NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE NINE MONTHS ENDED JUNE 30, 2018 AND 2017
Note
1: Background and Basis of Presentation
The
accompanying condensed consolidated financial statements include the accounts of Live Ventures Incorporated, a Nevada corporation,
and its subsidiaries (collectively, the “Company”). Commencing in fiscal year 2015, the Company began a strategic
shift in its business plan away from providing online marketing solutions for small and medium sized business to acquiring profitable
companies in various industries that have demonstrated a strong history of earnings power. The Company continues to actively develop,
revise and evaluate its products, services and its marketing strategies in its businesses. The Company has three operating segments:
Manufacturing, Retail and Online (our new name for the previously named Marketplace Platform segment) and Services. With Marquis
Industries, Inc. (“Marquis”), the Company is engaged in the manufacture and sale of carpet and the sale of vinyl and
wood floorcoverings. With Vintage Stock, Inc. (“Vintage Stock”), the Company is engaged in the sale of new and used
movies, music, collectibles, comics, books, games, game systems and components. With ApplianceSmart, Inc. (“ApplianceSmart”),
the Company is engaged in the sale of new major appliances through a chain of company-owned retail stores.
The
unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and
footnotes required by 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 three and nine months ended June 30, 2018 are not necessarily indicative of
the results to be expected for the fiscal year ending September 30, 2018. This financial information should be read in conjunction
with the consolidated financial statements and related notes thereto as of September 30, 2017 and for the fiscal year then ended
included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as amended, filed with
the U.S. Securities and Exchange Commission (the “SEC”) on January 18, 2018 (the “2017 10-K”).
On
November 22, 2016, the Company’s Board of Directors authorized a one-for-six (1:6) reverse stock split and a contemporaneous
one-for-six (1:6) reduction in the number of authorized shares of common stock from 60,000,000 to 10,000,000 shares, to take effect
for stockholders of record as of December 5, 2016. No fractional shares were issued. All share, option and warrant related information
presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the decreased number
of shares resulting this reverse stock split.
Note
2: Summary of Significant Accounting Policies
Principles
of Consolidation
The
condensed consolidated financial statements represent the consolidated financial position, results of operations and cash flows
of Live Ventures Incorporated and its wholly-owned subsidiaries. On July 6, 2015, the Company acquired 80% of Marquis Industries,
Inc. and subsidiaries (“Marquis”). Effective November 30, 2015, the Company acquired the remaining 20% of Marquis.
On November 3, 2016, the Company acquired 100% of Vintage Stock, Inc., a Missouri corporation (“Vintage Stock”), through
its newly formed, wholly-owned subsidiary, Vintage Stock Affiliated Holdings LLC (“VSAH”). Effective December 30,
2017, the Company acquired 100% of ApplianceSmart through its newly formed, wholly-owned subsidiary, ApplianceSmart Holdings LLC
(“ASH”). All intercompany transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with GAAP requires 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 consolidated financial statements and 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 consolidated financial statements include the estimate of dilution and fees associated with
billings, the estimated reserve for doubtful current and long-term trade and other receivables, sales return allowance, the estimated
reserve for excess and obsolete inventory, estimated fair value and forfeiture rates for stock-based compensation, fair values
in connection with the analysis of goodwill, other intangibles and long-lived assets for impairment, current portion of long-term
debt, valuation allowance against deferred tax assets and estimated useful lives for intangible assets and property and equipment.
Financial
Instruments
Financial
instruments consist primarily of cash equivalents, trade and other receivables, advances to affiliates and obligations under accounts
payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables,
accounts payable, accrued expenses and short-term notes payable approximate fair value because of the short maturity of these
instruments. The fair value of the long-term debt is calculated based on interest rates available for debt with terms and maturities
similar to the Company’s existing debt arrangements, unless quoted market prices were available (Level 2 inputs). The carrying
amounts of long-term debt at June 30, 2018 and September 30, 2017 approximate fair value.
Cash
and Restricted Cash
Cash
and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Restricted
cash consists of balances on deposit, $750,000 as of June 30, 2018, pledged as collateral for a letter of credit. Fair value of
cash equivalents and restricted cash approximates carrying value.
Trade
Receivables
The
Company grants trade credit to customers under credit terms that it believes are customary in the industry it operates and does
not require collateral to support customer trade receivables. Some of the Company’s trade receivables are factored primarily
through two factors. Factored trade receivables are sold without recourse for substantially all of the balance receivable for
credit approved accounts. The factor purchases the trade receivables for the gross amount of the respective invoice(s), less factoring
commissions, trade and cash discounts. The factor charges the Company a factoring commission for each trade account, which is
between 0.75-1.00% of the gross amount of the invoice(s) factored on the date of the purchase, plus interest calculated at 3.25%-6%
per annum. The minimum annual commission due the factor is $112,500 per contract year. Total commissions paid to factors were
$231,761 and $210,961 for nine months ended June 30, 2018 and 2017, respectively. The total amount of trade receivables factored
was $29,592,944 and $27,373,263 for the nine months ended June 30, 2018 and 2017, respectively.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts, which includes allowances for accounts and factored trade receivables, customer
refunds, dilution and fees from local exchange carrier billing aggregators and other uncollectible accounts. The allowance for
doubtful accounts is based upon historical bad debt experience and periodic evaluations of the aging and collectability of the
trade receivables. This allowance is maintained at a level which the Company believes is sufficient to cover potential credit
losses and trade receivables are only written off to bad debt expense as uncollectible after all reasonable collection efforts
have been made. The Company has also purchased accounts receivable credit insurance to cover non-factored trade and other receivables
which helps reduce potential losses due to doubtful accounts. At June 30, 2018 and September 30, 2017, the allowance for doubtful
accounts was $1,239,937 and $1,091,223, respectively.
Inventories
Manufacturing
Segment
Inventories
are valued at the lower of the inventory’s cost (first in, first out basis (“FIFO”)) or market. Management compares
the cost of inventory with its net realizable value and an allowance is made to write down inventory to net realizable value,
if lower. Management also reviews inventory to determine if excess or obsolete inventory is present and a reserve is made to reduce
the carrying value for inventory for such excess and or obsolete inventory. At June 30, 2018 and September 30, 2017, the reserve
for obsolete inventory was $91,940.
Retail
and Online Segment
Merchandise
inventories are valued at the lower of cost or market using the average cost method which approximates FIFO. Under the average
cost method, as new product is received from vendors, its current cost is added to the existing cost of product on-hand and this
amount is re-averaged over the cumulative units in inventory available for sale. Pre-owned products traded in by customers are
recorded as merchandise inventory for the amount of cash consideration or store credit less any premiums given to the customer.
Management reviews the merchandise inventory to make required adjustments to reflect potential obsolescence or the lower of cost
or market. In valuing merchandise inventory, management considers quantities on hand, recent sales, potential price protections,
returns to vendors and other factors. Management’s ability to assess these factors is dependent upon forecasting customer
demand and to provide a well-balanced merchandise assortment. Merchandise inventory valuation is adjusted based on anticipated
physical inventory losses or shrinkage and actual losses resulting from periodic physical inventory counts. Merchandise inventory
reserves as of June 30, 2018 and September 30, 2017 were $1,211,159 and $1,256,629, respectively.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense
as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement
of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected
in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful
lives of building and improvements are three to forty years, transportation equipment is five to ten years, machinery and equipment
are five to ten years, furnishings and fixtures are three to five years and office and computer equipment are three to five years.
Depreciation expense was $1,335,174 and $976,296 for the three months ended June 30, 2018 and 2017, respectively. Depreciation
expense was $3,562,368 and $2,677,039 for the nine months ended June 30, 2018 and 2017, respectively.
The
Company periodically reviews our property and equipment when events or changes in circumstances indicate that their carrying amounts
may not be recoverable or their depreciation or amortization periods should be accelerated. We assess recoverability based on
several factors, including our intention with respect to our stores and those stores projected undiscounted cash flows. An impairment
loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by
the present value of their projected discounted cash flows.
Goodwill
The
Company accounts for purchased goodwill and intangible assets in accordance with ASC 350,
Intangibles—Goodwill and
Other
. Under ASC 350, purchased goodwill is not amortized; rather, they are tested for impairment on at least an annual basis.
Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of the business
acquired.
We
test goodwill annually on July 1 of each fiscal year or more frequently if events arise or circumstances change that indicate
that goodwill may be impaired. The Company assesses whether goodwill impairment exists using both the qualitative and quantitative
assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative
assessment the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying
amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed using a two-step
approach required by ASC 350 to determine whether a goodwill impairment exists.
The
first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the
reporting unit. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized.
If the carrying amount exceeds the fair value, then the second step is required to be completed, which involves allocating the
fair value of the reporting unit to each asset and liability using the guidance in ASC 805 (“
Business Combinations, Accounting
for Identifiable Intangible Assets in a Business Combination
”), with the excess being applied to goodwill. An impairment
loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of our reporting
units is based, among other things, on estimates of future operating performance of the reporting unit being valued. We are required
to complete an impairment test for goodwill and record any resulting impairment losses at least annually. Changes in market conditions,
among other factors, may have an impact on these estimates and require interim impairment assessments.
When
performing the two-step quantitative impairment test, the Company's methodology includes the use of an income approach which discounts
future net cash flows to their present value at a rate that reflects the Company’s cost of capital, otherwise known as the
discounted cash flow method (“DCF”). These estimated fair values are based on estimates of future cash flows of the
businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services offered
by the businesses, the development of new products and services by the businesses and the underlying cost of development, the
future cost structure of the businesses, and future technological changes. The Company also incorporates market multiples for
comparable companies in determining the fair value of our reporting units. Any such impairment would be recognized in full in
the reporting period in which it has been identified.
Intangible
Assets
The
Company’s intangible assets consist of customer relationship intangibles, trade names, licenses for the use of internet
domain names, Universal Resource Locators, or URL’s, software, and marketing and technology related intangibles. Upon acquisition,
critical estimates are made in valuing acquired intangible assets, which include but are not limited to: future expected cash
flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position,
as well as assumptions about the period of time that customer relationships will continue; and discount rates. Management's estimates
of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and,
as a result, actual results may differ from the assumptions used in determining the fair values. All intangible assets are capitalized
at their original cost and amortized over their estimated useful lives as follows: domain name and marketing – 3 to 20 years;
software – 3 to 5 years, customer relationships – 7 to 15 years. Intangible amortization expense is $486,060 and $113,245
for the three months ended June 30, 2018 and 2017, respectively. Intangible amortization expense is $962,029 and $435,747 for
the nine months ended June 30, 2018 and 2017, respectively.
Revenue
Recognition
Manufacturing
Segment
The
Manufacturing Segment derives revenue primarily from the sale of carpet products, including shipping and handling amounts, which
are recognized when the following requirements have been met: (i) there is persuasive evidence of an arrangement, (ii) the sales
transaction price is fixed or determinable, (iii) title, ownership and risk of loss have been transferred to the customer, (iv)
allocation of sales price to specific performance obligations, and (v) performance obligations are satisfied. At the time revenue
is recognized, the Company records a provision for the estimated amount of future returns based primarily on historical experience
and any known trends or conditions that exist at the time revenue is recognized. Revenues are recorded net of taxes collected
from customers. All direct costs are either paid and or accrued for in the period in which the sale is recorded.
Retail
and Online Segment
The
Retail and Online Segment derives revenue primarily from direct sales of entertainment and appliance products and services, including
shipping and handling amounts, which are recognized when the following requirements have been met: (i) there is persuasive evidence
of an arrangement, (ii) the sales transaction price is fixed or determinable, (iii) title or use rights, ownership and risk of
loss have been transferred to the customer, (iv) allocation of sales price to specific performance obligations, and (v) performance
obligations are satisfied. At the time revenue is recognized, the Company records a provision for the estimated amount of future
returns based primarily on historical experience and any known trends or conditions that exist at the time revenue is recognized.
Revenues are recorded net of taxes collected from customers. All direct costs are either paid and or accrued for in the period
in which the sale is recorded.
Services
Segment
The
Services Segment recognizes revenue from directory subscription services as billed for and accepted by the customer. Directory
services revenue is billed and recognized monthly for directory services subscribed. The Company has utilized outside billing
companies to perform direct ACH withdrawals. For billings via ACH withdrawals, revenue is recognized when such billings are accepted
by the customer. Customer refunds are recorded as an offset to gross Services Segment revenue.
Revenue
for billings to certain customers that are billed directly by the Company and not through outside billing companies is recognized
based on estimated future collections which are reasonably assured. The Company continuously reviews this estimate for reasonableness
based on its collection experience.
Shipping
and Handling
The
Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling
as cost of revenues.
Customer
Liabilities
The Company establishes a liability upon
the issuance of merchandise credits and the sale of gift cards. Breakage income related to gift cards which are no longer reportable
under state escheatment laws for the three months ended June 30, 2018 and 2017, is expense of $53,225 and income of $25,092, respectively.
For the nine months ended June 30, 2018, breakage income of $39,918, and the period of November 3, 2016 through June 30, 2017,
breakage income of $98,183 is recorded in other income in our consolidated financial statements. No amounts were recorded for
breakage for any period prior to November 3, 2016.
Fair
Value Measurements
ASC
Topic 820 (“
Fair Value Measurements and Disclosures
”) requires disclosure of the fair value of financial
instruments held by the Company. ASC topic 825, “Financial Instruments,” defines fair value, and establishes a three-level
valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The
three levels of valuation hierarchy are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices for
identical assets or liabilities in active markets. Level 2 – to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable
and significant to the fair value measurement.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of
deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between
tax bases and financial reporting bases of the Company's assets and liabilities. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. A valuation allowance is provided on deferred taxes if it is determined that it
is more likely than not that the asset will not be realized. The Company recognizes penalties and interest accrued related to
income tax liabilities in the provision for income taxes in its Consolidated Statements of Income.
Significant
management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position.
The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more
likely than not (greater than 50% chance) that the tax position will be sustained. The second step requires an entity to recognize
in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts
ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may
materially impact the financial statements of the Company in future periods.
Lease
Accounting
The
Company leases retail stores, warehouse facilities and office space. These assets and properties are generally leased under noncancelable
agreements that expire at various dates through 2024 with various renewal options for additional periods. The agreements, which
have been classified as operating leases, generally provide for minimum and, in some cases percentage rent and require us to pay
all insurance, taxes and other maintenance costs. Leases with step rent provisions, escalation clauses or other lease concessions
are accounted for on a straight-line basis over the lease term and includes “rent holidays” (periods in which we are
not obligated to pay rent). Cash or lease incentives received upon entering into certain store leases (“tenant improvement
allowances”) are recognized on a straight-line basis as a reduction to rent expense over the lease term. The Company records
the unamortized portion of tenant improvement allowances as a part of deferred rent. The Company does not have leases with capital
improvement funding. Percentage rentals are based on sales performance in excess of specified minimums at various stores and are
accounted for in the period in which the amount of percentage rent can be accurately estimated.
Stock-Based
Compensation
The
Company from time to time grants restricted stock awards and options to employees, non-employees and Company executives and directors.
Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each
award is amortized on a straight-line basis over the vesting period.
Earnings
Per Share
Earnings
per share is calculated in accordance with ASC 260 (“
Earnings Per share
”). Under ASC 260 basic earnings
per share is computed using the weighted average number of common shares outstanding during the period except that it does not
include unvested restricted stock subject to cancellation. Diluted earnings per share is computed using the weighted average number
of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of warrants, options, restricted shares and convertible preferred stock.
The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by application
of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.
Segment
Reporting
ASC
Topic 280, “
Segment Reporting
,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a Company’s management organizes segments within the Company for making
operating decisions and assessing performance. The Company determined it has three reportable segments (See Note 17).
Concentration
of Credit Risk
The
Company maintains cash balances at several banks in multiple states including, Arkansas, California, Colorado, Georgia, Idaho,
Illinois, Kansas, Missouri, Minnesota, Nevada, New Mexico, New York, Ohio, Oklahoma, Texas, and Utah. Accounts are insured by
the Federal Deposit Insurance Corporation up to $250,000 per institution as of June 30, 2018. At times, balances may exceed federally
insured limits.
Reclassifications
Certain
amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.
These reclassifications had no effect on the previously reported net income or stockholders’ equity.
Recently
Issued Accounting Pronouncements
ASU
2016-02,
Leases (Topic 842)
. The standard requires a lessee to recognize a liability to make lease payments and a right-of-use
asset representing a right to use the underlying asset for the lease term on the balance sheet. The ASU is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We are currently
evaluating the impact that this standard will have on our consolidated financial statements.
Note
3: Comprehensive Income
Comprehensive
income is the sum of net income and other items that must bypass the income statement because they have not been realized, including
items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses.
For the Company, for three and nine months ended June 30, 2018 and 2017, net income does not differ from comprehensive income.
Note
4: Balance Sheet Detail Information
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Trade receivables, current, net:
|
|
|
|
|
|
|
|
|
Accounts receivable, current
|
|
$
|
14,314,236
|
|
|
$
|
11,383,576
|
|
Less: Reserve for doubtful
accounts
|
|
|
(895,365
|
)
|
|
|
(746,651
|
)
|
|
|
$
|
13,418,871
|
|
|
$
|
10,636,925
|
|
Trade receivables, long term, net:
|
|
|
|
|
|
|
|
|
Accounts receivable, long term
|
|
$
|
344,572
|
|
|
$
|
344,572
|
|
Less: Reserve for doubtful
accounts
|
|
|
(344,572
|
)
|
|
|
(344,572
|
)
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Total trade receivables, net:
|
|
|
|
|
|
|
|
|
Gross trade receivables
|
|
$
|
14,658,808
|
|
|
$
|
11,728,148
|
|
Less: Reserve for doubtful
accounts
|
|
|
(1,239,937
|
)
|
|
|
(1,091,223
|
)
|
|
|
$
|
13,418,871
|
|
|
$
|
10,636,925
|
|
Components of reserve for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for dilution and fees on amounts due
from billing aggregators
|
|
$
|
1,063,617
|
|
|
$
|
1,063,617
|
|
Reserve for customer refunds
|
|
|
856
|
|
|
|
978
|
|
Reserve for trade receivables
|
|
|
175,464
|
|
|
|
26,628
|
|
|
|
$
|
1,239,937
|
|
|
$
|
1,091,223
|
|
Inventory
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
9,848,607
|
|
|
$
|
7,709,969
|
|
Work in progress
|
|
|
1,220,457
|
|
|
|
987,689
|
|
Finished goods
|
|
|
4,608,920
|
|
|
|
3,922,362
|
|
Merchandise
|
|
|
29,422,835
|
|
|
|
23,230,350
|
|
|
|
|
45,100,819
|
|
|
|
35,850,370
|
|
Less: Inventory reserves
|
|
|
(1,303,099
|
)
|
|
|
(1,348,569
|
)
|
|
|
$
|
43,797,720
|
|
|
$
|
34,501,801
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Building and improvements
|
|
$
|
10,770,186
|
|
|
$
|
8,090,797
|
|
Transportation equipment
|
|
|
82,266
|
|
|
|
104,853
|
|
Machinery and equipment
|
|
|
23,256,746
|
|
|
|
17,402,064
|
|
Furnishings and fixtures
|
|
|
2,586,465
|
|
|
|
4,360,820
|
|
Office, computer equipment
and other
|
|
|
2,337,960
|
|
|
|
224,822
|
|
|
|
|
39,033,623
|
|
|
|
30,183,356
|
|
Less: Accumulated depreciation
|
|
|
(10,789,365
|
)
|
|
|
(7,365,496
|
)
|
|
|
$
|
28,244,258
|
|
|
$
|
22,817,860
|
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
Domain name and marketing related intangibles
|
|
$
|
18,957
|
|
|
$
|
18,957
|
|
Lease intangibles
|
|
|
2,239,008
|
|
|
|
1,033,412
|
|
Customer relationship intangibles
|
|
|
4,709,241
|
|
|
|
2,689,039
|
|
Purchased software
|
|
|
2,193,947
|
|
|
|
1,595,977
|
|
|
|
|
9,161,153
|
|
|
|
5,337,385
|
|
Less: Accumulated amortization
|
|
|
(2,144,536
|
)
|
|
|
(1,132,071
|
)
|
|
|
$
|
7,016,617
|
|
|
$
|
4,205,314
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Accrued payroll and bonuses
|
|
$
|
2,603,171
|
|
|
$
|
2,602,695
|
|
Accrued sales and use taxes
|
|
|
530,278
|
|
|
|
824,206
|
|
Accrued property taxes
|
|
|
239,866
|
|
|
|
–
|
|
Accrued rent
|
|
|
90,677
|
|
|
|
502,617
|
|
Deferred revenue
|
|
|
454,030
|
|
|
|
–
|
|
Accrued gift card and escheatment liability
|
|
|
1,684,210
|
|
|
|
1,479,622
|
|
Accrued interest payable
|
|
|
371,314
|
|
|
|
464,184
|
|
Accrued accounts payable and bank overdrafts
|
|
|
3,604,422
|
|
|
|
1,367,539
|
|
Accrued professional fees
|
|
|
149,178
|
|
|
|
–
|
|
Customer deposits
|
|
|
192,812
|
|
|
|
182,052
|
|
Accrued expenses - other
|
|
|
260,373
|
|
|
|
1,563,819
|
|
|
|
$
|
10,180,331
|
|
|
$
|
8,986,734
|
|
Note
5: Acquisitions
Acquisition
of Vintage Stock Inc.
On
November 3, 2016 (the “Vintage Stock Closing Date”), the Company, through its newly formed, wholly-owned subsidiary,
VSAH, entered into a series of agreements in connection with its purchase of Vintage Stock. Vintage Stock is a retailer that sells,
buys and trades new and pre-owned movies, video games and music products, as well as ancillary products such as books, comics,
toys and collectibles.
Total
consideration paid of $57,653,698 was paid through a combination of (i) $8,000,000 of capital provided by the Company, (ii)debt
financing provided by the TCB Revolver (as defined below) in the aggregate amount of approximately $12,000,000, and mezzanine
financing from the Capitala Term Loan (as defined below) of approximately $30 million, and (iii) $10,000,000 of Company-issued
subordinated acquisition notes payable to the sellers of Vintage Stock, all as more fully described in Note 8.
The
table below summarizes our final purchase price allocation of the consideration paid to the respective fair values of the assets
acquired and liabilities assumed in the Vintage Stock acquisition as of the Vintage Stock Closing Date. The Company finalized
its estimates after it determined that it had obtained all necessary information that existed as of the Vintage Stock Acquisition
Date related to these matters.
Cash and
cash equivalents
|
|
$
|
272,590
|
|
Trade and other receivables
|
|
|
177,338
|
|
Inventory
|
|
|
18,711,192
|
|
Prepaid expenses and
other current assets
|
|
|
814,201
|
|
Property and equipment
|
|
|
4,859,676
|
|
Intangible - leases
|
|
|
1,033,412
|
|
Intangible - trade
names
|
|
|
1,200,000
|
|
Intangible - customer
list
|
|
|
50,000
|
|
Intangible - customer
relationship
|
|
|
1,000,000
|
|
Goodwill
|
|
|
36,946,735
|
|
Notes payable
|
|
|
(542,074
|
)
|
Accounts payable
|
|
|
(5,165,612
|
)
|
Accrued
expenses
|
|
|
(1,703,760
|
)
|
|
|
$
|
57,653,698
|
|
In
connection with the purchase of Vintage Stock, we incurred bank fees of $15,000, appraisal fees of $20,497, legal fees of $192,339
and consulting fees of $119,774, totaling $347,610, all of which was recorded as general and administrative expense during the
year ended September 30, 2017. Goodwill of $36,946,735 is the excess of total consideration less identifiable assets at fair value
less debt assumed at fair value and is tax deductible. Goodwill is attributable to Vintage Stock’s management, assembled
workforce, operating model, the number of stores, locations and competitive presence in each of its respective markets.
The
operating results of Vintage Stock have been included in our consolidated financial statements beginning on November 3, 2016 and
are reported in our Retail and Online segment.
The
estimated fair value of the customer relationship intangible related to Vintage Stock was determined using the income approach,
which discounts expected future cash flows to present value. The Company estimated the fair value of this intangible asset using
the residual method and a present value discount rate of 17% or $1,000,000. Customer relationships relate to the Company’s
ability to sell existing and future products. The Company is amortizing the Customer relationships intangible asset on a straight-line
basis over an estimated life of 5 years.
The
estimated fair value of the trade names intangible that Vintage Stock uses – “Vintage Stock”, “EntertainMart”
and “Movie Trading Company” was determined using a royalty income approach, which estimates an assumed royalty income
stream and then discounts that expected future revenue or cash flow stream to present value. The Company estimated the fair value
of this intangible asset using the residual method and a present value discount rate of 17%, or $1,200,000. Trade names relate
to the Company’s awareness by consumers in the market place. The Company is amortizing the trade names intangible asset
on a straight-line basis over an estimated life of 7 years.
The
estimated fair value of the customer list intangible asset was determined using the cost approach, which estimates the cost to
acquire each email address in the list. The Company estimated the fair value of this intangible asset to be $0.19 per acquired
email address, less a discount 40% attributable to domain and trade names or a net cost per email address of $0.11 or approximately
$50,000. The Company is amortizing the customer list intangible asset on a straight-line basis over an estimated life of 3 years.
Acquisition
of ApplianceSmart Inc.
On
December 30, 2017 (the “ApplianceSmart Closing Date”), the Company, through its newly formed, wholly-owned subsidiary,
ApplianceSmart Affiliated Holdings LLC (“ASH”), entered into a series of agreements in connection with its purchase
of ApplianceSmart. ApplianceSmart is a retailer engaged in the sale of new major appliances through a chain of company-owned retail
stores.
Total
consideration was $6,500,000, with no liabilities assumed by ASH. On December 30, 2017, ASH agreed to pay the $6,500,000 no
later than March 31, 2018. Effective April 1, 2018, ASH issued an interest bearing promissory note the Seller, with interest
at 5% per annum, with a three-year term in the original amount of $3,919,494 for the balance of the purchase price. Interest
is payable monthly in arrears. Ten percent of the outstanding principal amount is due to be repaid annually on a quarterly
basis, with any remainder due and payable on maturity, April 1, 2021. This promissory note is guaranteed by ApplianceSmart.
The remaining $2,580,506 was paid in cash by ASH to the Seller. ASH may reborrow funds, and pay interest on such
re-borrowings, from the Seller up to the Original Principal amount. On December 31, 2017, ASH offset certain liabilities and
was provided certain assets from the Seller in the net amount of $1,901,796, against the amount due Seller. ASH and Seller
agreed to the offset as if it were payment in cash against the purchase price. At June 30, 2018, the net amount owing to the
Seller was $3,817,714 and is included in long term debt. See Note 8.
Net
liabilities assumed by ASH on December 31, 2017:
Accounts payable
|
|
$
|
1,374,647
|
|
Accrued expenses
|
|
|
1,374,682
|
|
Capital leases
|
|
|
29,631
|
|
Credit card receivables
|
|
|
(255,301
|
)
|
Cash
|
|
|
(621,863
|
)
|
Total net liabilities assumed by ASH
|
|
$
|
1,901,796
|
|
The
table below summarizes our final purchase price allocation of the consideration paid to the respective fair values of the assets
acquired in the ApplianceSmart acquisition as of the ApplianceSmart Closing Date. The Company finalized its estimates after it
determined that it had obtained all necessary information that existed as of the ApplianceSmart Acquisition Date related to these
matters.
Trade Receivables
|
|
$
|
1,930,164
|
|
Inventory
|
|
|
7,444,282
|
|
Prepaid expenses
|
|
|
69,347
|
|
Refundable deposits
|
|
|
1,003,841
|
|
Intangible asset -
trade names
|
|
|
2,015,000
|
|
Intangible asset -
customer list
|
|
|
5,202
|
|
Intangible asset -
leases
|
|
|
1,205,596
|
|
Restricted cash
|
|
|
750,000
|
|
Property and equipment
|
|
|
1,094,503
|
|
Deferred income tax
|
|
|
(1,599,560
|
)
|
Bargain gain on acquisition
|
|
|
7,418,375
|
|
|
|
$
|
(6,500,000
|
)
|
The
operating results of ApplianceSmart are included in our unaudited condensed consolidated financial statements beginning on December
31, 2017 and are reported in our Retail and Online Segment.
The
estimated fair value of the customer list intangible asset was determined using the cost approach, which estimates the cost to
acquire each email address in the list. The Company estimated the fair value of this intangible asset to be $0.10 per acquired
active contact information or approximately $5,202. The Company is amortizing the customer list intangible asset on a straight-line
basis over an estimated life of 20 years.
The
estimated fair value of the trade names intangible that ApplianceSmart uses – “ApplianceSmart” was determined
using a royalty income approach, which estimates an assumed royalty income stream and then discounts that expected future revenue
or cash flow stream to present value. The Company estimated the fair value of this intangible asset using the residual method
and a present value discount rate of 18.6%, or $2,015,000. Trade name relates to the Company’s awareness by consumers in
the market place. The Company is amortizing the trade name intangible asset on a straight-line basis over an estimated life of
20 years.
The
estimated fair value of the lease assets that ApplianceSmart leases was determined comparing the existing leases assumed to current
market rates within a three-mile radius of existing stores. These market rates were then compared to existing ApplianceSmart contracted
lease rates over the remaining lease terms. If the lease contract began within six months of acquisition date or the square footage
price difference was within 10% of the contracted lease rate, or the overall discounted cash flow effect of the difference was
less than $150,000, the lease was excluded for intangible valuation purposes. The remaining leases that were included were then
compared to market rates, with the differences discounted using a discount rate of 7.50% to determine the discounted present value
of the lease intangibles. The Company is amortizing the lease intangibles on a straight-line basis over the remaining life of
each lease ranging between two and ten years.
Note
6: Intangibles
The
Company’s intangible assets consist of customer relationship intangibles, trade names, licenses for the use of internet
domain names, URL’s, software, and marketing and technology related intangibles. All such assets are capitalized at their
original cost and amortized over their estimated useful lives as follows: domain name and marketing – 3 to 20 years; software
– 3 to 5 years, customer relationships – 7 to 15 years; intangible lease assets – 2 to 10 years. When certain
events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determined
lives may be adjusted. Intangible amortization expense is $486,060 and $113,245 for the three months ended June 30, 2018 and 2017,
respectively. Intangible amortization expense is $962,029 and $435,747 for the nine months ended June 30, 2018 and 2017, respectively.
The
following table summarizes estimated future amortization expense related to intangible assets that have net balances as of June
30, 2018:
|
2019
|
|
|
$
|
1,461,929
|
|
|
2020
|
|
|
|
1,450,817
|
|
|
2021
|
|
|
|
1,321,300
|
|
|
2022
|
|
|
|
673,804
|
|
|
2023
|
|
|
|
381,806
|
|
|
Thereafter
|
|
|
|
1,726,961
|
|
|
|
|
|
$
|
7,016,617
|
|
Note
7: Goodwill
Goodwill
is not amortized, but rather is evaluated for impairment on July 1 annually or when indicators of a potential impairment are present.
The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections
of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used
by other marketplace participants.
Note
8: Long Term Debt
Bank
of America Revolver Loan
On
July 6, 2015, Marquis entered into a $15 million revolving credit agreement with Bank of America Corporation (“BofA
Revolver”). The BofA Revolver is a five-year, asset-based facility that is secured by substantially all of Marquis’
assets. Availability under the BofA Revolver is subject to a monthly borrowing base calculation.
Payment
obligations under the BofA Revolver include monthly payments of interest and all outstanding principal and accrued interest thereon
due in July 2020, which is when the BofA Revolver loan agreement terminates. The BofA Revolver is recorded as a currently liability
due to a lockbox requirement, and a subjective acceleration clause as part of the agreement.
Borrowing
availability under the BofA Revolver is limited to a borrowing base which allows Marquis to borrow up to 85% of eligible accounts
receivable, plus the lesser of (i) $7,500,000; (ii) 65% of the value of eligible inventory; or (iii) 85% of the appraisal value
of the eligible inventory. For purposes of clarity, the advance rate for inventory is 55.3% for raw materials, 0% for work-in-process
and 70% for finished goods subject to eligibility, special reserves and advance limit. Letters of credit reduce the amount available
to borrow under the BofA Revolver by an amount equal to the face value of the letters of credit.
As
of February 22, 2017, Marquis’s ability to make prepayments against Marquis subordinated debt, including the related party
loan with Isaac Capital Group, LLC (“ICG”) and pay cash dividends is generally permitted if (i) excess availability
under the BofA Revolver is more than $4 million, and has been for each of the 90 days preceding the requested distribution and
(ii) excess availability under the BofA Revolver is more than $4 million, and the fixed charge coverage ratio, as calculated on
a pro-forma basis for the prior 12 months is 2:1 or greater. Restrictions apply to our ability to make additional prepayments
against Marquis subordinated debt and pay cash dividends if the fixed charge coverage ratio, as calculated on a pro-forma basis
for the prior 12 months is less than 2:1 and excess availability under the BofA Revolver is less than $4 million at the time of
payment or distribution. There is no restriction on dividends that can be taken by the Company so long as Marquis maintains $4
million of current availability at the time of the dividend or distribution. This translates to having no restriction on Net Income
so long as the Company retains sufficient assets to establish $4 million of current availability and continues to meet the required
fixed charge coverage ratio of 2:1 as stated above.
The
BofA Revolver places certain restrictions and covenants on Marquis, including a limitation on asset sales, additional liens, investment,
loans, guarantees, acquisitions, incurrence of additional indebtedness for Marquis to maintain a fixed charge coverage ratio of
at least 1.05 to 1, tested as of the last day of each month for the twelve consecutive months ending on such day.
The
BofA Revolver Loan bears interest at a variable rate based on a base rate plus a margin. The current base rate is the greater
of (i) Bank of America prime rate, (ii) the current federal funds rate plus 0.50%, or (iii) 30-day LIBOR plus 1.00% plus the margin,
which varies, depending on the fixed coverage ratio table below. Levels I – IV determine the interest rate to be charged
Marquis which is based on the fixed charge coverage ratio achieved.
Level
|
Fixed
Charge Coverage Ratio
|
Base
Rate Revolver
|
LIBOR
Revolver
|
Base
Rate Term
|
LIBOR
Term Loans
|
I
|
>2.00 to 1.00
|
0.50%
|
1.50%
|
0.75%
|
1.75%
|
II
|
<2.00 to 1.00
but >1.50 to 1.00
|
0.75%
|
1.75%
|
1.00%
|
2.00%
|
III
|
<1.50 to 1.00
but >1.20 to 1.00
|
1.00%
|
2.00%
|
1.25%
|
2.25%
|
IV
|
<1.2 to 1.00
|
1.25%
|
2.25%
|
1.50%
|
2.50%
|
On
October 20, 2016, Marquis and Bank of America agreed that Level IV interest rates would be applicable until October 20, 2017,
and the Level would subsequently be adjusted up or down on a quarterly basis going forward based upon the above fixed coverage
ratio achieved by Marquis.
The
BofA Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal
or interest when due, failure to comply with covenants, change in control of Marquis, a material representation or warranty made
by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting
Marquis or its subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the
liquidation of Marquis or certain of its subsidiaries. During the period of October 1, 2017 through June 30, 2018, Marquis cumulatively
borrowed $69,661,042 and repaid $66,755,088 under the BofA Revolver. Our maximum borrowings outstanding during the same period
were $8,530,509. Our weighted average interest rate on those outstanding borrowings for the period of October 1, 2017 through
June 30, 2018 was 3.73%. As of June 30, 2018, total additional availability under the BofA Revolver was $7,170,515; with $7,756,769
outstanding, and outstanding standby letters of credit of $72,715.
Real
Estate Transaction
On
June 14, 2016, Marquis entered into a transaction with Store Capital Acquisitions, LLC. The transaction included a sale-leaseback
of land owned by Marquis and a loan secured by the improvements on such land. The total aggregate proceeds received from the sale
of the land and the loan was $10,000,000, which consisted of $644,479 from the sale of the land and a note payable of $9,355,521.
In connection with the transaction, Marquis entered into a lease with a 15-year term commencing on the closing of the transaction,
which provides Marquis an option to extend the lease upon the expiration of its term. The initial annual lease rate is $59,614.
The proceeds from this transaction were used to pay down the BofA Revolver and Term loans , and related party loan, as well
as purchasing a building from the previous owners of Marquis that was not purchased in the July 2015 transaction. The note payable
bears interest at 9.25% per annum, with principal and interest due monthly. The note payable matures June 13, 2056. For the first
five years of the note payable, there is a pre-payment penalty of 5%, which declines by 1% for each year the loan remains un-paid.
At the end of five years, there is no pre-payment penalty. In connection with the note payable, Marquis incurred $457,757 in transaction
costs that are being recognized as a debt issuance cost that is being amortized and recorded as interest expense over the term
of the note payable.
Kingston
Diversified Holdings LLC Agreement ($2 Million Line of Credit)
On
December 21, 2016, the Company and Kingston Diversified Holdings LLC (“Kingston”) entered into an agreement (the “December
21 Agreement”) modifying its then existing agreement between the parties. The December 21 Agreement, effective September
15, 2016, memorializes an October 2015 interim agreement to extend the maturity date of notes issued by Kingston to the Company
(the “Kingston Notes”) by twelve months for 55,888 shares of the Company’s Series B Convertible Preferred Stock
with a value on September 15, 2016 of $2,800,000, as a compromise between the parties in respect of certain of their respective
rights and duties under the agreement. The December 21 Agreement also decreases the maximum principal amount of the Kingston Notes
from $10,000,000 in principal amount to $2,000,000 in principal amount, and eliminates any and all actual, contingent, or other
obligations of the Company to issue to Kingston any shares of the Company’s common stock, or to grant any rights, warrants,
options, or other derivatives that are exercisable or convertible into shares of the Company’s common stock.
Kingston
acknowledges that from the effective date through and including December 31, 2021, it shall not sell, transfer, assign, hypothecate,
pledge, margin, hedge, trade, or otherwise obtain or attempt to obtain any economic value from any of the shares of Series B Preferred
Stock or any shares into which they may be converted or from which they may be exchanged. As a result of the December 21 Agreement,
the Company recorded $2,800,000 as an outstanding accrued liability as of September 30, 2016. As of June 30, 2018, and September
30, 2017, the Company had no borrowings on the Kingston line of credit. On December 29, 2016, the Company issued 55,888 shares
of Series B Convertible Preferred Stock in settlement of the outstanding accrued liability due Kingston of $2,800,000.
Equipment
Loans
On
June 20, 2016 and August 5, 2016, Marquis entered into a transaction which provided for a master agreement and separate loan schedules
(the “Equipment Loans”) with Banc of America Leasing & Capital, LLC which provided:
Note
#1 is $5 million, secured by equipment. The Equipment Loan #1 is due September 23, 2021, payable in 59 monthly payments of $84,273
beginning September 23, 2016, with a final payment in the sum of $584,273, bearing interest at 3.8905% per annum.
Note
#2 is $2,209,807, secured by equipment. The Equipment Loan #2 is due January 30, 2022, payable in 59 monthly payments of $34,768
beginning January 30, 2017, with a final payment in the sum of $476,729, bearing interest at 4.63% per annum.
Note
#3 is $3,679,514, secured by equipment. The Equipment Loan #3 is due December 30, 2023, payable in 84 monthly payments of $51,658
beginning January 30, 2017, with a final payment due December 30, 2023, bearing interest rate at 4.7985% per annum.
Note
#4 is $1,095,113, secured by equipment. The Equipment Loan #4 is due December 30, 2023, payable in 81 monthly payments of $15,901
beginning April 30, 2017, with final payment due December 30, 2023, bearing interest at 4.8907% per annum.
Note
#5 is $3,931,591, secured by equipment. The Equipment Loan #5 is due December 28, 2024, payable in 84 monthly payments of $54,943
beginning January 28, 2018, with the final payment due December 28, 2024, bearing interest at 4.67% per annum.
Texas
Capital Bank Revolver Loan
On
November 3, 2016, Vintage Stock entered into a $20 million credit agreement (as amended on January 23, 2017 and as further amended
on September 20, 2017) with Texas Capital Bank (“TCB Revolver”). The TCB Revolver is a five-year, asset-based facility
that is secured by substantially all of Vintage Stock’s assets. Availability under the TCB Revolver is subject to a monthly
borrowing base calculation. On June 7, 2018, the credit agreement was amended reducing the maximum revolving facility to $12 million.
The TCB Revolver matures November 3, 2020.
Payment
obligations under the TCB Revolver include monthly payments of interest and all outstanding principal and accrued interest thereon
due in November 2020, which is when the TCB Revolver loan agreement terminates. The TCB Revolver has been classified as a non-current
liability due to the removal of the subjective acceleration clause as part of the credit agreement amendment on June 7, 2018.
Borrowing
availability under the TCB Revolver is limited to a borrowing base which allows Vintage Stock to borrow up to 95% of the appraisal
value of the inventory, plus 85% of eligible receivables, net of certain reserves. The borrowing base provides for borrowing up
to 95% of the appraisal value for the period of November 4, 2016 through December 31, 2016, then 90% of the appraisal value during
the fiscal months of January through September and 92.5% of the appraisal value during the fiscal months of October through December.
Letters of credit reduce the amount available to borrow under the TCB Revolver by an amount equal to the face value of the letters
of credit.
Vintage
Stock’s ability to make prepayments against Vintage Stock subordinated debt including the Comvest Term Loan and pay cash
dividends is generally permitted if (i) excess availability under the TCB Revolver is more than $2 million, and is projected to
be within 12 months after such payment and (ii) excess availability under the TCB Revolver is more than $2 million, and the fixed
charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months is 1.2:1.0 or greater. Restrictions apply to
our ability to make additional prepayments against Vintage Stock subordinated debt including the Comvest Term Loan and pay cash
dividends if the fixed charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months is less than 1.2:1.0
and excess availability under the TCB Revolver is less than $2 million at the time of payment or distribution. There is no restriction
on dividends that can be taken by the Company so long as Vintage Stock maintains $2 million of current availability at the time
of the dividend or distribution. This translates to having no restriction on Net Income so long as the Company retains sufficient
assets to establish $2 million of current availability and continues to meet the required fixed charge coverage ratio of 1.2:1
as stated above.
The
TCB Revolver places certain restrictions on Vintage Stock, including a limitation on asset sales, a limitation of 25 new leases
in any fiscal year, additional liens, investment, loans, guarantees, acquisitions and incurrence of additional indebtedness.
The
per annum interest rate under the TCB Revolver is variable and is equal to the one-month LIBOR rate for deposits in United States
Dollars that appears on Thomson Reuters British Bankers Association LIBOR Rates Page (or the successor thereto) as of 11:00 a.m.,
London, England time, on the applicable determination date plus a margin of 2.25%, effective June 7, 2018.
The
TCB Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal
or interest when due, failure to comply with covenants, change in control of Vintage Stock, a material representation or warranty
made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events
affecting Vintage Stock, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation
of Vintage Stock. During the period of October 1, 2017 through June 30, 2018, Vintage Stock cumulatively borrowed $57,546,998
and repaid $59,150,804 under the TCB Revolver. Our maximum borrowings outstanding during the period of October 1, 2017 through
June 30, 2018 was $16,077,915. Our weighted average interest rate on those outstanding borrowings for the period of October 1,
2017 through June 30, 2018 was 4.502899%. As of June 30, 2018, total additional availability under the TCB Revolver was $1,083,369,
with $10,916,631 outstanding; and outstanding standby letters of credit of $0. In connection with the TCB Revolver, Vintage incurred
$25,000 in transaction cost that is being recognized as debt issuance cost that is being amortized and recorded as interest expense
over the term of the TCB Revolver.
Capitala
Term Loan
On
November 3, 2016, the Company, through VSAH, entered into a series of agreements in connection with its purchase of Vintage Stock.
As a part of those agreements, VSAH and Vintage Stock (the “Term Loan Borrowers”) obtained $29,871,650 of mezzanine
financing from the lenders (the “Term Loan Lenders”) as defined in the term loan agreement (the “Term Loan Agreement”)
between the Term Loan Borrowers and Capitala Private Credit Fund V, L.P., in its capacity as lead arranger. Wilmington Trust,
National Association, acts as administrative and collateral agent on behalf of the Term Loan Lenders (the “Term Loan Administrative
Agent”).
The
term loans under the term loan agreement (collectively, the “Capitala Term Loan”) bear interest at the LIBO rate (as
described below) or base rate, plus an applicable margin in each case. In their loan notice to the Term Loan Administrative Agent,
the Term Loan Borrowers selected the LIBO rate for the initial term loans made under the term loan agreement on the Closing Date.
The
interest rate for LIBO rate loans under the term loan agreement is equal to the sum of (a) the greater of (i) a rate per annum
equal to (A) the offered rate for deposits in United States Dollars for the applicable interest period and for the amount of the
applicable loan that is a LIBOR loan that appears on Bloomberg ICE LIBOR Screen (or any successor thereto) that displays an average
ICE Benchmark Administration Limited Interest Settlement Rate for deposits in United States Dollars (for delivery on the first
day of such interest period) with a term equivalent to such interest period, determined as of approximately 11:00 a.m. (London
time) two business days prior to the first day of such interest period, divided by (B) the sum of one minus the daily average
during such interest period of the aggregate maximum reserve requirement (expressed as a decimal) then imposed under Regulation D
of the Federal Reserve Board for “Eurocurrency Liabilities” (as defined therein), and (ii) 0.50% per annum,
plus
(b)
the sum of (i) 12.50% per annum in cash pay
plus
(ii) 3.00% per annum payable in kind by compounding such interest
to the principal amount of the obligations under the Term Loan Agreement on each interest payment date.
The
interest rate for base rate loans under the term loan agreement is equal to the sum of (a) the highest of (with a minimum of 1.50%)
(i) the federal funds rate plus 0.50%, (ii) the prime rate, and (iii) the LIBO rate plus 1.00%,
plus
(b) the
sum of (i) 11.50% per annum payable in cash
plus
(ii) 3.00% per annum payable in kind by compounding such interest
to the principal amount of the obligations under the Term Loan Agreement on each interest payment date.
The
Term Loans place certain restrictions and covenants on Vintage Stock, including a limitation on asset sales, additional liens,
investment, loans, guarantees, acquisitions and incurrence of additional indebtedness for Vintage Stock. Vintage Stock is required
to maintain a fixed charge coverage ratio of 1.3 for year ended September 30, 2017, 1.4 for year ended September 30, 2018 and
1.5 for all years thereafter. For years ended September 30, 2017 and thereafter, Vintage Stock is required to incur no more than
$1.2 million in annual capital expenditures subject to certain cumulative quarter and year to date covenants. Vintage Stock is
required to maintain a total leverage ratio of 3.25 for year ended September 30, 2017, 2.5 for year ended September 30, 2018 and
2.0 for all years thereafter. In addition, for quarter ended December 31, 2017, the total leverage ratio cannot exceed 3.0 and
for quarters ended March 31, 2018 and June 30, 2018, the total leverage ratio cannot exceed 2.75.
The
Capitala Term Loans provide for customary events of default with corresponding grace periods, including failure to pay any principal
or interest when due, failure to comply with covenants, change in control of Vintage Stock, a material representation or warranty
made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events
affecting Marquis or its subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers
or the liquidation of Vintage Stock or certain of its subsidiaries.
The
payment obligations under the Term Loan Agreement include (i) monthly payments of interest and (ii) principal installment payments
in an amount equal to $725,000 due on March 31, June 30, September 30, and December 31 of each year, with the first such payment
due on December 31, 2016. The outstanding principal amounts of the term loans and all accrued interest thereon under the Term
Loan Agreement are due and payable in November 2021.
The
Term Loan Borrowers may prepay the term loans under the term loan agreement from time to time, subject to the payment (with certain
exceptions described below) of a prepayment premium of: (i) an amount equal to 2.0% of the principal amount of the term loan prepaid
if prepaid during the period of time from and after the Closing Date up to the first anniversary of the Closing Date; (ii) 1.0%
of the principal amount of the term loan prepaid if prepaid during the period of time from and after the first anniversary of
the Closing Date up to the second anniversary of the Closing Date; and (iii) zero if prepaid from and after the second anniversary
of the Closing Date.
The
Term Loan Borrowers may make the following prepayments of the term loans under term loan agreement without being required to pay
any prepayment premium:
|
(i)
|
an amount
not to exceed $3 million of the term loans;
|
|
(ii)
|
in addition
to any amount prepaid in respect of item (i), an additional amount not to exceed $1.45 million, but only if that additional
amount is paid prior to the first anniversary of the Closing Date; and
|
|
(iii)
|
in addition
to any amount prepaid in respect of item (i), an additional amount not to exceed the difference between $2.9 million and any
amount prepaid in respect of item (ii), but only if that additional amount is paid from and after the first anniversary of
the Closing Date but prior to the second anniversary of the Closing Date.
|
There
are also various mandatory prepayment triggers under the Term Loan Agreement, including in respect of excess cash flow, dispositions,
equity and debt issuances, extraordinary receipts, equity contributions, change in control, and failure to obtain required landlord
consents. Our weighted average interest rate on our Capitala Term Loan outstanding borrowings for the period of October 1, 2017
through June 7, 2018 was 16.94%. In connection with the Capitala Term Loan, Vintage Stock incurred $1,088,000 in transaction cost
that is being recognized as debt issuance cost that is being amortized and recorded as interest expense over the term of the Capitala
Term Loan. On June 7, 2018, the Capitala Term Loan was paid in full, and the Company recorded as additional interest expense $742,000
of un-amortized debt issuance cost related to the Capitala Term Loan.
Sellers
Subordinated Acquisition Note
In
connection with the purchase of Vintage Stock, on November 3, 2016, VSAH and Vintage Stock entered into a seller financed mezzanine
loan in the amount of $10 million with the previous owners of Vintage Stock. The Sellers Subordinated Acquisition Note bears interest
at 8% per annum, with interest payable monthly in arrears. The Sellers Subordinated Acquisition Note matures five years and six
months from November 3, 2016.
Comvest
Term Loan
On
June 7, 2018, Vintage Stock Affiliated Holdings LLC (“Holdings”) and Vintage Stock, Inc. (the “Borrower”),
entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) by and among Borrower, Holdings, the
lenders party thereto and Comvest Capital IV, L.P. (“Comvest”), as agent. The Credit Agreement provides for a $24,000,000
secured term loan (the “Term Loan”). The proceeds of the Term Loan, together with a cash equity contribution of approximately
$4.0 million from the Company to the Borrower, will be used by the Borrower (i) to refinance and terminate the Borrower’s
credit facility (the “Prior Credit Facility”) with Capitala Private Credit Fund and certain of its affiliates, as
lenders, and Wilmington Trust National Association (the “Term Loan Administrative Agent”), as agent, (ii) to pay transaction
costs, and (iii) for the Borrower’s working capital and other general corporate purposes. In connection with the closing
of the refinancing transaction with Comvest, all defaults under the Prior Credit Facility were extinguished.
The
Term Loan bears interest at the base or LIBOR rates (as described below) plus an applicable margin in each case. The applicable
margin ranges from 8.00% to 9.50% per annum (subject to a LIBOR floor of 1.00%) and is determined based on the Borrower’s
senior leverage ratio pricing grid. The applicable margin during the first six months following the June 7, 2018 closing is 9.50%.
The
base rate under the Comvest Credit Agreement is equal to the greatest of (i) the per annum rate of interest which is identified
as the “Prime Rate” and normally published in the Money Rates section of The Wall Street Journal (or, if such rate
ceases to be so published, as quoted from such other generally available and recognizable source as Agent may select), (ii) the
sum of the Federal Funds Rate plus one half percent (0.50%), (iii) the most recently used LIBO Rate and (iv) two percent (2.00%)
per annum.
LIBOR
rate is defined as the greater of (a) a rate per annum equal to the London interbank offered rate for deposits in Dollars
for a period of one month and for the outstanding principal amount of the Term Loan as published in the “Money Rates”
section of The Wall Street Journal (or another national publication selected by Agent if such rate is not so published), two Business
Days prior to the first day of such one month period and (b) one percent (1.00%) per annum.
The
Term Loan matures on May 26, 2023 and is subject to amortization of 12.5% (decreasing to 10% upon the Borrower’s senior
leverage ratio being less than 1.50 times the Borrower’s EBITDA (as defined in the Credit Agreement)) of principal per annum
payable in equal quarterly installments due on March 31, June 30, September 30, and December 31 of each year, with the first such
payment due on June 30, 2018; plus, to the extent the Borrower generates excess cash flow (as defined in the Credit Agreement),
a percent of such excess cash flow (ranging from 50% to 100%), all in accordance with the terms of the Credit Agreement.
Under
the Credit Agreement, any and all mandatory prepayments arising from any voluntary act of the Borrower are subject to a prepayment
premium, ranging from 5.00% of the principal amount prepaid plus a make-whole amount to 1.00%, depending on when the mandatory
prepayment is made. There is no prepayment premium after June 7, 2021.
The
Term Loan is secured by a pledge of substantially all of the assets of the Borrower and a pledge of the capital stock of the Borrower.
In addition, the Company is guaranteeing (the “Sponsor Guaranty”) that portion of the Term Loan that results in the
Borrower’s senior leverage ratio being greater than 2.30:1.00, and only for so long as such ratio exceeds 2.30:1.00. The
Sponsor Guaranty terminates on the date that the Borrower’s senior leverage ratio is less than 2.30:1.00 for two consecutive
fiscal quarters.
The
Term Loans place certain restrictions and covenants on Vintage Stock, including a limitation on asset sales, additional liens,
investment, loans, guarantees, acquisitions and incurrence of additional indebtedness for Vintage Stock. Vintage Stock is required
to maintain a minimum of $12,000,000 of EBITA on a trailing twelve months basis as measured quarterly starting June 30, 2018 through
December 31, 2018. Beginning quarter ending March 31, 2019 and thereafter, Vintage Stock is required to maintain a minimum of
$12,500,000 of EBITA on a trailing twelve months basis. So long at the Senior leverage ratio is greater than 2.0 to 1.0, Vintage
Stock is required to spend no more than $1,000,000 on capital expenditures in fiscal year 2018, $1,500,000 in fiscal year 2019,
$2,000,000 in fiscal year 2020, $1,750,000 in fiscal year 2021, and $1,500,000 in fiscal years 2022 and thereafter. Vintage Stock
is required to maintain a declining maximum senior leverage ratio on a trailing twelve month basis beginning June 30, 2018 of
2.85:1.00, September 30, 2018 2.85:1.00, December 31, 2018 2.65:1.00, March 31, 2019 2.60:1.00, June 30, 2019 2.40:1.00, September
30, 2019 2.10:1.00, December 31, 2019 1.90:1.00, March 31, 2020 1.80:1.00, June 30, 2020 1.75:1.00 and September 30, 2020 and
each fiscal quarter thereafter 1.50:1.00. Vintage Stock is required to maintain on a trailing twelve-month basis a minimum fixed
charge ratio of less than 1.30:1.00 for quarters ending June 30, 2018, September 30, 2018 and December 31, 2018. For quarter ending
March 31, 2019 1.10:1.00. For quarters ending June 30, 2019, September 30, 2019 and December 31, 2019 1.30:1.00. For quarter ending
March 31, 2020 and each fiscal quarter thereafter 1.40:1.00. Vintage Stock may only open three new retail locations within a twelve-month
period so long as the senior leverage ratio is 2.00:1.00 or more. If the senior leverage ratio is less than 2.00:1.00, Vintage
Stock may only open no more than four new retail locations within a twelve-month period. At all times that the senior leverage
ratio is greater than or equal to 1.50:1.00, Vintage Stock cannot have the same store sales percentage to be less than or equal
to a negative 5.5 percent as of the last day of any fiscal quarter. Vintage Stock may cure both payment and financial covenant
defaults through infusion of equity cures as determined by the Credit Agreement. EBITDA, senior leverage ratio, same store sales
decline percentage and fixed charge ratio are terms defined within the Credit Agreement.
In
connection with the Comvest Term Loan, Vintage Stock incurred $1,263,011 in transaction cost that is being recognized as debt
issuance cost that is being amortized and recorded as interest expense over the term of the Comvest Term Loan.
Loan
Covenant Compliance
We
were in compliance with all covenants under our existing revolving and other loan agreements as of September 30, 2017 due to waivers
granted by both Texas Capital Bank for the TCB Revolver and Capitala for the Capitala Term Loan. We are in compliance as of June
30, 2018 with all covenants under our existing revolving and other loan agreements.
Long-term
debt as of June 30, 2018 and September 30, 2017 consisted of the following:
|
|
June 30,
2018
|
|
|
September 30,
2017
|
|
Bank of America Revolver Loan - variable interest rate based upon a base rate plus a margin, interest payable monthly, maturity date July 2020, secured by substantially all Marquis assets
|
|
$
|
7,756,769
|
|
|
$
|
4,850,815
|
|
Texas Capital Bank Revolver Loan - variable interest rate based upon the one-month LIBOR rate plus a margin, interest payable monthly, maturity date November 2020, secured by substantially all Vintage Stock assets
|
|
|
10,916,634
|
|
|
|
12,520,437
|
|
Note Payable Capitala Term Loan - variable interest rate based upon a base
rate plus a margin,3% per annum interest payable in kind, with the balance of interest payable monthly in cash, principal due
quarterly in the amount of $725,000, maturity date November 2021,note subordinate to Texas Capital Bank Revolver Loan,
secured by Vintage Stock Assets
|
|
|
–
|
|
|
|
28,310,505
|
|
Note Payable Comvest Term Loan - variable interest rate based upon LIBOR rate plus a margin,interest payable monthly in cash, principal due quarterly March 31, June 30, September 30,December 31, subject to a variable amortization of principal, maturity date May 26, 2023 note subordinate to Texas Capital Bank Revolver Loan, secured by Vintage Stock Assets
|
|
|
24,000,000
|
|
|
|
–
|
|
Note Payable to the Sellers of Vintage Stock, interest at 8% per annum, with interest payable monthly, maturity date May 2022, note subordinate to both Texas Capital Bank Revolver and Capitala Term Loan, secured by Vintage Stock Assets
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
Note #1 Payable to Banc of America Leasing & Capital LLC - interest at
3.8905% per annum,with interest and principal payable monthly in the amount of $84,273 for 59 months,beginning September 23,
2016, with a final payment due in the amount of $584,273,maturity date September 2021, secured by equipment
|
|
|
3,450,523
|
|
|
|
4,097,764
|
|
Note #2 Payable to Banc of America Leasing & Capital
LLC - interest at 4.63% per annum,with interest and principal payable monthly in the amount of $34,768 for 59
months,beginning January 30, 2017, with a final payment due in the amount of $476,729,maturity date January 2022, secured by
equipment
|
|
|
1,721,642
|
|
|
|
1,969,954
|
|
Note #3 Payable to Banc of America Leasing & Capital
LLC - interest at 4.7985% per annum with interest and principal payable monthly in the amount of $51,658 for 84
months,beginning January 30, 2017, secured by equipment
|
|
|
2,991,416
|
|
|
|
3,341,642
|
|
Note #4 Payable to Banc of America Leasing & Capital
LLC - interest at 4.8907% per annum,with interest and principal payable monthly in the amount of $15,901 for 81
months,beginning April 30, 2017, secured by equipment.
|
|
|
918,559
|
|
|
|
1,025,782
|
|
Note #5 Payable to Banc of America Leasing & Capital LLC - interest at 4.67% per annum,with interest and principal payable monthly in the amount of $54,943 for 84 months,beginning January 28, 2018, secured by equipment.
|
|
|
3,691,222
|
|
|
|
–
|
|
Note Payable to Store Capital Acquisitions, LLC, -
interest at 9.25% per annum, with interest and principal payable monthly in the amount of $73,970 for 480 months,beginning
July 1, 2016, maturity date of June 2056, secured by Marquis land and buildings
|
|
|
9,309,038
|
|
|
|
9,328,208
|
|
Note Payable to Cathay Bank, variable interest rate, Prime Rate plus 2.50%,with interest payable monthly, maturity date December 2017, secured by substantially all Modern Everyday assets
|
|
|
–
|
|
|
|
174,757
|
|
Note Payable to Cathay Bank, variable interest rate, Prime Rate plus 1.50%, with interest payable monthly, maturity date December 2017, secured by substantially all Modern Everyday assets
|
|
|
–
|
|
|
|
249,766
|
|
Note payable to individual, interest at 11% per annum, payable on a 90 day written notice, unsecured
|
|
|
206,529
|
|
|
|
206,529
|
|
Note payable to individual, interest at 10% per annum,payable on a 90 day written notice, unsecured
|
|
|
500,000
|
|
|
|
500,000
|
|
Note payable to individual, interest at 8.25% per annum,payable on a 120 day written demand notice, unsecured
|
|
|
225,000
|
|
|
|
225,000
|
|
Total notes payable
|
|
|
75,687,332
|
|
|
|
76,801,159
|
|
Less unamortized debt issuance costs
|
|
|
(1,685,671
|
)
|
|
|
(1,353,352
|
)
|
Net amount
|
|
|
74,001,661
|
|
|
|
75,447,807
|
|
Less current portion
|
|
|
(14,087,636
|
)
|
|
|
(48,877,536
|
)
|
Long-term portion
|
|
$
|
59,914,025
|
|
|
$
|
26,570,271
|
|
Future
maturities of long-term debt at June 30, 2018 are as follows which does not include related party debt separately stated:
2019
|
|
|
$
|
14,087,636
|
|
2020
|
|
|
|
5,508,736
|
|
2021
|
|
|
|
16,539,871
|
|
2022
|
|
|
|
15,646,059
|
|
2023
|
|
|
|
4,716,537
|
|
Thereafter
|
|
|
|
19,188,493
|
|
Total
|
|
|
$
|
75,687,332
|
|
Note
9: Long Term Debt, Related Parties
Appliance
Recycling Centers of America, Inc. Note
As
previously announced by Live Ventures Incorporated (the “Company”), on December 30, 2017, ApplianceSmart Holdings
LLC, a wholly-owned subsidiary of the Company (the “Purchaser”), entered into a Stock Purchase Agreement (the “Agreement”)
with Appliance Recycling Centers of America, Inc. (the “Seller”) and ApplianceSmart, Inc. (“ApplianceSmart”),
a subsidiary of the Seller. Pursuant to the Agreement, the Purchaser purchased (the “Transaction”) from the Seller
all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for $6,500,000 (the “Purchase Price”).
The Purchaser was required to deliver the Purchase Price, and a portion of the Purchase Price was delivered, to the Seller prior
to March 31, 2018. Between March 31, 2018 and April 24, 2018, the Purchaser and the Seller negotiated in good faith the method
of payment of the remaining outstanding balance of the Purchase Price.
On
April 25, 2018, the Purchaser delivered to the Seller that certain Promissory Note (the “ApplianceSmart Note”) in
the original principal amount of $3,919,494 (the “Original Principal Amount”), as such amount may be adjusted per
the terms of the ApplianceSmart Note. The ApplianceSmart Note is effective as of April 1, 2018 and matures on April 1, 2021 (the
“Maturity Date”). The ApplianceSmart Note bears interest at 5% per annum with interest payable monthly in arrears.
Ten percent of the outstanding principal amount will be repaid annually on a quarterly basis, with the accrued and unpaid principal
due on the Maturity Date. ApplianceSmart has agreed to guaranty repayment of the ApplianceSmart Note. The remaining $2,580,506
of the Purchase Price was paid in cash by the Purchaser to the Seller. The Purchaser may reborrow funds, and pay interest on such
re-borrowings, from the Seller up to the Original Principal Amount. As of June 30, 2018, there was $3,817,714 outstanding on the
Appliance Recycling Center of America, Inc. Note.
Isaac
Capital Fund Note
In
connection with the acquisition of Marquis by the Company, the Company entered into a mezzanine loan in the amount of up to $7,000,000
with Isaac Capital Fund (“ICF”), a private lender whose managing member is Jon Isaac, our President and Chief Executive
Officer. The ICF mezzanine loan bears interest at 12.5% per annum with payment obligations of interest each month and all principal
due in January 2021. As of June 30, 2018, and September 30, 2017, there was $2,000,000 outstanding on this mezzanine loan.
Long-term
debt, related parties as of June 30, 2018 and September 30, 2017 consisted of the following:
|
|
June 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
Note Payable and revolving line of credit to
the Sellers of ApplianceSmart, Inc., interest rate is 5% per annum, with interest payable monthly, maturity date April
1, 2021,10% of principal will be repaid annually on a quarterly basis, with accrued interest and principal due at maturity.
ApplianceSmart may reborrow funds up to the Original Principal amount
|
|
$
|
3,817,714
|
|
|
$
|
–
|
|
Note Payable to Isaac Capital Fund, interest rate is 12.5% per annum, with interest payable monthly, maturity date January 2021.
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
Total notes payable - related parties
|
|
|
5,817,714
|
|
|
|
2,000,000
|
|
Less unamortized debt issuance costs
|
|
|
–
|
|
|
|
–
|
|
Net amount
|
|
|
5,817,714
|
|
|
|
2,000,000
|
|
Less current portion
|
|
|
(391,949
|
)
|
|
|
–
|
|
Long-term portion
|
|
$
|
5,425,765
|
|
|
$
|
2,000,000
|
|
Future
maturities of long-term debt, related parties at June 30, 2018 are as follows:
2019
|
|
|
$
|
391,949
|
|
2020
|
|
|
|
391,948
|
|
2021
|
|
|
|
391,948
|
|
2022
|
|
|
|
4
,641,869
|
|
2023
|
|
|
|
–
|
|
Thereafter
|
|
|
|
–
|
|
Total
|
|
|
$
|
5,817,714
|
|
Note
10: Stockholders’ Equity
Series
B Convertible Preferred Stock
On
December 27, 2016, the Company established a new series of preferred stock, Series B Convertible Preferred Stock. The shares,
as a series, are entitled to dividends as declared by the board of directors in an amount equal to $1.00 (in the aggregate for
all then-issued and outstanding shares of Series B Convertible Preferred Stock). The series does not have any redemption rights
or Stock basis, except as otherwise required by the Nevada Revised Statutes. The series does not provide for any specific allocation
of seats on the Board of Directors. At any time and from time to time, the shares of Series B Convertible Preferred Stock are
convertible into shares of common stock at a ratio of one share of Series B Preferred Stock into five shares of common stock,
subject to equitable adjustment in the event of forward stock splits and reverse stock splits.
The
holders of shares of the Series B Convertible Stock have agreed not to sell transfer, assign, hypothecate, pledge, margin, hedge,
trade, or otherwise obtain or attempt to obtain any economic value from any of such shares or any shares into which they may be
converted (e.g., common stock) or for which they may be exchanged. This “lockup” agreement expires on December 31,
2021. Our Warrant Agreements with ICG have been amended to provide that the shares underlying those warrants are exercisable into
shares of Series B Convertible Preferred Stock, which warrant shares are also subject to the same “lockup” agreement
as the currently outstanding shares of Series B Convertible Preferred Stock.
During
the nine months ended June 30, 2018, the Company did not issue any shares of Series B Convertible Preferred Stock.
During
the nine months ended June 30, 2017, the Company issued:
55,888
shares of Series B Convertible Preferred Stock to Kingston Diversified Holdings LLC on December 29, 2016 to settle and pay for
an outstanding accrued liability in the amount of $2,800,000. The 55,888 shares of Series B Convertible Preferred Stock issued
are convertible at an exchange ratio of (five) shares of common stock for each share of Series B Convertible Preferred Stock,
or 279,440 shares of common stock.
158,356
shares of Series B Convertible Preferred Stock were issued to ICG on December 27, 2016 in exchange for 791,758 shares of our common
stock at an exchange ratio of five shares of common stock for each share of Series B Convertible Preferred Stock.
Series
E Convertible Preferred Stock
As
of June 30, 2018, there were 127,840 shares of Series E Convertible Preferred Stock and 77,840 shares outstanding. The shares
accrue dividends at the rate of 5% per annum on the liquidation preference per share, payable quarterly from legally available
funds. The shares carry a cash liquidation preference of $0.30 per share, plus any accrued but unpaid dividends. If such funds
are not available, dividends shall continue to accumulate until they can be paid from legally available funds. Holders of the
preferred shares are entitled, after two years from issuance, to convert them into shares of our common stock on a one-to-one
basis together with payment of $85.50 per converted share. On November 18, 2017, the Company repurchased 50,000 shares of Series
E Convertible Preferred Stock for an aggregate purchase price of $4,000.
Series
E Convertible Preferred Stock Dividends
During
the nine months ended June 30, 2018 and June 30, 2017, the Company accrued dividends of $876 and $1,438, respectively, payable
to holders of Series E preferred stock. As of June 30, 2018, and September 30, 2017, unpaid dividends were $876 and $959, respectively.
Common
Stock
On
November 22, 2016, the Company’s board of directors authorized a one-for-six (1:6) reverse stock split and a contemporaneous
one-for-six (1:6) reduction in the number of authorized shares of common stock from 60,000,000 to 10,000,000 shares, to take effect
for stockholders of record as of December 5, 2016. No fractional shares were issued. All share, option and warrant related information
presented in these financial statements and footnotes has been retroactively adjusted to reflect the decreased number of shares
resulting in this action.
During
the nine months ended June 30, 2018, the Company did not issue any shares of common stock.
During
the nine months ended June 30, 2017, the Company issued:
58,333
shares of common stock to Novalk Apps S.A.S. on December 28, 2016 to settle and pay for an outstanding accrued liability in the
amount of $584,500. The value was based on the market value of the Company’s common stock on the date of issuance.
2,284
shares of common stock to various holders of fractional shares of the Company’s common stock pursuant to the 1:6 stock split
effective for stockholders of record on December 5, 2016. All fractional shares of the Company’s common stock were eliminated.
Treasury
Stock
For
the year ended September 30, 2017, the Company purchased a total of 96,307 shares of its common stock in the open market (treasury
shares) over a two-year period, for $999,584. For the nine months ended June 30, 2018, the Company purchased 31,820 additional
shares of its common stock in the open market (treasury shares) for $402,328. The Company accounted for the purchase of these
treasury shares using the cost method. Treasury shares held by the Company as of June 30, 2018 are 128,127 common shares for a
cost of $1,401,912.
2014
Omnibus Equity Incentive Plan
On
January 7, 2014, our Board of Directors adopted the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which authorizes
issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance
units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted
ordinary shares to our directors, officer, employees, consultants and advisors. The Company has reserved up to 300,000 shares
of common stock for issuance under the 2014 Plan. The Company’s stockholders approved the 2014 Plan on July 11, 2014.
Note
11: Warrants
The
Company issued several notes in prior periods and converted them, resulting in the issuance of warrants. The following table summarizes
information about the Company’s warrants at June 30, 2018:
|
|
Number of Units
- Series B
Convertible
preferred
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
Intrinsic
Value
|
|
Outstanding at June 30, 2018
|
|
|
118,029
|
|
|
$
|
20.80
|
|
|
|
1.60
|
|
|
$
|
4,956,654
|
|
Exercisable at June 30, 2018
|
|
|
118,029
|
|
|
$
|
20.80
|
|
|
|
1.60
|
|
|
$
|
4,956,654
|
|
As
of September 30, 2016, the Company had 590,146 common stock warrants outstanding with weighted average exercise price, weighted
average remaining contractual term and intrinsic value of $4.14, 1.73 years and $4,307,493, respectively. On December 27, 2016,
ICG and the Company agreed to amend and exchange the common stock warrants for warrants to purchase shares of Series B Convertible
Preferred Stock, and the number of warrants held adjusted by an exchange ratio of 5:1 shares of common stock for shares of Series
B Convertible Preferred Stock. ICG, the holder of the warrants outstanding, is not permitted to sell, transfer, assign, hypothecate,
pledge, margin, hedge, trade or otherwise obtain or attempt to obtain any economic value from the shares of Series B Convertible
Preferred Stock should the warrants be exercised prior to December 31, 2021.
Warrants
for 10,914, 12,383, 54,396 and 17,857 shares of Series B Convertible Preferred Stock were set to expire on September 10, 2017,
December 11, 2017, March 27, 2018 and March 28, 2018, respectively. On January 16, 2018, the Company memorialized an agreement
reached prior to any of the warrants expiring, to extend the expiration date for two years, just prior to expiration for all warrants
listed. Warrants outstanding and exercisable as of June 30, 2018 and September 30, 2017 reflect the time extended warrants in
addition to 22,479 warrants for shares of Series B Convertible Preferred Stock with an original expiration date of December 3,
2019.
The
exercise price for the Series B Convertible Preferred Stock warrants outstanding and exercisable at June 30, 2018 is as follows:
Series
B Convertible Preferred
|
|
Outstanding
|
|
|
Exercisable
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
54,396
|
|
|
$
|
16.60
|
|
|
|
54,396
|
|
|
$
|
16.60
|
|
|
17,857
|
|
|
|
16.80
|
|
|
|
17,857
|
|
|
|
16.80
|
|
|
12,383
|
|
|
|
24.30
|
|
|
|
12,383
|
|
|
|
24.30
|
|
|
33,393
|
|
|
|
28.50
|
|
|
|
33,393
|
|
|
|
28.50
|
|
|
118,029
|
|
|
|
|
|
|
|
118,029
|
|
|
|
|
|
Note
12: Stock-Based Compensation
From
time to time, the Company grants stock options and restricted stock awards to directors, officers and employees. These awards
are valued at the grant date by determining the fair value of the instruments, net of estimated forfeitures. The value of each
award is amortized on a straight-line basis over the requisite service period.
Stock
Options
The
following table summarizes stock option activity for the nine months ended June 30, 2018:
|
|
Number of
shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual Life
|
|
|
Intrinsic Value
|
|
Outstanding at September 30, 2017
|
|
|
211,668
|
|
|
$
|
13.19
|
|
|
|
3.47
|
|
|
$
|
454,417
|
|
Granted
|
|
|
20,000
|
|
|
|
32.24
|
|
|
|
10.00
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
231,668
|
|
|
$
|
14.84
|
|
|
|
3.29
|
|
|
$
|
471,458
|
|
Exercisable at June 30, 2018
|
|
|
187,167
|
|
|
$
|
11.75
|
|
|
|
2.33
|
|
|
$
|
471,458
|
|
The
Company recognized compensation expense of $49,817 and $67,491 during the three months ended June 30, 2018 and 2017, respectively.
The Company recognized compensation expense of $447,970 and $137,011 during the nine months ended June 30, 2018 and 2017, respectively,
related to stock option and warrant extension awards granted to certain employees and officers based on the grant date fair value
of the awards, net of estimated forfeitures.
At
June 30, 2018, the Company has $335,992 of unrecognized compensation expense (net of estimated forfeitures) associated with stock
option awards which the company expects to recognize as compensation expense through October of 2022.
The
exercise price for stock options outstanding and exercisable outstanding at June 30, 2018 is as follows:
Outstanding
|
|
|
Exercisable
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
31,250
|
|
|
$
|
5.00
|
|
|
|
31,250
|
|
|
$
|
5.00
|
|
|
25,000
|
|
|
|
7.50
|
|
|
|
25,000
|
|
|
|
7.50
|
|
|
31,250
|
|
|
|
10.00
|
|
|
|
31,250
|
|
|
|
10.00
|
|
|
4,167
|
|
|
|
10.86
|
|
|
|
4,167
|
|
|
|
10.86
|
|
|
4,167
|
|
|
|
10.86
|
|
|
|
|
|
|
|
|
|
|
4,167
|
|
|
|
10.86
|
|
|
|
|
|
|
|
|
|
|
4,167
|
|
|
|
10.86
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
12.50
|
|
|
|
6,250
|
|
|
|
12.50
|
|
|
6,250
|
|
|
|
15.00
|
|
|
|
6,250
|
|
|
|
15.00
|
|
|
75,000
|
|
|
|
15.18
|
|
|
|
75,000
|
|
|
|
15.18
|
|
|
8,000
|
|
|
|
23.41
|
|
|
|
8,000
|
|
|
|
15.18
|
|
|
8,000
|
|
|
|
27.60
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
31.74
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
36.50
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
41.98
|
|
|
|
|
|
|
|
|
|
|
231,668
|
|
|
|
|
|
|
|
187,167
|
|
|
|
|
|
The
following table summarizes information about the Company’s non-vested shares outstanding as of June 30, 2018:
Non-vested
Shares
|
|
Number
of
Shares
|
|
Weighted
Average
Grant-Date
Fair
Value
|
Non-vested
at September 30, 2017
|
|
|
|
36,668
|
|
|
$
|
17.70
|
|
Granted
|
|
|
|
20,000
|
|
|
$
|
10.14
|
|
Vested
|
|
|
|
(12,167
|
)
|
|
$
|
13.32
|
|
Non-vested
at June 30, 2018
|
|
|
|
44,501
|
|
|
$
|
13.54
|
|
Options
were granted during fiscal 2017 and 2016, where the exercise price was less than the common stock price at the date of grant or
where the exercise price was greater than the common stock price at the date of grant. There have been no options granted in fiscal
2018 to date. The assumptions used in calculating the fair value of stock options granted use the Black-Scholes option pricing
model for options granted were as follows:
Risk-free
interest rate
|
|
1.25%
|
Expected life of
the options
|
|
5.0
to 10.0 years
|
Expected volatility
|
|
107%
|
Expected dividend
yield
|
|
0%
|
Note
13: Earnings Per Share
Net
earnings per share is calculated using the weighted average number of shares of common stock outstanding during the applicable
period. Basic weighted average shares of common stock 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 Consolidated Balance Sheet. Diluted net
earnings per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common
shares outstanding during the period. Potential shares of common stock consist of the additional shares of common stock 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.
The
following table presents the computation of basic and diluted net earnings per share:
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,077,038
|
|
|
$
|
2,128,043
|
|
|
$
|
5,877,866
|
|
|
$
|
5,397,282
|
|
Less: preferred stock dividends
|
|
|
(292
|
)
|
|
|
(479
|
)
|
|
|
(876
|
)
|
|
|
(1,438
|
)
|
Net income applicable to common stock
|
|
$
|
2,076,746
|
|
|
$
|
2,127,564
|
|
|
$
|
5,876,990
|
|
|
$
|
5,395,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,970,136
|
|
|
|
2,044,767
|
|
|
|
1,972,758
|
|
|
|
2,289,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.05
|
|
|
$
|
1.04
|
|
|
$
|
2.98
|
|
|
$
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
2,076,746
|
|
|
$
|
2,127,564
|
|
|
$
|
5,876,990
|
|
|
$
|
5,395,844
|
|
Add: preferred stock dividends
|
|
|
292
|
|
|
|
479
|
|
|
|
876
|
|
|
|
1,438
|
|
Net income applicable for diluted earnings per share
|
|
$
|
2,077,038
|
|
|
$
|
2,128,043
|
|
|
$
|
5,877,866
|
|
|
$
|
5,397,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,962,039
|
|
|
|
2,044,767
|
|
|
|
1,983,719
|
|
|
|
2,289,646
|
|
Add: Options
|
|
|
38,980
|
|
|
|
35,296
|
|
|
|
42,440
|
|
|
|
53,081
|
|
Add: Series B Preferred Stock
|
|
|
1,071,200
|
|
|
|
1,071,200
|
|
|
|
1,071,200
|
|
|
|
1,071,200
|
|
Add: Series B Preferred Stock Warrants
|
|
|
590,145
|
|
|
|
590,145
|
|
|
|
590,145
|
|
|
|
590,145
|
|
Add: Series E Preferred Stock
|
|
|
77,840
|
|
|
|
127,840
|
|
|
|
77,840
|
|
|
|
127,840
|
|
Assumed weighted average common shares outstanding
|
|
|
3,740,204
|
|
|
|
3,869,248
|
|
|
|
3,765,344
|
|
|
|
4,131,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.56
|
|
|
$
|
0.55
|
|
|
$
|
1.56
|
|
|
$
|
1.31
|
|
There
are 121,250 and 124,168 common stock options that are anti-dilutive that are not included in the three months ended June 30, 2018
and 2017, diluted earnings per share computations, respectively. There are 121,250 and 111,668 common stock options that are anti-dilutive
that are not included in the nine months ended June 30, 2018 and 2017, diluted earnings per share computations, respectively.
Note
14: Related Party Transactions
In
connection with its purchase of Marquis, Marquis entered into a mezzanine loan in the amount of up to $7,000,000 with ICF. The
ICF mezzanine loan bears interest at a rate of 12.5% per annum with payment obligations of interest each month and all principal
due in January 2021. As of June 30, 2018, and September 30, 2017, respectively, there was $2,000,000 outstanding on this mezzanine
loan. During the three months ended June 30, 2018 and 2017, the Company recognized total interest expense of $63,194, associated
with the ICF notes. During the nine months ended June 30, 2018 and 2017, we recognized total interest expense of $189,583, associated
with the ICF notes.
Customer Connexx LLC, a wholly-owned subsidiary
of Appliance Recycling Centers of America, Inc. (“ARCA”), rents approximately 9,879 square feet of office space from
the Company at its Las Vegas office which totals 11,100 square feet. ARCA paid the Company $29,929 in rent and other common area
reimbursed expenses for the three months ended June 30, 2018. ARCA paid the Company $149,336 in rent and other common area reimbursed
expenses for the nine months ended June 30, 2018. Tony Isaac, a member of the Board of Directors of the Company and Virland Johnson,
Chief Financial Officer of the Company, are Chief Executive Officer and Board of Directors member and Chief Financial Officer
of ARCA, respectively.
Warrants
for 10,914, 12,383, 54,396 and 17,857 shares of Series B Convertible Preferred Stock were set to expire on September 10, 2017,
December 11, 2017, March 27, 2018 and March 28, 2018, respectively. On January 16, 2018, the Company memorialized an agreement
reached prior to any of the warrants expiring, to extend the expiration date for two years, just prior to expiration for all warrants
listed. Warrants outstanding and exercisable as of June 30, 2018 and September 30, 2017 reflect the time extended warrants in
addition to 22,479 warrants for shares of Series B Convertible Preferred Stock with an original expiration date of December 3,
2019.
On
December 30, 2017, ASH, a wholly owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Agreement”)
with ARCA and ApplianceSmart, a subsidiary of ARCA. Pursuant to the Agreement, the Purchaser purchased from ARCA all of
the issued and outstanding shares of capital stock (the “Stock”) of ApplianceSmart in exchange for $6,500,000 (the
“Purchase Price”). Effective April 1, 2018, ASH issued an interest-bearing promissory note, with interest at 5% per
annum, with a three-year term in the original amount of $3,919,494 for the balance of the purchase price. ApplianceSmart paid
ARCA transition services fees of $67,500 and $135,000 for the three months and nine months ended June 30, 2018.
In
connection with the acquisition of Vintage Stock on November 3, 2016, Rodney Spriggs, President of Vintage Stock, holds a 41.134752%
interest in the $10,000,000 Seller Subordinated Acquisition Note payable by VSAH. The terms of payment are interest only, payable
monthly on the 1
st
of each month, until maturity 5 years and 6 months from the date of the note – November 3,
2016. Interest paid to Mr. Spriggs for the three months ended June 30, 2018 and 2017, was $84,098 and $84,098, respectively. Interest
paid to Mr. Spriggs for the nine months ended June 30, 2018 and 2017, was $249,552 and $191,049, respectively. Interest unpaid
and accrued as of June 30, 2018 and September 30, 2017 is $27,423 and $27,423, respectively.
Also
see Note 5, 8, 9, 10 and 11.
Note
15: Commitments and Contingencies
Litigation
The
Company is involved in various claims and lawsuits arising in the normal course of business. These proceedings could result in
fines, penalties, compensatory or treble dames or non-monetary relief. The nature of legal proceedings is such that the Company
cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect
on our consolidated financial position, results of operations and cash flows in the period which a ruling or settlement occurs.
However, based on information available to the Company’s management to date, the Company’s management does not expect
that the outcome of any matter pending against us is likely to have a materially adverse effect on the Company’s consolidated
financial position as of June 30, 2018, results of operations, cash flows or liquidity of the Company.
Note
16: Income Taxes
The
income tax rate for the nine months ended June 30, 2018 and June 30, 2017 were 38.3% and 39.5%, respectively. The effective income
tax rate differs from the U.S. federal statuary rate primarily due to state taxes, extraordinary gains, and certain non-deductible
expenses. As of June 30, 2018, and June 30, 2017 the Company had no uncertain tax positions. The Company is subject to taxation
and files income tax returns in the U.S., and various state jurisdictions. The Company is subject to audit for U.S. purposes for
the current and prior three years; and for state purposes the current and prior four years. The Company has net operating loss
carry-forwards of approximately $29.5 million for U.S. income tax purposes, these net operating loss carryforwards are subject
to IRC Section 382 limitations and can be carried forward indefinitely.
During
the first quarter, the Company revised its estimated annual effective rate to reflect a change in the federal statutory rate from
34% to 21%, resulting from legislation that was enacted on December 22, 2017. The rate change is administratively effective as
of January 1, 2018, which requires the Company to use a blended rate for the annual period. As a result, the blended federal statutory
rate for the year is 24.53%. In addition, we recognized a tax expense in our tax provision for the period related to adjusting
our deferred tax balance to reflect the new corporate tax rate. As a result, income tax expense reported for the six months was
adjusted to reflect the effects of the change in tax law and resulted in an increase in income tax expense of approximately $2.3
million for the nine-month period ended June 30, 2018.
Note
17: Segment Reporting
The
Company operates in three segments which are characterized as: (1) Manufacturing, (2) Retail and Online, and (3) Services. The
Manufacturing Segment consists of Marquis Industries, the Retail and Online segment consists of Vintage Stock, ApplianceSmart,
Modern Everyday and LiveDeal.com, and the Services segment consists of the directory services business.
The
following tables summarize segment information for the three and nine months ended June 30, 2018 and 2017:
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
29,705,192
|
|
|
$
|
19,267,959
|
|
|
$
|
82,182,175
|
|
|
$
|
54,020,215
|
|
Manufacturing
|
|
|
24,773,123
|
|
|
|
21,898,645
|
|
|
|
64,460,280
|
|
|
|
57,429,871
|
|
Services
|
|
|
183,742
|
|
|
|
210,889
|
|
|
|
567,594
|
|
|
|
652,496
|
|
|
|
$
|
54,662,057
|
|
|
$
|
41,377,493
|
|
|
$
|
147,210,049
|
|
|
$
|
112,102,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
12,141,262
|
|
|
$
|
10,953,602
|
|
|
$
|
38,133,949
|
|
|
$
|
30,105,864
|
|
Manufacturing
|
|
|
6,498,207
|
|
|
|
5,839,412
|
|
|
|
16,187,021
|
|
|
|
15,388,787
|
|
Services
|
|
|
174,749
|
|
|
|
200,883
|
|
|
|
539,839
|
|
|
|
619,848
|
|
|
|
$
|
18,814,218
|
|
|
$
|
16,993,897
|
|
|
$
|
54,860,809
|
|
|
$
|
46,114,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
(1,978,657
|
)
|
|
$
|
2,268,438
|
|
|
$
|
2,644,667
|
|
|
$
|
6,547,564
|
|
Manufacturing
|
|
|
2,703,380
|
|
|
|
2,915,516
|
|
|
|
5,710,457
|
|
|
|
7,168,164
|
|
Services
|
|
|
173,097
|
|
|
|
199,173
|
|
|
|
537,447
|
|
|
|
617,324
|
|
|
|
$
|
897,820
|
|
|
$
|
5,383,127
|
|
|
$
|
8,892,571
|
|
|
$
|
14,333,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
988,169
|
|
|
$
|
329,416
|
|
|
$
|
2,106,133
|
|
|
$
|
884,522
|
|
Manufacturing
|
|
|
833,064
|
|
|
|
760,125
|
|
|
|
2,418,264
|
|
|
|
2,228,264
|
|
Services
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
1,821,233
|
|
|
$
|
1,089,541
|
|
|
$
|
4,524,397
|
|
|
$
|
3,112,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
2,223,285
|
|
|
$
|
1,600,589
|
|
|
$
|
5,594,983
|
|
|
$
|
4,283,015
|
|
Manufacturing
|
|
|
487,997
|
|
|
|
527,201
|
|
|
|
1,406,331
|
|
|
|
1,329,304
|
|
Services
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
2,711,282
|
|
|
$
|
2,127,790
|
|
|
$
|
7,001,314
|
|
|
$
|
5,612,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
(503,861
|
)
|
|
$
|
797,504
|
|
|
$
|
4,710,315
|
|
|
$
|
2,842,206
|
|
Manufacturing
|
|
|
2,232,996
|
|
|
|
2,175,749
|
|
|
|
4,316,045
|
|
|
|
5,363,455
|
|
Services
|
|
|
173,097
|
|
|
|
294,736
|
|
|
|
537,447
|
|
|
|
712,886
|
|
|
|
$
|
1,902,232
|
|
|
$
|
3,267,989
|
|
|
$
|
9,563,807
|
|
|
$
|
8,918,547
|
|
|
|
As of
June 30,
2018
|
|
|
As of
September 30,
2017
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
88,761,358
|
|
|
$
|
81,703,371
|
|
Manufacturing
|
|
|
52,942,685
|
|
|
|
46,783,429
|
|
Services
|
|
|
101,379
|
|
|
|
107,795
|
|
|
|
$
|
141,805,422
|
|
|
$
|
128,594,595
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
|
|
|
|
|
|
|
Retail and Online
|
|
$
|
43,612,119
|
|
|
$
|
40,778,865
|
|
Manufacturing
|
|
|
351,233
|
|
|
|
373,184
|
|
Services
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
43,963,352
|
|
|
$
|
41,152,049
|
|
Note
18: Subsequent Events
None.