WCRS Western Capital Resources Inc (CE)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Amendment No. 1

FORM 8-K/A

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): July 1, 2015

 

Western Capital Resources, Inc.

(Exact name of registrant as specified in its charter)

 

Minnesota	000-52015	47-0848102
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

 

11550 “I” Street, Suite 150, Omaha, NE 68137

(Address of principal executive offices) (Zip Code)

 

(402) 551-8888

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a.12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

  

 

Explanatory Note

 

On July 1, 2015, Western Capital Resources, Inc. filed a Form 8-K reporting the July 1, 2015 completion of its acquisition of the businesses of Restorers Acquisition, Inc. (“Restorers”), J&P Park Acquisitions, Inc., and J&P Real Estate, LLC, pursuant to the Merger and Contribution Agreement entered into June 9, 2015, by and among Western Capital Resources, Inc. (“Western Capital”), WCRS Restorers Acquisition Co., a wholly owned subsidiary of Western Capital, Restorers, J&P Park Acquisitions, J&P Real Estate, and certain other parties. Prior to the July 1, 2015 acquisition, Western Capital, Restorers, J&P Park Acquisitions, and J&P Real Estate were affiliated entities under common control. As contemplated under the Merger and Contribution Agreement, the business of Restorers was acquired through a triangular merger and all of the ownership interests in J&P Park Acquisitions and J&P Real Estate were acquired through contributions of such ownership interests by their respective holders. In exchange for the foregoing, Western Capital issued to the holders of equity of Restorers, J&P Park Acquisitions and J&P Real Estate 3.5 million shares of Western Capital common stock representing approximately 37% of the total issued and outstanding common stock of Western Capital after consummation of the acquisition transaction. This Amendment No. 1 to Western Capital’s Current Report on Form 8-K amends the original Current Report on Form 8-K to file (i) the unaudited pro forma condensed combined consolidated financial statements and related notes thereto in connection with Western Capital’s acquisition of Restorers, J&P Park Acquisitions and J&P Real Estate and (ii) the audited financial statements of Restorers and J&P Park Acquisitions and subsidiary.

 

Item 9.01. Financial Statements and Exhibits

 

(a)   Financial Statements of Business Acquired

 

J&P Real Estate, LLC was a variable interest entity over which J&P Park Acquisition, Inc. had a primary beneficial interest and therefore had been consolidated into J&P Park Acquisitions. J&P Park Acquisitions, Inc. and Subsidiary’s audited consolidated balance sheets at December 27, 2014 and December 28, 2013, audited consolidated statements of income, net worth and cash flows for the years then ended, and the notes related thereto, are filed as Exhibit 99.1 hereto and incorporated herein by reference.

 

Restorers Acquisitions, Inc.’s audited consolidated balance sheets at December 31, 2014 and 2013, audited statements of operations, stockholders’ equity and cash flows for the years then ended, and the notes related thereto, are filed as Exhibit 99.2 hereto and incorporated herein by reference.

 

(b)   Pro Forma Financial Information

 

The unaudited pro forma condensed combined consolidated financial statements give effect to the aforementioned acquisition based on the assumptions and adjustments set forth in the accompanying notes to the unaudited pro forma condensed combined consolidated financial statements, which management believes are reasonable, and are filed as Exhibit 99.3 hereto and are incorporated in this report by reference. The unaudited pro forma condensed combined consolidated balance sheet represents the consolidated financial position of Western Capital, Restorers J&P Park Acquisitions and J&P Real Estate as of June 30, 2015 as if the acquisition had been consummated on that date. The unaudited pro forma condensed combined consolidated statements of operations give effect to the acquisition of Restorers, J&P Park Acquisitions and J&P Real Estate as if it had been consummated on January 1, 2014, the latter of the beginning of the earliest pro forma period presented and the date of common control. These unaudited pro forma condensed combined consolidated financial statements and accompanying notes should be read in conjunction with the audited historical consolidated financial statements and related notes of J&P Park Acquisitions, Inc., and Subsidiary and with the audited historical financial statements and related notes of Restorers, each of which are included in this report.

 

The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2015 includes the results of operations of Restorers and J&P Park Acquisitions and subsidiary for the six months ended June 30, 2015 and June 27, 2015, respectively, which results have been derived from the unaudited internal financial records of Restorers, J&P Park Acquisitions and subsidiary. The unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2014 include Restorers’ audited statement of operations for the year ended December 31, 2014 and J&P Park Acquisition’s and subsidiary’s audited consolidated statement of income for the year ended December 27, 2014. The unaudited pro forma condensed combined consolidated balance sheet as of June 30, 2015 includes Restorers’ condensed balance sheet as of June 30, 2015 and J&P Park Acquisition’s and subsidiary’s condensed consolidated balance sheet as of June 27, 2015, which have been derived from unaudited internal financial records.

 

The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if Western Capital’s acquisition of Restorers, J&P Park Acquisitions and J&P Real Estate had been consummated as of the beginning of the period indicated, nor is it necessarily indicative of the results of future operations.

 

(c)   Exhibits. 

Exhibit No.		Description
99.1		Audited consolidated financial statements of J & P Park Acquisitions, Inc. (filed herewith)
99.2		Audited consolidated financial statements of Restorers Acquisition, Inc. (filed herewith)
99.3		Unaudited pro forma condensed combined consolidated financial statements (filed herewith)

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

	WESTERN CAPITAL RESOURCES, INC.
Date:  September 10, 2015	BY:	/s/ John Quandahl
		John Quandahl
		Chief Executive Officer

 

  

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Audited consolidated financial statements of J & P Park Acquisitions, Inc. (filed herewith)
99.2		Audited consolidated financial statements of Restorers Acquisition, Inc. (filed herewith)
99.3		Unaudited pro forma condensed combined consolidated financial statements (filed herewith)

  

 

 

 

 

Exhibit 99.1

 

J & P PARK ACQUISITIONS, INC.

AND SUBSIDIARY

 

CONSOLIDATED FINANCIAL STATEMENTS

 

YEARS ENDED DECEMBER 27, 2014

AND DECEMBER 28, 2013

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CONSOLIDATED FINANCIAL STATEMENTS

 

YEARS ENDED DECEMBER 27, 2014

AND DECEMBER 28, 2013

 

Contents

 

		Page
Independent Auditor’s Report		1
Consolidated Balance Sheets		2
Consolidated Statements of Income		3
Consolidated Statements of Net Worth		4
Consolidated Statements of Cash Flows		5
Notes to Consolidated Financial Statements		6
Supplementary Information		18
Independent Auditor’s Report on Supplementary Information		19
Consolidating Balance Sheets		20
Consolidating Statements of Income		22
Capitalization Tables		24

 

 

10990 Wilshire Boulevard 16th Floor Los Angeles, CA 90024

310-873-1600 T  310-873-6600 F www.greenhassonjanks.com

  

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors of

J & P Park Acquisitions, Inc. and Subsidiary

 

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of J & P Park Acquisitions, Inc. and Subsidiary (the Company), which comprise the consolidated balance sheets as of December 27, 2014 and December 28, 2013, and the related consolidated statements of income, net worth, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

  

Management’s Responsibility for the Consolidated Financial Statements 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

  

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

  

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

  

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of J & P Park Acquisitions, Inc. and Subsidiary as of December 27, 2014 and December 28, 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United Statements of America.

  

   

March 27, 2015 

Los Angeles, California

 

An independent member of HLB International, a worldwide network of accounting firms and business advisors.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

		December 27, 2014				December 28, 2013
ASSETS
CURRENT ASSETS:
Cash		$	2,979,662			$	1,919,262
Accounts Receivable – Trade (Net of Allowance for Doubtful Accounts of $35,354 in 2014 and $56,232 in 2013)			385,252				394,039
Inventory			1,880,772				1,960,741
Prepaid Expenses and Other Current Assets			1,038,571				1,397,819
TOTAL CURRENT ASSETS			6,284,257				5,671,861
PROPERTY AND EQUIPMENT (Net)			6,671,951				6,797,077
OTHER ASSETS:
Goodwill and Intangible Assets (Net)			145,711				165,911
Deferred Income Taxes			—				111,000
TOTAL OTHER ASSETS			145,711				276,911
TOTAL ASSETS		$	13,101,919			$	12,745,849
LIABILITIES AND NET WORTH
CURRENT LIABILITIES:
Accounts Payable		$	2,222,486			$	3,597,963
Accrued Expenses and Other Current Liabilities			891,657				622,250
Income Tax Payable			416,000				—
Deferred Sales			547,545				587,198
Merchandise Credits and Gift Card Liabilities			464,020				399,639
Deferred Income Taxes			53,000				151,000
Current Maturities of Long-Term Debt - Bank			400,008				2,469,984
TOTAL CURRENT LIABILITIES			4,994,716				7,828,034
OTHER LIABILITIES
Long-Term Debt – Related Party			—				749,185
Deferred Income Taxes			190,000				—
Long-Term Debt - Bank			3,338,126				—
TOTAL OTHER LIABILITIES			3,528,126				749,185
TOTAL LIABILITIES			8,522,842				8,577,219
COMMITMENTS & CONTINGENCIES
NET WORTH:
Common Stock - $0.01 Par Value, 10,000 Shares Authorized; 4,536 Shares Issued and Outstanding			45				45
Preferred Stock - $0.01 Par Value, 3,000 Shares Authorized; 3,061 Shares Issued and Outstanding			31				31
Additional Paid-In Capital			739,842				739,842
Retained Earnings			2,100,658				951,133
Non-Controlling Interest			1,738,501				2,477,579
TOTAL NET WORTH			4,579,077				4,168,630
TOTAL LIABILITIES AND NET WORTH		$	13,101,919			$	12,745,849

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF INCOME

 

		Years Ended
		December 27, 2014								December 28, 2013
		Amount				% of Net Sales				Amount				% of Net Sales
NET SALES		$	32,306,912				100.0			$	32,820,580				100.0
COST OF SALES			14,843,685				45.9				16,296,257				49.7
GROSS PROFIT			17,463,227				54.1				16,524,323				50.3
OPERATING EXPENSES:
Selling			8,317,780				25.7				8,393,757				25.6
General and Administrative			6,004,879				18.6				6,311,646				19.2
TOTAL OPERATING EXPENSES			14,322,659				44.3				14,705,403				44.8
INCOME FROM OPERATIONS			3,140,568				9.8				1,818,920				5.5
OTHER EXPENSES:
Interest Expense			255,365				0.8				411,567				1.2
Amortization			20,200				0.1				20,200				0.1
Management Fees – Blackstreet			353,953				1.1				337,063				1.0
Board of Director Fees			125,187				0.4				132,870				0.4
One Time Costs			—				—				647,010				2.0
Other Expenses			156,988				0.5				32,256				0.1
TOTAL OTHER EXPENSES			911,693				2.9				1,580,966				4.8
INCOME BEFORE PROVISION FOR (BENEFIT FROM)INCOME TAXES			2,228,875				6.9				237,954				0.7
Provision for (Benefit from) Income Taxes			568,000				1.8				(92,000	)			(0.3	)
NET INCOME			1,660,875				5.1				329,954				1.0
Net Income Attributable to Non-Controlling Interest			511,350				1.6				468,758				1.4
NET INCOME (LOSS) ATTRIBUTABLE TO STOCKHOLDERS		$	1,149,525				3.5			$	(138,804	)			(0.4	)

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF NET WORTH

Years Ended December 27, 2014 and December 28, 2013

		Common Stock						Preferred Stock						Additional						Total			Non-Controlling
		Number of						Number of						Paid-In			Retained			Stockholders’			Interest in			Total
		Shares			Amount			Shares			Amount			Capital			Earnings			Equity			Subsidiary			Net Worth
Balance at December 29, 2013			5,000		$	50			2,500		$	25		$	739,843		$	1,089,937		$	1,829,855		$	1,973,884		$	3,803,739
Purchases:
Common Stock			(465	)		(5	)		—			—			(167,772	)		—			(167,777	)		(585	)		(168,362	)
Preferred Stock			—			—			(216	)		(2	)		(64,132	)		—			(64,134	)		(49,098	)		(113,232	)
Issuances:
Common Stock			1			—			—			—			1,158			—			1,158			623			1,781
Preferred Stock			—			—			777			8			230,745			—			230,753			123,997			354,750
Distributions			—			—			—			—			—			—			—			(40,000	)		(40,000	)
Net Income (Loss)			—			—			—			—			—			(138,804	)		(138,804	)		468,758			329,954
BALANCE AT DECEMBER 28, 2013			4,536			45			3,061			31			739,842			951,133			1,691,051			2,477,579			4,168,630
Distributions			—			—			—			—			—			—			—			(1,250,428	)		(1,250,428	)
Net Income			—			—			—			—			—			1,149,525			1,149,525			511,350			1,660,875
BALANCE AT DECEMBER 27, 2014			4,536		$	45			3,061		$	31		$	739,842		$	2,100,658		$	2,840,576		$	1,738,501		$	4,579,077

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Years Ended
		December 27, 2014				December 28, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	1,660,875			$	329,954
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation			313,538				293,644
Amortization of Intangible Assets			20,200				20,200
Bad Debt Provision (Reversal)			(20,878	)			69,346
Deferred Income Tax Expense			203,000				—
Decrease in:
Accounts Receivable – Trade			29,665				294,112
Inventory			79,969				507,061
Prepaid Expenses and Other Current Assets			359,248				882
Increase (Decrease) in:
Accounts Payable			(1,375,477	)			194,403
Accrued Expenses and Other Current Liabilities			269,407				191,318
Income Tax Payable			416,000				—
Deferred Sales			(39,653	)			58,856
Merchandise Credits and Gift Card Liabilities			64,381				119,670
NET CASH PROVIDED BY OPERATING ACTIVITIES			1,980,275				2,079,446
CASH FLOWS USED IN INVESTING ACTIVITY:
Acquisition of Property and Equipment			(188,412	)			(297,723	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt			(261,866	)			(2,129,942	)
Proceeds from Long-Term Debt			780,831				—
Purchase of Common and Preferred Stock			—				(281,594	)
Issuance of Common and Preferred Stock			—				356,531
Distributions to Non-Controlling Interest in Subsidiary			(1,250,428	)			(40,000	)
NET CASH USED IN FINANCING ACTIVITIES			(731,463	)			(2,095,005	)
NET INCREASE (DECREASE) IN CASH			1,060,400				(313,282	)
Cash – Beginning of Year			1,919,262				2,232,544
CASH – END OF YEAR		$	2,979,662			$	1,919,262
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for:
Interest		$	255,365			$	468,758
Income Taxes			225,000				—
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Refinancing of Long-Term Debt		$	3,219,169			$	—

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)

NATURE OF OPERATIONS

 

The consolidated financial statements include the accounts of J & P Park Acquisitions, Inc. (JPPA) and J & P Real Estate, LLC (JPRE) (hereafter, collectively, the Company).

 

J & P Park Acquisitions, Inc. was incorporated in August of 2010 under the laws of the State of Delaware and is a majority-owned subsidiary of BCP II J&P, LLC (BCP). JPPA, headquartered in Greenwood, South Carolina, is an online and direct marketing distribution business operating in the retail market under Park Seed, Jackson & Perkins, and Wayside Gardens, and in the wholesale market under Park Wholesale. JPPA’s product offering includes seeds, live goods and garden accessories. JPPA’s distribution facility is located in Greenwood, South Carolina. In 2010, the stockholders of JPPA formed JPRE, to own the office and warehouse facility in Greenwood, South Carolina and to lease this facility to JPPA under a non-cancellable operating lease.

 

(b)

PRINCIPLES OF CONSOLIDATION

 

Management determined JPRE to be a variable interest entity over which JPPA has a primary beneficial interest and therefore has consolidated JPRE under the guidance of Accounting Standards Codification (ASC) 810. JPPA retains no effective ownership in JPRE. JPPA is a guarantor on a credit facility with JPRE, and the economic substance of the relationship between JPPA and JPRE is that JPPA has a controlling financial interest in JPRE, even though it does not have an ownership interest. Accordingly, the accompanying financial statements present the consolidated financial results of JPPA and JPRE, with all significant balances and transactions between the two entities eliminated.

 

The lease between the entities was extended for a total of 5 years and expires in June 2019. JPPA has the option to extend the lease for up to 11 successive 1 year terms. The total rent paid to JPRE amounted to $967,173 and $943,234 for the years ended December 27, 2014 and December 28, 2013, respectively.

 

(c)

FISCAL YEAR

 

The Company generally maintains its books using a 52-53 week year that ends on the last Saturday of December. The years ended December 27, 2014 and December 28, 2013 consisted of 52 weeks. All references to years relate to fiscal years rather than calendar years.

 

(d)

MANAGEMENT’S USE OF ESTIMATES

 

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use certain estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses during the reporting period. Although management believes its estimates are appropriate, changes in assumptions utilized in preparing such estimates could cause these estimates to change sometime in the future.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(e)

CASH

 

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally-insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk regarding cash.

 

(f)

TRADE AND OTHER RECEIVABLES

 

Receivables are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The allowance for doubtful accounts is estimated based on historical collection trends, type of customer, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past due receivable balances are written-off when internal collection efforts have been unsuccessful in collecting the amount due.

 

(g)

INVENTORY

 

Inventory is valued at the lower of cost or market using the weighted average method of determining cost.

 

(h)

PROPERTY AND EQUIPMENT

 

Property and equipment are carried at cost, net of accumulated depreciation. Depreciation has been provided by using the straight-line method over the estimated useful lives of the assets as follows:

 

Building			39 Years
Computer Equipment & Software			3-10 Years
Warehouse Improvements and Equipment			3-15 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 and ceases when the software is substantially complete and ready for its intended use. 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.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(i)

GOODWILL AND INTANGIBLE ASSETS

 

The excess of the purchase price over the fair market value of identifiable assets acquired, net of liabilities assumed, is recorded as goodwill.

 

Intangibles with finite useful lives are carried at estimated fair value at the date of the business combination, net of accumulated amortization. These assets are assessed for impairment upon the occurrence of a triggering event. Amortization has been provided by using the straight-line method over the estimated useful lives of the assets as follows:

 

Marketing Intangibles

10 Years

 

(j)

LONG-LIVED ASSETS

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the book value of an asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the assets, in which case a write-down is recorded to reduce the related asset to its estimated value. No such impairment losses have been recognized for the years ended December 27, 2014 and December 28, 2013.

 

(k)

DEFERRED SALES

 

Sales billed or cash received in advance of actual delivery are deferred and recorded as income in the period in which the related deliveries are made.

 

(l)

MERCHANDISE CREDITS AND GIFT CARD LIABILITIES

 

The Company maintains a liability for unredeemed gift cards, gift certificates and merchandise credits until the earlier of redemption, escheatment or a maximum of two years. The Company has concluded that the likelihood of these liabilities being redeemed beyond two years from the date of issuance is remote.

 

(m)

SHIPPING AND HANDLING COSTS

 

The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs are expensed as incurred and included in cost of sales.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(n)

ADVERTISING

 

The Company expenses advertising costs as they are incurred, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of catalog book production, printing, and postage costs. They are capitalized and amortized over the expected life of the catalog, not to exceed six months. As of December 27, 2014 and December 28, 2013, capitalized direct-response costs totaling $622,123 and $1,083,990, respectively, are included in prepaid expenses and other current assets. Total advertising costs for the years ended December 27, 2014, and December 28, 2013 amounted to $5,724,578 and $5,778,926, respectively.

 

(o)

STOCK-BASED COMPENSATION

 

The Company accounts for stock-based awards to employees using the fair value method using a Black-Scholes valuation model.

 

Determining the estimated fair value of share-based awards is subjective in nature and involves the use of significant estimates and assumptions, including the term of the share-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of the company’s shares and forfeiture rates of the awards. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are inherently uncertain. Stock-based compensation expense for the periods ended December 27, 2014 and December 28, 2013 was not material to the consolidated financial statements and, thus, was not recorded.

 

(p)

INCOME TAXES

 

Income taxes are provided on income reported in the consolidated financial statements and adjusted for transactions that do not enter the computation of income tax payable.

 

Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying currently enacted statutory tax rates applicable to future years’ differences between the consolidated financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in the period that includes the enactment date.

 

A valuation allowance is provided against deferred income tax assets when their estimated realization is uncertain.

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(p)

INCOME TAXES (continued)

 

The Company is subject to U.S. federal and state income tax examinations by tax authorities for the period ended December 25, 2010, which represents the company’s first taxable year of operations, and for all subsequent operating years through December 27, 2014.

 

JPPA is a C corporation for federal and state income tax purposes.

 

JPRE is a limited liability company and has elected to be taxed as a partnership for income tax purposes. Accordingly, income is allocated and taxed to its members in their respective income tax returns.

 

(q)

VARIABLE INTEREST ENTITIES (VIEs)

 

VIEs are primarily entities that lack sufficient equity to finance their activities without additional subordinated financial support from other parties or whose equity holders as a group lack certain power, obligations, or rights. Management analyzes the Company’s variable interests including loans, guarantees, and equity investments, to determine if the Company has any variable interests in variable interest entities. This analysis includes both qualitative and quantitative reviews. Qualitative analysis is based on an evaluation of the design of the entity, its organizational structure including decision making ability, and financial agreements. Quantitative analysis is based on the entity’s forecasted cash flows. Generally accepted accounting principles require a reporting entity to consolidate a variable interest entity when the reporting entity has a variable interest that provides it with a controlling financial interest in the variable interest entity. The entity that consolidates a variable interest entity is referred to as the primary beneficiary of that variable interest entity. The Company uses qualitative and quantitative analyses to determine if it is the primary beneficiary of variable interest entities.

 

Management has concluded that JPRE is a VIE and JPPA is the primary beneficiary of JPRE because (i) all of the equity owners of JPRE are considered related parties; (ii) the stockholders share power over the significant activities of JPRE; and (iii) JPPA’s activities are most closely associated with JPRE. Accordingly, the Company’s consolidated financial statements include the accounts of JPRE. The land and buildings included in property and equipment comprise substantially all of JPRE’s assets, and the long-term debt - bank comprises substantially all of its liabilities.

 

(r)

SUBSEQUENT EVENTS

 

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of December 27, 2014, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through March 27, 2015, the date these consolidated financial statements were available to be issued. No such material events or transactions were noted to have occurred.

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2014 and December 28, 2013

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

			2014				2013
Building		$	4,800,000			$	4,800,000
Land			1,200,000				1,200,000
Computer Equipment and Software			1,430,121				1,314,418
Warehouse Improvements and Equipment			317,795				245,086
TOTAL			7,747,916				7,559,504
Less: Accumulated Depreciation			(1,075,965	)			(762,427	)
PROPERTY AND EQUPIMENT (NET)		$	6,671,951			$	6,797,077

 

Depreciation expense charged to operations for the years ended December 27, 2014 and December 28, 2013 amounted to $313,538 and $293,644, respectively.

 

NOTE 3 – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill and intangible assets consist of the following:

		Gross Carrying Amount					Accumulated Amortization			Net Carrying Amount
December 27, 2014:
Subject to Amortization:
Marketing Intangibles		$	202,000			$	(87,533	)		$	114,467
Net Subject to Amortization:
Goodwill			31,244				—				31,244
TOTAL GOODWILL AND INTANGIBLE ASSETS		$	233,244			$	(87,533	)		$	145,711
December 28, 2013:
Subject to Amortization:
Marketing Intangibles		$	202,000			$	(67,333	)		$	134,667
Net Subject to Amortization:
Goodwill			31,244				—				31,244
TOTAL GOODWILL AND INTANGIBLE ASSETS		$	233,244			$	(67,333	)		$	165,911

 

Amortization expense charged to operations was $20,200 for the years ended December 27, 2014 and December 28, 2013. Estimated amortization expense for each of the ensuing five years is approximately $20,200. There were no other changes to goodwill and intangible assets during the years ended December 27, 2014 and December 28, 2013.

 

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013  

  

NOTE 4 – INCOME TAXES 

 

The provision for (benefit from) income taxes consists of the following:  

		2014				2013
Current – Federal		$	637,000			$	—
Current – State			4,000				—
Prior Year Over-Provision			(276,000	)			(92,000	)
Deferred Income Tax Expense			203,000				—
PROVISION FOR (BENEFIT FROM) INCOME TAXES		$	568,000			$	(92,000	)

 

Deferred tax assets (liabilities) are comprised of the following:  

		December 27, 2014				December 28, 2013
DEFERRED TAX ASSETS:
Inventory		$	160,000			$	183,000
Allowance for Doubtful Accounts			14,000				22,000
Goodwill			263,000				263,000
Other Deferred Tax Assets			91,000				103,000
NOL Carryover			—				253,000
State Taxes			11,000				—
TOTAL DEFERRED TAX ASSETS			539,000				824,000
DEFERRED TAX LIABILITIES:
Property and Equipment			(351,000	)			(288,000	)
Other Deferred Tax Liabilities			(109,000	)			(84,000	)
Prepaid Expenses			(322,000	)			(490,000	)
State Taxes			—				(2,000	)
TOTAL DEFERRED TAX LIABILITIES			(782,000	)			(864,000	)
NET DEFERRED INCOME TAX LIABILITIES		$	(243,000	)		$	(40,000	)
DEFERRED INCOME TAXES:
Current		$	(53,000	)		$	(151,000	)
Long-Term			(190,000	)			111,000
NET DEFERRED INCOME TAX LIABILITIES		$	(243,000	)		$	(40,000	)

   

The difference between the provision for (benefit from) income taxes as a percentage of income before provision for (benefit from) income taxes and the federal statutory rate of 34% is due primarily to the prior year over year provision and state income taxes.

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013

 

NOTE 5 – LINE OF CREDIT 

 

The Company has a revolving line of credit providing for maximum borrowings of $4,250,000. The line of credit is collateralized by substantially all the assets of the Company. Interest is payable monthly at LIBOR plus 2.75%. The line matures July 2016. There were no advances made from the line of credit at December 27, 2014 and December 28, 2013. Available financing subject to borrowing constraints under the line of credit at December 27, 2014 was $4,250,000. At December 27, 2014 the London Inter-Bank Offering Rate (LIBOR) was 0.25%. 

 

The line of credit contains various covenants and restrictions including, but not limited to, maintenance of certain debt service and leverage ratios.

  

NOTE 6 – LONG-TERM DEBT – RELATED PARTIES 

 

JPRE had subordinated secured promissory notes payable to minority stockholders of which $74,936 was repaid during the year ended December 28, 2013. JPRE had remaining subordinated secured promissory notes payable to BCP and other stockholders totaling $749, 185 as of December 28, 2013, which were repaid in full during t he year ended December 31, 2014. 

 

JPRE was charged interest totaling $43,853 and $130,626 on these notes for the years ended December 27, 2014 and December 28, 2013, respectively.

  

NOTE 7 – LONG-TERM DEBT – BANK 

 

Long-term debt – bank consists of the following:  

		2014				2013
Note Payable (JPRE) - Bank; Collateralized by Substantially All of the Assets of the Company; Payable in Monthly Principal Installments of $33,333 Beginning February 2012; Remaining Balance Due June 30, 2014; Interest Payable Monthly at the Bank’s Prime Rate plus 3.75%; Refinanced June 10, 2014		$	—			$	2,469,984
Note Payable (JPRE) - Bank; Collateralized by Substantially All of the Assets of JPRE; Payable in Monthly Principal Installments of $33,334 Plus Annual Paydowns Equal to JPRE’s Net Cash Flow from Operations Due within 120 Days of the Company’s Year End. Remaining Balance Due June 5, 2019; Interest Payable Monthly at the LIBOR plus 3.5%			3,738,134				—
TOTAL			3,738,134				2,469,984
Less:  Current Maturities			(400,008	)			(2,469,984	)
LONG-TERM DEBT - BANK		$	3,338,126			$	—

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013

 

NOTE 8 – PREFERRED STOCK 

 

The Company’s preferred stock is entitled to a preferred return equal to the original issue price of each preferred share prior to any dividends or other payments are payable to common stockholders. Preferred shareholders also have conversion rights that allow each preferred share to be converted into a common share. 

 

NOTE 9 – RELATED PARTY TRANSACTIONS 

 

JPPA paid Blackstreet Capital Management, LLC (Blackstreet), a company related to BCP with some minority common ownership, a management fee for consulting and management services provided under an agreement executed on August 25, 2010 and amended on April 1, 2012 (the Management and Advisory Agreement). The total expense incurred for these services for the years ended December 27, 2014 and December 28, 2013, totaled $353,916 and $337,063, respectively, and is included in other expenses.

  

In June 2014, JPRE paid Blackstreet a finance fee of $80,000 in connection with the refinancing of certain credit facilities.

  

On June 27, 2011, JPPA entered into an agreement with Scrubs AC, Inc. (Scrubs) a company related to BCP with some minority common ownership, to provide management services. Under the terms of this agreement, Scrubs provided JPPA with financial, managerial, strategic, and operational advice in addition to assistance in connection with its day-to-day operations. The total expenses incurred for these services for the years ended December 27, 2014 and December 28, 2013 were $101,230 and $188,486, respectively, and are included in general and administrative expenses. As of December 27, 2014 and December 28, 2013, there was $6,534 and $21,707 due to Scrubs included in accounts payable, respectively. This agreement was amended on April 1, 2013 and further amended on April 14, 2014 and terminates upon mutual consent of both parties.

  

On June 1, 2013, JPPA entered into an agreement with Restorers Acquisition Inc. (RAI), a BCP II company related to the majority shareholder by some common ownership through different funds, to provide management services including finance, marketing, accounting, human resources, administration, information technology services and use of office space. During the years ended December 27, 2014 and December 28, 2013, JPPA charged $831,728 and $647,044, respectively, for labor and operational support and $43,200 and $32,700, respectively, for the use of certain office space in JPPA’s facility. As of December 27, 2014 and December 28, 2013, there was $118,458 and $86,297 due from RAI and is included in prepaid expenses and other current assets. The agreement with RAI was amended on October 1, 2014 and is terminable upon mutual consent of both parties.

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013 

  

NOTE 10 – 401(K) PLAN 

 

JPPA has a contributory 401 (K) profit sharing plan that covers substantially all employees of the company. All employees meeting certain age and service requirements may contribute a portion of their compensation up to the maximum allowed under applicable tax laws. JPPA made no contributions to the plan during the years ended December 27, 2014 and December 28, 2013. JPPA may also elect to make a discretionary profit sharing contribution to the plan. For the years ended December 27, 2014 and December 28, 2013, JPPA did not elect to make a profit sharing contribution to the plan.

  

NOTE 11 – WARRANTS 

 

As of December 27, 2014 and December 28, 2013, the Company had a warrant outstanding which enables the majority stockholder to purchase shares of common stock in an amount equal to 25%, of the issued and outstanding common share capital of JPPA on a fully diluted basis, at a per share price equal to $0.01 per share. This warrant expires in 2025.

  

NOTE 12 – STOCK OPTIONS 

 

On September 1, 2010, JPPA adopted the 2010 stock option plan (the plan). The plan provides for the award of stock options to purchase common and preferred stock of JPPA. The aggregate amount of common and preferred stock available for issuance under this plan may not exceed 10,000 and 5,000 shares, respectively. Options awarded vest over ten years with no vesting in the first year. The options will also vest immediately upon a sale of JPPA, once vested, the options may be exercised at any point for seven years.

  

Common stock option activity for 2014 and 2013 was as follows:  

		Stock Options				Weighted- Average Exercise Price				Average Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding at December 30, 2012			62.79			$	0.75				9.5			$	43
Granted			46.05				1,940.00				11.0				14,998
OUTSTANDING AT DECEMBER 28, 2013			108.84				821.24				9.13				15,041
Granted, Exercised or Forfeited			—				—				—				—
OUTSTANDING AT DECEMBER 27, 2014			108.84			$	821.24				9.13			$	15,041

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013

 

NOTE 12 – STOCK OPTIONS (continued) 

 

The following assumptions were used in the Black-Scholes model to value the common stock options at grant date during the year ended December 28, 2013:

 

Expected Life			11 Years
Risk-Free Interest Rate			3.25	%
Dividend Yield			0	%
Expected Volatility			100	%

  

Preferred stock option activity for 2014 and 2013 was as follows:  

		Stock Options				Weighted- Average Exercise Price				Average Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding at December 30, 2012			31.39			$	296.86				9.5			$	3,412
Granted			31.04				296.86				11.0				3,374
OUTSTANDING AT DECEMBER 28, 2013			62.43				296.86				9.2				6,786
Granted, Exercised or Forfeited			—				—								—
OUTSTANDING AT DECEMBER 27, 2014			62.43			$	296.86				8.2			$	6,786

  

The following assumptions were used in the Black-Scholes model to value the preferred stock options at grant date during the year ended December 28, 2013: 

 

Expected Life			11 Years
Risk-Free Interest Rate			3.25	%
Dividend Yield			8	%
Expected Volatility			100	%

  

The compensation expense related to the common and preferred stock options for the years ended December 27, 2014 and December 28, 2013 was not material to the consolidated financial statements and, thus, was not recorded. 

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 27, 2014 and December 28, 2013 

 

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES 

 

(a)

RESEARCH AND DEVELOPMENT AGREEMENT

 

During November 2011, JPPA entered into an agreement with Weeks Roses (Weeks), a third party wholesale grower of Bareroot roses, that is in effect until 2019. Weeks has agreed to perform research for JPPA and maintain JPPA’s research crop in exchange for a reduction in royalties to be paid to JPPA for growing JPPA’s patented roses. There is an option to renew the agreement for consecutive two year terms and the agreement calls for a 24 month notice prior to termination.

  

(b)

EMPLOYMENT CONTRACT

 

The Company has an employment agreement with an employee which provides the employee with additional compensation. These include the achievement of specific financial results as well as certain liquidity events as defined in the agreement.

  

 

J & P PARK ACQUISITIONS, INC.

AND SUBSIDIARY

 

SUPPLEMENTARY INFORMATION

 

YEARS ENDED DECEMBER 27, 2014

AND DECEMBER 28, 2013

 

 

10990 Wilshire Boulevard 16th Floor Los Angeles, CA 90024

310-873-1600 T 310-873-6600 F www.greenhassonjanks.com

  

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY INFORMATION

 

To the Board of Directors of

J & P Park Acquisitions, Inc. and Subsidiary

 

We have audited the consolidated financial statements of J & P Park Acquisitions, Inc. and Subsidiary as of and for the years ended December 27, 2014 and December 28, 2013, and our report thereon dated March 27, 2015, which expressed an unmodified opinion on those consolidated financial statements, appears on Page 1. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating balance sheets and capitalization tables at December 27, 2014 and December 28, 2013, and consolidating statements of income for the years then ended are presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

 

 

March 27, 2015

Los Angeles, California 

 

An independent member of HLB International, a worldwide network of accounting firms and business advisors.

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY   CONSOLIDATING BALANCE SHEET December 27, 2014

 

		JPPA				JPRE				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash		$	2,979,647			$	15			$	—			$	2,979,662
Accounts Receivable Trade (Net)			385,252				—				—				385,252
Inventory			1,880,772				—				—				1,880,772
Prepaid Expenses and Other Current Assets			992,783				45,788				—				1,038,571
TOTAL CURRENT ASSETS			6,238,454				45,803				—				6,284,257
PROPERTY AND EQUIPMENT (Net)			1,220,740				5,451,211				—				6,671,951
OTHER ASSETS:
Goodwill and Intangible Assets (Net)			145,711				—				—				145,711
TOTAL ASSETS		$	7,604,905			$	5,497,014			$	—			$	13,101,919
LIABILITIES AND NET WORTH
CURRENT LIABILITIES:
Accounts Payable		$	2,222,486			$	—			$	—			$	2,222,486
Accrued Expenses and Other Current Liabilities			871,278				20,379				—				891,657
Income Tax Payable			416,000				—				—				416,000
Deferred Sales			547,545				—				—				547,545
Merchandise Credits and Gift Card Liabilities			464,020				—				—				464,020
Deferred Income Taxes			53,000				—				—				53,000
Current Maturities of Long-Term Debt - Bank			—				400,008				—				400,008
TOTAL CURRENT LIABILITIES			4,574,329				420,387				—				4,994,716
OTHER LIABILITIES:
Deferred Income Taxes			190,000				—				—				190,000
Long-Term Debt - Bank			—				3,338,126				—				3,338,126
TOTAL OTHER LIABILITIES			190,000				3,338,126				—				3,528,126
TOTAL LIABILITIES			4,764,329				3,758,513				—				8,522,842
NET WORTH:
Common Stock/Units			45				6,339				(6,339	)			45
Preferred Stock/Units			31				280,763				(280,763	)			31
Additional Paid-In Capital			739,842				—				—				739,842
Retained Earnings			2,100,658				1,451,399				(1,451,399	)			2,100,658
Non-Controlling Interest			—				—				1,738,501				1,738,501
TOTAL NET WORTH			2,840,576				1,738,501				—				4,579,077
TOTAL LIABILITIES AND NET WORTH		$	7,604,905			$	5,497,014			$	—			$	13,101,919

 

See Independent Auditor’s Report on Supplementary Information

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY   CONSOLIDATING BALANCE SHEET December 28, 2013

 

		JPPA				JPRE				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash		$	1,826,417			$	92,845			$	—			$	1,919,262
Accounts Receivable Trade (Net)			394,039				—				—				394,039
Inventory			1,960,741				—				—				1,960,741
Prepaid Expenses and Other Current Assets			1,396,291				29,620				(28,092	)			1,397,819
TOTAL CURRENT ASSETS			5,577,488				122,465				(28,092	)			5,671,861
PROPERTY AND EQUIPMENT (Net)			1,222,794				5,574,283				—				6,797,077
OTHER ASSETS:
Goodwill and Intangible Assets (Net)			165,911				—				—				165,911
Deferred Income Taxes			111,000				—				—				111,000
TOTAL OTHER ASSETS			276,911				—				—				276,911
TOTAL ASSETS		$	7,077,193			$	5,696,748			$	(28,092	)		$	12,745,849
LIABILITIES AND NET WORTH
CURRENT LIABILITIES:
Accounts Payable		$	3,597,963			$	—			$	—			$	3,597,963
Accrued Expenses and Other Current Liabilities			650,342				—				(28,092	)			622,250
Deferred Sales			587,198				—				—				587,198
Merchandise Credits and Gift Card Liabilities			399,639				—				—				399,639
Deferred Income Taxes			151,000				—				—				151,000
Current Maturities of Long-Term Debt - Bank			—				2,469,984				—				2,469,984
TOTAL CURRENT LIABILITIES			5,386,142				2,469,984				(28,092	)			7,828,034
OTHER LIABILITIES:
Long-Term Debt – Related Party			—				749,185				—				749,185
TOTAL LIABILITIES			5,386,142				3,219,169				(28,092	)			8,577,219
NET WORTH:
Common Stock/Units			45				6,338				(6,338	)			45
Preferred Stock/Units			31				1,263,990				(1,263,990	)			31
Additional Paid-In Capital			739,842				—				—				739,842
Retained Earnings			951,133				1,207,251				(1,207,251	)			951,133
Non-Controlling Interest			—				—				2,477,579				2,477,579
TOTAL NET WORTH			1,691,051				2,477,579				—				4,168,630
TOTAL LIABILITIES AND NET WORTH		$	7,077,193			$	5,696,748			$	(28,092	)		$	12,745,849

 

See Independent Auditor’s Report on Supplementary Information

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY   CONSOLIDATING STATEMENT OF INCOME Year Ended December 27, 2014

 

		JPPA				JPRE				Eliminations				Consolidated
NET REVENUE		$	32,306,912			$	967,173			$	(967,173	)		$	32,306,912
COST OF SALES			14,843,685				—				—				14,843,685
GROSS PROFIT			17,463,227				967,173				(967,173	)			17,463,227
OPERATING EXPENSES:
Selling			8,317,780				—				—				8,317,780
General and Administrative			6,806,905				165,147				(967,173	)			6,004,879
TOTAL OPERATING EXPENSES			15,124,685				165,147				(967,173	)			14,322,659
INCOME FROM OPERATIONS			2,338,542				802,026				—				3,140,568
OTHER EXPENSES:
Interest Expense			52,264				203,101				—				255,365
Amortization			20,200				—				—				20,200
Management Fees – Blackstreet			353,953				—				—				353,953
Board of Director Fees			125,187				—				—				125,187
Other Expenses			69,413				87,575				—				156,988
TOTAL OTHER EXPENSES			621,017				290,676				—				911,693
INCOME BEFORE PROVISION FOR INCOME TAXES			1,717,525				511,350				—				2,228,875
Provision for Income Taxes			568,000				—				—				568,000
NET INCOME			1,149,525				511,350				—				1,660,875
Net Income Attributable to Non-Controlling Interest			—				—				511,350				511,350
NET INCOME ATTRIBUTABLE TO STOCKHOLDERS		$	1,149,525			$	511,350			$	(511,350	)		$	1,149,525

 

See Independent Auditor’s Report on Supplementary Information

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY   CONSOLIDATING STATEMENT OF INCOME Year Ended December 28, 2013
		JPPA				JPRE				Eliminations				Consolidated
NET REVENUE		$	32,820,580			$	943,234			$	(943,234	)		$	32,820,580
COST OF SALES			16,296,257				—								16,296,257
GROSS PROFIT			16,524,323				943,234				(943,234	)			16,524,323
OPERATING EXPENSES:
Selling			8,393,757				—				—				8,393,757
General and Administrative			7,123,339				131,541				(943,234	)			6,311,646
TOTAL OPERATING EXPENSES			15,517,096				131,541				(943,234	)			14,705,403
INCOME FROM OPERATIONS			1,007,227				811,693				—				1,818,920
OTHER EXPENSES:
Interest Expense			86,965				324,602				—				411,567
Amortization			20,200				—				—				20,200
Management Fees – Blackstreet			337,063				—				—				337,063
Board of Director Fees			132,870				—				—				132,870
One Time Costs			647,010				—				—				647,010
Other Expenses			13,923				18,333				—				32,256
TOTAL OTHER EXPENSES			1,238,031				342,935				—				1,580,966
INCOME BEFORE PROVISION FOR INCOME TAXES			(230,804	)			468,758				—				237,954
Benefit from Income Taxes			(92,000	)			—				—				(92,000	)
NET INCOME (LOSS)			(138,804	)			468,758				—				329,954
Net Income Attributable to Non-Controlling Interest			—				—				468,758				468,758
NET INCOME (LOSS) ATTRIBUTABLE TO STOCKHOLDERS		$	(138,804	)		$	468,758			$	(468,758	)		$	(138,804	)

See Independent Auditor’s Report on Supplementary Information

 

 

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CAPITALIZATION TABLE

 

As of December 27, 2014

																																						Revised
																																						Own%
		Shared Held							Equity Own %								Fully Diluted Own %								Original / Strike Price									Warrants for				Common
Shareholder		Common				Preferred				Common				Preferred				Common				Preferred				Common				Preferred				Common (d)				w/Warrants
BCP II J&P, LLC			3,336.96				2,992.77				73.56	%			97.76	%			71.84	%			95.81	%		$	0.75			$	296.86				1,098.06				76.52	%
BCA II J&P, LLC			1,095.39				—				24.15	%			0.00	%			23.58	%			0.00	%		$	0.75			$	—				—				18.90	%
Minority Shareholder (a)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	0.75			$	296.86				—				0.00	%
Minority Shareholder (b)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	0.75			$	296.86				—				0.00	%
Minority Shareholder (c)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	1.939.71			$	296.86				—				0.00	%
Minority Shareholder			57.57				38.80				1.27	%			1.27	%			1.24	%			1.24	%		$	0.75			$	296.86				14.39				1.24	%
Minority Shareholder			37.75				25.44				0.83	%			0.83	%			0.81	%			0.81	%		$	0.75			$	296.86				9.44				0.81	%
Minority Shareholder			8.51				4.26				0.19	%			0.14	%			0.18	%			0.14	%		$	0.75			$	296.61				2.13				0.18	%
Subtotal Outstanding Shares			4,536.18				3,061.27				100.00	%			100.00	%			97.66	%			98.00	%			NA			$	NA				1,124.02				97.65	%
Options and Warrants:
Minority Shareholder (a)			50.23				25.11												1.08	%			0.80	%		$	0.75			$	296.86				12.56				1.08	%
Minority Shareholder (b)			12.56				6.28												0.27	%			0.20	%		$	0.75			$	296.86				3.14				0.27	%
Minority Shareholder (c)			46.05				31.04				NA				NA				0.99	%			0.99	%		$	1.939.71			$	296.86				11.51				0.99	%
Subtotal Options and Warrants			108.84				62.43				NA				NA				2.34	%			2.00	%			NA			$	NA				27.21				2.35	%
Total Fully Diluted Shares			4,645.02				3,123.70				NA				NA				100.00	%			100.00	%			NA				NA				1,151.23				100.00	%

 

(a) Minority shareholder was granted options on January 1, 2011 for both preferred and common shares with a strike price of each of $296.86 and $0.75, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(b) Minority shareholder was granted options on August 15, 2011 for both preferred and common shares with a strike price of each of $296.86 and $0.75, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(c) Minority shareholder was granted options on January 1, 2013 for both preferred and common shares with a strike price of each of $296.86 and $1,939.71, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(d) Warrants are only exercisable if BCP II J&P, LLC does not earn a 30% return.

 

See Independent Auditor’s Report on Supplementary Information

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CAPITALIZATION TABLE

 

As of December 28, 2013

																																						Revised
																																						Own%
		Shared Held							Equity Own %								Fully Diluted Own %								Original / Strike Price									Warrants for				Common
Shareholder		Common				Preferred				Common				Preferred				Common				Preferred				Common				Preferred				Common (d)				w/Warrants
BCP II J&P, LLC			3,326.17				2,987.37				73.33	%			97.59	%			71.61	%			95.64	%		$	0.75			$	296.86				1,095.39				76.28	%
BCA II J&P, LLC			1,095.39				—				24.15	%			0.00	%			23.58	%			0.00	%		$	0.75			$	—				—				18.90	%
Minority Shareholder (a)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	0.75			$	296.86				—				0.00	%
Minority Shareholder (b)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	0.75			$	296.86				—				0.00	%
Minority Shareholder (c)			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	1,939.71			$	296.86				—				0.00	%
Minority Shareholder			57.57				38.80				1.27	%			1.27	%			1.24	%			1.24	%		$	0.75			$	296.86				14.39				1.24	%
Minority Shareholder			37.75				25.44				0.82	%			0.82	%			0.81	%			0.81	%		$	0.75			$	296.86				9.44				0.81	%
Minority Shareholder			—				—				0.00	%			0.00	%			0.00	%			0.00	%		$	0.75			$	296.86				—				0.00	%
Minority Shareholder			8.51				4.26				0.19	%			0.14	%			0.18	%			0.14	%		$	0.75			$	296.61				2.13				0.18	%
Minority Shareholder			8.63				4.32				0.19	%			0.14	%			0.19	%			0.14	%		$	0.75			$	296.39				2.16				0.19	%
Minority Shareholder			2.16				1.08				0.05	%			0.04	%			0.05	%			0.03	%		$	0.75			$	296.39				0.54				0.05	%
Subtotal Outstanding Shares			4,536.18				3,061.27				100.00	%			100.00	%			97.66	%			98.00	%			NA				NA				1,124.05				97.65	%
Options and Warrants:
Minority Shareholder (a)			50.23				25.11												1.08	%			0.80	%		$	0.75			$	296.86				12.56				1.08	%
Minority Shareholder (b)			12.56				6.28												0.27	%			0.20	%		$	0.75			$	296.86				3.14				0.27	%
Minority Shareholder (c)			46.05				31.04				NA				NA				0.99	%			1.00	%		$	1,939.71			$	296.86				11.51				1.00	%
Subtotal Options and Warrants			108.84				62.43				NA				NA				2.34	%			2.00	%			NA				NA				27.21				2.35	%
Total Fully Diluted Shares			4,645.02				3,123.70				NA				NA				100.00	%			100.00	%			NA				NA				1,151.26				100.00	%

 

(a) Minority shareholder was granted options on January 1, 2011 for both preferred and common shares with a strike price of each of $296.86 and $0.75, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(b) Minority shareholder was granted options on August 15, 2011 for both preferred and common shares with a strike price of each of $296.86 and $0.75, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(c) Minority shareholder was granted options on January 1, 2013 for both preferred and common shares with a strike price of each of $296.86 and $1,939.71, respectively. These options vest 10% per year over 5 years with the balance vesting upon a liquidity event. The warrants for common shares are not available for exercise until such time as the associated options are exercised.

 

(d) Warrants are only exercisable if BCP II J&P, LLC does not earn a 30% return.

 

See Independent Auditor’s Report on Supplementary Information

 

  

J & P PARK ACQUISITIONS, INC. AND SUBSIDIARY

 

CAPITALIZATION TABLES

 

As of December 31, 2014

																																			Revised
																																			Own%
		Shared Held						Equity Own %								Fully Diluted Own %								Original / Strike Price								Warrants for				Common
Shareholder		Common			Preferred (b)			Common				Preferred				Common				Preferred				Common				Preferred (b)			Common (c)				w/Warrants
BCP II J&P, LLC			3,341.22			2,463.54			73.59	%			97.75	%			73.59	%			97.75	%		$	1.41			$	505.56			1,099.51				78.37	%
BCA II J&P, LLC			1,096.81			—			24.15	%			0.00	%			24.15	%			0.00	%		$	1.41			$	—			—				19.36	%
Minority Shareholder (a)			56.97			31.65			1.25	%			1.26	%			1.25	%			1.26	%		$	1.27			$	505.56			14.24				1.26	%
Minority Shareholder (a)			37.36			20.75			0.82	%			0.82	%			0.82	%			0.82	%		$	1.27			$	505.56			9.34				0.82	%
Minority Shareholder (a)			8.51			4.26			0.19	%			0.17	%			0.19	%			0.17	%		$	1.27			$	505.56			2.13				0.19	%
Subtotal Outstanding Shares			4,540.87			2,520.20			100.00	%			100.00	%			100.00	%			100.00	%			NA				NA			1,125.22				100.00	%
Options and Warrants:
None			—			—			NA				NA				0.00	%			0.00	%		$	—			$	—			—				0.00	%
Subtotal Options and Warrants			—			—			NA				NA				0.00	%			0.00	%			NA				NA			—				0.00	%
Total Fully Diluted Shares			4,540.87			2,520.20			NA				NA				100.00	%			100.00	%			NA				NA			1,125.22				100.00	%

  

 

(a)

Non-fund investors can only exercise their warrants for common if BCP II J&P, LLC exercises the warrants.

(b)

Each preferred unit has a liquidation preference of $505.56.

(c)

Warrants are only exercisable if BCP II J&P, LLC does not earn a 30% return.

 

  

As of December 31, 2013

																																				Revised
																																				Own%
		Shared Held						Equity Own %								Fully Diluted Own %								Original / Strike Price								Warrants for				Common
Shareholder		Common				Preferred (b)			Common				Preferred				Common				Preferred				Common				Preferred (b)			Common (c)				w/Warrants
BCP II J&P, LLC			3,330.43				2,458.14			73.35	%			97.54	%			73.35	%			97.54	%		$	1.41			$	505.56			1,096.81				78.13	%
BCA II J&P, LLC			1,096.81				—			24.15	%			0.00	%			24.15	%			0.00	%		$	1.41			$	—			—				19.36	%
Minority Shareholder (a)			56.97				31.65			1.25	%			1.26	%			1.25	%			1.26	%		$	1.27			$	505.56			14.24				1.26	%
Minority Shareholder (a)			37.36				20.75			0.82	%			0.82	%			0.82	%			0.82	%		$	1.27			$	505.56			9.34				0.82	%
Minority Shareholder (a)			8.51				4.26			0.19	%			0.17	%			0.19	%			0.17	%		$	1.27			$	505.56			2.13				0.19	%
Minority Shareholder (a)			8.63				4.32			0.19	%			0.17	%			0.19	%			0.17	%		$	1.27			$	505.56			2.16				0.19	%
Minority Shareholder (a)			2.16				1.08			0.05	%			0.04	%			0.05	%			0.04	%		$	1.27			$	505.56			0.54				0.05	%
Subtotal Outstanding Shares			4,540.87				2,520.20			100.00	%			100.00	%			100.00	%			100.00	%			NA				NA			1,125.22				100.00	%
Options and Warrants:
None			—				—			NA				NA				0.00	%			0.00	%		$	—			$	—			—				0.00	%
Subtotal Options and Warrants			—				—			NA				NA				0.00	%			0.00	%			NA				NA			—				0.00	%
Total Fully Diluted Shares			4,540.87				2,520.20			NA				NA				100.00	%			100.00	%			NA				NA			1,125.22				100.00	%

 

(a)

Non-fund investors can only exercise their warrants for common if BCP II J&P, LLC exercises the warrants.

(b)

Each preferred unit has a liquidation preference of $505.56.

(c)

Warrants are only exercisable if BCP II J&P, LLC does not earn a 30% return.

 

See Independent Auditor’s Report on Supplementary Information

 

 

Exhibit 99.2

 

RESTORERS ACQUISITON, INC.

 

FINANCIAL STATEMENTS

 

YEARS ENDED 

DECEMBER 31, 2014 and 2013

 

  

RESTORERS ACQUISITION, INC.

 

FINANCIAL STATEMENTS

 

YEARS ENDED DECEMBER 31, 2014 AND 2013

 

CONTENTS 

 

		Page
Independent Auditor’s Report		1
Balance Sheets		2
Statements of Operations		3
Statements of Stockholders’ Equity		4
Statements of Cash Flows		5
Notes to Financial Statements		6
Supplementary Information		14
Independent Auditor’s Report on Supplementary Information		15
Capitalization Table		16

 

10990 Wilshire Boulevard  16th Floor  Los Angeles, CA 90024

310-873-1600 T  310-873-6600 F  www.greenhassonjanks.com

  

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors of 

Restorers Acquisition, Inc.

 

Report on the Financial Statements 

We have audited the accompanying financial statements of Restorers Acquisition, Inc. (the company), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Opinion 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Restorers Acquisition, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United Statements of America.

  

 

March 27, 2015 

Los Angeles, California

 

An independent member of HLB International, a worldwide network of accounting firms and business advisors.

 

  

RESTORERS ACQUISITION, INC.   BALANCE SHEETS
		December 31
		2014				2013
ASSETS
CURRENT ASSETS:
Accounts Receivable – Trade (Net of Allowance for Doubtful Accounts of $22,000 in 2013)		$	98,970			$	159,219
Inventory			2,128,096				2,174,093
Prepaid Expenses and Other Current Assets			306,831				131,888
Deferred Income Tax Assets			156,000				137,000
TOTAL CURRENT ASSETS			2,689,897				2,602,200
PROPERTY AND EQUIPMENT (Net)			35,935				62,211
OTHER ASSETS:
Debt Issuance Costs (Net)			27,255				55,469
TOTAL ASSETS		$	2,753,087			$	2,719,880
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Book Overdraft		$	223,546			$	198,279
Accounts Payable			753,620				464,660
Line of Credit			340,000				—
Accrued Expenses and Other Liabilities			68,801				169,562
Related Party Payables			26,291				19,733
TOTAL CURRENT LIABILITIES			1,412,258				852,234
OTHER LIABILITIES:
Deferred Income Tax Liabilities			16,000				23,000
Line of Credit			—				465,615
TOTAL OTHER LIABILITIES			16,000				488,615
TOTAL LIABILITIES			1,428,258				1,340,849
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common Stock - $0.01 Par Value, 5,000 Shares Authorized; 573 Shares Issued and Outstanding at December 31, 2014 and 2013.			6				6
Additional Paid-In Capital			588,709				588,709
Retained Earnings			736,114				790,316
TOTAL STOCKHOLDERS’ EQUITY			1,324,829				1,379,031
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,753,087			$	2,719,880

 

  The Accompanying Notes are an Integral Part of These Financial Statements

 

 

RESTORERS ACQUISITION, INC.   STATEMENTS OF OPERATIONS
		Years Ended December 31
		2014								2013
		Amount				% of   Net Sales				Amount				% of   Net Sales
NET SALES		$	11,314,990				100.0			$	12,070,151				100.0
COST OF SALES			6,287,162				55.6				6,493,449				53.8
GROSS PROFIT			5,027,828				44.4				5,576,702				46.2
OPERATING EXPENSES:
Selling			2,789,103				24.6				2,738,988				22.7
General and Administrative			1,968,871				17.4				1,883,503				15.6
TOTAL OPERATING EXPENSES			4,757,974				42.0				4,622,491				38.3
INCOME FROM OPERATIONS			269,854				2.4				954,211				7.9
OTHER EXPENSES:
Interest Expense			54,608				0.5				108,569				0.9
Other Expenses			295,448				2.6				246,907				2.0
TOTAL OTHER EXPENSES			350,056				3.1				355,476				2.9
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES			(80,202	)			(0.7	)			598,735				5.0
Provision for (Benefit from) Income Taxes			(26,000	)			(0.2	)			189,000				1.6
NET INCOME (LOSS)		$	(54,202	)			(0.5	)		$	409,735				3.4

 

The Accompanying Notes are an Integral Part of These Financial Statements

 

RESTORERS ACQUISITION, INC.   STATEMENTS OF STOCKHOLDERS’ EQUITY  Years Ended December 31, 2014 and 2013
		Common Stock								Additional Paid-In Capital
		Number of Shares				Amount								Retained Earnings				Stockholders’ Equity
Balance at January 1, 2013			595			$	6			$	603,809			$	380,581			$	984,396
Purchase of Common Stock			(22	)			—				(15,100	)			—				(15,100	)
Net Income			—				—				—				409,735				409,735
BALANCE AT DECEMBER 31, 2013			573				6				588,709				790,316				1,379,031
Net Loss			—				—				—				(54,202	)			(54,202	)
BALANCE AT DECEMBER 31, 2014			573			$	6			$	588,709			$	736,114			$	1,324,829

The Accompanying Notes are an Integral Part of These Financial Statements

 

  

RESTORERS ACQUISITION, INC.   STATEMENTS OF CASH FLOWS
		Years Ended December 31
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)		$	(54,202	)		$	409,735
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation and Amortization			27,943				27,177
Amortization of Debt Issuance Costs			38,982				11,094
Reversal of Allowance for Doubtful Accounts			(22,000	)			—
Deferred Income Tax Benefit			(26,000	)			(68,000	)
(Increase) Decrease in:
Accounts Receivable – Trade			82,249				(65,548	)
Inventory			45,997				130,147
Prepaid Expenses and Other Current Assets			(176,610	)			135,965
Increase (Decrease) in:
Book Overdraft			25,267				198,279
Accounts Payable			288,960				(365,688	)
Accrued Expenses and Other Liabilities			(100,761	)			(61,793	)
Related Party Payables			6,558				(99,542	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			136,383				251,826
CASH FLOWS USED IN INVESTING ACTIVITY:
Acquisition of Property and Equipment			—				(12,990	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt Issuance Costs			(10,768	)			(66,563	)
Net Proceeds from (Repayments on) Line of Credit			(125,615	)			465,615
Principal Payments on Long-Term Debt – Related Party			—				(1,187,437	)
Purchase of Common Stock			—				(15,100	)
NET CASH USED IN FINANCING ACTIVITIES			(136,383	)			(803,485	)
NET DECREASE IN CASH			—				(564,649	)
Cash – Beginning of Year			—				564,649
CASH – END OF YEAR		$	—			$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for:
Interest		$	54,608			$	108,569
Income Taxes			131,000				132,000

 

The Accompanying Notes are an Integral Part of These Financial Statements

 

 

RESTORERS ACQUISITION, INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)

NATURE OF OPERATIONS

 

Restorers Acquisition, Inc. (the company) was incorporated on October 5, 2010 under the laws of the State of Delaware and is a majority-owned subsidiary of Scrubs AC LLC. The company is primarily a retail seller of home improvement and restoration products. The company sells over the internet through the domain name of www.Vandykes.com and through direct mail catalogs. The company’s receiving, accounts receivable, warehousing and shipping functions are operated by an outside logistics company located in Missouri.

 

(b)

MANAGEMENT’S USE OF ESTIMATES

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use certain estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses during the reporting period. Although management believes its estimates are appropriate, changes in assumptions utilized in preparing such estimates could cause these estimates to change sometime in the future.

 

(c)

CASH

 

The company maintains its cash in bank deposit accounts which, at times, may exceed federally-insured limits. The company has not experienced any losses in such accounts. The company believes it is not exposed to any significant credit risk regarding cash.

 

(d)

TRADE AND OTHER RECEIVABLES

 

Receivables are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The allowance for doubtful accounts is estimated based on historical collection trends, type of customer, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past due receivable balances are written-off when internal collection efforts have been unsuccessful in collecting the amount due.

 

(e)

INVENTORY

 

Inventory is valued at the lower of cost or market using the Weighted Average method of determining cost.

 

  

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(f)

PROPERTY AND EQUIPMENT

 

Property and equipment are carried at cost, net of accumulated depreciation. Depreciation has been provided by using the straight-line method over the estimated useful lives of the assets as follows:

 

Computer Equipment	3 - 5 Years
Computer Software	3 Years

  

The cost of maintenance and repairs is charged to operations as incurred while renewals and betterments are capitalized.

 

(g)

DEBT ISSUANCE COSTS

 

Debt issuance costs are amortized by use of the straight-line method over the anticipated maturity of the related loans.

 

(h)

INTANGIBLE ASSETS

 

Intangibles with finite useful lives are carried at estimated fair value at the date of the business combination, net of accumulated amortization. These assets are assessed for impairment upon the occurrence of a triggering event. Intangible assets (net) of $17,985 and $19,652 are included in prepaid expenses and other current assets at December 31, 2014 and 2013, respectively. Amortization has been provided by using the straight-line method over the estimated useful lives of the assets as follows:

 

Trade Name

15 Years

 

(i)

ADVERTISING

 

The company expenses pay-per-click advertising costs as they are incurred. Catalog costs are capitalized and are recognized as an expense over the expected future benefit period. As of December 31, 2014 and 2013, catalog costs included in prepaid expenses and other assets amounted to $252,665 and $98,909, respectively. Total advertising costs for the years ended December 31, 2014 and 2013, amounted to $1,844,560 and $1,756,754, respectively.

 

(j)

SHIPPING AND HANDLING COSTS

 

The company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs are expensed as incurred and included in cost of sales.

 

 

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(k)

INCOME TAXES

 

Income taxes are provided on income reported in the financial statements and adjusted for transactions that do not enter the computation of income tax payable.

 

Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying currently enacted statutory tax rates applicable to future years’ differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in the period that includes the enactment date.

 

A valuation allowance is provided against deferred income tax assets when their estimated realization is uncertain.

 

In accordance with the accounting pronouncement, Accounting for Uncertainty in Income Taxes, the company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

 

The company is subject to U.S. federal income tax and state income tax examinations by tax authorities for all fiscal years in operation including the period ended December 31, 2010, which represents the company’s first taxable year of operations.

 

(l)

STOCK-BASED COMPENSATION

 

The Company accounts for stock-based awards to employees using the fair value method using a Black-Scholes valuation model.

 

Determining the estimated fair value of share-based awards is subjective in nature and involves the use of significant estimates and assumptions, including the term of the share-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of the company’s shares and forfeiture rates of the awards. The company bases its fair value estimates on assumptions it believes to be reasonable but that are inherently uncertain. Stock-based compensation expense for both the years ended December 31, 2014 and 2013 was not material to the financial statements and, thus, was not recorded.

 

(m)

SUBSEQUENT EVENTS

 

The company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2014, for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through March 27, 2015, the date these financial statements were available to be issued. No such material events or transactions were noted to have occurred.

 

 

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

		2014				2013
Computer Equipment		$	13,610			$	17,991
Computer Software			96,865				99,821
TOTAL			110,475				117,812
Less:  Accumulated Depreciation			(74,540	)			(55,601	)
PROPERTY AND EQUPIMENT (NET)		$	35,935			$	62,211

 

Depreciation expense charged to operations for the years ended December 31, 2014 and 2013 amounted to $26,276 and $25,510, respectively.

 

NOTE 3 – DEBT ISSUANCE COSTS

 

Debt issuance costs consist of the following:

		2014				2013
Debt Issuance Costs		$	77,331			$	66,563
Less:  Accumulated Amortization			(50,076	)			(11,094	)
DEBT ISSUANCE COSTS (NET)		$	27,255			$	55,469

  

During the years ended December 31, 2014 and 2013, the company incurred debt issuance costs totaling $10,768 and $66,563, respectively, in connection with obtaining the line of credit. Estimated amortization expense for the year ended December 31, 2015 is $27,255.

 

NOTE 4 – LINE OF CREDIT

 

During August 2013, the company obtained a revolving line of credit from a bank (the line) providing for maximum borrowings of $2,000,000. The line is collateralized by substantially all the assets of the company. Interest is payable monthly at LIBOR plus 3.50%. LIBOR was approximately 0.13% as of December 31, 2014. The amount outstanding under the line at December 31, 2014 and 2013 was $340,000 and $465,615, respectively. There was $1,660,000 available on the line as of December 31, 2014. The line matures in August 2015 and all unpaid principal is due on maturity. The line contains various covenants and restrictions including, but not limited to, the maintenance of certain equity and profitability ratios.

 

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 5 – INCOME TAXES

 

The provision for (benefit from) income taxes for the years ended December 31 consists of the following:

 

		2014				2013
Current – Federal		$	—			$	250,000
Current – State			—				7,000
Deferred Income Tax Benefit			(26,000	)			(68,000	)
PROVISION FOR (BENEFIT FROM) INCOME TAXES		$	(26,000	)		$	189,000

  

Deferred income tax assets (liabilities) are comprised of the following at December 31:

 

		2014				2013
DEFERRED INCOME TAX ASSETS:
Allowance for Doubtful Accounts		$	—			$	9,000
Inventory Capitalization			86,000				61,000
Inventory Valuation Allowance			62,000				110,000
Net Operating Loss Carryforwards			106,000				—
TOTAL DEFERRED INCOME TAX ASSETS			254,000				180,000
DEFERRED INCOME TAX LIABILITIES:
Accumulated Depreciation and Amortization			(15,000	)			(24,000	)
Prepaid Expenses			(98,000	)			(42,000	)
State Taxes			(1,000	)			—
TOTAL DEFERRED INCOME TAX LIABILITIES			(114,000	)			(66,000	)
NET DEFERRED INCOME TAXES		$	140,000			$	114,000
DEFERRED INCOME TAX ASSETS (LIABILITIES):
Current		$	156,000			$	137,000
Non-Current			(16,000	)			(23,000	)
NET DEFERRED INCOME TAXES ASSETS		$	140,000			$	114,000

  

The difference between the provision for (benefit from) income taxes as a percentage of income before provision for (benefit from) income taxes and the federal statutory rate of 34% is due primarily to state income taxes.

  

At December 31, 2014, the company has net operating loss carryforwards available to be utilized for federal income tax purposes of approximately $311,000. These will begin to expire in the year 2034.

 

  

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

On October 16, 2010, the company entered into an agreement with Scrubs AC, Inc. (Scrubs), a company related to the majority stockholder by common ownership, to provide management services. This agreement, amended in May 2013, terminated on June 30, 2013. Scrubs provided the company with financial managerial, strategic, and operational advice in addition to assistance in connection with its day-to-day operations. The total expense incurred for these services for the years ended December 31, 2014 and 2013 totaled $91,917 and $250,886, respectively and is included in general and administrative expenses. As of December 31, 2014 and 2013, there was $2,652 and $19,414, respectively, due to Scrubs and is included in related-party payables. 

 

On June 1, 2013, the company entered into an agreement with J&P Park Acquisitions, Inc. (JPPA), a BCP II company related to the majority shareholder by some common ownership, to provide additional management services including finance, marketing, accounting, human resources, administration, information technology services and use of office space. During the years ended December 31, 2014 and 2013, the company was charged $868,562 and $647,044, respectively, for labor and operational support and $43,200 and $32,700, respectively, for the use of certain office space in JPPA's facility. As of December 31, 2014 and 2013, there was $23,639 and $319 due to JPPA and included in related party payables. The agreement with JPPA was amended on October 1, 2014 and is terminable upon mutual consent of both parties. 

 

Blackstreet Capital Management (BCM) (Blackstreet), a company related to the majority stockholder with some minority common ownership, provides management advice, business consulting and general oversight of the company’s operations throughout the year under an agreement executed on October 16, 2010 and amended on April 1, 2012. Under the agreement the company committed to pay the greater of $200,000 per year (increasing 5% per year) or 5% of EBITDA for these services until the company and BCM mutually agree to terminate the commitment. For the years ended December 31, 2014 and 2013, the company had management services fees of $234,332 and $223,143, respectively. The company is required to pay BCM a 2% fee of the amount of funds committed in any debt or equity financing from a third party as compensation for services in securing the financing. The company had expenses related to financing fees of $40,000 for the year ended December 31, 2013. In the event of an acquisition of another company, the company is required to pay a fee of $400,000 for acquisition and turnaround services to BCM, and would be subject to an increase of $60,000 per acquisition to the management fee amount described above. If a majority interest in the company is sold, a fee equal to three years of management fees is payable to BCM.

 

During the year ended December 31, 2013, the company repaid all of the promissory notes – majority stockholder and was charged interest totaling $89,262.

 

 

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS 

December 31, 2014 and 2013

  

NOTE 7 – STOCK OPTIONS

 

On April 1, 2011, the company adopted the 2011 stock option plan (the plan). The plan provides for the award of stock options to purchase common stock of the company. The aggregate amount of shares available for issuance under this plan may not exceed 3,000 shares. Options awarded vest over ten years with no vesting in the first year. The options will also vest immediately upon a sale of the company, once vested; the options may be exercised at any point for ten years.

 

Stock option activity for 2014 and 2013 was as follows:

 

		Stock Options				Weighted- Average Exercise Price				Average Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding at January 1, 2013			9.0			$	6,500				9.5			$	45,452
Granted			5.8				6,426				11.0				2,702
Forfeited			(4.5	)			(6,500	)							(22,726	)
OUTSTANDING AT DECEMBER 31, 2013			10.3				6,477				9.4				25,428
Granted, Exercised or Forfeited			—				—				—				—
OUTSTANDING AT DECEMBER 31, 2014			10.3			$	6,477				9.4			$	25,428

 

The following assumptions were used in the Black-Scholes model to value the options at grant date during the year ended December 31, 2013:

  

Expected Life			11 Years
Risk-Free Interest Rate			3.25	%
Dividend Yield			0	%
Expected Volatility			100	%

  

The compensation expense related to these options for the years ended December 31, 2014 and 2013 was not material to the financial statements and, thus, was not recorded.

 

 

RESTORERS ACQUISITION INC.

 

NOTES TO FINANCIAL STATEMENTS

December 31, 2014 and 2013

 

NOTE 8 – OTHER EXPENSES

 

Other expenses consist of the following:

 

		2014				2013
Amortization		$	1,667			$	12,761
Management Fees – Blackstreet			234,332				223,143
Board of Directors Fees			37,084				32,537
Miscellaneous Expense (Income)			22,365				(21,534	)
TOTAL OTHER EXPENSES		$	295,448			$	246,907

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

The company has an agreement with a third party fulfillment provider located in Missouri that is in effect through January 31, 2016. There is an option to renew the agreement for a two year extension, 120 days before the end of the initial term and subject to potential changes in cost structures.

  

The fulfillment provider receives and stores inventory, performs daily cycle counts, picks, packs and ships customer orders. Additional services such as, order taking, processing of customer payments, personalization, customer services, and order processing are also performed by the fulfillment provider.

 

 

RESTORERS ACQUISITION, INC.

  

SUPPLEMENTARY INFORMATION

  

YEARS ENDED 

DECEMBER 31, 2014 AND 2013

 

  

10990 Wilshire Boulevard  16th Floor  Los Angeles, CA 90024

310-873-1600 T  310-873-6600 F  www.greenhassonjanks.com

  

INDEPENDENT AUDITOR’S REPORT 

ON SUPPLEMENTARY INFORMATION

 

To the Board of Directors of 

Restorers Acquisition, Inc.

  

We have audited the financial statements of Restorers Acquisition, Inc. as of and for the years ended December 31, 2014 and 2013, and our report thereon dated March 27, 2015, which expressed an unmodified opinion on those financial statements, appears on Page 1. Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The capitalization table for the years ended December 31, 2014 and 2013 are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

 

  

March 27, 2015 

Los Angeles, California

 

An independent member of HLB International, a worldwide network of accounting firms and business advisors.

 

 

RESTORERS ACQUISITION, INC. 

 

CAPITALIZATION TABLE 

 

As of December 31, 2014 and 2013

 

Shareholder		Shares Held				Equity Ownership				Fully Diluted Ownership				Weighted Average Original / Strike Price
Scrubs AC, LLC			528.5				92.3	%			90.6	%		$	1,063
Minority member			26.8				4.7	%			4.6	%			605
Minority member			17.5				3.1	%			3.0	%			605
Subtotal Outstanding Shares			572.8				100.0	%			98.2	%
Options:
Minority member			4.5								0.8	%			6,500
Minority member			5.8								1.0	%			6,426
Subtotal Options			10.3								1.8	%
Total Fully Diluted Shares			583.1								100.0	%

 

See Independent Auditor’s Report on Supplementary Information

 

 

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES, RESTORERS, INC. AND J&P ACQUISTIIONS INC. AND SUBSIDIARY

 

The following unaudited pro forma condensed combined consolidated financial statements of Western Capital Resources, Inc. and subsidiaries (“Western Capital”), Restorers Acquisition, Inc. (“Restorers”) and J&P Park Acquisition Inc. and subsidiary (“JPPA”) give effect to the merger and contribution of Restorers and JPPA pursuant to the Merger and Contribution Agreement (“Agreement”). 

 

Western Capital completed its acquisition of the businesses and real estate operations of Restorers and JPPA after the close of business on June 30, 2015, pursuant to the Agreement entered into June 9, 2015, by and among Western Capital, WCRS Restorers Acquisition Co., a wholly owned subsidiary of Western Capital, Restorers, JPPA and other parties. Pursuant to the Agreement, the businesses of Restorers, acquired through a triangular merger, and JPPA, acquired through contributions of all ownership interests by their respective holders, were acquired in exchange for 3,500,000 shares of Western Capital common stock representing approximately 37% of the total issued and outstanding common stock of Western Capital after consummation of the acquisition.

 

Restorers owns the Van Dyke’s Restorers brand business, an online retailer of home and furniture restoration products and J&P Park Acquisitions owns and operates the Park Seed online seed store, Wayside Gardens online and Jackson & Perkins online. J&P Real Estate owns the real estate facilities which are the headquarters for Restorers and JPPA and a distribution center for J&P Park Acquisitions.

 

Western Capital, Restorers and JPPA were affiliated entities under common control prior to the acquisition. Accordingly, the assets and liabilities of the Restorers and JPPA are accounted for at their carrying amounts as of the date of transfer.

 

The unaudited pro forma condensed combined consolidated financial information has been prepared in accordance with SEC Regulation S-X Article 11. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated operating results that would have been achieved if the merger and contribution transaction among Restorers, JPPA and Western Capital had been consummated as of the beginning of the period indicated, nor is it necessarily indicative of the results of future operations.

 

 

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES, J & P PARK ACQUSITIONS, INC. AND SUBSIDIARY AND RESTORERS ACQUISITION, INC.  UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET  As of June 30, 2015  (in Thousands)

  

		Western Capital				JPPA				Restorers				Pro Forma Adjustments				Note 3				Pro Forma Combined
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	3,185			$	2,082			$	—			$	—							$	5,267
Loans receivable, net			4,840				—				—												4,840
Accounts receivable, net			876				392				136												1,404
Inventory			2,910				1,096				2,074												6,080
Prepaid expenses and other			1,534				—				7				(71	)			(a)				1,470
Deferred income taxes			643				—				145												788
TOTAL CURRENT ASSETS			13,988				3,570				2,362				(71	)							19,849
FIXED ASSETS, Net			1,947				6,557				34												8,538
GOODWILL			13,757				31				—												13,788
INTANGIBLE ASSETS, Net			8,147				104				17												8,268
OTHER			447				596				33												1,076
TOTAL ASSETS		$	38,286			$	10,858			$	2,446			$	(71	)						$	51,519
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	6,460			$	1,401			$	777			$	(71	)			(a)			$	8,567
Line of credit			—				—				120												120
Income taxes payable			209				486				61												756
Merchandise credit and gift card liabilities			—				390				—												390
Current portion long-term debt			4,500				—				—												4,500
Current portion capital lease obligations			32				400				—												432
Deferred revenue & Other			620				239				—												859
TOTAL CURRENT LIABILITIES			11,821				2,916				958				(71	)							15,624
LONG-TERM LIABILITIES
Note payable, net of current portion			875				3,138				—												4,013
Capital lease obligations, net of current portion			20				—				—												20
Deferred income taxes			4,059				169				—												4,228
Other			106				—				—												106
TOTAL LONG-TERM LIABILITIES			5,060				3,307				—												8,367
TOTAL LIABILITIES			16,881				6,223				958				(71	)							23,991
EQUITY
SHAREHOLDERS’ EQUITY
Common stock/units			—				—				—				—				(b)				—
Additional paid-in capital			22,750				—				589				5,871				(b)				29,210
Retained earnings (Accumulated deficit)			(1,360	)			2,743				899				(3,979	)			(b)				(1,697	)
TOTAL SHAREHOLDERS’ EQUITY			21,390				2,743				1,488				1,892								27,513
NONCONTROLLING INTERESTS			15				1,892				—				(1,892	)			(b)				15
TOTAL EQUITY			21,405				4,635				1,488				—								27,528
TOTAL LIABILITIES AND EQUITY		$	38,286			$	10,858			$	2,446			$	(71	)						$	51,519

 

The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

 

 

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES, J & P PARK ACQUSITIONS, INC. AND SUBSIDIARY AND RESTORERS ACQUISITION, INC.  UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS  For the Six Months Ended June 30, 2015  (in Thousands except share outstanding amounts and net income per common share)

 

		Western Capital				JPPA				Restorers				Pro Forma Adjustments				Note 3				Pro Forma Combined
REVENUES
Retail sales & associated fees		$	13,635			$	19,194			$	5,670			$	—							$	38,499
Financing fees and interest			5,142				—				—				—								5,142
Royalty and franchise fees, net			5,080				—				—				—								5,080
Other revenue			3,381				—				9				—								3,390
			27,238				19,194				5,679				—								52,111
COST OF SALES			9,313				8,842				2,789				—								20,944
GROSS PROFIT			17,925				10,352				2,890				—								31,167
OPERATING EXPENSES
Selling, general and administrative			15,055				7,733				2,607				(481	)			(c)				24,914
Depreciation and amortization			428				181				13				—								622
			15,483				7,914				2,620				(481	)							25,536
OPERATING INCOME			2,442				2,438				270				481								5,631
OTHER INCOME (EXPENSE)
Interest income			2				—				—				—								2
Interest expense			(203	)			(94	)			(27	)			—								(324	)
Other income (expense)			—				—				—				—								—
			(201	)			(94	)			(27	)			—								(322	)
INCOME BEFORE INCOME TAXES			2,241				2,344				243				481								5,309
PROVISION FOR INCOME TAXES			973				700				80				135				(d)				1,888
NET INCOME (LOSS)			1,268				1,644				163				346								3,421
NET INCOME APPLICABLE TO NONCONTROLLING INTERESTS			(6	)			(331	)			—				331				(e)				(6	)
NET INCOME ATTRIBUTABLE TO WCR SHAREHOLDERS		$	1,262			$	1,313			$	163			$	677							$	3,415
NET INCOME PER COMMON SHARE
Basic & Diluted		$	0.21																			$	0.36
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic & Diluted			5,997,588												3,500,000				(f)				9,497,588

 

The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

 

 

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES, J & P PARK ACQUSITIONS, INC. AND SUBSIDIARY AND RESTORERS ACQUISITION, INC.  UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS  For the Year Ended December 31, 2014  (in Thousands except share outstanding amounts and net income per common share)

 

		Western												Pro Forma								Pro Forma
		Capital				JPPA				Restorers				Adjustments				Note 3				Combined
REVENUES
Retail sales & associated fees		$	22,535			$	32,307			$	11,315			$								$	66,157
Financing fees and interest			11,124				—				—												11,124
Royalty and franchise fees, net			2,814				—				—												2,814
Other revenue			4,286				—				—												4,286
			40,759				32,307				11,315				—								84,381
COST OF SALES			14,701				14,844				6,360												35,905
GROSS PROFIT			26,058				17,463				4,955				—								48,476
OPERATING EXPENSES
Selling, general and administrative			21,231				14,645				4,975												40,851
Depreciation and amortization			556				334				28												918
			21,787				14,979				5,003				—								41,769
OPERATING INCOME			4,271				2,484				(48	)			—								6,707
OTHER INCOME (EXPENSE)
Interest income			2				—				—												2
Interest expense			(316	)			(255	)			(55	)											(626	)
Other income (expense)			—				—				23												23
			(314	)			(255	)			(32	)			—								(601	)
INCOME BEFORE INCOME TAXES			3,957				2,229				(80	)											6,106
PROVISION FOR INCOME TAXES			1,546				568				(26	)			191				(d)				2,279
NET INCOME (LOSS)			2,411				1,661				(54	)			(191	)							3,827
NET INCOME APPLICABLE TO NON-CONTROLLING INTERESTS			(5	)			(511	)			—				511				(e)				(5	)
NET INCOME ATTRIBUTABLE TO WCR SHAREHOLDERS		$	2,406				1,150				(54	)			320								3,822
NET INCOME PER COMMON SHARE
Basic & Diluted		$	0.64																			$	0.53
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic & Diluted			3,763,726												3,500,000				(f)				7,263,726

 

The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS OF WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES, RESTORERS, INC. AND J&P ACQUISTIIONS INC. AND SUBSIDIARY 

 

Note 1. Description of the Transaction

 

Western Capital Resources, Inc. (“Western Capital”) completed its acquisition of the businesses and real estate operations of Restorers Acquisition, Inc. (“Restorers”), J&P Acquisitions, Inc. and J&P Real Estate LLC after the close of business on June 30, 2015, pursuant to the Merger and Contribution Agreement (“Agreement”) entered into June 9, 2015. Pursuant to the Agreement, the businesses of Restorers, acquired through a triangular merger, J&P Acquisitions, Inc. and J&P Real Estate LLC (collectively “JPPA”), acquired through contributions of all ownership interests by their respective holders, were acquired in exchange for 3.5 million shares of Western Capital common stock representing approximately 37% of the total issued and outstanding common stock of Western Capital after consummation of the acquisition.

 

Note 2. Basis of Pro Forma Presentation

 

The unaudited pro forma condensed combined consolidated balance sheet represents the combined financial position of Western Capital, Restorers and JPPA as of June 30, 2015 as if the merger and contribution was consummated on June 30, 2015. The unaudited pro forma condensed combined consolidated statements of operations give effect to the merger of and contribution into Western Capital of Restorers and JPPA as if it had been consummated on January 1, 2014, the latter of the beginning of the earliest pro forma period presented and the date of common control.

 

The unaudited pro forma condensed combined consolidated financial statements have been derived from the historical consolidated financial statements of Western Capital, Restorers and JPPA. Assumptions and estimates underlying the pro forma adjustments are described in these notes, which should be read in conjunction with the pro forma condensed combined consolidated financial statements. 

 

The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2015 includes Restorers’ and JPPA’s results of operations for the six months ended June 30, 2015 and June 27, 2015, respectively, which results have been derived from Restorers’ and JPPA’s unaudited internal financial records. The unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2014 include Restorers’ audited statement of operations for the year ended December 31, 2014 and JPPA’s audited consolidated statement of income for the year ended December 27, 2014. The unaudited pro forma condensed combined consolidated balance sheet as of June 30, 2015 includes Restorers’ condensed balance sheet as of June 30, 2015 and JPPA’s condensed consolidated balance sheet as of June 27, 2015, which have been derived from unaudited internal financial records.

 

Demand for products sold by JPPA is cyclical in nature, sensitive to seasonal growing patterns, general weather conditions, holiday sales patterns and competitive influences. As such, JPPA’s results of operations, financial condition, cash flows and availability of credit could fluctuate significantly from period to period. The majority of JPPA revenues are derived in three selling periods, spring, fall, and the December holiday season, while the summer season accounts for a small portion of sales. Due to the lower revenues in the summer months and compounded by fixed overhead costs, JPPA historically incurs a loss in the third quarter leaving only the fourth quarter to offset it. Consequently, JPPA’s full year financial results cannot be predicted based on interim results.

 

The merger and contribution transaction into Western Capital is reflected in the unaudited pro forma condensed combined consolidated financial statements as an acquisition of entities under common control in accordance with Accounting Standards Codification Topic 805, “Business Combinations”. Under these accounting standards, Western Capital, as the acquirer, recognized the assets and liabilities of the Restorers and JPPA at their historical values as of the date of transfer.

 

Estimated transaction costs have been excluded from the unaudited pro forma condensed combined consolidated statements of operations as they reflect expenses directly related to Restorers and JPPA transaction that do not have a continuing impact. Except for payment of certain common expenses (see Note 3(a) below) there were not additional related party transactions requiring elimination in consolidation.  

 

 

Note 3. Adjustments to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

 

The unaudited adjustments included in the unaudited pro forma condensed combined consolidated financial statements are as follows: 

 

Adjustments to Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet 

 

	(a)	Elimination of Due to/from related party.  Certain common expenses are paid by one party and later reimbursed to the payer by the other party.  The resulting related party due to/from balance between Restorers and JPPA has been eliminated from the unaudited pro forma condensed combined consolidated balance sheet.
	(b)	Stockholders’ equity.  The unaudited pro forma condensed combined consolidated balance sheet reflects the issuance of 3.5 million share of Western Capital no par value common stock upon the closing of the merger and contribution transaction and the replacement of Restorers’ and JPPA’s historical equity balances and JPPA’s noncontrolling interests with an increase to paid in capital equal to the net equity value and noncontrolling interests of Restorers and JPPA as of the date of the merger.

 

Adjustments to Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations

 

	(c)	Elimination of transaction costs. Total Western Capital, Restorers and JPPA transaction costs related to the purchase and sale, estimated to be $256,000, $32,000 and $193,000, respectively, have been recorded as a selling, general and administrative expense within the unaudited pro forma condensed combined consolidated statements of operations for the six months ended June 30, 2015. These costs have been eliminated from selling, general and administrative expenses with this adjustment for the six months ended June 30, 2015 as these costs relate directly to the transaction and do not have an ongoing impact.
	(d)	Provision for Income Taxes.  Prior to the transaction J&P Real Estate, LLC was a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the members. As such, no recognition of federal or state income taxes for the Company that are organized as limited liability companies were provided for. The adjustment to income tax expense reflects the total pre-tax net pro forma adjustments to operating results of J&P Real Estate, LLC multiplied by the estimated effective income tax rate of 37.3%.
	(e)	Net income applicable to noncontrolling interests.  J&P Real Estate, LLC was a variable interest entity consolidated with J&P Park Acquisition Inc. and as such J&P Real Estate, LLC’s net income was reported as income attributable to noncontrolling interests.  The adjustment to net income applicable to noncontrolling interests reflects the elimination of net income applicable to J&P Real Estate, LLC’s equity holders, resulting in 100% of J&P Real Estate, LLC’s net income being allocated to Western Capital shareholders.
	(f)	Shares outstanding.  The unaudited pro forma weighted average number of basic and diluted shares outstanding is calculated for each period presented by adding Western Capital’s weighted average number of basic and diluted shares outstanding for that period and the number of Western Capital shares that would have been issued to Restorers and JPPA equity holders as a result of the Restorers and JPPA merger and contribution transaction.  There were no dilutive securities as of June 30, 2015 and December 31, 2014.