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Published: 2021-06-29 16:10:24 ET
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EX-99.2 3 ea140703ex99-2_lmpautomotive.htm AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FUCCILLO AS OF DECEMBER 31, 2020 AND THE NOTES RELATED THERETO AND THE INDEPENDENT AUDITORS' REPORTS THEREON

Exhibit 99.2

 

  FUCCILLO KIA DEALERSHIPS
   
 

combined FINANCIAL STATEMENTS AND

Supplementary information 

December 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FUCCILLO KIA DEALERSHIPS

 

CONTENTS

 

 

Independent Auditors’ Report 1
   
Independent Auditors’ Report on Supplementary Information 2
   
Combined Balance Sheets – December 31, 2020 and 2019 3
   
Combined Statements of Income for the Years Ended December 31, 2020 and 2019 4
   
Combined Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2020 and 2019 5
   
Combined Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 6
   
Notes to Combined Financial Statements 7-17
   
Combining Balance Sheet Schedule – December 31, 2020 18
   
Combining Balance Sheet Schedule – December 31, 2019 19
   
Combining Schedule of Income for the Year Ended December 31, 2020 20
   
Combining Schedule of Income for the Year Ended December 31, 2019 21

 

i

 

 

Independent Auditors’ Report

 

April 30, 2021

 

To Management and Governance of the Fuccillo Kia Dealerships:

 

Opinion on the Financial Statements

 

We have audited the accompanying combined balance sheets of Fuccillo Affiliates of Florida, Inc. and Fuccillo Associates of Florida, Inc. (“Fuccillo Kia Dealerships” or “the Company”) as of December 31, 2020 and 2019, and the related combined statements of income, changes in stockholder’s equity, and cash flows for the years then ended, and the related notes.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these combined financial statements based on our audits. 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 combined financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Fuccillo Affiliates of Florida, Inc. and Fuccillo Associates of Florida, Inc. as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Bonadio & Co., LLP

 

-1-

 

 

INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTARY INFORMATION

 

April 30, 2021

 

To Management and Governance of the Fuccillo Kia Dealerships:

 

We have audited the combined financial statements of Fuccillo Affiliates of Florida, Inc. and Fuccillo Associates of Florida, Inc. (“Fuccillo Kia Dealerships” or “the Company”) as of and for the years ended December 31, 2020 and 2019, and our report thereon dated April 30, 2021, which expressed an unmodified opinion on those combined financial statements, appears on page 1. The supplemental combining information contained in the combining balance sheet schedules as of December 31, 2020 and 2019 and the combining schedules of income for the years then ended is presented for purposes of additional analysis of the combined financial statements rather than to present the financial position and results of operations of the individual companies and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to audit procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

 

/s/ Bonadio & Co., LLP

 

-2-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINED BALANCE SHEETS     
DECEMBER 31, 2020 AND 2019

 

   2020   2019 
         
ASSETS        
         
Current Assets        
Cash and cash equivalents  $11,151,616   $5,040,523 
Contracts in transit   3,424,596    1,892,835 
Accounts receivable, net   1,510,866    1,633,074 
Prepaid expenses   1,111,289    917,510 
Inventories, net   16,331,064    32,528,649 
Total current assets   33,529,431    42,012,591 
           
Noncurrent Assets          
Property and equipment, net   821,853    1,263,747 
Operating lease right of use assets   6,274,061    7,029,131 
Total noncurrent assets   7,095,914    8,292,878 
           
Total Assets  $40,625,345   $50,305,469 
           
LIABILITIES AND STOCKHOLDER’S EQUITY          
           
Current Liabilities          
Notes payable - floor plan  $12,637,177   $29,408,025 
Accounts payable   1,755,741    893,281 
Accrued taxes and expenses   1,835,135    2,474,183 
Current portion of deferred revenue   350,396    516,379 
Current portion of operating lease liabilities   795,284    755,070 
Total current liabilities   17,373,733    34,046,938 
           
Noncurrent Liabilities          
Notes payable - Paycheck Protection Program   2,914,660    - 
Deferred revenue, net of current portion   326,786    452,825 
Operating lease liabilities, net of current portion   5,478,777    6,274,061 
Total noncurrent liabilities   8,720,223    6,726,886 
           
Total liabilities   26,093,956    40,773,824 
           
Stockholder’s Equity          
Common stock   1,000    1,000 
Additional paid-in capital   14,087,026    14,087,026 
Retained earnings (deficit)   443,363    (4,556,381)
Total stockholder’s equity   14,531,389    9,531,645 
           
Total Liabilities and Stockholder’s Equity  $40,625,345   $50,305,469 

 

The accompanying notes are an integral part of the combined financial statement

 

-3-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

   2020   2019 
         
Revenues        
New vehicle retail sales  $103,093,317   $124,420,243 
Used vehicle retail sales   33,785,458    33,082,808 
Used vehicle wholesale sales   10,119,384    11,663,396 
Service and parts sales   10,770,297    11,098,258 
Finance and insurance income, net   9,683,942    10,014,014 
Total revenues   167,452,398    190,278,719 
           
Cost of Sales          
New vehicle retail   86,644,956    111,798,836 
Used vehicle retail   28,728,362    26,022,095 
Used vehicle wholesale   8,717,733    9,726,397 
Service and parts   5,506,271    5,890,826 
Total cost of sales   129,597,322    153,438,154 
           
Gross Profit on Sales   37,855,076    36,840,565 
           
Operating Expenses          
Selling, general and administrative expenses   26,224,690    26,525,829 
Interest expense   835,427    1,777,747 
Depreciation and amortization   533,169    563,195 
Total operating expenses   27,593,286    28,866,771 
           
Income from Operations   10,261,790    7,973,794 
           
Other Expenses, Net   (1,680,739)   (2,347,254)
           
Net Income  $8,581,051   $5,626,540 

 

The accompanying notes are an integral part of the combined financial statement

 

-4-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

       Additional   Retained     
   Common   Paid-in   Earnings     
   Stock   Capital   (Deficit)   Total 
                 
Balance - January 1, 2019  $1,000   $14,087,026   $(1,410,571)  $12,677,455 
                     
Net Income   -    -    5,626,540    5,626,540 
                     
Distributions   -    -    (8,772,350)   (8,772,350)
                     
Balance - December 31, 2019   1,000    14,087,026    (4,556,381)   9,531,645 
                     
Net Income   -    -    8,581,051    8,581,051 
                     
Distributions   -    -    (3,581,307)   (3,581,307)
                     
Balance - December 31, 2020  $1,000   $14,087,026   $443,363   $14,531,389 

 

The accompanying notes are an integral part of the combined financial statement

 

-5-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINED STATEMENTS OF CASH FLOWS     
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

   2020   2019 
         
Cash Flows from Operating Activities        
Net income  $8,581,051   $5,626,540 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   533,169    563,195 
Loss on disposal of property and equipment   7,081    1,097 
(Increase) decrease in operating assets:          
Contracts in transit   (1,531,761)   2,707,767 
Accounts receivable, net   122,208    1,805,306 
Prepaid expense   (193,779)   983,836 
Inventories   16,197,585    12,787,120 
Increase (decrease) in operating liabilities:          
Accounts payable   862,460    (1,398,883)
Accrued taxes and expenses   (639,048)   221,142 
Deferred revenue   (292,022)   (329,298)
Net cash provided by operating activities   23,646,944    22,967,822 
           
Cash Flows from Investing Activities          
Purchases of property and equipment   (128,003)   (72,211)
Proceeds from sale of property and equipment   29,647    - 
Net cash used in investing activities   (98,356)   (72,211)
           
Cash Flows from Financing Activities          
Payments on notes payable - floor plan   (16,770,848)   (15,615,357)
Payments on advances from related parties   -    (808,962)
Proceeds from notes payable - Paycheck Protection Program   2,914,660    - 
Stockholder distributions   (3,581,307)   (8,772,350)
Net cash used in financing activities   (17,437,495)   (25,196,669)
           
Net Increase (Decrease) in Cash and Cash Equivalents   6,111,093    (2,301,058)
           
Cash and Cash Equivalents - Beginning of Year   5,040,523    7,341,581 
           
Cash and Cash Equivalents - End of Year  $11,151,616   $5,040,523 

 

The accompanying notes are an integral part of the combined financial statement

 

-6-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization of Business

 

Fuccillo Kia Dealerships (the Company) operate new vehicle dealerships in Cape Coral and Port Charlotte, Florida. Operations include sales of new and used vehicles as well as related parts and service. Fuccillo Kia of Cape Coral is owned and operated by Fuccillo Affiliates of Florida, Inc., and Fuccillo Kia of Port Charlotte is owned and operated by Fuccillo Associates of Florida, Inc. Fuccillo Affiliates of Florida, Inc., and Fuccillo Associates of Florida, Inc., are wholly owned subsidiaries of It’s Huge of Florida, Inc. The Companies operate under common control and management.

 

Basis of Presentation

 

The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

 

Principles of Combination

 

The combined financial statements reflect the results of operations, the financial position and the cash flows for the Company. All significant intercompany balances and transactions have been eliminated in combination.

 

Dealership Agreements

 

The Company conducts its business pursuant to Sales and Service Agreements (the Agreements) with Kia Motors Corporation (the Manufacturer). The Agreements permit the Company to stock, sell and service vehicles and products of the Manufacturer and also use the Manufacturer’s names and trade symbols. The Company purchases all of its new vehicles and substantially all of its parts inventory from the Manufacturer at the prevailing prices charged to all dealers holding the Agreements. These transactions result in both a receivable from and payable to the Manufacturer. The Company’s sales could be impacted by the Manufacturer’s inability to supply the Company with an adequate number or mix of vehicles and parts.

 

The Agreements include a number of restrictions on, and requirements of, the Company, including, but not limited to, approval of any changes in the ownership or executive management of the Company. The Manufacturer may terminate the Agreements if the Company is in material breach of the Agreements’ terms.

 

Cash and Cash Equivalents

 

The Company maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. In addition, the Company’s investments in floorplan interest offset accounts are not federally insured. Interest on these accounts is credited at the same rate as the floor plan borrowing rate. The Company has not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash or cash equivalents.

 

Contracts in Transit

 

Contracts in transit relate to amounts due from financial institutions for the portion of the vehicle sales price financed by the Company’s customers.

 

-7-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Accounts Receivable

 

The Company’s accounts receivable consists of amounts due from the manufacturer for holdback, rebates, incentives and warranty claims, along with receivables related to the sales of new and used vehicles, including parts and service, to businesses and individuals located primarily in the state of Florida. Accounts receivable balances are stated at the amount management expects to collect from outstanding balances.

 

Management provides for uncollectible amounts through a charge to earnings and a credit to a valuation account. Uncollectible account balances are written off when management determines the probability of collection is remote through a charge to the valuation account. Changes in the valuation allowance have not been material to the combined financial statements for the years ended December 31, 2020 and 2019. Management determined that no allowance for doubtful accounts was necessary at December 31, 2020 and 2019. The Company generally does not require collateral in providing credit.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to credit risk consist of accounts receivable, contracts in transit, and cash and cash equivalents. Accounts receivable and contracts in transit consist principally of amounts due from financial institutions for vehicles delivered and amounts due from manufacturers for various incentives and holdbacks. The Company’s customers are primarily located in Florida. Historically, the Company’s credit losses have been insignificant. The Company places its cash with major financial institutions.

 

Inventories

 

New vehicles are stated at cost. The last-in, first-out (LIFO) method is used to determine cost.

 

The cost of used vehicles is determined on a specific identification basis and is stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation, and is generally determined using retail values per the current used unit guidebook.

 

Parts, accessories and supplies are generally stated at supplier catalogue prices, which approximate cost.

 

Property and Equipment

 

Property and equipment are carried at cost. Major additions and improvements which extend the useful lives of the assets are capitalized, while minor replacements, repairs, and maintenance, which do not extend the lives of the assets, are expensed as incurred. When property is retired or disposed of, the cost and related accumulated depreciation and amortization are removed and the resulting gain or loss, if any, is reflected in the other income (expense) in the combined statements of income.

 

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FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Depreciation and amortization are being provided for using straight-line methods over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining available lease term. Estimated useful lives are as follows:

 

Furniture and fixtures   5-7 years 
Service equipment and computer systems   5 years 
Leasehold improvements   5-15 years 
Company vehicles   5 years 

 

Impairment of Long-Lived Assets

 

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment charges were recorded during 2020 or 2019 for long-lived assets.

 

Revenue Recognition

 

The Company recognizes revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to its customers using the following five-step process:

 

1.Identify the contract(s) with the customer

 

2.Identify the performance obligation(s) in the contract

 

3.Determine the transaction price

 

4.Allocate the transaction price to performance obligations in the contract

 

5.Recognize revenue when (or as) the Company satisfies a performance obligation

 

See Note 8 for details on how the above process is applied to the Company’s contracts with customers.

 

Income Taxes

 

The stockholder has elected, under the provisions of Subchapter S of the Internal Revenue Code, to have the Company’s income treated for federal and state income tax purposes substantially as if the Company were a partnership. The stockholder’s share of the net income of the Company is reportable on their individual tax return. Accordingly, the combined financial statements reflect no provision or liability for federal income taxes. The State of Florida also does not impose an income tax on Subchapter S corporations; therefore, the combined financial statements reflect no provision for state income taxes.

 

Advertising

 

The Company expenses production costs for advertising the first time the advertising takes place. Advertising expense for the years ended December 31, 2020 and 2019 was $5,327,888 and $5,435,114, respectively.

 

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FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Use of Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in calculating deferred revenue.

 

NOTE 2 - accounts receivable, NET

 

Accounts receivable consist of the following at December 31, 2020, 2019, and 2018:

 

   2020   2019   2018 
             
Manufacturer receivables  $620,885   $1,020,921   $2,304,695 
Trade and vehicle receivables   771,678    412,632    848,293 
Finance and insurance receivables   118,303    199,521    290,567 
Less allowance for doubtful accounts   -    -    (5,175)
Total Accounts Receivable, Net  $1,510,866   $1,633,074   $3,438,380 

 

NOTE 3 - INVENTORIES

 

The major components of inventories at are as follows:

 

   2020   2019 
         
New vehicles, net of LIFO reserve of $878,201 in 2020 and $1,768,790 in 2019  $9,877,438   $25,156,467 
Used vehicles   5,510,013    6,484,178 
Parts, accessories, supplies and other   943,613    888,004 
           
Total Inventories  $16,331,064   $32,528,649 

 

The majority of new and used inventories are pledged as security under a loan and security agreement providing floor plan notes (Note 5).

 

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FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Note 4 - property and equipment, net

 

Property and equipment consisted of the following at December 31, 2020 and 2019:

 

Furniture and fixtures  $1,830,367   $1,812,577 
Service equipment and computer systems   1,489,369    1,485,452 
Leasehold improvements   575,306    575,306 
Company vehicles   211,666    163,380 
    4,106,708    4,037,165 
Less accumulated depreciation and amortization   3,284,855    2,773,418 
           
Property and Equipment, Net  $821,853   $1,263,747 

 

Depreciation and amortization expense was $533,169 and $563,195 for the years ended December 31, 2020 and 2019, respectively.

 

NOTE 5 - NOTES PAYABLE - FLOOR PLAN

 

Notes payable - floor plan consists of borrowings from Hyundai Capital America (HCA) under line of credit arrangements for both new and used vehicles. At December 31, 2020 and 2019, the maximum borrowing availability was $45,100,000. Borrowings bear interest at a rate equal to the Prime Rate minus .05% for both new and used vehicles. The Prime Rate was 3.25% and 4.75% at December 31, 2020 and 2019, respectively.

 

The floor plans are secured by substantially all assets of the Company, entities related by means of common ownership and the stockholder of the parent company. The Company is subject to certain financial covenants and was in compliance at both December 31, 2020 and 2019. Total amounts due under these agreements were $12,637,177 and $29,408,025 at December 31, 2020 and 2019, respectively.

 

NOTE 6 - NOTES PAYABLE – Paycheck Protection Program

 

In April 2020, the Company received Paycheck Protection Program (PPP) loans totaling $3,137,597 guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid Relief, and Economic Security Act (CARES Act). The Company made repayments totaling $222,937, which management determined was necessary to remain compliant with subsequently released program guidance. The total outstanding balance was $2,914,660 at December 31, 2020. A portion of this loan may be forgivable based on the amount of qualifying expenses incurred and levels of employee headcount and salaries maintained during a measurement period. Any portion of the loan that is not forgiven will be repaid through April 2022 and bear interest at a rate of .98% per annum. The Company considers the PPP loan to be debt at December 31, 2020 and accordingly, deferred recording the amount of forgiveness until legally released by the lender. Management anticipates the loan will be forgiven based on the qualified expenses incurred and therefore has recorded the entire balance of the loan as a non-current liability at December 31, 2020.

 

The Company began the application for forgiveness submission process in December 2020 and is currently awaiting approval from the lending institution.

 

-11-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

The Company transferred funds to an interest-bearing escrow equal to the outstanding balance of the PPP loans prior to the sale of the dealerships, described in Note 17, to comply with the SBA Procedural Notice related to PPP loans and Changes of Ownership, released on October 2, 2020. After the forgiveness process is completed, the escrow funds will be released to repay any remaining PPP loan balance with the excess disbursed to the Company.

 

NOTE 7 - RELATED PARTY TRANSACTIONS

 

Shared Service and Management Fees

 

The Company pays monthly shared service and management fees to a company related by means of common ownership. These payments include: shared services and allocated operating expenses, which are charged to operating expenses, of approximately $2,000,000 and $2,300,000 for the years ended December 31, 2020 and 2019, respectively; corporate charter and nonoperating expenses, which are charged to other expenses, of approximately $300,000 each for the years ended December 31, 2020 and 2019; corporate payroll expenses related to offsite management, which are charged to other expenses, of approximately $1,000,000 and $1,200,000 for the years ended December 31, 2020 and 2019, respectively; and management fees related to executive oversight, which are charged to other expenses, of approximately $700,000 and $800,000 for the years ended December 31, 2020 and 2019, respectively.

 

NOTE 8 - REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Vehicle Sales

 

Revenue from the sale of vehicles is recognized by the Company at a point in time when all performance obligations are satisfied. Performance obligations are considered satisfied when a contract is signed by the customer, financing for the vehicle purchase has been arranged or collection of substantially all the purchase price is deemed probable, and control of the vehicle is transferred to the customer. The transaction price for a retail vehicle sale is specified in the contract with the customer, including cash and noncash considerations. A vehicle sale can include the customer trading in their existing vehicle as noncash consideration. Trade-ins are measured at the stand-alone selling price. All vehicle rebates are applied to the vehicle sale price at the time of the transaction and, therefore, are incorporated into the price of the contract at the time of the exchange. Return of new or used vehicles is not allowed, except where mandated by state law. A contract in transit is recorded at the time of sale and remains until the vehicle financing arrangements have been settled with the funding source. The Company recognizes incentives provided by the manufacturers upon the sale of new vehicles as a reduction to cost of sales. A receivable is recorded from the factory for these incentives.

 

Parts and Mechanical Service Sales

 

The Company sells parts and automotive services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties, and extended service. The Company also sells parts through its retail counter and on a wholesale basis.

 

Each automotive repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the service. Payment of automotive service work is typically due upon completion of the service, which is generally completed within a short period of time from contract inception. The transaction price for automotive repair and maintenance services is based on the parts used, the number of labor hours applied and standardized hourly labor rates.

 

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FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

The Company satisfies its performance obligations, transfers control and recognizes revenue over time for automotive repair and maintenance services because it is creating an asset with no alternative use and it has an enforceable right to payment for performance completed to date. The Company uses an input method to recognize revenue and measure progress based on labor hours expended and parts utilized calculated using the average gross profit for repair and maintenance services. The Company has determined labor hours expended and parts utilized to be a relevant measure of work performed to complete the automotive repair and maintenance service for the customer.

 

The transaction price for retail counter and wholesale parts sales is determined at the time of the sale based on the quantity and price of each product purchased. Payment is typically due at the time of sale, or within a short period of time following the sale. The Company allows for customer returns on sales of parts inventory; however, most parts returns generally occur within one to two weeks from the time of sale and are not significant. Trade receivables are recorded for any customer given credit for these services. Delivery methods of retail counter and wholesale parts vary; however, the Company generally considers control of retail counter and wholesale parts to transfer when the products are shipped, which typically occurs the same day or within a few days of the sale.

 

The Company is the obligor on certain customer prepaid maintenance contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The contract liability balances were $677,182 and $969,204 at December 31, 2020 and 2019, respectively. The contract liability balances are included in deferred revenue. Certain costs incurred at the inception of these contracts are included in prepaids as contract assets. Contract assets amounted to $85,374, $93,550, and $83,741 at December 31, 2020, 2019, and 2018, respectively.

 

Finance and Insurance

 

The Company sells finance and insurance products for which the Company receives a commission. The Company acts as an agent in the sale of these products as the pricing is set by the third-party provider and the amount of the commission is predetermined. For the majority of finance and insurance product sales, the Company’s performance obligation is to arrange for the provision of goods or services by another party. The performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the customer, generally at the time of the vehicle sale. The Company recognizes revenue in the amount of any commission to which it expects to be entitled, which is the net amount of consideration retained after paying the third-party provider the consideration received in exchange for the good or service to be fulfilled by that party.

 

The Company arranges financing with financial institutions for its customers’ purchases of new and used vehicles, for which the Company earns a fee from the respective financial institution. The Company records financing receivables for these fees. Certain institutions provide the Company with commissions based on the performance of the related financing contracts. This is a form of variable consideration that is subject to constraint due to it being highly susceptible to factors outside of the Company’s influence and control. Due to the high degree of uncertainty regarding these types of commissions, the Company recognizes revenue as the commissions are received.

 

-13-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Commissions and fees that the Company earns for selling finance and insurance products and arranging financing contracts may be subject to chargeback if the customer terminates the respective contract earlier than the stated period. An estimated refund liability for chargebacks against the revenue recognized from sales of finance and insurance products is recorded in the period in which the related revenue is recognized and is based primarily on historical chargeback experience. The Company updates its measurement of the chargeback liabilities at each reporting date for changes in expectation about the amount of total chargebacks. The reserve for chargeback liabilities was $82,453 and $104,063 at December 31, 2020 and 2019, respectively and is included in accrued liabilities within the accompanying combined balance sheets.

 

Disaggregation of Revenue

 

The majority of the Company’s revenue is from contracts with customers. Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue. Revenue in the combined statements of income is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. Revenue from new vehicle retail sales, used vehicle retail sales, used vehicle wholesale sales, retail counter and wholesale parts sales, and financing and insurance, net is recognized at the point in time in which the goods and services are transferred. Revenue from repair and maintenance services are recognized over time as the related work is performed on the vehicles. Revenue from repair and maintenance services totaled $4,397,554 and $4,611,237 for the years ended December 31, 2020 and 2019, respectively, and are included in service and parts sales on the accompanying combined statements of income.

 

NOTE 9 - COMMON STOCK

 

The common stock included in the Company’s combined financial statements as of is as follows:

 

   Authorized  Issued   Outstanding 
            
Fuccillo Affiliates of Florida, Inc. ($10 par value)  200 shares   100    100 
Fuccillo Associates of Florida, Inc. (no par value)  200 shares   100    100 

 

-14-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

NOTE 10 - OPERATING LEASES

 

The Company leases its dealership facilities from related parties under operating leases which expire through 2030. Leases with an initial term of 12 months or less are not recorded on the combined balance sheets; lease expense is recognized for these leases on a straight-line basis over the lease term.

 

Weighted average remaining lease terms and discount rates for operating leases at December 31, 2020 were 7.2 years and 5.2%, respectively.

 

Total lease expense under operating leases for both the years ended December 31, 2020 and 2019 totaled $1,098,000.

 

Maturities of operating lease liabilities, excluding potential increases, at December 31, 2020 are as follows:

 

Year Ending December 31    
     
2021  $1,098,000 
2022   1,098,000 
2023   1,098,000 
2024   1,098,000 
2025   1,098,000 
Thereafter   2,032,000 
Total lease payments   7,522,000 
Less imputed interest   1,247,940 
Present value of lease liabilities   6,274,060 
Less current portion of lease liabilities   795,284 
      
Lease Liabilities, Net of Current Portion  $5,478,776 

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES

 

Government Regulations

 

The Company is subject to federal and state environmental regulations, including rules relating to air and water pollution, and the storage and disposal of gasoline, oil, other chemicals and waste. Local, state and federal regulations also affect automobile dealerships’ advertising, sales and service, and financing activities. The Company believes that it is in compliance with all applicable laws relating to its business.

 

Manufacturer

 

The Company’s business is highly dependent on consumer demand and preferences.  Any events detrimental to the local, national or international economy, including, but not limited to, interruptions to the manufacturer’s supply chain, manufacturer recalls, negative publicity or legal proceedings related to these events may have a negative impact on the Company or the products the Company sells.  If such events are significant, the profitability of the Company’s dealerships could be adversely affected, and the Company could experience a material adverse effect on its overall results of operations, financial position and cash flows.

 

-15-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Guarantor

 

The Company is the guarantor of mortgages on the facilities that it rents from related parties. The total amounts outstanding on these mortgages amounted to $9,927,211 and $10,584,284 at December 31, 2020 and 2019, respectively.

 

NOTE 12 - RETIREMENT PLAN

 

The Company has in place a salary deferral plan that is open to all employees who have completed one year of service and have attained the age of 21. Participants may contribute a percentage of compensation up to 100%. The Company makes matching contributions of 10% of the employee’s deferrals up to the first 5% of the employee’s total compensation. Matching contributions for the years ended December 31, 2020 and 2019 were $4,190 and $10,221, respectively.

 

NOTE 13 - NONCONSOLIDATED VARIABLE INTEREST ENTITIES

 

Generally accepted accounting principles provide a framework for identifying variable interest entities (VIEs) and determining when a company should consolidate a VIE in its combined financial statements. In general, a VIE is a legal entity that 1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, 2) has a group of equity owners that are unable to direct the activities of the entity that most significantly impact its economic performance, or 3) has a group of equity owners that do not have the obligation to absorb losses of the entity or the right to receive returns of the entity. A VIE should be consolidated if a variable interest holder has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary.

 

Management has determined that it does not have a financial interest in any entity which would be classified as VIE and require consolidation in these combined financial statements.

 

NOTE 14 - CASH FLOWS

 

Additional Cash Flow Information

 

   2020   2019 
         
Cash paid during the year for:        
Interest  $890,869   $1,581,800 
           
Noncash investing and financing activities:          
Operating lease assets assumed   -    7,746,021 
Operating lease liabilities assumed   -    7,746,021 

 

-16-

 

 

FUCCILLO KIA DEALERSHIPS

 

NOTES TO COMBINED FINANCIAL STATEMENTS

 

NOTE 15 - Coronavirus

 

On January 30, 2020, the World Health Organization declared a novel strain of coronavirus (COVID 19) to constitute a "Public Health Emergency of International Concern" and characterized it as a pandemic. Federal and state governments have implemented numerous restrictions on daily life, including quarantine requirements and travel restrictions, in connection with the outbreak. With the spread of the virus and the limitations placed on its customers, the Company began experiencing business disruptions in March 2020. While the Company expects this matter to negatively impact its results, the extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the outbreak, related government restrictions, and the impact of COVID-19 on overall demand for the Company’s products and services. All of these items are highly uncertain and cannot be predicted.

 

NOTE 16 - SUBSEQUENT EVENT

 

During March 2021, the Company sold substantially all of its assets to an unrelated third party. Under the terms of the agreement the intangible assets were sold for $36,000,000, property and equipment for $1,063,914 and inventories for fair market value, which approximated book value at the time of sale. The purchaser also purchased the related real estate which terminated all real estate leases, releasing the Company from any further obligation under those lease arrangements. The Company also paid off floorplan balances related to all inventory included in the sale.

 

The Company has evaluated subsequent events through April 30, 2021, the date which the financial statements were available to be issued.

 

-17-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINING BALANCE SHEET SCHEDULE     
DECEMBER 31, 2020

 

   Fuccillo   Fuccillo         
   Affiliates of   Associates of         
   Florida, Inc.   Florida, Inc.   Eliminations   Total 
                 
ASSETS                
                 
Current Assets                
Cash and cash equivalents  $5,511,193   $5,640,423   $           -   $11,151,616 
Contracts in transit   2,294,790    1,129,806    -    3,424,596 
Accounts receivable, net   808,448    702,418    -    1,510,866 
Prepaid expense   680,869    430,420    -    1,111,289 
Inventories   8,434,451    7,896,613    -    16,331,064 
Total current assets   17,729,751    15,799,680    -    33,529,431 
                     
Noncurrent Assets                    
Property and equipment, net   454,055    367,798    -    821,853 
Operating lease right of use assets   2,980,411    3,293,650    -    6,274,061 
Total noncurrent assets   3,434,466    3,661,448    -    7,095,914 
                     
Total Assets  $21,164,217   $19,461,128   $-   $40,625,345 
                     
LIABILITIES AND STOCKHOLDER’S EQUITY                    
                     
Current Liabilities                    
Notes payable - floor plan  $6,068,245   $6,568,932   $-   $12,637,177 
Accounts payable   1,190,402    565,339    -    1,755,741 
Accrued taxes and expenses   1,132,324    702,811    -    1,835,135 
Current portion of deferred revenue   164,101    186,295    -    350,396 
Current portion of operating lease liabilities   254,776    540,508    -    795,284 
 Total current liabilities   8,809,848    8,563,885    -    17,373,733 
                     
Noncurrent Liabilities                    
Notes payable - Paycheck Protection Program   1,709,333    1,205,327    -    2,914,660 
Deferred revenue, net of current portion   152,025    174,761    -    326,786 
Operating lease liabilities, net of current portion   2,725,635    2,753,142    -    5,478,777 
 Total noncurrent liabilities   4,586,993    4,133,230    -    8,720,223 
                     
Total liabilities   13,396,841    12,697,115    -    26,093,956 
                     
Stockholder’s Equity                    
Common stock   1,000    -    -    1,000 
Additional paid-in capital   10,276,344    3,810,682    -    14,087,026 
Retained earnings (deficit)   (2,509,968)   2,953,331    -    443,363 
Total stockholder’s equity   7,767,376    6,764,013    -    14,531,389 
                     
Total Liabilities and Stockholder’s Equity  $21,164,217   $19,461,128   $-   $40,625,345 

 

The accompanying notes are an integral part of these schedules

 

-18-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINING BALANCE SHEET SCHEDULE     
DECEMBER 31, 2019

 

   Fuccillo   Fuccillo         
   Affiliates of   Associates of         
   Florida, Inc.   Florida, Inc.   Eliminations   Total 
                 
ASSETS                
                 
Current Assets                
Cash and cash equivalents  $2,537,057   $2,503,466   $-   $5,040,523 
Contracts in transit   1,090,837    801,998    -    1,892,835 
Accounts receivable, net   1,148,579    484,495    -    1,633,074 
Prepaid expense   511,140    406,370    -    917,510 
Inventories   18,781,048    13,747,601    -    32,528,649 
Due from related parties   -    562,310    (562,310)   - 
Total current assets   24,068,661    18,506,240    (562,310)   42,012,591 
                     
Noncurrent Assets                    
Property and equipment, net   518,460    745,287    -    1,263,747 
Operating lease right of use assets   3,222,304    3,806,827    -    7,029,131 
Total noncurrent assets   3,740,764    4,552,114    -    8,292,878 
                     
Total Assets  $27,809,425   $23,058,354   $(562,310)  $50,305,469 
                     
LIABILITIES AND STOCKHOLDER’S EQUITY                    
                     
Current Liabilities                    
Notes payable - floor plan  $16,484,939   $12,923,086   $-   $29,408,025 
Accounts payable   693,761    199,520    -    893,281 
Accrued taxes and expenses   1,754,063    720,120    -    2,474,183 
Current portion of deferred revenue   241,300    275,079    -    516,379 
Current portion of operating lease liabilities   241,893    513,177    -    755,070 
Due to related parties   562,310    -    (562,310)   - 
Total current liabilities   19,978,266    14,630,982    (562,310)   34,046,938 
                     
Noncurrent Liabilities                    
Deferred revenue, net of current portion   218,573    234,252    -    452,825 
Operating lease liabilities, net of current portion   2,980,411    3,293,650    -    6,274,061 
 Total noncurrent liabilities   3,198,984    3,527,902    -    6,726,886 
                     
Total liabilities   23,177,250    18,158,884    (562,310)   40,773,824 
                     
Stockholder’s Equity                    
Common stock   1,000    -    -    1,000 
Additional paid-in capital   10,276,344    3,810,682    -    14,087,026 
Retained earnings (deficit)   (5,645,169)   1,088,788    -    (4,556,381)
Total stockholder’s equity   4,632,175    4,899,470    -    9,531,645 
                     
Total Liabilities and Stockholder’s Equity  $27,809,425   $23,058,354   $(562,310)  $50,305,469 

 

The accompanying notes are an integral part of these schedules

 

-19-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINING SCHEDULE OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020

 

   Fuccillo   Fuccillo         
   Affiliates of   Associates of         
   Florida, Inc.   Florida, Inc.   Eliminations   Total 
                 
Revenues                
New vehicle retail sales  $58,732,047   $44,361,270   $          -   $103,093,317 
Used vehicle retail sales   19,093,832    14,691,626    -    33,785,458 
Used vehicle wholesale sales   5,133,570    4,985,814    -    10,119,384 
Service and parts sales   6,427,483    4,342,814    -    10,770,297 
Finance and insurance income, net   5,276,600    4,407,342    -    9,683,942 
Total revenues   94,663,532    72,788,866    -    167,452,398 
                     
Cost of Sales                    
New vehicle retail   47,606,139    39,038,817    -    86,644,956 
Used vehicle retail   16,686,083    12,042,279    -    28,728,362 
Used vehicle wholesale   4,522,875    4,194,858    -    8,717,733 
Service and parts   3,460,349    2,045,922    -    5,506,271 
Total cost of sales   72,275,446    57,321,876    -    129,597,322 
                     
Gross Profit on Sales   22,388,086    15,466,990    -    37,855,076 
                     
Operating Expenses                    
Selling, general and administrative                    
 expenses   16,007,786    10,216,904    -    26,224,690 
Interest expense   436,910    398,517    -    835,427 
Depreciation and amortization   162,304    370,865    -    533,169 
Total operating expenses   16,607,000    10,986,286    -    27,593,286 
                     
Income from Operations   5,781,086    4,480,704    -    10,261,790 
                     
Other Expenses, Net   (789,487)   (891,252)   -    (1,680,739)
                     
Net Income  $4,991,599   $3,589,452   $-   $8,581,051 

 

The accompanying notes are an integral part of these schedules

 

-20-

 

 

FUCCILLO KIA DEALERSHIPS
 
COMBINING SCHEDULE OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019

 

   Fuccillo   Fuccillo         
   Affiliates of   Associates of         
   Florida, Inc.   Florida, Inc.   Eliminations   Total 
                 
Revenues                
New vehicle retail sales  $71,253,471   $53,166,772   $           -   $124,420,243 
Used vehicle retail sales   19,823,167    13,259,641    -    33,082,808 
Used vehicle wholesale sales   6,243,709    5,419,687    -    11,663,396 
Service and parts sales   6,715,652    4,382,606    -    11,098,258 
Finance and insurance income, net   5,801,352    4,212,662    -    10,014,014 
Total revenues   109,837,351    80,441,368    -    190,278,719 
                     
Cost of Sales                    
New vehicle retail   63,824,618    47,974,218    -    111,798,836 
Used vehicle retail   15,402,127    10,619,968    -    26,022,095 
Used vehicle wholesale   5,138,282    4,588,115    -    9,726,397 
Service and parts   3,662,091    2,228,735    -    5,890,826 
Total cost of sales   88,027,118    65,411,036    -    153,438,154 
                     
Gross Profit on Sales   21,810,233    15,030,332    -    36,840,565 
                     
Operating Expenses                    
Selling, general and administrative                    
 expenses   15,767,572    10,758,257    -    26,525,829 
Interest expense   962,630    815,117    -    1,777,747 
Depreciation and amortization   192,525    370,670    -    563,195 
Total operating expenses   16,922,727    11,944,044    -    28,866,771 
                     
Income from Operations   4,887,506    3,086,288    -    7,973,794 
                     
Other Expenses, Net   (1,666,750)   (680,504)   -    (2,347,254)
                     
Net Income  $3,220,756   $2,405,784   $-   $5,626,540 

 

The accompanying notes are an integral part of these schedules

 

-21-