10-Q 1 evi10q0331.htm 10-Q EVI INDUSTRIES, INC.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

 

OR

 

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 001-14757

EVI Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware

11-2014231

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

4500 Biscayne Blvd., Suite 340, Miami, FL 33137

(Address of principal executive offices)

 

(305) 402-9300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.025 par value

EVI

NYSE American

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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, a smaller reporting company, or an emerging growth company. See the 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $.025 par value per share – 12,515,944 shares outstanding as of May 4, 2022.


 

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

3

Condensed Consolidated Statements of Operations (Unaudited) for the nine and three months ended March 31, 2022 and 2021

3

Condensed Consolidated Balance Sheets at March 31, 2022 (Unaudited) and June 30, 2021

4

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the nine and three months ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.Controls and Procedures

32

PART II – OTHER INFORMATION

Item 1.Legal Proceedings

33

Item 1A.Risk Factors

33

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 5.Other Information

33

Item 6.Exhibits

35

Signatures

36

2


Index

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data) (Unaudited)

 

For the nine months

ended March 31,

For the three months

ended March 31,

2022

2021

2022

2021

 

Revenues

$

184,485

$

177,456

$

60,042

$

62,413

Cost of sales

132,977

133,989

42,980

46,659

Gross profit

51,508

43,467

17,062

15,754

Selling, general and administrative expenses

47,680

41,330

16,874

15,025

Operating income

3,828

2,137

188

729

Interest and other (expense) income, net

(390

)

(122

)

(125

)

197

Income before income taxes

3,438

2,015

63

926

Provision for income taxes

851

411

23

301

 

Net income

$

2,587

$

1,604

$

40

$

625

 

Net earnings per share – basic

$

0.19

$

0.12

$

0.00

$

0.05

 

Net earnings per share – diluted 

$

0.18

$

0.12

$

0.00

$

0.04

See Notes to Condensed Consolidated Financial Statements

3


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

 

ASSETS

March 31,

2022

(Unaudited)

June 30,

2021

Current assets

Cash

$

5,604

$

6,057

Accounts receivable, net of allowance for doubtful accounts of $1.1 million and $1.0 million, respectively

33,124

28,904

Inventories, net

40,781

25,129

Vendor deposits

2,022

367

Contract assets

357

347

Other current assets

6,953

4,419

Total current assets

88,841

65,223

 

 

Equipment and improvements, net

12,140

10,594

Operating lease assets

7,466

7,060

Intangible assets, net

23,943

23,677

Goodwill

65,861

63,881

Other assets

6,930

7,415

 

 

Total assets

$

205,181

$

177,850

See Notes to Condensed Consolidated Financial Statements

4


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

LIABILITIES AND SHAREHOLDERS' EQUITY

March 31,

2022

(Unaudited)

June 30,

2021

Current liabilities

Accounts payable and accrued expenses

$

26,346

$

26,227

 

Accrued employee expenses

6,420

 

7,528

 

Customer deposits

21,114

 

10,344

 

Contract liabilities

20

 

3,232

 

Current portion of operating lease liabilities

2,458

 

2,131

 

Total current liabilities

56,358

 

49,462

 

 

 

 

 

Deferred tax liabilities, net

4,157

 

4,208

 

Long-term operating lease liabilities

5,784

 

5,567

 

Long-term debt, net

23,914

 

11,873

 

 

 

 

Total liabilities

90,213

 

71,110

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

Shareholders’ equity

 

 

Preferred stock, $1.00 par value; authorized shares – 200,000; none issued and outstanding

-

 

-

 

Common stock, $.025 par value; authorized shares – 20,000,000; 12,609,354 shares issued at March 31, 2022 and 12,399,137 shares issued at June 30, 2021, including shares held in treasury

315

 

310

 

Additional paid-in capital

96,342

 

90,501

 

Treasury stock, 127,801 shares at March 31, 2022 and 120,706 shares at June 30, 2021, at cost

(3,070

)

 

(2,865

)

Retained earnings

21,381

 

18,794

Total shareholders’ equity

114,968

 

106,740

 

Total liabilities and shareholders’ equity

$

205,181

$

177,850

 

See Notes to Condensed Consolidated Financial Statements

5


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share data) (Unaudited)

Nine months ended March 31, 2022

Additional

Common Stock

Paid-in

Treasury Stock

Retained

Shares

Amount

Capital

Shares

Cost

Earnings

Total

Balance at June 30, 2021

12,399,137

$

310

$

90,501

120,706

$

(2,865

)

$

18,794

$

106,740

 

Share repurchases

-

-

-

7,095

(205

)

-

(205

)

 

Vesting of restricted shares

20,835

1

(1

)

-

-

-

-

 

Issuances of shares under employee stock plan

2,008

-

59

-

-

-

59

 

Issuances of shares in connection with acquisitions

179,087

4

3,836

-

-

-

3,840

 

Stock compensation

8,287

-

1,947

-

-

-

1,947

 

Net income

-

-

-

-

-

2,587

2,587

Balance at March 31, 2022

12,609,354

$

315

$

96,342

127,801

$

(3,070

)

$

21,381

$

114,968

 

Three months ended March 31, 2022

Additional

Common Stock

Paid-in

Treasury Stock

Retained

Shares

Amount

Capital

Shares

Cost

Earnings

Total

Balance at December 31, 2021

12,418,075

$

310

$

91,880

124,706

$

(3,007

)

$

21,341

$

110,524

 

Share repurchases

-

-

-

3,095

(63

)

-

(63

)

 

Vesting of restricted shares

12,192

1

(1

)

-

-

-

-

 

Issuances of shares in connection with acquisitions

179,087

4

3,836

-

-

-

3,840

 

Stock compensation

-

-

627

-

-

-

627

 

Net income

-

-

-

-

-

40

40

Balance at March 31, 2022

12,609,354

$

315

$

96,342

127,801

$

(3,070

)

$

21,381

$

114,968

See Notes to Condensed Consolidated Financial Statements

6


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share data) (Unaudited)

Nine months ended March 31, 2021

Additional

 

 

Common Stock

 

Paid-in

 

Treasury Stock

 

Retained

 

 

 

 

Shares

Amount

Capital

Shares

Cost

Earnings

Total

Balance at June 30, 2020

 

12,029,910

 

 

$

301

 

 

$

79,127

 

 

 

95,396

 

 

$

(2,012

)

 

$

10,410

 

 

$

87,826

 

 

Share repurchases

-

-

-

17,846

(629

)

-

(629

)

 

Vesting of restricted shares

51,701

1

(1)

-

-

-

-

 

Issuances of shares under employee stock plan

693

-

21

-

-

-

21

 

Issuances of shares in connection with acquisitions

289,111

7

8,870

-

-

-

8,877

 

Stock compensation

-

-

1,834

-

-

-

1,834

 

Net income

-

-

-

-

-

1,604

1,604

Balance at March 31, 2021

12,371,415

$

309

$

89,851

113,242

$

(2,641

)

$

12,014

$

99,533

Three months ended March 31, 2021

Additional

 

 

Common Stock

 

Paid-in

 

Treasury Stock

 

Retained

 

 

 

 

Shares

Amount

Capital

Shares

Cost

Earnings

Total

Balance at December 31, 2020

12,340,591

$

309

$

88,855

105,635

$

(2,358

)

$

11,389

$

98,195

 

Share repurchases

-

-

-

7,607

(283

)

-

(283

)

 

Vesting of restricted shares

20,098

-

-

-

-

-

-

 

Issuances of shares in connection with acquisitions

10,726

-

356

-

-

-

356

 

Stock compensation

-

-

640

-

-

-

640

 

Net income

-

-

-

-

-

625

625

Balance at March 31, 2021

12,371,415

$

309

$

89,851

113,242

$

(2,641

)

$

12,014

$

99,533

See Notes to Condensed Consolidated Financial Statements

7


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 

For the nine months ended

March 31, 2022

March 31, 2021

Operating activities:

Net income

$

2,587

$

1,604

Adjustments to reconcile net income to net cash (used) provided by operating activities:

Depreciation and amortization

3,795

3,388

Amortization of debt discount

41

41

Provision for bad debt expense

231

252

Non-cash lease expense

138

47

Stock compensation

1,947

1,834

Inventory reserve

(274

)

(178

)

(Benefit) provision for deferred income taxes

(51

)

953

 

Other

(24

)

(277

)

(Increase) decrease in operating assets:

Accounts receivable

(3,129

)

2,799

Inventories

(13,476

)

(674

)

Vendor deposits

(1,485

)

(1,459

)

Contract assets

(10

)

(8,873

)

Other assets

(1,214

)

(2,153

)

Increase (decrease) in operating liabilities:

Accounts payable and accrued expenses

(829

)

3,323

Accrued employee expenses

(1,170

)

684

Customer deposits

10,081

2,062

Contract liabilities

(3,212

)

2,117

Net cash (used) provided by operating activities

(6,054

)

5,490

Investing activities:

Capital expenditures

(3,066

)

(1,934

)

Cash paid for acquisitions, net of cash acquired

(3,187

)

(4,818

)

Net cash used by investing activities

(6,253

)

(6,752

)

Financing activities:

Proceeds from long-term debt

46,000

37,500

Debt repayments

(34,000

)

(42,500

)

Repurchases of common stock in satisfaction of employee tax withholding obligations

(205

)

(629

)

Issuances of common stock under employee stock purchase plan

59

 

21

 

Net cash provided (used) by financing activities

11,854

(5,608

)

Net decrease in cash

(453

)

(6,870

)

Cash at beginning of period

6,057

9,789

Cash at end of period

$

5,604

$

2,919

See Notes to Condensed Consolidated Financial Statements

8


Index

EVI Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 

For the nine months ended

March 31, 2022

March 31, 2021

Supplemental disclosures of cash flow information:

Cash paid during the period for interest

$

320

$

388

Cash paid during the period for income taxes

$

261

$

526

 

Supplemental disclosure of non-cash financing activities:

Common stock issued for acquisitions

$

3,840

$

8,877

Forgiveness of PPP Loan

$

-

$

916

See Notes to Condensed Consolidated Financial Statements

9


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (1) - General: The accompanying unaudited condensed consolidated financial statements include the accounts of EVI Industries, Inc. and its subsidiaries (the “Company”). All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X related to interim period financial statements. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include certain information and footnotes required by GAAP for complete financial statements. However, in management’s opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals and adjustments) which are necessary in order to state fairly the Company’s results of operations, financial position, shareholders’ equity and cash flows as of and for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes, including the Summary of Significant Accounting Policies, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. The June 30, 2021 balance sheet information contained herein was derived from the Company’s audited consolidated financial statements as of that date included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions made may not prove to be correct, and actual results could differ from the estimates.

The Company, through its wholly-owned subsidiaries, is a value-added distributor, and provides advisory and technical services. Through its vast sales organization, the Company provides its customers with planning, designing, and consulting services related to their commercial laundry operations. The Company sells and/or leases its customers commercial laundry equipment, specializing in washing, drying, finishing, material handling, water heating, power generation, and water reuse applications. In support of the suite of products it offers, the Company sells related parts and accessories. Additionally, through the Company’s robust network of commercial laundry technicians, the Company provides its customers with installation, maintenance, and repair services.

The Company’s customers include government, institutional, industrial, commercial and retail customers. Product purchases made by customers range from parts and accessories, to single or multiple units of equipment, to large complex systems. The Company also provides its customers with the services described above.

The Company’s growth strategy includes organic growth initiatives and business acquisitions pursuant to the Company’s “buy-and-build” growth strategy, which was implemented in 2015.

The COVID-19 pandemic has negatively impacted, and may continue to negatively impact, the Company’s business and results. Specifically, beginning at the end of the quarter ended March 31, 2020, the COVID-19 pandemic and accompanying economic disruption caused delays and declines in the placement of customer orders, the completion of equipment and parts installations, and the fulfillment of parts orders. In response to the economic and business disruption during 2020, the Company took actions to reduce costs and spending across the organization, including changes to inventory stock levels, renegotiating payment terms with suppliers, and reducing hiring activities. During the fiscal year ended June 30, 2021, the COVID-19 pandemic had a resurgence with the increased presence and spread of the Delta variant. In addition, the Omicron variant emerged as a variant of concern towards the end of the quarter ended December 31, 2021 and had adverse effects. Factors arising from the COVID-19 pandemic that have impacted, or may in the future negatively impact, the Company’s business and results, including sales and gross margin, include, but are not limited to: supply chain disruptions, which resulted in, and may continue to result in, delays in delivering products or services to the Company’s customers; labor shortages; limitations on the ability of the Company’s employees to perform their work due to sickness or other impacts caused by the pandemic or local, state, federal or foreign orders that may restrict the Company’s operations or the operations of its customers, or require that employees be quarantined; limitations on the ability of carriers to deliver products to the Company’s facilities and customers; risks associated with vaccine mandates, including the potential loss of employees, fines for noncompliance and loss of, or future inability to secure, certain contracts, including with the federal government; adverse impacts of the pandemic on certain industries and customers of the Company which operate in those industries, including the hospitality industry; and potential decreased demand for products and services, including potential limitations on the ability of, or adverse changes in the desire of, the Company’s customers to conduct their business, purchase products and services, and pay for purchases on a timely basis or at all. Further, the Company may continue to experience adverse impacts to its business as a result of, among other things, any adverse impact that has occurred or may occur in the future in the economy or markets generally, and changes in customer or supplier behavior, in each case, in connection with the pandemic.

10


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EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (2) – Summary of Significant Accounting Policies: There have been no material changes to the Company’s significant accounting policies from those described in Note 1 to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Note (3) – Recently Issued Accounting Guidance: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which will change the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other specified instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard will also require enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. The guidance must be applied using a cumulative-effect transition method. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years (the fiscal year ending June 30, 2024 for the Company), with early adoption permitted. The Company is currently evaluating the impact that adopting this guidance may have on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. The provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact that adopting this guidance may have on its consolidated financial statements.

Other than as described above, management does not believe that accounting standards and updates which have been issued but are not yet effective will have a material impact on the Company’s consolidated financial statements upon adoption.

11


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EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (4) - Acquisitions:

CLK Acquisition

On February 7, 2022, the Company acquired Consolidated Laundry Equipment, Inc. and Central Equipment Company, LLC (collectively “CLK”), pursuant to a merger whereby CLK merged with and into, and became, a wholly-owned subsidiary of the Company (the “CLK Acquisition”). CLK is a North Carolina-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. This acquisition expanded the Company’s footprint in the Southeast region of the United States. The consideration paid by the Company in connection with the merger consisted of $4.4 million in cash and 179,087 shares of the Company’s common stock. The Company funded the cash consideration with borrowings under its credit facility. Fees and expenses related to the CLK Acquisition, consisting primarily of legal and other professional fees, totaled approximately $45,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statements of operations for the three and nine months ended March 31, 2022. The total purchase price for accounting purposes was $7.0 million, net of cash acquired of $1.2 million.

The CLK Acquisition was treated for accounting purposes as a purchase of CLK using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the aggregate consideration in the CLK Acquisition was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The computation of the purchase price consideration and the preliminary allocation of the consideration to the net assets acquired are presented in the following tables (in thousands):

Purchase price consideration:

Cash consideration, net of cash acquired(a)

$

3,187

Stock consideration(b)

3,840

Total purchase price consideration, net of cash acquired

$

7,027

(a) Includes $4.4 million paid net of $1.2 million of cash acquired.

(b) Calculated as 179,087 shares of the Company’s common stock, multiplied by $21.44, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration:

Accounts receivable

$

1,322

Inventories

1,902

Vendor Deposits

170

Other assets

835

Equipment and improvements

841

Intangible assets

1,700

Accounts payable and accrued expenses

(948

)

Accrued employee expenses

(62

)

Customer deposits

(689

)

Total identifiable net assets

5,071

Goodwill

1,956

Total

$

7,027

The Company is continuing its valuation of the net assets acquired, which is subject to adjustment in accordance with the merger agreement. Accordingly, the purchase price allocation set forth above reflects preliminary fair value estimates based on preliminary work and analyses performed by management and is subject to change as additional information to assist in determining the fair value of the net assets acquired as of the closing date is obtained during the post-closing measurement period of up to one year. The Company has finalized its assessment of the assets acquired and liabilities assumed, except for certain working capital items, including accounts receivable, inventories, other assets and accounts payable and accrued expenses.

Intangible assets consist of $800,000 allocated to the Consolidated Laundry Equipment trade name and $900,000 allocated to customer-related intangible assets. The Consolidated Laundry Equipment trade name is indefinite-lived and therefore not subject to amortization. The Consolidated Laundry Equipment trade name will be evaluated for impairment annually or more frequently if an event occurs or circumstances change that indicate it may be impaired, by comparing its fair value to its carrying amount to determine if a write-down to fair value is required. Customer-related intangible assets are being amortized over 10 years.

Goodwill is attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the CLK Acquisition. The goodwill from the CLK Acquisition is not deductible for income tax purposes.

12


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EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Supplemental Pro Forma Results of Operations

The following supplemental pro forma information presents the results of operations of the Company, after giving effect to the CLK Acquisition as described above, as if the Company had completed such transaction on July 1, 2020, using the estimated fair values of the assets acquired and liabilities assumed. The pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been if the transaction had occurred on the date assumed, nor are they indicative of future results of operations.

For the nine months ended March 31,

(in thousands)

2022

(Unaudited)

2021

(Unaudited)

Revenues

$

192,731

$

188,058

Net income

3,350

2,585

The Company’s consolidated results of operations for the nine months ended March 31, 2022 include total revenue of approximately $2.4 million and total net income of approximately $186,000 attributable to CLK, based on the consolidated effective tax rate. These results of the acquired business do not include the effects of acquisition costs or interest expense associated with the consideration paid in connection with the acquisitions.

Note (5) - Earnings Per Share: The Company computes earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Shares of the Company’s common stock subject to unvested restricted stock awards and restricted stock units are considered participating securities because they contain a non-forfeitable right to cash dividends (in the case of restricted stock awards) or dividend equivalents (in the case of restricted stock units) paid prior to vesting or forfeiture, if any, irrespective of whether the awards or units ultimately vest. Basic and diluted earnings per share for the nine and three months ended March 31, 2022 and 2021 are computed as follows (in thousands, except per share data):

For the nine months ended

March 31,

For the three months ended

March 31,

2022 (Unaudited)

2021 (Unaudited)

2022 (Unaudited)

2021 (Unaudited)

 

Net income

$

2,587

$

1,604

$

40

$

625

 

Less: distributed and undistributed income allocated to unvested restricted common stock

261

143

4

56

Net income allocated to EVI Industries, Inc. shareholders

$

2,326

$

1,461

$

36

$

569

Weighted average shares outstanding used in basic earnings per share

12,321

12,101

12,402

12,252

Dilutive common share equivalents

375

444

261

533

Weighted average shares outstanding used in diluted earnings per share

12,696

12,545

12,663

12,785

Basic earnings per share

$

0.19

$

0.12

$

0.00

$

0.05

Diluted earnings per share

$

0.18

$

0.12

$

0.00

$

0.04

At March 31, 2022 and 2021, other than 1,400,105 shares and 1,202,275 shares, respectively, of common stock subject to unvested restricted stock awards or restricted stock units, there were no potentially dilutive securities outstanding.

Note (6) – Interest and other (expense) income, net: Interest and other (expense) income, net for the nine and three months ended March 31, 2022 and 2021 are as follows (in thousands):

For the nine months ended

March 31,

For the three months ended

March 31,

2022 (Unaudited)

2021 (Unaudited)

2022 (Unaudited)

2021 (Unaudited)

 

Bargain purchase gain

$

-

$

361

$

-

$

361

Interest (expense), net

(390

)

(483

)

(125

)

(164

)

Interest and other (expense) income, net

$

(390

)

$

(122

)

$

(125

)

$

197

13


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (7) - Debt: Long-term debt as of March 31, 2022 and June 30, 2021 are as follows (in thousands):

March 31,

2022

June 30,

2021

Revolving credit facility

$

24,000

$

12,000

Less: unamortized discount and deferred financing costs

(86

)

(127

)

Total long-term debt, net

$

23,914

$

11,873

On November 2, 2018, the Company entered into a syndicated credit agreement (the “Credit Agreement”) for a five-year revolving credit facility in the maximum aggregate principal amount of up to $100 million, with an accordion feature to increase the revolving credit facility by up to $40 million for a total of $140 million. A portion of the revolving credit facility is available for swingline loans of up to a sublimit of $5 million and for the issuance of standby letters of credit of up to a sublimit of $10 million.

Prior to the amendment described below, borrowings (other than swingline loans) under the Credit Agreement accrued interest at a rate, at the Company’s election at the time of borrowing, equal to (a) LIBOR plus a margin that ranged from 1.25% to 1.75% depending on the Company’s consolidated leverage ratio, which is a ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “Consolidated Leverage Ratio”) or (b) the highest of (i) prime, (ii) the federal funds rate plus 50 basis points, and (iii) the one month LIBOR rate plus 100 basis points, plus a margin that ranged from 0.25% to 0.75% depending on the Consolidated Leverage Ratio. Swingline loans accrued interest calculated at the base rate determined in accordance with clause (b) of the preceding sentence plus a margin that ranged from 0.25% to 0.75% depending on the Consolidated Leverage Ratio. The Credit Agreement had an initial term of five years with a scheduled maturity date of November 2, 2023. As of March 31, 2022, $27.5 million was available to borrow under the revolving credit facility.

On May 6, 2022, the Company entered into an amendment to the Credit Agreement which, among other things, (i) in connection with the phasing out of LIBOR, replaced LIBOR with the Bloomberg Short-Term Bank Yield Index (“BSBY”), and (ii) extended the maturity date of the Credit Agreement from November 2, 2023 to May 6, 2027. See Part II, Item 5 of this Quarterly Report on Form 10-Q for additional information relating to the amendment to the Credit Agreement.

The Credit Agreement contains certain covenants, including financial covenants requiring the Company to comply with maximum leverage ratios and minimum interest coverage ratios. The Credit Agreement also contains other provisions which may restrict the Company’s ability to, among other things, dispose of or acquire assets or businesses, incur additional indebtedness, make certain investments and capital expenditures, pay dividends, repurchase shares and enter into transactions with affiliates. As of March 31, 2022 and the date of the amendment, the Company was in compliance with its covenants under the Credit Agreement.

The obligations of the Company under the Credit Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries, and are guaranteed, jointly and severally, by certain of the Company’s subsidiaries.

In connection with the Company’s acquisition of Yankee Equipment Systems, Inc. (“YES”) during November 2020, the Company, indirectly through its wholly-owned subsidiary, assumed the approximately $916,000 loan previously obtained by YES under the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Under the merger agreement related to the acquisition, the Company was entitled to indemnification for any required repayment of the loan to YES under the PPP. During the quarter ended March 31, 2021, the loan to YES under the PPP was forgiven by the U.S. Small Business Administration (“SBA”). The Company determined that the fair value of its right to indemnification was equal to the amount forgiven by the SBA. Accordingly, the Company did not recognize any gain on the extinguishment of this debt.

14


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EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (8) – Leases:

Company as Lessee

The Company leases warehouse and distribution facilities, administrative office space and service and other fleet vehicles, generally for terms of three to ten years.

The Company applies ASC Topic 842, Leases (“ASC 842” or “Topic 842”), which, among other things, requires lessees to recognize substantially all leases on their balance sheets and disclose certain additional key information about leasing arrangements. The standard established a right-of-use model that requires a lessee to recognize a right-of-use asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are required to be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted this standard effective July 1, 2019 using the modified retrospective transition approach, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption without restatement of prior periods.

The Company made the election to not apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less). Instead, the Company, as permitted by Topic 842, recognizes the lease payments under its short-term leases in profit or loss on a straight-line basis over the lease term. The Company elected this accounting policy for all classes of underlying assets. In addition, in accordance with Topic 842, variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a lease liability or right-of-use asset.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and right-of-use liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, certain of the Company’s leases do not provide a readily determinable implicit rate. For such leases, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company uses instruments with similar characteristics when calculating its incremental borrowing rates.

The Company has options to extend certain of its operating leases for additional periods of time and the right to terminate several of its operating leases prior to its contractual expiration, in each case, subject to the terms and conditions of the lease. The lease term consists of the non-cancellable period of the lease and the periods covered by Company options to extend the lease when it is reasonably certain that the Company will exercise such options. The Company's lease agreements do not contain residual value guarantees. The Company has elected to not separate non-lease components from the associated lease component for all underlying classes of assets with lease and non-lease components.

As of March 31, 2022, the Company had 29 facilities, consisting of warehouse facilities and administrative offices, financed under operating leases with lease term expirations between 2022 and 2030. Rent expense consists of monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis.

The following table provides details of the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s condensed consolidated balance sheet as of March 31, 2022. The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.

Fiscal years ending June 30,

Total Operating Lease

Obligations

(in thousands)

2022 (remainder of)

$

688

 

2023

2,579

 

2024

1,727

 

2025

1,169

 

2026

803

 

Thereafter

1,921

 

Total minimum lease payments

$

8,887

 

Less: amounts representing interest

645

 

Present value of minimum lease payments

$

8,242

 

Less: current portion

2,458

 

Long-term portion

$

5,784

 

15


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

The table below presents additional information related to the Company’s operating leases (in thousands):

Nine months ended March 31,

Three months ended March 31,

2022

2021

2022

2021

Operating lease cost

 

Operating lease cost (1)

1,781

1,475

$

671

$

482

 

Short-term lease cost (1)

-

12

-

-

 

Variable lease cost (1)

320

287

44

122

Total lease cost

2,101

1,774

$

715

$

604

 

(1)

Expenses are classified within selling, general and administrative expenses in the Company’s condensed consolidated statements of operations.

The table below presents lease-related terms and discount rates as of March 31, 2022:

March 31, 2022

Weighted average remaining lease terms

Operating leases

4.9 years

Weighted average discount rate

Operating leases

3.1%

The table below presents supplemental cash flow information related to the Company’s long-term operating lease liabilities for the nine months ended March 31, 2022 and 2021 (in thousands):

Nine months ended March 31,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities:

$

1,919

$

1,475

Operating lease right-of-use assets obtained in exchange for operating lease liabilities:

$

2,010

$

3,793

Company as Lessor

The Company derives a portion of its revenue from equipment leasing arrangements. Such arrangements provide for monthly payments covering the equipment provided, maintenance, and interest. These arrangements meet the criteria to be accounted for as sales type leases. Accordingly, revenue from the provision of the equipment is recognized upon delivery of the equipment and its acceptance by the customer. Upon the recognition of such revenue, an asset is established for the investment in sales type leases. Maintenance revenue and interest are recognized monthly over the lease term.

16


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

The future minimum lease payments receivable for sales type leases are as follows (in thousands):

Fiscal years ending June 30,

Total Minimum

Lease Payments

Receivable

Amortization

of Unearned

Income

Net Investment

in Sales Type

Leases

2022 (remainder of)

$

1,004

$

595

$

409

 

2023

3,356

1,995

1,361

 

2024

2,577

1,476

1,101

 

2025

1,825

973

852

 

2026

1,211

551

660

 

Thereafter

935

419

516

 

$

4,899

*

* Excludes residual values of $2.5 million.

The total net investments in sales type leases, including stated residual values, as of March 31, 2022 and June 30, 2021 was $7.4 million and $6.7 million, respectively. The current portion of $1.8 million and $0.9 million is included in other current assets in the consolidated balance sheets as of March 31, 2022 and June 30, 2021, respectively, and the long term portion of $5.6 million and $5.8 million is included in other assets in the consolidated balance sheets as of March 31, 2022 and June 30, 2021, respectively.

Note (9) - Income Taxes: Income taxes are recorded in the Company’s quarterly financial statements based on the Company’s estimated annual effective income tax rate, subject to adjustment for discrete events, should they occur.

As of both March 31, 2022 and June 30, 2021, the Company had net deferred tax liabilities of approximately $4.2 million. Consistent with the guidance of the FASB regarding accounting for income taxes, the Company regularly estimates its ability to recover deferred tax assets and establishes a valuation allowance against deferred tax assets to reduce the balance to amounts expected to be recoverable. This evaluation includes the consideration of several factors, including an estimate of the likelihood of generating sufficient taxable income in future periods over which temporary differences reverse, the expected reversal of deferred tax liabilities, past and projected taxable income, and available tax planning strategies. As of March 31, 2022, management believed that it was more-likely-than-not that the results of future operations will generate sufficient taxable income to realize the net amount of the Company’s deferred tax assets over the periods during which temporary differences reverse.

The Company follows ASC Topic 740-10-25, “Accounting for Uncertainty in Income Taxes” (“ASC 740”). ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. During the nine and three months ended March 31, 2022 and 2021, the Company’s accounting for income taxes in accordance with this standard did not result in a material adjustment to the Company’s provision for income taxes.

As of March 31, 2022, the Company was subject to potential federal and state tax examinations for the tax years 2018 through 2021.

17


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (10) – Equity Plans:

Equity Incentive Plan

In November 2015, the Company’s stockholders approved the Company’s 2015 Equity Incentive Plan (the “Plan”). During December 2020, the Company’s stockholders approved an amendment to the Plan to increase the number of shares of the Company’s common stock authorized for issuance pursuant to awards granted under the Plan to 3,000,000 shares. The fair value of awards granted under the Plan is expensed on a straight-line basis over the vesting period of the awards. Share-based compensation expense is included in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations.

During the nine months ended March 31, 2022, restricted stock awards of a total of 134,612 shares, 135,816 restricted stock units, and 8,287 stock awards were granted under the Plan. Stock awards represent shares of the Company’s common stock issued under the Plan which are held by the recipient upon grant without any future risk of forfeiture. During the three months ended March 31, 2022, restricted stock units of a total of 79,393 shares were granted under the Plan. No restricted stock awards or stock awards were granted under the Plan during the three months ended March 31, 2022. During the nine months ended March 31, 2022, restricted stock awards of a total of 13,203 shares were forfeited and returned to the Plan. There were no restricted stock awards forfeited during the three months ended March 31, 2022. There were 9,457 and 1,130 restricted stock units forfeited during the nine and three months ended March 31, 2022, respectively.

During the nine months ended March 31, 2021, restricted stock awards of a total of 8,624 shares and 204,014 restricted stock units were granted under the Plan. During the three months ended March 31, 2021, 2,400 restricted stock units were granted under the Plan. During the nine months ended March 31, 2021, restricted stock awards of a total of 1,492 shares were forfeited and returned to the Plan. There were no shares forfeited during the three months ended March 31, 2021.

For the nine and three months ended March 31, 2022, non-cash share-based compensation expense related to awards granted under the Plan (which, in each case, included restricted stock units and, for the nine-month period, also included restricted stock awards and stock awards, as described above) totaled $1.9 million and $627,000, respectively. For the nine and three months ended March 31, 2021, non-cash share-based compensation expense related to awards granted under the Plan (which, in each case, included restricted stock units and, for the nine-month period, also included restricted stock awards, as described above) totaled $1.8 million and $640,000, respectively.

As of March 31, 2022, the Company had $18.5 million and $9.5 million of total unrecognized compensation expense related to restricted stock awards and restricted stock units, respectively, granted under the Plan, which is expected to be recognized over the weighted-average period of 17.1 years and 10.8 years, respectively.

The following is a summary of non-vested restricted stock activity as of and for the nine months ended March 31, 2022:

Restricted Stock Awards

Restricted Stock Units

Shares

Weighted- Average Grant Date Fair Value

Shares

Weighted- Average Grant Date Fair Value

Non-vested awards or units outstanding at June 30, 2021

919,259

$

19.59

253,913

$

30.92

 

Granted

134,612

35.32

135,816

24.54

 

Vested

(14,485)

25.11

(6,350)

-

 

Forfeited

(13,203)

14.20

(9,457)

33.68

 

Non-vested awards or units outstanding at March 31, 2022

1,026,183

$

21.65

373,922

$

28.56

 

18


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Employee Stock Purchase Plan

During 2017, the Company’s stockholders approved the Company’s 2017 Employee Stock Purchase Plan, which, subject to the terms of the plan, allows eligible employees the opportunity to purchase shares of the Company’s common stock at a 5% discount. The Company’s employee stock purchase plan provides for six-month offering periods ending on December 31 and June 30 of each year. During the nine months ended March 31, 2022, 2,008 shares of common stock were issued under the Company’s employee stock purchase plan for which the Company received net proceeds of $59,000. During the nine months ended March 31, 2021, 693 shares of common stock were issued under the Company’s employee stock purchase plan for which the Company received net proceeds of $21,000. No shares were issued under the Company’s employee stock purchase plan during the three months ended March 31, 2022 or 2021.

Note (11) – Transactions with Related Parties: Certain of the Company’s subsidiaries lease warehouse and office space from one or more of the principals or former principals of those subsidiaries. These leases include the following:

During October 2016, the Company’s wholly-owned subsidiary, Western State Design, Inc. (“Western State Design”), entered into a lease agreement pursuant to which it leases 17,600 square feet of warehouse and office space from an affiliate of Dennis Mack, a director and Executive Vice President, Corporate Strategy of the Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Monthly base rental payments were $12,000 during the initial term of the lease. The Company exercised its option to renew the lease for the first three-year renewal term, which commenced in October 2021. Base rent for the first renewal term is $19,000 per month. In addition to base rent, Western State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $150,000 and $108,000 during the nine months ended March 31, 2022 and 2021, respectively, and $57,000 and $36,000 during the three months ended March 31, 2022 and 2021, respectively.

During October 2017, the Company’s wholly-owned subsidiary, Tri-State Technical Services, LLC (“Tri-State”), entered into lease agreements pursuant to which it leases a total of 81,000 square feet of warehouse and office space from an affiliate of Matt Stephenson, President of Tri-State. Monthly base rental payments total $21,000 during the initial terms of the leases. In addition to base rent, Tri-State is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $189,000 during each of the nine months ended March 31, 2022 and 2021 and $63,000 during each of the three months ended March 31, 2022 and 2021.

During February 2018, the Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, LLC (“AAdvantage”), entered into a lease agreement pursuant to which it leases a total of 5,000 square feet of warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage. Monthly base rental payments are $4,000 during the initial term of this lease. In addition, during November 2018, AAdvantage entered into an additional lease agreement pursuant to which it leases warehouse and office space from an affiliate of Mike Zuffinetti. Monthly base rental payments under this lease were $26,000 initially. Pursuant to the lease agreement, on January 1, 2019, the lease expanded to cover additional warehouse space and, in connection therewith, monthly base rental payments under this lease increased to $36,000. In addition to base rent, AAdvantage is responsible under each of these leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Payments under the leases described in this paragraph totaled approximately $360,000 during each of the nine months ended March 31, 2022 and 2021 and $120,000 during each of the three months ended March 31, 2022 and 2021.

19


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

During September 2018, the Company’s wholly-owned subsidiary, Scott Equipment, LLC (“Scott Equipment”), entered into lease agreements pursuant to which it leases a total of 18,000 square feet of warehouse and office space from an affiliate of Scott Martin, former President of Scott Equipment. Monthly base rental payments total $11,000 during the initial terms of the leases. In addition to base rent, Scott Equipment is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $103,000 during each of the nine months ended March 31, 2022 and 2021 and $35,000 during each of the three months ended March 31, 2022 and 2021.

During February 2019, the Company’s wholly-owned subsidiary, PAC Industries, LLC (“PAC Industries”), entered into two lease agreements pursuant to which it leases a total of 29,500 square feet of warehouse and office space from an affiliate of Frank Costabile, former President of PAC Industries, and Rocco Costabile, former Director of Finance of PAC Industries. Monthly base rental payments total $15,000 during the initial terms of the leases. In addition to base rent, PAC Industries is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of four years and provides for two successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $137,000 and $135,000 during the nine months ended March 31, 2022 and 2021, respectively, and $46,000 and $45,000 during the three months ended March 31, 2022 and 2021, respectively.

During November 2020, the Company’s wholly-owned subsidiary, Yankee Equipment Systems, LLC (“Yankee Equipment Systems”), entered into a lease agreement pursuant to which it leases a total of 12,500 square feet of warehouse and office space from an affiliate of Peter Limoncelli, President of Yankee Equipment Systems. Monthly base rental payments are $11,000 during the initial term of the lease. In addition to base rent, Yankee Equipment Systems is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease has an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. Payments under this lease totaled approximately $106,000 and $57,000 during the nine months ended March 31, 2022 and 2021, respectively, and $36,000 and $35,000 during the three months ended March 31, 2022 and 2021, respectively.

During February 2022, the Company’s wholly-owned subsidiary, Consolidated Laundry Equipment, LLC (“Consolidated Laundry Equipment”), entered into two lease agreements pursuant to which it leases a total of 20,300 square feet of warehouse and office space from an affiliate of William Kincaid, President of Consolidated Laundry Equipment. Monthly base rental payments total $20,000 during the initial terms of the leases. In addition to base rent, Consolidated Laundry Equipment is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $20,000 during the nine and three months ended March 31, 2022.

20


Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(Unaudited)

Note (12) – Commitments and Contingencies: In the ordinary course of business, certain of the Company’s contracts require the Company to provide performance and payment bonds related to projects in process. These bonds are intended to provide a guarantee to the customer that the Company will perform under the terms of the contract and that the Company will pay subcontractors and vendors. If the Company fails to perform under the contract or pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company is required to reimburse the surety for expenses or outlays it incurs. At March 31, 2022 and June 30, 2021, no such performance or payment bonds were outstanding.

The Company may from time to time become subject to litigation and other legal proceedings. Litigation and other legal proceedings may require the Company to incur significant expenses, including those relating to legal and other professional fees, as well as damages or other payments. Litigation and other legal proceedings are inherently uncertain, and adverse outcomes in litigation or other legal proceedings could adversely affect the Company’s financial condition, cash flows, and operating results.

Note (13) – Goodwill: The changes in the carrying amount of goodwill are as follows (in thousands):

Balance at June 30, 2021

$

63,881

Goodwill from acquisition (1)

1,956

 

Working capital adjustments (2)

24

Balance at March 31, 2022

$

65,861

(1)

Relates to the CLK Acquisition which was consummated during February 2022, as described in Note 4, “Acquisitions.”

(2)

Represents working capital adjustments related to business acquisitions consummated by the Company during the fiscal year ended June 30, 2021.

Note (14) – Subsequent Events:

On April 25, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Clean Designs, Inc. and Clean Route, LLC (collectively “Clean Designs”). Clean Designs is a Colorado-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. In connection with the acquisition, the Company will also assume certain liabilities of Clean Designs. The anticipated consideration to be paid by the Company in connection with the acquisition is not expected to be material to the Company on a consolidated basis. Closing of the acquisition is subject to certain conditions precedent. There is no assurance that the acquisition will be consummated on the contemplated terms, when expected, or at all.

On April 29, 2022, the Company, indirectly through a wholly-owned subsidiary, acquired substantially all of the assets of LS Acquisition, LLC (d/b/a Laundry South Systems and Repair) (“Laundry South Systems and Repair”), a Mississippi-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. In connection with the transaction, the Company, indirectly through its wholly-owned subsidiary, also assumed certain of the liabilities of Laundry South Systems and Repair. The consideration paid by the Company in connection with the transaction was not material to the Company on a consolidated basis. The financial condition and results of operations of Laundry South Systems and Repair subsequent to the April 29, 2022 closing date of the transaction will be included within the Company’s consolidated financial statements commencing with the quarter ending June 30, 2022.

On May 5, 2022, the Company, indirectly through a wholly-owned subsidiary, acquired substantially all of the assets of Spynr, Inc. (“Spynr”), a Delaware-based digital marketing and technology company which provides digital marketing services to customers and vendors within the commercial, industrial and vended laundry industries. In connection with the transaction, the Company, indirectly through its wholly-owned subsidiary, also assumed certain of the liabilities of Spynr. The consideration paid by the Company in connection with the transaction was not material to the Company on a consolidated basis. The financial condition and results of operations of Spynr subsequent to the May 5, 2022 closing date of the transaction will be included within the Company’s consolidated financial statements commencing with the quarter ending June 30, 2022.

See also Note 7, “Debt” and Part II, Item 5 of this Quarterly Report on Form 10-Q for a description of the amendment to the Company’s Credit Agreement that was entered into on May 6, 2022.

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Index

Item 2.Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

Forward Looking Statements

Certain statements in this Quarterly Report on Form 10-Q are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, words such as “may,” “should,” “seek,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “strategy” and similar expressions are intended to identify forward looking statements. Forward looking statements may relate to, among other things, events, conditions and trends that may affect the future plans, operations, business, strategies, operating results, financial position and prospects of the Company. Forward looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results, trends, performance or achievements of the Company, or industry trends and results, to differ materially from the future results, trends, performance or achievements expressed or implied by such forward looking statements. These risks and uncertainties include, among others, those associated with: general economic and business conditions in the United States and other countries where the Company operates or where the Company’s customers and suppliers are located; industry conditions and trends; risks relating to the COVID-19 pandemic and the impact thereof on the Company and its business, financial condition, liquidity and results and on the Company’s suppliers and customers, volatility in the economy, including in the credit markets, supply chain disruptions and resulting inflationary trends, labor shortages, reduced demand for products and services, delays in the fulfillment of orders, and risks related to potential audits of the loans received by the Company and certain of its subsidiaries under the Payroll Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)notwithstanding the previous forgiveness of the loans; risks associated with vaccine mandates, including the potential loss of employees, fines for noncompliance and loss of, or future inability to secure, certain contracts, including with the federal government; risks associated with international relations and international hostilities, including actions of foreign governments and the impact thereof on economic conditions, including supply chain constraints and inflationary trends; the Company’s ability to implement its business and growth strategies and plans, including changes thereto; risks and uncertainties associated with the Company’s ”buy-and-build” growth strategy, including, without limitation, that the Company may not be successful in identifying or consummating acquisitions or other strategic opportunities, acquisitions which have been agreed to but not completed may not be consummated on the contemplated terms, when expected, or at all, integration risks, risks related to indebtedness incurred by the Company in connection with the financing of acquisitions, dilution experienced by the Company’s existing stockholders as a result of the issuance of shares of the Company’s common stock in connection with acquisitions, risks related to the business, operations and prospects of acquired businesses, risks that suppliers of the acquired business may not consent to the transaction or otherwise continue its relationship with the acquired business following the transaction and the impact that the loss of any such supplier may have on the results of the Company and the acquired business, risks that the Company’s goals or expectations with respect to acquisitions and other strategic transactions may not be met, risks related to the accounting for acquisitions; risks related to supply chain delays and disruptions and the impact they may have on the Company’s business, including the Company’s ability to deliver products and services to its customers on a timely basis; risks relating to inflation, including the current inflationary trend in light of supply chain constraints, and the impact of inflation on the Company’s costs and its ability to increase the price of its products and services to offset such costs, and on the market for the Company’s products and services; risks related to labor shortages and the impact thereof on the Company, including its ability to deliver or service products or otherwise meet customers’ expectations; risks relating to the impact of pricing concessions and other measures which the Company may take from time to time in connection with its expansion and pursuit of market share growth, including that they may not be successful and may adversely impact the Company’s gross margin and other financial results; technology changes; competition, including the Company’s ability to compete effectively and the impact that competition may have on the Company and its results, including the prices which the Company may charge for its products and services and on the Company’s profit margins, and competition for qualified employees; to the extent applicable, risks relating to the Company’s ability to enter into and compete effectively in new industries, as well as risks and trends related to those industries; risks relating to the Company’s relationships with its principal suppliers and customers, including the impact of the loss of any such relationship; risks that equipment sales may not result in the ancillary benefits anticipated, including that they may not lead to increases in customers (or a stronger relationship with customers) or higher gross margin sales of parts, accessories, supplies, and technical services related to the equipment, and the risk that the benefit of lower gross margin equipment sales under longer-term contracts will not outweigh the possible short-term impact to gross margin; the risk that the Company’s service operations may not expand to the extent anticipated, or at all; risks related to the Company’s indebtedness; the availability, terms and deployment of debt and equity capital if needed for expansion or otherwise; changes in, or the failure to comply with, government regulation, including environmental regulations; litigation risks, including the costs of defending litigation and the impact of any adverse ruling; the availability and cost of inventory purchased by the Company; the relative value of the United States dollar to currencies in the countries in which the Company’s customers, suppliers and competitors are located; risks relating to the recognition of revenue, including the amount and timing thereof (including potential delays resulting from delays in installation or in receiving required supplies) and that orders in the Company’s backlog may not be fulfilled as or when expected; risks related to the adoption of new accounting standards and the impact it may have on the Company’s financial statements and results; risks that the Company’s decentralized operating model, and that product, end-user and geographic diversity, may not result in the benefits anticipated and may change over time; risks related to organic growth initiatives and market share and other growth strategies, including that they may not result in the benefits anticipated; risks that investments, initiatives and expenses, including, without limitation, investments in acquired businesses and modernization initiatives, expenses associated with the Company’s implementation of its ERP system, and other investments, initiatives and expenses, may not result in the benefits anticipated; and other economic, competitive, governmental, technological and other risks and factors discussed in the Company’s filings with the SEC, including, without limitation, those described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. Many of these risks and factors are beyond the Company