Live Ventures rporated(LIVE) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents Live Ventures' unaudited condensed consolidated financial statements and detailed notes on accounting, acquisitions, and segment performance Item 1. Financial Statements Provides Live Ventures' unaudited condensed consolidated financial statements, including balance sheets, income, cash flows, and equity, with explanatory notes Condensed Consolidated Balance Sheets Presents the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights ($ in thousands) | Metric | June 30, 2022 | Sept 30, 2021 | Change ($k) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------- | :--------- | | Total Assets | 262,767 | 211,738 | 51,029 | 24.1% | | Total Liabilities | 164,802 | 136,658 | 28,144 | 20.6% | | Total Stockholders' Equity | 97,965 | 75,080 | 22,885 | 30.5% | | Total Current Assets | 129,156 | 98,790 | 30,366 | 30.7% | | Total Current Liabilities | 57,187 | 64,960 | (7,773) | -12.0% | | Inventories, net | 95,961 | 70,747 | 25,214 | 35.6% | | Goodwill | 43,653 | 41,471 | 2,182 | 5.3% | Condensed Consolidated Statements of Income Details the Company's revenues, expenses, and net income for the three and nine months ended June 30 Condensed Consolidated Statements of Income Highlights (Three Months Ended June 30, $ in thousands) | Metric | 2022 | 2021 | Change ($k) | Change (%) | | :--------------- | :--- | :--- | :---------- | :--------- | | Revenue | 68,269 | 69,095 | (826) | -1.2% | | Gross Profit | 22,349 | 25,066 | (2,717) | -10.8% | | Operating Income | 5,864 | 8,232 | (2,368) | -28.8% | | Net Income | 3,472 | 9,933 | (6,461) | -65.0% | | Basic EPS | 1.12 | 6.35 | (5.23) | -82.4% | | Diluted EPS | 1.11 | 3.01 | (1.90) | -63.1% | Condensed Consolidated Statements of Income Highlights (Nine Months Ended June 30, $ in thousands) | Metric | 2022 | 2021 | Change ($k) | Change (%) | | :--------------- | :--- | :--- | :---------- | :--------- | | Revenue | 213,133 | 202,439 | 10,694 | 5.3% | | Gross Profit | 74,918 | 73,825 | 1,093 | 1.5% | | Operating Income | 24,720 | 26,648 | (1,928) | -7.2% | | Net Income | 25,376 | 23,907 | 1,469 | 6.1% | | Basic EPS | 8.11 | 15.41 | (7.30) | -47.4% | | Diluted EPS | 8.01 | 7.31 | 0.70 | 9.6% | Condensed Consolidated Statements of Cash Flows Outlines the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended June 30, $ in thousands) | Metric | 2022 | 2021 | Change ($k) | Change (%) | | :---------------------------------------- | :--- | :--- | :---------- | :--------- | | Net cash provided by operating activities | 10,844 | 32,199 | (21,355) | -66.3% | | Net cash used in investing activities | (32,659) | (14,470) | (18,189) | 125.7% | | Net cash provided by (used in) financing activities | 20,776 | (16,148) | 36,924 | 228.7% | | Increase (decrease) in cash | (1,039) | 1,581 | (2,620) | -165.7% | | Cash, end of period | 3,625 | 10,565 | (6,940) | -65.7% | Condensed Consolidated Statements of Stockholders' Equity Reports changes in the Company's equity, including stock conversions and share repurchases - Total Stockholders' Equity increased from $75,080k at September 30, 2021, to $97,965k at June 30, 2022[17] - Series B Convertible Preferred Stock was fully converted into 1,578,950 common shares in March 2022[17][61] - The Company purchased 79,828 shares of common treasury stock for approximately $2.5 million during the nine months ended June 30, 2022[17][63] Notes to the Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1: Background and Basis of Presentation Describes Live Ventures as a diversified holding company, its operating segments, and the impact of the COVID-19 pandemic - Live Ventures is a diversified holding company with four operating segments: Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other[19] - ApplianceSmart ceased operations on April 1, 2022[19] - The COVID-19 pandemic continues to create significant uncertainties and may materially adversely affect revenues, earnings, liquidity, and cash flows[21] Note 2: Summary of Significant Accounting Policies Outlines the Company's significant accounting policies, key estimates, and the anticipated impact of recent accounting pronouncements - The consolidated financial statements include the Company, its majority-owned subsidiaries, and a variable interest entity (VIE)[23] - Significant estimates are made for doubtful accounts, obsolete inventory, warranty, stock-based compensation, goodwill impairment, deferred tax assets, and asset useful lives[25] - Recently issued ASUs (ASU No. 2016-13, ASU No. 2019-12, ASU No. 2020-04, ASU No. 2021-04) are not anticipated to have a material impact on the Company's financial statements[27][28][29] Note 3: Acquisitions Details Precision Marshall's acquisition of The Kinetic Co., Inc. for $24.6 million, including funding and preliminary goodwill allocation - Precision Marshall acquired 100% of The Kinetic Co., Inc. and its Real Estate on June 28, 2022, for approximately $24.6 million[31] - The acquisition was funded by credit facility borrowings, proceeds from a sale-leaseback of the Real Estate ($8.9 million), a $3.0 million subordinated promissory note, a contingent earn-out liability, and cash on-hand[31][32] - Preliminary purchase price allocation recognized goodwill of approximately $2.2 million[34] Proforma Net Revenue (Nine Months Ended June 30, $ in thousands) | Entity | 2022 | 2021 | | :------------------ | :--- | :--- | | Live (As Reported) | 213,133 | 202,439 | | Kinetic (Unaudited) | 15,418 | 16,449 | | Live (Proforma) | 228,551 | 218,888 | Note 4: Leases Describes the Company's operating lease agreements, including a new sale-leaseback arrangement and key lease terms - The Company leases various properties under noncancelable operating lease agreements expiring through 2042[37] - A sale-leaseback agreement for Kinetic's Real Estate was entered into on June 28, 2022, with a 20-year lease term and two five-year renewal options[38] - As of June 30, 2022, the weighted average remaining lease term is 16.9 years, and the weighted average discount rate is 5.82%[39] Right of Use Assets and Lease Liabilities ($ in thousands) | Metric | June 30, 2022 | Sept 30, 2021 | | :-------------------------------- | :------------ | :------------ | | Right of use asset - operating leases | 31,487 | 30,466 | | Current - operating lease liabilities | 7,293 | 7,202 | | Current - finance lease liabilities | 376 | — | | Long term - operating lease liabilities | 31,014 | 29,343 | | Long term - finance lease liabilities | 7,803 | — | Note 5: Inventory Total net inventory significantly increased to $96.0 million, primarily driven by a substantial rise in raw materials Inventory Breakdown ($ in thousands) | Category | June 30, 2022 | Sept 30, 2021 | Change ($k) | Change (%) | | :--------------- | :------------ | :------------ | :---------- | :--------- | | Raw materials | 37,246 | 18,604 | 18,642 | 100.2% | | Work in progress | 7,959 | 12,404 | (4,445) | -35.8% | | Finished goods | 30,024 | 22,584 | 7,440 | 32.9% | | Merchandise | 23,002 | 18,948 | 4,054 | 21.4% | | Total inventory, net | 95,961 | 70,747 | 25,214 | 35.6% | Note 6: Property and Equipment Net property and equipment increased to $52.4 million due to additions, while depreciation expense decreased year-over-year Property and Equipment, Net ($ in thousands) | Category | June 30, 2022 | Sept 30, 2021 | Change ($k) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------- | :--------- | | Land | 2,029 | 2,029 | 0 | 0.0% | | Building and improvements | 16,058 | 11,737 | 4,321 | 36.8% | | Machinery and equipment | 51,105 | 35,284 | 15,821 | 44.8% | | Furnishings and fixtures | 4,213 | 3,907 | 306 | 7.8% | | Office, computer equipment and other | 2,981 | 2,792 | 189 | 6.8% | | Total property and equipment, net | 52,437 | 35,632 | 16,805 | 47.2% | - Depreciation expense for the three months ended June 30, 2022, was approximately $1.4 million, down from $1.6 million in 2021[43] - Depreciation expense for the nine months ended June 30, 2022, was $3.9 million, down from $4.8 million in 2021[43] Note 7: Goodwill Goodwill increased to $43.7 million due to the Kinetic acquisition in Steel Manufacturing, with no impairment identified - Goodwill increased by $2,182k due to the acquisition of Kinetic in the Steel Manufacturing segment[45] Goodwill by Segment ($ in thousands) | Segment | Sept 30, 2021 | Additions | June 30, 2022 | | :--------------------- | :------------ | :-------- | :------------ | | Retail | 36,947 | — | 36,947 | | Flooring Manufacturing | 807 | — | 807 | | Steel Manufacturing | — | 2,182 | 2,182 | | Corporate | 3,717 | — | 3,717 | | Total | 41,471 | 2,182 | 43,653 | - No triggering events for goodwill impairment testing were identified as of June 30, 2022[45] Note 8: Accrued Liabilities Total accrued liabilities decreased to $13.7 million, driven by lower professional fees and payroll, partially offset by increased accounts payable Accrued Liabilities ($ in thousands) | Category | June 30, 2022 | Sept 30, 2021 | Change ($k) | Change (%) | | :----------------------------------- | :------------ | :------------ | :---------- | :--------- | | Accrued payroll | 3,844 | 4,765 | (921) | -19.3% | | Accrued sales and use taxes | 1,117 | 1,692 | (575) | -34.0% | | Accrued professional fees | 1,913 | 4,937 | (3,024) | -61.2% | | Accrued accounts payable and bank overdrafts | 1,132 | 503 | 629 | 125.0% | | Total accrued liabilities | 13,689 | 17,048 | (3,359) | -19.7% | Note 9: Long-Term Debt Long-term debt increased to $58.5 million, primarily from new loans for the Kinetic acquisition, with the Company in covenant compliance - Total long-term debt, net of current portion, increased by $20,916k (55.7%) from $37,559k to $58,475k[48] - New debt includes Fifth-Third Bank Revolver ($20,564k), Fifth-Third Bank Term Loans ($3,292k, $4,000k, $1,000k), and a Note Payable to the Sellers of Kinetic ($3,000k)[48] - Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank on January 20, 2022, reducing interest costs and improving liquidity[52] - The Company was in compliance with all loan covenants as of June 30, 2022[58] Note 10: Notes Payable, Related Parties Notes payable to related parties remained stable at $4.0 million, with the current portion decreasing to zero - Total notes payable to related parties remained at $4,000k as of June 30, 2022[59] - The current portion of related party notes payable decreased from $2,000k to $0[59] - Future maturities of related party debt are $2,000k in 2024 and $2,000k in 2025[59] Note 11: Stockholders' Equity All Series B Preferred Stock converted to common shares, and treasury stock increased due to $2.5 million in repurchases - All 315,790 shares of Series B Convertible Preferred Stock were converted into 1,578,950 common shares in March 2022[61] - The Company purchased 79,828 shares of common stock for approximately $2.5 million during the nine months ended June 30, 2022, increasing treasury stock[63] - As of June 30, 2022, there were 614,348 shares of common treasury stock[63] Note 12: Stock-Based Compensation Stock-based compensation expense decreased to $37k, with no unrecognized expense remaining as of June 30, 2022 - Stock-based compensation expense was $37k for the nine months ended June 30, 2022, down from $230k in the prior year[65] - No unrecognized compensation expense associated with stock option awards remained as of June 30, 2022[66] - Outstanding stock options at June 30, 2022, were 87,500 shares with a weighted average exercise price of $18.81 and a remaining contractual life of 1.03 years[65] Note 13: Earnings Per Share Provides basic and diluted EPS computations, noting the impact of Series B Preferred Stock conversion on prior year diluted shares Basic and Diluted EPS (Nine Months Ended June 30) | Metric | 2022 | 2021 | | :---------------------------------------- | :--- | :--- | | Net income applicable to common stock ($k) | 25,376 | 24,085 | | Weighted average common shares outstanding (Basic) | 3,128,813 | 1,563,025 | | Basic earnings per share | $8.11 | $15.41 | | Assumed weighted average common shares outstanding (Diluted) | 3,169,258 | 3,294,815 | | Diluted earnings per share | $8.01 | $7.31 | - The conversion of Series B Preferred Stock (1,578,950 shares) was a significant dilutive factor in 2021 but not in 2022[69] Note 14: Related Party Transactions Details ongoing related party transactions, including loans with Isaac Capital Group and a promissory note with Spriggs Investments - Isaac Capital Group LLC (ICG), controlled by the CEO, beneficially owns 50% of the Company's stock[70] - A $2.0 million ICG Term Loan with 12.5% interest matures on May 1, 2025[71] - The ICG Revolving Promissory Note was increased to $6.0 million in June 2022 to fund the Kinetic acquisition, with a $4.5 million advance repaid by June 30, 2022[72] - A $2.0 million Spriggs Promissory Note, with Rodney Spriggs (CEO of Vintage Stock) as the sole member of Spriggs Investments, LLC, matures on July 10, 2023[77] Note 15: Commitments and Contingencies Addresses the ongoing SEC investigation, pending motions to dismiss, and ApplianceSmart's bankruptcy settlement and cessation of operations - The SEC filed a civil complaint against the Company and two executive officers on August 2, 2021, alleging financial, disclosure, and reporting violations from 2016-2018[80][166] - Motions to dismiss the SEC complaint were filed by the Defendants on October 1, 2021, and are currently under submission[81][167] - ApplianceSmart's plan for reorganization was approved on February 28, 2022, resulting in an $11.4 million gain on bankruptcy settlement[82][169] - ApplianceSmart ceased operations on April 1, 2022[82] Note 16: Segment Reporting Provides detailed financial performance for the Company's four operating segments, highlighting revenue and profitability shifts Revenues by Segment ($ in thousands) | Segment | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 9 Months Ended June 30, 2022 | 9 Months Ended June 30, 2021 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Retail | 19,227 | 21,719 | 66,179 | 68,092 | | Flooring Manufacturing | 32,188 | 34,234 | 97,832 | 97,428 | | Steel Manufacturing | 14,974 | 13,018 | 41,367 | 36,546 | | Corporate and Other | 1,880 | 124 | 7,755 | 373 | | Total revenues | 68,269 | 69,095 | 213,133 | 202,439 | Operating Income (Loss) by Segment ($ in thousands) | Segment | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 9 Months Ended June 30, 2022 | 9 Months Ended June 30, 2021 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Retail | 2,202 | 3,860 | 10,144 | 13,424 | | Flooring Manufacturing | 3,289 | 3,997 | 11,772 | 14,158 | | Steel Manufacturing | 1,268 | 1,928 | 5,641 | 3,814 | | Corporate and Other | (895) | (1,553) | (2,837) | (4,748) | | Total operating income | 5,864 | 8,232 | 24,720 | 26,648 | Note 17: Subsequent Events No subsequent events requiring adjustments or disclosures were identified through the Form 10-Q filing date - No subsequent events requiring adjustments or disclosures were identified through the filing date of the Form 10-Q[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and results for the three and nine months ended June 30, covering segment performance, Adjusted EBITDA, and liquidity Overview Live Ventures is a diversified holding company, using Adjusted EBITDA as a key non-GAAP performance indicator - Live Ventures is a holding company acquiring and operating diversified businesses in Retail, Flooring Manufacturing, Steel Manufacturing, and Corporate and Other segments[94] - The Company uses "Adjusted EBITDA" (net income before interest, taxes, depreciation, amortization, stock-based compensation, and other non-cash/nonrecurring charges) as an important indicator of operational strength[108] - Forward-looking statements are included, subject to risks and uncertainties detailed in the 2021 Form 10-K[92] Results of Operations Three Months Ended June 30, 2022 and 2021 Revenue decreased by 1.2% to $68.3 million, and net income fell by 65.0% to $3.5 million, driven by demand shifts and lower gross profit Financial Performance (Three Months Ended June 30, $ in thousands) | Metric | 2022 | 2021 | Change ($k) | Change (%) | | :--------------- | :--- | :--- | :---------- | :--------- | | Revenue | 68,269 | 69,095 | (826) | -1.2% | | Cost of revenue | 45,920 | 44,029 | 1,891 | 4.3% | | Net income | 3,472 | 9,933 | (6,461) | -65.0% | | Adjusted EBITDA | 8,840 | 9,770 | (930) | -9.5% | - Revenue decrease was primarily due to reduced demand in Retail and Flooring Manufacturing segments, offset by increased Steel Manufacturing revenue from price increases[114] - Cost of revenue increased by 4.3% due to inflationary pressures and the consolidation of SW Financial[115] - Interest expense, net, decreased by 28.1% due to debt payoff, favorable refinancing rates, and PPP loan forgiveness[118] Results of Operations Nine Months Ended June 30, 2022 and 2021 Revenue increased by 5.3% to $213.1 million, net income rose by 6.1% to $25.4 million, but Adjusted EBITDA decreased by 5.5% Financial Performance (Nine Months Ended June 30, $ in thousands) | Metric | 2022 | 2021 | Change ($k) | Change (%) | | :--------------- | :--- | :--- | :---------- | :--------- | | Revenue | 213,133 | 202,439 | 10,694 | 5.3% | | Cost of revenue | 138,215 | 128,614 | 9,601 | 7.5% | | Net income | 25,376 | 23,907 | 1,469 | 6.1% | | Adjusted EBITDA | 31,193 | 33,020 | (1,827) | -5.5% | - Revenue increase was primarily from Corporate and Other (SW Financial consolidation) and Steel Manufacturing, with a decrease in Retail[122] - Cost of revenue increased by 7.5% due to higher revenues and inflationary product costs[123] - General and administrative expenses increased by 5.4% due to Kinetic acquisition costs, employee compensation, and SW Financial consolidation[124] Results of Operations by Segment (Three Months) Details segment-specific revenue and operating income changes for the three months, driven by demand, inflation, and acquisition costs Retail Segment (Three Months) Retail revenue decreased by 11.5% to $19.2 million due to reduced demand and ApplianceSmart shutdown, with operating income declining - Revenue decreased by $2.5 million (11.5%) to $19.2 million[129] - Decrease attributed to reduced demand from inflationary factors and ApplianceSmart shutdown[129] - Operating income decreased to $2.2 million from $3.9 million[129] Flooring Manufacturing Segment (Three Months) Flooring Manufacturing revenue decreased by 6% to $32.2 million due to reduced demand and higher raw material costs, impacting operating income - Revenue decreased by $2.0 million (6%) to $32.2 million due to reduced customer demand from inflationary pressures[130] - Cost of revenue increased due to higher raw material costs[130] - Operating income decreased to $3.3 million from $4.0 million[130] Steel Manufacturing Segment (Three Months) Steel Manufacturing revenue increased by 15% to $15.0 million from price increases, but operating income decreased due to acquisition costs - Revenue increased by $2.0 million (15%) to $15.0 million due to product price increases passed to customers[131] - Operating income decreased to $1.3 million from $1.9 million, primarily due to Kinetic acquisition costs[131] Corporate and Other Segment (Three Months) Corporate and Other revenue increased by $1.8 million due to SW Financial consolidation, narrowing the operating loss - Revenue increased by $1.8 million primarily due to SW Financial consolidation in June 2021[132] - Operating loss narrowed to $895k from $1.6 million[132] - Directory services business revenue and operating income are expected to continue to decline[132] Results of Operations by Segment (Nine Months) Details segment-specific revenue and operating income changes for the nine months, influenced by demand, inflation, and acquisition costs Retail Segment (Nine Months) Retail revenue decreased by 2.8% to $66.2 million due to demand and ApplianceSmart shutdown, despite price increases and new locations - Revenue decreased by $1.9 million (2.8%) to $66.2 million[134] - Decrease attributed to reduced demand, supply chain issues, ApplianceSmart shutdown, and lack of stimulus payments, partially offset by price increases and new Vintage Stock locations[134] - Operating income decreased to $10.1 million from $13.4 million[134] Flooring Manufacturing Segment (Nine Months) Flooring Manufacturing revenue moderately increased from demand and price hikes, but operating income decreased due to higher raw material and marketing costs - Revenue increased moderately due to greater demand for various flooring grades and increased sales prices[136] - Cost of revenue increased due to higher raw material costs[136] - Operating income decreased to $11.8 million from $14.2 million[136] Steel Manufacturing Segment (Nine Months) Steel Manufacturing revenue increased by 13.2% to $41.4 million due to price increases, significantly boosting operating income - Revenue increased by $4.8 million (13.2%) to $41.4 million due to increased sales prices from rising costs[137] - Operating income increased to $5.6 million from $3.8 million, primarily due to increased gross profit[137] Corporate and Other Segment (Nine Months) Corporate and Other revenue increased by $7.4 million due to SW Financial consolidation, narrowing the operating loss - Revenue increased by $7.4 million primarily due to SW Financial consolidation in June 2021[138] - Operating loss narrowed to $2.8 million from $4.7 million[138] - Directory services business revenue and operating income are expected to continue to decline, while SW Financial revenues are anticipated to trend upward[138] Adjusted EBITDA Reconciliation Adjusted EBITDA decreased by 9.5% for three months and 5.5% for nine months, primarily due to lower revenue and increased expenses Adjusted EBITDA Reconciliation ($ in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 9 Months Ended June 30, 2022 | 9 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | 3,472 | 9,933 | 25,376 | 23,907 | | Depreciation and amortization | 1,571 | 1,670 | 4,616 | 5,089 | | Stock-based compensation | — | (56) | 37 | 230 | | Interest expense, net | 674 | 938 | 2,549 | 4,057 | | Income tax expense | 1,365 | 2,703 | 7,848 | 7,381 | | Gain on bankruptcy settlement | — | (650) | (11,352) | (1,765) | | Gain/loss on extinguishment of debt | (279) | (4,768) | 84 | (6,150) | | Acquisition costs | 974 | — | 974 | — | | Write-off of fixed assets | 438 | — | 438 | — | | Write-off of ROU assets | 522 | — | 522 | — | | Other non-recurring company initiatives | 103 | — | 101 | — | | Non-recurring loan costs | — | — | — | 271 | | Adjusted EBITDA | 8,840 | 9,770 | 31,193 | 33,020 | - Adjusted EBITDA decreased by $930k (9.5%) for the three months and $1.8 million (5.5%) for the nine months ended June 30, 2022, primarily due to decreases in revenue and gross profit, and increases in cost of revenue and SG&A expenses[140] Liquidity and Capital Resources The Company maintains $3.6 million cash and $32.0 million in credit, with working capital at $72.0 million, sufficient for the next 12 months - Cash on hand: $3.6 million (June 30, 2022) vs $4.7 million (Sept 30, 2021)[141][144] - Available borrowing under revolving credit facilities: $32.0 million (June 30, 2022)[141] - Working capital: $72.0 million (June 30, 2022) vs $33.8 million (Sept 30, 2021), an increase of $38.1 million[143] - Net cash provided by operating activities: $10.8 million (9 months ended June 30, 2022) vs $32.2 million (9 months ended June 30, 2021), a decrease of $21.4 million[144] - Net cash used in investing activities: $32.7 million (9 months ended June 30, 2022), primarily for Kinetic acquisition and property/equipment purchases[146] - Net cash provided by financing activities: $20.8 million (9 months ended June 30, 2022), mainly from new debt for Kinetic acquisition[147] - The Company believes current liquidity is sufficient for the next 12 months[142] Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company does not participate in market risk-sensitive commodity instruments and is not materially exposed to foreign currency or commodity price risk - The Company did not participate in market risk-sensitive commodity instruments as of June 30, 2022[152] - The Company believes it is not materially subject to foreign currency exchange risk or commodity price risk[152] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control, though financial statements are fairly presented, with remediation underway - Disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting[153] - Identified material weaknesses: (1) insufficient written documentation of internal control policies, (2) lack of rigorous procedures for evaluating subsidiary controls, and (3) insufficient resources for adequate segregation of duties[158] - Despite weaknesses, management concluded that the consolidated financial statements present fairly in conformity with GAAP[154] - Remediation initiatives are underway, including improving documentation and developing an internal testing plan, expected to conclude during fiscal year 2022[159] PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Details the ongoing SEC civil complaint regarding financial and reporting violations, with motions to dismiss pending, and ApplianceSmart's bankruptcy approval - An SEC civil complaint was filed on August 2, 2021, alleging financial, disclosure, and reporting violations against the Company and two executive officers[166] - Motions to dismiss the SEC complaint were filed on October 1, 2021, and are under submission, with discovery stayed[167] - The Company strongly disputes and denies the SEC allegations[168] - ApplianceSmart's plan for reorganization was approved on February 28, 2022[169] Item 1A. Risk Factors No new material risk factors were reported in this quarterly report - No new material risk factors were disclosed[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 79,828 common shares for $2.5 million, with $4.2 million remaining in the repurchase program - The Company repurchased 79,828 shares of common stock for approximately $2.5 million during the nine months ended June 30, 2022[171] - Approximately $4.2 million remains available under the $10 million common stock repurchase program[171] Item 3. Defaults upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were disclosed[172] Item 4. Mine Safety Disclosures No mine safety disclosures were provided - No mine safety disclosures were provided[173] Item 5. Other Information No other information was disclosed - No other information was disclosed[174] Item 6. Exhibits Lists exhibits filed with the Quarterly Report, including credit agreements, acquisition documents, and certifications - Includes Credit and Security Agreement with Fifth Third Bank (Jan 20, 2022)[177] - Includes Purchase Agreement and Real Estate Purchase/Sales Agreements related to The Kinetic Co., Inc. acquisition (June 2022)[177] - Includes certifications from the President/CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act)[177] SIGNATURES This section contains the official signatures for the report by the President/CEO and CFO SIGNATURES Report signed by Jon Isaac (President and CEO) and David Verret (CFO) on August 11, 2022 - Report signed by Jon Isaac (President and CEO) and David Verret (CFO) on August 11, 2022[180]