NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Western
Capital Resources, Inc. (“WCR”) is a parent company owning operating subsidiaries, with percentage owned shown parenthetically,
as summarized below.
Cellular
Retail
PQH
Wireless, Inc. (“PQH”) (100%) – operates 205 cellular retail stores as of March 31, 2021 (104 100% owned plus
101 held through its controlled but less than 100% owned subsidiaries), exclusively as an authorized retailer of the Cricket brand.
Direct
to Consumer
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.
Manufacturing
Swisher
Acquisition, Inc. (“SAI”) (100%) - a manufacturer of lawn and garden power equipment and emergency safety shelters
under the Swisher brand name, and provides turn-key manufacturing services to third parties.
Consumer
Finance
Wyoming
Financial Lenders, Inc. (“WFL”) (100%) – owns and operates “payday” stores (19 as of March 31, 2021)
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 March 31, 2021) 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,”
“SAI,” “WFL,” or “EPI” are references only to those companies.
|
2.
|
Summary
of Significant Accounting Policies –
|
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared according to the instructions to Form 10-Q
and Section 210.8-03(b) of Regulation S-X of the Securities and Exchange Commission (SEC) and, therefore, certain information
and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP) have been omitted.
On
January 8, 2021, we completed a merger with SAI (“Merger Transaction”). The Company issued 408,000 shares of our common
stock in exchange for all of the equity interest of SAI resulting in SAI becoming a wholly-owned subsidiary of the Company. The
transaction falls under the guidance of Accounting Standards Codification (“ASC”) 805, “Business Combinations”
for entities under common control. Financial statements and financial information presented herein for prior years has been retrospectively
adjusted using the pooling-of-interest method to furnish enhanced comparative information.
In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2021.
Management
has analyzed the impact of the Coronavirus pandemic (”COVID-19”) on its financial statements as of March 31, 2021
and has determined that the changes to its significant judgements and estimates did not have a material impact with respect to
goodwill, intangible assets or long-lived assets.
For
further information, refer to the Consolidated Financial Statements and notes thereto included in our Form 10-K for the year ended
December 31, 2020.
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”) 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, 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.
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.
Inventory
Manufacturing
Inventory
is stated at the lower of cost or market. Cost for manufactured finished goods is determined using the standard cost method. Raw
materials consist primarily of parts used to make products. Fabricated components consist of processed raw materials, capitalized
labor and overhead. Finished goods consist of completed products, parts and accessories available for sale. An inventory valuation
allowance is provided for excess, obsolete and slow-moving inventory.
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, 65,000 of potential
common shares equivalents from stock options were excluded from the diluted EPS calculations as their effect is anti-dilutive.
Recent
Accounting Pronouncements
In
December 2019, the FASB issued Accounting Standards Update (“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 adopted ASU 2019-12 on January 1, 2021, the adoption of which did not have a material impact on its 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.
|
3.
|
Risks
Inherent in the Operating Environment –
|
Supply
Chain - Fluctuations in the availability and price of inputs could have an adverse effect on our ability to
manufacture and sell our products profitably and could adversely affect our margins and revenue.
Our manufacturing operations depend upon the adequate supply of steel, engines and other components and raw materials. Our
direct to consumer operations depend upon an adequate supply of, among other things, seeds and live plants. Our inability
to procure any of these production materials, components or finished goods, delays in receiving them or not being able to
procure them at competitive prices, particularly during applicable peak seasons, could adversely impact our ability to produce
our products and to sell our products on a cost effective basis which, in turn, could adversely affect our revenue and profitability.
Our
results of operations may be negatively impacted by product liability lawsuits.
The
Company’s Manufacturing segment is subject to potential product liability risks that relate to the design, manufacture,
sale and use of our products. To date, we have not incurred material costs related to these product liability claims. While we
believe our current general liability and product liability insurance is adequate to protect us from future product liability
claims, there can be no assurance that our coverage will be adequate to cover all claims that may arise. Additionally, we may
not be able to maintain insurance coverage in the future at an acceptable cost. Significant losses not covered by insurance or
for which third-party indemnification is not available could have a material adverse effect on our business, financial condition,
results of operations and cash flows. In addition, it may be necessary for us to recall products that do not meet approved specifications,
which could result in adverse publicity as well as costs connected to the recall and loss of revenue.
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.
|
4.
|
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:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Operating accounts
|
|
$
|
20,371,027
|
|
|
$
|
16,539,720
|
|
Money Market – U.S. Treasury obligations
|
|
|
5,920,520
|
|
|
|
2,565,296
|
|
U.S. Treasury obligations
|
|
|
12,999,892
|
|
|
|
13,399,787
|
|
Subtotal
|
|
|
39,291,439
|
|
|
|
32,504,803
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
Certificates of deposit (9 – 18 month maturities, FDIC insured)
|
|
|
11,817,751
|
|
|
|
17,338,073
|
|
U.S. Treasury obligations (less than one year maturities)
|
|
|
3,590,611
|
|
|
|
—
|
|
Subtotal
|
|
|
15,408,362
|
|
|
|
17,338,073
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
54,699,801
|
|
|
$
|
49,842,876
|
|
Investments
consisted of the following:
March 31, 2021
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
(Loss)
|
|
|
Estimated
Fair Value
|
|
Certificates of Deposit
|
|
$
|
—
|
|
|
$
|
11,817,751
|
|
|
$
|
—
|
|
|
$
|
11,817,751
|
|
|
$
|
(28,124
|
)
|
|
$
|
11,789,627
|
|
U.S. Treasuries
|
|
|
3,590,611
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,590,611
|
|
|
|
(465
|
)
|
|
|
3,590,146
|
|
|
|
$
|
3,590,611
|
|
|
$
|
11,817,751
|
|
|
$
|
—
|
|
|
$
|
15,408,362
|
|
|
$
|
(28,589
|
)
|
|
$
|
15,379,773
|
|
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
|
|
Interest
income recognized on held-to-maturity investments and other sources was as follows:
|
|
|
Three Months Ended
March 31, 2021
|
|
|
Three Months Ended
March 31, 2020
|
|
Held-to-maturity
|
|
|
$
|
92
|
|
|
$
|
62,974
|
|
Other
|
|
|
|
30,562
|
|
|
|
75,753
|
|
|
|
|
$
|
30,654
|
|
|
$
|
138,727
|
|
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 March 31, 2021, the Company had demand deposits in excess of insurance amounts of approximately $14.10
million.
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.
The
Consumer Finance segment’s outstanding loans receivable aging is as follows:
March 31, 2021
|
|
|
Payday
|
|
|
Pawn
|
|
|
Total
|
|
Current
|
|
$
|
1,107,990
|
|
|
$
|
211,971
|
|
|
$
|
1,319,961
|
|
1-30
|
|
|
79,771
|
|
|
|
—
|
|
|
|
79,771
|
|
31-60
|
|
|
44,171
|
|
|
|
—
|
|
|
|
44,171
|
|
61-90
|
|
|
46,272
|
|
|
|
—
|
|
|
|
46,272
|
|
91-120
|
|
|
51,184
|
|
|
|
—
|
|
|
|
51,184
|
|
121-150
|
|
|
51,850
|
|
|
|
—
|
|
|
|
51,850
|
|
151-180
|
|
|
41,251
|
|
|
|
—
|
|
|
|
41,251
|
|
|
|
|
1,422,489
|
|
|
|
211,971
|
|
|
|
1,634,460
|
|
Less Allowance for Credit Losses
|
|
|
(248,000
|
)
|
|
|
—
|
|
|
|
(248,000
|
)
|
|
|
$
|
1,174,489
|
|
|
$
|
211,971
|
|
|
$
|
1,386,460
|
|
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
|
|
A
breakdown of accounts receivables by segment is as follows:
March 31, 2021
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
335,936
|
|
|
$
|
1,384,228
|
|
|
$
|
995,935
|
|
|
$
|
19,747
|
|
|
$
|
2,735,846
|
|
Less allowance for credit losses
|
|
|
—
|
|
|
|
(32,000
|
)
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
|
(47,000
|
)
|
Net accounts receivable
|
|
$
|
335,936
|
|
|
$
|
1,352,228
|
|
|
$
|
980,935
|
|
|
$
|
19,747
|
|
|
$
|
2,688,846
|
|
December 31, 2020
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
325,041
|
|
|
$
|
271,742
|
|
|
$
|
920,712
|
|
|
$
|
53,882
|
|
|
$
|
1,571,377
|
|
Less allowance for credit losses
|
|
|
—
|
|
|
|
(18,000
|
)
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
|
(33,000
|
)
|
Net accounts receivable
|
|
$
|
325,041
|
|
|
$
|
253,742
|
|
|
$
|
905,712
|
|
|
$
|
53,882
|
|
|
$
|
1,538,377
|
|
A
portion of accounts receivable are unsettled credit card sales from the prior one to five business days. Included in Accounts
Receivable is $1,054,354 and $492,213 of merchant accounts receivable as of March 31, 2021 and December 31, 2020, respectively.
A
breakdown of inventory is as follows:
March 31, 2021
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Reserve
|
|
|
Total
|
|
Raw Materials
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,890,612
|
|
|
$
|
—
|
|
|
$
|
(329,000
|
)
|
|
$
|
1,561,612
|
|
WIP
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
414,872
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
414,872
|
|
Finished Goods
|
|
$
|
6,374,145
|
|
|
$
|
4,837,482
|
|
|
$
|
2,014,314
|
|
|
$
|
736,204
|
|
|
$
|
(1,201,000
|
)
|
|
$
|
12,761,145
|
|
Total
|
|
$
|
6,374,145
|
|
|
$
|
4,837,482
|
|
|
$
|
4,319,798
|
|
|
$
|
736,204
|
|
|
$
|
(1,530,000
|
)
|
|
$
|
14,737,629
|
|
December 31, 2020
|
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Reserve
|
|
|
Total
|
|
Raw Materials
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,620,157
|
|
|
$
|
—
|
|
|
$
|
(311,000
|
)
|
|
$
|
1,309,157
|
|
WIP
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
260,421
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
260,421
|
|
Finished Goods
|
|
$
|
5,405,993
|
|
|
$
|
3,433,460
|
|
|
$
|
1,603,282
|
|
|
$
|
736,915
|
|
|
$
|
(1,010,000
|
)
|
|
$
|
10,169,650
|
|
Total
|
|
$
|
5,405,993
|
|
|
$
|
3,433,460
|
|
|
$
|
3,483,860
|
|
|
$
|
736,915
|
|
|
$
|
(1,321,000
|
)
|
|
$
|
11,739,228
|
|
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 $1.53 million and $1.32 million at March 31, 2021 and December 31, 2020, respectively.
These inventory write-downs have been reflected in adjustments to 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.
|
Advertising,
Marketing and Development –
|
Prepaid
direct-response advertising costs as of March 31, 2021 and December 31, 2020 were $0 and $0.48 million, respectively. Included
in Advertising, Marketing and Development for the three-month periods ended March 31, 2021 and 2020 was advertising expenses of
$1.96 million and $1.66 million, respectively.
Total
components of operating lease expense (in thousands) were as follows for the three months ended:
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Operating lease expense
|
|
$
|
1,534
|
|
|
$
|
1,806
|
|
Variable lease expense
|
|
|
531
|
|
|
|
517
|
|
Total lease expense
|
|
$
|
2,065
|
|
|
$
|
2,323
|
|
Other
information related to operating leases was as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Weighted average remaining lease term, in years
|
|
|
6.25
|
|
|
|
6.49
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.6
|
%
|
|
|
4.8
|
%
|
Future
minimum lease payments under operating leases as of March 31, 2021 (in thousands) were as follows:
|
|
|
Operating Leases
|
|
Remainder of 2021
|
|
|
$
|
4,694
|
|
2022
|
|
|
|
4,884
|
|
2023
|
|
|
|
3,081
|
|
2024
|
|
|
|
1,687
|
|
2025
|
|
|
|
877
|
|
2026
|
|
|
|
4,243
|
|
Thereafter
|
|
|
|
11
|
|
Total future minimum lease payments
|
|
|
|
19,477
|
|
Less: imputed interest
|
|
|
|
(2,373
|
)
|
Total
|
|
|
$
|
17,104
|
|
|
|
|
|
|
|
Current portion operating lease liabilities
|
|
|
$
|
5,449
|
|
Non-current operating lease liabilities
|
|
|
|
11,655
|
|
Total
|
|
|
$
|
17,104
|
|
|
10.
|
Notes
Payable – Long Term –
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Bank revolving loan
|
|
$
|
1,258,475
|
|
|
$
|
—
|
|
Subordinated loans – related parties
|
|
|
—
|
|
|
|
596,602
|
|
Note payable – related party
|
|
|
2,250,000
|
|
|
|
2,513,546
|
|
Total
|
|
|
3,508,475
|
|
|
|
3,110,148
|
|
Less current maturities
|
|
|
1,508,475
|
|
|
|
—
|
|
|
|
$
|
2,000,000
|
|
|
$
|
3,110,148
|
|
On
October 22, 2010 SAI obtained a senior credit facility (“Revolving Loan”) with a bank. The Revolving Loan, as amended,
has a credit limit of up to $4,500,000 based on percentages of eligible inventory, an interest rate of LIBOR plus 4.5%, and a
maturity date of October 21, 2021, is secured by substantially all assets of SAI and contains certain restrictive financial covenants.
On
August 6, 2010 SAI executed secured subordinated promissory notes (“Subordinated Loans”) to borrow $1,350,000 from
parties that were majority shareholders up until the Merger Transaction on January 8, 2021. The notes, as amended, included interest
at 16% and a maturity date of December 31, 2023. Pursuant to the Merger Transaction, $596,602 of principal and $123,572 of accrued
interest was paid at or around the closing of the Merger Transaction and the remaining principal balance of $922,178 was repaid
with WCR stock issued in the Merger Transaction. The $922,178 repayment is presented herein retrospectively to furnish comparative
information.
SAI
was party to a Management and Advisory Agreement dated August 6, 2010, as amended April 1, 2012, with Blackstreet Capital Management,
LLC (“Blackstreet”) under which Blackstreet provides certain financial, managerial, strategic and operating advice
and assistance. The agreement required SAI to pay Blackstreet a fee in an amount equal to the greater of (i) $250,000 (subject
to annual increases of five percent) or (ii) five percent of SAI’s “EBITDA” as defined under the agreement.
As of December 31, 2020, SAI owed Blackstreet $2,513,546 of accrued fees under the agreement. On January 8, 2021, pursuant to
the Merger Transaction, the agreement was terminated, $13,546 of the accrued fees were paid to Blackstreet and the remaining $2,500,000
was converted into a note payable to Blackstreet. The note is payable in ten consecutive annual lump sum installments of $250,000,
without interest thereon, commencing on January 31, 2021, is unsecured and is guaranteed by the Company. The accrued liability
converted to a note is presented herein retrospectively to furnish comparative information.
|
11.
|
Commitments
and Contingencies –
|
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.
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 for the three-month periods ended
March 31, 2021 and 2020 was $8.71 million and $8.53 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 sales revenue, which included back-end compensation
from Cricket Wireless, 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.
|
Direct
to Consumer
Direct
to Consumer revenue is recognized per ASC 606 and consists 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 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.
|
Manufacturing
Manufacturing
revenue is recognized per ASC 606 and consists of the following:
|
●
|
Merchandise
– merchandise sales, which exclude sales taxes, reflect the transaction price when
product is shipped to customers, FOB shipping point, or at point of sale and are reduced
by variable consideration. Shipping and handling fees are not included in total net sales
and are an offset to freight-out expense. Variable consideration is comprised of estimated
future returns and warranty liability which are estimated based primarily on historical
rates and sales levels.
|
Consumer
Finance
Consumer
Finance revenue from merchandise sales is recognized per ASC 606 and consists 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.
|
|
●
|
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.
|
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.
|
See
Note 15, “Segment Information,” for disaggregation of revenue by segment.
|
13.
|
Other
Operating Expense –
|
A
breakout of other expense is as follows:
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Bank fees
|
|
$
|
724,645
|
|
|
$
|
608,675
|
|
Collection costs
|
|
|
72,283
|
|
|
|
78,069
|
|
Insurance
|
|
|
164,521
|
|
|
|
205,933
|
|
Management and advisory fees
|
|
|
224,771
|
|
|
|
307,961
|
|
Professional and consulting fees
|
|
|
431,678
|
|
|
|
405,153
|
|
Supplies
|
|
|
166,872
|
|
|
|
222,320
|
|
Loss (Gain) on disposal
|
|
|
13,056
|
|
|
|
(9,337
|
)
|
Other
|
|
|
654,643
|
|
|
|
742,149
|
|
|
|
$
|
2,452,469
|
|
|
$
|
2,560,923
|
|
|
14.
|
Segment
Information –
|
Segment
information related to the three-month periods ended March 31, 2021 and 2020 (in thousands) is as follows:
Three Months Ended March 31, 2021
(in thousands)
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Revenue from external customers
|
|
$
|
25,511
|
|
|
$
|
14,678
|
|
|
$
|
2,523
|
|
|
$
|
472
|
|
|
$
|
—
|
|
|
$
|
43,184
|
|
Fees and interest income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,002
|
|
|
$
|
—
|
|
|
$
|
1,002
|
|
Total revenue
|
|
$
|
25,511
|
|
|
$
|
14,678
|
|
|
$
|
2,523
|
|
|
$
|
1,474
|
|
|
$
|
—
|
|
|
$
|
44,186
|
|
Net income (loss)
|
|
$
|
2,522
|
|
|
$
|
2,269
|
|
|
$
|
(18
|
)
|
|
$
|
162
|
|
|
$
|
(256
|
)
|
|
$
|
4,679
|
|
Total segment assets
|
|
$
|
40,186
|
|
|
$
|
17,515
|
|
|
$
|
10,629
|
|
|
$
|
6,356
|
|
|
$
|
37,149
|
|
|
$
|
111,835
|
|
Expenditures for segmented assets
|
|
$
|
191
|
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
254
|
|
Three Months Ended March 31, 2020
(in thousands)
|
|
Cellular
Retail
|
|
|
Direct to
Consumer
|
|
|
Manufacturing
|
|
|
Consumer
Finance
|
|
|
Corporate
|
|
|
Total
|
|
Revenue from external customers
|
|
$
|
19,533
|
|
|
$
|
11,599
|
|
|
$
|
2,050
|
|
|
$
|
421
|
|
|
$
|
—
|
|
|
$
|
33,603
|
|
Fees and interest income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,045
|
|
|
$
|
—
|
|
|
$
|
2,045
|
|
Total revenue
|
|
$
|
19,533
|
|
|
$
|
11,599
|
|
|
$
|
2,050
|
|
|
$
|
2,466
|
|
|
$
|
—
|
|
|
$
|
35,648
|
|
Net income (loss)
|
|
$
|
1,184
|
|
|
$
|
1,176
|
|
|
$
|
(191
|
)
|
|
$
|
225
|
|
|
$
|
(218
|
)
|
|
$
|
2,176
|
|
Total segment assets
|
|
$
|
35,495
|
|
|
$
|
15,307
|
|
|
$
|
11,653
|
|
|
$
|
8,347
|
|
|
$
|
35,157
|
|
|
$
|
105,959
|
|
Expenditures for segmented assets
|
|
$
|
336
|
|
|
$
|
118
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
454
|
|
|
15.
|
Basic
and Diluted Weighted Average Shares Outstanding –
|
Following
is the calculation of basic and diluted weighted average shares outstanding as of:
|
|
Three Months Ended:
|
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Weighted average shares outstanding - basic
|
|
|
9,249,900
|
|
|
|
9,265,778
|
|
Retroactive adjustment – shares issued January 8, 2021
|
|
|
—
|
|
|
|
408,000
|
|
Adjusted weighted average shares outstanding - basic
|
|
|
9,249,900
|
|
|
|
9,673,778
|
|
|
|
|
|
|
|
|
|
|
Dilutive common shares:
|
|
|
|
|
|
|
|
|
Stock options (treasury method)
|
|
|
8,231
|
|
|
|
—
|
|
Weighted average shares outstanding - diluted
|
|
|
9,258,131
|
|
|
|
9,673,778
|
|
Our
Board of Directors declared and paid the following dividend payable in the first quarter of 2021:
Date
Declared
|
Record
Date
|
Dividend
Per Share
|
Payment
Date
|
Dividend
Paid
|
February
15, 2021
|
February
23, 2021
|
$0.025
|
March
5, 2021
|
$231,248
|
Dividend
Declared
Our
Board of Directors declared the following dividend after March 31, 2021:
Date
Declared
|
Record
Date
|
Dividend
Per Share
|
Payment
Date
|
May
6, 2021
|
May
21, 2021
|
$0.025
|
June
4, 2021
|
SAI
Amended and Restated Credit Agreement
SAI
entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with its senior lender on April 8,
2021. The Credit Agreement provides for a revolving line of credit of up to $2.5 million based on an inventory and receivables
availability, and subjects SAI to various covenants, including a minimum Fixed Charge Coverage ratio and maximum Senior Funded
Debt to EBITDA ratio. The Commercial Promissory Note associated with the Credit Agreement has a maturity date of April 30, 2022.
We
evaluated all events or transactions that occurred after March 31, 2021 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.