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PARKS AMERICA, INC - Quarter Report: 2017 July (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2017

 

OR

 

[   ]. TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER 000-51254

 

Parks! America, Inc.

(Exact Name of small business issuer as specified in its charter)

 

Nevada

91-0626756

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

1300 Oak Grove Road

Pine Mountain, GA 31822

(Address of principal executive offices) (Zip Code)

 

Issuer's telephone Number: (706) 663-8744

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

 

 

 

 

Non-accelerated filer

[   ] (Do not check if a smaller reporting company)

Smaller reporting company

[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]. No [X]

 

As of August 7, 2017, the issuer had 74,671,537 outstanding shares of Common Stock. 


1


Table of Contents

 

 

PARKS! AMERICA, INC and SUBSIDIARIES

 

INDEX

 

 

 

Page

PART I. FINANCIAL INFORMATION:

 

 

 

 

 

Item 1.

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets – July 2, 2017 and October 2, 2016

 

3

 

 

 

 

 

Consolidated Statements of Operations – Three months and nine months ended July 2, 2017 and July 3, 2016

 

4

 

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity – Nine months ended July 2, 2017 and year ended October 2, 2016

 

5

 

 

 

 

 

Consolidated Statements of Cash Flows – Nine months ended July 2, 2017 and July 3, 2016

 

6

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

19

 

 

 

 

Item 4.

Controls and Procedures

 

19

 

 

 

 

PART II. OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

20

 

 

 

 

Item 1A.

Risk Factors

 

21

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

23

 

 

 

 

Item 4.

Mine Safety Disclosures

 

23

 

 

 

 

Item 5.

Other Information

 

23

 

 

 

 

Item 6.

Exhibits

 

23

 

 

 

 

 

Signatures

 

24

 

 

 

 

 

 

 

 


2


PARKS! AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of July 2, 2017 and October 2, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

July 2, 2017

 

October 2, 2016

ASSETS

 

 

 

 

Cash – unrestricted

$

2,785,664

$

1,482,777

Cash – restricted (Note 3)

 

-

 

456,492

Inventory

 

133,573

 

107,573

Prepaid expenses

 

34,066

 

87,760

 

Total current assets

 

2,953,303

 

2,134,602

 

 

 

 

 

 

Property and equipment, net

 

6,555,394

 

6,432,897

Intangible assets, net

 

2,400

 

3,000

Deferred tax asset

 

375,405

 

777,124

Other assets

 

9,199

 

8,500

 

Total assets

$

9,895,701

$

9,356,123

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities

 

 

 

 

Accounts payable

$

42,330

$

24,106

Other current liabilities

 

355,765

 

231,392

Accrued judgment award (Note 9)

 

-

 

372,416

Current portion of long-term debt, net

 

120,113

 

104,652

 

Total current liabilities

 

518,208

 

732,566

 

 

 

 

 

 

Long-term debt, net

 

3,026,384

 

3,113,603

 

Total liabilities

 

3,544,592

 

3,846,169

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

Common stock; 300,000,000 shares authorized,

 

 

 

 

 

at $.001 par value; 74,671,537 and 74,531,537

 

 

 

 

 

shares issued and outstanding, respectively

 

74,671

 

74,531

Capital in excess of par

 

4,825,666

 

4,809,606

Treasury stock

 

(3,250)

 

(3,250)

Retained earnings

 

1,454,022

 

629,067

Total stockholders’ equity

 

6,351,109

 

5,509,954

Total liabilities and stockholders’ equity

$

9,895,701

$

9,356,123

 

The accompanying notes are an integral part of these consolidated financial statements.


3


PARKS! AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Nine Months Ended July 2, 2017 and July 3, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Net sales

$

2,110,476

$

1,819,140

$

4,259,657

$

3,459,277

Sale of animals

 

4,027

 

-

 

74,134

 

16,327

Total net sales

 

2,114,503

 

1,819,140

 

4,333,791

 

3,475,604

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

189,151

 

182,141

 

440,245

 

390,078

Selling, general and administrative

 

808,363

 

717,261

 

2,226,862

 

1,960,395

Depreciation and amortization

 

89,450

 

85,200

 

268,350

 

255,800

(Gain) loss on disposal of operating assets, net

 

-

 

2,623

 

(309)

 

2,623

Income from operations

 

1,027,539

 

831,915

 

1,398,643

 

866,708

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

82,472

 

1,978

 

87,131

 

6,000

Interest expense

 

(49,799)

 

(52,144)

 

(150,819)

 

(163,375)

Income before income taxes

 

1,060,212

 

781,749

 

1,334,955

 

709,333

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

406,000

 

50,100

 

510,000

 

55,500

Net income

$

654,212

$

731,649

$

824,955

$

653,833

 

 

 

 

 

 

 

 

 

 

Income per share - basic and diluted

$

0.01

$

0.01

$

0.01

$

0.01

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (in 000's)

- basic and diluted

 

74,674

 

74,531

 

74,632

 

74,488

 

The accompanying notes are an integral part of these consolidated financial statements.


4


Parks! America, Inc. and Subsidiaries

Consolidated Statements Changes in Stockholders' Equity

For the Nine Months Ended July 2, 2017 and Year Ended October 2, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

Excess of Par

 

Treasury

Stock

 

 

 

 

 

Shares

 

Amount

 

 

 

 

Total

Balance at September 27, 2015

74,381,537

$

74,381

$

4,801,506

$

(3,250)

$

(1,272,490)

$

3,600,147

Issuance of common stock to Directors

150,000

 

150

 

8,100

 

-

 

-

 

8,250

Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

ended October 2, 2016

-

 

-

 

-

 

-

 

1,901,557

 

1,901,557

Balance at October 2, 2016

74,531,537

 

74,531

 

4,809,606

 

(3,250)

 

629,067

 

5,509,954

Issuance of common stock to Directors

150,000

 

150

 

16,050

 

-

 

-

 

16,200

Common stock returned to the Company

 

 

 

 

 

 

 

 

 

 

 

 

in conjunction with a legal settlement

(10,000)

 

(10)

 

10

 

-

 

-

 

-

Net income for the nine months

 

 

 

 

 

 

 

 

 

 

 

 

ended July 2, 2017

-

 

-

 

-

 

-

 

824,955

 

824,955

Balance at July 2, 2017

74,671,537

$

74,671

$

4,825,666

$

(3,250)

$

1,454,022

$

6,351,109

 

The accompanying notes are an integral part of these condensed financial statements.


5


Parks! America, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended July 2, 2017 and July 3, 2016

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

 

 

July 2, 2017

 

July 3, 2016

OPERATING ACTIVITIES:

 

 

 

 

Net income

$

824,955

$

653,833

Reconciliation of net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

268,350

 

255,800

 

Interest expense - loan fee amortization

 

7,806

 

7,806

 

(Gain) loss on disposal of assets

 

(309)

 

2,623

 

Stock-based compensation

 

16,200

 

8,250

Changes in assets and liabilities

 

 

 

 

 

(Increase) decrease in inventory

 

(26,000)

 

3,900

 

(Increase) decrease in prepaid expenses

 

53,694

 

45,878

 

Increase (decrease) in accounts payable

 

18,224

 

(32,094)

 

Increase (decrease) in other current liabilities

 

124,373

 

49,079

 

Increase (decrease) in accrued judgment award

 

(372,416)

 

-

 

(Increase) decrease in deferred tax asset

 

401,719

 

-

 

 

Net cash provided by operating activities

 

1,316,596

 

995,075

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

Acquisition of property and equipment

 

(390,637)

 

(277,042)

(Increase) decrease in restricted cash

 

456,492

 

-

 

 

Net cash provided by (used in) investing activities

 

65,855

 

(277,042)

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

Proceeds from lines of credit and related party borrowings

 

-

 

220,000

Repayment of lines of credit and related party borrowings

 

-

 

(220,000)

Payments on notes payable

 

(79,564)

 

(89,384)

 

 

Net cash used in financing activities

 

(79,564)

 

(89,384)

 

 

 

 

 

 

 

Net increase in cash

 

1,302,887

 

628,649

Cash at beginning of period

 

1,482,777

 

563,096

Cash at end of period

$

2,785,664

$

1,191,745

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

Cash paid for interest

$

131,192

$

150,220

Cash paid for income taxes

$

116,770

$

76,525

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


6


PARKS! AMERICA, INC. and SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

July 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 Company’s 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 Company’s unaudited consolidated financial statements for the three months and nine months ended July 2, 2017 and July 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 Company’s 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 Company’s 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 Company’s 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)

July 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 July 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.

 

 

 

July 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

 

181,867

 

181,867

 

5-10 years

Furniture and fixtures

 

60,485

 

60,485

 

5-10 years

Projects in process

 

124,974

 

-

 

 

Property and equipment, cost

 

9,624,653

 

9,238,906

 

 

Less accumulated depreciation

 

(3,069,259)

 

(2,806,009)

 

 

Property and equipment, net

$

6,555,394

$

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:

 

 

 

July 2, 2017

 

October 2, 2016

Accrued sales taxes

$

53,911

$

28,928

Accrued wages and payroll taxes

 

47,821

 

23,814

Accrued income taxes

 

37,400

 

45,426

Deferred revenue

 

33,798

 

16,532

Accrued property taxes

 

29,174

 

37,408

Other accrued liabilities

 

153,661

 

79,284

Other current liabilities

$

355,765

$

231,392


8


PARKS! AMERICA, INC. and SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

July 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 Company’s 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 of its common stock to members of 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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”) and on July 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)

July 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.

 

 

 

July 2,

2017

 

October 2,

2016

Refinancing Loan principal outstanding

$

3,286,943

$

3,366,507

Less: unamortized debt closing costs

 

(140,446)

 

(148,252)

Gross long-term debt

 

3,146,497

 

3,218,255

Less current portion of long-term debt, net of unamortized debt closing costs

 

(120,113)

 

(104,652)

Long-term debt

$

3,026,384

$

3,113,603

 

As of July 2, 2017, the scheduled future principal maturities by fiscal year are as follows:

 

2017

$

31,932

2018

 

132,406

2019

 

140,223

2020

 

148,502

2021

 

157,270

thereafter

 

2,676,610

Total

$

3,286,943

 

 

Interest expense of $49,799 and $52,144 for the three month period ended July 2, 2017 and July 3, 2016, respectively, includes $2,602 of amortization of debt closing costs in each period. Interest expense of $150,819 and $163,375 for the nine month period ended July 2, 2017 and July 3, 2016, respectively, includes $7,806 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 $7,806 for the three month and nine month periods ended July 2, 2017 and July 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 nine month periods ended July 3, 2016, respectively.

 

NOTE 5. LINES OF CREDIT

 

The Company maintains a $350,000 line of credit loan (the “LOC”) 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 6.00% as of July 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 July 2, 2017 and October 2, 2016, respectively, there was no outstanding balance against the LOC. When applicable, all advances on the Company’s LOC are recorded as current liabilities.


10


PARKS! AMERICA, INC. and SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

July 2, 2017

 

NOTE 6. STOCKHOLDERS’ EQUITY

 

Shares of common stock 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 55.6% of the outstanding common stock of the Company as of July 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 Company’s Chief Operating Officer. Effective January 27, 2011, Mr. Van Voorhis was appointed as the Company’s 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 Company’s wholly owned subsidiaries. Effective January 27, 2011, Mr. Meikle was appointed as the Company’s 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 Company’s 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. White’s 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 nine month period ended July 2, 2017, the Company reported a pre-tax income of $1,334,955. 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 $510,000 for the nine month period ended July 2, 2017.

 

The Company’s 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)

July 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 Company’s 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 attorney’s fees to the Harper Defendants.

 

The Company appealed the summary judgment orders and the award of costs and attorney’s fees. On July 28, 2016, the Supreme Court of the State of Nevada issued an order mostly affirming the Eighth Judicial District Court’s summary judgment rulings and award of attorney’s fees and costs in favor of the Harper Defendants. After exhausting the Company’s 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 attorney’s fees, costs and interest (the “Harper Judgment Award”), which was paid on November 8, 2016.

 

The separate claims against the Eastland Defendants then remained for trial in Nevada District Court.

 

Settlement with the Eastland Defendants

 

The Company entered into a settlement and release agreement dated March 30, 2017 (the “Eastland Settlement Agreement”) with certain the Eastland Defendants to settle the District Court Action. Pursuant to the Eastland Settlement Agreement, the Eastland Defendants agreed to make a settlement payment of $80,000 to the Company and assign 10,000 shares of the Company’s common stock beneficially owned by one of the Eastland Defendants to the Company (the “Settlement Shares”), and the Company consented to the sale of 10,010,000 shares of common stock beneficially owned by the Eastland Defendants to Nicholas Parks (the “NP Transaction”). On April 21, 2017, the Company received the $80,000 settlement payment and the Settlement Shares. 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 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.

 

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 Company’s 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 Company’s reportable segments:

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Total net sales:

 

 

 

 

 

 

 

 

 

Georgia

$

1,766,845

$

1,481,336

$

3,715,226

$

2,888,325

 

Missouri

 

347,658

 

337,804

 

618,565

 

587,279

 

Consolidated

$

2,114,503

$

1,819,140

$

4,333,791

$

3,475,604

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

Georgia

$

1,134,511

$

894,443

$

2,078,277

$

1,366,769

 

Missouri

 

42,034

 

65,610

 

(97,429)

 

(95,482)

 

Segment total

 

1,176,545

 

960,053

 

1,980,848

 

1,271,287

 

Corporate

 

(149,006)

 

(128,138)

 

(582,205)

 

(404,579)

 

Other income (expense), net

 

82,472

 

1,978

 

87,131

 

6,000

 

Interest expense

 

(49,799)

 

(52,144)

 

(150,819)

 

(163,375)

 

Consolidated

$

1,060,212

$

781,749

$

1,334,955

$

709,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

July 2, 2017

 

October 2, 2016

Total assets:

 

 

 

 

 

 

 

 

 

Georgia

 

 

 

 

$

6,538,463

$

5,350,266

 

Missouri

 

 

 

 

 

2,656,184

 

2,633,066

 

Corporate

 

 

 

 

 

701,054

 

1,372,791

 

Consolidated

 

 

 

 

$

9,895,701

$

9,356,123

 

NOTE 11. SUBSEQUENT EVENTS

 

In accordance with ASC 855-10 the Company has analyzed its operations subsequent to July 2, 2017 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these unaudited consolidated financial statements.


13


 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying unaudited consolidated financial statements and provides additional information on the Company’s businesses, current developments, financial condition, cash flows and results of operations. The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with our Annual Report on Form 10-K for the fiscal year ended October 2, 2016.

 

Forward-Looking Statements

 

Except for the historical information contained herein, this Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve risks and uncertainties, including, among other things, statements concerning: our business strategy; liquidity and capital expenditures; future sources of revenues and anticipated costs and expenses; and trends in industry activity generally. Such forward-looking statements include, among others, those statements including the words such as "may," "will," "should," "expect," "plan," "could," "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal," or "continue" or similar language or by discussions of our outlook, plans, goals, strategy or intentions.

 

Our actual results may differ significantly from those projected in the forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under "RISK FACTORS" in this Quarterly Report, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to: competition from other parks, weather conditions during our primary tourist season, the price of animal feed and the price of gasoline. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we cannot guarantee future results, levels of activity, performance or achievements.

 

The forward-looking statements we make in this Quarterly Report are based on management’s current views and assumptions regarding future events and speak only as of the date of this report. We assume no obligation to update any of these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements, except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission.

 

Overview

 

Through our wholly owned subsidiaries, we own and operate two regional theme parks and are in the business of acquiring, developing and operating local and regional theme parks and attractions in the United States. Our 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”).

 

Our 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 our last two fiscal years represented approximately 67% to 72% of annual net sales.

 

Our goal is to build a family of theme parks primarily through acquisitions of small, local and regional, privately owned existing parks and to develop a series of compatible, themed attractions. When evaluating possible acquisitions, we rely on the following primary criteria:

 

Properties that have an operating history; 

Properties that our management team believes have the potential to increase profits and operating efficiencies; and 

Properties where there is additional, underutilized land available for expansion of operations. 

 

We believe that acquisitions, if any, should not unnecessarily encumber the Company with additional debt that cannot be justified by current operations. By using a combination of equity, debt and other financing options, we intend to carefully monitor stockholder value in conjunction with the pursuit of growth.

 

We may also pursue contract management opportunities for themed attractions owned by third parties.


14


We are committed to leveraging the strong operating model we have established at our Georgia Park, with a focus on increasing attendance, as well as increasing the average revenue generated per guest visit via concession and gift shop revenues.

 

Among our highest priorities is the continued improvement of the operating performance and profit at our Missouri Park. Since we acquired our Missouri Park in March 2008, we have worked to upgrade the Park’s physical facilities and dramatically improve its concessions. During our 2015 fiscal year, we completed the installation of five amusement park “kiddie” rides at our Missouri Park. These rides are targeted toward families with children between the ages of three and twelve years old. The addition of these rides is a continuation of our ongoing effort to improve the overall guest experience, as well as public perception of our Missouri Park, and it is our belief that the addition of these rides will help increase attendance and average spending per guest visit. We will continue to focus our efforts to promote our Missouri Park and make additional improvements as our capital budget allows. We expect that over the course of several years these efforts will ultimately yield favorable results.

 

On January 9, 2013, we completed a $3,752,000 loan transaction (the “Refinancing Loan”), the proceeds of which were used primarily to refinance the Company’s then-outstanding debt and fund $230,000 of new construction and renovations at our Parks. Over the last four fiscal years, the Refinancing Loan lowered our annual debt service payments by approximately $170,000, freeing up cash flow to fund operations and capital improvements at our Parks.

 

Our income from operations and operating cash flow have improved significantly over the past three fiscal years, including the first nine months of our 2017 fiscal year. These improvements are primarily attributable to a combination of increased attendance revenues and strong operating cost controls. The Refinancing Loan has also provided us with incremental cash flow margin. However, our current size and operating model leave us little room for error. Any future capital raised by us is likely to result in dilution to existing stockholders. It is possible that cash generated by, or available to, us may not be sufficient to fund our capital and liquidity needs for the near-term.

 

Our 2017 fiscal year will end on October 1, 2017 and will be comprised of 52 weeks. Our 2016 fiscal year ended on October 2, 2016 and was comprised of 53 weeks. The additional week in our 2016 fiscal year occurred within the three months ended January 2, 2016. As such, we will discuss Park attendance based net sales on both a reported, as well as a comparable 39-week, basis for the nine months ended July 2, 2017 as compared to the prior year. (Note, reported attendance based net sales for the three month periods ended July 2, 2017 and July 3, 2016 are already on a comparable 13-week basis).

 

Results of Operations For the Three Month Period Ended July 2, 2017 as Compared to Three Month Period Ended July 3, 2016

 

We manage our operations on an individual location basis. Discrete financial information is maintained for each Park and provided to our corporate 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. We use this measure of operating profit to gauge segment performance because we believe this measure is the most indicative of performance trends and the overall earnings potential of each reportable segment.

 

The following table shows our consolidated and segment operating results for the three month periods ended July 2, 2017 and July 3, 2016:

 

 

 

Georgia Park

 

Missouri Park

 

Consolidated

 

 

Fiscal

2017

 

Fiscal

2016

 

Fiscal

2017

 

Fiscal

2016

 

Fiscal

2017

 

Fiscal

2016

Total net sales

 

$1,766,845

 

$1,481,336

 

$347,658

 

$337,804

 

$2,114,503

 

$1,819,140

Segment income from operations

 

1,134,511

 

894,443

 

42,034

 

65,610

 

1,176,545

 

960,053

Segment operating margin %

 

64.2%

 

60.4%

 

12.1%

 

19.4%

 

55.6%

 

52.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

 

 

(149,006)

 

(128,138)

Other income (expense), net

 

 

 

 

 

 

 

 

 

82,472

 

1,978

Interest expense

 

 

 

 

 

 

 

 

 

(49,799)

 

(52,144)

Income before income taxes

 

 

 

 

 

 

 

 

 

$1,060,212

 

$781,749


15


Total Net Sales

 

On a reported basis, our total net sales for the three month period ended July 2, 2017 increased by $295,363, or 16.2%, to $2,114,503 versus the three month period ended July 3, 2016. Our Parks’ combined attendance based net sales increased by $291,336 or 16.0%, and animal sales increased $4,027.

 

Our Georgia Park’s net sales increased by $285,509 or 19.3%. Our Georgia Park’s attendance based net sales increased by $281,482 or 19.0%. Our Missouri Park’s attendance based net sales increased by $9,854 or 2.9%.

 

For the three month period ended July 2, 2017, attendance at our Georgia Park increased by 12.0%, while attendance at our Missouri Park decreased by 1.3%. We believe positive seasonal weather and overall favorable customer perception of our Georgia Park contributed to the higher attendance during the three month period ended July 2, 2017, while attendance at our Missouri Park for the same period was negatively impacted by unfavorable weather.

 

Segment Operating Margin

 

Our consolidated segment operating margin increased by $216,492, resulting in segment income from operations of $1,176,545 for the three month period ended July 2, 2017 compared to $960,053 for the three month period ended July 3, 2016. Our Georgia Park’s segment income was $1,134,511, resulting in an increase of $240,068, principally as a result of higher attendance based net sales, partially offset by higher cost of sales, and higher compensation and general operating expenses. Our Missouri Park generated segment income of $42,034, a decrease of $23,576, as higher overall operating expenses more than offset higher attendance based net sales.

 

Corporate Expenses and Other

 

Corporate spending increased by $20,868 to $149,006 during the three month period ended July 2, 2017, primarily due to higher legal fees.

 

Other Income (Expense), Net

 

Pursuant to a legal settlement, we received a settlement payment of $80,000 on April 20, 2017, which has been included in other income. For additional information, see “NOTE 9. COMMITMENTS AND CONTINGENCIES” of the Notes to the Consolidated Financial Statements (Unaudited).

 

Interest Expense

 

Interest expense for the three month period ended July 2, 2017 was $49,799, a decrease of $2,345 compared with the three month period ended July 3, 2016, as a result of lower average term loan borrowing and no seasonal borrowing during the 2017 fiscal year.

 

Income Taxes

 

For the fiscal year ending October 1, 2017, we expect to generate pre-tax income and to record a tax provision at an effective rate of approximately 38%. As such, we recorded a tax provision of $406,000 for the three month period ended July 2, 2017.

 

Our 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, we expect 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.

 

For additional information, see “NOTE 8. INCOME TAXES” of the Notes to the Consolidated Financial Statements (Unaudited).

 

Net Income and Income Per Share

 

During the three month period ended July 2, 2017, we generated net income of $654,212 or $0.01 per basic share and per fully diluted share, compared to net income of $731,649 or $0.01 per basic share and per fully diluted share, for the three month period ended July 3, 2016, resulting in an decrease of $77,437. Two significant one-time items impacted this year-over-year net income comparison, an increase in our income tax provision of $355,900, partially offset by the $80,000 one-time gain from the legal settlement. Excluding the $80,000 one-time gain from the legal settlement for the three month period ended July 2, 2017 and applying a comparable effective income tax rate to the three month period ended July 3, 2016, our net income for the three month period ended July 2, 2017 would have increased by approximately $122,600. The primary drivers for this improvement are a $240,068 increase in operating income for our Georgia Park and a $2,345 reduction in interest expense, partially offset by a $75,800 increase in our normalized income tax provision, a $23,576 decrease in the operating income for our Missouri Park and a $20,868 increase in Corporate spending.


16


Results of Operations For the Nine Month Period Ended July 2, 2017 as Compared to Nine Month Period Ended July 3, 2016

 

The following table shows our consolidated and segment operating results for the nine month periods ended July 2, 2017 and July 3, 2016:

 

 

Georgia Park

 

Missouri Park

 

Consolidated

 

 

Fiscal

2017

 

Fiscal

2016

 

Fiscal

2017

 

Fiscal

2016

 

Fiscal

2017

 

Fiscal

2016

Total net sales

 

$3,715,226

 

$2,888,325

 

$618,565

 

$587,279

 

$4,333,791

 

$3,475,604

Segment income from operations

 

2,078,277

 

1,366,769

 

(97,429)

 

(95,482)

 

1,980,848

 

1,271,287

Segment operating margin %

 

55.9%

 

47.3%

 

-15.8%

 

-16.3%

 

45,7%

 

36.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

 

 

(582,205)

 

(404,579)

Other income (expense), net

 

 

 

 

 

 

 

 

 

87,131

 

6,000

Interest expense

 

 

 

 

 

 

 

 

 

(150,819)

 

(163,375)

Income before income taxes

 

 

 

 

 

 

 

 

 

$1,334,955

 

$709,333

 

Total Net Sales

 

On a reported basis, our total net sales for the nine month period ended July 2, 2017 increased by $858,187, or 24.7%, to $4,333,791 versus the nine month period ended July 3, 2016. On a reported basis, our Parks’ combined attendance based net sales increased by $800,380 or 23.1%, and animal sales increased $57,807. On a comparable 39-week basis, our Parks’ combined attendance based net sales increased by $832,129 or 24.3%.

 

Our Georgia Park’s reported net sales increased by $826,901 or 28.6%. Our Georgia Park’s attendance based net sales increased by 27.3% and 28.3%, on a reported and comparable 39-week basis, respectively. Our Missouri Park’s reported net sales increased by $31,286 or 5.3%. Our Missouri Park’s attendance based net sales increased by 2.0% and 3.9%, on a reported and comparable 39-week basis, respectively.

 

On a comparable 39-week basis for the nine month period ended July 2, 2017, attendance at our Georgia Park increased by 20.1%, while attendance at our Missouri Park decreased 2.3%. We believe positive seasonal weather and overall favorable customer perception of our Georgia Park contributed to the higher attendance during the 39-week comparable period ended July 2, 2017, while attendance at our Missouri Park for the same period was negatively impacted by unfavorable weather.

 

Segment Operating Margin

 

Our consolidated segment operating margin increased by $709,561, resulting in segment income from operations of $1,980,848 for the nine month period ended July 2, 2017 compared to $1,271,287 for the nine month period ended July 3, 2016. Our Georgia Park’s segment income was $2,078,277, resulting in an increase of $711,508, principally as a result of higher attendance based net sales and higher animal sales, partially offset by higher cost of sales, and higher compensation and general operating expenses. The segment loss for our Missouri Park was $97,429, a decrease of $1,947, primarily as a result of higher general operating expenses, largely offset by higher animal sales and higher attendance based net sales.

 

Corporate Expenses and Other

 

Corporate spending increased by $177,626 to $582,205 during the nine month period ended July 2, 2017, primarily due to higher legal fees and compensation expense.

 

Other Income (Expense), Net

 

Pursuant to a legal settlement, we received a settlement payment of $80,000 on April 20, 2017, which has been included in other income. For additional information, see “NOTE 9. COMMITMENTS AND CONTINGENCIES” of the Notes to the Consolidated Financial Statements (Unaudited).

 

Interest Expense

 

Interest expense for the nine month period ended July 2, 2017 was $150,819, a decrease of $12,556 compared with the nine month period ended July 3, 2016, as a result of lower average term loan borrowing and no seasonal borrowing during the 2017 fiscal year.


17


Income Taxes

 

For the fiscal year ending October 1, 2017, we expect to generate pre-tax income and to record a tax provision at an effective rate of approximately 38%. As such, we recorded a tax provision of $510,000 for the nine month period ended July 2, 2017.

 

Our 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, we expect 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.

 

For additional information, see “NOTE 8. INCOME TAXES” of the Notes to the Consolidated Financial Statements (Unaudited).

 

Net Income and Income Per Share

 

During the nine month period ended July 2, 2017, we generated net income of $824,955 or $0.01 per basic share and per fully diluted share, compared to net income of $653,833 or $0.01 per basic share and per fully diluted share, for the nine month period ended July 3, 2016, resulting in an increase of $171,122. Two significant one-time items impacted this year-over-year net income comparison, a $454,500 increase in our provision for income taxes and other income of $80,000 from the legal settlement. Excluding the $80,000 one-time gain from the legal settlement for the nine month period ended July 2, 2017 and applying a comparable effective income tax rate to the nine month period ended July 3, 2016, our net income for the nine month period ended July 2, 2017 would have increased by approximately $338,200. The primary drivers for this improvement are a $711,508 increase in operating income for our Georgia Park and a $12,556 reduction in interest expense, partially offset by $207,400 increase in our normalized income tax provision, a $177,626 increase in Corporate spending and a $1,947 decrease in the operating loss of our Missouri Park

 

Financial Condition, Liquidity and Capital Resources

 

Financial Condition and Liquidity

 

Our primary sources of liquidity are cash generated by operations and borrowings under our loan agreements. Our slow season starts after Labor Day in September and runs until Spring Break, which typically begins toward the end of March. The first and second quarters of our fiscal year have historically generated negative cash flow and require us to borrow to fund operations and prepare our Parks for the busy season during the third and fourth quarters of our fiscal year.

 

We believe that our performance has improved to the point that annual cash flow from operations will be sufficient to fund operations, make debt-service payments and spend modestly on capital improvements in the near-term. During the next twelve months, our focus will continue on increasing Park attendance revenues. Any slowdown in revenue or unusual capital outlays may require us to seek additional capital.

 

Our working capital was $2.44 million as of July 2, 2017, compared to $1.40 million as of October 2, 2016. This increase in working capital primarily reflects strong operating cash flow offset by capital expenditures and scheduled payments on our term debt during the first nine months of our 2017 fiscal year.

 

Total loan debt, including current maturities, as of July 2, 2017 was $3.15 million compared to $3.22 million as of October 2, 2016. The decrease in total loan debt was a result of scheduled payments against our term loan during the nine month period ended July 2, 2017. Our LOC balance was $0 as of July 2, 2017 and October 2, 2016, respectively.

 

As of July 2, 2017, we had equity of $6.35 million and total loan debt of $3.15 million, resulting in a debt to equity ratio of 0.50 to 1.0. Our debt to equity ratio was 0.58 to 1.0 as of October 2, 2016.

 

Operating Activities

 

Net cash provided by operating activities was $1,316,596 for the nine month period ended July 2, 2017, compared to $995,075 for the nine month period ended July 3, 2016. Excluding the $372,416 of restricted cash paid out for the Harper Judgment Award (as further described in PART II, ITEM 1-“LEGAL PROCEEDINGS” herein) and the $401,719 deferred tax asset utilization, cash flow provided by operating activities improved by $292,218 for the nine month period ended July 2, 2017, primarily as a result of an increase in net income and lower working capital requirements.


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Investing Activities

 

Net cash provided by investing activities was $65,855 for the nine month period ended July 2, 2017, compared to net cash used in investing activities of $277,042 for the nine month period ended July 3, 2016. Excluding the one-time reduction in restricted cash associated with the payout of the Harper Judgment Award, investing activities in property and equipment were $390,637 for the nine month period ended July 2, 2017, compared to $277,042 in the comparable period in the prior year, resulting in an increase of $113,595.

 

Financing Activities

 

Net cash used in financing activities was $79,564 for the nine month period ended July 2, 2017, compared to $89,384 for the nine month period ended July 3, 2016, with the total for each period reflecting scheduled payments on our term loan.

 

Subsequent Events

 

None

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital expenditures.

 

Critical Accounting Policies and Estimates

 

The preceding discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Quarterly Report. Our significant accounting policies are set forth in “NOTE 2. SIGNIFICANT ACCOUNTING POLICIES” of the Notes to the Consolidated Financial Statements (Unaudited) included in this Quarterly Report, which should be reviewed as they are integral to understanding results of operations and financial position. The Parks! America, Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 2016 includes additional information about us, our operations, our financial condition, our critical accounting policies and accounting estimates, and should be read in conjunction with this Quarterly Report.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4. CONTROLS AND PROCEDURES

 

Parks! America, Inc. (the “Registrant”) maintains “controls and procedures,” as such term is defined under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) in Rule 13a-15(e) promulgated thereunder, that are designed to ensure that information required to be disclosed in the Registrant’s Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Registrant’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, the Registrant’s management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

With the participation of its principal executive officer and principal financial officer of the Registrant, the Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the fiscal quarter covered by this Quarterly Report. Based upon the evaluation, the Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures were effective at a reasonable assurance level.

 

In addition, there were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that occurred during the Registrant’s fiscal quarter ended July 2, 2017 that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.


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PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

Background

 

In September 2009, we filed an action against Larry Eastland, the Company’s 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). We 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, we amended our 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 Company’s 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. We were 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 attorney’s fees to the Harper Defendants.

 

We appealed the summary judgment orders and the award of costs and attorney’s fees. On July 28, 2016, the Supreme Court of the State of Nevada issued an order mostly affirming the Eighth Judicial District Court’s summary judgment rulings and award of attorney’s fees and costs in favor of the Harper Defendants. After exhausting the options to further pursue our action against the Harper Defendants, we reached a final settlement with the Harper Defendants totaling $372,416, inclusive of additional attorney’s fees, costs and interest (the “Harper Judgment Award”), which was paid on November 8, 2016.

 

The separate claims against the Eastland Defendants then remained for trial in Nevada District Court.

 

Settlement with the Eastland Defendants

 

We entered into a settlement and release agreement dated as of March 30, 2017 (the “Eastland Settlement Agreement”) with certain the Eastland Defendants to settle the District Court Action. Pursuant to the Eastland Settlement Agreement, the Eastland Defendants agreed to make a settlement payment of $80,000 to the Company and assign 10,000 shares of the Company’s common stock beneficially owned by one of the Eastland Defendants to the Company (the “Settlement Shares”), and we consented to the sale of 10,010,000 shares of common stock beneficially owned by the Eastland Defendants to Nicholas Parks (the “NP Transaction”). On April 21, 2017, the Company received the $80,000 settlement payment and the Settlement Shares. A Stipulation and Order to Dismiss the Litigation with Prejudice was filed on April 24, 2017.

 

As part of the NP Transaction, we entered into a Settlement Agreement and Release with Nicholas Parks, 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.

 

Other Matters

 

Except as described above, we are 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 our directors, officers or affiliates is involved in a proceeding adverse to its business or has a material interest adverse to its business.


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ITEM 1A. RISK FACTORS

 

You should read the MD&A together with our unaudited consolidated financial statements and related notes, each included elsewhere in this Quarterly Report, in conjunction with the Parks! America, Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 2016. Some of the information contained in the MD&A or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "RISK FACTORS" below for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this report. If any of the following risks actually occur, our business, financial condition and results of operations could be adversely affected.

 

Risk Factors Relating to Our Business:

 

The Theme Park Industry is highly competitive and we may be unable to compete effectively.

 

The theme park industry is highly competitive, highly fragmented, rapidly evolving, and subject to technological change and intense marketing by providers with similar products. One of our competitors for attracting general recreation dollars, Callaway Gardens, is located within five miles of our Georgia Park. Branson, Missouri is located just 45 minutes from our Missouri Park. Many of our current competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience than we have. In the event that such a competitor expends significant sales and marketing resources in one or several markets we may not be able to compete successfully in such markets. We believe that competition will continue to increase, potentially placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce costs commensurate with such price reductions. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar products offered or proposed to be offered by us. If our competitors were to provide better and more cost effective products, our business could be materially and adversely affected.

 

We face strong competition from numerous entertainment alternatives.

 

In addition to competing with other themed and amusement parks, our venues compete with other types of recreational venues and entertainment alternatives, including but not limited to movies, sports attractions, vacation travel and video games. There can be no assurance that we will successfully differentiate ourselves from these entertainment alternatives or that consumers will consider our entertainment offerings to be more appealing than those of our competitors. The increasing availability and quality of technology-based entertainment has provided families with a wider selection of entertainment alternatives in their homes, including home entertainment units, in-home and online gaming, as well as on-demand streaming video and related access to various forms of entertainment. In addition, traditional theme parks have been able to reduce the cost and increase the variety of their attractions by implementing technologies that cannot be readily incorporated by wild animal attractions such as our Georgia and Missouri Parks.

 

The suspension or termination of any of our business licenses may have a negative impact on our business.

 

We maintain a variety of business licenses issued by federal, state and local government agencies that are required to be renewed periodically. We cannot guarantee that we will be successful in renewing all of our licenses on a periodic basis. The suspension, termination or expiration of one or more of these licenses could have a significant adverse affect on our revenues and profits. In addition, any changes to the licensing requirements for any of our licenses could affect our ability to maintain the licenses.

 

Our insurance coverage may not be adequate to cover all possible losses that we could suffer, and our insurance costs may increase.

 

Companies engaged in the theme park business may be sued for substantial damages in the event of an actual or alleged accident. An accident occurring at our Parks or at competing parks may reduce attendance, increase insurance premiums, and negatively impact our operating results. Our properties contain drive-through, safari style animal parks, and there are inherent risks associated with allowing the public to interact with animals. Although we carry liability insurance to cover this risk, there can be no assurance that our coverage will be adequate to cover liabilities, or that we will be able to afford or obtain adequate coverage should a catastrophic incident occur.

 

We currently have $5.0 million of liability insurance per occurrence and in aggregate, per Park. We will continue to use reasonable commercial efforts to maintain policies of liability, fire and casualty insurance sufficient to provide reasonable coverage for risks arising from accidents, fire, weather, other acts of God, and other potential casualties. There can be no assurance that we will be able to obtain adequate levels of insurance to protect against suits and judgments in connection with accidents or other disasters that may occur in our Parks.


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We may not identify or complete acquisitions in a timely, cost-effective manner, if at all.

 

Our business plan is predicated upon the acquisition of additional local or regional theme parks and attractions, and upon the expansion of our current facilities and offerings. However, there can be no assurance that we will be successful in acquiring and operating additional local or regional theme parks and attractions. Competition for acquisition opportunities in the theme park industry is intense as there are a limited number of parks within the United States that could reasonably qualify as acquisition targets for us. Our acquisition strategy is dependent upon, among other things, our ability to: identify acquisition opportunities; obtain debt and equity financing; and obtain necessary regulatory approvals. Our ability to pursue our acquisition strategy may be hindered if we are not able to successfully identify acquisition targets or obtain the necessary financing or regulatory approvals, including but not limited to those arising under federal and state antitrust and environmental laws.

 

Significant amounts of additional financing may be necessary for the implementation of our Business Plan.

 

We may require additional debt and equity financing to pursue our business plan. There can be no assurance that we will be successful in obtaining additional financing. Lack of additional funding could force us to substantially curtail our expansion plans. Furthermore, the issuance by the Company of any additional securities would dilute the ownership of existing stockholders and may affect the price of our common stock.

 

Our ownership of real property subjects us to environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

 

We may be required to incur costs to comply with environmental requirements, such as those relating to discharges to air, water and land; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases at one of our properties. As an owner or operator, we could also be held responsible to a governmental entity or third party for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination. Environmental laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under environmental laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use our property. We are not currently aware of any material environmental risks regarding our properties. However, we may be required to incur costs to remediate potential environmental hazards or to mitigate environmental risks in the future.

 

We are dependent upon the services of our Executive Officers and consultants.

 

Our success is heavily dependent on the continued active participation of our executive officers. Loss of the services of one or more of these officers could have a material adverse effect upon our business, financial condition or results of operations. In particular, we place substantial reliance upon the efforts and abilities of Dale Van Voorhis, Chairman of the Board of Directors and Chief Executive Officer of the Company and Jim Meikle, Chief Operating Officer and a Director of the Company, and President of Wild Animal – Missouri and Wild Animal – Georgia. The loss of Mr. Van Voorhis’ or Mr. Meikle’s services could have a serious adverse effect on our business, operations, revenues or prospects.

 

Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies in the theme park industry is intense, and the loss of any such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of the Company’s activities, could have a materially adverse effect on the Company. The inability of the Company to attract and retain the necessary personnel, and consultants and advisors could have a material adverse effect on the Company’s business, financial condition or results of operations.

 

Risk Factors Relating to Our Common Stock:

 

Our Common Stock is subject to the “penny stock” rules of the SEC and the trading market in our Common Stock is limited, which makes transactions in our Common Stock cumbersome and may reduce the value of an investment in our Common Stock.

 

Our common stock is considered a "penny stock" and the sale of our stock by you will be subject to the "penny stock rules" of the SEC. The penny stock rules require broker-dealers to take steps before making any penny stock trades in customer accounts. As a result, the market for our shares could be illiquid and there could be delays in the trading of our stock, which would negatively affect your ability to sell your shares and could negatively affect the trading price of your shares.


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We do not expect to pay dividends for some time, if at all.

 

As of the date of this report, no cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth, as well as to service our debt. We do not expect to pay cash dividends in the near future. Any future determination as to the payment of dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors. The provisions of credit agreements, which we may enter into from time to time, may also restrict the declaration of dividends on our common stock.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

Exhibit

Number 

Description of Exhibit 

 

 

31.1

Certification by Chief Executive Officer as required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

Certification by Chief Financial Officer as required by Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Certification of Chief Financial Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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SIGNATURES

 

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

 

 

 

PARKS! AMERICA, INC.

 

 

August 9, 2017

By: /s/ Dale Van Voorhis

Dale Van Voorhis

Chief Executive Officer

(Principal Executive Officer)


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