UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
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): November 3, 2016
Live Ventures Incorporated
(Exact Name of Registrant as Specified in Charter)
Nevada |
001-33937 |
85-0206668 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
325 E. Warm Springs Road, Suite
102 |
(Address of Principal Executive Offices and Zip Code) |
Registrant’s telephone number, including area code: 702-939-0231
_______________________________________________________________________
(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 (see General Instruction A.2. below):
☐ | 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 November 3, 2016 (the “Closing Date”), Live Ventures Incorporated (“Live Ventures”), through its newly formed, wholly-owned subsidiary, Vintage Stock Affiliated Holdings LLC (“VSAH”), entered into a series of agreements in connection with its purchase of Vintage Stock, Inc., a Missouri corporation (“Vintage Stock”). The purchase and financing transactions were, in the aggregate, valued at approximately $60 million. The purchase was effectuated between VSAH and the shareholders of Vintage Stock, with VSAH acquiring 100% of the outstanding capital stock of Vintage Stock. In connection with the purchase and finance transactions, various persons and entities entered into a series of agreements (each of which is dated the Closing Date, with funding initiated on the Closing Date and concluded on November 4, 2016). We filed our Current Report on Form 8-K on November 9, 2016, and disclosed those transactions.
This Amended Current Report on Form 8-K/A is being filed to include the financial statements required by Item 9.01 of Form 8-K, including the audited financial statements of Vintage Stock, Inc. as of and for the three years ended December 31, 2015, December 31, 2014, December 31, 2013 and to include the pro forma financial information of Live Ventures and Vintage Stock as at September 30, 2016 and for the twelve months ended September 30, 2016 and September 30, 2015, respectively.
Item 9.01 Financial Statements and Exhibits
(a) | Financial Statements of Business Acquired. |
Attached to this Current Report as Exhibit 99.1 are certain financial statements of Vintage Stock including a report of KPM CPAs, PC, an independent public accounting firm, and notes to the financial statements, as at November 3, 2016 (unaudited) and December 31, 2015 (audited) and December 31, 2014 (audited), and for the period of January 1, 2016 through November 3, 2016 (unaudited) and the years ended December 31, 2015 (audited) and December 31, 2014 (audited).
Attached to this Current Report as Exhibit 99.2 are audited financial statements of Vintage Stock including a report of KPM CPAs PC, an independent public accounting firm, and notes to the financial statements, as at December 31, 2013 and December 31, 2012, and for the years ended December 31, 2013 and December 31, 2012.
(b) | Pro Forma Financial Information. |
Attached to this Current Report as Exhibit 99.3 are certain pro forma condensed combined financial information of Live Ventures and Vintage Stock as at September 30, 2016 and for the twelve months ended September 30, 2016 and 2015, and the notes to the pro forma condensed combined financial information.
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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.
Dated: January 18, 2017 | By: /s/ Jon Isaac |
Jon Isaac, | |
Chief Executive Officer and President |
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(d) Exhibits
Exhibit No. | Description |
99.1 | Financial statements of Vintage Stock including a report from KPM CPAs PC, an independent public accounting firm, and notes to the financial statements, as at November 3, 2016 (unaudited) and December 31, 2015 (audited), and December 31, 2014 (audited); and for the period January 1, 2016 through November 3, 2016 (unaudited), and for the years ended December 31, 2015 (audited) and December 31, 2014 (audited). |
99.2 |
Audited financial statements of Vintage Stock including a report from KPM CPAs PC, an independent public accounting firm, and notes to the financial statements, as at December 31, 2013 and December 31, 2012, and for the years ending December 31, 2013 and 2012, respectively. |
99.3 | Unaudited pro forma condensed combined financial information of Live Ventures and Vintage Stock as at September 30, 2016 and for the twelve months ended September 30, 2016 and 2015, respectively and notes to the pro forma condensed combined financial information. |
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Exhibit 99.1
VINTAGE STOCK, INC.
INDEPENDENT ACCOUNTANTS' REVIEW
REPORT AND FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders
Vintage Stock, Inc.
Joplin, Missouri
We have reviewed the accompanying financial statements of Vintage Stock, Inc., which comprise the balance sheet as of November 3, 2016, and the related statements of income, stockholders’ equity and cash flows for the period January 1, 2016 to November 3, 2016, and related notes to the financial statements. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
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 the financial statements that are free from material misstatement whether due to fraud or error.
Accountants’ Responsibility
Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.
Accountants’ Conclusion
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.
Prior Period Financial Statements
The financial statements of Vintage Stock, Inc. as of December 31, 2015 and 2014 and for the years then ended were audited by us and our report, dated September 19, 2016, expressed an unmodified opinion on those statements. We have not performed any auditing procedures since that date.
/s/ KPM CPAs, PC
January 16, 2017
Springfield, Missouri
www.kpmcpa.com
1445 E. Republic Road, Springfield, MO 65804 | 417-882-4300 | fax 417-882-4343
500 W. Main Street Suite 200, Branson, MO 65616 | 417-334-2987 | fax 417-336-3403
Member CPA Associates International, Inc., with offices in principal U.S. and international cities
VINTAGE STOCK, INC.
BALANCE SHEETS
November 3, 2016 | December 31, 2015 | December 31, 2014 | ||||||||||
ASSETS | (unaudited) | |||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | $ | 342,798 | $ | 1,524,603 | $ | 2,540,890 | ||||||
Receivables | 113,500 | 99,079 | 46,323 | |||||||||
Merchandise inventories | 20,160,092 | 14,940,547 | 13,695,393 | |||||||||
Prepaid expenses and other assets | 860,453 | 725,926 | 687,854 | |||||||||
Total current assets | 21,476,843 | 17,290,155 | 16,970,460 | |||||||||
Property and Equipment: | ||||||||||||
Cost | 9,279,598 | 7,607,769 | 6,888,669 | |||||||||
Less accumulated depreciation | 5,794,274 | 5,112,067 | 4,283,681 | |||||||||
Net property and equipment | 3,485,324 | 2,495,702 | 2,604,988 | |||||||||
Other Assets: | ||||||||||||
Goodwill, net | 2,349,583 | 824,167 | 931,667 | |||||||||
Intangible asset, net | 413,334 | 160,000 | 220,000 | |||||||||
Total other assets | 2,762,917 | 984,167 | 1,151,667 | |||||||||
Total assets | $ | 27,725,084 | $ | 20,770,024 | $ | 20,727,115 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Bank overdraft | $ | – | $ | 139,551 | $ | – | ||||||
Debt maturing within one year | 2,897,122 | – | – | |||||||||
Accounts payable | 4,048,805 | 1,112,106 | 1,281,793 | |||||||||
Accrued wages | 702,303 | 745,425 | 721,269 | |||||||||
Sales tax payable | 247,699 | 553,315 | 527,200 | |||||||||
Accrued other expenses | 819,792 | 805,208 | 740,837 | |||||||||
Gift certificates outstanding | 219,152 | 312,610 | 302,575 | |||||||||
Total current liabilities | 8,934,873 | 3,668,215 | 3,573,674 | |||||||||
Long-Term Debt | 2,181,563 | – | – | |||||||||
Stockholders' Equity: | ||||||||||||
Common stock | 365,141 | 365,141 | 365,141 | |||||||||
Treasury stock | (200,000 | ) | (200,000 | ) | (200,000 | ) | ||||||
Retained earnings | 16,443,507 | 16,936,668 | 16,988,300 | |||||||||
Total stockholders' equity | 16,608,648 | 17,101,809 | 17,153,441 | |||||||||
Total liabilities and stockholders' equity | $ | 27,725,084 | $ | 20,770,024 | $ | 20,727,115 |
See independent accountants' review report
The accompanying notes are an integral part of these financial statements
1 |
VINTAGE STOCK, INC.
STATEMENTS OF INCOME
For the Period January 1, 2016 - | For the Years Ended | |||||||||||
November 3, 2016 | December 31, 2015 | December 31, 2014 | ||||||||||
(unaudited) | ||||||||||||
Revenue | $ | 52,500,928 | $ | 61,563,194 | $ | 59,867,751 | ||||||
Cost of revenue | 22,131,613 | 26,008,190 | 24,957,170 | |||||||||
Gross profit | 30,369,315 | 35,555,004 | 34,910,581 | |||||||||
Operating expenses: | ||||||||||||
Salaries and wages | 8,625,144 | 9,240,215 | 8,882,392 | |||||||||
Depreciation and amortization | 1,035,707 | 1,032,618 | 1,058,941 | |||||||||
Trade credit incentive | 837,030 | 1,003,314 | 1,051,718 | |||||||||
Bank and credit card fees | 722,910 | 757,918 | 793,200 | |||||||||
Insurance | 927,083 | 920,512 | 678,999 | |||||||||
Computer and professional fees | 577,430 | 564,602 | 387,985 | |||||||||
Taxes and licenses | 846,027 | 914,225 | 926,006 | |||||||||
Office | 916,985 | 1,106,430 | 1,112,218 | |||||||||
Profit sharing expense | 98,625 | 118,753 | 124,074 | |||||||||
Rent | 5,865,448 | 6,246,657 | 6,086,101 | |||||||||
Travel | 250,897 | 232,697 | 156,312 | |||||||||
Utilities | 822,612 | 886,746 | 876,696 | |||||||||
Repairs | 311,093 | 433,935 | 390,918 | |||||||||
Miscellaneous | 78,985 | 88,568 | 98,324 | |||||||||
Total store operating expenses | 21,915,976 | 23,547,190 | 22,623,884 | |||||||||
Income from operations | 8,453,339 | 12,007,814 | 12,286,697 | |||||||||
Other income (expenses): | ||||||||||||
Gift card breakage | 77,173 | 159,000 | 161,000 | |||||||||
Other income | 59,759 | 103,107 | 82,818 | |||||||||
Interest | (81,674 | ) | (34,792 | ) | (43,992 | ) | ||||||
Loss from disposal of property and equipment | (44,926 | ) | (2,017 | ) | (231 | ) | ||||||
Total other income | 10,332 | 225,298 | 199,595 | |||||||||
Income before income taxes | 8,463,671 | 12,233,112 | 12,486,292 | |||||||||
Income tax expense | 15,187 | 62,403 | 59,390 | |||||||||
Net income | $ | 8,448,484 | $ | 12,170,709 | $ | 12,426,902 |
See independent accountants' review report
The accompanying notes are an integral part of these financial statements
2 |
VINTAGE STOCK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock | Treasury | Retained | Total Stockholders' | |||||||||||||||||
Shares | Amount | Stock | Earnings | Equity | ||||||||||||||||
Balances at December 31, 2013 | 2,820 | $ | 365,141 | $ | (200,000 | ) | $ | 15,049,474 | $ | 15,214,615 | ||||||||||
Distributions | – | – | – | (10,488,076 | ) | (10,488,076 | ) | |||||||||||||
Net income | – | – | – | 12,426,902 | 12,426,902 | |||||||||||||||
Balances at December 31, 2014 | 2,820 | 365,141 | (200,000 | ) | 16,988,300 | 17,153,441 | ||||||||||||||
Distributions | – | – | – | (12,222,341 | ) | (12,222,341 | ) | |||||||||||||
Net income | – | – | – | 12,170,709 | 12,170,709 | |||||||||||||||
Balances at December 31, 2015 | 2,820 | 365,141 | (200,000 | ) | 16,936,668 | 17,101,809 | ||||||||||||||
Distributions | – | – | – | (8,941,645 | ) | (8,941,645 | ) | |||||||||||||
Net income | – | – | – | 8,448,484 | 8,448,484 | |||||||||||||||
Balances at November 3, 2016 (unaudited) | 2,820 | $ | 365,141 | $ | (200,000 | ) | $ | 16,443,507 | $ | 16,608,648 |
See independent accountants' review report
The accompanying notes are an integral part of these financial statements
3 |
VINTAGE STOCK, INC.
STATEMENTS OF CASH FLOWS
For the Period January 1, 2016 - | For the Years Ended | |||||||||||
November 3, 2016 | December 31, 2015 | December 31, 2014 | ||||||||||
(unaudited) | ||||||||||||
Net income | $ | 8,448,484 | $ | 12,170,709 | $ | 12,426,902 | ||||||
Adjustments: | ||||||||||||
Depreciation | 749,457 | 865,118 | 891,441 | |||||||||
Amortization | 286,250 | 167,500 | 167,500 | |||||||||
Loss from disposal of property and equipment | 44,926 | 2,017 | 231 | |||||||||
Net change in operating accounts: | ||||||||||||
Receivables | (14,421 | ) | (52,756 | ) | 42,798 | |||||||
Merchandise inventories | (4,544,545 | ) | (1,245,154 | ) | (909,330 | ) | ||||||
Prepaid expenses and other assets | (134,527 | ) | (38,072 | ) | (107,463 | ) | ||||||
Accounts payable | 2,936,699 | (169,687 | ) | (1,032,288 | ) | |||||||
Accrued expenses and sales tax payable | (334,154 | ) | 114,642 | 141,164 | ||||||||
Gift certificates outstanding | (93,458 | ) | 10,035 | 2,770 | ||||||||
Net cash from operating activities | 7,344,711 | 11,824,352 | 11,623,725 | |||||||||
Cash flows used in investing activities: | ||||||||||||
Acquisition of store | (2,600,000 | ) | – | – | ||||||||
Acquisition of leasehold rights | (215,000 | ) | – | – | ||||||||
Acquisition of property and equipment | (1,709,005 | ) | (757,849 | ) | (245,022 | ) | ||||||
Net cash used in investing activities | (4,524,005 | ) | (757,849 | ) | (245,022 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Bank overdrafts | (139,551 | ) | 139,551 | – | ||||||||
Net borrowings/(repayments) under line of credit | 2,308,622 | – | (1,000,000 | ) | ||||||||
Borrowings from note payable | 3,100,000 | – | – | |||||||||
Repayment of note payable | (329,937 | ) | – | – | ||||||||
Distributions | (8,941,645 | ) | (12,222,341 | ) | (10,488,076 | ) | ||||||
Net cash used in financing activities | (4,002,511 | ) | (12,082,790 | ) | (11,488,076 | ) | ||||||
Net decrease in cash and cash equivalents | (1,181,805 | ) | (1,016,287 | ) | (109,373 | ) | ||||||
Cash and cash equivalents - beginning of period | 1,524,603 | 2,540,890 | 2,650,263 | |||||||||
Cash and cash equivalents - end of period | $ | 342,798 | $ | 1,524,603 | $ | 2,540,890 |
See independent accountants' review report
The accompanying notes are an integral part of these financial statements
4 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of business – The Company operates a chain of retail stores throughout the central United States which buy, sell and trade new and pre-owned movies, music, video games, comics, books, and collectibles.
Statements of cash flows – Cash equivalents include time deposits, certificates of deposit, money market funds, and all highly liquid debt instruments with maturities of three months or less at the date of their acquisition.
Revenue recognition – Merchandise and rental asset revenue is recognized at the point of sale or rental or at the time the merchandise is shipped to the customer. Additionally, revenues are presented net of estimated returns and exclude all sales taxes.
Gift card liabilities are recorded as deferred revenue at the time of sale. The liability is relieved and revenue is recognized upon redemption of the gift cards or when it is determined that gift cards will not be redeemed.
The Company provides customers with the opportunity to trade in used merchandise in exchange for cash consideration or store credit. Merchandise inventory is recorded at a cost equal to the cash offered to the customer. If a customer chooses store credit, credit is issued for the amount of the cash offer plus a premium. Premiums associated with store credit issued as a result of trade in transactions are recorded as expense in the period in which the credits are issued.
Inventories – Inventories have been valued at the lower of cost or market using the individual item method, as determined by the average cost method.
Property and equipment and related depreciation - Property and equipment has been stated at cost. Depreciation has been computed by applying the straight-line method and the following estimated lives:
Category | Estimated Life |
Equipment and furnishings | 3-10 years |
Leasehold improvements | 6-19 years |
Leasehold improvements are depreciated over the shorter of their economic useful life or their remaining lease term.
Non-compete agreements – Non-compete agreements have been amortized on a straight-line basis over the five-year life of the agreements. The balance sheets reflect the unamortized amount of such costs.
See independent accountants’ review report
5 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Leasehold rights – Leasehold rights are amortized on a straight-line basis over the five-year life of the lease agreements. The balance sheets reflect the unamortized amount of such costs.
Goodwill – Goodwill has been amortized on a straight-line basis over a ten year period. The balance sheets reflect the unamortized amount of such costs.
Use of estimates - Management uses estimates and assumptions in preparing these financial statements in accordance with U.S. generally accepted accounting principles. 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. Actual results could vary from the estimates that were used.
Income taxes - The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under such provisions, all income, losses and credits are passed through to the stockholders with no income tax consequences resulting to the Company. The Company’s policy is to pay distributions at least equal to the stockholders’ additional individual income taxes incurred for their proportionate share of the corporation’s taxable income.
The Company has analyzed the tax positions taken and has concluded that as of November 03, 2016, there are no uncertain positions taken, or expected to be taken, that would require recognition of an asset or liability or disclosure in the financial statements. A tax asset or liability would be recognized if the Company has taken an uncertain position that more likely than not would not be sustained upon examination by taxing authorities. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Company does not believe it likely that changes will occur within the next fiscal year that will have a material impact on the financial statements.
Advertising costs - The Company expenses non-direct response advertising costs as they are incurred.
Sales taxes - The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses.
See independent accountants’ review report
6 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Freight costs - The Company includes freight costs in cost of goods sold. Total freight and shipping expense included for the period from January 1 to November 3, 2016 and the years ended December 31, 2016 and 2015 was $144,918, $132,654 and $131,262, respectively.
(2) | BUSINESS ACQUISITION |
During the period ended November 3, 2016, the Company acquired a store location from an unrelated third party. Accordingly, the results of the operations of this location are included from the date of the acquisition forward.
The aggregate purchase price for the acquisition made on February 25, 2016 was approximately $2,600,000. The transaction was financed with proceeds from borrowings and was accounted for under the acquisition method of accounting. The following is a condensed balance sheet showing the fair values acquired as of the date of acquisition:
Goodwill | $ | 1,500,000 | ||
Inventory | 675,000 | |||
Non-compete agreement | 350,000 | |||
Equipment and furnishings | 75,000 | |||
$ | 2,600,000 |
(3) | PROPERTY AND EQUIPMENT |
November 3, | December 31, | December 31, | ||||||||||
Category | 2016 | 2015 | 2014 | |||||||||
(unaudited) | ||||||||||||
Equipment and furnishings | $ | 6,874,071 | $ | 5,413,519 | $ | 4,805,103 | ||||||
Leasehold improvements | 2,405,527 | 2,194,250 | 2,083,566 | |||||||||
9,279,598 | 7,607,769 | 6,888,669 | ||||||||||
Less accumulated depreciation | (5,794,274 | ) | (5,112,067 | ) | (4,283,681 | ) | ||||||
$ | 3,485,324 | $ | 2,495,702 | $ | 2,604,988 |
Depreciation amounted to $749,457, $865,118
and $891,441 for the period from January
1 to November 3, 2016 and the years ended December 31, 2015 and 2014, respectively.
See independent accountants’ review report
7 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(4) | INTANGIBLES |
November 3, | December 31, | December 31, | ||||||||||
Category | 2016 | 2015 | 2014 | |||||||||
(unaudited) | ||||||||||||
Goodwill | $ | 2,575,000 | $ | 1,075,000 | $ | 1,075,000 | ||||||
Leasehold rights | 215,000 | – | – | |||||||||
Non-compete agreements | 650,000 | 300,000 | 300,000 | |||||||||
3,440,000 | 1,375,000 | 1,375,000 | ||||||||||
Less accumulated amortization | (677,083 | ) | (390,833 | ) | (223,333 | ) | ||||||
$ | 2,762,917 | $ | 984,167 | $ | 1,151,667 |
Amortization amounted to $286,250, for the period from January 1 to November 3, 2016 and $167,500 for each of the years ended December 31, 2015 and 2014. Future estimated amortization expense is as follows:
2017 | $ | 429,000 | ||
2018 | 419,000 | |||
2019 | 369,000 | |||
2020 | 369,000 | |||
2021 | 323,000 | |||
Later years | 853,917 | |||
$ | 2,762,917 |
(5) | DEBT |
November 3, | ||||
2016 | ||||
Current debt | (unaudited) | |||
Prime - .38%, Arvest Bank, secured by all business assets; monthly interest payments; matures March 2017 | $ | 2,308,622 | ||
Add debt maturing within one year | 588,500 | |||
Current debt | $ | 2,897,122 | ||
Long-term debt | ||||
3.68%; Arvest Bank; secured by all business assets; monthly principal and interest payments of $56,715; matures February 2021 | $ | 2,770,063 | ||
Less debt maturing within one year | 588,500 | |||
Long-term debt | $ | 2,181,563 |
See independent accountants’ review report
8 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(5) | DEBT (CONTINUED) |
The Company maintains a line of credit with Arvest Bank maturing March 2017 which permits the Company to borrow up to $4,000,000 at the prime rate minus .38%. There was no balance on the line of credit at December 31, 2015 and 2014.
Principal payments due on long-term debt at November 3, 2016 are as follows:
Aggregate Annual Maturities | ||||
2018 | $ | 610,600 | ||
2019 | 633,400 | |||
2020 | 657,100 | |||
2021 | 280,463 | |||
$ | 2,181,563 |
(6) | CREDIT CARD PAYABLE |
The Company has a $1,000,000 credit limit on a credit card with Security BankCard as of November 3, 2016. The card charges monthly interest on the unpaid balance if the entire balance is not paid by the due date. The credit card payable at November 3, 2016, December 31, 2015 and 2014 was $221,995, $190,466 and $138,956, respectively, and is included in accounts payable on the balance sheets. The card carries no annual fee and no interest was paid during the period from January to November 3, 2016 or the years ended December 31, 2015 and 2014.
(7) | STOCKHOLDERS’ EQUITY |
At November 3, 2016 and December 31, 2015 and 2014, common stock is composed of the following:
Amount | ||||
Vintage Stock, Inc. common stock; no par value; | ||||
Class A (voting); 1,000 shares authorized; 307 shares issued; 282 shares outstanding | $ | 39,399 | ||
Class B (nonvoting); 10,000 shares authorized; 2,538 shares issued and outstanding | 325,742 | |||
$ | 365,141 |
At November 3, 2016 and December 31, 2015 and 2014, treasury stock consists of 25 shares of Vintage Stock, Inc. Class A common stock totaling $200,000, at cost.
See independent accountants’ review report
9 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(8) | RETAINED EARNINGS |
Retained earnings at November 3, 2016, includes approximately $12,800,000 in undistributed earnings which have been taxed to the stockholders under the provisions of Subchapter S of the Internal Revenue Code. This amount is available for dividend distributions at the discretion of the Board of Directors.
(9) | CONTRIBUTION TO PROFIT-SHARING PLAN |
The Company maintains a profit-sharing plan covering all full-time employees of the Company who are at least 21 years of age. Contributions to the plan are determined each year by the Board of Directors subject to the maximum deduction limitations allowable under the provisions of the Internal Revenue Code. For the period from January 1 to November 3, 2016 and the years ended December 31, 2015 and 2014, the Company matched 100% of employee contributions up to 4% of compensation. The matching contributions to the plan for the period from January 1 to November 3, 2016 and the years ended December 31, 2015 and 2014 amounted to $98,625, $118,753 and $124,074, respectively.
(10) | INCOME TAXES |
The provision for income taxes appearing in the statements of income consists of:
November 3, | December 31, | December 31, | ||||||||||
2016 | 2015 | 2014 | ||||||||||
(unaudited) | ||||||||||||
Current | $ | 15,187 | $ | 62,403 | $ | 59,390 |
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. The current tax provision for the period from January 1 to November 3, 2016 and the years ended December 31, 2015 and 2014 relates to taxes due to certain state taxing authorities.
(11) | OPERATING LEASES |
The Company operates all of its current store locations in leased facilities under non-cancelable leases which are accounted for as operating leases. Remaining lease terms range from 1 to 8 years excluding additional renewal periods. The leases on several locations are based on a minimum monthly rate or a stated percent of gross sales. A substantial portion of leases provide for various renewal terms. Total rent expense, including common area maintenance, for the period from January 1 to November 3, 2016 and the years ended December 31, 2015 and 2014 amounted to $5,865,448 and $6,246,657 and $6,086,101, respectively.
See independent accountants’ review report
10 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(11) | OPERATING LEASES (CONTINUED) |
Future minimum lease payments under operating leases at November 3, 2016 are as follows:
Amount | ||||
2017 | $ | 6,955,200 | ||
2018 | 6,044,000 | |||
2019 | 4,715,100 | |||
2020 | 3,966,500 | |||
2021 | 2,871,700 | |||
Thereafter | 754,200 | |||
Total minimum lease payments | $ | 25,306,700 |
(12) | CASH FLOW STATEMENT DISCLOSURES |
Supplemental disclosure of cash flow information:
November 3, | December 31, | December 31, | ||||||||||
2016 | 2015 | 2014 | ||||||||||
(unaudited) | ||||||||||||
Cash paid during the period for: | ||||||||||||
Income taxes | $ | 43,974 | $ | 58,184 | $ | 55,472 | ||||||
Interest | 77,648 | 34,792 | 43,992 |
(13) | CONTINGENT LIABILITIES |
At November 3, 2016, the Company was a direct guarantor for debts of related companies totaling $7,463,354 with outstanding balances of $7,246,808. Included in total guaranteed debt is a $2,000,000 line of credit with an outstanding balance of $1,783,454. The debts mature in April 2017 ($5,463,354) and April 2018 ($1,783,454).
The Company is a defendant in an ongoing litigation regarding general employment and business matters. Outside counsel for the Company has advised that at this stage in the proceedings they cannot offer an opinion as to the probable outcome. The Company is vigorously defending its position and does not believe the lawsuit will have a material impact on the financial statements.
See independent accountants’ review report
11 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Period January 1 to November 3, 2016 (unaudited)
and the Years Ended December 31, 2015 and 2014
(14) | SUBSEQUENT EVENTS |
On November 3, 2016, the Company, entered into a series of agreements in connection with its sale to Live Ventures Incorporated (“Live Ventures”), through its newly formed, wholly-owned subsidiary, Vintage Stock Affiliated Holdings LLC (“VSAH”). The purchase and financing transactions were, in the aggregate, valued at approximately $60 million. The purchase was effectuated between VSAH and the shareholders of the Company, with VSAH acquiring 100% of the outstanding capital stock of Vintage Stock.
Management has evaluated subsequent events between the end of the most recent fiscal year end and January 16, 2017, the date the financial statements were available to be issued.
See independent accountants’ review report
12 |
Exhibit 99.2
VINTAGE STOCK, INC.
INDEPENDENT AUDITORS' REPORT AND
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and Stockholders
Vintage Stock, Inc.
Joplin, Missouri
We have audited the accompanying financial statements of Vintage Stock, Inc. which comprise the balance sheets as of December 31, 2013 and 2012, and the related statements of income, retained earnings, 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.
Auditors’ 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 audit to obtain reasonable assurance about whether the financial statements are free from 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 policies 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 audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vintage Stock, Inc. as of December 31, 2013 and 2012, 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 States of America.
/s/ KPM CPAs, PC
August 22, 2014
Springfield, Missouri
VINTAGE STOCK, INC.
BALANCE SHEETS
December 31, 2013 and 2012
2013 | 2012 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,650,263 | $ | 3,870,797 | ||||
Receivables | 89,121 | 129,197 | ||||||
Merchandise inventories | 12,786,063 | 11,264,353 | ||||||
Prepaid expenses and other assets | 580,391 | 539,960 | ||||||
Total current assets | 16,105,838 | 15,804,307 | ||||||
Property and Equipment: | ||||||||
Cost | 7,092,918 | 6,195,540 | ||||||
Less accumulated depreciation | 3,841,280 | 3,051,371 | ||||||
Net property and equipment | 3,251,638 | 3,144,169 | ||||||
Other Assets: | ||||||||
Goodwill, net | 1,039,167 | – | ||||||
Intangible asset, net | 280,000 | – | ||||||
Total other assets | 1,319,167 | – | ||||||
Total assets | $ | 20,676,643 | $ | 18,948,476 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Debt maturing within one year | $ | – | $ | 896 | ||||
Accounts payable | 2,314,081 | 713,174 | ||||||
Accrued wages | 822,795 | 723,595 | ||||||
Sales tax payable | 474,724 | 448,422 | ||||||
Accrued other expenses | 499,623 | 494,854 | ||||||
Income taxes payable | 51,000 | 50,000 | ||||||
Gift certificates outstanding | 299,805 | 259,670 | ||||||
Total current liabilities | 4,462,028 | 2,690,611 | ||||||
Long-Term Debt | 1,000,000 | – | ||||||
Stockholders' Equity: | ||||||||
Common stock | 365,141 | 365,141 | ||||||
Treasury stock | (200,000 | ) | (200,000 | ) | ||||
Retained earnings | 15,049,474 | 16,092,724 | ||||||
Total stockholders' equity | 15,214,615 | 16,257,865 | ||||||
Total liabilities and stockholders' equity | $ | 20,676,643 | $ | 18,948,476 |
The accompanying notes are an integral part of these financial statements
1 |
VINTAGE STOCK, INC.
STATEMENTS OF INCOME
Years Ended December 31, 2013 and 2012
2013 | 2012 | |||||||||||||||
Amount | % Sales | Amount | % Sales | |||||||||||||
Revenue | $ | 54,652,552 | 100.0 | % | $ | 51,061,468 | 100.0 | % | ||||||||
Cost of revenue | 22,568,265 | 41.3 | 20,919,717 | 41.0 | ||||||||||||
Gross profit | 32,084,287 | 58.7 | 30,141,751 | 59.0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Salaries and wages | 8,428,019 | 15.4 | 7,914,294 | 15.5 | ||||||||||||
Depreciation and amortization | 872,042 | 1.6 | 733,972 | 1.4 | ||||||||||||
Advertising | 70,392 | .1 | 143,441 | .3 | ||||||||||||
Trade credit incentive | 1,120,121 | 2.1 | 1,037,539 | 2.0 | ||||||||||||
Bank and credit card fees | 697,807 | 1.3 | 631,266 | 1.2 | ||||||||||||
Insurance | 517,096 | .9 | 501,198 | 1.0 | ||||||||||||
Computer and professional fees | 298,172 | .5 | 323,680 | .6 | ||||||||||||
Taxes and licenses | 921,932 | 1.7 | 838,896 | 1.6 | ||||||||||||
Office | 1,060,835 | 1.9 | 1,012,595 | 2.0 | ||||||||||||
Profit sharing expense | 123,415 | .2 | 116,678 | .2 | ||||||||||||
Rent | 5,629,875 | 10.4 | 5,560,707 | 10.9 | ||||||||||||
Travel | 169,235 | .3 | 172,446 | .3 | ||||||||||||
Utilities | 826,756 | 1.5 | 805,107 | 1.6 | ||||||||||||
Repairs | 347,651 | .6 | 288,209 | .6 | ||||||||||||
Miscellaneous | 92,081 | .2 | 58,462 | .1 | ||||||||||||
Total store operating expenses | 21,175,429 | 38.7 | 20,138,490 | 39.4 | ||||||||||||
Income from operations | 10,908,858 | 20.0 | 10,003,261 | 19.6 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Gift card breakage | 154,000 | .3 | 125,000 | .2 | ||||||||||||
Other income | 13,837 | – | 48,065 | .1 | ||||||||||||
Interest | (7,888 | ) | – | (232 | ) | – | ||||||||||
Gain from disposal of property and equipment | 7,030 | – | – | – | ||||||||||||
Total other income | 166,979 | .3 | 172,833 | .3 | ||||||||||||
Income before income taxes | 11,075,837 | 20.3 | 10,176,094 | 19.9 | ||||||||||||
Income tax expense | 56,795 | .1 | 53,581 | .1 | ||||||||||||
Net income | $ | 11,019,042 | 20.2 | % | $ | 10,122,513 | 19.8 | % |
The accompanying notes are an integral part of these financial statements
2 |
VINTAGE STOCK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2013 and 2012
Common Stock | Treasury | Retained | Total Stockholders' | |||||||||||||||||
Shares | Amount | Stock | Earnings | Equity | ||||||||||||||||
Balances at December 31, 2011 | 282 | $ | 365,141 | $ | (200,000 | ) | $ | 14,560,495 | $ | 14,725,636 | ||||||||||
Issuance of nonvoting shares | 2,538 | – | – | – | – | |||||||||||||||
Distributions | – | – | – | (8,590,284 | ) | (8,590,284 | ) | |||||||||||||
Net income | – | – | – | 10,122,513 | 10,122,513 | |||||||||||||||
Balances at December 31, 2012 | 2,820 | 365,141 | (200,000 | ) | 16,092,724 | 16,257,865 | ||||||||||||||
Distributions | – | – | – | (12,062,292 | ) | (12,062,292 | ) | |||||||||||||
Net income | – | – | – | 11,019,042 | 11,019,042 | |||||||||||||||
Balances at December 31, 2013 | 2,820 | $ | 365,141 | $ | (200,000 | ) | $ | 15,049,474 | $ | 15,214,615 |
The accompanying notes are an integral part of these financial statements
3 |
VINTAGE STOCK, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2013 and 2012
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 11,019,042 | $ | 10,122,513 | ||||
Adjustments: | ||||||||
Depreciation | 816,209 | 733,972 | ||||||
Amortization | 55,833 | – | ||||||
Gain from disposal of property and equipment | (7,030 | ) | – | |||||
Net change in operating accounts: | ||||||||
Receivables | 40,076 | (53,742 | ) | |||||
Merchandise inventories | (1,111,710 | ) | (360,658 | ) | ||||
Income taxes recoverable/payable | 1,000 | 5,000 | ||||||
Prepaid expenses and other assets | (40,431 | ) | (13,680 | ) | ||||
Accounts payable | 1,600,907 | 90,718 | ||||||
Accrued expenses and sales tax payable | 130,271 | 342,351 | ||||||
Gift certificates outstanding | 40,135 | 46,757 | ||||||
Net cash from operating activities | 12,544,302 | 10,913,231 | ||||||
Cash flows used in investing activities: | ||||||||
Proceeds from sale of property and equipment | 7,030 | – | ||||||
Acquisition of store | (1,800,000 | ) | ||||||
Acquisition of property and equipment | (908,678 | ) | (399,070 | ) | ||||
Net cash used in investing activities | (2,701,648 | ) | (399,070 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings | 1,000,000 | – | ||||||
Repayment of debt | (896 | ) | (10,750 | ) | ||||
Distributions | (12,062,292 | ) | (8,590,284 | ) | ||||
Net cash used in financing activities | (11,063,188 | ) | (8,601,034 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (1,220,534 | ) | 1,913,127 | |||||
Cash and cash equivalents - beginning of year | 3,870,797 | 1,957,670 | ||||||
Cash and cash equivalents - end of year | $ | 2,650,263 | $ | 3,870,797 |
The accompanying notes are an integral part of these financial statements
4 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of business – The Company operates a chain of retail stores throughout the central United States which buy, sell and trade new and pre-owned movies, music, video games, comics, books, and collectibles.
Statements of cash flows – Cash equivalents include time deposits, certificates of deposit, money market funds, and all highly liquid debt instruments with maturities of three months or less at the date of their acquisition.
Revenue recognition – Merchandise and rental asset revenue is recognized at the point of sale or rental or at the time the merchandise is shipped to the customer. Additionally, revenues are presented net of estimated returns and exclude all sales taxes.
Gift card liabilities are recorded as deferred revenue at the time of sale. The liability is relieved and revenue is recognized upon redemption of the gift cards or when it is determined that gift cards will not be redeemed.
The Company provides customers with the opportunity to trade in used merchandise in exchange for cash consideration or store credit. Merchandise inventory is recorded at a cost equal to the cash offered to the customer. If a customer chooses store credit, credit is issued for the amount of the cash offer plus a premium. Premiums associated with store credit issued as a result of trade in transactions are recorded as expense in the period in which the credits are issued.
Inventories – Inventories have been valued at the lower of cost or market using the individual item method, as determined by the average cost method.
Property and equipment and related depreciation - Property and equipment has been stated at cost. Depreciation has been computed by applying the straight-line method and the following estimated lives:
Category | Estimated Life |
Equipment and furnishings | 3-10 years |
Leasehold improvements | 6-19 years |
Leasehold improvements are depreciated over the shorter of their economic useful life or their remaining lease term.
Non-compete agreement – The non-compete agreement has been amortized on a straight-line basis over the five-year life of the agreement. The balance sheets reflect the unamortized amount of such costs.
Goodwill – Goodwill has been amortized on a straight-line basis over a ten year period. The balance sheets reflect the unamortized amount of such costs.
5 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Use of estimates - Management uses estimates and assumptions in preparing these financial statements in accordance with U.S. generally accepted accounting principles. 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. Actual results could vary from the estimates that were used.
Income taxes - The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under such provisions, all income, losses and credits are passed through to the stockholders with no income tax consequences resulting to the Company, unless the Company sells assets owned prior to electing S-Corporation status within ten years of the election and is required to pay tax on the recapture of built-in gains. The Company’s policy is to pay distributions at least equal to the stockholders’ additional individual income taxes incurred for their proportionate share of the corporation’s taxable income.
The Company has analyzed the tax positions taken and has concluded that as of December 31, 2013 and 2012, there are no uncertain positions taken, or expected to be taken, that would require recognition of an asset or liability or disclosure in the financial statements. A tax asset or liability would be recognized if the Company has taken an uncertain position that more likely than not would not be sustained upon examination by taxing authorities. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Company believes it is no longer subject to income tax examinations for years prior to 2010. However, tax years prior to 2010 remain subject to examination by certain states. The Company does not believe it likely that changes will occur within the next fiscal year that will have a material impact on the financial statements.
Advertising costs - The Company expenses non-direct response advertising costs as they are incurred.
Sales taxes - The Company’s policy is to present taxes collected from customers and remitted to governmental authorities on a net basis. The Company records the amounts collected as a current liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses.
Freight costs - The Company includes freight costs in cost of goods sold. Total freight and shipping expense included for the years ended December 31, 2013 and 2012 was $127,806 and $102,941, respectively.
6 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(2) | BUSINESS ACQUISITION |
During the year ended December 31, 2013, the Company acquired a store location from an unrelated third party. Accordingly, the results of the operations of this location are included from the date of the acquisition forward.
The aggregate purchase price for the acquisition made on August 26, 2013 was approximately $1,800,000. The transaction was financed with proceeds from borrowings on a revolving line of credit and available cash and was accounted for under the acquisition method of accounting. The following is a condensed balance sheet showing the fair values acquired as of the date of acquisition:
Goodwill | $ | 1,075,000 | ||
Inventory | 410,000 | |||
Non-compete agreement | 300,000 | |||
Equipment and furnishings | 15,000 | |||
$ | 1,800,000 |
(3) | PROPERTY AND EQUIPMENT |
Category | 2013 | 2012 | ||||||
Equipment and furnishings | $ | 6,219,874 | $ | 5,439,150 | ||||
Leasehold improvements | 873,044 | 756,390 | ||||||
7,092,918 | 6,195,540 | |||||||
Less accumulated depreciation | (3,841,280 | ) | (3,051,371 | ) | ||||
$ | 3,251,638 | $ | 3,144,169 |
Depreciation amounted to $816,209 and $733,972 for the years ended December 31, 2013 and 2012, respectively.
(4) | INTANGIBLES |
2013 | ||||||||||||
Cost | Accum. Amort. | Net | ||||||||||
Goodwill | $ | 1,075,000 | $ | 35,833 | $ | 1,039,167 | ||||||
Non-compete agreement | 300,000 | 20,000 | 280,000 | |||||||||
Total | $ | 1,375,000 | $ | 55,833 | $ | 1,319,167 |
Amortization amounted to $55,833 for the year ended December 31, 2013.
7 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(4) | INTANGIBLES (CONTINUED) |
Future estimated amortization expense is as follows:
2014 | $ | 167,500 | ||
2015 | 167,500 | |||
2016 | 167,500 | |||
2017 | 167,500 | |||
2018 | 147,500 | |||
Later years | 501,667 | |||
$ | 1,319,167 |
(5) | DEBT |
Long-term debt consists of the following:
2013 | 2012 | |||||||
Prime; Arvest Bank; maximum $1,000,000 line of credit; secured by Company assets; interest payable monthly; matures August 2014 | $ | 1,000,000 | $ | – | ||||
0%; Ford Motor Credit; secured by a vehicle; payable $896 per month; matured | ||||||||
February 2013 | – | 896 | ||||||
Less long-term debt maturing within one year | – | (896 | ) | |||||
Long-term debt | $ | 1,000,000 | $ | – |
The Company refinanced the Arvest Bank line of credit on February 20, 2014. The credit limit was increased to $4,000,000 and the maturity date was extended to January 31, 2015. Due to this modification, the debt has been classified as long-term debt in the Company’s balance sheet. The modified debt agreement includes covenants for certain financial ratios.
(6) | CONCENTRATION OF CREDIT RISK |
The Company maintains its primary operating bank accounts with Arvest Bank. On December 31, 2013, the balance of the accounts exceeded FDIC insurance limits.
8 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(7) | CREDIT CARD PAYABLE |
The Company has a $1,000,000 credit limit on a credit card with Security BankCard as of December 31, 2013. The card charges monthly interest on the unpaid balance if the entire balance is not paid by the due date. The credit card payable at December 31, 2013 and 2012 was $185,224 and $92,264, respectively, and is included in accounts payable on the balance sheet. The card carries no annual fee and no interest was paid during 2013 and 2012.
(8) | STOCKHOLDERS’ EQUITY |
At December 31, 2013 and 2012, common stock is composed of the following:
Amount | ||||
Vintage Stock, Inc. common stock; no par value; | ||||
Class A (voting); 1,000 shares authorized; 307 shares issued;282 shares outstanding | $ | 39,399 | ||
Class B (nonvoting); 10,000 shares authorized; 2,538 shares issued and outstanding | 325,742 | |||
$ | 365,141 |
At December 31, 2013 and 2012, treasury stock consists of 25 shares of Vintage Stock, Inc. Class A common stock totaling $200,000, at cost.
(9) | RETAINED EARNINGS |
Retained earnings at December 31, 2013, includes approximately $9,900,000 in undistributed earnings which have been taxed to the stockholders under the provisions of Subchapter S of the Internal Revenue Code. This amount is available for dividend distributions at the discretion of the Board of Directors.
(10) | CONTRIBUTION TO PROFIT-SHARING PLAN |
The Company maintains a profit-sharing plan covering all full-time employees of the Company who are at least 21 years of age. Contributions to the plan are determined each year by the Board of Directors subject to the maximum deduction limitations allowable under the provisions of the Internal Revenue Code. For the years ended December 31, 2013 and 2012, the Company matched 100% of employee contributions up to 4% of compensation. The matching contributions to the plan for the years ended December 31, 2013 and 2012 amounted to $123,415 and $116,678, respectively.
(11) | ADVERTISING COSTS |
The Company incurred $70,392 and $143,441 in non-direct response advertising costs during the years ended December 31, 2013 and 2012, respectively. The Company incurred no direct response advertising costs during either year.
9 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(12) | INCOME TAXES |
The provision for income taxes appearing in the statements of income consists of:
2013 | 2012 | |||||||
Current | $ | 56,795 | $ | 53,581 |
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. The current tax provision for the years ended December 31, 2013 and 2012 relates to taxes due to certain state taxing authorities.
(13) | OPERATING LEASES |
The Company operates all of its current store locations in leased facilities under non-cancelable leases which are accounted for as operating leases. Remaining lease terms range from 1 to 9 years excluding additional renewal periods. The leases on several locations are based on a minimum monthly rate or a stated percent of gross sales. A substantial portion of leases provide for various renewal terms. Total rent expense, including common area maintenance, for the years ended December 31, 2013 and 2012 amounted to $5,629,875 and $5,560,707, respectively.
Future minimum lease payments under operating leases at December 31, 2013, are as follows:
Amount | ||||
2014 | $ | 4,581,600 | ||
2015 | 4,235,100 | |||
2016 | 3,738,000 | |||
2017 | 3,374,000 | |||
2018 | 2,513,400 | |||
Thereafter | 4,303,500 | |||
Total minimum lease payments | $ | 22,745,600 |
(14) | CASH FLOW STATEMENT DISCLOSURES |
Supplemental disclosure of cash flow information:
2013 | 2012 | |||||||
Cash paid during the year for: | ||||||||
Income taxes | $ | 55,795 | $ | 48,581 | ||||
Interest | 7,888 | 232 |
10 |
VINTAGE STOCK, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2013 and 2012
(15) | CONTINGENT LIABILITY |
At December 31, 2013, the Company was a direct guarantor for debts of related companies. The debts total $12,580,000 with outstanding balances of $6,844,685 at December 31, 2013. The debts mature in November 2014 ($10,580,000) and March 2015 ($2,000,000).
(16) | SUBSEQUENT EVENTS |
Management has evaluated subsequent events between the end of the most recent fiscal year end and August 22, 2014, the date the financial statements were available to be issued.
The Company declared and paid distributions to stockholders in 2014 totaling $7,200,232.
(17) | RECLASSIFICATION |
Certain amounts in the accompanying financial statements for the year ended December 31, 2012 have been reclassified to conform to the current year presentation.
11 |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Live Ventures Incorporated (the Company) acquired Vintage Stock, Inc. (“Vintage Stock”) for total cash consideration of approximately $57.7 million on November 3, 2016. The Company financed the acquisition by issuing debt and by providing $8 million in cash.
The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements and Vintage Stock’s historical consolidated financial statements as adjusted to give effect to the Company’s acquisition of Vintage Stock and the related financing transactions. The unaudited pro forma condensed combined statements of operations for the twelve months ended September 30, 2016 and the twelve months ended September 30, 2015 give effect to these transactions as if they had occurred on October 1, 2014. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to these transactions as if they had occurred on September 30, 2016.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K, and Vintage Stock’s historical information included herein.
Unaudited Pro Forma Condensed Combined Balance
Sheet
As of September 30, 2016
Live Ventures Incorporated Historical | Vintage Stock, Inc. (Acquiree) Historical | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||
Assets | ||||||||||||||||||
Cash and cash equivalents | $ | 770,895 | $ | 526,850 | $ | (184,052 | ) | (a) | $ | 1,113,693 | ||||||||
Trade and other receivables, net | 8,334,801 | 510,916 | (397,416 | ) | (a) | 8,448,301 | ||||||||||||
Inventories, net | 11,053,085 | 17,170,741 | 2,989,351 | (a) | 31,213,177 | |||||||||||||
Prepaid expenses and other current assets | 5,059,981 | 818,855 | 41,598 | (a) | 5,920,434 | |||||||||||||
Total current assets | 25,218,762 | 19,027,362 | 2,449,481 | 46,695,605 | ||||||||||||||
Property, plant and equipment, net | 14,014,501 | 3,362,993 | 122,331 | (a) | 17,499,825 | |||||||||||||
Deposits and other assets | 19,765 | – | 19,765 | |||||||||||||||
Deferred taxes | 12,524,582 | – | 12,524,582 | |||||||||||||||
Intangible assets, net | 1,689,790 | 424,167 | (424,167 | ) | (a) | 1,689,790 | ||||||||||||
Goodwill | – | 2,371,042 | 36,695,019 | (a) | 39,066,061 | |||||||||||||
Total assets | $ | 53,467,400 | $ | 25,185,564 | $ | 38,842,664 | $ | 117,495,628 | ||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Accounts payable | $ | 5,402,654 | $ | 1,012,262 | $ | 1,930,638 | (a) | $ | 8,345,554 | |||||||||
Accrued liabilities | 6,396,772 | 1,887,545 | 101,401 | (a) | 8,385,718 | |||||||||||||
Income tax payable | – | – | – | |||||||||||||||
Current portion of long term debt | 1,789,290 | 3,279,607 | 324,467 | (a) (b) | 5,393,364 | |||||||||||||
Total current liabilities | 13,588,716 | 6,179,414 | 2,356,506 | 22,124,636 | ||||||||||||||
Notes payable, net of current portion | 13,682,872 | 2,231,398 | 53,260,910 | (a) (b) | 69,175,180 | |||||||||||||
Note payable, related party | 2,000,000 | – | – | 2,000,000 | ||||||||||||||
Total liabilities | 29,271,588 | 8,410,812 | 55,617,416 | 93,299,816 | ||||||||||||||
Total shareholder's equity | 24,195,812 | 16,774,752 | (16,774,752 | ) | (a) | 24,195,812 | ||||||||||||
Total liabilities and shareholder's equity | $ | 53,467,400 | $ | 25,185,564 | $ | 38,842,664 | $ | 117,495,628 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
1 |
Unaudited Pro Forma Condensed Combined Statements
of Operations
Twelve Months Ended September 30, 2016
Live Ventures Incorporated Historical | Vintage Stock, Inc. (Acquiree) Historical | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||
Revenues | $ | 78,954,247 | $ | 65,493,122 | $ | $ | 144,447,369 | ||||||||||
Cost of revenues | 58,979,377 | 28,010,588 | 86,989,965 | ||||||||||||||
Gross profit | 19,974,870 | 37,482,534 | 57,457,404 | ||||||||||||||
Operating expenses: | |||||||||||||||||
General and administrative expenses | 8,543,877 | 24,594,407 | (195,000 | ) | (d) | 32,943,284 | |||||||||||
Sales and marketing expenses | 9,112,744 | 1,018,382 | 10,131,126 | ||||||||||||||
Total operating expenses | 17,656,621 | 25,612,789 | (195,000 | ) | 43,074,410 | ||||||||||||
Operating income | 2,318,249 | 11,869,745 | 195,000 | 14,382,994 | |||||||||||||
Interest expense, net | (4,020,547 | ) | (81,227 | ) | (6,528,057 | ) | (c) | (10,629,831 | ) | ||||||||
Other income | 7,163,128 | 147,725 | 7,310,853 | ||||||||||||||
Income before provision for income taxes | 5,460,830 | 11,936,243 | (6,333,057 | ) | 11,064,016 | ||||||||||||
Provision for income taxes | (12,493,221 | ) | 76,525 | 2,241,274 | (e) | (10,175,422 | ) | ||||||||||
Net income | 17,954,051 | 11,859,718 | (8,574,331 | ) | 21,239,438 | ||||||||||||
Net income attributed to noncontrolling interest | 124,194 | – | 124,194 | ||||||||||||||
Net income attributed to Live Ventures, Incorporated | $ | 17,829,857 | $ | 11,859,718 | $ | (8,574,331 | ) | $ | 21,115,244 | ||||||||
Earnings per share: | |||||||||||||||||
Basic | $ | 6.33 | $ | 7.50 | |||||||||||||
Diluted | $ | 5.40 | $ | 6.39 | |||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 2,815,072 | 2,815,072 | |||||||||||||||
Diluted | 3,303,698 | 3,303,698 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed
Combined Statements of Operations
Twelve Months Ended September 30, 2015
Live Ventures Incorporated Historical | Vintage Stock, Inc. (Acquiree) Historical | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||
Revenues | $ | 33,369,866 | $ | 60,620,768 | $ | $ | 93,990,634 | ||||||||||
Cost of revenues | 22,115,472 | 25,201,597 | 47,317,069 | ||||||||||||||
Gross profit | 11,254,394 | 35,419,171 | 46,673,565 | ||||||||||||||
Operating expenses: | |||||||||||||||||
General and administrative expenses | 10,992,356 | 22,138,761 | (107,500 | ) | (d) | 33,023,617 | |||||||||||
Sales and marketing expenses | 6,684,833 | 995,747 | 7,680,580 | ||||||||||||||
Impairment of intangible assets | 3,713,472 | – | 3,713,472 | ||||||||||||||
Total operating expenses | 21,390,661 | 23,134,508 | (107,500 | ) | 44,417,669 | ||||||||||||
Operating income (loss) | (10,136,267 | ) | 12,284,663 | 107,500 | 2,255,896 | ||||||||||||
Interest expense, net | (4,485,661 | ) | (30,788 | ) | (6,528,057 | ) | (c) | (11,044,506 | ) | ||||||||
Other income | 285,643 | 255,431 | 541,074 | ||||||||||||||
Income (loss) before provision for income taxes | (14,336,285 | ) | 12,509,306 | (6,420,557 | ) | (8,247,536 | ) | ||||||||||
Provision for income taxes | 376,000 | 66,793 | 2,435,500 | (e) | 2,878,293 | ||||||||||||
Net income (loss) | (14,712,285 | ) | 12,442,513 | (3,985,057 | ) | (11,125,829 | ) | ||||||||||
Net income (loss) attributed to noncontrolling interest | (46,156 | ) | – | (46,156 | ) | ||||||||||||
Net income (loss) attributed to Live Ventures, Incorporated | $ | (14,666,129 | ) | $ | 12,442,513 | $ | (3,985,057 | ) | $ | (11,079,673 | ) | ||||||
Earnings (loss) per share: | |||||||||||||||||
Basic | $ | (5.58 | ) | $ | (4.22 | ) | |||||||||||
Diluted | $ | (5.58 | ) | $ | (4.22 | ) | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 2,627,636 | 2,627,636 | |||||||||||||||
Diluted | 2,627,636 | 2,627,636 |
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
2 |
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1 – Basis of Presentation
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Vintage Stock’s assets acquired and liabilities assumed and conformed the accounting policies of Vintage Stock to its own accounting policies.
The pro forma combined condensed financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and result of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of Vintage Stock as a result of restructuring activities and other cost savings initiatives that may follow the completion of the business combination.
Note 2 – Financing Transactions
The purchase price for the capital stock of Vintage Stock was $57,653,698. The purchase price and related transaction expenses including debt issuance costs of $1,710,610 were paid through a combination of (a) debt financing that was provided by (i) the Revolving Loan Lender under the Revolving Loan Agreement in the amount of $11,492,658 and (ii) the Term Loan Lenders under the Term Loan Agreement in the aggregate amount of $29,871,650, (b) the Subordinated Acquisition Note in the amount of $10 million, and (c) capital provided by Live Ventures in the amount of $8 million. In connection with operations of Vintage Stock after the closing of the purchase transaction, Vintage Stock may borrow up to $20 million under the Revolving Loan Agreement (based on availability and eligibility under the Revolving Loan Agreement).
The term loans under the Term Loan Agreement bear interest at the LIBO rate (as described below) or base rate, plus an applicable margin in each case. In their loan notice to the Term Loan Administrative Agent, the Term Loan Borrowers selected the LIBO rate for the initial term loans made under the Term Loan Agreement on the Closing Date.
The interest rate for LIBO rate loans under the Term Loan Agreement is equal to the sum of (a) the greater of (i) a rate per annum equal to (A) the offered rate for deposits in United States Dollars for the applicable interest period and for the amount of the applicable loan that is a LIBOR loan that appears on Bloomberg ICE LIBOR Screen (or any successor thereto) that displays an average ICE Benchmark Administration Limited Interest Settlement Rate for deposits in United States Dollars (for delivery on the first day of such interest period) with a term equivalent to such interest period, determined as of approximately 11:00 a.m. (London time) two business days prior to the first day of such interest period, divided by (B) the sum of one minus the daily average during such interest period of the aggregate maximum reserve requirement (expressed as a decimal) then imposed under Regulation D of the FRB for “Eurocurrency Liabilities” (as defined therein), and (ii) 0.50% per annum, plus (b) the sum of (i) 12.50% per annum in cash pay plus (ii) 3.00% per annum payable in kind by compounding such interest to the principal amount of the obligations under the Term Loan Agreement on each interest payment date.
The interest rate for base rate loans under the Term Loan Agreement is equal to the sum of (a) the highest of (with a minimum of 1.50%) (i) the federal funds rate plus 0.50%, (ii) the prime rate, and (iii) the LIBO rate plus 1.00%, plus (b) the sum of (i) 11.50% per annum payable in cash plus (ii) 3.00% per annum payable in kind by compounding such interest to the principal amount of the obligations under the Term Loan Agreement on each interest payment date.
The payment obligations under the Term Loan Agreement include (i) monthly payments of interest and (ii) principal installment payments in an amount equal to $725,000 due on March 31, June 30, September 30, and December 31 of each year, with the first such payment due on December 31, 2016. The outstanding principal amounts of the term loans and all accrued interest thereon under the Term Loan Agreement are due and payable in November 2021.
3 |
The Term Loan Borrowers may prepay the term loans under the Term Loan Agreement from time to time, subject to the payment (with certain exceptions described below) of a prepayment premium of: (i) an amount equal to 2.0% of the principal amount of the term loan prepaid if prepaid during the period of time from and after the Closing Date up to the first anniversary of the Closing Date; (ii) 1.0% of the principal amount of the term loan prepaid if prepaid during the period of time from and after the first anniversary of the Closing Date up to the second anniversary of the Closing Date; and (iii) zero if prepaid from and after the second anniversary of the Closing Date.
The Term Loan Borrowers may make the following prepayments of the term loans under Term Loan Agreement without being required to pay any prepayment premium:
(i) | an amount not to exceed $3 million of the term loans; |
(ii) | in addition to any amount prepaid in respect of item (i), an additional amount not to exceed $1.45 million, but only if that additional amount is paid prior to the first anniversary of the Closing Date; and |
(iii) | in addition to any amount prepaid in respect of item (i), an additional amount not to exceed the difference between $2.9 million and any amount prepaid in respect of item (ii), but only if that additional amount is paid from and after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date. |
There are also various mandatory prepayment triggers under the Term Loan Agreement, including in respect of excess cash flow, dispositions, equity and debt issuances, extraordinary receipts, equity contributions, change in control, and failure to obtain required landlord consents.
The revolving loans under the Revolving Loan Agreement bear interest at a varying rate of interest, which is the LIBOR rate plus 2.75%. The LIBOR rate under the Revolving Loan Agreement is equal to the one-month LIBOR rate for deposits in United States Dollars that appears on Thomson Reuters British Bankers Association LIBOR Rates Page (or the successor thereto) as of 11:00 a.m., London, England time, on the applicable determination date.
The payment obligations under the Revolving Loan Agreement include monthly payments of interest and all outstanding principal and accrued interest thereon due in November 2020, which is when the revolving loan availability under the Revolving Loan Agreement terminates.
The Revolving Loan Agreement contains certain mandatory prepayment triggers that are customarily required for similar financings.
Each of the Term Loan Agreement and the Revolving Loan Agreement contains certain representations and warranties, certain affirmative covenants, certain negative covenants, certain financial covenants, and certain conditions that are customarily required for similar financings.
The Subordinated acquisition note bears interest at 8%, with interest payable monthly in arrears; and is subject to a subordination agreement. The subordinated acquisition note matures five years and six months from November 3, 2016.
Note 3 – Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair value of Vintage Stock’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Cash and cash equivalents | $ | 342,798 | ||
Trade and other receivables | 113,500 | |||
Inventory | 20,160,092 | |||
Prepaid expenses and other current assets | 860,453 | |||
Property and equipment | 3,485,324 | |||
Goodwill | 39,066,061 | |||
Notes payable | (542,074 | ) | ||
Accounts payable | (3,843,510 | ) | ||
Accrued expenses | (1,988,946 | ) | ||
Purchase price | $ | 57,653,698 |
4 |
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statements of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property and equipment, (2) changes in fair value of inventory, (2) changes in fair value of prepaid expenses and other current assets, (3) changes in allocations to intangible assets such as trade names, customer relationships as well as goodwill, (4) changes in fair value of accrued expenses, and (5) other changes to assets and liabilities.
Note 4 – Pro Forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a) | To allocate purchase price based on the terms of the transaction to include: |
Record borrowings from Revolver loan $11,492,658
Record borrowings from the Term loan lenders $29,871,650
Record borrowing from the Sellers’ of Vintage Stock, Inc. $10,000,000
Record cash paid by Live Ventures $8,000,000
Remove equity accounts of Vintage Stock, Inc. $16,774,752
Eliminate existing goodwill $2,371,042
Eliminate existing intangibles $424,167
Record the repayment of existing Vintage Stock, Inc. debt not assumed in acquisition $4,536,611
Record the repayment of existing Vintage Stock, Inc. credit card debt not assumed in acquisition $205,295
Record debt issuance cost $810,000
Record transaction fees paid upon acquisition $900,610
Eliminate current provision for long term debt $3,279,607
Adjust Assets and Liabilities to reflect preliminary purchase price allocation:
Cash and Cash Equivalents | $ | (184,052 | ) | |
Receivables, net | (397,416 | ) | ||
Inventory, net | 2,989,351 | |||
Prepaid expenses and other current assets | 41,598 | |||
Notes payable | (432,320 | ) | ||
Accounts payable | 3,306,543 | |||
Accrued expenses | 101,401 |
(b) | Record addition to current portion of long term debt as a result of the purchase of Vintage Stock, Inc. by Live Ventures $3,604,074 |
(c) | Record additional annual interest expense due to new indebtedness related to the acquisition of Vintage Stock, Inc. $6,528,057 |
(d) | Eliminate amortization of goodwill of $195,000 and $107,500 for fiscal years ended September 30, 2016 and 2015, respectively. |
(e) | Income tax provision @ 40% of Vintage Stock income less pro forma adjustments |
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