Smart Choice Holdings, Inc.
(A Development Stage Corporation)
Financial Statements
For the Period from Inception (June 21, 1996)
through December 31, 1996
Report of Independent Certified Public Accountants 3
Financial statements
Balance sheet 4 - 5
Statement of operations 6
Statement of capital deficit 7
Statement of cash flows 8
Summary of accounting policies 9 -10
Notes to financial statements 11 -13
Report of Independent Certified Public Accountants
To the Board of Directors
Smart Choice Holdings, Inc.
Titusville, Florida
We have audited the accompanying balance sheet of Smart Choice Holdings, Inc.
(a development stage corporation) as of December 31, 1996 and the related
statements of operations, capital deficit and cash flows for the period from
inception (June 21, 1996) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smart Choice Holdings, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the period from inception (June 21, 1996) through December 31, 1996 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Orlando, Florida
April 3, 1997
December 31, 1996
Assets
Note receivable (Note 1) $ 400,000
Account receivable 25,000
Furniture and fixtures, net of accumulated depreciation of $2,13222,454
Deferred debt costs, net of accumulated amortization of $2,249 24,735
Deposits 50,000
Deferred acquisition costs 194,101
$ 716,290
December 31, 1996
Liabilities and Capital Deficit
Liabilities:
Bank overdraft $ 82,884
Note payable (Note 2) 60,000
Accounts payable 438,890
Accrued expenses:
Payroll and related taxes 90,213
Interest 32,620
Other 60,481
Convertible debentures (Note 3) 262,000
Total liabilities 1,027,088
Commitments (Note 5) -
Capital deficit:
Convertible preferred stock, $.01 par value, authorized 10,000,000 shares;
400,000 shares designated as series A; issued 198,333 shares (Note 4)1,983
Common stock, $.001 par value, authorized 100,000,000 shares;
issued 5,488,432 shares 5,488
Additional paid-in capital 385,519
Deficit accumulated during development stage (703,788)
Total capital deficit (310,798)
$ 716,290
See accompanying summary of accounting policies and notes to financial
statements.
For the period from inception (June 21, 1996) through December 31, 1996
General and administrative expenses $ 670,616
Loss from operations (670,616)
Interest expense (33,172)
Net loss $(703,788)
See accompanying summary of accounting policies and notes to financial
statements.
Deficit
Accumulated
Preferred StockCommon StockAdditionalDuring Total
Number Par Number ParPaid-inDevelopmentCapital
of Shares Valueof Shares ValueCapital Stage Deficit
Balance, June 21, 1996
(date of incorporation) - $ - - $ - $ - $ - $ -
Issuance of founders'
shares - - 5,488,432 5,488 480 - 5,968
Sale of preferred stock, net of
offering expenses 198,333 1,983 - -385,039 - 387,022
Net loss - - - - -(703,788)(703,788)
Balance, December 31, 1996
198,333$1,9835,488,432$5,488$385,519$(703,788)$(310,798)
See accompanying summary of accounting policies and notes to financial
statements.
For the period from inception (June 21, 1996) through December 31, 1996
Cash flows from operating activities:
Net loss $(703,788)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation 2,132
Amortization 2,249
Issuance of common stock for services 4,968
Net changes in assets and liabilities:
Account receivable (25,000)
Accounts payable 438,890
Accrued expenses 183,314
Net cash used for operating activities (97,235)
Cash flows from investing activities:
Purchase of furniture and fixtures (24,586)
Increase in note receivable (400,000)
Increase in deposits (50,000)
Increase in deferred acquisition costs (194,101)
Net cash used for investing activities (668,687)
Cash flows from financing activities:
Proceeds from sale of preferred stock 387,022
Proceeds from sale of common stock 1,000
Proceeds from issuance of convertible debentures 262,000
Proceeds from note payable 60,000
Increase in bank overdraft 82,884
Increase in deferred debt costs (26,984)
Net cash provided by financing activities 765,922
Net increase in cash -
Cash at inception (June 21, 1996) -
Cash, end of period $ -
See accompanying summary of accounting policies and notes to financial
statements.
Organization
The Company was incorporated under the laws of the State of Delaware on
June 21, 1996. From inception through December 31, 1996, the Company
has devoted substantially all its efforts to identifying companies in the used
car sales and finance business and companies providing insurance and
consulting services to automobile dealerships for possible merger and/or
acquisition.
Development Stage Corporation
The Company is in the "development stage" as defined by Financial Account-
ing Standards Board Statement No. 7, which establishes standards of financial
accounting and reporting applicable to development stage enterprises.
Furniture and Fixtures
Furniture and fixtures are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by accelerated methods for financial
reporting and income tax purposes.
Deferred Debt Costs
Deferred debt costs include costs related to obtaining debt financing and are
being amortized over the term of the debt.
Deferred Acquisition Costs
Deferred acquisition costs related to specific identifiable acquisitions and
will be allocated to the purchase price of the companies to be acquired.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"). FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Measurement of deferred income tax is based on
enacted tax laws including tax rates, with the measurement of deferred income
tax assets being reduced by available tax benefits not expected to be realized.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assump-
tions and pertinent information available to management as of December 31,
1996. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
accounts and notes receivable, accounts and notes payable and accrued
expenses. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on demand.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
1. Note
Receivable
Note receivable consists of advances under a $800,000 line of
credit extended to a company which has signed a contract to be acquired by Smart
Choice Holdings, Inc. Advances under the line of credit bear interest at the
prime rate and are due and payable 30 days after written demand and are
collateralized by substantially all assets of the borrower.
2. Note Payable
Note payable represents borrowings under an unsecured note which bears
interest at 12% and was due December 23, 1996. The note plus accrued
interest was repaid in March 1997. Under the terms of the note, the holder
was granted $30,000 worth of shares of common stock of the Company at
75% of the offering price when a secondary offering of the Company's stock
is completed. This amount has been recorded as interest expense in the
financial statements.
3. Convertible
Debentures
The convertible debentures bear interest at 12% and are due on the earlier of
(i) November 19, 1997, (ii) the Company becomes a publicly-held corporation
through a merger or (iii) the Company completes a public offering of securities
that raises a minimum of $20 million in gross proceeds. The debentures are
convertible at any time prior to the maturity date into the Company's common
stock at the rate of one share of common stock for each $5.00 of outstanding
principal. Additionally, holders of the debentures who do not convert prior to
the maturity date shall receive, for each $20,000 debenture, a warrant to
purchase 1,200 shares of the Company's common stock for $3.00 per share
which shall be exercisable for a period of five years after their issuance.
4. Convertible Preferred Stock
The Company is authorized to issue 10,000,000 shares of $.01 par value
preferred stock. The Board of Directors is authorized to provide for the
issuance of preferred stock in one or more series and to fix by resolution, the
number of shares to be included and such of the designations, powers and
other rights as are permitted by the Delaware General Corporation Law.
During 1996, the Company designated a total of 400,000 shares as Series A
convertible preferred stock. The liquidation preference of each preferred share
is $2.00. Upon the completion of an initial public offering of the Company,
each preferred share will be converted automatically into the higher of:(i) one
share of the Company's $.001 par value common stock or (ii) that number of
shares of common stock having a value (as measured by the initial public
offering sale price) equal to $9.00. In the event the Company fails to
successfully complete an initial public offering on or before December 31,
1997, the holders of all the preferred shares will have the right to convert
such shares into 80 percent of the common stock of the Company to be
outstanding following such conversion.
5. Commitments
Employment Agreement
The Company has entered into an employment agreement with one of its
executives for a period of three years commencing October 9, 1996. The
agreement provides for annual base compensation of $150,000.
Consulting Agreements
On September 19, 1996, the Company entered into an agreement with a
financial consultant as its exclusive financial advisor on balance sheet
restructuring, acquisitions and divestitures or sale. The term of the
agreement is for 12 months, after which the agreement may be terminated by
either party upon 30 days written notice. Under the agreement, the Company
will pay the
financial advisor $25,000 per quarter. Additionally, the Company granted the
financial advisor a five-year option to purchase 250,000 shares of the
Company's common stock at $5.00 per share.
On August 21, 1996, the Company entered into an agreement with a firm to
provide public relations counsel. The agreement is for the period September 1,
1996 to August 30, 1997 and provides for a monthly retainer of $7,500.
Additionally, the Company granted the firm option agreements to purchase
45,000 shares of the Company's common stock at $3.00 per share.
6. Subsequent Event
On January 28, 1997, the Company completed a series of transactions
whereby it acquired the outstanding capital stock or assets of the following
companies:
Dealer Development Services, Inc.
Dealer Insurance Services, Inc.
Florida Finance Group, Inc.
Suncoast Auto Brokers, Inc.
Suncoast Auto Brokers Enterprises, Inc.
Simultaneously with the closing of these transactions, the Company merged
with Eckler Industries, Inc. in a stock-for-stock transaction with the holders
of the common stock of the Company receiving one share of Eckler Industries,
Inc. common stock for each share of the Company's common stock.