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 nine month period ended September 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 126 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 45 “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 nine months ended September 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 September 30, 2016 and December 31, 2015, the Consumer
Finance segment’s outstanding loans receivable aging was as follows:
September 30, 2016
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn &
Title
|
|
|
Total
|
|
Current
|
|
$
|
3,645,540
|
|
|
$
|
248,820
|
|
|
$
|
282,212
|
|
|
$
|
4,176,572
|
|
1-30
|
|
|
290,044
|
|
|
|
46,460
|
|
|
|
-
|
|
|
|
336,504
|
|
31-60
|
|
|
249,995
|
|
|
|
23,836
|
|
|
|
-
|
|
|
|
273,831
|
|
61-90
|
|
|
175,254
|
|
|
|
15,287
|
|
|
|
-
|
|
|
|
190,541
|
|
91-120
|
|
|
150,320
|
|
|
|
10,087
|
|
|
|
-
|
|
|
|
160,407
|
|
121-150
|
|
|
131,000
|
|
|
|
3,684
|
|
|
|
-
|
|
|
|
134,684
|
|
151-180
|
|
|
129,724
|
|
|
|
1,799
|
|
|
|
-
|
|
|
|
131,523
|
|
|
|
|
4,771,877
|
|
|
|
349,973
|
|
|
|
282,212
|
|
|
|
5,404,062
|
|
Less Allowance
|
|
|
(920,000
|
)
|
|
|
(73,000
|
)
|
|
|
-
|
|
|
|
(993,000
|
)
|
|
|
$
|
3,851,877
|
|
|
$
|
276,973
|
|
|
$
|
282,212
|
|
|
$
|
4,411,062
|
|
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 43% 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 –
43%; 31 to 60 days – 65%; 61 to 90 days – 83%; 91 to 120 days – 89%; 121 to 150 days – 91%; and 151 + days
– 93%.
A rollforward of the Consumer Finance segment’s loans
receivable allowance is as follows:
|
|
Nine Months Ended
September 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
|
|
|
1,176,174
|
|
|
|
1,904,893
|
|
Charge-offs, net
|
|
|
(1,360,174
|
)
|
|
|
(1,946,893
|
)
|
Loans receivable allowance, end of period
|
|
$
|
993,000
|
|
|
$
|
1,177,000
|
|
A breakdown of accounts receivables by segment as of September
30, 2016 and December 31, 2015 are as follows:
September 30, 2016
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
1,624,351
|
|
|
$
|
172,813
|
|
|
$
|
619,568
|
|
|
$
|
10,179
|
|
|
$
|
2,426,911
|
|
Less allowance
|
|
|
(149,000
|
)
|
|
|
-
|
|
|
|
(17,000
|
)
|
|
|
-
|
|
|
|
(166,000
|
)
|
Net account receivable
|
|
$
|
1,475,351
|
|
|
$
|
172,813
|
|
|
$
|
602,568
|
|
|
|
10,179
|
|
|
$
|
2,260,911
|
|
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:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Deferred financing fees
|
|
$
|
265,779
|
|
|
$
|
285,452
|
|
Deferred franchise development and service fees
|
|
|
130,500
|
|
|
|
264,000
|
|
Merchandise credits and gift card liability
|
|
|
694,302
|
|
|
|
1,127,470
|
|
Other
|
|
|
135,561
|
|
|
|
119,416
|
|
Total
|
|
$
|
1,226,142
|
|
|
$
|
1,796,338
|
|
|
7.
|
Notes Payable – Long Term
|
|
|
September 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% (4.125% at September 30, 2016), secured
by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing April 21, 2021
|
|
|
3,266,667
|
|
|
|
-
|
|
Revolving credit facility (with a credit limit of $3,000,000) to a financial institution with monthly payments of interest only at LIBOR plus 3.5% (4.125% at September 30, 2016), secured by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing April 21, 2018
|
|
|
1,538,708
|
|
|
|
-
|
|
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% (4.125% at September 30, 2016), secured
by JPRE assets, maturing June 5, 2019 when remaining principal balance is due
|
|
|
3,071,454
|
|
|
|
3,371,460
|
|
Total
|
|
|
7,876,829
|
|
|
|
7,996,460
|
|
Less current maturities
|
|
|
(1,100,000
|
)
|
|
|
(4,900,008
|
)
|
|
|
$
|
6,776,829
|
|
|
$
|
3,096,452
|
|
Future minimum long-term principal payments are as follows:
Year
|
|
Amount
|
|
1
|
|
$
|
1,100,000
|
|
2
|
|
|
2,638,716
|
|
3
|
|
|
2,971,446
|
|
4
|
|
|
700,000
|
|
5
|
|
|
466,667
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
7,876,829
|
|
On April 22, 2016, WCR entered into a Credit Agreement with a financial institution. The Credit Agreement
provides the Company with an acquisition loan facility in an aggregate amount of up to $9,000,000, having a commitment 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 September
30, 2016 approximately $7,195,000 of credit was available under the acquisition and revolving credit facilities.
See Note 13 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
|
|
|
August 11, 2016
|
Record date
|
|
June 6, 2016
|
|
|
September 14, 2016
|
Date paid
|
|
June 15, 2016
|
|
|
September 21, 2016
|
Dividend per share of common stock
|
$
|
0.025
|
|
$
|
0.025
|
|
10.
|
Other Operating Expense
–
|
A breakout of other expense is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Bank fees
|
|
$
|
337,939
|
|
|
$
|
310,419
|
|
|
$
|
1,273,057
|
|
|
$
|
595,164
|
|
Collection costs
|
|
|
85,306
|
|
|
|
99,587
|
|
|
|
311,457
|
|
|
|
319,890
|
|
Conference expense
|
|
|
468,124
|
|
|
|
460,602
|
|
|
|
762,680
|
|
|
|
671,287
|
|
Insurance
|
|
|
184,106
|
|
|
|
110,788
|
|
|
|
528,995
|
|
|
|
286,783
|
|
Management and advisory fees
|
|
|
195,425
|
|
|
|
125,754
|
|
|
|
619,954
|
|
|
|
400,057
|
|
Professional and consulting fees
|
|
|
488,978
|
|
|
|
483,575
|
|
|
|
1,531,923
|
|
|
|
1,401,683
|
|
Supplies
|
|
|
231,995
|
|
|
|
167,480
|
|
|
|
591,919
|
|
|
|
496,116
|
|
Other
|
|
|
803,453
|
|
|
|
522,604
|
|
|
|
2,429,596
|
|
|
|
1,583,539
|
|
|
|
$
|
2,795,326
|
|
|
$
|
2,280,809
|
|
|
$
|
8,049,581
|
|
|
$
|
5,754,519
|
|
|
11.
|
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.
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 nine months ended September 30, 2016 and the unaudited pro forma results of operations
for the three and nine months ended September 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 September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,278
|
|
|
$
|
9,294
|
|
|
$
|
5,944
|
|
|
$
|
3,009
|
|
|
$
|
-
|
|
|
$
|
22,525
|
|
% of total revenue
|
|
|
19.0
|
%
|
|
|
41.2
|
%
|
|
|
26.4
|
%
|
|
|
13.4
|
%
|
|
|
-%
|
|
|
|
100.0
|
%
|
Net income (loss)
|
|
$
|
749
|
|
|
$
|
73
|
|
|
$
|
(325
|
)
|
|
$
|
391
|
|
|
$
|
(102
|
)
|
|
$
|
786
|
|
Net income attributable to noncontrolling interests
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6
|
|
Net income (loss) attributable to WCR common shareholders
|
|
$
|
743
|
|
|
$
|
73
|
|
|
$
|
(325
|
)
|
|
$
|
391
|
|
|
$
|
(102
|
)
|
|
$
|
780
|
|
Earnings (loss) per share attributable to WCR common shareholders – basic and diluted
|
|
$
|
0.078
|
|
|
$
|
0.008
|
|
|
$
|
(0.034
|
)
|
|
$
|
0.041
|
|
|
$
|
(0.011
|
)
|
|
$
|
0.082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
3,675
|
|
|
$
|
9,537
|
|
|
$
|
5,442
|
|
|
$
|
3,297
|
|
|
$
|
-
|
|
|
$
|
21,951
|
|
% of total pro forma revenue
|
|
|
16.7
|
%
|
|
|
43.5
|
%
|
|
|
24.8
|
%
|
|
|
15.0
|
%
|
|
|
-%
|
|
|
|
100.0
|
%
|
Pro forma net income (loss)
|
|
$
|
829
|
|
|
$
|
443
|
|
|
$
|
(569
|
)
|
|
$
|
390
|
|
|
$
|
(167
|
)
|
|
$
|
926
|
|
Pro forma net income attributable to noncontrolling interests
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6
|
|
Pro forma net income (loss) attributable to WCR common shareholders
|
|
$
|
823
|
|
|
$
|
443
|
|
|
$
|
(569
|
)
|
|
$
|
390
|
|
|
$
|
(167
|
)
|
|
$
|
920
|
|
Pro forma earnings (loss) per share attributable to WCR common shareholders – basic and diluted
|
|
$
|
0.087
|
|
|
$
|
0.047
|
|
|
$
|
(0.060
|
)
|
|
$
|
0.041
|
|
|
$
|
(0.018
|
)
|
|
$
|
0.097
|
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
11,452
|
|
|
$
|
27,152
|
|
|
$
|
30,699
|
|
|
$
|
8,830
|
|
|
$
|
-
|
|
|
$
|
78,133
|
|
% of total revenue
|
|
|
14.6
|
%
|
|
|
34.8
|
%
|
|
|
39.3
|
%
|
|
|
11.3
|
%
|
|
|
-%
|
|
|
|
100.0
|
%
|
Net income (loss)
|
|
$
|
1,834
|
|
|
$
|
526
|
|
|
$
|
1,682
|
|
|
$
|
964
|
|
|
$
|
(455
|
)
|
|
$
|
4,551
|
|
Net income attributable to noncontrolling interests
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15
|
|
Net income (loss) attributable to WCR common shareholders
|
|
$
|
1,819
|
|
|
$
|
526
|
|
|
$
|
1,682
|
|
|
$
|
964
|
|
|
$
|
(455
|
)
|
|
$
|
4,536
|
|
Earnings (loss) per share attributable to WCR common shareholders – basic and diluted
|
|
$
|
0.192
|
|
|
$
|
0.055
|
|
|
$
|
0.177
|
|
|
$
|
0.102
|
|
|
$
|
(0.048
|
)
|
|
$
|
0.478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
9,641
|
|
|
$
|
29,632
|
|
|
$
|
30,296
|
|
|
$
|
9,451
|
|
|
$
|
-
|
|
|
$
|
79,020
|
|
% of total pro forma revenue
|
|
|
12.2
|
%
|
|
|
37.5
|
%
|
|
|
38.3
|
%
|
|
|
12.0
|
%
|
|
|
-%
|
|
|
|
100.0
|
%
|
Pro forma net income (loss)
|
|
$
|
1,585
|
|
|
$
|
967
|
|
|
$
|
1,365
|
|
|
$
|
932
|
|
|
$
|
(408
|
)
|
|
$
|
4,441
|
|
Pro forma net income attributable to noncontrolling interests
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13
|
|
Pro forma net income (loss) attributable to WCR common shareholders
|
|
$
|
1,572
|
|
|
$
|
967
|
|
|
$
|
1,365
|
|
|
$
|
932
|
|
|
$
|
(408
|
)
|
|
$
|
4,428
|
|
Pro forma earnings (loss) per share attributable to WCR common shareholders – basic and diluted
|
|
$
|
0.165
|
|
|
$
|
0.102
|
|
|
$
|
0.144
|
|
|
$
|
0.098
|
|
|
$
|
(0.043
|
)
|
|
$
|
0.466
|
|
|
12.
|
Segment Information –
|
|
|
|
|
|
Segment information related to the three and nine month
periods ended September 30, 2016 and 2015 is presented below:
|
Three Months Ended September 30, 2016
(in thousands)
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
4,278
|
|
|
$
|
9,294
|
|
|
$
|
5,944
|
|
|
$
|
3,009
|
|
|
$
|
-
|
|
|
$
|
22,525
|
|
Net income (loss)
|
|
$
|
749
|
|
|
$
|
73
|
|
|
$
|
(325
|
)
|
|
$
|
391
|
|
|
$
|
(102
|
)
|
|
$
|
786
|
|
Expenditures for segmented assets
|
|
$
|
3
|
|
|
$
|
241
|
|
|
$
|
50
|
|
|
$
|
21
|
|
|
$
|
-
|
|
|
$
|
315
|
|
Three Months Ended September 30, 2015
(in thousands)
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
3,675
|
|
|
$
|
9,537
|
|
|
$
|
5,442
|
|
|
$
|
3,297
|
|
|
$
|
-
|
|
|
$
|
21,951
|
|
Net income (loss)
|
|
$
|
829
|
|
|
$
|
443
|
|
|
$
|
(569
|
)
|
|
$
|
390
|
|
|
$
|
(213
|
)
|
|
$
|
880
|
|
Expenditures for segmented assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
186
|
|
|
$
|
29
|
|
|
$
|
-
|
|
|
$
|
215
|
|
Nine Months Ended September 30, 2016
(in thousands)
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
11,452
|
|
|
$
|
27,152
|
|
|
$
|
30,699
|
|
|
$
|
8,830
|
|
|
$
|
-
|
|
|
$
|
78,133
|
|
Net income (loss)
|
|
$
|
1,834
|
|
|
$
|
526
|
|
|
$
|
1,682
|
|
|
$
|
964
|
|
|
$
|
(455
|
)
|
|
$
|
4,551
|
|
Total segment assets
|
|
$
|
10,111
|
|
|
$
|
16,472
|
|
|
$
|
14,723
|
|
|
$
|
15,735
|
|
|
$
|
413
|
|
|
$
|
57,454
|
|
Expenditures for segmented assets
|
|
$
|
19
|
|
|
$
|
1,688
|
|
|
$
|
89
|
|
|
$
|
39
|
|
|
$
|
-
|
|
|
$
|
1,835
|
|
Nine Months Ended September 30, 2015
(in thousands)
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
9,641
|
|
|
$
|
24,655
|
|
|
$
|
5,442
|
|
|
$
|
9,451
|
|
|
$
|
-
|
|
|
$
|
49,189
|
|
Net income (loss)
|
|
$
|
1,585
|
|
|
$
|
910
|
|
|
$
|
(569
|
)
|
|
$
|
932
|
|
|
$
|
(710
|
)
|
|
$
|
2,148
|
|
Total segment assets
|
|
$
|
9,379
|
|
|
$
|
12,823
|
|
|
$
|
13,568
|
|
|
$
|
16,299
|
|
|
$
|
544
|
|
|
$
|
52,613
|
|
Expenditures for segmented assets
|
|
$
|
91
|
|
|
$
|
3,656
|
|
|
$
|
186
|
|
|
$
|
45
|
|
|
$
|
14
|
|
|
$
|
3,992
|
|
|
13.
|
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 April 1, 2016 to extend the term through March 2019.
Pursuant to the Company’s numerous employment agreements,
bonuses of approximately $390,000 and $1,083,000 were accrued for the three and nine month periods ended September 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, and (b) no default shall have occurred and be continuing under the Credit
Agreement. Some covenant waivers were granted by the financial institution during the three months ended September 30, 2016.
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.
Wireless Retail Transaction
PQH entered into an Asset Purchase Agreement for the
acquisition of 20 Cricket Wireless retail locations for $2,050,000 and an option to purchase an additional 33 locations for an
aggregate purchase price of $7,200,000. In addition, if PQH exercised its option, seller has an option to retain a 30% ownership
in the 53 store transaction, with a corresponding adjustment to the purchase price. It is anticipated that the transaction will
close in November 2016.
Consumer Finance Segment Law Change
On November 8, 2016, South Dakota voters approved a
measure effectively banning payday lending in South Dakota. Unless delayed, the effective date of the measure will be November
16, 2016. Revenue generated in South Dakota is approximately 5% of Consumer Finance segment year to date revenue through September
30, 2016.
The Company evaluated all other events or transactions
that occurred after September 30, 2016 up through November 14, 2016, the date we issued these financial statements. During this
period we did not have any additional material subsequent events that impacted our financial statements.