix
Emerging growth company
io
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ix
The
number of shares of the issuer’s common stock, par value $0.001 per share, outstanding as of February 2, 2024 was i3,159,561.
Current portion of lease obligations - operating leases
i12,799
i11,369
Current
portion of lease obligations - finance leases
i361
i359
Current portion of long-term debt
i21,223
i23,077
Current
portion of notes payable related parties
i4,000
i4,000
Total
current liabilities
i103,343
i97,821
Long-term debt, net of current portion
i78,357
i78,710
Lease
obligation long term - operating leases
i58,291
i48,156
Lease
obligation long term - finance leases
i32,981
i32,942
Notes
payable related parties, net of current portion
i6,919
i6,914
Seller
notes - related parties
i39,672
i38,998
Deferred
taxes
i11,714
i14,035
Other
non-current obligations
i5,975
i4,104
Total
liabilities
i337,252
i321,680
Commitments and contingencies
i
i
Stockholders'
equity:
Series E convertible preferred stock, $ii0.001/
par value, ii200,000/ shares authorized, iiii47,840///
shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively, with a liquidation preference of $ii0.30/
per share outstanding
i—
i—
Common stock, $ii0.001/
par value, ii10,000,000/ shares authorized, ii3,159,984/
and ii3,164,330/ shares issued and outstanding at December 31, 2023 and September 30,
2023, respectively
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 ifive 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: iSummary of Significant Accounting Policies
i
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.
i
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.
i
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
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: iAcquisitions
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 $i1.8 million and was comprised of cash at close of approximately $i1.0 million,
an indemnification holdback amount of $i300,000, and additional consideration valued at $i425,000.
i
The
fair value of the purchase price components was $i1.8 million, as detailed below (in $000's):
Cash
$
i1,034
Additional
consideration
i425
Holdback
i300
Purchase
price
$
i1,759
/
Under the preliminary purchase price allocation, the
Company recognized goodwill of $i425,000, 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 $i425,000
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
$
i1,759
Accounts
payable
i770
Accrued liabilities
i1,298
Total
liabilities assumed
i2,068
Total consideration
i3,827
Accounts
receivable
i259
Inventory
i1,406
Property,
plant and equipment
i261
Intangible assets
Non-compete agreement
i1,190
Subtotal
intangible assets
i1,190
Other assets
i286
Total
assets acquired
i3,402
Total goodwill
$
i425
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 ifour locations in
the Tulsa, Oklahoma area, and ione in Joplin, Missouri. Total consideration for the acquisition was $i2.0 million,
comprised of cash at close of $i500,000, deferred consideration of $i1.2 million, with additional consideration paid in the form of an earnout valued at approximately $i300,000.
The deferred consideration is payable in ithree $i400,000 installments due annually on the first three anniversary dates following
the closing date. Each installment will accrue interest at i6.0% per annum until paid.
The fair value of the purchase price components outlined above was approximately $i2.0 million,
as detailed below (in $000's):
Cash
$
i500
Deferred consideration
i1,200
Earnout
i301
Purchase
price
$
i2,001
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
$
i2,001
Accounts
payable
i1,017
Accrued liabilities
i1,141
Total
liabilities assumed
i2,158
Total consideration
i4,159
Accounts
receivable
i1,252
Inventory
i1,127
Property,
plant and equipment
i157
Intangible assets
Customer relationships
$
i1,301
Non-compete
agreement
i306
Subtotal intangible assets
i1,607
Other
assets
i16
Total assets acquired
i4,159
Total
goodwill
$
i—
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 $i10.1 million, consisting of $i3.0 million in cash at close, and the recording of a deferred payment
of $i5.1 million and holdback of $i2.0 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 $i28 million, comprised of a $i25 million
purchase price, plus closing cash, and subject to working capital adjustments, with additional consideration of up to $i3 million paid in the form of an earn-out. The purchase price was funded in part by a $i2.5 million
seller note, borrowings under a credit facility of $i14.4 million, and proceeds under a sale and leaseback transaction of approximately $i8.6 million. The acquisition involved ino
issuance of stock of the Company.
As of the Effective Date, the Company entered into a sales and leaseback transaction for itwo 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
$i14.5 million.The Louisville, Kentucky
property was acquired on the Effective Date for $i5.1 million
in connection with an option of PMW to purchase that property.
The provisions of each of the itwo lease agreements include a i20-year lease term with itwoifive-year renewal options. The base rent under the Frankfort lease agreement is $i34,977 per month for the first year of the term and a i2%
per annum escalator thereafter. The base rent under the Louisville lease agreement is $i63,493 per month for the first year of the term and a i2% 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 itwoifive-year
options will be exercised. The proceeds of $i14.5 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 $i26.8 million
due to fair value adjustments for the contingent consideration, cash acquired, and working capital adjustments, as detailed below (in $000's):
Purchase price
$
i25,000
Fair
value of earnout
i2,675
Cash from balance sheet
i1,602
Working
capital adjustment
(i2,500)
Net purchase price
$
i26,777
Under
the preliminary purchase price allocation, the Company recognized goodwill of approximately $i4.0 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,
inone 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 $i652,000.
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
$
i26,777
Accounts
payable
i10,788
Accrued liabilities
i4,995
Total
liabilities assumed
i15,783
Total consideration
i42,560
Cash
i1,602
Accounts
receivable
i12,613
Inventory
i6,266
Property,
plant and equipment
i13,616
Intangible assets
i3,600
Other
assets
i849
Total assets acquired
i38,546
Total
goodwill
$
i4,014
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 $i35,000,
and the intangible assets acquired from the shareholders was approximately $i1.265 million, for a total combined purchase price of $i1.3 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.
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
$
i35
Intangible assets
Customer
relationships
i785
Trade name
i425
Non-compete
agreement
i55
Total intangible assets
i1,265
Total
assets acquired
$
i1,300
/
Acquisition of Flooring Liquidators
On January 18, 2023, Live Ventures acquired i100%
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 $i83.8 million before any fair value considerations, and is comprised of the following:
•$i41.8
million in cash to the Seller;
•$i34.0 million (the “Note Amount”) to certain trusts for the benefit of Kellogg and members of his family (the “Kellogg Trusts”) pursuant to the issuance by the Company of a subordinated promissory note (the “Note”) in favor of the Kellogg Trusts;
•$i4.0
million to the Kellogg 2022 Family Irrevocable Nevada Trust by issuance of i116,441 shares of Company Common Stock (as defined in the Purchase Agreement) (the “Share Amount”), calculated in the manner described in the Purchase Agreement;
•$i2.0
million holdback; and
•$i2.0 million of contingent consideration, comprised of $i1.0 million
in cash and $i1.0 million in restricted stock units.
i
The fair value of the purchase price components outlined above was $i78.7
million due to fair value adjustments for the Note, and restricted stock, as detailed below (in $000's).
Purchase price
$
i83,800
Fair
value adjustment, sellers note
(i3,300)
Fair value adjustment, restricted stock
(i1,800)
Net
purchase price
$
i78,700
/
Under the preliminary purchase price allocation, the
Company recognized goodwill of approximately $i31.4 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 $i13.4
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
consideration of $i1 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):
Depreciation
expense was $i3.1 million and $i2.4 million for the three months ended December 31, 2023 and 2022, respectively.
Note
6: iiLeases/
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.
As
of December 31, 2023, the weighted average remaining lease term for operating leases is i10.3 years. The Company's weighted average discount rate for operating leases is i9.9%.
Total cash payments for operating leases for the three months ended December 31, 2023 and 2022 were approximately $i4.3 million and $i2.4 million, respectively. Additionally, the
Company recognized approximately $i14.9 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 i27.4
years. The Company's weighted average discount rate for finance leases is i11.7%. Total cash payments for finance leases for the three months
ended December 31,
2023 and 2022 were approximately $i793,000 and $i481,000, respectively. iNo
finance right-of-use assets or liabilities were recognized during the three months ended December 31, 2023.
During
the three months ended December 31, 2023, the Company made fair value adjustments, in the amount of approximately $i652,000, related to the acquisition of PMW, and $i1.0 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.
On January 31, 2020, Marquis entered into an amended $i25.0
million revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a ifive-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
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 $i6.5 million and $i6.1
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 $i29 million, is comprised of $i23.0
million in revolving credit, $i3.5 million in M&E lending, and $i2.5 million for Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR
plus i200 basis points for lending under the revolving facility, and 30-day SOFR plus i225 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 $i3.0 million at the close. The facility terminates on iJanuary 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, itwo additional term loans were executed to fund the purchase of Kinetic. Approximately $i6.0
million was drawn from the revolving facility, and the two term loans were opened in the amounts of $i4.0 million and $i1.0 million, respectively. The $i4.0
million term loan (“Kinetic Term Loan #1”), which matures on iJanuary 20, 2027, bears interest on the same terms as for M&E term lending as stated above. The $i1.0 million term loan (“Kinetic Term Loan #2”),
which matures on iJune 28, 2025, is a “Special Advance Term Loan”, and bears interest at SOFR plus i375 basis points.
As of December 31, 2023 and September 30,
2023, the outstanding balance on the revolving loan was approximately $i26.0 million and $i23.0 million, respectively, and the outstanding balance on the original M&E lending, which is documented as a term note, was approximately
$i2.2 million and $i2.3 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 $i3.1 million and $i3.3 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 $i1.4 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 $ii1.4/
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 $i25.0 million in
revolving credit (“Eclipse Revolver”) and $i3.5 million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a ithree-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 i4.5% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and i3.5%
per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at i6.0% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and i5.0%
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 $i8.8 million and $i8.2 million,
respectively, and the outstanding balance on the Eclipse M&E loan was approximately $i2.3 million and $i2.4 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 $i15.0 million in revolving credit and approximately $i5.0 million
in M&E lending. The Fifth-Third Revolver is a ithree-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) i3.0%
or (b) the Lender’s publicly announced prime rate (which is not intended to be Lender’s
lowest or most favorable rate in effect at any time) in effect from time to time. The Applicable Margin for revolving loans is izero, while for the M&E Term Loan or any Capital
Expenditure Term Loan, it is i50 basis points (i0.5%). 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 $i10.2 million and $i11.0 million, respectively, and the balance on the Fifth-Third M&E loan was approximately $i4.7 million
and $i4.8 million, respectively.
Bank Midwest Revolver Loan
On October 17, 2023, Vintage entered into a $i15.0
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 i2.36% per
annum, or (b) i6.5% per annum, and matures on October 17, 2024. As of December 31, 2023, the outstanding balance on the Bank Midwest Revolver was approximately $i4.5 million.
As of September 30, 2023, the outstanding balance on the TCB Revolver was approximately $i5.3 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 $i3.7 million, secured by equipment. The Equipment Loan #3 matured in December 2023, payable in i84 monthly payments of $i52,000
beginning January 2017, bearing interest rate at i4.8% per annum. As of December 31, 2023 and September 30, 2023, the balance was $i0 and $i154,000,
respectively.
Note #4 is for approximately $i1.1 million, secured by equipment. The Equipment Loan #4 matured in December 2023, payable in i81 monthly payments of $i16,000
beginning April 2017, bearing interest at i4.9% per annum. As of December 31, 2023 and September 30, 2023, the balance was $i0 and $i47,000,
respectively.
Note #5 is for approximately $i4.0 million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in i84 monthly payments of $i55,000
beginning January 2018, bearing interest at i4.7% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $i643,000 and $i799,000,
respectively.
Note #6 is for $i913,000, secured by equipment. The Equipment Loan #6 is due July 2024, payable in i60 monthly payments of $i14,000
beginning August 2019, with a final payment of $i197,000, bearing interest at i4.7% per annum. As of December 31, 2023 and September 30,
2023, the balance was approximately $i277,000 and $i317,000, respectively.
Note #7 is for $i5.0
million, secured by equipment. The Equipment Loan #7 is due February 2027, payable in i84 monthly payments of $i59,000 beginning March 2020, with the final payment of $i809,000,
bearing interest at i3.2% per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $i2.8 million and $i2.9
million, respectively.
Note #8 is for approximately $i3.4 million, secured by equipment. The Equipment Loan #8 is due September 2027, payable in i84 monthly payments of $i46,000
beginning October 2020, bearing interest at i4.0%. As of December 31, 2023 and September 30, 2023, the balance was approximately $i1.9 million and $i2.0
million, respectively.
In December 2021, Marquis funded the acquisition of $i5.5 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 i60
monthly payments of $i92,000 beginning January 2022, with the final payment in the amount of approximately $i642,000, bearing interest at i3.75%
per annum. As of December 31, 2023 and September 30, 2023, the balance was approximately $i3.6 million and $i3.9 million, respectively.
In December 2022, Marquis funded the
acquisition of $i5.7 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 i84 monthly payments of $i79,000,
beginning January 2023, with the final payment in the amount of approximately $i650,000, bearing interest at i6.50%. As of December 31, 2023
and September 30, 2023, the balance was approximately $i5.1 million and $i5.3 million.
As of December 31, 2023 and September 30, 2023, there were ii47,840/
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 i664,409 and i660,063
shares of Treasury Stock, respectively. During the three months ended December 31, 2023 and 2022, the Company repurchased i4,346 and i24,710
shares of its common stock for approximately $i106,532 and $i622,000, respectively. During the three months ended December 31, 2023 and 2022,
the average price paid per share was $i24.51 and $i25.16, respectively.
Note 14: iStock-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 i300,000
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.
The
Company recognized compensation expense of approximately $i50,000 and $i0 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 ino
unrecognized compensation expense associated with stock option awards.
Note 15: iEarnings 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.
Net
(loss) income applicable for diluted earnings per share
$
(i682)
$
i1,844
Weighted
average common shares outstanding
i3,163,541
i3,059,035
Add:
Options
i—
i30,467
Add:
Series E Preferred Stock
i—
i239
Assumed
weighted average common shares outstanding
i3,163,541
i3,089,741
Diluted
(loss) earnings per share
$
(i0.22)
$
i0.60
/
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 i3,182,083.
For the three months ended December 31, 2022, there were i17,000 options to purchase shares of common stock that were anti-dilutive, and not included in the diluted EPS computation.
Note 16: iRelated
Party Transactions
Transactions with Isaac Capital Group, LLC
As of December 31, 2023, Isaac Capital Group, LLC (“ICG”) beneficially owns i48.9% 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 i219,177 shares of common stock and holds options to purchase up to i25,000
shares of common stock at an exercise price of $i10.00 per share, all of which are currently exercisable. Mr. Isaac's options to purchase i25,000
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 $i7.0 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 $i2.0 million
(the “ICG Loan”) from ICG. The ICG Loan bears interest at i12.5% and matures in May 2025. As of December 31, 2023 and September 30, 2023, the outstanding balance on this note was $ii2.0/ million.
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 $i1.0 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 $i6.0 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 i10% to i12% per annum. As of each of December 31, 2023
and September 30, 2023, the the ICG Revolver was $ii1.0/ 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 $i5.0 million (“ICG Flooring Liquidators Loan”). The ICG Flooring Liquidators Loan matures on January 18, 2028, and bears interest at i12%.
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 $i5.0 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 i9,900 square feet of office space from the
Company at its Las Vegas office, which totals i16,500 square feet. JanOne paid the Company $i36,000 and $i52,000
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 ifive percent surcharge or broker-type fee. As of December 31, 2023, the Company has a full
allowance of approximately $i690,000 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 $i2.0 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 i10.0% 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 i12%
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 $ii2.0/
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 $i1.0 million (the “Spriggs Loan II”). The Spriggs Loan II matures on July 31, 2024, and bears interest at a rate of
i12% per annum. As of December 31, 2023 and September 30, 2023, the amount owed was $ii1.0/
million.
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 itwo
building leases with Spyglass. The building leases are for i20 years with itwo options to renew for an additional ifive
years each. The provisions of the lease agreements include an initial i24-month month-to-month rental period, during which the lessee may cancel with i90-day notice, followed by a i20-year
lease term with itwoifive-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 ifive properties from K2L Property Management, and ione
from Railroad Investments, each of which Mr. Kellogg is a member. Additionally, Flooring Liquidators leases itwo 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 ifive years and shall be automatically extended in i90-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 $i3.0 million with the previous owner of Kinetic. The Sellers Subordinated Acquisition Note bears interest at i7.0% 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 $i3.0 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 ifive years and shall be automatically extended in i90-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 $i34.0 million with the previous owners of Flooring Liquidators. The Seller Subordinated Acquisition Note bears interest at i8.24%
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 $i31.7 million, or a discount of $i2.3
million. The $i2.3 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 $i34.2
million and $i33.5 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 $i3.0 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 itwo
seller financed loans, in the aggregate amount of $i2.5 million, which are fully guaranteed by the Company. The seller financed loans bear interest at i8.0% 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 $ii2.5/ 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.
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, ithree 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 itwo 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 ione 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
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 $i2,500,000.
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 $i4,500,000.
Several of the individual shareholders have moved to dismiss the counterclaim. The Company expects discovery to last for approximately ione 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: iSegment Reporting
The Company operates in ifive
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.
i
The following tables summarize segment information (in $000's):
Net
(loss) income before provision for income taxes
Retail-Entertainment
$
i3,055
$
i3,538
Retail-Flooring
(i1,628)
i—
Flooring
Manufacturing
(i163)
(i313)
Steel
Manufacturing
(i1,018)
i268
Corporate
& Other
(i1,152)
(i1,034)
Total
(loss) net income before provision for income taxes
$
(i906)
$
i2,459
Note
19: iSubsequent 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.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended December 31, 2023, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Form 10-K”).
Note
about Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,”“believes,”“projects,”“intends,”“plans,”“expects,” or “anticipates,” and do not reflect historical facts.
Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements that
the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vi) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.
Forward-looking statements involve risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in
our 2023 Form 10-K under Item 1A “Risk Factors” and Part II, Item 1A. "Risk Factors" below, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements except as required by federal securities laws. Any information contained on our websitewww.liveventures.com or any other websites
referenced in this Quarterly Report are not incorporated into and should not be deemed a part of this Quarterly Report.
Live Ventures Incorporated is a holding company of diversified businesses, which, together with our subsidiaries, we refer to as the “Company”, “Live Ventures”, “we”, “us” or “our”. We acquire and operate companies in various industries that have historically demonstrated a strong history of earnings power. We currently have five segments to our business: Retail-Entertainment, Retail-Flooring, Flooring Manufacturing, Steel
Manufacturing, and Corporate and Other.
Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses.
Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada89119, our telephone number is (702) 939-0231, and our corporate website
(which does not form part of this Quarterly Report Form 10-Q) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol “LIVE”.
Retail-Entertainment Segment
Our Retail-Entertainment Segment is composed of Vintage Stock, Inc., doing business as Vintage Stock, V-Stock, Movie Trading Company and EntertainMart (collectively, “Vintage Stock”).
Vintage Stock is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books,
comics, toys and collectibles, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 70 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah.
Retail-Flooring Segment
Our Retail-Flooring Segment is composed of Flooring Liquidators, Inc. (“Flooring Liquidators”).
Flooring Liquidators is a leading retailer and installer of flooring, carpeting, and countertops to consumers, builders, and contractors in California and Nevada, operating 20 warehouse-format stores and a design center. Over the years, the
company has established a strong reputation for innovation, efficiency and service in the home renovation and improvement market. Flooring Liquidators serves retail and builder customers through two businesses: retail customers through its Flooring Liquidators retail stores, and builder and contractor customers through Elite Builder Services, Inc.
On October 13, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO, a floor covering retailer and installer serving residential and commercial customers throughout Northwest Arkansas.
On November 30, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson, a floor covering retailer and installer serving residential and commercial customers through locations in Tulsa, Oklahoma
and Joplin, Missouri.
Flooring Manufacturing Segment
Our Flooring Manufacturing segment is comprised of Marquis Industries, Inc. (“Marquis”).
Marquis is a leading carpet manufacturer and distributor of carpet and hard-surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers.
Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art
operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion.
On July 1, 2022, Live acquired certain assets and intellectual property of Better Backers, a Georgia corporation, which was accomplished through an Asset Purchase Agreement.
Steel Manufacturing Segment
Our Steel Manufacturing segment is comprised of Precision Industries, Inc. (“Precision Marshall”), its wholly-owned subsidiary The Kinetic Co., Inc. (“Kinetic”), and Precision Metal Works, Inc. (“PMW”).
Precision
Marshall is the North American leader in providing and manufacturing, pre-finished de-carb free tool and die steel. For over 75 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs.
Founded in 1948, Precision Marshall “The Deluxe Company” has built a reputation of high integrity, speed of service and doing things the “Deluxe Way”. The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee.
Precision Marshall provides four key products to over 500 steel distributors in four product categories:
Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.
On June 28, 2022, Precision Marshall acquired Kinetic. Kinetic is a highly recognizable and regarded brand name in the production of industrial knives and hardened wear products for the tissue, metals, and wood industries and is known as a
one-stop
shop for in-house grinding, machining, and heat-treating. Kinetic is headquartered in Greendale, Wisconsin. Kinetic manufactures more than 90 types of knives and numerous associated parts with modifications and customizations available to each. Kinetic employs approximately 100 non-union employees.
On July 20, 2023, we acquired PMW. Founded nearly 76 years ago in 1947 in Louisville, Kentucky, PMW manufactures and supplies highly engineered parts and components across 400,000 square feet of manufacturing space. PMW offers world-class metal forming, assembly, and finishing solutions across diverse industries, including appliance, automotive, hardware, electrical, electronic, medical products, and devices.
Corporate and Other Segment
Our Corporate and Other segment consists of certain corporate
general and administrative costs, Salomon Whitney LLC, which was shut down during the three months ended June 30, 2023, and operations of certain legacy products and service offerings for which we are no longer accepting new customers.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and
other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management’s initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Income Taxes, Segment Reporting and Concentrations of Credit Risk. For a summary of our significant accounting policies and the means by which we develop estimates thereon, see Part II, Item 8 – Financial Statements - Notes to unaudited condensed consolidated financial statements Note 2 – summary of significant accounting policies in our 2023 Form 10-K.
Adjusted EBITDA
We evaluate the performance of our operations
based on financial measures such as “Adjusted EBITDA”, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization, stock-based compensation, and other non-cash or nonrecurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of the business, including the business’ ability to fund acquisitions and other capital expenditures, and to service its debt. Additionally, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate a company's financial performance, subject to certain adjustments. Adjusted EBITDA does not represent cash flows from operations, as defined by GAAP, and should not be construed as an alternative
to net income or loss and is indicative neither of our results of operations, nor of cash flows available to fund all 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.
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):
Revenue
increased approximately $48.6 million, or 70.5%, to approximately $117.6 million for the three months ended December 31, 2023, as compared to the corresponding prior year period. The increase is primarily attributable to Flooring Liquidators and PMW, both of which were acquired after the first quarter of fiscal year 2023, as well as an increase of approximately $2.8 million in the Flooring Manufacturing segment. The increase was partially offset by decreased revenues of approximately $6.2 million in our other businesses.
Cost of Revenue
Cost of revenue as a percentage of revenue was 69.1% for three months ended December 31, 2023 as compared to 68.2% for the three months ended December 31, 2022. The increase was primarily attributable
to the acquisition of PMW, which historically has generated lower margins, as well as a decrease in margins in our Steel Manufacturing segment as a whole due to decreased production, partially offset by the acquisition of Flooring Liquidators, which historically has generated higher margins.
General and Administrative Expense
General and Administrative expenses increased by 89.6% to approximately $27.9 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022. The increase is primarily due to the acquisitions of Flooring Liquidators and PMW during fiscal 2023.
Sales and marketing expense increased by 83.9% to approximately $5.1 million for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, primarily due to increased compensation for sales personnel acquired as part of the acquisition of the Harris Flooring Group® brands from Q.E.P, and increased convention and trade show activity in our Flooring Manufacturing segment, as well as the acquisition of Flooring Liquidators.
Interest Expense, net
Interest expense, net, increased by approximately $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
Revenue for the three months ended December 31, 2023 decreased by approximately $2.7 million, or 11.5%, as compared to the prior year, primarily due to reduced consumer demand and a shift in sales mix toward used products, which generally have lower ticket sales with higher margins. The shift in sales mix also contributed to the increase in gross margin to 56.0% for the quarter ended December 31, 2023, compared to 52.5% for the prior year period. Operating income for the quarter ended December 31, 2023, was approximately $3.1 million, compared to operating income of approximately $3.7 million for the prior year period.
Retail-Flooring Segment
Our Retail-Flooring segment consists of
Flooring Liquidators, which we acquired in January 2023. Revenue for the three months ended December 31, 2023 was $34.3 million, and cost of revenue as a percentage of revenue was 62.0%. Operating income for the three months ended December 31, 2023 was approximately $90,000. During the three months ended December 31, 2023, Flooring Liquidators acquired certain assets and assumed certain liabilities of CRO. Additionally, during the three months ended December 31, 2023, CRO acquired certain assets and assumed certain liabilities of Johnson.
Flooring Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by
approximately $2.8 million, or 10.6%, as compared to the prior year period. The gross margin was 22.0% for the quarter ended December 31, 2023, compared to 17.6% for the prior year period. The increase in revenue and gross margin is primarily due to the buildup of the sales force as a result of the acquisition of the Harris Flooring Group® brands in the fourth quarter of fiscal year 2023. Operating income for the year ended December 31, 2023, was approximately $0.95 million, compared to operating income of approximately $0.75 million for the prior year.
Steel Manufacturing Segment
Revenue for the three months ended December 31, 2023 increased by approximately $15.4 million, or 85.5%, as compared to the prior year period. The increase
is primarily due to increased revenues of approximately $18.3 million at The Kinetic Co., Inc. and PMW, partially offset by a $2.9 million decrease in our other Steel Manufacturing business. This decrease is primarily due to reduced customer demand as a result of general economic conditions. The gross margin was 15.8% for the quarter ended December 31, 2023, compared to 24.4% for the prior year period. The decrease in gross margin is primarily due to the acquisition of PMW, which has historically generated lower margins and decreased margins in the Steel
Manufacturing segment due to reduced production. Operating
income for the year ended December 31, 2023, was approximately $1.0 million, compared to operating income of approximately $1.5 million in the prior year period.
Corporate and Other Segment
Revenues for the three months ended December 31, 2023 decreased by $1.2 million, or 93.2%, as compared to the prior year period. The decrease was primarily due to the closure of SW Financial in May 2023. Operating loss for the quarter ended December 31, 2023, was approximately $1.6 million, compared to a loss of approximately $1.3 million in the prior year.
Adjusted
EBITDA Reconciliation
The following table presents a reconciliation of net income to Adjusted EBITDA for the three months ended December 31, 2023 (in 000's):
Adjusted EBITDA increased by approximately $1.2 million, or 15.3%, for the three months ended December 31, 2023, as compared to the prior year period. The increase is primarily due to an increase in non-operating and other non-recurring expenses, partially offset by decreases in operating income, as discussed above.
Liquidity and Capital Resources
As
of December 31, 2023, we had total cash on hand of approximately $5.6 million and approximately $39.4 million of available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature, and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Based on our current operating plans, we believe that available cash balances, cash generated from our operating
activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to do the following: fund our operations; pay our scheduled loan payments; ability to repurchase shares under our share buyback program; and, pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.
Working Capital
We had working capital of approximately $81.8 million as of December 31, 2023, as compared to working capital of approximately $85.0 million as of September 30, 2023; a decrease of approximately $3.2 million. The decrease is primarily due to increases in accrued liabilities and the current portion of operating lease obligations, and a decrease in prepaid expenses of approximately $8.6 million,
partially offset by decreases in accounts payable, and increases in accounts receivable, inventories, and cash of approximately $5.3 million.
The Company’s cash, as of December 31, 2023, was approximately $5.6 million compared to approximately $4.3 million as of September 30, 2023, an increase of approximately $1.3 million. Net cash provided by operations was approximately $7.9 million for the
three months ended December 31, 2023, as compared to net cash provided by operations of approximately $6.3 million for the three months ended December 31, 2022. The increase was primarily due to increases in accrued liabilities, depreciation and amortization expense, and allowance for obsolete inventory, partially offset by an increase in accounts receivable and decrease in deferred income tax liabilities.
Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings. 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 $3.2 million for the three months ended December 31, 2023 consisted of the acquisitions of CRO by Flooring Liquidators, and Johnson by CRO, and purchases of property and equipment. Our cash flows used in investing activities of approximately $1.3 million for the three months ended December 31, 2022 consisted of purchases of property and equipment.
Cash Flows from Financing Activities
Our cash flows used in financing activities of approximately $3.4 million during the three months ended December 31,
2023 consisted of payments on notes payable of approximately $1.8 million, purchases of treasury stock and payments for finance leases of approximately $900,000, and net payments under revolver loans of approximately $750,000.
Our cash flows provided by financing activities of approximately $3.2 million during the three months ended December 31, 2022 consisted of proceeds from notes payable of approximately $5.7 million, partially offset by payments of notes payable and financing leases of approximately $1.8 million, and purchases of treasury stock and net borrowings under revolver loans of approximately $670,000.
Currently, we are not issuing common shares for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done
so historically. Occasionally, as our Company history has demonstrated, we will issue stock and derivative instruments linked to stock for services or debt settlement.
Future Sources of Cash; New Products and Services
We may require additional debt financing or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained by us may further dilute or otherwise impair the ownership interest of our existing stockholders.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2023, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure
Control and Procedures. We carried out an evaluation, under the supervision, and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, as of December 31, 2023, we concluded that the Company's disclosure, controls, and procedures were effective.
Management’s Report on Internal Control Over
Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s
disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Our management assessed the design and effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) of 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, as of December 31, 2023, our management concluded that our internal controls over financial reporting were operating effectively.
There
were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The information in response to this item is included in Note 17, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q. Please also refer to “Item 3. Legal Proceedings” in our 2023 Form 10-K for information regarding material pending legal proceedings. Except as set forth herein, there have been no new material legal proceedings and no material developments in the legal proceedings previously disclosed.
ITEM 1A.Risk Factors
None.
ITEM
2.Unregistered Sales of Equity Securities and Use of funds
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.