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 DECEMBER 31, 2001
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 January 31st, 2002 there were 4,980,860 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
December 31, 2001......................................3
Condensed Consolidated Statements of Income
for the three and nine months ended
December 31, 2001 and 2000.............................4
Condensed Consolidated Statements of Cash
Flows for the nine months ended
December 31, 2001 and 2000.............................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)
December 31
2001
-------------
Assets
Cash $ 303,075
Finance receivables, net 70,780,073
Accounts receivable 13,147
Prepaid expenses and other assets 651,872
Property and equipment, net 284,656
Deferred income taxes 820,036
-------------
Total assets $72,852,859
=============
Liabilities
Line of credit $50,973,426
Notes payable - related party 491,281
Accounts payable 2,739,112
Derivatives 1,687,902
Deferred revenues 685,805
-------------
Total liabilities 56,577,526
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized;none issued and outstanding -
Common stock, no par: 50,000,000 shares
authorized; 4,980,860 shares issued and
outstanding 4,374,025
Other comprehensive loss (1,685,305)
Retained earnings 13,586,613
-------------
16,275,333
-------------
Total liabilities and shareholders' equity $72,852,859
=============
See accompanying notes.
4
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
December 31 December 31
2001 2000 2001 2000
---------------------------------------------------
Revenue:
Interest income on
finance receivables $4,923,210 $4,329,865 $14,312,868 $12,489,935
Sales 85,852 90,744 274,894 306,611
---------------------------------------------------
5,009,062 4,420,609 14,587,762 12,796,546
Expenses:
Cost of sales 15,932 19,857 59,494 65,485
Marketing 134,724 100,816 383,196 318,258
Administrative 1,846,227 1,554,953 5,328,805 4,624,829
Provision for credit losses 500,679 390,312 1,281,104 1,067,101
Depreciation and amortization 60,365 40,500 165,365 106,500
Interest expense 949,068 1,002,433 2,955,481 2,792,944
---------------------------------------------------
3,506,995 3,108,871 10,173,445 8,975,117
---------------------------------------------------
Operating income before
income taxes 1,502,067 1,311,738 4,414,317 3,821,429
Income tax expense (benefit):
Current 392,265 504,182 1,403,411 1,547,140
Deferred 161,269 - 250,852 (75,000)
---------------------------------------------------
553,534 504,182 1,654,263 1,472,140
---------------------------------------------------
Net Income $ 948,533 $ 807,556 $2,760,054 $2,349,289
===================================================
Earnings per share - basic $0.19 $0.17 $0.57 $0.50
===================================================
Earnings per share - diluted $0.18 $0.16 $0.53 $0.46
===================================================
See accompanying notes.
5
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended December 31
2001 2000
---------------------------------
Operating activities
Net income $ 2,760,054 $ 2,349,289
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation of property and equipment 165,365 106,500
Provision for credit losses 1,281,104 1,067,101
Deferred income taxes 250,852 (75,000)
Changes in operating assets and
liabilities:
Accounts receivable 1,321 2,896
Prepaid expenses and other assets (102,686) (247,393)
Deferred revenues 74,076 93,208
Accounts payable (275,795) (420,885)
Income taxes payable (93,819) 15,139
---------------------------
Net cash provided by operating
activities 4,060,472 2,890,855
Investing activities
Increase in finance receivables,
net of principal collected (7,020,309) (10,908,418)
Purchase of property and equipment (116,262) (129,594)
---------------------------
Net cash used in investing activities (7,136,571) (11,038,012)
Financing activities
Issuance (repayment) of notes
payable - related party 223,274 (200,000)
Net proceeds from line of credit 2,850,000 8,558,500
Issuance (repurchase) of common stock 72,733 (126,941)
---------------------------
Net cash provided by financing
activities 3,146,007 8,231,559
---------------------------
Net increase in cash 69,908 84,402
Cash, beginning of period 233,167 259,183
---------------------------
Cash, end of period $303,075 $343,585
===========================
See accompanying notes.
6
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2001
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
generally accepted accounting principles 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 and
nine months ended December 31, 2001 are not necessarily indicative of
the results that may be expected for the year ending March 31, 2002.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended March 31, 2001.
2. Earnings Per Share
On August 8, 2001, the Company declared a two-for-one stock split in
the form of a stock dividend payable on September 10, 2001 to
shareholders of record as of the close of business on August 28, 2001.
All applicable share and per share amounts in the accompanying
unaudited financial statements have been retroactively adjusted to
take into account the effect of this split.
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)
Three months ended Nine months ended
December 31, December 31,
2001 2000 2001 2000
--------------------------------------------
Numerator:
Numerator for basic earnings per
share - Net income available to
common stockholders $948,533 $807,556 $2,760,054 $2,349,289
Effect of dilutive securities:
Convertible debt - 15,283 17,491 46,391
--------------------------------------------
Numerator for dilutive earnings
per share - income available to
common stockholders after assumed
conversions $948,533 $822,839 $2,777,545 $2,395,680
============================================
Denominator:
Denominator for basic earnings per
share - weighted average shares 4,980,860 4,668,940 4,831,586 4,686,124
Effect of dilutive securities: (A)
Employee stock options 294,768 102,984 290,794 118,756
Convertible debt - 355,612 135,910 359,278
--------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted-
average sharesand assumed
conversions 5,275,628 5,127,536 5,258,290 5,164,158
============================================
Earnings per share - basic $0.19 $0.17 $0.57 $0.50
============================================
Earnings per share - diluted $0.18 $0.16 $0.53 $0.46
============================================
Footnote A:
The following options were
outstanding but not included in the
computation of diluted earnings per
share because the exercise price
was greater than the average market
price of the common shares and,
therefore, the effect would be
antidilutive.
Options - 105,500 - 58,833
8
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
3. Finance Receivables
Finance receivables consist of automobile finance installment
contracts and direct consumer loans and are detailed as follows:
Finance receivables, gross contract $111,884,862
Less:
Unearned interest (26,388,932)
-------------
85,495,930
Nonrefundable dealer reserves (11,063,746)
Allowance for credit losses (3,652,111)
-------------
Finance receivables, net $ 70,780,073
=============
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, 2002. 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 1.75%. Pledged as
collateral for this credit facility are all of the assets of Nicholas
Financial, Inc. and its subsidiaries.
5. Notes Payable - Related Party
Notes payable consisted of the following:
Note payable, unsecured, interest at 9.5%, principal
and interest due through August 2002, at which time
the entire principal balance is due. 491,281
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 require 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:
On May 11, 1999 the Company entered into an interest rate swap with a
notional amount of $10 million at a fixed rate of 5.81%, maturing on
May 24, 2002. On May 21, 1999 the Company entered into two interest
rate swaps with notional amounts of $5 million each, at fixed rates of
5.81% and 6.08%, maturing on May 24, 2001 and May 24, 2004,
respectively.
On August 18, 1999 the Company terminated a $5 million swap maturing
on May 24, 2004 in exchange for $52,000. In addition the Company
entered into an interest rate swap with a notional amount of $10
million at a fixed rate of 5.80%, maturing on August 1, 2003.
On May 17, 2000 the Company entered into an interest rate swap with a
notional amount of $10 million at a fixed rate of 6.87%, matuing on
May 17, 2004.
On March 30, 2001 the Company entered into an interest rate swap with
a notional amount of $10 million at a fixed rate of 4.89%, maturing on
March 30, 2003.
On October 5, 2001 the Company entered into an interest rate swap with
a notional amount of $10 million at a fixed rate of 3.85%, maturing on
October 5, 2004.
The Company has also entered into various interest rate option
agreements with maturities through May 17, 2004.
10
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Derivatives and Hedging (continued)
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.
In connection with the adoption of SFAS 133, the Company recorded the
fair value of its derivatives as a liability totaling approximately
($975k) on April 1, 2001. The fair value of such derivative was
approximately ($1.69m) as of December 31, 2001. The fair value of the
options, approximately ($2.6k), was accounted for in the consolidated
statement of income as a decrease to current period earnings.
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
December 31, 2001 to $948,533 from $807,556 for the three month period
ended December 31, 2000. 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 December 31, 2001 or 2000.
Consolidated net income increased for the nine month period ended
December 31, 2001 to $2,760,054 from $2,349,289 for the nine month
period ended December 31, 2000. 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 nine month periods ended December 31, 2001 or 2000.
Three Months Ended Nine Months Ended
December 31 December 31
2001 2000 2001 2000
---------------------------------------------------
Average Net Finance
Receivables (1) $84,882,208 $74,852,495 $82,919,199 $71,646,186
Average Indebtedness(2) 50,611,434 47,689,890 50,271,434 45,502,779
Total Interest Revenues 4,923,210 4,329,865 14,312,868 12,489,935
Interest Expense 949,068 1,002,433 2,955,481 2,792,944
--------------------------------------------------
Net Interest Income 3,974,142 3,327,432 11,357,387 9,696,991
Gross Portfolio Yield(3) 23.20% 23.14% 23.01% 23.24%
Average Cost of
Borrowed Funds(2) 7.50% 8.41% 7.84% 8.18%
-------------------------------------------------
Net Interest Spread(4) 15.70% 14.73% 15.17% 15.06%
Net Portfolio Yield(3) 18.73% 17.78% 18.26% 18.05%
Write-off to Liquidation(5) 10.06% 9.02% 8.97% 7.68%
Net Charge-Off Percentage(6) 9.10% 7.75% 7.92% 6.50%
(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 December 31, 2001 compared to three months ended
December 31, 2000
Interest Income and Loan Portfolio
Interest revenue increased 14% to $4.9 million for the period
ended December 31, 2001, from $4.3 million for the period ended
December 31, 2000. The net finance receivable balance totaled $70.8
million at December 31, 2001, an increase of 14% from $61.9 million at
December 31, 2000. The gross finance receivable balance increased 14%
to $111.9 million at December 31, 2001 from $98.1 million at December
31, 2000. The primary reason interest revenue increased was the
increase in the outstanding loan portfolio. The gross portfolio yield
increased from 23.14% for the period ended December 31, 2000 to 23.20%
for the period ended December 31, 2001. The primary reason that net
finance receivables increased was the opening of two additional
offices.
Computer Software Business
Sales for the period ended December 31, 2001 were $85,852 compared
to $90,744 for the period ended December 31, 2000, a decrease of 5%.
This decrease was primarily due to a decrease in new installations
during the ended December 31, 2001.
Operating Expenses
Operating expenses, excluding provision for credit losses and
interest expense, increased to $2.1 million for the period ended
December 31, 2001 from $1.7 million for the period ended December 31,
2000. This increase of 20% was primarily attributable to the opening
of two additional branches, increased home office personnel and
increased general operating expenses.
Interest Expense
Interest expense decreased to $949,068 for the period ended
December 31, 2001 as compared to $1,002,433 for the period ended
December 31, 2000. This decrease was due to a decrease in the average
cost of funds borrowed from 8.41% for the period ended December 31,
2000 to 7.50% for the period ended December 31, 2001. This decrease
was offset in part by an increase in the outstanding borrowings from
$47.7 million to $50.6 million during the comparable periods.
13
Nine months ended December 31, 2001 compared to nine months ended
December 31, 2000
Interest Income and Loan Portfolio
Interest revenue increased 15% to $14.3 million for the period
ended December 31, 2001, from $12.5 million for the period ended
December 31, 2000. The net finance receivable balance totaled $70.8
million at December 31, 2001, an increase of 14% from $61.9 million at
December 31, 2000. The gross finance receivable balance increased 14%
to $111.9 million at December 31, 2001 from $98.1 million at December
31, 2000. The primary reason interest revenue increased was the
increase in the outstanding loan portfolio. The gross portfolio yield
decreased from 23.24% for the period ended December 31, 2000 to 23.01%
for the period ended December 31, 2001. The primary reason that net
finance receivables increased was the opening of two additional
offices.
Computer Software Business
Sales for the period ended December 31, 2001 were $274,894 compared
to $306,611 for the period ended December 31, 2000, a decrease of 10%.
This decrease was primarily due to a decrease in new installations
during the period ended December 31, 2001.
Operating Expenses
Operating expenses, excluding provision for credit losses and
interest expense, increased to $5.9 million for the period ended
December 31, 2001 from $5.1 million for the period ended December 31,
2000. This increase of 16% was primarily attributable to the opening
of two additional branches, increased home office personnel and
increased general operating expenses.
Interest Expense
Interest expense increased to $3.0 million for the period ended
December 31, 2001 as compared to $2.8 million for the period ended
December 31, 2000. This increase was due to an increase in average
outstanding borrowings from $45.5 million to $50.3 million during the
comparable periods. The average cost of borrowed funds decreased from
8.18% for the nine month period ended December 31, 2000 to 7.84% for the
nine month period ended December 31, 2001.
14
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 74 Contracts with an aggregate initial principal
amount of approximately $600,000. As of December 31, 2001, the Company
had 344 active pools.
The Company pools Contracts according to branch location because the
branches purchase contracts in different markets located in Florida,
Georgia, North Carolina and South Carolina. 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 December 31, 2001, the Company had established
reserves for losses on Contracts of $14,464,194 or 17.70% of net
outstanding receivables.
15
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:
Nine Months Ended Nine Months Ended
December 31, 2001 December 31, 2000
------------------- -------------------
Contracts
Gross Balance Outstanding $107,053,507 $93,829,707
Dollar Dollar
Delinquencies Amount Percent* Amount Percent*
30 to 59 days $ 2,486,640 2.32% $ 2,578,104 2.75%
60 to 89 days 940,610 0.88% 1,406,290 1.50%
90 + days 370,151 0.35% 470,497 0.50%
----------- ----- ----------- -----
Total Delinquencies $3,797,401 $4,454,891
*Total Delinquencies as
percent of outstanding balance 3.55% 4.75%
Direct Loans
Gross Balance Outstanding $ 4,831,355 $ 4,257,432
Delinquencies
30 to 59 days $ 49,542 1.03% $ 49,385 1.15%
60 to 89 days 28,770 0.60% 19,040 0.45%
90 + days 19,521 0.40% 18,963 0.45%
-------- ----- -------- -----
Total Delinquencies $ 97,833 $ 87,388
*Total Delinquencies as a
percent of outstanding balance 2.03% 2.05%
The provision for credit losses was $500,679 for the three month
period ended December 31, 2001 and $1,281,104 for the nine month
period ended December 31, 2001 as compared to $390,312 for the three
month period ended December 31, 2000 and $1,067,101 for the nine month
period ended December 31, 2000. The Company's total reserve percentage
decreased from 13.34% for the period ended March 31, 2001 to 13.15%
for the period ended December 31, 2001. Management believes that the
reserve adjustments made during the three and nine month periods ended
December 31, 2001 are consistent with its reserve methodology.
Income Taxes
The Company's effective tax rate decreased to 36.85% and 37.47% for
the three and nine months ended December 31, 2001, as compared to
38.44% and 38.52% for the three and nine months ended December 31,
2000, respectively.
16
Liquidity and Capital Resources
The Company's cash flows for the nine months ended December 31, 2001
and December 31, 2000 are summarized as follows:
Nine months ended Nine months ended
December 31, December 31,
2001 2000
-----------------------------------------
Cash provided by (used in):
Operating Activities - $ 4,060,472 $ 2,890,855
Investing Activities -
(primarily purchase of
Contracts) (7,136,571) (11,038,012)
Financing Activities 3,146,007 8,231,559
--------------------------------
Net increase in cash 69,908 84,402
The Company's primary use of working capital during the nine
months ended December 31, 2001 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 December 31, 2001 the
Company had approximately $24.0 million available under the line of
credit. The Company is currently negotiating to extend the maturity
date of its 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.
Future Expansion
The Company currently operates twenty-two branch locations,
fifteen in the State of Florida, three in the State of Georgia, three
in the State of North Carolina and one in the State of South Carolina.
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.
The Company believes that opportunity for receivable growth
continues to exist in the States of Florida, Georgia, North Carolina
and South Carolina. The Company has identified Ohio and Virginia as
areas where it may open additional branches during the remainder of
fiscal 2002 and beyond. As of this date no commitments have been made
for additional expansion.
17
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.
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities
On August 8, 2001, Nicholas Financial, Inc. announced that its
Board of Directors had declared a two-for-one stock split on the
Company's outstanding shares of common stock, payable in the form of a
100% stock dividend, on September 10, 2001 to shareholders of record
as of the close of business on August 28, 2001.
The Company also announced that its Board of Directors had approved
the Company's second stock repurchase plan. The plan authorizes the
repurchase of up to 5% of the Company's outstanding common stock, or
approximately 250,000 shares, as adjusted to reflect the
aforementioned two-for-one stock split. This authorization is in
addition to the original September 23, 1998 repurchase authorization
of 120,000 shares (5% of the Company's outstanding common stock at
that time), which, as of August 7, 2001, had been completely utilized.
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 - None
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 February 13, 2002.
NICHOLAS FINANCIAL, INC.
(Registrant)
Date: February 13, 2002 /s/ Peter L. Vosotas
-----------------------------
Peter L. Vosotas
Chairman, President, Chief Executive
Officer(Principal Executive Officer)
Date: February 13, 2002 /s/ Ralph T. Finkenbrink
-------------------------------
Ralph T. Finkenbrink
(Principal Financial Officer and
Accounting Officer)
19
EXHIBIT INDEX
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
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
20
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)
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K
during the quarter ended December 31, 2001