Exhibit 99.2
UnauditedFinancial Statements
KESTLER FINANCIAL GROUP, INC.
Leesburg, Virginia
June 30, 2018
Kestler Financial Group, Inc.
TABLE OF CONTENTS
UNAUDITEDFINANCIAL STATEMENTS | ||
Balance Sheets | 1-2 | |
Statements of Income | 3 | |
Statement of Stockholder’s Equity | 4 | |
Statements of Cash Flows | 5 | |
Notes to Financial Statements | 6-8 |
Kestler Financial Group, Inc.
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | (Audited) | |||||||
CURRENT ASSET | ||||||||
Cash | $ | 441,518 | $ | 658,115 | ||||
Other receivables | 34,282 | 15,792 | ||||||
Prepaid expenses | 78,819 | 126,951 | ||||||
554,619 | 800,858 | |||||||
PROPERTY AND EQUIPMENT | ||||||||
Buildout | 294,795 | 229,931 | ||||||
Furniture and fixtures | 8,049 | 0 | ||||||
Computers and equipment | 75,446 | 71,926 | ||||||
Vehicles | 28,121 | 28,121 | ||||||
Computer software | 13,673 | 13,673 | ||||||
420,084 | 343,651 | |||||||
Less: accumulated depreciation | (62,283 | ) | (38,296 | ) | ||||
357,801 | 305,355 | |||||||
OTHER ASSETS | ||||||||
Investment | 0 | 50,000 | ||||||
Security deposits | 28,112 | 11,709 | ||||||
Note receivable | 4,665 | 4,665 | ||||||
32,777 | 66,374 | |||||||
$ | 945,197 | $ | 1,172,587 |
See notes to financial statements. -1- |
Kestler Financial Group, Inc.
BALANCE SHEETS - LIABILITIES AND STOCKHOLDER’S EQUITY
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | Audited | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 168,995 | $ | 57,522 | ||||
Commissions and fees payable | 70,144 | 13,068 | ||||||
Deferred Income | 0 | 15,000 | ||||||
Accrued compensation | 43,012 | 32,199 | ||||||
Deferred rent | 400,956 | 271,271 | ||||||
683,107 | 389,060 | |||||||
STOCKHOLDER.S EQUITY | ||||||||
Common stock, $1 par value, 15,000 shares authorized, 1,500 shares issued and outstanding | 1,000 | 1,000 | ||||||
Additional paid-in-capital | 272,250 | 272,250 | ||||||
Retained earnings | (11,160 | ) | 510,277 | |||||
262,090 | 783,527 | |||||||
$ | 945,197 | $ | 1,172,587 |
See notes to financial statements. -2- |
Kestler Financial Group, Inc.
for Six Months Ended June 30
2018 | 2017 | |||||||
REVENUE | ||||||||
Commissions | $ | 9,825,481 | $ | 9,238,925 | ||||
Service fees | 15,000 | 0 | ||||||
Other income | 391,902 | 376,048 | ||||||
Interest and dividends | 1,123 | 2,839 | ||||||
10,233,506 | 9,617,812 | |||||||
EXPENSES OF OPERATIONS | ||||||||
Advertising | 19,442 | 3,303 | ||||||
Commissions and fees | 6,846,685 | 6,271,871 | ||||||
Communications | 21,629 | 40,281 | ||||||
Compensation | 1,714,931 | 1,576,799 | ||||||
Firm insurance | 50,262 | 32,489 | ||||||
Travel / Entertainment | 151,802 | 75,716 | ||||||
Subscriptions | 756 | 4,719 | ||||||
Office expense | 1,020,423 | 610,093 | ||||||
Professional services | 50,494 | 56,284 | ||||||
Rent and occupancy | 146,425 | 67,133 | ||||||
Depreciation and amortization | 23,987 | 12,527 | ||||||
Interest expense | 2,460 | 760 | ||||||
Other expenses | 13,705 | 26,434 | ||||||
TOTAL EXPENSES | 10,063,001 | 8,778,409 | ||||||
Net income | $ | 170,505 | $ | 839,403 |
See notes to financial statements. -3- |
Kestler Financial Group, Inc.
STATEMENT OF STOCKHOLDER’S EQUITY
for Six Months Ended June 30
Additional | Total | |||||||||||||||
Common | Paid-In | Retained | Stockholders’ | |||||||||||||
Stock | Capital | Earnings | Equity | |||||||||||||
BALANCE, DECEMBER 31, 2017 | 1,000 | 272,250 | 510,277 | 783,527 | ||||||||||||
Net income for 6 months ended June 30, 2018 | 0 | 0 | 170,505 | 170,505 | ||||||||||||
Stockholder distribution | 0 | 0 | (691,942 | ) | (691,942 | ) | ||||||||||
BALANCE, JUNE 30, 2018 | $ | 1,000 | $ | 272,250 | $ | (11,160 | ) | $ | 262,090 |
See notes to financial statements. -4- |
Kestler Financial Group, Inc.
for Six Months Ended June 30
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | $ | 170,505 | $ | 839,402 | ||||
Net income | ||||||||
Charges to net income not affecting cash: | 23,987 | 12,527 | ||||||
Depreciation and amortization expense | ||||||||
Adjustments to reconcile net income to net cash provided (used by) operating activities: | ||||||||
Other receivables | (18,490 | ) | 11,227 | |||||
Prepaid expenses | 48,132 | (2,899 | ) | |||||
Security deposit | (16,403 | ) | 0 | |||||
Accounts payable | 111,473 | (115,899 | ) | |||||
Commissions and fees payable | 57,076 | 36,404 | ||||||
Deferred income | (15,000 | ) | 0 | |||||
Accrued compensation | 10,813 | 27,986 | ||||||
Deferred rent | 129,685 | (17,272 | ) | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 501,778 | 791,476 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property and equipment | (76,433 | ) | (107,212 | ) | ||||
NET CASH USED BY INVESTING ACTIVITIES | (76,433 | ) | (107,212 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments received (Advances on) notes receivable | 0 | 315,854 | ||||||
Stockholder distributions | (641,942 | ) | (590,153 | ) | ||||
NET CASH USED BY FINANCING ACTIVITIES | (641,942 | ) | (274,299 | ) | ||||
NET CHANGE IN CASH | (216,597 | ) | 409,965 | |||||
Cash, beginning of the period | 658,115 | 139,303 | ||||||
CASH, END OF PERIOD | $ | 441,518 | $ | 549,268 |
See notes to financial statements. -5- |
Kestler Financial Group, Inc.
June 30, 2018
NOTE A - ORGANIZATION
Kestler Financial Group, Inc. (the Corporation) was incorporated in the Commonwealth of Virginia on January 4, 1993 and is engaged in the insurance sales business. The Corporation transacts business throughout the continental United States and is headquartered in Leesburg, Virginia.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Corporation maintains their financial statements on the accrual basis of accounting, recognizing income when earned and expenses when incurred.
Basis of Presentation
The financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Because of the nature of the Company’s business, interim period results may not be indicative of full year or future results.
The unaudited financial statements do not include all information and notes required in annual audited financial statements in conformity with GAAP. The statement of financial condition at December 31, 2017 has been derived from the audited financial statement at that date, but does not include all of the information and notes required by GAAP for complete financial statement presentation. Please refer to the notes to the audited consolidated financial statements for the year ended December 31, 2017 for additional disclosures and description of accounting policies.
New Accounting Standards Adopted
On January 1, 2018, the Corporation adopted ASU 2014-09 and all related amendments (ASC 606) and applied its provisions to all uncompleted contracts using the modified retrospective method. Prior to the adoption of ASC 606, commissions on insurance policies were recognized on a net basis based on how the commissions were received from the insurance carrier. With the adoption of ASC 606, we report all insurance commission revenue on a gross basis, regardless of the method of payment by the carrier. The comparative information for prior periods has not been adjusted and continues to be reported under the accounting standards in effect for those periods.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Kestler Financial Group, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
NOTE C – NOTES RECEIVABLE
Notes receivable are stated at unpaid principal balances, less allowance for losses. No allowance for losses were recorded at June 30, 2018 and December 31, 2017.
On November 18, 2016 the Corporation loaned an employee $59,329 on a 0% interest bearing note to be repaid in 6 installments. The note had a remaining balance of $4,665 and $4,665 as of June 30, 2018 and December 31, 2017, respectively.
NOTE D - RELATED PARTY TRANSACTIONS
The Corporation has entered into contracts with a related party. During 2018 and 2017, the Corporation received payments related to the contracts of $376,954 and $376,048, respectively. $34,282 and $15,792 were due from the related party and are included in other receivables on the balance sheets as of June 30, 2018 and December 31, 2017, respectively. The Corporation paid commissions on these contracts to the related party of $28,643 and $56,728.
NOTE E - OPERATING LEASES
The Corporation leased office space in Leesburg, VA commencing on November 9, 2012 with an expiration date of April 9, 2019. However, this lease was amended effective May 19, 2017 to relocate the office space to a different location. This amendment also extended the expiration date of the lease to May 19, 2025.
Rent is payable with a base amount from January - June 2018 and 2017 of $0 and $76,753, respectively.
Rent expense for the six months ended June 30, 2018 and 2017 totaled $140,487 and $59,481, respectively.
Future minimum payments required under the operating lease agreement are as follows:
For Year Ending June 30, | ||||
2019 | $ | 202,500 | ||
2020 | 235,790 | |||
2021 | 270,750 | |||
2022 | 365,814 | |||
Thereafter | 1,216,115 | |||
$ | 2,290,969 |
Kestler Financial Group, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
NOTE F - 401(k) RETIREMENT PLAN AND PROFIT SHARING PLAN
The Corporation has a defined contribution profit sharing plan and a 401(k) retirement plan covering all eligible employees. The defined contribution profit sharing plan is a qualified plan under the Internal Revenue Code. The Corporation matches employee contributions to its 401(k) plan up to 4% of their salary. Management was unable to provide matching contributions for June 30, 2018. The matching contributions for December 31, 2017 was $60,056.
NOTE G - CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Corporation to concentrations of credit risk, consist primarily of cash, short-term investments, and trade accounts receivable.
The Corporation maintains its cash in several commercial institutions. Cash balances are insured by the Federal Deposit Insurance Corporation. At June 30, 2018 and December 31, 2017, the cash balances exceeded federally insured limits. Management does not believe this results in any significant credit risk.
The Corporation is engaged primarily in the sale of annuities and life insurance products to customers, all of which are located in the United States. The Corporation performs ongoing credit evaluations of its customers’ financial condition, and, generally, requires no collateral from its customers.
NOTE H - CASH FLOW INFORMATION
Cash payments for interest and state income taxes for the six months ended June 30, 2018 and 2017 totaled $0 and $760, respectively. Non-cash financing activities include a $50,000 corporate investment distributed to the stockholder.
NOTE I - SUBSEQUENT EVENTS
On August 31, 2018, the Corporation and its shareholder entered into an Asset Purchase Agreement that sold substantially all of the assets of the Corporation to Ladenburg Thalmann Financial Services Inc. a publicly traded company registered with the Securities and Exchange Commission.
The Corporation has evaluated events and transactions for potential recognition or disclosure through October 30, 2018 which is the date that financial statements were available to be issued.