Limbach(LMB) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion for Q2 2023 and related disclosures Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Limbach Holdings, Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes on business operations, accounting policies, revenue recognition, debt, equity, and other financial disclosures Condensed Consolidated Balance Sheets Summarizes the company's financial position with assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | Total current assets | $199,209 | $225,990 | | Property and equipment, net | $19,623 | $18,224 | | Intangible assets, net | $14,575 | $15,340 | | Goodwill | $11,370 | $11,370 | | Total assets | $267,427 | $294,556 | | LIABILITIES | | | | Total current liabilities | $127,269 | $159,085 | | Total liabilities | $161,769 | $199,114 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $105,658 | $95,442 | | Total liabilities and stockholders' equity | $267,427 | $294,556 | Condensed Consolidated Statements of Operations Details the company's financial performance, including revenue, gross profit, operating income, and net income for Q2 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands, except per share data): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $124,882 | $116,120 | $245,891 | $230,942 | | Gross profit | $28,513 | $21,320 | $54,740 | $39,660 | | Operating income | $7,552 | $1,466 | $12,205 | $673 | | Income (loss) before income taxes | $7,345 | $1,103 | $10,960 | $(1,029) | | Net income (loss) | $5,320 | $866 | $8,313 | $(650) | | Basic EPS | $0.50 | $0.08 | $0.79 | $(0.06) | | Diluted EPS | $0.46 | $0.08 | $0.73 | $(0.06) | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including common stock, additional paid-in capital, and retained earnings, for the six months ended June 30, 2023 Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts): | Item | Balance at Dec 31, 2022 | Stock-based compensation | Shares issued related to vested restricted stock units | Tax withholding related to vested restricted stock units | Shares issued related to employee stock purchase plan | Net income | Balance at June 30, 2023 | | :-------------------------------- | :---------------------- | :----------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :-------------------------------------------------- | :--------- | :--------------------- | | Common stock (shares) | 10,471,410 | — | 250,548 | — | 10,997 | — | 10,946,316 | | Common stock ($) | $1 | — | — | — | — | — | $1 | | Additional paid-in capital | $87,809 | $1,133 | — | $(428) | $97 | — | $89,712 | | Treasury stock, at cost | $(2,000) | — | — | — | — | — | $(2,000) | | Retained earnings | $9,632 | — | — | — | — | $8,313 | $17,945 | | Stockholders' equity | $95,442 | $2,234 | — | $(428) | $97 | $8,313 | $105,658 | Condensed Consolidated Statements of Cash Flows Reports cash flows from operating, investing, and financing activities, showing the change in cash for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands): | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $26,292 | $12,620 | | Net cash used in investing activities | $(1,224) | $(284) | | Net cash used in financing activities | $(15,188) | $(7,182) | | Increase in cash, cash equivalents and restricted cash | $9,880 | $5,154 | | Cash, cash equivalents and restricted cash, end of period | $45,994 | $19,743 | Note 1 – Business and Organization Describes Limbach Holdings, Inc.'s core business as a building systems solutions firm and its two operating segments - Limbach Holdings, Inc. is a building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and controls systems, operating in the Northeast, Mid-Atlantic, Southeast, and Midwest regions of the United States[26] - The Company operates in two segments: General Contractor Relationships (GCR) for new construction/renovation projects and Owner Direct Relationships (ODR) for direct projects, maintenance, and service[27] Note 2 – Significant Accounting Policies Details the accounting principles used in preparing the unaudited financial statements, including recent ASU adoptions - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q requirements for smaller reporting companies, with certain disclosures condensed or omitted[29] - The Company adopted ASU 2016-13 (Credit Losses) on January 1, 2023, using the modified retrospective method, which did not materially impact its financial position or results of operations[34] - The Company evaluated ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) and determined they did not have a significant impact, as its credit agreements and interest rate swap now utilize SOFR as the benchmark rate[39] Note 3 – Revenue from Contracts with Customers Explains revenue recognition policies for fixed-price and time & materials contracts, along with contract assets and remaining performance obligations - Revenue from fixed-price construction contracts is recognized using the cost-to-cost method, while time and materials contracts are recognized as services are performed[41] Contract Assets (in thousands): | Item | June 30, 2023 | December 31, 2022 | Change | | :---------------------------------------------------- | :------------ | :---------------- | :----- | | Costs and estimated earnings in excess of billings | $34,006 | $33,573 | $433 | | Retainage receivable | $25,418 | $27,880 | $(2,462) | | Total contract assets | $59,424 | $61,453 | $(2,029) | Remaining Performance Obligations (as of June 30, 2023, in millions): | Segment | Total Amount | Expected Recognition (Remainder of 2023) | | :------ | :----------- | :--------------------------------------- | | GCR | $260.2 | 52% | | ODR | $113.6 | 65% | Substantial majority of remaining obligations expected within 24 months Note 4 – Goodwill and Intangibles Provides details on goodwill allocated to the ODR segment and the composition and amortization of other intangible assets - Goodwill remained at $11.4 million as of June 30, 2023, and December 31, 2022, entirely associated with the ODR segment, with no impairment charges recognized during the reported periods[53][54] Intangible Assets (Net, excluding goodwill, in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total amortized intangible assets | $4,615 | $5,380 | | Total unamortized intangible assets (Limbach trade name) | $9,960 | $9,960 | | Total intangible assets, excluding goodwill | $14,575 | $15,340 | Total amortization expense for definite-lived intangible assets was $0.4 million for both the three and six months ended June 30, 2023 and 2022 Note 5 – Debt Outlines the company's long-term debt structure, including revolving loans, finance leases, and recent credit agreement amendments Long-term Debt (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | A&R Wintrust Term Loan | $— | $21,453 | | Wintrust Revolving Loans | $10,000 | $— | | Finance leases | $6,961 | $4,954 | | Financing liability | $5,351 | $5,351 | | Total debt | $22,312 | $31,758 | | Less: Current portion of long-term debt | $(2,431) | $(9,564) | | Less: Unamortized discount and debt issuance costs | $(396) | $(666) | | Long-term debt | $19,485 | $21,528 | - On May 5, 2023, the Company entered into the Second Amended and Restated Credit Agreement, increasing its senior secured revolving credit facility to $50.0 million and repaying the outstanding A&R Wintrust Term Loan[71][72] - The Company accounted for a sale and leaseback arrangement of its Pontiac, MI facility as a financing transaction (finance lease) due to the significance of the present value of lease payments, resulting in a financing liability of $4.9 million as of June 30, 2023[84][85][86] Note 6 – Equity Details changes in equity, including warrant exercises, share repurchase program completion, and amendments to the Omnibus Incentive Plan Outstanding Warrants (shares): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | $15 Exercise Price Sponsor Warrants | — | 600,000 | | Merger Warrants | 466,199 | 629,643 | | Total | 466,199 | 1,229,643 | During Q2 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis, converting into 167,564 and 45,797 common shares, respectively - The Board of Directors approved amendments to the Omnibus Incentive Plan in March 2023, increasing authorized shares by 450,000 to a total of 3,050,000 shares[92] - As of June 30, 2023, the Company completed its $2.0 million Share Repurchase Program, repurchasing shares of its common stock[94] Note 7 – Fair Value Measurements Discusses the fair value of financial instruments, cash equivalents, and the contingent earnout liability using various valuation methods - The Company's financial instruments, including cash and cash equivalents, trade accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and low counterparty default risk[98] Cash Equivalents (in thousands, as of June 30, 2023): | Item | Fair Value | | :-------------------------- | :--------- | | Overnight repurchase agreements | $32,100 | | U.S. Treasury Bills | $5,000 | | Money market fund | $3,750 | | Total | $40,850 | - The fair value of the Second A&R Wintrust Revolving Loan was $10.0 million as of June 30, 2023, determined using discounted estimated future cash flows (Level 3 inputs)[101] - The estimated exposure to the contingent earnout liability for the 2023 Earnout Period was approximately $2.7 million at June 30, 2023, valued using the Monte Carlo Simulation method (Level 3 measurement)[102][103] Note 8 – Earnings per Share Presents basic and diluted earnings per share calculations, including the impact of antidilutive securities, for the reported periods Earnings Per Share (in thousands, except per share amounts): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $5,320 | $866 | $8,313 | $(650) | | Weighted average shares outstanding – basic | 10,644 | 10,423 | 10,560 | 10,422 | | Weighted average shares outstanding – diluted | 11,507 | 10,567 | 11,336 | 10,422 | | Basic EPS | $0.50 | $0.08 | $0.79 | $(0.06) | | Diluted EPS | $0.46 | $0.08 | $0.73 | $(0.06) | Antidilutive Securities Excluded from Diluted EPS (shares): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Out-of-the-money warrants | — | 1,229,643 | — | 1,229,643 | | Service-based RSUs | 1 | 17,595 | 26 | 72,871 | | Performance and market-based RSUs | 15 | 48,229 | 60 | 85,969 | | Employee Stock Purchase Plan | 643 | — | 2,426 | 8,451 | | Total | 659 | 1,295,467 | 2,512 | 1,396,934 | Note 9 – Income Taxes Provides the income tax provision and effective tax rates for the three and six months ended June 30, 2023 and 2022 Income Tax Provision (Benefit) and Rate (in thousands, except percentages): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision (benefit) | $2,025 | $237 | $2,647 | $(379) | | Income tax rate | 27.6% | 21.5% | 24.2% | 36.8% | The U.S. federal statutory tax rate was 21% for all periods presented - No valuation allowance was required as of June 30, 2023, or December 31, 2022[112] Note 10 – Operating Segments Describes the company's two operating segments, GCR and ODR, and the revised segment reporting structure following a CEO transition - The Company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), reflecting how the Chief Operating Decision Maker (CODM) reviews operating results[113] - Following a CEO transition in March 2023, the Company revised its segment presentation to align with the new CODM's assessment, focusing on segment revenue and gross profit, with SG&A and interest expense no longer allocated to segments[115] Condensed Consolidated Segment Information (in thousands): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue: | | | | | | GCR | $66,102 | $66,336 | $128,393 | $138,268 | | ODR | $58,780 | $49,784 | $117,498 | $92,674 | | Total revenue | $124,882 | $116,120 | $245,891 | $230,942 | | Gross profit: | | | | | | GCR | $11,272 | $8,694 | $21,590 | $17,052 | | ODR | $17,241 | $12,626 | $33,150 | $22,608 | | Total gross profit | $28,513 | $21,320 | $54,740 | $39,660 | Note 11 – Leases Details the company's lease assets, liabilities, and costs for real estate, trucks, and equipment, including operating and finance leases - The Company leases real estate, trucks, and other equipment, electing not to separate non-lease components from lease components and recognizing short-term leases (12 months or less) as expense[119][120] Total Lease Assets and Liabilities (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total lease assets | $26,456 | $25,690 | | Total lease liabilities | $30,423 | $29,510 | Total Lease Cost (in thousands): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,134 | $1,288 | $2,340 | $2,686 | | Finance lease cost (Amortization & Interest) | $753 | $751 | $1,450 | $1,468 | | Total lease cost | $1,887 | $2,039 | $3,790 | $4,154 | Note 12 – Commitments and Contingencies Discloses legal proceedings, surety bonds, and self-insurance liabilities, including a $2.2 million estimated loss contingency - The Company is involved in various legal proceedings, including a lawsuit where an amended statement of decision awarded the plaintiff approximately $2.2 million, which was recorded as an estimated loss contingency as of December 31, 2022[130][131] - As of June 30, 2023, the Company had approximately $117.5 million in surety bonds outstanding, securing payment and performance obligations under construction contracts[132] Self-Insurance Liability (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Current liability — workers' compensation and general liability | $67 | $158 | | Current liability — medical and dental | $433 | $557 | | Non-current liability | $502 | $343 | | Total liability | $1,002 | $1,058 | | Restricted cash | $65 | $113 | Note 13 – Management Incentive Plans Outlines the Omnibus Incentive Plan, authorized shares for equity awards, and recognized stock-based compensation expense - The Company's Omnibus Incentive Plan, as amended in 2023, reserves 3,050,000 shares of common stock for various equity awards, including options, RSUs, and performance-based awards[139] - Total recognized stock-based compensation expense was $1.1 million for the three months and $2.2 million for the six months ended June 30, 2023, with $4.4 million in unrecognized expense related to unvested RSUs[146] Note 14 – Subsequent Events Reports the acquisition of ACME Industrial Piping, LLC for $5 million cash with a potential earnout of up to $2.5 million - On July 3, 2023, the Company acquired ACME Industrial Piping, LLC for $5 million in cash, with a potential earnout of up to $2.5 million over two years[147] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the Company's financial condition and results of operations for the three and six months ended June 30, 2023, compared to the same periods in 2022, highlighting key drivers of revenue, gross profit, and expenses, as well as liquidity and capital resources Overview Limbach Holdings, Inc. is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets - Limbach Holdings, Inc. is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets[149] - The Company is winding down its Southern California GCR and ODR operations in 2023 to align geographic focus and reduce losses, while maintaining obligations under a sublease agreement[149] - Core market sectors include Healthcare, Data Centers, Industrial and light manufacturing, Higher Education, Cultural and entertainment, and Life sciences[151] Key Components of Condensed Consolidated Statements of Operations This section details the primary components of the company's condensed consolidated statements of operations, including revenue, cost of revenue, and selling, general, and administrative expenses - Revenue is primarily generated from fixed-price construction contracts (cost-to-cost method) and time and materials service contracts (as services are performed), with durations typically ranging from three months to two years[151] - Cost of revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations expected to continue[153] - Selling, General and Administrative (SG&A) expenses primarily cover personnel costs for administrative, estimating, and corporate functions, along with professional fees and compliance costs[154] Operating Segments The company manages its business through two operating segments, GCR and ODR, with a revised presentation focusing on segment revenue and gross profit - The Company manages its business through two operating segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), which are aggregated for reporting purposes[160][161] - Following a CEO transition, the segment presentation was revised to focus on segment revenue and gross profit, with SG&A and interest expense no longer allocated to segments[162] Comparison of Results of Operations for the three months ended June 30, 2023 and 2022 Analyzes the company's financial performance for the three months ended June 30, 2023, highlighting revenue, gross profit, and net income changes Operating Results (Three Months Ended June 30, in thousands, except percentages): | Item | 2023 | % of Revenue | 2022 | % of Revenue | | :-------------------------------- | :----- | :----------- | :----- | :----------- | | Total revenue | $124,882 | 100.0% | $116,120 | 100.0% | | GCR revenue | $66,102 | 52.9% | $66,336 | 57.1% | | ODR revenue | $58,780 | 47.1% | $49,784 | 42.9% | | Total gross profit | $28,513 | 22.8% | $21,320 | 18.4% | | GCR gross profit | $11,272 | 17.1% | $8,694 | 13.1% | | ODR gross profit | $17,241 | 29.3% | $12,626 | 25.4% | | Selling, general and administrative | $20,416 | 16.3% | $18,690 | 16.1% | | Net income | $5,320 | 4.3% | $866 | 0.7% | - Total revenue increased by $8.8 million (7.5%) year-over-year, primarily driven by an 18.1% increase in ODR revenue, while GCR revenue slightly decreased by 0.4%[166] - Gross profit increased by $7.2 million (33.7%), with the total gross profit percentage rising from 18.4% to 22.8%, mainly due to higher margins in both GCR (29.7% increase) and ODR (36.6% increase) segments and a favorable contract mix[167] Comparison of Results of Operations for the six months ended June 30, 2023 and 2022 Analyzes the company's financial performance for the six months ended June 30, 2023, highlighting revenue, gross profit, and net income changes Operating Results (Six Months Ended June 30, in thousands, except percentages): | Item | 2023 | % of Revenue | 2022 | % of Revenue | | :-------------------------------- | :----- | :----------- | :----- | :----------- | | Total revenue | $245,891 | 100.0% | $230,942 | 100.0% | | GCR revenue | $128,393 | 52.2% | $138,268 | 59.9% | | ODR revenue | $117,498 | 47.8% | $92,674 | 40.1% | | Total gross profit | $54,740 | 22.3% | $39,660 | 17.2% | | GCR gross profit | $21,590 | 16.8% | $17,052 | 12.3% | | ODR gross profit | $33,150 | 28.2% | $22,608 | 24.4% | | Selling, general and administrative | $41,466 | 16.9% | $37,424 | 16.2% | | Net income (loss) | $8,313 | 3.4% | $(650) | (0.3)% | - Total revenue increased by $14.9 million (6.5%) year-over-year, driven by a 26.8% increase in ODR revenue, which offset a 7.1% decrease in GCR revenue[175] - Gross profit increased by $15.1 million (38.0%), with the total gross profit percentage rising from 17.2% to 22.3%, attributed to higher margins in both GCR (26.6% increase) and ODR (46.6% increase) segments[177] - SG&A expenses increased by $4.0 million (10.8%), primarily due to higher payroll, CEO transition costs, and stock compensation, partially offset by reduced rent and professional fees[179] GCR and ODR Backlog Information Presents backlog data for GCR and ODR segments, indicating expected revenue recognition and strategic shifts in project focus Backlog Information (in millions): | Segment | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | | GCR | $260.2 | $302.9 | | ODR | $133.0 | $108.2 | | Total | $393.2 | $411.1 | The Company expects to recognize approximately $231.5 million of total backlog as revenue over the remainder of 2023 - GCR backlog decreased due to an intentional focus on smaller, higher-margin projects and improved project execution, while ODR backlog increased significantly due to accelerated growth in that business segment[185][186] Market Update The company continues to be impacted by global economic conditions, inflationary costs, supply chain disruptions, COVID-19, and geopolitical conflicts - The Company continues to be impacted by global economic conditions, inflationary costs, supply chain disruptions, COVID-19, and geopolitical conflicts, expecting elevated cost inflation to persist in 2023[188] - Mitigation strategies include pricing actions, supply chain productivity improvements, and cost savings initiatives, though impacts remain uncertain and could materially affect business[188][189] Outlook For 2023, the Company focuses on improving profitability, accelerating ODR growth, and enhancing GCR project execution through selective pursuit of higher-margin opportunities - For 2023, the Company focuses on improving profitability and operating cash flows, accelerating ODR growth, investing in its workforce, and enhancing GCR project execution through selective pursuit of higher-margin opportunities[190][191] - The Company aims to increase cash flow and operating income through strategically synergistic acquisitions that address capability gaps and expand service offerings[192] - Management is actively reducing risk and exposure to large, complex, non-owner direct projects where historical industry pricing and associated risks do not align with stakeholder expectations[195] Seasonality, Cyclicality and Quarterly Trends Severe weather can impact productivity and shift revenue/gross profit recognition, while mild weather may reduce maintenance demand; operations experience mild cyclicality with increased activity in Q3 and Q4 - Severe weather can impact productivity and shift revenue/gross profit recognition, while mild weather may reduce maintenance demand; operations experience mild cyclicality with increased activity in Q3 and Q4[196] Effect of Inflation and Tariffs The Company continues to experience higher material costs and supply chain delays, expecting these to persist through 2023, but mitigates impacts through cost escalation factors in bids and fixed-price purchase orders - The Company continues to experience higher material costs and supply chain delays, expecting these to persist through 2023, but mitigates impacts through cost escalation factors in bids and fixed-price purchase orders[197] Liquidity and Capital Resources Discusses the company's liquidity needs, funding sources, cash flow activities, and working capital position - The Company's liquidity needs are primarily for working capital, capital expenditures, and strategic investments, historically funded by operating activities and borrowings from commercial banks[198] Summary Cash Flow Information (in thousands): | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $26,292 | $12,620 | | Net cash used in investing activities | $(1,224) | $(284) | | Net cash used in financing activities | $(15,188) | $(7,182) | | Net increase in cash, cash equivalents and restricted cash | $9,880 | $5,154 | Summarized Working Capital Information (in thousands, except ratios): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Current assets | $199,209 | $225,990 | | Current liabilities | $(127,269) | $(159,085) | | Net working capital | $71,940 | $66,905 | | Current ratio | 1.57 | 1.42 | - The Company believes its current cash balance ($45.9 million), expected cash from operations, and $35.8 million available under the Second A&R Wintrust Revolving Loan are sufficient to meet working capital and capital expenditure requirements for at least the next 12 months[214] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is not required to provide detailed quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[223] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the period Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023 - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[224] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the period covered by the report - No material changes in internal control over financial reporting occurred during the period covered by the report[225] Inherent Limitations on Effectiveness of Controls Management acknowledges that any control system has inherent limitations and cannot provide absolute assurance of achieving desired objectives or preventing all misstatements - Management acknowledges that any control system has inherent limitations and cannot provide absolute assurance of achieving desired objectives or preventing all misstatements[226] PART II Presents legal proceedings, risk factors, equity security sales, defaults, and other information for the reporting period Item 1. Legal Proceedings The Company refers to Note 12 for information regarding legal proceedings, which includes details on a lawsuit where an amended statement of decision awarded the plaintiff $2.2 million, and the Company is evaluating appeal options - Information regarding legal proceedings is detailed in Note 12[229] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company completed its $2.0 million share repurchase program by June 30, 2023, and issued shares from the cashless exercise of warrants, receiving no proceeds from these warrant exercises Purchases of Equity Securities by the Issuer and the Affiliated Purchasers The Company completed its $2.0 million share repurchase program as of June 30, 2023, with no shares repurchased during the three and six months ended June 30, 2023 - The Company completed its $2.0 million share repurchase program as of June 30, 2023, with no shares repurchased during the three and six months ended June 30, 2023[231] Shares Issued from the Exercise of Warrants During the three months ended June 30, 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis, resulting in the issuance of 167,564 and 45,797 common shares, respectively, with no proceeds received by the Company - During the three months ended June 30, 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis, resulting in the issuance of 167,564 and 45,797 common shares, respectively, with no proceeds received by the Company[232] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities[234] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[235] Item 5. Other Information The Company is seeking Delaware Court of Chancery approval to validate stockholder actions from its 2022 Annual Meeting due to a record date exceeding the permitted 60-day maximum - The Company is seeking Delaware Court of Chancery approval to validate stockholder actions from its 2022 Annual Meeting due to a record date exceeding the permitted 60-day maximum under DGCL and Company bylaws[236] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, promotion letters, credit agreements, and certifications - The section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, credit agreements, and certifications[237] SIGNATURES Certifies the accuracy of the report through signatures from the President, CEO, and CFO Signatures The report is signed by Michael M. McCann, President and Chief Executive Officer, and Jayme L. Brooks, Executive Vice President and Chief Financial Officer, on August 9, 2023 - The report was signed by Michael M. McCann, President and Chief Executive Officer, and Jayme L. Brooks, Executive Vice President and Chief Financial Officer, on August 9, 2023[240]