SMART CHOICE AUTOMOTIVE GROUP INC, 10-Q/A, 2000-05-15

SMART CHOICE AUTOMOTIVE GROUP INC
10-Q/A, 2000-05-15
AUTO DEALERS & GASOLINE STATIONS

Previous: UNION PACIFIC RESOURCES GROUP INC, 10-Q, 2000-05-15

Next: LMKI INC, SB-2/A, 2000-05-15

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999

--------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________

Commission file number 1-14082

--------

SMART CHOICE AUTOMOTIVE GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

FLORIDA 59-1469577
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5200 S. Washington Avenue, Titusville, Florida 32780
----------------------------------------
(Address of principal executive offices)
(Zip Code)

(407) 269-9680
----------------------------------------------------
(Registrant's telephone number, including area code)

---------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
----- ------

Indicate number or shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:

As of November 22, 1999, 8,328,248 shares of the Registrant's Common Stock were
issued and outstanding.

<PAGE>

SMART CHOICE AUTOMOTIVE GROUP, INC.

Form 10-Q/A

TABLE OF CONTENTS

<TABLE>
<CAPTION>
HEADING PAGE
------- ----
<S> <C>
PART I. FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements

Balance Sheet - September 30, 1999 and December 31, 1998.................................3
Statements of Operations - Three and nine months ended September 30, 1999 and 1998.......4
Statements of Stockholders' Equity - Nine months ended September 30, 1999................5
Statements of Cash Flows - Nine months ended September 30, 1999 and 1998.................6
Notes to Consolidated Financial Statements............................................7-13

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................13-23

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................23
Item 2. Changes in Securities...................................................................23
Item 3. Defaults Upon Senior Securities......................................................23-24
Item 4. Submission of Matters to a Vote of Securities Holders...................................24
Item 5. Other Information.......................................................................24
Item 6. Exhibits and Reports on Form 8-K........................................................24

SIGNATURES.........................................................................................25
</TABLE>

We are filing this amended Quarterly Report on Form 10-Q/A in response to
comments received from the Securities and Exchange Commission. This report
continues to speak as of the date of the Original Filing and we have not updated
the disclosure in this report to speak to any later date.

2
<PAGE>

PART I

ITEM 1. FINANCIAL STATEMENTS.

Smart Choice Automotive Group, Inc. and Subsidiaries

Consolidated Balance Sheets

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents ...................................... $ 131,878 $ 819,993
Accounts receivable ............................................ 460,742 349,417
Finance receivables
Principal balances, net ...................................... 92,578,129 79,342,835
Less: allowance for credit losses ............................ (16,082,762) (12,157,569)
------------- -------------
76,495,367 67,185,266

Inventories .................................................... 7,134,623 13,228,186
Property and equipment, net .................................... 6,264,158 3,467,637
Note receivable ................................................ -- 425,000
Deferred debt costs, net ....................................... 158,579 226,152
Goodwill, net .................................................. 4,344 12,585,005
Prepaid expenses ............................................... 394,019 303,276
Deposits and other assets ...................................... 562,464 416,574
Net assets of discontinued operations .......................... 1,492,513 13,828,956
------------- -------------
$ 93,098,687 $ 112,835,462
============= =============

Liabilities and Stockholders' Equity
Liabilities:
Bank overdraft ................................................. $ 1,058,890 $ 3,112,930
Accounts payable ............................................... 3,955,942 3,340,540
Accrued expenses ............................................... 5,969,956 3,039,464
Line of credit, net of discount ................................ 68,368,419 63,612,433
Floorplan payable .............................................. 7,039,464 3,190,739
Capital lease obligations ...................................... 687,092 850,099
Notes payable .................................................. 19,195,095 25,276,758
Deferred income ................................................ 822,360 --
------------- -------------
Total liabilities ................................................... 107,097,218 102,422,963

Contingent redemption value of common stock put options ............. 1,539,148 1,539,148

Redeemable convertible preferred .................................... 10,000 10,000

Stockholders' equity:
Preferred stock ..................................................... 5,891,410 5,891,410
Common stock ........................................................ 83,283 66,765
Additional paid in capital .......................................... 31,993,291 30,054,488
Common stock notes receivable ....................................... (115,200) (115,200)
Accumulated deficit ................................................. (53,400,463) (27,034,112)
------------- -------------

Total stockholders' equity .......................................... (15,547,679) 8,863,351
------------- -------------

$ 93,098,687 $ 112,835,462
============= =============
</TABLE>

See accompanying notes to consolidated financial statements

3
<PAGE>

Smart Choice Automotive Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales at used car stores ................... $ 14,508,943 $ 23,306,072 $ 55,228,784 $ 63,908,603
Income on finance receivables .............. 5,416,235 4,967,012 15,807,621 11,617,917
Income from insurance and training ......... 78,676 635,809 401,133 1,061,841
------------ ------------ ------------ ------------
Total revenues ............................. 20,003,854 28,908,893 71,437,538 76,588,361
------------ ------------ ------------ ------------
Cost and expenses:
Costs of sales at used car stores .......... 10,653,343 16,892,001 41,854,237 43,745,213
Provision for credit losses ................ 6,057,669 3,652,797 13,561,263 8,380,051
Cost of insurance and training ............. 16,149 16,758 55,262 76,353
Restructuring charges ...................... 2,228,585 -- 2,228,585 --
Write-off of goodwill ...................... 12,328,918 -- 12,328,918 --
Selling, general and administrative expenses 6,008,662 8,407,524 18,546,129 18,694,374
------------ ------------ ------------ ------------
Total costs and expenses .................. 37,293,326 28,969,080 88,574,394 70,895,991
------------ ------------ ------------ ------------
Income from operations .......................... (17,289,472) (60,187) (17,136,856) 5,692,370

Other income (expense):
Interest expense ........................... (2,590,553) (2,293,475) (7,304,147) (6,019,896)
Other income ............................... 29,418 334,181 195,011 577,063
------------ ------------ ------------ ------------
(2,561,135) (1,959,294) (7,102,136) (5,442,833)
------------ ------------ ------------ ------------
Net income (loss) from continuing operations .... (19,850,607) (2,019,481) (24,245,992) 249,537

Discontinued operations:
Income from discontinued operations ............. (630,311) (74,239) (420,794) 882,063
Estimated loss on sale of discontinued operations (400,000) -- (1,200,000) --
------------ ------------ ------------ ------------
(1,030,311) (74,239) (1,620,794) 882,063
------------ ------------ ------------ ------------
Net income (loss) ............................... (20,880,918) (2,093,720) (25,866,786) 1,131,600
Preferred stock dividends ....................... (140,699) (173,246) (499,565) (337,084)
------------ ------------ ------------ ------------
Net income (loss) available to common stock ..... $(21,021,617) $ (2,266,966) $(26,366,351) $ 794,516
============ ============ ============ ============
Basic income (loss) per common share:
Continuing operations ........................ $ (2.52) $ (0.33) $ (3.37) $ (0.01)
Discontinued operations ...................... (0.13) (0.01) (0.22) 0.14
------------ ------------ ------------ ------------
$ (2.65) $ (0.34) $ (3.59) $ 0.13
============ ============ ============ ============
Diluted income (loss) per common share:
Continuing operations ........................ $ (2.52) $ (0.30) $ (3.37) $ (0.01)
Discontinued operations ...................... (0.13) (0.01) (0.22) 0.12
------------ ------------ ------------ ------------
$ (2.65) $ (0.31) $ (3.59) $ 0.11
============ ============ ============ ============

Weighted average number of common shares
and share equivalents outstanding:
Basic ........................................ 7,919,270 6,578,698 7,333,155 6,056,234
============ ============ ============ ============
Diluted ...................................... 7,919,270 7,430,665 7,333,155 7,033,419
============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

4
<PAGE>

Smart Choice Automotive Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity
(Unaudited)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------ COMMON
NUMBER NUMBER ADDITIONAL STOCK
OF OF PAR PAID-IN NOTES ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL RECEIVABLE DEFICIT TOTAL
------ ---------- --------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 ...... 595 $5,891,410 6,676,545 $66,765 $ 30,054,488 $ (115,200) $(27,034,112) $ 8,863,351

Issuance of common stock for
conversion of debt ......... -- -- 1,651,703 16,518 1,938,803 -- -- 1,955,321

Preferred stock dividends ....... -- -- -- -- -- -- (499,565) (499,565)

Net loss ........................ -- -- -- -- -- -- (25,866,786) (25,866,786)
------ ---------- --------- ------- ------------ ---------- ------------ ------------

BALANCE, September 30, 1999 ..... 595 $5,891,410 8,328,248 $83,283 $ 31,993,291 $ (115,200) $(53,400,463) $(15,547,679)
====== ========== ========== ======= ============ ========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements

5
<PAGE>

Smart Choice Automotive Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/ (loss) ............................................ $(25,866,786) $ 1,131,600
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Provision for credit losses ................................ 13,707,087 8,380,051
Depreciation and amortization .............................. 1,297,975 1,928,636
Write-off of goodwill ...................................... 12,328,918 --
Non-cash litigation costs reserved ......................... 1,185,000 --
Non-cash restructuring charges ............................. 2,228,585 --
(Gain) Loss on disposal of property and equipment .......... -- (43,381)
Deferred warranty contracts earned ......................... (177,640) --
Provision for loss on sale of discontinued operations ...... 1,200,000 --
Cash provided by (used for):
Accounts receivable ...................................... (168,127) (2,012,670)
Inventory ................................................ 6,690,038 (4,200,159)
Prepaid expenses ......................................... 54,113 (956,111)
Accounts payable ......................................... 972,661 704,312
Accrued expenses and other liabilities ................... (52,927) (1,325,322)
------------ ------------
Net cash provided by operating activities ........................ 13,398,897 3,606,956
------------ ------------

Cash flows from investing activities:
Increase in finance receivables ............................... (22,871,364) (38,000,242)
Sale of subsidiary ............................................ 10,570,315 --
Proceeds from disposal of property and equipment .............. -- 1,093,381
(Increase) / decrease in deposits ............................. (31,161) (54,015)
(Increase) / decrease in other assets ......................... (242,528) (1,716)
Payment of notes receivable ................................... -- 46,280
Purchase of property and equipment ............................ (382,242) (1,057,971)
------------ ------------
Net cash used in investing activities ............................ (12,956,980) (37,974,283)
------------ ------------

Cash flows from financing activities:
Principal payments on notes payable ........................... (9,346,595) (3,628,509)
Proceeds from issuance of notes payable ....................... 2,005,000 6,497,448
Proceeds from issuance of preferred stock ..................... -- 5,891,411
Proceeds from issuance of common stock ........................ -- 394,476
Proceeds from issuance of convertible debt .................... -- 340,000
Proceeds from exercise of common stock options and warrants ... -- 46,250
Proceeds from line of credit borrowings ....................... 4,693,861 27,250,000
Decrease in bank overdraft .................................... (2,019,834) --
Net proceeds (repayment) from floorplan notes payable ......... 2,838,688 (1,484,080)
Proceeds from warranty contracts advance ...................... 1,000,000 --
Payments of dividends ......................................... (488,116) (212,864)
Deferred financing costs ...................................... (10,000) (727,788)
Deferred stock offering costs ................................. -- (551,492)
Proceeds from capital lease obligations ....................... -- 403,916
Payments on capital lease obligations ......................... (163,007) (309,806)
------------ ------------
Net cash provided by financing activities ........................ (1,490,003) 33,908,962
------------ ------------

Net increase / (decrease) in cash and cash equivalents ........... (1,048,086) (458,365)
Cash and cash equivalents at beginning of period ................. 1,268,589 1,066,949
------------ ------------

Cash and cash equivalents at end of period ....................... $ 220,503 $ 608,584
============ ============
</TABLE>

See accompanying notes to consolidated financial statements

6
<PAGE>

Smart Choice Automotive Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements of Smart Choice
Automotive Group, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for a complete financial statement
presentation. In the opinion of management, such unaudited interim information
reflects all adjustments, consisting only of normal recurring adjustments,
necessary to present the Company's financial position and results of operations
for the periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full fiscal year. The
consolidated balance sheet as of December 31, 1998 was derived from the audited
consolidated financial statements as of that date but does not include all the
information and notes required by generally accepted accounting principles.
These consolidated financial statements should be read in conjunction with the
company's audited consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

Note 2 - Finance Receivables

The Company's finance receivables ("Finance Receivables" or "Finance Contracts")
are automobile retail installment sale contracts originated by the Company on
sales of used cars at its automobile dealerships. The following shows the
principal balances of the Company's Finance Receivables as of September 30,
1999:

Contractually scheduled payments ..... $ 129,771,030
Less: unearned finance charges ....... (38,434,550)
-------------
Principal balances ................... 91,336,480
Add: loan origination costs .......... 1,241,649
-------------
Principal balances, net .............. 92,578,129
Less: allowance for credit losses .... (16,082,762)
-------------
Principal balances, net .............. $ 76,495,367
=============

Note 3 - Presentation of Revenues and Cost of Revenues

The prices at which the Company sells its used cars and the interest rate that
it charges to finance these sales take into consideration that the Company's
primary customers are high-risk borrowers. The provision for credit losses
reflects these factors and is treated by the Company as a cost of both the
future finance income derived on the finance receivables originated at the
Company as well as a cost of the sales of the cars themselves. Accordingly,
unlike traditional car dealerships, the Company does not present gross profit
margin in its statement of operations calculated as sales of cars less cost of
cars sold.

Note 4 - Deferred Income

Deferred income represents the net value received by the Company in 1999 in
connection with a long-term service protection plan agreement whereby the
Company earns a commission on warranty contracts sold in connection with used
car sales. Extended warranty coverage is provided by an independent third party.

Note 5 - Earnings (Loss) per Common Share

Net income (loss) per common share is based on the weighted average number of
common shares and potential common shares outstanding during each period.
Potential common shares for 1999 have not been included since their effect would
be antidilutive. Potential common shares of 851,967 and 977,185 for the three
and nine months ended September 30, 1998, respectively, include options,
warrants and shares underlying convertible debt.

7
<PAGE>

Note 6 - Supplemental Cash Flow Information

Cash paid for interest during the nine months ended September 30, 1999 and 1998
was $7,188,919 and $5,747,262, respectively.

The Company's non-cash investing and financing activities were as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Common stock issued for conversion of debt and related interest .................. $1,955,321 $1,336,132
Exchange of note payable for accounts payable .................................... 452,240
Exchange of note receivable for note payable ..................................... 140,000 --
Common stock issued for conversion of preferred stock and accrued dividends ...... -- 4,592,704
Common stock issued for settlement of accrued expenses ........................... 525,765 --
Accrual of preferred stock dividends ............................................. 11,449
Exchange of inventory for note payable ........................................... 40,000 --
</TABLE>

Note 7 - Segment Information

The following table shows certain financial information by reportable segment as
of and for the three and nine months ended September 30, 1999 and 1998 and
excludes the operations of the discontinued segments:

<TABLE>
<CAPTION>
USED CAR FINANCING CORPORATE DISCONTINUED
THREE MONTHS ENDED SEPT. 30, STORES SERVICES AND OTHER OPERATIONS COMBINED
----------------------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1999
----
Revenue from external customers $ 14,508,943 $ 5,416,235 $ 78,676 $ -- $ 20,003,854
Intercompany revenues -- 69,582 -- -- 69,582
Operating income (loss) 511,852 (1,242,101) (16,559,223) -- (17,289,472)
Depreciation and amortization 65,498 81,125 138,295 127,800 412,718
Interest expense 315,388 1,925,180 347,130 -- 2,590,553
Identifiable assets 12,016,871 85,784,083 (6,194,780) 11,032,229 102,638,403
Capital expenditures 26,468 700 7,222 57,951 92,341

1998
----
Revenue from external customers $ 23,306,072 $ 4,967,012 $ 635,809 $ -- $ 28,908,893
Intercompany revenues -- 1,518,696 -- -- 1,518,696
Operating income (loss) 1,216,720 561,197 (1,838,104) -- (60,187)
Depreciation and amortization 104,070 46,442 248,973 92,198 491,683
Interest expense 270,088 1,517,496 505,891 -- 2,293,475
Identifiable assets 21,949,287 73,610,813 8,566,240 22,014,272 126,140,612
Capital expenditures 74,092 3,000 69,076 18,642 164,810
<CAPTION>
USED CAR FINANCING CORPORATE DISCONTINUED
NINE MONTHS ENDED SEPT. 30, STORES SERVICES AND OTHER OPERATIONS COMBINED
---------------------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1999
----
Revenue from external customers $ 55,228,784 $ 15,807,621 $ 401,133 $ -- $ 71,437,538
Intercompany revenues -- 1,633,114 -- -- 1,633,114
Operating income (loss) 1,051,471 2,220,429 (20,408,756) -- (17,136,856)
Depreciation and amortization 200,866 213,739 469,757 368,416 1,252,778
Interest expense 366,442 5,655,344 1,291,464 -- 7,304,147
Identifiable assets 12,016,871 85,784,083 (6,194,780) 11,032,229 102,638,403
Capital expenditures 157,250 5,914 86,918 183,374 433,456

1998
----
Revenue from external customers $ 63,908,603 $ 11,617,917 $ 1,061,841 $ -- $ 76,588,361
Intercompany revenues -- 4,223,075 -- -- 4,223,075
Operating income (loss) 5,011,337 4,885,200 (4,204,167) -- 5,692,370
Depreciation and amortization 369,809 162,600 817,349 336,130 1,685,888
Interest expense 447,105 3,891,763 1,681,028 -- 6,019,896
Identifiable assets 21,949,287 73,610,813 8,566,240 22,014,272 126,140,612
Capital expenditures 537,211 234,682 157,538 128,539 1,057,970
</TABLE>

8
<PAGE>

Note 8 - Discontinued Operations

In January 1999, management of the Company made a decision to discontinue the
operations of the new car dealerships segment and the Corvette parts and
accessories segment in order to focus the Company's continuing operations
exclusively on the retail sale of used cars through its used car stores, as well
as the financing of the used cars sold. The new car dealerships segment operated
two new car dealerships in Florida. The Corvette parts and accessories segment
sold and distributed Corvette parts and accessories throughout the United
States, primarily through its catalog.

During the first quarter of 1999, the Company recorded an estimated loss on
disposal of discontinued operations of $800,000 based upon its estimates of the
proceeds it expected to receive from the sales of the discontinued segments. The
estimated loss of $800,000 included an estimated gain on the sale of the
Corvette parts and accessories segment of $2,700,000 and an estimated loss on
the sale of the new car dealerships of $3,500,000.

On August 26, 1999, the Company sold the Corvette parts and accessories segment.
The Company received $10,250,000 in cash proceeds that were used primarily to
repay two 10% term notes totaling $8.5 million in principal, plus accrued
interest. These notes had been collateralized by substantially all of the
Company's assets as well as all of the issued and outstanding capital stock of
Eckler Industries, Inc. The Company used the balance of the proceeds for working
capital purposes.

In addition, the Company issued 488,000 shares of its common stock to Stephens,
Inc. as payment for broker fees of $610,000 due in connection with the sale of
the Corvette parts and accessories segment. Based on the knowledge, experience
and economic strength of Stephens, Inc., the Company believes that this
transaction was exempt from registration under the Securities Act of 1933, as
amended, based upon Section 4(2) of that act.

The Company recognized a gain on the sale of the Corvette parts and accessories
segment of approximately $2,754,000. At the time of the sale, the Corvette
segment had parts and accessories and the related goodwill having book values of
$3,277,500 and $5,824,000, respectively, and liabilities of $2,138,500, which
were assumed by the purchaser. The Company incurred transaction costs in
connection with this transaction of $533,000.

On November 11, 1999, the Company sold selected assets of the new car
dealerships segment (see note 11 "Subsequent Events"). The Company received
$1,300,000 for the assets of the new car dealerships and retained certain
receivables and liabilities. As of September 30, 1999, the Company estimated
that it would recognize a loss of approximately $3,900,000 on the disposal of
the new car dealerships.

As a result of the sale of the Corvette parts and accessories segment during the
third quarter of 1999 and the sale of assets of the new car dealerships on
November 11, 1999, the Company updated its estimated loss on the disposition of
discontinued operations for the nine months ended September 30, 1999. The
Company estimated that it would incur an additional loss on the sale of the new
car dealerships of $400,000. The total estimated loss on the disposal of
discontinued operations for the nine months ended September 30, 1999 of
$1,200,000 reflected the gain on the sale of the Corvette parts and accessories
segment of $2,700,000 and an estimated loss on the sale of the new car
dealerships of $3,900,000.

Revenues of the discontinued operations were $8,666,560 and $10,516,624 during
the three months ended September 30, 1999 and 1998, respectively, and were
$35,476,201 and $35,277,358 during the nine months ended September 30, 1999 and
1998, respectively. Consolidated interest that is not attributable to other
operations of the Company was allocated to discontinued operations based upon
net assets of the discontinued operations to the total net assets of the
consolidated Company. The amount of interest allocated to discontinued
operations was $338,328 and $134,702 during the three months ended September 30,
1999 and 1998, respectively, and was $719,774 and $273,449 during the nine
months ended September 30, 1999 and 1998, respectively.

The net assets of the discontinued operations included in the September 30, 1999
consolidated balance sheets consist of the following:

<TABLE>
<S> <C>
Cash and cash equivalents...................................... $ 88,625
Accounts receivable ............................................. 500,421
Inventories ..................................................... 4,560,590
Prepaid expenses ................................................ 38,644
Property and equipment, net ..................................... 597,143
Goodwill, net ................................................... 1,348,956
Other assets .................................................... (11,906)
Bank overdraft .................................................. (34,206)
Accounts payable ................................................ (152,199)
Accrued expenses ................................................ (291,724)
Notes payable ................................................... (650,639)
Floor plans payable ............................................. (4,501,192)
-----------
Net assets of discontinued operations........................... $ 1,492,513
===========
</TABLE>

9
<PAGE>

Note 9 - Restructuring Charges and Loss Contingency

During the three-month period ending September 30, 1999, the Company recorded a
restructuring charge to operations in the amount of $2,228,585. This charge
included the costs of employee severance, the write-off of certain assets
associated with the closure of used car lot locations and the estimated loss on
the disposition of the Company airplane. The restructuring charges are:

Employee costs and termination benefits $ 710,000
Used car lot closure 850,000
Write-off assets 268,585
Airplane disposition 400,000
------------
Total Restructuring Charges $ 2,228,585
============

During the third quarter of 1999, the Company decided to take additional steps
to reduce overhead and operational costs and to eliminate unprofitable retail
car lot locations. The restructuring plan included closing three retail used car
lots in the West Palm Beach market area, revising the use of one retail used car
lot for use for financed receivables processing as well as a reduction in
management level staff at the Company headquarters. The restructuring plan
provided for the termination of a total of 24 employees. All but one of the
identified employees had been terminated as of October 31, 1999. A total of
$710,000 in employee costs and termination benefits has been provided for in the
restructuring charge and is anticipated to be fully paid out by January 31,
2000. The employees effected by the restructuring include three headquarters
management positions, three lot managers and eighteen salespersons and
operations positions.

In addition to the charge for employee termination benefits, the Company
included in the restructuring charge $850,000 for future lease costs and
non-operating costs to be incurred through the remaining lease terms of closed
lots and to provide for the transition out of this market.

The Company has written off assets having a net book value of $268,585, which
relate primarily to the retail lot locations closed during the third quarter.
The assets include leasehold improvements and signage installed at leased
locations at which the Company has terminated its lease obligations.

The Company has also decided to terminate its lease obligation for the Company
airplane. A charge of $400,000 has been recorded as part of the restructuring
charge for the estimated shortfall between the present value of the lease
obligation and fair value of the aircraft in the market.

In addition, the Company recorded a charge to general, selling and
administrative expenses for estimated costs relating to twenty-three
outstanding, threatened, or settled litigation actions against the Company in
the amount of $1,185,000. The maximum amount that the Company accrued in the
third quarter with respect to any one of the pending, settled, or threatened
cases was approximately $160,000. The average amount accrued per case was
approximately $51,500. All of the pending cases were filed in 1998 or 1999. Most
involve disgruntled former employees. One of the pending cases is the putative
class action suit described below. The amount accrued for litigation also
includes six threatened cases, two of which involve contract disputes and four
of which involve former employees.

10
<PAGE>

During March 1999, certain shareholders of the Company filed two putative class
action lawsuits against the Company and certain of the Company's current and
former officers and directors in the United States District Court for the Middle
District of Florida (collectively, the "Securities Actions"). The Securities
Actions purport to be brought by plaintiffs in their individual capacities and
on behalf of the class of persons who purchased or otherwise acquired the
Company's publicly traded securities between April 15, 1998 and February 26,
1999. These lawsuits were filed following the Company's announcement on February
26, 1999 that a preliminary determination had been reached that the net income
announced on February 10, 1999 for the fiscal year ended December 31, 1998 was
likely overstated in a material, undetermined amount at that time. Each of the
complaints asserts claims for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Exchange Act as well as a claim for
the violation of Section 20(a) of the Exchange Act. The plaintiffs allege that
the defendants prepared and issued deceptive and materially false and misleading
statements to the public, which caused plaintiffs to purchase Company securities
at artificially inflated prices. The plaintiffs seek unspecified damages. The
Company intends to contest these claims vigorously. The Company cannot predict
the ultimate resolution of these actions. The two class action lawsuits have
subsequently been consolidated.

Prior to the third quarter, the Company had estimated a charge relating to only
three pending litigation matters. The Company accrued additional amounts based
upon a current assessment of the cases during the third quarter. Of the other
twenty cases for which a charge was taken in the third quarter, three were filed
in early October 1999. With respect to the remaining cases, prior to the third
quarter, none had progressed to the stage where the dollar amount of the losses
or probable outcome could be reasonably estimated. The plaintiffs' complaints or
threats either did not seek specific damage amounts or the amounts demanded bore
no relation to the allegations. Minimal discovery had occurred and only two
depositions had been taken, both in the same case and both in or after the third
quarter.

During and after the end of the third quarter, the Company entered into
court-ordered mediation in four of the pending cases. These mediations provided
the Company with the basis for assessing possible outcomes and reserves. With
respect to the remaining cases, additional motions were filed and the Company
entered into negotiations to resolve the lawsuits and the threats. These
discussions and pleadings have allowed the Company to determine probable
outcomes and thereby estimate the probable costs associated with each matter.

Note 10 - Goodwill

Goodwill represents acquisition costs in excess of the fair value of net
tangible assets of businesses purchased. Goodwill is being amortized over 40
years on a straight-line basis. Goodwill is evaluated for impairment when events
or changes in circumstances indicate that the carrying amounts of the assets may
not be recoverable. The Company uses an estimate of the related undiscounted
operating income over the remaining life of the goodwill in measuring whether it
is recoverable.

Certain events and changes in circumstances occurred during the third quarter
1999 that indicated that the goodwill of certain acquisitions might not be
recoverable. During the second quarter of 1999, the Company had made significant
reductions in retail car lot locations and overhead costs. In conjunction with
these reductions, the Company had analyzed its cash flows and determined that
the Company would generate positive cash flows beginning in the third quarter
1999. The Company had concluded that these cash flows would be sufficient to
support the amortization of goodwill on a going forward basis and that its
assets were not impaired.

During the third quarter it became apparent that the projected level of cash
flow had not been achieved and that the Company would continue to incur negative
operating results and negative cash flow. Although the Company achieved the cost
reductions that it projected, it did not achieve some of the other assumptions.
The Company was unable to achieve the assumptions relating to the volume of
sales of cars, the level of losses on financed receivables and the level of
repossessed cars. Therefore, the Company's gross margins during the third
quarter of 1999 were lower than it had projected. The Company did not sell the
number of cars that it had assumed that it would sell during the third quarter
of 1999 for two reasons. First, the Company's cash flow did not permit the
Company to acquire sufficient cars for resale. Second, the resulting lower
inventory reduced the interest of potential purchasers in purchasing the
remaining cars on the Company's lots. During the second quarter of

11
<PAGE>

1999, the Company had breached the provisions of its revolving loan facility by
borrowing at a level in excess of the provisions. The lender had agreed to let
the Company try to cure the breach. The Company's efforts to cure the breach
were unsuccessful during the third quarter of 1999, however, because of its
inability to make enough sales of the remaining cars on its lots, the higher
level of losses on financed receivables and the higher level of repossessed
cars. In addition, during the third quarter of 1999, the Company defaulted on
the payment of interest and principal required by the revolving loan facility.
In response to its financial difficulties, the Company began discussions to
negotiate a restructuring of all of its indebtedness and a capital infusion. The
lender advised the Company that it would begin to seek recourse on amounts
outstanding under the loan facility depending upon its assessment as to the
likely success of the Company's efforts to restructure its indebtedness and
obtain a capital infusion. In August 1999, the Company announced that it was
negotiating an acquisition of the Company by Crown Group, Inc. ("Crown"). The
Company announced that one of the critical conditions to a satisfactory
agreement with Crown was the Company's satisfactory restructuring of its
outstanding obligations to approximately 17 lenders and 16 holders of
outstanding shares of preferred stock. The lender advised the Company that it
would postpone action against the Company as long as it perceived that the
negotiations with Crown were progressing. As a result of the Company's failure
to achieve the cash flows that it had expected to achieve and its inability to
make necessary borrowings and predict the outcome of the negotiations with
Crown, the Company determined to reevaluate whether its goodwill relating to
continuing operations was impaired.

Approximately $4.5 million of a total of $12.3 million in goodwill remaining at
the time the Company reevaluated its goodwill was attributable to the closed lot
locations in the West Palm Beach market. The Company determined to write off
that goodwill as a result of the closing of those locations. The goodwill amount
attributable to the West Palm Beach market was equal to the goodwill recorded at
the time of the purchase of those operations during 1997 less amortization
recorded through the date of disposition.

The remaining goodwill was tested for impairment at the lowest level of cash
flow, the original purchase of lots by company acquisition. The goodwill
recorded at the time of the purchase of those lots less amortization recorded
through the quarter ending September 30, 1999 was compared to the projected cash
flows by lot. Based upon this cash flow analysis, the Company recorded a charge
equal to the remaining $7.8 million of goodwill. Although the Company projected
continued sales of cars from the continuing operations, such sales would only
continue for several months because of the Company's inability to acquire
additional cars for sale on those lots.

Note 11 - Subsequent Events

On October 1, 1999 the Company closed its four West Palm Beach used car lots and
its Melbourne location. During the month of November 1999, the Company opened a
used car lot in Winter Park bringing the total number of used car lots to
eleven.

On November 11, 1999, the Company sold the business and selected net assets of
First Choice Stuart 1, Inc. d/b/a Stuart Nissan and First Choice Stuart 2, Inc.
d/b/a Stuart Volvo to L&J Automotive Investments, Inc. d/b/a Oceanside Nissan
and Oceanside Motorcars, Inc, d/b/a Oceanside Volvo. These two subsidiaries had
represented the new car dealership segment of the Company. The Company received
$1.3 million in cash proceeds that were used primarily to repay two 10% term
notes totaling $591,109 in principal, plus accrued interest. The notes were
collateralized by substantially all of the assets of First Choice Stuart 1, Inc.
The remainder of the proceeds was used for working capital purposes.

In January 1999, management of the Company had made a decision to discontinue
the operations of the new car dealerships segment in order to focus the
Company's continuing operations exclusively on the retail sale of used cars
through its used car stores, as well as the financing of the used cars sold.

12
<PAGE>

During the nine months ended September 30, 1999, the Company recorded an
estimated loss on the disposal of discontinued operations of $1,200,000 (see
note 8 "Discontinued Operations").

ITEM NO. 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion and analysis of the Company's consolidated financial
position and consolidated results of operations should be read in conjunction
with the Company's condensed consolidated financial statements and related notes
thereto included in Item 1.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. Additional written or oral
forward-looking statements may be made by the Company from time to time in
filings with the Securities and Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of the term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of revenues, income, or loss, estimates of capital
expenditures, plans for future operations, products or services, and financing
needs or plans, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
The following disclosures, as well as other statements in this Report on Form
10-Q, and in the notes to the Company's condensed consolidated financial
statements, describe factors, among others, that could contribute to or cause
such differences, or that could affect the Company's stock price.

OVERVIEW

As of November 22, 1999, Smart Choice Automotive Group, Inc. operates 14
locations in Florida that sell used cars under the "First Choice" brand name.
Through Florida Finance Group, Inc. ("FFG"), its finance company subsidiary, the
Company provides financing for its customers by originating retail automobile
installment sales contracts secured by the cars it sells. Based on the results
of operations for the year ended December 31, 1998, the Company began a
significant reorganization of its management structure and operational
activities. Starting in April of 1999 the Company reduced the number of its
store locations from 24 at December 1998 to 14 locations for continuing
operations as of September 30, 1999.

During August 1999, the Company announced that it had entered into a non-binding
letter of intent with Crown of Dallas, Texas. The letter of intent provides for
a cash investment by Crown, merger of the Company with one of Crown's
subsidiaries, and the conversion of approximately $20 million of outstanding
Smart Choice debt and preferred stock into common stock. The completion of the
merger would result in Crown owning a majority of the Company's stock. The
Company's senior lender and the respective holders of the indebtedness and
preferred stock have not yet agreed to the terms of the proposal; consequently,
there is no assurance that these transactions can be completed.

The Company is currently in default under the Revolving Facility with Finova.
During August 1999, Finova Capital Corporation ("Finova") advised the Company
that it was in default on its senior revolving loan facility and that Finova was
declaring an acceleration of the indebtedness. The senior revolving loan
facility provides financing for used car inventory purchases as well as advances
against a percentage of eligible financed receivables. Beginning in May 1999,
the Company has been "over advanced" on its advances from the revolving loan
facility against eligible inventory and financed receivables under the terms of
the financing agreement. The Company continuously and diligently tried to cure
the breach, however, but has been unable to do so.

As a result of continued deterioration in the Company's financial condition,
Finova advised the Company that it would begin to seek recourse on amounts
outstanding under the senior revolving loan facility. Finova advised the Company
that it would postpone action against the Company as long as negotiations were
progressing with Crown. However, no assurances can be made as to whether the
Crown transaction will close, or whether it will close in a manner acceptable to
Finova. Amounts due as of September 30, 1999 to Finova were $74,433,325 in
principal and $1,344,485 in accrued interest.

Security pledged under the senior revolving loan facility includes, among other
assets, all receivables, inventory and bank accounts of the Company's
subsidiaries FFG, Liberty Finance Company and First

13
<PAGE>

Choice Auto Finance, Inc. ("FCAF"), all subsidiaries of Smart Choice Automotive
Group, Inc. Default remedies for Finova under the senior loan facility include,
but are not limited to, all of the rights and remedies under the Uniform
Commercial Code, and the right to remove all collateral and to sell or otherwise
dispose of all collateral.

During the second quarter of 1999, the Company made significant reductions in
retail car lot locations and overhead costs. In conjunction with these
reductions, the Company analyzed its cash flows and determined that the Company
would generate positive cash flows beginning in the third quarter 1999. During
the third quarter it became apparent that the projected level of cash flow had
not been achieved and that the Company would continue to incur negative
operating results and negative cash flow. Although the Company achieved the cost
reductions it projected, it did not achieve some of the other assumptions. The
Company was unable to achieve the assumptions relating to the volume of sales of
cars, the level of losses on financed receivables and the level of repossessed
cars. Therefore, the Company's gross margins during the third quarter of 1999
were lower than it had projected. The Company did not sell the number of cars
that it had assumed that it would sell during the third quarter of 1999 for two
reasons. First, the Company could not purchase adequate used car inventory due
to the Company's cash flow. Second, the resulting lower inventory reduced the
interest of potential purchasers in purchasing the remaining cars on the
Company's lots. The Company's efforts to cure the breach of its revolving loan
facility were unsuccessful during the third quarter of 1999 because of its
inability to make enough sales of the remaining cars on its lots, the higher
level of losses on financed receivables and the higher level of repossessed
cars. In addition, during the third quarter of 1999, the Company defaulted on
the payment of interest and principal required by the revolving loan facility.
In response to its financial difficulties, the Company began discussions to
negotiate a restructuring of all of its indebtedness and a capital infusion.
Finova advised the Company that it would begin to seek recourse on amounts
outstanding under the loan facility depending upon its assessment as to the
likely success of the Company's efforts to restructure its indebtedness and
obtain a capital infusion. In August 1999, the Company announced that it was
negotiating an acquisition of the Company by Crown. The Company announced that
one of the critical conditions to a satisfactory agreement with Crown was the
Company's satisfactory restructuring of its outstanding obligations to
approximately 17 debt holders and 16 holders of outstanding shares of preferred
stock. The lender advised the Company that it would postpone action against the
Company as long as it perceived that the negotiations with Crown were
progressing

In preparing the quarterly results for the period ended September 30, 1999, the
Company determined that its current cash flow would not be sufficient to support
operations in the near term as a result of the Company's default on its senior
debt and its inability to borrow. The Company is pursuing vigorously the
purchase of a controlling interest in the Company by Crown. The anticipated
investment by Crown and the planned restructuring of the Company's debt would
enable the Company to move forward with a significantly improved financial
structure. The Company makes no assurances that the merger will be completed.
Should the merger not be completed, the Company would consider other options
that may include the filing for reorganization under the protection of the U.S.
Bankruptcy court.

RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS

SEGMENT INFORMATION

The Company is comprised of two segments: used car stores and financing of used
car sales. The Company's results of operations are most meaningful when analyzed
and discussed by segment. The Company also has two other segments that have been
discontinued. These segments are discussed separately below under "Discontinued
Operations."

USED CAR STORES

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
(Dollars in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales at used car stores ............... $14,509 100.0% $23,306 100.0% $55,228 100.0% $63,909 100.0%
Cost of sales at used car stores(a) .... 10,554 72.8% 18,411 79.0% 43,457 78.6% 47,968 75.1%
------- ------- ------- ------- ------- ------- ------- -------
Gross profit .......................... 3,955 27.2% 4,895 21.0% 11,771 21.3% 15,940 24.9%
Operating expenses ..................... 3,413 23.5% 3,679 15.8% 10,690 19.3% 10,929 17.1%
------- ------- ------- ------- ------- ------- ------- -------
Operating income ....................... $ 542 3.7% $ 1,217 5.2% $ 1,081 2.0% $ 5,011 7.8%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(a) Includes intercompany costs from FFG of $(70) and $1,519 for the quarters
ended 1999 and 1998, respectively, and $1,633 and $4,223 for the nine
months ended September 30, 1999 and 1998, respectively.

Sales revenue at used car stores decreased to $14.5 million for the three months
ended September 30, 1999 compared to $23.3 million for the same period in 1998.
The lower sales revenue reflects the sale of 1,440 cars at the average of 14
used

14
<PAGE>

car stores that were open during the third quarter of 1999 as compared to the
sale of 2,191 cars at the average of 25 used car stores that were open during
the third quarter of 1998.

Sales revenue at used car stores decreased to $55,228 for the nine months ended
September 30, 1999 compared to $63,909 for the same period in 1998. The sales
revenue reflects the sale of 5,617 cars at the average of 19 used car stores
that were open during the first nine months of 1999 as compared to the sale of
6,624 cars at the average of 23 used car stores that were open during the first
nine months of 1998.

Gross profit declined to $3.9 million during the three months ended September
30, 1999 from $4.9 million during the three months ended September 30, 1998.
Excluding intercompany costs, gross profits declined by $2.5 million, or 39.0%,
for the three months ended September 30, 1999 compared to the same period in
1998. Lower gross profit resulted from reduced revenues during the comparative
three-month period.

Gross profit declined to $11.8 million during the nine months ended September
30, 1999 from $15.9 million during the nine months ended September 30, 1998.
Excluding intercompany costs, gross profits declined by $6.8 million, or 33.5%
for the nine months ended September 30, 1999 compared to the same period in
1998. The lower gross profit resulted from the liquidation of approximately $5
million in high cost used car inventory at below standard margins as the Company
reduced its operations as well as reduced revenues during the 1999 periods.

FINANCING OF USED CAR SALES

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
(Dollars in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income on finance receivables(a) ......... $ 5,347 100.0% $ 6,486 100.0% $ 17,441 100.0% $ 15,841 100.0%
Provisions for credit losses ............. (6,041) (113.0)% (3,653) (56.3)% (13,537) (77.6)% (8,380) (52.9)%
Operating expense ........................ (548) (10.2)% (2,272) (35.0)% (1,684) (9.7)% (2,576) (16.3)%
-------- -------- -------- -------- -------- -------- -------- --------
Operating income ......................... (1,242) (23.2)% 561 8.6% 2,220 12.7% 4,885 30.8%
Interest expense on finance receivables .. (2,255) (42.2)% (1,432) (22.2)% (6,679) (38.3)% (3,753) (23.7)%
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ........................ $ (3,497) (65.4)% $ (871) (13.4)% $ (4,459) (25.6)% $ 1,132 7.1%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

(a) Includes intercompany revenues from FCAF of $(70) and $1,519 for the
quarters ended 1999 and 1998, respectively, and $1,633 and $4,223 for the
nine months ended September 30, 1999 and 1998, respectively.

Income on finance receivables decreased to $5.3 million for the three months
ended September 30, 1999 from $6.5 million for the same period in 1998. The
decrease reflects the decrease in intercompany revenues from FCAF. Excluding
intercompany revenues income on finance receivables increased to $5.4 million
for the three months ending September 30, 1999 from $5.0 million for the same
period in 1998. This increase resulted from an increase in net finance
receivables outstanding to $78.7 million for the three months ended September
30, 1999 from $58.1 million for the same period of 1998. This increase results
from the continued growth in the financed sales of used cars.

Income on finance receivables increased to $17.4 million for the nine months
ended September 30, 1999 from $15.8 million for the same period in 1998. The
increase reflects the increase in the average net finance receivables
outstanding to $74.9 million for the nine months ended September 30, 1999 from
$48.8 million for the same period of 1998. This increase results from the
continued growth in the financed sales of used cars.

A high percentage of the Company's customers do not make all of their
contractually scheduled payments on their finance contracts, requiring the
Company to charge off the remaining principal balance and any earned interest,
net of recoveries on repossessed cars. The Company maintains on its balance
sheet an allowance for credit losses to absorb such losses. To accrue to the
allowance, the Company records an expense (the "provision") based upon its
estimate of future credit losses on finance receivables originated. The
provision for credit losses for the three months ended September 30, 1999 was
$6.0 million compared to $3.7 million for the same period in 1998. The provision
for credit losses for the nine months ended September 30, 1999 was $13.5 million
compared to $8.4 million for the same nine-month period in 1998. The increase
reflects the growth in the amount of finance receivables outstanding. In
addition, at September 30, 1999 the Company revised its estimated provision for
credit losses from 15.01% of outstanding principal balances to 17.01% of
outstanding principal balances based on a current credit loss analysis and
increased losses experienced on the portfolio. The charge for this rate increase
in the provision for credit losses at September 30, 1999 was $1.8 million.
Excluding this increase, the provision for credit losses for the three months
ended September 30, 1999 was $4.2 million compared to $3.7 million for the same
period in 1998 and $11.7 million for the nine months ended September 30, 1999
compared to $8.4 million for the same nine-month period in 1998.

15
<PAGE>

Interest expense increased to $2.3 million for the three months ended September
30, 1999 from $1.4 million for the same period in 1998. This increase is a
result of the higher level of finance receivables that required additional
borrowings under the line of credit. The interest rate on borrowed funds was
approximately the same for the comparable periods.

Interest expense increased to $6.7 million for the nine months ended September
30, 1999 from $3.8 million for the same period in 1998. This increase is a
result of the higher level of finance receivables that required additional
borrowings under the line of credit. The interest rate on borrowed funds was
approximately the same for the comparable periods.

The net (loss) for the three months ended September 30, 1999 was approximately
$(3,497,000) compared to a net (loss) of approximately $(871,000) for the same
period in 1998. This decrease of approximately $2.6 million was a result of a
higher provision for credit losses as a percentage of income on finance
receivables and the additional interest expense on financed receivables.

The net (loss) for the nine months ended September 30, 1999 was approximately
$(4,459,000) compared to a net income of approximately $1,132,000 for the same
period in 1998. This decrease of approximately $5.6 million was a result of a
higher provision for credit losses as a percentage of income on finance
receivables of approximately $5.1 million and the additional interest expense of
approximately $2.9 million on financed receivables offset by additional interest
earned on these receivables of approximately $1.6 million and lower operating
expenses of approximately $900,000.

CONSOLIDATED RESULTS OF OPERATIONS

COMPARISON OF THE RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998.

REVENUES. The Company's revenues for the three months ended September 30, 1999
were $20.0 million representing a 30.8% decrease from the revenues of $28.9
million in the third quarter of 1998. The decrease was the net result of a
decline in the Company's used car sales of approximately $8.8 million offset by
an increase in revenues of approximately $.4 million from the Company's
receivables portfolio. That decline in used car sales is discussed in the
segment information provided above.

COSTS AND EXPENSES. The Company's cost of sales of used cars sold was $10.6
million for the three months ended September 30, 1999 compared to $16.8 million
for the same period during 1998, representing a decrease of $6.2 million, or
37%. The gross profit margins decreased to 26.8% for the three months ended
September 30, 1999, compared to the gross profit margin of 27.5% for the same
period in 1998. As a result of the decrease in sales volume during the three
months ending September 30, 1999 and the decrease in gross profit percentage,
gross margin decreased approximately $2.5 million as compared to the same period
during 1998.

The Company's selling, general and administrative expenses (including
depreciation and amortization) were $6.0 million for the three months ended
September 30, 1999, compared to the selling, general and administrative expenses
of $8.4 million for the three months ended September 30, 1998. Selling, general
and administrative expenses as a percentage of total revenues for 1999 was 30.0%
for the three months ended September 30, 1999 compared to 29.1% for the three
months ended September 30, 1998. The reduction in these expenses is due to the
reorganization begun in the second quarter of 1999. During the second quarter of
1999, the Company significantly reorganized its management structure and
operational activities. The Company believes it has eliminated over $6 million
annually from its overhead structure as a result of payroll-related reductions
of approximately $5.8 million and the elimination of the costs related to nine
closed locations.

During the third quarter of 1999, the Company decided to take additional steps
to reduce overhead and operational costs and to eliminate unprofitable retail
car lot locations. The Company recorded restructuring charges of $2.2 million
during the quarter ended September 30, 1999 as a result of the adoption of a
restructuring plan during the quarter.

The restructuring plan included closing three retail used car lots in the West
Palm Beach market area, revising the use of one retail used car lot for use for
financed receivables processing and reducing the management level staff at the
Company headquarters. The restructuring plan provided for the termination of a
total of 24 employees. All but one of the identified employees had been
terminated as of October 31, 1999. A total of $710,000 in employee costs and
termination benefits were included in the restructuring charge. The Company
anticipates that these costs and benefits will be fully paid out by January 31,
2000. The employees affected by the restructuring include three headquarters
management positions, three lot managers and eighteen salespersons and
operations positions.

16
<PAGE>

As a part of the restructuring charge, the Company wrote off assets having a net
book value of $268,585. These assets, which relate primarily to the retail lot
locations closed during the third quarter, include leasehold improvements and
signage installed at leased locations where the Company has terminated its lease
obligations.

The Company also included within the restructuring charge the costs related to
its decision to terminate its lease obligation for the Company airplane. A
charge of $400,000 was recorded for the estimated shortfall between the present
value of the lease obligation and fair value of the aircraft in the market.

In addition, the Company recorded a charge to selling, general and
administrative expenses for estimated costs relating to twenty outstanding,
settled or threatened litigation actions against the Company in the amount of
$1,185,000. The maximum amount that the Company accrued in the third quarter
with respect to any one of the pending, settled, or threatened cases was
approximately $160,000. The average amount accrued per case was approximately
$51,500.

During the second quarter of 1999, the Company made significant reductions in
retail car lot locations and overhead costs. In conjunction with these
reductions, the Company analyzed its cash flows and determined that the Company
would generate positive cash flows beginning in the third quarter 1999. The
Company concluded that these cash flows would be sufficient to support the
amortization of goodwill on a going forward basis and therefore it concluded
that its assets were not impaired. During the third quarter it became apparent
that the projected level of cash flow had not been achieved and that the Company
would continue to incur negative operating results and negative cash flow.
Although the Company achieved the cost reductions that it had projected, it did
not achieve some of the other assumptions. The Company was unable to achieve the
assumptions relating to the volume of sales of cars, the level of losses on
financed receivables and the level of repossessed cars. Therefore, the Company's
gross margins during the third quarter of 1999 were lower than it had projected.
The Company did not sell the number of cars that it had assumed that it would
sell during the third quarter of 1999 for two reasons. First, the Company could
not purchase adequate used car inventory due to the Company's cash flow. Second,
the resulting lower inventory reduced the interest of potential purchasers in
purchasing the remaining cars on the Company's lots. The Company's efforts to
cure the breach of its revolving loan facility were unsuccessful during the
third quarter of 1999 because of its inability to make enough sales of the
remaining cars on its lots, the higher level of losses on financed receivables
and the higher level of repossessed cars. In addition, during the third quarter
of 1999, the Company defaulted on the payment of interest and principal required
by the revolving loan facility. In response to its financial difficulties, the
Company began discussions to negotiate a restructuring of all of its
indebtedness and a capital infusion. Finova advised the Company that it would
begin to seek recourse on amounts outstanding under the loan facility depending
upon its assessment as to the likely success of the Company's efforts to
restructure its indebtedness and obtain a capital infusion. In August 1999, the
Company announced that it was negotiating an acquisition of the Company by
Crown. The Company announced that one of the critical conditions to a
satisfactory agreement with Crown was the Company's satisfactory restructuring
of its outstanding obligations to approximately 17 debt holders and 16 holders
of outstanding shares of preferred stock. Finova advised the Company that it
would postpone action against the Company as long as it perceived that the
negotiations with Crown were progressing. As a result of the Company's failure
to achieve the cash flows that it had expected to achieve and its inability to
make necessary borrowings and predict the outcome of the negotiations with
Crown, the Company determined to reevaluate whether its goodwill relating to
continuing operations was impaired.

17
<PAGE>

INTEREST EXPENSE AND OTHER INCOME. The Company's interest expense totaled $2.6
million for the three months ended September 30, 1999, compared to $2.2 million
for the three months ended September 30, 1998, an increase of approximately
$400,000 or 18%. This resulted primarily from higher outstanding indebtedness
needed to finance higher levels of finance receivables as the portfolio expanded
over the prior year.

NET LOSS. The Company's net loss for the three months ended September 30, 1999
of ($20.8) million compared to a net loss of approximately ($2.1) million for
the same period of 1998 was due to the combined effect of reduced used car
sales, increased interest expense and restructuring charges discussed above.

COMPARISON OF THE RESULTS OF CONTINUING OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998.

REVENUES. The Company's revenues for the nine months ended September 30, 1999
were $71.4 million representing a 6.8% decrease from the revenues of $76.6
million in the first quarter of 1998. The decrease was the result of a decrease
in used car revenues. That decrease in used car revenues is discussed in the
segment information provided above.

COSTS AND EXPENSES. The Company's cost of sales of used cars sold was $41.8
million for the nine months ended September 30, 1999 compared to $43.7 million
for the same period during 1998, representing a decrease of $1.9 million, or
4.3%. The gross profit margins decreased to 24.3% for the nine months ended
September 30, 1999, compared to the gross profit margin of 31.6% for the same
period in 1998. This decrease in gross margins of approximately $6.7 million is
primarily due the increase in the cost of sales resulting from the liquidation
of high cost used car inventory during the first quarter of 1999.

The Company's selling, general and administrative expenses (including
depreciation and amortization) were $18.5 million for the nine months ended
September 30, 1999, compared to the selling, general and administrative expenses
of $18.7 million for the nine months ended September 30, 1998. Selling, general
and administrative expenses as a percentage of total revenues for 1999 was 26.0%
for the nine months ended September 30, 1999 compared to 24.4% for the nine
months ended September 30, 1998. As stated above the Company has significantly
reorganized its management structure and operational activities and believes it
has eliminated over $6 million annually from its overhead structure during the
second quarter of 1999.

During the third quarter of 1999, the Company decided to take additional steps
to reduce overhead and operational costs and to eliminate unprofitable retail
car lot locations. The Company recorded restructuring charges of $2.2 million
during the quarter ended September 30, 1999 as a result of the adoption of a
restructuring plan during that quarter.

The restructuring plan included closing three retail used car lots in the West
Palm Beach market area, revising the use of one retail used car lot for financed
receivables processing and reducing the management level staff at the Company
headquarters. The restructuring plan provided for the termination of a total of
24 employees. All but one of the identified employees had been terminated as of
October 31, 1999. A total of $710,000 in employee costs and termination benefits
were included in the restructuring charge. The Company anticipates that these
costs and benefits will be fully paid out by January 31, 2000. The employees
affected by the restructuring include three headquarters management positions,
three lot managers and eighteen salespersons and operations positions.

18
<PAGE>

In addition, the Company recorded a charge to selling, general and
administrative expenses for estimated costs relating to twenty-three
outstanding, threatened or settled litigation actions against the Company in the
amount of $1,185,000. The maximum amount that the Company accrued in the third
quarter with respect to any one of the pending, settled, or threatened cases was
approximately $160,000. The average amount accrued per case was approximately
$51,500.

During the second quarter of 1999, the Company made significant reductions in
retail car lot locations and overhead costs. In conjunction with these
reductions, the Company analyzed its cash flows and determined that the Company
would generate positive cash flows beginning in the third quarter 1999. The
Company concluded that these cash flows would be sufficient to support the
amortization of goodwill on a going forward basis and therefore it concluded
that its assets were not impaired. During the third quarter it became apparent
that the projected level of cash flow had not been achieved and that the Company
would continue to incur negative operating results and negative cash flow.
Although the Company achieved the cost reductions that it had projected, it did
not achieve some of the other assumptions. The Company was unable to achieve the
assumptions relating to the volume of sales of cars, the level of losses on
financed receivables and the level of repossessed cars. Therefore, the Company's
gross margins during the third quarter of 1999 were lower than it had projected.
The Company did not sell the number of cars that it had assumed that it would
sell during the third quarter of 1999 for two reasons. First, the Company could
not purchase adequate used car inventory due to the Company's cash flow. Second,
the resulting lower inventory reduced the interest of potential purchasers in
purchasing the remaining cars on the Company's lots. The Company's efforts to
cure the breach of its revolving loan facility were unsuccessful during the
third quarter of 1999 because of its inability to make enough sales of the
remaining cars on its lots, the higher level of losses on financed receivables
and the higher level of repossessed cars. In addition, during the third quarter
of 1999, the Company defaulted on the payment of interest and principal required
by the revolving loan facility. In response to its financial difficulties, the
Company began discussions to negotiate a restructuring of all of its
indebtedness and a capital infusion. Finova advised the Company that it would
begin to seek recourse on amounts outstanding under the loan facility depending
upon its assessment as to the likely success of the Company's efforts to
restructure its indebtedness and obtain a capital infusion. In August 1999, the
Company announced that it was negotiating an acquisition of the Company by
Crown. The Company announced that one of the critical conditions to a
satisfactory agreement with Crown was the Company's satisfactory restructuring
of its outstanding obligations to approximately 17 debt holders and 16 holders
of outstanding shares of preferred stock. The lender advised the Company that it
would postpone action against the Company as long as it perceived that the
negotiations with Crown were progressing. As a result of the Company's failure
to achieve the cash flows that it had expected to achieve and its inability to
make necessary borrowings and predict the outcome of the negotiations with
Crown, the Company determined to reevaluate whether its goodwill relating to
continuing operations was impaired.

INTEREST EXPENSE AND OTHER INCOME. The Company's interest expense totaled $7.3
million for nine months ended September 30, 1999, compared to $6.0 million for
the nine months ended September 30, 1998, an increase of approximately $1.3
million or 21.7%. This resulted primarily from higher outstanding indebtedness
needed to finance higher levels of finance receivables as the portfolio
expanded.

NET LOSS. The Company's net loss for the nine months ended September 30, 1999 of
($25.9) million compared to net income of $1.1 for the same period of 1998 was
due to the combined effect of reduced profit margins in used car sales,
increased interest expense and restructuring charges discussed above.

CREDIT LOSSES

GENERAL. The Company has established an allowance to cover anticipated credit
losses on the finance receivables currently in its portfolio. The allowance has
been established by the recognition in the

19
<PAGE>

Company's statements of operations of the provision for credit losses attributed
to finance receivables originated by the Company.

The following table reflects activity in the allowance for the nine months ended
September 30, 1999.

(Dollars in thousands)
Balance, December 31, 1998 .......................... $ 12,158
Provision for credit losses ......................... 13,561
Net charge offs ..................................... (9,636)
--------
Balance, September 30, 1999 ......................... $ 16,083
========

Allowance as a percentage of finance receivables .... 17.6%

The allowance increased to 17.6% of the outstanding balances as of September 30,
1999 from 15.5% as of December 31, 1998.

NET CHARGE OFFS. The Company's current policy is to charge off finance
receivables when they are deemed uncollectible and to fully reserve the
principal balance at such time as a finance receivable is delinquent for 180
days. The net charge off amount is the principal balance of the finance
receivable at the time of the charge off plus earned but unpaid interest, less
any recovery. The Company recognizes recoveries in the amount of the wholesale
value of repossessions. The following table sets forth information regarding
charge off activity for the Company's finance receivables for the nine months
ended September 30, 1999.

(Dollars in thousands)
Principal balances .................................. $ 23,236
Collateral recoveries, net .......................... (13,600)
--------
Net charge offs ..................................... $ 9,636
========

The Company has experienced an increase in credit losses during the quarter
ending September 30, 1999 due to an increase in the rate of anticipated
delinquent accounts as well as an increase in uncollectible accounts from loans
generated during the high growth period from the second quarter 1998 through the
first quarter of 1999.

DELINQUENCIES. Analysis of delinquency trends is also considered in evaluating
the adequacy of the allowance. The following table reports the balance of
delinquent finance receivables as a percentage of total outstanding balances of
the Company's finance receivables portfolio as of September 30, 1999.

Aging Percentages:
Principal balances current............................ 95.5%
Principal balances 31 days to 60 days................. 2.8
Principal balances over 60 days....................... 1.0
Total over 31 days.................................... 4.5

The Company is experiencing consistency in its delinquency rate with an aging of
its portfolio at September 30, 1999 approximately the same as that reported for
the year ended December 31, 1998. This consistency in the aging of the finance
receivables portfolio is primarily attributable to the factors discussed in "Net
Charge - Offs" above.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to support increases in finance receivables, car
inventory, parts and accessories inventory, property and equipment, and working
capital for general corporate purposes. Funding sources potentially available to
the Company include operating cash flow, third-party investors, financial
institution borrowings, borrowings against finance receivables and used car
inventory. As described below, the Company is currently in default under the
Revolving Facility with Finova. Accordingly, it is unable to borrow against
finance receivables and used car inventory, Its future operations are dependent
upon a restructuring of its outstanding indebtedness and shares of preferred
stock and the negotiation of a capital infusion. Although the Company announced
the execution of a non-binding letter of intent regarding the acquisition of the
Company by Crown, the Company cannot predict whether such an acquisition will be
completed.

Net cash provided by operating activities was approximately $13.4 million and
$3.6 million for the nine months ended September 30, 1999, and 1998,
respectively. Net cash provided from operating activities for the nine months
ended September 30, 1999 primarily reflected the loss from operations adjusted
for the non-cash charges for depreciation, amortization, provision of credit
losses, write-off of goodwill and the reduction in inventory and an increase in
accounts

20
<PAGE>

payable and accrued expenses. The Company used approximately $8.7 million to
expand accounts receivable and inventory during the first nine months of 1998.
Approximately $22.9 million and $38.0 million of cash used by investing
activities for the nine months ended September 30, 1999 and 1998, respectively,
was invested to increase the finance receivables. Approximately $10.6 million
was generated by investing activities from the sale of the Corvette parts and
accessories segment.

Cash provided by financing activities was approximately $(1.5) million and $33.9
million during the nine months ended September 30, 1999 and 1998, respectively.
During the nine months ended September 30, 1999 and 1998, the Company increased
its line of credit borrowings by $4.7 million and $27.2 million, respectively.
The Company repaid notes payable net of the issuance of notes of approximately
$7.3 million during the nine months ended September 30, 1999. The Company issued
notes payable net of repayment of notes of approximately $3.2 million during the
nine months ended September 30, 1998.

The Company has borrowed substantial amounts to fund its used car sales and
financing operations. The Company has a revolving credit facility with Finova to
provide funding for finance receivables from used car sales originated by the
Company. The revolving facility had a maximum commitment of $35.0 million at
December 31, 1997, was increased to a maximum commitment of $75.0 million,
effective May 11, 1998, and was increased again to a maximum $100 million
effective November 9, 1998. Under the revolving facility, the Company may borrow
the lesser of $100 million or up to 50% of the gross balance of eligible finance
contracts. The revolving facility expires on December 31, 2001, at which time
its renewal will be subject to renegotiation. The revolving facility is secured
by substantially all of the Company's finance receivables. As of September 30,
1999, the principal amount outstanding under the revolving facility was $68.4
million up from a balance of $63.7 million at December 31, 1998. The revolving
facility bears interest at the prime rate plus 2.5% (10.75% as of September 30,
1999). As part of the revolving facility, the Company financed up to $10 million
of its used car inventory through Finova.

During 1998 and 1997, the Company financed its used car inventory through a line
of credit with Manheim Automotive Financial Services, Inc. (the "Manheim
Facility"). At September 30, 1999 there was no balance due on the Manheim
Facility, which had an outstanding balance of $3.2 million at December 31, 1998.
The maximum commitment under the Manheim Facility was $3.75 million. The Manheim
Facility was secured by the Company's used car inventory and bore interest at
1.5% over the prime rate. Amounts outstanding were payable on the earlier of the
day after a car was sold or 180 days after the floorplan advance.

In January 1999, pursuant to a Subordinated Loan Agreement dated as of January
31, 1999 ("Subordinated Loan Agreement") by and between the Company and High
Capital Funding, LLC ("High Cap"), the Company borrowed $2 million. The Company
issued 1999 Series A Subordinated Notes ("High Cap Notes") to High Cap and other
purchasers in connection with the Subordinated Loan Agreement. The Notes, which
mature on January 31, 2000, bear interest on the unpaid principal balance at the
rate of 15% per annum, payable monthly in arrears. The interest rate increased
to 18% per annum on May 1, 1999 and will increase to 22% per annum on October 1,
1999. The High Cap Notes may be prepaid at any time without permission or
penalty.

During August 1999 Finova Capital Corporation ("Finova") advised the Company
that it was in default on its senior revolving loan facility and that Finova was
declaring an acceleration of the indebtedness. The senior revolving loan
facility provides financing for used car inventory purchases as well as advances
against contractual availability on its finance receivables. Beginning in May
1999, the Company was "over advanced" on its advances from the revolving loan
facility against contractual advance rates under the terms of the financing
agreement. The Company continuously and diligently pursued to cure the breach,
however, but was unable to do so.

21
<PAGE>

agreement with Crown was the Company's satisfactory restructuring of its
outstanding obligations to approximately 17 debt holders and 16 holders of
outstanding shares of preferred stock. The lender advised the Company that it
would postpone action against the Company as long as it perceived that the
negotiations with Crown were progressing. However, no assurances can be made as
to whether the Crown transaction will close or, if it closes, whether it will
close in a manner acceptable to Finova. Amounts due as of September 30, 1999 to
Finova were $74,433,325 in principal and $1,344,485 in accrued interest.

Security pledged under the senior revolving loan facility include, among other
assets, all receivables, inventory and bank accounts for Florida Finance Group,
Inc., Liberty Finance Company and First Choice Auto Finance, Inc., all
subsidiaries of Smart Choice Automotive Group, Inc. Default remedies for Finova
under the senior loan facility include, but are not limited to, all of the
rights and remedies under the Uniform Commercial Code, right to remove all
collateral and to sell or otherwise dispose of all collateral.

In preparing the quarterly results for the period ended September 30, 1999, the
Company determined that its current cash flow would not be sufficient to support
operations in the near term as a result of the Company's default on its senior
debt and its inability to borrow. The Company is pursuing vigorously the
purchase of a controlling interest in the Company by Crown. The anticipated
investment by Crown and the planned restructuring of the Company's debt will
enable the Company to move forward with a significantly improved financial
structure. The Company makes no assurances that the merger will be completed.
Should the merger not be completed the Company would consider other options that
may include the filing for reorganization under the protection of the U.S.
Bankruptcy court.

SEASONALITY

Historically, the Company's used car business has experienced higher revenues in
the first two quarters of the calendar year than in the latter half of the year.
Management believes that these results are due to seasonal buying patterns
resulting in part from the fact that many of its customers receive income tax
refunds during the first half of the year, which are a primary source of down
payments on used car purchases.

INFLATION

Increases in inflation generally result in higher interest rates. Higher
interest rates on the Company's borrowings would increase the interest expense
related to the Company's existing debt. The Company cannot seek to limit this
risk by increasing interest rates earned on its finance contracts since the
interest charged is at or near the maximum permitted under Florida law. To date,
inflation has not had a significant impact on the Company's operations.

YEAR 2000

At the beginning of the third quarter of 1999, the Company's primary operating
system and its peripherals were made Year 2000 compliant. All new computer
systems and software installations, including the computer systems of the
Company's subsidiaries, are currently Year 2000 compliant. All other systems
including the Company's local and wide area networks, telephone systems,
uninterruptible power supply systems and historical information are or are
expected to be in compliance no later than the fourth quarter of 1999. The
Company continues to evaluate other computerized equipment to include security
systems, fire control systems and power control systems, to determine whether
they are Year 2000 compliant. The anticipated expense associated with the year
2000 compliance project will not include additional hardware cost or external
staffing. The amounts incurred to date, and expected to be incurred in the
future, in connection with compliance with Year 2000 are not believed by the
Company to be material. The Company is taking into account whether third parties
with which the Company has material relationships are Year 2000 compliant. In
addition, the Company will develop contingency strategies, as appropriate, in
the event the Company encounters a Year 2000 compliance problem in its own, or
in a third party vendor's, software applications.

DISCONTINUED OPERATIONS

In January 1999, management made a decision to discontinue the operations of the
new car dealerships segment and the parts and accessories segment in order to
focus on the Company's continuing operations. It was estimated that the sale of
these two segments during 1999 would result in a loss of approximately $800,000.
The Corvette parts and accessories segment was sold on August 26, 1999 and the
new car segment was sold on November 11, 1999. Based on the final sales prices
and closing costs the estimated loss on the sale of the two segments is now
$1,200,000.

22
<PAGE>

Revenues of the discontinued operations were $8.7 million and $10.5 million in
the three months ended September 30, 1999 and 1998, respectively, and $35.5
million and $35.2 million in the nine months ended September 30, 1999 and 1998,
respectively. The Company's discontinued operations resulted in a loss of
approximately ($630,000) for the three months ended September 30, 1999, which
was an increase from a loss of approximately ($202,000) for the same period in
1998. The Company's discontinued operations resulted in a loss of approximately
($421,000) for the nine months ended September 30, 1999, which was an decrease
from a net income of approximately $882,000 for the same period in 1998.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

During March 1999, certain shareholders of the Company filed two putative class
action lawsuits against the Company and certain of the Company's current and
former officers and directors in the United States District Court for the Middle
District of Florida (collectively, the "Securities Actions"). The Securities
Actions purport to be brought by plaintiffs in their individual capacities and
on behalf of the class of persons who purchased or otherwise acquired Company
publicly-traded securities between April 15, 1998 and February 26, 1999. These
lawsuits were filed following the Company's announcement on February 26, 1999,
that a preliminary determination had been reached that the net income announced
on February 10, 1999 for the fiscal year ended December 31, 1998 was likely
overstated in a material, undetermined amount at that time. Each of the
complaints assert claims for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Exchange Act as well as a claim for
the violation of Section 20(a) of the Exchange Act. The plaintiffs allege that
the defendants prepared and issued deceptive and materially false and misleading
statements to the public, which caused plaintiffs to purchase Company securities
at artificially inflated prices. The plaintiffs seek unspecified damages. The
Company intends to contest these claims vigorously. The Company cannot predict
the ultimate resolution of these actions. The two class action lawsuits have
subsequently been consolidated.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Described below are the sales of securities by the Company during the first nine
months of 1999 that were not registered under the Securities Act of 1933, as
amended (the "1933 Act"). On the issuance of these securities the Company relied
on the exemption from registration under the 1933 Act set forth in Section 4(2)
thereof, based on established criteria for effecting a private offering,
including the number of offerees for each transaction, access to information
regarding the Company, disclosure of information by the Company, restrictions on
resale of the securities offered, investment representations by the purchasers,
and the qualification of the offerees as "accredited investors."

On March 29, 1999, the Company issued 398,560 shares of common stock to Bankers
Life Insurance Company and 133,172 shares of common stock to Bankers Credit
Insurance Services, Inc. in consideration for the conversion of their notes and
accrued interest with the Company.

On May 14, 1999, the Company issued 88,000 shares of common stock to Mr. Albert
S. Klopf in consideration for the conversion of his note in the principal amount
of $110,000 with the Company.

On July 20, 1999, the Company issued 32,400 shares of common stock to Mr. John
Thatch in consideration for the conversion of his note in the principal amount
of $20,000 plus accrued interest with the Company.

On July 20, 1999, the Company issued 283,500 shares of common stock to Mr. Edgar
Rosenberry in consideration for the conversion of his note in the principal
amount of $280,000 plus accrued interest with the Company.

On August 26, 1999 the Company issued 488,000 shares of common stock to
Stephens, Inc. in consideration for fees incurred by the Company.

On September 20, 1999 the Company issued 34,015 shares of common stock to
DeFalco Advertising in consideration for liabilities incurred by the Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

During August 1999, Finova Capital Corporation ("Finova") advised the Company
that it was in default on its senior revolving loan facility and that Finova was
declaring an acceleration of the indebtedness. The senior revolving loan
facility provides financing for used car inventory purchases as well as advances
against contractual availability on its finance receivables. Beginning in May
1999, the Company was "over advanced" on its advances from the revolving loan
facility against contractual

23
<PAGE>

advance rates under the terms of the financing agreement. The Company
continuously and diligently pursued to cure the breach, however, but was unable
to do so.

The Company's efforts to cure the breach were unsuccessful during the third
quarter of 1999 because of its inability to make enough sales of the remaining
cars on its lots, the higher level of losses on financed receivables and the
higher level of repossessed cars. In addition, during the third quarter of 1999,
the Company defaulted on the payment of interest and principal required by the
revolving loan facility. In response to its financial difficulties, the Company
began discussions to negotiate a restructuring of all of its indebtedness and a
capital infusion. The Lender advised the Company that it would begin to seek
recourse on amounts outstanding under the loan facility depending upon its
assessment as to the likely success of the Company's efforts to restructure its
indebtedness and obtain a capital infusion. In August 1999, the Company
announced that it was negotiating an acquisition of the Company by Crown. The
Company announced that one of the critical conditions to a satisfactory
agreement with Crown was the Company's satisfactory restructuring of its
outstanding obligations to approximately 17 debt holders and 16 holders of
outstanding shares of preferred stock. The lender advised the Company that it
would postpone action against the Company as long as it perceived that the
negotiations with Crown were progressing. However, no assurances can be made as
to whether the Crown transaction will close in a manner acceptable to Finova.
Amounts due as of September 30, 1999 to Finova were $74,433,325 in principal and
$1,344,485 in accrued interest.

Security pledged under the senior revolving loan facility include, among other
assets, all receivables, inventory and bank accounts for Florida Finance Group,
Inc., Liberty Finance Company and First Choice Auto Finance, Inc., all
subsidiaries of Smart Choice Automotive Group, Inc. Default remedies for Finova
under the senior loan facility include, but are not limited to, all of the
rights and remedies under the Uniform Commercial Code and the right to remove
all collateral and to sell or otherwise dispose of all collateral.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On June 28, 1999, the Company held its 1999 annual meeting of shareholder. At
this meeting the shareholders approved the proposal to grant specific stock
options of an aggregate 190,000 shares of common stock to certain employees of
the Company. For - 4,073,632; against - 491,558; abstain - 20,517.

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------

2.93 Agreement for the sale of the Filed herewith.
business and net assets of
First Choice Stuart 1, Inc. and
First Choice Stuart 2, Inc. to
L&J Automotive Investments, Inc.
and Oceanside Motorcars, Inc.

11.1 Statement re Computation of. *
Earnings Per Share.

27.1 Financial Data Schedule. Filed herewith.

* Information regarding the computation of earnings per share is set forth in
the Notes to Consolidated Financial Statements.

(b) Report on Form 8-K

None

24
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on May 12, 2000.

SMART CHOICE AUTOMOTIVE GROUP, INC.

By: /s/ JAMES E. ERNST
-------------------------------
James E. Ernst
President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ JAMES E. ERNST President and Chief Executive Officer May 15, 2000
- ------------------
James E. Ernst

/S/ JOE CAVALIER Chief Financial Officer May 15, 2000
- ---------------- (Principal Financial and Accounting Officer)
Joe Cavalier
</TABLE>