SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
July 31, 2003
Date of Earliest Event Reported
NATIONAL AUTO CREDIT, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-11601 34-1816760
(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File No.) Identification No.)
555 MADISON AVENUE
29TH FLOOR
NEW YORK, NY 10022
(Address of principal executive offices and zip code)
(212) 644-1400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name of former address, if changed from last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective July 31, 2003, National Auto Credit, Inc. ("NAC") consummated a Stock
Purchase Agreement whereby NAC acquired all outstanding capital stock of The
Campus Group, four affiliated companies providing satellite videoconferencing,
multi-media production services and corporate meeting services, from Mr. Steven
Campus and certain family trusts for an aggregate purchase price of $15.5
million. The Campus Group, headquartered in Tuckahoe, New York, specializes in
the full service design, creative development, production, post production
editing and transmission, via broadcast satellite videoconferencing, webcasting
and traditional on-site presentations, of corporate communication, education and
training video and other services for use at corporate events.
In exchange for the acquisition of all of the outstanding capital stock of The
Campus Group, NAC (i) paid $2.8 million at closing from NAC's available cash
balances, (ii) issued to Mr. Campus and certain family trusts promissory notes
of $9.9 million, and (iii) issued to a family trust a convertible promissory
note of $2.8 million. Of the $9.9 million in promissory notes issued by NAC,
$6.5 million of the promissory notes ("Base Notes") bear interest at 5% per
annum and are repayable in quarterly installments according to a formula based
upon the future cash flows realized from The Campus Group over a period not to
exceed seven years. The remaining $3.4 million in promissory notes ("Trailing
Notes") issued by NAC bear interest at 5% per annum and are repayable in
quarterly installments, commencing upon the retirement of the Base Notes,
according to a formula based upon the future cash flows realized from The Campus
Group over a period not to exceed three years subsequent to the retirement of
the Base Notes. The $2.8 million convertible promissory note (i) bears interest
at 5% per annum, payable quarterly in cash or accumulating as principal at the
election of NAC, (ii) requires principal payments commence upon the retirement
of the $9.9 million of promissory notes and is then repayable in quarterly
installments according to a formula based upon the future cash flows realized
from The Campus Group over a period not to exceed three years and (iii) is
convertible at the option of the holder into shares of NAC common stock at a
base conversion price of $1.50 per share. The holder may not convert the
convertible promissory note into NAC common stock prior to repayment of the
promissory notes. The promissory notes are secured by the capital stock of the
companies comprising The Campus Group.
As part of The Campus Group acquisition, Mr. Campus has agreed to serve as
President of each of the four acquired companies with an initial term of three
years which are automatically extended until such time as the promissory notes
and convertible promissory note are retired. Mr. Campus, subject to certain
limitations, will have control over day-to-day operations of the Campus Group.
Under the terms of the employment agreement, Mr. Campus will be entitled to base
compensation of $100,000 per year and a performance bonus based upon the
operating results of the acquired companies
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The Campus Group Companies, Inc. and Affiliates audited financial statements
for the years ended December 31, 2002, 2001 and 2000.
(b) Pro forma financial information
2
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
AND
INDEPENDENT AUDITORS' REPORT
3
CAMPUS GROUP COMPANIES, INC.
AND AFFILIATES
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants 3
Combined Balance Sheets as of December 31, 2002, 2001 (audited)
and June 30, 2003 (unaudited) 4
Combined Statements of Operations for the years ended December 31,
2002, 2001 and 2000 (audited) and the six months ended June 30,
2003 and 2002 (unaudited) 5
Combined Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000 (audited) and the six months
ended June 30, 2003 (unaudited) 6
Combined Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000 (audited) and the six months ended June 30,
2003 and 2002 (unaudited) 7
Notes to Combined Financial Statements 8
4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Campus Group Companies, Inc. and Affiliates
Tuckahoe, New York
We have audited the accompanying combined balance sheets of Campus Group
Companies, Inc. and Affiliates (the "Companies") as of December 31, 2002 and
2001 and the related combined statements of operations and retained earnings,
cash flows and stockholders' equity for the three years in the period ended
January 31, 2002. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provided a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Campus Group
Companies, Inc. and Affiliates as of December 31, 2002 and 2001 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002 in conformity with generally accepted accounting
principles generally accepted in the United States of America.
As discussed in Note 8 to the financial statements, on July 31, 2003, all of the
Companies stock was acquired by National Auto Credit, Inc.
/s/ Kirschner & Pasternack LLP
------------------------------
Great Neck, New York
March 24, 2003
5
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
COMBINED BALANCE SHEET
December 31,
June 30, -----------------------
2003 2002 2001
---------- ---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 288,353 $2,762,996 $1,362,027
Accounts receivable, less allowance for doubtful accounts of
$120,000, $139,429 and $142,810, respectively (Note 1) 1,253,853 684,547 1,419,744
Prepaid expenses and other current assets (Note 1) 111,484 87,364 31,457
---------- ---------- ----------
Total current assets 1,653,690 3,534,907 2,813,228
Property and equipment - net of accumulated depreciation and
amortization of $2,000,116, $ 1,967,579 and $1,832,092,
respectively (Notes 1 and 2) 189,922 208,392 324,702
---------- ---------- ----------
TOTAL ASSETS $1,843,612 $3,743,299 $3,137,930
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and accrued expenses $ 124,766 $ 291,287 $ 288,238
Loans payable stockholder (note 3) 1,253,330 1,777,203 2,377,200
---------- ---------- ----------
Total liabilities 1,378,096 2,068,490 2,665,438
Commitments and contingencies (Note 5)
Stockholders' equity (Note 6)
Common stock - no par value 35,100 35,100 35,100
Additional paid-in capital 429,900 429,900 429,900
Retained earnings 516 1,209,809 7,492
---------- ---------- ----------
Stockholders' equity 465,516 1,674,809 472,492
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,843,612 $3,743,299 $3,137,930
========== ========== ==========
See accompanying notes to combined financial statements.
6
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- --------------------------------------------
2002 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
Net sales (Notes 1 and 7) $ 6,835,349 $ 4,917,105 $ 10,692,645 $ 12,703,641 $ 11,714,395
Cost of sales (Note 1) 2,662,451 1,920,724 4,281,230 6,033,927 4,424,465
------------ ------------ ------------ ------------ ------------
Gross profit 4,172,898 2,996,381 6,411,415 6,669,714 7,289,930
Selling, general and administrative
expenses 1,935,393 2,916,541 5,170,875 4,402,113 5,007,269
------------ ------------ ------------ ------------ ------------
Income from operations 2,237,505 79,840 1,240,540 2,267,601 2,282,661
Interest expense (1,394) (6,286) (11,119) (11,596) (16,717)
Interest & other income 5,593 5,153 6,537 78,670 15,541
------------ ------------ ------------ ------------ ------------
Income before provision for
income taxes 2,241,704 78,707 1,235,958 2,334,675 2,281,485
Provision for income taxes (Note 1) 68,000 5,000 33,641 68,924 68,713
------------ ------------ ------------ ------------ ------------
Net income $ 2,173,704 $ 73,707 $ 1,202,317 $ 2,265,751 $ 2,212,772
============ ============ ============ ============ ============
See accompanying notes to combined financial statements.
7
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2002, 2001, AND 2000 (audited)
AND THE SIX MONTHS ENDED JUNE 30, 2003 (unaudited)
Common Additional Retained
Stock Paid-in Earnings Stockholders'
No par value Capital (Deficit) Equity
--------------------------------------------- ---------------
Balance at January 1, 2000 $ 35,100 $ 429,900 $ (86,031) $ 378,969
Net income 2,212,772 2,212,772
Distributions to shareholders (1,385,000) (1,385,000)
--------------------------------------------- ---------------
Balance at December 31, 2000 35,100 429,900 741,741 1,206,741
Net income 2,265,751 2,265,751
Distributions to shareholders (3,000,000) (3,000,000)
--------------------------------------------- ---------------
Balance at December 31, 2001 35,100 429,900 7,492 472,492
Net income 1,202,317 1,202,317
--------------------------------------------- ---------------
Balance at December 31, 2002 35,100 429,900 1,209,809 1,674,809
Net income 73,707 73,707
Distributions to shareholders (1,283,000) (1,283,000)
--------------------------------------------- ---------------
Balance at June 30, 2003 (unaudited) $ 35,100 $ 429,900 $ 516 $ 465,516
============================================= ===============
See accompanying notes to combined financial statements.
8
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
2003 2002 2002 2001 2000
------------- -------------- -------------- -------------- --------------
(UNAUDITED)
Cash flows from operating activities:
Net income $ 73,707 $2,173,704 $1,202,317 $2,265,751 $2,212,772
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization 32,000 75,002 182,374 126,347 185,742
Gain on sale of property - - - (30,058) -
Changes in operating assets and liabilities:
Provision for doubtful accounts (19,566) 3,381 (27,385) (287,767)
Decrease (increase) in accounts receivable (569,306) (327,967) 731,816 244,514 (234,887)
Decrease (increase) in prepaid expense
and other current assets (24,120) (615) (55,907) 29,771 (38,716)
Increase (decrease) in accounts payable
and accrued expenses (166,521) (99,029) 3,049 50,648 (50,336)
------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities (654,240) 1,801,529 2,067,030 2,659,588 1,786,808
------------- -------------- -------------- -------------- --------------
Cash flows from investing activities:
Acquisitions of property and equipment (13,530) (32,127) (66,064) (123,527) (29,724)
Dispositions of property and equipment - - - - 106,548
------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
investing activities (13,530) (32,127) (66,064) (123,527) 76,824
------------- -------------- -------------- -------------- --------------
Cash flows from financing activities:
Distributions to stockholders (1,283,000) (482,143) (599,997) (2,150,000) (1,385,000)
Loans payable stockholder (523,873) - - (475,794) 163,528
------------- -------------- -------------- -------------- --------------
Net cash used in financing activities (1,806,873) (482,143) (599,997) (2,625,794) (1,221,472)
------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash (2,474,643) 1,287,259 1,400,969 (89,733) 642,160
Cash and cash equivalents at beginning of period 2,762,996 1,362,027 1,362,027 1,451,760 809,600
------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of period $ 288,353 $2,649,286 $2,762,996 $1,362,027 $1,451,760
============= ============== ============== ============== ==============
Supplemental disclosures of cash flow information:
Interest $ 6,286 $ 1,394 $ 11,119 $ 11,596 $ 16,717
============= ============== ============== ============== ==============
Income taxes $ 38,200 $ 49,500 $ 76,237 $ 29,858 $ 20,709
============= ============== ============== ============== ==============
See accompanying notes to combined financial statements.
9
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
NOTE 1 - PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION: The accompanying combined financial statements include the
accounts of Campus Group Companies, Inc. ("CGC") and its affiliates,
Audience Response Systems, Inc., ("ARS") Interactive Communications
Network, Inc ("ICN") and Multi Video Services, Inc. ("MVS") (collectively
referred to as the "Companies"). The principal business activities of the
Companies are the satellite videoconferencing, multi-media production
services and corporate meeting services. The Companies' clients are located
throughout the United States and Canada.
The Companies have elected to be treated as S Corporations for federal and
state income tax purposes. Accordingly, there is no provision for federal
income taxes as such earnings will flow through directly to the
stockholders, and applicable state and local franchise taxes are payable at
reduced rates. The Companies' principal offices are located in New York
with supporting offices in Indiana and several other states.
PRINCIPLES OF COMBINATION: The Companies have been combined on the basis of
common ownership by a sole stockholder and/or certain affiliated family
trusts. All intercompany accounts and transactions have been eliminated in
combination. While CGC, ARS, ICN and MVS may have different fiscal periods,
for tax purposes, all financial statements have been combined on a
calendar-year basis for the period ending December 31st.
ESTIMATES: The preparation of financial statements and the accompanying
notes thereto, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the respective reporting periods. Actual
results could differ from those estimates.
CASH EQUIVALENTS: All highly liquid investments, such as commercial paper
and debt instruments with initial maturities of three months or less are
considered to be cash equivalents. Cash equivalents are stated at cost,
which approximates the market value.
10
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
NOTE 1 - PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUES: The Companies recognize income from video production and editing
activities when the video is complete and delivered. The Companies
recognize income from video conferencing and meeting planning and support
services when the event is broadcasted or the meeting is held. The
Companies do not have licensing or other arrangements that result in
additional revenues following the delivery of the video, the broadcast of a
conference or the conclusion of a meeting event. Costs accumulated in the
production of the video, pre-broadcast and meeting planning services are
deferred until the sale and delivery are complete. Deferred video
production and pre-broadcast and meeting planning services costs are
included in deferred production costs, a component of other current assets.
COST OF REVENUES: Cost of revenues consists of direct expenses specifically
associated with client service revenues. The cost of revenues includes
direct salaries and benefits, purchased products or services for clients,
support services, shipping and delivery costs.
ACCOUNTS RECEIVABLE: Accounts receivable are recorded at the invoiced
amount and do not bear interest. The allowance for doubtful accounts is the
Companies best estimate of the amount of probable credit losses in the
Companies existing accounts receivable. The Companies determine the
allowance based on analysis of historical bad debts, client concentrations,
client credit-worthiness and current economic trends. The Companies review
their allowance for doubtful accounts quarterly. Past-due balances over 90
days and specified other balances are reviewed individually for
collectibility. All other balances are reviewed on an aggregate basis.
Account balances are written off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. The Companies do not have any off-balance sheet credit exposure
related to its clients.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years for
furniture and equipment. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated
useful lives of the related improvements.
11
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
NOTE 1 - PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
NEW ACCOUNTING PROUNCEMENTS: In July, 2002 the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred, rather than at the date of a commitment
to an exit or disposal plan. Examples of costs covered by the standard
included lease termination costs and certain employee severance costs that
are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. Previous accounting guidance was
provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring. SFAS 146 replaces Issue 94-3 and is
required to be applied prospectively to exit or disposal activities
initiated after December 2002. SFAS 146 was adopted by the Companies
effective February 1, 2003. At the time of adoption, there was no material
impact to the Companies financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure. SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS 148
requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on the reported results. The
provisions of SFAS 148 are effective for financial statements for fiscal
years ending after December 15, 2002. SFAS 148 was adopted by the Companies
effective February 1, 2003. At the time of adoption, there was no material
impact to the Companies financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
December 31,
June 30, -------------------------
2003 2002 2001 Period
---------- ---------- ---------- -----------
(unaudited)
Machinery and equipment $2,042,686 $2,037,636 $1,986,850 5 to 7 yrs
Transportation equipment 147,352 147,352 169,944 3 years
--------- --------- ---------
2,190,038 2,184,988 2,156,794
Less accumulated depreciation 2,000,116 1,976,596 1,832,092
--------- --------- ---------
$ 189,922 $ 208,392 $ 324,702
========== ========== ==========
12
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
NOTE 2 - PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for the years ended December 31, 2002, 2001 and 2000
was $182,372, $126,347 $185,742, respectively. Depreciation expense for the
six months ended June 30, 2003 and 2002 was $32,000 and $75,002,
respectively.
NOTE 3 - LOANS PAYABLE STOCKHOLDER
Loans payable, by a stockholder, consist of various loans and advances made
to the Companies. The loans do not bear interest. No interest has been
paid, and repayments to reduce loans are made periodically when cash
requirements of the Companies permit.
NOTE 4 - EMPLOYEE BENEFIT PLANS
The Companies have a retirement plan under Section 401(k) of the Internal
Revenue Code covering all qualified employees. An officer of the Companies
serves as trustee of the Plan. The plan permits employees to defer salary
based on Code maximums. Any contributions by the Companies are
discretionary. Disclosures under Statement of Financial Accounting
Standards ("SFAS") No. 87, Employers' Accounting for Pensions, have not
been presented since they are not material to the accompanying financial
statements.
NOTE 5 - COMMITMENTS
The Companies lease office and warehouse space under various operating
leases. The principal leases are with a stockholder/officer and are renewed
annually. The minimum obligations under the other leases are as follows:
December 31 Amount
----------- ---------
2003 $ 42,400
2004 42,400
2005 31,800
---------
$ 116,600
=========
13
CAMPUS GROUP COMPANIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY
The Companies Stockholder's equity is comprised of combined balances of
each of CGC, ARS, ICN and MSV. At December 31, 2002, 2001 and 2000 and at
June 31, 2003, CGC, ARS, ICN MSV each have 200 shares, no par value, issued
and outstanding. There were no outstanding options, warrants or other
equity rights outstanding during the periods presented. Ownership of all
shares of the Companies is maintained by a sole stockholder and/or certain
affiliated family trusts.
NOTE 7 - MAJOR CLIENT
For the years ended December 31, 2002, 2001 and 2000, sales to one client
accounted for approximately 32%, 30% and 25% of net sales respectively.
This client comprised approximately 21%, 42% and 40% of the Companies'
accounts receivable at December 31, 2002, 2001 and 2000, respectively.
NOTE 8 - SUBSEQUENT EVENT
Effective July 31, 2003, National Auto Credit, Inc. ("NAC") consummated a
Stock Purchase Agreement whereby NAC acquired all outstanding capital stock
of the Companies from its stockholder and certain family trusts for the
benefit of members of the stockholder's family (the "Trusts") for an
aggregate purchase price of $15.5 million. In exchange for the acquisition
of all of the outstanding capital stock of the Companies, NAC (i) paid $2.8
million at closing, (ii) issued to the stockholders promissory notes of
$9.9 million, and (iii) issued a convertible promissory note of $2.8
million. Of the $9.9 million in promissory notes issued by NAC, $6.5
million of the promissory notes ("Base Notes") bear interest at 5% per
annum and are repayable in quarterly installments according to a formula
based upon the future cash flows realized from the companies over a period
not to exceed seven years. The remaining $3.4 million in promissory notes
("Trailing Notes") issued by NAC bear interest at 5% per annum and are
repayable in quarterly installments, commencing upon the retirement of the
Base Notes, according to a formula based upon the future cash flows
realized from the companies over a period not to exceed three years
subsequent to the retirement of the Base Notes. The $2.8 million
convertible promissory note (i) bears interest at 5% per annum, payable
quarterly in cash or accumulating as principal at the election of NAC, (ii)
requires that principal payments commence upon the retirement of the $9.9
million of promissory notes and is then repayable in quarterly installments
according to a formula based upon the future cash flows realized from the
companies over a period not to exceed three years and (iii) is convertible
at the option of the holder into shares of NAC common stock at a base
conversion price of $1.50 per share. The holder may not convert the
convertible promissory note into NAC common stock prior to repayment of the
promissory notes. The promissory notes are secured by the capital stock of
the companies comprising the Companies.
14
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial statements are presented to illustrate the
effect of the acquisition of the Campus Group Companies, Inc. and Affiliates
(The "Campus Group") (as defined in Note 1 to the historical financial
statements of The Campus Group included elsewhere herein) by NAC as described
elsewhere herein.
The pro forma statement of operations for the year ended January 31, 2003
combines the audited historical statements of operations of The Campus Group for
the year ended December 31, 2002 with that of NAC for the year ended January 31,
2003, and has been prepared as if the acquisition of The Campus Group was
consummated on January 31, 2002. The pro forma statement of operations for the
six months ended July 31, 2003 combines the unaudited historical statements of
operations of The Campus Group for the six months ended June 30, 2003 with that
of NAC for the six months ended July 31, 2003, and has been prepared as if the
acquisition of The Campus Group was consummated on January 31, 2003.
No pro forma balance sheet has been presented because the effects of the
acquisition of The Campus Group are reflected in NAC's consolidated balance
sheet as of July 31, 2003 as included in its Quarterly Report on Form 10-Q for
the quarter ended July 31, 2003.
The pro forma financial statements are presented for illustrative purposes only
and are not necessarily indicative of the actual operating results that would
have occurred had the companies been combined for the periods presented or the
future operating result that will occur as a consequence of NAC's acquisition of
The Campus Group. The pro forma financial statements should be read in
conjunction with the historical financial statements of The Campus Group
included elsewhere herein and the historical financial statements of NAC
presented in its Quarterly Report on Form 10-Q for the quarter ended July 31,
2003.
15
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Campus Group
National Auto Companies, Inc.
Credit, Inc. and Affiliates Pro Forma Adjustments
Six Months Ended Six Months Ended ---------------------------- Pro Forma
July 31, 2003 June 30, 2003 DR CR Combined
------------------- --------------------- -- -- -------------
Revenues $ 881 $ 4,917 $ 5,798
Cost of revenues 573 1,921 2,494
------------------- --------------------- -------------
Gross profit 308 2,996 3,304
Operating expenses 2,358 2,916 443 (b) 1,082 (a) 4,635
------------------- --------------------- -------------
Income (loss) from operations (2,050) 80 (1,331)
Interest income from investments 487 5 492
Interest expense (16) (6) 315 (c) (337)
Income from investment in AFC 192 - 192
------------------- --------------------- -------------
Income (loss) from continuing operations
before income taxes (1,387) 79 (984)
(Benefit) expense for income taxes - 5 30 (d) 35 (e) -
------------------- --------------------- -------------
Income (loss) from continuing operations $ (1,387) $ 74 $ (984)
=================== ===================== =============
Basic and diluted (loss) per share
from continuing operations $ (0.17) $ (0.12)
=================== =============
Weighted average number of shares
outstanding 7,948 7,948
=================== =============
The accompanying notes are an integral part of
these pro forma financial statements
16
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Campus Group
National Auto Companies, Inc
Credit, Inc. and Affiliates Pro Forma Adjustments
Year Ended Year Ened ------------------------------ Pro Forma
January 31, 2003 December 31, 2002 DR CR Combined
------------------- -------------------- -- -- ---------------
(unaudited) (unaudited) (unaudited)
Revenues $ - $ 10,693 $ 10,693
Cost of revenues - 4,281 4,281
------------------- -------------------- ---------------
Gross profit - 6,412 6,412
Operating expenses 3,506 5,171 $ 767 (b) $ 1,362 (a) 8,082
------------------- -------------------- ---------------
Income (loss) from operations (3,506) 1,241 (1,670)
Interest income from investments 642 6 648
Interest expense - (11) 618 (c) (629)
Income from investment in AFC 375 - 375
------------------- -------------------- ---------------
Income (loss) from continuing operations
before income taxes (2,489) 1,236 (1,276)
(Benefit) expense for income taxes (2,070) 34 448 (d) 482 (e) (2,070)
------------------- -------------------- ---------------
Income (loss) from continuing operations $ (419) $ 1,202 $ 794
=================== ==================== ===============
Basic and diluted Income (loss) per share
from continuing operations $ (0.05) $ 0.09
=================== ===============
Weighted average number of shares
outstanding 8,380 8,380
=================== ===============
The accompanying notes are an integral part of these
pro forma financial statements
17
NATIONAL AUTO CREDIT INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA ADJUSTMENTS
The components and allocation of the purchase price were as follows:
Components of purchase price:
Cash paid at closing $ 2,825
Promissory notes issued at closing 9,840
Convertible note issued at closing 2,825
Transaction costs 861
-----------------
Total purchase price $ 16,351
=================
Allocation of purchase price:
Current assets $ 1,758
Property and equipment 4,851
Goodwill arising in the acqusition 11,226
-----------------
17,835
Accounts payable and accrued expenses (228)
Due to shareholder (1,256)
-----------------
Net assets acquired $ 16,351
=================
The adjustments to the pro forma combined statements of operations are as
follows:
(a) To eliminate certain expenses paid to the former stockholder of The Campus
Group, including compensation, in excess of the amounts that will be paid
under the terms of the Stock Purchase Agreement.
(b) To record additional depreciation expense for the fair market value of the
acquired property and equipment. NAC is in the process of engaging and
independent valuation to assist in its evaluation of the acquired assets in
order to finalize its purchase accounting allocation.
(c) To record interest expense associated with debt issued in connection with
the acquisition.
(d) To record pro forma income tax expense as if The Campus Group were
converted to from an S corporation to a C corporation subject to federal
income taxes for the year ended December 31, 2002 and the six months ended
June 30, 2003.
(e) To eliminate income tax expense as a result of NAC's net operating income
tax carryforward at January 31, 2003 and July 31, 2003.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 10, 2003 NATIONAL AUTO CREDIT, INC.
(Registrant)
By: /s/ James J. McNamara
---------------------
James J. McNamara
Chief Executive Officer
19