-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OTCIs/sB5fEXAT9mQlbfRSh2oGMMx0ETrb6k2LOj2UXmqkRf2yvi2rWflXO1F0v5 xYvT/XnkeXgKIL8Ua9xWIw== 0000950170-97-001041.txt : 19970820 0000950170-97-001041.hdr.sgml : 19970820 ACCESSION NUMBER: 0000950170-97-001041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMART CHOICE AUTOMOTIVE GROUP INC CENTRAL INDEX KEY: 0000949091 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 591469577 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14082 FILM NUMBER: 97666582 BUSINESS ADDRESS: STREET 1: 5200 S WASHINGTON AVE CITY: TITUSVILLE STATE: FL ZIP: 32780 BUSINESS PHONE: 4072699680 MAIL ADDRESS: STREET 1: PO BOX 5637 CITY: TITUSVILLE STATE: FL ZIP: 32783 FORMER COMPANY: FORMER CONFORMED NAME: ECKLER INDUSTRIES INC DATE OF NAME CHANGE: 19950912 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR [ ] 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 5200 S. WASHINGTON AVENUE, TITUSVILLE, FLORIDA 32780 ---------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (407) 269-9680 ---------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ECKLER INDUSTRIES, INC. ---------------------------------------------------- (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 AUGUST 14, 1997, 9,172,517 SHARES OF THE REGISTRANT'S COMMON STOCK WERE ISSUED AND OUTSTANDING. SMART CHOICE AUTOMOTIVE GROUP, INC. INDEX TO FORM 10-Q ================================================================================ PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited) and December 31, 1996 5 Condensed Consolidated Statement of Operations for the Three Months and Six Months Ended June 30, 1997 (unaudited) 7 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 (unaudited) 8 Notes to Condensed Consolidated Financial Statements 10 LIBERTY FINANCE COMPANY, INC. AND AFFILIATES Condensed Combined Balance Sheet as of December 31, 1996 14 Condensed Combined Statement of Operations for the Period January 1, 1997 to February 12, 1997 (unaudited) 16 Condensed Combined Statement of Cash Flows for the Period January 1, 1997 to February 12, 1997 (unaudited) 17 Condensed Combined Statement of Income for the Three Months and Six Months Ended June 30, 1996 (unaudited) 18 Condensed Combined Statement of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) 19 -Continued- 1 SMART CHOICE AUTOMOTIVE GROUP, INC. INDEX TO FORM 10-Q (CONTINUED) ================================================================================ FLORIDA FINANCE GROUP, INC., SUNCOAST AUTO BROKERS, INC. AND SUNCOAST AUTO BROKERS ENTERPRISES, INC. Condensed Combined Balance Sheet as of December 31, 1996 20 Condensed Combined Statement of Operations for the Period January 1, 1997 to January 28, 1997 (unaudited) 22 Condensed Combined Statement of Cash Flows for the Period January 1, 1997 to January 28, 1997 (unaudited) 23 Condensed Combined Statement of Income for the Three Months and Six Months Ended June 30, 1996 (unaudited) 24 Condensed Combined Statement of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) 25 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS AND PALM BEACH FINANCE COMPANY, INC. Condensed Combined Balance Sheet as of December 31, 1996 26 Condensed Combined Statement of Income for the Period January 1, 1997 to February 14, 1997 (unaudited) 28 Condensed Combined Statement of Cash Flows for the Period January 1, 1997 to February 14, 1997 (unaudited) 29 Condensed Combined Statement of Income for the Three Months and Six Months Ended June 30, 1996 (unaudited) 30 Condensed Combined Statement of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) 31 ECKLER INDUSTRIES, INC. Condensed Balance Sheet as of December 31, 1996 (unaudited) 32 Condensed Statement of Operations for the Period January 1, 1997 to January 28, 1997 (unaudited) 34 Condensed Statement of Cash Flows for the Period January 1, 1997 to January 28, 1997 (unaudited) 35 Condensed Statement of Income for the Three Months and Six Months Ended June 30, 1996 (unaudited) 36 Condensed Statement of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) 37 2 SMART CHOICE AUTOMOTIVE GROUP, INC. INDEX TO FORM 10-Q (CONTINUED) ================================================================================ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 38 PART II-OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 45 3 PART I SMART CHOICE AUTOMOTIVE GROUP, INC. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 4
SMART CHOICE AUTOMOTIVE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF AS OF JUNE 30, 1997 DECEMBER 31, 1996 -------------------- ----------------- ASSETS Cash and Cash Equivalents $ 991,194 $ -- Accounts Receivable 987,029 25,000 Finance Receivables: Principal Balances, Net 33,285,920 -- Less: Allowance for Credit Losses (6,165,385) -- ------------ -------- Finance Receivables, Net 27,120,535 -- Inventories, at Cost 7,290,642 -- Land Held for Resale 1,050,000 -- Property and Equipment, Net 3,037,714 22,454 Notes Receivable 3,320,373 400,000 Deferred Tax Asset 330,610 -- Deferred Acquisition Costs 90,828 194,101 Deferred Debt Costs 489,699 24,735 Goodwill 20,828,896 -- Prepaid Expenses 1,128,812 -- Deposits 886,432 50,000 Other Assets 111,419 -- ------------ -------- $ 67,664,183 $716,290 ============ ========
See accompanying notes to condensed consolidated financial statements 5
SMART CHOICE AUTOMOTIVE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996 ------------------- ------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Bank Overdraft $ -- $ 82,884 Accounts Payable 2,088,388 438,890 Accrued Expenses 2,042,331 183,314 Deferred Income 143,263 -- Floorplan Payable 2,966,324 -- Customer Deposits 174,148 -- Notes Payable 38,691,684 60,000 Deferred Income Taxes 402,814 -- Convertible Debt 562,000 262,000 Acquisition Debt 9,208,698 -- Other Liabilities 890,754 -- ------------ ----------- Total Liabilities 57,170,404 1,027,088 ------------ ----------- Stockholders' Equity: Preferred Stock 3,950 1,983 Common Stock 9,161 5,488 Additional Paid In Capital 18,216,325 385,519 Deficit (6,757,859) (703,788) Unearned Compensation (977,798) -- ------------ ----------- Total Stockholders' Equity 10,493,779 (310,798) ------------ ----------- $ 67,664,183 $ 716,290 ============ ===========
See accompanying notes to condensed consolidated financial statements 6
SMART CHOICE AUTOMOTIVE GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1997 ------------------ ---------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $ 7,003,702 $ 11,443,778 Income on Finance Receivables 1,927,736 2,492,356 Income from Insurance & Training 388,976 692,795 Income from Parts & Accessories 5,473,447 8,275,662 ------------ ------------- 14,793,861 22,904,591 ------------ ------------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 5,304,253 8,552,851 Cost of Insurance & Training 23,149 39,190 Cost of Parts & Accessories Sold 3,347,344 5,065,589 Provision for Credit Losses 499,131 1,548,811 ------------ ------------- 9,173,877 15,206,441 ------------ ------------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 5,619,984 7,698,150 ------------ ------------- EXPENSES: Operating Expenses 4,938,188 9,846,487 Compensation Expense Related to Employee Stock Options 88,890 2,325,765 ------------ ------------- 5,027,078 12,172,252 ------------ ------------- INCOME (LOSS) FROM OPERATIONS 592,906 (4,474,102) ------------ ------------- OTHER EXPENSE (INCOME): Interest Expense 1,055,996 1,623,500 Other Income (104,576) (113,749) Miscellaneous Expense 5,274 70,218 ------------ ------------- 956,694 1,579,969 ------------ ------------- NET LOSS $ (363,788) $ (6,054,071) ============ ============= NET LOSS PER SHARE $ (0.04) $ (0.72) ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES AND SHARE EQUIVALENTS OUTSTANDING 8,936,308 8,397,713 ============ =============
See accompanying notes to condensed consolidated financial statements 7
SMART CHOICE AUTOMOTIVE GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (6,054,071) Adjustments to reconcile net loss to net cash provided by operating activities: Provision for credit losses 1,076,081 Common stock and options issued for consulting fees 150,000 Loss on disposal of fixed assets 2,176 Stock option compensation 2,236,875 Depreciation and amortization 750,846 Cash provided by (used for), net of effect of acquisitions: Accounts receivable (186,743) Inventory (2,368,124) Prepaid expenses 189,081 Other assets (37,395) Accounts payable (395,807) Accrued expenses 1,955,475 Deferred income 13,156 Other liabilities 923,567 Customer deposits (290,247) Floorplan payable 2,105,804 ------------ Net cash provided by operating activities 70,674 ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (3,631,742) Cash for acquisitions, net of cash acquired (8,100,020) Issuance of notes receivable (2,343,673) Increase in deposits (822,200) Increase in deferred acquisition costs (51,717) Purchase of property and equipment (250,192) Proceeds from sale of property and equipment 28,475 Decrease in other assets 24,924 ------------ Net cash used in investing activities (15,146,145) ------------
CONTINUED ON NEXT PAGE 8 SMART CHOICE AUTOMOTIVE GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINUED) SIX MONTHS ENDED JUNE 30, 1997 ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable (2,408,441) Proceeds from issuance of Sirrom debt 7,500,000 Proceeds from issuance of notes payable 10,714,902 Increase in deferred debt costs (533,322) Proceeds from issuance of preferred stock 590,000 Purchase of treasury stock (13,590) Proceeds from issuance of convertible debentures 300,000 Bank overdraft (82,884) ------------ Net cash provided by financing activities 16,066,665 ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 991,194 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 991,194 ============ See accompanying notes to condensed consolidated financial statements 9 SMART CHOICE AUTOMOTIVE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 1 - BASIS OF PRESENTATION The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q, and do not include all of the information and disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1996. The accompanying financial statements have not been audited by an independent accountant in accordance with generally accepted auditing standards, but in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, to fairly report the Company's financial position and results of operations. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. NOTE 2 - ACQUISITIONS Smart Choice Automotive Group, Inc. (the "Company"), formerly named "Eckler Industries, Inc.", operates a network of self-financed used vehicle dealerships in Florida and underwrites, finances, and services retail installment contracts generated from the sale of used cars by its dealerships. The Company also operates automobile dealers training and insurance divisions as well as Eckler's, one of the largest suppliers of Corvette parts and accessories in the world. On January 28, 1997, pursuant to an Agreement and Plan of Merger by and among Eckler Industries, Inc. ("EII"), Eckler Acquisition Corporation, Ralph H. Eckler, Smart Choice Holdings, Inc. ("SCHI"), Thomas E. Conlan and Gerald C. Parker, dated December 30, 1996 (the "Agreement"), EII acquired all of the issued and outstanding shares of common stock of SCHI in exchange for 2,927,939 shares of EII Class A and 1,576,324.5 shares of EII Class B, common stock. Under the terms of the Agreement, the shareholders of SCHI obtained approximately 64% of the voting rights of EII. Although EII is the parent of SCHI following the transaction, the transaction was accounted for as a purchase of EII by SCHI (a reverse acquisition in which SCHI is considered the acquirer for accounting purposes), since the shareholders of SCHI obtained a majority of the voting rights in EII as a result of the transaction. Accordingly, the financial statements of the Company for the periods prior to January 28, 1997 are those of SCHI, the assets and liabilities of EII are recorded at their estimated fair values and the accounts of EII are included in the consolidated financial statements from the date of acquisition (January 28, 1997). SCHI was incorporated on June 21, 1996 and was a development stage corporation prior to January 28, 1997. On August 16, 1996, SCHI acquired the stock of First Choice Auto Finance, Inc. ("FCAF"). On January 28, 1997, in addition to the acquisition of EII, SCHI acquired the stock of Florida Finance Group, Inc. ("FFG"), Dealer Insurance Services, Inc. ("DIS"), and 10 SMART CHOICE AUTOMOTIVE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ================================================================================ Dealer Development Services, Inc. ("DDS"). FFG underwrites, finances and services automobile retail installment contracts and was based in St. Petersburg, Florida prior to moving to the Company headquarters in Titusville, Florida. FCAF was incorporated on March 22, 1994 and had no significant operations or assets until it acquired the assets of Suncoast Auto Brokers, Inc. ("SAB"), and Suncoast Auto Brokers Enterprises, Inc. ("SABE") on January 28, 1997. FCAF, based at the Company headquarters in Titusville, Florida, now operates the three used vehicle lots in St. Petersburg and Tampa, previously operated by SAB and SABE. DIS is based in Tampa, Florida and provides insurance services for automobile dealers. DDS is based in Tampa and provides consulting services and training programs to automobile dealers. The assets and liabilities of FFG, FCAF, DIS and DDS are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (January 28, 1997). On February 12, 1997, the Company acquired the stock of Liberty Finance Company ("Liberty"). On the same date, FCAF acquired the stock of Wholesale Acquisitions, Inc. ("WA"), and Team Automobile Sales and Finance, Inc. ("Team"). Liberty underwrites, finances and services automobile retail service contracts and was based in Orlando, Florida prior to moving to the Company headquarters in Titusville, Florida. WA and Team operate five self-financed used vehicle lots in Orlando, Florida. The assets of Liberty, WA, and Team are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (February 12, 1997). On February 14, 1997, FCAF acquired the assets of Palm Beach Finance and Mortgage Company ("PBF") and Two Two Five North Military Corp. d/b/a Miracle Mile Motors ("MMM"). FFG services the receivables purchased from PBF, and FCAF operates the used vehicle lot previously operated by MMM located in West Palm Beach, Florida. The assets of PBF and MMM are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (February 14, 1997). On June 27, 1997, the Company acquired the assets of Strata Holdings, Inc. ("SHI") and Ready Finance, Inc. ("RFI"). FCAF operates the three used vehicle lots previously operated by SHI in West Palm Beach, Florida and FFG services the finance receivables purchased from RFI. The assets of RFI and SHI are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (June 27, 1997). On June 30, 1997, the Company acquired the assets from Roman Fedo, Inc. ("FEDO") and Fedo Finance, Inc. ("FFI"). FCAF operates the used vehicle lot previously operated by FEDO in West Palm Beach, Florida and FFG services the finance receivables purchased from FFI. The assets of FEDO and FFI are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (June 30, 1997). 11 SMART CHOICE AUTOMOTIVE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ================================================================================ NOTE 3 - SUMMARY OF FINANCE RECEIVABLES The following is a summary of principal balances, net as of June 30, 1997: JUNE 30, 1997 ------------- Contractually Scheduled Payments $ 44,590,026 Less: Unearned Finance Charges (11,304,106) ------------- Principal Balances, Net $ 33,285,920 ============= NOTE 4 - PRESENTATION OF DEALERSHIP REVENUES AND COST OF REVENUES Revenues from Company dealership operations consist of Sales of Used Cars, Income on Finance Receivables, Income from Insurance and Training, and Sales of Parts and Accessories. Vehicle and Vehicle Related cost of Revenues is comprised of Cost of Vehicles Cars Sold, Provision for Credit Losses, Costs of Insurance and Training and Cost of Parts and Accessories Sold. The prices at which the Company sells its 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, many of whom ultimately default. 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 contract receivables originated at Company dealerships as well as a cost of the sale 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 Used Cars less Cost of Used Cars Sold. NOTE 5 - EARNINGS (LOSS) PER SHARE Earnings (loss) per share is based upon the weighted average number of common shares outstanding during each period. Common stock equivalents have not been included since their effect would be antidilutive. 12 NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION In connection with the acquisitions described in Note 2, the Company issued the following securities and notes: Common Stock 4,006,084 shares, valued at $13,773,661 =========== Promissory Notes $ 9,784,272 =========== Cash paid for interest $ 1,198,871 =========== 13 LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- ASSETS Cash and Cash Equivalents $ 163,184 Finance Receivables: Principal Balances, Net 12,283,431 Less: Allowance for Credit Losses (900,000) ------------ Finance Receivables, Net 11,383,431 Inventories, at Cost 2,861,848 Land Held for Resale 1,050,000 Property and Equipment, Net 272,543 Other Assets 87,908 ------------ $ 15,818,914 ============ 14 LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts Payable $ 473,088 Accrued Expenses 116,077 Floorplan Payable 1,378,601 Notes Payable 13,059,981 Related Party Payable 197,237 Other Liabilities 113,781 ------------ Total Liabilities 15,338,765 ------------ Stockholders' Equity: Common Stock 700 Stock Subscriptions (600) Additional Paid In Capital 703,044 Deficit (222,995) ------------ Total Stockholders' Equity 480,149 ------------ $ 15,818,914 ============ 15 LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) PERIOD JANUARY 1, 1997 TO FEBRUARY 12, 1997 ---------------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $ 1,296,130 Income on Finance Receivables 458,028 Income from Insurance & Training 3,724 Income from Parts & Accessories 55,708 ----------- 1,813,590 ----------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 1,394,719 Cost of Insurance & Training 2,524 Cost of Parts & Accessories Sold 49,173 Provision for Credit Losses 65,315 ----------- 1,511,731 ----------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 301,859 ----------- OPERATING EXPENSES 434,243 ----------- LOSS FROM OPERATIONS (132,384) ----------- OTHER EXPENSE: Interest Expense 176,585 ----------- 176,585 ----------- NET LOSS $ (308,969) =========== 16 LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) PERIOD JANUARY 1, 1997 TO FEBRUARY 12, 1997 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(308,969) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 27,846 Cash provided by (used for): Accounts receivable (35,150) Inventory 691,586 Prepaid expenses (25,498) Other assets 46,244 Accounts payable 218,244 Accrued expenses 28,174 Floorplan payable (518,081) --------- Net cash provided by operating activities 124,396 --------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in finance receivables 234,795 Purchase of property and equipment (2,410) Increase in other assets (45,375) --------- Net cash provided by investing activities 187,010 --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments from related party (197,237) Principal payments on notes payable (241,697) Distribution to stockholder (5,000) --------- Net cash used in financing activities (443,934) --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (132,528) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 163,184 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,656 --------- 17
LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1996 ------------------ ---------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $ 3,975,001 $ 8,280,093 Income on Finance Receivables 767,396 1,464,812 Income from Insurance & Training 92,570 231,865 Income from Parts & Accessories 384,279 767,128 ------------ ------------ 5,219,246 10,743,898 ------------ ------------ COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 3,174,192 6,614,813 Cost of Insurance & Training 24,426 90,789 Cost of Parts & Accessories Sold 259,337 476,294 Provision for Credit Losses 35,769 62,156 ------------ ------------ 3,493,724 7,244,052 ------------ ------------ NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 1,725,522 3,499,846 ------------ ------------ OPERATING EXPENSES 1,079,633 2,167,333 ------------ ------------ INCOME FROM OPERATIONS 645,889 1,332,513 ------------ ------------ OTHER EXPENSE (INCOME): Interest Expense 299,973 598,045 Other Income (13,415) (25,079) Miscellaneous Expense 32,268 34,842 ------------ ------------ 318,826 607,808 ------------ ------------ NET INCOME $ 327,063 $ 724,705 ============ ============
18 LIBERTY FINANCE COMPANY, INC. & AFFILIATES CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 724,705 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,782 Cash provided by (used for): Inventory (461,690) Other assets 4,707 Accounts and drafts payable 31,238 Accrued expenses 24,600 Floorplan payable 199,567 ----------- Net cash provided by operating activities 554,909 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (2,293,485) Purchase of property and equipment (36,996) ----------- Net cash used in investing activities (2,330,481) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments to related party (182,096) Distributions to stockholder (223,833) Proceeds from issuance of notes payable 2,285,392 ----------- Net cash provided by financing activities 1,879,463 ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 103,891 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,368 ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 112,259 =========== 19 FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- ASSETS Cash and Cash Equivalents $ 20,272 Finance Receivables: Principal Balances, Net 5,479,404 Less: Allowance for Credit Losses (1,095,645) ----------- Finance Receivables, Net 4,383,759 Inventories, at Cost 440,317 Property and Equipment, Net 111,950 Prepaid Expenses 44,705 Other Assets 2,360 ----------- $ 5,003,363 =========== 20 FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities: Accounts Payable $ 95,093 Accrued Expenses 16,505 Deferred Income 134,571 Notes Payable 5,018,343 Stockholder Loans 345,250 Related Party Payable 811,600 ----------- Total Liabilities 6,421,362 ----------- Stockholders' Deficit: Common Stock 1,600 Additional Paid In Capital 220,129 Deficit (1,639,728) ----------- Total Stockholders' Deficit (1,417,999) ----------- $ 5,003,363 =========== 21 FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) PERIOD JANUARY 1, 1997 TO JANUARY 28, 1997 ---------------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $ 225,599 Income on Finance Receivables 162,203 Income from Parts & Accessories 1,235 --------- 389,037 --------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 272,312 Cost of Parts & Accessories Sold 8,970 Provision for Credit Losses 8,538 --------- 289,820 --------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 99,217 --------- OPERATING EXPENSES 152,053 --------- LOSS FROM OPERATIONS (52,836) --------- OTHER EXPENSE: Interest Expense 64,061 --------- 64,061 --------- NET LOSS $(116,897) ========= 22 FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) PERIOD JANUARY 1, 1997 TO JANUARY 28, 1997 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(116,897) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,750 Cash provided by (used for): Inventory 221,697 Prepaid expenses 650 Accounts payable (67,993) Accrued expenses 87,749 Deferred income (4,464) --------- Net cash provided by operating activities 123,492 --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (25,306) Increase in other assets (750) --------- Net cash used in investing activities (26,056) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable (93,087) --------- Net cash used in financing activities (93,087) --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 4,349 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,272 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,621 ========= 23
FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1996 ------------------ ---------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $1,068,767 $2,778,769 Income on Finance Receivables 413,434 783,577 ---------- ---------- 1,482,201 3,562,346 ---------- ---------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 619,661 1,912,423 Provision for Credit Losses 92,068 183,306 ---------- ---------- 711,729 2,095,729 ---------- ---------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 770,472 1,466,617 ---------- ---------- OPERATING EXPENSES 576,339 1,019,006 ---------- ---------- INCOME FROM OPERATIONS 194,133 447,611 ---------- ---------- OTHER EXPENSE: Interest Expense 192,921 317,121 ---------- ---------- 192,921 317,121 ---------- ---------- NET INCOME $ 1,212 $ 130,490 ========== ==========
24 FLORIDA FINANCE GROUP, INC. SUNCOAST AUTO BROKERS, INC. SUNCOAST AUTO BROKERS ENTERPRISES, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 130,490 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 16,500 Cash provided by (used for): Accounts receivable (27,774) Inventory (29,174) Prepaid expenses (32,940) Accounts payable (204,998) Accrued expenses (18,322) Deferred income 71,013 --------- Net cash used in operating activities (95,205) --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (855,037) Purchase of property and equipment (18,906) Decrease in other assets 10,632 --------- Net cash used in investing activities (863,311) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net advances from related party 222,621 Proceeds from issuance of notes payable 722,168 --------- Net cash provided by financing activities 944,789 --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (13,727) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 50,701 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,974 ========= 25 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- ASSETS Cash and Cash Equivalents $ 192,999 Finance Receivables: Principal Balances, Net 5,041,682 Less: Allowance for Credit Losses (984,000) ----------- Finance Receivables, Net 4,057,682 Inventories, at Cost 799,358 Property and Equipment, Net 10,086 Other Assets 48,275 ----------- $ 5,108,400 =========== 26 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996 ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts Payable $ 220,887 Accrued Expenses 128,206 Notes Payable 300,000 ---------- Total Liabilities 649,093 ---------- Stockholders' Equity: Common Stock 800 Additional Paid In Capital 20,000 Retained Earnings 4,438,507 ---------- Total Stockholders' Equity 4,459,307 ---------- $5,108,400 ========== 27 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) PERIOD JANUARY 1, 1997 TO FEBRUARY 14, 1997 ---------------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $1,334,472 Income on Finance Receivables 178,098 ---------- 1,512,570 ---------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 942,541 Provision for Credit Losses 118,273 ---------- 1,060,814 ---------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 451,756 ---------- OPERATING EXPENSES 207,336 ---------- INCOME FROM OPERATIONS 244,420 ---------- OTHER EXPENSE: Interest Expense 3,694 ---------- 3,694 ---------- NET INCOME $ 240,726 ========== 28 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) PERIOD JANUARY 1, 1997 TO FEBRUARY 14, 1997 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 240,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 306 Cash provided by (used for): Inventory 16,202 Other assets 10,184 Accounts payable 9,858 Accrued expenses 9,311 --------- Net cash provided by operating activities 286,587 --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (363,699) --------- Net cash used in investing activities (363,699) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distribution to stockholder (61,618) Proceeds from issuance of notes payable 100,000 --------- Net cash provided by financing activities 38,382 --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (38,730) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 192,999 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 154,269 ========= 29
TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1996 ------------------ ---------------- VEHICLE AND RELATED REVENUES: Sales of Used Vehicles $2,686,434 $5,967,996 Income on Finance Receivables 300,885 593,752 ---------- ---------- 2,987,319 6,561,748 ---------- ---------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Used Vehicles Sold 2,266,941 4,798,476 Provision for Credit Losses 56,271 327,128 ---------- ---------- 2,323,212 5,125,604 ---------- ---------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 664,107 1,436,144 ---------- ---------- OPERATING EXPENSES 520,019 965,076 ---------- ---------- NET INCOME $ 144,088 $ 471,068 ========== ==========
30 TWO TWO FIVE NORTH MILITARY TRAIL CORPORATION D/B/A MIRACLE MILE MOTORS PALM BEACH FINANCE COMPANY, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 471,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 875 Cash provided by (used for): Inventory (79,826) Other assets (80,685) Accounts payable and accrued expenses (192,977) Drafts payable 154,195 --------- Net cash provided by operating activities 272,650 --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in finance receivables (677,838) Purchase of property and equipment (8,851) --------- Net cash used in investing activities (686,689) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under line of credit 330,000 Repayment of stockholder loan (50,880) Distributions to stockholder (130,479) --------- Net cash provided by financing activities 148,641 --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (265,398) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 304,914 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,516 --------- NON-CASH INVESTING AND FINANCING ACTIVITIES: PROPERTY DISTRIBUTED TO STOCKHOLDER $ 101,027 ========= 31 ECKLER INDUSTRIES, INC. CONDENSED BALANCE SHEET (UNAUDITED) AS OF DECEMBER 31, 1996 ----------------------- ASSETS Cash and Cash Equivalents $ 241,652 Accounts Receivable 153,285 Inventories, at Cost 1,307,525 Property, Plant and Equipment, Net 2,512,645 Deferred Tax Asset 330,610 Prepaid Expenses 1,385,398 Other Assets 108,693 ---------- $6,039,808 ========== 32 ECKLER INDUSTRIES, INC. CONDENSED BALANCE SHEET (UNAUDITED) AS OF DECEMBER 31, 1996 ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts Payable $ 545,765 Accrued Expenses 309,613 Notes Payable 2,706,206 Deferred Income Taxes 402,814 ----------- Total Liabilities 3,964,398 ----------- Stockholders' Equity: Class A Common Stock: $.01 Par Value; 10,000,000 17,367 shares authorized; 1,736,750 issued and outstanding Class B Common Stock: $.01 Par Value; 5,000,000 5,104 shares authorized; 510,375 issued and outstanding Additional Paid In Capital 3,419,251 Note Receivable Class A Common Stock (326,700) Deficit (1,039,612) ----------- Total Stockholders' Equity 2,075,410 ----------- $ 6,039,808 =========== 33 ECKLER INDUSTRIES, INC. CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) PERIOD JANUARY 1, 1997 TO JANUARY 28, 1997 ---------------------- VEHICLE AND RELATED REVENUES: Income from Parts & Accessories $ 853,881 --------- 853,881 --------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Parts & Accessories Sold 582,117 --------- 582,117 --------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 271,764 --------- OPERATING EXPENSES 432,006 --------- LOSS FROM OPERATIONS (160,242) --------- OTHER EXPENSE (INCOME): Interest Expense 23,728 Other Income (6,412) --------- 17,316 --------- NET LOSS $(177,558) ========= 34 ECKLER INDUSTRIES, INC. CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) PERIOD JANUARY 1, 1997 TO JANUARY 28, 1997 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(177,558) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 37,332 Cash provided by (used for): Accounts receivable (9,325) Inventory (113,614) Prepaid expenses 56,229 Accounts payable 125,680 Accrued expenses 637 --------- Net cash used in operating activities (80,619) --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (21,911) Increase in other assets (24,687) --------- Net cash used in investing activities (46,598) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable (14,136) Proceeds from issuance of notes payable 10,750 --------- Net cash used in financing activities (3,386) --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (130,603) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 241,652 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 111,049 ========= 35
ECKLER INDUSTRIES, INC. CONDENSED STATEMENT OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1996 ------------------ ---------------- VEHICLE AND RELATED REVENUES: Sales of Parts & Accessories $ 5,064,905 $ 8,338,030 ----------- ----------- COST OF VEHICLE AND VEHICLE RELATED REVENUES: Cost of Parts & Accessories Sold 3,300,586 5,442,627 ----------- ----------- NET REVENUES FROM VEHICLE SALES AND VEHICLE RELATED ACTIVITIES 1,764,319 2,895,403 ----------- ----------- OPERATING EXPENSES 1,497,338 2,798,560 ----------- ----------- INCOME FROM OPERATIONS 266,981 96,843 ----------- ----------- OTHER EXPENSE (INCOME): Interest Expense 68,449 149,664 Other Income (132,264) (165,501) ----------- ----------- (63,815) (15,837) ----------- ----------- INCOME BEFORE INCOME TAXES 330,796 112,680 ----------- ----------- INCOME TAXES (124,300) (46,800) ----------- ----------- NET INCOME $ 206,496 $ 65,880 =========== ===========
36 ECKLER INDUSTRIES, INC. CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 65,880 Adjustments to reconcile net income to net cash used in operating activities: Deferred income taxes 61,900 Issuance of common stock for consulting fees 27,125 Loss on disposal of fixed assets 160 Depreciation and amortization 147,989 Cash provided by (used for): Accounts receivable (92,502) Inventory (499,116) Prepaid expenses (533,029) Accounts payable 566,042 Accrued expenses 64,600 --------- Net cash used in operating activities (190,951) --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (47,805) Proceeds of sale of property and equipment 4,850 Decrease in other assets 20,765 --------- Net cash used in investing activities (22,190) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable (133,623) Payments on capital leases (14,519) Deferred financing costs (20,067) --------- Net cash used in financing activities (168,209) --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (381,350) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 541,991 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 160,641 ========= 37 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AS OF JUNE 30, 1997 AND THE COMPANY'S RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. BACKGROUND Smart Choice Automotive Group, Inc. (the "Company"), formerly named "Eckler Industries, Inc.", operates a network of self-financed used vehicle dealerships in Florida and underwrites, finances, and services retail installment contracts generated from the sale of used cars by its dealerships. The Company also operates automobile dealers training and insurance divisions as well as Eckler's, one of the largest suppliers of Corvette parts and accessories in the world. On January 28, 1997, pursuant to an Agreement and Plan of Merger by and among Eckler Industries, Inc. ("EII"), Eckler Acquisition Corporation, Ralph H. Eckler, Smart Choice Holdings, Inc. ("SCHI"), Thomas E. Conlan and Gerald C. Parker, dated December 30, 1996 (the "Agreement"), EII acquired all of the issued and outstanding shares of common stock of SCHI in exchange for 2,927,939 shares of EII Class A and 1,576,324.5 shares of EII Class B, common stock. Under the terms of the Agreement, the shareholders of SCHI obtained approximately 64% of the voting rights of EII. Although EII is the parent of SCHI following the transaction, the transaction was accounted for as a purchase of EII by SCHI (a reverse acquisition in which SCHI is considered the acquirer for accounting purposes), since the shareholders of SCHI obtained a majority of the voting rights in EII as a result of the transaction. Accordingly, the financial statements of the Company for the periods prior to January 28, 1997 are those of SCHI, the assets and liabilities of EII are recorded at their estimated fair values and the accounts of EII are included in the consolidated financial statements from the date of acquisition (January 28, 1997). SCHI was incorporated on June 21, 1996 and was a development stage corporation prior to January 28, 1997. On August 16, 1996, SCHI acquired the stock of First Choice Auto Finance, Inc. ("FCAF"). On January 28, 1997, in addition to the acquisition of EII, SCHI acquired the stock of Florida Finance Group, Inc. ("FFG"), Dealer Insurance Services, Inc. ("DIS"), and Dealer Development Services, Inc. ("DDS"). FFG underwrites, finances and services automobile retail installment contracts and was based in St. Petersburg, Florida prior to moving to the Company headquarters in Titusville, Florida. FCAF was incorporated on March 22, 1994 and had no significant operations or assets until it acquired the assets of Suncoast Auto Brokers, Inc. ("SAB"), and Suncoast Auto Brokers Enterprises, Inc. ("SABE") on January 28, 1997. FCAF, based at the Company headquarters in Titusville, Florida, now operates the three used vehicle lots in St. Petersburg and Tampa, previously operated by SAB and SABE. DIS is based in Tampa, Florida and provides insurance services for automobile dealers. DDS is based in Tampa and provides consulting services and training programs to automobile dealers. The assets and liabilities of FFG, FCAF, DIS and DDS are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (January 28, 1997). 38 On February 12, 1997, the Company acquired the stock of Liberty Finance Company ("Liberty"). On the same date, FCAF acquired the stock of Wholesale Acquisitions, Inc. ("WA"), and Team Automobile Sales and Finance, Inc. ("Team"). Liberty underwrites, finances and services automobile retail service contracts and was based in Orlando, Florida prior to moving to the Company headquarters in Titusville, Florida. WA and Team operate five self-financed used vehicle lots in Orlando, Florida. The assets of Liberty, WA, and Team are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (February 12, 1997). On February 14, 1997, FCAF acquired the assets of Palm Beach Finance and Mortgage Company ("PBF") and Two Two Five North Military Corp. d/b/a Miracle Mile Motors ("MMM"). FFG services the receivables purchased from PBF, and FCAF operates the used vehicle lot previously operated by MMM located in West Palm Beach, Florida. The assets of PBF and MMM are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (February 14, 1997). On June 27, 1997, the Company acquired the assets of Strata Holdings, Inc. ("SHI") and Ready Finance, Inc. ("RFI"). FCAF operates the three used vehicle lots previously operated by SHI in West Palm Beach, Florida and FFG services the finance receivables purchased from RFI. The assets of RFI and SHI are recorded at their estimated fair values and their accounts are included in the consolidated financial statements from the date of acquisition (June 27, 1997). On June 30, 1997, the Company acquired the assets from Roman Fedo, Inc. ("FEDO") and Fedo Finance, Inc. ("FFI"). FCAF operates the used vehicle lot previously operated by FEDO in West Palm Beach, Florida and FFG services the finance receivables purchased from FFI. The assets of FEDO and FFI are recorded at their estimated fair values and their accounts will be included in the consolidated financial statements from the date of acquisition (June 30, 1997). RESULTS OF OPERATIONS COMPARISON OF CONSOLIDATED THREE MONTHS ENDED JUNE 30, 1997 TO COMBINED THREE MONTHS ENDED JUNE 30, 1996. The following table sets forth revenues and expenses in aggregate dollars and as a percentage of total revenue for the Company and its predecessors, EII, FFG and affiliates, Liberty and affiliates, and PBF and affiliate, for the three months ended June 30, 1997 and 1996. As a result of the acquisitions discussed above, and the related differences in cost basis of the assets and liabilities of the Company after the acquisitions and the cost bases of the predecessors, the results of operations for the three months ended June 30, 1997 and three months ended June 30, 1996 are not comparable. Such lack of comparability is explained in the discussion below. 39
1997 1996 --------------- --------------- (DOLLARS IN THOUSANDS) COMPANY (1) COMBINED (2) Vehicle and Related Revenues $ 14,794 100.0% $ 14,754 100.0% Cost of Vehicle and Related Revenues 9,174 62.0% 9,830 66.6% -------- ------- ------- ------- Net Revenues from Vehicles Sales and 5,620 38.0% 4,924 33.4% Vehicle Related Revenues Operating Expenses 5,027 34.0% 3,672 24.9% -------- ------- ------- ------- Operating Income 593 4.0% 1,252 8.5% Interest Expense (1,056) (7.1)% (562) (3.8%) Other Income 99 0.7% 67 .4% -------- ------- ------- ------- Net Income (Loss) $ (364) (2.4)% $ 757 5.1% ======== ======= ======= =======
(1) The financial data for 1997 was derived from the unaudited consolidated financial statements of the Company. Because the financial data for 1997 includes data of the Company and its predecessors which are presented on different cost bases, such data is not comparable to the financial data for 1996. (2) The financial data for 1996 is the sum of the actual results of the four predecessors included herein. Because the financial data of the predecessors are presented on cost bases different from those of the Company after the acquisitions, the 1996 data is not comparable to the financial data for 1997. VEHICLE AND RELATED REVENUES. The Company experienced a 0.3% increase in revenues for the three months ended June 30, 1997 compared to the combined results of its predecessors for the same period in 1996. The increase was the result of two elements. Income on Finance Receivables increased by $446,021 due to growth of the Company's receivables portfolio since the merger. Used vehicle sales decreased $726,000. This was due to reduced inventory levels at the beginning of the quarter ending June 30, 1997. After the merger, the floorplan financing arrangements for the predecessors had to be restructured, and the Company's access to floorplan financing was curtailed for approximately forty-five days during the first quarter of 1997, resulting in reduced levels of inventory available for sale at the beginning of the second quarter of 1997. COST OF VEHICLE AND RELATED REVENUES. Cost of vehicle and related revenues was $9,173,877 for the three months ended June 30, 1997 compared to $9,829,251 for the predecessors during the same period in 1996, a decrease of $655,374. The decrease was primarily the result of three major elements. Cost of used vehicles sold decreased by $756,541 due to the decrease in sales discussed above. Provision for credit losses increased $315,023 due to management's assessment of the increase in finance receivables and the addition of acquired finance receivables. Cost of parts and accessories sold decreased $212,579 primarily due to the Corvette parts business for which manufacturing costs have been reduced significantly due to the implementation of the "GM Restoration Parts Program." 40 OPERATING EXPENSES. Operating expenses consist of selling and marketing, general and administrative expenses, and depreciation and amortization. Operating expenses were $4,938,188 for the three months ended June 30, 1997 compared to $3,673,328 for the predecessors for the same period in 1996 an increase of 34.4%. The increase reflects additional expenses related to increased company dealership activity, and continued development of corporate infrastructure resulting from the merger, offset only partially by certain decreases in costs resulting from the consolidation of the acquired companies' management functions. INTEREST EXPENSE. Interest expense totaled $1,055,996 for the three months ended June 30, 1997 compared to $561,343 for the predecessors during the same period in 1996, an increase of 88.1%. This resulted primarily from interest on subordinated debt attributable to the merger and related acquisitions. In addition, the Company incurred interest expense on a $3,500,000 note and a $4,000,000 note more fully discussed in "Liquidity and Capital Resources." COMPARISON OF COMBINED SIX MONTHS ENDED JUNE 30, 1997 TO COMBINED SIX MONTHS ENDED JUNE 30, 1996. The following table sets forth revenues and expenses in aggregate dollars and as a percentage of total revenue for the Company and its predecessors, EII, FFG and affiliates, Liberty and affiliates, and PBF and affiliate, for the six months ended June 30, 1997 and 1996. As a result of the acquisitions discussed above, and the related differences in cost basis of the assets and liabilities of the Company after the acquisitions and the cost bases of the predecessors, the results of operations for the past two years are not comparable. Such lack of comparability is explained in the discussion below.
1997 1996 -------------------------------- -------------- (DOLLARS IN THOUSANDS) COMPANY PREDECESSORS COMBINED COMBINED COMBINED (1) (2) (3) (3) (4) Vehicle and Related Revenues $ 22,905 $ 4,569 $ 27,474 100.0% $ 29,206 100.0% Cost of Vehicle and Related Revenues 15,207 3,444 18,651 67.9% 19,909 68.2% -------- ------------ -------- ------- --------- ----- Net Revenues from Vehicles Sales and Vehicle Related Revenues 7,698 1,125 8,823 32.1% 9,297 31.8% Operating Expenses 12,172 1,226 13,398 48.8% 6,949 23.8% -------- ------------ -------- ------- --------- ----- Operating Income (Loss) (4,474) (101) (4,575) (16.7)% 2,348 8.0% Interest Expense (1,623) (268) (1,891) ( 6.9)% (1,065) (3.6)% Other Expense (Income) 43 6 49 0.2% 109 .4% --------- ------------ -------- ------- --------- ----- Net Income (Loss) $ (6,054) $ (363) $ (6,417) (23.4)% $ 1,392 4.8% ========= ============ ======== ======= ========= =====
(1) The financial data for 1997 was derived from the unaudited consolidated financial statements of the Company which includes the unaudited combined financial statements of the four predecessors from the date of acquisition to June 30, 1997. Because the financial data for 1997 includes data of the Company and its predecessors which are presented on different cost bases, such data are not comparable to the financial data for 1996. 41 (2) The financial data for 1997 was derived from the unaudited combined financial statements included herein of the four predecessors from January 1, 1997 to the date of acquisition. (3) The combined financial data is the sum of the actual results from the Company and its predecessors. (4) The financial data for 1996 is the sum of the actual results of the four predecessors included herein. Because the financial data of the predecessors are presented on cost bases different from those of the Company after the acquisitions, the 1996 data is not comparable to the financial data for 1997. VEHICLE AND RELATED REVENUES. The Company (combined with its predecessors) experienced a 5.9% decrease in revenues for the six months ended June 30, 1997 compared to the combined results of its predecessors for the same period in 1996. The decrease was primarily the result of two elements. Income on Finance Receivables increased by $448,544 due to growth of the Company's receivables portfolio since the merger. Due to the merger, the floorplan finance arrangements for the predecessors had to be restructured, and the Company's access to floorplan financing was curtailed for approximately forty-five days, resulting in reduced levels of inventory available for sale. Therefore, the Company was unable to replenish inventory and sales decreased by $2,726,879. COST OF VEHICLE AND RELATED REVENUES. Cost of vehicle and related revenues was $18,650,923 for the six months ended June 30, 1997 compared to $19,908,012 for the predecessors during the same period in 1996, a decrease of $1,257,089. The decrease was primarily the result of three major elements. Cost of used vehicles sold decreased by $2,163,289 due to the decrease in sales discussed above. Provision for credit losses increased $1,168,347 due to management's assessment of the increase in finance receivables and the addition of acquired finance receivables. Cost of parts and accessories sold decreased $213,072 primarily due to the Corvette parts business since manufacturing costs have been reduced significantly due to the implementation of the "GM Restoration Parts Program." OPERATING EXPENSES. Operating expenses consist of selling and marketing, general and administrative expenses, and depreciation and amortization. Operating expenses were $13,397,890 for the six months ended June 30, 1997 compared to $6,949,974 for the predecessors for the same period in 1996 an increase of 92.8%. This increase was primarily due to recognition of compensation expense of $2,236,875 from the issuance of stock options in the first quarter of 1997 to attract key management personnel. In addition, the Company recognized expense of approximately $1,668,000 to settle various consulting agreements and employment contracts of the predecessors. The increase also reflects additional expenses related to increased company dealership activity, and continued development of corporate infrastructure resulting from the merger, offset only partially by certain decreases in costs resulting from the consolidation of the acquired companies' management functions. INTEREST EXPENSE. Interest expense totaled $1,891,568 for the six months ended June 30, 1997 compared to $1,064,830 for the predecessors during the same period in 1996, an increase of 77.6%. This resulted primarily from interest on subordinated debt attributable to the merger and related acquisitions. In addition, the Company incurred interest expense on a $3,500,000 note and a $4,000,000 note more fully discussed in "Liquidity and Capital Resources." 42 ALLOWANCE FOR CREDIT LOSSES. The allowance for credit losses on finance receivables (the "Allowance") at the Company's used vehicle dealerships was 18.5% of the outstanding principal balance as of June 30, 1997. The following table reflects activity in the Allowance, as well as information regarding charge off activity, on finance receivables originated at the Company dealerships for the three and six months ended June 30, 1997. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1997 ------------------ ---------------- ALLOWANCE ACTIVITY: Balance, beginning of period $ 4,676,363 $ 4,065,645 Allowance on acquired finance receivables 1,920,307 1,920,307 Provision for credit losses 499,131 1,548,811 Net charge offs (930,416) (1,369,378) ------------ ------------ Balance, end of period $ 6,165,385 $ 6,165,385 ============ ============ CHARGE OFF ACTIVITY: Principal Balances: Collateral Repossessed $ 1,997,236 $ 2,401,817 Other -- 36,637 ------------ ------------ Total Principal Balances 1,997,236 2,438,454 Recoveries, net 1,066,820 1,069,076 ------------ ------------ Net Charge Offs $ 930,416 $ 1,369,378 ============ ============ Analysis of the portfolio delinquencies is considered in evaluating the adequacy of the Allowance. The following table reflects the principal balances of current and delinquent finance receivables as a percentage of total outstanding finance receivable principal balances as of June 30, 1997. June 30, 1997 ------------- AGING PERCENTAGES: Principal balances current 89.01% Principal balances 31 to 60 days 5.76% Principal balances over 60 days 5.23% 43 LIQUIDITY AND CAPITAL RESOURCES. The following table sets forth the major components of the increase (decrease) in the Company's cash and cash equivalents:
1997 1996 -------------------------------------- ----------------- COMPANY PREDECESSORS COMBINED COMBINED (1) (2) (3) (4) --------- ------------- --------- ----------------- Net cash provided by operating activities $ 71 $ 453 $ 524 $ 541 Net cash used in investing activities (15,146) (250) (15,396) (3,903) Net cash provided by (used in) 16,067 (502) 15,565 2,805 financing activities -------- ------------ -------- ---------------- Net increase (decrease) in cash and cash equivalents $ 992 $ (299) $ 693 $ (557) ======== ============ ======== ================
(1) The financial data for 1997 was derived from the unaudited consolidated financial statements of the Company which includes the unaudited combined financial statements of the four predecessors from the date of acquisition to June 30, 1997. Because the financial data for 1997 includes data of the Company and its predecessors which are presented on different cost bases, such data are not comparable to the financial data for 1996. (2) The financial data for 1997 was derived from the unaudited combined financial statements included herein of the four predecessors from January 1, 1997 to the date of acquisition. (3) The combined financial data is the sum of the actual results for the Company and its predecessors. (4) The financial data for 1996 is the sum of the actual results of the four predecessors included herein. Because the financial data of the predecessors are presented on cost bases different from those of the Company after the acquisitions, the 1996 data is not comparable to the financial data for 1997. The Company requires capital to support increases in its finance receivables, and vehicle inventory, parts and accessories inventory, property and equipment, and working capital for general corporate purposes. Funding sources available to the Company include operating cash flow, third party investors, financial institution borrowings and borrowings against finance receivables. Net cash provided by operating activities of $70,674 for the six months ended June 30, 1997 is primarily due to increases in stock option compensation of $2,236,875, accrued expenses of $1,955,475, other liabilities of $923,567, and provision for credit losses of $1,076,081. The cash provided by operating activities of the predecessor companies of $540,670 for the same period in 1996 can be attributed to increases in net earnings, inventory, provision for credit losses and accounts payable. Net cash used in investing activities of $15,146,145 for the six months ended June 30, 1997 is the result of the increase in finance receivables of $3,631,742, use of cash in the acquisition of the predecessors of $8,100,020, issuance of notes receivable of $2,343,673 and deposits paid of 44 $822,200. The cash used in investing activities of the predecessor companies of $3,902,671 for the same period in 1996 is primarily due to increases in the finance receivables. Net cash provided by financing activities of $16,066,665 for the six months ended June 30, 1997 is the result of borrowings from Sirrom Capital Corporation ("Sirrom") of $7,500,000, notes payable on finance receivables of $6,468,180, and issuance of preferred stock and convertible debentures of $590,000 and $300,000, respectively. Net cash provided by financing activities of the predecessor companies of $2,805,417 for the same period in 1996 is primarily due to the issuance of notes payable and notes payable on finance receivables. Management of the Company has developed strategies to meet future liquidity needs. These strategies include: (1) increasing the Company's revolving facility with Finova Capital Corporation ("Finova") from $20 million to $35 million (2) obtaining additional funding on May 13, 1997, from Sirrom in the amount of $4,000,000, and (3) tighter control on overall costs. The Company's management believes that these actions, in addition to the working capital position at June 30, 1997, will allow the Company to meet its future liquidity needs. REVOLVING CREDIT FACILITY. The revolving credit facility (the "Revolving Facility") with Finova has a maximum commitment of up to $35.0 million. Under the Revolving Facility, the Company may borrow up to 70.0% of the principal balance of eligible finance contracts. The Revolving Facility expires on December 31, 1999, at which time the Company has the option to renew the Revolving Facility. The Revolving Facility is secured by substantially all of the Company's assets. As of June 30, 1997, the Company's borrowing capacity under the Revolving Facility was approximately $26.2 million and the aggregate principal amount outstanding under the Revolving Facility was $24.5 million. The Revolving Facility bears interest at the governing rate (currently the prime rate) plus 3%. CONVERTIBLE NOTE. The Company has outstanding $7.5 million in convertible notes from Sirrom. These notes are convertible into common stock at varying amounts per share. MORTGAGE LOAN, LINE OF CREDIT. EII has a long term mortgage payable to a bank with a current principal balance of approximately $2.3 million. The mortgage loan is collateralized by substantially all property and equipment of EII and guaranteed by a stockholder of the Company. Effective April 16, 1997, modifications to the terms of the original mortgage loan agreement with the lender were completed. Under the modified mortgage loan agreement, the original payment schedule remains but the maturity date is modified to provide for a maturity date of July 1, 1998 rather than September 30, 1999. EII also had a $1.0 million line of credit to the same bank that had an outstanding balance of approximately $344,000 at March 31, 1997. Effective April 16, 1997, modificatons to the terms of the line of credit agreement with the Lender were effected whereby no further advances under the line of credit were to be made and EII would begin making principal reductions according to a schedule provided by the bank. On June 6, 1997, the final payment of $193,894 was made. ACQUISITION DEBT. On the closing of the acquisitions during the six months ended June 30, 1997, the Company incurred debt to certain stockholders of the acquired companies. The payable balance as of June 30, 1997 for the acquisition debt totaled $9.2 million. There are $4.3 million of the notes that mature at the earlier of December 31, 1997 or when the Company successfully completes a secondary offering of its common stock to the public. There are $4.9 million of notes with monthly principal payments of $27,112 plus interest which mature on June 27, 1999. 45 SEASONALITY. Historically, the Company's predecessors, except for EII, have 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. EII's business is also subject to seasonal fluctuations. Historically, EII's business has realized a higher portion of its revenues in the second and third quarters of the calendar year and the lowest portion of its revenues in the fourth quarter. The business of EII is particularly dependent on sales to Corvette enthusiasts during the spring and summer months. This is the time of year that Corvette enthusiasts are preparing for upcoming car shows that are held in the late summer and early fall. INFLATION. Increases in inflation generally result in higher interest rates. Higher interest rates on the Company's borrowings would decrease the profitability of the Company's existing portfolio. The Company will seek to limit this risk, to the extent market conditions permit, for the Company's finance receivables, either by increasing the interest rate charged, or the profit margin on the cars sold. To date, inflation has not had a significant impact on the Company's operations. RECENT ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new standards for computing and presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, earlier application is not permitted. EPS for the three and six months ended June 30, 1997 and June 30, 1996 computed under SFAS 128 would not be materially different than previously computed. 46 PART II SMART CHOICE AUTOMTOVE GROUP, INC. OTHER INFORMATION Item 2. CHANGES IN SECURITIES (c) During the period covered by this Report, the Company issued the following unregistered equity securities: On June 30, 1997, in connection with the acquisition of substantially all of the assets of Roman Fedo, Inc. and Fedo Finance, Inc., the Company issued to the sellers 225,000 shares of the Company's Common Stock (the "Shares") as partial consideration for the acquisition. The issuance of the shares was made in reliance on the exemption provided under Section 4(2) of the Securities Act of 1933, as amended (the "Act"). The investors were provided information about the Company or had access to such information, and were provided opportunities to review the information about the Company and to ask questions of management concerning the information provided or made available. The investors gave written assurance of the investment intent, and the certificate for the securities bear a legend accordingly. On April 17, 1997, the Company issued to non-employee directors of the Company non-transferable options to acquire in the aggregate 62,500 shares of the Company's Common Stock. The options are exercisable at $5.50 per share commencing April 17, 1997 and expiring April 16, 2002. The issuance of the options to the non-employee directors (all accredited investors as defined in the Act and Regulation D promulgated thereunder) was made in reliance on the exemption provided under Section 4(2) of the Act. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
EXHIBIT LIST EXHIBIT DESCRIPTION PAGE NUMBER OR INCORPORATED BY REFERENCE TO: ---- ------------------- -------------------------------------------- 3.1 Amended and Restated Articles of Exhibit 3.1 to Form SB-2 Registration Statement, Incorporation of the Company filed on September 1, 1995, File No. 33-96520-A. 3.2 Amended and Restated By-Laws of the Company Exhibit 3.2 to Form SB-2 Registration Statement, filed on September 1, 1995, File No. 33-96520-A. 3.2.1 Amendment No. 1 to Amended and Restated Exhibit 3.2.1 to Amendment No. 2 to Form SB-2 Bylaws Registration Statement, filed on November 6, 1995, File No. 33-96520-A. 4.1 Specimen Common Stock Certificate Exhibit 4.1 to Form 8-A Registration Statement, filed on April 16, 1997, File No. 1-14082. 4.2 Specimen of Warrant Certificate Exhibit 4.2 to Form 8-A Registration Statement, filed on April 16, 1997, File No. 1-14082. 4.3 Warrant Agreement between the Company and Exhibit 4.5 to Amendment No. 2 to Form SB-2 American Stock Transfer & Trust Company, as Registration Statement, filed on November 6, Warrant Agent, dated November 9, 1995 1995, File No. 33-96520-A. 4.3.1 Form of Amendment to Warrant Agreement Exhibit 4.4 to Form 8-A Registration Statement, filed on April 16, 1997, File No. 1-14082. 10.1 Trademark License Agreement dated effective Exhibit 10.17 to Amendment No. 1 to Form SB-2 October 14, 1992 between the Company and Registration Statement, filed on October 13, Chevrolet Motor Division, General Motors 1995, File No. 33-96520-A. Corporation 10.2 Trademark License Agreement dated Exhibit 10.2 to Amendment No. 1 to Form 47 Effective October 3, 1992 between the SB-2 Registration Statement, filed on October 13, Company and General Motors Corporation 1995, File No. 33-96520-A. 10.3 Reproduction and Service Parts Tooling Exhibit 10.3.1 to Amendment No. 1 of Form SB-2 License Agreement dated December 22, 1993 Registration Statement, filed on October 13, between the Company and Service Parts 1995, File No. 33-96520-A. Operation, General Motors Corporation ("GM License Agreement")* 10.4 Eckler Industries, Inc. Retirement and Exhibit 10.4.1 to Form SB-2 Registration Savings Plan and Trust Agreement, as Statement, filed on September 1, 1995, File No. Amended and Restated on September 14, 1992 33-96520-A. 10.4.1 Amendment No. 1 to Eckler Industries, Inc. Exhibit 10.4.2 to Form SB-2 Registration Retirement and Savings Plan Trust Agreement Statement, filed on September 1, 1995, File No. dated March 28, 1994 33-96520-A. 10.5 Eckler Industries, Inc. Non-Qualified Stock Exhibit 10.6 to Form SB-2 Registration Option Plan Statement, filed on September 1, 1995, File No. 33-96520-A. 10.6 Eckler Industries, Inc. 1995 Combined Exhibit 10.7 to Form SB-2 Registration Qualified and Non-Qualified Employee Stock Statement, filed on September 1, 1995, File No. Option Plan 33-96520-A. 10.7 Registration Rights Agreement by and among Exhibit 10.15 to Amendment No. 1 to Form SB-2 the Company and each of the Purchasers Registration Statement, filed on October 13, referred to in Schedule 1 thereto, dated 1995, File No. 33-96520-A. September 20, 1995. 10.8 Unit Purchase Option Agreement between the Exhibit 1.2 to Amendment No. 2 to Form SB-2 Company and Argent Securities, Inc. and Registration Statement, filed on November 6, Certificate dated November 15, 1995 1995, File No. 33-96520-A. 10.9 Stock Purchase Warrant in favor of Ralph H. Exhibit 10.20 to Annual Report on Form 10KSB, Eckler dated November 15, 1995 filed on January 16, 1997, File No. 1-14082. 10.10 Stock Purchase Warrant in favor of Ronald Exhibit 10.21 to Annual Report on Form 10KSB, V. Mohr dated November 15, 1995 filed on January 16, 1997, File No. 1-14082. 48 10.11 Stock Purchase Warrant in favor of G. Exhibit 10.22 to Annual Report on Form 10KSB, Edward Mills dated November 15, 1995 filed on January 16, 1997, File No. 1-14082. 10.12 Stock Purchase Warrant in favor of Robert Exhibit 10.23 to Annual Report on Form 10KSB, M. Eckler dated November 15, 1995 filed on January 16, 1997, File No. 1-14082. 10.13 Stock Purchase Warrant in favor of Michael Exhibit 10.24 to Annual Report on Form 10KSB, G. Wilson dated November 15, 1995 filed on January 16, 1997, File No. 1-14082. 10.14 Lease Agreement between the Company and Exhibit 10.21 to Post Effective Amendment No. 1 Titusville Chevrolet-Geo, Inc. dated March to Form SB-2 Registration Statement, filed on 4, 1996 April 10, 1996, File No. 33-96520-A. 10.15 Lease Agreement between the Company and Exhibit 10.22 to Post-Effective Amendment No. 1 Titusville Chevrolet-GEO, Inc. Dated March to Form SB-2 Registration Statement, filed on 4, 1996 April 10, 1996, File No. 33-96520-A. 10.16 Loan Agreement between the Company and Exhibit 10.19 to Post-Effective Amendment No. 2 Barnett Bank, N.A. dated September 30, 1996 to Form SB-2 Registration Statement, filed on November 14, 1996, File No. 33-96520-A. 10.16.1 Loan Modification Agreement between the Filed herewith. Company and Barnett Bank dated April 15, 1997. 10.17 Mortgage and Security Agreement between the Exhibit 10.20 to Post-Effective Amendment No. 2 Company and Barnett Bank, N.A. dated to Form SB-2 Registration Statement, filed on September 30, 1996. November 14, 1996, File No. 33-96520-A. 10.18 Promissory Note in the amount of $2,400,000 Exhibit 10.21 to Post-Effective Amendment No. 2 to from the Company in favor of Barnett Bank, Form SB-2 Registration Statement, filed on November N.A. dated September 30, 1996. 14, 1996, File No. 33-96520-A. 10.19 Line of Credit Loan Agreement between the Exhibit 10.22 to Post-Effective Amendment No. 2 to Company and Barnett Bank, N.A. dated Form SB-2 Registration Statement, filed on November September 30, 1996. 14, 1996, File No. 33-96520-A. 10.20 Security Agreement between the Company and Exhibit 10.23 to Post-Effective Amendment No. 2 to Barnett Bank, N.A. dated September 30, 1996. Form SB-2 Registration Statement, filed on November 14, 1996, File No. 33-96520-A. 49 10.21 Promissory Note in the amount of $1,000,000 Exhibit 10.24 to Post-Effective Amendment No. 2 to in favor of Barnett Bank, N.A. dated Form SB-2 Registration Statement, filed on November September 30, 1996 14, 1996, File No. 33-96520-A. 10.22 Merger Agreement between Smart Choice Exhibit 10.1 to Form 8-K, filed on February 12, Holdings, Inc., the Company, Thomas E. 1997, File No. 1-14082. Conlan and Gerald C. Parker dated December 30, 1997. 10.23 Non-Qualified Stock Option Agreement in Exhibit 4.1 to Form 8-K, filed on February 12, favor of Ralph H. Eckler, dated January 28, 1997, File No. 1-14082. 1997. 10.24 Registration Rights Agreement with Ralph H. Exhibit 4.2 to Form 8-K, filed on February 12, Eckler, dated January 28, 1997. 1997, File No. 1-14082. 10.25 Executive Employment Agreement with Ralph H. Exhibit 10.2 to Form 8-K, filed on February 12, Eckler, dated January 28, 1997. 1997, File No. 1-14082. 10.26 First Amended and Restated Loan and Exhibit 4.1 to Form 10-Q, filed on May 20, 1997, Security Agreement between Florida Finance File No. 1-14082. Group, Inc. ("FFG") and Finova Capital Corporation ("Finova"), dated February 4, 1997. 10.27 Warrant to Purchase Common Stock of the Exhibit 4.2 to Form 10-Q, filed on May 20, 1997, Company between the Company and Finova, File No. 1-14082. dated January 13, 1997. 10.28 Sixth Amended and Restated Promissory Note Exhibit 4.3 to Form 10-Q, filed on May 20, 1997, dated May 7, 1997, $35,000,000 principal File No. 1-14082. amount, FFG and Liberty Finance Company, makers, Finova, payee. 10.29 First Amended and Restated Schedule to Exhibit 4.4 to Form 10-Q, filed on May 20, 1997, Amended and Restated Loan and Security File No. 1-14082. Agreement, FFG, borrower, Finova, lender, dated April 22, 1997. 10.30 Guaranty to Finova from the Company dated Exhibit 4.5 to Form 10-Q, filed on May 20, 1997, January 13, 1997. File No. 1-14082. 10.31 Stock Purchase Agreement dated January 28, Exhibit 10.1 to Form 10-Q, filed on May 20, 1997, 1997 between SCHI and Gary Smith. File No. 1-14082. 10.32 Promissory Note dated January 28, 1997, Exhibit 10.2 to Form 10-Q filed on May 20, 1997, 50 First Choice Auto Finance, Inc. ("FCAF"), File No. 1-14082. maker, Gary Smith, payee, in the principal amount of $1,031,008. 10.33 Asset Purchase Agreement dated January 28, Exhibit 10.3 to Form 10-Q, filed on May 20, 1997, 1997 between FCAF and Gary Smith. File No. 1-14082. 10.34 Asset Purchase Agreement dated December 19, Exhibit 10.4 to Form 10-Q, filed on May 20, 1997, 1996 among FCAF, Jack Winters Enterprises, File No. 1-14082. Inc., Jack Winters, and F. Craig Clements. 10.35 Addendum to Asset Purchase Agreement dated Exhibit 10.5 to Form 10-Q, filed on May 20, 1997, March 24, 1997 among FCAF, Jack Winters File No. 1-14082. Enterprises, Inc., Jack Winters, and F. Craig Clemens. 10.36 Merger Agreement dated February 12, 1997 Exhibit 10.1 to Form 8-K, filed on February 26, among the Company, R.C. Hill Acquisition, 1997, File No. 1-14082. Inc., and R.C. Hill, II. 10.37 Stock Purchase Agreement dated February 12, Exhibit 10.10 to Form 8-K, filed on February 26, 1997 among the Company, FCAF, and R.C. 1997, File No. 1-14082. Hill, II. 10.38 Corporate Guaranty of the Company in favor Exhibit 10.12 to Form 8-K, filed on February 26, of R.C. Hill, II, dated February 12, 1997. 1997, File No. 1-14082. 10.39 Registration Rights Agreement between the Exhibit 4.1 to Form 8-K, filed on February 26, Company and R.C. Hill, II, dated February 1997, File No. 1-14082. 12, 1997. 10.40 Asset Purchase Agreement among FCAF, Palm Exhibit 10.17 to Form 8-K, filed on February 26, Beach Finance and Mortgage Company ("PBF"), 1997, File No. 1-14082. Two Two Five North Military Corp. ("225"), and David Bumgardner, and Amendment thereto. 10.41 Loan and Security Agreement between 225 and Exhibit 10.18 to Form 8-K, filed on February 26, FCAF dated February 14, 1997. 1997, File No. 1-14082. 10.42 9% Secured Convertible Note of FCAF to 225 Exhibit 10.20 to Form 8-K, filed on February 26, and PBF, in the principal amount of 1997, File No. 1-14082. $800,000. 10.43 9% Convertible Debenture of SCHI to PBF, Exhibit 10.21 to Form 8-K, filed on February 26, in the principal amount of $467,601. 1997, File No. 1-14082. 51 10.44 Lease between David Bumgardner as Lessor Exhibit 10.22 to Form 8-K, filed on February 26, and FCAF, Lessee, 1997, File No. 1-14082. 10.45 Promissory Note for $205,574 by FCAF in Exhibit 10.19 to Form 8-K, filed on February 26, favor of David Bumgardner. 1997, File No. 1-14082. 10.46 Indemnification Agreement in favor of Palm Exhibit 10.23 to Form 8-K, filed on February 26, Beach Finance and Two Two Five North 1997, File No. 1-14082. Military Trail by FCAF, dated February 14, 1997. 10.47 Executive Employment Agreement between the Exhibit 10.14 to Form 10-Q, filed on May 20, Company and Fred E. Whaley. 1997, File No. 1-14082. 10.48 Executive Employment Agreement between the Exhibit 10.15 to Form 10-Q, filed on May 20, Company and Gary Smith. 1997, File No. 1-14082. 10.49 Executive Employment Agreement between the Exhibit 10.16 to Form 10-Q, filed May 20, 1997, Company and Robert Abrahams. File No. 1-14082. 10.50 Convertible Senior Promissory Note dated Exhibit 10.18 to Form 10-Q, filed May 20, 1997, March 31, 1997, the Company, maker, Sirrom, File No. 1-14082. payee. 10.51 Convertible Senior Promissory Note dated Exhibit 10.19 to Form 10-Q, filed May 20, 1997, May 13, 1997, the Company, maker, Sirrom, File No. 1-14082. payee. 10.52 Amended and restated Registration Rights Exhibit 10.20 to Form 10-Q, filed May 20, 1997, Agreement between the Company and Sirrom, File No. 1-14082. dated May 13, 1997. 10.53 Asset Purchase Agreement dated as of June Exhibit 10.1 to Form 8-K, filed on July 15, 1997, 30, 1997 among the Company and Roman Fedo, File No. 1-14082. Fedo Finance, Inc. and Roman Fedo. 10.54 Asset Purchase Agreement dated as of June Exhibit 10.1 to Form 8-K filed on July 14, 1997, 27, 1997 among the Company, Strata Holding, File No. 1-14082. Inc., Ready Finance, Inc., Donald Cook, Marilyn Cook and Madie A. Stratemeyer. 27 Financial Data Schedules.
52 (b) REPORTS ON FORM 8-K A CURRENT REPORT ON FORM 8-K ITEM 2 WAS FILED BY SMART CHOICE AUTOMOTIVE GROUP, INC. ON JUNE 27, 1997. A CURRENT REPORT ON FORM 8-K ITEM 2 WAS FILED BY SMART CHOICE AUTOMOTIVE GROUP, INC. ON JUNE 30, 1997. 53 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 August 19, 1997. SMART CHOICE AUTOMOTIVE GROUP, INC. By: /s/ GARY R. SMITH -------------------------------- Gary R. Smith 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. SIGNATURES TITLE DATE /s/ GARY R. SMITH President, Chief Executive August 19, 1997 - -------------------- Gary R. Smith Officer and Director /s/ FRED E. WHALEY Executive Vice President, August 19, 1997 - -------------------- Fred E. Whaley and Director (Chief Financial Officer) /s/ RICHARD M. TODD Vice President of Finance August 19, 1997 - -------------------- Richard M. Todd /s/ ERNEST RESTINA Controller August 19, 1997 - -------------------- Ernest Restina 54 EXHIBIT INDEX EXHIBIT - ------- 10.16.1 Loan Modification Agreement between the Company and Barnett Bank dated April 15, 1997 27 Financial Data Schedule EX-10.16.1 2 EXHIBIT 10.16.1 4/15/97 VIA FACSIMILE (407) 268-6937 Fred E. Whaley Smart Choice Automotive Group, Inc. 5200 S. Washington Avenue Titusville, Florida 32780 Re: (1) The Line of Credit Accommodation in the Original Principal Amount of $1,000,000 Dated September 30 1996 to Eckler Industries, Inc. (Line of Credit) (2) Mortgage Loan in the Amount of $2,400,000 dated September 30, 1996 to Eckler Industries, Inc. (Mortgage Loan) Dear Mr. Whaley: Barnett Bank, N.A. ("Barnett") hereby withdraws the demand to Smart Choice Automotive Group, Inc., formerly known as Eckler Industries, Inc. ("Company") contained in THE letter to you dated March 27, 1997 conditioned upon the following: I. MODIFICATION OF LINE OF CREDIT. The Company hereby ratifies and confirms the terms and conditions of the Line of Credit accommodation with the following modifications: A. The Company agrees that there shall be no more disbursements under the Line of Credit. B. The Company agrees to continue making monthly interest payments on the outstanding balance of the Line of Credit and to make a principal reduction payment of $50,000.00 on or before May 30, 1997, and to make a second payment for reduction of principal in the amount of $100,000.00 on or before June 30, 1997, and to make a third principal reduction payment in the amount of $100,000.00 on or before July 30, 1997 and to pay all remaining amounts due under the Line of Credit on or before August 30, 1997. C. Barnett hereby waives all defaults of the Company under the documents related to the Line of Credit that have occurred through and including the date hereof. Barnett agrees that the Company shall not be obligated to comply with any financial covenants in the documents related to the Line of Credit until October 30, 1997, on which date the Company shall be required to comply with such financial covenants. Barnett agrees that the negative covenants set forth in Section 6 on page 15 of the Loan Agreement pertaining to the Line of Credit (and any comparable covenants created through representations and warranties) shall no longer be effective UNTIL OCTOBER 30, 1997. II. MODIFICATION OF MORTGAGE LOAN. A. Barnett hereby waives all defaults of the Company under the documents related to the Mortgage Loan that have occurred through and including the date hereof. Barnett agrees that the Company shall not be obligated to comply with any financial covenants in the documents related to the Mortgage Loan until October 30, 1997, on which date the Company shall be required to comply with such financial covenants. Barnett agrees that the negative covenants set forth in Section 3 on pages 3 and 4 of the Loan Agreement pertaining to the Mortgage Loan (and any comparable covenants created through representations and warranties) shall no longer be effective UNTIL OCTOBER 30, 1997. B. The payment schedule set forth in the Mortgage Loan shall remain and is hereby ratified and confirmed except that the maturity date is hereby modified to provide for a maturity date of July 1, 1998 rather than September 30, 1999. C. In addition, there shall be a credit origination fee of $50,000.00 due on or before October 30, 1997 provided however that in the event there are no outstanding sums due under the Mortgage Loan as of that date then such fee shall not be due. D. As additional consideration for Barnett to enter into this letter agreement ("Agreement"), Company hereby waives and releases any and all set-offs, defenses and counter-claims which exist or may accrue with respect to the Mortgage Loan or Line of Credit (together referred to as Loans) or any documentation evidencing or pertaining to the Loans or the administration of disbursement or collection of the Loans and in regard to the lending or business relations or activities between the Company and Barnett. The Company also indemnifies and holds Barnett harmless from any and all loss or costs arising out of any matter described above. The parties hereby agree that this waiver and release is a material inducement for Barnett to enter into this agreement. The parties further acknowledge and agree that the modification of the Loans by Barnett is the consideration to Company for this waiver and release. Notwithstanding any agreements or obligations to which Barnett may have consented prior to the date of this agreement, the Company acknowledges, admits and agrees as follows: (1) that Barnett is acting in good faith under and in connection with the Loans, and all of its obligations with respect to the Loans and to the administration of and disbursement and collection of the Loans; and (2) - "that there are no other promises, obligations, understandings or agreements with respect to the Loans except as expressly set forth herein and in the closing documents for the Loans. Company acknowledges that as of the date of this agreement Barnett is not in default of any of its obligations to Company and there exist no claims, causes of action, rights of set-off or other defenses in favor of Company against Barnett, its employees, attorneys or representatives. Company waives and releases any such claim, causes of action, right of set-off or other defenses and hereby waives any right to trial by jury in regard to any litigation between any of the parties to this Agreement. This provision is a material inducement for Barnett to enter into this Agreement. E. The Guarantor, Ralph H. Eckler, by his execution of this Agreement hereby acknowledges and confirms his guaranty of the Mortgage Loan and Line of Credit as modified herein and acknowledges that such modification shall in no manner reduce, diminish or impair his guaranty and obligations to Barnett. F. The Company agrees to promptly reimburse Barnett for its reasonable attorneys fees and costs in the amount of $1,250.00 relating to review of prior loan documentation, administration of the credit, preparation of this letter agreement and otherwise. If the terms of this Agreement are acceptable, please sign below and return to me. Very truly yours, Barnett Bank, N.A. by /s/ JAMES HURST --------------------------------- James Hurst Acceptance and Agreement of Company Smart Choice Automotive Group, Inc., formerly known as Eckler Industries, Inc., accepts the terms and conditions set forth above and acknowledges that the loans referenced therein are hereby modified in accordance with said terms and conditions. Smart Choice Automotive Group, Inc. formerly known as Eckler Industries, Inc. by /s/ FRED E. WHALEY --------------------------------- Consent of Guarantor Ralph H. Eckler as Guarantor hereby consents to the terms and conditions as set for above and hereby ratifies and confirms his guaranty of the above-referenced mortgage loan and Line of Credit. /s/ RALPH H. ECKLER ------------------------------------ EX-27 3
5 FORM 10-Q FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1997 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 991 0 34,273 6,165 7,291 37,518 8,700 4,613 67,664 5,161 51,429 0 4 9 10,481 67,664 22,905 23,018 15,206 15,206 12,242 0 1,624 (6,054) 0 0 0 0 0 (6,054) (0.72) (0.72)
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