B&B FLORIDA ENTERPRISES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
AS RESTATED
B&B FLORIDA ENTERPRISES, INC.
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT........................ 1-2
FINANCIAL STATEMENTS
BALANCE SHEET....................................... 3
STATEMENT OF OPERATIONS AND RETAINED DEFICIT........ 4
STATEMENT OF CASH FLOWS............................. 5
NOTES TO FINANCIAL STATEMENTS....................... 6-11
To the Board of Directors of B & B Florida Enterprises, Inc.
We have audited the accompanying balance sheet of B & B Florida Enterprises,
Inc. as of December 31, 1995 and the related statements of operations and
retained deficit, and cash flows for the year then ended. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, the evidence
supporting the amounts and disclosures in the financial statement. 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 presents fairly, in
all material respects, the financial position of B & B Florida Enterprises, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As reflected in Note 15 the financial statements have been restated to reflect
changes as a result of subsequent events.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,592,873 during the year ended December 31,
1995, and, as of that date, had a working capital deficiency of $174,788 and net
deficit of $1,158,157. As discussed more fully in Notes 6 & 7 the financial
statements, subsequent to December 31, 1995 the Company was in default under
certain covenants of its Automotive Wholesale Financing and security Agreement
with Nissan Motor Acceptance Corporation (NMAC) and other debt obligations. On
December 17,1996, the Company entered into a reinstatement agreement with NMAC
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which contains substantially the same restrictive covenants included in the
previous agreements. If theCompany defaults on any of the covenants in the
reinstatement agreement, the lender may demand repayment of the loans and
terminate the wholesale credit line. No such demand has been made. Subsequent to
the balance sheet date, the Company has secured financing with an independent
lender to permit the realization of assets and the liquidation of liabilities.
Negotiations are presently under way to sell substantially all of the assets of
the Company to a party related to the new lender. The Company cannot predict the
outcome of what the negotiations will be. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
LEVINE & LEVINE
January 20, 1997,
(except for Note 15, as to which the date is April 10, 1997)
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B&B FLORIDA ENTERPRISES, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current Assets:
Accounts receivable, net $ 620,476
Inventory 4,009,953
Prepaid expenses 81,989
-----------
Total current assets 4,712,418
-----------
Leasehold improvements and equipment, net 269,741
Other assets 20,300
-----------
Total Assets $ 5,002,459
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Cash overdraft $ 461,953
Notes payable floor plan 3,295,610
Current portion of long-term debt 302,866
Current maturities of obligations under capital leases 17,912
Trade accounts payable 271,573
Accrued expenses 228,751
Stockholder loans 150,000
Related party payable 156,534
-----------
Total current liabilities 4,885,199
-----------
Long-Term Liabilities
Long-Term debt 1,241,761
Obligations under capital leases 33,656
-----------
Total long-term liabilities 1,275,417
Stockholders' Deficit:
Common stock 353,750
Paid-in capital in excess of par value 197,154
Retained deficit (1,709,061)
-----------
Total stockholders' deficit (1,158,157)
-----------
Total Liabilities and Stockholders' Deficit $5,002,459
===========
The accompanying notes are an integral part of this financial statement.
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B&B FLORIDA ENTERPRISES, INC.
STATEMENT OF OPERATIONS AND RETAINED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenue:
Sales $30,986,333
Interest income 64,345
-----------
Total revenue 31,050,678
Cost of sales and expenses:
Cost of sales 27,104,013
Selling, general and administrative 3,630,357
Depreciation and amortization 206,349
Interest 363,020
-----------
Total cost of sales and expenses 31,303,739
-----------
Loss before extraordinary item (253,061)
Extraordinary item 1,339,812
----------
Net loss (1,592,873)
Retained deficit, beginning of year (116,188)
-----------
Retained deficit, end of year $(1,709,061)
===========
The accompanying notes are an integral part of this financial statement
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B&B FLORIDA ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
FOR THE YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
Net loss $ (1,592,873)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 206,349
Changes in operating assets and liabilities:
Increase in accounts receivable (235,582)
Decrease in inventory 509,551
Decrease in prepaid expenses 2,864
Increase in accounts payable 55,286
Increase in accrued expenses 78,240
Increase in related party payables 300,955
Increase in cash overdraft 461,953
----------
Total adjustments 1,379,616
Net cash provided by operating activities 213,257
Cash flows from investing activities:
Increase in deposit on contracts (10,300)
Purchase of equipment (136,244)
---------
Net cash used in investing (146,544)
---------
Cash flows from financing activities:
Decrease in notes payable - floor plan (661,896)
Increase in notes payable NMAC and Barnett Bank 719,211
Increase in loan payable - Cook 245,000
------------
Net cash provided by financing activities 302,315
------------
Net Decrease in cash (57,486)
Cash at beginning of year 57,486
-------------
Cash at end of year $ -0-
=============
Interest paid $ 363,020
============
The accompanying notes are an integral part of this financial statement
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B&B FLORIDA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For The Year Ended December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Organizational Nature of Business - B & B Florida Enterprises, Inc.,
D/B/A Stuart Nissan and Stuart Suzuki (the Company) is a franchised Nissan and
Suzuki automobile dealership formed in April 1990 and located in Stuart,
Florida.
As a franchised Nissan and Suzuki-Subaru dealership, the Company purchases its
new vehicles and a portion of its parts and accessories from Nissan and Suzuki
at published prices charged by Nissan and Suzuki. As a franchised dealership,
the Company also participates in various sales and services programs sponsored
by Nissan and Suzuki. There are various receivables and payables with Nissan and
Suzuki and its subsidiaries which arise in the normal course of business.
Cash overdraft - Represents checks written in excess of funds available in
banks.
Accounts receivable - All of the Company's trade accounts receivable are due
from customers or wholesale car dealers. Credit losses are not material and are
written off directly against the accounts receivable. Losses have been
consistently within management's expectations.
Inventories - All inventories are valued at the lower of cost or market. The
cost of new and used vehicles, parts and accessories, and miscellaneous
inventories are determined using the first-in, first-out method. The majority of
new and used vehicles are held as collateral for notes payable floor plan.
Prepaid expenses - These assets are composed of either items which extend past
the fiscal year or are prepaid deposits necessary to operate.
Leasehold improvements and equipment - These assets are carried at cost. Major
additions are capitalized while replacements, maintenance and repairs which do
not improve or extend the life of the respective assets are expensed currently.
When property is retired or otherwise disposed of, the cost of the property is
eliminated from the asset account, accumulated depreciation is charged with an
amount equal to the depreciation provided and the difference, if any, is charged
or credited to income.
Depreciation is provided for using accelerated methods over the
estimated useful lives which are as follows:
Leasehold improvements life of lease
Furniture and fixtures 5 - 7 years
Automotive equipment 5 - 7 years
Signs 5 years
Office Equipment 5 years
Other assets - Include Cost of Security Deposit and Deposit on Land Purchase.
Major costs - Are generally charged to operations in the year incurred and
include:
Advertising
Floor Plan Interest
Payroll
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Income taxes - The stockholders of B & B Florida Enterprises, Inc. elected to
have these entities subject to the provisions of Subchapter S of the Internal
Revenue Code. Consequently, the accompanying statement does not reflect income
tax expense for these companies because all taxable income or loss is the
responsibility of the stockholders.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates that affect certain
reported amounts and disclosures. These estimates are based on management's
knowledge and experience. Accordingly, actual results could differ from these
estimates.
Finance and insurance information - In conjunction with its automobile and truck
sales, the Company also sells insurance that provides for the payment of the
installment account in the event of the borrower's death or disability, as well
as extended mechanical warranty contract GAP and Car Care that provide coverage
of major repairs beyond amounts covered by the factory. The sales are under
pre-established arrangements with carriers who pay the Company a commission. The
Company retains no exposure to losses under such arrangements.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of other assets and liabilities are assumed to be equal to their
reported carrying amounts due to their short term nature.
3. ACCOUNTS AND NOTES RECEIVABLE - Consists of:
Contracts in Transit 219,393
Trade (vehicle parts & accessories) 122,738
Financing and Insurance 153,296
Factory Miscellaneous 125,049
-------
620,476
=======
4. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Prior Current Net Book
Cost Depr. Depr.& Amort. Value
------- -------- ------------- --------
Equipment & Furniture 412,436 134,054 31,245 247,137
Leasehold Improvements 139,433 6,725 110,104 22,604
-------- -------- -------- --------
$ 55,869 $140,779 $141,349 $269,741
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5. OTHER ASSETS - Consist of:
Consulting Agreement 300,000
Covenant Not to Compete 350,000
Goodwill 10,000
Deposit Contracts 10,300
----------
Total 670,300
----------
Less Amortization of Covenant and - 650,000
Consulting Agreement ----------
20,300
==========
Amortization expense of $65,000 has been reflected in the statement of
operations for the year ended December 31, 1995.
6. LONG-TERM DEBT - Consists of:
SHORT LONG
BALANCE MATURITY PAYMENTS RATE TERM TERM
------- -------- -------- ---- ----- ----
NMAC (1) $1,160,000 10/20/00 20,000 Prime $240,000 $920,000
plus interest +1.75%
Collateralized by inventory, property, and equipment, and accounts receivable.
NMAC 128,044 1/15/01 4,273.56 Prime 51,283 76,761
plus interest +1.75%
Collaterized by property and equipment
DONALD & 245,000 12/20/98 2,041.66 10% ------- 245,000
MARILYN COOK Int. only to
due date
Unsecured
BARNETT BANK 11,583 12/2/96 940.00 8% 11,583 ------
Inc. Interest
Collateralized by equipment
TOTAL $1,544,627 $302,866 $1,241,761
========== ======== ==========
(1) The note contains various covenants and restrictions with respect to (1)
legal requirements, (2) protection, repair, and replacement of property, (3)
taxes, (4) insurance, (5) financial and other statements, and (6) litigation.
Long-term debt for each of the next five years consist of the following:
1996 $302,866
1997 291,283
1998 536,283
1999 265,478
2000 240,000
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Subsequent events to year end revealed the following:
The company defaulted on its payment obligations under the NMAC loans. On
December 17, 1996, the company entered into a reinstatement agreement with the
manufacturer, which contains substantially the same restrictive covenants
included in the previous agreements. If the Company defaults on any of the
covenants in the reinstatement agreement, the lender may demand repayment of the
loans and terminate the wholesale credit line. As of the report date, no such
demand has been made.
The Company defaulted on its payment obligations under the Cook Note. On
December 4, 1996, the company entered into a forbearance agreement with the
individuals. Under the agreement, the individuals will waive certain outstanding
defaults (including unpaid accrued interest through December 20, 1996) and
certain remedies as well as modify the payment terms of the note.
The new terms under the forbearance agreement provide for monthly interest
payments of $2,144 at 10% commencing January 20, 1997. The principle balance and
any unpaid accrued interest are due and payable on December 20, 1998.
7. NOTES PAYABLE- FLOOR PLAN
The Company finances purchases of all new and used vehicles costing greater than
$4,000 through World Omni Financial Corp., in Deerfield Beach and NMAC in Texas.
Each vehicle is separately financed at rates ranging from 1% to 1.5% over prime.
These notes are secured by the corresponding inventories as well as by the
personal guarantee of the stockholders. The notes are paid off as vehicles are
sold. Subsequent to year end, the Company was out of trust on this note.
8. STOCKHOLDER LOANS
Loans payable to stockholders - no interest was paid or accrued $150,000
to-date. Loans were given in December 1995 and paid back
in January 1996.
9. RELATED PARTY PAYABLE - This amount represents advances made by TAD
Partnership (a related entity) in order to improve the property which the
dealership occupies. TAD is the owner of the property and B & B Florida
Enterprises, Inc. leases the property from TAD. The balance is $156,534.
10. RELATED PARTY TRANSACTIONS - The related party transactions are explained in
Note 8, 9, 11, and 14.
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11. COMMITMENTS
Operating Leases
The Company leases its present dealership facility from TAD Partnership (a
controlled partnership). Lease payments began on March 1, 1996. The monthly
lease is $18,000 + 6% sales tax. Future minimum lease payments by year end in
the aggregate as of December 31, 1995 are as follows:
1995 148,400
1996 1. TAD (3/1/96) - 12/31/96)
(18,000 +6% x 10) (New Facility)
2. 24,344.12 (William Chamberland) (Old Facility)
3. 7,500 + 6% x 6 (1/1/96 to 6/30/96) (Subaru Branch)
1997 (18,000 x 12 + 6%) 228,960
1998 228,960
1999 228,960
2000 228,960
Capital Leases
The company leases its computer equipment from a third party under three
capitalized lease agreements, which expire between 1998 and 1999. Amortization
expense on capital leases is included in depreciation expense. The following is
a schedule, by years, of future minimum lease payments:
Years ending December 31,
1996 $ 17,912
1997 17,912
1998 17,882
1999 5,451
----------
Total minimum lease payments 59,157
Less amount representing interest 7,589
----------
51,568
Less current maturities 17,912
----------
33,656
==========
12. COMMON STOCK AND PAID IN CAPITAL IN EXCESS OF PAR VALUE
Paid in Capital
Common in excess of
Stock par value
------- ---------------
$50 par value, 7500 shares authorized; 353,750 197,154
7075 Issued and Outstanding
13. SUBSEQUENT EVENTS - The Company and its stockholders have signed letters of
intent for the sale of substantially all of their business and assets.
Additional subsequent events are explained in Notes 6, 7, and 15.
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14. EXTRAORDINARY ITEM - In the sale of business and assets transaction, Loan
Receivable Stockholders has been reduced to reflect an agreement which absolves
100% of certain Loans Receivable Stockholders and therefore the amount has been
written off as an extraordinary item on the statement of operations and retained
deficit. This has become an integral part of the sale of the assets.
15. RESTATED FINANCIAL STATEMENTS - As of April 10, 1997, the Company became
aware of certain facts and circumstances which resulted in the following changes
to the December 31, 1995 financial statements. The financial statements have
been restated to reflect the following:
The stockholder note receivable of $577,427 has been expensed as an
extraordinary item as discussed in Note 14.
Depreciation and amortization has been increased by $87,148 because of
changes to property, plant and equipment useful lines.
$52,000 was recorded for future finance contract charge backs.
Equipment under capital lease were recorded and an expense of $5,197 was
reflected in the statement of operations.
If these changes had not occurred, net loss for the year ended December 31, 1995
would have been $721,772 less.
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