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

 

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