NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies –
Basis of Presentation / 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 256 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. (PQH) (100%) – operates cellular retail stores (145 owned and operated plus 53 operated under management
agreement as of December 31, 2016), 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 “payday” stores (40 as of December 31, 2016)
in seven states (Colorado, Iowa, Kansas, Nebraska, North 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 retail pawn stores (three as of December 31, 2016) 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 the
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.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of 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 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 merchandise credits liability and deferred taxes and tax uncertainties.
Revenue Recognition
Franchise
Royalty revenues from franchisees are primarily based on a percentage
of business center sales and are recognized in the period in which they are earned. Initial franchise fee revenues are recognized
when the obligations required by the franchise agreement have been substantially performed by AGI, which is generally upon the
training of the franchisee. Revenues from area development franchise fees and International Master License Agreement (IML) fees
are recognized when the obligations required by the area development and IML agreements have been substantially performed.
Service fees and other revenues are recognized when services are
provided.
Cellular Retail
Sales revenue for sales of phones and accessories and dealer
compensation for related activations is recognized in the period in which the sale is completed (retail sales and associated fees).
Customer service fees are recognized upon completion of the service and payment received. Other dealer compensation not attributed
to phone activations is recorded in the period earned as reported to us by Cricket Wireless. All sales are presented net of
sales taxes, which are excluded from revenue.
Direct to Consumer
Sales revenue is recognized in the period in which product is shipped.
Sales billed or cash received in advance of actual shipment are deferred and recorded as income in the period in which shipment
is made. Shipping and handling fees billed to customers is included in net sales. Shipping and handling costs are expensed as incurred
and included in cost of sales. All sales are presented net of sales taxes, which are excluded from revenue.
Consumer Finance
Loan fees and interest on cash advance loans are recognized on a
constant-yield basis ratably over a loan’s term. Title and installment loan fees and interest are recognized using the interest
method, except that installment loan origination fees are recognized as they become non-refundable and installment loan maintenance
fees are recognized when earned. The Company recognizes fees on pawn loans on a constant-yield basis ratably over the loans’
terms. No fees are recognized on forfeited pawn loans.
Receivables and Loss Allowance
Franchise
Accounts receivable are recorded for earned but uncollected royalties
and other related franchise fees. Allowances are provided on an account-by-account basis for estimated uncollectible accounts as
deemed necessary by management. The Company considers current economic trends and changes in payment terms when evaluating the
adequacy of the allowance.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Direct to Consumer
Receivables, for noncash sales, are recorded when orders are shipped
and represent claims against third parties that will be settled in cash. The carrying value of receivables, net of the allowance
for doubtful accounts, represents their estimated net realizable value. The allowance for doubtful accounts is estimated based
on historical collection trends, type of customer, the age of outstanding receivables and existing economic conditions. If events
or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability
of those balances and the allowance is adjusted accordingly. Past due receivable balances are written-off when internal collection
efforts have been unsuccessful in collecting the amount due.
Consumer Finance
Included in loans receivable are unpaid principal, interest and
fee balances of payday, installment, pawn and title loans that have not reached their maturity date, and “late” payday
loans that have reached maturity within the last 180 days and have remaining outstanding balances. Late payday loans
generally are unpaid loans where a customer’s personal check has been deposited and the check has been returned due to non-sufficient
funds in the customer’s account, a closed account, or other reasons. All returned items are charged-off after 180 days, as
collections after that date have not been significant. Loans are carried at cost plus accrued interest or fees less payments made
and a loans receivable allowance.
The Company does not specifically reserve for any individual payday,
installment or title loan. The Company aggregates loan types for purposes of estimating the loss allowance using a methodology
that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio. This
methodology takes into account several factors, including (1) the amount of loan principal, interest and fee outstanding, (2) historical
charge offs from loans that originated during the last 24 months, (3) current and expected collection patterns and (4) current
economic trends. The Company utilizes a software program to assist with the tracking of its historical portfolio statistics. A
loan loss allowance is maintained for anticipated losses for payday and installment loans based primarily on our historical percentages
by loan type of net charge offs, applied against the applicable balance of loan principal, interest and fees outstanding. The Company
also periodically performs a look-back analysis on its loan loss allowance to verify the historical allowance established tracks
with the actual subsequent loan write-offs and recoveries. The Company is aware that as conditions change, it may also need to
make additional allowances in future periods. Loan losses or charge-offs of pawn or title loans are not recorded because the value
of the collateral exceeds the loan amount.
Inventory
Cellular Retail
Inventory, consisting of phones and accessories, is stated at cost,
determined on the specific identification and a first-in, first-out basis, respectively.
Direct to Consumer
Inventory is valued at the lower of cost or market using the weighted-average
method of determining cost.
Consumer Finance
Merchandise inventory is stated at the lower of cost or market.
The principal amount of an unpaid loan becomes the inventory cost for forfeited collateral.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful lives of the related assets as follows:
·
|
Computer equipment and software
|
3 – 10 years
|
·
|
Improvements and equipment
|
3 – 15 years
|
·
|
Building
|
39 years
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of maintenance and repairs is charged to operations as
incurred while renewals and betterments are capitalized.
The Company capitalizes certain internal costs, including payroll
costs, incurred in connection with the development of software for internal use. These costs are capitalized beginning when the
Company has entered the application development stage. The capitalization of these costs ceases when the software is substantially
complete and ready for its intended use. Only costs incurred for enhancements that are expected to result in additional features
or functionality are capitalized and expensed over the estimated useful life of the enhancements.
Goodwill
Goodwill represents the excess of cost over the fair value of net
assets acquired using purchase accounting and is not amortized.
Intangible Assets
Intangible assets represent the fair values management assigned
to assets acquired through business acquisitions and is amortized over periods of three to 15 years based on management’s
estimates of the useful life of the asset.
Long-Lived Assets
The Company assesses the possibility of impairment of long-lived
and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors
that could trigger an impairment review include significant underperformance relative to expected historical or projected future
cash flows, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant
negative industry events or trends. In addition, the Company conducts an annual goodwill impairment test as of October 1 each year.
The Company assesses goodwill for impairment at the reporting unit level by applying a fair value test. This fair value test involves
a two-step process. The first step is to compare the carrying value of our net assets to our fair value. If the fair value is determined
to be less than the carrying value, a second step is performed to measure the amount of the impairment, if any.
Due to the minimal amount of public float for the Company’s
common stock, the market capitalization approach of valuing the reporting unit as a whole is not practical. The discounted future
cash flows method is utilized in estimating value. As further discussed in Note 7, when estimated future cash flows are less than
the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount
of the impairment loss, if any.
Merchandise Credits and Gift Card Liabilities
Direct to Consumer
The Company maintains a liability for unredeemed gift cards, gift
certificates and merchandise credits until the earlier of redemption, escheatment or a maximum of two years. The Company has concluded
based on historical redemption trends that the likelihood of these liabilities being redeemed beyond two years from the date of
issuance is remote. The liability is also reserved for estimated redemption rates which management bases on historical trends.
Advertising, Marketing and Development Costs
Franchise
The costs of advertising, marketing and development are expenses
as incurred.
Certain amounts received from franchisees for marketing and advertising
campaigns benefiting the franchisees are held in the AlphaGraphics Integrated Marketing Fund. AGI controls the manner in which
these funds are spent. In addition to advertising, marketing and development expenses, fund expenses include general operating
expenses such as reasonable salaries, travel related expenditures, administrative expenses, and overhead incurred by AGI on behalf
of the fund. Amounts in the fund and the related revenues and expenses are not reflected in the accompanying consolidated financial
statements. AGI may direct that the amount spent in any fiscal year is greater or less than the aggregate contributions made by
the franchisees into the fund.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Direct to Consumer
The Company expenses advertising costs as they are incurred, except
for direct-response advertising, which is capitalized and amortized over its expected period of future benefits, not to exceed
six months. Direct-response advertising consists primarily of catalog book production, printing, and postage costs. Prepaid advertising
costs at December 31, 2016 and 2015 were $1.08 million and $0.92 million, respectively.
Consumer Finance
The costs of advertising and marketing are expenses as incurred.
Stock-based Compensation
The Company accounts for its employee stock-based compensation plans
using the fair value method. The fair value method requires the Company to estimate the grant-date fair value of its stock-based
awards and amortize this fair value to compensation expense over the requisite service period or vesting term.
The Company uses the Black-Scholes option-pricing model to estimate
the fair value of the Company’s stock option awards. The determination of the fair value of stock-based payment awards on
the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding
a number of complex and subjective variables. These variables include the expected stock price volatility over the term of the
awards, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends. Due
to the inherent limitations of option-valuation models, future events that are unpredictable and the estimation process utilized
in determining the valuation of the stock-based awards, the ultimate value realized by award holders may vary significantly from
the amounts expensed in the Company’s financial statements.
Stock-based compensation expense is recognized net of estimated
forfeitures such that expense is recognized only for those stock-based awards that are expected to vest. A forfeiture rate is estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimate.
Income Taxes
Deferred income taxes reflect the tax consequences in future years
of differences between the tax basis of assets and liabilities and their financial reporting amounts, based on enacted tax laws
and statutory tax rates applicable in the periods in which the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes
represents taxes paid or payable for the current year and changes during the year in deferred tax assets and liabilities.
Net Income Per Common Share
Basic net income per common share is computed by dividing the income
available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per
share gives effect to all potentially dilutive common shares outstanding during the period, including stock options, using the
treasury stock method. Options to purchase 65,000 shares granted under the 2015 Stock Incentive Plan effective February 6, 2015
(see Note 13) were outstanding at December 31, 2016. These options have a strike price in excess of the market price as of December
31, 2016 and 2015, were antidilutive and therefore not included in the computation of diluted earnings per share. Thus, there were
no dilutive common shares as of December 31, 2016 and 2015.
Fair Value of Financial Instruments
The amounts reported in the balance sheets for cash, accounts and
loans receivable, inventory, and accounts payable are short-term in nature and their carrying values approximate fair values. The
amounts reported in the balance sheets for notes payable are both long-term and short-term and their carrying value approximates
fair value.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain Statement 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 year
ended December 31, 2016.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) and
the International Accounting Standards Board (IASB) jointly issued a comprehensive new revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under US GAAP and IFRS. This converged standard is effective for annual and interim
periods beginning after December 15, 2016. 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 2015-17, Income Taxes (Topic
740) related to balance sheet classification of deferred taxes which will require entities to present deferred tax assets (DTAs)
and deferred tax liabilities (DTAs) as noncurrent in a classified balance sheet. The ASU simplifies the current guidance (ASC 740-10-45-4,
which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The ASU is
effective for annual reporting periods beginning on after December 15, 2016 and interim periods within that annual period, with
early adoption permitted. The Company early adopted the ASU 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 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 2016-02, Leases (Topic 842)
related to recognition of lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The ASU is effective for annual reporting periods beginning after December 15, 2018, including interim periods within
that annual period, with early adoption permitted and to be applied using a modified retrospective approach. The Company is currently
evaluating the impact the ASU will have on our financial condition, results of operations and consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments
- Credit Losses (Topic 326) related to the measurement of credit losses on financial instruments. 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.
The ASU is effective for annual reporting periods beginning after December 15, 2018 and interim periods within that annual period,
with early adoption permitted and the standard to be applied using a modified retrospective approach. The Company is currently
evaluating the impact the ASU will have on our financial condition, results of operations and consolidated financial statements.
No other new accounting pronouncements issued or effective during
the fiscal year have had or are expected to have a material impact on the 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 assessing significant penalties or seeking settlement payments.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, primarily through a decrease in revenues resulting from the cessation or curtailment of operations, decrease
in operating income through increased legal expenditures or fines, 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.
Concentrations
The Company’s subsidiaries each have demand deposits at financial
institutions, often times in excess of the limit for insurance by the Federal Deposit Insurance Corporation. As of December 31,
2016, the Company had demand deposits in excess of insurance amounts of approximately $6.62 million.
Loans receivable in the Consumer Finance segment are concentrated
in the sub-prime market and geographically, primarily in the Midwest. For the years ended December 31, 2016 and 2015, the Consumer
Finance segment had geographic economic and regulatory risk concentrations (shown as a percentage of applicable segment’s
revenue by state when 10% or more) as follows:
Consumer Finance Segment
|
|
|
2016 % of
Revenues
|
|
|
2015 % of
Revenues
|
|
Nebraska
|
|
|
36
|
%
|
|
|
33
|
%
|
North Dakota
|
|
|
20
|
%
|
|
|
19
|
%
|
Wyoming
|
|
|
13
|
%
|
|
|
14
|
%
|
Iowa
|
|
|
16
|
%
|
|
|
14
|
%
|
The Company’s Wireless Retail segment is an exclusive dealer
for Cricket. As a dealer operating exclusively for a single carrier, the Company is subject to a number of concentrations, including
revenues from a single brand, a single supplier for phones, a single operating system provider and select third party processors.
Our Direct to Consumer subsidiary JPPA has an agreement with a third
party wholesale grower that is in effect until 2019. The grower has agreed to perform research for JPPA and maintain JPPA's research
crop in exchange for a reduction in royalties to be paid to JPPA for growing JPPA's patented roses. There is an option to renew
the agreement for consecutive two year terms and the agreement calls for a 24 month notice prior to termination.
RAI has an agreement with a single third-party fulfillment provider.
For non-drop ship orders, the fulfillment provider receives and stores inventory, performs periodic cycle counts, picks, packs
and ships customer orders. Additional services such as, order taking, processing of customer payments, personalization, customer
services, and order processing are also performed by the fulfillment provider.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Loans Receivable –
At December 31, 2016 and December 31, 2015, the Consumer
Finance segment’s outstanding loans receivable aging was as follows:
December 31, 2016
|
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn &
Title
|
|
|
Total
|
|
Current
|
|
$
|
3,683,603
|
|
|
$
|
272,703
|
|
|
$
|
284,460
|
|
|
$
|
4,240,766
|
|
1-30
|
|
|
253,297
|
|
|
|
44,433
|
|
|
|
-
|
|
|
|
297,730
|
|
31-60
|
|
|
201,375
|
|
|
|
27,905
|
|
|
|
-
|
|
|
|
229,280
|
|
61-90
|
|
|
185,072
|
|
|
|
18,747
|
|
|
|
-
|
|
|
|
203,819
|
|
91-120
|
|
|
159,435
|
|
|
|
15,737
|
|
|
|
-
|
|
|
|
175,172
|
|
121-150
|
|
|
176,625
|
|
|
|
8,889
|
|
|
|
-
|
|
|
|
185,514
|
|
151-180
|
|
|
134,171
|
|
|
|
7,824
|
|
|
|
-
|
|
|
|
141,995
|
|
|
|
|
4,793,578
|
|
|
|
396,238
|
|
|
|
284,460
|
|
|
|
5,474,276
|
|
Less Allowance
|
|
|
(953,000
|
)
|
|
|
(83,000
|
)
|
|
|
-
|
|
|
|
(1,036,000
|
)
|
|
|
$
|
3,840,578
|
|
|
$
|
313,238
|
|
|
$
|
284,460
|
|
|
$
|
4,438,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Company’s Consumer Finance segment’s
collection efforts, it historically writes off approximately 44% of the returned payday items, the most significant element making
up loans receivable. 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 – 44%; 31 to 60 days – 66%; 61 to 90 days – 84%;
91 to 120 days – 89%; and 121 to 150 – 92% and 151+ days – 93%.
A rollforward of the Company’s loans receivable allowance
for the year ended December 31, 2016 and 2015 is as follows:
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Loans receivable allowance, beginning of year
|
|
$
|
1,177,000
|
|
|
$
|
1,219,000
|
|
Provision for loan losses charged to expense
|
|
|
1,605,867
|
|
|
|
1,904,893
|
|
Charge-offs, net
|
|
|
(1,746,867
|
)
|
|
|
(1,946,893
|
)
|
Loans receivable allowance, end of year
|
|
$
|
1,036,000
|
|
|
$
|
1,177,000
|
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Accounts Receivable
–
A breakdown of accounts receivables by segment as of December
31, 2016 and 2015 are as follows:
December 31, 2016
|
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
1,103,210
|
|
|
$
|
333,800
|
|
|
$
|
363,426
|
|
|
$
|
12,431
|
|
|
$
|
1,812,867
|
|
Less allowance
|
|
|
(83,000
|
)
|
|
|
-
|
|
|
|
(13,000
|
)
|
|
|
-
|
|
|
|
(96,000
|
)
|
Net accounts receivable
|
|
$
|
1,020,210
|
|
|
$
|
333,800
|
|
|
$
|
350,426
|
|
|
$
|
12,431
|
|
|
$
|
1,716,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 accounts receivable
|
|
$
|
1,149,446
|
|
|
$
|
148,346
|
|
|
$
|
665,400
|
|
|
$
|
-
|
|
|
$
|
1,963,192
|
|
6. Property and Equipment
–
A rollforward of the Company’s property and equipment
is as follows:
|
|
December 31, 2015
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2016
|
|
Property and equipment
|
|
$
|
3,799,327
|
|
|
$
|
506,836
|
|
|
$
|
1,736,566
|
|
|
$
|
(423,166
|
)
|
|
$
|
5,619,563
|
|
Leasehold improvements
|
|
|
721,151
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,792
|
)
|
|
|
590,359
|
|
Software
|
|
|
1,692,239
|
|
|
|
-
|
|
|
|
179,850
|
|
|
|
-
|
|
|
|
1,872,089
|
|
Building
|
|
|
5,148,703
|
|
|
|
-
|
|
|
|
44,393
|
|
|
|
(85,906
|
)
|
|
|
5,107,190
|
|
Land
|
|
|
1,209,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,500
|
)
|
|
|
1,200,000
|
|
Other
|
|
|
96,311
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,472
|
)
|
|
|
73,839
|
|
|
|
|
12,667,231
|
|
|
|
506,836
|
|
|
|
1,960,809
|
|
|
|
(671,836
|
)
|
|
|
14,463,040
|
|
Accumulated depreciation
|
|
|
(4,105,910
|
)
|
|
|
-
|
|
|
|
(1,196,553
|
)
|
|
|
536,043
|
|
|
|
(4,766,420
|
)
|
|
|
$
|
8,561,321
|
|
|
$
|
506,836
|
|
|
$
|
764,256
|
|
|
$
|
(135,793
|
)
|
|
$
|
9,696,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2015
|
|
Property and equipment
|
|
$
|
2,853,603
|
|
|
$
|
1,202,435
|
|
|
$
|
605,204
|
|
|
$
|
(861,915
|
)
|
|
$
|
3,799,327
|
|
Leasehold improvements
|
|
|
787,188
|
|
|
|
-
|
|
|
|
22,766
|
|
|
|
(88,803
|
)
|
|
|
721,151
|
|
Software
|
|
|
504,967
|
|
|
|
1,197,839
|
|
|
|
112,876
|
|
|
|
(123,443
|
)
|
|
|
1,692,239
|
|
Building
|
|
|
85,906
|
|
|
|
5,034,348
|
|
|
|
28,449
|
|
|
|
-
|
|
|
|
5,148,703
|
|
Land
|
|
|
9,500
|
|
|
|
1,200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,209,500
|
|
Other
|
|
|
96,311
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96,311
|
|
|
|
|
4,337,475
|
|
|
|
8,634,622
|
|
|
|
769,295
|
|
|
|
(1,074,161
|
)
|
|
|
12,667,231
|
|
Accumulated depreciation
|
|
|
(3,139,765
|
)
|
|
|
(1,334,555
|
)
|
|
|
(697,956
|
)
|
|
|
1,066,366
|
|
|
|
(4,105,910
|
)
|
|
|
$
|
1,197,710
|
|
|
$
|
7,300,067
|
|
|
$
|
71,339
|
|
|
$
|
(7,795
|
)
|
|
$
|
8,561,321
|
|
7. Goodwill and Intangible
Assets –
During the fourth quarter of 2016, the Company completed its annual
impairment test of the Consumer Finance segment, resulting in an impairment charge of $7,559,063, or 100% of the goodwill in the
Consumer Finance segment. There were several factors that contributed to this charge, including a voter approved measure in the
state of South Dakota that resulted in our cessation of operations in that state, the overall negative rates of growth of sales,
profit and cash flows from our payday operations, lowered expectations for future performance and negative state and industry factors
that upwardly effected the discount rates used in the current year valuation versus those used previously. During the fourth quarter
of 2016, the Company also completed the annual impairment assessments for all other segment intangible assets, determining there
was no other impairment. There were no impairment charges recorded in 2015.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the carrying amount of goodwill for the year ended
December 31, 2016, are as follows:
|
|
Wireless Retail
Segment
|
|
|
Direct to
Consumer
Segment
|
|
|
Consumer
Finance
Segment
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
4,955,140
|
|
|
$
|
-
|
|
|
$
|
8,001,728
|
|
|
$
|
12,956,868
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill, net of impairment losses
|
|
|
4,955,140
|
|
|
|
-
|
|
|
|
8,001,728
|
|
|
|
12,956,868
|
|
2015 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired (disposed) during year
|
|
|
810,144
|
|
|
|
31,244
|
|
|
|
(442,665
|
)
|
|
|
398,723
|
|
Impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
5,765,284
|
|
|
|
31,244
|
|
|
|
7,559,063
|
|
|
|
13,355,591
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill, net of impairment losses
|
|
|
5,765,284
|
|
|
|
31,244
|
|
|
|
7,559,063
|
|
|
|
13,355,591
|
|
2016 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,559,063
|
)
|
|
|
(7,559,063
|
)
|
Balance at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
5,765,284
|
|
|
|
31,244
|
|
|
|
7,559,063
|
|
|
|
13,355,591
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,559,063
|
)
|
|
|
(7,559,063
|
)
|
Goodwill, net of impairment losses
|
|
$
|
5,765,284
|
|
|
$
|
31,244
|
|
|
$
|
-
|
|
|
$
|
5,796,528
|
|
A rollforward of the Company’s intangible assets is as follows:
|
|
December 31, 2015
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2016
|
|
Customer relationships
|
|
$
|
6,072,912
|
|
|
$
|
81,405
|
|
|
$
|
-
|
|
|
$
|
(2,566,912
|
)
|
|
$
|
3,587,405
|
|
Acquired franchise agreements
|
|
|
5,227,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,227,112
|
|
Other
|
|
|
227,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227,000
|
|
Amortizable Intangible assets
|
|
|
11,527,024
|
|
|
|
81,405
|
|
|
|
-
|
|
|
|
(2,566,912
|
)
|
|
|
9,041,517
|
|
Less accumulated amortization
|
|
|
(6,290,700
|
)
|
|
|
-
|
|
|
|
(563,076
|
)
|
|
|
2,566,912
|
|
|
|
(4,286,864
|
)
|
Net Amortizable Intangible Assets
|
|
|
5,236,324
|
|
|
|
81,405
|
|
|
|
(563,076
|
)
|
|
|
-
|
|
|
|
4,754,653
|
|
Non-amortizable trademarks
|
|
|
2,782,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,782,292
|
|
Intangible Assets, net
|
|
$
|
8,018,616
|
|
|
$
|
81,405
|
|
|
$
|
(563,076
|
)
|
|
$
|
-
|
|
|
$
|
7,536,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2015
|
|
Customer relationships
|
|
$
|
4,924,912
|
|
|
$
|
1,148,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,072,912
|
|
Acquired franchise agreements
|
|
|
5,227,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,227,112
|
|
Other
|
|
|
-
|
|
|
|
227,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227,000
|
|
Amortizable Intangible assets
|
|
|
10,152,024
|
|
|
|
1,375,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,527,024
|
|
Less accumulated amortization
|
|
|
(5,685,523
|
)
|
|
|
(105,480
|
)
|
|
|
(499,697
|
)
|
|
|
-
|
|
|
|
(6,290,700
|
)
|
Net Amortizable Intangible Assets
|
|
|
4,466,501
|
|
|
|
1,269,520
|
|
|
|
(499,697
|
)
|
|
|
-
|
|
|
|
5,236,324
|
|
Non-amortizable trademarks
|
|
|
2,782,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,782,292
|
|
Intangible Assets, net
|
|
$
|
7,248,793
|
|
|
$
|
1,269,520
|
|
|
$
|
(499,697
|
)
|
|
$
|
-
|
|
|
$
|
8,018,616
|
|
As of December 31, 2016, estimated future amortization expense for
the amortizable intangible assets is as follows:
2017
|
|
$
|
553,993
|
|
2018
|
|
|
540,619
|
|
2019
|
|
|
528,581
|
|
2020
|
|
|
511,014
|
|
2021
|
|
|
487,797
|
|
Thereafter
|
|
|
2,132,649
|
|
|
|
$
|
4,754,653
|
|
8. Note Receivable –
The company is party to a secured promissory note dated November
18, 2016 with the selling parties of 53 Cricket retail locations as further discussed in Note 18. The note provides for
up to $4,000,000 of advances to selling parties, accrues interest at 8%, matures on the earlier of closing or November 18, 2017
and is secured by all of the property and assets of sellers. Advances and accrued interest pursuant to the secured promissory note
agreement will be credited against the amount owing to sellers.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Deferred Revenue and
Other Liabilities –
Deferred revenue and other liabilities consisted of the following:
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred financing fees
|
|
$
|
264,174
|
|
|
$
|
285,452
|
|
Deferred franchise development fees
|
|
|
62,500
|
|
|
|
264,000
|
|
Merchandise credits and gift card liability
|
|
|
907,362
|
|
|
|
1,127,470
|
|
Other
|
|
|
193,322
|
|
|
|
119,416
|
|
Total
|
|
$
|
1,427,358
|
|
|
$
|
1,796,338
|
|
10. Leases
The Company leases retail and office facilities under operating
leases with terms ranging from month to month to six years, with rights to extend for additional periods. Rent expense, inclusive
of base rents and common area maintenance obligations, insurance and real estate tax reimbursements, on all operations was
approximately $6,610,000 and $4,490,000 in 2016 and 2015, respectively. Future minimum lease payments (in thousands)
are approximately as follows:
Year Ending December 31,
|
|
Operating Leases
|
|
2017
|
|
$
|
5,792
|
|
2018
|
|
|
4,805
|
|
2019
|
|
|
4,015
|
|
2020
|
|
|
2,094
|
|
2021
|
|
|
1,422
|
|
thereafter
|
|
|
219
|
|
Total minimum lease payments
|
|
$
|
18,347
|
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Notes Payable –
Long Term –
The Company’s long-term debt is as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Note payable (with a credit limit of $3,000,000) to River City Equity, Inc., with interest payable monthly at 12%, (terminated in 2016)
|
|
$
|
-
|
|
|
$
|
3,000,000
|
|
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 December 31, 2016), secured by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing April 21, 2018
|
|
|
998,426
|
|
|
|
-
|
|
Subsidiary note payable to a financial institution with quarterly principal payments of $375,000 plus interest at prime rate plus 2.5% (terminated in 2016)
|
|
|
-
|
|
|
|
1,625,000
|
|
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 December 31 2016), secured
by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing April 21, 2021
|
|
|
3,091,667
|
|
|
|
-
|
|
Note pa
yab
le to a financial institution with monthly principal payment of $56,667 plus interest at LIBOR plus 3.5% (4.125% at December 31 2016), secured
by substantially all assets of the Company with stated guarantee amounts by subsidiaries, maturing December 1, 2021
|
|
|
3,400,000
|
|
|
|
-
|
|
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 December 31, 2016), secured
by JPRE assets, maturing June 5, 2019 when remaining principal balance is due
|
|
|
2,971,452
|
|
|
|
3,371,460
|
|
Total
|
|
|
10,461,545
|
|
|
|
7,996,460
|
|
Less current maturities
|
|
|
(1,780,000
|
)
|
|
|
(4,900,008
|
)
|
|
|
$
|
8,681,545
|
|
|
$
|
3,096,452
|
|
Future minimum long-term principal payments are as follows:
Year Ending December 31,
|
|
Amount
|
|
2017
|
|
$
|
1,780,000
|
|
2018
|
|
|
2,778,434
|
|
2019
|
|
|
3,551,444
|
|
2020
|
|
|
1,380,000
|
|
2021
|
|
|
971,667
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
10,461,545
|
|
The Company is party to Credit Agreement with a financial institution
entered into on April 22, 2016 and amended November 23, 2016. The Credit Agreement provides the Company with a revolving line of
credit facility in an aggregate amount up to $3,000,000, having a maturity date of April 21, 2018 and an acquisition loan facility
in an aggregate amount of up to $9,000,000, having a maturity date of April 21, 2018. The revolver and 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. Funds advanced under
the acquisition loan facility 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 November 23, 2016 another $3,400,000 was
advanced under the acquisition loan. At December 31, 2016 approximately $4,510,000 of credit was available under the credit facilities.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 18 for additional terms and conditions related to the Credit
Agreement.
The Company’s subsidiaries’ notes payable with financial
institutions include certain financial covenants. Management has determined that the applicable subsidiaries were in compliance
with these financial covenants as of December 31, 2016.
12. Income Taxes –
The Company’s provision for income taxes is as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,617,000
|
|
|
$
|
1,535,444
|
|
State
|
|
|
325,000
|
|
|
|
305,120
|
|
Foreign
|
|
|
42,000
|
|
|
|
30,200
|
|
|
|
|
2,984,000
|
|
|
|
1,870,764
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,748,000
|
)
|
|
|
547,000
|
|
State
|
|
|
(372,000
|
)
|
|
|
64,000
|
|
|
|
|
(2,120,000
|
)
|
|
|
611,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
864,000
|
|
|
$
|
2,481,764
|
|
Deferred income tax assets (liabilities) are summarized as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Allowance for accounts and loans receivable
|
|
$
|
428,000
|
|
|
$
|
544,000
|
|
Inventory capitalization
|
|
|
98,000
|
|
|
|
120,000
|
|
Inventory reserve
|
|
|
38,000
|
|
|
|
75,000
|
|
Accrued expenses
|
|
|
155,000
|
|
|
|
198,000
|
|
Net operating losses (expires 2031)
|
|
|
47,000
|
|
|
|
113,000
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(21,000
|
)
|
Prepaid expense
|
|
|
(429,000
|
)
|
|
|
(374,000
|
)
|
Property and equipment
|
|
|
(901,000
|
)
|
|
|
(721,000
|
)
|
Goodwill and intangible assets
|
|
|
(1,211,000
|
)
|
|
|
(3,864,000
|
)
|
Capital loss carryforward (expires 2016)
|
|
|
-
|
|
|
|
20,000
|
|
Foreign tax credits
|
|
|
-
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(1,775,000
|
)
|
|
$
|
(3,889,000
|
)
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliations from the statutory federal income tax rate to the
effective income tax rate are as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax expense using the statutory federal rate
|
|
$
|
800,000
|
|
|
$
|
2,047,000
|
|
State income taxes, net of federal benefit
|
|
|
(34,000
|
)
|
|
|
213,000
|
|
Transaction expenses
|
|
|
18,000
|
|
|
|
119,000
|
|
Share based compensation
|
|
|
18,000
|
|
|
|
41,000
|
|
Other
|
|
|
62,000
|
|
|
|
61,764
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
864,000
|
|
|
$
|
2,481,764
|
|
It is the Company’s practice to recognize penalties and/or
interest related to income tax matters in interest and penalties expense. As of December 31, 2016 and 2015, the Company had an
immaterial amount of accrued interest and penalties.
The Company is subject to income taxes in the U.S. federal jurisdiction
and various states and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related
tax laws and regulations and require significant judgment to apply. Accounting principles generally accepted in the United States
of America require management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the company
has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service.
Management has analyzed the tax positions taken by the Company and has concluded that as of December 31, 2016, there are no uncertain
positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated
financial statements. The Company is subject to routine audits by taxing jurisdictions. Currently the Company has no federal or
state audits in progress. Management believes the Company is no longer subject to income tax examinations for years prior to 2013
for all entities with the exception of one subsidiary, which management believes is no longer subject to income tax examinations
for years prior to 2012.
13. Equity –
Reincorporation
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.
Common Stock Issued
As further explained in Note 16, on July 1, 2015, we issued an aggregate
3.5 million shares of common stock for the acquisition of JPPA, RAI and JPRE. This represented approximately 37% of the total issued
and outstanding common stock of the Company after the issuance, which totaled 9,497,534 shares.
WCR 2015 Stock Incentive Plan
On February 2, 2008, the Board of Directors of the Company approved
and adopted the Company’s 2008 Stock Incentive Plan, pursuant to which an aggregated of 100,000 shares of common stock have
been reserved for issuance. Effective February 6, 2015, the Board of Directors terminated the earlier adopted 2008 Stock
Incentive Plan and adopted the Company’s new 2015 Stock Incentive Plan. There were no incentives issued or outstanding under
the terminated plan. As of December 31, 2016 65,000 options had been granted under the 2015 plan.
The Board of Directors, or a committee of the board, administers
the 2015 Stock Incentive Plan and has complete authority to award incentives, to interpret the plan and to make any other determination
which it believes necessary and advisable for the proper administration of the plan. A total of 100,000 shares of common stock
were reserved in connection with the adoption of the 2015 Stock Incentive Plan.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 2015 Stock Incentive plan permits the granting of incentives
in any one or a combination of the following forms:
·
|
stock options, including options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, as “qualified” or “incentive” stock options;
|
·
|
stock appreciation rights (often referred to as “SARs”) payable in shares of common stock;
|
·
|
restricted stock and restricted stock units;
|
·
|
performance awards of cash, stock or property; and
|
·
|
stock awards.
|
The following table summarizes nonvested stock option awards
outstanding at December 31, 2016 and the changes for the year then ended:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Term
(
in years
)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding and nonvested at December 31, 2015
|
|
|
65,000
|
|
|
$
|
6.00
|
|
|
|
8.11
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(22,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Outstanding and nonvested at December 31, 2016
|
|
|
43,000
|
|
|
$
|
6.00
|
|
|
|
|
|
|
|
-
|
|
Exercisable at December 31, 2016
|
|
|
22,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The option vests in three annual and near-equal installments on
each of February 8, 2016, 2017 and 2018, and has a contract life of ten years. There were 22,000 vested options at December 31,
2016. The strike price exceeded the share value at December 31, 2016 and thus there was no intrinsic value in outstanding vested
options at December 31, 2016. As of December 31, 2016, total unrecognized stock-based compensation expense related to nonvested
stock options was approximately $28,000, which is expected to be recognized over a weighted-average period of approximately 1.1
years.
Noncontrolling Interests
The Company owns 99.2% of AGI. For financial interests in
which the Company owns a controlling financial interest, the Company applies the provisions of ASC 810 which are applicable to
reporting the equity and net income or loss attributable to noncontrolling interests.
14. Dividends –
Our Board of Directors declared the following dividends payable
in 2016:
Date Declared
|
|
Record Date
|
|
Dividend Per Share
|
|
|
Payment Date
|
May 24, 2016
|
|
June 6, 2016
|
|
$
|
0.025
|
|
|
June 15, 2016
|
August 11, 2016
|
|
September 14, 2016
|
|
$
|
0.025
|
|
|
September 21, 2016
|
November 11, 2016
|
|
December 16, 2016
|
|
$
|
0.025
|
|
|
December 21, 2016
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Other Expenses –
A breakout of other expense is as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Bank fees
|
|
$
|
1,814,481
|
|
|
$
|
1,079,930
|
|
Collection costs
|
|
|
397,312
|
|
|
|
431,682
|
|
Conference expense
|
|
|
855,982
|
|
|
|
680,991
|
|
Insurance
|
|
|
672,234
|
|
|
|
540,257
|
|
Management and advisory fees
|
|
|
805,630
|
|
|
|
578,082
|
|
Professional and consulting fees
|
|
|
2,094,618
|
|
|
|
1,911,163
|
|
Supplies
|
|
|
899,436
|
|
|
|
694,302
|
|
Other
|
|
|
3,312,639
|
|
|
|
2,844,765
|
|
|
|
$
|
10,852,332
|
|
|
$
|
8,761,172
|
|
16. Acquisitions –
Cellular Retail Growth
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). The entities acquired,
when combined, do not meet the 20% significant subsidiaries thresholds under Rule 210.1-02 as modified by Rule 210.3-05(b) of SEC
Reg. S-X. Under the equity method of accounting, the assets acquired and liabilities assumed were recorded at their estimated fair
values as of the purchase date as follows:
|
|
June 1, 2015
|
|
Cash
|
|
$
|
389,000
|
|
Inventory
|
|
|
427,000
|
|
Other receivables
|
|
|
405,000
|
|
Property and equipment
|
|
|
612,000
|
|
Goodwill
|
|
|
578,000
|
|
Intangible assets
|
|
|
903,000
|
|
Other assets
|
|
|
69,000
|
|
Accounts payable and accrued liabilities
|
|
|
(826,000
|
)
|
|
|
$
|
2,557,000
|
|
Direct to Consumer Segment
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. In consideration for the acquisition
of these businesses, the Company issued to the former owners an aggregate of 3.5 million shares of the Company’s common stock
representing approximately 37% of the total issued and outstanding common stock after consummation of the acquisition.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The e
ntities are affiliated entities
under common control and in accordance with Accounting Standards Codification Topic 805, “Business Combinations,” and
the Company, as the acquirer, recognized the assets and liabilities of the target entities at their historical values as of the
date of merger as follows
:
|
|
July 1, 2015
|
|
Cash
|
|
$
|
2,082,000
|
|
Accounts Receivables, net
|
|
|
527,000
|
|
Inventory
|
|
|
3,170,000
|
|
Deferred income tax asset
|
|
|
186,000
|
|
Prepaid expense and other current assets
|
|
|
525,000
|
|
Property and equipment, net
|
|
|
6,590,000
|
|
Goodwill
|
|
|
31,000
|
|
Intangible assets, net
|
|
|
122,000
|
|
Accounts payable and accrued liabilities
|
|
|
(2,231,000
|
)
|
Short-term notes payable
|
|
|
(120,000
|
)
|
Income taxes payable
|
|
|
(547,000
|
)
|
Deferred revenue and other
|
|
|
(460,000
|
)
|
Notes payable and capital leases
|
|
|
(3,583,000
|
)
|
Deferred income tax liability
|
|
|
(169,000
|
)
|
|
|
$
|
6,123,000
|
|
The results of the operations for the acquired business have been
included in the consolidated financial statements since the date of the acquisition. The following table presents the unaudited
pro forma results of operations for the year ended December 31, 2016 and 2015 (in thousands), 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.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
15,194
|
|
|
$
|
39,236
|
|
|
$
|
42,914
|
|
|
$
|
11,843
|
|
|
$
|
-
|
|
|
$
|
109,187
|
|
% of total pro forma revenue
|
|
|
13.9
|
%
|
|
|
35.9
|
%
|
|
|
39.3
|
%
|
|
|
10.9
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Pro forma net income
|
|
$
|
2,538
|
|
|
$
|
639
|
|
|
$
|
2,245
|
|
|
$
|
(3,318
|
)
|
|
$
|
(625
|
)
|
|
$
|
1,479
|
|
Pro forma net income attributable to noncontrolling
interests
|
|
$
|
21
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21
|
|
Pro forma net income attributable to WCR common
shareholders
|
|
$
|
2,517
|
|
|
$
|
639
|
|
|
$
|
2,245
|
|
|
$
|
(3,318
|
)
|
|
$
|
(625
|
)
|
|
$
|
1,458
|
|
Pro forma earnings per share attributable
to WCR common shareholders – basic and diluted
|
|
$
|
0.265
|
|
|
$
|
0.067
|
|
|
$
|
0.237
|
|
|
$
|
(0.349
|
)
|
|
$
|
(0.066
|
)
|
|
$
|
0.154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
13,025
|
|
|
$
|
37,823
|
|
|
$
|
42,738
|
|
|
$
|
12,699
|
|
|
$
|
-
|
|
|
$
|
106,285
|
|
% of total pro forma revenue
|
|
|
12.3
|
%
|
|
|
35.6
|
%
|
|
|
40.2
|
%
|
|
|
11.9
|
%
|
|
|
-
|
%
|
|
|
100.0
|
%
|
Pro forma net income
|
|
$
|
2,270
|
|
|
$
|
1,167
|
|
|
$
|
2,177
|
|
|
$
|
952
|
|
|
$
|
(736
|
)
|
|
$
|
5,830
|
|
Pro forma net income attributable to noncontrolling
interests
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17
|
|
Pro forma net income attributable to WCR common
shareholders
|
|
$
|
2,253
|
|
|
$
|
1,167
|
|
|
$
|
2,177
|
|
|
$
|
952
|
|
|
$
|
(736
|
)
|
|
$
|
5,813
|
|
Pro forma earnings per share attributable
to WCR common shareholders – basic and diluted
|
|
$
|
0.237
|
|
|
$
|
0.123
|
|
|
$
|
0.229
|
|
|
$
|
0.100
|
|
|
$
|
(0.077
|
)
|
|
$
|
0.612
|
|
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
Segment
Information –
The Company has grouped its operations into five segments –
Franchise, Cellular Retail, Direct to Consumer, Consumer Finance and Corporate. The Direct to Consumer and Corporate segments were
added in 2015. The Franchise segment offers franchise ownership opportunities for customized marketing solutions. The Cellular
Retail segment is a dealer for Cricket Wireless selling cellular phones and accessories, ancillary services and serving as a payment
center for customers. The “Direct to Consumer” segment, which consists of an online and direct marketing distribution
retailer with product offerings including seeds, live goods and garden accessories operating in the retail market under Park Seed,
Jackson & Perkins and Wayside Gardens, and in the wholesale market under Park Wholesale, and an online retail seller of home
improvement and restoration products operating over the internet through the domain name of www.Vandykes.com and through direct
mail catalogs. The Consumer Finance segment provides financial and ancillary services. The Corporate segment includes the parent
company activities, inclusive of the acquisitions department and management of acquired subsidiaries.
Segment information related to the years ended December 31, 2016
and 2015 is as follows:
December 31, 2016
(in thousands)
|
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
15,194
|
|
|
$
|
39,236
|
|
|
$
|
42,914
|
|
|
$
|
11,843
|
|
|
$
|
-
|
|
|
$
|
109,187
|
|
Depreciation and amortization
|
|
$
|
456
|
|
|
$
|
786
|
|
|
$
|
428
|
|
|
$
|
90
|
|
|
$
|
-
|
|
|
$
|
1,760
|
|
Interest expense
|
|
$
|
94
|
|
|
$
|
284
|
|
|
$
|
150
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
528
|
|
Income tax expense (benefit)
|
|
$
|
1,575
|
|
|
$
|
437
|
|
|
$
|
1,197
|
|
|
$
|
(2,027
|
)
|
|
$
|
(318
|
)
|
|
$
|
864
|
|
Net income (loss)
|
|
$
|
2,538
|
|
|
$
|
639
|
|
|
$
|
2,245
|
|
|
$
|
(3,318
|
)
|
|
$
|
(625
|
)
|
|
$
|
1,479
|
|
Total segment assets
|
|
$
|
11,322
|
|
|
$
|
23,448
|
|
|
$
|
16,580
|
|
|
$
|
8,471
|
|
|
$
|
390
|
|
|
$
|
60,211
|
|
Expenditures for segmented assets
|
|
$
|
18
|
|
|
$
|
2,292
|
|
|
$
|
193
|
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
2,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
(in thousands)
|
|
|
|
Franchise
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
13,025
|
|
|
$
|
32,846
|
|
|
$
|
17,884
|
|
|
$
|
12,699
|
|
|
$
|
-
|
|
|
$
|
76,454
|
|
Depreciation and amortization
|
|
$
|
441
|
|
|
$
|
430
|
|
|
$
|
214
|
|
|
$
|
113
|
|
|
$
|
-
|
|
|
$
|
1,198
|
|
Interest expense
|
|
$
|
202
|
|
|
$
|
284
|
|
|
$
|
90
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
576
|
|
Income tax expense (benefit)
|
|
$
|
1,373
|
|
|
$
|
632
|
|
|
$
|
207
|
|
|
$
|
574
|
|
|
$
|
(304
|
)
|
|
$
|
2,482
|
|
Net income (loss)
|
|
$
|
2,270
|
|
|
$
|
1,110
|
|
|
$
|
243
|
|
|
$
|
952
|
|
|
$
|
(1,038
|
)
|
|
$
|
3,537
|
|
Total segment assets
|
|
$
|
10,079
|
|
|
$
|
14,180
|
|
|
$
|
15,878
|
|
|
$
|
15,511
|
|
|
$
|
537
|
|
|
$
|
56,185
|
|
Expenditures for segmented assets
|
|
$
|
113
|
|
|
$
|
3,865
|
|
|
$
|
304
|
|
|
$
|
45
|
|
|
$
|
14
|
|
|
$
|
4,341
|
|
18. Commitments and Contingencies
–
Employment Agreements
The Company is party to an employment agreement with its Chief Executive
Officer, Mr. John Quandahl. The agreement runs from April 1, 2016 through March 2019. The agreement provides an annual base salary,
eligibility for an annual performance-based cash bonus pool for management and contains customary non-solicitation and non-competition
provisions as well as provisions for severance payments upon termination by the Company without cause or upon termination by Mr.
Quandahl with good reason.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective February 9, 2015, the Company entered into a three-year
employment agreement with Angel Donchev, its Chief Investment Officer (CIO). Pursuant to that agreement, the CIO is eligible for
a discretionary annual performance-based bonus up to $200,000. In connection with the employment agreement, the Company granted
the CIO a stock option providing him with the ten-year right to purchase up to 65,000 shares of the Company’s common stock
at an exercise price of $6.00 per share. The option vests in three annual and near-equal installments on each of February 8, 2016,
2017 and 2018. The stock option grant is evidenced by a stock option agreement entered into effective February 9, 2015. The option
granted to Mr. Donchev was issued under the Company’s new 2015 Stock Incentive Plan approved by the Board of Directors effective
February 6, 2015.
The Company has also entered into several employment agreements
with certain members of subsidiary management. The terms of each agreement are different. However, one or all of these agreements
include stipulated base salary and bonus potential. The agreement also contains customary non-solicitation and non-competition
provisions as well as provisions for severance payments upon termination by the Company without cause.
Pursuant to the numerous employment agreements, bonuses of approximately
$1,149,000 and $1,008,000 were accrued for the year ended December 31, 2016 and 2015, respectively.
Credit Facility
The company is party to 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 period ended December 31, 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.
Asset Purchase Agreement
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 (with the seller having an option to retain a 30% ownership
in our subsidiary that intends to purchase all 53 stores), with a corresponding adjustment to the purchase price. Closing
of the transaction is pending.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Vendor Service Agreement
In September 2015, AGI entered into a service agreement with a vendor
for approximately $680,000. The vendor will provide services over a three year period.
Legal Proceedings
The Company is party to a variety of legal actions arising out of
the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. The Company does not believe that such
normal and routine litigation will have a material impact on its consolidated financial results.
19. Management and Advisory
Agreement –
The Company is party to an Amended and Restated Management and Advisory
Agreement with Blackstreet Capital Management, LLC, (“Blackstreet”) under which Blackstreet provides certain financial,
managerial, strategic and operating advice and assistance to the Company.
The amended and restated agreement requires the Company to pay Blackstreet
a fee in an amount equal to $400,000 upon the closing of an acquisition in consideration for Blackstreet’s referral to the
Company of such acquisition opportunity, and Blackstreet’s assistance in the performance of due diligence services relating
thereto. Any fees which may have been payable per these terms related to the AGI, JPPA, RAI and JPRE acquisitions were waived by
Blackstreet.
Effective July 1, 2015 the agreement with Blackstreet was amended.
The annual fees under the amended and restated contract will be the greater of (i) $612,100 (subject to annual increases of five
percent) or (ii) five percent of Western Capital’s “EBITDA” as defined under the agreement. All other terms and
provisions remain unmodified.
Finally, the amended and restated agreement provides that a termination
fee will be paid to Blackstreet in the event that the Company terminates the agreement in connection with a sale of all or substantially
all of the assets of the Company to, or any merger or other transaction with, an unaffiliated entity, which transaction results
in the holders of a majority of the stock of the Company immediately prior to such transaction owning less than 50% of the stock
of the Company (or any successor entity) after giving effect to the transaction.
The annual management and advisory fees related to the Amended and
Restated Management and Advisory Agreement with Blackstreet for the year ended December 31, 2016 and 2015 were $705,630 and $478,002,
respectively.
20. Special Committee of
the Board of Directors –
The Board of Directors has appointed Mr. Ellery Roberts to various
special committees of the board. Annual Director and special committee fees expense was $30,000 and $50,000 for the year
ended December 31, 2016 and 2015, respectively.
21. Related Party Transactions
–
Leases
The Company leases three properties from an officer of the Company
and another party under operating leases, one that is month-to-month, requiring monthly lease payments of $1,680, one that extends
through June 2020, requiring monthly lease payments of $1,200, and one that extends through November 2017, requiring monthly lease
payments of $5,000.
In October 2012, the Company entered into the latter lease. The
lease is for a term of five years and has monthly base rental payments of $5,000 per month. The lease is at terms substantially
similar to other leases for property near that location. The lease transaction was approved by the Board of Directors and the related
party abstained from voting. This property is used for a Cricket retail storefront.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 31 2011, the Company entered into two operating leases
for property owned by Ladary, LLC. Ladary, which acquired the two properties in foreclosure sales, is partially owned
by the Chief Executive Officer of the Company, three current or past directors and one employee of the management company that
manages the Company’s largest shareholder. The leases, one of which replaced an earlier lease that the Company
had entered into with the prior landlord, have four-year terms, require aggregate monthly rental payments of $6,000, and are on
terms and conditions substantially similar to those contained in the replaced leases.
Annual rent expense to related parties for the five retail locations
for 2016 and 2015 was approximately $170,000 and $171,000, respectively.
Credit Facility
On December 7, 2012 (and later amended on March 21, 2014, September
30, 2014 and May 21, 2015), we entered in a borrowing arrangement with River City Equity, Inc. Under this arrangement, as amended,
we may borrow up to $3.0 million at an interest rate of 12% per annum, with interest payable on a monthly basis. The note contains
no prepayment penalties, and pursuant to the May 21, 2015 amendment, matured on June 30, 2016. The note was terminated in April
2016.
22. Subsequent Events –
Share Redemption
On March 10, 2017, we entered into a Stock Redemption Agreement
that provided for the redemption of 106,873 shares of our common stock held by a stockholder in exchange for a cash payment by
us of $4.50 per share, or an aggregate purchase price of $480,928.14.