Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - Great Elm Capital Corp. | gecc-ex321_7.htm |
EX-31.2 - EX-31.2 - Great Elm Capital Corp. | gecc-ex312_10.htm |
EX-31.1 - EX-31.1 - Great Elm Capital Corp. | gecc-ex311_6.htm |
EX-21.1 - EX-21.1 - Great Elm Capital Corp. | gecc-ex211_8.htm |
EX-4.10 - EX-4.10 - Great Elm Capital Corp. | gecc-ex410_316.htm |
10-K - 10-K - Great Elm Capital Corp. | gecc-10k_20191231.htm |
Exhibit 99.1
Prestige Capital
Finance, LLC
Financial Statements
December 31, 2019, 2018 and 2017
Prestige Capital Finance, LLC
Table of Contents
December 31, 2019, 2018 and 2017
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Page(s) |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7-13 |
To the Members of
Prestige Capital Finance, LLC
We have audited the accompanying financial statements of Prestige Capital Finance, LLC (the “Company”), which comprise the balance sheets as of December 31, 2019 and 2018, and the related statements of income, changes in equity, and cash flows for the years ended December 31, 2019, 2018 and 2017, 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 the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019, 2018 and 2017 in conformity with accounting principles generally accepted in the United States of America.
/s/ Mazars USA LLP
March 16, 2020
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
December 31, 2019 and 2018
|
|
2019 |
|
|
2018 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
- |
|
Factored receivables, net |
|
|
33,183,372 |
|
|
|
33,180,113 |
|
Notes receivable, current portion |
|
|
64,068 |
|
|
|
197,446 |
|
Prepaid expense |
|
|
58,210 |
|
|
|
48,960 |
|
Total current assets |
|
|
33,305,650 |
|
|
|
33,426,519 |
|
Property and equipment, net |
|
|
15,056 |
|
|
|
23,556 |
|
Other assets |
|
|
|
|
|
|
|
|
Notes receivable, net of current portion |
|
|
69,740 |
|
|
|
82,600 |
|
Other assets |
|
|
30,215 |
|
|
|
96,324 |
|
Total other assets |
|
|
99,955 |
|
|
|
178,924 |
|
Total assets |
|
$ |
33,420,661 |
|
|
$ |
33,628,999 |
|
Liabilities and equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Line of credit |
|
$ |
18,503,118 |
|
|
$ |
17,742,088 |
|
Current portion of term loan |
|
|
142,860 |
|
|
|
142,860 |
|
Payable to customers |
|
|
9,938,803 |
|
|
|
10,904,610 |
|
Accounts payable and accrued expenses |
|
|
399,350 |
|
|
|
373,350 |
|
Accrued profit sharing bonuses |
|
|
670,000 |
|
|
|
250,000 |
|
Income taxes payable |
|
|
267,005 |
|
|
|
- |
|
Total current liabilities |
|
|
29,921,136 |
|
|
|
29,412,908 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Term loan, net of current portion |
|
|
607,135 |
|
|
|
749,995 |
|
Deferred rent |
|
|
67,144 |
|
|
|
76,570 |
|
Total non-current liabilities |
|
|
674,279 |
|
|
|
826,565 |
|
Total liabilities |
|
|
30,595,415 |
|
|
|
30,239,473 |
|
Commitments |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Members' equity |
|
|
2,825,246 |
|
|
|
- |
|
Common stock, no par value |
|
|
- |
|
|
|
825,000 |
|
Additional paid-in capital |
|
|
- |
|
|
|
2,105,000 |
|
Retained earnings |
|
|
- |
|
|
|
459,526 |
|
Total equity |
|
|
2,825,246 |
|
|
|
3,389,526 |
|
Total liabilities and equity |
|
$ |
33,420,661 |
|
|
$ |
33,628,999 |
|
The accompanying notes are an integral part of these financial statements.
2
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Years Ended December 31, 2019, 2018 and 2017
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Total invoices factored |
|
$ |
273,174,787 |
|
|
$ |
296,060,545 |
|
|
$ |
218,101,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
8,636,606 |
|
|
$ |
7,315,077 |
|
|
$ |
6,441,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
4,993,971 |
|
|
|
5,236,304 |
|
|
|
4,780,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
3,642,635 |
|
|
|
2,078,773 |
|
|
|
1,661,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
799,280 |
|
|
|
748,725 |
|
|
|
534,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
2,843,355 |
|
|
|
1,330,048 |
|
|
|
1,126,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
838,885 |
|
|
|
3,495 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,004,470 |
|
|
$ |
1,326,553 |
|
|
$ |
1,125,361 |
|
The accompanying notes are an integral part of these financial statements.
3
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Statements of Changes in Equity
Years Ended December 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Deficit) |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Without Benefit |
|
|
|
|
|
|
|
|
|
||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Under "S" |
|
|
of "S" Corporation |
|
|
Members' |
|
|
Total |
|
||||||
|
|
Authorized |
|
|
Issued |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Corporation Status |
|
|
Status |
|
|
Equity |
|
|
Equity |
|
||||||||
Balance, January 1, 2017 |
|
|
200 |
|
|
|
100 |
|
|
$ |
25,000 |
|
|
$ |
2,105,000 |
|
|
$ |
1,057,612 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,187,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,125,361 |
|
|
|
- |
|
|
|
- |
|
|
|
1,125,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(350,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(350,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
|
|
200 |
|
|
|
100 |
|
|
|
25,000 |
|
|
|
2,105,000 |
|
|
|
1,832,973 |
|
|
|
- |
|
|
|
- |
|
|
|
3,962,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to minority stockholders |
|
|
- |
|
|
|
25 |
|
|
|
800,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,326,553 |
|
|
|
- |
|
|
|
- |
|
|
|
1,326,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,700,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,700,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
|
|
200 |
|
|
|
125 |
|
|
|
825,000 |
|
|
|
2,105,000 |
|
|
|
459,526 |
|
|
|
- |
|
|
|
- |
|
|
|
3,389,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
394,242 |
|
|
|
- |
|
|
|
- |
|
|
|
394,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(568,750 |
) |
|
|
- |
|
|
|
- |
|
|
|
(568,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 8, 2019 |
|
|
200 |
|
|
|
125 |
|
|
$ |
825,000 |
|
|
$ |
2,105,000 |
|
|
$ |
285,018 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,215,018 |
|
The accompanying notes are an integral part of these financial statements.
4
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Statements of Changes in Equity (Cont’d)
Years Ended December 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Deficit) |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Without Benefit |
|
|
|
|
|
|
|
|
|
||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Under "S" |
|
|
of "S" Corporation |
|
|
Members' |
|
|
Total |
|
||||||
|
|
Authorized |
|
|
Issued |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Corporation Status |
|
|
Status |
|
|
Equity |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 9, 2019 |
|
|
200 |
|
|
|
125 |
|
|
$ |
825,000 |
|
|
$ |
2,105,000 |
|
|
$ |
285,018 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,215,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion from "S" Corp to "C" Corp |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
285,018 |
|
|
|
(285,018 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,112,523 |
|
|
|
- |
|
|
|
1,112,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,000,000 |
) |
|
|
- |
|
|
|
(1,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 30, 2019 |
|
|
200 |
|
|
|
125 |
|
|
|
825,000 |
|
|
|
2,390,018 |
|
|
|
- |
|
|
|
112,523 |
|
|
|
- |
|
|
|
3,327,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion from "C" Corp to LLC |
|
|
(200 |
) |
|
|
(125 |
) |
|
|
(825,000 |
) |
|
|
(2,390,018 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,215,018 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
497,705 |
|
|
|
497,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(112,523 |
) |
|
|
(887,477 |
) |
|
|
(1,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,825,246 |
|
|
$ |
2,825,246 |
|
The accompanying notes are an integral part of these financial statements.
5
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Years Ended December 31, 2019, 2018 and 2017
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,004,470 |
|
|
$ |
1,326,553 |
|
|
$ |
1,125,361 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
8,500 |
|
|
|
9,500 |
|
|
|
9,117 |
|
Non-cash interest expense relating to deferred financing costs |
|
|
55,753 |
|
|
|
27,222 |
|
|
|
13,369 |
|
Bad debt expense |
|
|
150,000 |
|
|
|
258,075 |
|
|
|
215,900 |
|
Deferred rent |
|
|
(9,426 |
) |
|
|
(14,326 |
) |
|
|
1,346 |
|
Deferred compensation |
|
|
- |
|
|
|
41,320 |
|
|
|
112,010 |
|
Increase (decrease) in cash attributable to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(7,021 |
) |
|
|
(4,423,459 |
) |
|
|
(4,914,280 |
) |
Prepaid expense |
|
|
(9,250 |
) |
|
|
(15,390 |
) |
|
|
(10,251 |
) |
Other assets |
|
|
10,356 |
|
|
|
51,900 |
|
|
|
12,383 |
|
Payable to customers |
|
|
(965,807 |
) |
|
|
3,185,624 |
|
|
|
2,402,723 |
|
Accounts payable and accrued expenses |
|
|
26,000 |
|
|
|
72,185 |
|
|
|
75,976 |
|
Accrued profit sharing bonus |
|
|
420,000 |
|
|
|
(150,000 |
) |
|
|
400,000 |
|
Income tax payable |
|
|
267,005 |
|
|
|
- |
|
|
|
- |
|
Net cash provided by (used in) operating activities |
|
|
1,950,580 |
|
|
|
369,204 |
|
|
|
(556,346 |
) |
Cash flows from investing activities Purchase of property and equipment |
|
|
- |
|
|
|
(12,340 |
) |
|
|
- |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings on line of credit |
|
|
761,030 |
|
|
|
1,525,579 |
|
|
|
787,930 |
|
Proceeds from borrowing on term loan |
|
|
- |
|
|
|
1,000,000 |
|
|
|
- |
|
Repayments on term loan |
|
|
(142,860 |
) |
|
|
(107,145 |
) |
|
|
- |
|
Deferred financing costs |
|
|
- |
|
|
|
(117,944 |
) |
|
|
- |
|
Distributions |
|
|
(2,568,750 |
) |
|
|
(2,700,000 |
) |
|
|
(350,000 |
) |
Net cash (used in) provided by financing activities |
|
|
(1,950,580 |
) |
|
|
(399,510 |
) |
|
|
437,930 |
|
Net decrease in cash |
|
|
- |
|
|
|
(42,646 |
) |
|
|
(118,416 |
) |
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
- |
|
|
|
42,646 |
|
|
|
161,062 |
|
Ending |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
42,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
827,585 |
|
|
$ |
696,954 |
|
|
$ |
509,167 |
|
Income taxes |
|
$ |
571,880 |
|
|
$ |
3,495 |
|
|
$ |
1,500 |
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to key executives (Note 9) |
|
$ |
- |
|
|
$ |
800,000 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these financial statements.
6
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Years Ended December 31, 2019, 2018 and 2017
1. |
Nature of Operations |
Prestige Capital Finance, LLC (the "Company"), formerly Prestige Capital Corporation, formed October 31, 1985, is a factoring firm purchasing its clients' accounts receivable generally without recourse for 90 days, covering insolvency within the first 90 days. The Company's revenue is based on the length of time that factored receivables are outstanding.
On February 8, 2019, Great Elm Capital Corp acquired 80% of the outstanding equity interest in the Company for approximately $7.4 million. Effective August 30, 2019, the Company elected to be treated as a limited liability company (“LLC”) and changed its name from Prestige Capital Corporation to Prestige Capital Finance, LLC.
A member of a limited liability company is not liable for the debts, obligations, or other liabilities of a limited liability company for reason of being such a member.
2. |
Summary of Significant Accounting Policies |
Accounting and Reporting
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and the general practices within the financial services industry.
Estimates and Risks
In preparing its financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ significantly from those estimates.
In the normal course of business, the Company encounters economic risks. Economic risk is comprised of interest rate risk and credit risk. Interest rate risk is the risk that unfavorable spreads may occur between the rates of interest earned by the Company on its receivables portfolio and the rate of interest incurred in borrowing funds in the market. Credit risk is the risk of default on the Company’s receivables portfolio that results from the debtors’ inability or unwillingness to make contractually required payments.
Factored Accounts Receivable and Allowance for Credit Losses
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, factored accounts receivable, and notes receivable.
Factored accounts receivable consists of purchased third party receivables (factored receivables). The Company's customers are in various industries located throughout the United States, Canada, and Puerto Rico. The Company occasionally limits its risk on certain customers by having other finance companies participate in factoring transactions.
The allowance for credit losses is based upon management’s review and evaluation of the portfolio. Criteria considered in the establishment of the allowance for credit losses include management’s evaluation of documentation received from the debtor, historical loss experience, past due status and other factors. The Company considers an underlying receivable that has not been collected in accordance with its payment terms to be past due. The allowance for credit losses is maintained at a level which, in management’s judgment, is sufficient to absorb losses inherent in the portfolio, although actual losses may vary from the current estimates. If at any time the Company determines it is not likely to recover a receivable in full, it is appropriately written down against the allowance, if any, and its carrying value is reduced to its estimated fair value. Based on the
7
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
historical collection percentages on these receivables, it is management’s belief that the risk of loss is limited. Factoring facilities are structured to provide adequate collateral in the event of a customer default. Management defines non-performing factored receivables as assets that are not generating income or fail to meet agreed upon payment arrangements.
Cash
The Company maintains its cash balances in a financial institution located in the northeastern United States. Balances may exceed federally insured limits from time to time.
Depreciation and Amortization
Depreciation and amortization is provided over the estimated useful lives of the related assets as follows:
Furniture and fixtures |
5 to 7 Years |
Straight-line |
Computers and software |
3 to 5 Years |
Straight-line |
Notes Receivable
Notes receivable consist primarily of amounts due to the Company where the source of payment is expected to be from legal proceedings or other collection efforts instituted against a debtor, guarantors and/or other third parties. Notes receivable are stated at a value estimated by management based on management’s assessment of the likelihood of collection. Write-downs, if any, at the time of reclassification are charged against the allowance for credit losses.
The costs of carrying and collecting notes receivable are generally expensed to operations during the period in which they are incurred. Realization is subject to significant uncertainty due to legal and other collection processes and contingencies over which the Company does not have exclusive control. Accordingly, the amounts which the Company ultimately receives in payment of notes receivable could differ from management’s estimates. Amounts collected in excess of the receivables are recorded as recoveries.
Deferred Finance Costs
The Company records deferred finance costs in connection with costs of obtaining financing. These costs are amortized on the straight-line method over the life of the debt term.
Revenue Recognition
Revenue is recognized as it is contractually earned, which approximates the effective yield method.
Advertising
The Company expenses the cost of advertising as incurred. Advertising costs charged to operations for the years ended December 31, 2019, 2018 and 2017 were $92,404, $90,657 and $56,212, respectively.
Income Taxes
The Company, with the consent of its stockholders, previously elected to be treated as an "S" Corporation under certain provisions of the Internal Revenue Code. Effective February 8, 2019, upon the acquisition of shares by Great Elm Capital Corporation, the Company was treated as a “C” Corporation for Federal and state income tax purposes. Effective August 30, 2019, the Company converted to a limited liability company (“LLC”), and its taxable income or loss is reflected on the member’s individual income tax returns.
The Company used the asset and liability method to calculate deferred tax assets and liabilities. Deferred taxes are calculated based on the difference between financial reporting and income tax basis of assets and liabilities using the enacted Federal and state tax rates. Valuation allowances are provided if based on the weight of the available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. The Company files income tax returns in the U.S. Federal jurisdiction and State of New Jersey. The Company is no longer subject to U.S. Federal and state income tax examinations by tax authorities for years before 2016.
8
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation.
Subsequent Events
The Company has evaluated subsequent events through March 16, 2020, the date these financial statements were available for issuance.
3. |
Factoring Receivables, Net of Participation and Allowances |
The factoring portfolio consists of the following at December 31,:
|
|
2019 |
|
|
2018 |
|
||
Factored receivables - gross |
|
$ |
42,348,776 |
|
|
$ |
48,808,105 |
|
Less participation |
|
|
(9,040,404 |
) |
|
|
(15,502,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
33,308,372 |
|
|
$ |
33,305,113 |
|
Changes in the allowance for credit losses were as follows for the years ended December 31,:
|
|
2019 |
|
|
2018 |
|
||
Balance, beginning of year |
|
$ |
125,000 |
|
|
$ |
125,000 |
|
Provision for credit losses |
|
|
150,000 |
|
|
|
258,075 |
|
Receivables charged off |
|
|
(150,000 |
) |
|
|
(258,075 |
) |
Recoveries |
|
|
- |
|
|
|
- |
|
|
|
$ |
125,000 |
|
|
$ |
125,000 |
|
See Note 2 to the financial statements, which describes the nature of the portfolios, their collection and income recognition processes, and the methodology used to assess the adequacy of the allowance.
The following table provides a summary of the factoring portfolio by its performance status and by type as of December 31,:
|
|
Performing |
|
|
Non-Performing |
|
|
Total |
|
|||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||
Factored accounts receivable |
|
$ |
30,709,245 |
|
|
$ |
32,785,929 |
|
|
$ |
2,599,127 |
|
|
$ |
519,184 |
|
|
$ |
33,308,372 |
|
|
$ |
33,305,113 |
|
The following table shows the aging as of:
|
|
Days Past Due |
|
|
|
|
|
|||||||||||||
|
|
Current |
|
|
31-60 |
|
|
61-90 |
|
|
90+ |
|
|
Total |
|
|||||
December 31. 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factored accounts receivable |
|
$ |
11,714,862 |
|
|
$ |
11,166,623 |
|
|
$ |
9,706,977 |
|
|
$ |
719,910 |
|
|
$ |
33,308,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31. 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factored accounts receivable |
|
$ |
9,752,106 |
|
|
$ |
19,065,480 |
|
|
$ |
4,376,426 |
|
|
$ |
111,101 |
|
|
$ |
33,305,113 |
|
9
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
Notes receivable consists of the following at December 31,:
|
|
2019 |
|
|
2018 |
|
||
During 2019, the Company entered into a notes receivable agreement with a customer to settle an outstanding finance receivable. |
|
$ |
19,942 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
During 2018, the Company entered into a notes receivable agreement with a customer to settle an outstanding finance receivable. The Company is due monthly principal and interest payments of approximately $1,000 with the unpaid balance due in July 2032. |
|
|
78,740 |
|
|
|
91,600 |
|
|
|
|
|
|
|
|
|
|
During 2018, the Company entered into a notes receivable agreement with a customer to settle an outstanding finance receivable. In accordance with the terms of the agreement, the Company is due quarterly principal and interest payments of $15,000 commencing August 31, 2018. |
|
|
35,126 |
|
|
|
90,946 |
|
|
|
|
|
|
|
|
|
|
During 2018, the Company entered into a purchase agreement with a customer to settle an outstanding finance receivable. The outstanding balance was repaid in March 2019. |
|
|
- |
|
|
|
97,500 |
|
|
|
|
133,808 |
|
|
|
280,046 |
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
64,068 |
|
|
|
197,446 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
69,740 |
|
|
$ |
82,600 |
|
5. |
Property and Equipment |
Property and equipment consists of the following as of December 31,:
|
|
2019 |
|
|
2018 |
|
||
Furniture and fixtures |
|
$ |
129,652 |
|
|
$ |
129,652 |
|
Computer and software |
|
|
151,847 |
|
|
|
151,847 |
|
|
|
|
281,499 |
|
|
|
281,499 |
|
Less accumulated depreciation |
|
|
266,443 |
|
|
|
257,943 |
|
|
|
$ |
15,056 |
|
|
$ |
23,556 |
|
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $8,500, $9,500 and $9,117, respectively.
6. |
Line of Credit and Term Loan |
The Company has a line of credit agreement with a bank which consists of a revolving line of credit with maximum available of $25,000,000, based on a borrowing base formula and a term loan of $1,000,000. The credit agreement was amended during February and August 2019, to revise certain terms and extend the maturity date. The revolving line of credit bears interest per annum equal to the sum of LIBOR quoted on a daily basis for thirty (30) day interest period plus two and one-half percent (2.50%). The revolving line of credit expires in February 2022. Outstanding borrowings on the revolving line of credit as of December 31, 2019 and 2018 was $18,503,118 and $17,742,088, respectively. At December 31, 2019, available future borrowings approximated $4,934,000.
10
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
The term loan bears interest per annum equal to the sum of LIBOR quoted on a daily basis for a thirty (30) day interest period plus for and one-half percent (4.50%). The term loan payable in thirty-five (35) consecutive monthly payments in the amount of $11,905, beginning in April 2018, with the final payment of any unpaid principal and interest in February 2022. The outstanding balance as of December 31, 2019 and 2018 was $749,995 and 892,855, respectively. Future annual maturities of the term loan at December 31, 2019 are as follows:
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
$ |
142,860 |
|
2021 |
|
|
|
|
607,135 |
|
The agreement contains certain financial covenants with respect to minimum profit and certain financial ratios with respect to interest coverage, debt-service coverage and leverage.
7. |
Payable to Customers |
Payable to customers represents the liability for amounts due to customers for receivables purchased net of advances made against those receivables to customers, and net of fee income owed to the Company. Amounts payable to customers were $9,938,803 and $10,904,610 at December 31, 2019 and 2018, respectively.
8. |
Employee Benefit Plan |
The Company maintains a 401(k) defined contribution plan (the “Plan”) for all eligible employees which provides for matching contributions by the Company of 100% of the first 6% contributed by employees, subject to statutory limits. The Plan also provides for an additional profit sharing contribution of up to 4% at the Company's discretion. The Company made contributions to the Plan of $148,923, $156,243, and $152,681 for the years ended December 31, 2019, 2018 and 2017, respectively.
9. |
Deferred Compensation Plan and Equity |
The Company had a deferred compensation plan for two key employees. The deferred compensation plan was terminated on February 14, 2018. At the date of termination, the liability associated with the plan was $758,680 and was recorded as key executive salary expense. In connection with the termination of the deferred compensation plan, the Company issued twenty-five (25) shares of common stock to the two key executives with a fair value of $800,000, which was recorded as key executive salary expense. In addition, the Company granted these two executive restricted stock units 17.90 shares of common stock. In connection with the sale of the majority of the Company on February 8, 2019, the restricted stock units were cancelled.
In October 2019, the Company formed the Prestige Capital Finance, LLC Phantom Equity Plan (the “Plan”) and reserved 10% of membership units for issuance under the Plan. During the year ended December 31, 2019, the Company granted 2% of the membership units to one employee. The units are held in care of the employee by the Company until a change in control as defined in the grant agreement. The units vest one fourth annually on the anniversary of the grant date. The units immediately vest upon a change in control.
The Company has a profit sharing bonus program for the officers of the Company, which is determined by the earnings of the Company, as defined. Profit sharing bonuses for the years ended December 31, 2019, 2018 and 2017 totaled $670,000, $442,680 and $400,000, respectively.
10. |
Commitments |
Leases
The Company leases office space, vehicles and equipment under non-cancelable operating leases expiring
11
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
through December 2024. Rent expense for financial reporting purposes is recognized on a straight-line basis over the term of the lease. The difference between the rent actually paid and the rent expense recorded in the financial statement is recorded as deferred rent.
Future annual minimum lease payments under non-cancelable operating leases subsequent to December 31, 2019 are as follows:
Years Ending |
|
|
|
|
|
Vehicles and |
|
|
|
|
|
|
December 31, |
|
Office Space |
|
|
Equipment |
|
|
Totals |
|
|||
2020 |
|
$ |
182,727 |
|
|
$ |
12,984 |
|
|
$ |
195,711 |
|
2021 |
|
|
219,272 |
|
|
|
12,984 |
|
|
|
232,256 |
|
2022 |
|
|
219,272 |
|
|
|
7,783 |
|
|
|
227,055 |
|
2023 |
|
|
219,272 |
|
|
|
2,373 |
|
|
|
221,645 |
|
2024 |
|
|
219,272 |
|
|
|
- |
|
|
|
219,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,059,815 |
|
|
$ |
36,124 |
|
|
$ |
1,095,939 |
|
Rent expense for office space for the years ended December 31, 2019, 2018 and 2017 was $199,315, $187,739 and $218,862, respectively. Rent expense is inclusive of a deferred rent credit of $9,426 and $14,326 for the years ended December 31, 2019 and 2018, respectively, and a deferred rent expense of $1,346 for the year ended December 31, 2017. Lease expense for vehicles and equipment for the years ended December 31, 2019, 2018 and 2017 was $16,058, $25,023 and $25,145, respectively.
Legal
The Company is a party to various legal matters arising in the normal course of business. It is the opinion of management that the disposition of these matters will not be significant.
11. |
Income Taxes |
The components of the income tax provision are as follows for the years ended December 31,:
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
517,060 |
|
|
$ |
- |
|
|
$ |
- |
|
State and local |
|
|
321,825 |
|
|
|
3,495 |
|
|
|
1,500 |
|
Provision for income taxes |
|
$ |
838,885 |
|
|
$ |
3,495 |
|
|
$ |
1,500 |
|
On February 8, 2019, upon the acquisition of shares by Great Elm Capital Corporation, the Company was treated as a “C” Corporation for Federal and state income taxes. Effective August 30, 2019, the Company made an election to be treated as a limited liability for Federal and state income taxes.
For the years ended December 31, 2018 and 2017, the Company was treated as an “S” Corporation under certain provisions of the Internal Revenue Code and New Jersey State tax law. In general, taxable income or loss of an “S” Corporation is allocated to its stockholders for inclusion in their personal income tax return. At December 31, 2018 and 2017, the Company remained subject to New Jersey State corporation minimum income tax.
In assessing the realizability of deferred tax assets, management considered wither it was more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. As of December 31, 2019, the Company has not recorded deferred taxes due to the election to be treated as a limited liability
12
Prestige Capital Finance, LLC
(See Independent Auditors’ Report)
company as of August 30, 2019.
12. |
Concentrations |
Accounts receivable purchased from two of the Company’s customers at December 31, 2019 and 2018 approximated $126,000,000 and $113,000,000, representing approximately 46% and 38%, respectively, of total invoices factored during the year.
Revenues from two customers approximated $4,687,000 or 51% of total revenues for the year ended December 31, 2019. Revenues from one customer approximated $1,930,000, and $1,000,000, representing approximately 26%, and 15% of total revenues for the years ended December 31, 2018 and 2017, respectively.
Accounts receivable balances from two of the Company’s customers at December 31, 2019 approximated $19,427,000, representing 45% of accounts receivable, net of participations and are comprised of 94 individual debtors. Accounts receivable balances from three customers at December 31, 2018 approximated $10,300,000, representing 31% of accounts receivable, net of participations and are comprised of 11 individual debtors.
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