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 months ended December 31, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2021. This financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of September 30, 2020 and for the fiscal year then ended included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 13, 2021 (the “2020 10-K”).
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our asset-based revolver lines of credit will provide sufficient liquidity to fund our operations, pay our scheduled loan payments, continue to repurchase shares, and pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months.
The accompanying consolidated financial statements represent the consolidated financial position, results of operations and cash flows for Live Ventures and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Additionally, the Company records noncontrolling interest for entities which the Company has determined itself to be the primarily beneficiary of the variable interest entity but does not have 100% ownership.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles 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 accompanying 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, the estimated reserve for excess and obsolete inventory, estimated warranty reserve, 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 notes payable, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.
Certain amounts in the prior year have been reclassifies to confirm to the current year presentation.
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 2040 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. As a result, they recognize assets and liabilities for all leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
The following table details our right of use assets and lease liabilities as of December 31, 2020 and September 30, 2020:
During the three months ended December 31, 2019, the Company incurred $1,207 of impairment charges related to the decision to close additional ApplianceSmart retail locations resulting in a decrease to the associated right of use asset related to these leases. These locations physically closed during the three months ended March 31, 2020. There were no similar charges for the three months ended December 31, 2020.
Note 5:Long Term Debt
Long-term debt as of December 31, 2020 and September 30, 2020 consisted of the following:
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Bank of America Revolver Loan
|
|
$
|
—
|
|
|
$
|
—
|
|
Encina Business Credit Revolver Loan
|
|
|
13,233
|
|
|
|
14,886
|
|
Texas Capital Bank Revolver Loan
|
|
|
5,534
|
|
|
|
7,115
|
|
Crossroads Financial Revolver Loan
|
|
|
828
|
|
|
|
883
|
|
Encina Business Credit Term Loan
|
|
|
1,576
|
|
|
|
1,663
|
|
Note Payable Comvest Term Loan
|
|
|
1,882
|
|
|
|
5,554
|
|
Note Payable to the Sellers of Vintage Stock
|
|
|
10,000
|
|
|
|
10,000
|
|
Note #1 Payable to Banc of America Leasing & Capital LLC
|
|
|
1,017
|
|
|
|
1,229
|
|
Note #3 Payable to Banc of America Leasing & Capital LLC
|
|
|
1,729
|
|
|
|
1,862
|
|
Note #4 Payable to Banc of America Leasing & Capital LLC
|
|
|
531
|
|
|
|
572
|
|
Note #5 Payable to Banc of America Leasing & Capital LLC
|
|
|
2,402
|
|
|
|
2,538
|
|
Note #6 Payable to Banc of America Leasing & Capital LLC
|
|
|
723
|
|
|
|
758
|
|
Note #7 Payable to Banc of America Leasing & Capital LLC
|
|
|
4,543
|
|
|
|
4,681
|
|
Note #8 Payable to Banc of America Leasing & Capital LLC
|
|
|
3,264
|
|
|
|
3,091
|
|
Note Payable to Extruded Fibers
|
|
|
1,600
|
|
|
|
2,900
|
|
Note Payable to JCM Holdings
|
|
|
1,959
|
|
|
|
—
|
|
Note Payable to the Sellers of Precision Marshall
|
|
|
2,500
|
|
|
|
2,500
|
|
Note Payable to Store Capital Acquisitions, LLC
|
|
|
9,235
|
|
|
|
9,243
|
|
Payroll Protection Program
|
|
|
6,150
|
|
|
|
6,151
|
|
JanOne Inc
|
|
|
—
|
|
|
|
—
|
|
Isaac Capital Fund
|
|
|
2,000
|
|
|
|
2,000
|
|
Spriggs Investments, LLC
|
|
|
2,000
|
|
|
|
2,000
|
|
Seller of Lonesome Oak
|
|
|
1,254
|
|
|
|
1,297
|
|
Note payable to individual, interest at 10-11% per annum, payable on a 90 day written notice,
unsecured
|
|
|
707
|
|
|
|
707
|
|
Note payable to individuals, interest at 17% per annum, unsecured
|
|
|
130
|
|
|
|
—
|
|
Note payable to individual, noninterest bearing, monthly payments of $19 through March 2023, unsecured
|
|
|
726
|
|
|
|
810
|
|
Total debt
|
|
|
75,524
|
|
|
|
82,440
|
|
Less unamortized debt issuance costs
|
|
|
(1,497
|
)
|
|
|
(1,767
|
)
|
Net debt
|
|
|
74,027
|
|
|
|
80,673
|
|
Less current portion
|
|
|
(12,066
|
)
|
|
|
(13,283
|
)
|
Long-term portion
|
|
$
|
61,961
|
|
|
$
|
67,390
|
|
Future maturities of long-term debt at December 31, 2020, are as follows which does not include related party debt separately stated:
Twelve months ending December 31,
|
|
|
|
|
2021
|
|
$
|
12,066
|
|
2022
|
|
|
12,523
|
|
2023
|
|
|
33,544
|
|
2024
|
|
|
2,256
|
|
2025
|
|
|
3,353
|
|
Thereafter
|
|
|
11,782
|
|
Total
|
|
$
|
75,524
|
|
Bank of America Revolver Loan
On July 6, 2015 (amended most recently January 31, 2020, July 6, 2020 and September 28, 2020), Marquis entered into a $25,000 revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a five-year, asset-based facility that is secured by substantially all of Marquis’ assets. Availability under the BofA Revolver is subject to a monthly borrowing base calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with BofA.
11
The following tables summarize the BofA Revolver for the three months ended December 31, 2020 and 2019 and as of December 31, 2020 and September 30, 2020:
|
|
During the three months ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cumulative borrowing during the period
|
|
$
|
33,126
|
|
|
$
|
24,344
|
|
Cumulative repayment during the period
|
|
|
35,790
|
|
|
|
23,817
|
|
Maximum borrowed during the period
|
|
|
11,347
|
|
|
|
2,083
|
|
Weighted average interest for the period
|
|
|
0.00
|
%
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Total availability
|
|
$
|
24,924
|
|
|
$
|
21,732
|
|
Total outstanding
|
|
|
—
|
|
|
|
—
|
|
Loans with Encina Business Credit, LLC
On July 14, 2020, Precision entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as Agent (the “Agent”). The Loan Agreement provides for secured revolving loans (the “Encina Revolver Loans”) in a principal amount not to exceed the lesser of (i) $23,500 and (ii) a borrowing base equal to the sum of Precision’s (a) 85% of eligible accounts receivable, plus (b) 85% of eligible inventory, subject to an eligible inventory sublimit that begins at $14,000 and declines to $12,000 during the term of the Loan Agreement, minus (c) customary reserves.
The following tables summarize the Encina Revolver Loans for the for the three months ended December 31, 2020 and 2019 and as of December 31, 2020 and September 30, 2020:
|
|
During the three months ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cumulative borrowing during the period
|
|
$
|
8,431
|
|
|
$
|
—
|
|
Cumulative repayment during the period
|
|
|
10,084
|
|
|
|
—
|
|
Maximum borrowed during the period
|
|
|
1,000
|
|
|
|
—
|
|
Weighted average interest for the period
|
|
|
6.50
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Total availability
|
|
$
|
588
|
|
|
$
|
421
|
|
Total outstanding
|
|
|
13,233
|
|
|
|
14,886
|
|
Texas Capital Bank Revolver Loan
On November 3, 2016, Vintage Stock entered into a $12,000 credit agreement (as amended on January 23, 2017, amended on September 20, 2017, June 7, 2018, September 24, 2019 and September 30, 2020) 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. The TCB Revolver matures November 3, 2023.
The following tables summarize the TCB Revolver for the three months ended December 31, 2020 and 2019 and as of December 31, 2020 and September 30, 2020:
|
|
During the three months ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cumulative borrowing during the period
|
|
$
|
20,700
|
|
|
$
|
18,626
|
|
Cumulative repayment during the period
|
|
|
22,281
|
|
|
|
19,709
|
|
Maximum borrowed during the period
|
|
|
8,930
|
|
|
|
11,798
|
|
Weighted average interest for the period
|
|
|
2.40
|
%
|
|
|
4.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Total availability
|
|
$
|
6,466
|
|
|
$
|
5,520
|
|
Total outstanding
|
|
|
5,534
|
|
|
|
7,115
|
|
12
Crossroads Revolver
On March 15, 2019, ApplianceSmart, Inc. (the “Borrower”), entered into a Loan and Security Agreement (the “Crossroads Revolver”) with Crossroads Financing, LLC (“Crossroads”), providing for a $4,000 revolving credit facility, subject to a borrowing base limitation (the “ABL Facility”). The borrowing base for the ABL Facility at any time equals the lower of (i) up to 75% of inventory cost or (ii) up to 85% of net orderly liquidation value, in each case as further described in the Loan Agreement. The Crossroads Revolver matures on March 15, 2021.
On March 3, 2020, the Company executed a guaranty agreement to Crossroads to induce Crossroads to continue to extend financial accommodations and consent to use of cash collateral to ApplianceSmart. The amount of the guaranty is $1,200. The guaranty terminates at such time as ApplianceSmart has paid in full all amounts owed by it to Crossroads. The Company expects the guaranty to continue in effect until August 2021. In addition, certain executive officers of the Borrower have agreed to provide validity guarantees.
On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. See Note 11 for a complete discussion.
Note payable to JCM Holdings
During October 2020, Marquis purchased a manufacturing facility for $2,500. Marquis had previously been leasing this facility. Additionally, Marquis entered into a $2,000 loan agreement with the seller of the facility, which is secured by the facility, in order to complete the purchase of the facility. The loan bears interest at 6% due monthly and matures January 2030.
Loan Covenant Compliance
We were in compliance as of December 31, 2020 with all covenants under our existing revolving and other loan agreements, with the exception of covenants related to the Crossroads Revolver.
Note 6:
|
Stockholders’ Equity
|
Series E Convertible Preferred Stock
As of December 31, 2020, and September 30, 2020, there were 47,840 and 47,840 shares outstanding of Series a Preferred Stock, respectively. During the three months ended December 31, 2019, the Company repurchased 30,000 shares of Series E Convertible Preferred Stock for an aggregate purchase price of $3.
Treasury Stock
For the three months ended December 31, 2020 and 2019, the Company purchased 33,926 and 41,699 shares, respectively, of its common stock on the open market for $383 and $343, respectively.
The warrants listed below expire at various timeframes over the next two years. However, Company and ICG entered into an agreement whereby if the warrants are not exercised on or before the applicable expiration date, the applicable expiration date is deemed automatically extended for successive two year periods, immediately prior to such expiration. During the three months ended December 31, 2019, the Company recorded a fair value adjustment of $266 related to the extension of warrants that expired during this period. There was no such adjustment during the three months ended December 31, 2020.
The following table summarizes information about the Company’s warrants at December 31, 2020 and September 30, 2020, respectively:
|
|
Number of units -
Series B Convertible
preferred warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
|
Intrinsic Value
|
|
Outstanding and Exercisable at September 30, 2020
|
|
|
118,029
|
|
|
$
|
20.80
|
|
|
|
1.35
|
|
|
$
|
—
|
|
Outstanding and Exercisable at December 31, 2020
|
|
|
118,029
|
|
|
$
|
20.80
|
|
|
|
1.10
|
|
|
$
|
—
|
|
13
The warrants may be exchanged for shares of common stock at a ratio of one share of Series B Preferred Stock into five common shares. The following table provides information assuming the warrants are exercised and exchanged for common shares:
|
|
Number of units -
Series B Convertible
preferred warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
|
Intrinsic Value
|
|
Outstanding and Exercisable at September 30, 2020
|
|
|
590,147
|
|
|
$
|
4.16
|
|
|
|
1.35
|
|
|
$
|
2,820
|
|
Outstanding and Exercisable at December 31, 2020
|
|
|
590,147
|
|
|
$
|
4.16
|
|
|
|
1.10
|
|
|
$
|
4,874
|
|
The exercise price for the Series B Convertible Preferred Stock warrants outstanding and exercisable at December 31, 2020 and September 30, 2020, are as follows:
Series B Convertible Preferred
|
|
Outstanding and Exercisable
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
|
54,396
|
|
|
$
|
16.60
|
|
|
17,857
|
|
|
|
16.80
|
|
|
12,383
|
|
|
|
24.30
|
|
|
33,393
|
|
|
|
28.50
|
|
|
118,029
|
|
|
|
|
|
All of the warrants were exercised for shares of Series B Convertible Preferred Stock using a cashless exercise method during January 2021.
Note 8:
|
Stock-Based Compensation
|
Our 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) authorizes the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units, restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares to our directors, officer, employees, consultants and advisors. The Company has reserved up to 300,000 shares of common stock for issuance under the 2014 Plan.
From time to time, the Company grants stock options to directors, officers, and employees. These awards are valued at the grant date by determining the fair value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the requisite service period.
The following table summarizes stock option activity for the twelve months ended September 30, 2020 and the three months ended December 31, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Intrinsic
Value
|
|
Outstanding at September 30, 2019
|
|
|
200,418
|
|
|
$
|
16.37
|
|
|
|
2.40
|
|
|
$
|
27
|
|
Forfeited
|
|
|
(81,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
119,168
|
|
|
$
|
19.07
|
|
|
|
2.71
|
|
|
$
|
—
|
|
Exercisable at September 30, 2020
|
|
|
95,001
|
|
|
$
|
15.50
|
|
|
|
1.55
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
119,168
|
|
|
$
|
19.07
|
|
|
|
2.45
|
|
|
$
|
87
|
|
Exercisable at December 31, 2020
|
|
|
103,168
|
|
|
$
|
15.94
|
|
|
|
1.60
|
|
|
$
|
87
|
|
14
The Company recognized compensation expense of $17 and $29 during the three months ended December 31, 2020 and 2019, respectively, related to stock option awards granted to certain employees and officers based on the grant date fair value of the awards, net of estimated forfeitures.
At December 31, 2020, the Company has $43 of unrecognized compensation expense (net of estimated forfeitures) associated with stock option awards which the company expects to recognize as compensation expense through October of 2022.
The exercise price for stock options outstanding and exercisable outstanding at December 31, 2020 is as follows:
Outstanding
|
|
|
Exercisable
|
|
Number of Options
|
|
|
Exercise Price ($)
|
|
|
Number of Options
|
|
|
Exercise Price ($)
|
|
|
25,000
|
|
|
|
10.00
|
|
|
|
25,000
|
|
|
|
10.00
|
|
|
16,668
|
|
|
|
10.86
|
|
|
|
16,668
|
|
|
|
10.86
|
|
|
6,250
|
|
|
|
12.50
|
|
|
|
6,250
|
|
|
|
12.50
|
|
|
6,250
|
|
|
|
15.00
|
|
|
|
6,250
|
|
|
|
15.00
|
|
|
25,000
|
|
|
|
15.18
|
|
|
|
25,000
|
|
|
|
15.18
|
|
|
8,000
|
|
|
|
23.41
|
|
|
|
8,000
|
|
|
|
23.41
|
|
|
8,000
|
|
|
|
27.60
|
|
|
|
8,000
|
|
|
|
27.60
|
|
|
8,000
|
|
|
|
31.74
|
|
|
|
8,000
|
|
|
|
31.74
|
|
|
8,000
|
|
|
|
36.50
|
|
|
|
—
|
|
|
|
—
|
|
|
8,000
|
|
|
|
41.98
|
|
|
|
—
|
|
|
|
—
|
|
|
119,168
|
|
|
|
|
|
|
|
103,168
|
|
|
|
|
|
The following table summarizes information about the Company’s non-vested shares outstanding as of December 31, 2020 and September 30, 2020:
Non-vested Shares
|
|
Number of
Shares
|
|
|
Average
Grant-Date
Fair Value
|
|
Non-vested at September 30, 2020
|
|
|
24,167
|
|
|
$
|
33.10
|
|
Vested
|
|
|
(8,167
|
)
|
|
$
|
14.15
|
|
Non-vested at December 31, 2020
|
|
|
16,000
|
|
|
$
|
39.24
|
|
Note 9:
|
Earnings Per Share
|
Net earnings per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. 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.
15
The following table presents the computation of basic and diluted net earnings per share:
|
|
Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,413
|
|
|
$
|
547
|
|
|
|
|
—
|
|
|
|
—
|
|
Net income applicable to common stock
|
|
$
|
5,413
|
|
|
$
|
547
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,568,213
|
|
|
|
1,806,746
|
|
Basic income per share
|
|
$
|
3.45
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
5,413
|
|
|
$
|
547
|
|
Add: preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
Net income applicable for diluted earnings per share
|
|
$
|
5,413
|
|
|
$
|
547
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,568,213
|
|
|
|
1,806,746
|
|
Add: Options
|
|
|
41,668
|
|
|
|
25,000
|
|
Add: Series B Preferred Stock
|
|
|
1,071,220
|
|
|
|
1,071,220
|
|
Add: Series B Preferred Stock Warrants
|
|
|
590,147
|
|
|
|
590,147
|
|
Add: Series E Preferred Stock
|
|
|
47,480
|
|
|
|
47,840
|
|
Assumed weighted average common shares outstanding
|
|
|
3,318,728
|
|
|
|
3,540,953
|
|
Diluted income per share
|
|
$
|
1.63
|
|
|
$
|
0.15
|
|
There are 77,500 and 175,418 common stock options that are anti-dilutive that are not included in the three months ended December 31, 2020 and 2019, diluted earnings per share computations, respectively.
Note 10:
|
Related Party Transactions
|
Isaac Capital Fund and Capital Group LLC
As of December 31, 2020, Isaac Capital Group, LLC (“ICG”) is a record and beneficial owner of approximately 46.2% of the outstanding capital stock of the Company, and Jon Isaac, the Company’s President and Chief Executive Officer, and manager and sole member of ICG, is a record and beneficial owner of approximately 54.0% of the outstanding capital stock of the Company.
ICG Term Loan
During 2015, Marquis entered into a mezzanine loan in the amount of up to $7,000 (the “ICF Loan”) with Isaac Capital Fund I, LLC (“ICF”), a private lender whose managing member is Jon Isaac, our President and Chief Executive Officer. On July 10, 2020, (i) ICF released and discharged Marquis from all obligations under the loan, (ii) ICF assigned all of its rights and obligations under the instruments, documents, and agreements with respect to the ICG Loan to Isaac Capital Group, LLC, of which Jon Isaac, our President and Chief Executive Officer, is the sole member, and (iii) Live Ventures borrowed $2.0 million (the “ICG Loan”) from ICG using substantially the documentation from the ICF Loan. The ICG Loan matures on May 1, 2025 and bears interest at a rate of 12.5% Interest is payable in arrears on the last day of each month, commencing July 31, 2020. As of December 31, 2020, and September 30, 2020, there was $2,000 outstanding on this loan.
ICG Revolving Promissory Note
On April 9, 2020, the Company entered into an unsecured revolving line of credit promissory note whereby ICG agreed to provide the Company with a $1,000 revolving credit facility (the “ICG Revolver”). The ICG Revolver bears interest at 10.0% per annum and provides for the payment of interest monthly in arrears and matures April 2023. As of December 31, 2020, the Company has not drawn on the revolving promissory note.
Series B Preferred Warrants
The warrants, discussed in Note 7, expire at various timeframes over the next two years. However, Company and ICG entered into an agreement whereby if the warrants are not exercised on or before the applicable expiration date, the applicable expiration date is deemed automatically extended for successive two-year periods immediately prior to such expiration. All of these warrants were exercised by cashless exercise during January 2021.
16
JanOne Inc.
Lease agreement
Customer Connexx LLC, a wholly-owned subsidiary of JanOne Inc. (“JanOne”), rents approximately 9,900 square feet of office space from the Company at its Las Vegas office which totals 16,500 square feet. JanOne paid the Company $35 and $45 in rent and other reimbursed expenses for the three months ended December 31, 2020 and 2019, respectively. Tony Isaac and Virland Johnson are Chief Executive Officer and Board of Directors member and the Chief Financial Officer of JanOne, respectively.
Note payable
On December 30, 2017, ApplianceSmart Holdings Inc. (“ASH”) entered into a Stock Purchase Agreement (the “Agreement”) with Appliance Recycling Centers of America, Inc. (now JanOne Inc.) (the “Seller”) and ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of the Seller. Pursuant to the Agreement, ASH purchased (the “Transaction”) from the Seller all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for $6,500 (the “Purchase Price”). ASH 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, ASH and the Seller negotiated in good faith the method of payment of the remaining outstanding balance of the Purchase Price.
On April 25, 2018, ASH delivered to the Seller that certain Promissory Note (the “ApplianceSmart Note”) in the original principal amount of $3,919 (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 $2,581 of the Purchase Price 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. As of December 31, 2020, and September 30, 2020, there was $2,826 principal outstanding on the ApplianceSmart Note.
On December 26, 2018, ASH and the Seller amended and restated the ApplianceSmart Note to, among other things, grant the Seller a security interest in the assets of ASH and ApplianceSmart in accordance with the terms of separate security agreements entered into between ASH and ApplianceSmart, respectively, and the Seller.
On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. See Note 11 for a complete discussion.
Other
Note Payable to the Sellers of Vintage Stock
In connection with the purchase of Vintage Stock, on November 3, 2016, Vintage Stock entered into a seller financed mezzanine loan in the amount of $10,000 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, as amended, has a maturity date of September 23, 2023. Rodney Spriggs, President of Vintage Stock, holds a 41% interest in the $10,000 Seller Subordinated Acquisition Note payable by Vintage Stock.
Spriggs Promissory Note
On July 10, 2020, the Company executed a promissory note (the “Spriggs Promissory Note”) in favor of Spriggs Investments LLC (“Spriggs Investments”), a limited liability company whose sole member is Rodney Spriggs, the President and Chief Executive Officer of Vintage Stock, Inc., a wholly-owned subsidiary of the Company, that memorializes a loan by Spriggs Investments to the Company in the initial principal amount of $2,000 (the “Spriggs Loan”). The Spriggs Loan matures on July 10, 2022 and bears simple interest at a rate of 10.0% per annum. Interest is payable in arrears on the last day of each month, commencing July 31, 2020. the Company may prepay the Spriggs Loan in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid, together with accrued interest thereon to the date of prepayment; provided, however, that, if the Company prepays the Spriggs Loan in whole or in part on or prior to December 10, 2020, then the Company would also be obligated to pay a prepayment penalty to Spriggs Investments in an amount equal to $100, less the amount of any interest paid or to be paid by the Company up to the date of prepayment. the Company used the proceeds from the Spriggs Loan to finance the acquisition of Precision. The Spriggs Promissory Note contains events of default and other provisions customary for a loan of this type. The Spriggs Loan was guaranteed by Jon Isaac, Live Ventures’ President and Chief Executive Officer, and by ICG. .
17
Note 11:
|
Commitments and Contingencies
|
Litigation
SEC Investigation
On February 21, 2018, the Company received a subpoena from the Securities and Exchange Commission (“SEC”) and a letter from the SEC stating that it is conducting an investigation. The subpoena requested documents and information concerning, among other things, the restatement of the Company’s financial statements for the quarterly periods ended December 31, 2016, March 31, 2017, and June 30, 2017, the acquisition of Marquis Industries, Inc., Vintage Stock, Inc., and ApplianceSmart, Inc., and the change in auditors. On August 12, 2020, three of the Company’s corporate executive officers (together, the “Executives”) each received a “Wells Notice” from the Staff of the SEC relating to the Company’s SEC investigation. On October 7, 2020, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously-disclosed SEC investigation. The Wells Notices relate to, among other things, the Company’s reporting of its financial performance for its fiscal year ended September 30, 2016, certain disclosures related to executive compensation, and its previous acquisition of ApplianceSmart. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives that would allege certain violations of the federal securities laws. The Company and the Executives maintain that their actions were appropriate, and the Company and the Executives have engaged Orrick Herrington & Sutcliffe LLP, among others, to defend themselves, and intend to vigorously defend against any and all allegations brought forth.
On October 1, 2018, the Company received a letter from the SEC requesting information regarding a potential violation of Section 13(a) of the Securities Exchange Act of 1934, based upon the timing of the Company’s Form 8-K filed on February 14, 2018. The Company provided a response to the SEC on October 26, 2018. The Company is cooperating with the SEC in its inquiry.
ApplianceSmart Bankruptcy and Other ApplianceSmart Litigation Matters
On August 4, 2020, Valassis Communications, Inc. and Valassis Digital Corp. (collectively, “Valassis”) filed suit against ApplianceSmart Holdings LLC in the State of Michigan, Third Judicial Circuit, Wayne County, alleging, among other things, breach of contract and account stated and seeking damages of approximately $700. This matter has since been removed to United States District Court, Eastern District of Michigan, Southern Division. The Company believes that ApplianceSmart, Inc., not ApplianceSmart Holdings LLC is the responsible party. On December 9, 2019, ApplianceSmart filed a Chapter 11 Case in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code. The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, including, but not limited to ASH, or Live Ventures itself.
On December 12, 2019, Crossroads Center LLC served a lawsuit against ApplianceSmart in the District Court for the State of Minnesota, County of Olmsted, alleging, among other things, breach of contract and seeking damages in excess of $64. This matter has been stayed as a result of the Chapter 11 Case.
On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The bankruptcy affects Live Ventures’ indirect subsidiary ApplianceSmart only and does not affect any other subsidiary of Live Ventures, or Live Ventures itself. ApplianceSmart expects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, the Company reserves its right to file a motion seeking authority to use cash collateral of the lenders under ApplianceSmart’s reserve-based revolving credit facility. The case is being administrated under the caption In re: ApplianceSmart, Inc. (case number 19-13887). Court filings and other information related to the Chapter 11 Case are available at the PACER Case Locator website for those registered to do so or at the Courthouse located at One Bowling Green, Manhattan, New York 10004.
18
ApplianceSmart’s balance sheet as of December 31, 2020 is below. The debtor in possession assets and liabilities are primarily related to assets and liabilities incurred pre-petition and are subject to compromise.
|
|
December 31, 2020
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
42
|
|
Inventories, net
|
|
|
284
|
|
Total debtor in possession assets
|
|
|
326
|
|
Right of use asset - operating leases
|
|
|
691
|
|
Total assets
|
|
$
|
1,017
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
5,935
|
|
Accrued liabilities
|
|
|
3,128
|
|
Notes payable related parties, including current portion
|
|
|
2,826
|
|
Total debtor in possession liabilities
|
|
|
11,889
|
|
Accounts payable
|
|
42
|
|
Accrued liabilities
|
|
|
818
|
|
Lease obligation long term - operating leases
|
|
|
699
|
|
Crossroads Financial Revolver Loan
|
|
|
828
|
|
Taxes payable
|
|
|
886
|
|
Other non-current obligations
|
|
|
|
|
Total liabilities
|
|
|
15,162
|
|
Stockholders' equity:
|
|
|
|
|
Intercompany
|
|
|
1,350
|
|
Accumulated deficit
|
|
|
(15,495
|
)
|
Total stockholders' equity
|
|
|
(14,145
|
)
|
Total liabilities and stockholders' equity
|
|
$
|
1,017
|
|
ApplianceSmart’s statement of operations for the period of October 1, 2020 through December 31, 2020 is below:
|
|
Three Months Ended December 31, 2020
|
|
Revenues
|
|
$
|
296
|
|
Cost of revenues
|
|
|
165
|
|
Gross profit
|
|
|
131
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
General and administrative expenses
|
|
|
208
|
|
Total operating expenses
|
|
|
208
|
|
Operating income
|
|
|
(77
|
)
|
Other (expense) income:
|
|
|
|
|
Interest expense, net
|
|
|
(46
|
)
|
Accounts payable settlement
|
|
|
44
|
|
Other income (expense)
|
|
|
279
|
|
Total other (expense) income, net
|
|
|
277
|
|
Income before provision for income taxes
|
|
|
200
|
|
On November 22, 2019, Haier US Appliance Solutions, Inc. d/b/a GE Appliances filed suit against ApplianceSmart in the District Court for the State of Minnesota, County of Hennepin (the “Hennepin Court”) alleging, among other things, breach of contract and seeking damages in excess of $250. This matter has been stayed as a result of the Chapter 11 Case.
On November 1, 2019, OIRE Minnesota, L.L.C. filed suit against ApplianceSmart in the Hennepin Court alleging, among other things, breach of contract and seeking damages in excess of $60. This matter was subsequently settled for an aggregate of $20 on February 18, 2020 in exchange for full mutual releases.
On October 16, 2019, VanMile, LLC filed a lawsuit against ApplianceSmart in the Magistrate Court of Gwinnett County, State of Georgia alleging unpaid invoices and seeking damages therefor. Plaintiff is seeking damages of $15. This matter has been stayed as a result of the Chapter 11 Case.
19
On September 12, 2019, Fisher & Paykel Appliances, Inc. initiated an arbitration against ApplianceSmart in San Diego alleging breach of contract and seeking damages in excess of $100. This matter has been stayed as a result of the Chapter 11 Case.
On July 22, 2019, Trustee Main/270, LLC (the “Reynoldsburg Landlord”) filed a lawsuit against ApplianceSmart and JanOne Inc. (formerly known as Appliance Recycling Centers of America, Inc.) (“JanOne”) in the Franklin County Common Pleas Court in Columbus, Ohio, alleging, with respect to ApplianceSmart, default under a lease agreement and, with respect to JanOne, guaranty of lease. The complaint sought damages of $1,530 attorney fees, and other charges. On or about September 27, 2019, the parties entered into a second lease modification agreement and ratification of agreement (the “Second Lease Modification Agreement”) whereby the Reynoldsburg Landlord restored ApplianceSmart’s access to the property. Pursuant to the terms of the Second Lease Modification Agreement, in exchange for such restored access, ApplianceSmart paid the Reynoldsburg Landlord $141 in partial satisfaction of past due rent and costs and the Reynoldsburg Landlord agreed to dismiss the lawsuit with prejudice. In addition, the Reynoldsburg Landlord agreed to reduced minimum annual rent for the remainder of the term and waived the rent due for October 2019, December 2019, and January 2020. In addition, JanOne ratified its guaranty under the lease.
On August 29, 2019, Martin Drive, LLC filed suit against ApplianceSmart in the Hennepin Court, alleging, among other things, breach of contract and failure to pay rent under the terms of a lease agreement. The plaintiff was awarded a default judgment in the aggregate amount of $265. This matter has been stayed as a result of the Chapter 11 Case.
On August 27, 2019, CH Robinson Worldwide, Inc. served a lawsuit against ApplianceSmart in the District Court for the State of Minnesota, County of Carver, alleging, among other things, breach of contract and seeking damages in excess of $140. This matter has been stayed as a result of the Chapter 11 Case.
On August 15, 2019, 280 Business Center, LLC filed suit against ApplianceSmart in the District Court for the State of Minnesota, County of Ramsey for eviction from the premises. This matter was settled in September 2019 for $130.
On June 19, 2019, Graceland Retail 2017 LLC filed suit against ApplianceSmart in the Court of Common Pleas in Franklin County, Ohio, alleging, among other things, breach of contract and failure to pay rent under the terms of a lease agreement. The plaintiff was seeking damages of approximately $940. This matter has been stayed as a result of the Chapter 11 Case.
Generally
We are involved in various claims and lawsuits arising in the normal course of business. The ultimate results of claims and litigation cannot be predicted with certainty. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Operating Leases and Service Contracts
The Company leases its office, retail and warehouse space under long-term operating leases expiring through fiscal year 2040.
During fiscal 2019, as a result of our decision to close certain ApplianceSmart retail locations, we recorded a liability for the estimated remaining lease payments and early termination charges, as applicable, of $724. As of December 31,2020, this amount has been reduced to $405.
Warranties
During 2019, the Company became the principal for certain extended warranties, as a result, warranty reserves are included in accrued liabilities in our consolidated balance sheet. The following table summarizes the warranty reserve activity for the three months ended December 31, 2020:
Beginning balance, September 30, 2020
|
|
$
|
206
|
|
Warranties issued/accrued
|
|
|
—
|
|
Warranty settlements
|
|
|
(31
|
)
|
Ending balance, December 31, 2020
|
|
$
|
175
|
|
Other
During 2020, Marquis entered into a $1,100 agreement to install heating, ventilation and air conditioning in one of its manufacturing facilities.
20
Note 12:
|
Segment Reporting
|
The Company operates in three segments which are characterized as: (1) Retail, (2) Flooring Manufacturing, and (3) Steel Manufacturing. The Retail segment consists of Vintage Stock and ApplianceSmart, the Flooring Manufacturing Segment consists of Marquis and the Steel Manufacturing Segment consists of Precision Marshall.
The following tables summarize segment information for the three months ended December 31, 2020 and 2019:
|
|
Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
22,370
|
|
|
$
|
21,488
|
|
Flooring Manufacturing
|
|
|
30,222
|
|
|
|
20,367
|
|
Steel Manufacturing
|
|
|
9,735
|
|
|
|
—
|
|
Corporate & other
|
|
|
127
|
|
|
|
146
|
|
|
|
$
|
62,454
|
|
|
$
|
42,001
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
12,047
|
|
|
$
|
11,120
|
|
Flooring Manufacturing
|
|
|
8,325
|
|
|
|
5,368
|
|
Steel Manufacturing
|
|
|
1,776
|
|
|
|
—
|
|
Corporate & other
|
|
|
121
|
|
|
|
138
|
|
|
|
$
|
22,269
|
|
|
$
|
16,626
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
4,493
|
|
|
$
|
1,859
|
|
Flooring Manufacturing
|
|
|
4,150
|
|
|
|
2,403
|
|
Steel Manufacturing
|
|
|
144
|
|
|
|
—
|
|
Corporate & other
|
|
|
(1,496
|
)
|
|
|
(775
|
)
|
|
|
$
|
7,291
|
|
|
$
|
3,487
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
347
|
|
|
$
|
470
|
|
Flooring Manufacturing
|
|
|
965
|
|
|
|
605
|
|
Steel Manufacturing
|
|
|
393
|
|
|
|
—
|
|
Corporate & other
|
|
|
9
|
|
|
|
10
|
|
|
|
$
|
1,714
|
|
|
$
|
1,085
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
660
|
|
|
$
|
949
|
|
Flooring Manufacturing
|
|
|
410
|
|
|
|
390
|
|
Steel Manufacturing
|
|
|
268
|
|
|
|
—
|
|
Corporate & other
|
|
|
132
|
|
|
|
18
|
|
|
|
$
|
1,470
|
|
|
$
|
1,357
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before provision for income taxes
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
4,173
|
|
|
$
|
236
|
|
Flooring Manufacturing
|
|
|
3,722
|
|
|
|
1,880
|
|
Steel Manufacturing
|
|
|
(164
|
)
|
|
|
—
|
|
Corporate & other
|
|
|
(1,002
|
)
|
|
|
(1,374
|
)
|
|
|
$
|
6,729
|
|
|
$
|
742
|
|
.
.
21
Note 13:
|
Subsequent Events
|
The Company evaluated subsequent events through the date of this Quarterly Report noting only the following:
Comvest Loan
During January 2021, the Company paid the Comvest loan in full and terminated the loan agreement.
Precision PPP Loan
During February 2021, Precision received notice that its $1,382 payroll protection program loan has been forgiven and no amounts are owed.
Series Be Preferred Warrants
All of the Series B Preferred Warrants were exercised by cashless exercise during January 2021.
22