Exhibit 99.1

 

 

 

 

 

 

 

FIRST LIGHT JUNCTION, INC.

 

Financial Statements

and

Independent Auditors' Report

December 31, 2014

and

Unaudited Financial Statements

As of March 31, 2015 and for the Three Months Ended March 31, 2015 and 2014

 

 

 

Table of Contents

 

 

	Page
Independent Auditors' Report	1
Financial Statements
Balance Sheets	3
Statements of Operations and Accumulated Deficit	4
Statements of Cash Flows	5
Notes to Financial Statements	6

 

 

 

 

 

 

 

INDEPENDENT AUDITORS' REPORT

 

 

 

To the Stockholder

First Light Junction, Inc.

San Clemente, California

 

 

We have audited the accompanying financial statements of First Light Junction, Inc., which are comprised of the balance sheet as of December 31, 2014, and the related statements of operations and accumulated deficit and cash flows for the year 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 audit. We conducted our audit 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 auditors' 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 auditors consider 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.

To the Stockholder

First Light Junction, Inc.

Page Two

 

 

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 First Light Junction, Inc. as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

 

EMPHASIS OF OTHER MATTERS

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 2 to the financial statements, the Company sold substantially all of its assets subsequent to year-end, has suffered recurring losses from operations, and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ EKS&H LLLP

 

August 3, 2015

Denver, Colorado

 

FIRST LIGHT JUNCTION, INC.

 

Balance Sheets

 

 

		March 31,				December 31,
		2015				2014
		(Unaudited)
Assets
Current assets
Cash		$	19,288			$	33,848
Prepaid expenses			12,964				12,964
Total current assets			32,252				46,812
Non-current assets
Property and equipment, net			250,513				268,395
Franchise fees, net			88,649				91,312
Deposits			22,799				22,799
Total non-current assets			361,961				382,506
Total assets		$	394,213			$	429,318
Liabilities and Stockholder's Deficit
Current liabilities
Accounts payable and accrued expenses		$	4,400			$	8,415
Current portion of long-term debt			4,018				3,989
Deferred rent, current portion			27,521				26,156
Advances from related parties			270,204				270,204
Advances from stockholder			820,213				790,213
Total current liabilities			1,126,356				1,098,977
Non-current liabilities
Long term debt, less current portion			11,669				12,686
Deferred rent, net of current portion			76,438				84,227
Total liabilities			1,214,463				1,195,890
Commitments and contingencies
Stockholder's deficit
Common stock, no par value; 1,000,000 shares authorized			-				-
Accumulated deficit			(820,250	)			(766,572	)
Total stockholder's deficit			(820,250	)			(766,572	)
Total liabilities and stockholder's deficit		$	394,213			$	429,318

 

See notes to financial statements.

FIRST LIGHT JUNCTION, INC.

 

Statements of Operations and Accumulated Deficit

 

 

		For the Three Months Ended								For the Year Ended
		March 31,								December 31,
		2015				2014				2014
		(Unaudited)				(Unaudited)
Revenues
Management fees		$	94,340			$	68,017			$	307,274
Expenses
General and administrative			104,102				98,422				513,817
Selling and marketing			23,371				14,694				77,299
Depreciation and amortization			20,545				13,936				71,704
Total expenses			148,018				127,052				662,820
Net loss			(53,678	)			(59,035	)			(355,546	)
Beginning accumulated deficit			(766,572	)			(411,026	)			(411,026	)
Ending accumulated deficit		$	(820,250	)		$	(470,061	)		$	(766,572	)

 

 

See notes to financial statements.

FIRST LIGHT JUNCTION, INC.

 

Statements of Cash Flows

 

 

		For the Three Months Ended								For the Year Ended
		March 31,								December 31,
		2015				2014				2014
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net loss		$	(53,678	)		$	(59,035	)		$	(355,546	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization			20,545				13,936				71,704
Changes in operating assets and liabilities
Prepaid expenses			-				(148	)			(148	)
Deposits			-				(8,015	)			(8,015	)
Accounts payable and accrued expenses			(4,015	)			(13,754	)			(9,498	)
Deferred rent			(6,424	)			38,129				65,938
Net cash used in operating activities			(43,572	)			(28,887	)			(235,565	)
Cash flows from investing activities
Purchase of property and equipment			-				(15,240	)			(143,211	)
Net cash used in investing activities			-				(15,240	)			(143,211	)
Cash flows from financing activities
Payments on long-term debt			(988	)			(959	)			(3,875	)
Advances from (payments to) related parties, net			-				(3,221	)			59,353
Advances from stockholder			30,000				66,662				330,662
Net cash provided by financing activities			29,012				62,482				386,140
Net (decrease) increase in cash			(14,560	)			18,355				7,364
Cash - beginning of period			33,848				26,484				26,484
Cash - end of period		$	19,288			$	44,839			$	33,848

 

See notes to financial statements.

FIRST LIGHT JUNCTION, INC.

 

Notes to Financial Statements

(Information Related to the Three Months Ended March 31, 2015 and 2014 is Unaudited)

 

Note 1 - Description of Business and Summary of Significant Accounting Policies

 

First Light Junction, Inc. (the "Company") was formed in December 2011 for the purpose of owning and operating franchises for The Joint Corp. ("The Joint"), a franchisor that specializes in providing affordable, convenient, and accessible chiropractic care through licensed chiropractic professionals.

 

During 2012 and 2013, the Company purchased the franchise rights to own and operate five franchises in California. In the state of California, only licensed chiropractors or professional corporations ("PCs") that are owned by licensed chiropractors may provide chiropractic services. The Company has entered into management agreements with a PC to provide non-clinical management services to three clinics. The remaining two franchises are not developed or in operation.

 

On May 18, 2015, the Company entered into an agreement with The Joint in which it sold substantially all of the assets of the three developed franchises and terminated its franchise rights under all five of the franchise agreements for $751,375.

 

Cash

 

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company had no cash equivalents as of March 31, 2015 and December 31, 2014.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from three to ten years, and the shorter of the estimated useful life or related lease terms for leasehold improvements.

 

Franchise Fees

 

For each franchise purchased by the Company, a fee of $29,000 was paid to The Joint. The fees are amortized over a period of 10 years, which was the term of the franchise agreement.

 

Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the estimated undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. No impairments of long-lived assets were recorded during the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014.

 

FIRST LIGHT JUNCTION, INC.

 

Notes to Financial Statements

(Information Related to the Three Months Ended March 31, 2015 and 2014 is Unaudited)

 

Deferred Rent Obligation

 

The Company has entered into operating lease agreements for its clinic locations, some of which contain provisions for future rent increases or periods in which rent payments are reduced. The Company records monthly rent expense equal to the total of the payments due over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent obligation, which is reflected as a separate line item in the accompanying balance sheet. The Company records tenant improvement allowances as deferred rent obligation and amortizes the allowance over the term of the lease.

 

Revenue Recognition

 

The Company derives its revenue in the form of fees from the performance of management, organizational, and administrative services. Based on agreements with the PC, the Company earns a monthly fee. The PC is in the initial stage of business development and has not generated enough revenue to cover the monthly fees outlined in the agreement. Since the collectibility of the full management fee is uncertain, revenue has only been recognized to the extent of fees expected to be collected from the PC.

 

Royalties and Advertising Fees

 

Pursuant to the franchise agreements, the Company is required to pay royalties and advertising fees based on a percentage of sales, including 7% for royalties and 1% for advertising fees. The advertising fee was increased to 2% of sales beginning January 1, 2015.

 

Advertising Costs

 

The Company expenses advertising costs as incurred. Advertising expense for the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014 was $7,778, $5,132, and $31,961, respectively.

 

Income Taxes

 

The Company has elected to be treated as an S corporation for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the stockholder, and no provision for federal income taxes has been recorded on the accompanying financial statements.

 

The Company applies a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company's stockholder rather than on the Company. Accordingly, there would be no effect on the Company's financial statements.

 

FIRST LIGHT JUNCTION, INC.

 

Notes to Financial Statements

(Information Related to the Three Months Ended March 31, 2015 and 2014 is Unaudited)

 

Income Taxes (continued)

 

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed for the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Note 2 - Going Concern

 

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business.

 

As shown in the accompanying financial statements, the Company has incurred recurring losses from operations, and, as of March 31, 2015 and December 31, 2014, the Company's total liabilities exceeded its total assets by approximately $820,000 and $767,000, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Note 3 - Balance Sheet Disclosures

 

Property and equipment are summarized as follows:

 

		March 31,				December 31,
		2015				2014
Leasehold improvements		$	250,007			$	250,007
Furniture and fixtures			45,873				45,873
Medical equipment			24,436				24,436
Office equipment			21,504				21,504
Vehicles			22,549				22,549
			364,369				364,369
Less accumulated depreciation			(113,856	)			(95,974	)
		$	250,513			$	268,395

 

FIRST LIGHT JUNCTION, INC.

 

Notes to Financial Statements

(Information Related to the Three Months Ended March 31, 2015 and 2014 is Unaudited)

 

Note 3 - Balance Sheet Disclosures (continued)

 

Depreciation expense for the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014 was $17,882, $11,273, and $61,054, respectively.

 

Franchise fees consist of the following:

 

		March 31,				December 31,
		2015				2014
Franchise fees		$	106,500			$	106,500
Less accumulated amortization			(17,851	)			(15,188	)
		$	88,649			$	91,312

 

Amortization expense for the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014 was $2,663, $2,663, and $10,650, respectively. Future amortization expense is as follows:

 

Year Ending December 31,
2015		$	10,650
2016			10,650
2017			10,650
2018			10,650
2019			10,650
Thereafter			38,062
		$	91,312

Note 4 - Advances from Related Parties and Stockholder

 

The Company has outstanding amounts due to related entities under common control and its stockholder. The advances are non-interest bearing and are due on demand.

 

Note 5 - Commitments and Contingencies

 

Operating Leases

 

The Company leases facilities and vehicles under non-cancelable operating leases. Rent expense for the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014 was $53,327 $52,881, and $215,302, respectively.

FIRST LIGHT JUNCTION, INC.

 

Notes to Financial Statements

(Information Related to the Three Months Ended March 31, 2015 and 2014 is Unaudited)

 

Note 5 - Commitments and Contingencies (continued)

 

Operating Leases (continued)

 

Future minimum lease payments under these leases are approximately as follows:

 

Year Ending December 31,
2015		$	205,000
2016			212,000
2017			153,000
2018			116,000
2019			24,000
		$	710,000

 

Litigation

 

In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.

 

Note 6 - Subsequent Events

 

The Company has evaluated all subsequent events through the auditors' report date, which is the date the financial statements were available for issuance. Except as disclosed in Note 1, there were no material subsequent events that required recognition or additional disclosure in these financial statements.

 

 

 

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