SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2021~~2022

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-52015

Western Capital Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		47-0848102
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

11550 “I” Street, Suite 150, Omaha, Nebraska68137

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: ~~(402)~~ (402) 551-8888

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Emerging growth company ☐

Non-accelerated filer ☑	Smaller reporting company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of May ~~14, 2021,~~13, 2022, the registrant had outstanding ~~9,249,900~~9,108,053 shares of common stock, $0.0001 par value per share.

Western Capital Resources, Inc.

Index

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1617

Item 4. Controls and Procedures		20

PART II. OTHER INFORMATION
~~Item 1A. Risk Factors~~		21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 6. Exhibits		22

SIGNATURES		23

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONTENTS

	Page

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Income	5

Condensed Consolidated Statements of Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2021 December 31, 2020
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 39,291,439 $ 32,504,803
Short-term investments 15,408,362 17,088,073
Loans receivable (net of allowance for credit losses of $248,000 and $315,000, respectively) 1,386,460 1,941,180
Accounts receivable (net of allowance for credit losses of $47,000 and $33,000, respectively) 2,688,846 1,538,377
Inventories (less reserve of $1,530,000 and $1,321,000, respectively) 14,737,629 11,739,228
Prepaid income taxes — 246,560
Prepaid expenses and other 2,931,963 3,096,058
TOTAL CURRENT ASSETS 76,444,699 68,154,279

Investments — 250,000
Property and equipment, net 8,341,504 8,509,971
Operating lease right-of-use assets 16,598,436 15,751,687
Intangible assets, net 3,423,595 3,585,919
Deferred income taxes 405,000 254,000
Other loans receivable 370,680 368,071
Other 454,396 471,991
Goodwill 5,796,528 5,796,528

TOTAL ASSETS $ 111,834,838 $ 103,142,446

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable $ 11,692,469 $ 8,492,721
Accrued payroll 2,212,184 3,439,535
Current portion operating lease liabilities 5,449,362 5,111,429
Other current liabilities 1,485,249 1,403,249
Income taxes payables 1,203,028 —
Current portion long-term debt 1,508,475 —
Contract and other liabilities 964,041 774,625
TOTAL CURRENT LIABILITIES 24,514,808 19,221,559

LONG-TERM LIABILITIES
Notes payable, net of current portion 2,000,000 3,110,148
Operating lease liabilities, net of current portion 11,655,351 11,222,095
TOTAL LONG-TERM LIABILITIES 13,655,351 14,332,243

TOTAL LIABILITIES 38,170,159 33,553,802

COMMITMENTS AND CONTINGENCIES (Note 11) — —

EQUITY

WESTERN SHAREHOLDERS’ EQUITY
Common stock, $0.0001 par value, 12,500,000 shares authorized, 9,249,900 and 8,841,900 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 925 925
Additional paid-in capital 29,562,271 29,562,271
Retained earnings 42,148,787 38,470,323
TOTAL WESTERN SHAREHOLDERS’ EQUITY 71,711,983 68,033,519
Noncontrolling interests 1,952,696 1,555,125

TOTAL EQUITY 73,664,679 69,588,644

TOTAL LIABILITIES AND EQUITY $ 111,834,838 $ 103,142,446

See notes to condensed consolidated financial statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Three Months Ended
March 31, 2021 March 31, 2020
REVENUES
Sales and associated fees $ 37,653,669 $ 28,858,231
Financing fees and interest 1,002,470 2,044,697
Other revenues 5,529,945 4,744,598
Total Revenues 44,186,084 35,647,526

COST OF REVENUES
Cost of sales 21,405,354 15,530,285
Provisions for loans receivable credit losses �� (86,436 ) 291,428
Total Cost of Revenues 21,318,918 15,821,713

GROSS PROFIT 22,867,166 19,825,813

OPERATING EXPENSES
Salaries, wages and benefits 8,936,986 9,119,172
Occupancy 2,511,712 2,848,068
Advertising, marketing and development 2,442,191 1,936,425
Depreciation 397,948 501,390
Amortization 159,825 184,975
Other 2,452,469 2,560,923
Total Operating Expenses 16,901,131 17,150,953

OPERATING INCOME 5,966,035 2,674,860

OTHER INCOME (EXPENSES):
Dividend and interest income 30,654 138,727
Interest expense (18,056 ) (103,662 )
Total Other Income (Expenses) 12,598 35,065

INCOME BEFORE INCOME TAXES 5,978,633 2,709,925

PROVISION FOR INCOME TAX EXPENSE 1,299,350 534,110

NET INCOME 4,679,283 2,175,815

LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS (769,571 ) (462,568 )

NET INCOME ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS $ 3,909,712 $ 1,713,247

EARNINGS PER SHARE ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS
Basic $ 0.42 $ 0.18
Diluted $ 0.42 $ 0.18

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 15)
Basic 9,249,900 9,673,778
Diluted 9,258,131 9,673,778

See notes to condensed consolidated financial statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

Western Capital Resources, Inc. Shareholders’
Common Stock
Shares Amount Additional
Paid-In Capital Retained
Earnings Noncontrolling
Interests Total
BALANCE – December 31, 2020 9,249,900 $ 925 $ 29,562,271 $ 38,470,323 $ 1,555,125 $ 69,588,644
Net income — — — 3,909,712 769,571 4,679,283
Distributions to noncontrolling interests — — — — (372,000 ) (372,000 )
Dividends paid — — — (231,248 ) — (231,248 )
BALANCE – March 31, 2021 9,249,900 $ 925 $ 29,562,271 $ 42,148,787 $ 1,952,696 $ 73,664,679

Western Capital Resources, Inc. Shareholders’
Common Stock
Shares Amount Additional
Paid-In Capital Retained
Earnings Noncontrolling
Interests Total
BALANCE – December 31, 2019 9,673,778 $ 968 $ 29,562,271 $ 33,706,035 $ 2,574,834 $ 65,844,108
Net income — — — 1,713,247 462,568 2,175,815
Plus pre-acquisition net loss of acquiree — — — 191,088 — 191,088
Distributions to noncontrolling interests — — — — (45,000 ) (45,000 )
Dividends — — — (463,289 ) — (463,289 )
BALANCE – March 31, 2020 9,673,778 $ 968 $ 29,562,271 $ 35,147,081 $ 2,992,402 $ 67,702,722

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2022		December 31, 2021
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	30,918,475	$	43,015,095
Short-term investments		26,715,678		14,376,274
Loans receivable (net of allowance for credit losses of $399,000 and $384,000, respectively)		1,849,308		1,980,322
Accounts receivable (net of allowance for credit losses of $57,500 and $34,500, respectively)		3,424,239		1,333,277
Inventories (less reserve of $1,478,000 and $1,424,000, respectively)		16,531,014		13,915,857
Prepaid income taxes		-		189,632
Prepaid expenses and other		3,434,457		2,515,999
TOTAL CURRENT ASSETS		82,873,171		77,326,456

Property and equipment, net		7,956,700		8,306,041
Operating lease right-of-use assets		16,374,663		16,489,185
Intangible assets, net		7,942,218		7,156,401
Deferred income taxes		345,000		357,000
Other loans receivable		195,914		273,342
Other		509,070		492,719
Goodwill		5,796,528		5,796,528

TOTAL ASSETS	$	121,993,264	$	116,197,672

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable	$	13,020,259	$	10,896,353
Accrued payroll		2,351,631		4,041,242
Current portion operating lease liabilities		5,590,344		5,724,564
Other current liabilities		1,934,750		1,769,192
Income taxes payable		1,136,492		-
Current portion long-term debt		2,150,196		1,423,098
Contract and other liabilities		727,288		1,118,057
TOTAL CURRENT LIABILITIES		26,910,960		24,972,506

LONG-TERM LIABILITIES
Notes payable, net of current portion		1,835,263		2,000,000
Operating lease liabilities, net of current portion		11,063,608		11,067,515
TOTAL LONG-TERM LIABILITIES		12,898,871		13,067,515

TOTAL LIABILITIES		39,809,831		38,040,021

COMMITMENTS AND CONTINGENCIES (Note 12)		-		-

EQUITY

WESTERN SHAREHOLDERS’ EQUITY
Common stock, $0.0001 par value, 12,500,000 shares authorized, 9,108,053 shares issued and outstanding as of March 31, 2022 and December 31, 2021		911		911
Additional paid-in capital		29,562,271		29,562,271
Retained earnings		50,816,333		46,862,154
TOTAL WESTERN SHAREHOLDERS’ EQUITY		80,379,515		76,425,336
Noncontrolling interests		1,803,918		1,732,315

TOTAL EQUITY		82,183,433		78,157,651

TOTAL LIABILITIES AND EQUITY	$	121,993,264	$	116,197,672

See notes to condensed consolidated financial statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended
	March 31, 2022			March 31, 2021
REVENUES
Sales and associated fees	$	39,312,977		$	37,653,669
Financing fees and interest		1,138,629			1,002,470
Other revenues		6,001,791			5,529,945
Total Revenues		46,453,397			44,186,084

COST OF REVENUES
Cost of sales		21,260,264			21,405,354
Provisions for loans receivable credit losses		36,632			(86,436	)
Total Cost of Revenues		21,296,896			21,318,918

GROSS PROFIT		25,156,501			22,867,166

OPERATING EXPENSES
Salaries, wages and benefits		9,894,165			8,936,986
Occupancy		2,847,461			2,511,712
Advertising, marketing and development		2,642,666			2,442,191
Depreciation		394,021			397,948
Amortization		386,809			159,825
Other		2,700,456			2,452,469
Total Operating Expenses		18,865,578			16,901,131

OPERATING INCOME		6,290,923			5,966,035

OTHER INCOME (EXPENSES):
Dividend and interest income		18,359			30,654
Interest expense		(24,798	)		(18,056	)
Total Other Income (Expenses)		(6,439	)		12,598

INCOME BEFORE INCOME TAXES		6,284,484			5,978,633

PROVISION FOR INCOME TAX EXPENSE		1,344,000			1,299,350

NET INCOME		4,940,484			4,679,283

LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(758,603	)		(769,571	)

NET INCOME ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS	$	4,181,881		$	3,909,712

EARNINGS PER SHARE ATTRIBUTABLE TO WESTERN COMMON SHAREHOLDERS
Basic	$	0.46		$	0.42
Diluted	$	0.46		$	0.42

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 18)
Basic		9,108,053			9,249,900
Diluted		9,120,136			9,258,131

See notes to condensed consolidated financial statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)


	Western Capital Resources, Inc. Shareholders’
	Common Stock
	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Noncontrolling Interests			Total
BALANCE – December 31, 2021		9,108,053	$	911	$	29,562,271	$	46,862,154		$	1,732,315		$	78,157,651
Net income		-		-		-		4,181,881			758,603			4,940,484
Distributions to noncontrolling interests		-		-		-		-			(687,000	)		(687,000	)
Dividends paid		-		-		-		(227,702	)		-			(227,702	)
BALANCE – March 31, 2022		9,108,053	$	911	$	29,562,271	$	50,816,333		$	1,803,918		$	82,183,433


	Western Capital Resources, Inc. Shareholders’
	Common Stock
	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Noncontrolling Interests			Total
BALANCE – December 31, 2020		9,249,900	$	925	$	29,562,271	$	38,470,323		$	1,555,125		$	69,588,644
Net income		-		-		-		3,909,712			769,571			4,679,283
Distributions to noncontrolling interests		-		-		-		-			(372,000	)		(372,000	)
Dividends paid		-		-		-		(231,248	)		-			(231,248	)
BALANCE – March 31, 2021		9,249,900	$	925	$	29,562,271	$	42,148,787		$	1,952,696		$	73,664,679

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended
	March 31, 2022			March 31, 2021
OPERATING ACTIVITIES
Net income	$	4,940,484		$	4,679,283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		404,528			411,602
Amortization		386,809			159,825
Amortization of operating lease right-of-use assets		1,600,460			1,245,804
Deferred income taxes		12,000			(151,000	)
(Gain) loss on disposal of assets		(8,021	)		13,056
Changes in operating assets and liabilities:
Loans receivable		131,014			554,720
Accounts receivable		(2,090,962	)		(1,150,469	)
Inventory		(2,611,908	)		(2,998,401	)
Prepaid expenses and other assets		(654,465	)		445,768
Operating lease liabilities		(1,798,575	)		(1,533,977	)
Accounts payable and accrued expenses		1,745,297			3,432,023
Contract and other liabilities		(274,627	)		215,770
Net cash and cash equivalents provided by operating activities		1,782,034			5,324,004

INVESTING ACTIVITIES
Purchases of investments		(21,428,552	)		(3,592,303	)
Proceeds from investments		9,089,148			5,500,000
Purchases of property and equipment		(55,188	)		(253,690	)
Acquisition of operating assets		(975,874	)		-
Net cash and cash equivalents provided by (used in) investing activities		(13,370,466	)		1,654,007

FINANCING ACTIVITIES
Advances on notes payable – long-term		727,098			1,258,475
Payments on notes payable – long-term		(250,000	)		(846,602	)
Distributions to noncontrolling interests		(607,000	)		(372,000	)
Payment of accrued common stock redemptions		(150,584	)		-
Payments of dividends		(227,702	)		(231,248	)
Net cash and cash equivalents used in financing activities		(508,188	)		(191,375	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(12,096,620	)		6,786,636

CASH AND CASH EQUIVALENTS
Beginning of period		43,015,095			32,504,803
End of period	$	30,918,475		$	39,291,439

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Income taxes paid	$	5,876		$	6,778
Interest paid	$	14,298		$	150,668
Noncash investing and financing activities:
Right-of-use assets obtained and operating lease obligations incurred	$	1,487,495		$	2,156,174
Distribution to noncontrolling interests applied to loans receivable	$	80,000		$	-
Noncurrent liability converted to long-term debt – related party	$	-		$	2,500,000
408,000 shares issued in transaction with entities under common control	$	-		$	2,754,000
Financed equipment purchase – construction in progress	$	85,263		$	-

Three Months Ended
March 31, 2021 March 31, 2020
OPERATING ACTIVITIES
Net income $ 4,679,283 $ 2,175,815
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 411,602 518,551
Amortization 159,825 184,975
Amortization of operating lease right-of-use assets 1,245,804 1,595,687
Deferred income taxes (151,000 ) (65,000 )
Loss (gain) on disposal of assets 13,056 (9,337 )
Changes in operating assets and liabilities:
Loans receivable 554,720 1,122,391
Accounts receivable (1,150,469 ) (2,191,949 )
Inventory (2,998,401 ) (931,423 )
Prepaid expenses and other assets 445,768 (324,710 )
Operating lease liabilities (1,533,977 ) (1,796,474 )
Accounts payable and accrued expenses 3,432,023 1,740,003
Contract and other liabilities 215,770 (349,801 )
Net cash and cash equivalents provided by operating activities 5,324,004 1,668,728

INVESTING ACTIVITIES
Purchases of investments (3,592,303 ) (16,161,391 )
Proceeds from investments 5,500,000 8,903,588
Purchases of property and equipment (253,690 ) (142,640 )
Acquisition of stores, net of cash acquired — (260,876 )
Proceeds from the disposal of operating assets — 51,600
Net cash and cash equivalents provided by (used in) investing activities 1,654,007 (7,609,719 )

FINANCING ACTIVITIES
Net advances on bank revolving loan 1,258,475 662,959
Payments on notes payable – long-term (846,602 ) (16,033 )
Payments on finance leases — (1,161 )
Distributions to noncontrolling interests (372,000 ) (45,000 )
Payments of dividends (231,248 ) (463,289 )
Net cash and cash equivalents provided by (used in) financing activities (191,375 ) 137,476

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,786,636 (5,803,515 )

CASH AND CASH EQUIVALENTS
Beginning of period 32,504,803 27,160,991
End of period $ 39,291,439 $ 21,357,476

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Income taxes paid $ 6,778 $ —
Interest paid $ 150,668 $ 15,882
Noncash investing and financing activities:
Right-of-use assets obtained and operating lease obligations incurred $ 2,156,174 $ 923,097
Accrued management fees added to note payable – long-term $ — $ 96,958
Noncurrent liability converted to long-term debt $ 2,500,000 $ —
Number of shares issued in transaction with entities under common control 408,000 —

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Nature of Business –

Western Capital Resources, Inc. (“WCR”) is a parent company owning operating subsidiaries, with percentage owned shown parenthetically, as summarized below.

Cellular Retail

PQH Wireless, Inc. (“PQH”) ~~(100%~~(100%) – operates ~~205~~229 cellular retail stores as of March 31, ~~2021 (104~~2022 (130 100% owned plus ~~101~~99 held through its controlled but less than 100% owned subsidiaries), exclusively as an authorized retailer of the Cricket brand.

Direct to Consumer

J&P Park Acquisitions, Inc. (“JPPA”) ~~(100%~~(100%) – an online and direct marketing distribution retailer of 1) live plants, seeds, holiday gifts and garden accessories selling its products under Park Seed, Jackson & Perkins, and Wayside Gardens brand names and 2) home improvement and restoration products operating under the Van Dyke’s Restorers brand, as well as a seed wholesaler under the Park Wholesale brand.

J&P Real Estate, LLC (“JPRE”) ~~(100%~~(100%) – owns real estate utilized as JPPA’s distribution and warehouse facility.

Manufacturing

Swisher Acquisition, Inc. (“SAI”) ~~(100%~~(100%) - a manufacturer of lawn and garden power equipment and emergency safety shelters under the Swisher brand name, and ~~provides~~a provider of turn-key manufacturing services to third parties.

Consumer Finance

Wyoming Financial Lenders, Inc. (“WFL”) ~~(100%~~(100%) – owns and operates “payday” stores ~~(19~~(19 as of March 31, ~~2021)~~2022) in four states (Iowa, Kansas, North Dakota and Wyoming) providing sub-prime short-term uncollateralized non-recourse “cash advance” or “payday” loans typically ranging from $100 to $500 with a maturity of generally two to four weeks, sub-prime short-term uncollateralized non-recourse installment loans typically ranging from ~~$300~~$300 to ~~$800~~$800 with a maturity of six months, check cashing and other money services to individuals.

Express Pawn, Inc. (“EPI”) ~~(100%~~(100%) – owns and operates retail pawn stores (three as of March 31, ~~2021)~~2022) in Nebraska and Iowa providing collateralized non-recourse pawn loans and retail sales of merchandise obtained from forfeited pawn loans or purchased from customers.

References in these financial statement notes to ~~“Company”~~“Company,” “we” or ~~“we”~~“us” refer to Western Capital Resources, Inc. and its subsidiaries. References to specific companies within our enterprise, such as” “PQH,” “JPPA,” “JPRE,” “SAI,” “WFL,” or “EPI” are references only to those companies.

Summary of Significant Accounting Policies –

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared according to the instructions to Form 10-Q and Section 210.8-03(b) of Regulation S-X of the Securities and Exchange Commission ~~(SEC)~~(“SEC”) and, therefore, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ~~(GAAP)~~(“GAAP”) have been omitted.

On January 8, 2021, we completed a merger with SAI (“Merger Transaction”). The Company issued 408,000 shares of our common stock in exchange for all of the equity interest of SAI resulting in SAI becoming a wholly-owned subsidiary of the Company. The transaction falls under the guidance of Accounting Standards Codification (“ASC”) 805, “Business Combinations” for entities under common control. Financial statements and financial information presented herein for prior years has been retrospectively adjusted using the pooling-of-interest method to furnish enhanced comparative information.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~three-month~~three month period ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

Management has analyzed the impact of the Coronavirus pandemic (”(“COVID-19”) on its financial statements as of March 31, ~~2021~~2022 and has determined that the changes to its significant judgements and estimates did not have a material impact with respect to goodwill, intangible assets or long-lived assets.

For further information, refer to the Consolidated Financial Statements and notes thereto included in our Form 10-K for the year ended December 31, ~~2020.~~2021.

Notes to Condensed Consolidated Financial Statements (continued)

Basis of Consolidation

The consolidated financial statements include the accounts of WCR, its wholly-owned subsidiaries and other entities in which the Company owns a controlling financial interest. For financial interests in which the Company owns a controlling financial interest, the Company applies the provisions of ~~Financial Accounting Standards Board (“FASB”)~~ ASC 810, “Consolidation” applicable to reporting the equity and net income or loss attributable to noncontrolling interests. Intercompany balances and transactions of the Company have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, estimated expected lifetime credits losses, economic conditions or future economic trends and various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. Significant management estimates relate to the loans receivable allowance for credit losses, carrying value and impairment of goodwill, other long-lived assets, right-of-use assets and related liabilities (including the applicable discount rate), inventory valuation and obsolescence, estimated useful lives of intangible assets and property and equipment, gift certificate and merchandise credits liability and deferred taxes and tax uncertainties.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

~~Inventory~~Fair Value Measurements

~~Manufacturing~~The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy is as follows:

~~Inventory is stated at the lower of cost~~Level 1 – Quoted market prices in active markets for identical assets or market. Cost for manufactured finished goods is determined using the standard cost method. Raw materials consist primarily of parts used to make products. Fabricated components consist of processed raw materials, capitalized labor and overhead. Finished goods consist of completed products, parts and accessories available for sale. An inventory valuation allowance is provided for excess, obsolete and slow-moving inventory.liabilities.

Level 2 – Observable market-based inputs or inputs that are corroborated by market data.

Level 3 - Unobservable inputs that are not corroborated by market date.

The Company’s held to maturity securities are comprised of U.S Treasury zero coupon T-Bills.

Earnings Per Common Share

The Company computes basic earnings per common share (“EPS”) in accordance with ASC 260, ~~Earnings~~“Earnings Per Share, ~~(“EPS”),~~” which is computed by dividing the income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, as calculated using the treasury stock method. In computing diluted EPS, the weighted average market price for the period is used in determining the number of common shares assumed to be purchased from the exercise of stock options. ~~As of December 31, 2020, 65,000 of potential common shares equivalents from stock options were excluded from the diluted EPS calculations as their effect is anti-dilutive.~~

Recent Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2021, the adoption of which did not have a material impact on its financial statements.

No ~~other~~ new accounting pronouncements issued or effective during the fiscal year have had or are expected to have a material impact on the consolidated financial statements.

Risks Inherent in the Operating Environment –

Supply Chain - Fluctuations in the availability and price of inputs could have an adverse effect on our ability to manufacture and sell our products profitably and could adversely affect our margins and revenue.

Our manufacturing operations depend upon the adequate supply of steel, engines and other components and raw materials. Our direct to consumer operations depend upon an adequate supply of, among other things, seeds and live plants. Our inability to procure any of these production materials, components or finished goods, delays in receiving them or not being able to procure them at competitive prices, particularly during applicable peak seasons, could adversely impact our ability to produce our products and to sell our products on a cost effective basis which, in turn, could adversely affect our revenue and profitability.

~~Our results of operations may be negatively impacted by product liability lawsuits.~~

The Company’s Manufacturing segment is subject to potential product liability risks that relate to the design, manufacture, sale and use of our products. To date, we have not incurred material costs related to these product liability claims. While we believe our current general liability and product liability insurance is adequate to protect us from future product liability claims, there can be no assurance that our coverage will be adequate to cover all claims that may arise. Additionally, we may not be able to maintain insurance coverage in the future at an acceptable cost. Significant losses not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, it may be necessary for us to recall products that do not meet approved specifications, which could result in adverse publicity as well as costs connected to the recall and loss of revenue.

Regulatory

The Company’s Consumer Finance segment activities are highly regulated under numerous federal, state, and local laws, regulations and rules, which are subject to change. New laws, regulations or rules could be enacted or issued, interpretations of existing laws, regulations or rules may change and enforcement action by regulatory agencies may intensify. Over the past several years, consumer advocacy groups and certain media reports have advocated governmental and regulatory action to prohibit or severely restrict sub-prime lending activities of the kind conducted by the Company. After several years of research, debate, and public hearings, in October 2017 the U.S. Consumer Financial Protection Bureau (“CFPB”) adopted a new rule for payday lending. The 2017 rule, originally scheduled to go into effect in August 2019, would have imposed significant restrictions on the industry, and it was expected that a large number of lenders would be forced to close their stores. The CFPB’s studies projected a reduction in the number of lenders by 50%, while industry studies forecasted a much higher attrition rate if the rule is implemented as originally ~~adopted.~~adopted.

However, in January 2018, the CFPB issued a statement that it ~~intends~~intended to “reconsider” the regulation. In July 2020, the CFPB issued a final rule applicable to the 2017 rule. The final rule ~~rescinds~~rescinded the mandatory underwriting provisions of the 2017 rule but ~~does~~did not rescind or alter the payments provisions of the 2017 rule. The CFPB will seek to have these rules go into effect with a reasonable period for entities to come into compliance. The implementation of the final rule is likely to result in a reduction of in-house bad debt collections, higher collection costs and thus a negative impact and further contraction of our Consumer Finance segment.

Notes to Condensed Consolidated Financial Statements (continued)

The above rule or any other adverse change in present federal, state, or local laws or regulations that govern or otherwise affect lending could result in the Consumer Finance segment’s curtailment or cessation of operations in certain or all jurisdictions or locations. Furthermore, any failure to comply with any applicable local, state or federal laws or regulations could result in fines, litigation, closure of one or more store locations or negative publicity. Any such change or failure would have a corresponding impact on the Company’s and segment’s results of operations and financial condition, primarily through a decrease in revenues resulting from the cessation or curtailment of operations, or a decrease in operating income through increased legal expenditures or fines, and could also negatively affect the Company’s general business prospects due to lost or decreased operating income or if negative publicity effects its ability to obtain additional financing as needed.

In addition, the passage of federal, additional state or local laws and regulations or changes in interpretations of them could, at any point, essentially prohibit the Consumer Finance segment from conducting its lending business in its current form. Any such legal or regulatory change would certainly have a material and adverse effect on the Company, its operating results, financial condition and prospects, and perhaps even the viability of the Consumer Finance segment.

Cash and Cash Equivalents and Investments –

The following table shows the Company’s cash and cash equivalents, held-to-maturity investments, and other investments by significant investment category, recorded as cash and cash equivalents or short- and long-term investments:

Schedule of Cash and Cash Equivalents and Investments

	March 31, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Cash and cash equivalents
Operating accounts	$	20,371,027	$	16,539,720	$	20,777,394	$	20,549,383
Money Market – U.S. Treasury obligations		5,920,520		2,565,296		1,547,425		1,013,134
U.S. Treasury obligations		12,999,892		13,399,787		8,593,656		21,452,578
Subtotal		39,291,439		32,504,803		30,918,475		43,015,095

Investments
Certificates of deposit (9 – 18 month maturities, FDIC insured)		11,817,751		17,338,073
Certificates of deposit (9 - 18 month maturities at time of purchase, FDIC insured)						1,535,292		2,035,301
U.S. Treasury obligations (less than one year maturities)		3,590,611		—		25,180,386		12,340,973
Subtotal		15,408,362		17,338,073		26,715,678		14,376,274

TOTAL	$	54,699,801	$	49,842,876	$	57,634,153	$	57,391,369

Investments consisted of the following:

March 31, 2021
Level 1 Level 2 Level 3 Amortized
Cost Unrealized
Gain
(Loss) Estimated
Fair Value
Certificates of Deposit $ — $ 11,817,751 $ — $ 11,817,751 $ (28,124 ) $ 11,789,627
U.S. Treasuries 3,590,611 — — 3,590,611 (465 ) 3,590,146
$ 3,590,611 $ 11,817,751 $ — $ 15,408,362 $ (28,589 ) $ 15,379,773

March 31, 2022
	Level 1		Level 2		Level 3		Amortized Cost		Unrealized Loss			Estimated Fair Value

Certificates of deposit	$	-	$	1,535,292	$	-	$	1,535,292	$	-		$	1,535,292
U.S. Treasury obligations		25,168,378		-		-		25,180,386		(22,435	)		25,157,951
	$	25,168,378	$	1,535,292	$	-	$	26,715,678	$	(22,435	)	$	26,693,243

December 31, 2020
Level 1 Level 2 Level 3 Amortized
Cost Unrealized
Gain
(Loss) Estimated
Fair Value
Certificates of Deposit $ — $ 17,338,073 $ — $ 17,338,073 $ (23,814 ) $ 17,314,259
U.S. Treasuries — — — — — —
$ — $ 17,338,073 $ — $ 17,338,073 $ (23,814 ) $ 17,314,259

December 31, 2021
	Level 1		Level 2		Level 3		Amortized Cost		Unrealized Gain (Loss)			Estimated Fair Value

Certificates of deposit	$	-	$	2,035,301	$	-	$	2,035,301	$	(402	)	$	2,034,899
U.S. Treasury obligations		12,340,973		-		-		12,340,973		(1,566	)		12,339,407
	$	12,340,973	$	2,035,301	$	-	$	14,376,274	$	(1,968	)	$	14,374,306

Interest income recognized on held-to-maturity investments and other sources was as follows:

					Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Held-to-maturity	$	92	$	62,974	$	11,869	$	92
Other		30,562		75,753		6,490		30,562
	$	30,654	$	138,727
Total					$	18,359	$	30,654

The Company has demand deposits at financial institutions, often times in excess of the limit for insurance by the Federal Deposit Insurance Corporation. As of March 31, ~~2021,~~2022, the Company had demand deposits in excess of insurance amounts of approximately ~~$14.10 million.~~$14.6 million.

The Company has deposited in aggregate ~~$2.79~~$2.79 million of cash across ~~seven~~several different accounts at financial institutions as an accommodation to its majority stockholder, ~~who~~which has other business relationships with the financial institution. The funds in these accounts can be withdrawn at any time, do not serve as collateral in any way, and are held on market terms.

Notes to Condensed Consolidated Financial Statements (continued)

Loans Receivable –

The Consumer Finance segment’s outstanding loans receivable aging iswas as follows:

March 31, 2021
March 31, 2022									March 31, 2022
	Payday			Pawn		Total				Payday			Pawn		Total
Current	$	1,107,990		$	211,971	$	1,319,961			$	1,518,580		$	267,364	$	1,785,944
1-30		79,771			—		79,771				122,804			-		122,804
31-60		44,171			—		44,171				76,524			-		76,524
61-90		46,272			—		46,272				70,071			-		70,071
91-120		51,184			—		51,184				62,551			-		62,551
121-150		51,850			—		51,850				63,244			-		63,244
151-180		41,251			—		41,251				67,170			-		67,170
		1,422,489			211,971		1,634,460				1,980,944			267,364		2,248,308
Less Allowance for Credit Losses		(248,000	)		—		(248,000	)
Less allowance for credit losses											(399,000	)		-		(399,000	)
	$	1,174,489		$	211,971	$	1,386,460			$	1,581,944		$	267,364	$	1,849,308

December 31, 2020
December 31, 2021											December 31, 2021
	Payday			Installment		Pawn		Total				Payday			Pawn		Total
Current	$	1,558,292		$	11,718	$	272,669	$	1,842,679			$	1,652,791		$	271,009	$	1,923,800
1-30		117,747			3,547		—		121,294				112,716			-		112,716
31-60		94,135			1,434		—		95,569				78,762			-		78,762
61-90		59,263			370		—		59,633				76,198			-		76,198
91-120		46,777			—		—		46,777				61,310			-		61,310
121-150		38,422			—		—		38,422				63,321			-		63,321
151-180		51,806			—		—		51,806				48,215			-		48,215
		1,966,442			17,069		272,669		2,256,180				2,093,313			271,009		2,364,322
Less Allowance for Credit Losses		(315,000	)		—		—		(315,000	)
Less allowance for credit losses													(384,000	)		-		(384,000	)
	$	1,651,442		$	17,069	$	272,669	$	1,941,180			$	1,709,313		$	271,009	$	1,980,322

Accounts Receivable –

A breakdown of accounts receivables by segment iswas as follows:

March 31, 2021
March 31, 2022														March 31, 2022
	Cellular Retail		Direct to Consumer			Manufacturing			Consumer Finance		Total				Cellular Retail		Direct to Consumer			Manufacturing			Consumer Finance		Total
Accounts receivable	$	335,936	$	1,384,228		$	995,935		$	19,747	$	2,735,846			$	282,221	$	2,125,381		$	1,036,542		$	37,595	$	3,481,739
Less allowance for credit losses		—		(32,000	)		(15,000	)		—		(47,000	)			-		(40,000	)		(17,500	)		-		(57,500	)
Net accounts receivable	$	335,936	$	1,352,228		$	980,935		$	19,747	$	2,688,846			$	282,221	$	2,085,381		$	1,019,042		$	37,595	$	3,424,239

December 31, 2020
December 31, 2021														December 31, 2021
	Cellular Retail		Direct to Consumer			Manufacturing			Consumer Finance		Total				Cellular Retail		Direct to Consumer			Manufacturing			Consumer Finance		Total
Accounts receivable	$	325,041	$	271,742		$	920,712		$	53,882	$	1,571,377			$	270,686	$	225,213		$	839,626		$	32,252	$	1,367,777
Less allowance for credit losses		—		(18,000	)		(15,000	)		—		(33,000	)			-		(17,000	)		(17,500	)		-		(34,500	)
Net accounts receivable	$	325,041	$	253,742		$	905,712		$	53,882	$	1,538,377			$	270,686	$	208,213		$	822,126		$	32,252	$	1,333,277

A portion of accounts receivable are unsettled credit card sales from the prior one to five business days. ~~Included in Accounts Receivable is $1,054,354~~This makes up 28% and ~~$492,213~~25% of ~~merchant~~the net accounts receivable balance as of March 31, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021, respectively

Inventory –

~~A breakdown of inventory is as follows:~~Inventories consisted of:

March 31, 2021

Cellular
Retail
Direct to
Consumer Manufacturing Consumer
Finance Reserve Total
Raw Materials $ — $ — $ 1,890,612 $ — $ (329,000 ) $ 1,561,612
WIP $ — $ — $ 414,872 $ — $ — $ 414,872
Finished Goods $ 6,374,145 $ 4,837,482 $ 2,014,314 $ 736,204 $ (1,201,000 ) $ 12,761,145
Total $ 6,374,145 $ 4,837,482 $ 4,319,798 $ 736,204 $ (1,530,000 ) $ 14,737,629

March 31, 2022
	Cellular Retail		Direct to Consumer		Manufacturing		Consumer Finance		Reserve			Total

Raw materials	$	-	$	-	$	2,112,559	$	-	$	(266,000	)	$	1,846,559
Work in process		-		-		421,970		-		(29,000	)		392,970
Finished goods		6,491,970		5,899,338		2,232,595		850,582		(1,183,000	)		14,291,485
Total	$	6,491,970	$	5,899,338	$	4,767,124	$	850,582	$	(1,478,000	)	$	16,531,014

December 31, 2020

Cellular
Retail
Direct to
Consumer Manufacturing Consumer
Finance Reserve Total
Raw Materials $ — $ — $ 1,620,157 $ — $ (311,000 ) $ 1,309,157
WIP $ — $ — $ 260,421 $ — $ — $ 260,421
Finished Goods $ 5,405,993 $ 3,433,460 $ 1,603,282 $ 736,915 $ (1,010,000 ) $ 10,169,650
Total $ 5,405,993 $ 3,433,460 $ 3,483,860 $ 736,915 $ (1,321,000 ) $ 11,739,228

Notes to Condensed Consolidated Financial Statements (continued)

December 31, 2021
	Cellular Retail		Direct to Consumer		Manufacturing		Consumer Finance		Reserve			Total

Raw materials	$	-	$	-	$	1,940,096	$	-	$	(256,000	)	$	1,684,096
Work in process		-		-		461,831		-		(33,000	)		428,831
Finished goods		4,834,929		5,253,771		2,008,970		840,260		(1,135,000	)		11,802,930
Total	$	4,834,929	$	5,253,771	$	4,410,897	$	840,260	$	(1,424,000	)	$	13,915,857

As a result of changes in the market for certain Company products and the resulting deteriorating value, carrying amounts for those inventories were reduced by approximately ~~$1.53 million~~$1,478,000 and ~~$1.32 million at~~$1,424,000 during the three months ended March 31, ~~2021~~2022 and year ended December 31, ~~2020,~~2021, respectively. These inventory write-downs have been reflected in ~~adjustments to~~ cost of goods sold in the statement of operations. Management believes that these reductions properly reflect inventory values, and no additional losses will be incurred upon disposition.

Advertising, Marketing and Development –

~~Prepaid~~The Company had 0 prepaid direct-response advertising costs as of March 31, ~~2021~~2022 and December 31, ~~2020 were $0 and $0.48 million, respectively.~~2021. Included in Advertising, Marketing and Development for the ~~three-month~~three month periods ended March 31, 2022 and 2021 ~~and 2020 was~~were advertising expenses of ~~$1.96~~$2.04 million and ~~$1.66~~$1.96 million, respectively.

Leases –

Total components of operating lease expense (in thousands) were as follows for the three months ended:

	March 31, 2021		March 31, 2020		March 31, 2022		March 31, 2021
Operating lease expense	$	1,534	$	1,806	$	1,803	$	1,534
Variable lease expense		531		517		526		531
Total lease expense	$	2,065	$	2,323	$	2,329	$	2,065

Other information related to operating leases was as follows:

	March 31, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Weighted average remaining lease term, in years		6.25			6.49			5.87			5.81

Weighted average discount rate		4.6	%		4.8	%		4.2	%		4.4	%

Future minimum lease payments under operating leases as of March 31, ~~2021~~2022 (in thousands) ~~were~~are as follows:

Operating Leases
Remainder of 2021 $ 4,694
2022 4,884
2023 3,081
2024 1,687
2025 877
2026 4,243
Thereafter 11
Total future minimum lease payments 19,477
Less: imputed interest (2,373 )
Total $ 17,104

Current portion operating lease liabilities $ 5,449
Non-current operating lease liabilities 11,655
Total $ 17,104

Remainder of 2022	$	4,791
2023		4,776
2024		2,871
2025		1,511
2026		929
Thereafter		3,949
Total future minimum lease payments		18,827
Less: imputed interest		(2,173	)
Total	$	16,654

Current portion operating lease liabilities	$	5,590
Non-current operating lease liabilities		11,064
Total	$	16,654

10.

~~Notes Payable~~Intangible Assets – ~~Long Term –~~

March 31, 2021 December 31, 2020
Bank revolving loan $ 1,258,475 $ —
Subordinated loans – related parties — 596,602
Note payable – related party 2,250,000 2,513,546
Total 3,508,475 3,110,148
Less current maturities 1,508,475 —
$ 2,000,000 $ 3,110,148

A rollforward of the Company’s intangible assets is as follows:

	December 31, 2021			Acquisitions		Additions			Deletions		March 31, 2022
Customer relationships	$	12,136,254		$	1,172,626	$	-		$	-	$	13,308,880
Other		242,660			-		-			-		242,660
Amortizable intangible assets		12,378,914			1,172,626		-			-		13,551,540
Less accumulated amortization		(5,222,513	)		-		(386,809	)		-		(5,609,322	)
Net amortizable intangible assets	$	7,156,401		$	1,172,626	$	(386,809	)	$	-	$	7,942,218

Notes to Condensed Consolidated Financial Statements (continued)

	December 31, 2020			Acquisitions		Additions			Deletions			December 31, 2021
Customer relationships	$	7,727,054		$	4,411,700	$	-		$	(2,500	)	$	12,136,254
Other		242,660			-		-			-			242,660
Amortizable intangible assets		7,969,714			4,411,700		-			(2,500	)		12,378,914
Less accumulated amortization		(4,383,795	)		-		(838,718	)		-			(5,222,513	)
Net amortizable intangible assets	$	3,585,919		$	4,411,700	$	(838,718	)	$	(2,500	)	$	7,156,401

As of March 31, 2022, estimated future amortization expense for the amortizable intangible assets (in thousands) was as follows:

Remainder of 2022	$	1,129
2023		1,430
2024		1,339
2025		1,242
2026		889
Thereafter		1,913
	$	7,942

11.

Notes Payable –

A breakdown of notes payable was as follows:

	March 31, 2022			December 31, 2021
Bank revolving loan	$	1,900,196		$	1,173,098
Note payable – bank		85,263			-
Note payable – related party		2,000,000			2,250,000
Total		3,985,459			3,423,098
Less current maturities		(2,150,196	)		(1,423,098	)
	$	1,835,263		$	2,000,000

Future minimum long-term principal payments are as follows:


Year 1	$	2,150,196
Year 2		335,263
Year 3		250,000
Year 4		250,000
Year 5		250,000
Thereafter		750,000
Total	$	3,985,459

On October 22, 2010 SAI obtained a senior credit facility (“Revolving Loan”) with a bank. The Revolving Loan, as previously amended, ~~has~~had a credit limit of up to ~~$4,500,000~~$4,500,000 based on percentages of eligible inventory, an interest rate of LIBOR plus 4.5% (4.875% at March 31, 2022), and a maturity date of October 21, 2021 is, and contained certain restrictive financial covenants. SAI entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with its senior lender on April 8, 2021. The Credit Agreement modified the revolving line of credit limit to $2.5 million based on an inventory and receivables availability, and subjects SAI to various covenants, including a minimum Fixed Charge Coverage ratio and maximum Senior Funded Debt to EBITDA ratio. SAI did not fulfill the Senior Funded Debt to EBITDA ratio as required in the Credit Agreement. The bank had not requested early repayment of the loan and, as discussed more fully in Note 20, “Subsequent Events,” extended the maturity date of the Credit Agreement. The Commercial Promissory Note associated with the Credit Agreement had a maturity date of April 30, 2022. The Revolving Loan, as amended, continues to be secured by substantially all assets of ~~SAI and contains certain restrictive financial covenants.~~SAI.

On ~~August 6, 2010~~January 7, 2022 SAI executed ~~secured subordinated promissory notes (“Subordinated Loans”) to borrow $1,350,000 from parties that were majority shareholders up until~~an equipment financing loan agreement with a bank. As of March 31, 2022, $85,263 of $430,000 committed was advanced on the Merger Transaction on January 8, 2021. The notes, as amended, included interest at 16% and a maturity date of December 31, 2023. Pursuant to the Merger Transaction, $596,602 of principal and $123,572 of accrued interest was paid at or around the closingnote. Upon completion of the ~~Merger Transaction~~equipment purchase and ~~the remaining principal balance~~bank financing, payment of ~~$922,178 was repaid with WCR stock issued in the Merger Transaction.~~$9,680.20 will be due monthly for a term of 48 months. The ~~$922,178 repayment is presented herein retrospectively to furnish comparative information.~~agreement has a stated interest rate of 3.85% per annum.

SAI was party to a Management and Advisory Agreement dated August 6, 2010, as amended April 1, 2012, with Blackstreet Capital Management, LLC (“Blackstreet”) under which Blackstreet provides certain financial, managerial, strategic and operating advice and assistance. The agreement required SAI to pay Blackstreet a fee in an amount equal to the greater of (i) ~~$250,000~~$250,000 (subject to annual increases of five percent) or (ii) five percent of SAI’s “EBITDA” as defined under the agreement. As of December 31, 2020, SAI owed Blackstreet ~~$2,513,546~~$2,513,546 of accrued fees under the agreement. On January 8, 2021, pursuant to the Merger Transaction, the agreement was terminated, ~~$13,546~~$13,546 of the accrued fees were paid to Blackstreet, and the remaining ~~$2,500,000~~$2,500,000 was converted into a note payable to Blackstreet. The note is payable in ten consecutive annual lump sum installments of ~~$250,000,~~$250,000, without interest thereon, commencing on January 31, 2021, is unsecured and is guaranteed by the ~~Company.~~Company. The accrued liability converted to a note is presented herein retrospectively to furnish comparative information.

Notes to Condensed Consolidated Financial Statements (continued)

~~11.~~12.

Commitments and Contingencies –

Legal Proceedings

The Company is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. The Company does not believe that such normal and routine litigation will have a material impact on its consolidated financial results.

~~12.~~13.

Revenue –

Cellular Retail

Compensation from Cricket Wireless – As a Cricket Wireless authorized retailer, we earn compensation from Cricket Wireless for activating a new customer on the Cricket Wireless network and activating new devices for existing Cricket Wireless customers (“back-end compensation”) and upon an existing Cricket Wireless customer whom we originally activated on the Cricket Wireless GSM network making a continuing service payment (“CSP”). Compensation from Cricket Wireless for the ~~three-month~~three month periods ended March 31, 2022 and 2021 was $9.74 millionand ~~2020 was~~ $8.71, ~~million and $8.53 million,~~ respectively.

Cellular Retail revenues are recognized per ASC 606, “Revenue Recognition” and consist of the following:

●

Merchandise – merchandise sales, which exclude sales taxes, reflect the transaction price at point of sale when payment is received or receivable, the customer takes control of the merchandise and, applicable to devices, the device has been activated on the Cricket Wireless network. The sale and activation of a wireless device also correlates to the recording of back-end compensation from Cricket Wireless. Sales returns are not material to our financial statements. Merchandise sales revenue, which included back-end compensation from Cricket Wireless, is recorded in Sales and associated fees in the income statement.

●

Other revenue – services revenue from customer paid fees is recorded at point of sale when payment is received and the customer receives the benefit of the service. CSP compensation from Cricket Wireless is recorded as of the time certain Cricket Wireless customers make a service payment, as reported to us by Cricket Wireless.

Direct to Consumer

Direct to Consumer revenue is recognized per ASC 606 and consists of the following:

●

Merchandise – merchandise sales, which exclude sales taxes, reflect the transaction price when product is shipped to customers, FOB shipping point, reduced by variable consideration. Shipping and handling fees are included in total net sales. Variable consideration is comprised of estimated future returns and merchandise credits which are estimated based primarily on historical rates and sales levels.

Manufacturing

Manufacturing revenue is recognized per ASC 606 and consists of the following:

●

Merchandise – merchandise sales, which exclude sales taxes, reflect the transaction price when product is shipped to customers, FOB shipping point, or at point of sale and are reduced by variable consideration. Shipping and handling fees are not included in total net sales and are an offset to freight-out expense. Variable consideration is comprised of estimated future returns and warranty liability which are estimated based primarily on historical rates and sales levels.

Consumer Finance

Consumer Finance revenue from merchandise sales is recognized per ASC 606 and consists of the following:

●

Merchandise – merchandise sales, which exclude sales taxes, reflects the transaction price at point of sale in our pawn stores when payment in full is received and the customer takes control of the merchandise. Sales returns are not material to our financial statements.

●

Other revenue – services revenue from customer paid fees for ancillary services is recorded at point of sale when payment is received and the customer receives the benefit of the service.

Consumer finance revenue from loan fees and interest is recognized per ASC 825 and consist of the following:

●

Loan fees and interest – loan fees and interest on cash advance loans are recognized on a constant-yield basis ratably over a loan’s term. Installment loan fees and interest are recognized using the interest method, except that installment loan origination fees are recognized as they become non-refundable and installment loan maintenance fees are recognized when earned. The Company recognizes fees on pawn loans on a constant-yield basis ratably over the loans’ terms, less an estimated amount for expected forfeited pawn loans which is based on historical forfeiture rates.

See Note ~~15,~~17, “Segment Information,” for disaggregation of revenue by segment.

~~13.~~

~~Other Operating Expense –~~

~~A breakout of other expense is as follows:~~

Three Months Ended
March 31, 2021 March 31, 2020
Bank fees $ 724,645 $ 608,675
Collection costs 72,283 78,069
Insurance 164,521 205,933
Management and advisory fees 224,771 307,961
Professional and consulting fees 431,678 405,153
Supplies 166,872 222,320
Loss (Gain) on disposal 13,056 (9,337 )
Other 654,643 742,149
$ 2,452,469 $ 2,560,923

Notes to Condensed Consolidated Financial Statements (continued)

14.

~~Segment Information~~Other Operating Expense –

~~Segment information related to the three-month periods ended March 31, 2021 and 2020 (in thousands)~~A breakout of other operating expense is as follows:


Total	Three Months Ended
	March 31, 2022			March 31, 2021
Bank fees	$	707,317		$	724,645
Collection costs		56,307			72,283
Insurance		233,198			164,521
Management and advisory fees		242,068			224,771
Professional and consulting fees		603,922			431,678
Supplies		244,843			166,872
Loss (Gain) on disposal		(8,021	)		13,056
Other		620,822			654,643
.	$	2,700,456		$	2,452,469

~~Three Months Ended March 31, 2021~~
~~(in thousands)~~

Cellular
Retail
Direct to
Consumer Manufacturing Consumer
Finance Corporate Total
Revenue from external customers $ 25,511 $ 14,678 $ 2,523 $ 472 $ — $ 43,184
Fees and interest income $ — $ — $ — $ 1,002 $ — $ 1,002
Total revenue $ 25,511 $ 14,678 $ 2,523 $ 1,474 $ — $ 44,186
Net income (loss) $ 2,522 $ 2,269 $ (18 ) $ 162 $ (256 ) $ 4,679
Total segment assets $ 40,186 $ 17,515 $ 10,629 $ 6,356 $ 37,149 $ 111,835
Expenditures for segmented assets $ 191 $ 63 $ — $ — $ — $ 254

~~Three Months Ended March 31, 2020~~
~~(in thousands)~~

Cellular
Retail
Direct to
Consumer Manufacturing Consumer
Finance Corporate Total
Revenue from external customers $ 19,533 $ 11,599 $ 2,050 $ 421 $ — $ 33,603
Fees and interest income $ — $ — $ — $ 2,045 $ — $ 2,045
Total revenue $ 19,533 $ 11,599 $ 2,050 $ 2,466 $ — $ 35,648
Net income (loss) $ 1,184 $ 1,176 $ (191 ) $ 225 $ (218 ) $ 2,176
Total segment assets $ 35,495 $ 15,307 $ 11,653 $ 8,347 $ 35,157 $ 105,959
Expenditures for segmented assets $ 336 $ 118 $ — $ — $ — $ 454

15.

Provision for Income Tax Expense –

Provision for income tax expense for the three months ended March 31, 2022 and 2021 was $1.34 million and $1.30 million for an effective rate of 21.4% and 21.7%, respectively. The effective tax rate is lower than the federal plus state statutory rates due to: (1) noncontrolling interests’ share of net income is not subject to income tax at the consolidated group level; (2) year-over-year changes in the number and mix of states in which our subsidiaries are subject to state income taxes due to various nexus factors such as changes in multi-state activities by members of the consolidated group and its impact on the application of respective state income tax rules and regulations; and (3) changes in state income tax related statutes and regulations. Excluding the noncontrolling interests’ share of net income, the effective tax rate for the comparable periods was 24.3% and 24.9%, respectively. This decrease period over period is due to changing state income tax exposure resulting from a change in the number and mix of states in which subsidiaries are subject to state income taxes due to various factors such as changes in multistate activities by members of the consolidated group and its impact on state taxation rules and regulations applicable to the Company.

16.

Acquisition –

Direct to Consumer Acquisition

On January 14, 2022, the Company’s Direct to Consumer segment completed an acquisition of assets accounted for under ASC 805-10, acquiring the “Seed to Spoon” App. This is a garden planning App that makes growing food easier and provides an easy and direct path to purchasing seeds from our Park Seed business.

The purchase price calculation (in thousands) was as follows:


Cash	$	976
Holdback payable		200
Total
.	$	1,176

The assets acquired (in thousands) were recorded at their estimated fair values as of the purchase date as follows:


Inventory	$	3
Intangible assets		1,173
Total
.	$	1,176

17.

Segment Information –

Segment information related to the three month periods ended March 31, 2022 and 2021 (in thousands) was as follows:


Three Months Ended March 31, 2022 (in thousands)
	Cellular Retail		Direct to Consumer		Manufacturing			Consumer Finance		Corporate			Total

Revenue from external customers	$	26,259	$	15,979	$	2,620		$	456	$	-		$	45,314
Fees and interest income	$	-	$	-	$	-		$	1,139	$	-		$	1,139
Total revenue	$	26,259	$	15,979	$	2,620		$	1,595	$	-		$	46,453
Net income (loss)	$	2,389	$	2,723	$	(19	)	$	182	$	(334	)	$	4,941
Total segment assets	$	45,360	$	19,204	$	10,799		$	6,529	$	40,101		$	121,993
Expenditures for segmented assets	$	-	$	1,205	$	26		$	-	$	-		$	1,231

Notes to Condensed Consolidated Financial Statements (continued)


Three Months Ended March 31, 2021 (in thousands)
	Cellular Retail		Direct to Consumer		Manufacturing			Consumer Finance		Corporate			Total
Revenue from external customers	$	25,511	$	14,678	$	2,523		$	472	$	-		$	43,184
Fees and interest income	$	-	$	-	$	-		$	1,002	$	-		$	1,002
Total revenue	$	25,511	$	14,678	$	2,523		$	1,474	$	-		$	44,186
Net income (loss)	$	2,522	$	2,269	$	(18	)	$	162	$	(256	)	$	4,679
Total segment assets	$	40,186	$	17,515	$	10,629		$	6,356	$	37,149		$	111,835
Expenditures for segmented assets	$	191	$	63	$	-		$	-	$	-		$	254

18.

Basic and Diluted Weighted Average Shares Outstanding –

Following is the calculation of basic and diluted weighted average shares outstanding ~~as of:~~for the three month periods ended on March 31, 2022 and 2021:


	Three Months Ended:
	March 31, 2022		March 31, 2021
Weighted average shares outstanding - basic		9,108,053		9,249,900
Stock options (treasury method)		12,083		8,231
Weighted average shares outstanding - diluted		9,120,136		9,258,131

Three Months Ended:
March 31, 2021 December 31, 2020
Weighted average shares outstanding - basic 9,249,900 9,265,778
Retroactive adjustment – shares issued January 8, 2021 — 408,000
Adjusted weighted average shares outstanding - basic 9,249,900 9,673,778

Dilutive common shares:
Stock options (treasury method) 8,231 —
Weighted average shares outstanding - diluted 9,258,131 9,673,778

~~16.~~

19.

Dividends –

Our Board of Directors declared and paid the following ~~dividend payable in~~dividends during the first quarter of ~~2021:~~2022:

Date Declared

Record Date

Dividend Per Share

Payment Date

Dividend Paid

Record Date

Dividend Per Share

Payment Date

Dividend Paid

February 15, 2021

February 23, 2021

$0.025

March 5, 2021

$231,248

February 15, 2022

March 1, 2022

0.025

March 11, 2022

227,702

~~17.~~20.

Subsequent Events –

~~Dividend~~Dividends Declared

Our Board of Directors declared the following ~~dividend~~dividends after March 31, ~~2021:~~2022:

~~Date Declared~~	~~Record Date~~	~~Dividend Per Share~~	~~Payment Date~~
~~May 6, 2021~~	~~May 21, 2021~~	~~$0.025~~	~~June 4, 2021~~

Date Declared		Record Date		Dividend Per Share				Payment Date
May 4, 2022		May 20, 2022		$	0.025			June 2, 2022

SAI Amended and Restated Credit Agreement

SAI entered into ana Second Amended and Restated Credit Agreement (the ~~“Credit Agreement”~~“Agreement”) with its senior lender on ~~April 8, 2021.~~May 6, 2022. The ~~Credit~~ Agreement provides for a revolving line of credit of up to $2.5 million based on an inventory and receivables availability, and subjects SAI to various covenants, including a minimum Fixed Charge Coverage ~~ratio~~Ratio and ~~maximum Senior Funded Debt to EBITDA ratio.~~Minimum Net Worth requirement. The Commercial Promissory Note associated with the ~~Credit~~ Agreement has a maturity date of April 30, ~~2022.~~2023.

Cellular Retail Acquisition

On May 9, 2022, PQH completed the acquisition of 80% of the membership interests of Gateway Wireless, LLC (“Gateway”), an operator of 56 wireless retail locations in Missouri and several other states. PQH paid $3.0 million to acquire the membership interests in Gateway and fund the paydown of certain obligations to the selling shareholders at closing. Simultaneously with closing, WCR funded a $3.1 million loan to Gateway to refinance the existing senior debt of the Company.

We evaluated all events or transactions that occurred after March 31, ~~2021~~2022 through the date we issued these financial statements. During this period, we did not have any other material subsequent events that impacted our financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Some of the statements made in this report are “forward-looking statements,” as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect,” “will” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are found in other parts of this report as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We are not undertaking any obligation to update any forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations or may affect the value of the common stock, include, but are not limited to:

●

Supply chain disruptions and delays and related lost revenue or increased costs;

●

Inflationary pressures on cost of sales and fluctuations in commodity prices;

●

Potential product liability risks that relate to the design, manufacture, sale and use of our Swisher products;

●

Changes in local, state or federal laws and regulations governing lending practices, or changes in the interpretation of such laws and regulations;

●

Litigation and regulatory actions directed toward the consumer finance industry or us, particularly in certain key states;

●

Our need for additional financing;

●

Changes in our authorization to be a dealer for Cricket Wireless;

●

Changes in authorized Cricket dealer compensation;

●

Lack of advertising support and sales promotions from Cricket Wireless in the markets we operate;

●

Our dependence on information systems;

●

Direct and indirect effects of COVID-19 on our employees, customers, our supply chain, the economy and financial markets; and

●

Unpredictability or uncertainty in financing and merger and acquisition markets, which could impair our ability to grow our business through acquisitions.

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section ~~and~~ of ~~this report.~~our Form 10-K for the year ended December 31, 2021.

Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.

OVERVIEW

Western Capital Resources, Inc. (“WCR”), a Delaware corporation originally incorporated in Minnesota in 2001 and reincorporated in Delaware in 2016, is a holding company having a controlling interest in subsidiaries operating in the following industries and operating segments:

Our Cellular Retail segment is comprised of an authorized Cricket Wireless dealer and involves the retail sale of cellular phones and accessories to consumers through our wholly-owned subsidiary PQH Wireless, Inc. and its controlled but less than 100% owned subsidiaries. Our Direct to Consumer segment consists of a wholly-owned branded online and direct marketing distribution retailer of live plants, seeds, holiday gifts and garden accessories selling its products under Park Seed, Jackson & Perkins and Wayside Gardens brand names and home improvement and restoration products operating as Van Dyke’s Restorers as well as a wholesaler under the Park Wholesale brand. Our manufacturing segment consists of a wholly-owned manufacturer of lawn and garden power equipment and emergency safety shelters selling products primarily under the Swisher brand name and provides turn-key manufacturing services to third parties. Our Consumer Finance segment consists of retail financial services conducted through our wholly-owned subsidiaries Wyoming Financial Lenders, Inc. and Express Pawn, Inc.

Throughout this report, we collectively refer to WCR and its consolidated subsidiaries as “we,” the “Company,” and “us.”

Acquisitions:

On March 11, 2022, our Cellular Retail segment entered into a series of definitive agreements to purchase 80% of Gateway Wireless, LLC, an operator of 56 Cricket Wireless locations in Missouri and several other states. We completed the transaction on May 9, 2022.

On January 14, 2022, the Company’s Direct to Consumer segment acquired From Seed to Spoon, a garden planning App that makes growing food easier. From Seed to Spoon is yet another tool in Park Seed’s tool shed designed to inspire, teach, and reach customers where they get information today – on their phones. From Seed to Spoon calculates planting dates based on GPS location taking the guesswork out of when to plant seeds. In addition to providing personalized planting dates, the App also includes companion planting guides, recipes, organic pest treatments, and beneficial insect guides. It even enables users to filter plants by health benefit. The App also provides an easy and direct path to purchasing seeds from our Park Seed business.

We expect segment operating results and earnings per share to change throughout 2022 and beyond due, at least in part, to the seasonality of the various segments, recently completed and potential merger and acquisition activity, the unknown impact of COVID-19, the effects of inflationary pressures, as well as supply and labor shortages.

Discussion of Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis. The preparation of these condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary materially from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” of the notes to our condensed consolidated financial statements included in this report together with our significant accounting policies discussed in Note 1, “Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies,” of the notes to our December 31, ~~2020~~2021 consolidated financial statements included in our Form 10-K for the year ended December 31, ~~2020.~~2021. We believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements.

Receivables and Credit Loss Allowance

~~Direct to Consumer -~~

Receivables are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of receivables is net of an allowance for credit losses. The allowance for credit losses represents an estimate of expected lifetime credit losses on the asset considering economic conditions and future economic trends. Past due receivable balances are written-off when internal collection efforts have been unsuccessful in collecting the amount due.

Consumer Finance -

Included in loans receivable ~~are~~is $2.25 million of unpaid principal, interest and fee balances of payday ~~installment and pawn~~ loans that have not reached their maturity ~~date,~~date. Payday loans by their nature are high risk loans and ~~“late” payday loans that have reached maturity within the last 180 days and have remaining outstanding balances. Late payday loans generally are unpaid loans where~~require significant assumptions when determining a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons. All returned items are charged-off after 180 days, as the present value of future collections after that date is not expected to be significant. Loans are carried at cost plus accrued interest or fees less payments made and an allowance for credit losses.

~~We do not specifically~~ reserve ~~for any individual payday or installment loan. Instead, we aggregate loan types for purposes of estimating the allowance~~ for credit losses, ~~using a methodology that estimates expected lifetime~~including the default rate and the amount of subsequent collections on those defaulted loans. These two factors have remained relatively stable over the past two years and we therefore use historical rates to assist in determining anticipated future credit losses. In addition, we must consider future economic factors. Any significant downturn in the economy which is greater than our assumptions will increase the default rates and reduce subsequent collections on those defaulted loans. As of March 31, 2022, we have estimated credit losses from the $2.25 million loans receivable balance to be approximately $40,000.

Inventory

Direct to Consumer

Inventory is valued at the lower of cost or market using the weighted-average method of determining cost. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. Two subcategories of inventory, live plants and restoration products, are most susceptible to write-downs and the ~~asset considering economic conditions~~application of key assumptions.

Live plants have a limited life and ~~future economic trends. In addition, this methodology takes into account~~any unsold product is disposed of at the end of a selling season. Should the demand for product not meet expectations, larger write-downs may occur during interim periods until written off. Management will assess the need for write-downs based on inventory levels, the length of time remaining in the live-goods season, and current and expected ~~collection patterns, recent trends noted~~demand which could be impacted by many current market and economic factors as discussed in the ~~portfolio and charge off patterns from loans that originated during the last 24 months, which assists management in estimating future recoveries. Credit losses~~Risk Factors section of our Form 10-K for ~~pawn loans are not recorded because the value of the collateral exceeds the loan amount.~~

See Note 5, “Loans Receivable,” of the notes to our consolidated financial statements included in this report for our outstanding loans receivable aging as of and for the three-month periods ended March 31, 2021 and the year ended December 31, ~~2020.~~

~~Valuation of Long-lived and Intangible Assets~~2021.

We ~~assess the possibility~~have a significant number of ~~impairment of long-lived assets, other than goodwill, whenever events or changes~~home hardware products in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant underperformance relative to expected historical or projected future cash flows, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry events or trends.

~~Goodwill~~

Goodwill represents the excess of acquisition cost over the fair value of identifiable finite lived net assets acquired and is not amortized. Goodwill is tested for impairment annually as of October 1, or more frequently if events or changes in circumstances indicate potential impairment. We test for goodwill impairment at the reporting unit level, which aligns with the Company’s segments. We perform a qualitative assessment to determine if a quantitative impairment test is necessary. If quantitative testing is necessary based on a qualitative assessment, we apply a fair value test. This fair value test involves a two-step process. The first step is to compare the carrying value of our net assets to our fair value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of the impairment, if any.

~~Leases~~

The Company has many retail lease agreements which are accounted for as operating leases. The Company determines if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities (current and noncurrent).

ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

this segment’s inventory. Due to the ~~significant assumptions and judgements required~~uniqueness of many of these items, the sales volume of an individual SKU may be low. Management evaluates the value of items in ~~accounting for leases (including whether~~inventory to estimate an allowance against carrying costs. This evaluation includes a ~~contract contains a lease, the allocation~~look-back of sales volume of the ~~consideration,~~respective SKU over the prior twelve month period to estimate the allowance.

Manufacturing

Inventory is valued at the lower of cost or market using the standard costing method of determining cost. The Company periodically evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. Key assumptions used are the future quantity to be sold, the future selling price of an item, and the ~~determination~~cost of raw materials, primarily steel. Unknown economic factors or supply factors could materially affect these assumptions. A sharp downturn in the ~~discount rate),~~economy would negatively impact the ~~judgment~~future quantity sold. Dropping steel or other raw materials costs will negatively impact assumptions used for future sales prices and ~~estimates made~~the underlying cost under the lower of cost or market methodology. Future sales prices and the underlying cost under the lower of cost or market methodology could ~~have~~also be negatively impacted by an unforeseen introduction of comparable products, possibly from foreign sources or otherwise, at a ~~significant effect on the amount of assets and liabilities recognized~~lower price point.

Results of Operations – Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

Net income attributable to our common shareholders for the current quarter was $4.18 million, or $0.46 per share (basic and diluted) for the quarter ended March 31, 2022, compared to $3.91 million, or $0.42 per share (basic and diluted), for the quarter ended March 31, ~~2021, compared to net income of $1.71 million, or $0.18 per share (basic and diluted), for the quarter ended March 31, 2020.~~2021.

We expect segment operating results and earnings per share to change throughout 2021 due, at least in part, to the seasonality of the various segments, potential mergers and acquisitions activity and the unknown impact of COVID-19.

Following is a discussion of operating results by segment.

The following table provides revenues and net income attributable to WCR common shareholders for the quarters ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021 (in thousands).

																			Cellular Retail			Direct to Consumer			Manufacturing			Consumer Finance			Corporate			Total
Three Months Ended March 31, 2022
Revenue																			$	26,259		$	15,979		$	2,620		$	1,595		$	-		$	46,453
% of total revenue																				56.5	%		34.4	%		5.7	%		3.4	%		-	%		100	%
Net income (loss)																			$	2,389		$	2,723		$	(19	)	$	182		$	(334	)	$	4,941
Net income attributable to noncontrolling interests																			$	759		$	-		$	-		$	-		$	-		$	759
Net income (loss) attributable to WCR common shareholders																			$	1,630		$	2,723		$	(19	)	$	182		$	(334	)	$	4,182
	Cellular Retail			Direct to Consumer			Manufacturing			Consumer Finance			Corporate			Total
Three Months Ended March 31, 2021
Revenue	$	25,511		$	14,678		$	2,523		$	1,474		$	—		$	44,186		$	25,511		$	14,678		$	2,523		$	1,474		$	-		$	44,186
% of total revenue		57.8	%		33.2	%		5.7	%		3.3	%		—	%		100	%		57.8	%		33.2	%		5.7	%		3.3	%		-	%		100	%
Net income (loss)	$	2,522		$	2,269		$	(18	)	$	162		$	(256	)	$	4,679		$	2,522		$	2,269		$	(18	)	$	162		$	(256	)	$	4,679
Net income attributable to noncontrolling interests	$	769		$	—		$	—		$	—		$	—		$	769		$	769		$	-		$	-		$	-		$	-		$	769
Net income (loss) attributable to WCR common shareholders	$	1,753		$	2,269		$	(18	)	$	162		$	(256	)	$	3,910		$	1,753		$	2,269		$	(18	)	$	162		$	(256	)	$	3,910

Three Months Ended March 31, 2020
Revenue	$	19,533		$	11,599		$	2,050		$	2,466		$	—		$	35,648
% of total revenue		54.8	%		32.5	%		5.8	%		6.9	%		—	%		100	%
Net income (loss)	$	1,184		$	1,176		$	(191	)	$	225		$	(218	)	$	2,176
Net income attributable to noncontrolling interests	$	463		$	—		$	—		$	—		$	—		$	463
Net income (loss) attributable to WCR common shareholders	$	721		$	1,176		$	(191	)	$	225		$	(218	)	$	1,713

Cellular Retail

A summary table of the number of Cricket Wireless retail stores we operated during the three months ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021 follows:

	2021			2020			2022		2021
Beginning		205			222			229		205
Acquired/ Launched		2			7			-		2
Closed/Divested		(2	)		(8	)		-		(2	)
Ending		205			221			229		205

The increase in the store count above was primarily due to our September 9, 2021 acquisition of 25 Cricket Wireless retail stores.

Period over period, net income attributable to shareholders ~~increased~~decreased from ~~$1.18~~$1.75 million in the comparable prior year quarter to ~~$1.75~~$1.63 million in the current quarter. Many factors have contributed to this period over period decrease. Most notable is a 2.9% increase in segment revenue period over period on a store count that increased 12%. We attribute the decline in same store revenue year over year primarily to consumers receiving both tax refunds and COVID-19 relief funds at approximately the same time in the prior year quarter, while the COVID-19 relief funds are significantly down in the comparable current year period. In addition inflationary pressures have negatively impacted many expenses, most notably ~~successful Cricket sales promotions, Cricket’s 2020 distribution optimization program under which we closed 27 underperforming locations, our strategic location disposals~~salaries, wages and ~~additions~~benefits and ~~COVID-19 stimulus programs contributing to increased sales.~~occupancy expenses.

Direct to Consumer

The Direct to Consumer segment has seasonal sources of revenue and historically experiences a greater proportion of annual revenue and net income in the months of March through May and December due to the seasonal products it sells. For the current quarter, the Direct to Consumer segment had a net income of ~~$2.27~~$2.72 million compared to net income of ~~$1.18~~$2.27 million for the comparable prior year period. Revenues for the quarter ended March 31, ~~2021~~2022 were ~~$14.68~~$15.98 million compared to ~~$11.60~~$14.68 million for the comparable period in ~~2020. Similar to other online retailers,~~2021,an 8.9% increase. The gains in revenue in the Direct to Consumer segment ~~has experienced an increase in demand~~were partially offset by higher selling and ~~on-line sales activity due to COVID-19.~~advertising expenses versus the prior year comparable period.

Manufacturing

Manufacturing segment sales increased from ~~$2.05~~$2.52 million in the comparable prior period to ~~$2.52~~$2.62 million in the current ~~period as demand across product lines has increased.~~period. For each of the ~~current quarter,~~quarters ended March 31, 2022 and 2021, the Manufacturing segment had a net loss of ~~($0.02) million compared to a net loss of ($0.19) million for the comparable prior year period.~~$0.02 million.

Consumer Finance

A summary table of the number of consumer finance locations we operated during the quarters ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021 follows:

	2021		2020		2021		2020
Beginning		22		39		22		22
Acquired/ Launched		—		—
Acquired/Launched						-		-
Closed/Divested		—		—		-		-
Ending		22		39		22		22

~~Our Consumer Finance segment continues to struggle due to COVID-19 and industry regulation and trends with our lending volume being down period over period.~~ Consumer Finance segment revenues ~~decreased $0.99~~increased $0.12 million, or ~~40.2%~~8.2%, for the quarter ended March 31, ~~2021~~2022 compared to the quarter ended March 31, ~~2020 mostly~~2021 due to an increase in lending volume. Segment net income also increased from $0.16 million to $0.18 million for the ~~closing of locations in Nebraska and divesting of locations in Iowa in 2020.~~same period.

Corporate

Net costs related to our Corporate segment were $0.33 million for the three month period ended March 31, 2022 compared to $0.26 million for the ~~quarter~~three month period ended March 31, ~~2021 compared to $0.22 million for the quarter ended March 31, 2020. The period over period increase in net costs is primarily due to a decrease in income from investments.~~2021.

Consolidated Income Tax Expense

Provision for income tax expense for the ~~quarter~~three months ended March 31, ~~2021~~2022 was ~~$1.30~~$1.34 million compared to ~~$0.53~~$1.30 million for the ~~quarter~~three months ended March 31, ~~2020~~2021 for an effective rate of ~~21.7%~~21.4% and ~~19.7%~~21.7%, respectively. The effective tax rate is lower than the federal plus state statutory rates ~~and increased period over period~~ due ~~to impact of the~~to: (1) noncontrolling interests’ share of net income is not subject to income tax at the consolidated group ~~level.~~level; (2) year-over-year changes in the number and mix of states in which our subsidiaries are subject to state income taxes due to various nexus factors such as changes in multi-state activities by members of the consolidated group and its impact on the application of respective state income tax rules and regulations; and (3) changes in state income tax related statutes and regulations. Excluding the noncontrolling interests’ share of net income, the effective tax rate isfor the comparable periods was 24.3% and 24.9% ~~and 23.8%~~, respectively. This ~~increase~~decrease period over period is due to ~~increased~~changing state income tax exposure resulting from a change in the number and mix of states in which subsidiaries are subject to state income taxes due to various factors such as changes in multistate activities by members of the consolidated group and its impact on state taxation rules and regulations applicable to us.

Liquidity and Capital Resources

Summary cash flow data is as follows:

	Three Months Ended March 31,						Three Months Ended March 31,
	2021			2020			2022			2021
Cash flows provided (used) by:
Cash flows provided by (used in):
Operating activities	$	5,324,004		$	1,668,728		$	1,782,034		$	5,324,004
Investing activities		1,654,007			(7,609,719	)		(13,370,466	)		1,654,007
Financing activities		(191,375	)		137,476			(508,188	)		(191,375	)
Net increase (decrease) in cash and cash equivalents		6,786,636			(5,803,515	)
Net decrease in cash and cash equivalents								(12,096,620	)		6,786,636
Cash and cash equivalents, beginning of period		32,504,803			27,160,991			43,015,095			32,504,803
Cash and cash equivalents, end of period	$	39,291,439		$	21,357,476		$	30,918,475		$	39,291,439

As of March 31, ~~2021,~~2022, we had cash and cash equivalents of ~~$39.29~~$30.92 million compared to cash and cash equivalents of ~~$21.36~~$39.29 million on March 31, ~~2020,~~2021. In addition, on March 31, 2022, we also had $26.72 million invested in certificates of deposit (limited to $250,000 per financial institution per entity) and U.S. Treasuries compared to $15.41 million as of March 31, 2021, with the year over year increase ~~coming from cash flows provided by operating activities and from a conversion of investments to~~more than offsetting the decrease in cash and cash equivalents ~~of $8.1 million.~~over the same period. We believe that our available cash, combined with expected cash flows from operations and our investments, will be sufficient to fund our liquidity and capital expenditure requirements through March ~~2022.~~2023. Our expected short-term uses of available cash include the ~~funding of operating activities, the~~ payment of dividends ~~and~~to our shareholders, distributions to noncontrolling interests, scheduled debt repayments, funding capital expenditures, and investing in existing segments when the ~~noncontrolling interests.~~right opportunity presents itself.

In addition to cash and cash equivalents, at March 31, 2021, we had $15.41 million invested in certificates of deposit (limited to $250,000 per financial institution per entity) and U.S. Treasuries. This is a decrease of $1.93 million from our investment holdings at December 31, 2020, with the decrease simply being a shuffling of investment holdings which consist of short-term certificates of deposit and U.S. Treasuries and U.S. Treasury vehicles included in cash and cash equivalents.

~~As of March 31, 2021, we had $3.51 million in outstanding debt and capital lease obligations compared to $3.11 million at December 31, 2020.~~

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, ~~2021.~~2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

We utilize the Committee of Sponsoring Organization’s Internal Control – Integrated Framework, 2013 version, for the design, implementation, and assessment of the effectiveness of our disclosure controls and procedures and internal control over financial reporting.

As of March 31, ~~2021,~~2022, our Chief Executive Officer and Chief Financial Officer carried out an assessment of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on this assessment, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of March 31, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the fiscal period covered by this report that materially affected, or were reasonably likely to materially affect, such controls.

PART II. OTHER INFORMATION

~~Item 1A. Risk Factors~~

~~Our results of operations may be negatively impacted by product liability lawsuits.~~

We are subject to potential product liability risks that relate to the design, manufacture, sale and use of our products. To date, we have not incurred material costs related to these product liability claims. While we believe our current general liability and product liability insurance is adequate to protect us from future product liability claims, there can be no assurance that our coverage will be adequate to cover all claims that may arise. Additionally, we may not be able to maintain insurance coverage in the future at an acceptable cost. Significant losses not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, it may be necessary for us to recall products that do not meet approved specifications, which could result in adverse publicity as well as costs connected to the recall and loss of revenue.

~~We could be subject to disparate state regulations governing the collection of state taxes and other matters.~~

Our manufacturing and direct to consumer businesses are subject to a variety of laws and regulations applicable to companies conducting business on the Internet. Jurisdictions vary as to how, or whether, existing laws governing areas such as personal privacy and data security, consumer protection or sales and other taxes, among other areas, apply to the Internet and e-commerce, and these laws are continually evolving. For example, certain applicable privacy laws and regulations require us to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies. Related laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a security breach or inadvertent disclosure of such information. Additionally, tax regulations in jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation or regulation, the application of laws from jurisdictions whose laws do not currently apply to our businesses, or the application of existing laws and regulations to the Internet and e-commerce generally could result in significant additional taxes on our businesses. Further, we could be subject to fines or other payments for any past failures to comply with these requirements. The continued growth and demand for e-commerce is likely to result in more laws and regulations that impose additional compliance burdens on e-commerce companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table provides information about purchases of Western Capital Resources, Inc. common stock by us during the three months ended March 31, ~~2021.~~2022.

Share Repurchases

Period
Beginning
Period
Ending
Total
Number of
Shares
Purchased Average
Price Paid
Per Share Total Number of Shares
Purchased as Part of
Board Approved Plans
or Programs Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Program ⁽¹⁾
January 1, 2021 January 31, 2021 — $ — — $ 1,171,800
February 1, 2021 February 28, 2021 — $ — — $ 1,171,800
March 1, 2021 March 31, 2021 — $ — — $ 1,171,800
— —

Share Repurchases


Period Beginning	Period Ending	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Board Approved Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program ⁽¹⁾
January 1, 2022	January 31, 2022		-	$	-		-	$	178,800
February 1, 2022	February 28, 2022		-	$	-		-	$	178,800
March 1, 2022	March 31, 2022		-	$	-		-	$	178,800
			-				-

(1)

On September 13, 2018, our Board of Directors authorized a share repurchase program under which we may repurchase up to $1 million of common stock. Repurchases may be made from time to time on the open market or through privately negotiated transactions

In February and September 2020, our Board of Directors amended the repurchase program, increasing the amount of share repurchases authorized from $1 million to $2 million and $2 million to $4 million, respectively.

Item 6. Exhibits

Exhibit		Description
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Schema Document (filed herewith).

101.CAL		XBRL Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Definition Linkbase Document (filed herewith).

101.LAB		XBRL Label Linkbase Document (filed herewith).

101.PRE		XBRL Presentation Linkbase Document (filed herewith).

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May ~~14, 2021~~13, 2022	Western Capital Resources, Inc.
	(Registrant)

	By:	/s/ John Quandahl
		John Quandahl
		Chief Executive Officer and Chief Operating Officer

	By:	/s/ Angel Donchev
		Angel Donchev
		Chief Financial Officer

	Operating Leases
Remainder of 2021	$	4,694
2022		4,884
2023		3,081
2024		1,687
2025		877
2026		4,243
Thereafter		11
Total future minimum lease payments		19,477
Less: imputed interest		(2,373	)
Total	$	17,104

Current portion operating lease liabilities	$	5,449
Non-current operating lease liabilities		11,655
Total	$	17,104

	Cellular Retail		Direct to Consumer		Manufacturing			Consumer Finance		Corporate			Total
Revenue from external customers	$	25,511	$	14,678	$	2,523		$	472	$	—		$	43,184
Fees and interest income	$	—	$	—	$	—		$	1,002	$	—		$	1,002
Total revenue	$	25,511	$	14,678	$	2,523		$	1,474	$	—		$	44,186
Net income (loss)	$	2,522	$	2,269	$	(18	)	$	162	$	(256	)	$	4,679
Total segment assets	$	40,186	$	17,515	$	10,629		$	6,356	$	37,149		$	111,835
Expenditures for segmented assets	$	191	$	63	$	—		$	—	$	—		$	254

Share Repurchases
Period Beginning	Period Ending	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Board Approved Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program ⁽¹⁾
January 1, 2021	January 31, 2021		—	$	—		—	$	1,171,800
February 1, 2021	February 28, 2021		—	$	—		—	$	1,171,800
March 1, 2021	March 31, 2021		—	$	—		—	$	1,171,800
			—				—