Exhibit 99.1

 

ACI MERCHANT SYSTEMS, LLC

 

FINANCIAL STATEMENTS

 

DECEMBER 31, 2013 AND DECEMBER 31, 2012

 

 

ACI Merchant Systems, LLC

Financial Statements

December 31, 2013 and December 31, 2012

 

Table of Contents

 

	Page
Independent Auditor’s Report	1-2
Financial Statements:
Balance Sheets	3
Statements of Income and Members’ Equity	4
Statements of Cash Flows	5
Notes to Financial Statements	6-8
Supplementary Information:
Independent Auditors’ Report on Supplementary Information	9
Schedule 1 – Cost of Sales	10
Schedule 2 – Selling, General and Administrative Expenses	11

 

 

  

Independent Auditor’s Report

 

To the Members

ACI Merchant Systems, LLC

Langhorne, Pennsylvania

 

We have audited the accompanying financial statements of ACI Merchant Systems, LLC, which comprise the balance sheets as of December 31, 2013 and 2012, and the related statements of income and members’ equity and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

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

 

Auditor’s Responsibility

 

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

 

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 ACI Merchant Systems, LLC 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/ Wouch Maloney & C0., LLP

 

Horsham, Pennsylvania

August 12, 2014

 

 

ACI Merchant Systems, LLC

Balance Sheets

December 31, 2013 and December 31, 2012

 

		2013				2012
Assets
Current Assets
Cash		$	602,970			$	583,621
Accounts Receivable			415,663				431,219
Inventory			16,324				27,709
Total Current Assets			1,034,957				1,042,549
Property and Equipment
Office Equipment			54,110				51,385
Computer Software			33,147				33,147
			87,257				84,532
Less: Accumulated Depreciation			77,244				72,757
Property and Equipment - Net of Accumulated Depreciation			10,013				11,775
Total		$	1,044,970			$	1,054,324
Liabilities and Members' Equity
Current Liabilities
Accounts Payable		$	191,117			$	199,405
Accrued Expenses			25,141				12,955
Total Current Liabilities			216,258				212,360
Commitments and Contingencies
Members' Equity			828,712				841,964
Total		$	1,044,970			$	1,054,324

 

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

 

 

ACI Merchant Systems, LLC

Statements of Income and Members' Equity

For the Years Ended December 31, 2013 and December 31, 2012

 

		2013				2012
Sales		$	6,627,067			$	6,186,861
Cost of Sales			3,725,037				3,576,057
Gross Profit			2,902,030				2,610,804
Selling, General and Administrative Expenses
(Including Depreciation Expense of $4,485 and $3,847, Respectively)			769,524				833,125
Income From Operations			2,132,506				1,777,679
Other Income
Proceeds From Contract Buyout			0				500,000
Interest Income			1,464				2,414
Total Other Income			1,464				502,414
Net Income		$	2,133,970			$	2,280,093
Members' Equity - Beginning of Year as Originally Stated		$	841,964			$	395,107
Prior Period Adjustment:
Correction of an Error in Accruals			0				194,264
Members' Equity - Beginning of Year as Restated			841,964				589,371
Net Income			2,133,970				2,280,093
Less: Distributions to Members			(2,147,222	)			(2,027,500	)
Members' Equity - End of Year		$	828,712			$	841,964

 

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

 

 

ACI Merchant Systems, LLC

Statements of Cash Flows

For the Years Ended December 31, 2013 and December 31, 2012

 

Increase (Decrease) in Cash

 

		2013				2012
Net Income		$	2,133,970			$	2,280,093
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation			4,485				3,847
(Increase) Decrease in:
Accounts Receivable			15,557				1,563
Inventory			11,385				12,144
Loan to Employees			0				18,000
Increase (Decrease) in:
Accounts Payable			(8,288	)			(36,831	)
Accrued Expenses			12,186				(15,708	)
Net Cash Provided by Operating Activities			2,169,295				2,263,108
Cash Flows From Investing Activities
Capital Expenditures			(2,724	)			(3,901	)
Cash Flows From Financing Activities
Distributions to Members			(2,147,222	)			(2,027,500	)
Net Increase in Cash			19,349				231,707
Cash - Beginning of Year			583,621				351,914
Cash  - End of Year		$	602,970			$	583,621

 

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

 

 

ACI Merchant Systems, LLC

Notes to Financial Statements

December 31, 2013 and December 31, 2012

 

A.

Nature of Operations and Summary of Significant Accounting Policies

 

Nature of Operations

The Company, a Pennsylvania limited liability company, principally acting in an agency capacity, is engaged in national credit and debit card merchant processing services, check guaranty processing services and other related business programs to financial institutions. The Company also provides setup services and technical support for credit card terminals issued to customers of financial institutions. The Company is based in Langhorne, Pennsylvania and services customers throughout the United States of America.

 

Prior Period Adjustment

Prior to the issuance of the accompanying financial statements, the Company recorded its service fees and any related direct expenses one month in arrears. These financial statements correct this error through a prior period adjustment that increases the Company’s January 1, 2012 retained earnings by $194,264; the amount by which the Company’s net assets would have increased had the December 31, 2011 accounts receivable and accounts payable been recorded on a timely basis. The accompanying 2013 and 2012 financial statements reflect Company revenues when earned and the related expenses when incurred.

 

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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.

 

Accounts Receivable

The Company carries its accounts receivable at their estimated realizable amounts based upon the Company’s collection history and management’s periodic valuation of the accounts receivables.

 

Inventory

Inventory, consisting principally of credit card processing equipment, is valued at the lower of cost, determined by the first-in, first-out method, or market.

 

Property and Equipment

Property and equipment are valued at cost. Maintenance and repairs are charged to operations when incurred. Improvements and renewals are capitalized. Provision for depreciation is made over the estimated useful lives of the respective assets using the straight-line method.

 

The Company uses the following estimated useful lives:

 

Office Equipment	5-7 Years
Computer Software	3 Years

 

 

ACI Merchant Systems, LLC

Notes to Financial Statements

December 31, 2013 and December 31, 2012

 

A.

Nature of Operations and Summary of Significant Accounting Policies (continued)

 

Income Taxes

The Company has elected "S" status for both federal and Pennsylvania income tax purposes. Under these elections, all income or loss of the Company flows through to the members in proportion to their ownership interests. Accordingly, the Company provides only for state capital stock tax and other state and local income taxes.

 

The Company recognizes the potential income tax and any related penalties and interest arising from uncertain tax positions. Potential interest and penalties are recognized as a component of the provision for income taxes. The Company has concluded that there are no taxes, penalties or interest resulting from uncertain positions that would materially impact the Company’s financial statements at either December 31, 2013 or 2012.

 

The Company files federal and Pennsylvania income tax returns. Generally, the Company is no longer subject to income tax examinations in any jurisdiction for tax years before 2010.

 

Advertising Costs

The Company expenses advertising as incurred. For the years ended December 31, 2013 and 2012, advertising expense was $5,477 and $12,105, respectively.

 

B.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to a concentration of credit risk consist principally of accounts receivable and cash.

 

The Company's customers are principally banks and other providers of consumer credit. Approximately 99% of all the Company’s collections and 80% of its fee payments are made through a single merchant credit card processing services provider. At December 31, 2013 and 2012, approximately 98.8% and 98.5%, respectively, of accounts receivable were due from the single processing services provider. The Company bears credit risk of both non-collection of merchant fees and chargebacks for banks that do not hold liability. The Company generally does not require collateral.

 

The Company maintains cash accounts in an area bank. Accounts at the institution are insured by the Federal Deposit Insurance Corporation up to an aggregate of $250,000. From time to time the balance of the Company's funds held by the institution may exceed the insured amount.

 

C.

Pension Plan

The Company sponsors pension and profit sharing plans under section 401(k) of the Internal Revenue Code, available to all employees who have completed one year of service and who have attained 21 years of age. Company contributions to the plan are discretionary and are recognized in the year incurred. For the years ended December 31, 2013 and 2012, Company contributions to the pension plan were $18,840 and $19,556, respectively. For the years ended December 31, 2013 and 2012, the Company’s profit sharing contributions were $0 and $5,298, respectively.

 

 

ACI Merchant Systems, LLC

Notes to Financial Statements

December 31, 2013 and December 31, 2012

 

D.

Operating Lease

The Company leases its operating facilities on a month-to-month basis. For the years ended December 31, 2013 and 2012 rent expense under this agreement was $28,320 and $27,320, respectively. The Company anticipates continuing its lease arrangement under comparable terms.

 

E.

Proceeds From Contract Buyout

During the year ended December 31, 2012, a financial institution bought out its credit card processing contract for $500,000.

 

F.

Commitments and Contingencies

The Company employs proprietary software developed for the Company by one of the Company members and a software engineer. The software facilitates calculation of fees due to agents and financial institutions with which the Company has processing contracts. The Company currently pays the software engineer for time and materials, plus other incentives.

 

G.

Subsequent Events

Subsequent events have been evaluated through August 12, 2014, which is the date the financial statements were available to be issued.

 

 

SUPPLEMENTARY INFORMATION

 

  

Independent Auditors’ Report on Supplementary Information

 

To the Members

ACI Merchant Systems, LLC

Langhorne, Pennsylvania

 

We have audited the financial statements of ACI Merchant Systems, LLC as of and for the years ended December 31, 2013 and 2012 and our report thereon dated August 7, 2014 which expressed an unqualified opinion of those financial statements, appears on pages 1 and 2. Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information included in Schedules 1 and 2 is presented for the purposes of additional analysis of the financial statements and it is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements and other procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

 

/s/ Wouch Maloney & C0., LLP

 

Horsham, Pennsylvania

August 12, 2014

 

 

ACI Merchant Systems, LLC

Supplementary Information

For the Years Ended December 31, 2013 and December 31, 2012

 

Schedule 1

 

Cost of Sales

 

		2013				2012
Agent/Referral Bank Payouts		$	2,507,853			$	2,496,798
Bank Card Processing			573,122				468,960
Breach Insurance			17,721				15,147
Compliance Fees			38,087				35,918
Credit Card Equipment			88,866				95,685
Direct Labor, Taxes and Benefits			362,925				355,521
Freight Charges			1,076				3,203
Gift Cards			6,229				6,290
Processing			9,288				3,162
Real Time Processing			107,702				83,402
Start Up Fees			3,035				2,276
Supplies			9,133				9,695
Total Cost of Sales		$	3,725,037			$	3,576,057

  

 

ACI Merchant Systems, LLC

Supplementary Information

For the Years Ended December 31, 2013 and December 31, 2012

 

Schedule 2

 

Selling, General and Administrative Expenses

 

		2013				2012
Automobile Expense		$	19,765			$	16,218
Bad Debt Expenses			5,213				21,553
Business Insurance Expense			6,753				6,612
Computer Services and Processing			160,492				145,540
Contributions			625				600
Credit Bureau Expense			1,819				1,661
Depreciation Expense			4,485				3,847
Dues and Membership Expense			16,161				14,575
Employee Benefits			34,000				34,000
Freight Supplies Expense			21,971				21,608
Legal and Accounting Expenses			19,786				34,283
Meals and Entertainment			2,240				3,175
Network Access Expense			24,370				77,706
Office Cleaning Expense			2,600				2,550
Office Supply Expense			19,415				20,825
Payroll Services Expense			2,126				2,192
Payroll Taxes			23,552				22,269
Pennsylvania Corporate Tax			12,859				8,493
Rent Expense			28,320				27,320
Repairs and Maintenance Expense			8,328				954
Salaries and Wages			297,500				297,500
Selling Expenses			5,477				12,105
Telephone and Utilities Expense			29,304				31,307
Terminal Maintenance and Repair Expense			8,809				10,631
Travel			11,004				13,238
Workers Compensation Expense			2,550				2,363
Total Selling, General and Administrative Expenses		$	769,524			$	833,125