SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 12, 1997
(Date of earliest event reported)
SMART CHOICE AUTOMOTIVE GROUP, INC.
(formerly Eckler Industries, Inc.)
(Exact name of registrant as specified in its charter)
Florida 1-14082 59-1469577
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation or
organization)
5200 South Washington Avenue, Titusville, Florida 32780
(Address of principal executive offices, zip code)
(407) 269-9680
(Registrant's telephone number, including area code)
This Amendment No. 1 supplements the Report on Form 8-K
filed with the Securities and Exchange Commission on February
12, 1997 by Smart Choice Automotive Group, Inc., formerly known
as Eckler Industries, Inc. (the "Registrant") to file (a) the
financial statements of the acquired companies and (b) the pro
forma financial information relating to the business combination
of the Registrant and the acquired companies.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The following financial statements of businesses
acquired are included herein pursuant to Item 7(a):
SMART CHOICE HOLDINGS, INC.
Independent Auditors Report
Balance Sheet as of December 31, 1996
Statement of Operations for the period from
inception (June 21, 1996) through
December 31, 1996
Statement of Capital Deficit for the period
from inception (June 21, 1996) through
December 31, 1996
Statement of Cash Flows for the period from
inception (June 21, 1996) through December
31, 1996
Summary of Accounting Policies
Notes to Financial Statements
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
Independent Auditors Report
Combined Balance Sheets as of December 31,
1996 and 1995
Combined Statements of Operations for the
Years Ended December 31, 1996 and 1995
Combined Statements of Stockholders' Equity
for the Years Ended December 31, 1996 and
1995
Combined Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995
Notes to Combined Financial Statements
225 NORTH MILITARY TRAIL CORPORATION d/b/a MIRACLE
MILE MOTORS AND PALM BEACH FINANCE COMPANY, INC.
Independent Auditors Report
Combined Balance Sheets as of December 31,
1996 and 1995
Combined Statements of Income and Retained
Earnings for the Years Ended December 31,
1996 and 1995
Combined Statements of Cash Flows for the
Years ended December 31, 1996 and 1995
Notes to Combined Financial Statements
Supplemental Combining Balance Sheets as of
December 31, 1996
Supplemental Combining Statements of Income
and Retained Earnings for the Year Ended
December 31, 1996
Supplemental Combining Balance Sheets as of
December 31, 1995
Supplemental Combining Statements of Income
and Retained Earnings for the Year ended
December 31, 1995
FLORIDA FINANCE GROUP, INC., SUNCOAST AUTO
BROKERS, INC., and SUNCOAST AUTO BROKERS
ENTERPRISES, INC.
Independent Auditor's Report
Combined Balance Sheets as of December 31,
1996 and 1995
Combined Statement of Operations and Retained
Deficit for the Years Ended December 31,
1996 and 1995
Combined Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995
Notes to Combined Financial Statements
Supplemental Combining Balance Sheets as of
December 31, 1996
Supplemental Combining Statements of
Operations and Retained Earnings for the
Year Ended December 31, 1996
Supplemental Combining Balance Sheets as of
December 31, 1995
Supplemental Combining Statements of
Operations and Retained Earnings for the
Year Ended December 31, 1995
(b) Pro Forma Financial Information
The following pro forma financial information
is included herein pursuant to Item 7(b):
SMART CHOICE AUTOMOTIVE GROUP, INC.
Pro Forma Consolidated Financial Information -
Explanatory Headnote (unaudited)
Pro Forma Consolidated Balance Sheets as of December 31,
1996 (unaudited)
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1996 (unaudited)
Pro Forma Consolidated Statements of Operations for the
three months ended December 31, 1996 (unaudited)
Notes to Pro Forma Cnsolidated Financial Information
(unaudited)
(c) Exhibits
The Exhibits to this report are set forth in the Exhibit
Index set forth herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SMART CHOICE AUTOMOTIVE GROUP, INC.
By:/s/Gary R. Smith, President
April 14, 1997
EXHIBIT INDEX
99.1 Financial Statements of Smart Choice
Holdings, Inc. as of December 31, 1996,
and related statements of operations,
capital deficit and cash flows of the year
then ended, together with the report of
BDO Seidman, L.L.P.
99.2 Financial Statements of Liberty
Finance Company, Inc. And Affiliate as of
December 31, 1996 and 1995, and the
related combined statements of opertions,
stockholder's equity and cash flows of the
years then ended, together with the report
of Osburn, Henning & Co., CPA's, P.A.
99.3 Financial Statements of 225 North
Military Trail Corporation d/b/a Miracle
Mile Motors and Palm Beach Finance
Company, Inc. as of December 31, 1996 and
1995 and the related combined statements
of income and retained earnings, and cash
flows for the years then ended, together
with the report of Spence, Marston, Bunch,
Morris & Co., Certified Public
Accountants.
99.4 Financial Statements of Florida
Finance Group, Inc., Suncoast Auto Broker,
Inc. and Suncoast Auto Broker Enterprises,
Inc. as of December 31, 1996 and 1995 and
the related combined statements of
operations and retained deficits of cash
flows for the years then ended, together
with the report of Spence, Marston, Bunch,
Morris & Co., Certified Public
Accountants.
99.5 Pro Forma Financial Statements.
Smart Choice Holdings, Inc.
(A Development Stage Corporation)
Financial Statements
For the Period from Inception (June 21, 1996)
through December 31, 1996
Report of Independent Certified Public Accountants 3
Financial statements
Balance sheet 4 - 5
Statement of operations 6
Statement of capital deficit 7
Statement of cash flows 8
Summary of accounting policies 9 -10
Notes to financial statements 11 -13
Report of Independent Certified Public Accountants
To the Board of Directors
Smart Choice Holdings, Inc.
Titusville, Florida
We have audited the accompanying balance sheet of Smart Choice Holdings, Inc.
(a development stage corporation) as of December 31, 1996 and the related
statements of operations, capital deficit and cash flows for the period from
inception (June 21, 1996) through December 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smart Choice Holdings, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the period from inception (June 21, 1996) through December 31, 1996 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Orlando, Florida
April 3, 1997
December 31, 1996
Assets
Note receivable (Note 1) $ 400,000
Account receivable 25,000
Furniture and fixtures, net of accumulated depreciation of $2,13222,454
Deferred debt costs, net of accumulated amortization of $2,249 24,735
Deposits 50,000
Deferred acquisition costs 194,101
$ 716,290
<PAGE>
December 31, 1996
Liabilities and Capital Deficit
Liabilities:
Bank overdraft $ 82,884
Note payable (Note 2) 60,000
Accounts payable 438,890
Accrued expenses:
Payroll and related taxes 90,213
Interest 32,620
Other 60,481
Convertible debentures (Note 3) 262,000
Total liabilities 1,027,088
Commitments (Note 5) -
Capital deficit:
Convertible preferred stock, $.01 par value, authorized 10,000,000 shares;
400,000 shares designated as series A; issued 198,333 shares (Note 4)1,983
Common stock, $.001 par value, authorized 100,000,000 shares;
issued 5,488,432 shares 5,488
Additional paid-in capital 385,519
Deficit accumulated during development stage (703,788)
Total capital deficit (310,798)
$ 716,290
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
For the period from inception (June 21, 1996) through December 31, 1996
General and administrative expenses $ 670,616
Loss from operations (670,616)
Interest expense (33,172)
Net loss $(703,788)
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
Deficit
Accumulated
Preferred StockCommon StockAdditionalDuring Total
Number Par Number ParPaid-inDevelopmentCapital
of Shares Valueof Shares ValueCapital Stage Deficit
Balance, June 21, 1996
(date of incorporation) - $ - - $ - $ - $ - $ -
Issuance of founders'
shares - - 5,488,432 5,488 480 - 5,968
Sale of preferred stock, net of
offering expenses 198,333 1,983 - -385,039 - 387,022
Net loss - - - - -(703,788)(703,788)
Balance, December 31, 1996
198,333$1,9835,488,432$5,488$385,519$(703,788)$(310,798)
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
For the period from inception (June 21, 1996) through December 31, 1996
Cash flows from operating activities:
Net loss $(703,788)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation 2,132
Amortization 2,249
Issuance of common stock for services 4,968
Net changes in assets and liabilities:
Account receivable (25,000)
Accounts payable 438,890
Accrued expenses 183,314
Net cash used for operating activities (97,235)
Cash flows from investing activities:
Purchase of furniture and fixtures (24,586)
Increase in note receivable (400,000)
Increase in deposits (50,000)
Increase in deferred acquisition costs (194,101)
Net cash used for investing activities (668,687)
Cash flows from financing activities:
Proceeds from sale of preferred stock 387,022
Proceeds from sale of common stock 1,000
Proceeds from issuance of convertible debentures 262,000
Proceeds from note payable 60,000
Increase in bank overdraft 82,884
Increase in deferred debt costs (26,984)
Net cash provided by financing activities 765,922
Net increase in cash -
Cash at inception (June 21, 1996) -
Cash, end of period $ -
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
Organization
<PAGE>
The Company was incorporated under the laws of the State of Delaware on
June 21, 1996. From inception through December 31, 1996, the Company
has devoted substantially all its efforts to identifying companies in the used
car sales and finance business and companies providing insurance and
consulting services to automobile dealerships for possible merger and/or
acquisition.
Development Stage Corporation
<PAGE>
The Company is in the "development stage" as defined by Financial Account-
ing Standards Board Statement No. 7, which establishes standards of financial
accounting and reporting applicable to development stage enterprises.
Furniture and Fixtures
<PAGE>
Furniture and fixtures are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by accelerated methods for financial
reporting and income tax purposes.
Deferred Debt Costs
<PAGE>
Deferred debt costs include costs related to obtaining debt financing and are
being amortized over the term of the debt.
Deferred Acquisition Costs
<PAGE>
Deferred acquisition costs related to specific identifiable acquisitions and
will be allocated to the purchase price of the companies to be acquired.
Income Taxes
<PAGE>
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"). FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Measurement of deferred income tax is based on
enacted tax laws including tax rates, with the measurement of deferred income
tax assets being reduced by available tax benefits not expected to be realized.
Fair Value of Financial Instruments
<PAGE>
Fair value estimates discussed herein are based upon certain market assump-
tions and pertinent information available to management as of December 31,
1996. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
accounts and notes receivable, accounts and notes payable and accrued
expenses. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on demand.
Use of Estimates
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
<PAGE>
1. Note
Receivable<PAGE>
Note receivable consists of advances under a $800,000 line of
credit extended to a company which has signed a contract to be acquired by Smart
Choice Holdings, Inc. Advances under the line of credit bear interest at the
prime rate and are due and payable 30 days after written demand and are
collateralized by substantially all assets of the borrower.
2. Note Payable
<PAGE>
Note payable represents borrowings under an unsecured note which bears
interest at 12% and was due December 23, 1996. The note plus accrued
interest was repaid in March 1997. Under the terms of the note, the holder
was granted $30,000 worth of shares of common stock of the Company at
75% of the offering price when a secondary offering of the Company's stock
is completed. This amount has been recorded as interest expense in the
financial statements.
3. Convertible
Debentures
<PAGE>
The convertible debentures bear interest at 12% and are due on the earlier of
(i) November 19, 1997, (ii) the Company becomes a publicly-held corporation
through a merger or (iii) the Company completes a public offering of securities
that raises a minimum of $20 million in gross proceeds. The debentures are
convertible at any time prior to the maturity date into the Company's common
stock at the rate of one share of common stock for each $5.00 of outstanding
principal. Additionally, holders of the debentures who do not convert prior to
the maturity date shall receive, for each $20,000 debenture, a warrant to
purchase 1,200 shares of the Company's common stock for $3.00 per share
which shall be exercisable for a period of five years after their issuance.
4. Convertible Preferred Stock
<PAGE>
The Company is authorized to issue 10,000,000 shares of $.01 par value
preferred stock. The Board of Directors is authorized to provide for the
issuance of preferred stock in one or more series and to fix by resolution, the
number of shares to be included and such of the designations, powers and
other rights as are permitted by the Delaware General Corporation Law.
During 1996, the Company designated a total of 400,000 shares as Series A
convertible preferred stock. The liquidation preference of each preferred share
is $2.00. Upon the completion of an initial public offering of the Company,
each preferred share will be converted automatically into the higher of:(i) one
share of the Company's $.001 par value common stock or (ii) that number of
shares of common stock having a value (as measured by the initial public
offering sale price) equal to $9.00. In the event the Company fails to
successfully complete an initial public offering on or before December 31,
1997, the holders of all the preferred shares will have the right to convert
such shares into 80 percent of the common stock of the Company to be
outstanding following such conversion.
5. Commitments
<PAGE>
Employment Agreement
The Company has entered into an employment agreement with one of its
executives for a period of three years commencing October 9, 1996. The
agreement provides for annual base compensation of $150,000.
Consulting Agreements
On September 19, 1996, the Company entered into an agreement with a
financial consultant as its exclusive financial advisor on balance sheet
restructuring, acquisitions and divestitures or sale. The term of the
agreement is for 12 months, after which the agreement may be terminated by
either party upon 30 days written notice. Under the agreement, the Company
will pay the
financial advisor $25,000 per quarter. Additionally, the Company granted the
financial advisor a five-year option to purchase 250,000 shares of the
Company's common stock at $5.00 per share.
On August 21, 1996, the Company entered into an agreement with a firm to
provide public relations counsel. The agreement is for the period September 1,
1996 to August 30, 1997 and provides for a monthly retainer of $7,500.
Additionally, the Company granted the firm option agreements to purchase
45,000 shares of the Company's common stock at $3.00 per share.
6. Subsequent Event
<PAGE>
On January 28, 1997, the Company completed a series of transactions
whereby it acquired the outstanding capital stock or assets of the following
companies:
Dealer Development Services, Inc.
Dealer Insurance Services, Inc.
Florida Finance Group, Inc.
Suncoast Auto Brokers, Inc.
Suncoast Auto Brokers Enterprises, Inc.
Simultaneously with the closing of these transactions, the Company merged
with Eckler Industries, Inc. in a stock-for-stock transaction with the holders
of the common stock of the Company receiving one share of Eckler Industries,
Inc. common stock for each share of the Company's common stock.
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS:
Combined balance sheets 2
Combined statements of operations 3
Combined statements of stockholders' equity 4
Combined statements of cash flows 5
Notes to combined financial statements 7
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Liberty Finance Company, Inc. and Affiliates
Orlando, Florida
We have audited the accompanying combined balance sheets of
Liberty Finance Company, Inc. and affiliates as of December 31,
1996 and 1995, and the related combined statements of operations,
stockholders' equity, 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 generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
combined 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 combined financial statements referred to
above present fairly, in all material respects, the financial
position of Liberty Finance Company, Inc. and affiliates as of
December 31, 1996 and 1995, and the results of their operations and
their cash flows for the years then ended in conformity with
generally accepted accounting principles.
OSBURN, HENNING AND COMPANY
Orlando, Florida
March 26, 1997, except for
Note 6, as to which the
date is April 12, 1997
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
ASSETS
Cash $ 163,184 $ 8,368
Finance receivables, less allowance
for uncollectible accounts 11,383,431 9,804,684
Inventories 2,861,848 2,264,315
Land held for sale 1,050,000 1,050,000
Property and equipment, less accumulated
depreciation 272,543 241,210
Loan costs, less accumulated amortization
of $3,476 - 1996 and $20,197 - 1995 4,154 13,290
Other assets 83,754 68,159
$15,818,914 $13,450,026
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Cash overdraft $ - $ 11,269
Floor plan notes payable 1,378,601 785,163
Accounts payable 473,088 505,510
Sales taxes payable 23,535 49,471
Accrued interest 45,280 14,094
Accrued real estate taxes 47,262 58,900
Advances from related parties 197,237 182,096
Notes payable 13,059,981 10,640,827
Other liabilities 113,781 110,221
Total liabilities 15,338,765 12,357,551
STOCKHOLDERS' EQUITY
Common stock 700 1,500
Stock subscriptions (600) (1,400)
Additional paid-in capital 703,044 703,044
Retained earnings (deficit) (222,995) 389,331
Total stockholders' equity 480,149 1,092,475
$15,818,914 $13,450,026
The Notes to Combined Financial Statements are an integral part of
these statements.
- 2 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
1996 1995
AUTOMOBILE RETAILING
Sales $18,639,749 $11,786,657
Cost of sales 16,122,778 9,235,343
Gross profit 2,516,971 2,551,314
AUTOMOBILE FINANCING
Interest income 3,047,669 2,334,256
Interest expense (1,324,437) (1,105,558)
Interest income before provision
for credit losses 1,723,232 1,228,698
Provision for credit losses (1,324,787) (417,659)
Net interest income 398,445 811,039
INCOME FROM OPERATIONS 2,915,416 3,362,353
GENERAL AND ADMINISTRATIVE EXPENSE 3,527,742 2,772,391
NET INCOME (LOSS) $ (612,326) $ 589,962
The Notes to Combined Financial Statements are an integral part of
these statements.
- 3 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
Additional Retained
Common Stock Paid-In Earnings
StockSubscriptions Capital (Deficit) Total
Balance,
January 1, 1995 $ 500 $ (400) $250,400 $ 186,857 $ 437,357
Issuance of
common stock 1,000 (1,000) - - -
Contribution of
capital (1) - - 452,644 - 452,644
Net income - - - 589,962 589,962
Distributions - - - (387,488) (387,488)
Balance,
December 31, 1995 1,500 (1,400) 703,044 389,331 1,092,475
Merger of
affiliates (2) (800) 800 - - -
Net loss - - - (612,326) (612,326)
Balance,
December 31, 1996$ 700 $ (600) $703,044 $(222,995) $ 480,149
(1) The contribution of capital resulted from the assumption of a
note payable by a stockholder of the Company under a
refinancing agreement with the creditor.
(2) Merger of RRL Investments, Inc., RRL Central Enterprises, Inc.,
RRL Trading, Inc. and Team Automobile Sales & Finance East,
Inc. into Team Automobile Sales & Finance, Inc.
The Notes to Combined Financial Statements are an integral part of
these statements.
- 4 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $15,736,215 $ 7,999,776
Interest received 3,047,669 2,334,256
Cash paid to suppliers and employees (19,673,517) (11,764,018)
Interest paid (1,293,251) (1,091,464)
Net cash (used in) operating activities (2,182,884) (2,521,450)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (54,965) (159,373)
Net cash (used in) investing activities (54,965) (159,373)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties 15,141 182,096
Proceeds from issuance of notes payable 10,015,455 7,861,144
Principal payments on notes payable (7,630,301) (5,004,717)
Loan costs paid (7,630) -
Distributions to stockholder - (387,488)
Net cash provided by financing
activities 2,392,665 2,651,035
NET INCREASE (DECREASE) IN CASH 154,816 (29,788)
CASH, BEGINNING OF YEAR 8,368 38,156
CASH, END OF YEAR $ 163,184 $ 8,368
CONTINUED ON NEXT PAGE
The Notes to Combined Financial Statements are an integral part of
these statements.
- 5 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1996 and 1995
1996 1995
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
(USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (612,326) $ 589,962
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation 57,632 31,135
Amortization of loan costs 16,766 27,335
Provision for uncollectible
finance receivables 1,324,787 417,659
Decrease (Increase) In:
Finance receivables (2,903,534) (3,786,881)
Inventories (597,533) (1,017,419)
Other assets (15,595) 16,062
Increase (Decrease) In:
Accounts payable (32,422) 385,683
Floor plan note payable 593,438 739,363
Cash overdraft (11,269) 11,269
Sales taxes payable (25,936) 32,541
Accrued interest 31,186 14,094
Accrued real estate taxes (11,638) (240)
Other liabilities 3,560 17,987
Net cash (used in) operating activities$(2,182,884) $(2,521,450)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1996, the Company acquired a
vehicle through the assumption of long-term debt amounting to
$34,000.
During the year ended December 31, 1995, the Company had a
$452,644 non-cash decrease in notes payable, and related
contribution to capital due to the assumption of the note by a
stockholder under a refinancing agreement with the creditor.
The Notes to Combined Financial Statements are an integral part of
these statements.
- 6 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1. Nature of Business and Summary of Significant Accounting
Policies
Nature of Business:
The principal business activity of Liberty Finance Company,
Inc. and Affiliates (the Company) is retail and wholesale
sales, and the related financing, of used automobiles in
the Central Florida market.
Summary of Significant Accounting Policies:
Use of estimates:
In preparing the financial statements, management is
required to make estimates and assumptions that
affect certain reported amounts and disclosures.
Actual results could differ from those estimates.
Principles of combination:
The combined financial statements include Liberty
Finance Company, Inc. and the following related
entities under the common control of R.C. Hill, Jr.:
Wholesale Acquisitions, Inc., RRL Investments, Inc.,
RRL Central Enterprises, Inc., RRL Trading, Inc.,
Team Automobile Sales and Finance, Inc., and Team
Automobile Sales and Finance East, Inc. All
material intercompany transactions and balances have
been eliminated in combination.
Income recognition:
Vehicle sales are recognized when delivery is made.
Interest income from finance receivables is
recognized using the interest method.
CONTINUED ON NEXT PAGE
- 7 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1.Nature of Business and Summary of Significant Accounting
Policies - (Continued)
Summary of Significant Accounting Policies: (Continued)
Credit losses:
The allowance for uncollectible finance receivables
is maintained at a level which, in management's
judgment, is adequate to absorb potential losses
inherent in the loan portfolio. The amount of the
allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations,
trends in historical loss experience, specific
impaired loans, collateral values, and economic
conditions. Because of uncertainties associated
with regional economic conditions, collateral
values, and future cash flows on impaired loans, it
is reasonably possible that management's estimate of
credit losses inherent in the loan portfolio and the
related allowance may change materially in the near
term. However, the amount of change that is
reasonably possible cannot be estimated. The
allowance is increased by a provision for loan
losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or
credited to the provision for loan losses.
Inventories:
Inventories are stated at the lower of cost or
market. Cost is generally determined on a specific
unit basis.
Land held for sale:
The land, which is being held for sale, is recorded
at estimated fair value at date of contribution by
the Company's stockholder.
Property and equipment:
Property and equipment are stated at cost less
accumulated depreciation. Depreciation on furniture
and fixtures, and signs is computed using an
accelerated method, and on leasehold improvements
using the straight-line method, over the estimated
useful lives of the assets.
Loan costs:
Loan costs are amortized over the life of the loan
using the straight-line method.
CONTINUED ON NEXT PAGE
- 8 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1.Nature of Business and Summary of Significant Accounting
Policies - (Continued)
Summary of Significant Accounting Policies: (Continued)
Income taxes:
The Company, with the consent of its stockholders,
has elected under the Internal Revenue Code to be "S
corporations". In lieu of corporation income taxes,
the stockholders of an S corporation are taxed on
the Company's taxable income. Therefore, no
provision or liability for federal income taxes has
been included in these financial statements.
Modifications of 1995 financial statements:
The 1995 combined statement of operations as
previously reported has been modified to correct a
misclassification of losses on the sales of
repossessed automobiles in the amount of $406,154.
This modification increased provision for credit
losses, and decreased cost of sales, but had no
effect on net income. The 1995 combined financial
statements contain certain other reclassifications
in order to conform to the 1996 format.
Note 2. Finance Receivables
Finance receivables at December 31, 1996 and 1995 consist
of the following:
1996 1995
Finance receivables - gross $12,283,431 $10,304,684
Less allowance for uncollectible accounts 900,000
500,000
Finance receivables - net $11,383,431 $ 9,804,684
An analysis of the allowance for uncollectible finance
receivables for the years ended December 31, 1996 and 1995
is as follows:
1996 1995
Balance, beginning of year $ 500,000 $ 750,000
Provision for uncollectible finance
receivables 1,324,787 417,659
Loans charged off,
net of recoveries (924,787) (667,659)
Balance, end of year $ 900,000 $ 500,000
Finance receivables consist of installment sale contracts
with maturities that generally do not exceed 36 months.
The receivables are collateral- ized by the vehicles sold,
and the Company holds title to the vehicles until full
contract payment is made.
- 9 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 3. Inventories
Inventories at December 31, 1996 and 1995 consist of the
following:
1996 1995
Used cars $ 2,610,934$ 2,081,673
Used motorcycles 203,094 132,323
Accessories 47,820 50,319
$ 2,861,848$ 2,264,315
Note 4. Property and Equipment
Property and equipment at December 31, 1996 and 1995
consists of the following:
1996 1995
Furniture and fixtures $ 190,280$ 123,671
Leasehold improvements 130,895 115,880
Signs 55,768 48,427
376,943 287,978
Less accumulated depreciation 104,400 46,768
$ 272,543$ 241,210
Depreciation expense for the years ended December 31, 1996
and 1995 amounted to $57,632 and $31,135, respectively.
Note 5. Floor Plan Notes Payable
Floor plan notes payable at December 31, 1996 and 1995
consist of the following:
1996 1995
Floor plan note payable to financial
institution, collateralized by used car
inventory, maximum total advances of
$2,000,000 are available, note bears
interest at prime plus 2%, principal
and interest on individual advances due
90 days after advance or 48 hours from
time car is sold, agreement expires
June 30, 1997. $ 1,010,663$ 739,363
CONTINUED ON NEXT PAGE
- 10 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 5. Floor Plan Notes Payable - (Continued)
1996 1995
Floor plan note payable to stockholder,
collateralized by specific used cars
in inventory, bears interest at 15%,
principal and interest on individual
advances due 120 days after advance or
date car is sold. Balance paid off in
February 1997. $ 331,938$ 45,800
Floor plan note payable to relative of
stockholder, collateralized by
specific cars in inventory, bears
interest at 15%, principal and
interest on individual advances due
120 days after advance or date car is
sold. Balance paid off in
February 1997. 36,000 -
$ 1,378,601$ 785,163
Note 6. Notes Payable
Notes payable at December 31, 1996 and 1995 consist of the
following:
1996 1995
Unrelated Parties:
Uncollateralized notes payable to
individuals, payable in monthly
installments of interest only at
15%, due on demand. $ 20,000$ 20,000
Uncollateralized notes payable,
payable in monthly installments of
interest at 16%, matures in 1997. 180,000 180,000
Note payable to bank, collateralized
by land held for sale, payable in
monthly principal and interest
payments of $8,683, bears
interest of 7.75% until December
1998, after that date, payments
will be modified to reflect an
interest rate at 2.75% over the
then five year constant U. S.
Treasury Index, matures
December 2003. 561,683 619,750
CONTINUED ON NEXT PAGE
- 11 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6. Notes Payable - (Continued)
1996 1995
Unrelated Parties: (continued)
Note payable to bank, collateralized
by Ford Wrecker, payable in
monthly principal and interest
payments of $781, bears interest
of 9.5%, matures in December, 1998.$ 16,728$ 24
,073
Note payable under financing agreement,
collateralized by substantially all
Company assets except real estate,
maximum note is the lower of
$15,000,000 or 80% of outstanding
balance of finance receivables,
payable based on the repayment
history of finance receivables,
bears interest at 5% plus the LIBOR
rate, expires in June, 1997. 10,391,312 8,188,231
Note payable to bank, collateralized
by land held for sale, principal
and interest at 1% over Barnett
Bank, Inc.'s prime rate payable
April 30, 1997. 600,000 -
Note payable to bank, collateralized
by Chevy Suburban, payable in
monthly principal and interest
payments of $1,092, bears interest
of 8.99%, matures
in October 1999. 32,549 -
11,802,272 9,032,054
CONTINUED ON NEXT PAGE
- 12 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6. Notes Payable - (Continued)
1996 1995
Related Parties:
Uncollateralized notes payable to
relatives of stockholder, payable
in monthly installments of interest
only ranging from 10% to 15%,
balloon maturities range from due
on demand to December, 2001. $ 395,575 $ 440,975
Notes payable to relative of
stockholder, collateralized by
real estate owned by stockholder,
payable in monthly installments
of interest only at 10%, matures
December, 2001. 200,000 200,000
Uncollateralized note payable to
stockholder, payable in monthly
principal and interest payments of
$8,520, bears interest of 7.75%
until December 1998, after that
date, payments will be modified to
reflect an interest rate at 2.75%
over the then five year constant
U. S. Treasury Index, matures
December 2003. 389,279 835,798
Uncollateralized notes payable to
stockholder, payable in monthly
installments of interest only
of 15%, balloon maturities range
from due on demand to
November, 2000. 272,855 132,000
1,257,709 1,608,773
$13,059,981 $10,640,827
At December 31, 1996, the Company was not in compliance
with certain terms and covenants related to the note
payable under financing agreement, including overdrawing
the limit on drawings of 80% of the outstanding balance of
finance receivables. On January 21, 1997, the Company
entered into a forbearance agreement with this lender to
work out the non-compliance issues, and this agreement
amended some of the terms of the original agreement. In
particular, 1% was added to the basic interest rate to
reflect default interest, and interest on the overdrawings
accrues at 13%. At December 31, 1996, the overdrawing
amounted to $498,599.
CONTINUED ON NEXT PAGE
- 13 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6. Notes Payable - (Continued)
On February 19, 1997, the Company was notified by the
lender referred to in the preceding paragraph that the note
payable under financing agreement would not be renewed
after its maturity date on June 30, 1997.
On April 12, 1997, the Company entered into an agreement
with the lender referred to in the preceding paragraph
which commits the lender to modify the forbearance
agreement referred to in the second prior paragraph in
order to extend the forbearance period until January 1998.
In addition, the agreement commits the lender to modify
certain terms and covenants to cure acts of default as of
December 31, 1996, and allows the lender to reduce the
limit on drawings under the agreement from 80% of the
outstanding balance of finance receivables to 75% upon the
occurrence of certain events.
On February 12, 1997, in connection with the ownership
change described in Note 10, certain notes payable were
amended to accelerate their maturity dates to June 30,
1997. The balances of these notes payable at December
31,1996 were as follows:
Uncollateralized notes payable to individuals$ 20,000
Uncollateralized notes payable 180,000
Note payable to relative of stockholder 200,000
Uncollateralized notes payable to relatives of
stockholder 395,575
$795,575
On February 12, 1997, in connection with the ownership
change described in Note 10, certain notes payable to
stockholder were converted to stockholders' equity. At
December 31, 1996, these notes payable amounted to
$662,134.
Principal maturities of notes payable (as modified for the
circumstances described above) are as follows at December
31, 1996:
Year ending December 31,
1997 $ 9,477,265
1998 2,479,351
1999 83,747
2000 79,281
2001 85,648
Later years 192,555
12,397,847
Stockholder notes to be converted to
stockholders' equity 662,134
$13,059,981
CONTINUED ON NEXT PAGE
-14-
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6. Notes Payable - (Continued)
The Company is the cosigner on a stockholder's note payable
which has a balance of $432,488 at December 31, 1996.
Total interest expense amounted to $1,324,437 and
$1,105,558, respectively, for the years ended December 31,
1996 and 1995.
Note 7. Common Stock
At December 31, 1996 and 1995, the Company's common stock
consisted of the following:
1996 1995
Liberty Finance Company, Inc.,
par value $1 per share, 7,500 shares
authorized, 100 shares issued and
outstanding $ 100 $ 100
Wholesale Acquisitions, Inc.,
par value $.10 per share, 75,000
shares authorized, 1,000 shares
issued and outstanding 100 100
RRL Investments, Inc., par value
$.10 per share, 75,000 shares
authorized, 1,000 shares issued
and outstanding - 100
RRL Central Enterprises, Inc., par
value $.10 per share, 75,000
shares authorized, 1,000 shares
issued and outstanding - 100
RRL Trading, Inc., par value
$.10 per share, 75,000 shares
authorized, 1,000 shares issued
and outstanding - 100
Team Automobile Sales & Finance,
Inc., par value $.10 per share,
75,000 shares authorized, 5,000
shares issued and outstanding 500 500
Team Automobile Sales & Finance
East, Inc., par value $.10 per
share, 75,000 shares authorized,
5,000 shares issued
and outstanding - 500
$ 700 $ 1,500
CONTINUED ON NEXT PAGE
- 15 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 7. Common Stock - (Continued)
Effective January 1, 1996, RRL Investments, Inc., RRL
Central Enterprises, Inc., RRL Trading, Inc., and Team
Automobile Sales & Finance East, Inc. were merged into Team
Automobile Sales & Finance, Inc.
Note 8. Related Party Transactions
Two of the eight locations used by the Company (see also
Note 9) are owned by a stockholder. These locations are
rented under operating leases. The stockholder and the
Company entered into an agreement to cancel these leases in
1997.
Total rent expense related to these two locations amounted
to $151,335 for each of the years ended December 31, 1996
and 1995.
Floor plan notes payable include $367,938 and $45,800
payable to the stockholder or relatives of the stockholder
at December 31, 1996 and 1995, respectively.
Notes payable to related parties totaled $1,257,709 and
$1,608,773 as of December 31, 1996 and 1995, respectively,
(see Note 6).
Interest expense related to these notes was $208,164 and
$165,657, respectively, for the years ended December 31,
1996 and 1995.
Advances from related parties are uncollateralized, non-
interest bearing, and contain no repayment terms.
Note 9. Lease Commitments (See Also Note 8)
The Company leases three of its locations and a portion of
another location from unrelated parties under cancelable
leases. The Company leases three of its locations, office
equipment, and garage equipment from unrelated parties
under noncancelable operating leases. The future minimum
rentals under noncancellable operating leases with
unrelated parties are as follows:
Year ending December 31,
1997 $139,866
1998 85,506
1999 45,762
2000 25,919
2001 24,000
Thereafter 90,000
$411,053
Total rent expense for the years ended December 31, 1996
and 1995 amounted to $512,008 and $388,687, respectively,
which includes the related party rents and other short-term
rentals.
- 16 -
LIBERTY FINANCE COMPANY, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 10. Ownership Change
On February 12, 1997, the stockholder of Wholesale
Acquisitions, Inc. (Wholesale), and Team Automobile Sales
and Finance, Inc. (Team) entered into an agreement to sell
Wholesale and Team to First Choice Auto Finance, Inc.
(First Choice), a wholly owned subsidiary of Eckler
Industries, Inc. (Eckler). Eckler is a publicly traded
company.
Also, on February 12, 1997, Liberty Finance Co. (Liberty)
and its stockholder entered into a merger agreement with R.
C. Acquisition, Inc. (Acquisition), a wholly-owned
subsidiary of Eckler. Subsequently, Acquisition was merged
into Liberty so that Liberty became a wholly-owned
subsidiary of Eckler.
The transactions described above resulted in the
termination of the election under the Internal Revenue Code
to be "S corporations." The effect of the terminations has
not been determined.
- 17 -
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS
AND
PALM BEACH FINANCE COMPANY, INC.
COMBINED FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
December 31, 1996 and 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholder of 225 North Military Corporation
d/b/a Miracle Mile Motors
and Palm Beach Finance Company, Inc.
We have audited the accompanying combined balance sheets of 225 North
Military Corporation d/b/a Miracle Mile Motors and Palm Beach Finance
Company, Inc. as of December 31, 1996 and 1995 and the related
combined statements of income and retained earnings, and cash flows
for the years then ended. These combined financial statements are
the responsibility of the Companies' management. Our responsibility
is to express an opinion on these combined financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit
includes examining, on a test basis, the 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 combined financial statements referred to above
present fairly, in all material respects, the combined financial
position of 225 North Military Corporation d/b/a Miracle Mile Motors
and Palm Beach Finance Company, Inc. as of December 31, 1996 and
1995, and the combined results of their operations and their combined
cash flows for the years then ended in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The
supplementary combining balance sheets, and the combining statements
of income and retained earnings, as of December 31, 1996 and 1995 and
for the years then ended, are presented for purposes of additional
analysis and are not a required part of the basic combined financial
statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic combined financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic combined financial statements taken
as a whole.
Spence, Marston, Bunch, Morris & Co.
Certified Public Accountants
April 10, 1997
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
ASSETS
Cash and contracts in transit $ 192,999 $ 304,914
Finance receivables, net 4,057,682 3,620,623
Inventory 799,358 860,105
Property and equipment, net 10,086 104,010
Other assets 48,275 24,859
$5,108,400 $4,914,511
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Drafts payable $ 220,887 $ 317,875
Accounts payable and accrued expenses 128,206 256,577
Loan from stockholder - 50,880
Note payable 300,000 45,000
Total liabilities 649,093 670,332
Stockholder's equity:
Common stock 800 800
Additional paid-in capital 20,000 20,000
Retained earnings 4,438,507 4,223,379
Total stockholder's equity 4,459,307 4,244,179
Commitments - -
$5,108,400 $4,914,511
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31, 1996 and 1995
1996 1995
Revenue:
Sales $10,784,322
$11,393,704
Interest income 1,214,525 1,090,692
Total revenue 11,998,847 12,484,396
Cost of sales and expenses:
Cost of sales 8,446,683 9,118,158
Selling, general, and administrative 1,877,065 1,994,632
Provision for credit losses 1,110,989 961,416
Interest expense 22,593 18,248
Depreciation 1,748 3,262
Total cost of sales and expenses 11,459,078 12,095,716
Net income 539,769 388,680
Retained earnings, beginning of year 4,223,379 3,971,944
Distributions to stockholder (324,641) (137,245)
Retained earnings, end of year $ 4,438,507 $ 4,223,379
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $ 539,769$ 388,680
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,748 3,262
Change in operating assets and liabilities:
(Increase) decrease in inventory 60,747 (16,069)
Increase in other assets (23,416) (6,663)
Increase (decrease) in drafts payable (96,988) 46,627
Increase (decrease) in accounts
payable and accrued expenses (128,371) 7,649
Total adjustments (186,280) 34,806
Net cash provided by operating
activities 353,489 423,486
Cash flows from investing activities:
Increase in finance receivable, net (437,059) (332,006)
Purchase of property and equipment (8,851) (3,386)
Net cash used in investing
activities (445,910) (335,392)
Cash flows from financing activities:
Increase in note payable 255,000 44,000
Repay stockholder loan (50,880) -
Distributions to stockholder (223,614) (137,245)
Net cash used in financing
activities (19,494) (93,245)
Net decrease in cash and contracts in transit(111,915) (5,151)
Cash and contracts in transit,
beginning of year 304,914 310,065
Cash and contracts in transit, end of year$ 192,999 $ 304,914
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on borrowings $ 21,149 $ 17,243
Noncash investing and financing transaction:
Property distributed to
stockholder (Note 7) $ 101,027 $ -
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF OPERATIONS
The accompanying financial statements include 225 North Military
Corporation d/b/a Miracle Mile Motors (Miracle Mile) and Palm Beach
Finance Company, Inc. (PBF), (collectively, the Company). The
Company sells used automobiles and trucks to retail and wholesale
purchasers through its independent dealership located in West Palm
Beach, Florida. A majority of its retail sales are financed pursuant
to installment sales contracts requiring periodic payments over terms
ranging from one to three years.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of combination - The accompanying financial
statements include the accounts of Miracle Mile and PBF. All
significant intercompany accounts, transactions, and profits have
been eliminated in the combination.
Contracts in transit - The Company's policy is to treat
contracts in transit as a cash equivalent. The contracts in transit
amounted to $106,164 and $196,325, respectively, at December 31, 1996
and 1995.
Revenue recognition - Sales of vehicles are recorded on an
accrual basis. Interest income from finance receivables is
recognized using the interest method. Accrual of interest income is
suspended when management deems the loan to be uncollectible.
Vehicles are repossessed and the loan balances written off based on
management's review of loans on a loan-by-loan basis.
Allowance for credit losses - Provisions for credit losses are
charged to income in amounts sufficient to maintain the allowance at
a level considered adequate to cover losses in the existing
portfolio. The Company charges or credits the allowance for
repossessions and charge-offs.
Material estimates that are particularly susceptible to
significant change relate to the determination of the reserve of
possible loan losses. Accordingly, the ultimate collectibility of
the finance receivables is susceptible to changes in economic and
market conditions. Therefore, actual losses in future periods could
differ materially from amounts provided in the current period and
could result in a material adjustment to future results of
operations.
Inventory - Inventory consists of used vehicles and is stated at
the lower of cost or market, on a specific unit basis.
Property and equipment - These assets are carried at cost.
Major additions are capitalized while replacements, maintenance, and
repairs which do not improve or extend the life of the respective
assets, are expensed currently. When property is retired or
otherwise disposed of, the cost of the property is eliminated from
the asset account, accumulated depreciation is charged with an amount
equal to the depreciation provided and the difference, if any, is
charged or credited to income.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are as follows:
Sales office 40 years
Furniture and fixtures 7 years
Loan origination costs - Direct costs incurred for the
origination of finance receivables are deferred and amortized over
the contractual lives of the loans.
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Advertising costs - Advertising costs are generally charged to
operations in the year incurred and totaled $150,096 in 1996 and
$151,697 in 1995.
Income taxes - The sole stockholder for Miracle Mile and PBF has
elected for each corporation to be treated as an S corporation for
federal income tax purposes. In accordance with the provisions of
such election, each corporation's income and losses are passed
through to its stockholder; accordingly, no provision for income
taxes has been made in the accompanying combined financial
statements.
Drafts payable - Drafts payable represent non-interest bearing
amounts due to wholesalers for vehicle purchases.
Off-balance sheet risk and concentration of credit risk - The
Company maintains deposits in excess of federally insured limits.
Statement of Financial Accounting Standards No. 105 requires
disclosure, regardless of the degree of risk. Concentration of
credit risk exists as substantially all of the Company's loans have
been granted to customers in the Company's market area which is
primarily West Palm Beach, Florida.
Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires the
use of estimates that affect certain reported amounts and
disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these
estimates.
(3) FINANCE RECEIVABLES
Receivables arise principally from retail sales of vehicles
under installment contracts to credit challenged individuals who
cannot qualify for traditional automobile financing. The Company
investigates the credit worthiness of potential customers and
requires substantial down payments and frequent periodic payments on
installment contracts. Such finance receivables are stated net of
unearned interest, bear interest at rates ranging from 20% to 26%,
and are collateralized by the vehicles sold.
Management provides an allowance for credit losses based on its
experience with collections and repossessions. Repossessed vehicles
are recorded as inventory at their estimated fair value. The
difference between the balance of the installment contract and the
estimated fair value of the repossessed vehicle is charged or
credited to the allowance for credit losses.
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(3) FINANCE RECEIVABLES, CONTINUED
Finance receivables at December 31, 1996 and 1995 are summarized
as follows:
1996 1995
Contractually scheduled payments $6,227,510 $5,360,589
Less: unearned interest income (1,307,027) (1,012,754)
Installment sales contract principal balances4,920,483 4,347,835
Loan origination costs, net 64,780 62,792
Other receivables 56,419 84,996
Principal balances, net 5,041,682 4,495,623
Less: allowance for credit losses (984,000) (875,000)
Finance receivables, net $4,057,682$3,620,623
The allowance for credit losses for the years ended December 31,
1996 and 1995 is summarized as follows:
Balance, beginning of the year $ 875,000$ 618,000
Provision for credit losses 1,110,989 961, 416
Charge-offs and repossessions (1,001,989) (704,416)
Balance, end of the year $ 984,000$ 875,000
Finance receivables are pledged as collateral for the note
payable (Note 5). See Note 2 regarding the allowance for credit
losses. Due to the relatively short-term nature of the contracts
underlying the receivables and the low likelihood that all of the
contracts will reach maturity, contractual maturities have not been
disclosed.
(4) PROPERTY AND EQUIPMENT
Sales office (Note 7) $ -$ 114,370
Furniture and fixtures 12,236 3,386
12,236 117,756
Less: accumulated depreciation (2
,150) (13,746)
$ 10,086$ 104,010
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(5) NOTE PAYABLE
December 31,
1996 1995
Line of credit payable to First United
Bank, interest payable monthly at prime
plus 1%. Maximum available is
$400,000. The line of credit contains
loan covenants which restrict changes
in the capital structure and prohibits
certain related party capital
transactions and new borrowings. The
note is collateralized by finance
receivables and is guaranteed by the
stockholder. The line of credit
matures in 1997. $ 300,000$ 45,000
(6) LOAN FROM STOCKHOLDER
Uncollateralized non-interest bearing
loan payable to stockholder on demand,
repaid during 1996. $ -$ 50,880
(7) RELATED PARTY TRANSACTIONS
The Company leases its operating facilities from the stockholder
under a five-year operating lease for $12,000 per month. The lease
is effective January 1, 1995 through December 31, 1999. Rent expense
for the years ended December 31, 1996 and 1995 was $144,000 and
$144,445, respectively. The approximate future minimum rental
payments under this lease are $144,000 per year for 1997 through
1999.
The Company also paid the stockholder $25,500 in 1996 and
$23,375 in 1995 for the use of other facilities for promotional
purposes.
Miracle Mile provided collection, administrative and accounting
services to PBF for $204,000 in each of the years 1996 and 1995. The
fees have been eliminated in the combined financial statements.
During 1996, the Company transferred ownership of the sales
office (Note 4) to the stockholder and recorded a stockholder
distribution of $101,027 based on the asset's net book value.
Management believes the net book value approximates the market value.
Vehicle installment notes receivable are purchased by PBF from
Miracle Mile at a 30% discount. The discount is amortized and the
income recognized over the life of the loan. At December 31, 1996
and 1995, the remaining unamortized discount of $1,476,980 and
$977,785, respectively, have been eliminated in the combined
financial statements.
(8) PROFIT SHARING PLAN
The Company maintains a discretionary profit sharing plan for
eligible employees who have completed one year of service.
Contributions under this plan amounted to $39,810 in 1996 and $52,930
in 1995.
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(9) STOCKHOLDER'S EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings
Total
December 31, 1996:
225 North Military Corporation:
No par value; 60 shares authorized,
issued, and outstanding $ 300$ 20,000$3,583,463$3,603,763
Palm Beach Finance Company, Inc.:
$1 par value; 1,000 shares
authorized; 500 shares issued
and outstanding 500 - 855,044 855,544
$ 800$ 20,000$4,438,507$4,459,307
December 31, 1995:
225 North Military Corporation:
No par value; 60 shares authorized,
issued, and outstanding $ 300$ 20,000$3,476,516$3,496,816
Palm Beach Finance Company, Inc.:
$1 par value; 1,000 shares
authorized; 500 shares issued
and outstanding 500 - 746,863 747,363
$ 800$ 20,000$4,223,379$4,244,179
(10) SUBSEQUENT EVENT
During February 1997, the Company sold substantially all of
their business and assets to Smart Choice Holdings, Inc. (Smart
Choice), a wholly-owned subsidiary of Eckler Industries, Inc. Eckler
is a publicly-held Florida corporation. The following consideration
was received in connection with the sale:
Cash $3,000,000
Short-term promissory note 205,574
Convertible debenture 467,601
Secured convertible note 800,000
$4,473,175
In addition, the Company received 142,857 shares of unregistered
Class B Common Stock of Eckler. The Company will recognize a gain on
the sale equal to the fair value of the consideration received over
the book value of assets sold during 1997.
SUPPLEMENTARY INFORMATION
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINING BALANCE SHEETS
December 31, 1996
255 North Palm Beach
Military Finance Combining Combined
Corporation Company, Inc. Entries
Totals
ASSETS
Cash and contracts in transit$ 176,120$ 16,879$ -$
192,999
Finance receivables, net 64,779 3,992,903 - 4,057,682
Inventory 799,358 - - 799,358
Property and equipment, net 10,086 - - 10,086
Other assets 48,275 - - 48,275
Intercompany receivable 1,677,258 - (1,677,258) -
$2,775,876$4,009,782$(1,677,258)$5,108,400
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Drafts payable $ 220,887$ -$ -$ 220,887
Accounts payable and accrued
expenses 128,206 - - 128,206
Note payable 300,000 - - 300,000
Deferred finance revenue - 1,476,980(1,476,980) -
Intercompany payable - 1,677,258 (1,677,258)
- -
Total liabilities 649,093 3,154,238 (3,154,238) 64
9,093
Stockholder's equity:
Common stock 300 500 - 800
Additional paid-in capital 20,000 - - 20,000
Retained earnings 2,106,483 855,044 1,476,980 4,43
8,507
Total stockholder's equity 2,126,783 855,544 1,476,980
4,459,307
Commitments - - -
- -
$2,775,876$4,009,782$(1,677,258)$5,108,400
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 1996
255 North Palm Beach
Military Finance Combining Combined
Corporation Company, Inc. Entries
Totals
Revenue:
Sales $10,784,322$ -$ -$10,784,322
Interest income 685,082 1,245,512 (716,069) 1,214,525
Administrative fee 204,000 - (204,000) -
Total revenue 11,673,404 1,245,512 (920,069) 11,9
98,847
Cost of sales and expenses:
Cost of sales 8,446,683 - - 8,446,683
Selling, general, and administrative1,849,229 231,598 (204,000)
1,877,065
Provision for credit losses205,494 905,733 - 1,110,989
Discount on sale of receivables1,215,264 -(1,215,264) -
Interest expense 22,593 - - 22,593
Depreciation 1,748 - - 1,748
Total cost of sales and
expenses 11,741,011 1,137,331 (1,419,264) 11,45
9,078
Net income (loss) (67,607) 108,181 499,195 539,769
Retained earnings, beginning
of year 2,498,731 746,863 977,785 4,223,379
Distributions to stockholder (324,641) - -
(324,641)
Retained earnings, end of year$ 2,106,483$ 855,044$ 1,476,980$
4,438,507
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINING BALANCE SHEETS
December 31, 1995
255 North Palm Beach
Military Finance Combining Combined
Corporation Company, Inc.Entries
Totals
ASSETS
Cash and contracts in transit$ 299,630$ 5,284$ -$ 3
04,914
Finance receivables, net 834,328 2,786,295 - 3,620,623
Inventory 860,105 - - 860,105
Property and equipment, net 104,010 - - 104,010
Other assets 24,859 - - 24,859
Intercompany receivable 1,015,551 - (1,015,551) -
$3,138,483$2,791,579$(1,015,551)$4,914,511
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Drafts payable $ 317,875$ -$ -$ 317,875
Accounts payable and accrued
expenses 256,577 - - 256,577
Loan from stockholder - 50,880 - 50,880
Note payable 45,000 - - 45,000
Deferred finance revenue - 977,785 (977,785) -
Intercompany payable - 1,015,551 (1,015,551)
- -
Total liabilities 619,452 2,044,216 (1,993,336) 6
70,332
Stockholder's equity:
Common stock 300 500 - 800
Additional paid-in capital 20,000 - - 20,000
Retained earnings 2,498,731 746,863 977,785 4,22
3,379
Total stockholder's equity 2,519,031 747,363 977,785
4,244,179
Commitments - - - -
$3,138,483$2,791,579$(1,015,551)$4,914,511
225 NORTH MILITARY CORPORATION
d/b/a MIRACLE MILE MOTORS AND
PALM BEACH FINANCE COMPANY, INC.
COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 1995
255 North Palm Beach
Military Finance Combining Combined
Corporation Company, Inc.Entries
Totals
Revenue:
Sales $11,393,704$ -$ -$11,393,704
Interest income 382,614 1,610,569 (902,491) 1,090,692
Administrative fee 204,000 - (204,000) -
Total revenue 11,980,318 1,610,569 (1,106,491) 12,4
84,396
Cost of sales and expenses:
Cost of sales 9,118,158 - - 9,118,158
Selling, general, and administrative1,959,783 238,849 (204,000)
1,994,632
Provision for credit losses368,504 592,912 - 961,416
Discount on sale of receivables1,172,189 -(1,172,189) -
Interest expense 18,248 - - 18,248
Depreciation 3,262 - - 3,262
Total cost of sales
and expenses 12,640,144 831,761 1,376,189) 12,095,716
Net income (659,826) 778,808 269,698 388,680
Retained earnings, beginning
of year 3,295,802 (31,945) 708,087 3,971,944
Distributions to stockholder (137,245) - -
(137,245)
Retained earnings, end of year$ 2,498,731$ 746,863$ 977,785$
4,223,379
August 16, 1996
Templeton & Company, P.A.
540 Royal Palm Beach Blvd.
Royal Palm Beach, FL 33411
Gentlemen:
In connection with your review of the combined financial
statements of 225 N. Military Trail Corp. (d/b/a Miracle Mile
Motors) and Palm Beach Finance, Inc. (each S Corporations) as of
December 31, 1995 and for the year then ended for the purpose of
expressing limited assurance that there are no material
modifications that should be made to the statements in order for
them to be in conformity with generally accepted accounting
principles, we confirm, to the best of our knowledge and belief,
the following representations made to you during your review.
1. The combined financial statements referred to above present
the financial position and results of operations and cash
flows of 225 N. Military Trail Corp. (d/b/a Miracle Mile
Motors) and Palm Beach Finance, Inc. (each S. Corporations)
in conformity with generally accepted accounting principles.
In that connection, we specifically confirm that -
a. The Company's accounting principles, and the
practices and methods followed in applying them, are as
disclosed in the financial statements.
b. There have been no changes during the year ended
December 31, 1995 in the Company's accounting principles
and practices.
c. We have no plans or intentions that may materially
affect the carrying value or classification of assets and
liabilities.
d. There are no material transactions that have not
been properly reflected in the financial statements.
e. There are no material losses (such as from obsolete
inventory or purchase or sales commitments) that have not
been properly accrued or disclosed in the financial
statements.
f. There are no violations, or possible violations of
laws or regulations whose effects should be considered
for disclosure in the financial statements or as a basis
for recording a loss contingency, and there are no other
material liabilities or gain or loss contingencies that
are required to be accrued or disclosed.
g. The Company has satisfactory title of all owned
assets, and there are no liens or encumbrances on such
assets nor has any asset been pledged, except as set
forth in the financial statements or the notes thereto.
h. There are no related party transactions or related
amounts receivable or payable that have not been properly
disclosed in the financial statements.
i. We have complied with all aspects of contractual
agreements that would have a material effect on the
financial statements in the event of noncompliance.
j. No events have occurred subsequent to the balance
sheet date that would require adjustment to, or
disclosure in, the financial statements, except as set
forth therein.
k. There are no unasserted claims or assessments that
our lawyer has advised us are probable of assertion and
must be disclosed in accordance with Statement of
Financial Accounting Standards No. 5.
l. We have identified all accounting estimates that
could be material to the financial statements, including
the key factors and significant assumptions underlying
those estimates, and we believe the estimates are
reasonable in the circumstances.
m. There are no such estimates that may be subject to
material change in the near-term that have not been
properly disclosed in the financial statements. We
understand that the near-term means the period within one
year of the date of the financial statements.
2. We have advised you of all actions taken at meetings of
stockholders, board of directors, and committees of the board
of directors (or other similar bodies, as applicable) that
may affect the financial statements.
3. We have responded fully to all inquiries made to us by you
during your review.
Chief Executive Officer
Controller
Gentlemen:
Our auditors, Spence, Marston, Bunch, Morris & Co., 250 North Belcher
Road, Suite 100, Clearwater, Florida 34625-2601, are conducting an
audit of our financial statements. Please furnish to them the
information requested below involving matters as to which you have
been engaged and to which you have devoted substantive attention on
behalf of the Company in the form of legal consultation or
representation. Your response should include matters that existed at
December 31, 1995, and for the period from that date to the date of
your response.
Pending or Threatened Litigation
(excluding undeclared claims and assessments)
Please prepare a description of all litigation, claims, and
assessments (excluding unasserted claims and assessments). The
description of each case should include:
a. the nature of the litigation,
b. the progress of the case to date,
c. how management is responding or intends to respond to the
litigation, e.g., to contest the case vigorously or to seek an
out-of-court settlement, and
d. an evaluation of the likelihood of an unfavorable outcome and
an estimate, if one can be made, of the amount or range of
potential loss.
Unasserted Claims and Assessments
With respect to unasserted claims or assessments which must be
disclosed in accordance with Statement of Financial Accounting
Standards Number 5, please provide a description of (1) the nature of
the matter, (2) how management intends to respond if the claim is
asserted, and (3) an evaluation of the likelihood of an unfavorable
outcome and an estimate, if one can be made, of the amount or range
of potential loss.
We understand that whenever, in the course of performing legal
services for us with respect to a matter recognized to involve an
unasserted possible claim or assessment that may call for financial
statement disclosure, you have formed a professional conclusion that
we should disclose or consider disclosure concerning such possible
claim or assessment, as a matter of professional responsibility to
us, you will so advise us and will consult with us concerning the
question of such disclosure and the applicable requirements of
Statement of Financial Accounting Standards No. 5. Please
specifically confirm to our auditors that our understanding is
correct.
Response
Your response should include matters that existed as of December 31,
1995, and during the period from that date to the effective date of
your response.
Please specifically identify that nature of, and reasons for, any
limitations on your response.
Our auditors expect to have the audit completed on January 17, 1997,
and would appreciate receiving your reply by that date with a
specified effective date no earlier than January 10, 1997.
Other Matters
Please, also indicate the amount we were indebted to you for services
and expenses on December 31, 1995. An envelope is enclosed for your
convenience in replying.
Very truly yours,
The 225 North Military Trail Corporation
(d/b/a Miracle Mile Motors) and
Palm Beach Finance, Inc.
March 26, 1997
First United Bank
980 North Federal Highway
Boca Raton, FL 33432
Gentlemen:
Our auditors, Templeton & Company, P.A., are conducting an audit of
our financial statements. Please confirm directly to them the
following information relating to our note payable to you at December
31, 1996:
Date of note:
Original amount of note: $
Unpaid principal balance: $
Maturity date:
Interest rate:
Date to which interest has
been paid
Description of collateral:
After signing and dating your reply, please mail it directly to
Templeton & Company, P. A., 540 Royal Palm Beach Boulevard, Royal
Palm Beach, Florida 33411-7675 in the enclosed return envelope.
Very truly yours,
To: Templeton & Company, P.A.
The above information regarding the obligation from
_____________________________ agrees with our records at December 31,
1996 with the following exceptions (if any):
If there are any direct or contingent liabilities to you not
otherwise indicated above, please list:
Signed:
Title:
Date:
Exhibit 99.4
FLORIDA FINANCE GROUP, INC.
SUNCOAST AUTO BROKERS, INC.
SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINED FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
December 31, 1996 and 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholder of Florida Finance Group, Inc.
Suncoast Auto Brokers, Inc.
and Suncoast Auto Brokers Enterprises, Inc.
We have audited the accompanying combined balance sheets of
Florida Finance Group, Inc., Suncoast Auto Brokers, Inc. and Suncoast
Auto Brokers Enterprises, Inc. as of December 31, 1996 and 1995 and
the related combined statements of operations and retained deficit,
and cash flows for the years then ended. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit
includes examining, on a test basis, the 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 combined financial statements referred to
above present fairly, in all material respects, the combined financial
position of Florida Finance Group, Inc., Suncoast Auto Brokers, Inc.
and Suncoast Auto Brokers Enterprises, Inc. as of December 31, 1996
and 1995, and the combined results of their operations and their
combined cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The
supplementary combining balance sheets, and the combining statements
of operations and retained earnings (accumulated deficit), as of
December 31, 1996 and 1995 and for the years then ended, are presented
for purposes of additional analysis and are not a required part of the
basic combined financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
combined financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic combined financial
statements taken as a whole.
Spence, Marston, Bunch, Morris & Co.
Certified Public Accountants
March 28, 1997
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINED BALANCE SHEETS
December
31
1996 1995
ASSETS
Cash $ 20,272 $ 50,701
Accounts and notes receivable, net 4,383,759 2,973,514
Inventory 440,317 941,433
Prepaid expenses 44,705 14,497
Leasehold improvements and equipment, net 111,950 133,586
Other assets 2,360 5,539
$5,003,363 $4,119,270
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Notes payable $5,018,343 $3,614,624
Trade accounts payable 95,093 177,205
Accrued expenses 16,505 74,362
Drafts payable - 104,680
Stockholder loans 345,250 306,378
Deferred income 134,571 68,933
Related party payable 811,600 714,146
Income taxes payable - 1,202
Total liabilities 6,421,362 5,061,530
Stockholders' equity (deficit):
Common stock 1,600 1,600
Paid-in capital in excess of par value 220,129 220,129
Retained deficit (1,639,728) (1,163,98
9)
Total stockholder's deficit (1,417,999) (942,260)
Commitments - -
$5,003,363 $4,119,270
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
For the y
ears ended
December
31
1996 1995
Revenue:
Sales $ 4,443,091
$ 4,340,896
Interest income 1,687,057 1,189,289
Total revenue 6,130,148 5,530,185
Cost of sales and expenses:
Cost of sales 3,768,929 3,562,713
Selling, general and administrative 1,635,606 1,910,782
Provision for credit losses 445,133 236,152
Depreciation and amortization 32,959 44,232
Interest 723,056 454,037
Total cost of sales and expenses 6,605,683 6,207,916
Loss before income taxes (475,535) (677,731)
Income taxes 204 6,146
Net loss (475,739) (683,877)
Retained deficit, beginning of year (1,163,989) (480,112)
Retained deficit, end of year $(1,639,728) $
(1,163,989)
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the y
ears ended
December
31
1996 1995
Cash flows from operating activities:
Net loss $(475,739) $(683,877)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 32,959 44,232
Loss on disposal of equipment - 1,994
Changes in operating assets and liabilities:
(Increase) decrease in inventory 501,116 (202,921)
Increase in prepaid expenses (30,208) (470)
Increase in other assets (154) -
Increase (decrease) in accounts payable (82,112) 123,403
Increase (decrease) in accrued expenses (57,857) 8,538
Increase (decrease) in drafts payable (104,680) 85,320
Increase (decrease) in income taxes payable (1,202)
1,202
Increase in deferred income 65,638 29,770
Total adjustments 323,500 91,068
Net cash used in operating activities (152,239)
(592,809)
Cash flows from investing activities:
Increase in accounts and notes receivable, net
(1,410,245) (1,288,014)
Purchase of equipment (7,990) (11,911)
Net cash used in investing activities
(1,418,235) (1,299,925)
Cash flows from financing activities:
Debt incurred 1,575,543 1,979,295
Debt reduction (35,498) (55,663)
Net cash provided by financing activities 1,540,045
1,923,632
Net increase (decrease) in cash (30,429) 30,898
Cash, beginning of year 50,701 19,803
Cash, end of year $ 20,272 $ 50,701
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - CASH PAID DURING
THE YEAR FOR:
Interest on borrowings $719,289 $432,726
Income taxes $ 33,768 $ 4,944
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - The accompanying financial statements include, on a
combined basis, Florida Finance Group, Inc. (FFG), Suncoast Auto
Brokers, Inc. (SAB) and Suncoast Auto Brokers Enterprises, Inc.
(SABE). FFG, SAB and SABE are collectively referred to as the
"Company". All material intercompany transactions between the
combined entities have been eliminated.
The Company sells and finances cars, trucks and vans, primarily
to credit challenged individuals who cannot qualify for traditional
automobile financing. The Company is located in St. Petersburg,
Florida.
Revenue recognition - Interest income from vehicle installment
notes receivable is recognized as earned. Vehicle installment notes
receivable are purchased by FFG from SABE at a 20% discount. The
discount is amortized and the income recognized on a straight-line
basis over the life of the loan.
Accrual of interest income is suspended when management deems the
loan to be uncollectible. Vehicles are repossessed and loan balances
written off based on management's review of loans on a loan-by-loan
basis.
Reserve for possible loan losses - Provision for credit losses
includes repossession losses incurred for the years ended December 31,
1996 and 1995. As all loans were purchased at a 20% discount, no
additional reserve for possible loan losses was necessary at December
31, 1996 and 1995 based on repossession losses occurring subsequent to
year end plus a historical percent of losses applied to the remaining
loan balances.
Material estimates that are particularly susceptible to
significant change relate to the determination of the reserve for
possible loan losses. Accordingly, the ultimate collectibility of the
vehicle installment notes receivable is susceptible to changes in
economic and market conditions. Therefore, actual losses in future
periods could differ materially from amounts provided in the current
period and could result in a material adjustment to future results of
operations.
Inventory - Inventory consists of used vehicles and is stated at
the lower of cost or market, on a specific identification basis.
Inventory is pledged as collateral for notes payable (Note 4) and
related party payable (Note 6).
Leasehold improvements and equipment - These assets are carried
at cost. Major additions are capitalized while replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. When property is retired or
otherwise disposed of, the cost of the property is eliminated from the
asset account, accumulated depreciation is charged with an amount
equal to the depreciation provided and the difference, if any, is
charged or credited to income.
Depreciation is provided for using accelerated methods over the
estimated useful lives which are as follows:
Leasehold improvements 15 - 39 y
ears
Furniture and fixtures 5 - 7 yea
rs
Automotive equipment 5 - 7 yea
rs
Tow truck 5 years
Signs 5 years
Office equipment 5 years
Other assets - Other assets includes loan costs of $10,000 which
are being amortized over the loan period of three years. Accumulated
amortization totaled $9,494 and $6,161 for 1996 and 1995,
respectively, and amortization expense was $3,333 for 1996 and 1995.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Advertising costs - Advertising costs are generally charged to
operations in the year incurred and totaled $134,648 and $374,116 in
1996 and 1995, respectively.
Income taxes - The sole stockholder of SAB and SABE elected to
have these entities subject to the provisions of Subchapter S of the
Internal Revenue Code. Consequently, the accompanying financial
statements do not reflect income tax expense for these companies
because all taxable income or loss is the responsibility of the sole
stockholder. The accompanying financial statements reflect income tax
for FFG and as a result the income tax expense is disproportionate to
financial statement income before taxes. Prepaid expenses includes
prepaid income taxes totaling approximately $32,565 at December 31,
1996.
Drafts payable - Drafts payable represent non-interest bearing
amounts due to wholesalers for vehicle purchases.
Deferred income - Deferred income relates to unearned commissions
on credit life and warranty polices which are amortized into income
over the term of the loan. Deferred income also includes late fee
income which is included in income when paid.
Concentration of credit risk - Substantially all of the Company's
loans have been granted to customers in the Company's market area
which is primarily Pinellas County, Florida.
Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of
estimates that affect certain reported amounts and disclosures. These
estimates are based on management's knowledge and experience.
Accordingly, actual results could differ from these estimates.
(2) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable arise principally from retail sales
of vehicles under installment contracts. Such receivables are stated
net of unearned interest, bear interest at an average rate of 26% with
terms ranging from 36 to 48 months and are collateralized by the
vehicles sold.
December
31
1996 1995
Accounts and notes receivable are summarized as follows:
Contractually scheduled payments $7,629,382 $5,009,234
Less: unearned interest income (2,150,628) (1,301,29
5)
Installment sales contract principal balance 5,478,754
3,707,939
Other receivable 650 650
5,479,404 3,708,589
Less: 20% discount on loans purchased (1,095,645) (735,075)
Accounts and notes receivable, net $4,383,759 $2,973,514
(2) ACCOUNTS AND NOTES RECEIVABLE, CONTINUED
Accounts and notes receivable are pledged as collateral for notes
payable (Note 4) and related party payable (Note 6). See Note 1
regarding reserve for possible loan losses. Due to the relatively
short term of the contracts underlying the receivables and the low
likelihood that all of the contracts will reach maturity, contractual
maturities have not been disclosed.
(3) LEASEHOLD IMPROVEMENTS AND EQUIPMENT
December
31
1996 1995
Leasehold improvements $108,131 $108,131
Furniture and fixtures 95,499 95,105
Automotive equipment 82,140 82,140
Tow truck 36,500 36,500
Signs 38,027 33,531
Office equipment 21,695 18,595
381,992 374,002
Less: accumulated depreciation (270,042) (240,416)
$111,950 $133,586
Equipment recorded under capital leases is included in automotive
equipment. The cost of the equipment was $53,503. Amortization
expense is included in depreciation expense. Accumulated amortization
was $41,566 and $36,791 at December 31, 1996 and 1995, respectively.
The lease matured in December, 1996.
(4) NOTES PAYABLE
December
31
1996 1995
Notes payable - line of credit
Line of credit payable to FINOVA Capital Corporation (FINOVA),
interest payable monthly at prime plus 3.5%. Maximum
available at December 31, 1996 and 1995 was $5,000,000
and $4,000,000 of eligible receivables, respectively. The line
of credit requires FFG to maintain certain tangible net worth,
leverage ratio, minimum net income and restricts distributions.
FFG was not in compliance with the leverage ratio at December
31, 1995. FINOVA removed this loan covenant effective March
31, 1996. FFG was not in compliance with the tangible net
worth
ratio at December 31, 1996. However, the line of credit was
renewed on February 4, 1997. The note is collateralized by
accounts and notes receivable and is guaranteed by the stock-
holder of the Company and Your Car Store, Inc. (See Note 7).
The line of credit matures February 28, 1997. (See Note 10).$
4,675,000 $2,625,000
(4) NOTES PAYABLE, CONTINUED
December
31
1996 1995
Line of credit payable to AmSouth (formerly First Gulf Bank),
interest payable monthly at prime plus 2.75%. Maximum
available is $100,000 at December 31, 1995. The note
is collateralized by inventory and guaranteed by the stock-
holder. The line of credit was paid off March 1996 and was
not renewed. $ - $ 12,178
Revolving line of credit payable to American Express. Interest
payable at 15.15%. Maximum available is $23,000. 21,500
- -
Note payable - floor plan
Floor plan line of credit payable to Manheim Automotive Financial
Services, collateralized by inventory and guaranteed by stock-
holder of the Company. Interest payable monthly at prime plus
2%. Maximum available is $800,000. 142,060 800,563
Notes payable - other
Seven individual notes payable with interest ranging from 10% -
15%, collateralized by accounts and notes receivable and guar-
anteed by the stockholder of the Company. The notes mature
at various dates through February 1999. 168,406 143,187
Capital lease payable at $1,359 per month including interest at
20%, matures December 1996, collateralized by automotive
equipment. - 13,932
7.75% note payable to SouthTrust Bank $802 per month including
interest, matures March 1998, collateralized by tow truck.
11,377 19,764
$5,018,343 $3,614,624
The following is a schedule of maturities subsequent to December
31, 1996:
Year ending December 31,
1997 $4,929,236
1998 44,107
1999 45,000
$5,018,343
(5) STOCKHOLDER LOANS
December
31
1996 1995
9% unsecured loans payable to stockholder with interest
payable monthly and principal due on demand. $ 345,250 $
306,378
(6) RELATED PARTY PAYABLE
December
31
1996 1995
Unsecured non-interest bearing payable to related entity on
demand. $ - $ 22,046
Loan payable to related entity, interest payable monthly and
principal due on demand, collateralized by inventory and
notes receivable. Interest paid at 16% and 15% for the
years ended December 31, 1996 and 1995, respectively.
679,600 570,100
Loan payable to related entity, interest payable monthly and
principal due on demand, collateralized by inventory and
notes receivable. Interest paid at 31% and 22% for the
years ended December 31, 1996 and 1995, respectively.
132,000 122,000
$811,600 $714,146
(7) RELATED PARTY TRANSACTIONS
FFG provides administrative and accounting services to SAB and
SABE at no charge.
Your Car Store, Inc. ("YCS"), a corporation partially owned by
the sole stockholder of FFG, SAB and SABE began operations on December
15, 1995. Related party transactions included sales of vehicles to
YCS and FFG purchased some loans from YCS. Such transactions were
immaterial in 1995. In 1996, loans purchased from YCS were
approximately $506,000.
The Company leases two lots from the sole stockholder on a month-
to-month basis. Rent expense for the years ended December 31, 1996
and 1995 was $45,810 and $63,120, respectively.
(8) COMMITMENTS
The Company leases property from unrelated parties under
agreements ranging from 1 to 5 years. Certain leases also contain
renewal provisions. Total rental expense under these operating leases
was $143,387 and $145,438 for the years ended December 31, 1996 and
1995, respectively.
(8) COMMITMENTS, CONTINUED
As of December 31, 1996, the approximate future minimum rental
payments plus applicable real estate taxes for all operating leases
are as follows:
Year ending December 31,
1997 $162,426
1998 89,904
1999 29,968
$282,298
(9) COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF PAR VALUE
Paid-in c
apital
Common in excess
Stock of par va
lue
Florida Finance Group, Inc.:
$1 par value, 1,000 shares authorized, issued
and outstanding in 1996 and 1995. $ 1,000 $220,129
Suncoast Auto Brokers, Inc.:
$1 par value, 1,000 shares authorized, 100
shares issued and outstanding in 1996 and
and 1995. 100 -
Suncoast Auto Brokers Enterprises, Inc.:
$5 par value, 100 shares authorized, issued
and outstanding in 1996 and 1995. 500 -
$ 1,600 $220,129
(10) SUBSEQUENT EVENTS
Effective January 28, 1997, the sole stockholder of FFG sold all
of his outstanding stock to Smart Choice Holdings, Inc. in exchange
for a specified number of shares of its common stock. Effective
January 28, 1997, SAB and SABE sold substantially all of their
business assets to Smart Choice Holdings, Inc.
Effective February 4, 1997, the line of credit payable to FINOVA
was increased to $20,000,000. Interest is payable monthly at prime
plus 3%. The line of credit is collateralized by accounts and notes
receivable, inventory, and certain other business assets. The line of
credit matures December 31, 1999 and is guaranteed by Smart Choice
Automotive Holdings, Inc. and Smart Choice Holdings, Inc. The line of
credit requires FFG to maintain a certain leverage ratio and minimum
net income, and restricts distributions.
SUPPLEMENTARY INFORMATION
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING BALANCE SHEETS
December 31, 1996
Suncoast
Florida Suncoast Auto
Brokers
Finance Auto Enterprises, Combining
Combined
Group, Inc. Brokers, Inc. Inc.
Entries Totals
ASSETS
Cash $ 13,715 $ 3,294 $ 3,263 $ - $ 20,272
Accounts and notes
receivable, net 4,383,109 - 650 -
4,383,759
Inventory 161,400 278,917 - - 440,317
Prepaid expenses 32,565 - 12,140 -
44,705
Intercompany
receivable 855,015 121,642 508,042 (1,484,699) -
Leasehold
improvements and
equipment, net 16,280 67,080 28,590 -
111,950
Other assets 506 1,854 - - 2,360
$5,462,590 $472,787 $552,685 $(1,484,699) $
5,003,363
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING BALANCE SHEETS, CONTINUED
December 31, 1996
Suncoast
Florida Suncoast Auto
Brokers
Finance Auto Enterprises, Combining
Combined
Group, Inc. Brokers, Inc. Inc.
Entries Totals
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Notes payable $ 4,843,406 $174,937 $ - $ -
$ 5,018,343
Trade accounts
payable 54,053 12,742 28,298 - 95,093
Accrued expenses - 4,932 11,573 -
16,505
Stockholder loans - 157,861 187,389 -
345,250
Deferred income 134,571 - - -
134,571
Intercompany
payable 54,042 620,915 809,742 (1,484,699) -
Related party
payable - 679,600 132,000 - 811,600
Total liabilities 5,086,072 1,650,987 1,169,002 (1,484,69
9) 6,421,362
Stockholder's equity (deficit):
Common stock 1,000 100 500 -
1,600
Paid-in capital in
excess of par value 220,129 - - -
220,129
Retained earnings
(deficit) 155,389 (1,178,300) (616,817)
- - (1,639,728)
Total stockholder's
equity (deficit) 376,518 (1,178,200) (616,317)
- - (1,417,999)
Commitments - - - - -
$5,462,590 $472,787 $552,685 $(1,484,699) $
5,003,363
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
For the Year Ended December 31, 1996
Suncoast
Florida Suncoast Auto Brokers
Finance Auto Enterprises, Combining Combined
Group,Inc. Brokers,Inc. Inc. Entries Totals
Revenue:
Sales $ - $ 3,679,780 $3,146,912 $(2,383,6
01) $ 4,443,091
Interest income 1,687,057 - - -
1,687,057
Total revenue 1,687,057 3,679,780 3,146,912 (2,383,60
1) 6,130,148
Cost of sales and
expenses:
Cost of sales - 3,651,707 2,500,823 (2,383,60
1) 3,768,929
Selling, general and
administrative 743,157 307,238 585,211 -
1,635,606
Provision for credit
losses 445,133 - - - 445,133
Depreciation and
amortization 5,966 17,525 9,468 -
32,959
Interest 489,640 175,974 57,442 - 723,056
1,683,896 4,152,444 3,152,944 (2,383,601) 6,605,683
Income (loss) before
income taxes 3,161 (472,664) (6,032) -
(475,535)
Income taxes 204 - - - 204
Net income (loss) 2,957 (472,664) (6,032) -
(475,739)
Retained earnings
(accumulated deficit),
beginning of year 152,432 (705,636) (610,785) -
(1,163,989)
Retained earnings
(accumulated deficit),
end of year $ 155,389 $ (1,178,300) $ (616,817)
$ - $(1,639,728)
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING BALANCE SHEETS
December 31, 1995
Suncoast
Florida Suncoast Auto Brokers
Finance Auto Enterprises, Combining Combined
Group,Inc. Brokers,Inc. Inc. Entries Totals
ASSETS
Cash $ 44,858 $ 3,911 $ 1,932 $ - $ 50,701
Accounts and notes
receivable, net 2,940,350 32,514 650 -
2,973,514
Inventory 105,260 836,173 - - 941,433
Prepaid expenses 7,177 - 7,320 -
14,497
Intercompany
receivable 165,300 93,907 9,409 (268,616) -
Leasehold
improvements and
equipment, net 16,723 84,605 32,258 -
133,586
Other assets 3,839 1,700 - - 5,539
$3,283,507 $1,052,810 $ 51,569 $(268,616) $4,119,270
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING BALANCE SHEETS, CONTINUED
December 31, 1995
Suncoast
Florida Suncoast Auto Brokers
Finance Auto Enterprises, Combining Combined
Group,Inc. Brokers,Inc. Inc. Entries Totals
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Notes payable $ 2,768,187 $846,437 $ - $ -
$ 3,614,624
Trade accounts
payable 40,169 57,945 79,091 - 177,205
Accrued expenses - 40,995 33,367 -
74,362
Drafts payable - 104,680 - -
104,680
Stockholder loans - 117,989 188,389 -
306,378
Deferred income 68,933 - - -
68,933
Intercompany
payable 9,409 20,200 239,007 (268,616) -
Related party
payable 22,046 570,100 122,000 - 714,146
Income taxes
payable 1,202 - - - 1,202
Total liabilities 2,909,946 1,758,346 661,854 (268,616)
5,061,530
Stockholder's equity (deficit):
Common stock 1,000 100 500 -
1,600
Paid-in capital in
excess of par value 220,129 - - -
220,129
Retained earnings
(deficit) 152,432 (705,636) (610,785) -
(1,163,989)
Total stockholder's
equity (deficit) 373,561 (705,536) (610,285) -
(942,260)
Commitments - - - - -
$3,283,507 $1,052,810 $ 51,569 $(268,616) $4,119,270
FLORIDA FINANCE GROUP, INC.,
SUNCOAST AUTO BROKERS, INC.
AND SUNCOAST AUTO BROKERS ENTERPRISES, INC.
COMBINING STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
For the Year Ended December 31, 1995
Suncoast
Florida Suncoast Auto Brokers
Finance Auto Enterprises, Combining Combined
Group, Inc. Brokers, Inc. Inc. Entries Totals
Revenue:
Sales $ - $ 3,802,313 $2,640,254 $(2,101,6
71) $ 4,340,896
Interest income 1,189,289 - - -
1,189,289
Total revenue 1,189,289 3,802,313 2,640,254 (2,101,67
1) 5,530,185
Cost of sales and
expenses:
Cost of sales - 3,517,772 2,146,612 (2,101,67
1) 3,562,713
Selling, general and
administrative 719,811 495,604 695,367 -
1,910,782
Provision for credit
losses 178,855 57,297 - - 236,152
Depreciation and
amortization 7,666 25,348 11,218 -
44,232
Interest 256,613 157,767 39,657 - 454,037
1,162,945 4,253,788 2,892,854 (2,101,671) 6,207,916
Income (loss) before
income taxes 26,344 (451,475) (252,600) -
(677,731)
Income taxes 6,146 - - - 6,146
Net income (loss) 20,198 (451,475) (252,600) -
(683,877)
Retained earnings
(accumulated deficit),
beginning of year 132,234 (254,161) (358,185) -
(480,112)
Retained earnings
(accumulated deficit),
end of year $ 152,432 $ (705,636) $(610,785) $ -
$ (1,163,989)
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Financial Information
Explanatory Headnote (Unaudited)
Introduction
On October 28, 1996, Eckler Industries, Inc. (Eckler) entered into an
Agreement and Plan of Reorganization (the Agreement) with Smart Choice
Automotive Group, Inc. (SCHI). SCHI had previously entered into agreements
to acquire the outstanding capital stock or net assets of other companies.
The closing of the transaction between Eckler and SCHI occurred on January
28, 1997. The transactions between SCHI and the other companies closed on
January 28, 1997 (prior to the Eckler and SCHI closing), February 12, 1997
and February 14, 1997.
Based on the controlling interest in Eckler obtained by SCHI as a result of
this transaction, the transaction will be accounted for as an acquisition
of Eckler by SCHI (a reverse acquisition in which SCHI is considered the
acquirer for accounting purposes).
SCHI was incorporated on June 21, 1996 and had no significant operations or
assets until it acquired Eckler and the other companies. The acquisition of
Eckler and the other companies will be accounted for as a purchase, with
the assets acquired and liabilities assumed recorded at their estimated
fair values.
The pro forma condensed consolidated balance sheets as of December 31, 1996
assume the transactions were consummated as of December 31, 1996, and the
pro forma condensed consolidated statements of operations for the year
ended December 31, 1996 and the three months ended December 31, 1996
assumes the transactions were consummated as of January 1, 1996.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the transactions. In particular, the
pro forma condensed consolidated financial statements are based on
management's current estimate of the allocations of purchase price, the
actual allocation of which may differ.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
Acquisition of Liberty Finance Company, Inc. and Affiliates
The outstanding capital stock of Liberty was acquired for $1,500,000 notes
due to the seller, the equivalent of 352,156 shares of common stock valued
at $3.375 per share ($1,188,527) and $54,026 in acquisition costs. Prior to
the acquisition, the selling stockholder contributed debt amounting to
$628,941 to the capital of Liberty.
The purchase price for Liberty is anticipated to be allocated as follows:
Fair value of assets acquired $15,818,914
Excess of cost over net assets acquired 1,633,463
17,452,377
Fair value of liabilities assumed 14,709,824
Total purchase price $2,742,553
Acquisition of Florida Finance Group, Inc. and Affiliates
The outstanding capital stock of Florida Finance and the net assets of its
affiliated companies were acquired for $892,722 notes due to the seller,
the issuance of 285,714 shares of common stock valued at $3.375 per share
($964,285) and $40,643 in acquisition costs.
The purchase price for Florida Finance is anticipated to be allocated as
follows:
Fair value of assets acquired $5,015,224
Excess of cost over net assets acquired 3,238,721
8,253,945
Fair value of liabilities assumed 6,356,295
Total purchase price $1,897,650
Acquisition of 225 North Military Trail Corporation and Affiliate
The net assets of 225 North Military Trail and Affiliate were acquired for
$3,000,000 cash, $1,250,000 notes due to the seller, 285,714 shares of
common stock valued at $3.375 per share ($964,286) and $53,299 in
acquisition costs.
The purchase price for 225 North Military Trail is anticipated to be
allocated as follows:
Fair value of assets acquired $5,108,400
Excess of cost over net assets acquired 808,278
5,916,678
Fair value of liabilities assumed 649,093
Total purchase price $5,267,585
Acquisition of Dealer Development Services, Inc.
The outstanding capital stock of Dealer Development Services, Inc. was
acquired for $384,615 notes due to the seller and $3,934 in acquisition
costs.
The purchase price for Dealer Development Services is anticipated to be
allocated as follows:
Fair value of assets acquired $101,116
Excess of cost over net assets acquired 892,426
993,542
Fair value of liabilities assumed 604,993
Total purchase price $388,549
Acquisition of Dealer Insurance Services, Inc.
The outstanding capital stock of Dealer Insurance Services, Inc. was
acquired for $365,385 notes due to the seller and $20,627 in acquisition
costs.
The purchase price for Dealer Insurance Services is anticipated to be
allocated as follows:
Fair value of assets acquired $132,461
Excess of cost over net assets acquired 421,485
553,946
Fair value of liabilities assumed 167,934
Total purchase price $386,012
Acquisition of Eckler Industries, Inc.
The acquisition of Smart Choice Holdings, Inc. by Eckler will be accounted
for as an acquisition of Eckler by SCHI (a reverse acquisition in which
SCHI is considered the acquirer for accounting purposes). The purchase
price for Eckler is computed by valuing the outstanding shares of common
stock of Eckler (the equivalent of 2,757,500 shares) at $3.375 or
$9,306,563 and acquisition costs of $100,119.
The purchase price for Eckler is anticipated to be allocated as follows:
Fair value of assets acquired $6,366,508
Excess of cost over net assets acquired 7,004,572
13,371,080
Fair value of liabilities assumed 3,964,398
Total purchase price $9,406,682
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Balance Sheets
(Unaudited)
SCHI Liberty
Pro Forma (4) Pro Forma Florida
December 31, 1996 SCHI Adjust. Liberty Adjust. Finance
Assets:
Cash $ $(2,950,000)(6)$ 163,184$ $ 20,272
2,950,000 (2)
Accounts receivable25,000 17,765
Notes receivable 400,000
Finance receivables 11,383,431 4,383,759
Inventories 2,861,848 440,317
Paid expenses 26,940
Land held for sale 1,050,000
Deferred tax asset
Property and
equipment, net 22,454 272,543 141,576
Investment in
subsidiaries 2,742,553 (4)
1,897,650 (5)
5,267,585 (6)
388,549 (7)
386,012 (8)
9,406,682 (9)
Excess of cost over
net assets acquired
Debt issue costs, net of
accum. amortization24,735 4,154
Deposit on acquisition50,000 (50,000)(6)
Deferred acquisition
costs 194,101 117,657 (3)
(54,026)(4)
(40,643)(5)
(53,299)(6)
(3,934)(7)
(20,627)(8)
(100,119)(9)
Other assets 83,754 2,360
$716,290$19,884,040 $15,818,914$ -0-$5,032,989
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Balance Sheets (Continued)
(Unaudited)
225 North Dealer
Military Develop Dealers EliminatingConsolidated
December 31, 1996 Trail mentInsurance Eckler Entries Pro Forma
Assets
Cash $ 192,999 $ 94,892$ 1,288$ 241,652$ $ 714,287
Accts. receivable 115,050 153,285 311,100
Notes receivable 326,700 726,700
Finance
receivables4,057,682 19,824,872
Inventories 799,358 1,307,525 5,409,048
Prepaid expenses 5,3851,385,398 1,417,723
Land held for sale 1,050,000
Deferred tax asset 330,610 330,610
Property and
equipment, net10,086 5,037 9,3562,512,645 2,973,697
Investment in
subsidiaries (2,742,553)
(1,897,650)
(5,267,585)
(388,549)
(386,012)
(9,406,682)
Excess of cost
over net assets
acquired 13,998,945 13,998,945
Debt issue costs, net of
accum. Amortization 28,889
Deposit on acquisition
Deferred acquisition
costs 39,110
Other assets 48,275 1,187 1,382 108,693 245,651
$5,108,400 $101,116 $132,461$6,366,508$(6,090,086)$47,070,632
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Balance Sheets
(Unaudited)
SCHI Liberty
Pro Forma (4) Pro Forma Florida
December 31, 1996 SCHI Adjust. Liberty Adjust. Finance
Liabilities and
Stockholders Equity:
Accounts Payable $438,890$ 117,657 (3)$ 473,088$ $ 47
,791
Bank overdraft 82,884
Notes payable 60,000 2,950,000 (2)14,438,582 (628,941)(4)6,175,193
1,500,000 (4)
892,722 (5)
1,250,000 (6)
384,615 (7)
365,385 (8)
Advance from related
parties 197,237
Accrued expenses 183,314 229,858 16,505
Deferred income 134,571
Customer deposits
Deferred income taxes
Convertible debentures262,000
Total liabilites 1,027,088 7,460,37915,338,765 (628,941) 6,374,060
Stockholders'
equity (deficit)(310,798) 1,188,527 (4) 480,149628,941 (4)(1,341,071)
964,285 (5)
964,286 (6)
9,306,563 (9)
$716,290 $19,884,040$15,818,914$ -0-$5,032,989
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Balance Sheets (Continued)
(Unaudited)
225 North Dealer
Military Develop Dealers EliminatingConsolidated
December 31, 1996 Trail mentInsurance Eckler Entries Pro Forma
Liabilities and
Stockholders Equity:
Accounts payable$ 349,093$ 1,002$ 94,319$ 545,765$ $ 2,067,605
Bank overdraft 82,884
Notes payable 300,000 16,500 27,1662,706,206 30,437,428
Advance from related
parties 197,237
Accrued expenses 177,816 46,449 309,613 963,555
Deferred income 134,571
Customer deposits 409,675 409,675
Deferred income taxes 402,814 402,814
Convertible debentures 262,000
Total liabilities649,093 604,993 167,9343,964,398 34,957,769
Stockholders' equity
(deficit) 4,459,307(503,877) (35,473)2,402,110(6,090,086)12,112,863
$5,108,400 $101,116 $132,461$6,366,508$(6,090,086)$47,070,632
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Statement of Operations (Unaudited)
Year Ended December 31, 1996
225 North Dealer
Florida Military Develop-
SCHI Liberty Finance Trail ment
Revenues $ $21,687,418$6,064,172$11,998,847 $698,620
Cost and expenses:
cost of sales 16,122,7783,702,953 8,446,683
Operating expenses 670,616 4,852,529 2,084,072 2,989,802 1,206,152
670,616 20,975,307 5,787,02511,436,485 1,206,152
Income (loss) from
operations (670,616) 712,111 277,147 562,362 (507,532)
Other income (expense):
Interest expense (33,172) (1,324,437) (675,754) (22,593) (623)
Other 79
(33,172) (1,324,437) (675,754) (22,593) (544)
Income (loss) before
income taxes (benefit)(703,788)(612,326) (398,607) 539,769 (508,076)
Taxes on income
(benefit) 204
Net income (loss)$(703,788) $ (612,326)$ (398,811)$ 539,769$(508,076)
Income (loss) per share
Weighted average number of
common shares outstanding
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Statement of Operations (Unaudited) (Continued)
Year Ended December 31, 1996
Dealers Pro FormaConsolidted
Insurance Eckler Adjust. Pro Forma
Revenues $812,645$14,893,083$ $56,154,785
Cost and expenses:
cost of sales 9,648,505 37,920,919
Operating expenses) 863,344 5,489,776699,947(10)18,520,014
(336,224)(11)
863,34415,138,281 363,72356,440,933
Income (loss) from
operations (50,699) (245,198) (363,723) (286,148)
Other income (expense):
Interest expense (4,294) (332,195)(657,828)(12)(3,050,896)
Other 100,963 101,042
(4,294) (231,232) (657,828)(2,949,854)
Income (loss) before
income taxes (benefit) (54,993) (476,430)(1,021,551)(3,236,002)
Taxes on income
(benefit) (161,000)160,796(13)
Net income (loss) $ (54,993)$ (315,430)$(1,182,347)$(3,236,002)
Income (loss) per share $ (.35)
Weighted average number of
common shares outstanding 9,169,516
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Statement of Operations (Unaudited)
Three Months Ended December 31, 1996
225 North Dealer
Florida Military Develop-
SCHI Liberty Finance Trail ment
Revenues $ $5,360,478$ 893,339$ 2,518,311 $236,316
Cost and expenses:
cost of sales 3,239,488 154,078 1,637,024
Operating expenses)670,616 3,157,227 604,708 965,904 603,461
670,616 6,396,715 758,786 2,602,928 603,461
Income (loss) from
operations (670,616) (1,036,237) 134,553 (84,617) (367,145)
Other income (expense):
Interest expense (33,172) (367,959) (181,965) (8,766) (584)
Other
(33,172) (367,959) (181,965) (8,766) (584)
Income (loss) before
income taxes (benefit)(703,788)(1,404,196)(47,412) (93,383) (367,729)
Taxes on income
(benefit) 204
Net income (loss)$(703,788) $(1,404,196)$ (47,616)$ (93,383)$(367,729)
Income (loss) per share
Weighted average number of
common shares outstanding
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Statement of Operations (Unaudited)
Three Months Ended December 31, 1996
Dealers Pro FormaConsolidted
Insurance Eckler Adjust. Pro Forma
Revenues $172,770$2,941,821$ $12,123,035
Cost and expenses:
cost of sales 1,813,371 6,843,961
Operating expenses) 184,056 1,492,939174,987(10)7,487,706
(336,192)(11)
184,056 3,306,310 (191,205)14,331,667
Income (loss) from
operations (11,286) (364,489) 191,205(2,208,632)
Other income (expense):
Interest expense (1,145) (72,673)(164,457)(12)(830,721)
Other 28,155 28,155
(1,145) (44,518) (164,457) (802,566)
Income (loss) before
income taxes (benefit) (12,431) (409,007) 26,748(3,011,198)
Taxes on income
(benefit) (212,798)212,594(13)
Net income (loss) $ (12,431)$ (196,209)$(185,846)$(3,011,198)
Income (loss) per share $ (.33)
Weighted average number of
common shares outstanding 9,169,516
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Notes to Pro Forma Consolidated Financial Information
(Unaudited)
Pro Forma Adjustments
The pro forma condensed consolidated balance sheet as of December 31, 1996
assumes the transactions were consummated as of December 31, 1996 and the
pro forma condensed consolidated statements of operations for the year
ended December 31, 1996 and the three months ended December 31, 1996
assumes the transactions were consummated as of January 1, 1996.
Borrowings for Acquisitions
Reflects the borrowings necessary to fund the cash position of the purchase
price of 225 North Military Trail Corporation and Affiliate.
Deferred Acquisition Costs
Reflects the accrual of acquisition costs incurred after December 31,
1996.
Acquisition of Liberty Finance Company, Inc. and Affiliates
The outstanding capital stock of Liberty was acquired for $1,500,000 notes
due to the seller, the equivalent of 352,156 shares of common stock valued
at $3.375 per share ($1,188,527) and $54,026 in acquisition costs. Prior to
the acquisition, the selling stockholder contributed debt amounting to
$628,941 to the capital of Liberty.
The purchase price for Liberty is anticipated to be allocated as follows:
Fair value of assets acquired $15,818,914
Excess of cost over net assets acquired 1,633,463
17,452,377
Fair value of liabilities assumed 14,709,824
Total purchase price $2,742,553
Acquisition of Florida Finance Group, Inc. and Affiliates
The outstanding capital stock of Florida Finance and the net assets of its
affiliated companies were acquired for $892,722 notes due to the seller,
the issuance of 285,714 shares of common stock valued at $3.375 per share
($964,285) and $40,643 in acquisition costs.
The purchase price for Florida Finance is anticipated to be allocated as
follows:
Fair value of assets acquired $5,015,224
Excess of cost over net assets acquired 3,238,721
8,253,945
Fair value of liabilities assumed 6,356,295
Total purchase price $1,897,650
Acquisition of 225 North Military Trail Corporation and Affiliate
The net assets of 225 North Military Trail and Affiliate were acquired for
$3,000,000 cash, $1,250,000 notes due to the seller, 285,714 shares of
common stock valued at $3.375 per share ($964,286) and $53,299 in
acquisition costs.
The purchase price for 225 North Military Trail is anticipated to be
allocated as follows:
Fair value of assets acquired $5,108,400
Excess of cost over net assets acquired 808,278
5,916,678
Fair value of liabilities assumed 649,093
Total purchase price $5,267,585
Acquisition of Dealer Development Services, Inc.
The outstanding capital stock of Dealer Development Services, Inc. was
acquired for $384,615 notes due to the seller and $3,934 in acquisition
costs.
The purchase price for Dealer Development Services is anticipated to be
allocated as follows:
Fair value of assets acquired $101,116
Excess of cost over net assets acquired 892,426
993,542
Fair value of liabilities assumed 604,993
Total purchase price $388,549
Acquisition of Dealer Insurance Services, Inc.
The outstanding capital stock of Dealer Insurance Services, Inc. was
acquired for $365,385 notes due to the seller and $20,627 in acquisition
costs.
The purchase price for Dealer Insurance Services is anticipated to be
allocated as follows:
Fair value of assets acquired $132,461
Excess of cost over net assets acquired 421,485
553,946
Fair value of liabilities assumed 167,934
Total purchase price $386,012
Acquisition of Eckler Industries, Inc.
The acquisition of Smart Choice Holdings, Inc. by Eckler will be accounted
for as an acquisition of Eckler by SCHI (a reverse acquisition in which
SCHI is considered the acquirer for accounting purposes). The purchase
price for Eckler is computed by valuing the outstanding shares of common
stock of Eckler (the equivalent of 2,757,500 shares) at $3.375 or
$9,306,563 and acquisition costs of $100,119.
The purchase price for Eckler is anticipated to be allocated as follows:
Fair value of assets acquired $6,366,508
Excess of cost over net assets acquired 7,004,572
13,371,080
Fair value of liabilities assumed 3,964,398
Total purchase price $9,406,682
Amortization of Excess Cost over Fair Value of Assets Acquired
Reflects the amortization of excess cost over fair value of assets acquired
over 20 years.
Compensation Expense
Reflects the change in compensation expense based on the historical
compensation expense of certain executives of the acquired companies
compared to their employment agreements effective on the dates of
acquisition.
Interest Expense
Reflects the net additional interest expense on the indebtedness incurred
as partial payment of the purchase price of the acquired companies, reduced
by the interest expense incurred on debt contributed to capital by the
sellers of one of the acquired companies.
Income Tax Benefit
To eliminate tax benefits in determining pro forma income (loss) from
operations. Management believes that sufficient evidence would not have
existed to recognize a deferred tax asset relating to these losses.
