Exhibit 99.1
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF
ASSETS
JUNE 30, 2016 | JUNE 30, 2015 | |||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 4,077,364 | $ | 5,333,563 | ||||
Accounts receivable, less | ||||||||
Allowance for doubtful accounts of $811,797 and $724,381 respectively | 2,388,739 | 2,475,413 | ||||||
Notes receivable - current portion (related parties) | 376,097 | 456,179 | ||||||
Prepaid expenses | 813,451 | 405,559 | ||||||
Deferred tax asset | 213,250 | 325,099 | ||||||
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Total current assets | 7,868,901 | 8,995,813 | ||||||
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FURNITURE, FIXTURES & EQUIPMENT: Net of | ||||||||
Accumulated depreciation | 682,010 | 681,685 | ||||||
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OTHER ASSETS: | ||||||||
Security deposits | 62,330 | 58,052 | ||||||
Deferred tax asset - net of current | 95,433 | — | ||||||
Cash surrender value of life insurance | 45,352 | — | ||||||
Notes receivable - net of current portion (related parties) | 4,241,937 | 2,654,963 | ||||||
Investments | 520,272 | 1,697,791 | ||||||
Other intangibles, net of accumulated amortization | 1,961,060 | 2,419,595 | ||||||
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Total other assets | 6,926,384 | 6,830,401 | ||||||
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TOTAL ASSETS | $ | 15,477,295 | $ | 16,507,899 | ||||
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See the accompanying notes and independent accountant’s review report.
Page 1
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF
LIABILITIES AND EQUITY
JUNE 30, 2016 | JUNE 30, 2015 | |||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 2,482,205 | $ | 2,543,281 | ||||
Accounts payable (related parties) | 789,725 | 942,836 | ||||||
Deferred revenue | 571,370 | 365,498 | ||||||
Note payable, current portion (related parties) | 112,500 | 106,250 | ||||||
Note payable, line of credit | — | 525,000 | ||||||
Income taxes payable | — | 1,086,234 | ||||||
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Total current liabilities | 3,955,800 | 5,569,099 | ||||||
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LONG - TERM LIABILITIES: | ||||||||
Note payable - net of current portion (related parties) | 56,250 | 168,750 | ||||||
Deferred tax liability | — | 167,718 | ||||||
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Total long-term liabilities | 56,250 | 336,468 | ||||||
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COMMITMENTS AND CONTINGENCIES: | — | — | ||||||
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STOCKHOLDERS’ EQUITY : | ||||||||
Preferred stock Class B, $1 par value, 20,000 shares authorized, 14,101 and 16,198 shares outstanding, respectively | 14,101 | 16,198 | ||||||
Common stock, $1 par value, 100,000 shares authorized, authorized, 88 and 80 outstanding, respectively | 88 | 80 | ||||||
Additional paid-in capital | — | — | ||||||
Retained earnings | 11,477,833 | 10,599,233 | ||||||
Accumulated other comprehensive income (loss) | (33,955 | ) | (24,228 | ) | ||||
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Total Vantage Hospitality Group, Inc. & Subsidiaries stockholders’ equity | 11,458,067 | 10,591,283 | ||||||
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Non-controlling interest in subsidiaries: | ||||||||
VISI - Preferred stock Class A, $.001 par value 15 shares authorized, 9 shares issued and outstanding | 10,000 | 10,000 | ||||||
BN - Non-controlling interest | (2,822 | ) | 1,049 | |||||
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Total non-controlling interest | 7,178 | 11,049 | ||||||
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Total equity | 11,465,245 | 10,602,332 | ||||||
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TOTAL LIABILITIES AND EQUITY | $ | 15,477,295 | $ | 16,507,899 | ||||
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See the accompanying notes and independent accountant’s review report.
Page 2
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2016 | JUNE 30, 2015 | |||||||
REVENUES: | ||||||||
Royalty and reservation fees | $ | 10,359,963 | $ | 10,432,067 | ||||
Marketing and promotion | 4,787,427 | 4,591,585 | ||||||
Other membership and conference operations | 385,026 | 421,467 | ||||||
Initial membership fees | 627,790 | 406,059 | ||||||
Other commissions and management fees | 268,213 | 495,707 | ||||||
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Total revenues | 16,428,419 | 16,346,885 | ||||||
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OPERATING EXPENSES: | ||||||||
Selling, reservation, general and administrative | 9,258,127 | 9,210,442 | ||||||
Marketing | 5,314,272 | 5,264,853 | ||||||
Other membership and conference operations | 153,346 | 155,160 | ||||||
Depreciation and amortization | 350,588 | 350,800 | ||||||
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Total operating expenses | 15,076,333 | 14,981,255 | ||||||
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INCOME FROM OPERATIONS | 1,352,086 | 1,365,630 | ||||||
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OTHER INCOME AND (EXPENSES): | ||||||||
Equity method income (loss) | (613,738 | ) | 1,410,355 | |||||
Other income and (expenses) | (17,887 | ) | 7,357 | |||||
Interest (expense) | (1,785 | ) | (8,058 | ) | ||||
Interest income | 46,872 | 29,143 | ||||||
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Total other income and (expenses) | (586,538 | ) | 1,438,797 | |||||
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INCOME BEFORE INCOME TAXES AND NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | 765,548 | 2,804,427 | ||||||
PROVISION FOR INCOME TAXES | (295,068 | ) | (1,141,689 | ) | ||||
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INCOME BEFORE NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | 470,480 | 1,662,738 | ||||||
ADD: NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | (362 | ) | (4,216 | ) | ||||
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NET INCOME ATTRIBUTABLE TO VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES | $ | 470,118 | $ | 1,658,522 | ||||
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See the accompanying notes and independent accountant’s review report.
Page 3
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2016 | JUNE 30, 2015 | |||||||
NET INCOME ATTRIBUTABLE TO VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES | $ | 470,118 | $ | 1,658,522 | ||||
OTHER COMPREHENSIVE INCOME (LOSS): | ||||||||
Foreign currency translation adjustments | 16,070 | (24,228 | ) | |||||
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Total other comprehensive income (loss): | 16,070 | (24,228 | ) | |||||
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COMPREHENSIVE INCOME | 486,188 | 1,634,294 | ||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST | — | — | ||||||
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COMPREHENSIVE INCOME ATTRIBUTABLE TO VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES | $ | 486,188 | $ | 1,634,294 | ||||
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See the accompanying notes and independent accountant’s review report.
Page 4
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30,
Vantage Hospitality Group, Inc. & Subsidiaries | ||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (loss) | Total Vantage Hospitality Group, Inc. & Subsidiaries Stockholders’ Equity | Non- Controlling Interest | Total | |||||||||||||||||||||||||
Balance December 31, 2014* | $ | 80 | $ | 16,198 | — | $ | 9,015,711.00 | $ | — | $ | 9,031,989 | $ | 6,833.00 | $ | 9,038,822 | |||||||||||||||||
Net income (loss) for the six month period ended June 30, 2015 | — | — | — | 1,658,522 | — | 1,658,522 | 4,216 | 1,662,738 | ||||||||||||||||||||||||
Other comprehensive income (loss), net | — | — | — | — | (24,228 | ) | (24,228 | ) | — | (24,228 | ) | |||||||||||||||||||||
Purchase of treasury stock | — | — | — | (75,000 | ) | — | (75,000 | ) | — | (75,000 | ) | |||||||||||||||||||||
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Balance June 30, 2015 | $ | 80 | $ | 16,198 | $ | — | $ | 10,599,233 | $ | (24,228 | ) | $ | 10,591,283 | $ | 11,049 | $ | 10,602,332 | |||||||||||||||
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Balance December 31, 2015 | $ | 80 | $ | 14,101 | $ | — | $ | 11,007,723 | $ | (50,025 | ) | $ | 10,971,879 | $ | 6,816 | $ | 10,978,695 | |||||||||||||||
Net income (loss) for the six month period ended June 30, 2016 | — | — | — | 470,118 | — | 470,118 | 362 | 470,480 | ||||||||||||||||||||||||
Shares issued for the period ended | 8 | (8 | ) | |||||||||||||||||||||||||||||
Other comprehensive income (loss), net | — | — | — | — | 16,070 | 16,070 | — | 16,070 | ||||||||||||||||||||||||
Purchase of treasury stock | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Balance June 30, 2016 | $ | 88 | $ | 14,101 | $ | — | $ | 11,477,833 | $ | (33,955 | ) | $ | 11,458,067 | $ | 7,178 | $ | 11,465,245 | |||||||||||||||
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* | As restated, see Note 15. |
See the accompanying notes and independent accountant’s review report.
Page 5
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 486,188 | $ | 1,634,294 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Amortization and depreciation | 350,588 | 350,800 | ||||||
Deferred tax (benefit) expense | (57,376 | ) | (17,193 | ) | ||||
Equity (income) loss affiliate | 613,738 | (1,410,355 | ) | |||||
Loss on abandoned assets | — | — | ||||||
Unrealized (gain) loss foreign currency transactions | (16,070 | ) | 24,228 | |||||
Non-controlling interest | (362 | ) | (4,216 | ) | ||||
(Increase) decrease in: | ||||||||
Accounts receivable | (451,655 | ) | (861,471 | ) | ||||
Accounts receivable related party | 148,376 | — | ||||||
Prepaid and refundable income taxes | (348,578 | ) | — | |||||
Prepaid expenses | (93,683 | ) | (57,623 | ) | ||||
Security deposits | (4,278 | ) | (3,550 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | (56,197 | ) | 773,052 | |||||
Accounts payable (related parties) | 121,893 | 575,042 | ||||||
Deferred revenue | 203,455 | (50,238 | ) | |||||
Deferred revenue related party | (67,600 | ) | — | |||||
Income taxes payable | (782,928 | ) | 867,034 | |||||
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Net cash provided by operating activities | 45,511 | 1,819,804 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Investments | (135,100 | ) | (50,000 | ) | ||||
Purchase of operating assets | (84,196 | ) | (2,332,794 | ) | ||||
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Net cash (used) by investing activities | (219,296 | ) | (2,382,794 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Notes receivable | — | — | ||||||
Proceeds from credit line | — | — | ||||||
Purchase of treasury stock | — | (75,000 | ) | |||||
Note proceeds/ (advances) (related parties) | (2,038,696 | ) | 2,407,297 | |||||
Proceeds from premium financing | — | — | ||||||
Repayment of credit line | — | — | ||||||
Repayment of notes and advances (related parties) | (56,250 | ) | (50,000 | ) | ||||
Repayment of premium financing | (39,894 | ) | (49,392 | ) | ||||
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Net cash provided (used) by financing activities | $ | (2,134,840 | ) | $ | 2,232,905 | |||
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Continued
See the accompanying notes and independent accountant’s review report.
Page 6
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
Continued
2016 | 2015 | |||||||
NET INCREASE IN CASH | $ | (2,308,625 | ) | $ | 1,669,915 | |||
CASH - BEGINNING | 6,385,989 | 3,663,648 | ||||||
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CASH - ENDING | $ | 4,077,364 | $ | 5,333,563 | ||||
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SUPPLEMENTAL DISCLOSURES: | ||||||||
Interest paid | $ | 1,785 | $ | 8,058 | ||||
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Taxes paid | $ | 701,024 | $ | — | ||||
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See the accompanying notes and independent accountant’s review report.
Page 7
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Vantage Hospitality Group, Inc. (“Vantage”) is a subsidiary of Thirty-Eight Street, Inc. (“TESI”) and was incorporated in the State of Florida on June 24, 1999. Vantage is in the business of providing branding and other services to the hospitality industry and is based in Coral Springs, Florida and Westlake Village, California. The accompanying Consolidated Interim Financial Statements include the accounts and transactions of Vantage as well as the entities in which Vantage has a direct or indirect controlling interest (collectively, the “Company”): Vantage Franchising, Inc. (formerly known as Lexington Franchising, Inc.) (“VFI”); Vantage Franchising (Canada) Inc. (formerly known as Canadas BV Inn Inc.) (“VFCI”); Vantage Insurance Services, Inc. (“VISI”); Brown Nester Hospitality Services, Inc. and its subsidiary (“BN” or “Brown Nester”); LHINDI, Inc. (“LHINDI”); and VantaCruise, Inc. (“Cruise”).
As of June 30, 2016, Vantage operated the following brand names, as well as their extensions (such as “Suites”): Americas Best Value Inn; Canadas Best Value Inn; Value Inn Worldwide; Value Hotel Worldwide; Lexington Hotel; Lexington Inn; Lexington Legacy Inn; and Lexington Legacy Hotel (with the Lexington designators combining to form the “Lexington by Vantage” brand, formerly known as The Lexington Collection); America’s Best Inn; Country Hearth Inn and Suites; Signature Inn; Jameson Inns; and 3 Palms Hotels & Resorts.
As of January 15, 2015, Vantage acquired the assets, including the intellectual property, related to certain brands previously owned and operated by America’s Best Franchising, Inc. (an unrelated third party) and its subsidiaries (collectively, “ABF”). Those brands were America’s Best Inn; Country Hearth Inn & Suites; and Jameson Inns, as well as the then-dormant brand, Signature Inn. As of December 31, 2015, Vantage acquired additional assets from ABF related to the 3 Palms Hotels & Resorts brand. Simultaneously with those transactions, LHINDI assumed existing franchise agreements (as to America’s Best Inn; Country Hearth Inn & Suites; and Jameson Inns) and existing service agreements (as to 3 Palms Hotels & Resorts). Collectively, the brands acquired from ABF are referred to as the “ABF Brands” and the licensing, franchise, and similar agreements assumed by LHINDI are referred to as the “ABF Licenses.”
As of June 30, 2016, Vantage, through its subsidiaries, offers new franchises for all of its brands other than America’s Best Inn (for which no new franchises will be offered) and 3 Palms Hotels & Resorts.
With the exception of one America Best Value Inn located in Las Vegas, Nevada, operated by a non-consolidated affiliate of Vantage, and one Lexington Hotel in Jacksonville, Florida, owned by a non-consolidated affiliate of Vantage, all of the branded hotels are independently owned. At June 30, 2016, Vantage-branded hotels were operating in 46 states in the U.S., as well as Mexico, Canada, India, and South Korea.
PRINCIPLES OF CONSOLIDATION
When evaluating an entity in which it does not maintain a direct or indirect controlling interest for consolidation, the Company first determines whether an entity is within the scope of the guidance for consolidation of variable interest entities (“VIE”). The Company will consolidate an entity deemed to be a VIE upon the determination that the Company has a controlling financial interest in, and exercises significant influence over, the operating and financial policies of the VIE. For entities in which the Company does not have a controlling financial interest, the investments in such entities are accounted for under the equity or cost method of accounting, as appropriate. All significant intercompany accounts and transactions have been eliminated in consolidation. In presenting the Consolidated Interim Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgement and available information. Accordingly, actual results could differ from those estimates. In managements opinion, the Consolidated Interim Financial Statements contain all normal recurring adjustments necessary for fair presentation as of June 30, 2016 and 2015 and for the six months ended June 30, 2016 and 2015 respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 8 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
RECLASSIFICATIONS
Certain accounts in prior-period financial statements have been reclassified for comparative purposes to conform to the current-period presentation.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Vantage, directly and through its subsidiaries, provides hotel owners with various marketing services, a centralized reservation system, and limited non-exclusive rights to utilize the registered trade names and service marks that are either owned by Vantage or for which Vantage is the exclusive worldwide licensee. The majority of the existing agreements have an initial term of one year; new agreements (those being offered as franchises) have terms ranging from three years to 20 years.
The Company accounts for revenue using the accounting method prescribed under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) TopicFranchisors. Revenue is recognized when all material services or conditions relating to the sale have been substantially performed or satisfied by the Company.
In most instances, initial membership fees and application fees are recognized upon acceptance of the application by Vantage. Initial membership fees and application fees are non-refundable once the applicant has been accepted.
Monthly fees primarily consist of membership fees (or royalties) and marketing fees. Under the majority of the existing agreements, these are based on a fixed fee per room. New agreements for several brands provide members the ability to be billed their membership fees based on a percentage of gross rooms revenue or a flat fee per room. Revenue is recognized when earned. Prepayments of monthly fees, including marketing fees, are reported as deferred income on the accompanying consolidated balance sheet until such time as the fees are earned.
Marketing fees generally are used by Vantage for expenses associated with providing services such as national marketing, media advertising, search engine optimization, and search engine marketing, as well as other activities related to brand and property marketing. Vantage is not under any obligation to spend marketing fees as collected.
Master license agreements and exclusive sales territory agreements typically have terms of 15-20 years. Any initial fees received from parties to those agreements are realized over the term of such agreements.
The Company also provides insurance and real estate brokerage and hotel development services through VISI and BN, respectively. Insurance commission revenue is recognized as of the effective date of the insurance policy or the date on which the policy premium is billed to the customer, whichever is later. Real estate commission revenue is recognized as of the closing date of a transaction. Fees for hotel development services are recognized when earned.
NON-U.S. OPERATIONS
The U.S. dollar is the functional currency of the consolidated and unconsolidated entities operating in the United States. The functional currency for brand members outside of the United States is generally the principal currency of the economic environment in which the entity operates. The Company translates the financial statements of consolidated entities whose functional currency is not the U.S. dollar into U.S. dollars. The Company translates assets and liabilities at the exchange rate in effect as of the consolidated financial statement date and translates consolidated income statement accounts using the weighted average exchange rate for the period. Gains and losses from foreign currency transactions are included in operating cost. The Company reports foreign currency translation adjustments in the consolidated statements of comprehensive income and reports the accumulated effect of changes in exchange rate as a separate component of stockholders’ equity.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 9 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. In the ordinary course of business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome will not be different than that which is in its historical income tax provisions and accruals. Tax assessments and resolution of tax contingencies may arise several years after tax returns have been filed. Predicting the outcome of such tax assessments involves uncertainty; however, it is management’s belief that the recorded tax liabilities adequately account for probable outcomes. Resolution in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operations.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Vantage owned certificates of deposit totaling approximately $180,202 and $179,346 at June 30, 2016 and 2015, respectively. These funds were considered cash equivalents for financial statement purposes. Restricted cash amounted to $70,730 and $70,288 at each of June 30, 2016 and 2015. Additionally, as of June 30, 2015 the Company included in the cash balance funds held in escrow for the Company of $2,266,740, which were transferred to the Company shortly thereafter.
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several banks. Balances maintained at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. From time to time, the Company maintains cash balances in excess of federally insured limits. At June 30, 2016 and 2015, cash balances in excess of FDIC limits totaled $3,820,364 and $5,083,563, respectively. The Company has not experienced any losses and does not believe it is exposed to any significant credit risk on its cash balances.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of monthly fees due from hotel members and are recorded at the invoiced amounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The Company considers its credit risk associated with trade receivables to be partially mitigated by the dispersion of these receivables across a large number of geographically diverse licensees. At June 30, 2016 and 2015, the allowance for doubtful accounts totaled $811,797 and $724,381, respectively.
CAPITALIZATION POLICIES
Property and equipment are recorded at cost and depreciated using the straight line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of the lease term or their useful lives. Major renovations and replacements are capitalized. Expenditures for replacements, maintenance, and repairs that do not extend the lives of the respective assets are charged to expense as incurred. Upon sale or retirement of property, the costs and related accumulated depreciation are eliminated from the accounts and any related gain or loss is recognized in the accompanying consolidated statement of income.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 10 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SPLIT-DOLLAR LIFE INSURANCE
The Company pays the premiums on split-dollar life insurance policies for the benefit of certain key executives. The Company records the cash surrender value of the policies on the balance sheet.
INTANGIBLES AND LONG-LIVED ASSETS
Long lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying values. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
NOTES RECEIVABLE
The Company evaluates the collectability of notes receivable on a periodic basis. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. For impaired loans, the Company may apply a reserve. The Company applies its loan impairment policy individually to all loans and does not aggregate loans for the purpose of applying such policy. There were no loans impaired during the six months ended June 30, 2016 or 2015.
INVESTMENTS
The Company accounts for investments using the equity method when the Company can exercise significant influence over the entities. The Company accounts for investments using the cost method when the Company owns a non-controlling investment and does not exercise significant influence over the entities.
Investments held on an equity basis:
In October 2013, the Company, through its wholly-owned subsidiary, VantaCruise, Inc. (“Cruise”), acquired a 46.5% membership interest in Cruise Inn Holdings, LLC, a company formed to develop a brand and distribution system for the outdoor hospitality industry. During the six months ended June 30, 2016, and 2015, Cruise funded cash calls totaling $97,600, and $0, respectively. The Company’s investment in Cruise Inn Holdings, LLC, through Cruise, amounted to $0 at June 30, 2016 and 2015, after allocating equity losses.
The Company accounted for its investment in ACC Strategies, LLC (“ACCS”) using the equity method. The Company’s investment in ACCS amounted to $302,221 and $1,517,240 at June 30, 2016 and 2015, respectively, after allocating equity estimated gains and losses.
Investments held on a cost basis:
The Company accounts for its investment in Cal-Vegas Limited using the cost method. The Company’s investment inCal-Vegas Limited amounted to $18,050 at June 30, 2016 and $18,050 June 30, 2015.
In February 2013, the Company subscribed to an investment in Thayer Ventures Affiliates Fund II, L.P. (the “Fund”) in the amount of $250,000. The Company funded capital calls made by the Fund totaling $37,500 and $50,000 during the six months ended June 30, 2016 and 2015, respectively. The Company’s investment in the Fund amounted to $200,000 and $162,500 at June 30, 2016 and 2015, respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 11 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist primarily of cash, accounts receivable, related party receivables, and accounts payable. The carrying amounts of these financial instruments approximate their respective estimated fair value due to the relatively short-term nature of these items.
ADVERTISING AND MARKETING COSTS
The Company expenses advertising and marketing costs during the year as incurred. Advertising and marketing expenses for the six months ended June 30, 2016, and 2015 totaled $5,314,272, and $5,264,853, respectively.
USE OF ESTIMATES
The accompanying Consolidated Interim Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In preparing the Consolidated Interim Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and operations for the reporting period. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they ultimately may differ from actual results.
NOTE 3: PREPAID EXPENSES
Prepaid expenses as of June 30, 2016 and 2015 consisted of the following:
2016 | 2015 | |||||||
Prepaid insurance | $ | 38,471 | $ | 30,879 | ||||
Prepaid marketing | 426,141 | 371,922 | ||||||
Prepaid estimated income tax | 348,578 | 0 | ||||||
Other prepaid | 261 | 2,758 | ||||||
|
|
|
| |||||
Total | $ | 813,451 | $ | 405,559 | ||||
|
|
|
|
NOTE 4: FURNITURE, FIXTURES AND EQUIPMENT
The Company’s property and equipment as of June 30, 2016 and 2015 consisted of the following:
2016 | 2015 | Method / Life | ||||||||||
Leasehold improvements | $ | 280,162 | $ | 276,223 | SL /15 | |||||||
Computers and software | 478,062 | 452,535 | SL / 3-5 | |||||||||
Office equipment | 180,601 | 146,619 | SL / 5-7 | |||||||||
Furniture and fixtures | 106,171 | 132,490 | SL / 7 | |||||||||
|
|
|
|
|
| |||||||
Total | 1,044,996 | 1,007,867 | ||||||||||
Accumulated depreciation | (362,986 | ) | (326,182 | ) | ||||||||
|
|
|
| |||||||||
Net | $ | 682,010 | $ | 681,685 | ||||||||
|
|
|
|
Depreciation expense totaled $78,000 and $75,800 for the six months ended June 30, 2016, and 2015, respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 12 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 5: ACQUISITION OF BRANDS
During the year ended December 31, 2015, the Company completed the acquisition of certain assets and the assumption of certain obligations relating to the ABF Brands for $2,750,000 in cash and recognized $2,587,500 in intangible assets, primarily reflecting acquired ABF license agreements and $162,500 in receivables and office furniture and equipment.
The Company agreed to pay a quarterly assistance fee and certain transition fees to ABF for a period of four years from the closing date. Quarterly assistance and transition fees expense for the six months ended June 30, 2016 and for the six months ended June 30, 2015 totaled $165,394 and $300,191, respectively, and $110,254, and $3,108 is included in accrued expenses as of the six months ended June 30, 2016 and 2015, respectively.
NOTE 6: INTANGIBLE ASSETS
The Company’s intangible assets as of June 30, 2016 and 2015 consisted of the following:
2016 | 2015 | Method / Life | ||||||||||
Acquired ABF license agreements | $ | 2,509,000 | $ | 2,509,000 | 7* | |||||||
Capitalized licensing rights | 188,364 | 188,364 | SL / 2 | |||||||||
Websites | 190,901 | 204,901 | SL / 5 | |||||||||
Trademarks | 101,658 | 71,658 | SL / 7 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 2,989,923 | $ | 2,973,923 | ||||||||
Accumulated amortization: | ||||||||||||
Acquired ABF license agreements | (747,800 | ) | (249,000 | ) | ||||||||
Other intangible assets | (281,063 | ) | (305,328 | ) | ||||||||
|
|
|
| |||||||||
Net | $ | 1,961,060 | $ | 2,419,595 | ||||||||
|
|
|
|
* | The company has elected to amortize the cost of the acquired ABF license over the expected life of those agreements. The estimated amortization expense for each of the years ending December 31 is as follows: |
Amount | ||||
2016 | $ | 498,800 | ||
2017 | 374,100 | |||
2018 | 374,100 | |||
2019 | 374,100 | |||
2020 | 199,520 | |||
Thereafter | 189,580 | |||
|
| |||
Total | $ | 2,010,200 | ||
|
|
Amortization expense for intangible assets totaled $272,588 and $275,000 for the six months ended June 30, 2016 and 2015, respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 13 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 7: NOTES RECEIVABLE – RELATED PARTIES
From time-to-time, the Company enters into agreements with related parties to provide working lines of credit and or advances. Notes receivable from related parties at June 30, 2016, and 2015 consisted of the following:
2016 | 2015 | |||||||
Note receivable dated December 31, 2011 (Executive Officer), non-interest bearing; balloons December 31, 2019 | $ | 97,376 | $ | 121,720 | ||||
Note receivable dated June 30, 2016 (Executive Officer), non- interest bearing; | 125,000 | — | ||||||
Note receivable dated December 31, 2009 (Cal-Vegas); interest at 1.37%; balloons December 31, 2016 | 426,232 | 431,754 | ||||||
Note receivable dated December 31, 2009 (Cal-Vegas); interest at 1.37%; balloons December 31, 2017 | — | 92,332 | ||||||
Note receivable dated December 12, 2014 (Executive Officer), interest at 2%; satisfied in 2015 | — | 34,426 | ||||||
Note receivable dated May 7, 2013 (VAPAC), interest at 1.37%; satisfied in 2015 | — | 45,144 | ||||||
Note receivable dated November 5, 2015 (ACC), interest at 3.00%; due December 31, 2018 | 2,962,862 | 68,229 | ||||||
Note receivable dated May 29, 2015 (VAPAC), interest at 3.00%; balloons December 31, 2020 | 1,006,564 | 2,317,537 | ||||||
|
|
|
| |||||
Total notes receivable | $ | 4,618,034 | $ | 3,111,142 | ||||
Less current portion | (376,097 | ) | (456,179 | ) | ||||
|
|
|
| |||||
Total long-term notes receivable | $ | 4,241,937 | $ | 2,654,963 | ||||
|
|
|
|
VAPAC, Inc., a Florida corporation, is owned by certain executive officers of the Company.
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 2016 and 2015 consisted of the following:
2016 | 2015 | |||||||
Accounts payable | $ | 1,537,257 | $ | 1,812,595 | ||||
Accrued quarterly assistance fee (Note 5) | 110,254 | 3,108 | ||||||
Accrued professional | 64,850 | 71,493 | ||||||
Accrued salaries | 349,821 | 264,500 | ||||||
Accrued vacation | 94,200 | 89,200 | ||||||
Accrued general and administrative | 272,673 | 287,765 | ||||||
Accrued commission | 53,150 | 14,620 | ||||||
|
|
|
| |||||
Total | $ | 2,482,205 | $ | 2,543,281 | ||||
|
|
|
|
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 14 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 9: NOTE PAYABLE AND CREDIT LINE
Note payable:
During the year ended December 31, 2014, the Company purchased 7.8 shares of common stock and 780 shares of Class B Preferred Stock, for a total of $850,000, $325,000, which is payable pursuant to a non-interest bearing promissory note, the maturity date of which is October 1, 2017. The note is personally guaranteed by the Company’s CEO, Roger J. Bloss, and COO, Bernard T. Moyle.
Future principal payments are as follows:
Amount | ||||
October 1, 2016 | $ | 56,250 | ||
June 15, 2017 | 56,250 | |||
October 1, 2017 | 56,250 | |||
|
| |||
Total | $ | 168,750 | ||
|
|
Credit line:
The Company maintains a bank line of credit providing up to $1,500,000, due upon demand. The line is secured by the Company’s business assets and is personally guaranteed by two of the Company’s officers. The amounts outstanding under this line of credit at June 30, 2016 and 2015 were $0 and $525,000, respectively.
NOTE 10: OPERATING LEASE OBLIGATIONS
The Company has entered into various operating leases, primarily for office space, computer and office equipment. Rent expenses under non-cancelable operating leases totaled $182,730 and $179,460, for the six months ended June 30, 2016 and 2015, respectively.
Future minimum lease payments are as follows:
Amount | ||||
Six months ending December 31, 2016 | $ | 182,730 | ||
2017 | 346,194 | |||
2018 | 147,393 | |||
2019 | 11,689 | |||
2020 | — | |||
|
| |||
Total | $ | 688,006 | ||
|
|
NOTE 11: COMMITMENTS, CONTINGENCIES AND GUARANTIES
Commitments and contingencies:
Vantage is involved in a number of lawsuits and disputes arising in the ordinary course of business. In the opinion of management and Vantage’s legal counsel, the ultimate outcome of such disputes will not have a material adverse effect on Vantage’s business, financial position, results of operation or cash flows.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 15 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 11: COMMITMENTS, CONTINGENCIES AND GUARANTIES (CONTINUED)
Commitments and contingencies (continued):
Prior to franchising its brands through VFI and VFCI, the Company, through Vantage, offered brand membership agreements that included a license. The Federal Trade Commission (the “FTC”) and certain other foreign jurisdictions (including Mexico and Canada) regulate the sale of franchises. The FTC requires franchisors to make extensive disclosure to prospective franchisees, but does not require registration. A number of states in which Vantage offered brand membership require franchise registration or disclosure in connection with franchise offers and sales. In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to renewal or transfer of these agreements.
Vantage does not consider itself to have been a franchisor in the United States; has not been materially affected by these regulations; and no longer offers brand membership agreements or similar licensing arrangements.
VISI or its president is licensed to offer and sell insurance products in 40 states. Brown Nester is licensed as a real estate broker in the State of California, and operates outside California through a network of brokers licensed to do business in the respective states. Brown Nester’s Florida subsidiary, Brown Nester-Florida, LLC (“BNFL”), is licensed as a real estate broker in the state of Florida. Although no claims are pending or threatened against VISI, Brown Nester, or BNFL by any regulatory authority or other party, the regulated nature of their respective businesses makes it possible that a claim may be asserted. VISI carries what management believes to be sufficient errors and omissions insurance to protect against such contingencies. Neither Brown Nester nor BNFL carries such insurance.
Guaranties with related parties:
On December 15, 2015 the Company entered into two payment guaranties with respect to the refinancing of the first mortgage and financing the renovations of a hotel franchised under one of the Company’s brands. (See Note 12, “Lexington-branded hotel”.) The first guaranty relates to a $21,561,500 line of credit extended to an unconsolidated VIE, LexDevCoJax, LLC (“LexDevCo”), the owner of the hotel. The guaranty is for the payment and performance of the terms of the note, not the collection of the note. The note is secured by a first lien on the property and improvements of the hotel. The guaranty will be effect until the term of the note which expires on December 18, 2022. The outstanding principal amount of the loan at June 30, 2016 was $11,964,999.
The second guaranty relates to a $5,000,000 unsecured financing extended to LexDevCo’s manager and minority shareholder, VAPAC Jacksonville, LLC (“VAPACJax”) and was extended in support of the opportunity to brand a Lexington-branded hotel in Jacksonville. The guaranty will remain in effect until the principal and interest are repaid. The note is an amortizing instrument and has a maturity date of December 2025. The outstanding principal and interest of the loan at June 30, 2016 was $3,333,671.
Both of these notes were current as of June 30, 2016. Management believes the likelihood of having to perform under either of these guaranties is remote.
NOTE 12: RELATED PARTY TRANSACTIONS AND AGREEMENTS
Agreements with parent company:
Vantage is party to a management agreement with its parent, TESI. The management agreement calls for management fees of 5% and 3% of sales revenues (net of revenue derived from the Central Reservation System (CRS), marketing and direct revenue related to Vantage’s annual conference) for the Americas Best Value and the Lexington by Vantage brands, respectively. For these purposes, revenue from the Value Inn Worldwide and Value Hotel Worldwide brands are included with those of the Americas Best Value Inn brand, other than revenue related to the Value Inn Worldwide and Value Hotel Worldwide brands in South Korea, which are included with those of the Lexington brand. Management fees paid to TESI for the six months ended June 30, 2016 and 2015 totaled approximately $321,623, and $311,132, respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 16 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 12: RELATED PARTY TRANSACTIONS AND AGREEMENTS (CONTINUED)
Agreements with parent company:
Vantage is party to a licensing agreement with its parent, TESI. The licensing agreement calls for royalties of 3% of all revenue net of revenue derived from the CRS, marketing and direct revenue related to Vantage’s annual conference. Royalties for the six months ended June 30, 2016 and 2015 totaled $199,730, and $188,910, respectively.
Relationship with marketing firm:
During the six months ended June 30, 2016 and 2015, Vantage was billed by JCF Marketing, Inc. (“JCF”), a related party, approximately $242,138 and $250,239, respectively, in agency fees and was billed by JCF $1,319,985 and $1,193,953, respectively, in other marketing and related expenses. The principal of JCF is a member of the Board of Directors of Vantage and JCF owns approximately 2.3% of Vantage as of June 30, 2016.
Compensation to Officers and Directors:
During the six months ended June 30, 2016, and 2015, the Company compensated certain officers and beneficial owners of Vantage salary and other compensation totaling $445,439 and $384,495, respectively. The Company paid board of director fees in the six months ended June 30, 2016 totaling $60,000 and $0 during the six months ended June 30, 2015, respectively.
Lexington-branded hotel:
During the year ended December 31, 2015, BNFL entered into an agreement with LexDevCo, the owner of a Lexington-branded hotel in Jacksonville, Florida, pursuant to which BNFL oversees the capital improvements and other aspects of an extensive renovation project for that hotel. Two of Vantage’s executive officers own an interest in a corporation that is the minority member of VAPACJax, the limited liability company that owns a minority interest in LexDevCo, resulting in those officers owning a beneficial interest in LexDevCo of approximately 5.5% combined. The majority of the ownership (and voting rights) of LexDevCo and of VAPACJax is owned by separate groups of third parties unaffiliated with the Company. Under the terms of the operating agreements of LexDevCo and of VAPACJax, Vantage’s officers (individually, and not in their corporate roles) have limited ability to make decisions on behalf of LexDevCo or on behalf of VAPACJax, as all significant decisions and actions require the approval of the majority member. Such decisions and actions include approving operating and capital budgets; all corporate finance transactions, including incurring debt; entering into any branding, management, or similar agreements; and disposing of the hotel. Because neither the Company nor its officers own a controlling financial interest or otherwise achieve primary beneficiary status as to LexDevCo or VAPACJax, the Company has determined that neither VIE warrants consolidation in the Company’s financial statements.
During the six months ended June 30, 2016, the Company earned renovation project management fees from LexDevCo of $137,500. In that period, the Company earned $89,810 in monthly franchise, marketing, and brand-associated fees, $14,034 of which remained due at the period then ended.
NOTE 13: RETIREMENT PLAN (401(k))
Since January 1, 2009, Vantage has sponsored the Vantage Hospitality Group, Inc. 401(k) Retirement Savings Plan, which covers substantially all eligible employees of Vantage and its subsidiaries. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their compensation in accordance with Section 401(k) of the Internal Revenue Code. Vantage matches employee contributions up to 4% of the employee’s salary, and additional contributions may be made to the Plan at the discretion of the employer. Employer contributions vest immediately. For the six months ended June 30, 2016 and 2015, Vantage expensed contributions to the Plan of $342,803, and $286,384, respectively.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 17 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 14: INCOME TAXES
The Company’s deferred taxes are provided on temporary differences arising from assets and liabilities whose bases are different for financial reporting and income tax purposes. Deferred taxes relate primarily to allowances for bad debts, differences in books and tax basis in accounting for investments, and differences in calculating depreciation on fixed assets and amortization of acquired license agreements.
Deferred income tax assets and liabilities at June 30, 2016 and 2015 consisted of the following:
2016 | 2015 | |||||||||||||||
Current | Non-current | Current | Non-current | |||||||||||||
Deferred tax assets | $ | 213,250 | $ | 95,443 | $ | 325,099 | $ | 0 | ||||||||
Deferred tax liabilities | — | — | (167,718 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 213,250 | $ | 95,443 | $ | 325,099 | $ | (167,718 | ) | |||||||
|
|
|
|
|
|
|
|
Income tax expense for the six months ended June 30, 2016, and 2015 consisted of the following:
2016 | 2015 | |||||||
Current: | ||||||||
Federal | $ | 307,444 | $ | 1,015,382 | ||||
State and other taxes | 45,000 | 143,500 | ||||||
Deferred income tax expense (benefit) | (57,376 | ) | (17,193 | ) | ||||
|
|
|
| |||||
Total | $ | 295,068 | $ | 1,141,689 | ||||
|
|
|
|
The income tax provision shown on the statement of income may differ from the amounts that would result from applying statutory tax rates to income before income taxes primarily because of nondeductible expenses, the marginal tax rates used to compute deferred taxes, and the effect of state income taxes.
NOTE 15: CHANGE IN ACCOUNTING PRINCIPLE
The Company decided at the beginning of 2015 to adopt the par value method of accounting for treasury stock. The Company had used the cost method for financial and tax reporting purposes since inception and maintained records adequate to apply the par value method retrospectively. The Company retired all treasury shares and such shares are no longer outstanding. Since the par value method of accounting for treasury shares accounts for such acquisitions by reducing outstanding shares and paid-in capital, this method was adopted.
Under the cost method, the Company recorded the entire amount of the cost of treasury stock in a “Treasury Stock Account” which appeared on the balance sheet under Retained earnings with in the equity section. Under the cost method there is no reduction in outstanding shares nor is there any reduction in the related paid-in capital. Conversely, the par value method of accounting for treasury stock contemplates a retirement of outstanding shares and a reduction paid-in capital. Retained earnings is reduced by the excess of the cost to acquire these treasury shares over the par value and paid-in capital.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 18 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 15: CHANGE IN ACCOUNTING PRINCIPLE (CONTINUED)
The effects of the change in accounting principles on the stockholders’ equity section are presented in the following table:
December 31, 2014 | ||||||||||||
As Computed under | As Reported under | |||||||||||
Cost Method | Par Value Method | Effect of change | ||||||||||
Common Stock | $ | 88 | $ | 80 | $ | (8 | ) | |||||
Preferred Stock | 16,978 | 16,198 | (780 | ) | ||||||||
Additional paid-in capital | 557,497 | — | (557,497 | ) | ||||||||
Retained earnings | 9,613,667 | 9,015,711 | (597,956 | ) | ||||||||
Treasury stock | (1,156,241 | ) | — | 1,156,241 | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 9,031,989 | $ | 9,031,989 | $ | — | ||||||
|
|
|
|
|
|
NOTE 16: CAPITAL STOCK
VANTAGE HOSPITALITY GROUP, INC.
Vantage is authorized to issue up to 100,000 shares of common stock, $1.00 par value per share, and up to 100,000 shares of preferred stock, with such rights and preferences as the Board of Directors may determine from time to time.
Common stock
As of June 30, 2016 and 2015, Vantage had 88 and 80 shares of common stock outstanding, respectively. All common stockholders have identical voting rights and are entitled to one vote per share, with no preemptive rights.
VANTAGE HOSPITALITY GROUP, INC. (CONTINUED)
Class B preferred stock
Vantage’s Board of Directors has designated 20,000 shares as Class B Preferred Stock, $1.00, par value, of which 14,101 and 16,198 were outstanding as of June 30, 2016 and 2015, respectively.
Each share of Class B Preferred Stock is entitled to .00375% of all dividends declared as to any class of capital stock other than Class B Preferred Stock, until such time as the holder receives twice the initial purchase price paid to Vantage. Thereafter, each share of Class B Preferred Stock is entitled to .00125% of such dividends declared until the holder receives an additional amount equal to the purchase price paid to Vantage for such shares. In the event of any voluntary or involuntary liquidation, dissolution or winding up of Vantage, the holders of Preferred Class B Preferred Stock shall be entitled to receive out of distributable assets and before any payments to holders of common stock, a liquidation preference of $80 per share, less the cumulative amount of dividends previously or contemporaneously paid with respect to such shares. Further, the Class B Preferred Stock shall not be convertible into any other security of Vantage and, except as otherwise expressly required by Florida law, the holders of Class B Preferred Stock shall not be entitled to voting rights.
Redeemed and Cancelled Stock
During the year ended December 31, 2014, the Company purchased 7.8 shares of common stock and 780 shares of Class B Preferred Stock, for a total of $850,000, $325,000, which is payable pursuant to a non-interest bearing promissory note, the maturity date of which is October 1, 2017. The note is personally guaranteed by the Company’s CEO, Roger J. Bloss, and COO, Bernard T. Moyle.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 19 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 16: CAPITAL STOCK (CONTINUED)
VANTAGE FRANCHISING, INC. (formerly Lexington Franchising Inc.)
VFI, is authorized to issue 1,000 shares of common stock, $.001 par value per share, 100 shares of which were outstanding at June 30, 2016 and 2015.
VANTAGE FRANCHISING (CANADA) INC. (formerly Canadas BV Inn, Inc.)
VFCI is authorized to issue an unlimited number of shares, in accordance with the laws of British Columbia. As of June 30, 2016 and 2015, 100 shares were outstanding.
LHINDI, INC.
LHINDI is authorized to issue 1,000 shares of common stock, $.001 par value per share, 100 shares of which were outstanding at June30, 2016 and 2015.
VANTAGE INSURANCE SERVICES, INC.
VISI is authorized to issue up to 1,000,000 shares of common stock, $.001 par value per share, and up to 100,000 shares of preferred stock, with such rights and preferences as the Board of Directors may determine from time to time.
Common Stock
As of June 30, 2016 and 2015, there were 15,716 shares of common stock of VISI outstanding.
Series A Founders Stock
As of December 31, 2011, the Board of Directors of VISI had designated nine shares of preferred stock as Series A Founders Preferred Stock; subsequent to year end, the number of shares authorized was increased to 15. At June 30, 2016 and 2015, there were nine shares of Series A Founders Preferred Stock outstanding.
In the event the Board of Directors of VISI declares a dividend on any class of capital stock, each share of Series A Founders Preferred Stock shall be entitled to five percent (5%) of such dividend. In the event of liquidation, sale, merger, and on other stated events, the holders of the Series A Founders Preferred Stock and the holders of Series B Preferred Stock (if any) shall share in a preference of $150,000. Thereafter, the holders of Series A Founders Preferred Stock shall share in a second preference of $150,000 before sharing ratably with the holders of Series B Preferred Stock and holders of commons stock. Further, each share of Series A Founders Stock shall convert into a number of shares of common stock equal to 5% of the outstanding common stock of VISI, on a fully-diluted basis, immediately prior to any sale, merger, or similar business combination. Prior to conversion, and the holders of such stock will have the right to vote as if such shares had been converted to common stock.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 20 |
VANTAGE HOSPITALITY GROUP, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2016
NOTE 16: CAPITAL STOCK (CONTINUED)
BROWN NESTER HOSPITALITY SERVICES, INC.
Brown Nester Hospitality Services, Inc., is authorized to issue 100,000 shares of common stock, $1.00 par value per share, 100 of which were outstanding at June 30, 2016, and 2015. Brown Nester also is authorized to issue 1,000 shares of preferred stock, $.001 par value per share. In November 2012, the Board of Directors of Brown Nester authorized two series of preferred stock, as follows:
Series A convertible preferred stock
The Board of Directors of Brown Nester designated ten shares of preferred stock as Series A Convertible Preferred Stock. This series of preferred stock does not vote (except as required by law) and may be converted into common stock of Brown Nester on the sale or merger of Brown Nester, on the liquidation of the company, or if such shares are acquired by the company on the death of the holder. Each share of preferred stock entitles the holder to a dividend equal to 14.5% of any dividends paid to holders of common. As of June 30, 2016 and 2015, there were four shares of Series A Convertible Preferred Stock outstanding.
Series B convertible preferred stock
The Board of Directors designated one share of preferred stock as Series B Convertible Preferred Stock. Despite its name, this stock is not convertible into common stock, nor does it have a dividend feature. Each share of Series B Convertible Preferred Stock entitles the holder to two votes on matters submitted to the holders of the company’s common stock. As of June 30, 2016 and 2015, there was one share of this stock outstanding.
VANTACRUISE, INC.
VantaCruise, Inc. is authorized to issue 1,000 shares of common stock, $.001 par value per share, 100 shares of which were outstanding at June 2016 and 2015.
NOTE 17: SUBSEQUENT EVENTS
Subsequent events were evaluated through August 19, 2016, which is the date the financial statements were available to be issued. There were no material subsequent events through August 19, 2016.
Vantage Hospitality Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements | Page 21 |
VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED SUPPLEMENTARY SCHEDULES OF OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30,
2016 | 2015 | |||||||
CONSOLIDATED SELLING, RESERVATION, GENERAL AND ADMINISTRATIVE: | ||||||||
Administrative payroll | $ | 1,362,318 | $ | 1,223,267 | ||||
Bad debts | 109,354 | 231,161 | ||||||
Bank and credit card processing fees | 133,415 | 124,728 | ||||||
Board of director fees | 60,000 | — | ||||||
Bonus and commissions | 491,665 | 440,417 | ||||||
Charitable contributions | 9,880 | 2,845 | ||||||
Communication and telephone | 81,398 | 78,621 | ||||||
Employee benefits | 674,600 | 652,916 | ||||||
Executive compensation | 445,439 | 384,495 | ||||||
Insurance | 63,780 | 67,469 | ||||||
Licenses dues and subscriptions | 125,505 | 94,466 | ||||||
Management and trademark fees (related parties) | 521,353 | 500,042 | ||||||
Meals | 63,974 | 20,273 | ||||||
Office supplies | 49,019 | 63,712 | ||||||
Other | 138,171 | 118,265 | ||||||
Payroll taxes | 348,615 | 322,445 | ||||||
Postage and delivery | 53,353 | 39,413 | ||||||
Professional fees | 298,616 | 407,871 | ||||||
Property management system costs | 108,680 | 44,705 | ||||||
Quarterly assistance and transition Fees | 165,934 | 300,191 | ||||||
Rent | 160,171 | 154,149 | ||||||
Computer software and maintenance | 105,329 | 170,884 | ||||||
Reservation fees | 2,282,984 | 2,370,905 | ||||||
Sales payroll | 710,616 | 663,248 | ||||||
SSAP inspection fees | 61,636 | 116,287 | ||||||
SSAP payroll | 329,788 | 346,315 | ||||||
Travel | 302,534 | 271,352 | ||||||
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Total consolidated selling, reservation, general and administrative | $ | 9,258,127 | $ | 9,210,442 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
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VANTAGE HOSPITALITY GROUP, INC. & SUBSIDIARIES
(A SUBSIDIARY OF THIRTY-EIGHT STREET, INC.)
CONSOLIDATED SUPPLEMENTARY SCHEDULES OF OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30,
2016 | 2015 | |||||||
CONSOLIDATED MARKETING: | ||||||||
AAA advertsing costs | $ | 32,123 | $ | 34,491 | ||||
Consumer promotions | 90,303 | 94,725 | ||||||
CRM program | 34,822 | 20,835 | ||||||
JCF Marketing (related party) | 242,138 | 250,239 | ||||||
Lodging directories | 37,617 | 66,521 | ||||||
Magazine and print advertising | 275,084 | 196,959 | ||||||
Marketing and advertising salaries | 1,150,606 | 1,055,009 | ||||||
Member development | 255,426 | 300,776 | ||||||
News letters, flyers | 66,151 | 77,341 | ||||||
On line marketing | 1,096,538 | 1,111,254 | ||||||
Other | 138,858 | 118,411 | ||||||
Pay per click | 617,986 | 627,361 | ||||||
Tour and travel marketing | 176,601 | 113,382 | ||||||
Trade shows | 84,300 | 120,637 | ||||||
Travel guides | 177,400 | 197,623 | ||||||
TV and Radio advertising | 658,293 | 728,117 | ||||||
Value Club | 99,580 | 81,630 | ||||||
Website maintenance | 80,446 | 69,542 | ||||||
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Total consolidated marketing | $ | 5,314,272 | $ | 5,264,853 | ||||
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CONSOLIDATED OTHER MEMBERSHIP AND CONFERENCE: | ||||||||
Rooms and audio visual | $ | 6,681 | $ | 1,981 | ||||
Catering and meals | 29,680 | 50,000 | ||||||
Conference programs and registration | 44,578 | 3,525 | ||||||
Conference support | 16,313 | 11,484 | ||||||
Conference entertainment | 156 | 2,120 | ||||||
Consultants, speakers and celebrities | — | 125 | ||||||
Convention center | — | 9,114 | ||||||
Corporate uniforms | 11 | 39 | ||||||
Office supplies | — | 790 | ||||||
Staffing | 55,927 | 75,982 | ||||||
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Total consolidated other membership and conference | $ | 153,346 | $ | 155,160 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
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