ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
INDEX OF FINANCIAL INFORMATION
CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of Western Capital Resources, Inc.:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Western Capital Resources, Inc. ("the Company") as of December
31, 2020 and 2019, the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in
the two-year period ended December 31, 2020 and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication
of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not,
by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Accounting
for Leases
Critical
Audit Matter Description
As
described further in Note 9 of the financial statements, during the year ended December 31, 2020, the Company recognized a right-of-use
asset and lease liability for operating leases (other than leases that meet the definition of a short-term lease) at the commencement
date of the respective lease. The Company concluded that the leases were operating leases which requires a lease liability to
be recorded at the present value of future lease payments and also requires the establishment of a right-of-use asset measured
at the value of the initial lease liability with adjustments for any direct costs incurred by the Company at or before the lease
commencement.
We
identified the accounting for leases under ASC 842 as a critical audit matter because it requires significant auditor judgment
in obtaining sufficient and appropriate audit evidence related to management's determination of the lease liability and right-of-use
asset, including (i) ensuring the accuracy and completeness of the lease population including new leases, lease extensions, and
amendments, and (ii) assessing their selection of the incremental borrowing rate for each lease.
How
the Critical Audit Matter Was Addressed in the Audit
Our
audit procedures included the following, among others:
|
●
|
We
obtained an understanding of the Company's process for determining the classification,
valuation, and completeness of the right-of-use assets and lease liabilities, including
inspection of a sample of new lease agreements, lease amendments, lease terminations,
and existing lease agreements. In addition, we reviewed and evaluated management's application
and conclusion of the relevant accounting standard.
|
|
●
|
We
tested the accuracy of the data used in the calculation of the right-of-use asset and
lease liability by agreeing the underlying inputs, such as possession date, lease term,
and payment terms, to source documents, such as lease agreements.
|
|
●
|
We
recalculated the right-of-use asset and lease liability and evaluated the key assumptions
and methodologies used in the Company's selection of the incremental borrowing rate by
developing a comparative calculation for a sample of leases.
|
|
●
|
We
evaluated the sufficiency and appropriateness of the financial statement disclosures
related to leases to assess whether they were accurate, complete, and in accordance with
ASC 842.
|
/s/
Sadler, Gibb & Associates, LLC
We
have served as the Company's auditor since 2017.
Draper,
UT
March
31, 2021
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,054,935
|
|
|
$
|
27,132,540
|
|
Short-term investments
|
|
|
17,088,073
|
|
|
|
14,756,665
|
|
Loans receivable (less allowance for credit losses of
$315,000 and $673,000, respectively)
|
|
|
1,941,180
|
|
|
|
3,860,411
|
|
Accounts receivable (less allowance for credit losses
of $18,000 and $13,000, respectively)
|
|
|
632,665
|
|
|
|
517,476
|
|
Inventory (less reserve of $847,000 and $1,065,000, respectively)
|
|
|
8,729,368
|
|
|
|
8,330,691
|
|
Prepaid income taxes
|
|
|
293,560
|
|
|
|
—
|
|
Prepaid expenses and other
|
|
|
2,877,699
|
|
|
|
2,679,859
|
|
TOTAL CURRENT ASSETS
|
|
|
63,617,480
|
|
|
|
57,277,642
|
|
|
|
|
|
|
|
|
|
|
INVESTMENTS
|
|
|
250,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
8,282,446
|
|
|
|
9,725,043
|
|
|
|
|
|
|
|
|
|
|
OPERATING LEASE RIGHT-OF-USE ASSETS
|
|
|
10,892,409
|
|
|
|
12,344,894
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS, net
|
|
|
3,573,802
|
|
|
|
4,041,650
|
|
|
|
|
|
|
|
|
|
|
LOANS RECEIVABLE
|
|
|
368,071
|
|
|
|
694,987
|
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
471,991
|
|
|
|
525,884
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
5,796,528
|
|
|
|
5,796,528
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
93,252,727
|
|
|
$
|
91,906,628
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,073,640
|
|
|
$
|
7,710,222
|
|
Accrued payroll
|
|
|
3,282,237
|
|
|
|
2,572,331
|
|
Current portion operating lease liabilities
|
|
|
4,714,975
|
|
|
|
5,079,745
|
|
Other current liabilities
|
|
|
1,371,930
|
|
|
|
1,276,613
|
|
Income taxes payable
|
|
|
—
|
|
|
|
243,149
|
|
Current portion notes payable
|
|
|
—
|
|
|
|
65,414
|
|
Current portion finance lease obligations
|
|
|
—
|
|
|
|
1,161
|
|
Contract liabilities
|
|
|
685,454
|
|
|
|
794,830
|
|
TOTAL CURRENT LIABILITIES
|
|
|
17,128,236
|
|
|
|
17,743,465
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion
|
|
|
—
|
|
|
|
1,019,837
|
|
Operating lease liabilities, net of current portion
|
|
|
6,696,418
|
|
|
|
7,444,789
|
|
Deferred income taxes
|
|
|
370,000
|
|
|
|
385,000
|
|
TOTAL LONG-TERM LIABILITIES
|
|
|
7,066,418
|
|
|
|
8,849,626
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
24,194,654
|
|
|
|
26,593,091
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WESTERN SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 12,500,000 shares authorized, 8,841,900 and 9,265,778 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively.
|
|
|
884
|
|
|
|
927
|
|
Additional paid-in capital
|
|
|
29,031,741
|
|
|
|
29,031,741
|
|
Retained earnings
|
|
|
38,470,323
|
|
|
|
33,706,035
|
|
TOTAL WESTERN SHAREHOLDERS’ EQUITY
|
|
|
67,502,948
|
|
|
|
62,738,703
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS
|
|
|
1,555,125
|
|
|
|
2,574,834
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
|
69,058,073
|
|
|
|
65,313,537
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
93,252,727
|
|
|
$
|
91,906,628
|
|
See notes to consolidated financial statements.
WESTERN
CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
REVENUES
|
|
|
|
|
|
|
Sales and associated fees
|
|
$
|
108,696,878
|
|
|
$
|
91,769,074
|
|
Financing fees and interest
|
|
|
5,958,844
|
|
|
|
8,513,084
|
|
Other revenue
|
|
|
20,410,563
|
|
|
|
16,632,383
|
|
Total Revenues
|
|
|
135,066,285
|
|
|
|
116,914,541
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
59,289,750
|
|
|
|
50,043,585
|
|
Provisions for loans receivable credit losses
|
|
|
274,049
|
|
|
|
975,938
|
|
Total Cost of Revenues
|
|
|
59,563,799
|
|
|
|
51,019,523
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
75,502,486
|
|
|
|
65,895,018
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
33,498,187
|
|
|
|
33,289,036
|
|
Occupancy
|
|
|
10,827,695
|
|
|
|
11,038,556
|
|
Advertising, marketing and development
|
|
|
5,933,500
|
|
|
|
6,857,809
|
|
Depreciation
|
|
|
1,867,009
|
|
|
|
1,811,918
|
|
Amortization
|
|
|
701,868
|
|
|
|
699,636
|
|
Other
|
|
|
9,904,650
|
|
|
|
8,448,241
|
|
Total Operating Expenses
|
|
|
62,732,909
|
|
|
|
62,145,196
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
12,769,577
|
|
|
|
3,749,822
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Dividend and interest income
|
|
|
310,241
|
|
|
|
729,166
|
|
Interest expense
|
|
|
(41,396
|
)
|
|
|
(115,438
|
)
|
Total Other Income (Expenses)
|
|
|
268,845
|
|
|
|
613,728
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
13,038,422
|
|
|
|
4,363,550
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAX EXPENSE
|
|
|
2,790,305
|
|
|
|
908,000
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
10,248,117
|
|
|
|
3,455,550
|
|
|
|
|
|
|
|
|
|
|
LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
|
|
(2,034,893
|
)
|
|
|
(1,135,174
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS
|
|
$
|
8,213,224
|
|
|
$
|
2,320,376
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.90
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
9,099,524
|
|
|
|
9,369,891
|
|
See notes to consolidated financial statements.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
Western Capital Resources, Inc. Shareholders’
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Noncontrolling Interests
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
BALANCE – December 31, 2018
|
|
|
9,388,677
|
|
|
$
|
939
|
|
|
$
|
29,031,741
|
|
|
$
|
33,774,293
|
|
|
$
|
1,876,908
|
|
|
$
|
64,683,881
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,320,376
|
|
|
|
1,135,174
|
|
|
|
3,455,550
|
|
Noncontrolling interest equity contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499,352
|
|
|
|
499,352
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(936,600
|
)
|
|
|
(936,600
|
)
|
Stock redemptions
|
|
|
(122,899
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
(513,419
|
)
|
|
|
—
|
|
|
|
(513,431
|
)
|
Dividends paid
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,875,215
|
)
|
|
|
—
|
|
|
|
(1,875,215
|
)
|
BALANCE – December 31, 2019
|
|
|
9,265,778
|
|
|
|
927
|
|
|
|
29,031,741
|
|
|
|
33,706,035
|
|
|
|
2,574,834
|
|
|
|
65,313,537
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,213,224
|
|
|
|
2,034,893
|
|
|
|
10,248,117
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,054,602
|
)
|
|
|
(3,054,602
|
)
|
Stock redemptions
|
|
|
(423,878
|
)
|
|
|
(43
|
)
|
|
|
—
|
|
|
|
(2,305,063
|
)
|
|
|
—
|
|
|
|
(2,305,106
|
)
|
Dividends paid
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,143,873
|
)
|
|
|
—
|
|
|
|
(1,143,873
|
)
|
BALANCE – December 31, 2020
|
|
|
8,841,900
|
|
|
$
|
884
|
|
|
$
|
29,031,741
|
|
|
$
|
38,470,323
|
|
|
$
|
1,555,125
|
|
|
$
|
69,058,073
|
|
See notes to consolidated financial statements.
WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
10,248,117
|
|
|
$
|
3,455,550
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,867,009
|
|
|
|
1,811,918
|
|
Amortization
|
|
|
701,868
|
|
|
|
699,636
|
|
Amortization of operating lease right-of-use assets
|
|
|
5,476,851
|
|
|
|
5,710,933
|
|
Deferred income taxes
|
|
|
(15,000
|
)
|
|
|
(410,000
|
)
|
Loss (gain) on disposal of assets
|
|
|
683,810
|
|
|
|
(86,467
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
|
1,683,699
|
|
|
|
251,431
|
|
Accounts receivable
|
|
|
(115,189
|
)
|
|
|
(780
|
)
|
Inventory
|
|
|
(317,257
|
)
|
|
|
366,704
|
|
Prepaid expenses and other assets
|
|
|
(469,492
|
)
|
|
|
1,259,354
|
|
Operating lease liabilities
|
|
|
(6,285,700
|
)
|
|
|
(6,352,423
|
)
|
Accounts payable and accrued expenses
|
|
|
238,452
|
|
|
|
(1,648,156
|
)
|
Contract liabilities and other current liabilities
|
|
|
(14,059
|
)
|
|
|
(233,042
|
)
|
Net cash and cash equivalents provided by operating activities
|
|
|
13,683,109
|
|
|
|
4,824,658
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(38,279,813
|
)
|
|
|
(20,907,047
|
)
|
Proceeds from redemption of investments
|
|
|
37,167,921
|
|
|
|
28,045,130
|
|
Purchases of property and equipment
|
|
|
(480,510
|
)
|
|
|
(712,469
|
)
|
Acquisition of stores, net of cash acquired
|
|
|
(566,586
|
)
|
|
|
(602,200
|
)
|
Net advances on notes receivable
|
|
|
(5,996
|
)
|
|
|
(694,987
|
)
|
Release of escrowed funds
|
|
|
—
|
|
|
|
3,312,984
|
|
Proceeds from the disposal of assets
|
|
|
630,998
|
|
|
|
1,307,500
|
|
Net cash and cash equivalents provided by (used in) investing activities
|
|
|
(1,533,986
|
)
|
|
|
9,748,911
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments on notes payable – long-term
|
|
|
(1,085,251
|
)
|
|
|
(1,072,622
|
)
|
Common stock redemptions
|
|
|
(2,305,106
|
)
|
|
|
(513,431
|
)
|
Payments on finance leases
|
|
|
(1,161
|
)
|
|
|
(50,050
|
)
|
Contributions from noncontrolling interests
|
|
|
—
|
|
|
|
281,906
|
|
Distributions to noncontrolling interests
|
|
|
(2,691,337
|
)
|
|
|
(936,600
|
)
|
Payments of dividends
|
|
|
(1,143,873
|
)
|
|
|
(1,875,215
|
)
|
Net cash and cash equivalents used in financing activities
|
|
|
(7,226,728
|
)
|
|
|
(4,166,012
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
4,922,395
|
|
|
|
10,407,557
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
27,132,540
|
|
|
|
16,724,983
|
|
End of year
|
|
$
|
32,054,935
|
|
|
$
|
27,132,540
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
3,326,783
|
|
|
$
|
575,501
|
|
Interest paid
|
|
$
|
46,563
|
|
|
$
|
94,723
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained, operating lease obligations incurred
|
|
$
|
4,561,682
|
|
|
$
|
5,786,575
|
|
Right-of-use asset disposals
|
|
$
|
678,519
|
|
|
$
|
2,218,787
|
|
Right-of-use liability disposals
|
|
$
|
293,096
|
|
|
$
|
2,218,787
|
|
Distribution to noncontrolling interests applied to loans receivable
|
|
$
|
363,265
|
|
|
$
|
—
|
|
See 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.
|
○
|
PQH Wireless, Inc. (“PQH”) (100%) –
operates 205 cellular retail stores as of December 31, 2020 (102 100% owned plus 103 through its controlled but less than 100%
owned subsidiaries), exclusively as an authorized retailer of the Cricket brand.
|
|
○
|
J&P Park Acquisitions, Inc. (“JPPA”)
(100%) – an online and direct marketing distribution retailer of 1) live plants, seeds, holiday gifts and garden accessories
selling its products under Park Seed, Jackson & Perkins, and Wayside Gardens brand names and 2) home improvement and restoration
products operating under the Van Dyke’s Restorers brand, as well as a seed wholesaler under the Park Wholesale brand.
|
|
○
|
J&P Real Estate, LLC (“JPRE”) (100%)
– owns real estate utilized as JPPA’s distribution and warehouse facility and the corporate offices of JPPA.
|
|
○
|
Wyoming Financial Lenders, Inc. (“WFL”)
(100%) – owns and operates “payday” stores (19 as of December 31, 2020) in four states (Iowa, Kansas, North
Dakota, 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.
|
|
○
|
Express Pawn, Inc. (“EPI”) (100%) –
owns and operates retail pawn stores (three as of December 31, 2020) 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 as” “PQH,” “JPPA,” “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 Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, applicable to reporting
the equity and net income or loss attributable to noncontrolling interests. Intercompany balances and transactions of the Company
have been eliminated in consolidation.
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 various other assumptions believed to be
reasonable under the circumstances. Actual results could differ from those estimates. Significant management estimates relate
to the loans receivable allowance for credit losses, carrying value and impairment of goodwill and other long-lived assets, right-of-use
assets and related liabilities (including the applicable discount rate), inventory valuation and obsolescence, estimated
useful lives of intangible assets and property and equipment, gift certificate and merchandise credits liability and
deferred taxes and tax uncertainties.
Revenue Recognition
The Company follows the provisions of ASC 606, Revenue from
Contracts with Customers, as further disclosed later in this Note 1. Also refer to Notes 17, "Revenue," and 20, “Segment
Information,” for additional information, including the disaggregation of revenue by segment.
Revenue generated from short-term lending agreements in the
Consumer Finance segment and from Company investments are recognized in accordance with ASC 825, Financial Instruments.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
Fair Value Measurements
The fair value of a financial instrument is the amount that
could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value
measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the
information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The three-level hierarchy is as follows:
Level 1 – Quoted market prices in active markets
for identical assets or liabilities.
Level 2 – Observable market-based inputs or
inputs that are corroborated by market data.
Level 3 - Unobservable inputs that are not corroborated
by market date.
The Company’s held to maturity securities are comprised
of U.S Treasury zero coupon T-Bills.
Receivables
and Allowance for Credit Losses
Cellular
Retail
Receivables
for noncash sales are recorded when possession of products is taken by the customer or services are completed, represent claims
against third parties that will be settled in cash, include unsettled credit card charges, and are included in accounts receivable.
The carrying value of accounts receivables, net of the allowance for credit losses, represents their estimated net realizable
value.
Direct
to Consumer
Receivables
for noncash sales are recorded when orders are shipped, represent claims against third parties that will be settled in cash, include
unsettled credit card charges and wholesales sales on terms, and are included in accounts receivable. The carrying value of accounts
receivable is net of an allowance for credit losses. The allowance for credit losses represents an estimate of expected lifetime
credit losses on the asset considering economic conditions and future economic trends. 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 and pawn 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 the present value of future collections after that date is not
expected to be significant. Loans are carried at cost plus accrued interest or fees less payments made and an allowance for credit
losses.
We
do not specifically reserve for any individual payday or installment loan. Instead, we aggregate loan types for purposes
of estimating the allowance for credit losses using a methodology that estimates expected lifetime credit losses on the asset
considering economic conditions and future economic trends. In addition, this methodology takes into account current and expected
collection patterns, recent trends noted in the portfolio and charge off patterns from loans that originated during the last 24
months, which assists management in estimating future recoveries. Credit losses for pawn 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 weighted-average cost 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.
Long-Lived Assets
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
|
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.
Finite-lived intangible assets represent the fair values management
assigned to assets acquired through business acquisitions, are amortized over periods of three to 15 years based on management’s
estimates of the useful life of the asset and are subject to impairment evaluations.
The Company assesses the possibility of impairment of long-lived
assets, other than goodwill, 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.
Operating Leases
The Company applies the provision of ASC 842, Leases, applicable
to the recognition, presentation and disclosure of leases.
Operating lease payment terms may include fixed payment terms
and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index, or “CPI”)
or rate are considered in the determination of the operating lease right-of-use assets and liabilities. Variable payments that
do not depend on an index or rate are not included in the lease right-of-use assets and liabilities determination. Expenses related
to leases with a lease term of one month or less are recognized as variable lease expense when incurred. Other lease payments terms
may include lease and non-lease components together in fixed payment terms. Lease and non-lease components aggregated in fixed
payment terms are treated entirely as lease components (election applies to the leased real property asset class). We estimate
our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering
such factors as length of lease term and the risks of the economic environment in which the leased asset operates. A number of
our lease agreements contain options to renew. The lease term used to calculate ROU assets and lease liabilities only includes
renewal options that are deemed reasonably certain to be exercised.
Goodwill
We allocate any excess purchase price over the fair value of
the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We base the fair value of identifiable
intangible assets acquired in a business combination on valuations that use information and assumptions that a market participant
would use, including assumptions for estimated revenue projections, growth rates, cash flows, discount rates, useful life, and
other relevant assumptions. We test our goodwill for impairment annually as of October 1, or more frequently if events or changes
in circumstances indicate potential impairment. The Company tests for goodwill impairment at the reporting unit level, which aligns
with the Company’s segments. The Company performs a qualitative assessment to determine if a quantitative impairment test
is necessary. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in
which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. During
our annual test of goodwill balances in 2020, which was completed during the fourth quarter of 2020, we determined that the fair
value of each reporting unit with goodwill exceeded the carrying amount by a significant amount.
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. Based on historical
redemption trends, the Company has concluded 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
Direct to Consumer
The Company expenses advertising costs as they are incurred,
except for direct-response advertising, which is capitalized until distributed. Direct-response advertising consists primarily of catalog production, printing, and postage costs. Prepaid
advertising costs as of December 31, 2020 and 2019 were $0.48 million and $0.67 million, respectively.
Consumer Finance
The costs of advertising and marketing are expensed as incurred.
Stock-based Compensation
The Company recognizes the fair value compensation cost relating
to stock-based payment transactions in accordance with ASC 718, Stock Compensation. Under the provisions of ASC 718, stock-based
compensation cost is measured at the grant date, based on the fair value of the award, and is recognized over the employee’s
requisite service period, which is generally the vesting period. The fair value of our stock options is estimated using a Black-Scholes
option valuation model.
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.
Earnings Per Common Share
The Company computes basic earnings per common share in accordance
with ASC 260, Earnings Per Share (“EPS”), which is computed by dividing the income available to common shareholders
by the weighted average number of common shares outstanding for the period. Diluted EPS gives effect to all potentially dilutive
common shares outstanding during the period, as calculated using the treasury stock method. In computing diluted EPS, the weighted
average market price for the period is used in determining the number of common shares assumed to be purchased from the exercise
of stock options. As of December 31, 2020 and December 31, 2019, 65,000 of potential common shares equivalents from stock options
were excluded from the diluted EPS calculations as their effect is anti-dilutive.
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.
Reclassifications
Certain Statement of Income reclassifications have been made
to the presentation of Cost of sales and Salaries, wages and benefits in our prior financial statements to conform to the presentation
as of and for the year ended December 31, 2020.
Recent Accounting Pronouncements
In April, 2020 the staff of the FASB issued a question-and-answer
document that states entities may elect not to evaluate whether a concession provided by a lessor to a lessee in response to the
effects of the coronavirus pandemic is a lease modification. Retailers may make the elections for any lessor-provided concessions
related to the effects of the coronavirus pandemic as long as the concession does not result in a substantial increase in the rights
of the lessor or the obligations of the lessee. The Company has made such election. The Company has received minimal rent concessions
and has not entered into any related lease modifications to date. As such, the Company does not believe this election will have
a material impact on its financial condition, results of operations or consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions to the existing guidance for
income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim
period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for
income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the
effective tax rate computation, the recognition of franchise tax and the evaluation of a step-up in the tax basis of goodwill,
among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning
after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU
on its consolidated financial statements but does not believe the adoption of ASU 2019-12
will have a material impact on its 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 federal, state, and local 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.
After several years of research, debate, and public hearings, in October 2017 the U.S. Consumer Financial Protection Bureau (“CFPB”)
adopted a new rule for payday lending. The 2017 rule, originally scheduled to go into effect in August 2019, would have imposed
significant restrictions on the industry, and it was expected that a large number of lenders would be forced to close their stores.
The CFPB’s studies projected a reduction in the number of lenders by 50%, while industry studies forecasted a much higher
attrition rate if the rule is implemented as originally adopted.
However, in January 2018, the CFPB issued a statement that it
intends to “reconsider” the regulation. In July 2020, the CFPB issued a final rule applicable to the 2017 rule. The
final rule rescinds the mandatory underwriting provisions of the 2017 rule but does not rescind or alter the payments provisions
of the 2017 rule. The CFPB will seek to have these rules go into effect with a reasonable period for entities to come into compliance.
The implementation of the final rule is likely to result in a reduction of in-house bad debt collections, higher collection costs
and thus a negative impact and further contraction of our Consumer Finance segment.
The above rule or any other adverse change in present federal,
state, or local 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, or a 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, additional state or local
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 has demand deposits at financial institutions, often
times in excess of the limit for insurance by the Federal Deposit Insurance Corporation. As of December 31, 2020, the Company had
demand deposits in excess of insurance amounts of approximately $10.51 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, 2020 and 2019, the Consumer
Finance segment had geographic economic and regulatory risk concentrations (shown as a percentage of the Consumer Finance segment’s
revenue by state when 10% or more) as follows:
Consumer Finance Segment
|
|
|
2020 % of Revenues
|
|
2019 % of Revenues
|
Nebraska 1
|
|
35%
|
|
35%
|
North Dakota
|
|
25%
|
|
25%
|
Iowa
|
|
17%
|
|
16%
|
Wyoming
|
|
16%
|
|
14%
|
|
|
|
|
|
1 On November 3, 2020, Nebraska voters passed a ballot
initiative that limits all fees charged by payday lenders in Nebraska to an annual interest rate of 36%. In anticipation of such
passage, we ceased writing new payday loans in Nebraska in late October 2020 and closed all Nebraska payday loan centers by year
end. Payday operation in Nebraska generated approximately 19% of the segment’s revenue in 2020.
|
The Company’s Cellular Retail segment is an authorized
retailer for Cricket Wireless. As an authorized retailer 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 2022. The grower has agreed to perform research for JPPA and maintain JPPA's
research crop for product to be sold through 2022. In exchange, this grower/researcher (also a direct-to-consumer competitor) is
allowed to sell certain Jackson & Perkins branded roses in their wholesale division.
3. Cash
and Cash Equivalents and Investments –
The following table shows the Company’s cash
and cash equivalents, held-to-maturity investments and other investments, by significant investment category, recorded as
cash and cash equivalents or short- and long-term investments:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Operating accounts
|
|
$
|
16,089,852
|
|
|
$
|
10,163,845
|
|
Money Market – U.S. Treasury obligations
|
|
|
2,565,296
|
|
|
|
4,450,433
|
|
U.S. Treasury obligations
|
|
|
13,399,787
|
|
|
|
12,518,262
|
|
Subtotal
|
|
|
32,054,935
|
|
|
|
27,132,540
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
Certificates of deposit (4 – 24 month maturities, FDIC insured)
|
|
|
17,338,073
|
|
|
|
9,049,787
|
|
U.S. Treasury obligations (less than one year maturities)
|
|
|
—
|
|
|
|
7,206,878
|
|
Subtotal
|
|
|
17,338,073
|
|
|
|
16,256,665
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
49,393,008
|
|
|
$
|
43,389,205
|
|
Investments consisted of the following:
December 31, 2020
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
(Loss)
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
—
|
|
|
$
|
17,338,073
|
|
|
$
|
—
|
|
|
$
|
17,338,073
|
|
|
$
|
(23,814
|
)
|
|
$
|
17,314,259
|
|
U.S. Treasuries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
17,338,073
|
|
|
$
|
—
|
|
|
$
|
17,338,073
|
|
|
$
|
(23,814
|
)
|
|
$
|
17,314,259
|
|
December 31, 2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
(Loss)
|
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
—
|
|
|
$
|
9,049,787
|
|
|
$
|
—
|
|
|
$
|
9,049,787
|
|
|
$
|
(32,429
|
)
|
|
$
|
9,017,358
|
|
U.S. Treasuries - Held to Maturity
|
|
|
7,206,878
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,206,878
|
|
|
|
2,883
|
|
|
|
7,209,761
|
|
|
|
$
|
7,206,878
|
|
|
$
|
9,049,787
|
|
|
$
|
—
|
|
|
$
|
16,256,665
|
|
|
$
|
(29,546
|
)
|
|
$
|
16,227,119
|
|
Interest income recognized on held-to-maturity investments and
other sources was as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
$
|
66,769
|
|
|
$
|
241,721
|
|
Other
|
|
$
|
243,472
|
|
|
$
|
487,445
|
|
|
|
$
|
310,241
|
|
|
$
|
729,166
|
|
The Company has deposited in aggregate $2.79 million of cash
across seven different accounts at financial institutions as an accommodation to its majority stockholder, who has other business
relationships with the financial institution. The funds in these accounts can be withdrawn at any time, do not serve as collateral
in any way, and are held on market terms.
4. Loans
Receivable –
The Consumer Finance segment’s outstanding loans receivable
aging was as follows:
December 31, 2020
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn
|
|
|
Total
|
|
Current
|
|
$
|
1,558,292
|
|
|
$
|
11,718
|
|
|
$
|
272,669
|
|
|
$
|
1,842,679
|
|
1-30
|
|
|
117,747
|
|
|
|
3,547
|
|
|
|
—
|
|
|
|
121,294
|
|
31-60
|
|
|
94,135
|
|
|
|
1,434
|
|
|
|
—
|
|
|
|
95,569
|
|
61-90
|
|
|
59,263
|
|
|
|
370
|
|
|
|
—
|
|
|
|
59,633
|
|
91-120
|
|
|
46,777
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,777
|
|
121-150
|
|
|
38,422
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,422
|
|
151-180
|
|
|
51,806
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51,806
|
|
|
|
|
1,966,442
|
|
|
|
17,069
|
|
|
|
272,669
|
|
|
|
2,256,180
|
|
Less Allowance for Credit Losses
|
|
|
(315,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(315,000
|
)
|
|
|
$
|
1,651,442
|
|
|
$
|
17,069
|
|
|
$
|
272,669
|
|
|
$
|
1,941,180
|
|
December 31, 2019
|
|
|
Payday
|
|
|
Installment
|
|
|
Pawn
|
|
|
Total
|
|
Current
|
|
$
|
3,322,131
|
|
|
$
|
67,891
|
|
|
$
|
309,934
|
|
|
$
|
3,699,956
|
|
1-30
|
|
|
216,753
|
|
|
|
10,590
|
|
|
|
—
|
|
|
|
227,343
|
|
31-60
|
|
|
140,872
|
|
|
|
6,234
|
|
|
|
—
|
|
|
|
147,106
|
|
61-90
|
|
|
117,544
|
|
|
|
2,649
|
|
|
|
—
|
|
|
|
120,193
|
|
91-120
|
|
|
118,626
|
|
|
|
840
|
|
|
|
—
|
|
|
|
119,466
|
|
121-150
|
|
|
110,278
|
|
|
|
395
|
|
|
|
—
|
|
|
|
110,673
|
|
151-180
|
|
|
108,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108,674
|
|
|
|
|
4,134,878
|
|
|
|
88,599
|
|
|
|
309,934
|
|
|
|
4,533,411
|
|
Less Allowance for Credit Losses
|
|
|
(673,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(673,000
|
)
|
|
|
$
|
3,461,878
|
|
|
$
|
88,599
|
|
|
$
|
309,934
|
|
|
$
|
3,860,411
|
|
5. Allowance for Credit Losses on Loans Receivable
A rollforward of the Company’s loans receivable allowance
is as follows:
|
|
Year Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Allowance for credit losses on loans receivable, beginning of year
|
|
$
|
673,000
|
|
|
$
|
818,000
|
|
Provision for loans receivable credit losses charged to expense
|
|
|
274,049
|
|
|
|
975,938
|
|
Charge-offs, net
|
|
|
(632,049
|
)
|
|
|
(1,120,938
|
)
|
Allowance for credit losses on loans receivable, end of year
|
|
$
|
315,000
|
|
|
$
|
673,000
|
|
6. Accounts
Receivable –
A breakdown of accounts receivables by segment are as follows:
December 31, 2020
|
|
|
Cellular Retail
|
|
|
Direct to Consumer
|
|
|
Consumer Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
325,041
|
|
|
$
|
271,742
|
|
|
$
|
53,882
|
|
|
$
|
650,665
|
|
Less allowance for credit losses
|
|
|
—
|
|
|
|
(18,000
|
)
|
|
|
—
|
|
|
|
(18,000
|
)
|
Net account receivable
|
|
$
|
325,041
|
|
|
$
|
253,742
|
|
|
$
|
53,882
|
|
|
$
|
632,665
|
|
December 31, 2019
|
|
|
Cellular Retail
|
|
|
Direct to Consumer
|
|
|
Consumer Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
184,519
|
|
|
$
|
318,235
|
|
|
$
|
27,722
|
|
|
$
|
530,476
|
|
Less allowance for credit losses
|
|
|
—
|
|
|
|
(13,000
|
)
|
|
|
—
|
|
|
|
(13,000
|
)
|
Net account receivable
|
|
$
|
184,519
|
|
|
$
|
305,235
|
|
|
$
|
27,722
|
|
|
$
|
517,476
|
|
A portion of accounts receivable are unsettled credit card sales
from the prior one to five business days. This makes up 74% and 68% of the net accounts receivable balance as of December 31, 2020
and December 31, 2019, respectively.
7. Inventory
–
Inventories consist of:
|
|
2020
|
|
|
2019
|
|
Finished Goods
|
|
|
|
|
|
|
|
|
Cellular Retail
|
|
$
|
5,405,993
|
|
|
$
|
5,687,771
|
|
Direct to Consumer
|
|
|
3,433,460
|
|
|
|
2,888,483
|
|
Consumer Finance
|
|
|
736,915
|
|
|
|
819,437
|
|
Reserve
|
|
|
(847,000
|
)
|
|
|
(1,065,000
|
)
|
TOTAL
|
|
$
|
8,729,368
|
|
|
$
|
8,330,691
|
|
As a result of changes in the market for certain Company products
and the resulting deteriorating value, carrying amounts for those inventories were reduced by approximately $847,000 and $1,065,000
during the year ended December 31, 2020 and 2019, respectively. These inventory write-downs have been reflected in cost of goods
sold in the statement of operations. Management believes that these reductions properly reflect inventory values, and no additional
losses will be incurred upon disposition.
8. Property
and Equipment –
A rollforward of the Company’s property and equipment
is as follows:
|
|
December 31, 2019
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2020
|
|
Property, equipment and sales floor
|
|
$
|
8,479,156
|
|
|
$
|
293,054
|
|
|
$
|
164,977
|
|
|
$
|
(1,153,885
|
)
|
|
$
|
7,783,302
|
|
Software
|
|
|
1,884,481
|
|
|
|
—
|
|
|
|
276,627
|
|
|
|
—
|
|
|
|
2,161,108
|
|
Building - owned
|
|
|
5,488,222
|
|
|
|
—
|
|
|
|
38,905
|
|
|
|
—
|
|
|
|
5,527,127
|
|
Land
|
|
|
1,200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,200,000
|
|
|
|
|
17,051,859
|
|
|
|
293,054
|
|
|
|
480,509
|
|
|
|
(1,153,885
|
)
|
|
|
16,671,537
|
|
Accumulated depreciation
|
|
|
(7,326,816
|
)
|
|
|
—
|
|
|
|
(1,867,009
|
)
|
|
|
804,734
|
|
|
|
(8,389,091
|
)
|
|
|
$
|
9,725,043
|
|
|
$
|
293,054
|
|
|
$
|
(1,386,500
|
)
|
|
$
|
(349,151
|
)
|
|
$
|
8,282,446
|
|
|
|
December 31, 2018
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2019
|
|
Property, equipment and sales floor
|
|
$
|
8,182,321
|
|
|
$
|
1,606,331
|
|
|
$
|
531,028
|
|
|
$
|
(1,840,524
|
)
|
|
$
|
8,479,156
|
|
Software
|
|
|
1,736,669
|
|
|
|
—
|
|
|
|
159,137
|
|
|
|
(11,325
|
)
|
|
|
1,884,481
|
|
Building (owned)
|
|
|
5,458,008
|
|
|
|
—
|
|
|
|
30,214
|
|
|
|
—
|
|
|
|
5,488,222
|
|
Land
|
|
|
1,200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,200,000
|
|
|
|
|
16,576,998
|
|
|
|
1,606,331
|
|
|
|
720,379
|
|
|
|
(1,851,849
|
)
|
|
|
17,051,859
|
|
Accumulated depreciation
|
|
|
(6,631,172
|
)
|
|
|
—
|
|
|
|
(1,811,918
|
)
|
|
|
1,116,274
|
|
|
|
(7,326,816
|
)
|
|
|
$
|
9,945,826
|
|
|
$
|
1,606,331
|
|
|
$
|
(1,091,539
|
)
|
|
$
|
(735,575
|
)
|
|
$
|
9,725,043
|
|
As of December 31, 2020, estimated future depreciation expense
for property and equipment (in thousands) is as follows:
2020
|
|
|
$
|
1,578
|
|
2021
|
|
|
|
996
|
|
2022
|
|
|
|
540
|
|
2023
|
|
|
|
344
|
|
2024
|
|
|
|
234
|
|
Thereafter
|
|
|
|
4,590
|
|
|
|
|
$
|
8,282
|
|
9. Leases –
The Company has many retail and office space lease agreements
and insignificant equipment lease agreements which are accounted for as operating leases. The real property leases typically are
for three- to five-year terms with many containing options for similar renewal periods.
Total components of operating lease expense for the real property
asset class (in thousands) were as follows:
|
|
2020
|
|
|
2019
|
|
Operating lease expense
|
|
$
|
6,078
|
|
|
$
|
5,701
|
|
Variable lease expense
|
|
|
2,354
|
|
|
|
2,708
|
|
Total lease expense
|
|
$
|
8,432
|
|
|
$
|
8,409
|
|
Other information related to operating leases as of December
31 was as follows:
|
|
2020
|
|
|
2019
|
|
Weighted average remaining lease term, in years
|
|
|
2.88
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
5.1
|
%
|
|
|
5.8
|
%
|
Future minimum lease payments under operating leases as of December
31, 2020 (in thousands) were as follows:
2021
|
|
|
$
|
5,179
|
|
2022
|
|
|
|
3,733
|
|
2023
|
|
|
|
2,107
|
|
2024
|
|
|
|
996
|
|
2025
|
|
|
|
308
|
|
2026
|
|
|
|
62
|
|
Thereafter
|
|
|
|
12
|
|
Total minimum lease payments
|
|
|
|
12,397
|
|
Less: Imputed interest
|
|
|
|
(986
|
)
|
Total present value of minimum lease payments
|
|
|
$
|
11,411
|
|
Current portion operating lease liabilities
|
|
|
$
|
4,715
|
|
Non-Current operating lease liabilities
|
|
|
|
6,696
|
|
Total operating lease liabilities
|
|
|
$
|
11,411
|
|
10. Goodwill
and Intangible Assets –
During the fourth quarter of 2020, the Company completed the
annual impairment assessments for goodwill and intangible assets, determining there was no impairment.
A rollforward of the carrying amount of goodwill is as follows:
|
|
Cellular Retail Segment
|
|
|
Direct to Consumer Segment
|
|
|
Consumer Finance Segment
|
|
|
Total
|
|
Balance December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2019 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2020 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2020
|
|
Customer relationships
|
|
$
|
10,002,031
|
|
|
$
|
234,020
|
|
|
$
|
—
|
|
|
$
|
(2,508,997
|
)
|
|
$
|
7,727,054
|
|
Other
|
|
|
227,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
227,000
|
|
Amortizable Intangible assets
|
|
|
10,229,031
|
|
|
|
234,020
|
|
|
|
—
|
|
|
|
(2,508,997
|
)
|
|
|
7,954,054
|
|
Less accumulated amortization
|
|
|
(6,187,381
|
)
|
|
|
—
|
|
|
|
(701,868
|
)
|
|
|
2,508,997
|
|
|
|
(4,380,252
|
)
|
Net Amortizable Intangible Assets
|
|
|
4,041,650
|
|
|
|
234,020
|
|
|
|
(701,868
|
)
|
|
|
—
|
|
|
|
3,573,802
|
|
Non-amortizable trademarks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible Assets, net
|
|
$
|
4,041,650
|
|
|
$
|
234,020
|
|
|
$
|
(701,868
|
)
|
|
$
|
—
|
|
|
$
|
3,573,802
|
|
|
|
December 31, 2018
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Deletions
|
|
|
December 31, 2019
|
|
Customer relationships
|
|
$
|
10,142,533
|
|
|
$
|
747,903
|
|
|
$
|
—
|
|
|
$
|
(888,405
|
)
|
|
$
|
10,002,031
|
|
Other
|
|
|
227,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
227,000
|
|
Amortizable Intangible assets
|
|
|
10,369,533
|
|
|
|
747,903
|
|
|
|
—
|
|
|
|
(888,405
|
)
|
|
|
10,229,031
|
|
Less accumulated amortization
|
|
|
(6,202,423
|
)
|
|
|
—
|
|
|
|
(699,636
|
)
|
|
|
714,678
|
|
|
|
(6,187,381
|
)
|
Net Amortizable Intangible Assets
|
|
|
4,167,110
|
|
|
|
747,903
|
|
|
|
(699,636
|
)
|
|
|
(173,727
|
)
|
|
|
4,041,650
|
|
Non-amortizable trademarks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intangible Assets, net
|
|
$
|
4,167,110
|
|
|
$
|
747,903
|
|
|
$
|
(699,636
|
)
|
|
$
|
(173,727
|
)
|
|
$
|
4,041,650
|
|
As of December 31, 2020, estimated future amortization expense
for the amortizable intangible assets is as follows:
2021
|
|
|
$
|
618,403
|
|
2022
|
|
|
|
568,663
|
|
2023
|
|
|
|
548,039
|
|
2024
|
|
|
|
515,649
|
|
2025
|
|
|
|
472,474
|
|
Thereafter
|
|
|
|
850,574
|
|
|
|
|
$
|
3,573,802
|
|
11. Loans
Receivable – Non-Current –
The Company has two non-current loans receivable from noncontrolling
interests. The loans include a 5% annual interest rate, include no prepayment penalties and the Company, at its option, has the
right to apply non-tax related distributions to the outstanding balances.
12. Contract
Liabilities and Other Liabilities –
Contract liabilities and other liabilities consisted
of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred financing fees
|
|
$
|
113,255
|
|
|
$
|
218,113
|
|
Merchandise credits and gift card liability
|
|
|
572,199
|
|
|
|
576,717
|
|
Total
|
|
$
|
685,454
|
|
|
$
|
794,830
|
|
13. Notes
Payable – Long Term –
The Company’s long-term debt was as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Subsidiary subordinated note payable to seller with monthly interest only payments at 6%, guaranteed by PQH, with a maturity date of August 5, 2022. The note was repaid in full in August 2020.
|
|
$
|
—
|
|
|
$
|
789,216
|
|
Subsidiary note payable to a financial institution, with monthly principal and interest payments of $6,692, bearing interest at 5.5%, secured by substantially all assets of the subsidiary, and maturing January 4, 2024. The note was repaid in full in September 2020 and refinanced internally.
|
|
|
—
|
|
|
|
296,035
|
|
Total
|
|
|
—
|
|
|
|
1,085,251
|
|
Less current maturities
|
|
|
—
|
|
|
|
(65,414
|
)
|
|
|
$
|
—
|
|
|
$
|
1,019,837
|
|
14. Income
Taxes –
The Company’s provision for income tax expense (benefit)
was as follows for the year ended December 31:
|
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$
|
2,294,000
|
|
|
$
|
1,026,000
|
|
State
|
|
|
|
511,305
|
|
|
|
292,000
|
|
|
|
|
|
2,805,305
|
|
|
|
1,318,000
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
(14,000
|
)
|
|
|
(319,000
|
)
|
State
|
|
|
|
(1,000
|
)
|
|
|
(91,000
|
)
|
|
|
|
|
(15,000
|
)
|
|
|
(410,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,790,305
|
|
|
$
|
908,000
|
|
Deferred income tax assets (liabilities) are summarized as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Allowance for accounts and loans receivable
|
|
$
|
86,000
|
|
|
$
|
179,000
|
|
Inventory capitalization
|
|
|
61,000
|
|
|
|
57,000
|
|
Inventory reserve
|
|
|
169,000
|
|
|
|
139,000
|
|
Accrued expenses
|
|
|
99,000
|
|
|
|
147,000
|
|
Prepaid expense
|
|
|
(149,000
|
)
|
|
|
(209,000
|
)
|
Property and equipment
|
|
|
(487,000
|
)
|
|
|
(587,000
|
)
|
Goodwill and intangible assets
|
|
|
(149,000
|
)
|
|
|
(111,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(370,000
|
)
|
|
$
|
(385,000
|
)
|
Reconciliations from the statutory federal income tax rate to
the effective income tax rate are as follows for the year ended December 31:
|
|
2020
|
|
|
2019
|
|
Income tax expense using the statutory federal rate of 21%
|
|
$
|
2,738,000
|
|
|
$
|
917,000
|
|
State income taxes, net of federal benefit
|
|
|
486,305
|
|
|
|
235,000
|
|
Non-deductible meals and entertainment
|
|
|
6,000
|
|
|
|
12,000
|
|
Noncontrolling interests’ pass through income
|
|
|
(504,000
|
)
|
|
|
(270,000
|
)
|
Other non-deductible expenses
|
|
|
64,000
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
2,790,305
|
|
|
$
|
908,000
|
|
|
|
|
|
|
|
|
|
|
It is the Company’s practice to recognize penalties and/or
interest related to income tax matters in interest expense. As of December 31, 2020 and December 31, 2019, 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 U.S. 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, 2020, 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 2017.
15. Equity
–
WCR 2015 Stock Incentive Plan
Effective February 6, 2015, the Board of Directors adopted the
Company’s 2015 Stock Incentive Plan, allowing 100,000 options to be granted. As of December 31, 2020 and December 31, 2019
65,000 options had been granted and 35,000 are available under the 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.
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 as of December 31, 2020 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,
2019
|
|
—
|
|
$
|
—
|
|
|
|
$
|
—
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
—
|
Vested
|
|
—
|
|
|
—
|
|
|
|
|
—
|
Forfeited
|
|
—
|
|
|
—
|
|
|
|
|
—
|
Outstanding and nonvested at December 31,
2020
|
|
—
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2020 and December 31, 2019
|
|
65,000
|
|
$
|
6.00
|
|
4.11
|
|
$
|
48,750
|
The vested options were granted on February 9, 2015 and have
a contract life of ten years. The strike price of outstanding vested options exceeded the share value as of December 31, 2020 and
December 31, 2019 and thus there was no intrinsic value in outstanding vested options as of December 31, 2020 and December 31,
2019. As of December 31, 2020, there was no unrecognized stock-based compensation expense.
Share Repurchase Program
The Board of Directors authorized a share repurchase program
under which the Company may repurchase up to $4 million of common stock. Repurchases may be made from time to time on the open
market or through privately negotiated transactions. As of December 31, 2020, the available balance of share repurchasing authority
was approximately $1.17 million.
16. Dividends
–
Our Board of Directors declared the following dividends payable
in 2020:
Date Declared
|
Record Date
|
Dividend Per Share
|
Payment Date
|
Dividend Paid
|
February 13, 2020
|
February 28, 2020
|
$0.05
|
March 9, 2020
|
$463,289
|
May 5, 2020
|
May 22, 2020
|
$0.025
|
June 2, 2020
|
$230,865
|
August 10, 2020
|
August 25, 2020
|
$0.025
|
September 4, 2020
|
$228,373
|
November 3, 2020
|
November 17, 2020
|
$0.025
|
November 30, 2020
|
$221,346
|
17. Revenue
–
Cellular Retail
Compensation from Cricket Wireless – As a Cricket Wireless
authorized retailer, we earn compensation from Cricket Wireless for activating a new customer on the Cricket Wireless network and
activating new devices for existing Cricket Wireless customers (“back-end compensation”) and upon an existing Cricket
Wireless customer whom we originally activated on the Cricket Wireless GSM network making a continuing service payment (“CSP”).
Compensation from Cricket Wireless in 2020 and 2019 was $33.79 million and $29.19 million, respectively.
Cellular Retail revenues are recognized per ASC 606
and consist of the following:
|
●
|
Merchandise – merchandise sales, which exclude sales taxes, reflect the transaction price
at point of sale when payment is received or receivable, the customer takes control of the merchandise and, applicable to devices,
the device has been activated on the Cricket Wireless network. The sale and activation of a wireless device also correlates to
the recording of back-end compensation from Cricket Wireless. Sales returns are not material to our financial statements. Merchandise
revenue, which included back-end compensation from Cricket Wireless, from Cellular Retail in 2020 and 2019 was $65.1 million and
$52.4 million, respectively, and is recorded in sales and associated fees in the income statement.
|
|
●
|
Other revenue – services revenue from customer paid fees is recorded at point of sale when
payment is received and the customer receives the benefit of the service. CSP compensation from Cricket Wireless is recorded as
of the time certain Cricket Wireless customers make a service payment, as reported to us by Cricket Wireless. Other revenue from
Cellular Retail in 2020 and 2019 was $20.1 million and $16.3 million, respectively.
|
Direct to Consumer
Direct to Consumer revenue is recognized per ASC 606
and consist of the following:
|
●
|
Merchandise – merchandise sales, which exclude sales taxes, reflect the transaction price
when product is shipped to customers, FOB shipping point, reduced by variable consideration. Shipping and handling fees are also
included in total net sales. Variable consideration is comprised of estimated future returns and merchandise credits which are
estimated based primarily on historical rates and sales levels. Merchandise revenue from Direct to Consumer in 2020 and 2019 was
$42.1 million and $38.0 million, respectively.
|
Consumer Finance
Consumer Finance revenue from merchandise sales is
recognized per ASC 606 and consist of the following:
|
●
|
Merchandise – merchandise sales, which exclude sales taxes, reflects the transaction price
at point of sale in our pawn stores when payment in full is received and the customer takes control of the merchandise. Sales returns
are not material to our financial statements. Merchandise revenue from Consumer Finance in 2020 and 2019 was $1.4 million.
|
|
●
|
Other revenue – services revenue from customer paid fees for ancillary services is recorded
at point of sale when payment is received and the customer receives the benefit of the service. Other revenue from Consumer Finance
retail in 2020 and 2019 was $0.3 million.
|
Consumer finance revenue from loan fees and interest
is recognized per ASC 825 and consist of the following:
|
●
|
Loan fees and interest – loan fees and interest on cash advance loans are recognized on
a constant-yield basis ratably over a loan’s term. 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,
less an estimated amount for expected forfeited pawn loans which is based on historical forfeiture rates. Loan and interest fees
from consumer finance in 2020 and 2019 was $6.0 million and $8.5 million, respectively.
|
See Note 20, “Segment Information,” for
disaggregation of revenue by segment.
18. Other
Operating Expenses –
A breakout of other operating expenses is as follows for the
year ended December 31:
|
|
2020
|
|
|
2019
|
|
Bank fees
|
|
$
|
2,192,659
|
|
|
$
|
1,956,674
|
|
Collection costs
|
|
|
319,623
|
|
|
|
324,595
|
|
Insurance
|
|
|
826,485
|
|
|
|
805,547
|
|
Management and advisory fees
|
|
|
971,912
|
|
|
|
835,154
|
|
Professional and consulting fees
|
|
|
1,411,107
|
|
|
|
1,406,914
|
|
Supplies
|
|
|
795,557
|
|
|
|
658,500
|
|
Disposal loss on closed/sold locations
|
|
|
926,486
|
|
|
|
75,077
|
|
Other
|
|
|
2,460,821
|
|
|
|
2,385,780
|
|
|
|
$
|
9,904,650
|
|
|
$
|
8,448,241
|
|
19. Acquisitions
–
Cellular Retail Acquisitions
In 2020 and 2019, the Company’s Cellular Retail segment
completed numerous small Cricket retail location transactions.
The purchase price calculation is as follows:
|
|
2020
|
|
|
2019
|
|
Cash
|
|
$
|
568
|
|
|
$
|
738
|
|
Note payable
|
|
|
—
|
|
|
|
18
|
|
Noncontrolling interest / equity
|
|
|
—
|
|
|
|
218
|
|
|
|
$
|
568
|
|
|
$
|
974
|
|
The assets acquired and contributed and liabilities assumed
(in thousands) were recorded at their estimated fair values as of the purchase date as follows:
|
|
2020
|
|
|
2019
|
|
Cash
|
|
$
|
2
|
|
|
$
|
136
|
|
Inventory
|
|
|
82
|
|
|
|
458
|
|
Property and equipment
|
|
|
272
|
|
|
|
1,579
|
|
Intangible assets
|
|
|
234
|
|
|
|
748
|
|
Operating lease right-of-use assets
|
|
|
1,178
|
|
|
|
3,606
|
|
Other assets
|
|
|
33
|
|
|
|
582
|
|
Other liabilities
|
|
|
(55
|
)
|
|
|
(1,179
|
)
|
Notes payable
|
|
|
—
|
|
|
|
(1,350
|
)
|
Operating lease liabilities
|
|
|
(1,178
|
)
|
|
|
(3,606
|
)
|
|
|
$
|
568
|
|
|
$
|
974
|
|
20. Segment
Information –
The Company has grouped its operations into four segments –
Cellular Retail, Direct to Consumer, Consumer Finance and Corporate. The Cellular Retail segment is an authorized retailer 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 branded 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 year ended December 31, 2020
and 2019 is as follows:
December 31, 2020
(in thousands)
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
85,209
|
|
|
$
|
42,114
|
|
|
$
|
1,784
|
|
|
$
|
—
|
|
|
$
|
129,107
|
|
Fees and interest income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,959
|
|
|
$
|
—
|
|
|
$
|
5,959
|
|
Total Revenue
|
|
$
|
85,209
|
|
|
$
|
42,114
|
|
|
$
|
7,743
|
|
|
$
|
—
|
|
|
$
|
135,066
|
|
Depreciation and amortization
|
|
$
|
2,014
|
|
|
$
|
531
|
|
|
$
|
20
|
|
|
$
|
4
|
|
|
$
|
2,569
|
|
Interest expense
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Income tax expense (benefit)
|
|
$
|
1,474
|
|
|
$
|
1,456
|
|
|
$
|
162
|
|
|
$
|
(302
|
)
|
|
$
|
2,790
|
|
Net income (loss)
|
|
$
|
5,934
|
|
|
$
|
4,947
|
|
|
$
|
440
|
|
|
$
|
(1,073
|
)
|
|
$
|
10,248
|
|
Total segment assets
|
|
$
|
35,347
|
|
|
$
|
15,778
|
|
|
$
|
6,720
|
|
|
$
|
35,408
|
|
|
$
|
93,253
|
|
Expenditures for segmented assets
|
|
$
|
234
|
|
|
$
|
358
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
592
|
|
December 31, 2019
(in thousands)
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
68,682
|
|
|
$
|
38,024
|
|
|
$
|
1,696
|
|
|
$
|
—
|
|
|
$
|
108,402
|
|
Fees and interest income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,513
|
|
|
$
|
—
|
|
|
$
|
8,513
|
|
Total Revenue
|
|
$
|
68,682
|
|
|
$
|
38,024
|
|
|
$
|
10,209
|
|
|
$
|
—
|
|
|
$
|
116,915
|
|
Depreciation and amortization
|
|
$
|
1,961
|
|
|
$
|
513
|
|
|
$
|
31
|
|
|
$
|
7
|
|
|
$
|
2,512
|
|
Interest expense
|
|
$
|
62
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
115
|
|
Income tax expense (benefit)
|
|
$
|
490
|
|
|
$
|
175
|
|
|
$
|
381
|
|
|
$
|
(138
|
)
|
|
$
|
908
|
|
Net income (loss)
|
|
$
|
2,502
|
|
|
$
|
588
|
|
|
$
|
1,066
|
|
|
$
|
(700
|
)
|
|
$
|
3,456
|
|
Total segment assets
|
|
$
|
35,816
|
|
|
$
|
12,397
|
|
|
$
|
8,582
|
|
|
$
|
35,112
|
|
|
$
|
91,907
|
|
Expenditures for segmented assets
|
|
$
|
1,007
|
|
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,315
|
|
21. 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 November 1, 2019 through November 2022. The agreement provides an
annual base salary and 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.
The Company has also entered into several employment agreements
with certain members of subsidiary management. The terms of each agreement are different. However, some of these agreements include
stipulated base salary and bonus potential. The agreements also contain 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
$1,696,000 and $881,000 were accrued for the year ended December 31, 2020 and 2019, respectively.
Assigned Leases
The Company’s Cellular Retail segment has transferred
operations of many locations to other dealers and remains contingently liable under many lease agreements. Minimum lease payments
of assigned or assumed non-cancelable operating leases related to transferred locations in which a release has not been obtained
from the lessor are approximately $1.02 million as of December 31, 2020.
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.
22. Management
and Advisory Agreement –
The Company is party to a Second Amended and Restated Management
and Advisory Agreement dated November 1, 2017 with Blackstreet Capital Management, LLC (“Blackstreet”) under which
Blackstreet provides certain financial, managerial, strategic and operating advice and assistance to the Company. The 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. The annual fees under the agreement equal the greater of (i) $674,840 (subject to annual
increases of five percent) or (ii) five percent of Western Capital’s “EBITDA” as defined under the agreement.
Finally, the agreement may only be terminated by mutual consent of the parties. Upon any termination, the Company shall pay a termination
fee equal to three times the previous 12-month annual fee.
The annual management and advisory fees related to the management
and advisory agreement with Blackstreet for the years ended December 31, 2020 and 2019 were $871,912 and $735,154, respectively
and the balances due Blackstreet as of December 31, 2020 and 2019 were $100,000 and $0, respectively.
23. Committees
of the Board of Directors –
The Board of Directors has appointed Mr. Ellery Roberts to various
committees of the Board. Annual Director and committee fees expense was $62,000 and $42,000 for the year ended December 31,
2020 and 2019, respectively.
24. Related
Party Transactions –
Leases
The Company leases or leased 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
(property disposed of in 2020), one that month-to-month, requiring monthly lease payments of $1,200 (lease terminated in 2020),
and one that has a term expiring in November 2022, requiring monthly lease payments of $5,500.
On August 31, 2011, the Company entered into two operating leases
for property owned by Ladary, LLC (“Ladary”). Ladary, which acquired the two properties in foreclosure sales,
is partially owned by the Chief Executive Officer and Chief Financial Officer of the Company, two current or past directors and
one employee of the management company that manages the Company’s largest shareholder. One lease, which replaced
an earlier lease that the Company had entered into with the prior landlord, is currently month-to-month, requiring monthly lease
payments of $2,310, and is on terms and conditions substantially similar to those contained in the replaced lease. In 2018, Ladary
sold the properties subject to the second lease agreement and acquired another in which the Company had two existing leases in
place. The leases that the Company had entered into with the prior landlord have five-year terms expiring in 2020 and two five-year
extension options and currently require aggregate monthly lease payments of $7,141.
Annual rent expense to related parties for the retail locations
for 2020 and 2019 was approximately $208,000 and $209,000, respectively.
25. Subsequent
Events –
Dividend
Our Board of Directors declared the following dividends payable
in 2021:
Date Declared
|
Record Date
|
Dividend Per Share
|
Payment Date
|
February 15, 2021
|
February 23, 2021
|
$0.025
|
March 5, 2021
|
Acquisition
On January 8, 2021, we closed on a Merger Agreement with Swisher
Acquisition, Inc. (“Swisher”), a manufacturer of lawn and garden power equipment and emergency safety shelters, and
provider of turn-key manufacturing services to third parties. The Company issued 408,000 shares of our common stock in exchange
for all of the equity interest of Swisher resulting in Swisher becoming a wholly-owned subsidiary of the Company.
We evaluated all events or transactions that occurred after
December 31, 2020 up through the date we issued these financial statements. During this period we did not have any other material
subsequent events that impacted our financial statements.