Company Quick10K Filing
ALJ Regional
Price1.44 EPS-0
Shares42 P/E-4
MCap61 P/FCF2
Net Debt89 EBIT5
TEV150 TEV/EBIT31
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-12
10-Q 2020-03-31 Filed 2020-05-15
10-Q 2019-12-31 Filed 2020-02-14
10-K 2019-09-30 Filed 2019-12-23
10-Q 2019-06-30 Filed 2019-08-12
10-Q 2019-03-31 Filed 2019-05-13
10-Q 2018-12-31 Filed 2019-02-11
10-K 2018-09-30 Filed 2018-12-17
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-14
10-Q 2017-12-31 Filed 2018-02-14
10-K 2017-09-30 Filed 2017-12-19
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-12
10-Q 2016-12-31 Filed 2017-02-13
10-K 2016-09-30 Filed 2016-12-23
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
8-K 2020-08-21 Shareholder Vote
8-K 2020-08-12 Earnings, Regulation FD, Exhibits
8-K 2020-07-17 Officers, Exhibits
8-K 2020-06-21
8-K 2020-05-15
8-K 2020-05-12
8-K 2020-04-09
8-K 2020-03-26
8-K 2020-02-14
8-K 2020-02-13
8-K 2019-12-23
8-K 2019-12-17
8-K 2019-10-24
8-K 2019-10-03
8-K 2019-08-21
8-K 2019-08-20
8-K 2019-08-12
8-K 2019-07-29
8-K 2019-05-13
8-K 2019-02-11
8-K 2018-12-17
8-K 2018-11-28
8-K 2018-08-17
8-K 2018-08-14
8-K 2018-08-02
8-K 2018-05-15
8-K 2018-05-14
8-K 2018-03-12
8-K 2018-02-14

ALJJ 10Q Quarterly Report

Part I. Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6 - Exhibits
EX-31.1 aljj-ex311_6.htm
EX-31.2 aljj-ex312_8.htm
EX-32.1 aljj-ex321_7.htm

ALJ Regional Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
2552041531025102015201620182020
Assets, Equity
10078563412-102015201620182020
Rev, G Profit, Net Income
20136-1-8-152015201620182020
Ops, Inv, Fin

10-Q 1 aljj-10q_20200630.htm 10-Q aljj-10q_20200630.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission File Number: 001-37689

 

ALJ REGIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4082185

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

244 Madison Avenue, PMB #358

New York, NY 10016

(Address of principal executive offices, Zip code)

(888) 486-7775

(Registrant’s telephone number, including area code)

 

 

Title of class of registered securities

Common Stock, par value $0.01 per share

Ticker Symbol

ALJJ

Name of exchange on which registered

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller Reporting Company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No   

The number of shares of common stock, $0.01 par value per share, outstanding as of July 31, 2020 was 42,172,791.

 

 


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements included in this Form 10-Q regarding future financial performance, results and conditions and other statements that are not historical facts, including, among others, the statements regarding competition, the Company’s intention to retain earnings for use in the Company’s business operations, the Company’s ability to continue to fund its operations and service its indebtedness, the adequacy of the Company’s accrual for tax liabilities, management’s projection of continued taxable income, and the Company’s ability to offset future income against net operating loss carryovers, constitute forward-looking statements. The words “can,” “could,” “may,” “will,” “would,” “plan,” “future,” “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” and similar expressions are also intended to identify forward-looking statements. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain important factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference. Some, but not all, of the forward-looking statements contained in this Form 10-Q include, among other things, statements about the following:

 

any statements regarding our expectations for future performance;

 

our ability to integrate business acquisitions;

 

our ability to compete effectively;

 

statements regarding future revenue and the potential concentration of such revenue coming from a limited number of customers;

 

our ability to meet customer needs;

 

our expectations that interest expense will increase;

 

our expectations that we will continue to have non-cash compensation expenses;

 

our expectation that we will be in compliance with the required covenants pursuant to our loan agreements;

 

regulatory compliance costs;

 

our ability to manage cost cutting activities;

 

the potential adverse impact of the novel coronavirus disease (“COVID-19”) pandemic on our business, operations and the markets and communities in which we and our customers, vendors and employees operate;

 

our ability to improve margins and profitability on contracts we enter into; and  

 

the other matters described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company is also subject to general business risks, including results of tax audits, adverse state, federal or foreign legislation and regulation, changes in general economic conditions, the Company’s ability to retain and attract key employees, acts of war or global terrorism and unexpected natural disasters. Any forward-looking statements included in this Form 10-Q are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statements.

2


 

ALJ REGIONAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2020

INDEX

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

4

 

 

 

 

 

Item 1

 

Financial Statements

 

4

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

Condensed Consolidated Statements of Operations (unaudited)

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

6

 

 

Condensed Consolidated Statements of Equity (unaudited)

 

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

38

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

 

 

Item 4

 

Controls and Procedures

 

53

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

55

 

 

 

 

 

Item 1

 

Legal Proceedings

 

55

 

 

 

 

 

Item 1A

 

Risk Factors

 

55

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

69

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

69

 

 

 

 

 

Item 5

 

Other Information

 

69

 

 

 

 

 

Item 6

 

Exhibits

 

70

 

 

 

 

 

 

 

Signatures

 

71

 

3


 

PART I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

 

 

June 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,393

 

 

$

4,529

 

Accounts receivable, net of allowance for doubtful accounts of $725

   at June 30, 2020 and $126 September 30, 2019

 

 

51,715

 

 

 

41,707

 

Inventories, net

 

 

7,137

 

 

 

6,777

 

Prepaid expenses and other current assets

 

 

12,934

 

 

 

5,515

 

Income tax receivable

 

 

897

 

 

 

897

 

Total current assets

 

 

80,076

 

 

 

59,425

 

Property and equipment, net

 

 

67,075

 

 

 

69,870

 

Goodwill

 

 

 

 

 

59,047

 

Intangible assets, net

 

 

37,181

 

 

 

41,148

 

Collateral deposits

 

 

424

 

 

 

695

 

Other assets

 

 

2,410

 

 

 

992

 

Total assets

 

$

187,166

 

 

$

231,177

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

19,070

 

 

$

15,070

 

Accrued expenses

 

 

17,562

 

 

 

16,092

 

Income taxes payable

 

 

150

 

 

 

367

 

Deferred revenue and customer deposits

 

 

8,917

 

 

 

1,965

 

Current portion of term loans, net of deferred loan costs

 

 

7,739

 

 

 

9,119

 

Current portion of capital lease obligations

 

 

2,744

 

 

 

2,535

 

Current portion of workers’ compensation reserve

 

 

1,069

 

 

 

1,043

 

Other current liabilities

 

 

127

 

 

 

72

 

Total current liabilities

 

 

57,378

 

 

 

46,263

 

Line of credit, net of deferred loan costs

 

 

15,044

 

 

 

9,372

 

Term loans, less current portion, net of deferred loan costs

 

 

75,400

 

 

 

73,614

 

Deferred revenue, less current portion

 

 

1,351

 

 

 

349

 

Workers’ compensation reserve, less current portion

 

 

1,781

 

 

 

1,312

 

Capital lease obligations, less current portion

 

 

3,367

 

 

 

2,623

 

Deferred tax liabilities, net

 

 

2,244

 

 

 

2,795

 

Other non-current liabilities

 

 

14,753

 

 

 

11,733

 

Total liabilities

 

 

171,318

 

 

 

148,061

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; authorized – 100,000 shares; 42,173 shares issued

   and outstanding at June 30, 2020 and September 30, 2019

 

 

422

 

 

 

422

 

Additional paid-in capital

 

 

288,046

 

 

 

287,101

 

Accumulated deficit

 

 

(272,620

)

 

 

(204,407

)

Total stockholders’ equity

 

 

15,848

 

 

 

83,116

 

Total liabilities and stockholders’ equity

 

$

187,166

 

 

$

231,177

 

 

See accompanying notes

4


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

June 30,

 

 

Nine Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net revenue

 

$

95,354

 

 

$

84,225

 

 

$

281,845

 

 

$

266,005

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

75,084

 

 

 

68,857

 

 

 

229,573

 

 

 

212,160

 

Selling, general, and administrative expense

 

 

20,408

 

 

 

16,210

 

 

 

55,485

 

 

 

47,946

 

Impairment of goodwill

 

 

 

 

 

 

 

 

59,047

 

 

 

 

(Gain) loss on disposal of assets and other gain, net

 

 

(297

)

 

 

2

 

 

 

(295

)

 

 

(221

)

Total operating expenses

 

 

95,195

 

 

 

85,069

 

 

 

343,810

 

 

 

259,885

 

Operating income (loss)

 

 

159

 

 

 

(844

)

 

 

(61,965

)

 

 

6,120

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,568

)

 

 

(2,701

)

 

 

(7,976

)

 

 

(8,041

)

Interest from legal settlement

 

 

 

 

 

 

 

 

200

 

 

 

 

Total other expense, net

 

 

(2,568

)

 

 

(2,701

)

 

 

(7,776

)

 

 

(8,041

)

Loss before income taxes

 

 

(2,409

)

 

 

(3,545

)

 

 

(69,741

)

 

 

(1,921

)

(Provision for) benefit from income taxes

 

 

(250

)

 

 

(3,662

)

 

 

1,007

 

 

 

(4,152

)

Net loss

 

$

(2,659

)

 

$

(7,207

)

 

$

(68,734

)

 

$

(6,073

)

Loss per share of common stock–basic and diluted

 

$

(0.06

)

 

$

(0.19

)

 

$

(1.63

)

 

$

(0.16

)

Weighted average shares of common stock outstanding–

   basic and diluted

 

 

42,173

 

 

 

38,026

 

 

 

42,173

 

 

 

38,034

 

 

See accompanying notes

5


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands) 

 

 

 

Nine Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(68,734

)

 

$

(6,073

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

Impairment of goodwill

 

 

59,047

 

 

 

 

Depreciation and amortization expense

 

 

15,097

 

 

 

14,881

 

Provision for bad debts and obsolete inventory

 

 

986

 

 

 

68

 

Change in fair value of contingent consideration

 

 

900

 

 

 

 

Amortization of deferred loan costs

 

 

787

 

 

 

555

 

Fair value of warrants issued in connection with loan amendments

 

 

716

 

 

 

 

Interest expense and other bank fees accreted to term loan

 

 

544

 

 

 

 

Stock-based compensation expense

 

 

312

 

 

 

556

 

Gain on disposal of assets and other gain, net

 

 

(295

)

 

 

(221

)

Deferred income taxes

 

 

(1,448

)

 

 

3,626

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(10,907

)

 

 

2,685

 

Inventories, net

 

 

(645

)

 

 

71

 

Prepaid expenses, collateral deposits, and other current assets

 

 

(4,729

)

 

 

(180

)

Income tax receivable

 

 

897

 

 

 

 

Other assets

 

 

(1,147

)

 

 

783

 

Accounts payable

 

 

4,000

 

 

 

(386

)

Accrued expenses

 

 

1,474

 

 

 

1,539

 

Income tax payable

 

 

(217

)

 

 

166

 

Deferred revenue and customer deposits

 

 

7,782

 

 

 

391

 

Other current liabilities and other non-current liabilities

 

 

2,870

 

 

 

(965

)

Cash provided by operating activities

 

 

7,290

 

 

 

17,496

 

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,225

)

 

 

(15,096

)

Proceeds from sales of assets

 

 

1

 

 

 

317

 

Acquisitions, net of cash acquired

 

 

 

 

 

(1,000

)

Cash used for investing activities

 

 

(5,224

)

 

 

(15,779

)

Financing activities

 

 

 

 

 

 

 

 

Net proceeds from line of credit

 

 

5,968

 

 

 

4,588

 

Proceeds from term loan

 

 

1,500

 

 

 

5,000

 

Deferred loan costs

 

 

(766

)

 

 

(552

)

Payments on capital leases

 

 

(2,041

)

 

 

(2,305

)

Payments on term loans

 

 

(3,863

)

 

 

(7,477

)

Cash provided by (used for) financing activities

 

 

798

 

 

 

(746

)

Change in cash and cash equivalents

 

 

2,864

 

 

 

971

 

Cash and cash equivalents at beginning of period

 

 

4,529

 

 

 

2,000

 

Cash and cash equivalents at end of period

 

$

7,393

 

 

$

2,971

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

6,971

 

 

$

7,399

 

Taxes

 

$

826

 

 

$

841

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital equipment purchases financed with capital leases billed to customers

 

$

1,763

 

 

 

 

 

Capital equipment purchases financed with capital leases

 

$

3,490

 

 

$

349

 

Construction in process funded by landlord tenant improvement allowance

 

$

 

 

$

4,572

 

Capital equipment purchases financed with term loan

 

$

 

 

$

4,060

 

 

See accompanying notes

6


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands) 

 

 

 

Three Months Ended

June 30,

 

 

Nine Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

422

 

 

$

380

 

 

$

422

 

 

$

381

 

Common stock retired

 

 

 

 

 

 

 

 

 

 

 

(1

)

Balance, end of period

 

$

422

 

 

$

380

 

 

$

422

 

 

$

380

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

287,985

 

 

$

279,596

 

 

$

287,101

 

 

$

279,575

 

Stock-based compensation expense - options

 

 

61

 

 

 

84

 

 

 

229

 

 

 

252

 

Fair value of warrants issued in connection with term loan amendments

 

 

 

 

 

 

 

 

716

 

 

 

 

Common stock retired

 

 

 

 

 

 

 

 

 

 

 

(147

)

Balance, end of period

 

$

288,046

 

 

$

279,680

 

 

$

288,046

 

 

$

279,680

 

Accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(269,961

)

 

$

(187,294

)

 

$

(204,407

)

 

$

(188,428

)

Net loss

 

 

(2,659

)

 

 

(7,207

)

 

 

(68,734

)

 

 

(6,073

)

Cumulative impact of adopting ASC 606 on October 1, 2019

 

 

 

 

 

 

 

 

521

 

 

 

 

Balance, end of period

 

$

(272,620

)

 

$

(194,501

)

 

$

(272,620

)

 

$

(194,501

)

Total stockholders' equity

 

$

15,848

 

 

$

85,559

 

 

$

15,848

 

 

$

85,559

 

 

See accompanying notes

 

 

7


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. As of June 30, 2020, ALJ consisted of the following wholly owned subsidiaries:  

 

Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and commercial clients across the United States, focusing on the healthcare, utility, consumer goods, toll and transportation industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013.

 

Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). Carpets is one of the largest floor covering retailers in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers, with one retail location, as well as a stone and solid surface fabrication facility. ALJ acquired Carpets in April 2014.

 

Phoenix Color Corp. (including its subsidiaries, “Phoenix”). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and specialty commercial products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015.

ALJ has organized its business and corporate structure along the following business segments: Faneuil, Carpets, and Phoenix.

Basis of Presentation

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Condensed Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Company’s interim financial results. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses that are reported in the Condensed Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the SEC on December 23, 2019.

Revision of Previously Reported Financial Information  

The Company has historically classified expenses incurred by the Faneuil reportable segment as either cost of revenue or selling, general, and administrative expense based on whether such expenses represented salaries and wages or an expense other than salary and wages. Faneuil is a labor intensive business with labor representing the majority of the cost of revenue. Management determined that certain costs classified as cost of revenue should be classified as selling, general, and administrative expense, while other costs classified as selling, general, and administrative expense should be classified as cost of revenue. Accordingly, the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2019 have been revised to correct the amounts previously reported as cost of revenue and selling, general, and administrative expense as applicable.

In accordance with Accounting Standards Codification ASC 250 (Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 99, Assessing Materiality), the Company concluded that the reclassifications between cost of revenue and selling, general, and administrative expense were not material to any of its previously issued annual or interim financial statements.

8


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents the impact of Faneuil’s reclassification on the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2019:

 

 

 

Three Months Ended

June 30, 2019

 

 

Nine Months Ended

June 30, 2019

 

(in thousands, except per share amounts)

 

As

Previously

Reported

 

Revisions

 

As Revised

 

 

As

Previously

Reported

 

Revisions

 

As Revised

 

Net revenue

 

$

84,225

 

$

 

$

84,225

 

 

$

266,005

 

$

 

$

266,005

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

67,030

 

 

1,827

 

 

68,857

 

 

 

207,596

 

 

4,564

 

 

212,160

 

Selling, general, and administrative expense

 

 

18,037

 

 

(1,827

)

 

16,210

 

 

 

52,510

 

 

(4,564

)

 

47,946

 

Loss (gain) on disposal of assets and other gain, net

 

 

2

 

 

 

 

2

 

 

 

(221

)

 

 

 

(221

)

Total operating expenses

 

 

85,069

 

 

 

 

85,069

 

 

 

259,885

 

 

 

 

259,885

 

Operating (loss) income

 

 

(844

)

 

 

 

(844

)

 

 

6,120

 

 

 

 

6,120

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,701

)

 

 

 

(2,701

)

 

 

(8,041

)

 

 

 

(8,041

)

Total other expense

 

 

(2,701

)

 

 

 

(2,701

)

 

 

(8,041

)

 

 

 

(8,041

)

Loss before income taxes

 

 

(3,545

)

 

 

 

 

(3,545

)

 

 

(1,921

)

 

 

 

 

(1,921

)

Provision for income taxes

 

 

(3,662

)

 

 

 

(3,662

)

 

 

(4,152

)

 

 

 

(4,152

)

Net loss

 

$

(7,207

)

$

 

$

(7,207

)

 

$

(6,073

)

$

 

$

(6,073

)

Loss per share of common stock–basic and diluted

 

$

(0.19

)

$

 

$

(0.19

)

 

$

(0.16

)

$

 

$

(0.16

)

Weighted average shares of common stock outstanding–

   basic and diluted

 

 

38,026

 

 

 

 

38,026

 

 

 

38,034

 

 

 

 

38,034

 

 

 

The correction of these previously reported amounts had no impact on the Company’s consolidated income (loss) before income taxes, net income (loss), financial position, or cash flows. In addition, corresponding revisions had no impact to Reportable Segments or Geographic disclosures.

 

Impact of Coronavirus Pandemic

 

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis.

 

Currently, all of ALJ’s subsidiaries have been deemed “Essential Services” and have continued to operate with limited disruption, albeit with lower sales volume. As such, COVID-19 did not materially impact ALJ’s financial position, or results of operations and cash flows as of and for the three months ended June 30, 2020. However, the Company took immediate actions in March 2020 to enable working-from-home where possible and put in place increased safety precautions, including social distancing, at other locations where essential services on site are required. The duration of these measures is unknown, may be extended and additional measures may be imposed.

 

Management expects that ALJ could continue to be impacted in the near term by lower sales volumes in several parts of ALJ’s business, resulting in lower revenue and profit. While the impact of COVID-19 on the Company’s future financial position, results of operations and cash flows cannot be estimated with certainty, such impact could be significant if the global pandemic continues to adversely impact the U.S. economy for an extended period of time. The extent to which COVID-19 impacts ALJ’s operations will depend on future developments, which are highly uncertain. These include among others, the duration of the outbreak, if portions of the Company’s business segments are recharacterized as non-essential for which closure of some or all of the Company’s operations could be required, information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As events are rapidly developing, additional impacts may arise that are not known at this time.

 

As of June 30, 2020, ALJ’s total available liquidity was $22.2 million, which included $14.8 million of unused borrowing capacity under the Company’s revolving credit facility. While the impact that COVID-19 may have on the Company’s financial position, results of operations, and cash flows in the future cannot be estimated with certainty, based on current estimates regarding the magnitude and duration of the global pandemic, ALJ does not anticipate an impact on the Company’s ability to meet its obligations when due for at least the next 12 months.  However, the ultimate magnitude and duration of the global pandemic is highly uncertain and, as such, will require ALJ to continually assess the situation for the foreseeable future.  Accordingly, the Company’s estimates regarding the magnitude and duration of the global pandemic may change in the future and such changes could be material.

9


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

As a result of the decline in ALJ’s actual and forecasted results of operations, including the estimated effects of COVID-19, ALJ (i) sought an easement of certain financial covenants, under the Financing Agreement (as defined below), in order to maintain compliance therewith, and (ii) the elimination of certain quarterly principal payment obligations. Accordingly, the Company executed the Ninth Amendment to the Financing Agreement on May 12, 2020.  See Note 8 “Ninth Amendment to the Financing Agreement” for additional information regarding the terms and conditions required by the Ninth Amendment to the Financing Agreement.  

 

While the Company currently anticipates it will be able to maintain compliance with the terms and conditions of the Financing

Agreement (as amended by the Ninth Amendment to the Financing Agreement) for at least the next 12 months, the ultimate magnitude and duration of the global pandemic is highly uncertain and, as such, will require ALJ to continually assess its current estimates of compliance for the foreseeable future. Accordingly, the Company’s anticipated compliance with its financial covenants may adversely change if the magnitude and duration of the global pandemic has a materially adverse effect on the Company in the future.

 

 

 

 

 

2. RECENT ACCOUNTING STANDARDS   

 

Accounting Standards Adopted

 

Stock Compensation

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This amendment expands the scope of the FASB’s ASC Topic 718, Compensation—Stock Compensation (which currently includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 was effective for ALJ on October 1, 2019. The adoption of ASU 2018-07 did not significantly impact ALJ’s consolidated financial statements.

 

Revenue from Contracts with Customers

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, with several clarifying updates issued during 2016 and 2017, referred to collectively hereafter as “ASC 606.” This new standard supersedes all current revenue recognition standards and guidance. Revenue recognition will occur when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services.

 

On October 1, 2019, ALJ adopted ASC 606 using the modified retrospective transition method. The Company applied the new revenue standard to contracts not completed as of the date of initial application. As part of the adoption of ASC 606, the Company assessed all aspects of ASC 606 and the potential impact on each entity. The adoption impacted each entity as follows:

 

Faneuil. The performance obligations in contracts vary depending on the nature of the contract. Contracts generally include the provision of call center services and in certain contracts the provision of various implementation services.

 

Costs incurred as part of contract implementation either represent costs incurred towards the partial satisfaction of a performance obligation, fulfillment costs, or administrative costs. Under ASC 606, fulfillment costs are capitalizable and are amortized over the contract term, consistent with the definition of a contract term under ASC 606.  As a result of termination provisions, the contract term under ASC 606 may be shorter than the contractually stated contract term. Under the previous guidance, all costs incurred as part of contract implementation were capitalized and amortized over the stated contractual term, disregarding any termination provisions, on a straight-line basis.

 

Certain contracts require that a customer make nonrefundable payments to Faneuil prior to the commencement of call center services. The timing of receipt of fixed payments may be based on the achievement of specified implementation milestones. Additionally, customers may be required to make certain nonrefundable variable payments (e.g., training of personnel) prior to the commencement of operations.

 

Under ASC 606, when upfront fees do not relate directly to the satisfaction or partial satisfaction of a performance obligation, the payments are deemed to be advance payments for future services. In such, instances, the fees are allocated to performance obligations and recognized when or as the performance obligations, typically call center services, are satisfied over the contract term, as defined under ASC 606.  If a contract contains termination provisions, and such termination provisions are not substantive, the upfront nonrefundable fees will be fully recognized prior to the expiration of the stated term of the contract.

10


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Under previous guidance, depending on the nature of the upfront fees, the fees were either recognized as implementation services were provided or, in cases where implementation services were not provided, deferred and amortized over the stated contractual term on a straight-line basis.

 

Carpets. Under ASC 606, revenue is recognized over time using the input method for the majority of its contracts. This pattern of revenue recognition under ASC 606 does not differ materially from the method of recognizing revenue under previous guidance.

 

Although Carpets determined that the timing and amount of total revenue recognized over the life of a construction project is not materially impacted, the revenue recognized on a quarterly basis during the construction period may change. Carpets determined that ASC 606 is more impactful to certain of its lump sum projects as a result of the following required changes from its previous practices:

 

 

Performance obligations. ASC 606 requires a review of contracts to determine whether there are multiple performance obligations. Each separate performance obligation must be accounted separately, which can impact the timing of revenue recognition. In connection with its evaluation, Carpets identified certain contracts that had more than one performance obligation, which can impact the revenue recognition pattern and methodology for that contract.

 

Variable consideration. In accordance with ASC 606, variable consideration, including potential liquidated damages, adjusts the transaction price of a contract. Under previous revenue recognition guidance, Carpets generally assessed the impact of liquidated damages as an estimated cost of the project.

Upon adoption of ASC 606, Carpets adjusted the following:

 

Revenue associated with open contracts to the amount determined by applying the input method of recognizing revenue to the transaction price for each separate performance obligation within a contract; and

 

Estimated losses when estimated contract costs exceed the transaction price.  

Phoenix. Based on analysis of specific terms associated with customer contracts uncompleted at the date of adoption, Phoenix concluded that revenue is recognized at a point in time for substantially all products. This treatment is consistent with how revenue was recognized under the previous guidance, which was when the products were completed and shipped to the customer (dependent upon specific shipping terms).

 

Phoenix determined that ASC 606 impacts the timing of revenue recognition under the following circumstances:

 

Completed production held in inventory. With certain customer contracts, Phoenix is required to complete a pre-defined quantity of customized products and hold these products in inventory until the customer requests shipment (which generally is required to be delivered in the same year as production). For these items, Phoenix has the contractual right to receive payment once production of the products is complete, regardless of the ultimate delivery date. Under previous guidance, Phoenix held the customized products in inventory and recognized revenue upon shipment to the customer. Following the guidance of ASC 606, in these circumstances, Phoenix recognizes revenue when production of the customized products is complete.

 

Safety stock. In limited situations, Phoenix is required to produce and hold in inventory a pre-defined quantity of customized products for a customer as safety stock. Similar to completed production held in inventory, Phoenix has the contractual right to receive payment from the customer for the pre-defined quantity of safety stock once production is complete, regardless of the ultimate delivery date. Under previous guidance, Phoenix held the safety stock in inventory and recognized revenue upon shipment to the customer. Following the guidance of ASC 606, in these circumstances, Phoenix recognizes revenue when production of the safety stock is complete.

Lastly, the contracts that Phoenix has with its customers often include prospective and retrospective volume rebates, credits, discounts, and other similar items that generally decrease the amount a customer pays Phoenix. These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, when contracts are signed, or making payments within payment specific terms. Under ASC 606, with the exception of prospective volume rebates, these adjustments are classified as variable consideration, which is estimated at contract inception and included as part of the transaction price. Under ASC 606, prospective volume rebates are not part of the transaction price, but are instead accounted for as a material right and separate performance obligation.

 

11


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Upon adoption of ASC 606, Phoenix recognized revenue associated with certain completed inventory and safety stock held in inventory as discussed above, adjusted revenue for prospective volume rebates treated as material rights and adjusted the timing of revenue recognition relating to variable consideration.

 

Based upon the balances that existed as of September 30, 2019, the Company recorded adjustments to the following accounts as of October 1, 2019:

 

 

 

 

 

 

 

Adjustments for the Adoption of ASC 606

 

 

 

 

 

(in thousands)

 

As

Reported

September 30,

2019

 

 

Faneuil

 

 

Carpets

 

 

Phoenix

 

 

Total

Adjustment

 

 

Adjusted

October 1,

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

5,515

 

 

$

777

 

 

$

(61

)

 

$

161

 

 

$

877

 

 

$

6,392

 

Inventories, net

 

 

6,777

 

 

 

 

 

 

19

 

 

 

(217

)

 

 

(198

)

 

 

6,579

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses

 

 

16,092

 

 

 

 

 

 

(12

)

 

 

(2

)

 

 

(14

)

 

 

16,078

 

Deferred revenue and customer deposits

 

 

1,965

 

 

 

172

 

 

 

 

 

 

 

 

 

172

 

 

 

2,137

 

Stockholders’ equity