UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended March 31, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _________.
Commission file number: 0-26680
NICHOLAS FINANCIAL, INC.
(Name of Small Business Issuer in its Charter)
British Columbia, Canada 8736-3354
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 33759
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code:
(727) 726-0763
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $0.01 Per Share NASDAQ
__________________ __________________
__________________ __________________
Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
Check if disclosure of delinquent filers pursuant to Item 405 of
regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the recent fiscal year ended March 31, 2000
were $14,074,816
As of May 31, 2000, 2,352,008 shares of the Registrant's common stock
were outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $6,811,774
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement, dated on or about July 3, 2000.
Part III, Items 9, 10, 11 and 12 Form 10-KSB Reference
Transitional Small Business Disclosure Format(check one):
Yes [ ] No [ X ]
<PAGE> 1
NICHOLAS FINANCIAL, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I Page No.
Item 1. Description of Business.....................3
Item 2. Description of Properties..................12
Item 3. Legal Proceedings..........................12
Item 4. Submission of Matters to a Vote of
Security Holders..........................12
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.......................13
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................14
Item 7. Financial Statements.......................20
Item 8. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure......................41
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16 (a) of the Exchange Act........41
Item 10. Executive Compensation.....................42
Item 11. Security Ownership of Certain Beneficial
Owners and Management.....................42
Item 12. Certain Relationships and Related
Transactions..............................42
Item 13. Exhibits and Reports on Form 8-K...........44
<PAGE> 2
Forward-Looking Information
This report on Form 10-KSB contains various forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and
information that is based on management's beliefs and assumptions, as
well as information currently available to management. When used in
this document, the words "anticipate," "estimate," "expect," and
similar expressions are intended to identify forward-looking
statements. Although Nicholas Financial, Inc., including its
subsidiaries ("the Company"), believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such
statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or
expected. Among the key factors that may cause actual results to
differ materially from those projected in forward-looking statements
include fluctuations in the economy, the degree and nature of
competition, fluctuations in interest rates, demand for consumer
financing in the markets served by the Company, the Company's products
and services, increases in the default rates experienced on retail
installment sales contracts, adverse regulatory changes in the
Company's existing and future markets, and the Company's ability to
expand its business, including its ability to complete acquisitions
and integrate the operations of acquired businesses, to recruit and
retain qualified employees, to expand into new markets and to maintain
profit margins in the face of increased pricing competition. All
forward-looking statements included in this report are based on
information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking
statement. Prospective investors should also consult the risk
described from time to time in the Company's reports on forms 10-QSB
and 10-KSB and annual reports to shareholders.
<PAGE> 3
PART I
Item 1. Description of Business
General
Nicholas Financial, Inc. ("Nicholas Financial-Canada") is a
Canadian holding company incorporated under the laws of British
Columbia in 1986. The business activities of Nicholas Financial-
Canada are conducted through its wholly-owned subsidiaries formed
pursuant to the laws of the State of Florida, Nicholas Financial, Inc.
("Nicholas Financial") and Nicholas Data Services, Inc., ("NDS").
Nicholas Financial is a specialized consumer finance company engaged
primarily in acquiring and servicing installment sales contracts
("Contracts") for purchases of new and used automobiles and light
trucks. To a lesser extent, the Company also makes direct consumer
loans and sells consumer-finance related products ("Insurance
Products"). NDS is engaged in designing, developing, marketing and
supporting industry specific computer application software for small
businesses located primarily in the Southeast United States. Nicholas
Financial's financing activities accounted for approximately 96% of
consolidated revenues for the fiscal year ended March 31, 2000 and
NDS's activities accounted for approximately 4% of such revenues
during the same period.
Nicholas Financial-Canada, Nicholas Financial and NDS are
hereafter collectively referred to as the "Company". Unless otherwise
specified, all financial information herein is designated in United
States currency.
The Company's principal executive offices are located at 2454
McMullen Booth Road, Building C, Clearwater Florida 33759, and its
telephone number is (727) 726-0763.
Automobile Finance Business
The Company is engaged in the business of providing financing
programs, primarily on behalf of purchasers of new and used cars and
light trucks who meet the Company's credit standards, but who do not
meet the credit standards of traditional lenders, such as banks and
credit unions, because of the age of the vehicle being financed,
and/or the customer's job instability or credit history. Unlike
traditional lenders, which look primarily to the credit history of the
borrower in making lending decisions and typically finance new
automobiles, the Company is willing to purchase installment sales
contracts for purchases made by borrowers who do not have a good
credit history and for older model and high mileage automobiles. In
making decisions regarding the purchase of a particular installment
sales contract the Company considers the following factors related to
the borrower: place and length of residence, current and prior job
status, history in making installment payments for automobiles,
current income and credit history. In addition, the Company examines
its prior experience with Contracts purchased from the dealer from
which the Company is purchasing the Contract, and the value of the
automobile in relation to the purchase price and the term of the
installment sales contract.
The Company's automobile finance programs are currently conducted
in Florida, Georgia and North Carolina only under the name Nicholas
Financial, Inc. The Company currently operates thirteen branch offices
in Florida, three branch offices in Georgia and one branch office in
North Carolina. As of March 31, 2000 the Company had non-exclusive
agreements with approximately 700 dealers for the purchase of retail
installment sales contracts (the "Contracts") that meet the Company's
financing criteria. The dealer agreements require the dealer to
originate Contracts in accordance with the Company's guidelines.
From July 1990 through March 31, 2000, the Company had purchased
24,320 Contracts with an initial principal amount aggregating
approximately $173,722,275. The average initial principal amount of
Contracts purchased by the Company was $7,143 and the contracts had an
average initial term of 37 months. The Contracts were purchased from
dealers at an average discount of approximately 10.36% from their
initial principal amount.
<PAGE> 4
The obligors under the Contracts typically make down payments, in
the form of cash or trade-in, ranging from 5% to 20% of the sale price
of the vehicle financed. The balance of the purchase price of the
vehicle plus taxes, title fees and, if applicable, premiums for
extended service contracts, accident and health insurance and/or
credit life insurance, are generally financed over a period of 12 to
60 months. Accident and health insurance coverage enables the
borrower to make required payments under the Contract in the event the
borrower becomes unable to work because of illness or accident and
credit life insurance pays the borrower's obligations under the
Contract upon his or her death.
The annual percentage rate ("APR") is the actual cost of
borrowing money, expressed in form of the annual interest rate payable
by the borrower. The APR for Contracts purchased by the Company range
from 18% to 30%. As of March 31, 2000, the average APR on Contracts
purchased and currently outstanding is 23.97% and the average discount
from the initial principal amount is 8.93%.
The Company purchases Contracts from the automobile dealer at a
negotiated price that is less than the original principal amount being
financed {the discount} by the purchaser of the automobile. The
amount of the discount depends upon factors such as the age and value
of the automobile and the credit worthiness of the purchaser. In
certain markets, competition determines the discount that the company
can charge. Historically, the Contracts purchased by the Company have
been purchased at discounts that range from 5% to 30% of the original
principal amount of the Contract. In addition to the discount, the
Company charges the dealer a processing fee of $75 per Contract
purchased. Virtually all Contracts purchased by the Company since
April 1, 1992 have been purchased from dealers without recourse,
meaning that the Company, not the dealer, bears the risk of nonpayment
by the borrower under the Contract. Prior to April 1, 1992 some
Contracts were acquired with full recourse against the dealer for
nonpayment by the borrower. As of March 31, 2000, substantially all
of the Company's loan portfolio consisted of Contracts that were
purchased without recourse against the dealer. Although substantially
all the Contracts in the Company's loan portfolio were acquired
without recourse, the dealer remains liable to the Company for
liabilities arising from certain representations and warranties made
by the dealer with respect to compliance with applicable federal and
state laws and valid title to the vehicle.
The Company purchases a Contract only after the dealer (seller)
and the Company arrive at a negotiated price for the Contract and the
dealer has provided the Company with the requisite proof that the
vehicle is properly titled, that the Company has a perfected first
priority lien on the financed vehicle, that the customer has obtained
the required collision insurance naming the Company as loss payee and
the installment sales contract has been fully and accurately completed
and validly executed. Once the Company has received and approved all
required documents, it pays the dealer for the Contract and commences
servicing the Contract through maturity.
The Company requires the owner of the vehicle to obtain and
maintain collision insurance, naming the Company as the loss payee,
with a deductible of not more than $500. The Company does not offer
collision insurance. Both the Company and its dealers offer purchasers
of vehicles certain other "add on products". These products are
offered by the dealer on behalf of the Company or by the automobile
dealer on behalf of the dealership at the time of sale. They consist
of a roadside assistance plan, extended warranty protection, credit
life insurance, credit accident and health insurance and credit
property insurance. If the purchaser so desires, the cost of these
products may be included in the amount financed under the Contract.
As of March 31, 2000, approximately 20% of the borrowers under
Contracts in the Company's loan portfolio had elected to purchase "add
on products".
<PAGE> 5
Direct Consumer Loans
Although the Company is licensed to make small direct consumer
loans up to $25,000, the average loan made to date by the Company had
an initial principal balance of approximately $2,500. The Company does
not expect the average loan size to increase significantly within the
foreseeable future and does not presently intend to make loans at the
maximum size permitted under its license. The Company offers loans
primarily to borrowers under the Contracts previously purchased by the
Company. In deciding whether or not to make a loan, the Company
considers the individual's credit history, job stability, income and
impressions created during a personal interview with a Company loan
officer. Additionally, because approximately 90% of the direct
consumer loans made to date have been made to borrowers under
Contracts previously purchased by the Company, the payment history of
the borrower under the Contract is a significant factor in making the
loan decision. The direct consumer loan program was implemented in
April 1995 and is not currently a significant source of revenue for
the Company. As of March 31, 2000, loans made by the Company pursuant
to its direct consumer loan program constituted approximately 4.3% of
the aggregate principal amount of the Company's loan portfolio. As of
March 31, 2000, the average APR for direct consumer loans made by the
Company was 25.54%, with a range of 18 to 30%. The Company currently
purchases between 400 and 700 indirect contracts each month and
originates between 50 and 100 direct consumer loans each month.
In connection with its direct consumer loan program the Company
also offers health and accident insurance coverage and credit life
insurance to borrowers. Borrowers in approximately 60% of the 1,009
direct consumer loan transactions outstanding as of March 31, 2000 had
elected to purchase insurance coverage offered by the Company. The
cost of this insurance is included in the amount financed by the
borrower.
Financing Sources
The Company finances the acquisition of Contracts with its
retained earnings, cash flow from operations, loans from investors,
insiders and a revolving line of credit with BankAmerica. In November
1999 the Company expanded its line of credit capacity to $45 million,
extended the maturity date of such line to November 30, 2002 and
reduced the rate of interest payable under the line. No assurance can
be given that the size of the line will be increased or that the
maturity date will be extended beyond November 30, 2002.
As of March 31, 2000, the Company owed approximately $1.3 million
to seven investors who purchased notes issued by the Company. These
notes bear interest at rates from 10.5 % to 12%. In most cases, the
Company's obligation to repay the note is subordinated to payment of
its obligations under the BankAmerica line of credit.
The BankAmerica line of credit is secured by all assets of the
Company. The interest rate payable by the Company on funds drawn under
the line of credit is based on either the current prime rate published
by BankAmerica or several Libor pricing options. In addition to
interest, the Company also pays a monthly fee to BankAmerica equal to
.25% of the amount available under the line of credit that has not
been drawn upon. As of March 31, 2000, the Company had drawn
approximately $38 million under the line of credit. The revolving
line expires on November 30, 2002.
<PAGE> 6
Underwriting Guidelines
The Company's typical customer is 30 years old, has a monthly
gross income of $1,500 and a credit history that fails to meet the
lending standards of most banks and credit unions. Among the credit
problems experienced by the Company's customers that resulted in a
poor credit history are: unpaid revolving credit card obligations;
unpaid medical bills; unpaid student loans; prior bankruptcy; and
evictions for nonpayment of rent. The Company believes that its
customer profile is similar to that of its direct competitors.
Prior to its approval of the purchase of a Contract, the Company
is provided with a standardized credit application completed by the
consumer which contains information relating to the consumer's
background, employment, and credit history. The Company also obtains
credit reports from Equifax, TRW or TransUnion which are independent
reporting services. The Company verifies the consumer's employment
history, income and residence. In most cases consumers are interviewed
by telephone by a Company application processor.
The Company utilizes internal buying guidelines used by its
Branch Managers and underwriters when purchasing Contracts. Any
Contract that does not meet these guidelines must be approved by the
senior management of the Company. The Company currently has three
Regional Managers charged with managing the specific branches in a
defined geographic area. In addition to a variety of administrative
duties, the Regional Managers are responsible for monitoring their
assigned branch's compliance with the Company's underwriting
standards.
The Company continues to utilize its Special Operations
Department ("SOD") to perform on-site audits of branch compliance with
Company buying guidelines. SOD will audit Company branches on a
schedule that is variable depending on the size of the branch, length
of time a branch has been open, current tenure of branch manager,
previous branch audit score and current and historical branch
profitability. SOD reports directly to the Accounting and
Administrative Management of the Company. The Company believes that an
independent review and audit of its branches that is not tied to the
sales function of the Company is imperative, in order to assure the
information obtained is impartial.
The Company uses essentially the same criteria in analyzing a
direct consumer loan as it does in analyzing the purchase of a
Contract. Lending decisions regarding direct consumer loans are made
based upon a review of the customer's loan application, credit
history, job stability, income, in-person interviews with a Company
loan officer and the value of the collateral offered by the borrower
to secure the loan. To date, since approximately 90% of the Company's
direct loans have been made to individuals whose automobiles have been
financed by the Company, the customer's payment history under the
automobile installment sale agreement is a significant factor in the
lending decision. The decision process with respect to the purchase
of Contracts is similar, although the customer's prior payment history
with automobile loans is weighted more heavily in the decision making
process and the collateral value of the automobile being financed is
considered.
After reviewing the information included in the loan application
and taking the other factors into account, Company representatives
categorize the borrower using internally developed credit
classifications of "A", indicating high creditworthiness, through "D",
indicating lower creditworthiness.
In the absence of other factors, such as a favorable payment
history on a Contract held by the Company, the Company generally makes
direct consumer loans only to individuals rated in categories "B" or
higher. Contracts are financed for individuals who fall within all
four acceptable rating categories utilized, "A" through "D". Usually
borrowers who fall within the two highest categories are purchasing a
two to four year old, low mileage used automobile from the inventory
of a new car or (franchise dealer), while borrowers in the two lowest
categories are purchasing an older, high mileage automobile from an
independent used automobile dealer. Approximately 5% of the loans
financed by the Company are with customers rated in the "A" category,
15% are rated "B", 70% are rated "C" and 10% are rated "D".
<PAGE> 7
Upon credit approval of the customer and the receipt of all
required title and insurance documentation, the Company pays the
dealer for the Contract. The Company typically purchases the Contract
for a price that approximates the wholesale value of the automobile
being financed. The amount the Company is willing to pay a dealer for
a particular Contract depends upon the credit rating of the customer.
The Company will pay more (e.g. purchase the Contract at a smaller
discount from the original principal amount) for Contracts as the
credit risk of the customer improves. The discounts from the initial
principal amount of Contracts purchased by the Company range from 5%
to 30%. The Company's current established guidelines for discounts
are 5% for borrowers rated in the "A" category, 7.5% for those in the
"B", 10% for those in the "C" categories and 15% or more for those in
the "D" category. Purchases of Contracts at discounts that do not
fall within the guidelines require the prior approval of the Company's
senior management.
Servicing and Monitoring of Contracts
The Company requires all customers to obtain and maintain
collision insurance covering damage to the vehicle. Failure to
maintain insurance constitutes a default under the Contract and the
Company may at its discretion repossess the vehicle. To reduce
potential loss due to insurance lapse, the Company has the legal and
contractual right to force place its own collateral protection
insurance policy which covers loss due to physical damage to vehicles
not covered by collision insurance.
The Company's Management Information Services personnel maintain
a number of reports to monitor compliance by borrowers with their
obligations under Contracts and direct loans made by the Company.
These reports may be accessed on a real-time basis throughout the
Company by management personnel, including branch office managers and
staff, at computer terminals located in the main office and each
branch office. The reports include: delinquency aging reports,
insurance due reports, customer promises reports, vehicle information
reports, purchase reports, dealer analysis reports, static pool
reports, and repossession reports.
The delinquency report is an aging report that provides basic
information regarding each account and indicates accounts that are
past due. The report includes information such as the account number,
address of the borrower, home and work phone numbers of the borrower,
original term of the Contract, number of remaining payments,
outstanding balance, due dates, date of last payment, number of days
past due, scheduled payment amount, amount of last payment, total past
due, and special payment arrangements or agreements.
Accounts that are less than 120 days matured are included on the
delinquency report on the first day that the contract is contractually
past due. After an account has matured more than 120 days, it is not
included on the delinquency report until it is 11 days past due. Once
an account becomes 30 days past due, repossession proceedings are
implemented unless the borrower provides the Company with an
acceptable explanation for the delinquency and displays a willingness
and ability to make the payment, and there is an agreed upon plan to
return the account to current status. When an account is 60 days past
due, the Company ceases amortization of the Contract and repossession
proceedings are initiated. At 120 days delinquent, if the vehicle has
not yet been repossessed, the account is written off. Once a vehicle
has been repossessed, the related loan balance no longer appears on
the delinquency report. It then appears on the Company's repossession
report and is sold, either at auction or to an automobile dealer.
When an account becomes delinquent, the Company immediately
contacts the borrower to determine the reason for the delinquency and
to determine if arrangements for payment can appropriately be made.
Once payment arrangements acceptable to the Company have been made,
the information is entered in its database and is used to generate a
"Promises Report", which is utilized by the collection staff for
account follow up.
<PAGE> 8
The Company generates an insurance report to monitor compliance
with the insurance obligations imposed upon borrowers. This report
includes the account number, name and address of the borrower,
information regarding the insurance carrier, summarizes the insurance
coverage, identifies the expiration date of the policy, and provides
basic information regarding payment dates and term of the Contract.
This report assists the Company in identifying borrowers whose
insurance policy is up for renewal or in jeopardy of being canceled.
The Company sends written notices to, and makes direct contact with,
borrowers whose insurance policies are about to lapse or be canceled.
If the borrower fails to provide proof of coverage within 30 days of
notice, the Company has the option of purchasing insurance and adding
the cost and applicable finance charges to the balance of the
Contract.
The Company prepares a repossession report that provides
information regarding repossessed vehicles and aids the Company in
disposing of repossessed vehicles. In addition to information
regarding the borrower, this report provides information regarding the
date of repossession, date the vehicle was sold, number of days it was
held in inventory prior to sale, year and make and model of the
vehicle, mileage, payoff amount on the Contract, NADA book value,
Black Book value, suggested sale price, location of the vehicle,
original dealer, and notes other information that may be helpful to
the Company such as the condition of the vehicle.
The Company also prepares a dealer analysis report that provides
information regarding each dealer from which it purchases Contracts.
This report allows the Company to analyze the volume of business done
with each dealer and the terms on which it purchased Contracts from
the dealer.
The Company's policy is to aggressively pursue legal remedies to
collect deficiencies from customers. Delinquency notices are sent to
customers and verbal requests for payment are made beginning when an
account becomes 11 days delinquent. When an account becomes 30 days
delinquent and the borrower has not made payment arrangements
acceptable to the Company or has failed to respond to the requests for
payment, a repossession request form is prepared by the responsible
branch office employee for approval by the branch manager for the
vicinity in which the borrower lives. Once the repossession request
has been approved, first by the Branch Manager and secondly by his
Regional Manager, it must then be approved by a corporate officer. The
repossessor delivers the vehicle to a secure location specified by the
Company where it is held. The Company maintains relationships with
several licensed repossession firms which repossess vehicles for fees
that range from $150 to $300 for each vehicle repossessed. As
required by Florida, Georgia and North Carolina law, the customer is
notified by certified letter that the vehicle has been repossessed and
that to retain the vehicle he must make arrangements satisfactory to
the Company and pay the amount owed under the Contract within ten days
after delivery of the letter. The minimum requirement for return of
the vehicle is payment of all past due amounts under the Contract and
all expenses associated with the repossession incurred by the Company.
If satisfactory arrangements for return of the vehicle are not made
within the statutory period, the Company then sends title to the
vehicle to the state title transfer department which then registers
the vehicle in the name of the Company. The Company then either sells
the vehicle to a dealer or has it transported to an automobile auction
for sale. On average, approximately 30 days lapse between the time
the Company takes possession of a vehicle and the time it is sold by a
dealer or at auction. During its most recent fiscal year, repossessed
vehicles have been sold at prices that average approximately $1,200 to
$1,800 less than the price paid by the Company for the Contract. When
the Company determines that there is a reasonable likelihood of
recovering part or all of any deficiency against the borrower under
the Contract, it pursues legal remedies available to it including law
suits, judgement liens and wage garnishments. Historically, the
Company has recovered approximately 12% of deficiencies from such
borrowers.
<PAGE> 9
Marketing and Advertising
The Company's Contract marketing efforts are directed toward
automobile dealers. The Company attempts to meet dealers' needs by
offering highly-responsive, cost-competitive and service-oriented
financing programs. The Company relies on its Regional and Branch
Managers to solicit agreements for the purchase of Contracts with
automobile dealers located within a 25 mile radius of each branch
office. The Branch Manager provides dealers with information regarding
the Company and the general terms upon which the Company is willing to
purchase Contracts. The Company presently has no plans to implement
any other forms of advertising for the purchase of Contracts such as
radio or newspaper advertisements.
Currently, the primary method utilized by the Company in
soliciting borrowers under its direct consumer loan program is through
direct mailings followed by telephone calls to individuals who have a
good credit history with the Company with Contracts purchased by the
Company. The Company intends to expand its solicitation of such loans
when management believes its staff is adequately trained to evaluate
credit risks associated with such loans.
The Industry
The non-prime automobile finance market is highly fragmented and
historically has been serviced by a variety of financial entities,
including captive finance subsidiaries of major automobile
manufactures, banks, independent finance companies, and small loan
companies. Many of these financial entities do not consistently
provide financing to this market. Although prime borrowers represent a
large segment of the automobile financing market, there are many
potential purchasers of automobiles who do not qualify as prime
borrowers. Purchasers considered by the Company to be non-prime
borrowers are generally unable to obtain credit from traditional
sources of automobile financing. The Company believes that, because
these potential purchasers represent a substantial market, there is a
demand by automobile dealers with respect to financing for non-prime
borrowers that has not been effectively served by traditional
automobile financing sources.
In the past four years the Company has seen several of its most
aggressive competitors report unexpected losses due to, but not
limited to, inadequate reserves and accounting irregularities. The
Company believes the circumstances causing the industry turmoil are
the result of poor reserve analysis, overall lack of responsible
financial management and insufficient internal controls. The Company
believes that its static pool reserve analysis, internal controls and
experienced management team will enable the Company to continue its
history of accurate and reliable financial reporting, although no
assurances can be given in this regard.
Computerized Information System
The Company's operations utilize integrated computer systems
developed by NDS to enhance its ability to respond to customer
inquiries, to monitor the performance of its indirect and direct loan
portfolio and the performance of individual borrowers under Contracts.
All personnel are provided with instant, simultaneous access to
information from a single shared database. The Company has created
specialized programs to automate the tracking of loans from inception.
The capacity of the networking system includes the Company's branch
office locations. See the discussion above the caption Servicing and
Monitoring of Contracts for a summary of the different reports
prepared by the Company.
<PAGE> 10
Strategy
The Company's business strategy is to continue its growth and to
increase its profitability through greater penetration in its current
markets, controlled geographic expansion into new markets and
selective portfolio acquisitions. As of the date of this report, the
Company has no commitments or agreements in principle with respect to
any expansion into new geographic markets or any portfolio
acquisitions. The Company also intends to continue its expansion
through the increased origination of additional direct consumer loans.
The Company believes that opportunity for growth continues to exist in
the States of Florida, Georgia and North Carolina and intends to
continue its expansion activities in such states. The Company is also
exploring the possibility of expanding into other South-Eastern
States.
Competition
The consumer finance industry is fragmented and highly
competitive. There are numerous financial service companies that
provide consumer credit in the markets served by the Company including
banks, other consumer finance companies, and captive finance companies
owned by automobile manufacturers and retailers. Many of these
companies have significantly greater resources than the Company. The
Company does not believe that increased competition for the purchase
of Contracts will cause a reduction in the interest rate payable by
the purchaser of the automobile. However, increased competition for
the purchase of Contracts will enable automobile dealers to shop for
the best price, thereby giving rise to an erosion in the discount from
the initial principal amount at which the Company would be willing to
purchase Contracts.
The Company's target market consists of persons who are generally
unable to obtain traditional used car financing because of their
credit history, the vehicle's mileage or age. The Company has been
able to expand its automobile finance business in the non-prime credit
market by offering to purchase Contracts on terms that are competitive
with those of other companies which purchase automobile receivables in
that market segment. Because of the daily contact that many of its
employees have with automobile dealers located throughout the market
areas served by it, the Company is generally aware of the terms upon
which its competitors are offering to purchase Contracts. The
Company's policy is to modify its terms if necessary to remain
competitive. The Company has no intention and will not sacrifice
credit quality, its purchasing criteria or prudent business practices
in order to meet the competition or be driven by unrealizable growth
expectations. The Company expects to analyze new lending programs and
marketing methods which may be implemented with the objective of
increasing profits and or its market share, including the possibility
of offering to purchase portfolios of seasoned Contracts from dealers
in bulk transactions from $50,000 to $5,000,000.
The Company's ability to compete effectively with other companies
offering similar financing arrangements depends upon maintaining close
business relationships with dealers of new and used vehicles. No
single dealer out of the approximately 700 dealers that the Company
has contractual relationships with accounted for over 3% of its
business volume for the fiscal year ended March 31, 2000.
<PAGE> 11
Regulation
The Company's financing operations are subject to regulation,
supervision and licensing under various Federal, State and local
statutes and ordinances. Additionally, the procedures that must be
followed by the Company in connection with the repossession of
vehicles securing Contracts are regulated by the States of Florida,
Georgia and North Carolina. To date, the Company's operations have
been conducted exclusively in the States of Florida, Georgia and North
Carolina. Accordingly, the laws of such states as well as applicable
Federal laws, govern the Company's operations. Compliance with
existing laws and regulations applicable to the Company has not had a
material adverse effect on the Company's operations. Management
believes that it maintains all requisite licenses and permits and is
in material compliance with all applicable Local, State and Federal
regulations.
The Company maintains a Retail Installment Seller's License and a
Sales Finance Company License with the Florida Department of Banking
and Finance, the Georgia Secretary of State (Business Services &
Regulation) and the North Carolina Secretary of State. Pursuant to
regulations of the State of Florida governing the Company's financing
business activities, the Department of Banking and Finance conducts an
on site audit of each of the Company's Florida branches annually to
monitor compliance with the applicable regulations. The regulations
govern, among other matters, licensure requirements, requirements for
maintenance of proper records, payment of required fees to the State
of Florida, Georgia and North Carolina, maximum interest rates that
may be charged on loans to finance used vehicles and proper disclosure
to customers regarding financing terms.
Employees
The Company's executive management and various support functions
are centralized at the Company's Corporate Headquarters in Clearwater,
Florida. As of March 31, 2000 the Company employed a total of 84
persons, five of whom work for NDS and 79 of whom work for Nicholas
Financial. The Company provides paid holidays, vacation, sick time,
jury time, health and life insurance, long-term disability insurance,
dental insurance and a retirement plan that includes a Company
matching formula on employee contributions as well as a Company profit
sharing contribution for all qualified employees. No employees are
covered by a collective bargaining agreement and the Company believes
it has good relations with its employees.
<PAGE> 12
Item 2. Description of Properties
The Company leases its Headquarters and branch office facilities.
Its Headquarters, located at 2454 McMullen Booth Road, Building C in
Clearwater, Florida, consists of approximately 6,800 square feet. The
Company occupies the space pursuant to a lease that commenced on
January 1, 2000 and expires on December 31, 2004. The current monthly
rent is $7,855, with annual increases of approximately 2.25% in each
subsequent year of the lease. Management believes this office space is
adequate to meet its needs for the foreseeable future.
Each of the Company's 18 branch offices located in Florida,
Georgia and North Carolina consists of approximately 1,200 square
feet. These offices are located in office parks, shopping centers or
strip malls and are occupied pursuant to leases with an initial term
of from two to five years at annual rates ranging from approximately
$8.00 to $16.00 per square foot. The Company believes that these
facilities and additional or alternate space available to it are
adequate to meet its needs for the foreseeable future.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business none of which, in the opinion of management, will have a
material adverse effect on the Company's business, financial position
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the quarter ended March 31, 2000.
<PAGE> 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
In September 1997, the Company applied to the NASD for approval
to list its common stock on NASDAQ SmallCap System. On December 23,
1997 the Company's NASDAQ application was approved and trading of the
Company's common stock commenced on December 29, 1997, under the
symbol "NICKF". On February 17, 1998, the Board of Directors passed a
Resolution removing the Company's common stock from listing on the
Vancouver Stock Exchange. Effective March 11, 1998, the Company's
common stock listing was removed from the Vancouver Stock Exchange.
Holders of Common Stock are entitled to receive dividends if and
when declared by the Board of Directors out of funds legally available
therefor. It has been the Company's policy to retain earnings to
finance the growth of its business. Accordingly, the Company has not
issued a cash dividend and has no plans to do so in the near future.
As of March 31, 2000, there were approximately 500 stockholders of
record of the Company's Common Stock.
Effective May 5,1999 the Company's NASDAQ stock symbol changed
from "NICKF" to "NICK".
The following table reflects the high and low sale prices for the
Company's common stock on NASDAQ for fiscal 2000 and fiscal 1999.
<TABLE>
<S> <C> <C>
Price Range of Common Stock:
Year ended March 31, 2000 High Low
First Quarter ........... $4.55 $3.50
Second Quarter........... 5.50 3.63
Third Quarter............ 5.38 4.03
Fourth Quarter............ 5.75 4.13
Year ended March 31, 1999 High Low
First Quarter ........... $3.75 $2.88
Second Quarter........... 3.25 2.13
Third Quarter............ 3.63 2.25
Fourth Quarter............ 4.38 3.00
</TABLE>
<PAGE> 14
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Consolidated net income increased in the fiscal year ended March
31, 2000 to $2,577,568 or $1.01 per diluted share from $1,602,356 or
$0.65 per diluted share in the fiscal year ended March 31, 1999.
Earnings for the year were favorably impacted by significant growth in
the outstanding loan portfolio, improved portfolio performance and an
improvement in the cost of funds.
The following table sets forth certain financial data:
<TABLE>
<CAPTION>
Years Ended March 31
2000 1999
--------------------------
<S> <C> <C>
Average Net Finance Receivables(1) $55,015,469 $43,578,531
Average Indebtedness(2) 34,530,273 27,923,366
Interest Income 13,557,371 9,922,689
Interest Expense 2,771,100 2,358,838
Net Interest Income 10,786,271 7,563,851
-------------------------
Gross Portfolio Yield(3) 24.64% 22.77%
Average Cost of Borrowed Funds(2) 8.03% 8.45%
Net Interest Spread(4) 16.61% 14.32%
-------------------------
Net Portfolio Yield(3) 19.61% 17.36%
-------------------------
Write-off to Liquidation 6.71% 7.93%
Net Charge-Off Percentage 5.88% 6.84%
<FOOTNOTE>
(1)Average net finance receivables represent the average of net
finance receivables throughout the year. Net finance receivables
represents gross finance receivables less any unearned finance
charges related to those receivables.
(2)Average Indebtedness represents the average outstanding borrowings
under its line of credit, subordinated debt and notes payable.
Average cost of borrowed funds represents interest expense as
percentage of average indebtedness.
(3)Gross portfolio yield represents interest income as a percentage of
average finance receivables. Net portfolio yield represents net
interest income as a percentage of average finance receivables.
(4)Net interest spread represents the gross portfolio yield less the
average cost of borrowed funds.
</TABLE>
<PAGE> 15
Fiscal 2000 compared to Fiscal 1999
Interest Income and Loan Portfolio
Interest income on finance receivables, predominantly finance
charge income, increased 37% to $13.6 million in fiscal 2000 from $9.9
million in fiscal 1999. The net finance receivable balance totaled
$52.0 million at March 31, 2000, an increase of 30% from the $39.9
million at March 31, 1999. The gross finance receivable balance
increased 31% to $82.8 million at March 31, 2000 from $63.4 million at
March 31, 1999. The primary reason interest revenue increased was the
increase in the outstanding loan portfolio. The primary reason the
gross portfolio yield increased was the result of lower than
anticipated write-off's on the existing portfolio. The primary reason
net finance receivables increased was the opening of three additional
offices and the increased receivable base of several existing branch
offices.
Computer Software Business
In fiscal 2000, the revenues of NDS were $517,445 compared with
fiscal 1999 revenues of $495,849, an increase of 4%. This increase was
primarily due to an increase in the installations of upgrades to
existing customers, driven by the year 2000 issue. Operating income
for fiscal 2000 was $13,205 compared with an operating income of
$24,245 for fiscal 1999. The Company expects both operating revenues
and income of NDS to remain stable, although no assurance can be given
in this regard.
Operating Expenses
Operating expenses excluding provision for credit losses and
interest expense increased to $5.8 million in fiscal 2000 from $4.5
million in fiscal 1999. This increase of 29% was primarily
attributable to the opening of three additional branch locations,
increasing the number of employees in several existing branch
locations and also increasing the number of corporate personnel. The
Company has increased its work force from 71 employees at the end of
fiscal 1999 to 84 employees at the end of fiscal 2000.
Interest Expense
Interest expense increased to $2.8 million in fiscal 2000 as
compared to $2.4 million in fiscal 1999. This increase was due to an
increase in average outstanding borrowings from $27.9 million to $34.5
million. The effect of this increase was offset in part by a decrease
in the Company's effective average cost of borrowing from 8.45% in
fiscal 1999 to 8.03% in fiscal 2000.
Analysis of Credit Losses
Because of the nature of the borrowers under the Contracts and its
direct consumer loan program, the Company considers the establishment
of adequate reserves for credit losses to be imperative. The Company
segregates its Contracts into pools for purposes of establishing
reserves for losses. Each such pool consists of the loans purchased
by a Company branch office during a three month period. The average
pool consists of 75 Contracts with an aggregate initial principal
amount of approximately $593,027. As of March 31, 2000, the Company
had 238 active pools.
<PAGE> 16
The Company pools Contracts according to branch location because
the branches purchase contracts in different markets located in
Florida, Georgia and North Carolina. All Contracts purchased by a
branch during a fiscal quarter comprise a pool. This method of pooling
by branch and quarter allows the Company to evaluate the different
markets where the branches operate. The pools also allow the Company
to evaluate the different levels of customer income, stability, credit
history, and the types of vehicles purchased in each market.
A pool retains an amount equal to 100% of the discount into a
reserve for credit losses. In situations where, at the date of
purchase, the discount is determined to be insufficient to absorb all
potential losses associated with the pool, a portion of future
unearned income associated with that specific pool will be added to
the reserves for credit losses until total reserves have reached the
appropriate level. Subsequent to the purchase, if the reserve for
credit losses is determined to be inadequate for a pool which is not
fully liquidated, then a charge to income is used to reestablish
adequate reserves. If a pool is fully liquidated and has any remaining
reserves, the excess reserves are recognized as income.
In analyzing a pool, the Company considers the performance of
prior pools originated by the branch office, the performance of prior
Contracts purchased from the dealers whose Contracts are included in
the current pool, the credit rating of the borrowers under the
Contracts in the pool, and current market and economic conditions.
Each pool is analyzed monthly to determine if the loss reserves are
adequate and adjustments are made if they are determined to be
necessary. As of March 31, 2000, the Company had established reserves
for losses on Contracts of $10,968,714 or 13.25% of gross outstanding
receivables under the Contracts.
<PAGE> 17
The following tables present certain information regarding the
delinquency rates experienced by the Company with respect to Contracts
and under its direct consumer loan program:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contracts
Gross Balance Outstanding $79,218,572 $61,486,782
Dollar Dollar
Delinquencies Amount Percent Amount Percent
---------- ------- ---------- -------
30 to 59 days $1,710,659 2.16% $1,404,387 2.28%
60 to 89 days 171,880 0.22% 307,239 0.50%
90 + days 88,949 0.11% 155,271 0.25%
---------- ----------
Total Delinquencies $1,971,488 $1,866,897
Total Delinquencies as a
percent of outstanding balance 2.49% 3.03%
Direct Loans
Gross Balance Outstanding $3,574,364 $1,952,418
Delinquencies
30 to 59 days 15,421 0.43% 9,791 0.50%
60 to 89 days 6,301 0.18% 12,186 0.62%
90 + days 4,746 0.13% 6,009 0.31%
------ ------
Total Delinquencies $26,468 $27,986
Total Delinquencies as
apercent of outstanding Balance 0.74% 1.43%
</TABLE>
The provision for credit losses was $1,069,719 in fiscal 2000 as
compared to $940,922 in fiscal 1999. This was primarily the result of
a 30% increase in the net portfolio over last year. The Company
decreased its total reserve percentage from 13.48% of gross finance
receivables for fiscal year ended March 31, 1999 to 13.25% for the
fiscal year ended March 31, 2000. Management believes that the reserve
adjustments made during fiscal 2000 are consistent with its reserve
methodology.
<PAGE> 18
Income Taxes
The provision for income taxes in fiscal 2000 increased 85% to
$1,853,229 from $1,003,242 in fiscal 1999 as a result of higher pretax
income and the reversal of a prior year income tax benefit in
connection with a shareholder warrant. The Company's effective tax
rate increased from 38.50% in fiscal 1999 to 41.83% in fiscal 2000.
Net Income
As a result of the above factors, net income increased from
$1,602,356 in fiscal 1999 to $2,577,568 in fiscal 2000.
Liquidity and Capital Resources
The Company's cash flows for fiscal 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
2000 1999
------------- -------------
<S> <C> <C>
Cash provided by (used in):
Operations $4,946,212 $2,217,609
Investing activities -
(primarily purchase of
installment contracts) (13,366,705) (8,523,794)
Financing activities 8,170,258 6,511,643
---------- ---------
Net increase (decrease) in cash $(250,235) $205,458
========== =========
</TABLE>
The Company's primary use of working capital during fiscal year
2000 was the funding of the purchase of Contracts. The Contracts were
financed substantially through borrowings on the Company's $45 million
line of credit. The line of credit, which expires in November 2002,
is secured primarily by Contracts, and available borrowings are based
on a percentage of qualifying Contracts. As of March 31, 2000 the
Company had approximately $6.6 million available under the line of
credit. Since inception, the Company has also funded a portion of its
working capital needs from cash flows from operating activities.
The self-liquidating nature of installment Contracts and other
loans enables the Company to assume a higher debt-to-equity ratio than
in most businesses. The amount of debt the Company incurs from time to
time under these financing mechanisms depends on the Company's need
for cash and it's ability to borrow under the terms of its line of
credit. The Company believes that borrowings available under the line
of credit as well as cash flow from operations and, if necessary, the
issuance of additional subordinated debt and or additional securities
in the capital markets, will be sufficient to meet its short term
funding needs.
<PAGE> 19
Impact of Inflation
The Company is affected by inflation primarily by increased
operating costs, and expenses including increases in interest rates.
Inflationary pressures on operating costs and expenses have been
offset by the Company's continued emphasis on stringent operating and
cost controls and to a lesser extent by modest increases in support
rates from its software subsidiary, NDS. Management believes that the
Company's financial position has enabled it to negotiate favorable
interest rates. No assurances can be given that the Company will be
able to continue to do so in the future.
The Company believes that a downturn in the economy would
increase the number of purchasers of automobiles financed with
Contracts. During a modest downturn in economic activity more people
will experience a reduction in income because of downsizing, fewer and
smaller raises, and the necessity of accepting lower paying jobs. In
addition, it may be difficult for individuals who have financially
over-extended themselves to meet their debt obligations and they may
find it necessary to purchase used rather than new automobiles.
Although the number of potential customers can be expected to increase
during periods of slow economic activity, the number of defaults in
payment obligations can also be expected to increase with a resulting
increase in repossessions of vehicles securing Contracts. The Company
is not able to predict whether or not the net effect of such a
downturn would be favorable or unfavorable to the operating results of
the Company, although the Company believes that a severe downturn in
economic activities could have a material adverse effect on its
business, financial condition and results of operations.
Future Expansion
The Company will seek to continue its expansion through the
purchase of additional Contracts and the expansion of its direct
consumer loan program. In order to increase the size of the Company's
portfolio of Contracts, it will be necessary for the Company to open
additional branch offices and increase the size of its revolving line
of credit arrangement, either with its current lender or another
lender. The Company, from time to time, has and will meet with
private investors and financial institutions that specialize in
investing in subordinated debt. The Company believes that the addition
of more debt that is subordinate to the line of credit will make it
possible for the Company to continue to meet or exceed its covenants
under the loan agreement, increase the amount of funds drawn down
under its line of credit, and draw funds under the line at a faster
rate. The Company also intends to continue its policy of not paying
dividends and using earnings from operations to purchase Contracts or
make direct consumer loans. The Company believes that opportunity for
growth continues to exist in Florida, Georgia and North Carolina and
intends to continue its expansion activities in those states. The
Company is also exploring the possibility of expanding into additional
states; but it does not have any current plans to do so. No assurances
can be given that the Company will be able to continue to expand its
operations.
Item 7. Financial Statements
The following financial statements are filed as part of this report
(see pages 20-40)
Report of Independent Auditors..............................20
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................21
Consolidated Statements of Income and Retained Earnings.....22
Consolidated Statements of Cash Flows.......................23
Notes to the Consolidated Financial Statements..............24
<PAGE> 20
Report of Independent Auditors
To the Board of Directors of
Nicholas Financial, Inc.
We have audited the accompanying consolidated balance sheets of
Nicholas Financial, Inc. and subsidiaries as of March 31, 2000
and 1999, and the related consolidated statements of income and
retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nicholas Financial, Inc. and subsidiaries
at March 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States.
Ernst & Young,LLP
May 24, 2000
Tampa, Florida
<PAGE> 21
Nicholas Financial, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31
2000 1999
-------------------------
<S> <C> <C>
Assets
Cash $ 259,183 $ 509,418
Finance receivables, net 52,015,107 39,923,471
Accounts receivable 20,922 22,932
Prepaid expenses and other assets 392,684 308,844
Property and equipment, net 331,594 217,293
Deferred income taxes 1,115,888 1,275,056
-------------------------
Total assets $54,135,378 $42,257,014
=========================
Liabilities
Line of credit $38,414,549 $29,964,549
Notes payable-related party 1,318,008 1,606,765
Accounts payable 2,695,622 1,735,356
Income taxes payable 44,965 -
Deferred revenues 518,718 387,944
Other liabilities 16,232 21,699
-------------------------
43,008,094 33,716,313
Shareholders' Equity
Preferred stock, no par: 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, no par: 50,000,000 shares
authorized; 2,352,008 and 2,349,108 shares
issued and outstanding, respectively 3,711,602 3,702,587
Retained earnings 7,415,682 4,838,114
-------------------------
11,127,284 8,540,701
-------------------------
Total liabilities and shareholders' equity $54,135,378 $42,257,014
=========================
See accompanying notes.
</TABLE>
<PAGE> 22
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Year ended March 31
2000 1999
------------------------
<S> <C> <C>
Revenue:
Interest income on finance receivables $13,557,371 $ 9,922,689
Sales 517,445 495,849
------------------------
14,074,816 10,418,538
Expenses:
Cost of sales 90,471 102,368
Marketing 396,307 369,968
Administrative 5,225,373 3,950,839
Provision for credit losses 1,069,719 940,922
Depreciation 91,049 90,005
Interest expense 2,771,100 2,358,838
------------------------
9,644,019 7,812,940
------------------------
Operating income before income taxes 4,430,797 2,605,598
Income tax expense (benefit):
Current 1,694,061 1,327,520
Deferred 159,168 (324,278)
------------------------
1,853,229 1,003,242
------------------------
Net income 2,577,568 1,602,356
========================
Retained earnings, beginning of year 4,838,114 3,235,758
------------------------
Retained earnings, end of year $7,415,682 $4,838,114
========================
Earnings per share:
Basic $1.10 $.68
========================
Diluted $1.01 $.65
========================
Weighted average shares - basic 2,352,286 2,357,984
========================
Weighted average shares - diluted 2,656,315 2,622,782
========================
See accompanying notes.
</TABLE>
<PAGE> 23
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31
2000 1999
--------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,577,568 $ 1,602,356
Adjustments to reconcile net income to net
cash provided
by operating activities:
Depreciation 91,049 90,005
Provision for credit losses 1,069,719 940,922
Deferred income taxes 159,168 (324,278)
Changes in operating assets and
liabilities:
Accounts receivable 2,010 473
Prepaid expenses and other assets (83,840) (61,999)
Deferred revenues 130,774 146,815
Accounts payable 960,266 (7,102)
Other liabilities (5,467) 299
Income taxes payable 44,965 (169,882)
--------------------------
Net cash provided by operating activities 4,946,212 2,217,609
Investing activities
Increase in finance receivables, net of
principal collected (13,161,355) (8,439,982)
Purchase of property and equipment, net of
disposals (205,350) (83,812)
--------------------------
Net cash used in investing activities (13,366,705) (8,523,794)
Financing activities
(Repayment) proceeds of notes payable
-related party (288,757) 15,170
Net proceeds from line of credit 8,450,000 6,533,955
Sale (repurchase) of common stock 9,015 (37,482)
--------------------------
Net cash provided by financing activities 8,170,258 6,511,643
--------------------------
Net (decrease) increase in cash (250,235) 205,458
Cash, beginning of year 509,418 303,960
--------------------------
Cash, end of year $259,183 $509,418
==========================
See accompanying notes.
</TABLE>
<PAGE> 24
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
March 31, 2000
1. Organization
Nicholas Financial, Inc. (NFI, Canada) is a Canadian holding
company incorporated under the laws of British Columbia with two
wholly-owned United States subsidiaries, Nicholas Data Services,
Inc. (NDS) and Nicholas Financial, Inc. (NFI). NDS is engaged
principally in the development, marketing and support of computer
application software. NFI is engaged principally in providing
installment sales financing. Both NDSI and NFI are based in
Florida, U.S.A. The accompanying financial statements are stated
in U.S dollars and are presented in accordance with accounting
principles generally accepted in the United States.
2. Accounting Policies
Consolidation
The consolidated financial statements include the accounts of
NFI, Canada and its wholly-owned subsidiaries, NDS and NFI,
collectively referred to as the Company. All intercompany
transactions and balances have been eliminated.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for
repairs and maintenance are charged to expense as incurred.
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the
assets as follows:
Automotive 3 years
Equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Lease term
<PAGE> 25
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
2. Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is increased by charges against
earnings and decreased by charge-offs (net of recoveries). In
addition to the allowance for loan losses, a nonrefundable dealer
reserve has been established using unearned interest and dealer
discounts to absorb potential credit losses. To the extent actual
credit losses exceed these reserves, a bad debt provision is
recorded; and to the extent credit losses are less than the
reserve, the reserve is accreted into income as an adjustment to
the interest yield over the term of the underlying finance
receivables.
Management's periodic evaluation of the adequacy of the allowance
is based on the Company's past loan experience, known and
inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of
any underlying collateral, and current economic conditions.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in
income in the period that includes the enactment date.
<PAGE> 26
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
2. Accounting Policies (continued)
Revenue Recognition
Revenues resulting from the sale of hardware and software are
recognized upon delivery of the products. Revenues from software
support maintenance and lease agreements are recognized pro rata
over the life of the agreements. The unamortized amounts are
included in the caption "deferred revenues."
Interest income on finance receivables is recognized using the
interest (actuarial) method. Accrual of interest income on
finance receivables is suspended when a loan is contractually
delinquent for 60 days or more or the collateral is repossessed,
whichever is earlier.
Earnings Per Share
Basic earnings per share excludes any dilutive effects of common
stock equivalents such as options, warrants, and convertible
securities. Diluted earnings per share includes the effects of
dilutive options, warrants, and convertible securities. Basic and
diluted earnings per share have been computed as follows:
<PAGE> 27
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
2. Accounting Policies (continued)
<TABLE>
<CAPTION>
Year ended March 31
2000 1999
--------------------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share
-Net income available to
common stockholders $2,577,568 $1,602,356
Effect of dilutive securities:
Convertible debt 94,023 99,636
--------------------------
Numerator for dilutive earnings
per share - income available to
common stockholders after
assumed conversions $2,671,591 $1,701,992
==========================
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,352,286 2,357,984
Effect of dilutive securities: (A)
Employee stock options 54,231 -
Convertible debt 249,798 264,798
--------------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 2,656,315 2,622,782
==========================
Earnings per share - basic $1.10 $0.68
==========================
Earnings per share - diluted $1.01 $0.65
==========================
<FOOTNOTE>
Footnote A:
Options - 215,200
Warrants 333,333 333,333
The options and warrants above were
outstanding but not included in the
computation of diluted earnings per
share because the effect would be
antidilutive.
</TABLE>
<PAGE> 28
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
2. Accounting Policies (continued)
Stock Option Accounting
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its stock
option grants and to present the disclosure requirements relating
to stock-based compensation plans required by Financial
Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (FAS 123).
Financial Instruments
The Company's financial instruments consist of finance
receivables, accounts receivable, line of credit, notes
payable-related party and accounts payable. For each of these
financial instruments, the carrying value approximates its fair
value.
The Company's financial instruments that are exposed to
concentrations of credit risk are primarily finance receivables,
which are concentrated in the States of Florida, Georgia and
North Carolina. The Company provides credit during the normal
course of business and performs ongoing credit evaluations of it
customers. The Company maintains allowances for potential credit
losses which, when realized, have been within the range of
management's expectations. The Company perfects a primary
security interest in all vehicles financed as a form of
collateral.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Statement of Cash Flows
Cash paid for income taxes for the years ended March 31, 2000 and
1999 was $1,596,183 and $1,550,316 respectively. Cash paid for
interest for the years ended March 31, 2000 and 1999 was
$2,631,370 and $2,322,178, respectively.
<PAGE> 29
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 , Accounting for Derivative Instruments and
Hedging Activities (FAS 133). The Company expects to adopt the
new statement effective April 1, 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at
fair value. The Company does not anticipate that the adoption of
the Statement will have a significant effect on its results of
operations or financial position.
3. Finance Receivables
Finance receivables consist of consumer automobile finance
installment contracts and are detailed as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------
<S> <C> <C>
Finance receivables,
gross contract $82,792,936 $63,439,200
Less:
Unearned interest (19,809,115) (14,967,179)
--------------------------
62,983,821 48,472,021
Nonrefundable dealer reserve (8,444,103) (6,643,593)
Allowance for credit losses (2,524,611) (1,904,957)
--------------------------
Finance receivables, net $52,015,107 $39,923,471
==========================
</TABLE>
The terms of the receivables range from 12 to 60 months and bear
a weighted average effective interest rate of 24% for both 2000
and 1999, respectively.
<PAGE> 30
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
3. Finance Receivables (continued)
The following table sets forth a reconciliation of the changes in
nonrefundable dealer reserves for the years ended March 31.
<TABLE>
<CAPTION>
2000 1999
--------------------------
<S> <C> <C>
Balance at beginning of year $6,643,593 $4,525,034
Discounts acquired on new volume 6,785,407 5,330,351
Recoveries 520,264 269,151
Accreted to income (2,046,012) (724,520)
Losses absorbed (3,459,149) (2,756,423)
--------------------------
Balance at end of year $8,444,103 $6,643,593
==========================
Reserve as a percent of gross
finance receivables 10.20% 10.47%
==========================
The following table sets forth a reconciliation of the changes in
the allowance for doubtful accounts for the years ended March 31.
2000 1999
----------------------------
Balance at beginning of year $1,904,957 $1,612,106
Current year provision 1,069,719 940,922
Accreted to income (80,607) (36,138)
Losses absorbed (369,458) (611,933)
--------------------------
Balance at end of year $2,524,611 $1,904,957
==========================
Reserve as a percent of gross
finance receivables 3.05% 3.00%
==========================
</TABLE>
<PAGE> 31
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
4. Property and Equipment
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
--------------------------------
<S> <C> <C> <C>
2000
Automotive $88,670 $11,230 $77,440
Equipment 326,155 201,813 124,342
Furniture and
fixtures 138,304 85,715 52,589
Leasehold
improvements 166,225 89,002 77,223
--------------------------------
$719,354 $387,760 $331,594
================================
1999
Automotive $45,664 $13,466 $32,198
Equipment 276,476 160,463 116,013
Furniture and
fixtures 117,596 72,660 44,936
Leasehold
improvements 92,643 68,497 24,146
--------------------------------
$532,379 $315,086 $217,293
================================
</TABLE>
<PAGE> 32
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
5. Line of Credit
The Company has a $45,000,000 line of credit facility (the Line)
with BA Business Credit, Inc. of which $38,414,540 is outstanding
at March 31, 2000 and which expires on November 30, 2002.
Borrowings under the Line bear interest at the Bank of America
prime rate or several Libor pricing options. Pledged as
collateral for this credit facility are all of the assets of
Nicholas Financial Inc. and its subsidiaries.
On May 11, 1999 the Company entered into an interest rate swap
with a notional amount of $10 million at a fixed rate of 5.81%,
maturing on May 24, 2002. On May 21, 1999 the Company entered
into two interest rate swaps with notional amounts of $5 million
each, at fixed rates of 5.81% and 6.08%, maturing on May 24, 2001
and May 24, 2004, respectively.
On August 18, 1999 the Company terminated a $5 million swap
maturing on May 24, 2004 in exchange for $52,000. In addition the
Company entered into an interest rate swap with a notional amount
of $10 million at a fixed rate of 5.80%, provided that 30 day
libor does not exceed 8%, maturing on May 24, 2003. In the event
30 day libor exceeds 8.00% , the fixed rate of 5.80% would swap
back to the variable rate for all periods where 30 day libor
exceeds 8.00%.
The Company utilizes the above noted interest rate swaps to
manage its interest rate exposure. The swaps effectively convert
a portion of the Company's floating rate debt to a fixed rate,
more closely matching the interest rate characteristics of the
Company's finance receivables.
<PAGE> 33
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
6. Notes Payable-Related Party
Notes payable to shareholders, directors and individuals related
thereto at March 31:
<TABLE>
<CAPTION>
2000 1999
--------------------
<S> <C> <C>
Notes payable, unsecured, with
interest at varying rates up to
12%, quarterly and semiannual
interest payments due through
January 2002, at which time the
entire principal balance and
unpaid interest is due,
subordinated to the Line. The
notes are convertible at the
option of the holder, into common
shares at prices from $4.50 to
$6.00 per share. $850,000 $1,150,000
Notes payable, unsecured interest
at 12%, quarterly interest due
through April 2000, at which time
the entire balance and unpaid
interest is due, subordinated to
the Line. The note is convertible
at the option of the holder, into
common shares at $8.25 per share. 200,000 200,000
Note payable, unsecured, interest
at 12%, principal and interest due
through August 2001. 219,270 249,211
Note payable, unsecured, interest
at 12%, principal and interest due
upon 30 day demand. 48,738 7,554
--------------------------
$1,318,008 $1,606,765
==========================
</TABLE>
Maturities of notes payable are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending March 31
---------------------
2001 $248,738
2002 1,069,270
----------
$1,318,008
==========
</TABLE>
The company incurred interest expense on the above notes of
$197,499 and $200,140 for the years ended March 31, 2000 and
1999, respectively.
<PAGE> 34
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
7. Income Taxes
The provision for income taxes reflects an effective U.S tax
rate, which differs from the corporate tax rate (34%) for the
following reasons:
<TABLE>
<CAPTION>
2000 1999
-----------------------
<S> <C> <C>
Provision for income taxes at Federal
statutory rate $1,506,471 $885,903
Increase resulting from:
State income taxes, net of
Federal benefit $243,694 117,252
Other 103,064 87
----------------------
$1,853,229 $1,003,242
======================
The Company's deferred tax assets consist of the following as of
March 31:
2000 1999
-----------------------
Allowance for credit losses not
deductible for tax purposes $1,038,867 $1,056,988
Deferred compensation related to stock
options and warrants - 157,000
Other items 77,021 61,068
-----------------------
$1,115,888 $1,275,056
=======================
</TABLE>
NFI, Canada has income tax loss carryforward balances of
approximately Cdn$277,000 (1999-Cdn$256,000) which are
available to reduce future taxable income and which expire as
follows:
For the years ended March 31, 2000 and 1999, the Company would
have recorded deferred tax assets of approximately $86,000 and
$82,000, respectively, due primarily to these Canadian income tax
loss carryforwards. The assets, however, are offset entirely by a
valuation allowance due to the relative uncertainty surrounding
the realization of the assets.
<PAGE> 35
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
8. Shareholders' Equity
Changes in the outstanding common stock are as follows:
<TABLE>
<CAPTION>
Number Common
Of Stock
Shares
------------------------
<S> <C> <C>
Balance at March 31, 1998 2,357,013 $3,740,069
Changes in 1999:
Issued in connection with employee bonus
plan 6,595 21,444
Shares repurchased (14,500) (58,926)
------------------------
Balance at March 31, 1999 2,349,108 $3,702,587
========================
Changes in 2000:
Issued in connection with employee bonus
plan 4,000 19,000
Issued for cash upon exercise of options 1,000 3,400
Shares repurchased (2,100) (13,385)
------------------------
Balance at March 31, 2000 2,352,008 $3,711,602
========================
</TABLE>
The Company has a warrant outstanding entitling a director to
purchase 333,333 common shares at $5.28 U.S until September 3,
2000. At March 31, 2000, the warrant was fully exercisable.
The Company has an employee stock incentive plan (the SIP) for
officers, directors and key employees under which 258,700 shares
of common stock were reserved for issuance as of March 31, 2000.
Options currently granted by the Company generally vest over a
five year period.
<PAGE> 36
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
8. Shareholders' Equity (continued)
The Company has elected to follow APB 25, and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under FAS 123, requires use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, if the exercise price of
the Company's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share
as required by FAS 123 has been determined as if the Company has
accounted for its employee stock options and warrants granted
subsequent to December 31, 1994 under the fair value method of
that Statement. The fair value for these options and warrants was
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for
2000 and 1999;
<TABLE>
<CAPTION>
2000 1999
-----------------
<S> <C> <C>
Risk free rate of return 6.40% 5.38%
Volatility factor 0.479 0.531
Expected life 5 years 5 years
Expected dividends None None
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuations models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options and warrants have
characteristics significantly different from those of traded
options and warrants, and because changes in the subjective input
assumptions can materially effect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options and warrants.
<PAGE> 37
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
8. Shareholders' Equity (continued)
For purposes of pro forma disclosures, the estimated fair value
of the options and warrants is amortized to expense over the
option and warrant's vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
2000 1999
----------------------
<S> <C> <C>
Pro forma net income $2,511,971 $1,553,839
Pro forma earnings per share:
Basic $1.07 $.66
Diluted $.98 $.63
</TABLE>
The following table reflects activity within the SIP for the
years noted:
<TABLE>
<CAPTION>
2000 1999
------- -------
Options Weighted Options Weighted
& Average & Average
Warrants Exercise Price Warrants Exercise Price
------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding-beginning
of year 548,533 $4.42 468,120 $5.00
Granted 70,000 4.75 258,200 3.40
Exercised (1,000) 3.40 - -
Canceled/expired (25,500) 3.42 (177,787) 3.92
-------- --------
Outstanding-end of
year 592,033 4.62 548,533 4.42
======== ========
Exercisable at end
of year 371,073 5.09 333,333 5.07
======== ========
Weighted-average fair
value of options granted
during the year $2.37 $1.63
</TABLE>
<PAGE> 38
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
8. Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Currently Exercisable
Weighted ----------------------
Weighted Average Weighted
Average Remaining Average
Exercise Contractual Exercise
Shares Price Life Shares Price
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.00 to 3.99 188,700 $3.40 3.20 years 37,740 $3.40
4.00 to 4.99 70,000 4.75 4.61 years - -
5.00 to 5.28 333,333 5.28 0.42 years 333,333 5.28
------------------------------------------------------
Total 592,033 $4.62 1.80 years 371,073 $5.09
======== =======
</TABLE>
9. Employee Benefit Plans
The Company has a 401(k) profit sharing plan under which all
employees are eligible to participate. Employee contributions are
voluntary and subject to Internal Revenue Service limitations.
The Company matches, based on annually determined factors,
employee contributions provided the employee completes certain
levels of service annually. For 2000 and 1999, the Company
recorded expenses of $19,957 and $17,296, respectively, related
to this plan. In September of 1999 the Board of Directors
approved a $100,000 Company profit sharing contribution for 2000.
All employees who were eligible under the plan received a profit
sharing contribution that was based on their total compensation
in relation to the total compensation of all eligible employees.
<PAGE> 39
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
10. Commitments
The Company leases its corporate office and branch offices under
operating lease agreements which provide for annual minimum
rental payments as follows:
<TABLE>
<CAPTION>
Year ending March 31
---------------------
<S> <C>
2001 $309,477
2002 242,437
2003 153,646
2004 31,575
2005 10,459
--------
$747,594
========
</TABLE>
Rent expense for the years ended March 31, 2000 and 1999 was
$270,087 and $217,192, respectively.
<PAGE> 40
Nicholas Financial, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (continued)
11 Segmented Information
The segments presented have been identified based on the
difference in the products and services of the Company's two
wholly-owned subsidiaries. Internal financial results for each
subsidiary are presented to and reviewed by the senior management
of the Company. Substantially all of the Company's operations
are in the United States. The industry segments are as follows:
<TABLE>
<CAPTION>
Computer
Application
General Software and
Financing Support Corporate Total
---------------------------------------------------
<S> <C> <C> <C> <C>
2000
Interest Income and Sales $13,557,371 $517,445 - $14,074,816
Operating income (loss)
before income taxes 4,432,982 13,205 (15,390) 4,430,797
Income tax expense 1,848,178 5,051 - 1,853,229
Identifiable assets 53,977,043 156,621 1,714 54,135,378
Capital expenditures 205,350 - - 205,350
Depreciation 90,895 154 - 91,049
1999
Interest Income and Sales $9,922,689 $495,849 $ - $10,418,538
Operating income (loss)
before income taxes 2,580,853 24,745 - 2,605,598
Income tax expense 993,714 9,528 - 1,003,242
Identifiable assets 42,073,291 179,849 3,874 42,257,014
Capital expenditures 83,812 - - 83,812
Depreciation 86,430 3,575 - 90,005
</TABLE>
12. Subsequent Events
On May 11, 2000 the Company entered into an interest rate swap
with a notional amount of $10 million at a fixed rate of 6.87%,
provided that 30 day libor does not exceed 7.7%, maturing on May
11, 2004. In the event 30 day libor exceeds 7.7% , the fixed rate
of 6.87% would swap back to the variable rate for all periods
where 30 day libor exceeds 7.7%.
<PAGE> 41
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The information set forth under the caption "Proposal 1: Election
of Directors" in the Proxy Statement and Information Circular, dated
on or about July 3, 2000, for the 2000 Annual General Meeting of
Members of Nicholas Financial - Canada to be held August 9, 2000 (the
"Proxy Statement"), the information set forth under the caption
"Executive Officers and Compensation" in the Proxy Statement, and the
information set forth under the caption "Section 16 (a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement are
incorporated by reference.
Additional information regarding the officers is set forth below.
Peter L. Vosotas, age 58, is the founder of the Company and
majority stockholder of Nicholas Financial-Canada. He has served as
Chairman of the Board, Chief Executive Officer and President of
Nicholas Financial-Canada and each of its subsidiaries since
formation. Prior to forming the Company, Mr. Vosotas held a variety
of Sales and Marketing positions with Ford Motor Company, GTE and AT&T
Paradyne Corporation. Mr Vosotas attended the United States Naval
Academy and earned a Bachelor of Science Degree in Electrical
Engineering from the University of New Hampshire.
As of March 31, 2000 there was one executive officer who was not
also a director of Nicholas Financial - Canada. Ralph T. Finkenbrink,
age 38, has served as Vice-President-Finance of Nicholas Financial -
Canada since July 1997. He joined the Company in 1988 and served as
Controller of Nicholas Financial and NDS until 1992. Prior to joining
the Company, he was a staff accountant for MBI, Inc. from January 1984
to March 1985 and Inventory Control Manager for The Dress Barn, Inc.
from March 1985 to December 1987. Mr. Finkenbrink received his
Bachelor of Science Degree in Accounting from Mount St. Mary's
University in Emmitsburg, Maryland.
<PAGE> 42
Item 10. Executive Compensation
The information set forth under the caption "Executive Officers
and Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the caption "Voting Shares and
Ownership of Management and Principal Holders" in the Proxy Statement
is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement is
incorporated herein by reference.
<PAGE> 43
SIGNATURES
In accordance with Section 13 or 15(d) 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.
NICHOLAS FINANCIAL, INC.
Dated: June 29, 2000
By: /s/ Peter L. Vosotas
Peter L. Vosotas
Chairman, Chief Executive Officer
and President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Peter L. Vosotas and Ralph T.
Finkenbrink, and each of them, his or her true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file
the same, with all exhibits thereto, and any other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and
agents or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Peter L. Vosotas Chairman of the Board, Chief June 29, 2000
Peter L. Vosotas Executive Officer, President
and Director
/s/ Ralph T. Finkenbrink Vice President - Finance June 29, 2000
Ralph T. Finkenbrink (Principal Financial Officer)
/s/ Ellis P. Hyman Director June 29, 2000
Ellis P. Hyman
/s/ Stephen Bragin Director June 29, 2000
Stephen Bragin
/s/ Alton R. Neal Director June 29, 2000
Alton R. Neal
/s/ Melvin S. Cutler Director June 29, 2000
Melvin S. Cutler
<PAGE> 44
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of Nicholas Financial, Inc. and By-
Laws
Incorporated by reference to the Company's Form 10-SB (File
No. 0-26680) filed on March 13, 1996
4.1 Stock Certificate
Incorporated by reference to Exhibit 4.1 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.1 Loan and Security Agreement dated March 31, 1993 between BA
Business Credit, Inc. and Nicholas Financial, Inc.
Incorporated by reference to Exhibit 10.1.1 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.2 Amendment No. 1 to Loan Agreement dated January 14, 1994
Incorporated by reference to Exhibit 10.1.2 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.3 Temporary Line Increase Agreement dated Mach 28, 1994
Incorporated by reference to Exhibit 10.1.3 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.4 Amendment No. 2 to Loan Agreement dated June 3, 1994
Incorporated by reference to Exhibit 10.1.4 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.5 Amendment No. 3 to Loan Agreement dated July 5, 1994
Incorporated by reference to Exhibit 10.1.5 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.6 Amendment No. 4 to Loan Agreement dated March 31, 1995
Incorporated by reference to Exhibit 10.1.6 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.7 Amendment No. 5 to Loan Agreement dated July 13, 1995
Incorporated by reference to Exhibit 10.1.7 to the Company's
Form 10-KSB for the fiscal year ended March 31, 1996
<PAGE> 45
10.1.8 Amendment No. 6 to Loan Agreement dated May 13, 1996
Incorporated by reference to Exhibit 10.1.8 to the Company's
Form 10-QSB for the three months ended June 30, 1996
10.1.9 Amendment No. 7 to Loan Agreement dated July 5, 1997
Incorporated by reference to Exhibit 10.1.9 to the Company's
Form 10-QSB for the three months ended September 30, 1997
10.2.0 Amendment No. 8 to Loan Agreement dated September 18, 1998
Incorporated by reference to Exhibit 10.2.0 to the Company's
Form 10-QSB for the three months ended September 30, 1998
10.2.1 Amendment No. 9 to Loan Agreement dated November 25, 1998
Incorporated by reference to Exhibit 10.2.1 to the Company's
Form 10-QSB for the three months ended December 31, 1998
10.2.2 Amendment No. 10 to Loan Agreement dated November 24, 1999
Incorporated by reference to Exhibit 10.2.2 to the Company's
Form 10-QSB for the three months ended December 31, 1999
10.3.1 Employee Stock Option Plan
Incorporated by reference to the Company's 1999 Annual
proxy statement dated June 29, 1999
10.3.2 Non-Employee Stock Option Plan
Incorporated by reference to the Company's 1999 Annual
proxy statement dated June 29, 1999
10.4.1 Employment Contract, dated November 22, 1999, between
Nicholas Financial, Inc. and Ralph Finkenbrink, Senior
Vice President of Finance.
Incorporated by reference to Exhibit 10.2.1 to the Company's
Form 10-QSB for the three months ended December 31, 1999
21 Subsidiaries of Nicholas Financial, Inc.
Incorporated by reference to the Company's Form 10-SB (File
No. 0-26680) filed on March 13, 1996
23 Powers of Attorney (included on signature page hereto)
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
