NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
1.
|
Basis of Presentation, Nature of Business and Summary of Significant
Accounting Policies –
|
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared according to the instructions to Form 10-Q and Section 210.8-03(b) of Regulation S-X of
the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
have been omitted.
In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three
and six month period ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2016.
For further information, refer to the Condensed Consolidated
Financial Statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2015. The condensed consolidated
balance sheet at December 31, 2015, has been derived from the audited consolidated financial statements at that date, but does
not include all of the information and footnotes required by GAAP.
Nature of Business
Western Capital Resources, Inc. (“WCR”)
is a parent company owning operating subsidiaries, with percentage owned shown parenthetically, as summarized below:
|
o
|
AlphaGraphics,
Inc. (“AGI”) (99.2%) – franchisor of 258 domestic and 25 international
AlphaGraphics Business Centers which specialize in the planning, production and management
of visual communications for businesses and individuals throughout the world.
|
|
o
|
PQH
Wireless, Inc. and subsidiaries (“PQH”) (100%) – owns and operates
116 cellular retail stores as an exclusive dealer of the Cricket brand.
|
|
o
|
J
& P Park Acquisitions, Inc. (“JPPA”) (100% – Acquired July 1, 2015)
– an online and direct marketing distribution retailer of live plants, seeds, holiday
gifts and garden accessories selling its products under Park Seed, Jackson & Perkins,
and Wayside Gardens brand names as well as a wholesaler under the Park Wholesale brand.
|
|
o
|
Restorers
Acquisition, Inc. (“RAI”) (100% – Acquired July 1, 2015) – an
online and direct marketing distribution retailer of home improvement and restoration
products operating under Van Dyke’s Restorers.
|
|
o
|
J
& P Real Estate, LLC (“JPRE”) (100% – Acquired July 1, 2015) –
owns real estate utilized as JPPA’s distribution and warehouse facility and the
corporate offices of JPPA and RAI.
|
|
o
|
Wyoming
Financial Lenders, Inc. (“WFL”) (100%) – owns and operates 46 “payday”
stores in eight states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota,
Wisconsin and Wyoming) providing sub-prime short-term uncollateralized non-recourse “cash
advance” or “payday” loans typically ranging from $100 to $500 with
a maturity of generally two to four weeks, sub-prime short-term uncollateralized non-recourse
installment loans typically ranging from $300 to $800 with a maturity of six months,
check cashing and other money services to individuals.
|
|
o
|
Express
Pawn, Inc. (“EPI”) (100%) – owns and operates three retail pawn stores
in Nebraska and Iowa providing collateralized non-recourse pawn loans and retail sales
of merchandise obtained from forfeited pawn loans or purchased from customers.
|
References in these financial statement notes to
“Company” or “we” refer to Western Capital Resources, Inc. and its subsidiaries. References to specific
companies within our enterprise, such “AGI,” “PQH,” “JPPA,” “RAI,” “JPRE,”
“WFL” or “EPI” are references only to those companies.
Basis of Consolidation
The consolidated financial statements include the
accounts of WCR, its wholly owned subsidiaries and other entities in which the Company owns a controlling financial interest.
For financial interests in which the Company owns a controlling financial interest, the Company applies the provisions of ASC
810 applicable to reporting the equity and net income or loss attributable to noncontrolling interests. All significant intercompany
balances and transactions of the Company have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that may affect certain reported amounts and disclosures in the condensed consolidated financial
statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Significant management
estimates relate to the notes and loans receivable allowance, carrying value and impairment of long-lived goodwill and intangible
assets, inventory valuation and obsolescence, estimated useful lives of property and equipment, gift certificate and customer
credits liability and deferred taxes and tax uncertainties.
Reclassifications
Certain Statements of Income reclassifications have
been made in the presentation of our prior financial statements and accompanying notes to conform to the presentation as of and
for the three and six months ended June 30, 2016.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under US GAAP. This standard, including subsequent updates, is effective for annual and interim periods beginning after
December 15, 2017. The Company is currently assessing the potential effects on our financial condition, results of operations
and consolidated financial statements.
In November 2015, the FASB issued ASU No.
2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).
The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than
being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied either retrospectively
or on a prospective basis to all deferred tax assets and liabilities. The Company early adopted ASU 2015-17 during our first
quarter of fiscal year 2016 on a retrospective basis. Accordingly, we reclassified the current deferred taxes to noncurrent
on our December 31, 2015 Condensed Consolidated Balance Sheet, which decreased current deferred tax assets by $0.56 million
and decreased noncurrent deferred tax liabilities by $0.56 million.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842)” (“ASU 2016-02”). The standard requires recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2018. Early adoption is permitted and the standard is to be applied
using a modified retrospectively approach. The Company is currently evaluating the impact that ASU 2016-02 will have on our financial
condition, results of operations and consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).
The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the
net amount expected to be collected. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2019. Early adoption is permitted earlier as of the fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years and the standard is to be applied using a modified retrospectively approach. The Company
is currently evaluating the impact that ASU 2016-13 will have on our financial condition, results of operations and consolidated
financial statements.
No other accounting pronouncements issued or effective
during the fiscal quarter have had or are expected to have a material impact on our condensed consolidated financial statements.
|
2.
|
Risks Inherent in the Operating Environment –
|
Regulatory
The Company’s Consumer Finance segment activities
are highly regulated under numerous local, state, and federal laws, regulations and rules, which are subject to change. New laws,
regulations or rules could be enacted or issued, interpretations of existing laws, regulations or rules may change and enforcement
action by regulatory agencies may intensify. Over the past several years, consumer advocacy groups and certain media reports have
advocated governmental and regulatory action to prohibit or severely restrict sub-prime lending activities of the kind conducted
by the Company. The federal Consumer Financial Protection Bureau has indicated that it will use its authority to further regulate
the payday industry and has been actively enforcing existing regulations within its jurisdiction.
Any adverse change in present local, state, and federal
laws or regulations that govern or otherwise affect lending could result in the Consumer Finance segment’s curtailment or
cessation of operations in certain or all jurisdictions or locations. Furthermore, any failure to comply with any applicable local,
state or federal laws or regulations could result in fines, litigation, closure of one or more store locations or negative publicity.
Any such change or failure would have a corresponding impact on the Company’s and segment’s results of operations
and financial condition, and could also negatively affect the Company’s general
business prospects due to lost or decreased operating income or if negative publicity effects its ability to obtain additional
financing as needed.
In addition, the passage of federal or state laws
and regulations or changes in interpretations of them could, at any point, essentially prohibit the Consumer Finance segment from
conducting its lending business in its current form. Any such legal or regulatory change would certainly have a material and adverse
effect on the Company, its operating results, financial condition and prospects, and perhaps even the viability of the Consumer
Finance segment.
At June 30, 2016 and December 31, 2015, the Consumer
Finance segment’s outstanding loans receivable aging was as follows:
June 30, 2016
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn
&
Title
|
|
|
Total
|
|
Current
|
|
$
|
3,703,331
|
|
|
$
|
232,718
|
|
|
$
|
296,759
|
|
|
$
|
4,232,808
|
|
1-30
|
|
|
284,109
|
|
|
|
34,636
|
|
|
|
-
|
|
|
|
318,745
|
|
31-60
|
|
|
200,487
|
|
|
|
14,234
|
|
|
|
-
|
|
|
|
214,721
|
|
61-90
|
|
|
175,938
|
|
|
|
7,269
|
|
|
|
-
|
|
|
|
183,207
|
|
91-120
|
|
|
117,996
|
|
|
|
3,551
|
|
|
|
-
|
|
|
|
121,547
|
|
121-150
|
|
|
105,994
|
|
|
|
1,841
|
|
|
|
-
|
|
|
|
107,835
|
|
151-180
|
|
|
138,883
|
|
|
|
501
|
|
|
|
-
|
|
|
|
139,384
|
|
|
|
|
4,726,738
|
|
|
|
294,750
|
|
|
|
296,759
|
|
|
|
5,318,247
|
|
Less Allowance
|
|
|
(838,000
|
)
|
|
|
(55,000
|
)
|
|
|
-
|
|
|
|
(893,000
|
)
|
|
|
$
|
3,888,738
|
|
|
$
|
239,750
|
|
|
$
|
296,759
|
|
|
$
|
4,425,247
|
|
December 31, 2015
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn
&
Title
|
|
|
Total
|
|
Current
|
|
$
|
4,065,706
|
|
|
$
|
291,947
|
|
|
$
|
286,514
|
|
|
$
|
4,644,167
|
|
1-30
|
|
|
332,217
|
|
|
|
43,179
|
|
|
|
-
|
|
|
|
375,396
|
|
31-60
|
|
|
263,486
|
|
|
|
24,233
|
|
|
|
-
|
|
|
|
287,719
|
|
61-90
|
|
|
199,526
|
|
|
|
16,293
|
|
|
|
-
|
|
|
|
215,819
|
|
91-120
|
|
|
196,123
|
|
|
|
9,417
|
|
|
|
-
|
|
|
|
205,540
|
|
121-150
|
|
|
160,386
|
|
|
|
4,985
|
|
|
|
-
|
|
|
|
165,371
|
|
151-180
|
|
|
165,237
|
|
|
|
2,189
|
|
|
|
-
|
|
|
|
167,426
|
|
|
|
|
5,382,681
|
|
|
|
392,243
|
|
|
|
286,514
|
|
|
|
6,061,438
|
|
Less Allowance
|
|
|
(1,081,000
|
)
|
|
|
(96,000
|
)
|
|
|
-
|
|
|
|
(1,177,000
|
)
|
|
|
$
|
4,301,681
|
|
|
$
|
296,243
|
|
|
$
|
286,514
|
|
|
$
|
4,884,438
|
|
|
4.
|
Loans Receivable Allowance
–
|
As a result of the Consumer Finance segment’s
collection efforts, it historically writes off approximately 42% of returned payday items. Based on days past the check
return date, write-offs of payday returned items historically have tracked at the following approximate percentages: 1 to 30 days
– 42%; 31 to 60 days – 64%; 61 to 90 days – 83%; 91 to 120 days – 88%; 121 to 150 days – 91%; and
151 + days – 92%.
A rollforward of the Consumer Finance segment’s
loans receivable allowance is as follows:
|
|
Six
Months Ended
June
30, 2016
|
|
|
Year
Ended
December
31, 2015
|
|
Loans receivable allowance, beginning of period
|
|
$
|
1,177,000
|
|
|
$
|
1,219,000
|
|
Provision for loan losses charged to expense
|
|
|
731,485
|
|
|
|
1,904,893
|
|
Charge-offs, net
|
|
|
(1,015,485
|
)
|
|
|
(1,946,893
|
)
|
Loans receivable allowance, end of period
|
|
$
|
893,000
|
|
|
$
|
1,177,000
|
|
A breakdown of accounts receivables by segment as
of June 30, 2016 and December 31, 2015 are as follows:
June 30, 2016
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
1,191,553
|
|
|
$
|
113,075
|
|
|
$
|
378,738
|
|
|
$
|
10,572
|
|
|
$
|
1,693,938
|
|
Less allowance
|
|
|
(126,000
|
)
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
(176,000
|
)
|
Net account receivable
|
|
$
|
1,065,553
|
|
|
$
|
113,075
|
|
|
$
|
328,738
|
|
|
|
10,572
|
|
|
$
|
1,517,938
|
|
December 31, 2015
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
1,332,446
|
|
|
$
|
148,346
|
|
|
$
|
754,400
|
|
|
$
|
-
|
|
|
$
|
2,235,192
|
|
Less allowance
|
|
|
(183,000
|
)
|
|
|
-
|
|
|
|
(89,000
|
)
|
|
|
-
|
|
|
|
(272,000
|
)
|
Net account receivable
|
|
$
|
1,149,446
|
|
|
$
|
148,346
|
|
|
$
|
665,400
|
|
|
|
-
|
|
|
$
|
1,963,192
|
|
|
6.
|
Deferred Revenue and
Other Liabilities –
|
Deferred revenue and other liabilities consist of
the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Deferred financing fees
|
|
$
|
234,148
|
|
|
$
|
285,452
|
|
Deferred franchise development and service fees
|
|
|
162,334
|
|
|
|
264,000
|
|
Merchandise credits and gift card liability
|
|
|
676,301
|
|
|
|
1,127,470
|
|
Other
|
|
|
332,612
|
|
|
|
119,416
|
|
Total
|
|
$
|
1,405,395
|
|
|
$
|
1,796,338
|
|
|
7.
|
Notes Payable –
Short Term –
|
On April 22, 2016, WCR entered into a Credit
Agreement with a financial institution. The Credit Agreement provides the Company with a revolving credit facility in an aggregate
amount of up to $3,000,000, having a maturity date of April 21, 2018. Funds advanced under the revolving credit facility bear
interest at a floating per annum rate equal to one-month LIBOR plus 3.50%, adjusted on a monthly basis. At June 30, 2016 $3,000,000
of credit was available.
In conjunction with the closing of the Credit Agreement,
all existing short-term credit facilities of the Company were terminated.
See Note 14 for additional terms and conditions related
to the Credit Agreement.
|
8.
|
Notes Payable –
Long Term –
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Note payable (with a credit limit of $3,000,000)
to River City Equity, Inc., a related party, with interest payable monthly at 12% due June 30, 2016 and upon certain events can
be collateralized by substantially all assets of WCR, excluding any equity interest in AGI (terminated May 2016)
|
|
$
|
-
|
|
|
$
|
3,000,000
|
|
Note
pa
yab
le to a financial
institution with monthly principal payment of $58,333 plus interest at LIBOR plus 3.5% (4% at June 30, 2016), secured
by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing April 21, 2021
|
|
|
3,441,667
|
|
|
|
-
|
|
Subsidiary note payable to a financial institution
with quarterly principal payments of $375,000 plus interest at prime rate plus 2.5%, secured by the AGI’s assets, maturing
March 2017 (terminated May 2016)
|
|
|
-
|
|
|
|
1,625,000
|
|
Subsidiary
note pa
yab
le to
a financial institution with monthly principal payment of $33,334 plus annual paydowns equal to JPRE’s net cash flow
from operations due within 120 days of the calendar year end plus interest at LIBOR plus 3.5% (4% at June 30, 2016), secured
by JPRE assets, maturing June 5, 2019 when remaining principal balance is due
|
|
|
3,171,456
|
|
|
|
3,371,460
|
|
Total
|
|
|
6,613,123
|
|
|
|
7,996,460
|
|
Less current maturities
|
|
|
(1,100,000
|
)
|
|
|
(4,900,008
|
)
|
|
|
$
|
5,513,123
|
|
|
$
|
3,096,452
|
|
Future minimum long-term principal payments are as
follows:
Year
|
|
Amount
|
|
1
|
|
$
|
1,100,000
|
|
2
|
|
|
1,100,000
|
|
3
|
|
|
3,071,456
|
|
4
|
|
|
700,000
|
|
5
|
|
|
641,667
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
6,613,123
|
|
On April 22, 2016, WCR entered into a
Credit Agreement with a financial institution. In addition to the $3,000,000 revolving line of credit facility (see Note
7 above) the Credit Agreement provides the Company with an acquisition loan facility in an aggregate amount of up
to $9,000,000, having a maturity date of April 21, 2018. Funds advanced under the acquisition loan facility bear interest at
a floating per annum rate equal to one-month LIBOR plus 3.50%, adjusted on a monthly basis and mature five years from the
date of advance. At closing, $3,500,000 was advanced under the acquisition loan replacing the $3,000,000 River City Equity
debt and $500,000 of other term debt. At June 30, 2016 approximately $5,500,000 of credit was available under the acquisition
loan facility.
See Note 14 for additional terms and conditions related
to the Credit Agreement.
On January 20, 2016, our shareholders approved a plan
to reincorporate Western Capital Resources, Inc. in Delaware at a special meeting of the shareholders called for that purpose.
The reincorporation was completed May 11, 2016.
Date declared
|
|
|
May 24, 2016
|
|
Record date
|
|
|
June 6, 2016
|
|
Date paid
|
|
|
June 15, 2016
|
|
Dividend per share of common stock
|
|
$
|
0.025
|
|
|
11.
|
Other
Operating Expense –
|
A breakout of other expense is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Bank fees
|
|
$
|
497,084
|
|
|
$
|
135,222
|
|
|
$
|
935,118
|
|
|
$
|
284,745
|
|
Collection costs
|
|
|
109,963
|
|
|
|
108,984
|
|
|
|
226,151
|
|
|
|
220,303
|
|
Conference expense
|
|
|
29,151
|
|
|
|
-
|
|
|
|
294,556
|
|
|
|
210,644
|
|
Insurance
|
|
|
173,326
|
|
|
|
93,200
|
|
|
|
344,889
|
|
|
|
175,995
|
|
Management and advisory fees
|
|
|
203,504
|
|
|
|
124,801
|
|
|
|
424,529
|
|
|
|
274,303
|
|
Professional and consulting fees
|
|
|
447,735
|
|
|
|
472,677
|
|
|
|
1,042,945
|
|
|
|
918,113
|
|
Supplies
|
|
|
176,650
|
|
|
|
158,122
|
|
|
|
359,924
|
|
|
|
328,636
|
|
Other
|
|
|
874,338
|
|
|
|
519,587
|
|
|
|
1,622,865
|
|
|
|
1,060,971
|
|
|
|
$
|
2,511,751
|
|
|
$
|
1,612,593
|
|
|
$
|
5,250,977
|
|
|
$
|
3,473,710
|
|
|
12.
|
Pro
Forma Information –
|
Effective June 1, 2015, PQH purchased with cash all
outstanding membership interests in four separate limited liability companies (Green Communications, LLC, an Arizona LLC, Green
Communications, LLC, an Oregon LLC, Green Communications, LLC, a Washington LLC and Go Green, LLC an Arizona LLC). Effective
July 1, 2015, the Company acquired a 100% interest in the businesses of RAI, JPPA, and JPRE, by completing a merger and contribution
transaction.
As further discussed in Note 13 of the December 31,
2015 Notes to Consolidated Financial Statements, the results of the operations for the acquired business have been included in
the consolidated financial statements since the dates of the acquisition. The following table presents the unaudited results of
operations for the three and six months ended June 30, 2016 and the unaudited pro forma results of operations for the three and
six months ended June 30, 2015 (in thousands, except for per share data) as if the acquisitions had been consummated at the beginning
of 2015. The pro forma net income below excludes the expense of the transactions. The pro forma results of operations are prepared
for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred
at the beginning of the 2015 or the results which may occur in the future.
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Three Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,562
|
|
|
$
|
8,083
|
|
|
$
|
12,689
|
|
|
$
|
2,838
|
|
|
$
|
-
|
|
|
$
|
27,172
|
|
% of total revenue
|
|
|
13.1
|
%
|
|
|
29.8
|
%
|
|
|
46.7
|
%
|
|
|
10.4
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Net income (loss)
|
|
$
|
568
|
|
|
$
|
74
|
|
|
$
|
1,103
|
|
|
$
|
262
|
|
|
$
|
(218
|
)
|
|
$
|
1,789
|
|
Net income attributable to noncontrolling interests
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4
|
|
Net income (loss) attributable to WCR common shareholders
|
|
$
|
564
|
|
|
$
|
74
|
|
|
$
|
1,103
|
|
|
$
|
262
|
|
|
$
|
(218
|
)
|
|
$
|
1,785
|
|
Earnings (loss) per share attributable to WCR common shareholders –
basic and diluted
|
|
$
|
0.059
|
|
|
$
|
0.008
|
|
|
$
|
0.116
|
|
|
$
|
0.028
|
|
|
$
|
(0.023
|
)
|
|
$
|
0.188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
2,851
|
|
|
$
|
8,803
|
|
|
$
|
11,403
|
|
|
$
|
3,059
|
|
|
$
|
-
|
|
|
$
|
26,116
|
|
% of total pro forma revenue
|
|
|
10.9
|
%
|
|
|
33.7
|
%
|
|
|
43.7
|
%
|
|
|
11.7
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Pro forma net income (loss)
|
|
$
|
457
|
|
|
$
|
127
|
|
|
$
|
1,106
|
|
|
$
|
257
|
|
|
$
|
(122
|
)
|
|
$
|
1,825
|
|
Pro forma net income attributable to noncontrolling interests
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4
|
|
Pro forma net income (loss) attributable to WCR common shareholders
|
|
$
|
453
|
|
|
$
|
127
|
|
|
$
|
1,106
|
|
|
$
|
257
|
|
|
$
|
(122
|
)
|
|
$
|
1,821
|
|
Pro forma earnings (loss) per share attributable to WCR common shareholders
– basic and diluted
|
|
$
|
0.048
|
|
|
$
|
0.013
|
|
|
$
|
0.116
|
|
|
$
|
0.028
|
|
|
$
|
(0.013
|
)
|
|
$
|
0.192
|
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Six Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,174
|
|
|
$
|
17,858
|
|
|
$
|
24,754
|
|
|
$
|
5,822
|
|
|
$
|
-
|
|
|
$
|
55,608
|
|
% of total revenue
|
|
|
12.9
|
%
|
|
|
32.1
|
%
|
|
|
44.5
|
%
|
|
|
10.5
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Net income (loss)
|
|
$
|
1,083
|
|
|
$
|
454
|
|
|
$
|
2,007
|
|
|
$
|
574
|
|
|
$
|
(353
|
)
|
|
$
|
3,765
|
|
Net income attributable to noncontrolling interests
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9
|
|
Net income (loss) attributable to WCR common shareholders
|
|
$
|
1,074
|
|
|
$
|
454
|
|
|
$
|
2,007
|
|
|
$
|
574
|
|
|
$
|
(353
|
)
|
|
$
|
3,756
|
|
Earnings (loss) per share attributable to WCR common shareholders –
basic and diluted
|
|
$
|
0.113
|
|
|
$
|
0.048
|
|
|
$
|
0.211
|
|
|
$
|
0.060
|
|
|
$
|
(0.037
|
)
|
|
$
|
0.395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
5,967
|
|
|
$
|
20,095
|
|
|
$
|
24,854
|
|
|
$
|
6,153
|
|
|
$
|
-
|
|
|
$
|
57,069
|
|
% of total pro forma revenue
|
|
|
10.5
|
%
|
|
|
35.2
|
%
|
|
|
43.5
|
%
|
|
|
10.8
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Pro forma net income (loss)
|
|
$
|
755
|
|
|
$
|
524
|
|
|
$
|
1,934
|
|
|
$
|
543
|
|
|
$
|
(195
|
)
|
|
$
|
3,561
|
|
Pro forma net income attributable to noncontrolling interests
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6
|
|
Pro forma net income (loss) attributable to WCR common shareholders
|
|
$
|
749
|
|
|
$
|
524
|
|
|
$
|
1,934
|
|
|
$
|
543
|
|
|
$
|
(195
|
)
|
|
$
|
3,555
|
|
Pro forma earnings (loss) per share attributable to WCR common shareholders
– basic and diluted
|
|
$
|
0.079
|
|
|
$
|
0.055
|
|
|
$
|
0.204
|
|
|
$
|
0.057
|
|
|
$
|
(0.021
|
)
|
|
$
|
0.374
|
|
|
13.
|
Segment Information
–
|
Segment information related to the three and six month
periods ended June 30, 2016 and 2015 is presented below:
Three Months Ended June 30, 2016
(in thousands)
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
3,562
|
|
|
$
|
8,083
|
|
|
$
|
12,689
|
|
|
$
|
2,838
|
|
|
$
|
-
|
|
|
$
|
27,172
|
|
Net income (loss)
|
|
$
|
568
|
|
|
$
|
74
|
|
|
$
|
1,103
|
|
|
$
|
262
|
|
|
$
|
(218
|
)
|
|
$
|
1,789
|
|
Expenditures for segmented assets
|
|
$
|
7
|
|
|
$
|
580
|
|
|
$
|
24
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
618
|
|
Three Months Ended June 30, 2015
(in thousands)
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
2,851
|
|
|
$
|
6,966
|
|
|
$
|
-
|
|
|
$
|
3,059
|
|
|
$
|
-
|
|
|
$
|
12,876
|
|
Net income (loss)
|
|
$
|
456
|
|
|
$
|
140
|
|
|
$
|
-
|
|
|
$
|
257
|
|
|
$
|
(424
|
)
|
|
$
|
429
|
|
Expenditures for segmented assets
|
|
$
|
51
|
|
|
$
|
3,135
|
|
|
$
|
-
|
|
|
$
|
16
|
|
|
$
|
14
|
|
|
$
|
3,216
|
|
Six Months Ended June 30, 2016
(in thousands)
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
7,174
|
|
|
$
|
17,858
|
|
|
$
|
24,754
|
|
|
$
|
5,822
|
|
|
$
|
-
|
|
|
$
|
55,608
|
|
Net income (loss)
|
|
$
|
1,083
|
|
|
$
|
454
|
|
|
$
|
2,007
|
|
|
$
|
574
|
|
|
$
|
(353
|
)
|
|
$
|
3,765
|
|
Total segment assets
|
|
$
|
9,681
|
|
|
$
|
14,779
|
|
|
$
|
14,393
|
|
|
$
|
15,531
|
|
|
$
|
374
|
|
|
$
|
54,758
|
|
Expenditures for segmented assets
|
|
$
|
15
|
|
|
$
|
1,447
|
|
|
$
|
38
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
1,518
|
|
Six Months Ended June 30, 2015
(in thousands)
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct
to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
5,967
|
|
|
$
|
15,118
|
|
|
$
|
-
|
|
|
$
|
6,153
|
|
|
$
|
-
|
|
|
$
|
27,238
|
|
Net income (loss)
|
|
$
|
755
|
|
|
$
|
467
|
|
|
$
|
-
|
|
|
$
|
543
|
|
|
$
|
(497
|
)
|
|
$
|
1,268
|
|
Total segment assets
|
|
$
|
9,555
|
|
|
$
|
12,222
|
|
|
$
|
-
|
|
|
$
|
16,192
|
|
|
$
|
317
|
|
|
$
|
38,286
|
|
Expenditures for segmented assets
|
|
$
|
91
|
|
|
$
|
3,656
|
|
|
$
|
-
|
|
|
$
|
16
|
|
|
$
|
13
|
|
|
$
|
3,776
|
|
|
14.
|
Commitments and Contingencies
–
|
Employment Agreements
The Company is party to an Amended and
Restated Employment Agreement with its Chief Executive Officer, Mr. John Quandahl. Among other things, this agreement
contains provisions for an annual performance-based cash bonus pool for management. The agreement was amended effective April
1, 2016 to extend the term through March 2019.
Pursuant to the Company’s numerous employment
agreements, bonuses of approximately $338,000 and $693,000 were accrued for the three and six month periods ended June 30, 2016,
respectively.
Credit Facility
On April 22, 2016 WCR entered into a Credit
Agreement with a financial institution. Certain company subsidiaries are guarantors of the borrowings and obligations
under the Credit Agreement. All borrowings under the Credit Agreement are secured by substantially all assets of WCR and
the guarantor subsidiaries.
The Credit Agreement requires WCR to meet
certain financial tests, including a leverage ratio and a fixed charge coverage ratio, as defined in the Credit Agreement. Subject
to certain exceptions, the Credit Agreement contains covenants limiting the company’s ability to (or to permit the guarantor
subsidiaries to) merge or consolidate with, or engage in a sale of substantially all assets to, any party, but WCR or
any guarantor subsidiary generally may nonetheless merge with another party if (i) WCR or guarantor subsidiary is the
entity surviving such merger, and (ii) immediately after giving effect to such merger, no default shall have occurred and be continuing
under the Credit Agreement. Subject to certain exceptions, the Credit Agreement also contains covenants limiting WCR’s
ability to (or to permit the guarantor subsidiaries to) create liens on assets, incur additional indebtedness, make certain types
of investments, and pay dividends or make certain other types of restricted payments, but WCR may nonetheless pay dividends
to its shareholders if (a) there are no outstanding loans or unpaid interest under the revolving credit facility (see Note 7),
and (b) no default shall have occurred and be continuing under the Credit Agreement.
Cellular Retail Growth Commitment
Effective June 6, 2016, PQH entered into a Cricket
Wireless Exclusive Dealer Agreement Amendment for Retail Expansion. Per the agreement, PQH commits to open at least 150 locations by December 31, 2017, including 50 locations by December 31, 2016. Also effective June 6, 2016, Cricket Wireless,
LLC has increased certain compensation arrangements in the existing dealer agreement and will provide a subsidy for each location
opened during the term of the agreement.
We evaluated all events or transactions that occurred
after June 30, 2016 up through the date we issued these financial statements. During this period we did not have any material
subsequent events that impacted our financial statements.