UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _________.
Commission file number: 0-26680
NICHOLAS FINANCIAL, INC.
(Exact name of registrant as specified in its Charter)
British Columbia, Canada 8736-3354
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 33759
(Address of Principal Executive Offices) (Zip Code)
(727) 726-0763
(Registrant's telephone number, Including area code)
Not applicable
(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 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____.
As of July 31st, 2002 there were 5,007,831 shares of common stock
outstanding
2
Nicholas Financial, Inc.
Form 10-QSB
Index
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of
June 30, 2002.........................................3
Condensed Consolidated Statements of Income
for the three months ended
June 30, 2002 and 2001................................4
Condensed Consolidated Statements of Cash
Flows for the three months ended
June 30, 2002 and 2001................................5
Notes to the Condensed Consolidated Financial
Statements............................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................11
Part II. Other Information
Item 1. Legal Proceedings.....................................17
Item 2. Changes in Securities.................................17
Item 3. Defaults upon Senior Securities.......................17
Item 4. Submission of Matters to a Vote of
Security Holders.....................................17
Item 5. Other Information.....................................17
Item 6. Exhibits and Reports on Form 8-K......................17
Signatures............................................18
Exhibit Index.........................................19
3
Part I. Item 1
Nicholas Financial, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
June 30, 2002
---------------
Assets
Cash $ 703,987
Finance receivables, net 78,401,483
Accounts receivable 12,270
Prepaid expenses and other assets 767,958
Property and equipment, net 383,479
Deferred income taxes 459,780
-----------
Total assets $80,728,957
===========
Liabilities
Line of Credit $55,133,426
Drafts Payable 347,469
Notes payable - related party 548,739
Accounts payable 3,129,673
Derivatives 1,522,365
Income taxes payable 621,913
Deferred revenues 769,881
-----------
Total liabilities 62,073,466
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized;none issued and outstanding -
Common stock, no par: 50,000,000 shares
authorized; 5,007,831 shares issued and
outstanding 4,433,408
Other comprehensive loss (1,549,782)
Retained earnings 15,771,865
-----------
18,655,491
-----------
Total liabilities and shareholders' equity $80,728,957
===========
See accompanying notes.
4
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
June 30
2002 2001
------------------------
Revenue:
Interest income on
finance receivables $5,233,349 $4,531,751
Sales 82,376 99,120
------------------------
5,315,725 4,630,871
Expenses:
Cost of sales 17,168 23,689
Marketing 153,481 110,457
Administrative 1,981,858 1,684,526
Provision for credit losses 547,066 352,649
Depreciation and amortization 37,000 45,000
Interest expense 964,063 995,832
------------------------
3,700,636 3,212,153
Operating income
before income taxes 1,615,089 1,418,718
Income tax expense:
Current 573,249 543,320
Deferred 28,675 (5,615)
------------------------
601,924 537,705
------------------------
Net income $1,013,165 $881,013
========================
Earnings per share - basic $0.20 $0.19
========================
Earnings per share - diluted $0.19 $0.17
========================
See accompanying notes.
5
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended June 30
2002 2001
--------------------------
Operating activities
Net income $ 1,013,165 $ 881,013
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 37,000 45,000
Provision for credit losses 547,066 352,649
Deferred income taxes 28,675 (5,615)
Changes in operating assets and
liabilities:
Accounts receivable 2,174 (919)
Prepaid expenses and other assets (251,305) (57,708)
Accounts payable (284,879) (194,604)
Drafts Payable (71,648) -
Income taxes payable 552,061 483,319
Deferred revenues 114,325 62,270
-------------------------
Net cash provided by operating
activities 1,686,634 1,565,405
Investing activities
Increase in finance receivables,
net of principal collected (2,881,162) (2,425,787)
Purchase of property and equipment,
net of disposals (49,630) (37,340)
------------------------
Net cash used in investing activities (2,930,792) (2,463,127)
Financing activities
Issuance(repayment) of notes payable
- related party 6,458 (200,000)
Net proceeds from Line of Credit 1,860,000 850,000
Sale of common stock 30,448 231,560
------------------------
Net cash provided by
financing activities 1,896,906 881,560
------------------------
Net increase (decrease) in cash 652,748 (16,162)
Cash, beginning of period 51,239 233,167
------------------------
Cash, end of period $ 703,987 $ 217,005
========================
See accompanying notes.
6
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2002
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of Nicholas Financial Inc (the "Company") have been
prepared in accordance with accounting principles generally
accepted in the United States for interim financial information
and with the instructions to Form 10-QSB pursuant to the
Securities and Exchange Act of 1934, as amended in Article 10 of
Regulation SB, as amended. Accordingly, they do not include all
of the information and footnotes required by accounting
principles generally accepted in the United States for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three months ended June 30, 2002 are not
necessarily indicative of the results that may be expected for
the year ending March 31, 2003. For further information, refer to
the condensed consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for
the year ended March 31, 2002.
2. Earnings Per Share
Basic earnings per share excludes any dilutive effects of common
stock equivalents such as options, warrants, and convertible
securities. Diluted earnings per share includes the effects of
dilutive options, warrants, and convertible securities. Basic and
diluted earnings per share have been computed as follows:
7
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2002
Three months ended
June 30,
2002 2001
---------------------
Numerator:
Numerator for basic earnings per
share - Net income available to
common stockholders $1,013,165 $881,013
Effect of dilutive securities:
Convertible debt - 13,098
---------------------
Numerator for dilutive earnings
per share - income available to
common stockholders after
assumed conversions $1,013,165 $894,111
=====================
Denominator:
Denominator for basic earnings per
share - weighted average shares 4,998,364 4,638,213
364 213
Effect of dilutive securities:
Employee stock options 343,819 223,351
Convertible debt - 311,111
--------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 5,342,183 5,172,675
====================
Earnings per share - basic $0.20 $0.19
====================
Earnings per share - diluted $0.19 $0.17
====================
8
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2002
3. Finance Receivables
Finance receivables consist of automobile finance installment
contracts and direct consumer loans and are detailed as follows:
Finance receivables, gross contract $124,643,998
Less:
Unearned interest (29,876,628)
------------
94,767,370
Nonrefundable dealer reserves (11,686,394)
Allowance for credit losses (4,679,493)
------------
Finance receivables, net $ 78,401,483
============
The terms of the receivables range from 12 to 60 months and bear
a weighted average effective interest rate of 24%.
4. Line of Credit
The Company has a $75 million Line of Credit facility (the Line)
which expires on November 30, 2004. Borrowings under the Line
bear interest at the prime rate. The Company also has several
LIBOR pricing options available. If the outstanding balance
falls below $10 million the Line bears interest at the prime rate
plus 2.00%. Pledged as collateral for this credit facility are
all of the assets of Nicholas Financial, Inc. and its
subsidiaries.
5. Notes Payable - Related Party
The Company's notes payable consisted of unsecured, interest at
9.5%, principal and interest due upon 30-day demand notes
totaling $548,739.
9
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Derivatives and Hedging
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement establishes requirements
for accounting and reporting of derivative instruments and
hedging activities. SFAS 133 was updated by the issuance of SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" and
SFAS No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - amendment of FASB Statement No.
133." As amended, SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities.
The Company adopted the provisions of SFAS 133, as amended by
SFAS 137 and SFAS 138, on April 1, 2001, which requires that all
derivative instruments be recorded on the balance sheet at fair
value. The estimated fair value of derivative financial
instruments represents the amount required to enter into similar
offsetting contracts with similar remaining maturities based on
quoted market prices.
The Company utilizes interest rate swaps to manage its interest
rate exposure. The swaps effectively convert a portion of the
Company's floating rate debt to a fixed rate, more closely
matching the interest rate characteristics of the Company's
finance receivables. When entering into contracts intended by the
Company to receive hedge accounting treatment, the Company
formally designates and documents the financial instrument as a
hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge
transaction.
The Company has entered into the following cash-flow hedges:
Fixed
Rate
Date Notional Of
Entered Amount Interest Maturity Date
---------------------------------------------------
May 11, 1999 $10,000,000 5.81% May 24, 2002
August 19, 1999 10,000,000 5.80% August 1, 2003
May 17, 2000 10,000,000 6.87% May 17, 2004
March 30, 2001 10,000,000 4.89% March 30, 2003
October 5, 2001 10,000,000 3.85% October 5, 2004
June 28, 2002 10,000,000 3.83% July 2, 2005
10
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The Company utilizes the above noted interest rate swaps to
manage its interest rate exposure. The swaps effectively convert
a portion of the Company's floating rate debt to a fixed rate,
more closely matching the interest rate characteristics of the
Company's finance receivables.
The Company has also entered into various interest rate option
agreements with maturities through May 17, 2004.
For cash-flow hedge transactions, changes in the fair value of
the derivative instrument are recorded as a component of other
comprehensive income, and reclassified into earnings in the same
period or periods during which earnings are affected by the
variability of the cash flows of the hedged item. Any ineffective
portion of a derivative instrument's change in fair value is
immediately recognized in earnings.
Critical Accounting Policy
The Company's critical accounting policy relates to the allowance
for losses on loans. It is based on management's opinion of an
amount that is adequate to absorb losses in the existing
portfolio. The allowance for credit losses is established through
a provision for loss based on management's evaluation of the risk
inherent in the loan portfolio, the composition of the portfolio,
specific impaired loans and current economic conditions. Such
evaluation, which includes a review of all loans on which full
collectibility may not be reasonably assured, considers among
other matters, the estimated net realizable value or the fair
value of the underlying collateral, economic conditions,
historical loan loss experience, management's estimate of
probable credit losses and other factors that warrant recognition
in providing for an adequate credit loss allowance.
11
Part I. Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Consolidated net income increased for the three month period
ended June 30, 2002 to $1,013,165 from $881,013 for the three
month period ended June 30, 2001. Earnings were favorably
impacted by an increase in the outstanding loan portfolio. The
Company's NDS subsidiary did not contribute significantly to
consolidated operations in the three month periods ended June 30,
2002 or 2001.
Three Months Ended June 30
2002 2001
----------------------------
Average Net Finance Receivables (1) $93,781,204 $80,590,601
Average Indebtedness(2) 55,581,193 49,941,434
Total Revenues-Contract Related 5,233,349 4,531,751
Interest Expense 964,063 995,832
----------------------------
Net Interest Income 4,269,286 3,535,919
Gross Portfolio Yield(3) 22.32% 22.49%
Average Cost of Borrowed Funds (2) 6.94% 7.98%
----------------------------
Net Interest Spread (4) 15.38% 14.51%
Net Portfolio Yield (3) 18.21% 17.55%
Write-off to Liquidation (5) 6.95% 7.34%
Net Charge-Off Percentage (6) 7.90% 6.33%
(1) Average net finance receivables represents the average of
net finance receivables throughout the period. Net
finance receivables represents gross finance receivables
less any unearned finance charges related to those
receivables.
(2) Average indebtedness represents the average outstanding
borrowings under the Line of Credit and notes payable-
related party. Average cost of borrowed funds represents
interest expense as a percentage of average indebtedness.
(3) Gross portfolio yield represents total revenues as a
percentage of average net finance receivables. Net
portfolio yield represents net interest income as a
percentage of average net finance receivables.
(4) Net interest spread represents the gross portfolio yield
less the average cost of borrowed funds.
(5) Liquidation is defined as beginning receivable balance
plus current period purchases minus voids and
refinances minus ending receivable balance.
(6) Net charge-off percentage represents net charge-offs divided
by average net finance receivables outstanding during the
period.
12
Three months ended June 30, 2002 compared to three months ended
June 30, 2001
Interest Income and Loan Portfolio
Interest revenue increased 15% to $5.2 million for the
period ended June 30, 2002, from $4.5 million for the period
ended June 30, 2001. The net finance receivable balance totaled
$78.4 million at June 30, 2002, an increase of 17% from the $67.1
million at June 30, 2001. The primary reason net finance
receivables increased was the increase in the receivable base of
several existing branches. The gross finance receivable balance
increased 17% to $124.6 million at June 30, 2002 from $106.7
million at June 30, 2001. The primary reason interest revenue
increased was the increase in the outstanding loan portfolio. The
gross portfolio yield decreased from 22.49% for the period ended
June 30, 2001 to 22.32% for the period ended June 30, 2002.
Computer Software Business
Sales for the period ended June 30, 2002 were $82,376 compared
to $99,120 for the period ended June 30, 2001, a decrease of 17%.
This decrease was primarily due to lower revenue from the
existing customer base and the continued emphasis on the finance
subsidiary.
Operating Expenses
Operating expenses, excluding provision for credit losses
and interest expense, increased to $2.2 million for the period
ended June 30, 2002 from $1.9 million for the period ended June
30, 2001. This increase of 17% was primarily attributable to the
additional staffing of several existing branches, increased
general operating expenses and the opening of 3 additional branch
offices.
Interest Expense
Interest expense decreased to $964,063 for the period ended
June 30, 2002 as compared to $995,832 for the period ended June
30, 2001. This decrease was due to a reduction in the average
cost of outstanding borrowings from 7.98% during the three months
ended June 30, 2001 to 6.94% during the three months ended June
30, 2002.
13
Analysis of Credit Losses
Because of the nature of the borrowers under the Contracts and
its direct consumer loan program, the Company considers the
establishment of adequate reserves for credit losses to be
imperative. The Company segregates its Contracts into pools for
purposes of establishing reserves for losses. Each such pool
consists of the loans purchased by a Company branch office during
a three month period. The average pool consists of 73 Contracts
with an aggregate initial principal amount of approximately
$596,563. As of June 30, 2002, the Company had 379 active pools.
The Company pools Contracts according to branch location
because the branches purchase contracts in different markets
located in Florida, Georgia, North Carolina, South Carolina and
Ohio. All Contracts purchased by a branch during a fiscal quarter
comprise a pool. This method of pooling by branch and quarter
allows the Company to evaluate the different markets where the
branches operate. The pools also allow the Company to evaluate
the different levels of customer income, stability, credit
history, and the types of vehicles purchased in each market.
A pool retains an amount equal to 100% of the discount into a
reserve for credit losses. In situations where, at the date of
purchase, the discount is determined to be insufficient to absorb
all potential losses associated with the pool, a portion of
future unearned income associated with that specific pool will be
added to the reserves for credit losses until total reserves have
reached the appropriate level. Subsequent to the purchase, if the
reserve for credit losses is determined to be inadequate for a
pool which is not fully liquidated, then a charge to income is
used to reestablish adequate reserves. If a pool is fully
liquidated and has any remaining reserves, the excess reserves
are accreted into income.
In analyzing a pool, the Company considers the performance of
prior pools originated by the branch office, the performance of
prior Contracts purchased from the dealers whose Contracts are
included in the current pool, the credit rating of the borrowers
under the Contracts in the pool, and current market and economic
conditions. Each pool is analyzed monthly to determine if the
loss reserves are adequate, and adjustments are made if they are
determined to be necessary. As of June 30, 2002, the Company had
established reserves for losses on Contracts of $16,139,139 or
13.48% of gross outstanding receivables under the Contracts.
14
The following tables present certain information regarding the
delinquency rates experienced by the Company with respect to
Contracts and under its direct consumer loan program:
Three Months Ended Three Months Ended
June 30, 2002 June 30, 2001
------------------ ------------------
Contracts
Gross Balance Outstanding $119,737,365 $102,217,743
Dollar Dollar
Delinquencies Amount Percent* Amount Percent*
--------- -------- --------- --------
30 to 59 days $1,896,347 1.59% $2,096,637 2.05%
60 to 89 days 827,527 0.69% 570,215 0.56%
90 + days 173,315 0.14% 176,730 0.17%
--------- ----- --------- -----
Total Delinquencies $2,897,189 $2,843,582
*Total Delinquencies
as percent of
outstanding balance 2.42% 2.78%
Direct Loans
Gross Balance Outstanding $ 4,906,633 $ 4,471,708
Delinquencies
30 to 59 days $27,245 0.56% $41,706 0.93%
60 to 89 days 14,427 0.29% 16,646 0.37%
90 + days 5,042 0.10% 609 0.01%
------- ----- ------- -----
Total Delinquencies $46,714 $58,961
*Total Delinquencies
as a percent of
outstanding balance 0.95% 1.31%
The provision for credit losses was $547,066 for the three
month period ended June 30, 2002 as compared to $352,649 for the
three month period ended June 30, 2001. The Company decreased its
total reserve percentage from 13.81% for the period ended June
30, 2001 to 13.48% for the period ended June 30, 2002. Management
believes that the reserve adjustments made during the three month
period ended June 30, 2002 are consistent with its reserve
methodology.
Income Taxes
The Company's effective tax rate remained relatively consistent
at 37.27% for the three months ended June 30, 2002, as compared
to 37.90% for the three months ended June 30, 2001.
15
Liquidity and Capital Resources
The Company's cash flows for the three months ended June 30, 2002
and June 30, 2001 are summarized as follows:
Three months ended Three months ended
June 30, 2002 June 30, 2001
------------------ ------------------
Cash provided by (used in):
Operating Activities - $ 1,686,634 $ 1,565,405
Investing Activities -
(primarily purchase of Contracts) (2,930,792) (2,463,127)
Financing Activities 1,896,906 881,560
Net increase (decrease) in cash 652,748 (16,162)
The Company's primary use of working capital during the
three months ended June 30, 2002 was the funding of the purchase
of Contracts. The Contracts were financed substantially through
borrowings on the Company's Line of Credit. The Line of Credit is
secured primarily by Contracts, and available borrowings are
based on a percentage of qualifying Contracts. As of June 30,
2002 the Company had approximately $19.9 million available under
the Line of Credit. Since inception, the Company has also funded
a portion of its working capital needs through cash flows from
operating activities.
The self-liquidating nature of installment Contracts and
other loans enables the Company to assume a higher debt-to-equity
ratio than in most businesses. The amount of debt the Company
incurs from time to time under these financing mechanisms depends
on the Company's need for cash and it's ability to borrow under
the terms of its Line of Credit. The Company believes that
borrowings available under the Line of Credit as well as cash
flow from operations and, if necessary, the issuance of
additional subordinated debt and, or the sale of additional
securities in the capital markets, will be sufficient to meet its
short term funding needs.
The Company renewed its credit facility on June 28, 2002. The
new loan agreement expires November 30, 2004 and bears interest
at the prime rate and offers several LIBOR pricing options. The
new loan agreement released Bank One as a secondary bank and
added First Tennessee Bank. The Company is pleased with its new
banking relationship and believes it will be beneficial for
future expansion.
Future Expansion
The Company currently operates twenty-four branch locations,
fifteen in the State of Florida, three in the State of Georgia,
three in the State of North Carolina, one in the state of South
Carolina and two in the state of Ohio. Each office is budgeted
(size of branch, number of employees and location) to handle up
to 1,000 accounts and up to $7,500,000 in outstanding
receivables. To date three of our branches have reached this
capacity.
The Company intends to continue its expansion through the
purchase of additional Contracts and the expansion of its direct
consumer loan program. As the branches continue to add customers,
the size of the loan portfolio will continue to grow. With the
added volume in each branch and as the company adds new branches,
it will be necessary for the Company to increase the size of its
Line of Credit.
16
The Company currently intends to continue its expansion through
the purchase of additional Contracts and the expansion of its
direct consumer loan program. In order to increase the size of
the Company's portfolio of Contracts, it will be necessary for
the Company to open additional branch offices and increase the
size of its revolving Line of Credit arrangement, either with
its current lender or another lender. The Company, from time to
time, has and will meet with private investors and financial
institutions that specialize in investing in subordinated debt.
The Company also intends to continue its policy of not paying
dividends and using earnings from operations to purchase
Contracts or make direct consumer loans. The Company believes
that opportunity for growth continues to exist in Florida,
Georgia, North Carolina, South Carolina and Ohio and intends to
continue its expansion activities in those states. The Company
is currently expanding its automobile financing program in the
State of Ohio. The Company has targeted certain geographic
locations within the State of Ohio where it believes there is a
sufficient market for its automobile financing program. The
Company is currently purchasing Contracts in the State of Ohio
utilizing employees who reside in the State of Ohio. These
employees are developing their respective markets in Ohio and
the Company has created a Central Buying Office in its Corporate
Headquarters to purchase, process and service these Contracts.
The Company's strategy is to monitor these new markets and
ultimately decide where and when to open actual branch
locations. No assurances can be given, however, that any further
such expansion will occur. The Company is also analyzing other
markets in States the Company does not currently operate in,
however no assurance can be given that any expansion will occur
in these new markets.
Forward-Looking Information
This 10-QSB contains various forward-looking statements and
information that are based on management's beliefs and
assumptions, as well as information currently available to
management. When used in this document, the words "anticipate",
"estimate", "expect", and similar expressions are intended to
identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may
vary materially from those anticipated, estimated or expected.
Among the key factors that may have a direct bearing on the
Company's operating results are fluctuations in the economy, the
degree and nature of competition, demand for consumer financing
in the markets served by the Company, the Company's products and
services, increases in the default rates experienced on
Contracts, adverse regulatory changes in the Company's existing
and future markets, the Company's ability to expand its business,
including its ability to complete acquisitions and integrate the
operations of acquired businesses, to recruit and retain
qualified employees, to expand into new markets and to maintain
profit margins in the face of increased pricing competition.
17
Part II - Other Information
Item 1.
Legal Proceedings - None
Item 2.
Changes in Securities
On June 30, 2001, the Company issued 44,444 shares of its
Common Stock to the Roger T. Mahan Grantor Trust (the "Grantor
Trust") pursuant to the Grantor Trust's exercise of its
conversion right under a Convertible Promissory Note, dated June
30, 1995 (the "Grantor Trust Note"), issued by the Company in
favor of the Grantor Trust. The aggregate principal amount of
the Grantor Trust Note was $200,000 and the maturity date was
June 30, 2001. The conversion price was $4.50 per share. As a
result of such conversion, the Grantor Trust Note was cancelled.
The issuance of shares of the Company's Common Stock pursuant to
this transaction is claimed to be exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof.
On August 9, 2001, the Company issued 111,111 shares of its
Common Stock to the Mahan Family Trust (the "Family Trust")
pursuant to the Family Trust's exercise of its conversion right
under a Convertible Promissory Note, dated November 30, 1992 (the
"Family Trust Note"), issued by the Company in favor of the
Family Trust. The aggregate principal amount of the Family Trust
Note was $500,000 and the maturity date was November 30, 2001,
subject to certain prepayment rights granted to the Company
thereunder. Pursuant to such rights, the Company gave notice on
July 10, 2001 that it intended to prepay the Family Trust Note in
full. Under the terms of the Family Trust Note, this
notification entitled the Family Trust to convert the note into
shares of Common Stock, at a conversion price of $4.50 per share.
As result of such conversion, the Family Trust Note was
cancelled. The issuance of shares of the Company's Common Stock
pursuant to this transaction is claimed to be exempt from
registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.
Item 3.
Defaults upon Senior Securities - None
Item 4.
Submission of Matters to a Vote of Security Holders - None
Item 5.
Other Information - None
Item 6. (a)
Exhibits - See exhibit index following the signature page.
(b) Reports on Form 8-K -
On May 13, 2002 Nicholas Financial, Inc. (the
"Company") was notified in writing that Melvin S. Cutler
has retired from the Board and will not stand for re-
election this August at the Company's Annual meeting. The
Board of Directors will not fill this casual vacancy
until it nominates an individual whose name will be
included in the Company's 2002 Proxy Statement under
"Proposal 1 - Election of Directors.
On June 28, 2002 Nicholas Financial, Inc. (the
"Company") amended its credit line to extend the maturity
date until November 30, 2004.
18
SIGNATURES
In accordance with the requirements of the Securities Act of
1934, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
10-QSB and authorized this Report to be signed on its behalf by
the undersigned, in the City of Clearwater, State of Florida, on
August 13, 2002.
NICHOLAS FINANCIAL, INC.
(Registrant)
Date: August 13, 2002 /s/ Peter L. Vosotas
-----------------------
Peter L. Vosotas
Chairman, President,
Chief Executive Officer
(Principal Executive
Officer)
Date: August 13, 2002 /s/ Ralph T. Finkenbrink
-------------------------
Ralph T. Finkenbrink
(Principal Financial Officer
and Accounting Officer)
19
EXHIBIT INDEX
Item 13. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation and By-Laws of Nicholas Financial,
Inc.
Incorporated by reference to the Company's Form 10-SB (File
No. 0-26680) filed on March 13, 1996
4.1 Stock Certificate
Incorporated by reference to Exhibit 4.1 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.1 Loan and Security Agreement dated March 31, 1993 between
BA Business Credit, Inc. and Nicholas Financial, Inc.
Incorporated by reference to Exhibit 10.1.1 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.2 Amendment No. 1 to Loan Agreement dated January 14, 1994
Incorporated by reference to Exhibit 10.1.2 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.3 Temporary Line Increase Agreement dated Mach 28, 1994
Incorporated by reference to Exhibit 10.1.3 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.4 Amendment No. 2 to Loan Agreement dated June 3, 1994
Incorporated by reference to Exhibit 10.1.4 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.5 Amendment No. 3 to Loan Agreement dated July 5, 1994
Incorporated by reference to Exhibit 10.1.5 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.6 Amendment No. 4 to Loan Agreement dated March 31, 1995
Incorporated by reference to Exhibit 10.1.6 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.7 Amendment No. 5 to Loan Agreement dated July 13, 1995
Incorporated by reference to Exhibit 10.1.7 to the
Company's Form 10-KSB for the fiscal year ended
March 31, 1996
10.1.8 Amendment No. 6 to Loan Agreement dated May 13, 1996
Incorporated by reference to Exhibit 10.1.8 to the
Company's Form 10-QSB for the three months ended
June 30, 1996
10.1.9 Amendment No. 7 to Loan Agreement dated July 5, 1997
Incorporated by reference to Exhibit 10.1.9 to the
Company's Form 10-QSB for the three months ended
September 30, 1997
20
10.1.10 Amendment No. 8 to Loan Agreement dated September 18,
1998
Incorporated by reference to Exhibit 10.2.0 to the
Company's Form 10-QSB for the three months ended
September 30, 1998
10.1.11 Amendment No. 9 to Loan Agreement dated November 25,
1998
Incorporated by reference to Exhibit 10.2.1 to the
Company's Form 10-QSB for the three months ended
December 31, 1998
10.1.12 Amendment No. 10 to Loan Agreement dated November 24,
1999
Incorporated by reference to Exhibit 10.2.2 to the
Company's Form 10-QSB for the three months ended
December 31, 1999
10.1.13 Amendment No. 11 to Loan Agreement dated August 1,
2000
Incorporated by reference to Exhibit 10.1.13 to the
Company's Form 10-KSB for the year ended
March 31, 2001
10.1.14 Amendment No. 12 to Loan Agreement dated March 16, 2001
Incorporated by reference to Exhibit 10.1.14 to the
Company's Form 10-KSB for the year ended
March 31, 2001
10.3.1 Employee Stock Option Plan
Incorporated by reference to the Company's 1999
Annual proxy statement dated June 29, 1999
10.3.2 Non-Employee Stock Option Plan
Incorporated by reference to the Company's 1999
Annual proxy statement dated June 29, 1999
10.4.1 Employment Contract, dated November 22, 1999, between
Nicholas Financial, Inc. and Ralph Finkenbrink,
Senior Vice President of Finance.
Incorporated by reference to Exhibit 10.2.1 to the
Company's Form 10-QSB for the three months ended
December 31, 1999
10.4.2 Employment Contract, dated March 16, 2001, between
Nicholas Financial, Inc. and Peter L. Vosotas President
& Chief Executive Officer.
Incorporated by reference to the Company's 2001 Annual
proxy statement dated July 2, 2001
21 Subsidiaries of Nicholas Financial, Inc.
Incorporated by reference to the Company's Form 10-SB
(File No. 0-26680) filed on March 13, 1996
24 Powers of Attorney (included on signature page hereto)
99.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. 1350
99.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. 1350
21
Exhibit 99.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 19 U.S.C.
1350, I , the undersigned Chief Executive Officer of
Nicholas Financial, Inc. (the "Company"), hereby certify,
based on my knowledge, that the Quarterly Report on Form 10-
Qsb of the Company for the quarter ended June 30, 2002 (the
"Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934 and that
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Peter L Vosotas
---------------------------------
Peter L. Vosotas
Chief Executive Officer
August 13, 2002
22
Exhibit 99.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 19 U.S.C.
1350, I , the undersigned Chief Financial Officer of
Nicholas Financial, Inc. (the "Company"), hereby certify,
based on my knowledge, that the Quarterly Report on Form 10-
Qsb of the Company for the quarter ended June 30, 2002 (the
"Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934 and that
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Ralph Finkenbrink
---------------------------------
Ralph Finkenbrink
Chief Executive Officer
August 13, 2002