LIVE VENTURES INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-K)
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the year ended
September 30, 2021, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" (hereafter referred to as "MD&A") should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Part II, Item 8 of this Annual Report on Form 10-K for the fiscal year ended September 30, 2021(this "Form 10-K").
Expressed in thousands of US dollars, except per share amounts.
Note on forward-looking statements
This Form 10-K includes statements that constitute "forward-looking statements." These forward-looking statements are often characterized by the terms "may," "believes," "projects," "intends," "plans," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements about the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. This Form 10-K identifies those factors and risks that could affect our results, our future performance, and our capital requirements under Item 1A "Risk Factors". There are also other factors that we are currently unable to identify or quantify, but that may exist in the future, that could similarly affect us. In addition, any or all of the factors identified in this Form 10-K may generally affect our business, results of operations, and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website, www.liveventures.com, or any other websites referenced in this Annual Report, are not part of this Annual Report.
Under the Live Ventures brand, we seek opportunities to acquire profitable and well-managed companies. We work closely with consultants who help us identify target companies that fit within the criteria we have established for opportunities that will provide synergies with our businesses. Our principal offices are located at
325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada89119, our telephone number is (702) 939-0231, and our corporate website (which does not form part of this report Form 10-K) is located at www.liveventures.com. Our common stock trades on the Nasdaq Capital Market under the symbol "LIVE". Retail Segment
Our retail segment is comprised of Vintage Stock and
Vintage Stock Holdings LLC, Vintage Stock, V-Stock, Movie Trading Companyand EntertainMart (collectively, "Vintage Stock") is an award-winning specialty entertainment retailer that offers a large selection of entertainment products, including new and pre-owned movies, video games and music products, as well as ancillary products, such as books, comics, toys and collectibles, in a single location. With its integrated buy-sell-trade business model, Vintage Stock buys, sells and trades new and pre-owned movies, music, video games, electronics and collectibles through 63 retail locations strategically positioned across Arkansas, Colorado, Idaho, Illinois, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, Texas, and Utah. ApplianceSmartAt September 30, 2021, ApplianceSmart Affiliated Holdings LLCand ApplianceSmart, Inc.(collectively "ApplianceSmart") operated one store in Ohio. ApplianceSmartis a household appliance retailer with two product categories: one consisting of typical and commonly available, innovative appliances, and the other consisting of affordable value-priced, niche offerings such as close-outs, factory overruns, discontinued models, and special-buy appliances, including open box merchandise and others. On December 9, 2019, ApplianceSmartfiled 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 ApplianceSmartonly and does not affect any other subsidiary of Live Ventures, or Live Venturesitself. ApplianceSmartexpects to continue to operate its business in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Courtand in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, ApplianceSmartreserves its right to file a motion seeking authority to use cash collateral of the lenders under the 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 York10004. On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmartin conjunction with its bankruptcy proceedings. The Disclosure Statement was approved by the court, subject to minor amendment, and a directive issued that an order for a final confirmation hearing be drafted and scheduled in the foreseeable future.
Flooring Manufacturing Segment
Our Floor Coverings Manufacturing segment is comprised of Marquis.
Marquis Affiliated Holdings LLCand wholly-owned subsidiaries ("Marquis"). Marquis is a leading carpet manufacturer and distributor of carpet and hard-surface flooring products. Over the last decade, Marquis has been an innovator and leader in the value-oriented polyester carpet sector, which is currently the market's fastest-growing fiber category. Marquis focuses on the residential, niche commercial, and hospitality end-markets and serves thousands of customers. Since commencing operations in 1995, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis's state-of-the-art operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion. Steel Manufacturing Segment
Our steel fabrication segment is comprised of
(otherwise known in the industry as “Precision Marshall”).
36 -------------------------------------------------------------------------------- Precision Marshall is the North American leader in providing and manufacturing pre-finished de-carb free tool and die steel. For nearly 75 years, Precision Marshall has served steel distributors through quick and accurate service. Precision Marshall has led the industry with exemplary availability and value-added processing that saves distributors time and processing costs. Founded in 1948, Precision Marshall "
The Deluxe Company" has built a reputation of high integrity, speed of service and doing things the " Deluxe Way". The term Deluxe refers to all aspects of the product and customer service to be head and shoulders above the rest. From order entry to packaging and delivery, Precision Marshall makes it easy to do business and backs all products and service with a guarantee. Precision Marshall provides four key products to over 500 steel distributors in four product categories: Deluxe Alloy Plate, Deluxe Tool Steel Plate, Precision Ground Flat Stock, and Drill Rod. With over 5,000 distinct size grade combinations in stock every day, Precision Marshall arms tool steel distributors with deep inventory availability and same day shipment to their place of business or often ships direct to their customer saving time and handling.
Critical accounting policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America("GAAP"). Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant and material impact on amounts reported in these financial statements. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management's initial estimates as reported. Our critical and significant accounting policies include Trade and Other Receivables, Inventories, Goodwill, Revenue Recognition, Fair Value Measurements, Stock Based Compensation, Income Taxes, Segment Reporting and Concentrations of Credit Risk.
Results of operations
The following table presents certain elements of the income statement and as a percentage of sales, for the periods indicated:
Year Ended Year Ended
September 30, 2021 September 30, 2020% of Total % of Total Revenue Revenue
Income statement data:
$ 272,981100.0 % $ 191,720100.0 % Cost of revenues 173,518 63.6 % 116,403 60.7 % Gross profit 99,463 36.4 % 75,317 39.3 % General and administrative expenses 52,246 19.1 % 43,561 22.7 % Sales and marketing expenses 11,427 4.2 % 11,334 5.9 % Operating income 35,790 13.1 % 20,422 10.7 % Interest expense, net (5,205 ) (1.9 )% (5,254 ) (2.7 )% Gain on lease settlement, net - - 307 0.2 % Gain on Payroll Protection Program loan forgiveness 6,150 2.3 % - - Gain on disposal of fixed assets - - - - Gain on bankruptcy settlement 1,765 0.6 % - - Bargain purchase gain - - 1,507 0.8 % Impairment charges - - (525 ) (0.3 )% Other income (loss) 1,179 0.4 % (841 ) (0.4 )% Income before income taxes 39,679 14.5 % 15,616 8.1 % Provision for income taxes 8,662 3.2 % 4,957 2.6 % Net income 31,017 11.4 % 10,659 5.6 % Net loss attributable to non-controlling interest 180 0.1 % 268 0.1 % Net income attributable to Live stockholders $ 31,19711.4 % $ 10,9275.7 % 37
The following table presents the revenues by segment:
Year Ended Year Ended September 30, 2021 September 30, 2020 Net % of Total Net % of Total Revenue Revenue Revenue Total Revenue Revenue Retail Movies, Music, Games and Other
$ 87,74232.1 % $ 69,60236.3 % Appliances 1,103 0.4 % 3,961 2.1 % Flooring manufacturing 130,223 47.7 % 109,642 57.2 % Steel manufacturing 49,302 18.1 % 7,962 4.2 % Corporate and other 4,611 1.7 % 553 0.3 % Total Revenue $ 272,981100.0 % $ 191,720100.0 % The following table sets forth gross profit and gross profit as a percentage of total revenue by segment: Year Ended Year Ended September 30, 2021 September 30, 2020 Gross Profit Gross Profit Gross % Gross % of Total of Total Profit Revenue Profit Revenue Gross Profit Retail Movies, Music, Games and Other $ 47,54117.4 % $ 39,34320.5 % Appliances 518 0.2 % 1,436 0.7 % Flooring manufacturing 37,893 13.9 % 32,857 17.1 % Steel manufacturing 11,954 4.4 % 1,163 0.6 % Corporate and other 1,557 0.6 % 518 0.3 % Total Gross Profit $ 99,46336.4 % $ 75,31739.3 % Revenue Revenue increased by approximately $81.3 millionto approximately $273 millionfor the year ended September 30, 2021as compared to the year ended September 30, 2020of approximately $191.7 million. Retail: The increase in revenue of approximately $18.1 millionfor Movies, Music, Games and Other was primarily due to new video game and movie releases as compared to the prior year, and the reopening of Vintage Stock retail locations that were closed temporarily during 2020 due to COVID-19. Appliance revenue decreased by approximately $2.9 milliondue to the closure of certain retail locations that were incurring continual decreases in sales resulting from increased competition. Floor Manufacturing: Flooring Manufacturing revenue increased by approximate $20.6 millionas a result of the availability of new product lines due to the 2020 acquisition of Lonesome Oak. Steel Manufacturing: Steel Manufacturing revenue was approximately $49.3 millionfor the year ended September 30, 2021. Revenue for the year ended September 30, 2020was approximately $8.0 million, and represents revenue for the period of July 14, 2020, the date of acquisition of Precision Marshall, through September 30, 2020. Cost of Revenue Cost of revenue increased by approximately $57.1 million, or 49.1% for the year ended September 30, 2021as compared to the year ended September 30, 2020. While the increase is, in part, due to the factors described above, cost of revenue also increased due to the steel manufacturing segment constituting a full year's activity, as well as the influence of an inflationary environment on all segments. 38 --------------------------------------------------------------------------------
General and administrative costs
General and Administrative expense increased by approximately
$8.7 millionor 19.9%, for the year ended September 30, 2021as compared to the year ended September 30, 2020, primarily due to the reopening of Vintage Stock retail locations following temporary closure of these locations due to COVID-19 during the year ended September 30, 2020, a full year's general and administrative expenses for Precision Marshall, which was acquired during the year ended September 30, 2020, as well as increases in Corporate & Other expenses of payroll-related costs, professional fees, and general and administrative expenses for SW Financial.
Sales and marketing costs
Sales and marketing costs increased by approximately
mainly due to increased marketing efforts during the period.
Interest expense, net
Net interest expense decreased by approximately
Gain on rental payment, net
During the year ended
September 30, 2020, the Company recorded a net gain on lease settlement of approximately $307,000which consisted of impairment charges of approximately $614,000related to the decision to close additional ApplianceSmartretail locations resulting in a decrease to the associated right of use asset related to these leases, offset by a gain on lease settlement of approximately $921,000resulting from the extinguishment of the lease liability associated with the closed retail locations. There were no such transactions during the year ended September 30, 2021. Bargain Purchase Gain The bargain purchase gain of approximately $1.5 millionfor year ended September 30, 2020was related to the acquisition of Precision Marshall. There were no similar bargain purchase gains for the year ended September 30, 2021.
Payroll Earnings Protection Program
During the year ended
Gain on bankruptcy settlement
During the year ended
Depreciation charges of
Provision (Advantage) for Income Taxes
For the year ended
39 -------------------------------------------------------------------------------- for the year ended
September 30, 2020was impacted by state income taxes, net of federal benefit and non-deductible items related to the acquisition of Precision Marshall.
Operating results by segment
Year Ended September 30, 2021 Year Ended September 30, 2020 Flooring Steel Corporate & Flooring Steel Corporate &
Retail Manufacturing Manufacturing Other Total Retail Manufacturing Manufacturing Other Total Revenue
$ 88,845 $ 130,223 $ 49,302 $ 4,611 $ 272,981 $ 73,563 $ 109,642$ 7,962 $ 553 $ 191,720Cost of Revenue 40,786 92,330 37,348 3,054 173,518 32,784 76,785 6,797 35 116,401 Gross Profit 48,059 37,893 11,954 1,557 99,463 40,779 32,857 1,165 518 75,319 General and Administrative Expense 31,131 7,614 5,558 7,943 52,246 30,721 7,324 887 4,630 43,562
Sales and Marketing
Expense 588 10,076 527 236 11,427 1,321 9,451 105 457 11,334
$ 16,340 $ 20,203$ 5,869 $ (6,622 ) $ 35,790 $ 8,737 $ 16,082$ 173 $ (4,569 ) $ 20,423Retail Segment Segment results for Retail include Vintage Stock and ApplianceSmart. Revenue for the year ended September 30, 2021increased by approximately $15.3 million, or 20.8%, as compared to the prior year, primarily due to new video game and movie releases as compared to the prior year. Cost of revenue for the year ended September 30, 2021increased approximately $8.0 millionor 24.4%, as compared to the prior year period, primarily due to increased revenue. Operating income for the year ended September 30, 2021was approximately $16.3 million, as compared to approximately $8.7 millionduring the prior year period primarily due to an increase in gross profit of approximately $7.3 million.
Flooring Manufacturing Segment
Segment results for Flooring Manufacturing includes Marquis. Revenue for the year ended
September 30, 2021increased by approximately $20.6 million, or 18.8%, as compared to the prior year period, due to increased sales of carpets and hard surface products related to development of new products. Cost of revenue for the year ended September 30, 2021increased proportionately with revenue, as compared to the prior year period. Operating income for the year ended September 30, 2021increased by approximately $4.1 million, or 25.6%, as compared to the prior year period.
Steel fabrication segment
Segment results for Steel Manufacturing includes Precision Marshall. We completed the acquisition of Precision Marshall in
July 2020. Revenue was approximately $49.3 million, and cost of revenue was approximately $37.3 millionfor the year ended September 30, 2021, as compared to approximately $8.0 millionand $6.8 millionfor the year ended September 30, 2020. Operating income was approximately $5.9 millionand approximately $172,000, for the years ended September 30, 2021and 2020, respectively. The results of operations for the year ended September 30, 2020represent the period from July 14, 2020to September 30, 2020.
Business sector and others
Segment results for Corporate and Other includes our directory services business and our investment in SW Financial. Revenues and operating income for our directory services business continue to decline due to decreasing renewals. We expect revenue and operating income from this segment to continue to decrease in the future. We are no longer accepting new customers in our directory services business. We anticipate revenues from our investment SW Financial to trend upward in the future. 40 --------------------------------------------------------------------------------
Liquidity and capital resources
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, ability to repurchase shares under our share buyback program, and pay dividends on our shares of Series E Preferred Stock as declared by the Board of Directors, for at least the next 12 months. We have the following three asset-based revolver lines of credit: (i)
TexasCapital Bank Revolver Loan ("TCB Revolver") utilized by Vintage Stock, (ii) Bank of America Revolver Loan("BofA Revolver") utilized by Marquis, and (iii) Encina Revolver Loan ("Encina Revolver") utilized by Precision Marshall. Additionally, we have an unsecured revolving line of credit with Isaac Capital Group("ICG Revolver"), a related party, which is utilized by the Company. As of September 30, 2021, we had total cash on hand of approximately $4.7 millionas well as approximately $31.1 millionof available borrowing under our revolving credit facilities. As we continue to pursue acquisitions and other strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Cash flow from operating activities
The Company's cash and cash equivalents at
September 30, 2021were approximately $4.7 millioncompared to approximately $9.0 millionat September 30, 2020, a decrease of approximately $4.3 million. Net cash provided by operations was approximately $28.5 millionfor the year ended September 30, 2021as compared to net cash provided by operations of approximately $28.8 millionfor the same period in 2020 primarily due to the results of operations discussed above. Our primary sources of cash inflows are from customer receipts from sales on account, factored accounts receivable proceeds, receipts for securities sales commissions, and net remittances from directory services customers processed in the form of ACH billings. Our most significant cash outflows include payments for raw materials and general operating expenses, including payroll costs and general and administrative expenses that typically occur within close proximity of expense recognition.
Cash flow from investing activities
Our cash flows used in investing activities of approximately
$17.4 millionfor the year ended September 30, 2021consisted of purchases of property and equipment and our investment in SW Financial. Our cash flows used in investing activities of approximately $8.8 millionfor the year ended September 30, 2020consisted primarily of purchases of approximately $4.9 millionassociated with the acquisition of Precision Marshall and Lonesome Oak, and property and equipment of approximately $3.9 million.
Cash flow from financing activities
Our cash flows used in financing activities of approximately
$15.4 millionfor the year ended September 30, 2021primarily consisted of payment on notes payable and related party notes payable of approximately $16.8 million, $737,000in net payments under revolver loans, and purchase of treasury stock of approximately $421,000, partially offset by the issuance of notes payable of approximately $2.3 million, and proceeds of approximately $323,000from stock options exercised. Our cash flows used in financing activities of approximately $13.7 millionfor the year ended September 30, 2020primarily consisted of approximately $12.7 millionfor payments of notes payable, approximately $6.0 millionin net 41 -------------------------------------------------------------------------------- payments under revolver loans, and approximately $1.7 millionfor the purchase of treasury stock, offset by proceeds of $6.8 millionfrom proceeds received from the issuance of notes payable. Currently, the Company is not issuing common shares for liquidity purposes. We prefer to use asset-based lending arrangements and mezzanine financing together with Company provided capital to finance acquisitions and have done so historically. Occasionally as our Company history has demonstrated we will issue stock and derivative instruments linked to stock for services and/or debt settlement.
We had working capital of approximately
$33.8 millionas of September 30, 2021as compared to approximately $38.6 millionas of September 30, 2020. Changes in working capital were primarily attributable to the investment in Salomon Whitneyand purchases of property and equipment.
Future sources of liquidity; New products and services
We may require additional debt financing or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders.
The following table summarizes our contractual obligations consisting of operating leases and debt securities and the effect these obligations are expected to have on our future liquidity and cash flow:
Payments due by Period Three to Less Than One to Three Five More Than One Year Years Years Five Years Total Notes payable
$ 16,055 $ 23,501 $ 3,019 $ 11,615 $ 54,190Notes Payable - related party 2,000 - 2,000 - 4,000 Lease obligations 9,339 13,673 7,734 13,295 44,040 Total $ 27,394 $ 37,174 $ 12,753 $ 24,910 $ 102,230
Off-balance sheet provisions
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