The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 1. ORGANIZATION
Parks! America, Inc. (Parks! or the Company) was originally incorporated on July 30, 1954 as Painted Desert Uranium & Oil Co., Inc. in Washington State. On October 1, 2002, Painted Desert Uranium & Oil Co., Inc. changed its name to Royal Pacific Resources, Inc. and its corporate domicile to the State of Nevada.
On December 19, 2003, Royal Pacific Resources, Inc. acquired the assets of Great Western Parks LLC pursuant to a Share Exchange Agreement that resulted in the Company assuming control and changing the corporate name to Great American Family Parks, Inc. The acquisition was accounted for as a reverse acquisition in which Great Western Parks was considered to be the acquirer of Royal Pacific Resources for reporting purposes. On June 11, 2008, the Company changed its name from Great American Family Parks, Inc. to Parks! America, Inc.
The Company owns and operates through wholly owned subsidiaries two regional theme parks and is in the business of acquiring, developing and operating local and regional theme parks and attractions in the United States. The Companys wholly owned subsidiaries are Wild Animal Safari, Inc., a Georgia corporation (Wild Animal Georgia) and Wild Animal, Inc., a Missouri corporation (Wild Animal Missouri). Wild Animal Georgia owns and operates the Wild Animal Safari theme park in Pine Mountain, Georgia (the Georgia Park). Wild Animal Missouri owns and operates the Wild Animal Safari theme park located in Strafford, Missouri (the Missouri Park). The Company acquired the Georgia Park on June 13, 2005, and the Missouri Park on March 5, 2008.
The Parks are open year round but experience increased seasonal attendance, typically beginning in the latter half of March through early September. On a combined basis, net sales for the third and fourth quarter of the last two fiscal years represented approximately 67% to 72% of annual net sales.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The Companys unaudited consolidated financial statements for the three months and six months ended April 2, 2017 and April 3, 2016 are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). The Company believes that the disclosures made are adequate to make the information presented not misleading. The information reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods set forth herein. In the opinion of management interim results reflect all normal and recurring adjustments, and are not necessarily indicative of the results for a full fiscal year.
These unaudited consolidated financial statements should be read in conjunction with audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended October 2, 2016.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (Wild Animal Georgia and Wild Animal Missouri). All material inter-company accounts and transactions have been eliminated in consolidation.
Accounting Method:
The Company recognizes income and expenses based on the accrual method of accounting.
Estimates and Assumptions:
Management uses estimates and assumptions in preparing financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
Fiscal Year End:
The Companys fiscal year-end is the Sunday closest to September 30, and its quarterly close dates are also determined by the Sunday closest to the end of each quarterly reporting period. For the 2017 fiscal year, October 1 will be the closest Sunday, and for the 2016 fiscal year, October 2 was the closest Sunday. The 2017 fiscal year will be comprised of 52-weeks, while the 2016 fiscal year was comprised of 53-weeks. This fiscal calendar aligns the Companys fiscal periods more closely with the seasonality of its business. The high season typically ends after the Labor Day holiday weekend. The period from October through early March is geared towards maintenance and preparation for the next busy season, which typically begins at Spring Break and runs through Labor Day.
7
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements.
Financial and Concentrations Risk:
The Company does not have any concentration or related financial credit risks. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits.
Trade Accounts Receivable:
The theme parks are a payment upfront business; therefore, the Company typically carries little or no accounts receivable. The Company had no accounts receivable as of April 2, 2017 and October 2, 2016, respectively.
Inventory:
Inventory consists of park supplies, and is stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventories are reviewed and reconciled annually, because inventory levels turn over rapidly.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from three to thirty-nine years. A summary is included below.
|
|
|
|
|
|
|
|
|
April 2, 2017
|
|
October 2, 2016
|
|
Depreciable Lives
|
Land
|
$
|
2,507,180
|
$
|
2,507,180
|
|
not applicable
|
Ground improvements
|
|
893,433
|
|
824,427
|
|
7-25 years
|
Buildings and structures
|
|
2,882,285
|
|
2,882,285
|
|
10-39 years
|
Animal shelters and habitats
|
|
1,270,224
|
|
1,219,023
|
|
10-39 years
|
Park animals
|
|
727,705
|
|
642,769
|
|
5-10 years
|
Equipment - concession and related
|
|
221,493
|
|
221,493
|
|
3-15 years
|
Equipment and vehicles - yard and field
|
|
545,381
|
|
512,445
|
|
3-15 years
|
Vehicles - buses and rental
|
|
209,626
|
|
186,932
|
|
3-5 years
|
Rides and entertainment
|
|
181,866
|
|
181,867
|
|
5-10 years
|
Furniture and fixtures
|
|
60,485
|
|
60,485
|
|
5-10 years
|
Projects in process
|
|
70,321
|
|
-
|
|
|
Property and equipment, cost
|
|
9,569,999
|
|
9,238,906
|
|
|
Less accumulated depreciation
|
|
(2,980,008)
|
|
(2,806,009)
|
|
|
Property and equipment, net
|
$
|
6,589,991
|
$
|
6,432,897
|
|
|
|
|
|
|
|
|
|
Intangible assets:
Intangible assets consist of franchising fees, which are reported at cost and are being amortized over a period of 60 months.
Impairment of Long-Lived Assets:
The Company reviews its major assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is considered impaired, then impairment will be recognized in an amount determined by the excess of the carrying amount of the asset over its fair value.
Other Current Liabilities:
The following is a breakdown of other current liabilities:
|
|
|
|
|
|
|
April 2, 2017
|
|
October 2, 2016
|
Accrued sales taxes
|
$
|
52,998
|
|
$
|
28,928
|
Deferred revenue
|
|
33,798
|
|
|
16,532
|
Accrued wages and payroll taxes
|
|
33,015
|
|
|
23,814
|
Accrued property taxes
|
|
18,224
|
|
|
37,408
|
Accrued income taxes
|
|
1,000
|
|
|
45,426
|
Other accrued liabilities
|
|
66,440
|
|
|
79,284
|
Other current liabilities
|
$
|
205,475
|
|
$
|
231,392
|
8
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments:
The carrying amounts of financial instruments are considered by management to be their estimated fair values due to their short-term maturities. Securities that are publicly traded are valued at their fair market value as of the balance sheet date presented.
Revenue Recognition:
The Companys major source of income is from theme park admissions. Theme park revenues from admission fees are generally recognized upon receipt of payment at the time of the customers visit to the parks. Theme park revenues from advance online ticket purchases are deferred until the customers visit to the parks. Short-term seasonal passes are sold primarily during the spring and summer seasons, are negligible to our results of operations and are not material. The Company periodically sells surplus animals created from the natural breeding process that occurs within the parks. All animal sales are reported as a separate revenue line item.
Advertising and Market Development:
The Company expenses advertising and marketing costs as incurred.
Stock Based Compensation:
The Company recognizes compensation costs on a straight-line basis over the requisite service period associated with the grant. No activity has occurred in relation to stock options during any period presented. The Company awards shares to its Board of Directors for service on the Board. The shares issued to the Board are restricted and are not to be re-sold unless an exemption is available, such as the exemption afforded by Rule 144 promulgated under the Securities Act of 1933, as amended (the Securities Act). The Company recognizes the expense based on the fair market value at time of the grant. Each director is typically granted 25,000 restricted shares annually, usually toward the end of the calendar year.
Income Taxes:
The Company utilizes the asset and liability method of accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities, and are measured using the enacted tax rates and laws. Management periodically reviews the Companys deferred tax assets to determine whether their value can be realized based on available evidence. A valuation allowance is established when management believes it is more likely than not, that such tax benefits will not be realized. Changes in valuation allowances from period to period are included in the Companys income tax provision in the period of change.
Basic and Diluted Net Income (Loss) Per Share:
Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes anti-dilutive.
Basic and diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding in each period.
Dividend Policy:
The Company has not yet adopted a policy regarding payment of dividends.
Recent Accounting Pronouncements:
Except as noted in NOTE 4. LONG-TERM DEBT, the Company does not expect recently issued accounting standards or interpretations to have a material impact on the Companys financial position, results of operations, cash flows or financial statement disclosures.
NOTE 3. RESTRICTED CASH
As of February 5, 2015, the Company was required to post a security of $456,492 (the Security Amount) in connection with the Companys appeal of a summary judgment and award of costs more fully described in NOTE 9. COMMITMENTS AND CONTINGENCIES herein. The Company deposited the Security Amount, in cash, in a newly established account with Fifth Third Bank, an Ohio Banking Corporation (Fifth Third). On April 8, 2015, Fifth Third issued a Letter of Credit equal to the Security Amount to the Harper Defendants (as that term is defined in Note 9). On November 8, 2016, $372,416 was paid out to the Harper Defendants against the Letter of Credit as a final settlement of the judgment and award of costs. As a result, the balance of the security amount, net of fees, was no longer restricted and on November 17, 2016 approximately $79,300 was returned to the Company as unrestricted funds.
9
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 4. LONG-TERM DEBT
On January 9, 2013, the Company completed a refinancing transaction (the Refinancing Loan) with Commercial Bank & Trust Company of Troup County (CB&T) as lender. The Refinancing Loan was for a principal amount of $3,752,000 and has a 20-year term. The Refinancing Loan is secured by substantially all the assets of the Company and its wholly owned subsidiaries. The Refinancing Loan bears interest at the rate of Prime Rate plus 2.50%, resulting in a rate of 5.75% during the first five years of the loan term. Thereafter, the interest rate will be re-priced every five years based on the then-Prime Rate plus 2.50%. During the first four months following the closing of the Refinancing Loan the Company was required to make interest-only payments. The minimum required monthly payment is approximately $26,343 during the first five years of the Refinancing Loan term. The closing costs for the Refinancing Loan totaled $175,369 and are being amortized over the 20-year life of the loan.
|
|
|
|
|
|
|
April 2,
2017
|
|
October 2,
2016
|
Refinancing Loan principal outstanding
|
$
|
3,305,338
|
$
|
3,366,507
|
Less: unamortized debt closing costs
|
|
(143,048)
|
|
(148,252)
|
Gross long-term debt
|
|
3,162,290
|
|
3,218,255
|
Less current portion of long-term debt, net of unamortized debt closing costs
|
|
(118,363)
|
|
(104,652)
|
Long-term debt
|
$
|
3,043,927
|
$
|
3,113,603
|
As of April 2, 2017, the scheduled future principal maturities by fiscal year are as follows:
|
|
|
2017
|
$
|
53,030
|
2018
|
|
132,566
|
2019
|
|
140,393
|
2020
|
|
148,681
|
2021
|
|
157,459
|
thereafter
|
|
2,673,209
|
Total
|
$
|
3,305,338
|
Interest expense of $50,796 and $56,628 for the three month period ended April 2, 2017 and April 3, 2016, respectively, includes $2,602 of amortization of debt closing costs in each period. Interest expense of $101,020 and $111,231 for the six month period ended April 2, 2017 and April 3, 2016, respectively, includes $5,204 of amortization of debt closing costs in each period.
Effective October 3, 2016, the Company retroactively adopted the requirements of ASU No. 2015-03,
Interest Imputation of Interest (Subtopic 835-50): Simplifying the Presentation of Debt Issuance Costs
, to present debt issuance costs as a reduction of the carrying amount of the related debt rather than an asset. Long-term debt and the current portion long-term debt as of October 2, 2016 were previously reported on the balance sheet as $3,251,447 and $115,060, respectively, with the associated $148,252 of unamortized debt closing costs reported in intangible assets. Amortization of debt closing costs of $2,602 and $5,204 for the three month and six month periods ended April 2, 2017 and April 3, 2016, respectively, is reported as interest expense in the Consolidated Statements of Operations. Such amortization of debt closing costs was previously reported as amortization expense in the Consolidated Statement of Operations for the three month and six month periods ended April 3, 2016, respectively.
NOTE 5. LINES OF CREDIT
The Company maintains a $350,000 line of credit (the LOC) loan from CB&T for working capital purposes. This LOC has an initial term of seven years, ending on January 8, 2020, and is subject to the satisfactory performance by the Company. The LOC interest rate is tied to the prime rate and was 5.75% as of April 2, 2017, with a minimum rate of 5.25%. The closing costs for the LOC totaled $11,482 and are being amortized over the initial seven-year term of the loan. As of April 2, 2017 and October 2, 2016, respectively, there was no outstanding balance against the LOC. When applicable, all advances on the Companys LOC are recorded as current liabilities.
10
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 6. STOCKHOLDERS EQUITY
Common stock shares issued for service to the Company are valued based on market price on the date of issuance. On December 20, 2016, the Company awarded a total of 150,000 shares of its common stock to six Directors for their service on the Board of Directors at a fair market value of $0.108 per share or $16,200, which was reported as an expense in the first quarter of the 2017 fiscal year. On December 18, 2015, the Company awarded 150,000 shares of its common stock to six Directors for their service on the Board of Directors at a fair market value of $0.055 per share or $8,250, which was reported as an expense in the first quarter of the 2016 fiscal year.
Officers, Directors and their controlled entities own approximately 55.3% of the outstanding common stock of the Company as of April 2, 2017.
NOTE 7. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Employment Agreements:
Effective June 1, 2009, the Company entered into an employment agreement with Dale Van Voorhis (the 2009 Van Voorhis Employment Agreement) to serve as the Companys Chief Operating Officer. Effective January 27, 2011, Mr. Van Voorhis was appointed as the Companys Chief Executive Officer. Effective June 1, 2016, the Company and Mr. Van Voorhis entered into the 2016 Van Voorhis Employment Agreement. Pursuant to the 2016 Van Voorhis Employment Agreement, Mr. Van Voorhis receives an initial base annual compensation in the amount of $90,000 per year, subject to annual review by the Board of Directors. The 2016 Van Voorhis Employment Agreement has a term of two years and entitles Mr. Van Voorhis to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
On April 1, 2008, the Company entered into an employment agreement with Jim Meikle (the 2008 Meikle Employment Agreement) pursuant to which Mr. Meikle was hired to serve as the President and Chief Executive Officer of each of the Companys wholly owned subsidiaries. Effective January 27, 2011, Mr. Meikle was appointed as the Companys Chief Operating Officer. Effective April 1, 2017, the Company and Mr. Meikle entered into the 2017 Meikle Employment Agreement. Pursuant to the 2017 Meikle Employment Agreement, Mr. Meikle receives an initial base annual compensation in the amount of $135,000 per year, subject to annual review by the Board of Directors. The 2017 Meikle Employment Agreement has a term of two years and entitles Mr. Meikle to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
Effective April 2, 2014, the Company entered into an employment agreement with Todd R. White (the White Employment Agreement) to serve as the Companys Chief Financial Officer. Pursuant to the White Employment Agreement, Mr. White received an initial base annual compensation of $50,000 per year, subject to annual review by the Board of Directors. Mr. White also received a $10,000 signing bonus. Effective April 2, 2015, Mr. Whites annual base compensation was increased to $60,000. The White Employment Agreement has a term of five years and entitles Mr. White to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
Each of the foregoing employment agreements contains provisions for severance compensation in the event an agreement is (i) terminated early by the Company without cause or (ii) in the event of a change in control of the Company. This additional severance compensation payable totals $455,000.
NOTE 8. INCOME TAXES
For the six month period ended April 2, 2017, the Company reported a pre-tax income of $274,743. For the fiscal year ending October 1, 2017 the Company expects to generate pre-tax income and to record a tax provision at an effective rate of approximately 38%. As such, the Company recorded a tax provision of $104,000 for the six month period ended April 2, 2017.
The Companys cumulative Federal net operating loss carry-forward was approximately $1,913,000 at October 2, 2016 and will expire beginning in the year 2026. For the fiscal year ending October 1, 2017 the Company expects to utilize a portion of its Federal net tax operating loss carry-forwards to offset regular Federal cash tax due in its 2017 fiscal year. However, the Company will likely owe Federal alternative minimum tax for its 2017 fiscal year. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $1,913,000 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, Federal net operating loss carry forwards may be limited as to use in future years.
11
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 9. COMMITMENTS AND CONTINGENCIES
Background
In September 2009, the Company filed an action against Larry Eastland, its former President and CEO, in the Eighth Judicial District Court of the State of Nevada (Parks! America, Inc. vs. Eastland; et al., Case No. 09-A-599668). The Company brought this action to obtain a Temporary Restraining Order and injunctive relief against Mr. Eastland and his related companies as to their attempt to install a new Board of Directors for the Company. The Temporary Restraining Order was granted, as was the Preliminary Injunction.
In June 2012, the Company amended its complaint against the original defendants to, among other things, add new claims for relief, as well as join as defendants, LEA Capital Advisors, LLC, an entity controlled by Mr. Eastland (LEA Capital Advisors, LLC and the original defendants are collectively referred to herein as the Eastland Defendants), and Stanley Harper and Computer Contact Service, Inc., an entity controlled by Mr. Harper (together the Harper Defendants) for breaches of contract and fiduciary duty with regard to the Companys purchase of TempSERV on September 30, 2007, its subsequent re-conveyance of TempSERV to Computer Contact Service, Inc. as of January 1, 2009, and other conduct of management at that time. The Company was seeking damages in excess of $1.8 million.
Discovery was conducted on the claims between the parties, after which the Harper Defendants filed a Motion for Summary Judgment asking that the claims against them be dismissed and that the counterclaims asserted by the Harper Defendants against the Company be granted. After briefing and argument, the Court granted summary judgment in favor of the Harper Defendants. Because one of the contracts at issue contained a legal fee provision, the Harper Defendants filed a motion seeking to recover legal fees and costs. On October 24, 2014, the Court granted the Harper Defendants motion in part and ordered the Company to pay $304,328 in costs and attorneys fees to the Harper Defendants.
The Company appealed the summary judgment orders and the award of costs and attorneys fees. On July 28, 2016, the Supreme Court of the State of Nevada issued an order mostly affirming the Eighth Judicial District Courts summary judgment rulings and award of attorneys fees and costs in favor of the Harper Defendants. After exhausting the Companys options to further pursue its action against the Harper Defendants, the Company reached a final settlement with the Harper Defendants totaling $372,416, inclusive of additional attorneys fees, costs and interest, which was paid on November 8, 2016.
The separate claims against the Eastland Defendants then remained for trial in Nevada District Court.
Settlement
As of March 30, 2017, the portion of the Companys District Court action against the Eastland Defendants has been resolved, subject to a fully-executed Settlement Agreement and Release (the Eastland Settlement Agreement), which was held in escrow. Pursuant to the Eastland Settlement Agreement, the Company, among other things, consented to the sale by certain of the Eastland Defendants of 10,010,000 shares of the Companys common stock to Nicholas Parks (the NP Transaction). The Company received $80,000 as a settlement payment on April 21, 2017 and the settlement documents were released from escrow. A Stipulation and Order to Dismiss the Litigation with Prejudice was filed on April 24, 2017. As part of the NP Transaction, the Company and Nicholas Parks entered into a Settlement Agreement and Release dated as of March 30, 2017 (the NP Settlement Agreement). This Agreement also has been released from escrow and is effective. As a result of the NP Transaction, Nicholas Parks holds shares representing approximately 13.4% of the outstanding common stock of the Company. In addition, the Company received 10,000 shares from the Eastland Defendants, which shares the Company intends to cancel.
Other Matters
Except as described above, the Company is not a party to any pending legal proceeding, nor is its property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of its business. None of the Companys directors, officers or affiliates is involved in a proceeding adverse to its business or has a material interest adverse to its business.
12
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2017
NOTE 10. BUSINESS SEGMENTS
The Company manages its operations on an individual location basis. Discrete financial information is maintained for each Park and provided to management for review and as a basis for decision-making. The primary performance measures used to allocate resources are Park earnings before interest and tax expense, and free cash flow.
The following tables present financial information regarding each of the Companys reportable segments: