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As filed with the Securities and Exchange Commission on August 13, 1996
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. ____)
GENESIS FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
VIRGINIA 5777 54-1671737
- --------------------------- ---------------------- -----------------------
(State of jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Classification Code Identification No.)
organization) Number)
4206 WILLIAMSON ROAD, ROANOKE, VIRGINIA 24012 (540) 265-1368
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(Address and telephone number of principal executive offices)
4206 WILLIAMSON ROAD, ROANOKE, VIRGINIA 24012 (540) 265-1368
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(Address of principal place of business or intended principal place of business)
RICHARD R. SAYERS, P.O. BOX 404, ROANOKE, VIRGINIA 24003-0404 (540) 343-9800
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS DOLLAR PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT PRICE FEE
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Promissory Notes $8,000,000.00 $10,000.00 $8,000,000.00 $2,758.00
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Installment Sales $2,000,000.00 $5,000.00 $2,000,000.00 $690.00
Contracts
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Disclosure alternative used (check one): Alternative 1___; Alternative 2 X
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
THIS PRELIMINARY PROSPECTUS IS DATED AUGUST 9, 1996
SUBJECT TO COMPLETION
PROSPECTUS
GENESIS FINANCIAL GROUP, INC.
A Virginia Corporation (the "Company")
4206 Williamson Road
Roanoke, Virginia 24012
$8,000,000.00 Corporate Promissory Notes
Promissory Notes ("Notes") not to exceed $8,000,000.00
in the aggregate in increments of $2,500.00 with an
initial minimum investment of $10,000.00
_________________
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
Offerees will be initially restricted to a minimum purchase
requirement of one Note for $10,000.00. Thereafter, purchases
shall be in increments of $2,500.00.
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PRICE TO PUBLIC/1/ AGENT'S PROCEEDS TO
COMMISSIONS/1/ ISSUER/1/
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<S> <C> <C> <C>
Per Note $ 10,000.00 $ 500.00 $ 9,500.00
- --------------------------------------------------------------------------------
$8,000,000.00 $8,000,000.00 $400,000.00 $7,600,000.00
Promissory Notes
- --------------------------------------------------------------------------------
Total $8,000,000.00 $400,000.00 $7,600,000.00
================================================================================
</TABLE>
This Prospectus is dated August 9, 1996
________________________
(1) Notes will be sold on a best efforts basis; however, there is no minimum
amount of Notes that must be sold to close this offering.
(2) This estimate assumes a 5% commission and the sale of all securities
offered hereby by the Company's agents. The Company does not intend to pay
more than a 5% commission fee to its selling agents. Principals of the
Company will not receive any commissions or other remuneration for selling
the Company's securities.
(3) Before deducting estimated Offering expenses of $45,959.00.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-1 under the Securities Act with respect to the Notes offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Notes
offered hereby, reference is hereby made to the Registration Statement,
including the exhibits and schedules thereto. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed with
the Commission are not necessarily complete. With respect to each such contract,
agreement or other document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
As a result of the Offering of the Notes described herein, the Company will
become subject to the periodic reporting and other informational requirements of
the Exchange Act. As long as the Company is subject to such periodic reporting
and information requirements, it will file with the Commission all reports,
proxy statements and other information required thereby. The Registration
Statement and the exhibits and schedules thereto, as well as such reports and
other information filed by the Company with the Commission, may be inspected at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
office located at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference Branch
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or from the
regional office at prescribed rates.
The Company intends to distribute to its investors an annual report shortly
after the end of each fiscal year.
Until _________________ all dealers, if any, effecting transactions in the
Notes, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Company currently has a minimal operating history. It intends to engage
primarily in purchasing and servicing installment sales contracts ("Contracts")
originated by Mr. Car Man, Inc., ("MCMI") a Virginia corporation and an
Affiliate of the Company, in the sale of used automobiles, vans, light trucks
and other vehicles. (See "PROSPECTUS SUMMARY" and "DESCRIPTION OF THE
BUSINESS.")
Please refer to the "Glossary" section of this Prospectus for the meaning
of capitalized terms used throughout the text.
This Offering Involves Certain Material Risk Factors
----------------------------------------------------
In addition to the general risks in investing in a relatively new
enterprise, potential investors should consider other major risks, including:
(i) competition in the used car business;
(ii) the inability of investors to liquidate their investments;
(iii) the inability of customers to fulfill their contractual obligations
under the Contracts;
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(iv) recession or other economic downturn in the economy adversely
impacting MCMI's potential customer base;
(v) increase in charge-offs and delinquencies with respect to the
Contracts which could materially and adversely affect the Company's
profitability;
(vi) the loss of one or both of the Company's two principal executives;
and
(vii) the failure or liquidation of MCMI.
There is no trading market for the Notes and there are no assurances,
should transfer of such Notes be authorized, that a market will develop, or if
any such market does develop, that it will continue. (See "RISK FACTORS.")
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................... 2
PROSPECTUS SUMMARY...................................................... 6
The Company and Affiliates............................................ 6
Securities Offered.................................................... 7
Risk Factors 7
RISK FACTORS............................................................ 8
General Risks 8
Financing Risks....................................................... 8
Operational Risks..................................................... 9
Short Operating History............................................... 9
Limited Capital and Need for Additional Financing..................... 10
Key Personnel......................................................... 10
Nature of Business.................................................... 10
Failure of MCMI....................................................... 10
Repossession and Casualty Risks....................................... 10
Lack of Financial Statements.......................................... 11
Dependence on Certain Principals...................................... 11
Determination of Offering Price....................................... 11
Tax Risks............................................................. 11
Lack of Liquidity..................................................... 11
Debt Service Obligations.............................................. 11
Company's Competition And Affiliation................................. 11
MCMI's Competition.................................................... 12
No Public Market...................................................... 12
Limitations on Liability of Officers and Directors.................... 12
No Independent Counsel to Investors................................... 12
Subscription of Securities and Shelf Registration..................... 12
USE OF PROCEEDS......................................................... 13
SUMMARY OF FINANCIALS................................................... 14
INVESTMENT HIGHLIGHTS................................................... 15
DETERMINATION OF OFFERING PRICE......................................... 17
CAPITALIZATION.......................................................... 17
DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES....................... 18
DESCRIPTION OF THE SECURITIES........................................... 18
DESCRIPTION OF THE BUSINESS............................................. 19
COMPETITION............................................................. 21
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EMPLOYEES 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 22
Operating History..................................................... 22
Liquidity and Capital Resources....................................... 22
Projections........................................................... 22
Refining the Showroom................................................. 23
Warranty.............................................................. 23
Results of Operations................................................. 23
PROPERTIES.............................................................. 23
LEGAL PROCEEDINGS....................................................... 24
MANAGEMENT.............................................................. 24
PRINCIPAL STOCKHOLDERS.................................................. 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 26
LEGAL MATTERS........................................................... 27
EXPERTS................................................................. 27
GLOSSARY................................................................ 28
INDEX TO FINANCIAL STATEMENTS........................................... 29
APPENDIX A: Promissory Note............................................ A-1
APPENDIX B: Articles of Incorporation And
Bylaws Of Genesis Financial Group, Inc..................... B-1
APPENDIX C: Subscription Letter........................................ C-1
APPENDIX D: Articles Of Incorporation And Bylaws Of Mr. Car Man, Inc... D-1
</TABLE>
5
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PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the information and financial statements included
elsewhere in this Prospectus.
The Company and Affiliates
--------------------------
The headquarters of the Company is located at 4206 Williamson Road,
Roanoke, Virginia 24012. The telephone number is (540) 265-1368. The Company has
a minimal operating history to date.
The Company will engage primarily in purchasing and servicing installment
sales contracts ("Contracts") originated by Mr. Car Man, Inc. ("MCMI"), a
Virginia corporation and an Affiliate of the Company, from the sale of used
automobiles, vans, light trucks and other vehicles (collectively referred to as
"Automobiles"). The principals and 100% shareholders of the Company are Jeffrey
W. Akers and Franklin W. Blankemeyer, Jr., both of Roanoke, Virginia. Messrs.
Akers and Blankemeyer also are the 100% shareholders and principals in MCMI.
Although the Company and MCMI were formed simultaneously on June 15, 1993, the
principals concentrated exclusively on developing and expanding MCMI's used
Automobile business during the past three years. Having established MCMI's
market niche in the Roanoke Valley, the principals are ready to implement the
second phase of their business plan to establish a funding vehicle for MCMI's
business operations. The Company was formed for this purpose and will provide
centralized funding, receivables management, and collection services for the two
business locations which MCMI currently owns and operates and for its future
operations in the used Automobile industry. MCMI's customer base primarily
consists of individuals having limited access to traditional sources of consumer
credit (the "Non-Prime Consumer"). The Company assists MCMI with the sale of
used vehicles by providing an indirect source of funding for such buyers.
Contracts which meet the Company's underwriting standards are purchased from
MCMI after the Company has reviewed and approved the Automobile purchaser's
credit application. In order to achieve an acceptable rate of return on its
funding and adjust for credit risks, Contracts are purchased from MCMI at a
discount to the remaining principal balance. (See "DESCRIPTION OF THE
BUSINESS".)
MCMI will offer its Contracts for sale exclusively to the Company. The
Company intends to purchase some or all of the Contracts offered by MCMI from
time to time. MCMI has been engaged in purchasing, servicing, selling, and
financing used Automobiles since August 2, 1993. MCMI and the Company have
targeted the Non-Prime Consumer as its primary customer base. In the past, this
segment of the used car market has been very poorly serviced since the consumer
had few dealerships from which to choose. MCMI's goal is to establish a new
marketing niche in the used car industry in the Roanoke Valley, located in
Southwest Virginia, and beyond through a very heavy emphasis on customer
service, proper marketing, and sound business management. MCMI currently has two
locations serving the Roanoke Valley area, and future expansion is planned
targeting additional market areas outside the Roanoke Valley.
The Company intends to sell up to $8,000,000.00 of corporate promissory
notes to Investors over a period of time to obtain the capital it needs to fund
the purchase of the Contracts generated by MCMI and for other business
operations. Contemporaneously with the offering of its Notes the Company will
also package and offer for sale over a period of time to selected investors some
or all of the Contracts it purchases from MCMI for the purpose of raising
additional capital in the amount of $2,000,000.00. The funds received from the
sale of the Contracts will also be utilized to fund the Company's business
operations. Pursuant to its SB-1
6
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offering ("Offering"), the Company intends to offer for sale to investors its
Notes and the Contracts to raise in the aggregate a total of $10,000,000.00, the
maximum amount of funds permitted to be raised under a SB-1 offering. Because of
the nature of MCMI's business, the entire Offering will continue over an
extended period of time to allow MCMI the time it will need to generate a
sufficient number of Contracts for sale to the Company in order to consummate
this Offering. The Company anticipates that the Offering will be consummated in
three years. (See "INVESTMENT HIGHLIGHTS" and "CAPITALIZATION.") In addition,
in order to adapt to changing market conditions and maximize its opportunities
to capitalize on investors' investment objectives and goals, the Company
reserves the right to adjust from time to time the amount of Notes and Contracts
it will offer for sale subject to the $10,000,000.00 offering limit. However,
the Company will not sell more than $8,000,000.00 in Notes. Accordingly, the
Company may file amendments to this Prospectus in conjunction with its other
periodic reporting requirements.
The Company's strategy is to grow its portfolio of contract receivables by
assisting MCMI in growing its business. The Company and MCMI believe that the
nature of their business present significant opportunities for growth for the
following reasons: (1) the automobile finance market, with approximately $325
billion in outstanding automobile installment credit as of March 31, 1995, is
the second largest consumer credit market in the United States; (2) the Non-
Prime Consumer portion of the automobile finance market is estimated to be
between $30.0 and $50.0 billion; (3) the used automobile market has grown over
the past five years at four times the rate of the new automobile market; and (4)
there is not a dominant used car dealer which focuses on the Non-Prime Consumer
in the Roanoke Valley or in the other major cities and towns surrounding
Roanoke.
MCMI has successfully concluded a private placement of its Contracts under
Rule 504 of Regulation D promulgated under the Securities Act of 1933. Through
the private placement of such Contracts, MCMI has raised capital in excess of
$950,000.00. Because of the success of MCMI's business and the private offering,
the principals of the Company and MCMI look to expand their business and
customer base through additional capital infusion. (See "DESCRIPTION OF THE
BUSINESS"; "USE OF PROCEEDS"; and "Description Of The Securities," and
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations.")
Securities Offered
------------------
The securities described by this Prospectus are comprised of $8,000,000.00
of corporate promissory notes ("Notes") to be issued by the Company. The Notes
will bear interest at 18% per annum and will be amortized over a period of three
and one-half years. Investors will be subject to an initial minimum investment
of $10,000.00. Thereafter, the Notes must be purchased in increments of
$2,500.00. If the Offering is oversubscribed, the Company, at its discretion,
may reduce an Investor's subscription to accommodate other subscriptions. The
bulk of the net proceeds of the Offering will be used to purchase Contracts from
MCMI on an ongoing basis. MCMI will use the funds to replenish its inventory of
Automobiles and for working capital. (See "USE OF PROCEEDS"; "DESCRIPTION OF THE
SECURITIES"; and the form Note in Appendix "A".)
Risk Factors
------------
An investment in the Notes offered hereby will involve certain substantial
risks. These risks include a lack of financial flexibility and liquidity,
absence of a significant operating history for
7
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the Company, potential federal and state regulations of financing institutions,
competition, the nature of MCMI's business, the higher risk customer base, and
the lack of an existing market for the Notes. (See "RISK FACTORS.")
RISK FACTORS
An investment in the Company involves significant risks and is suitable
only for persons of substantial means who have no need for liquidity in their
investments. The following is not intended as a comprehensive discussion of all
risks that might be encountered by an Investor in the Company. Investors are
urged to consult with independent advisors and tax counsel for the possible
personal and tax consequences of an investment in the Company.
In addition to the other factors and information set forth in this
Prospectus, Investors should carefully consider and evaluate the following
specific risk factors:
I. Risks of Credit Business
------------------------
A. General Risks. The operation of a credit business primarily engaged in
-------------
purchasing and servicing installment sales contracts ("Contracts") for used
Automobiles originated by an affiliated company involves certain risks,
including those described in this Prospectus. By way of example and not
limitation, an investment in the Company is subject to the risk of adverse
changes in general or local economic conditions, such as: (i) inability to
compete with other consumer funding sources in a competitive market; (ii)
inability to raise and/or maintain sufficient capital reserves to finance the
purchase of new Contracts originated by MCMI; (iii) inability of MCMI's
customers to service their debt; (iv) inability of MCMI's customers to maintain
gainful employment; and (v) inability of MCMI to maintain high patronage levels.
In addition, certain expenditures associated with investments in the
Company (principally debt payments, lease obligations and maintenance costs) are
not normally decreased by events adversely affecting the Company's income. In
the event debt payments are not met, the Company may lose its leasehold interest
in some or all of its current business locations and may sustain as a result of
a foreclosure a loss of an asset collateralizing a secured debt. To the extent
the Company purchases real property in the future and defaults on any debt
secured by such real property, it could suffer a loss of its equity investment
in such real estate as a result of a foreclosure.
The success of the Company also depends upon the management skills of the
principal executive officers. The principal executive officers have prior
experience in collateral financing and have operated MCMI since its inception.
(See "MANAGEMENT" for a more thorough description of the background of the
principal executive officers.)
B. Financing Risks. The Company will incur substantial indebtedness
---------------
through the issuance of the Notes offered hereunder. Such indebtedness is
required to be paid within 3.5 years of the issue dates. Although the Company
anticipates that the indebtedness will be spread out over a period of years,
there can be no guarantee that the Company will be able to service all of its
indebtedness as it arises which could result in the loss of some or all of the
Company's assets which in turn may force the Company into bankruptcy and/or
liquidation. Without incurring such debt, the Company may be unable to
adequately finance the purchase of the Contracts from MCMI. Without such
financing, MCMI may be unable to obtain, through operating cash flow
8
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and/or from other sources, the funds it needs to meet operating expenses and/or
to replenish its inventory of Automobiles. (See "USE OF PROCEEDS.")
As previously described, the Company will purchase at a discount from MCMI
from time to time a substantial number of the Contracts generated through MCMI's
business operations to help fund MCMI's capital needs for operating expenses and
new inventory. The Company intends to use the bulk of the proceeds from the sale
of the Notes for such purposes. (See "USE OF PROCEEDS" and "DESCRIPTION OF THE
BUSINESS.") In addition, the Company will package some of the Contracts it
purchases from MCMI for resale to investors to provide additional funds for the
purchase of new Contracts. The Company will be responsible for collecting
payments and servicing the Contracts it sells to the investors. Although the
Company anticipates that customer payments under the Contracts will be
sufficient to service its obligations to its investors arising under the Notes
and Contracts, there can be no assurance that a customer will not default under
his or her Contract. In the event of a customer default on a Contract within an
investor's portfolio, the Company intends to replace the defaulted Contract with
a new Contract having similar terms and provisions. Absent such a replacement
Contract or until such a Contract is generated, the Company will be obligated to
make all payments due under the defaulted Contract to the investor. There can be
no guarantee that a replacement Contract will become available, or if one
becomes available that another default will not occur, and/or the Company will
have sufficient capital to satisfy all of its payment obligations under the
Notes and/or Contracts.
C. Operational Risks. If the expenses of operating the Company's business
-----------------
exceed the Company's income, the Company may have to obtain additional sources
of financing or dispose of some of its assets under disadvantageous terms. In
addition, in the event the operation of the Company's business does not generate
sufficient operating income to pay all of its operating expenses, taxes and debt
service requirements, MCMI may not be able to sustain its business operations
for lack of financing for new inventory. There can be no assurance that the
Company will not incur operating deficits. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.")
Should the Company's revenues be insufficient to service its debt and pay
taxes and other operating expenses, the Company will be required to utilize
working capital and/or seek additional funds or financing. There can be no
assurance that additional funds will be available to the Company if needed, or,
if available, will be on terms acceptable or advantageous to the Company.
II. Operating Risks
---------------
A. Short Operating History. Even though the Company was organized on June
-----------------------
15, 1993, the Company has a minimal operating history. However, MCMI has been
operating since August 2, 1993, and has successfully conducted a private
placement of its Contracts under Rule 504 of Regulation D, promulgated by the
Securities Act, through which it raised in excess of $950,000.00. The Company
anticipates that MCMI's business will continue to grow and that MCMI will
continue to generate Contracts that will be purchased by the Company and
subsequently packaged for resale to investors. Although the Company believes its
commercial paper financing and MCMI's used car business will be profitable,
there can be no assurance that the Company will generate sufficient revenues to
service all of its debt and other obligations to make the Company profitable.
9
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B. Limited Capital and Need for Additional Financing. Although the
-------------------------------------------------
Company believes it will have sufficient capital from the Offering to commence
business operations for an extended period of time, there can be no assurance
that the Company's activities will be successful or will generate adequate cash
flow to meet its capital and operational needs. Therefore, additional capital
may have to be raised internally and/or externally from time to time to finance
the Company's continuing and expanding business and its capital requirements.
Such additional financing may not be available at all or at the time needed or
may be available only on adverse terms. If the Company is unable to raise
sufficient capital by whatever means, the Company's ability to maintain and/or
expand its business operations and MCMI's ability to obtain funding for new
inventory may be severely hindered.
C. Key Personnel. The Company is dependent upon the continued services of
-------------
Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers. The loss of the services of
Mr. Blankemeyer or Mr. Akers could have a significant adverse effect on the
Company and/or MCMI.
D. Nature of Business. As customary with any consumer credit business,
------------------
there is substantial risk involved with customers defaulting on their
obligations under the Contracts. Since the Company will primarily operate to
fund the operations of MCMI and since MCMI will target "higher risk" consumers
for the purchase of its inventory, the risks of default are enhanced. There can
be no guarantee that the Company or MCMI will be able to absorb such losses
through repossessions and continued operations. Currently, MCMI experiences a
25% repossession rate based upon the total number of Contracts generated which
is within the non-prime industry's national average. The Company anticipates
that its credit review policies and the cash flow generated from the auction or
resale of repossessed cars will significantly curtail potential losses from
customer defaults.
E. Failure of MCMI. Currently, the Company is solely dependent upon MCMI
---------------
to generate the Contracts that it intends to purchase, package and resell to
investors. Conversely, MCMI will be primarily dependent upon the Company to
provide the needed funding for its operating expenses and new inventory. There
can be no assurance MCMI will continue to be successful in the used car
business. In the event MCMI experiences a protracted downturn in its used car
business or goes out of business, the Company's primary source of Contracts
would be materially and adversely impacted. Presently, the Company has no plans
for financing other used car dealerships or any other related business. There
can be no guarantee that the Company will be able to sustain any such loss of
MCMI's level of business and/or its affiliation and/or develop new business
relationships to satisfy its operating expenses and other obligations, including
its obligations to investors under the Notes and Contracts, or to continue its
operations on a profitable basis.
F. Repossession and Casualty Risks. Repossession of an Automobile sold on
-------------------------------
an installment basis is an inherent risk of the used car business. However, the
Company and MCMI have established credit guidelines which are stringently
enforced to help alleviate this risk. Company will vigorously enforce its
repossession rights and resell the repossessed Automobile in accordance with
applicable law. On average, twenty-five percent (25%) of all Contracts
originated by MCMI each year end in default resulting in repossession of the
underlying Automobile. An additional five percent (5%) of Automobiles sold each
year are damaged beyond repair. The 25% repossession rate and 5% casualty rate
total approximately ten percent (10%) of MCMI's accounts receivable on an annual
basis. (See "INVESTMENT HIGHLIGHTS.") However, in most cases involving a
casualty, the Company's investment is protected by casualty insurance. Further,
the Company believes that repossessions can be profitable if the repossessed
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Automobile is not irreparably damaged and is resold. (See "DESCRIPTION OF THE
BUSINESS.")
G. Lack of Financial Statements. Although the Company has had a minimal
----------------------------
operating history since incorporating in 1993, a comparative balance sheet has
been prepared as of December 31, 1993, 1994 and 1995. In addition, a comparative
balance sheet and income statement for the same periods have been prepared for
MCMI. Audited financial statements for the period ending December 31, 1995 and
an unaudited balance sheet and income statement for the first quarter of 1996
for MCMI have also been prepared and are included in this Prospectus (See the
"FINANCIAL STATEMENTS.")
H. Dependence on Certain Principals. Franklin W. Blankemeyer, Jr. and
--------------------------------
Jeffrey W. Akers intend to devote their full time to promote, market and develop
the business of the Company and MCMI. There can be no guarantee that all
principals will remain with the Company and/or MCMI, and the departure of one or
more could adversely affect the future success of the Company and/or MCMI.
I. Determination of Offering Price. The offering price of the Notes is
-------------------------------
solely predicated upon the face value of the Notes. (See "DESCRIPTION OF THE
SECURITIES"; and "DETERMINATION OF OFFERING PRICE.")
J. Tax Risks. All prospective Investors should retain their own tax
---------
counsel or advisor to discuss the possible tax effects ensuing from an
investment in the Company.
K. Lack of Liquidity. The Company will service the debt obligations
-----------------
evidenced by its Notes through normal business operations in conjunction with
MCMI. Proceeds from this Offering will be used primarily to fund the Company's
working capital needs including the purchase of Contracts and to provide a
source of funding for MCMI's business operations. (See "DESCRIPTION OF THE
BUSINESS.") In the event the Company's operating revenues are insufficient to
meet its obligations, additional cash requirements must be funded through
additional borrowings or credit extensions which may be unavailable. Since the
Company will not have substantial assets that can be pledged as collateral for
financing purposes, obtaining additional secured financing may not be possible.
This lack of financial flexibility and liquidity could adversely impact an
investment in the Company.
L. Debt Service Obligations. Pursuant to the Offering, the Company will
------------------------
be obligated on a significant level of indebtedness. In addition to the Notes
sold hereunder, the Company will be obligated to service the Contracts sold to
investors in the event a customer defaults and there are no replacement
Contracts available. In servicing this indebtedness, the Company may be
vulnerable to various risks, including, without limitation, the impairment of
the Company's ability to obtain additional financing for working capital,
capital improvements or other purposes and a possible downturn in the economy.
(See "PROSPECTUS SUMMARY"; "Description Of The Securities"; and "Description Of
The Business.")
M. Company's Competition And Affiliation. Currently, the Company intends
to purchase Contracts generated solely by its Affiliate, MCMI. Since the Company
and MCMI share the same principals and management, MCMI will not offer its
Contracts to any other funding source or company. Accordingly, the Company does
not anticipate any competition as long as MCMI remains viable and an Affiliate
of the Company. There can be no guarantee that MCMI will continue its successful
operations and/or remain in business or that the principals and management of
the Company and MCMI will remain the same.
11
<PAGE>
N. MCMI's Competition. In general, the used car business is highly
------------------
competitive. There are numerous competitors in the industry who are more
established and who have substantially greater financial resources than the
Company and MCMI. In addition, there are numerous competitors having greater
name recognition, better capitalization, equivalent or lower pricing guidelines,
more experienced organization, and a larger employee base. Also, the Company and
MCMI must contend with those competitors having better facilities and/or
equipment. Although Management believes MCMI has a significant advantage in the
Roanoke Valley at the present time due to the absence of any other dominant used
car dealer targeting the Non-Prime Consumer, the high degree of competition in
the used car business in general will remain a primary factor affecting both
MCMI's and the Company's profitability. The used car business will also continue
to be highly susceptible to changes in the economy and the buying habits of the
general public. (See "INVESTMENT HIGHLIGHTS"; "DESCRIPTION OF THE BUSINESS"; and
"COMPETITION.")
III. Investment Risks
----------------
A. No Public Market. No public market exists for the Notes, and it is
----------------
unlikely that a ready market will exist at any time in the future. Accordingly,
if an Investor wishes to transfer or sell his Notes, he may be unable to
liquidate his investment promptly at a reasonable price due to market conditions
and/or the general illiquidity of such an interest. The Company also reserves
the right to prepay one or more of the Notes at any time without penalty.
B. Limitations on Liability of Officers and Directors. The bylaws of the
--------------------------------------------------
Company provide that the officers and directors of the Company shall be
indemnified to the extent allowed by law. Therefore, an Investor may have a more
limited right of action against the officers and/or directors than he would have
if there were no such limitations.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED WITH RESPECT TO AN OFFICER'S OR DIRECTOR'S ACTION, THE
SECURITIES AND EXCHANGE COMMISSION HAS TAKEN THE POSITION THAT SUCH
INDEMNIFICATION PROVISION IS AGAINST PUBLIC POLICY AND, THEREFORE, IS
UNENFORCEABLE. (SEE "DISCLOSURE OF COMMISSIONS'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.")
C. No Independent Counsel to Investors. No independent counsel has been
-----------------------------------
retained to represent the interests of the Investors. This Prospectus was
drafted, in part, by counsel retained by or whose fees are paid, directly or
indirectly by the Company. These documents have not been reviewed by any
independent attorney on behalf of the Investors. Each Investor should,
therefore, consult with his own counsel and accountants as to the terms and
provisions of this Prospectus and all other documents relating thereto.
D. Subscription of Securities and Shelf Registration. The Company intends
-------------------------------------------------
to offer the Notes over an extended period of time. Accordingly, the Company
cannot predict with any degree of certainty how successful the Offering will be
or if the Notes will be fully subscribed. The Company anticipates that it will
take approximately three (3) years to fully subscribe the Notes. There can be no
guarantee that the Company will be successful even if the Notes are fully
subscribed.
12
<PAGE>
USE OF PROCEEDS
Currently, the Company has a minimal capitalization. A portion of the
proceeds of this offering will be used to pay certain costs and expenses
associated with this offering. The following table sets forth the proposed use
of proceeds from the sale of the Notes. The table assumes that the Notes are
fully subscribed. Since the Notes are being offered to Investors
contemporaneously with a $2,000,000.00 offering by the Company of its Contracts,
the costs associated with both offerings have been pro rated predicated upon the
percentage each offering bears to the aggregate $10,000,000.00 SB-1 offering
limit. (See "PROSPECTUS SUMMARY"; and "DESCRIPTION OF THE SECURITIES.") The
following figures represent the Company's best estimate as to the needs of the
Company. Accordingly, such estimates are subject to change as circumstances
dictate and should not be relied upon as a definitive account of the ultimate
use of the funds. All proceeds of the offering will be held by the Company for
the benefit of the Investors.
<TABLE>
<CAPTION>
<S> <C>
Proceeds from Offering: $8,000,000.00/1/
- ---------------------- -------------
LESS:
- ----
(a) Registration Fee: 2,759.00/2/
(b) State Securities Filing Fees: 5,200.00/3/
(c) Non-Refundable Legal Fees, Printing and 32,000.00/4/
Copying Costs; and Miscellaneous
Closing Costs Attributable to the
offering:
(d) Compensation of Selling Agents: 400,000.00/5/
(e) Accounting Fees: 6,000.00/6/
(f) Working Capital and Reserve: 7,554,041.00/7/
Total Application of Proceeds: $8,000,000.00/1/
----------------------------- -------------
</TABLE>
Notes to Use of Proceeds:
- ------------------------
1. Based on offering being fully subscribed. The Company anticipates this
offering will continue for an extended period of time. However, all fees
and costs listed herein are to be paid whether this offering is successful
and on or before the Effective Date of this Prospectus.
2. Based on 1/29 of 1% of aggregate offering price of the Notes. Total
registration fee for both Notes and Contracts will be approximately
$3,448.00. If the offering of the Contracts is unsuccessful, the Company
will pay the full registration fee from this offering.
3. Represents 80% of $6,500.00, the estimated cost of register-ing the Notes
and Contracts in the applicable states. This figure is subject to change
depending upon the amount of securities offered per state; the registration
fee of each applicable state; and the final number of states in which the
securities are registered.
4. Represents 80% of $40,000.00, the estimated costs to be incurred in
connection with the Offering including: (i) legal fees; (ii) recording,
printing, and travel expenses, and any other organizational or closing
costs and fees; and (iii) reimbursement of certain out-of-pocket expenses
for filing and other fees incurred in complying with federal and state
securities laws. All such fees and costs are non-refundable and shall be
paid at closing. A substantial portion of these expenses have been prepaid.
13
<PAGE>
5. Represents compensation to be paid to selling agents of the Company based
on a 5% commission scale. Assumes the Notes are fully subscribed solely
upon the efforts of the Company's agents.
6. Represents 80% of $7,500.00, the estimated cost of accounting fees to be
incurred with respect to the offering of the Notes and Contracts. A
substantial portion of these expenses have been prepaid.
7. Represents the balance of the offering proceeds to be used for working
capital and reserves.
SUMMARY OF FINANCIALS
The selected financial data presented below for the periods ended December
31, 1993, 1994, as well as for the period ended March 31, 1996, have been
derived from the unaudited financial statements of the Company and MCMI as well
as for the year ended December 31, 1995 for the Company. The financial data for
the year ended December 31, 1995 has been derived from the audited financial
statements of MCMI and the notes thereto. The unaudited financial statements
reflect all adjustments of a normal recurring nature which management considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
achieved for the entire year December 31, 1996 or for any other interim period.
The data set forth below should be read in conjunction with the section
captioned "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations" and the financial statements, notes thereto and other
financial and statistical information appearing elsewhere in this Prospectus.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
14
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Quarter
Ended
1993 1994 1995 March 31,
1996
<S> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA
- -------------------
Net Sales $ 120,392 559,637 1,135,664 510,208
Cost of Sales 92,265 456,841 713,182 361,414
-----------------------------------------------
Gross Profit 28,127 102,796 422,482 148,794
Operating Expenses 48,695 110,724 167,497 40,888
-----------------------------------------------
Operating Income (20,568) (7,928) 254,985 107,906
Other Expense, Net 2,394 13,775 31,328 4,002
-----------------------------------------------
Net Income (Loss) (22,962) (21,703) 223,657 103,904
===============================================
STATISTICAL
DATA
- -------------------
Gross Profit 23.36% 18.37% 37.20% 29.16%
Margin
Operating Margin -17.08% -1.42% 22.45% 20.37%
BALANCE SHEET
DATA
- -------------------
Working Capital 55,080 92,539 240,807 331,240
Total Assets 61,645 134,213 393,252 481,201
Long-Term Debt 81,224 143,260 167,708 166,540
and Capital Leases
Stockholders' ($20,862) ($41,411) $143,716 $274,198
Equity
</TABLE>
This financial information is prepared on a proforma basis as if the two
companies, Genesis Financial Group, Inc. and Mr. Car Man, Inc., were combined
during the periods presented. The companies were S Corporations during the
periods presented, therefore no provision for income taxes is reported.
Effective July 1, 1996, the S Corporation status of Genesis Financial Group,
Inc. was terminated, and the Company became subject to corporate income taxes.
INVESTMENT HIGHLIGHTS
The following chart shows proforma financial statements for the Company and
MCMI for a period of three years following the Offering. These projections are
based on historical data for MCMI and on the following assumptions: (i) 25%
default rate on all Contracts originated by MCMI; (ii) 5% casualty rate for
Automobiles; (iii) the 25% default rate and 5% casualty rate equal approximately
10% of MCMI's accounts receivable; and (iv) Contracts are purchased by the
Company from MCMI at a fair market value. It should be noted that in the
majority of cases casualty claims are and will continue to be fully covered by
insurance.
15
<PAGE>
MR. CAR MAN, INC.
PRO FORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
------ ------ ------
<S> <C> <C> <C>
REVENUES, NET $1,750,400 $3,500,800 $5,251,200
COST OF SALES 1,095,436 2,450,160 3,691,890
------------ ----------- ----------
GROSS PROFIT 654,964 1,050,640 1,559,310
EXPENSES
Personnel 20,000 32,000 44,000
Occupancy 46,900 70,350 105,525
Advertising 50,000 75,000 112,500
Legal and Professional 24,000 36,000 54,000
Other Expenses
Dues and Fees 1,478 2,217 3,326
Education 2,557 3,836 5,753
Insurance 5,000 7,500 11,250
Miscellaneous 8,500 12,750 19,125
Operating Supplies 6,400 9,600 14,400
Office Supplies 6,400 9,600 14,400
Outside Services 14,900 22,350 33,525
Office Expense 2,668 4,002 6,003
Repairs and Maintenance 8,500 12,750 19,125
Supplies 6,400 9,600 14,400
Taxes-Other 4,600 6,900 10,350
Telephone 9,000 13,500 20,250
Travel and Entertainment 5,000 7,500 11,250
Meals 4,000 6,000 9,000
Depreciation Expenses 8,000 12,000 15,000
------------ ----------- ----------
TOTAL EXPENSES 234,303 353,455 523,182
------------ ----------- ----------
INCOME FROM OPERATIONS 420,661 697,185 1,036,128
INTEREST EXPENSE 12,000 18,000 27,000
------------ ----------- ----------
NET INCOME $ 408,661 $ 679,185 $1,009,128
============ =========== ==========
</TABLE>
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PRO FORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
------ ------ ------
REVENUES
<S> <C> <C> <C>
REVENUES NET $322,677 $1,202,03 $2,538,12
INTEREST EXPENSE 90,329 373,146 813,644
---------- ---------- ----------
GROSS PROFIT 232,348 828,888 1,724,483
EXPENSES
Personnel 60,000 120,000 180,000
Occupancy 0 12,000 18,000
Legal and Professional 10,000 15,000 22,500
Bad Debt 65,480 276,389 615,627
Collection Costs 12,770 39,400 75,085
Commissions 75,000 150,000 225,000
Other Expenses
Insurance 3,000 6,000 6,000
Travel and Entertainment 7,500 11,250 16,875
Office Expenses 10,000 15,000 22,500
Telephone 2,500 5,000 10,000
Depreciation - 5,000 5,000
---------- ---------- ----------
TOTAL EXPENSES 246,250 655,039 1,196,587
---------- ---------- ----------
INCOME LOSS BEFORE TAXES (13,902) 173,849 527,896
INCOME TAXES (2,794) 57,414 200,390
---------- ---------- ----------
NET INCOME (LOSS) (11,108) $116,435 $327,506
=========== ========== ==========
</TABLE>
DETERMINATION OF OFFERING PRICE
The offering price for the Notes is predicated upon the face value of the
respective Notes. (See "DESCRIPTION OF THE SECURITIES.")
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, on an actual basis and as adjusted to reflect the pro forma effect of
the sale by the Company of all Notes offered hereby and all Contracts offered
simultaneously with the Notes (net of estimated
17
<PAGE>
offering expenses) and the application of the estimated net proceeds therefrom
from both offerings. (See "PROSPECTUS SUMMARY"; and "Use Of Proceeds.")
<TABLE>
<CAPTION>
March 31, Pro Forma
--------- ---------
1996 Actual After Offering
----------- --------------
<S> <C> <C>
Short-term debt -0- -0-
Long-term debt 9,174 8,000,000(Notes)/2/
2,000,000(Contracts)/3/
Stockholders' equity:
Common Stock, no par 2,000 2,000
value (100 shares
authorized; 20 shares
outstanding
Retained Earnings (10,945) (10,945)
Total Stockholders' Equity (8,945) (8,945)
</TABLE>
_______________________
(1) Please see the Financial Statements set forth in this Prospectus.
(2) Assumes entire $8,000,000 Notes offering is fully subscribed. Company
anticipates consummating this offering within 3 years. This figure does not
take into account debt service during this period of time as Notes are sold.
(3) Assumes entire $2,000,000 Contracts offering is fully subscribed. The
Company anticipates this offering will take more than 3 years to consummate.
This represents a contingent liability of the Company since the Company is
liable for all debt service obligations under the Contracts in the event of
default.
DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The bylaws of the Company contain provisions that provide for the
indemnification of officers and directors to the fullest extent permissible by
law. The Company may purchase directors and officers insurance for such
purposes. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities And Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. (See "RISK FACTORS - LIMITATION ON LIABILITY
OF OFFICERS AND DIRECTORS.")
DESCRIPTION OF THE SECURITIES
Notes. The Company is offering up to $8,000,000.00 in promissory notes
-----
("Notes") at a fixed rate of interest of 18% per annum amortized over a three
and one-half (3 1/2) year period.
18
<PAGE>
The Notes will be payable on a monthly basis with the first installment of
principal and interest due and payable on the first day of the second calendar
month following the date of the Note if the Note is issued on any day other than
the first day of a month. If the Note is issued on the first day of a month,
the first installment of principal and interest will be due on the first day of
the following month. Except for the first monthly installment which may have
additional accrued interest depending upon the issue date of the Note, principal
and interest shall be payable in forty-one (41) equal monthly installments. The
remaining principal balance of each Note together with all accrued interest
shall be due and payable on the forty-second (42nd) installment. The Notes will
be unsecured and may be prepaid, in whole or in part, at any time without
penalty.
Solicitations and sales of the Notes will be made by the principals and
agents of the Company. The Company anticipates paying commissions associated
with this offering on agents' sales only. The principals of the Company will not
receive any commissions or other remuneration on the sale of Notes. Total
estimated commissions would be $400,000.00 assuming a 5% commission, a fully
subscribed offering, and agent solicitation only. The Company will issue a Note
directly to an Investor upon receipt of a validly executed Subscription
Agreement, collected funds in the face amount of the Note, and any other
document required by the Company for an investment hereunder. A form Note is
appended hereto in Appendix "A".
DESCRIPTION OF THE BUSINESS
A. GENESIS FINANCIAL GROUP, INC.
-----------------------------
The Company was incorporated on June 15, 1993, under the laws of the
Commonwealth of Virginia as an S Corporation under the Internal Revenue Code
("Code"). Effective July 1, 1996, the Company terminated its S Corporation
status and is now a C Corporation under the Code. The Company was formed
specifically to provide a ready funding source for Mr. Car Man, Inc. ("MCMI"), a
used car dealership and an Affiliate of the Company. The Company is 100% owned
by Jeffrey W. Akers and Franklin W. Blankemeyer, Jr. The principals in the
Company are the same as in MCMI. The Company has a minimal operating history to
date but anticipates capitalizing on a significant business opportunity by
actively participating as the financial arm of MCMI's business. As previously
discussed, the Company will purchase some or all of the Contracts generated by
MCMI from time to time upon the sale of its Automobiles. The Company intends to
package the Contracts and offer them to investors on an ongoing basis to
generate additional revenues for business operations, including the purchase of
additional Contracts from MCMI. In conjunction with the underlying offering of
Notes, the Company will also register $2,000,000 in Contracts for sale to
investors. The Company will purchase the Contracts from MCMI at a discount to
the remaining principal balance.
MCMI's targeted market will primarily consist of those individuals who are
unable to obtain financing through traditional sources because of poor credit or
other salient risks, including, without limitation, divorce, medical
emergencies, and job loss ("Non-Prime Consumers"). Such customers are generally
deemed to be in a "high risk" classification by most conventional lenders giving
them little opportunity to reestablish their credit status and to redeem
themselves in the consumer market place. The Company will follow strict
guidelines before approving any such financing, including, without limitation,
reviewing credit reports and verifying employment and residence status. In
addition, the Company must be reasonably assured that the customer has the
ability to pay without adversely impacting the customer's standard of living.
The Company
19
<PAGE>
retains the right to review and revise its credit terms as and when it deems
necessary or appropriate under the circumstances. Although strict adherence to
these guidelines will not prevent non-performance of every Contract, the Company
reasonably believes that it will reduce the exposure of the Company to customer
defaults. (See "RISK FACTORS"; "INVESTMENT HIGHLIGHTS"; and the Financial
Statements in this Prospectus.)
MCMI will assign and transfer to the Company all Contracts purchased by the
Company and the motor vehicle titles to the Automobiles covered by such
Contracts. The Company intends to use the bulk of the funds received from the
sale of the Notes to Investors to purchase the Contracts. MCMI will use the
funds it receives from the sale of its Contracts to Company to finance its
business operations including, without limitation, the replenishment of its
inventory. The Company anticipates a steady stream of Contracts since the
targeted customer base for MCMI will be comprised of individuals who are
customarily unable to obtain financing through traditional or other sources.
(See "USE OF PROCEEDS"; and "INVESTMENT HIGHLIGHTS.")
The Company will undertake to repossess the Automobile in the event a
customer defaults. All such repossessed Automobiles will be sold at auction or,
to the extent allowed by law, resold by the Company. The opportunity to resell
such Automobiles is also dependent upon the condition of the Automobile at the
time of repossession. There can be no guarantee that all cars repossessed will
be in the same or similar condition as of the time of original sale.
B. MR. CAR MAN, INC.
-----------------
Mr. Car Man, Inc. ("MCMI") is a Virginia corporation duly organized on June
15, 1993, as an S Corporation under the Code. MCMI began business on August 2,
1993, at which time it sold its first used vehicle. Franklin W. Blankemeyer,
Jr., and Jeffrey W. Akers own all the issued and outstanding stock of MCMI and
each play an integral part in the business operations of both companies. MCMI
presently has two locations in the City of Roanoke, Virginia.
MCMI has established its reputation through fresh marketing ideas, a strong
emphasis on customer service and a sound financial base. MCMI strives to focus
on its customers and their needs. In addition, MCMI believes it has implemented
the best service program for its customers. Currently, MCMI offers all
customers a service agreement based on dealer's cost. Such a program covers the
actual cost of all parts needed with labor under warranty currently charged at
$22.50 per hour. This service agreement continues as long as the Contract is
outstanding.
Prior to this Offering, MCMI successfully concluded a limited private
placement offering under Rule 504 of Regulation D of the Securities Act of 1933.
Through this offering, MCMI raised funds in excess of $950,000.00. MCMI targets
the higher risk, Non-Prime Consumer, since there is a tremendous market for this
type consumer. MCMI anticipates that the majority of the Contracts it generates
will be sold at a discount to the Company through which it will obtain the
financing it needs to replenish its inventory and meet its other operating
capital needs.
MCMI's future goals include the development of a new showroom concept to
augment its customer base and additional expansion. MCMI intends to install
video monitors which will play segments of movies and comedy routines poking fun
at the used car industry. Inter-mixed between these segments will be songs and
other musical themes about cars in general which will be played through a
computerized sound system. MCMI intends to package this media
20
<PAGE>
presentation in displays incorporating parts of cars. This concept will provide
a more captivating and entertaining experience for the consumer. MCMI intends
to implement this new showroom concept at its second location at 4206 Williamson
Road. MCMI's goal is to open a new lot at a rate of one per year for the next
three years. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.")
COMPETITION
Since the Company intends to purchase all of its Contracts from its
Affiliate, MCMI, the Company has no direct competition for such Contracts.
However, if MCMI experiences a downturn in its business, becomes insolvent, or
goes out of business, or if the common ownership of the Company and MCMI should
change for whatever reason, the Company may be forced to pursue other
dealerships and/or consumer related businesses to continue its business
operations. In such event the Company could encounter significant competition in
its market area which competition could have an adverse impact on its financial
viability and business operations. (See "RISK FACTORS - COMPANY'S COMPETITION
AND AFFILIATION.")
Management estimates that MCMI has 5 major direct competitors in its
existing market area in Southwest Virginia which includes Roanoke City, Salem
City, Roanoke County, Botetourt County, Montgomery County and the Town of
Vinton. In addition, there are numerous new and used car dealers in the market
area in general.
The Non-Prime Market is very fragmented and highly competitive. Despite
significant opportunities, many financial entities, such as banks, savings and
loans, credit unions, captive finance companies, and leasing companies do not
consistently provide financing to this market. These organizations, which have
consistently serviced the automobile finance business, have migrated toward
higher credit quality consumers. The entities which do provide consistent
financing for Non-Prime Consumers can be broken into two primary categories: (i)
publicly traded specialty automobile finance companies; and (ii) dealers who
provide financing programs directly to the consumer. The remainder is comprised
of smaller finance organizations that solicit business when their capital
resources permit.
Due to the fact that specialty finance companies must compete with one
another for each car dealer's business, the Company believes it has a
significant advantage because MCMI will sell its Contracts exclusively to the
Company. The dealer who finances his own vehicles and does not sell off his
contracts finds himself at a disadvantage due to the substantial amount of
capital that the car business/finance business requires. These dealers typically
do not have large resources of capital and typically sell their vehicles AS/IS
without offering any kind of extended service warranty.
Because of its affiliation with the Company, MCMI anticipates having
sufficient capital to implement fresh marketing ideas, provide for a clean
atmosphere and retain friendly sales associates which, in turn, will separate it
from its competitors. MCMI's dedication to the customer, its exclusive bumper to
bumper warranty (which is a dealer cost warranty and lasts for the entire term
of the Contract) and its five day money back guarantee will help MCMI, and
therefore the Company, to prosper in this large and growing segment of the
industry. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - WARRANTY.")
21
<PAGE>
EMPLOYEES
Currently, the Company and MCMI have eight (8) employees in addition to the
two (2) principals who are full-time employees. There are no employment
agreements or other similar arrangements with the employees. None of the
employees are currently covered by collective bargaining agreements. Management
for both corporations believes that its employee relations are satisfactory.
(See "MANAGEMENT.")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating History
-----------------
The Company has a minimal operating history to date. Although the Company
and MCMI were incorporated at the same time, the principals of the Company
realized that they had to concentrate exclusively on building MCMI's business in
the initial years to generate the customer base and sales volume needed to
support the financing arm of their used car business. The principals have
successfully completed this part of their business plan and now seek to expand
their business to incorporate the credit side of the used car industry. By
providing customers with well-maintained used cars and favorable credit terms
not readily available elsewhere, Management believes the Company and MCMI will
become firmly entrenched in its market area. Through this offering, the Company
should become sufficiently capitalized to maintain its market niche.
To date, MCMI has successfully concluded a limited private placement
offering of its Contracts, having raised funds in excess of $950,000.00. (See
"DESCRIPTION OF THE BUSINESS.") To remain competitive in the used car industry,
MCMI must maintain sufficient operating capital to replenish its inventory. This
cannot be accomplished if it finances the majority of its sales without the
assistance of a finance company. The Company provides a ready market for MCMI's
"car paper" (i.e., the Contracts) which generates the cash flow MCMI needs to
satisfy its ongoing capital requirements. With a successful offering, the
Company anticipates it will have the capital reserves necessary to purchase
MCMI's Contracts on a continual basis. Management's long term goal is to
establish: (i) a market for MCMI's Contracts with large financial institutions,
pension funds and/or insurance companies; and/or (ii) sufficient lines of
credit, thereby reducing the need for individual investors.
Liquidity and Capital Resources
-------------------------------
Although the Company currently has no lines of credit and the availability
of credit in the foreseeable future is uncertain, Management believes that the
Company will be able to meet its future obligations through internally generated
funds, primarily the collection of payments due and owing under the Contracts.
However, there is no assurance that such collections will be sufficient to: (i)
cover all future obligations of the Company; (ii) purchase Contracts as they
arise; and/or (iii) meet the operating needs of MCMI.
Projections
-----------
Management is optimistic about the business opportunities available to the
Company and MCMI in the Non-Prime Market. See the sections captioned
"INVESTMENT HIGHLIGHTS"
22
<PAGE>
and "DESCRIPTION OF THE BUSINESS" for a three (3) year proforma summary and a
more detailed description of the business operations of the Company and MCMI.
Refining the Showroom
---------------------
Management will develop a new showroom concept which will be stimulating to
the eye as well as the ear. On display will be video monitors replaying
segments of movies and comedy stand-up routines, all of which poke fun or in
some way humorously relate to the car industry. Intermixed between these
segments will be portions of songs and other musical themes about cars, all
being played through a computerized sound system. Management will emphasize the
car theme in packaging this media by incorporating parts of cars into the
display. For example, a video monitor could be installed inside the headlight
and grill section of a '55 Chevy and hung from the ceiling. The car buying
process then truly becomes a captivating and entertaining experience.
Psychological research proves that humor lowers anxiety. By lowering a
potential customer's anxiety level, his level of trust rises, which increases
the chances of selling more cars.
Warranty
--------
MCMI currently offers to its customers a five (5) day money back guarantee
and a bumper to bumper dealer cost warranty. If a customer does not like the
Automobile for any reason, MCMI will give the customer his down payment back
less mileage. With the warranty, which lasts for the full length of the financed
contract term, MCMI only charges the customer what MCMI paid for the part (no
markup). Labor under warranty is currently priced at $22.50 per hour. These
features are unmatched in MCMI's market area and Management believes few if any
independent car companies offer these services in other regions of the United
States.
Results of Operations
---------------------
The Company has a minimal operating history. MCMI has been in operation
since August 2, 1993. See the sections captioned "SUMMARY OF FINANCIALS";
"INVESTMENT HIGHLIGHTS"; and "DESCRIPTION OF THE BUSINESS" and the Financial
Statements in this Prospectus for more detailed information on the Company's and
MCMI's operations to date and for a three year proforma financial summary.
PROPERTIES
The following table describes the principal office and business locations
of the Company and MCMI:
23
<PAGE>
<TABLE>
<CAPTION>
Location Description
- -------- -----------
<S> <C>
3733 Williamson Road Service and Collections Lot/1/
Roanoke, Virginia
4206 Williamson Road Sales Lot and Executive and Administrative
Roanoke, Virginia Offices for MCMI and the Company/2/
</TABLE>
____________________
/1/ Leased (term expires July 31, 1998; no renewal option)
/2/ Leased (term expires August 31, 1997; unlimited one year renewal options)
LEGAL PROCEEDINGS
Currently, neither Company nor MCMI is a party to any legal proceeding.
Although there have been no such proceedings to date, there is no guarantee that
such proceedings will not arise in the future in the ordinary course of
business, especially with respect to collection efforts necessitated by customer
defaults.
MANAGEMENT
A. Directors
---------
The table below sets forth the name, age, and position of the Company's and
MCMI's Directors:
<TABLE>
<CAPTION>
Name Age Position/Status
---- --- ---------------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 Director; 50% Shareholder
Jeffrey W. Akers 32 Director; 50% Shareholder
</TABLE>
Messrs. Blankemeyer and Akers are the sole shareholders and directors of MCMI
and the Company and are serving terms that will expire at the date of the annual
shareholders' meeting in 1996.
B. Officers
--------
The table below sets forth the name, age and position of the Company's and
MCMI's executive officers:
24
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 President and Secretary
Jeffrey W. Akers 32 Vice-President and Treasurer
</TABLE>
C. Biographies of Directors and Officers
-------------------------------------
Franklin W. Blankemeyer, Jr. Mr. Franklin W. Blankemeyer, Jr., co-founder
----------------------------
and Director of the Company and MCMI, has served as the President and Secretary
for both companies since June 1993. Prior to founding the Company, Mr.
Blankemeyer was employed by Valleydale Foods, Inc. and Valleydale Packers, Inc.
(collectively "Valleydale") and served as plant manager of Valleydale's Salem,
Virginia, sales/production facility directing the efforts of 225 employees.
Valleydale had annual sales of $40,000,000. Mr. Blankemeyer was with both
companies for a total of 8 years. Mr. Blankemeyer also served as program
director for Southwestern Virginia's International Trade Association during his
employment at Valleydale Packers, Inc. Mr. Blankemeyer graduated from Hampden-
Sydney College in 1986, cum laude, with a B.S. in Economics.
Jeffrey W. Akers. Mr. Jeffrey W. Akers graduated from Virginia Tech in 1987
----------------
with a B. S. in Civil Engineering. He worked at Richard L. Williams Consulting
Engineers as a Project Structural Engineer for three years designing small to
medium sized commercial buildings before turning to the field of finance and
investments. After two years serving as a Financial Consultant and a training
manager for IDS Financial Services (now American Express Financial Advisors)
where he qualified for the Mercury Award, presented to the top 20% performers,
he founded the Company and MCMI with Franklin Blankemeyer. Mr. Akers is
currently a Director and the Vice-President and Treasurer of both companies.
D. Executive Compensation
----------------------
Compensation of Directors. Neither the Company's nor MCMI's Board of
-------------------------
Directors receive any compensation or remuneration of any kind. The following
table sets forth the aggregate annual compensation of the executive officers of
MCMI and the Company for the last fiscal year:
<TABLE>
<CAPTION>
Principal Salary/Other Annual
Name of Officer Position Year Distributions/1/ Compensation/2/
--------------- --------- ---- ---------------- ---------------
<S> <C> <C> <C> <C>
Franklin W. President/ 1995 19,265.00 NONE
Blankemeyer, Jr. Secretary
Jeffrey W. Akers Vice- 1995 19,265.00 NONE
President/
Treasurer
</TABLE>
(1) The two principal officers received stockholders distributions in the
amount of $19,265.00 each during 1995. No bonuses were paid during this
time. The Company anticipates implementing a monthly salary for the two
principals commencing in 1996.
(2) Neither officer received any other compensation or benefit of any kind
during 1995.
25
<PAGE>
Cash Incentive Compensation. At the present time there is no management
---------------------------
incentive plan or any other type of remuneration or compensation plan
benefitting solely the executive officers of MCMI or the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the common stock of the Company as of the Effective
Date, (i) by each director and officer, (ii) by each person known by the Company
to be the beneficial owner of ten percent or more of the outstanding shares of
common stock of the Company, and (iii) by all directors and officers as a group.
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percent of Class
---------------- ------------------ -----------------
<S> <C> <C>
10 50%
Franklin W.
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers 10 50%
505 24th Street, S.W.
Roanoke, Virginia 24014
Directors and Officers 20 100%
as a Group (2 persons)
Franklin W.
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers
505 24th Street, S.W.
Roanoke, Virginia 24014
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as specified herein, there are no transactions involving the Company
or MCMI in which any director, officer, or shareholder, or their spouses or
other relatives, have had or will have a direct or indirect material interest.
Mr. Blankemeyer's father and Mr. Akers' mother are current noteholders of MCMI.
In addition, Mr. Akers' father is employed by MCMI on a full time basis.
26
<PAGE>
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Magee, Foster, Goldstein & Sayers, P.C.
EXPERTS
The unaudited financial statements of MCMI and the Company as of December
31, 1993, 1994, and 1995; the audited financial statements for MCMI for the
period ended December 31, 1995; and the unaudited financial statements for MCMI
for the three month period ended March 31, 1996, included in this Prospectus
have been so included in reliance on the report and authority of Hope Player and
Associates, P.C., an expert in auditing and accounting. Financial statements and
tax returns for 1993 and 1994 for the Company and MCMI were completed by
Cassells, C.P.A., P.C. and are presented here as originally prepared except for
certain adjustments recorded during the audit of financial statements of MCMI as
of December 31, 1995.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
27
<PAGE>
GLOSSARY
The following are definitions of certain capitalized terms used in this
Prospectus:
AFFILIATE - an affiliate of, or person affiliated with, a specified
person shall mean a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
persons specified.
AUTOMOBILES - the used cars, vans, light trucks and other vehicles sold by
MCMI from time to time.
CODE - the Internal Revenue Code of 1986, as amended.
COMMISSION - the Securities And Exchange Commission.
COMPANY - Genesis Financial Group, Inc., a Virginia corporation.
CONTRACTS - the Installment Sales Contracts originated by MCMI during the
normal course of its business operations of selling Automobiles to the general
public, specifically the Non-Prime Consumer.
EFFECTIVE DATE - the date upon which the registration statement, of which
this Prospectus is a part, registering the Notes and Contracts and filed with
the SEC on behalf of the Company becomes final.
EXCHANGE ACT - The Securities Exchange Act of 1934, as amended.
INVESTOR(S) - a purchaser of a Note offered by the Company pursuant to the
Offering.
MANAGEMENT - Messrs. Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers.
MCMI - Mr. Car Man, Inc., a Virginia corporation.
NON-PRIME CONSUMER - an Automobile buyer with limited access to traditional
sources of consumer credit.
NON-PRIME MARKET - the automobile finance market for Non-Prime Consumers.
NOTES - the $8,000,000.00 in corporate promissory notes offered by the
Company hereunder.
OFFERING - the offer for sale to investors by the Company of up to
$8,000,000.00 in Notes and $200,000.00 in Contracts, as may be amended by the
Company, for the purpose of raising, in the aggregate, $10,000,000.00.
PROSPECTUS - the offering document delivered to Investors interested in
purchasing the Notes.
SECURITIES ACT - The Securities Act of 1933, as amended.
28
<PAGE>
FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Comparative Financial Statements for the
Company and MCMI
Comparative Balance Sheets for the Company as of
December 31, 1993, 1994 and 1995 F-1
Comparative Income Statements for the Company for
periods ended December 31, 1993, 1994, and 1995 F-2
Comparative Balance Sheets for MCMI as of
December 31, 1993, 1994, and 1995 F-3
Comparative Income Statements for MCMI for
periods ended December 31, 1993, 1994 and 1995 F-4
Annual Financial Statements for MCMI December 31, 1995 F-5
Report of Independent Auditors F-6
Balance Sheet as of December 31, 1995 F-7
Statement of Income and Retained Earnings as of
December 31, 1995 F-8
Statement of Cash Flows as of December 31, 1995 F-9
Notes to Financial Statements F-10
Unaudited Interim Financial Statements for MCMI F-14
Accountants' Compilation Report F-15
Balance Sheet as of March 31, 1996 F-16
Statement of Income and Retained Earnings for
Three Months Ended March 31, 1996 F-17
Statement of Cash Flows for Three Months
Ended March 31, 1996 F-18
Notes to Financial Statements F-19
</TABLE>
29
<PAGE>
FINANCIAL STATEMENTS
--------------------
(Continued)
-----------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Proforma Financial Statements for the Company
and MCMI
Accountants' Compilation Report F-24
Proforma Balance Sheets for the Company as of
Years One, Two and Three F-25
Proforma Income Statements for the Company
for the Periods Then Ended F-26
Summary of Significant Projection Assumptions
for the Company Years One through Three F-27
Accountants' Compilation Report F-29
Proforma Balance Sheets for MCMI as of
Years One, Two and Three F-30
Proforma Income Statements for MCMI
for the Periods Then Ended F-31
Summary of Significant Projection Assumptions
for MCMI Years One through Three F-32
</TABLE>
30
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 50 - -
--------- ------- -------
Total current assets 50 - -
Organization costs, net 401 315 229
-------- -------- --------
Total assets 451 315 229
======== ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 9,224 9,174 9,174
Stockholders' Equity Common stock,
no par value, 20 shares issued and 100
shares authorized 2,000 2,000 2,000
Retained earnings ( 10,773) ( 10,859) ( 10,945)
-------- -------- --------
( 8,773) ( 8,859) ( 8,945)
-------- -------- --------
Total liabilities and stockholders' equity $ 451 315 229
======== ======== ========
</TABLE>
F-1
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDED DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C>
Revenues, net $ - - -
Expenses
Advertising 566 - -
Education 8,066 - -
Supplies 470 - -
Telephone 731 - -
Miscellaneous 789 - -
Meals 122 - -
Amortization 29 86 86
------- ------ ------
Total expenses 10,773 86 86
------- ------ ------
Net loss $( 10,773) ( 86) ( 86)
======= ====== ======
</TABLE>
F-2
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED AUDITED
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 15,485 11,581 52,037
Accounts receivable, trade 19,784 74,187 126,215
Accounts receivable,
related party 2,200 12,983 11,447
Inventory 18,844 26,152 132,936
--------- -------- -------
Total current assets 56,313 124,903 322,635
Fixed assets, net 3,131 7,245 29,529
Advance payments investors - - 36,658
Other assets 1,750 1,750 4,201
--------- -------- -------
Total assets 61,194 133,898 393,023
========= ======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable, trade 1,283 - 1,332
Accrued expenses - 5,809 7,732
Current portion
long-term debt - 26,555 72,764
--------- -------- -------
Total current liabilities 1,283 32,364 81,828
Long-term debt 72,000 134,086 152,725
Accrued interest payable - - 5,809
Stockholders' Equity
Common stock, no par value,
20 shares issued and
100 shares authorized 100 20,100 20,100
Retained earnings ( 12,189) ( 52,652 132,561
--------- -------- -------
( 12,089) ( 32,552) 152,661
--------- -------- -------
Total liabilities and
stockholders' equity $ 61,194 133,898 393,023
========= ======== =======
</TABLE>
F-3
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDING DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED AUDITED
<S> <C> <C> <C>
Revenues, net $ 120,392 559,637 1,135,664
Cost of merchandise sold 92,265 456,841 713,182
--------- --------- ---------
28,127 102,796 422,482
Expenses
Advertising 8,712 23,267 42,781
Legal and professional 1,476 15,825 24,963
Rent 6,250 15,896 23,645
Telephone and utilities 2,321 7,155 12,845
Supplies 2,121 9,177 10,365
Outside services 536 2,253 8,066
Collection costs - - 7,201
Bad debt expense - - 6,794
Travel and entertainment 110 6,027 6,412
Repairs and maintenance 3,366 1,321 2,801
Taxes - other 2,409 5,512 4,506
General insurance 888 3,210 4,571
Office expense 2,659 5,253 3,580
Education 5,709 8,981 2,558
Miscellaneous 1,167 6,254 3,790
Depreciation and
amortization 198 507 2,533
--------- --------- ---------
37,922 110,638 167,411
--------- --------- ---------
Income (loss) from
operations ( 9,795) ( 7,842) 255,071
Interest expense 2,394 13,775 31,328
--------- --------- ---------
Net income $( 12,189) ( 21,617) 223,743
========= ========= =========
</TABLE>
F-4
<PAGE>
MR. CAR MAN, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
(WITH INDEPENDENT AUDITORS' REPORT)
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mr. Car Man, Inc.
We have audited the accompanying balance sheet of Mr. Car Man, Inc. as of
December 31, 1995, and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mr. Car Man, Inc. as of
December 31, 1995, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 22, 1996
F-6
<PAGE>
MR. CAR MAN, INC.
Balance Sheet
December 31, 1995
<TABLE>
<S> <C>
Assets
------
Current assets
Cash $ 52,037
Accounts receivable, trade 126,215
Accounts receivable, related party 11,447
Inventory 132,936
--------
Total current assets 322,635
Fixed assets, net (Note 2) 29,529
Advance payments to investors 36,658
Other assets 4,201
--------
Total assets 393,023
========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade 1,332
Accrued expenses 7,732
Current portion long-term debt 72,764
--------
Total current liabilities 81,828
Long-term debt (Note 3) 152,725
Accrued interest payable 5,809
Commitments and contingencies (Note 5)
Stockholders' Equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100
Retained earnings 132,561
--------
152,661
--------
Total liabilities and
stockholders' equity $393,023
========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-7
<PAGE>
MR. CAR MAN, INC.
Statement of Income and Retained Earnings
Year Ended December 31, 1995
<TABLE>
<S> <C>
Revenues, net $1,135,664
Cost of merchandise sold 713,182
----------
Gross profit 422,482
Expenses
Advertising 42,781
Legal and professional 24,963
Rent 23,645
Telephone and utilities 12,845
Supplies 10,365
Outside services 8,066
Collection costs 7,201
Bad debt expense 6,794
Travel and entertainment 6,412
Repairs and maintenance 2,801
Taxes - other 4,506
General insurance 4,571
Office expense 6,138
Miscellaneous expense 3,790
Depreciation and amortization 2,533
----------
167,411
----------
Income from operations 255,071
Interest expense 31,328
----------
Net income 223,743
Retained earnings, beginning ( 52,652)
Less shareholder distributions ( 38,530)
Retained earnings, ending $ 132,561
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-8
<PAGE>
MR. CAR MAN, INC.
Statement of Cash Flows
Year Ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 223,743
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 2,533
Bad debt expense 6,794
(Increase) decrease in:
Trade accounts receivable ( 52,028)
Inventories (106,784)
Increase (decrease) in:
Trade accounts payable 1,332
Accrued liabilities 7,732
---------
Net cash provided (used) by
operating activities 83,322
Cash flows from investing activities
Purchases of property and equipment ( 24,817)
Loans made to related party ( 5,997)
Advance payments to investors ( 36,658)
Payments received loans to related
party, net of advances 739
Increase in refundable deposits ( 2,451)
Net cash provided (used) by
investing activities ( 69,184)
Cash flows from financing activities
Proceeds from notes payable 78,315
Principal repayment notes payable ( 13,467)
Distributions to shareholders ( 38,530)
Net cash provided (used) by
financing activities 26,318
---------
Net increase in cash 40,456
Cash at beginning of year 11,581
---------
Cash at end of year $ 52,037
=========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-9
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing
to its buyers. The Company also leases vehicles under operating
lease agreements. The financing contracts are generally sold to
third party investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company
considers all unrestricted highly liquified investments with Nan
initial maturity of three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized
when earned. Proceeds received from financing contracts sold
reduce the outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific
identification method.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line
method of depreciation for financial reporting purposes. The
average estimated useful lives of the principal property
categories are summarized as follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenancecosts are charged to
expense as incurred.
F-10
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay federal corporate income
taxes on its taxable income. Instead the stockholders are liable
for individual federal income taxes on their respective shares of
the Company's profits.
Note 2. FIXED ASSETS, NET
Fixed assets as of December 31, 1995 are summarized by major
category as follows:
<TABLE>
<S> <C>
Leasehold improvements $ 8,983
Furniture and equipment 9,776
Assets under capital lease 14,287
-------
33,046
Less accumulated depreciation
and amortization ( 3,517)
------
$29,529
======
</TABLE>
Note 3. LONG-TERM DEBT
As of December 31, 1995, long-term debt is summarized as follows:
<TABLE>
<S> <C>
Notes payable to individuals
due on demand; interest payable
monthly at varying interest
rates, unsecured $ 55,000
Notes payable to individuals
due on demand after December 31,
1996; interest accrued and
payable at time of demand 123,142
</TABLE>
F-11
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 3. LONG-TERM DEBT (Continued)
<TABLE>
<S> <C> <C>
Obligations under capital
leases due in monthly
installments of $528 including
interest ranging from 12% to
23.6% 11,597
Notes payable to individuals
due in monthly installments of
$854 including interest ranging
from 7% to 15%, maturities up
to March, 2000 35,750
------
225,489
Less current portion ( 72,764)
------
Total long-term debt $ 152,725
=======
</TABLE>
Annual maturities of long-term debt including capitalized leases
are as follows:
<TABLE>
Year Ending
December 31,
------------
<S> <C>
1996 $ 72,764
1997 135,14
1998 12,457
1999 3,742
2000 1,385
-------
$ 225,489
=======
</TABLE>
In March, 1996, demand loans totalling $45,000 were renegotiated
to be repaid at 15% interest over twenty-four (24) months.
Monthly payments of principal and interest will be $2,250.
F-12
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 4. LEASES
The Company leases certain building and equipment under
noncancellable operating leases. Lease terms range from three to
five years. The following is a schedule of future minimum lease
payments required under the operating leases as of December 31,
1995:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $ 37,999
1997 32,174
1998 11,636
------
$ 81,809
======
</TABLE>
Rental expense recorded for the year ended December 31, 1995 was
$23,645.
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of December 31, 1995 includes
loans to stockholders and their family members totalling
$164,424. Certain loans accrue at various interest rates with
principal and interest due on demand. Certain other loans are
amortized monthly with maturities up to March, 2000. Also as of
December 31, 1995, there is an outstanding receivable from a
stockholder of $10,847.
F-13
<PAGE>
MR. CAR MAN, INC.
FINANCIAL STATEMENTS
MARCH 31, 1996
(WITH ACCOUNTANTS' COMPILATION REPORT)
F-14
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
The Board of Directors
Mr. Car Man, Inc.
We have compiled the accompanying balance sheet of Mr. Car Man, Inc. as of
March 31, 1996 and the related statements of income and retained earnings, and
cash flows for the quarter then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
May 20, 1996
F-15
<PAGE>
MR. CAR MAN, INC.
Balance Sheet
March 31, 1996
<TABLE>
<CAPTION>
Assets
--------
<S> <C>
Current assets
Cash $ 51,146
Accounts receivable, trade 177,163
Accounts receivable, related party 11,497
Inventory 169,246
--------
Total current assets 409,052
Fixed assets, net (Note 2) 29,433
Advance payments to investors 38,286
Other assets 4,201
--------
Total assets 480,972
========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade -
Accrued expenses 1,933
Current portion long-term debt 76,108
--------
Total current liabilities 78,041
Long-term debt (Note 3) 143,825
Accrued interest payable 13,541
Commitments and contingencies (Note 5)
Stockholders' Equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100
Retained earnings 225,465
--------
245,565
--------
Total liabilities and
stockholders' equity $480,972
========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-16
<PAGE>
MR. CAR MAN, INC.
Statement of Income and Retained Earnings
Quarter Ended March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenues, net $ 510,208
Cost of merchandise sold 361,414
--------
Gross profit 148,794
Expenses
Advertising 5,995
Rent 9,681
Telephone and utilities 5,500
Supplies 2,565
Outside services 1,972
Collection costs 2,457
Travel and entertainment 1,363
Taxes - other 3,583
General insurance 3,255
Office expense 2,309
Miscellaneous expense 858
Depreciation and amortization 1,350
--------
40,888
--------
Income from operations 107,906
Interest expense ( 9,313)
Other income 5,311
---------
( 4,002)
--------
Net income 103,904
Retained earnings, beginning 132,561
Less shareholder distributions ( 11,000)
---------
Retained earnings, ending $ 225,465
=========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-17
<PAGE>
MR. CAR MAN, INC.
Statement of Cash Flows
Quarter Ended March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net income $ 103,904
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 1,350
(Increase) decrease in:
Trade accounts receivable ( 50,948)
Inventories ( 36,310)
Increase (decrease) in:
Trade accounts payable ( 1,332)
Accrued liabilities 1,933
---------
Net cash provided (used) by
operating activities 18,597
Cash flows from investing activities
Purchases of property and equipment ( 1,254)
Increase in accounts receivable -
related party ( 50)
Advance payments to investors ( 1,628)
---------
Net cash provided (used) by
investing activities ( 2,932)
Cash flows from financing activities
Principal repayment notes payable ( 5,556)
Distributions to shareholders ( 11,000)
---------
Net cash provided (used) by
financing activities ( 16,556)
---------
Net increase (decrease) in cash ( 891)
Cash at beginning of quarter 52,037
---------
Cash at end of quarter $ 51,146
========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-18
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its
buyers. The Company also leases vehicles under operating lease
agreements. The financing contracts are generally sold to third party
investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquified investments with an initial maturity of
three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized when
earned. Proceeds received from financing contracts sold reduce the
outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific identification
method.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method of
depreciation for financial reporting purposes. The average estimated
useful lives of the principal property categories are summarized as
follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
F-19
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fixed Assets (Continued)
------------
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenance costs are charged to
expense as incurred.
Income Taxes
------------
The Company has elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income.
Instead the stockholders are liable for individual federal income
taxes on their respective shares of the Company's profits.
Note 2. FIXED ASSETS, NET
Fixed assets as of March 31, 1996 are summarized by major category as
follows:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements $ 8,983
Furniture and equipment 11,029
Assets under capital lease 14,287
-------
34,299
Less accumulated depreciation
and amortization ( 4,866)
-------
$ 29,433
=======
</TABLE>
F-20
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 3. LONG-TERM DEBT
As of March 31, 1996, long-term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to individuals
due on demand; interest
monthly at varying interest payable
rates, unsecured $ 20,000
Notes payable to individuals
due on demand after December 31,
1996; interest accrued and
payable at time of demand 123,142
Obligations under capital
leases due in monthly
installments of $528 including
interest ranging from 12% to
23.6% 10,680
Notes payable to individuals
due in monthly installments of
$854 including interest ranging
from 7% to 15%, maturities up
to March, 2000 66,111
--------
219,933
Less current portion ( 76,108)
-------
Total long-term debt $ 143,825
========
</TABLE>
F-21
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 3. LONG-TERM DEBT (Continued)
Annual maturities of long-term debt including capitalized leases are
as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1997 $ 55,187
1998 150,379
1999 11,668
2000 1,768
2001 931
-----
$ 219,933
=======
</TABLE>
Note 4. LEASES
The Company leases certain building and equipment under noncancellable
operating leases. Lease terms range from three to five years. The
following is a schedule of future minimum lease payments required
under the operating leases as of March 31, 1996:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1997 $ 39,898
1998 28,516
1999 8,252
2000 749
-----
$ 77,415
======
</TABLE>
Rental expense recorded for the quarter ended March 31, 1996 was
$9,682.
F-22
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of March 31, 1996 includes loans
to stockholders and their family members totalling $164,424. Certain
loans accrue at various interest rates with principal and interest due
on demand. Certain other loans are amortized monthly with maturities
up to March, 2000. Also as of March 31, 1996, there is an outstanding
receivable from a stockholder of $10,847.
F-23
<PAGE>
To the Board of Directors
Genesis Financial Group, Inc.
We have compiled the accompanying forecasted balance sheets and statements
of income, of Genesis Financial Group, Inc. as of the end of year one, year two
and year three, and for the periods then ending, in accordance with standards
established by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of a forecast
information that is the representation of management and does not include
evaluation of the support for the assumptions underlying the forecast. We have
not examined the forecast and, accordingly, do not express an opinion or any
other form of assurance on the accompanying statements or assumptions.
Furthermore, there will usually be differences between the forecasted and actual
results because events and circumstances frequently do not occur as expected,
and those differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this report.
Because these forecasts are not audited, management has elected to omit the
summary of significant accounting policies and statements of cash flow as
generally required by the guidelines for presentation of a forecast established
by the American Institute of Certified Public Accountants. If the omitted
disclosures were included in the forecast, they might influence the user's
conclusions about the Company's financial position and results of operations for
the forecast period. Accordingly, this forecast is not designed for those who
are not informed about such matters.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
July 16, 1996
F-24
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROFORMA BALANCE SHEETS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 5,913 226,651 888,506
Accounts receivable 1,089,249 3,356,238 6,399,280
Reserve for bad debts ( 65,480) ( 341,869) ( 957,496)
--------- --------- ---------
Total current assets 1,029,682 3,241,020 6,330,290
Fixed assets, net - 20,000 15,000
Organization costs, net 229 229 229
--------- --------- ---------
Total assets 1,029,911 3,261,249 6,345,519
========== ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders - - -
Long-term debt 1,049,964 3,164,867 5,921,630
Stockholders' Equity
Common stock no par value,
20 shares issued and
100 shares authorized 2,000 2,000 2,000
Retained earnings
(deficit) ( 22,053) 94,382 421,889
--------- --------- ----------
( 20,053) 63,382 423,889
--------- --------- ----------
Total liabilities and
Stockholders' Equity $1,029,911 3,261,249 6,345,519
========= ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-25
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROFORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Revenues, net $ 322,677 1,202,034 2,538,127
Interest expense 90,329 373,146 813,644
------- -------- ---------
Gross profit 232,348 828,888 1,724,483
Expenses
Personnel 60,000 120,000 180,000
Occupancy - 12,000 18,000
Legal and professional 10,000 15,000 22,500
Bad debt 65,480 276,389 615,627
Collection costs 12,770 39,400 75,085
Commissions 75,000 150,000 225,000
Other expenses
Insurance 3,000 6,000 6,000
Travel and entertainment 7,500 11,250 16,875
Office expenses 10,000 15,000 22,500
Telephone 2,500 5,000 10,000
Depreciation - 5,000 5,000
------- -------- ---------
Total expenses 246,250 655,039 1,196,587
------- -------- ---------
Income (loss) before taxes ( 13,902) 173,849 527,896
Income taxes ( 2,794) 57,414 200,390
------- -------- ---------
Net income (loss) $( 11,108) 116,435 327,506
======= ======== =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-26
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE THROUGH THREE
The financial projection is based on subscribing an offering of $8 million in
promissory notes and $1 million in installment sales contracts by the end of
year three, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of July 16, 1996, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained.
The presentation is designed to provide information to potential lenders and
investors concerning results if the funds were obtained and should not be
considered to be a presentation of expected future results. Accordingly, this
presentation may not be useful for other purposes. The assumptions disclosed
herein are those management believes are significant to the projections. Even
if funds are obtained, there will usually be differences between projected and
actual results, because events and circumstances frequently do not occur as
expected and those differences may be material.
Note A. REVENUES
The Company expects to purchase installment sales contracts from its
affiliated company, Mr. Car Man, Inc. (MCMI) in amounts of $1,166,664,
$2,666,664 and $4,166,664, in years one, two and three respectively.
Interest income will be recorded as revenue as earned, and other
revenues will be recognized as received. Bad debt expense is estimated
based on a percentage of ending accounts receivable.
Note B. FIXED ASSETS
In year two, management plans to establish a separate office for the
Company operations. Depreciation expense is calculated based on the
assets estimated useful life of five years.
Note C. NOTES PAYABLE
The notes payable are anticipated to be subscribed over years one, two
and three in the amounts of $1,166,664, $2,666,664 and $4,166,664,
respectively. These projections include interest expense calculations
based on an 18% interest rate, assuming an equal amount of new notes
on a monthly basis, with the first payment to be made in the first
month following the issuance of the notes.
F-27
<PAGE>
Note D. EXPENSES
The Company will be come fully operational in year one upon receipt of
initial funds under the offerings of $8 million in notes and $2
million in installment sales contracts. The expenses represent
management's estimate of the costs to operate and expand the business
of Genesis Financial Group, Inc.
Note E. INCOME TAX
State and federal income taxes are calculated at current tax rates,
and are assumed to be paid during the year for each of the years
presented.
F-28
<PAGE>
To the Board of Directors
Mr. Car Man, Inc.
We have compiled the accompanying forecasted balance sheets and statements
of income, of Mr. Car Man, Inc. as of the end of year one, year two and year
three, and for the periods then ending, in accordance with standards established
by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of a forecast
information that is the representation of management and does not include
evaluation of the support for the assumptions underlying the forecast. We have
not examined the forecast and, accordingly, do not express an opinion or any
other form of assurance on the accompanying statements or assumptions.
Furthermore, there will usually be differences between the forecasted and actual
results because events and circumstances frequently do not occur as expected,
and those differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this report.
Because these forecasts are not audited, management has elected to omit the
summary of significant accounting policies and statements of cash flow as
generally required by the guidelines for presentation of a forecast established
by the American Institute of Certified Public Accountants. If the omitted
disclosures were included in the forecast, they might influence the user's
conclusions about the Company's financial position and results of operations for
the forecast period. Accordingly, this forecast is not designed for those who
are not informed about such matters.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
July 16, 1996
F-29
<PAGE>
MR. CAR MAN, INC.
PROFORMA BALANCE SHEETS
YEARS ONE THROUGH THREE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Assets
------
Current assets
Cash $357,636 820,321 1,723,148
Accounts receivable, trade 100,972 80,778 64,622
Accounts receivable, other 11,447 - -
Inventory 182,936 282,936 382,936
-------- --------- ---------
Total current assets 652,991 1,184,035 2,170,706
Fixed assets, net 21,529 34,529 44,529
Advance payments, investors 36,658 36,658 36,658
Other assets, net 4,201 4,201 4,201
-------- --------- ---------
Total assets 715,379 1,259,423 2,256,094
======== ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable, trade 1,332 1,332 1,332
Accrued expenses - - -
Current portion long-term debt 135,141 12,457 3,742
-------- --------- ---------
Total current liabilities 136,473 13,789 5,074
Long-term debt 17,584 5,127 1,385
Stockholders' Equity
Common stock, no par value,
20 shares issued and
100 shares authorized 20,100 20,100 20,100
Retained earnings 541,222 1,220,407 2,229,535
-------- --------- ---------
Total stockholders' equity 561,322 1,240,507 2,249,635
-------- --------- ---------
Total liabilities and
stockholders' equity $715,379 1,259,423 2,256,094
======== ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-30
<PAGE>
MR. CAR MAN, INC.
PROFORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Revenues, net $1,750,400 3,500,800 5,251,200
Cost of merchandise sold 1,095,436 2,450,160 3,691,890
---------- --------- ---------
Gross profit 654,964 1,050,640 1,559,310
Expenses
Personnel 20,000 32,000 44,000
Occupancy 46,900 70,350 105,525
Advertising 50,000 75,000 112,500
Legal and professional 24,000 36,000 54,000
Other expenses
Dues and fees 1,478 2,217 3,326
Education 2,557 3,836 5,753
Insurance 5,000 7,500 11,250
Miscellaneous 8,500 12,750 19,125
Operating supplies 6,400 9,600 14,400
Office supplies 6,400 9,600 14,400
Outside services 14,900 22,350 33,525
Office expense 2,668 4,002 6,003
Repairs and maintenance 8,500 12,750 19,125
Supplies 6,400 9,600 14,400
Taxes - other 4,600 6,900 10,350
Telephone 9,000 13,500 20,250
Travel and entertainment 5,000 7,500 11,250
Meals 4,000 6,000 9,000
Depreciation expense 8,000 12,000 15,000
---------- --------- ---------
Total expenses 234,303 353,455 523,182
---------- --------- ---------
Income from operations 420,661 697,185 1,036,128
Interest expense 12,000 8,000 27,000
---------- --------- ---------
Net income $ 408,661 679,185 1,009,128
========== ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-31
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE THROUGH THREE
The financial projection is based on subscribing an offering of $8 million in
promissory notes and $1 million in installment sales contracts by the end of
year three, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of July 16, 1996, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained.
The presentation is designed to provide information to potential lenders and
investors concerning results if the funds were obtained and should not be
considered to be a presentation of expected future results. Accordingly, this
presentation may not be useful for other purposes. The assumptions disclosed
herein are those management believes are significant to the projections. Even
if funds are obtained, there will usually be differences between projected and
actual results, because events and circumstances frequently do not occur as
expected and those differences may be material.
Note A. REVENUES, NET
The Management of Mr. Car Man, Inc. expects to sell installment sales
contracts to its affiliated company, Genesis Financial Group, Inc.
(Genesis) in amounts of $1,166,664, $2,666,664 and $4,166,664 in years
one through three, respectively. Sales also include $1 million in
installment sales contracts which will be sold to investors through an
offering to the general public by Genesis.
Note B. COST OF SALES
Cost of sales is expected to increase as the amount of sales
increases. The margins are projected to improve over historical
levels due to the increased volume.
Management anticipates opening a new car lot in years two and three
which is estimated to require a base inventory of $100,000 per lot.
Note C. FIXED ASSETS
Management anticipates opening a new car lot in years two and three at
an estimated cost of $25,000 in additional fixed assets per car lot.
Depreciation expense is calculated based on the assets' estimated
useful life of five years.
Note D. EXPENSES
Operating expenses are expected to increase as revenues increase due
to additional requirements of personnel and occupancy costs to support
the new proposed car lot and increased expenses due to increased
volume.
Note E. INCOME TAX
There is no provision for income tax expense in these financial
statements because Mr. Car Man, Inc. is an S Corporation, and the
stockholders have elected to report the taxable income or loss on
their individual returns.
F-32
<PAGE>
APPENDIX "A"
Promissory Note
---------------
A-1
<PAGE>
PROMISSORY NOTE
---------------
$_____________ Roanoke, Virginia Date: ____________, 199_
FOR VALUED RECEIVED, Genesis Financial Group, Inc., a Virginia corporation,
promises to pay, without offset, to the order of _______________________________
the principal sum of _____________ Dollars ($_________________) together with
interest on the unpaid balance from time to time remaining at the annual rate of
eighteen percent (18%). Principal and interest shall be due and payable in
equal monthly installments, commencing ___________, 199__ and on the first day
of each month thereafter until ____________, ______, when the entire aggregate
principal amount and accrued but unpaid interest shall be due and payable.
Interest shall accrue on a 30/360 day basis. Each payment shall be applied
first to interest then accrued, and the balance shall be credited to principal.
Principal and interest are payable at such place as the holder hereof may
designate in writing.
If any payment herein provided for is not made within ten (10) days of the
date when due, then before having recourse with respect to such nonpayment, the
holder hereof shall give notice to the maker hereof of such nonpayment, and if
the delinquent payment specified in such notice is not made within thirty (30)
days of the effective date of such notice then the entire, unpaid principal sum
evidenced by this note and all accrued, but unpaid interest shall at the option
of the holder become immediately due and payable. No failure of the holder to
exercise the right of accelerating the maturity of this indebtedness and no
indulgence or forbearance granted from time to time shall be construed as a
waiver of such right of acceleration or estop the holder from exercising such
right at any time.
Any notice required or desired to be given hereunder shall be in writing
and shall be delivered by hand, or by U. S. certified mail and shall be properly
addressed with sufficient postage delivery charge prepaid as follows:
If to maker: Genesis Financial Group, Inc.
c/o Jeffrey W. Akers
4206 Williamson Road
Roanoke, Virginia 24012
If to holder: __________________________________
__________________________________
__________________________________
Any such notice shall be effective when actually received by the party to whom
addressed. Either party may change its effective
<PAGE>
address by notice to that effect to the other party.
Notwithstanding any other provision of this note to the contrary, the holder
hereof or his assignee or transferee or any other person from time to time
entitled to receive payment hereunder, as the case may be, shall look solely to
the assets of the maker of this note, both real and personal, in satisfaction of
each and every obligation hereunder; in no event shall the officers or directors
of maker have personal liability with respect to this obligation or any other
obligation of maker.
The maker and endorsers, guarantors and other from time to time obligated
hereunder hereby severally waiver and renounce the benefit of homestead and all
other exemption rights as against this indebtedness or any renewal or extension
hereof; and further waive demand, protest, notice of protest, presentment for
payment, notice of dishonor and all defenses on the ground of extension of time
for payment hereof.
The maker hereof reserves the right to prepay the indebtedness evidenced
hereby, in whole or in part, at any time or from time to time without penalty.
This note shall be governed and construed in all respects and enforced
according to the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned has caused this note to be executed as
of the day and year first above set forth.
Genesis Financial Group, Inc.,
a Virginia Corporation
By: ___________________________________
Its: __________________________________
<PAGE>
APPENDIX "B"
Articles of Incorporation and Bylaws
------------------------------------
of Genesis Financial Group, Inc.
--------------------------------
B-1
<PAGE>
APPENDIX B
ARTICLES OF INCORPORATION
OF
GENESIS FINANCIAL GROUP, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950,
as amended to date, and to that end does by these Articles
of Incorporation set forth the following information:
(a) The name of the corporation is to be known as
Genesis Financial Group, Inc..
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general powers
accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter exacted.
(d) The aggregate number of shares which the
[LOGO OF BOUNDS corporation shall have authority to issue are as follows:
& DORSEY\PC\]
Class Number of Shares
----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015,which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Codes (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident and a member
of the Virginia State Bar.
(g) The number of directors constituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers
(h) The period of time for which this corporation
shall be unlimited.
Given under my hand this 11th day of June, 1993.
/S/ Charles N. Dorsey,
______________________________
Charles N. Dorsey Incorporator
[LOGO OF BOUNDS
& DORSEY \PC\
<PAGE>
BY LAWS OF
GENESIS FINANCIAL GROUP, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books on the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice meeting.
Section 2 - Special Meeting:
----------------------------
Special meetings of the Shareholders for any purpose or
purposes may be called by the President, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meeting of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
Section 4 - Quorum:
-------------------
[LOGO OF BOUNDS At any meeting of the Shareholders, the holders of a
& DORSEY\PC\] majority of the shares entitled to vote shall constitute a
quorum, except as otherwise provided by law. The holders of
such shares may be present in person or presented by proxy
to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares the entitled to vote in person or by proxy and shall
have one vote for each share registered in his or her name.
Except as otherwise provided by statute or by the Articles
of Incorporation, any corporate action shall be authorized
by a majority of votes cast at a meeting of Shareholders by
the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Director shall be elected at each annual meeting of
the Shareholders. Each Director shall hold office until the
election of his or her successor. Any Director may resign
at any time. Vacancies occurring among the Directors may be
filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meetings of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of he Boa may be
held without notice at such time and place as the Directors
may determine.
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Director may be called
by the President or by one of the Directors, at such time
and place as may be specified in the respective notices or
waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
[LOGO OF BOUNDS All all meetings of the Board of Directors, each
& DORSEY\PC\] Director present shall have one vote, irrespective of the
number of shares of stock, it any, which he or she may hold.
The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The president shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of thee Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
[LOGO OF BOUNDS certificates of stock. The Secretary shall keep a book
& DORSEY\PC\] containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places of
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
such shares. The Secretary shall further keep a record of
the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by (S)13.1-3.1 of the
Code of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
--------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Genesis Financial Group, Inc.
were duly adopted by unanimous consent of the Board of
Directors of the Corporation in lieu of the Organizational
Meeting.
/s/ Jeff Akers,
-------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY\PC\]
<PAGE>
APPENDIX "C"
Subscription Letter
-------------------
C-1
<PAGE>
SUBSCRIPTION LETTER
-------------------
Genesis Financial Group Total Offering: $8,000,000
4206 Williamson Road
Roanoke, Virginia 24012 Type of Investment 3 1/2 Year
Offered: Promissory
Notes
Initial Minimum
Investment: $10,000.00
Total Investment: $__________
Commencement Date
of Offering: August __, 1996
Gentlemen:
This letter is furnished to Genesis Financial Group, a Virginia
corporation, ("Corporation"), in connection with the investment by the
undersigned on this date in the amount shown above for the acquisition of one or
more unsecured corporate promissory notes amortized over a three and one-half
(3 1/2) year period at 18% per annum. In conjunction herewith, the undersigned
hereby delivers his check, payable to the Corporation, in the amount equal to
the total investment shown above.
The undersigned hereby understands that the Notes have been registered
under the Securities Act of 1933 ("1933 Act") and that the Corporation reserves
the right, in its sole discretion, to reject any subscription at any time. If
not sooner terminated by the Corporation, this offering will terminate on the
date at least $8,000,000 in Notes have been subscribed. The undersigned
understands there is no minimum offering amount required to be received before
the Corporation may fully utilize the undersigned's funds. In conjunction with
the offering, the undersigned agrees to execute the Power of Attorney form
delivered with this Letter.
Nature, Type And Return On Investment
- -------------------------------------
The undersigned understands that the Corporation is in the business of
purchasing at a discount some or all of the Retail Installment Sales Contracts
("Contracts") generated by its affiliate, Mr. Car Man, Inc. ("MCMI"), from time
to time as they arise during the course of its normal business operations of
selling used vehicles.
The initial minimum investment is one Note for $10,000.00. Thereafter, the
undersigned may purchase additional Notes in increments of $2,500.00. Interest
shall accrue at the rate of 18%
<PAGE>
per annum, and the Notes shall be amortized on a 3 1/2 year basis. Principal
and interest shall be payable on a monthly basis as provided for in the Notes.
The undersigned acknowledges and understands that the Notes are unsecured
and that the success of the Corporation's business depends upon the creation by
MCMI of new sale transactions on a continual basis. The Corporation reserves
the right at any time and from time to time to prepay, in whole or in part, any
Note without penalty.
Receipt And Review Of Information
- ---------------------------------
The undersigned acknowledges receipt of the Corporation's Prospectus filed
with the Securities And Exchange Commission, a copy of the form Note and a
Subscriber Information Schedule ("Schedule"). In addition, the undersigned
hereby acknowledges that he, or his investment advisor, has had the opportunity
to ask questions of the Corporation's and MCMI's officers and receive and review
all information and documentation requested pertaining to the officers, the
Corporation and MCMI. The undersigned represents that he and/or his investment
advisor: (i) is familiar with the financial condition of the Corporation and
MCMI and the proposed business activities of the Corporation and MCMI; (ii) has
discussed with the officers the current and proposed activities of the
Corporation and MCMI including, without limitation, the selling operations of
MCMI; and (iii) has conducted, to his sole satisfaction, all investigations and
inquiries pertaining to the Corporation, MCMI and the officers thereof that he
deemed necessary and expedient in making his investment and that the nature and
wished to purchase and hold for investment and that the nature and amount of his
investment are consistent with his investment program.
Acknowledgement Of Certain Facts
- --------------------------------
The undersigned hereby expressly acknowledges that he is aware of the
following facts;
(i) In addition to the risks summarized herein, there are other
substantial risks involved in investing in the Corporation and, therefore, the
risks set forth hereunder are not intended to be complete or relied upon by the
undersigned as a basis for making an investment in the Corporation;
(ii) Neither the Securities And Exchange Commission nor any state
agency has passed upon the adequacy of this offering or upon the accuracy of
nay information or documentation provide to him or made any finding or
determination as to the fairness of an investment in the Corporation. Any
representation to the contrary
2
<PAGE>
is a criminal offense;
(iii) He should only invest in the Corporation based upon his
particular circumstances and should confer with and rely on his own investment
and tax advisors as to the substantial risks inherent in an investment in the
Corporation. He acknowledges that he has carefully read and completed, where
necessary, in its entirety the Prospectus, Schedule, and this Letter and that
neither the Corporation, its officers, nor any other party has made any
representation or warranty with respect to the Corporation, MCMI, the officers
thereof or the business conducted thereby except as otherwise specifically set
forth herein and in the Prospectus;
(iv) The Corporation and MCMI have provided him with an opportunity
to meet and confer with the officers thereof regarding all aspects of the
transactions contemplated by the Corporation including the creation of the
Contracts an will afford him the opportunity to obtain any additional
information, to the extent that the Corporation and MCMI possesses such
information or can acquire it without unreasonable or expense;
(v) This offering will continue for an indefinite period of time.
Representation Of Investors And Risks
- -------------------------------------
The undersigned understands that an investment in the Corporation
involves a high degree of risk. To induce the Corporation to issue and sell the
Notes to the undersigned, the undersigned hereby warrants, represents and
covenants to the Corporation as follows:
(i) The undersigned can bear the economic risk of an investment in
the Corporation and the acquisition of the subscribed for Notes for an
indefinite period of time;
(ii) The undersigned has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of his
investment hereunder without materially affecting his financial condition;
(iii) The undersigned has been furnished with all materials, documents
and information relating to the Corporation, MCMI and their activities, the
offering of the Notes and anything set forth in the Letter and the Prospectus
which he has requested and the undersigned has been afforded the opportunity to
obtain any additional information necessary to verify the accuracy of any
representations or information set forth in said documents;
(iv) The Corporation, MCMI and their officers have
3
<PAGE>
answered all inquiries that the undersigned has put to them concerning the
Corporation, MCMI and their activities and any other matters relating to the
Corporation, MCMI and the offering;
(v) The undersigned has not been furnished any offering literature
other than this Letter, the Prospectus and the form Note and in making his
investment decision has relied only on the information contained therein and his
own investigations into the suitability of the investment, the projected rate of
return and the proposed business to the conducted by the Corporation and MCMI.
The undersigned is familiar with the methods and procedures of the proposed
business operations contemplated by the Corporation and MCMI. The undersigned
has carefully reviewed and understands this Letter, the Prospectus, and the form
Note and the risks of, and other considerations relating to, an investment in
the Corporation. Furthermore, as set forth above, no representations or
warranties have been made to the undersigned, or to his advisors, by the
Corporation, MCMI, their officers or any other person with respect to the
proposed business of the Corporation or MCMI, the financial condition of the
Corporation or MCMI, and/or the economic, tax or other aspects or consequences
of a purchase of the Notes, and the undesigned has not relied upon any
information concerning this offering, written or oral, other than contained in
this Letter, the Prospectus, the form Note and the information obtained through
his own investigations. The undersigned acknowledges that the officers have
answered all questions presented by the undersigned and/or his investment
advisor and provided all information requested pertaining to the past operating
history and financial condition of the Corporation and MCMI;
(vi) The undersigned has been represented by such legal counsel, tax
advisors, accountants and other selected by the undersigned as he has found
necessary to consult concerning this transaction and to review and evaluate the
tax, economic and other ramifications of an investment in the Corporation. No
representation, warranty or advice of any kind is made by the Corporation, the
officers or any other person with respect to any consequences relating to the
business of the Corporation or an investment in the Corporation;
(vii) The undersigned, if a corporation, partnership, trust or other
form of business entity, is authorized and otherwise duly qualified to purchase
and hold the Notes, and such entity has the principal place of business as set
forth in the signature page hereof and such entity has not been formed for the
specific purpose of acquiring the Notes;
(viii) The undersigned understands that the Notes have been registered
under the 1933 Act;
4
<PAGE>
(ix) All the information which the undersigned has furnished to the
Corporation with respect to his financial position and business experience is
correct and complete as of the date of this Letter and, if there should be any
material change in such information prior to the consummation of this offering,
the undersigned will immediately furnish such revised or corrected information
to the Corporation;
(x) The undersigned hereby acknowledges that no state regulatory
authority has passed upon the adequacy or merits of this offering and has
expressed no opinion as to the quality of the Notes offered hereunder; and
(xi) The undersigned hereby acknowledges that all financial and
related projections pertaining to the Corporation and MCMI are merely
predictions which are dependent upon various assumptions including, but not
limited to, the cost of maintaining inventory, the cost of overhead, market
conditions, competition and general economic factors.
The undersigned acknowledges that his right to purchase the Notes
hereunder is not transferable or assignable by him.
If the undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the representations and warranties
herein contained shall be deemed to be made by, and be binding upon, each such
person and his heirs, executors, administrators, successors and assigns.
Indemnification
- ---------------
The undersigned agrees to indemnify and hold harmless the Corporation
against any and all liabilities, losses, cost, damages, fees (including
attorney's fees) and other expenses which the Corporation may sustain or incur
by reason of the undersigned's breach of any representation or warranty
contained herein; or by reason of any action improperly taken by the
undesigned relating to the sale of the Notes.
Date of Execution:
__________________ _______________________________________
Signature
Date of Execution:
___________________ _______________________________________
5
<PAGE>
Signature
_____________________________________
Printed or Typewritten Name
_____________________________________
Printed or Typewritten Name
_____________________________________
Street Address
_____________________________________
City, State, Zip Code
_____________________________________
Telephone
_____________________________________
Social Security Number or
Tax ID Number
The investments purchased hereunder shall be held as follows:
_____________________________________
_____________________________________
_____________________________________
<PAGE>
APPENDIX "D"
Articles of Incorporation and Bylaws Of Mr. Car Man, Inc.
---------------------------------------------------------
D-1
<PAGE>
APPENDIX D
ARTICLES OF INCORPORATION
OF
MR. CAR MAN, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as Mr.
Car Man, Inc,.
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Articles 4 of Title 13:1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited
by law or required to be specifically stated in these
Articles and for which corporations may be incorporated
under the laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general
powers accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corporation shall have authority to issue are as follows:
[LOGO OF BONDS Class Number of Shares
& DORSEN \PC\] ----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015, which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code Code (S)13.1-634 and
whose business office is identical with registered office of
the corporation, who is a resident of Virginia and a member
of the Virginia State Bar.
(g) The number of directors constituting the INITIAL
Board of is 2 and the names and addresses of the directors
are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time which this corporation shall
endure shall be unlimited.
Given under my hand this 11th day of June,1993.
/s/ Charles N. Dorsey
-------------------------------
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
& DORSEY /PC/]
<PAGE>
BYLAWS OF
MR. CAR MAN, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those
who appear on the books of the Corporation as holders of
one or more shares of the capital stock, and the records
of the Corporation shall be the only evidence as to who are
the shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated
in the notice of meeting.
Section 2 - Special Meetings:
-----------------------------
Special meetings of the Shareholders for any purpose
may be called by the President, the Board of Directors, or
the holders of not less than 20- percent of the shares then
outstanding and entitled to vote at such meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meetings of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
Section 4 - Quorum:
-------------------
[LOGO OF BOUNDS At any meeting of the Shareholders, the holders of a
& DORSEY\PC\ majority of the shares entitled to vote shall constitute a
APPEARS HERE] quorum, except as otherwise provided by law. The holders
of such shares may be present in person or represented by
proxy to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by statue or by the
Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
Shareholders by the holders of shares entitled to vote.
ARTICLES IV - BOARD OF DIRECTORS
--------------------------------
Section 1 - Number, Election, and Term Office:
----------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Director shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at such
time and place as may be specified in the respective notices
or waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
[LOGO OF BOUNDS At all meetings of the Board of Directors, each
& DORSEY\PC\] Director present shall have one vote, irrespective of the
number of shares of stock, if any, which he or she may hold.
The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLES V - OFFICERS
---------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office and until his successor shall
have been elected and qualified or until his death,
resignation, or removal.
ARTICLES VI - PRESIDENT
-----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Direcots, have charge, and custody, of the funds, securities
of whatsoever nature, and other like property of the
Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLES VIII - SECRETARY
-------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places of
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
[LOGO OF BOUNDS such shares. The Secretary shall further keep a record of
& DORSEY \PC\] the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of S43
of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of the page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by S13.1-3.1 of the Code
of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors
The foregoing Bylaws of Mr. Car Man, Inc. were duly
adopted by unanimous consent of the Board of Directors of
the Corporation in lieu of the Organizational Meeting.
/s/ Jeff W. Akers
-----------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY \PC\]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
THIS PRELIMINARY PROSPECTUS IS DATED AUGUST 9, 1996
SUBJECT TO COMPLETION
PROSPECTUS
GENESIS FINANCIAL GROUP, INC.
A Virginia Corporation (the "Company")
4206 Williamson Road
Roanoke, Virginia 24012
$2,000,000.00 Installment Sales Contracts
Installment Sales Contracts ("Contracts") in the aggregate amount
of $2,000,000.00 with a
minimum investment of one Contract (average
contract valued at $5,000.00)
-----------------------------
THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
Offerees will be initially restricted to a minimum
purchase requirement of one Contract having a value on
average of $5,000.00.
<TABLE>
<CAPTION>
=======================================================================
PRICE TO PUBLIC AGENT'S PROCEEDS TO
COMMISSIONS/2/ ISSUER/3/
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Per Contract/1/ $5,000.00 $250.00 $4,750.00
- -----------------------------------------------------------------------
$2,000,000.00 $2,000,000.00 $100,000.00 $1,900,000.00
Installment Sales
Contracts
- -----------------------------------------------------------------------
Total $2,000,000.00 $100,000.00 $1,900,000.00
=======================================================================
</TABLE>
This Prospectus is dated August 9, 1996
(1) The Contracts to be sold hereunder vary in amounts with the average price
of a Contract being $5,000.00. Accordingly, a minimum investment of
approximately $5,000.00 will be required to purchase one Contract.
Contracts will be sold on a best efforts basis; however there is no minimum
amount of Contracts that must be sold to close this offering.
(2) This estimate is based upon a 5% commission and the sale of all securities
offered hereby by the Company's agents. The Company doe snot intend to pay
more than a 5% commission fee to its selling agents. Principals of the
Company will not receive any commissions or other remuneration for selling
the Company's securities.
(3) Before deducting estimated offering expenses of $11,490.00.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-1 under the Securities Act with respect to the Contracts offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Contracts offered hereby, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto. Statements made in this
Prospectus concerning the contents of any contract, agreement or other document
filed with the Commission are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
As a result of the Offering of the Contracts described herein, the Company
will become subject to the periodic reporting and other informational
requirements of the Exchange Act. As long as the Company is subject to such
periodic reporting and information requirements, it will file with the
Commission all Commission reports, proxy statements and other information
required thereby. The Registration Statement and the exhibits and schedules
thereto, as well as such reports and other information filed by the Company with
the Commission, may be inspected at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional office located at 7 World Trade Center, Suite
1800, New York, New York 10048. Copies of such material may be obtained by mail
from the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or from the regional office at prescribed rates.
The Company intends to distribute to its investors an annual report shortly
after the end of each fiscal year.
Until ___________________, all dealers, if any, effecting transactions in
the Contracts, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealer to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
The Company currently has a minimal operating history. It intends to engage
primarily in purchasing and servicing installment sales contracts originated by
Mr. Car Man, Inc. ("MCMI"), a Virginia corporation and an Affiliate of the
Company, in the sale of used automobiles, vans, light trucks and other vehicles.
These installment sales contracts comprise the Contracts offered hereunder. (See
"PROSPECTUS SUMMARY" and "DESCRIPTION OF THE BUSINESS.")
Please refer to the "Glossary" section of this Prospectus for the meaning
of capitalized terms used throughout the text.
This Offering Involves Certain Material Risk Factors
----------------------------------------------------
In addition to the general risks in investing in a relatively new
enterprise, potential investors should consider other major risks, including:
(i) competition in the used car business;
(ii) the inability of investors to liquidate their investments;
(iii) the inability of customers to fulfill their contractual obligations
under the Contracts;
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(iv) recession or other economic downturn in the economy adversely
impacting MCMI's potential customer base;
(v) increase in charge-offs and delinquencies with respect to the
Contracts which could materially and adversely affect the Company's
profitability;
(vi) the loss of the Company's two principal executives; and
(vii) the failure or liquidation of MCMI.
There is no trading market for the Contracts and there are no assurances,
should transfer of such Contracts be authorized, that a market will develop, or
if any such market does develop, that it will continue. (See "RISK FACTORS.")
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................. 2
PROSPECTUS SUMMARY..................................................... 6
The Company and Affiliates........................................... 6
Securities Offered................................................... 7
Risk Factors......................................................... 7
RISK FACTORS........................................................... 8
General Risks........................................................ 8
Financing Risks...................................................... 8
Operational Risks.................................................... 9
Short Operating History.............................................. 9
Limited Capital and Need for Additional Financing.................... 9
Key Personnel........................................................ 10
Nature of Business................................................... 10
Failure of MCMI...................................................... 10
Replacement Contracts................................................ 10
Repossession and Casualty Risks...................................... 10
Lack of Financial Statements......................................... 11
Dependence on Certain Principals..................................... 11
Determination of Offering Price...................................... 11
Tax Risks............................................................ 11
Lack of Liquidity.................................................... 11
Debt Service Obligations............................................. 11
Company's Competition And Affiliation................................ 12
MCMI's Competition................................................... 12
No Public Market..................................................... 12
Limitations on Liability of Officers and Directors................... 12
No Independent Counsel to Investors.................................. 12
Subscription of Securities and Shelf Registration.................... 12
USE OF PROCEEDS........................................................ 13
SUMMARY OF FINANCIALS.................................................. 14
INVESTMENT HIGHLIGHTS.................................................. 16
DETERMINATION OF OFFERING PRICE........................................ 19
CAPITALIZATION......................................................... 19
DISCLOSURE OF COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES......................... 19
DESCRIPTION OF THE SECURITIES.......................................... 20
DESCRIPTION OF THE BUSINESS............................................ 21
</TABLE>
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<TABLE>
<S> <C>
COMPETITION............................................................ 22
EMPLOYEES.............................................................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................. 23
Operating History.................................................... 23
Liquidity and Capital Resources...................................... 24
Projections.......................................................... 24
Refining the Showroom................................................ 24
Warranty............................................................. 25
Results of Operations................................................ 25
PROPERTIES............................................................. 25
LEGAL PROCEEDINGS...................................................... 25
MANAGEMENT............................................................. 26
PRINCIPAL STOCKHOLDERS................................................. 27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 28
LEGAL MATTERS.......................................................... 28
EXPERTS................................................................ 28
GLOSSARY............................................................... 30
INDEX TO FINANCIAL STATEMENTS.......................................... 31
APPENDIX A: Retail Installment Sales Contract......................... A-1
APPENDIX B: Articles of Incorporation And Bylaws
Of Genesis Financial Group, Inc........................... B-1
APPENDIX C: Subscription Letter....................................... C-1
APPENDIX D: Articles Of Incorporation And Bylaws Of Mr. Car Man, Inc.. D-1
</TABLE>
5
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PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the information and financial statements included
elsewhere in this Prospectus.
The Company and Affiliates
--------------------------
The headquarters of the Company is located at 4206 Williamson Road,
Roanoke, Virginia 24012. The telephone number is (540) 265-1368. The Company has
a minimal operating history to date.
The Company will engage primarily in purchasing and servicing installment
sales contracts ("Contracts") originated by Mr. Car Man, Inc. ("MCMI"), a
Virginia corporation and an Affiliate of the Company, from the sale of used
automobiles, vans, light trucks and other vehicles (collectively referred to as
"Automobiles"). The principals and 100% shareholders of the Company are Jeffrey
W. Akers and Franklin W. Blankemeyer, Jr., both of Roanoke, Virginia. Messrs.
Akers and Blankemeyer also are the 100% shareholders and principals in MCMI.
Although the Company and MCMI were formed simultaneously on June 15, 1993, the
principals concentrated exclusively on developing and expanding MCMI's used
Automobile business during the past three years. Having established MCMI's
market niche in the Roanoke Valley, the principals are ready to implement the
second phase of their business plan to establish a funding vehicle for MCMI's
business operations. The Company was formed for this purpose and will provide
centralized funding, receivables management, and collection services for the two
business locations which MCMI currently owns and operates and for its future
operations in the used Automobile industry. MCMI's customer base primarily
consists of individuals having limited access to traditional sources of consumer
credit (the "Non-Prime Consumer"). The Company assists MCMI with the sale of
used vehicles by providing an indirect source of funding for such buyers.
Contracts which meet the Company's underwriting standards are purchased from
MCMI after the Company has reviewed and approved the Automobile purchaser's
credit application. In order to achieve an acceptable rate of return on its
funding and adjust for credit risks, Contracts are purchased from MCMI at a
discount to the remaining principal balance. (See "DESCRIPTION OF THE
BUSINESS".)
MCMI will offer its Contracts for sale exclusively to the Company. The
Company intends to purchase some or all of the Contracts offered by MCMI from
time to time. MCMI has been engaged in purchasing, servicing, selling, and
financing used Automobiles since August 2, 1993. MCMI and the Company have
targeted the Non-Prime Consumer as its primary customer base. In the past, this
segment of the used car market has been very poorly serviced since the consumer
had few dealerships from which to choose. MCMI's goal is to establish a new
marketing niche in the used car industry in the Roanoke Valley, located in
Southwest Virginia and beyond through a very heavy emphasis on customer service,
proper marketing, and sound business management. MCMI currently has two
locations serving the Roanoke Valley area and future expansion is planned
targeting additional market areas outside the Roanoke Valley.
The Company intends to sell up to $2,000,000.00 of the Contracts to
Investors over a period of time to obtain the capital it needs to help fund the
purchase of additional Contracts generated by MCMI and for other business
operations. Contemporaneously with the offering of its Contracts, the Company
will also offer for sale over a period of time to selected investors up to
$8,000,000.00 in corporate promissory notes ("Notes"). The funds received from
the sale of the Notes will also be utilized to fund the Company's business
operations. Pursuant to its SB-1 offering, the Company intends to offer for sale
to investors its Contracts and Notes to raise in
6
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the aggregate a total of $10,000,000.00. Because of the nature of MCMI's
business, the entire Offering will continue over an extended period of time to
allow MCMI the time it will need to generate a sufficient number of Contracts
for sale to the Company in order to consummate this offering. In addition, in
order to adapt to changing market conditions and maximize its opportunities to
capitalize on investors' investment objectives and goals, the Company reserves
the right to adjust from time to time the amount of Contracts and Notes it will
offer for sale subject to the $10,000,000.00 offering limit. Accordingly, the
Company may file amendments to this Prospectus in conjunction with its other
periodic reporting requirements.
The Company's strategy is to grow its portfolio of contract receivables by
assisting MCMI in growing its business. The Company and MCMI believe that the
nature of their business present significant opportunities for growth for the
following reasons: (1) the automobile finance market, with approximately $325
billion in outstanding automobile installment credit as of March 31, 1995, is
the second largest consumer credit market in the United States; (2) the Non-
Prime Consumer portion of the automobile finance market is estimated to be
between $30.0 and $50.0 billion; (3) the used automobile market has grown over
the past five years at four times the rate of the new automobile market; and (4)
there is not a dominant used car dealer which focuses on the Non-Prime Consumer
in the Roanoke Valley or in the other major cities and towns surrounding
Roanoke.
MCMI has successfully concluded a private placement of its Contracts under
Rule 504 of Regulation D promulgated under the Securities Act of 1933. Through
the private placement of such Contracts, MCMI has raised capital in excess of
$950,000.00. Because of the success of MCMI's business and the private offering,
the principals of the Company and MCMI look to expand their business and
customer base through additional capital infusion. (See "DESCRIPTION OF THE
BUSINESS"; "USE OF PROCEEDS"; "DESCRIPTION OF THE SECURITIES; and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.")
Securities Offered
------------------
The securities described by this Prospectus are comprised of $2,000,000.00
of installment sales contracts ("Contracts") generated by MCMI in the course of
its normal business operations and purchased by the Company from time to time.
The Company, in its sole discretion, may purchase some or all of such Contracts
as they arise and will purchase the Contacts at a discount to the remaining
principal balance. Although the underlying value of the Contracts will vary as a
function of the purchase transaction, the average price of a Contract is
$5,000.00. Investors must purchase a minimum of one Contract. If the offering is
oversubscribed, the Company, at its discretion, may reduce an Investor's
subscription to accommodate other subscriptions. The bulk of the net proceeds of
the offering will be used to purchase additional Contracts from MCMI on an
ongoing basis. MCMI will use the funds to replenish its inventory of Automobiles
and for working capital. (See "USE OF PROCEEDS; "DESCRIPTION OF THE SECURITIES"
and the form Contract in Appendix "A.")
Risk Factors
------------
An investment in the Contracts offered hereby will involve certain
substantial risks. These risks include a lack of financial flexibility and
liquidity, absence of a significant operating history for the Company, potential
federal and state regulations of financing institutions, competition, the nature
of MCMI's business, the higher risk customer base, and the lack of an existing
market for the Contracts. (See "RISK FACTORS.")
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RISK FACTORS
An investment in the Company involves significant risks and is suitable
only for persons of substantial means who have no need for liquidity in their
investments. The following is not intended as a comprehensive discussion of all
risks that might be encountered by an Investor in the Company. Investors are
urged to consult with independent advisors and tax counsel for the possible
personal and tax consequences of an investment in the Company.
In addition to the other factors and information set forth in this
Prospectus, Investors should carefully consider and evaluate the following
specific risk factors:
I. Risks of Credit Business
------------------------
A. General Risks. The operation of a credit business primarily engaged in
-------------
purchasing and servicing installment sales contracts for used Automobiles
originated by an affiliated company involves certain risks, including those
described in this Prospectus. By way of example and not limitation, an
investment in the Company is subject to the risk of adverse changes in general
or local economic conditions, such as: (i) inability to compete with other
consumer funding sources in a competitive market; (ii) inability to raise and/or
maintain sufficient capital reserves to finance the purchase of new Contracts
originated by MCMI; (iii) inability of MCMI's customers to service their debt;
(iv) inability of MCMI's customers to maintain gainful employment; and (v)
inability of MCMI to maintain high patronage levels.
In addition, certain expenditures associated with investments in the
Company (principally debt payments, lease obligations and maintenance costs) are
not normally decreased by events adversely effecting the Company's income. In
the event debt payments are not met, the Company may lose its leasehold interest
in some or all of its current business locations and may sustain as a result of
a foreclosure a loss of an asset collateralizing a secured debt. To the extent
the Company purchases real property in the future and defaults on any debt
secured by such real property, it could suffer a loss of its equity investment
in such real estate as a result of a foreclosure.
The success of the Company also depends upon the management skills of the
principal executive officers. The principal executive officers have prior
experience in collateral financing and have operated MCMI since its inception.
(See "MANAGEMENT" for a more thorough description of the background of the
principal executive officers.)
B. Financing Risks. The Company will incur substantial indebtedness
---------------
through the issuance of the Notes to be offered contemporaneously with the
Contracts. Such indebtedness is required to be paid within 3.5 years of the
issue dates. Although the Company anticipates that the indebtedness will be
spread out over a period of years, there can be no guarantee that the Company
will be able to service all of its indebtedness as it arises under the Notes
which could result in the loss of some or all of the Company's assets which in
turn may force the Company into bankruptcy and/or liquidation. Without incurring
such debt, the Company might be unable to adequately finance the purchase of the
Contracts from MCMI. Without such financing, MCMI may be unable to adequately
finance the purchase of the Contacts from MCMI. Without such financing, MCMI may
be unable to obtain, through operating cash flow and/or from other sources, the
funds it needs to meet operating expenses and replenish its inventory of
Automobiles. (See "USE OF PROCEEDS.")
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The Company will purchase at a discount from MCMI from time to time a
substantial number of the Contracts generated through MCMI's business operations
to help fund MCMI's capital needs for operating expenses and new inventory. The
Company intends to use the bulk of the offering proceeds from the sale of the
Contracts for such purposes. (See "USE OF PROCEEDS" and "DESCRIPTION OF THE
BUSINESS.") The Company will package some or all of the Contracts it purchases
from MCMI for resale to Investors to provide additional funds for the purchase
of new Contracts. The Company will be responsible for collecting payments and
servicing the Contracts it sells to the Investors. Although the Company
anticipates that customer payments under the Contracts will be sufficient to
service its obligations to its Investors arising under the Notes and Contracts,
there can be no assurance that a customer will not default under his or her
Contract. In the event of a customer default on a Contract within an Investor's
portfolio, the Company intends to replace the defaulted Contract with a new
Contract having similar terms and provisions. Absent such a replacement Contract
or until such a Contract is generated, the Company will be obligated to make all
payments due under the defaulted Contract to the Investor. There can be no
guarantee that a replacement Contract will become available, or if one becomes
available that another default will not occur, and/or the Company will have
sufficient capital to satisfy all of its payment obligations under the Notes
and/or Contracts.
C. Operational Risks. If the expenses of operating the Company's business
-----------------
exceed the Company's income, the Company may have to obtain additional sources
of financing or dispose of some of its assets under disadvantageous terms. In
addition, in the event the operation of the Company's business does not generate
sufficient operating income to pay all of its operating expenses, taxes and debt
service requirements, MCMI may not be able to sustain its business operations
for lack of financing for new inventory. There can be no assurance that the
Company will not incur operating deficits. (See "USE OF PROCEEDS" and
"DESCRIPTION OF THE BUSINESS.")
Should the Company's revenues be insufficient to service its debt and pay
taxes and other operating expenses, the Company will be required to utilize
working capital and/or seek additional funds or financing. There can be no
assurance that additional funds will be available to the Company if needed, or,
if available, will be on terms acceptable or advantageous to the Company.
II. Operating Risks
A. Short Operating History. Even though the Company was organized on June
-----------------------
15, 1993, the Company has a minimal operating history. However, MCMI has been
operating since August 2, 1993, and has successfully conducted a private
placement of its Contracts under Rule 504 of Regulation D, promulgated by the
Securities Act, through which it raised in excess of $950,000.00. The Company
anticipates that MCMI's business will continue to grow and that MCMI will
continue to generate Contracts that will be purchased by the Company and
subsequently packaged for resale to Investors. Although the Company believes its
commercial paper financing and MCMI's used car business will be profitable,
there can be no assurance that the Company will generate sufficient revenues to
service all of its debt and other obligations to make the Company profitable.
B. Limited Capital and Need for Additional Financing. Although the
-------------------------------------------------
Company believes it will have sufficient capital from the Offering to commence
business operations for an extended period of time, there can be no assurance
that the Company's activities will be successful or will generate adequate cash
flow to meet its capital and operational needs. Therefore, additional
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capital may have to be raised internally and/or externally from time to time to
finance the Company's continuing and expanding business and its capital
requirements. Such additional financing may not be available at all or at the
time needed or may be available only on adverse terms. If the Company is unable
to raise sufficient capital by whatever means, the Company's ability to maintain
and/or expand its business operations and MCMI's ability to obtain funding for
new inventory may be severely hindered.
C. Key Personnel. The Company is dependent upon the continued services of
-------------
Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers. The loss of the services of
Mr. Blankemeyer or Mr. Akers could have a significant adverse effect on the
Company and/or MCMI.
D. Nature of Business. As customary with any consumer credit business,
------------------
there is substantial risk involved with customers defaulting on their
obligations under the Contracts. Since the Company will primarily operate to
fund the operations of MCMI and since MCMI will target "higher risk" consumers
for the purchase of its inventory, the risks of default are enhanced. There can
be no guarantee that the Company or MCMI will be able to absorb such losses
through repossessions and continued operations. Currently, MCMI experiences a
25% repossession rate based upon the total number of Contracts generated which
is within the non-prime industry's national average. The Company anticipates
that its credit review policies and the cash flow generated from the resale of
repossessed cars will significantly curtail potential losses from customer
defaults.
E. Failure of MCMI. Currently, the Company is solely dependent upon MCMI
---------------
to generate the Contracts that it intends to purchase, package and resell to
Investors. Conversely, MCMI will be primarily dependent upon the Company to
provide the needed funding for its operating expenses and new inventory. There
can be no assurance MCMI will continue to be successful in the used car
business. In the event MCMI experiences a protracted downturn in its used car
business or goes out of business, the Company's primary source of Contracts
would be materially and adversely impacted. Presently, the Company has no plans
for financing other used car dealerships or any other related business. There
can be no guarantee that the Company will be able to sustain any such loss of
MCMI's level of business and/or its affiliation and/or develop new business
relationships to satisfy its operating expenses and other obligations, including
its obligations to investors under the Notes and Contracts, or to continue its
operations on a profitable basis.
F. Replacement Contracts. In the event a customer defaults on a Contract
---------------------
which has been sold to an Investor, the Company intends to replace as soon as
possible the defaulted Contract with a new, enforceable Contract having similar
terms. The Company will assume all risks of repossession and collection. There
can be no guarantee that the Company will be able to maintain or obtain a
sufficient number of viable Contracts to replace non-performing Contracts in an
Investor's portfolio which would require the Company to satisfy all debt
obligations under the defaulted Contract. In such case, the Company's
profitability and/or financial resources may be severely impacted. (See
"DESCRIPTION OF THE SECURITIES.")
G. Repossession and Casualty Risks. Repossession of an Automobile sold on
-------------------------------
an installment basis is an inherent risk of the used car business. However, the
Company and MCMI have established credit guidelines which are stringently
enforced to help alleviate this risk. In addition, the Company intends to assume
all risks associated with a repossession by replacing the Investor's non-
performing Contract with a new enforceable Contract having substantially similar
terms. The Company will vigorously enforce its repossession rights and resell
the repossessed Automobile in accordance with applicable law. On average,
twenty-five percent (25%) of all
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Contracts originated by MCMI each year end in default resulting in repossession
of the underlying Automobile. An additional five percent (5%) of Automobiles
sold each year are damaged beyond repair. The 25% repossession rate and 5%
damage rate total approximately ten percent (10%) of MCMI's accounts receivable
on an annual basis. (See "INVESTMENT HIGHLIGHTS.") However, in most cases
involving a casualty, the Company's investment is protected by casualty
insurance. Further, the Company believes that repossessions can be profitable if
the repossessed Automobile is not irreparably damaged and is auctioned or
resold. (See "DESCRIPTION OF THE BUSINESS.")
H. Lack of Financial Statements. Although the Company has had a minimal
----------------------------
operating history since incorporating in 1993, a comparative balance sheet has
been prepared as of December 31, 1993, 1994 and 1995. In addition, a comparative
balance sheet and income statement for the same periods has been prepared for
MCMI. Audited financial statements for the period ending December 31, 1995, and
an unaudited balance sheet and income statement for the first quarter of 1996
for MCMI have also been prepared and are included in this Prospectus. (See the
"FINANCIAL STATEMENTS.")
I. Dependence on Certain Principals. Franklin W. Blankemeyer, Jr. and
--------------------------------
Jeffrey W. Akers intend to devote their full time to promote, market and develop
the business of the Company and MCMI. There can be no guarantee that all
principals will remain with the Company and/or MCMI, and the departure of one or
more could adversely affect the future success of the Company and/or MCMI.
J. Determination of Offering Price. The offering price of the Contracts
-------------------------------
will be arbitrarily determined by the Company. (See "DESCRIPTION OF THE
SECURITIES"; and "DETERMINATION OF OFFERING PRICE.")
K. Tax Risks. All prospective Investors should retain their own tax
---------
counsel or advisor to discuss the possible tax effects ensuing from an
investment in the Company.
L. Lack of Liquidity. The Company will service the debt obligations
-----------------
evidenced by the Contracts through normal business operations in conjunction
with MCMI. Proceeds from this offering will be used primarily to fund the
Company's working capital needs, including the purchase of Contracts, and to
provide a source of funding for MCMI's business operations. (See "USE OF
PROCEEDS" and "DESCRIPTION OF THE BUSINESS.") In the event the Company's
operating revenues are insufficient to meet its obligations, additional cash
requirements must be funded through additional borrowings or credit extensions
which may be unavailable. Since the Company will not have substantial assets
that can be pledged as collateral for financing purposes, obtaining additional
secured financing may not be possible. This lack of financial flexibility and
liquidity could adversely impact an investment in the Company.
M. Debt Service Obligations. Pursuant to the offering of its Contracts
------------------------
and Notes, the Company will be obligated on a significant level of indebtedness.
In addition to the Notes to be offered contemporaneously with the Contracts, the
Company will be obligated to service the Contracts sold to Investors in the
event a customer defaults and there are no replacement Contracts available. In
servicing this indebtedness, the Company may be vulnerable to various risks,
including, without limitation, the impairment of the Company's ability to obtain
additional financing for working capital, capital improvements or other purposes
and a possible downturn in the economy. (See "PROSPECTUS SUMMARY"; "DESCRIPTION
OF THE SECURITIES"; and "DESCRIPTION OF THE BUSINESS.")
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N. Company's Competition And Affiliation. Currently, the Company intends
-------------------------------------
to purchase Contracts generated solely by its Affiliate, MCMI. Since the Company
and MCMI share the same principals and management, MCMI will not offer its
Contracts to any other funding source or company. Accordingly, the Company does
not anticipate any competition as long as MCMI remains viable and an Affiliate
of the Company. There can be no guarantee that MCMI will continue its successful
operations and/or remain in business or that the principals and management of
the Company and MCMI will remain the same.
O. MCMI's Competition. In general, the used car business is highly
------------------
competitive. There are numerous competitors in the industry who are more
established and who have substantially greater financial resources than the
Company and MCMI. In addition, there are numerous competitors having greater
name recognition, better capitalization, equivalent or lower pricing guidelines,
more experienced organization, and a larger employee base. Also, the Company and
MCMI must contend with those competitors having better facilities and/or
equipment. Although Management believes MCMI has a significant advantage in the
Roanoke Valley at the present time due to the absence of any other dominant used
car dealer targeting the Non-Prime Consumer, the high degree of competition in
the used car business will remain a primary factor affecting both MCMI's and the
Company's profitability. The used car business will also continue to be highly
susceptible to changes in the economy and the buying habits of the general
public. (See "INVESTMENT HIGHLIGHTS"; "DESCRIPTION OF THE BUSINESS"; and
"COMPETITION.")
III. Investment Risks
----------------
A. No Public Market. No public market exists for the Contracts, and it is
----------------
unlikely that a ready market will exist at any time in the future. Accordingly,
if an Investor wishes to transfer or sell his Contracts, he may be unable to
liquidate his investment promptly at a reasonable price due to market conditions
and/or the general illiquidity of such an interest.
B. Limitations on Liability of Officers and Directors. The bylaws of the
--------------------------------------------------
Company provide that the officers and directors of the Company shall be
indemnified to the extent allowed by law. Therefore, an Investor may have a more
limited right of action against the officers and/or directors than he would have
if there were no such limitations.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED WITH RESPECT TO AN OFFICER'S OR DIRECTOR'S ACTION, THE
SECURITIES AND EXCHANGE COMMISSION HAS TAKEN THE POSITION THAT SUCH
INDEMNIFICATION PROVISION IS AGAINST PUBLIC POLICY AND, THEREFORE, IS
UNENFORCEABLE. (SEE "DISCLOSURE OF COMMISSIONS'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.")
C. No Independent Counsel to Investors. No independent counsel has been
-----------------------------------
retained to represent the interests of the Investors. This Prospectus was
drafted, in part, by counsel retained by or whose fees are paid, directly or
indirectly, by the Company. These documents have not been reviewed by any
independent attorney on behalf of the Investors. Each Investor should,
therefore, consult with his own counsel and accountants as to the terms and
provisions of this Prospectus and all other documents relating thereto.
D. Subscription of Securities and Shelf Registration. The Company intends
-------------------------------------------------
to offer the Contracts over an extended period of time. Accordingly, the Company
cannot predict with any
12
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degree of certainty how successful the offering will be or if the Contracts will
be fully subscribed. The Company anticipates that it will take approximately
three (3) years to fully subscribe the Contracts. There can be no guarantee that
the Company will be successful even if the Contracts are fully subscribed.
USE OF PROCEEDS
Currently, the Company has a minimal capitalization. A portion of the
proceeds of this offering will be used to pay certain costs and expenses
associated with this offering. The following table sets forth the proposed use
of proceeds from the sale of the Contracts. The table assumes that the Contracts
are fully subscribed. Since the Contracts are being offered to Investors
contemporaneously with $8,000,000.00 in corporate promissory notes, the costs
associated with both offerings have been pro rated predicated upon the
percentage each offering bears to the aggregate $10,000,000.00 SB-1 offering
limit. (See "PROSPECTUS SUMMARY" and "DESCRIPTION OF THE SECURITIES.") The
following figures represent the Company's best estimate as to the needs of the
Company. Accordingly, such estimates are subject to change as circumstances
dictate and should not be relied upon as a definitive account of the ultimate
use of the funds. All proceeds of the offering will be held by the Company for
the benefit of the Investors.
<TABLE>
<S> <C>
Proceeds from Offering: $2,000,000.00/1/
- ---------------------- -------------
LESS:
- ----
(a) Registration Fee: 690.00/2/
(b) State Securities Filing Fees: 1,300.00/3/
(c) Non-Refundable Legal Fees, Printing and 8,000.00/4/
Copying Costs; and Miscellaneous
Closing Costs Attributable to the
offering:
(d) Compensation of Selling Agents: 100,000.00/5/
(e) Accounting Fees: 1,500.00/6/
(f) Working Capital and Reserve: 1,888,510.00/7/
Total Application of Proceeds: $2,000,000.00/1/
------------------------------ -------------
</TABLE>
Notes to Use of Proceeds:
- ------------------------
1. Based on offering being fully subscribed. The Company anticipates this
offering will continue for an extended period of time. However, all fees
and costs listed herein are to be paid whether this offering is successful
on or before the Effective Date of this Prospectus.
2. Based on 1/29 of 1% of aggregate offering price of the Contracts. Total
registration fee for both Notes and Contracts will be $3,448.00. If the
offering of the Notes is unsuccessful, the Company will pay the full
registration fee from this offering.
3. Represents 20% of $6,500.00, the estimated cost of registering the
Contracts and Notes in the applicable states. This figure is subject to
change depending upon the amount of securities offered per state; the
registration fee of each applicable state; and the final number of states
in which the securities are registered.
13
<PAGE>
4. Represents 20% of $40,000.00, the estimated costs to be incurred in
connection with the Offering including: (i) legal fees; (ii) recording,
printing, and travel expenses, and any other organizational or closing
costs and fees; and (iii) reimbursement of certain out-of-pocket expenses
for filing and other fees incurred in complying with federal and state
securities laws. All such fees and costs are non-refundable and shall be
paid at closing. A substantial portion of these expenses have been prepaid.
5. Represents compensation to be paid to selling agents of the Company based
on a 5% commission scale. Assumes the Contracts are fully subscribed solely
upon the efforts of the Company's agents.
6. Represents 20% of $7,5000.00, the estimated cost of accounting fees to be
incurred with respect to the Offering of the Notes and Contracts. A
substantial portion of these expenses have been prepaid.
7. Represents the balance of the offering proceeds to be used for working
capital and reserves.
SUMMARY OF FINANCIALS
The selected financial data presented below for the periods ended December
31, 1993, 1994, as well as for the period ended March 31, 1996, have been
derived from the unaudited financial statements of the Company and MCMI as well
as for the year ended December 31, 1995 for the Company. The financial data for
the year ended December 31, 1995 has been derived from the audited financial
statements of MCMI and the notes thereto. The unaudited financial statements
reflect all adjustments of a normal recurring nature which management considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
achieved for the entire year December 31, 1996 or for any other interim period.
The data set forth below should be read in conjunction with the section
captioned "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations" and the financial statements, notes thereto and other
financial and statistical information appearing elsewhere in this Prospectus.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
14
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Quarter
Ended
1993 1994 1995 March 31,
1996
<S> <C> <C> <C> <C>
STATEMENT
OF INCOME
DATA
- ---------------
Net Sales $120,392 559,637 1,135,664 510,208
Cost of Sales 92,265 456,841 713,182 361,414
---------- ---------- ----------- ----------
Gross Profit 28,127 102,796 422,482 148,794
Operating 48,695 110,724 167,497 40,888
Expenses
---------- ---------- ----------- ----------
Operating (20,568) (7,928) 254,985 107,906
Income
Other Expense, 2,394 13,775 31,328 4,002
Net
---------- ---------- ----------- ----------
Net Income (22,962) (21,703) 223,657 103,904
(Loss)
========== ========== =========== ==========
STATISTICAL
DATA
- -----------------
Gross Profit 23.36% 18.37% 37.20% 29.16%
Margin
Operating -17.08% -1.42% 22.45% 20.37%
Margin
BALANCE
SHEET DATA
- -----------------
Working Capital 55,080 92,539 240,807 331,240
Total Assets 61,645 134,213 393,252 481,201
Long-Term Debt 81,224 143,260 167,708 166,540
and Capital
Leases
Stockholders' ($20,862) ($41,411) $143,716 $274,198
Equity
</TABLE>
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
15
<PAGE>
This financial information is prepared on a proforma basis as if the two
companies, Genesis Financial Group, Inc. and Mr. Car Man, Inc., were combined
during the periods presented. The companies were S Corporations during the
periods presented, therefore no provision for income taxes is reported.
Effective July 1, 1996, the S Corporation status of Genesis Financial Group,
Inc. was terminated, and the Company became subject to corporate income taxes.
INVESTMENT HIGHLIGHTS
The following chart shows projections for the Company and MCMI for a period
of three years following the Offering. These projections are based on historical
data for MCMI and on the following assumptions: (i) 25% default rate on all
Contracts originated by MCMI; (ii) 5% casualty rate for Automobiles; (iii) the
25% default rate and 5% casualty rate equal approximately 10% of MCMI's accounts
receivable; and (iv) Contracts are purchased by the Company from MCMI at a fair
market value. It should be noted that in the majority of cases casualty claims
are and will continue to be fully covered by insurance.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE>
MR. CAR MAN, INC.
PRO FORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
------ ------ ------
<S> <C> <C> <C>
REVENUES, NET $1,750,400 $3,500,800 $5,251,200
COST OF SALES 1,095,436 2,450,160 3,691,890
--------------- -------------- --------------
GROSS PROFIT 654,964 1,050,640 1,559,310
EXPENSES
Personnel 20,000 32,000 44,000
Occupancy 46,900 70,350 105,525
Advertising 50,000 75,000 112,500
Legal and Professional 24,000 36,000 54,000
Other Expenses
Dues and Fees 1,478 2,217 3,326
Education 2,557 3,836 5,753
Insurance 5,000 7,500 11,250
Miscellaneous 8,500 12,750 19,125
Operating Supplies 6,400 9,600 14,400
Office Supplies 6,400 9,600 14,400
Outside Services 14,900 22,350 33,525
Office Expense 2,668 4,002 6,003
Repairs and Maintenance 8,500 12,750 19,125
Supplies 6,400 9,600 14,400
Taxes-Other 4,600 6,900 10,350
Telephone 9,000 13,500 20,250
Travel and Entertainment 5,000 7,500 11,250
Meals 4,000 6,000 9,000
Depreciation Expenses 8,000 12,000 15,000
--------------- -------------- --------------
TOTAL EXPENSES 234,303 353,455 523,182
--------------- -------------- --------------
INCOME FROM 420,661 697,185 1,036,128
OPERATIONS
INTEREST EXPENSE 12,000 18,000 27,000
--------------- -------------- --------------
NET INCOME $408,661 $679,185 $1,009,128
=============== ============== ==============
</TABLE>
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17
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PRO FORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3
------ ------ ------
<S> <C> <C> <C>
REVENUES
REVENUES NET $322,677 $1,202,034 $2,538,127
INTEREST EXPENSE 90,329 373,146 813,644
------------ ------------- -------------
GROSS PROFIT 232,348 828,888 1,724,483
EXPENSES
Personnel 60,000 120,000 180,000
Occupancy 0 12,000 18,000
Legal and Professional 10,000 15,000 22,500
Bad Debt 65,480 276,389 615,627
Collection Costs 12,770 39,400 75,085
Commissions 75,000 150,000 225,000
Other Expenses
Insurance 3,000 6,000 6,000
Travel and Entertainment 7,500 11,250 16,875
Office Expenses 10,000 15,000 22,500
Telephone 2,500 5,000 10,000
Depreciation - 5,000 5,000
------------ ------------- -------------
TOTAL EXPENSES 246,250 655,039 1,196,587
------------ ------------- -------------
INCOME LOSS BEFORE (13,902) 173,849 527,896
TAXES
INCOME TAXES (2,794) 57,414 200,390
------------ ------------- -------------
NET INCOME (LOSS) (11,108) $116,435 $327,506
============ ============= =============
</TABLE>
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18
<PAGE>
DETERMINATION OF OFFERING PRICE
The offering price for the Contracts will be determined by the Company
based upon the value of each Contract, the terms and conditions of each Contract
and the investment option elected by an Investor. (See "DESCRIPTION OF THE
SECURITIES.")
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, on an actual basis and as adjusted to reflect the pro forma effect of
the sale by the Company of all Contracts offered hereby and all the Notes
offered simultaneously with the Contracts (net of estimated offering expenses)
and the application of the estimated net proceeds from both offerings. (See
"PROSPECTUS SUMMARY"; and "USE OF PROCEEDS".)
<TABLE>
<CAPTION>
March 31, Pro Forma
--------- ---------
1996 Actual After Offering
----------- --------------
<S> <C> <C>
Short-term debt -0- -0-
Long-term debt 9,174 8,000,000 (Notes)/2/
2,000,000 (Contracts)/3/
Stockholders' equity:
Common Stock, no par 2,000 2,000
value (100 shares
authorized; 20 shares
outstanding
Retained Earnings (10,945) (10,945)
Total Stockholders' Equity (8,945) (8,945)
</TABLE>
____________________________
(1) Please see the Financial Statements set forth in this Prospectus.
(2) Assumes entire $8,000,000 Notes offering is fully subscribed. Company
anticipates consummating this offering within 3 years. This figure does not
take into account debt service during this period of time as Notes are
sold.
(3) Assumes entire $2,000,000 Contracts offering is fully subscribed. The
Company anticipates this offering will take more than 3 years to
consummate. This represents a contingent liability of the Company since the
Company is liable for all debt service obligations under the Contracts in
the event of default.
DISCLOSURE OF COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The bylaws of the Company contain provisions that provide for the
indemnification of officers and directors to the fullest extent permissible by
law. The Company may purchase directors and officers insurance for such
purposes. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been
19
<PAGE>
advised that in the opinion of the Securities And Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. (See "RISK FACTORS - Limitations On Liability Of
Officers And Directors.")
DESCRIPTION OF THE SECURITIES
Installment Sales Contracts. The Company will be offering to Investors over
---------------------------
a period of time not less than $2,000,000.00 in installment sales contracts
("Contracts") generated by MCMI during its ordinary course of business. The
Company will purchase some or all of the Contracts generated by MCMI from time
to time at a discount to the remaining principal balance. The Contract evidences
the indebtedness of the customer to MCMI for the purchase of the customer's
Automobile. The Contract will be assigned to the Company when it is purchased.
The Company will then service the Contract for the full term of the Contract.
The Company will package the Contracts and resell them to Investors under the
options described below. The Company will use the net proceeds from the sale of
the Contracts to Investors to purchase additional Contracts from MCMI. (See
"DESCRIPTION OF THE BUSINESS" and "USE OF PROCEEDS.") MCMI will use these funds
to replenish its inventory and for operating capital needs. The stream of
payments generated by the Contacts will comprise the funding source for the
return on an Investor's investment. Each Contract will also be collateralized by
the particular vehicle purchased. To minimize the risk to Investors, the Company
intends to replace any non-performing Contract with another Contract having
substantially similar terms and provisions. By replacing such defaulted
Contracts, the Company is able to eliminate some of the risks associated with
default and repossession. The Company may, from time to time and at its
discretion, maintain a limited reserve of viable Contracts to accomplish this
goal.
Each Investor will have two investment options in purchasing a Contract.
The Company is offering either a 20% or 25% return option depending upon an
Investor's risk tolerance. A form of the Contract used by MCMI is appended
hereto as Appendix "A."
(i) 20% Investment Option. Under the 20% investment option, an Investor
---------------------
purchases only a partial interest in the Contract. The Company will pass through
each payment due and payable under the Contract by the customer to the Investor
until the Investor has recovered his principal investment and received a 20%
return. The balance of the remaining payments due under the Contract will be
retained by the Company.
(ii) 25% Investment Option. Under the 25% investment option, an Investor
---------------------
purchases the entire Contract and, accordingly, will receive the entire stream
of payments due under the Contract to realize a 25% return on his investment.
Although an Investor's "at risk" capital would increase, his yield is enhanced.
Contract terms will vary between twelve and forty-eight months with the majority
of Contracts in the forty-two month range. The purchase price of each Contract
will also vary depending upon the term, amount and yield of each Contract.
Contracts will be selected and sold to Investors to match their investment
option. The Company will deliver the original Contracts to the Investors as they
are purchased but will service all Contracts on behalf of the Investors. The
Company intends to pool the Contracts as needed to fulfill each Investor's
subscribed amount.
Solicitations and sales of the Contracts will be made by the principal and
agent of the Company. The Company anticipates paying commissions associated with
this offering on agents' sales only. The principals of the Company will not
receive any commissions or other remuneration on the sale of Contracts. Total
estimated commissions would be $100,000.00
20
<PAGE>
assuming a 5% commission, a fully subscribed offering, and agent solicitation
only. The Company will issue the Contracts directly to an Investor upon receipt
of a validly executed Subscription Agreement, certified funds in the amount of
the purchase price and any other document required by the Company for an
investment hereunder.
DESCRIPTION OF THE BUSINESS
A. GENESIS FINANCIAL GROUP, INC.
-----------------------------
The Company was incorporated on June 15, 1993, under the laws of the
Commonwealth of Virginia or an S Corporation under the Internal Revenue Code
("Code"). Effective July 1, 1996, the Company terminated its S Corporation
status and is now a C Corporation under the Code. The Company was formed
specifically to provide a ready funding source for Mr. Car Man, Inc. ("MCMI"), a
used car dealership and an Affiliate of the Company. The Company is 100% owned
by Jeffrey W. Akers and Franklin W. Blankemyer, Jr. The principals in the
Company are the same as in MCMI. The Company has a minimal operating history to
date but anticipates capitalizing on a significant business opportunity by
actively participating as the financial arm of MCMI's business. As previously
discussed, the Company will purchase at a discount some or all of the Contracts
generated by MCMI from time to time upon the sale of its Automobiles. The
Company intends to package the Contracts and offer them to Investors on an
ongoing basis to generate revenues for business operations, including the
purchase of additional Contracts from MCMI.
In conjunction with the underlying offering of Contracts, the Company will
also register $8,000,000.00 in Notes for sale to investors. MCMI's targeted
market will primarily consist of those individuals who are unable to obtain
financing through traditional sources because of poor credit or other salient
risks, including, without limitation, divorce, medical emergencies, and job loss
("Non-Prime Consumers"). Such customers are generally deemed to be in a "high
risk" classification by most conventional lenders giving them little opportunity
to reestablish their credit status and to redeem themselves in the consumer
market place. The Company will follow strict guidelines before approving any
such financing, including, without limitation, reviewing credit reports and
verifying employment and residence status. In addition, the Company must be
reasonably assured that the customer has the ability to pay without adversely
impacting the customer's standard of living. The Company retains the right to
review and revise its credit terms as and when it deems necessary or appropriate
under the circumstances. Although strict adherence to these guidelines will not
prevent non-performance of every Contract, the Company reasonably believes that
it will reduce the exposure of the Company to customer defaults. (See "RISK
FACTORS"; "INVESTMENT HIGHLIGHTS"; and the Financial Statements in this
Prospectus.)
MCMI will assign and transfer to the Company all Contracts purchased by the
Company and the motor vehicle titles to the Automobiles covered by such
Contracts. The Company intends to use the bulk of the funds received from the
sale of the Contracts to Investors to purchase additional Contracts. MCMI will
use the funds it receives from the sale of its Contracts to Company to finance
its business operations including, without limitation, the replenishment of its
inventory. The Company anticipates a steady stream of Contracts since the
targeted customer base for MCMI will be comprised of individuals who are unable
to obtain financing through traditional or other sources. (See "USE OF PROCEEDS"
and "INVESTMENT HIGHLIGHTS.")
21
<PAGE>
The Company will undertake to repossess the Automobiles in the event a
customer defaults. All such repossessed Automobiles will be sold at auction or,
to the extent allowed by law, resold by the Company. The opportunity to resell
such Automobiles is also dependant upon the condition of the vehicle upon
repossession. There can be no guarantee that all Automobiles repossessed will be
in the same or similar condition as of the time of original sale.
B. MR. CAR MAN, INC.
-----------------
Mr. Car Man, Inc. ("MCMI") is a Virginia corporation duly organized on June
15, 1993, as an S Corporation under the Code. MCMI began business on August 2,
1993, at which time it sold its first used vehicle. Franklin W. Blankemeyer,
Jr., and Jeffrey W. Akers own all the issued and outstanding stock of MCMI and
each play an integral part in the business operations of both companies. MCMI
presently has two locations in the City of Roanoke, Virginia.
MCMI has established its reputation through fresh marketing ideas, a strong
emphasis on customer service and a sound financial base. MCMI strives to focus
on its customers and their needs. In addition, MCMI believes it has implemented
the best service program for its customers. Currently, MCMI offers all customers
a service agreement based on dealer's cost. Such a program covers the actual
cost of all parts needed with labor under warranty currently charged at $22.50
per hour. This service agreement continues as long as the Contract is
outstanding.
Prior to this Offering, MCMI successfully concluded a limited private
placement offering under Rule 504 of Regulation D of the Securities Act of 1933.
Through this offering, MCMI raised in excess of $950,000.00. MCMI targets the
higher risk, Non-Prime Consumer, since there is a tremendous market for this
type consumer. MCMI anticipates that the majority of the Contracts it generates
will be sold at a discount to the Company through which it will obtain the
financing it needs to replenish its inventory and meet its other operating
capital needs.
MCMI's future goals include the development of a new showroom concept to
augment its customer base and additional expansion. MCMI intends to install
video monitors which will play segments of movies and comedy routines poking fun
at the used car industry. Inter-mixed between these segments will be songs and
other musical themes about cars in general which will be played through a
computerized sound system. MCMI intends to package this media presentation in
displays incorporating parts of cars. This concept will provide a more
captivating and entertaining experience for the consumer. MCMI intends to
implement this new showroom concept at its second location at 4206 Williamson
Road. MCMI's goal is to open a new lot at a rate of one per year for the next
three years. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.")
COMPETITION
Since the Company intends to purchase all of its Contracts from its
Affiliates, MCMI, the Company has no direct competition for such Contracts.
However, if MCMI experiences a downturn in its business, becomes insolvent, or
goes out of business, or if the common ownership of the Company and MCMI should
change for whatever reason, the Company may be forced to pursue other
dealerships and/or consumer related businesses to continue its business
operations. In such event, the Company could encounter significant competition
in its market area which competition could have an adverse effect on its
financial viability and business operations. (See "RISK FACTORS - Company's
Competition And Affiliation.")
22
<PAGE>
Management estimates that the Company has 5 major direct competitors in its
existing market area in Southwest Virginia which includes Roanoke City, Salem
City, Roanoke County, Botetourt County, Montgomery County and the Town of
Vinton. In addition, there are numerous new and used car dealers in the market
area in general.
The Non-Prime Market is very fragmented and highly competitive. Despite
significant opportunities, many financial entities, such as banks, savings and
loans, credit unions, captive finance companies, and leasing companies do not
consistently provide financing to this market. These organizations, which have
consistently serviced the automobile finance business, have migrated toward
higher credit quality consumers. The entities which do provide consistent
financing for Non-Prime Consumers can be broken into two primary categories:
(i) publicly traded specialty automobile finance companies; and (ii) dealers who
provide financing programs directly to the consumer. The remainder is comprised
of smaller finance organizations that solicit business when their capital
resources permit.
Due to the fact that specialty finance companies must compete with one
another for each car dealer's business, the Company believes it has a
significant advantage because MCMI will sell its Contracts exclusively to the
Company. The dealer who finances his own vehicles and does not sell off his
contracts finds himself at a disadvantage due to the substantial amount of
capital that the car business/finance business requires. These dealers typically
do not have large resources of capital and typically sell their vehicles AS/IS
without offering any kind of extended service warranty.
Because of its affiliation with the Company, MCMI anticipates having
sufficient capital to implement and provide fresh marketing ideas, a clean
atmosphere, and friendly sales associates which, in turn, will separate it from
its competitors. MCMI's dedication to the customer, its exclusive bumper to
bumper warranty (which is a dealer cost warranty and lasts for the entire term
of the Contract) and its five day money back guarantee will help MCMI, and
therefore the Company, to prosper in this large and growing segment of the
industry. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -WARRANTY.")
EMPLOYEES
Currently, the Company and MCMI have eight (8) employees in addition to the
two (2) principals who are full-time employees. There are no employment
agreements or other similar arrangements with the employees. None of the
employees are currently covered by collective bargaining agreements. Management
for both corporations believes that its employee relations are satisfactory.
(See "MANAGEMENT.")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating History
-----------------
The Company has a minimal operating history to date. Although the Company
and MCMI were incorporated at the same time, the principals of the Company
realized that they had to concentrate exclusively on building MCMI's business in
the initial years to generate the customer base and sales volume needed to
support the financing arm of their used car business. The principals have
successfully completed this part of their business plan and now seek to expand
23
<PAGE>
their business to incorporate the credit side of the used car industry. By
providing customers with well-maintained used cars and favorable credit terms
not readily available elsewhere Management believes the Company and MCMI will
become firmly entrenched in its market area. Through this offering, the Company
should become sufficiently capitalized to maintain its market niche.
To date, MCMI has successfully concluded a limited private placement
offering of its Contracts, having raised funds in excess of $950,000.00. (See
"DESCRIPTION OF THE BUSINESS.") To remain competitive in the used car industry,
MCMI must maintain sufficient operating capital to replenish its inventory. This
cannot be accomplished if it finances the majority of its sales without the
assistance of a finance company. The Company provides a ready market for MCMI's
"car paper" (i.e., the Contracts), which generates the cash flow MCMI needs to
satisfy its ongoing capital requirements. With a successful offering, the
Company anticipates it will have the capital reserves necessary to purchase
MCMI's Contracts on a continual basis. Management's long term goal is to
establish: (i) a market for MCMI's Contracts with large financial institutions,
pension funds and/or insurance companies; and/or (ii) sufficient lines of
credit, thereby reducing the need for individual investors.
Liquidity and Capital Resources
-------------------------------
Although the Company currently has no lines of credit and the availability
of credit in the foreseeable future is uncertain, Management believes that the
Company will be able to meet its future obligations through internally generated
funds, primarily the collection of payments due and owing under the Contracts.
However, there is no assurance that such collections will be sufficient to: (i)
cover all future obligations of the Company; (ii) purchase Contracts as they
arise; and/or (iii) meet the operating needs of MCMI.
Projections
-----------
Management is optimistic about the business opportunities available to the
Company and MCMI in the Non-Prime Market. See the sections captioned "INVESTMENT
HIGHLIGHTS" and "DESCRIPTION OF THE BUSINESS" for a three (3) year proforma
summary and a more detailed description of the business operations of the
Company and MCMI.
Refining the Showroom
---------------------
Management will develop a new showroom concept which will be stimulating to
the eye as well as the ear. On display will be video monitors replaying segments
of movies and comedy stand-up routines, all of which poke fun or in some way
humorously relate to the car industry. Intermixed between these segments will be
portions of songs and other musical themes about cars, all being played through
a computerized sound system. Management will emphasize the car theme in
packaging this media by incorporating parts of cars into the display. For
example, a video monitor could be installed inside the headlight and grill
section of a '55 Chevy and hung from the ceiling. The car buying process then
truly becomes a captivating and entertaining experience. Psychological research
proves that humor lowers anxiety. By lowering a potential customer's anxiety
level, his level of trust rises, which increases the chances of selling more
cars.
24
<PAGE>
Warranty
--------
MCMI currently offers to its customers a five (5) day money back guarantee
and a bumper to bumper dealer cost warranty. If a customer does not like the
Automobile for any reason, MCMI will give the customer his down payment back
less mileage. With the warranty, which lasts for the full length of the financed
contract term, MCMI only charges the customer what MCMI paid for the part (no
markup). Labor under warranty is currently priced at $22.50 per hour. These
features are unmatched in MCMI's market area, and Management believes few if any
independent car companies offer these services in other regions of the United
States.
Results of Operations
---------------------
The Company has a minimal operating history. MCMI has been in operation
since August 2, 1993. See the section captioned "DESCRIPTION OF THE BUSINESS";
"SUMMARY OF FINANCIALS"; "INVESTMENT HIGHLIGHTS"; and the Financial Statements
in this Prospectus for more detailed information on the Company's and MCMI's
operations to date and for a three year proforma financial summary.
PROPERTIES
The following table describes the principal office and business locations
of the Company and MCMI:
Location Description
- -------- -----------
3733 Williamson Road Service and Collections Lot/1/
Roanoke, Virginia
4206 Williamson Road Sales Lot and Executive and Administrative
Roanoke, Virginia Offices for MCMI and the Company/2/
____________________
/1/ Leased (term expires July 31, 1998, no renewal option)
/2/ Leased (term expires August 31, 1997, with unlimited one year renewal
option)
LEGAL PROCEEDINGS
Currently, neither Company nor MCMI is a party to any legal proceeding.
Although there have been no such proceedings to date, there is no guarantee that
such proceedings will not arise in the future in the ordinary course of
business, especially with respect to collection efforts necessitated by customer
defaults.
25
<PAGE>
MANAGEMENT
A. Directors
---------
The table below sets forth the name, age, and position of the Company's and
MCMI's Directors:
<TABLE>
<CAPTION>
Name Age Position/Status
---- --- ---------------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 Director; 50% Shareholder
Jeffrey W. Akers 32 Director; 50% Shareholder
</TABLE>
Messrs. Blankemeyer and Akers are the sole shareholders and directors of MCMI
and the Company and are serving terms that will expire at the date of the annual
shareholders' meeting in 1996.
B. Officers
--------
The table below sets forth the name, age and position of the Company's and
MCMI's executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Franklin W. Blankemeyer, Jr. 32 President and Secretary
Jeffrey W. Akers 32 Vice President and Treasurer
</TABLE>
C. Biographies of Directors and Officers
-------------------------------------
Franklin W. Blankemeyer, Jr. Mr. Franklin W. Blankemeyer, Jr., co-founder
----------------------------
and Director of the Company and MCMI, has served as the President and Secretary
for both companies since June 1993. Prior to founding the Company, Mr.
Blankemeyer was employed by Valleydale Foods, Inc. and Valleydale Packers, Inc.
(collectively "Valleydale") and served as plant manager of Valleydale's Salem,
Virginia, sales/production facility directing the efforts of 225 employees.
Valleydale had annual sales of $40,000,000.00. Mr. Blankemeyer was with both
companies for a total of 8 years. Mr. Blankemeyer also served as program
director for Southwestern Virginia's International Trade Association during his
employment at Valleydale Packers, Inc. Mr. Blankemeyer graduated from Hampden-
Sydney College in 1986, cum laude, with a B.S. in Economics.
Jeffrey W. Akers. Mr. Jeffrey W. Akers graduated from Virginia Tech in 1987
----------------
with a B. S. in Civil Engineering. He worked at Richard L. Williams Consulting
Engineers as a Project Structural Engineer for three years designing small to
medium sized commercial buildings before turning to the field of finance and
investments. After two years serving as a Financial Consultant and a training
manager for IDS Financial Services (now American Express Financial Advisors)
where he qualified for the Mercury Award, presented to the top 20% performers,
he founded the Company and MCMI with Franklin Blankemeyer. Mr. Akers is
currently a Director and the Vice-President and Treasurer of both companies.
26
<PAGE>
D. Executive Compensation
----------------------
Compensation of Directors. Neither the Company's nor MCMI's Board of
-------------------------
Directors receive any compensation or remuneration of any kind.
The following table sets forth the aggregate annual compensation of the
executive officers of MCMI and the Company for the last fiscal year:
<TABLE>
<CAPTION>
Principal Salary/Other Annual
Name of Officer Position Year Distributions/1/ Compensation/2/
--------------- -------- ---- ---------------- ---------------
<S> <C> <C> <C> <C>
Franklin W. President/ 1995 19,265.00 NONE
Blankemeyer, Jr. Secretary
Jeffrey W. Akers Vice- 1995 19,265.00 NONE
President/
Treasurer
</TABLE>
(1) The two principal officers received stockholders distributions in the
amount of $19,265.00 each during 1995. No bonuses were paid during this
time. The Company anticipates implementing a monthly salary for the two
principals commencing in 1996.
(2) Neither officer received any other compensation or benefit of any kind
during 1995.
Cash Incentive Compensation. At the present time there is no management
---------------------------
incentive plan or any other type of remuneration or compensation plan
benefitting solely the executive officers of MCMI or the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the common stock of the Company as of the Effective
Date, (i) by each director and officer, (ii) by each person known by the Company
to be the beneficial owner of ten percent or more of the outstanding shares of
common stock of the Company, and (iii) by all directors and officers as a group.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
27
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned of Class
---------------- ------------------ --------
<S> <C> <C>
Franklin W. 10 50%
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers 10 50%
505 24th Street, S.W.
Roanoke, Virginia 24014
Directors and Officers 20 100%
as a Group (2 persons)
Franklin W.
Blankemeyer, Jr.
P.O. Box 21264
Roanoke, Virginia 24018
Jeffrey W. Akers
505 24th Street, S.W.
Roanoke, Virginia 24014
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as specified herein, there are no transactions involving the Company
or MCMI in which any director, officer, or shareholder or their spouses or other
relatives, have had or will have a direct or indirect material interest. Mr.
Blankemeyer's father and Mr. Akers' mother are current noteholders of MCMI. In
addition, Mr. Akers' father is employed by MCMI on a full time basis.
LEGAL MATTERS
The validity of the Contracts offered hereby will be passed upon for the
Company by Magee, Foster, Goldstein & Sayers, P.C.
EXPERTS
The unaudited financial statements of MCMI and the Company as of December
31, 1993, 1994, and 1995; the audited financial statements for MCMI for the
period ended December 31, 1995; and the unaudited financial statements for MCMI
for the three month period ended March 31, 1996, included in this Prospectus
have been so included in reliance on the report and authority of Hope Player and
Associates, P.C., an expert in auditing and accounting. Financial statements and
tax returns for 1993 and 1994 for the Company and MCMI were completed by
28
<PAGE>
Cassells, C.P.A., P.C. and are presented here as originally prepared except for
certain adjustments recorded during the audit of financial statements of MCMI as
of December 31, 1995.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
29
<PAGE>
GLOSSARY
The following are definitions of certain capitalized terms used in this
Prospectus:
AFFILIATE - an affiliate of, or person affiliated with, a specified person
shall mean a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
persons specified.
AUTOMOBILES - the used cars, vans, light trucks and other vehicles sold by
MCMI from time to time.
CODE - the Internal Revenue Code of 1986, as amended.
COMMISSION - the Securities And Exchange Commission.
COMPANY - Genesis Financial Group, Inc., a Virginia corporation.
CONTRACTS - the Installment Sales Contracts originated by MCMI during the
normal course of its business operations of selling Automobiles to the general
public, specifically the Non-Prime Consumer, which Contracts are offered by the
Company hereunder.
EFFECTIVE DATE - the date upon which the registration statement, of which
this Prospectus is a part, registering the Notes and Contracts and filed with
the SEC on behalf of the Company becomes final.
EXCHANGE ACT - The Securities Exchange Act of 1934, as amended.
INVESTOR(S) - a purchaser of a Note offered by the Company pursuant to the
Offering.
MANAGEMENT - Messrs. Franklin W. Blankemeyer, Jr., and Jeffrey W. Akers.
MCMI - Mr. Car Man, Inc., a Virginia corporation.
NON-PRIME CONSUMER - an Automobile buyer with limited access to traditional
sources of consumer credit.
NON-PRIME MARKET - the automobile finance market for Non-Prime Consumers.
NOTES - the $8,000,000.00 in corporate promissory notes offered by the
Company pursuant to the Offering.
OFFERING - the offer for sale to investors by the Company of up to
$8,000,000.00 in Notes and $200,000.00 in Contracts, as may be amended by the
Company, for the purpose of raising, in the aggregate, $10,000,000.00.
PROSPECTUS - the offering document delivered to Investors interested in
purchasing the Contracts.
SECURITIES ACT - The Securities Act of 1933, as amended.
30
<PAGE>
FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Comparative Financial Statements for
the Company and MCMI
Comparative Balance Sheets for the Company as of
December 31, 1993, 1994 and 1995 F-1
Comparative Income Statements for the Company for periods
ended December 31, 1993, 1994, and 1995 F-2
Comparative Balance Sheets for MCMI as of
December 31, 1993, 1994, and 1995 F-3
Comparative Income Statements for MCMI for
periods ended December 31, 1993, 1994 and 1995 F-4
Annual Financial Statements for MCMI
December 31, 1995 F-5
Report of Independent Auditors F-6
Balance Sheet as of December 31, 1995 F-7
Statement of Income and Retained Earnings as
of December 31, 1995 F-8
Statement of Cash Flows as of December 31, 1995 F-9
Notes to Financial Statements F-10
Unaudited Interim Financial Statements for MCMI F-14
Accountants' Compilation Report F-15
Balance Sheet as of March 31, 1996 F-16
Statement of Income and Retained Earnings for
Three Months Ended March 31, 1996 F-17
Statement of Cash Flows for Three Months
Ended March 31, 1996 F-18
Notes to Financial Statements F-19
</TABLE>
31
<PAGE>
FINANCIAL STATEMENTS
--------------------
(Continued)
-----------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Proforma Financial Statements for the Company
and MCMI
Accountants' Compilation Report F-24
Proforma Balance Sheets for the Company as of
Years One, Two and Three F-25
Proforma Income Statements for the Company
for the Periods Then Ended F-26
Summary of Significant Projection Assumptions
for the Company Years One through Three F-27
Accountants' Compilation Report F-29
Proforma Balance Sheets for MCMI as of
Years One, Two and Three F-30
Proforma Income Statements for MCMI
for the Periods Then Ended F-31
Summary of Significant Projection Assumptions
for MCMI Years One through Three F-32
</TABLE>
32
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 50 - -
--------- -------- --------
Total current assets 50 - -
Organization costs, net 401 315 229
--------- -------- --------
Total assets 451 315 229
========= ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders 9,224 9,174 9,174
Stockholders' Equity Common stock,
no par value, 20 shares issued and 100
shares authorized 2,000 2,000 2,000
Retained earnings ( 10,773) ( 10,859) ( 10,945)
-------- -------- ---------
( 8,773) ( 8,859) ( 8,945)
-------- -------- ---------
$ 451 315 229
Total Liabilities and stockholders' equity ======== ======== ========
</TABLE>
F-1
<PAGE>
GENESIS FINANCIAL GROUP, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDED DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C>
Revenues, net $ - - -
Expenses
Advertising 566 - -
Education 8,066 - -
Supplies 470 - -
Telephone 731 - -
Miscellaneous 789 - -
Meals 122 - -
Amortization 29 86 86
------- ------- -------
Total expenses 10,773 86 86
------- ------- -------
Net loss $( 10,773) ( 86) ( 86)
======= ======= =======
</TABLE>
F-2
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED AUDITED
<S> <C> <C> <C>
Assets
------
Current assets
Cash $15,485 11,581 52,037
Accounts receivable, trade 19,784 74,187 126,215
Accounts receivable,
related party 2,200 12,983 11,447
Inventory 18,844 26,152 132,936
------ ------ -------
Total current assets 56,313 124,903 322,635
Fixed assets, net 3,131 7,245 29,529
Advance payments investors - - 36,658
Other assets 1,750 1,750 4,201
------- ------ -------
Total assets 61,194 133,898 393,023
======= ======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable, trade 1,283 - 1,332
Accrued expenses - 5,809 7,732
Current portion
long-term debt - 26,555 72,764
-------- ------- -------
Total current liabilities 1,283 32,364 81,828
Long-term debt 72,000 134,086 152,725
Accrued interest payable - - 5,809
Stockholders' Equity
Common stock, no par value,
20 shares issued and
100 shares authorized 100 20,100 20,100
Retained earnings (12,189) (52,652) 132,561
------ ------ --------
(12,089) (32,552) 152,661
------ ------ --------
Total liabilities and
stockholders' equity $61,194 133,898 393,023
====== ======= =======
</TABLE>
F-3
<PAGE>
MR. CAR MAN, INC.
COMPARATIVE INCOME STATEMENTS
PERIODS ENDING DECEMBER 31, 1993 - 1995
<TABLE>
<CAPTION>
1993 1994 1995
UNAUDITED UNAUDITED AUDITED
<S> <C> <C> <C>
Revenues, net $ 120,392 559,637 1,135,664
Cost of merchandise sold 92,265 456,841 713,182
------- ------- ---------
28,127 102,796 422,482
Expenses
Advertising 8,712 23,267 42,781
Legal and professional 1,476 15,825 24,963
Rent 6,250 15,896 23,645
Telephone and utilities 2,321 7,155 12,845
Supplies 2,121 9,177 10,365
Outside services 536 2,253 8,066
Collection costs - - 7,201
Bad debt expense - - 6,794
Travel and entertainment 110 6,027 6,412
Repairs and maintenance 3,366 1,321 2,801
Taxes - other 2,409 5,512 4,506
General insurance 888 3,210 4,571
Office expense 2,659 5,253 3,580
Education 5,709 8,981 2,558
Miscellaneous 1,167 6,254 3,790
Depreciation and
amortization 198 507 2,533
------- ------ --------
37,922 110,638 167,411
------- ------- --------
Income (loss) from
operations ( 9,795) ( 7,842) 255,071
Interest expense 2,394 13,775 31,328
------- ------ ---------
Net income $( 12,189) ( 21,617) 223,743
======= ======= ========
</TABLE>
F-4
<PAGE>
MR. CAR MAN, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
(WITH INDEPENDENT AUDITORS' REPORT)
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mr. Car Man, Inc.
We have audited the accompanying balance sheet of Mr. Car Man, Inc. as of
December 31, 1995, and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mr. Car Man, Inc. as of
December 31, 1995, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
March 22, 1996
F-6
<PAGE>
MR. CAR MAN, INC.
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets
Cash $ 52,037
Accounts receivable, trade 126,215
Accounts receivable, related party 11,447
Inventory 132,936
-------
Total current assets 322,635
Fixed assets, net (Note 2) 29,529
Advance payments to investors 36,658
Other assets 4,201
-------
Total assets 393,023
=======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade 1,332
Accrued expenses 7,732
Current portion long-term debt 72,764
-------
Total current liabilities 81,828
Long-term debt (Note 3) 152,725
Accrued interest payable 5,809
Commitments and contingencies (Note 5)
Stockholders' Equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100
Retained earnings 132,561
-------
152,661
-------
Total liabilities and
stockholders' equity $ 393,023
=======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-7
<PAGE>
MR. CAR MAN, INC.
Statement of Income and Retained Earnings
Year Ended December 31, 1995
<TABLE>
<S> <C>
Revenues, net $ 1,135,664
Cost of merchandise sold 713,182
---------
Gross profit 422,482
Expenses
Advertising 42,781
Legal and professional 24,963
Rent 23,645
Telephone and utilities 12,845
Supplies 10,365
Outside services 8,066
Collection costs 7,201
Bad debt expense 6,794
Travel and entertainment 6,412
Repairs and maintenance 2,801
Taxes - other 4,506
General insurance 4,571
Office expense 6,138
Miscellaneous expense 3,790
Depreciation and amortization 2,533
---------
167,411
---------
Income from operations 255,071
Interest expense 31,328
---------
Net income 223,743
Retained earnings, beginning ( 52,652)
Less shareholder distributions ( 38,530)
---------
Retained earnings, ending $ 132,561
=========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-8
<PAGE>
MR. CAR MAN, INC.
Statement of Cash Flows
Year Ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 223,743
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 2,533
Bad debt expense 6,794
(Increase) decrease in:
Trade accounts receivable (52,028)
Inventories (106,784)
Increase (decrease) in:
Trade accounts payable 1,332
Accrued liabilities 7,732
------
Net cash provided (used) by
operating activities 83,322
Cash flows from investing activities
Purchases of property and equipment ( 24,817)
Loans made to related party ( 5,997)
Advance payments to investors ( 36,658)
Payments received loans to related
party, net of advances 739
Increase in refundable deposits ( 2,451)
------
Net cash provided (used) by
investing activities ( 69,184)
Cash flows from financing activities
Proceeds from notes payable 78,315
Principal repayment notes payable ( 13,467)
Distributions to shareholders ( 38,530)
-------
Net cash provided (used) by
financing activities 26,318
-------
Net increase in cash 40,456
Cash at beginning of year 11,581
-------
Cash at end of year $ 52,037
======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-9
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing
to its buyers. The Company also leases vehicles under operating
lease agreements. The financing contracts are generally sold to
third party investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company
considers all unrestricted highly liquified investments with an
initial maturity of three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized
when earned. Proceeds received from financing contracts sold
reduce the outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific
identification method.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line
method of depreciation for financial reporting purposes. The
average estimated useful lives of the principal property
categories are summarized as follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenancecosts are charged to
expense as incurred.
F-10
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay federal corporate income
taxes on its taxable income. Instead the stockholders are liable
for individual federal income taxes on their respective shares of
the Company's profits.
Note 2. FIXED ASSETS, NET
Fixed assets as of December 31, 1995 are summarized by major
category as follows:
<TABLE>
<S> <C>
Leasehold improvements $ 8,983
Furniture and equipment 9,776
Assets under capital lease 14,287
------
33,046
Less accumulated depreciation
and amortization ( 3,517)
-----
$ 29,529
======
</TABLE>
Note 3. LONG-TERM DEBT
As of December 31, 1995, long-term debt is summarized as follows:
<TABLE>
<S> <C>
Notes payable to individuals
due on demand; interest payable
monthly at varying interest
rates, unsecured $ 55,000
Notes payable to individuals
due on demand after December 31,
1996; interest accrued and
payable at time of demand 123,142
</TABLE>
F-11
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 3. LONG-TERM DEBT (Continued)
<TABLE>
<S> <C>
Obligations under capital
leases due in monthly
installments of $528 including
interest ranging from 12% to
23.6% 11,597
Notes payable to individuals
due in monthly installments of
$854 including interest ranging
from 7% to 15%, maturities up
to March, 2000 35,750
-------
225,489
Less current portion ( 72,764)
-------
Total long-term debt $ 152,725
=======
</TABLE>
Annual maturities of long-term debt including capitalized
leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $ 72,764
1997 135,14
1998 12,457
1999 3,742
2000 1,385
-------
$ 225,489
=======
</TABLE>
In March, 1996, demand loans totalling $45,000 were renegotiated
to be repaid at 15% interest over twenty-four (24) months.
Monthly payments of principal and interest will be $2,250.
F-12
<PAGE>
MR.CAR MAN, INC.
Notes to Financial Statements
December 31, 1995
Note 4. LEASES
The Company leases certain building and equipment under
noncancellable operating leases. Lease terms range from three to
five years. The following is a schedule of future minimum lease
payments required under the operating leases as of December 31,
1995:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $ 37,999
1997 32,174
1998 11,636
------
$ 81,809
======
</TABLE>
Rental expense recorded for the year ended December 31, 1995
was $23,645.
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of December 31, 1995
includes loans to stockholders and their family members
totalling $164,424. Certain loans accrue at various interest
rates with principal and interest due on demand. Certain
other loans are amortized monthly with maturities up to
March, 2000. Also as of December 31, 1995, there is an
outstanding receivable from a stockholder of $10,847.
F-13
<PAGE>
MR. CAR MAN, INC.
FINANCIAL STATEMENTS
MARCH 31, 1996
(WITH ACCOUNTANTS' COMPILATION REPORT)
F-14
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
The Board of Directors
Mr. Car Man, Inc.
We have compiled the accompanying balance sheet of Mr. Car Man, Inc.
as of March 31, 1996 and the related statements of income and retained earnings,
and cash flows for the quarter then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
May 20, 1996
F-15
<PAGE>
MR. CAR MAN, INC.
Balance Sheet
March 31, 1996
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets
Cash $ 51,146
Accounts receivable, trade 177,163
Accounts receivable, related party 11,497
Inventory 169,246
-------
Total current assets 409,052
Fixed assets, net (Note 2) 29,433
Advance payments to investors 38,286
Other assets 4,201
-------
Total assets 480,972
=======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable trade -
Accrued expenses 1,933
Current portion long-term debt 76,108
--------
Total current liabilities 78,041
Long-term debt (Note 3) 143,825
Accrued interest payable 13,541
Commitments and contingencies (Note 5)
Stockholders' Equity
Common stock, no par value, 20 shares
issued and 100 shares authorized 20,100
Retained earnings 225,465
-------
245,565
-------
Total liabilities and
stockholders' equity $480,972
=======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-16
<PAGE>
MR. CAR MAN, INC.
Statement of Income and Retained Earnings
Quarter Ended March 31, 1996
<TABLE>
<S> <C>
Revenues, net $ 510,208
Cost of merchandise sold 361,414
--------
Gross profit 148,794
Expenses
Advertising 5,995
Rent 9,681
Telephone and utilities 5,500
Supplies 2,565
Outside services 1,972
Collection costs 2,457
Travel and entertainment 1,363
Taxes - other 3,583
General insurance 3,255
Office expense 2,309
Miscellaneous expense 858
Depreciation and amortization 1,350
--------
40,888
--------
Income from operations 107,906
Interest expense ( 9,313)
Other income 5,311
--------
( 4,002)
-------
Net income 103,904
Retained earnings, beginning 132,561
Less shareholder distributions ( 11,000)
--------
Retained earnings, ending $ 225,465
========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-17
<PAGE>
MR. CAR MAN, INC.
Statement of Cash Flows
Quarter Ended March 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 103,904
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 1,350
(Increase) decrease in:
Trade accounts receivable ( 50,948)
Inventories ( 36,310)
Increase (decrease) in:
Trade accounts payable ( 1,332)
Accrued liabilities 1,933
-------
Net cash provided (used) by
operating activities 18,597
Cash flows from investing activities
Purchases of property and equipment ( 1,254)
Increase in accounts receivable -
related party ( 50)
Advance payments to investors ( 1,628)
-------
Net cash provided (used) by
investing activities ( 2,932)
Cash flows from financing activities
Principal repayment notes payable ( 5,556)
Distributions to shareholders ( 11,000)
-------
Net cash provided (used) by
financing activities ( 16,556)
-------
Net increase (decrease) in cash ( 891)
Cash at beginning of quarter 52,037
-------
Cash at end of quarter $ 51,146
=======
</TABLE>
The notes to financial statements are an integral part of these statements.
F-18
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Mr. Car Man, Inc. sells used automobiles and provides financing to its
buyers. The Company also leases vehicles under operating lease
agreements. The financing contracts are generally sold to third party
investors.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
unrestricted highly liquified investments with an initial maturity of
three months or less to be cash equivalents.
Revenue Recognition
-------------------
Revenue is recognized at time of sale. For company provided
financing, interest income on outstanding balance is recognized when
earned. Proceeds received from financing contracts sold reduce the
outstanding receivable balance.
Inventory
---------
Inventory is recorded at historical cost plus cost of repairs, if
required. Cost of sales is determined on a specific identification
method.
Fixed Assets
------------
Fixed assets are carried at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method of
depreciation for financial reporting purposes. The average estimated
useful lives of the principal property categories are summarized as
follows:
Furniture and fixtures 7 years
Machinery and equipment 10 years
Leasehold improvements 30 years
F-19
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fixed Assets (Continued)
------------
The modified accelerated cost recovery system is used for federal
income tax purposes. Repairs and maintenance costs are charged to
expense as incurred.
Income Taxes
------------
The Company has elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income.
Instead the stockholders are liable for individual federal income
taxes on their respective shares of the Company's profits.
Note 2. FIXED ASSETS, NET
Fixed assets as of March 31, 1996 are summarized by major category as
follows:
<TABLE>
<S> <C>
Leasehold improvements $ 8,983
Furniture and equipment 11,029
Assets under capital lease 14,287
-------
34,299
Less accumulated depreciation
and amortization ( 4,866)
-------
$ 29,433
=======
</TABLE>
F-20
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 3. LONG-TERM DEBT
As of March 31, 1996, long-term debt is summarized as follows:
Notes payable to individuals
due on demand; interest payable
monthly at varying interest
rates, unsecured $ 20,000
Notes payable to individuals
due on demand after December 31,
1996; interest accrued and
payable at time of demand 123,142
Obligations under capital
leases due in monthly
installments of $528 including
interest ranging from 12% to
23.6% 10,680
Notes payable to individuals
due in monthly installments of
$854 including interest ranging
from 7% to 15%, maturities up
to March, 2000 66,111
-------
219,933
Less current portion
( 76,108)
-------
Total long-term debt $ 143,825
=======
F-21
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 3. LONG-TERM DEBT (Continued)
Annual maturities of long-term debt including capitalized leases are
as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1997 $ 55,187
1998 150,379
1999 11,668
2000 1,768
2001 931
-------
$ 219,933
=======
</TABLE>
Note 4. LEASES
The Company leases certain building and equipment under noncancellable
operating leases. Lease terms range from three to five years. The
following is a schedule of future minimum lease payments required
under the operating leases as of March 31, 1996:
<TABLE>
<CAPTION>
Year
Ending
March 31,
---------
<S> <C>
1997 $ 39,898
1998 28,516
1999 8,252
2000 749
-------
$ 77,415
=======
</TABLE>
Rental expense recorded for the quarter ended March 31, 1996 was
$9,682.
F-22
<PAGE>
MR. CAR MAN, INC.
Notes to Financial Statements
March 31, 1996
Note 5. RELATED PARTY TRANSACTIONS
Notes payable to related parties as of March 31, 1996 includes loans
to stockholders and their family members totalling $164,424. Certain
loans accrue at various interest rates with principal and interest due
on demand. Certain other loans are amortized monthly with maturities
up to March, 2000. Also as of March 31, 1996, there is an outstanding
receivable from a stockholder of $10,847.
F-23
<PAGE>
To the Board of Directors
Genesis Financial Group, Inc.
We have compiled the accompanying forecasted balance sheets and statements
of income, of Genesis Financial Group, Inc. as of the end of year one, year two
and year three, and for the periods then ending, in accordance with standards
established by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of a forecast
information that is the representation of management and does not include
evaluation of the support for the assumptions underlying the forecast. We have
not examined the forecast and, accordingly, do not express an opinion or any
other form of assurance on the accompanying statements or assumptions.
Furthermore, there will usually be differences between the forecasted and actual
results because events and circumstances frequently do not occur as expected,
and those differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this report.
Because these forecasts are not audited, management has elected to omit the
summary of significant accounting policies and statements of cash flow as
generally required by the guidelines for presentation of a forecast established
by the American Institute of Certified Public Accountants. If the omitted
disclosures were included in the forecast, they might influence the user's
conclusions about the Company's financial position and results of operations for
the forecast period. Accordingly, this forecast is not designed for those who
are not informed about such matters.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
July 16, 1996
F-24
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROFORMA BALANCE SHEETS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 5,913 226,651 888,506
Accounts receivable 1,089,249 3,356,238 6,399,280
Reserve for bad debts ( 65,480) ( 341,869) ( 957,496)
--------- --------- ---------
Total current assets 1,029,682 3,241,020 6,330,290
Fixed assets, net - 20,000 15,000
Organization costs, net 229 229 229
--------- --------- ---------
Total assets 1,029,911 3,261,249 6,345,519
========= ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Loans from stockholders - - -
Long-term debt 1,049,964 3,164,867 5,921,630
Stockholders' Equity
Common stock no par value,
20 shares issued and
100 shares authorized 2,000 2,000 2,000
Retained earnings
(deficit) ( 22,053) 94,382 421,889
-------- -------- ---------
( 20,053) 63,382 423,889
-------- -------- ---------
Total liabilities and
Stockholders' Equity $ 1,029,911 3,261,249 6,345,519
========= ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-25
<PAGE>
GENESIS FINANCIAL GROUP, INC.
PROFORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Revenues, net $ 322,677 1,202,034 2,538,127
Interest expense 90,329 373,146 813,644
--------- --------- ---------
Gross profit 232,348 828,888 1,724,483
Expenses
Personnel 60,000 120,000 180,000
Occupancy - 12,000 18,000
Legal and professional 10,000 15,000 22,500
Bad debt 65,480 276,389 615,627
Collection costs 12,770 39,400 75,085
Commissions 75,000 150,000 225,000
Other expenses
Insurance 3,000 6,000 6,000
Travel and entertainment 7,500 11,250 16,875
Office expenses 10,000 15,000 22,500
Telephone 2,500 5,000 10,000
Depreciation - 5,000 5,000
--------- --------- ---------
Total expenses 246,250 655,039 1,196,587
--------- --------- ---------
Income (loss) before taxes ( 13,902) 173,849 527,896
Income taxes ( 2,794) 57,414 200,390
------- --------- ---------
Net income (loss) $ ( 11,108) 116,435 327,506
======= ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-26
<PAGE>
GENESIS FINANCIAL GROUP, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE THROUGH THREE
The financial projection is based on subscribing an offering of $8 million in
promissory notes and $1 million in installment sales contracts by the end of
year three, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of July 16, 1996, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained.
The presentation is designed to provide information to potential lenders and
investors concerning results if the funds were obtained and should not be
considered to be a presentation of expected future results. Accordingly, this
presentation may not be useful for other purposes. The assumptions disclosed
herein are those management believes are significant to the projections. Even
if funds are obtained, there will usually be differences between projected and
actual results, because events and circumstances frequently do not occur as
expected and those differences may be material.
Note A. REVENUES
The Company expects to purchase installment sales contracts from its
affiliated company, Mr. Car Man, Inc. (MCMI) in amounts of $1,166,664,
$2,666,664 and $4,166,664, in years one, two and three respectively.
Interest income will be recorded as revenue as earned, and other
revenues will be recognized as received. Bad debt expense is estimated
based on a percentage of ending accounts receivable.
Note B. FIXED ASSETS
In year two, management plans to establish a separate office for the
Company operations. Depreciation expense is calculated based on the
assets estimated useful life of five years.
Note C. NOTES PAYABLE
The notes payable are anticipated to be subscribed over years one, two
and three in the amounts of $1,166,664, $2,666,664 and $4,166,664,
respectively. These projections include interest expense calculations
based on an 18% interest rate, assuming an equal amount of new notes
on a monthly basis, with the first payment to be made in the first
month following the issuance of the notes.
F-27
<PAGE>
Note D. EXPENSES
The Company will be come fully operational in year one upon receipt of
initial funds under the offerings of $8 million in notes and $2
million in installment sales contracts. The expenses represent
management's estimate of the costs to operate and expand the business
of Genesis Financial Group, Inc.
Note E. INCOME TAX
State and federal income taxes are calculated at current tax rates,
and are assumed to be paid during the year for each of the years
presented.
F-28
<PAGE>
To the Board of Directors
Mr. Car Man, Inc.
We have compiled the accompanying forecasted balance sheets and statements
of income, of Mr. Car Man, Inc. as of the end of year one, year two and year
three, and for the periods then ending, in accordance with standards established
by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of a forecast
information that is the representation of management and does not include
evaluation of the support for the assumptions underlying the forecast. We have
not examined the forecast and, accordingly, do not express an opinion or any
other form of assurance on the accompanying statements or assumptions.
Furthermore, there will usually be differences between the forecasted and actual
results because events and circumstances frequently do not occur as expected,
and those differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this report.
Because these forecasts are not audited, management has elected to omit the
summary of significant accounting policies and statements of cash flow as
generally required by the guidelines for presentation of a forecast established
by the American Institute of Certified Public Accountants. If the omitted
disclosures were included in the forecast, they might influence the user's
conclusions about the Company's financial position and results of operations for
the forecast period. Accordingly, this forecast is not designed for those who
are not informed about such matters.
HOPE PLAYER AND ASSOCIATES, P.C.
Roanoke, Virginia
July 16, 1996
F-29
<PAGE>
MR. CAR MAN, INC.
PROFORMA BALANCE SHEETS
YEARS ONE THROUGH THREE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Assets
------
Current assets
Cash $ 357,636 820,321 1,723,148
Accounts receivable, trade 100,972 80,778 64,622
Accounts receivable, other 11,447 - -
Inventory 182,936 282,936 382,936
------- -------- --------
Total current assets 652,991 1,184,035 2,170,706
Fixed assets, net 21,529 34,529 44,529
Advance payments, investors 36,658 36,658 36,658
Other assets, net 4,201 4,201 4,201
------ ------- -------
Total assets 715,379 1,259,423 2,256,094
======= ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable, trade 1,332 1,332 1,332
Accrued expenses - - -
Current portion long-term debt 135,141 12,457 3,742
------- ------- -------
Total current liabilities 136,473 13,789 5,074
Long-term debt 17,584 5,127 1,385
Stockholders' Equity
Common stock, no par value,
20 shares issued and
100 shares authorized 20,100 20,100 20,100
Retained earnings 541,222 1,220,407 2,229,535
------- --------- ---------
Total stockholders' equity 561,322 1,240,507 2,249,635
------- --------- ---------
Total liabilities and
stockholders' equity $ 715,379 1,259,423 2,256,094
======= ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-30
<PAGE>
MR. CAR MAN, INC.
PROFORMA INCOME STATEMENTS
YEARS ONE THROUGH THREE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ONE TWO THREE
<S> <C> <C> <C>
Revenues, net $ 1,750,400 3,500,800 5,251,200
Cost of merchandise sold 1,095,436 2,450,160 3,691,890
--------- --------- ---------
Gross profit 654,964 1,050,640 1,559,310
Expenses
Personnel 20,000 32,000 44,000
Occupancy 46,900 70,350 105,525
Advertising 50,000 75,000 112,500
Legal and professional 24,000 36,000 54,000
Other expenses
Dues and fees 1,478 2,217 3,326
Education 2,557 3,836 5,753
Insurance 5,000 7,500 11,250
Miscellaneous 8,500 12,750 19,125
Operating supplies 6,400 9,600 14,400
Office supplies 6,400 9,600 14,400
Outside services 14,900 22,350 33,525
Office expense 2,668 4,002 6,003
Repairs and maintenance 8,500 12,750 19,125
Supplies 6,400 9,600 14,400
Taxes - other 4,600 6,900 10,350
Telephone 9,000 13,500 20,250
Travel and entertainment 5,000 7,500 11,250
Meals 4,000 6,000 9,000
Depreciation expense 8,000 12,000 15,000
------- -------- --------
Total expenses 234,303 353,455 523,182
--------- --------- ---------
Income from operations 420,661 697,185 1,036,128
Interest expense 12,000 8,000 27,000
--------- ------- ---------
Net income $ 408,661 679,185 1,009,128
========= ========= =========
</TABLE>
(See Summary of Significant Assumptions and Accountants' Report)
F-31
<PAGE>
MR. CAR MAN, INC.
SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS
YEARS ONE THROUGH THREE
The financial projection is based on subscribing an offering of $8 million in
promissory notes and $1 million in installment sales contracts by the end of
year three, and presents to the best of management's knowledge and belief, a
summary of the Company's expected results of operations and changes in financial
position for the projection period, if such funds are obtained. Accordingly,
the projection reflects its judgement, as of July 16, 1996, the date of this
projection, of the expected conditions and its expected course of action if the
financing were obtained. The presentation is designed to provide information to
potential lenders and investors concerning results if the funds were obtained.
The presentation is designed to provide information to potential lenders and
investors concerning results if the funds were obtained and should not be
considered to be a presentation of expected future results. Accordingly, this
presentation may not be useful for other purposes. The assumptions disclosed
herein are those management believes are significant to the projections. Even
if funds are obtained, there will usually be differences between projected and
actual results, because events and circumstances frequently do not occur as
expected and those differences may be material.
Note A. REVENUES, NET
The Management of Mr. Car Man, Inc. expects to sell installment sales
contracts to its affiliated company, Genesis Financial Group, Inc.
(Genesis) in amounts of $1,166,664, $2,666,664 and $4,166,664 in years
one through three, respectively. Sales also include $1 million in
installment sales contracts which will be sold to investors through an
offering to the general public by Genesis.
Note B. COST OF SALES
Cost of sales is expected to increase as the amount of sales
increases. The margins are projected to improve over historical
levels due to the increased volume.
Management anticipates opening a new car lot in years two and three
which is estimated to require a base inventory of $100,000 per lot.
Note C. FIXED ASSETS
Management anticipates opening a new car lot in years two and three at
an estimated cost of $25,000 in additional fixed assets per car lot.
Depreciation expense is calculated based on the assets' estimated
useful life of five years.
Note D. EXPENSES
Operating expenses are expected to increase as revenues increase due
to additional requirements of personnel and occupancy costs to support
the new proposed car lot and increased expenses due to increased
volume.
Note E. INCOME TAX
There is no provision for income tax expense in these financial
statements because Mr. Car Man, Inc. is an S Corporation, and the
stockholders have elected to report the taxable income or loss on
their individual returns.
F-32
<PAGE>
APPENDIX "A"
Retail Installment Sales Contract
---------------------------------
A-1
<PAGE>
RETAIL INSTALLMENT SALES CONTRACT
- --------------------------------------------------------------------------------
Buyer (and Co-Buyer) Name and Address Ceditor (Seller Name and Address)
(include County & Zip Code)
- --------------------------------------------------------------------------------
You, the Buyer (and Co-Buyer, if any), may buy the vehicle described below for
cash or on credit. The cash price is shown below as "Cash Price." The credit
price is shown below as "Total Sale Price." By signing this contract, you choose
to buy the vehicle on credit under the agreements on the front and back of this
contract. This contract is not contingent upon any financing terms which are
satisfactory to the parties.
Description of Vehicle. You agree to buy and the Creditor agrees to sell the
following vehicle.
- --------------------------------------------------------------------------------
New or Used Year Made and Model Body Type
- --------------------------------------------------------------------------------
Vehicle Identification No. Use for Which Purchased
[ ] personal [ ] agricutural
[ ] business [ ] _________________
- --------------------------------------------------------------------------------
If truck -- Describe body and major names of equipment sold:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERAL TRUTH-IN-LENDING DISCLOSURES
- --------------------------------------------------------------------------------
ANNUAL PERCENTAGE RATE FINANCE CHARGE Amount Financed
The cost of your credit The dollar amount the The amount of credit
as a yearly rate. credit will cost you. provided to you or on
your behalf
____________% $ ______________ $ _______________
- --------------------------------------------------------------------------------
Total of Payments Total Sale Price
The amount you will have paid The total cost of your purchase
after you have made all on credit, including your
payments as scheduled. downpayment of $______________ is.
$_______________________ $__________________________
- --------------------------------------------------------------------------------
Your Payment Schedule Will Be:
- --------------------------------------------------------------------------------
Number of Payments Amount of Payments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When Payments Are Due Or as Follows
- --------------------------------------------------------------------------------
Monthly beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
beginning
- --------------------------------------------------------------------------------
Late Charge. If a payment is not paid in full within 7 days after it is due, you
will pay a late charge of 5% of the late payment.
Prepayment. If you pay off all your debt early, you will not have to pay a
penalty and you may be entitled to a refund of part of the finance charge.
Security Interest. You are giving a security interest in the vehicle being
purchased.
Additional information. See the other side of this contract for more information
including information about nonpayment, default, any required repayment in full
before the scheduled date, prepayment refunds and security interest.
- --------------------------------------------------------------------------------
ITEMIZATION OF AMOUNT FINANCED
1. Cash Price (including any accessories,
services, and taxes)_______________________________________$ _____________(1)
2. Total Downpayment = Net Trade-in $ ________________ + Cash
Downpayment $_________________________
Your Trade-in is a _______________________________________ $ _____________(2)
Year Make Model
3. Unpaid Balance of Cash Price (1 minus 2)__________________ $ _____________(3)
4. Other Charges including Amounts Paid to Others on Your Behalf:
A Cost of Physical Damage Insurance Paid to the Insurance
Company Named Below -- Covering damage to the
Vehicle. _______________________________________________ $ _____________
B Cost of Optional Mechanical Repair Insurance Paid to the
Insurance Company Named Below -- Covering Certain
Mechanical Repairs. ____________________________________ $ _____________
C Cost of Optional Credit Insurance for the Term of this
Contract Paid to the Insurance Company or Companies
Named below. Life $________________ Disability, Accident
and Health $____________________________________________ $ _____________
D Official Fees Paid to Government Agencies ______________ $ _____________
E Taxes Not Included in Cash Price _______________________ $ _____________
F Government License and/or Registration Fees (Itemize)___ $ _____________
G Government Certificate of Title Fees ___________________ $______________
H Other Charges (Seller must identify who will receive
payment and describe purpose)
to ______________ for _______________________________ $ _____________
to ______________ for _______________________________ $ _____________
Total Other Charges and Amounts Paid to Others on Your
Behalf _________________________________________________ $ _____________(4)
5. Amount Financed -- Unpaid Balance (amount of credit you
will get) (3 + 4) ________________________________________ $ _____________(5)
- --------------------------------------------------------------------------------
Insurance. If any insurance is checked below, the policies or certificates
issued by the Companies named will describe the terms and conditions.
Physical Damage Insurance. You may obtain physical damage insurance from anyone
you want who is acceptable to the Creditor. If you get the insurance from the
seller, the cost shown in 4A of the itemization above is $_____________________
Insurance Company _______________________ Term _____________ months.
Optional Mechanical Repair Insurance. The cost of this insurance is shown in 4B
of the itemization above.
Insurance Company ____________________________________
Term: [ ] _____________ Months or ________________ Miles whichever occurs first.
- --------------------------------------------------------------------------------
Optional Credit Insurance. Credit line insurance and credit disability insurance
are not required to obtain credit and will not be provided unless you sign for
them and agree to pay the additional cost. If you want this insurance, check the
insurance desired and sign below. If you have chosen this insurance, the cost is
shown in 4C of the itemization above.
Check the insurance desired:
[ ] Life (Buyer [ ] Co-Buyer [ ] Both [ ])
[ ] Disability, Accident and Health (Buyer Only)
By signing here, you are stating that you are under age 65.
[ ] __________________________________________________
Name of Insurer
______________________________________________________
Home Office Address
This policy will pay your debt on this contract up to $____________________
Total policy coverage for this and other contracts is limited to $______________
NO LIABILITY INSURANCE INCLUDED.
_____________________________ _________________________________
Buyer signature Date Co-Buyer Signature Date
- --------------------------------------------------------------------------------
I (we) waive the benefit of my (our) Homestead Exemption as to this obligations.
You signed this contract and received a copy on
(Do not date on Sunday) ________________________, 19 ____________________
Buyer Signs __________________________ Co-Buyer Signs _________________________
Co-Buyers and Other Owners--A co-buyer is a person who is responsible for paying
the entire debt. An other owner is a person whose name is on the title to the
vehicle but does not have to pay the debt. The co-buyer or other owner knows
that the Creditor has a security interest in the vehicle and consents to the
security interest.
Other owner signs here __________________ Address ______________________________
Creditor Signs ___________________ By _______________ Title ____________________
- --------------------------------------------------------------------------------
This contract is assigned with recourse under the terms of the "Seller's
Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
This contract is assigned without recourse or with limited recourse under the
terms of the "Seller's Assignment" on the reverse side.
_________________________________________________________________
Seller
_________________________________________________________________
By (If Corp. or Partnership) (Title)
- --------------------------------------------------------------------------------
Notice: See Other Side
WHITE--ORIGINAL YELLOW--FILE COPY PINK--BUYERS COPY GOLDENROD--CO-BUYERS COPY
<PAGE>
Ownership and risk of loss. You agree to pay the creditor all you owe under this
contract even if the vehicle is damaged, destroyed or missing. You agree not to
sell, transfer, or remove the vehicles from the State of Virginia without the
Creditor's written permission. You agree not to expose the vehicle to misuse or
confiscation. You will make sure the Creditor's security interest (lien) on the
vehicle is shown on the title. If the Creditor pays any repair bills, storage
bills, losses, fines, or other charges on the vehicle, you agree to pay the
amount when the Creditor asks for it.
Security interests. You are giving the Creditor a security interest in the
vehicle being purchased and any accessories, equipment and replacement parts
being installed in the vehicle. The security interest also covers (1) insurance
premiums and charges for service contracts returned to the creditor (2) proceeds
of any insurance policies or service contract on the vehicle and (3) proceeds of
any insurance policies on your life or health which are financed in this
contract. This secures payment of all amounts you owe in this contract and in
any transfer, renewal, extension or assignment of this contract. It also secures
your other agreements in this contract.
Prepayment Refund. You can prepay all of your debt and get a refund or part of
the Finance Charge. This refund will be figured by the Rule of 78's - a method
commonly used to figure refunds on installment contracts, provided however the
creditor is entitled to receive a minimum of $25 in finance charges. There will
be no refund report to you if it is less than $1.00.
NOTICE IF YOU PAY THIS LOAN OR SALE ON CREDIT PARTIALLY OR IN FULL
BEFORE ITS DUE DATE, THE AMOUNT OF INTEREST YOU PAY WILL BE GREATER
THAN THE AMOUNT OF INTEREST YOU WOULD PAY FOR A SIMPLE INTEREST LOAN OF
THE SAME PRINCIPAL AMOUNT.
Right to Refinance a Balloon Payment. Any installment which is more than twice
the amount of an otherwise regularly scheduled equal installment is a Balloon
Payment. If the property described in this contract is to be used primarily for
consumer purposes, unless a separate agreement has been executed, the Buyer has
the right to refinance any payment which is more than 10% greater than the
regular or recurring installment payments on the basis of an extended period of
time and additional payments which shall allow the balance to be paid in as few
periodic payments not more than 10% greater than the regularly scheduled
installment payments as are required to pay such balances.
Required Physical Damage Insurance. You agree to have physical damage insurance
covering the loss or damage to the vehicle for the term of the contract. At any
time during the term of this contract, if you do not have physical damage
insurance which covers both the interest of you and the Creditor in the vehicle,
then the Creditor may buy it for you. If the Creditor does not buy physical
damage insurance which covers both interests in the vehicle, if may, if it
decides, buy insurance which covers only the Creditor's interest .
The Creditor is under no obligation to buy any insurance, but may do so
if it desires. If the Creditor buys either of these coverages, it will let you
know what type it is and the charge you must pay. The charge will consist of the
cost of the insurance and a finance charge, at the highest lawful contract rate.
You agree to pay the charge in equal installments along with the payments shown
on the payment schedule.
If the vehicle is lost or damaged, you agree that the Creditor can use
any insurance settlement either to repair the vehicle or to apply to your debt.
Late Charge. You will have to pay a late charge on each payment received by the
Creditor more than seven days late. The charge is shown on the front. You must
also pay any cost paid by the Creditor to collect any late payment. Acceptance
of a late payment or late charge does not excuse your late payment or mean that
you can keep making payments after they are due. The Creditor may also takes the
steps set forth below if there is any late payment.
Optional Insurance or Service Contracts. This contract may contain charges for
optional insurance or service contracts. If the vehicle is repossessed, you
agree that the Creditor may claim benefits under these contracts and terminate
them to obtain refunds for unearned charges.
Insurance or Service Contract Charges Returned to Creditor. If any charge for
required insurance is returned to the Creditor it may be credited to your
account or used to buy similar insurance or insurance which covers only the
Creditor's interest in the vehicles. Any refund on optional insurance or
service contracts obtained by the Creditor will be credited to your account.
Credits to your account will include both the amounts received by the
Creditor and the unearned Finance Charges on those amounts. These credits will
be applied to as many of your installments as they will cover beginning with
the final installment. You will be notified of what is done.
Required Repayment in Full Before the Scheduled Date. If you fail to pay any
payment within 10 days after it is due according to the payment schedule or if
you break any of the agreements in the contract (default), the Creditor can
demand that you pay all you owe on the contract at once. In figuring what you
owe, the Creditor will give you a refund of part of the Finance Charge figured
the dame as if you had prepaid in full.
Repossession of the Vehicle for Failure to Pay. Repossession means that if you
fail to pay any payment within 10 days after it is due according to the payment
schedule or if you break any of the agreements in this contract (default), the
Creditor can take the vehicle from you. To take the vehicle the Creditor can
enter your property or the property where it is stored, so long as it is done
peacefully. If there is any personal property in the vehicle, such as clothing,
the Creditor can store it for you. Any accessories, equipment or replacement
parts will remain with the vehicle.
Getting the Vehicle Back After Repossession. If the Creditor repossesses the
vehicle you have the right to get it back (redeem) by paying the entire amount
you owe on the contract (not just past due payments) plus any late charges, the
cost of taking and storing the vehicle and other expenses that the Seller or the
Creditor has had in figuring the entire amount you owe on the contract. The
Creditor will give your a refund for part of the Finance Charge figured the same
as if you had prepared your contract. Your right to redeem will end when the
vehicle is sold.
Sale of the Repossessed Vehicle. The Creditor will send you a written notice of
sale at least 10 days before selling the vehicle. If you do not redeem the
vehicle by the date on the notice the Creditor can sell it. The Creditor will
use the net proceeds of the sale to pay all or part of your debt.
The net proceeds of sale will be figured this way. Any late charges and any
charges for taking and storing the vehicle, cleaning and advertising, etc. and
any attorney fees and court costs will be subtracted from the selling price.
If you owe the Creditor less than the net proceeds of sale, the Creditor
will pay you the difference, unless required to pay it to someone else. For
example, the Creditor may be required to pay a lender who has given you a loan
and also taken a security interest in the vehicle.
If you owe more than the net proceeds of sales, you will pay the Creditor
the difference between the net proceeds of sale and what you owe when the
Creditor asks for it. If you do not pay this amount when asked, you may also be
charged interest at the highest lawful rate until you do pay all you owe to the
Creditor.
Collection Costs. If the Creditor hires an attorney to collect what you owe, you
will pay the attorney's reasonable fee and any court cost.
Delay in Enforcing Rights and Changes of this Contract. The Creditor can delay
or refrain from enforcing any of the rights under the contract without losing
them. For example, the Creditor can extend the time for making some payments
without extending others. ANY CHANGE IN TERMS OF THIS CONTRACT MUST BE IN
WRITING AND SIGNED BY THE CREDITOR. NO ORAL CHANGES ARE BINDING. If any part of
this contract is not valid all other parts will remain enforceable.
Warranties Seller Disclaims. You understand that the Seller is not offering any
warranties and that there are no implied warranties of merchantability, of
Fitness for a particular purpose, or any other warranties, express or implied by
the Seller, covering the vehicle unless the Seller extends a written warranty or
service contract within 90 days from the date of this contract.
An implied warranty of merchantability generally means first the vehicle is
fit for the ordinary purpose for which such vehicles are generally used. A
warranty of fitness for a particular purpose is a warranty that may arise when
the Seller has reason to know the particular purpose for which you require the
vehicle and you rely on the Seller's skill or judgement to furnish a suitable
vehicle.
This provision does not affect any warranties covering the vehicle which may
be provided by the Vehicle manufacturers.
NOTICE: ANY HOLDER OF THE CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
HEREUNDER.
The Preceding NOTICE applies only to goods or services obtained primarily for
personal, family, or household use. In all other cases Buyer will not assert
against any subsequent holder or assignee of this contract any claims or
defenses the Buyer (debtor) may have against the Seller, or against the
manufacturer of the vehicle or equipment obtained under this contract.
______________________________________________________________________________
SELLER'S AGREEMENT
Seller sells and assigns to __________________________________ all of its right,
title and interest in this contract.
Seller warrants and represents; (1) The contract across-from the sale of the
property described on the face of the contract; (2) Seller had title to the
property at the time of sale free of any liens; (3) All disclosures required by
the law were properly made to that buyer prior to the Buyer signing the
contract; (4) All insurance documentation will be delivered to the Buyer within
the time required by law; (5) To the best of Seller's knowledge, the Customer's
Statement attached is accurate. (6) The down-payment received by Seller is
exactly as stated; (7) The contract is enforceable, and (8) Seller is licensed
as required by law.
Each of these warranties and representations is material to assignee's
acceptance of this contract. If any of them is breached or is erroneous, Seller
unconditionally promises to accept reassignment of this contract and to pay
assignee, upon demand the full amount of the unpaid balance under this contract.
Seller also agrees to indemnify assignee to the full extent of all losses or
expenses incurred by assignee as a result of such breach or error.
Seller agrees to indemnify assignee for any judicial setoff or loss as incurred
as a result of a claim or defense of Buyer against Seller.
If this contract is rescinded by court order, Seller shall pay assignee the full
amount assignee paid to purchase it. Seller shall be liable even if a waiver,
compromise, settlement or variation of the terms of the contract releases the
Buyer.
Seller waives notice of acceptance of this guarantee and notices non-payment and
non-performance.
CONTRACTS ASSIGNED WITH RECOURSE
If this contract is assigned with recourse. In addition to the foregoing
guarantees, indemnities and obligations Seller unconditionally guarantees
payment on demand of the unpaid balance on this contract and all losses and
expenses incurred by assignee. In the event of a default in payment of any
installment, except as otherwise provided by the terms of the present assignee
Retail Plan.
CONTRACTS ASSIGNED WITHOUT RECOURSE OR WITH LIMITED RECOURSE
If this contract is assigned without a recourse or with limited recourse, such
assignment is without recourse to the Seller except to the circumstances set
forth above and in and to the extent that an amount is stated in the following
paragraph.
Seller unconditionally guarantees that if Buyer defaults in the payment of any
installment under this agreement, Seller will pay, upon demand by assignee, the
unpaid balance to the sum of $__________________________.
______________________________________________________________________________
<PAGE>
APPENDIX "B"
Articles of Incorperation and Bylaws
------------------------------------
of Genesis Financial Group, Inc.
--------------------------------
B-1
<PAGE>
APPENDIX B
ARTICLES OF INCORPORATION
OF
GENESIS FINANCIAL GROUP, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as
Genesis Financial Group, Inc..
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purpose for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all the general
powers accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corpoation shall have authority to issue are as follows:
The aggregate number of shares which the corporation
shall have authority to issue are as follows:
Class Number of Shares
[LOGO OF BOUNDS ----- ----------------
& DORSEY\PC\]
Common 100
<PAGE>
(e) The post office address of the initial registered
office is 19 West Church Avenue, Roanoke, Virginia 24011-
2015, which is located in the City of Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corporation is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors consituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 1424 Sherwood Avenue
Roanoke, Virginia 24015
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimited.
Given under my hand this 11th day of June, 1993.
/s/ Charles N. Dorsey,
_______________________________
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
& DORSEY \PC\]
<PAGE>
BYLAWS OF
GENESIS FINANCIAL GROUP, INC.
ARTICLE 1 - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the United States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section I - Annual Meeting:
---------------------------
The Annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meetings:
-----------------------------
Special meetings of the Shareholders for any purpose or
purposes may be called by the President, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notice of meetings of the Shareholders and waivers of
such notices shall be given or accepted in accordance with
the appropriate provisions of the Virginia Stock Corporation
Act.
[lOGO OF BOUNDS Section 4 - Quorum:
& DORSEY \PC\] -------------------
At any meeting of the Shareholders, the holders of a
majority of the shares entitled to vote shall constitute a
quorum, except as otherwise provided by law. The law holders
of such shares may be present in person or represented by
proxy to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by the statute or by
the Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
Shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action requires by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Director shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
-----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at such
time and place as may be specified in the respective notices
or waivers of notice.
Section 4 - Manner of Acting:
-----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\] number of shares of stock, if any, which he or she may hold.
The action of a majority of the Directors present at the
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pertaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
become Shareholders of the Company, showing their places or
residence, the number of shares held by them respectively,
and the time when they respectively became the owners of
[LOGO OF BOUNDS such shares. The Secretary shall further deep a record of
& DORSEY /PC/ the proceedings of the meetings of the Shareholders and
APPEARS HERE] Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX - DIVIDENDS
-----------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to the
full extent provided and permitted by (S)13.1-3.1 of the
Code of Virginia of 1950, as amended.
ARTICLE XII- FISCAL YEAR
------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Genesis Financial Group, Inc.
were duly adopted by unanimous consent of the Board of
Directors of the Corporation in lieu of the Organizational
Meeting.
/s/ Jeff Akers,
-------------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
& DORSEY\PC\]
<PAGE>
APPENDIX "C"
Subcription Letter
------------------
C-1
<PAGE>
APPENDIX C
SUBSCRIPTION LETTER
-------------------
Genesis Financial Group Total Offering: $2,000,000
4206 Williamson Road Type Of Investment
Offered: Retail
Installment
Sales
Contracts
Price Per Contract: Variable
Total Investment $__________
Commencement Date
of Offering: August __, 1996
Investment Option: _______ 20%
_______ 25%
Gentlemen:
This letter is furnished to Genesis Financial Group, a Virginia
corporation, ("Corporation"), in connection with the investment by the
undersigned on this date in the amount shown above for the acquisition of one or
more Retail Installment Sales Contracts ("Contracts") generated by Mr. Car Man,
Inc. ("MCMI") during the course of its normal business operations of selling
used vehicles Contracts have been purchased at a discount by the Corporation. In
conjunction herewith, the undersigned hereby delivers his check, payable to the
Corporation, in the amount equal to the total investment shown above.
The undersigned hereby understands that the Contract have been registered
under the Securities Act of 1933 ("1933 Act") and that the Corporation reserves
the right, in its sole discretion, to reject any subscription at any time. If
not sooner terminated by the Corporation, this offering will terminate on the
date at least $2,000,000 in Contracts have been subscribed. The undersigned
understands there is no minimum offering amount required to be received before
the Corporation may fully utilize the undersigned's funds. In conjunction with
the offering, the undersigned agrees to execute the Power of Attorney form
delivered with this Letter.
Nature, Type And Return On Investment
- -------------------------------------
The undersigned understands that the Corporation is in the business of
purchasing at a discount some or all of the Contracts generated by MCMI from
time to time as they arise. Accordingly, the number of Contracts assigned to a
particular investor will vary depending on his total investment, the value of
the Contracts allocated to his account, and the investment option selected by an
<PAGE>
investor hereinabove. The investment options offered to investors are more
particularly detailed in the Prospectus to which reference is hereby made.
The undersigned acknowledges that he will receive a return of principal
and interest on a monthly basis corresponding with the monthly payments set
forth under the Contracts assigned to his account. The portion of the
undersigned's investment attributable to a particular Contract will be
calculated in advance to correlate with the investment option selected.
The Corporation will attempt to maintain at all times a portfolio of valid
and current Contracts for each investor to the extent of the investor's acutal
outstanding investment in the Corportion. The undersigned understands that the
Corporation assumes the risk of any default under a Contract and will replace
any defaulting Contract with a new Contract of comparable value. Further, the
undersigned acknowledges and understands that the success of the Corporation's
business depends upon the creation by MCMI of new sale transactions on a
continual basis and that his investment hereunder will correlate with the
availability of identifiable and executed Contracts. The Corporation undertakes
to notify and submit a copy to the undersigned of each new Contract assigned to
the undersigned's account. The undersigned understands that the Corporation will
cover the monthly payments on any defaulting Contract until such time that a
new Contract is substituted therefor. However, the undersigned will not be
entitled to receive any sum in excess of this stated return. In addition, the
Corporation reserves the right at any time and from time to time to return an
investor's funds without penalty.
Delivery Of Original Documents
- ------------------------------
Once a Contract has been assigned to a partucular investor's portfolio,
that Contract will remian in that investor's portoflio until the investor's
rights in that Contract are terminated or unless there is a default thereunder
at which time the Corporation will replace such Contract with a comparable one
as soon as possible. In the interim, the Corporation will continue any monthly
payments attributable to any such defaulting Contract until it is so replaced.
All original Contract will be delivered to any investor as they are assigned.
Receipt And Review Of Information
- ---------------------------------
The undersigned acknowledges receipt of the Corporation's Prospectus filed
with the Securities And Exchange Commission, a copy of the form Contract used by
the MCMI and a Subscriber Informaion Schedule ("Schedule"). In addition, the
undersigned hereby acknowledges that he, or his investment advisor, has had the
opportunity to ask questions of the Corporation's and MCMI's
2
<PAGE>
officers and receive and review all information and documentation requested
pertaining to the officers, the Corporation and MCMI. The undersigned
represents that he and/or his investment advisor: (i) is familiar with the
financial condition of the Corporation and MCMI and the proposed business
activities of the Corporation and MCMI; (ii) has discussed with the officers the
current and proposed activities of the Corporation and MCMI including, without
limitation, the selling operations of MCMI; (iii) has discussed with the
officers of the Corporation the method and manner for handling and safeguarding
the Contracts and Titles; and (iv) has conducted, to his sole satisfaction, all
investigations and inquiries pertaining to the Corporation, MCMI and the
officers thereof that he deemed necessary and expedient in making his investment
decision. Accordingly, the undersigned believes that the Contracts are
securities of the kind he wishes to purchase and hold for investment and that
the nature and amount of his investment are consistent with his investment
program.
The undersigned further understands that the Corporation, or an affiliated
thereof, will act as the collection agency for all Contracts.
Acknowledgement Of Certain Facts
- --------------------------------
The undersigned hereby expressly acknowledges that he is aware of the
following facts;
(i) In addition to the risks summarized herein, there are other
substantial risks involved in investing in the Corporation and, therefore, the
risks set forth hereunder are not intended to be complete or relied upon by the
undersigned as a basis for making an investment in the Corporation;
(ii) Neither the Securities And Exchange Commission nor any state
agency has passed upon the adequacy of this offering or upon the accuracy of any
information or documentation provided to him or made any finding or
determination as to the fairness of an investment in the Corporation. Any
representation to the contrary is a criminal offense;
(ii) He should only invest in the Corporation based upon has
particular circumstances and should confer with and rely on his own investment
and tax advisors as to the substantial risks inherent in an investment in the
Corporation. He acknowledges that he has carefully read and completed, where
necessary, in its entirety the Prospectus, Schedule, and this Letter and that
neither the Corporation, its officers, not any other party has made any
representation or warranty with respect to the Corporation, MCMI, the officers
thereof or the business conducted thereby except as otherwise specifically set
forth herein and in the Prospectus;
3
<PAGE>
(iv) The Corporation and MCMI have provided him with an opportunity to
meet and confer with the officers thereof regarding all aspects of the
transactions contemplated by the Corporation including the creation and
assignment of the Contracts and will afford him the opportunity to obtain any
additional information, to the extent that the Corporation and MCMI possesses
such information or can acquire it without unreasonable effort or expenses;
(v) This offering will continue for indefinite period of time.
Representations Of Investors And Risks
- --------------------------------------
The undersigned understands that an investment in the Corporation involves
a high degree of risk. To induce the Corporation to issue and sell the Contracts
to the undersigned, the Corporation as follows:
(i) The undersigned can bear the economic risk of an investment in
the Corporation and the acquisition of the subscribed for Contracts for an
indefinite period of time;
(ii) The undersigned has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of his
investment hereunder without materially affecting his financial condition;
(iii) The undersigned has been furnished with all materials, documents
and information relating to the Corporation, MCMI and their activities, the
offering of the Contracts and anything set forth in this letter and the
Prospectus which he has requested and the undersigned has been afforded the
opportunity to obtain any additional information necessary to verify the
accuracy of any representations or information set forth in said documents;
(iv) The Corporation, MCMI and their officers have answered all
inquiries that the undersigned has put to them concerning the Corporation, MCMI
and their activities and any other matters relating to the Corporation, MCMI
and the offering as well as with respect to the creation and assigned of the
Contracts and the safeguarding and disposition of the Contracts and Titles;
(v) The undersigned has not been furnished any offering literature
other than this Letter. the prospectus and the form Contract and making his
investment decision has relied only on the information contained therein and his
own investigations into the suitability of the investment, the projected rate of
return and the proposed business to the conducted by the Corporation and MCMI.
The undersigned is familiar with methods and procedures of the
4
<PAGE>
proposed business operations contemplated by the Corporation and MCMI. The
undersigned has carefully reviewed and understands this Letter, the Prospectus,
and the form Contract and the risks of, and other considerations relating to,
an investment in the Corporation. Furthermore, as set forth above, no
representations or warranties have been made to the undersigned, or to his
advisors, by the Corporation, MCMI, their officers or any other person with
respect to the proposed business of the Corporation or MCMI, the financial
condition of the Corporation or MCMI, and/or the economic, tax or other aspects
or consequences of a purchase or the Contracts, and the undersigned has not
relied upon any information concerning this offering, written or oral, other
than contained in this Letter, the Prospectus, the form Contract and the
information obtained through his own investigations. The undersigned
acknowledged that the officers have answered all questions presented by the
undersigned and/or his investment advisor and provided all information requested
pertaining to the past operating history and financial condition of the
Corporation and MCMI;
(vi) The undersigned has been represented by such legal counsel, tax
advisors, accountants and others selected by the undersigned as he has found
necessary to consult concerning this transaction and to review and evaluate the
tax, economic and other ramifications of an investment in the Corporation. No
representation, warranty or advice of any kind is made by the Corporation, the
officers or any other person with respect to any consequences relating to the
business of the Corporation or an investment in the Corporation;
(vii) The undersigned, if a corporation, partnership, trust or other
form of business entity, is authorized and otherwise duly qualified to purchase
and hold the Contracts, and such entity has the principal place of business as
set forth in the signature page hereof and such entity has not been formed for
the specific purpose of acquiring the Contracts;
(viii) The undersigned understands that the Contracts have been
registered under the 1933 Act;
(ix) All the information which the undersigned has furnished to the
Corporation with respect to his financial position and business experience is
correct and complete as of the date of this Letter and, if there should be any
material change in such information prior to the consummation of this offering,
the undersigned will immediately furnish such revised or corrected information
to the Corporation;
(x) The undersigned hereby acknowledged that no state regulatory
authority has passed upon the adequacy or merits of this offering and has
expressed no opinion as to the quality of the Contracts offered hereunder; and
5
<PAGE>
Contracts offered hereunder; and
(xi) The undersigned hereby acknowledges that all financial and related
projections pertaining to the Corporation and MCMI are merely predictions which
are dependent upon various assumptions including, but not limited to, the cost
of maintaining inventory, the cost of overhead, market conditions, competition
and general economic factors.
The undersigned acknowledges that his right to purchase the Contracts
hereunder is not transferable or assignable by him.
If the undersigned is more that one person, the obligations of the
undersigned shall be joint and several and the representations and warranties
herein contained shall be deemed to be made by, and be binding upon, each such
person and his heirs, executors, administrators, successors and assigns.
Indemnification
- ---------------
The undersigned agrees to indemnify and hold harmless the Corporation
against any all liabilities, losses, costs, damages, fees (including attorney's
fees) and other expenses which the Corporation may sustain or incur by reason of
the undersigned's breach of any representation or warranty contained herein, or
by reason of any action improperly taken undersigned relating to the sale of the
Contracts.
Date of Execution:
__________________ ________________________________________
Signature
Date of Execution:
__________________ ________________________________________
Signature
________________________________________
Printed or Typewritten Name
________________________________________
Printed or Typewritten Name
________________________________________
Street Address
________________________________________
City, State, Zip code
6
<PAGE>
________________________________________
Telephone
________________________________________
Social Security Number or
Tax ID Number
The investments purchased hereunder shall be held as follows:
________________________________________
________________________________________
________________________________________
7
<PAGE>
APPENDIX "D"
Articles of Incorporation And Bylaws Of Mr. Car Man. Inc.
---------------------------------------------------------
D-1
<PAGE>
APPENDIX D
ARTICLES OF INCORPORATION
OF
MR. CAR MAN, INC.
The undersigned hereby forms a stock corporation under the
provisions of Title 13:1 of the Code of Virginia of 1950, as
amended to date, and to that end does by these Articles of
Incorporation set forth the following information:
(a) The name of the corporation is to be known as Mr.
Car Man, Inc.,
(b) The corporation shall have all general powers
provided by law, including those specifically enumerated in
Article 4 of Title 13.1 of the Code of Virginia of 1950, as
amended to date.
(c) The purposes for which this corporation is to be
formed are:
i) To transact any business not prohibited by
law or required to be specifically stated in these Articles
and for which corporations may be incorporated under the
laws of the Commonwealth of Virginia.
ii) To have and to enjoy all general powers
accorded similar corporations by the laws of the
Commonwealth of Virginia or by the laws of any other state
or territory of which this corporation may be doing business
as now existing or as hereafter enacted.
(d) The aggregate number of shares which the
corporation shall have authority to issue are as follows:
[LOGO BOUNDS
& DORSEY /PC/
APPEARS HERE] Class Number of Shares
----- ----------------
Common 100
<PAGE>
(e) The post office address of the initial registered
is 19 West Church Avenue, Roanoke, Virginia 24011-2015,
which located in the City Roanoke, Virginia.
(f) The name of the initial Registered Agent of this
corportion is Charles N. Dorsey, a Registered Agent who
meets the requirements of Virginia Code (S)13.1-634 and
whose business office is identical with the registered
office of the corporation, who is a resident of Virginia and
a member of the Virginia State Bar.
(g) The number of directors constituting the initial
Board of Directors is 2 and the names and addresses of the
directors are as follows:
Franklin Blankemeyer 142 Sherwood Avenue
Roanoke, Virginia 24
Jeff Akers 353 A Woods Avenue
Roanoke, Virginia 24016
(h) The period of time for which this corporation
shall endure shall be unlimted.
Given under my hand this 11th day of June, 1993
/s/ Charles N. Dorsey
---------------------------------
Charles N. Dorsey, Incorporator
[LOGO OF BOUNDS
AND DORSEY /PC/]
<PAGE>
BYLAWS OF
MR.CAR MAN, INC.
ARTICLE I - OFFICE
------------------
The office of the Corporation shall be located in the
City and State designated in the Articles of Incorporation.
The Corporation may also maintain offices at such other
places within or without the Untied States as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS
-------------------------
The Shareholders of the Corporation shall be those who
appear on the books of the Corporation as holders of one or
more shares of the capital stock, and the records of the
Corporation shall be the only evidence as to who are the
shareholders.
ARTICLE III - MEETING OF SHAREHOLDERS
-------------------------------------
Section 1 - Annual Meeting:
---------------------------
The annual meeting of the Shareholders of the
Corporation shall be held on the 6th of July of each year,
at the office of the Corporation, unless otherwise stated in
the notice of meeting.
Section 2 - Special Meeting:
----------------------------
Special meeting of the Shareholders for any purpose or
purposes may be called by the president, the Board of
Directors, or the holders of not less than 20-percent of the
shares then outstanding and entitled to vote at such
meeting.
Section 3 - Notice of Meeting:
------------------------------
Notices of meeting of the Shareholders and waivers of
such notices shall be given or accepted with the appropriate
provisions of the Virginia Stock Corporation Act.
Section 4 - Quorum:
-------------------
At any meeting of the shareholders, the holders of a
[LOGO OF BOUNDS majority of the shares entitled to vote shall constitute a
& DORSEY/PC/ quorum, except as otherwise provided by law. The holders of
APPEARS HERE] such shares may be present in person or presented by proxy
to constitute such quorum.
<PAGE>
Section 5 - Voting
------------------
At each meeting of the Shareholders, every holder of
shares then entitled to vote may vote in person or by proxy
and shall have one vote for each share registered in his or
her name. Except as otherwise provided by statute or by the
Articles of Incorporation, any corporate action shall be
authorized by a majority of votes cast at a meeting of
shareholders by the holders of shares entitled to vote.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election, and Term of Office:
-------------------------------------------------
The business and affairs of the corporation shall be
managed by a Board of Directors subject to any requirement
of shareholder action required by law. The Board of
Directors shall be composed of one member. This number may
be changed at any time by amendment of these Bylaws in
accord with the Virginia Stock Corporation Act.
The Directors shall be elected at each annual meeting
of the Shareholders. Each Directors shall hold office until
the election of his or her successor. Any Director may
resign at any time. Vacancies occurring among the Directors
may be filled by the Directors.
Section 2 - Annual and Special Meetings:
----------------------------------------
Annual meetings of the Board of Directors shall be held
immediately following the annual meeting of the
Shareholders, at the place of such annual meeting of the
Shareholders. A majority of the qualified members shall
constitute a quorum. Other regular meetings of the Board may
be held without notice at such time and place as the
Directors may determine.
Section 3 - Special Meetings:
----------------------------
Special meetings of the Board of Directors may be
called by the President or by one of the Directors, at
such time and place as may be specified in the respective
notices or waivers of notice.
Section 4 - Manner of Acting:
----------------------------
At all meetings of the Board of Directors, each
[LOGO OF BOUNDS Director present shall have one vote, irrespective of the
& DORSEY\PC\ number of shares of stock, if any, which he or she may hold.
APPEARS HERE] The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the
Board of Directors.
ARTICLE V - OFFICERS
--------------------
<PAGE>
The officers of the Corporation shall be a President,
who shall be a Director and a Secretary/Treasurer, all of
whom shall be elected by the Board of Directors each year as
soon after the annual meeting of the Shareholders as
conveniently may be, and such other Officers as may from
time to time be elected or appointed by the Board of
Directors. The salaries of all Officers shall be fixed by
the Board of Directors. To the extent permitted by law, one
person may hold more than one office of the Corporation.
Each Officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election and
until his successor shall have been elected and qualified or
until his death, resignation, or removal.
ARTICLE VI - PRESIDENT
----------------------
The President shall be the chief executive officer of
the Corporation. The President shall attend and preside at
all meetings of the Board of Directors, exercise general
supervision over the property, business, and affairs of the
Corporation, and do everything and discharge all duties
generally pretaining to his office as the executive head of
a corporation of this character, subject to the control of
the Board of Directors. At each annual meeting of the
Shareholders, the President shall render a general report of
the Corporation's condition in business.
In the absence of the President, the Board of Directors
may designate some other one of their number to discharge
such executive duties as may be required for the time being.
ARTICLE VII - TREASURER
-----------------------
The Treasurer shall, to the extent provided by the
Directors, have charge, and custody, of the funds,
securities of whatsoever nature, and other like property of
the Corporation; the Board of Directors shall designate the
officer or officers, or other persons, who shall give,
negotiate, or endorse checks, notes, and bills as may be
required for the business of the Corporation. The Treasurer
shall have authority to collect funds of the Corporation,
and shall deposit same in such bank or banks as the Board of
Directors from time to time may designate, and the same
shall not be withdrawn thereafter except by checks executed
in accordance with the authority of the Board of Directors.
ARTICLE VIII - SECRETARY
------------------------
The Secretary shall sign, with the President, all
certificates of stock. The Secretary shall keep a book
containing the names of all persons who are now or hereafter
[LOGO OF BOUNDS become Shareholders of the Company, showing their places of
AND DORSEY APPEARS residence, the number of shares held by them respectively,
HERE \PC\] and the time when they respectively became the owners of
such shares. The Secretary shall further keep a record of
the proceedings of the meetings of the Shareholders and
Directors of
<PAGE>
the Corporation; he shall have charge of the seal of the
Corporation, and shall perform such other duties as
pertained to said office, or as the President or Board of
Directors may from time to time require.
ARTICLE IX- DIVIDENDS
---------------------
The Board of Directors of the Corporation may, from
time to time, declare, and the Corporation may pay dividends
on, its shares only in accordance with the provisions of
(S)43 of the Virginia Stock Corporation Act.
ARTICLE X - CORPORATE SEAL
--------------------------
The Corporate Seal of the Corporation shall be that
impressed upon the margin of this page.
ARTICLE XI - INDEMNIFICATION
----------------------------
The Corporation may indemnify its Directors, Officers,
and Employees in the manner, against the matters, and to
full extent provided and permitted by(S)13.1-3.1 of the Code
of Virginia of 1950, as amended.
ARTICLE XII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by
the Board of Directors.
The foregoing Bylaws of Mr. Car Man, Inc. were duly
adopted by unanimous consent of the Board of Directors of
the Corporation in lieu of the Organizational Meeting.
/s/ Jeff W. Akers
---------------------------
Jeff Akers, Secretary
[LOGO OF BOUNDS
AND DORSEY\PC\
APPEARS HERE]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 1. Indemnification of Directors and Officers
-----------------------------------------
Sections 13.1-697 and 13.1-702 of the Code of Virginia, as amended,
permit any Virginia Corporation to indemnify its directors and officers against
liability incurred in a proceeding if he conducted himself in good faith and
believed (a) in the case of conduct in his official capacity with the
Corporation that his conduct was in its best interests and (b) in all other
cases that his conduct was at least not opposed to its best interests. In the
case of a criminal proceeding, a Corporation may indemnify a director made party
to such proceeding if he had no reasonable cause to believe his conduct was
unlawful. A Corporation may not indemnify a director under those Sections in
connection with a proceeding by or in the right of the Corporation in which the
director was adjudged liable to the Corporation or in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. Indemnification
permitted under those Sections in connection with a proceeding by or in the
right of the Corporation is limited to reasonable expenses incurred in
connection with the proceeding. Unless limited by its Articles of Incorporation,
the Corporation is required to provide mandatory indemnification to an officer
or director who entirely prevails in the defense of any proceeding to which he
was a party because he is or was an officer or director of the Corporation
against reasonable expenses incurred by him in connection with the proceeding.
Also, unless limited by the Corporation's Articles of Incorporation, an officer
or director of the Corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or seek indemnification
in another court of competent jurisdiction. The court may order indemnification
if it determines the officer or director is entitled to mandatory
indemnification as described above, in which case the court shall also order the
Corporation to pay the officers, or directors' reasonable expenses incurred in
obtaining court-ordered indemnification, or, with respect to a proceeding by or
in the right of the Corporation, the officer or director is found by the court
to be fairly and reasonably entitled to indemnification in view of all the
relevant circumstances even though he was adjudged liable, but any
indemnification shall be limited to reasonable expenses incurred. The
Corporation is given the power to make further indemnity to any officers or
directors that may be authorized by the Articles of Incorporation or any By-law
made by the stockholders or any resolution adopted, before or after the event,
by the stockholders, except an indemnity against gross negligence or willful
misconduct.
The Articles of Incorporation of Genesis Financial Group, Inc.
provides that the directors and officers of the Company may be indemnified in
the manner, against the matters, and to the full extent provided by the Code of
Virginia.
Item 2. Other Expenses of Income and Distribution
-----------------------------------------
All costs and expenses relating to the issuance and distribution of
the Notes and Contracts by the Company pursuant to the Offering are set forth in
the Prospectus in the section captioned "Use Of Proceeds" to which section
reference is hereby made.
Item 3. Undertakings
------------
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to provisions of the Code of Virginia or the Articles of
Incorporation or Bylaws of the Company or resolution of the Company's
stockholders adopted pursuant thereto, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted
II-1
<PAGE>
by such director, officer or controlling person of the Company in connection
with the securities being registered, the Company will, unless in the option of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section 10(a((3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Item 4. Unregistered Securities Issued or Sold Within One Year
------------------------------------------------------
The Company has sold in excess of $950,000.00 of Contracts during the
two year period prior to the filing of this Registration Statement. The offering
price and the basis for computing same were based on the same conditions and
terms as set forth in the Contracts' Prospectus which is a part of this
Registration Statement. The Company intends to sell the Contracts offered
pursuant to this registered offering solely to its existing Contract holders.
The Company conducted the prior offering in reliance upon Rule 504 of Regulation
D promulgated under the Securities Act of 1933 which permits offerings of
securities not in excess of $1,000,000.00.
Items 5 and 6. Exhibit Index and Description:
-----------------------------
Exhibit No. Description
- ----------- -----------
(2) Articles of Incorporation and Bylaws of Genesis Financial
Group, Inc. (included as Appendix B to Prospectus)
(3) Specimen copy of Note and form Contract to be issued to
investors (included as Exhibit A to the applicable Prospectus)
(4) Specimen copy of Subscription Agreement (included as Appendix C
to Prospectus)
10(a) Consent of Hope Player and Associates, P.C.
II-2
<PAGE>
10(b) Consent of Magee, Foster, Goldstein & Sayers, P.C. (included in
Exhibit No. 11)
(11) Opinion of Magee, Foster, Goldstein & Sayers, P.C.
/s/ Franklin W. Blankemeyer, JR.
--------------------------------
FRANKLIN W. BLANKEMEYER, JR.
/s/ Jeffrey W. Akers
--------------------------------
JEFFREY W. AKERS
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Roanoke,
State of Virginia, on August 9, 1996.
(Registrant) Genesis Financial Group, Inc., a Virginia corporation
/s/ Franklin W Blankemeyer, JR president
By (Signature and Title) ----------------------------------------
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ Franklin W. Blankemeyer JR
(Signature) ----------------------------------------
Franklin W. Blankemeyer, Jr.
(Title) President, Secretary, Director
--------------------------------------------
/s/ Jeffrey. W Akers
Signature) -----------------------------------------
Jeffrey W. Akers
(Title) Vice-President, Treasurer, Director
--------------------------------------------
II-3
<PAGE>
Exhibit 10(a)
[LETTERHEAD OF HOPE PLAYER APPEARS HERE]
August 5, 1996
Mr. Richard Sayers
Magee, Foster, Goldstein & Sayers
P.O. Box 404
Roanoke, Virginia 24003-0404
Dear Mr. Sayers:
This letter is to authorize you to include the financial statements for
Genesis Financial Group, Inc. and Mr. Car Man, Inc. as detailed in the following
schedule in the securities registration statements for Genesis Financial Group,
Inc. for $8 million in notes and $2 million in contracts.
If you should need any additional information, please do not hesitate to
contact me.
Sincerely,
HOPE PLAYER AND ASSOCIATES, P.C.
/s/ Hope Player
W. Hope Player, CPA, CFP
WHP:dl
<PAGE>
Exhibit 11
[LETTERHEAD OF MAGEE, FOSTER, GOLDSTEIN & SAYERS]
August 12, 1996
Genesis Financial Group, Inc.
4206 Williamson Road
Roanoke, Virginia 24012
RE: Form SB-1 Registration Statement/Offering of Promissory Notes and
Installment Sales Contracts Totalling $10,000,000.00
Gentlemen:
This letter is delivered to you in connection with Genesis Financial Group,
Inc.'s (the "Company") registration of $8,000,000.00 in corporate promissory
notes ("Notes") and $2,000,000.00 in Installment Sales contracts ("Contracts").
We have acted as special counsel to the Company in connection with the
offering of the Notes and Contracts all of which transactions are more
particularly detailed and described in a separate preliminary prospectus
("Prospectus") being part of the Registration Statement filed with the
Securities and Exchange Commission to which reference is hereby made. In
connection with rendering this opinion, we have examined drafts, originals, or
copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments and documents as we have
deemed necessary or appropriate for the purposes of this opinion, including:
(a) Copy of each Prospectus;
(b) Form of Note and Contract;
(c) Articles of Incorporation and Bylaws of the Company;
(d) Certificate of Good Standing of the Company from the State
Corporation Commission of the Commonwealth of Virginia; and
(e) Certified Resolutions of the Board of Directors of the Company.
In rendering this opinion, we have relied, as to all matters of fact
material to this opinion, upon certificates of public officials and upon
representations and warranties of the officers
<PAGE>
Page 2
August 12, 1996
and directors of the Company contained in the aforementioned documents. This
opinion is limited to the laws of the Commonwealth of Virginia and the federal
laws of the United States and we express no opinion as to the laws of any other
jurisdiction.
Insofar as the opinion herein makes reference to our knowledge or
awareness, they are given subject to the express understanding that we have made
no independent investigation or file or docket search in connection with such
opinions, that "knowledge" or "awareness" does not include constructive notice
or knowledge of any matters or facts and that our "awareness" refers solely to
the actual awareness of attorneys presently with our firm who have worked on
substantive matters for the Company. The statement that something is the case,
"insofar as we are aware" or "to our investigation or file or docket search in
connection with such opinions, that our "knowledge" or "awareness" does not
include our "awareness" refers solely to the actual awareness of attorneys
presently with our firm who have worked on substantive matters for the Company.
The statement that something is the case, "insofar as we are aware" or "to our
knowledge", means only that we are not aware of any facts or circumstances which
would render such statements false, and does not imply that we know or have
reason to believe that the statement is true.
For purposes of this opinion, we have assumed, without independent
verification:
(i) The genuiness of all signatures, except those of the
executive officers of the Company;
(ii) The legal capacity of all natural persons who have signed
documents examined by us;
(iii) The authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents
submitted to us as certified or photostatic copies;
(iv) That all drafts of documents submitted to us for review will
constitute the final documents to be executed by the parties
with the exception of minor, immaterial changes and that we
have received all material changes and amendments to the
documents previously submitted in unexecuted, draft form;
(v) The factual accuracy and completeness of all certificates
submitted to us and the factual accuracy
<PAGE>
Page 3
August 12, 1996
and completeness of each of the representations and warranties
as to matters of fact made in the Prospectus.
Based upon and subject to the foregoing, and subject also to the
qualifications set forth below, we are of the following opinion:
1. The Company is a corporation validly existing and in good
standing under the laws of the Commonwealth of Virginia. The
Company has the corporate power and authority to own, use and
lease its properties and to carry on its business as currently
conducted and as proposed to be conducted under the Prospectus.
The Company is qualified to do business as a corporation in
those jurisdictions in which the conduct of its business as
described in the Prospectus requires such qualification.
2. The Notes, when issued and sold by the Company, will be validly
and legally issued; will constitute binding obligations of the
Company; and have been duly authorized by the Company.
3. The Contracts are valid and binding obligations of the
underlying consumer, and when issued and sold by the Company,
will be validly and legally issued. The offering of the
Contracts, as contemplated by the Prospectus, has been duly
authorized by the Company.
4. The execution and/or issuance of the Notes and Contracts and the
consummation of the transactions contemplated under the
Prospectus will not result in any breach of any of the terms and
conditions of, or constitute a default under the provisions of:
(a) the Company's Articles of Incorporation or Bylaws; (b) to
the best of our knowledge, any mortgage, loan, commitment,
indenture, agreement or other instrument of which we have
knowledge and to which the Company is a party; or (c) to the
best of our knowledge, violate, insofar as it is directed to the
Company, any order of any court or any federal or state
regulatory body or administrative agency having jurisdiction
over it.
The opinions contained herein are subject to the following conditions
and qualifications:
(A) The opinion expressed in Paragraph 1, insofar as it relates to
the validity, good standing and corporate
<PAGE>
Page 4
August 12, 1996
existence of the Company in the Commonwealth of Virginia, is
based solely upon the Certificate referred to in clause (d)
above.
(B) The opinions expressed in Paragraphs 2, 3 and 4 with respect to
the validity, binding effect, and enforceability of the Notes
and Contracts referred to in such paragraphs are subject to the
following: (i) bankruptcy, insolvency, reorganization,
moratorium, receivership and other laws now or hereafter in
effect, relating to or affecting the enforcement of creditors'
rights; (ii) the effect of general principles of equity,
including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief,
whether considered in a proceeding in equity or at law, and of
the discretion of the court before which any such proceeding may
be brought; (iii) public policy considerations or court
decisions which may limit the rights of any party to obtain
certain remedies and to indemnification, including
indemnification for tortious or criminal acts, securities
violations, or other violations of law; (iv) the enforceability
under certain circumstances of any provisions which impose
penalties or forfeitures or which require the payment of
attorney's fees or other costs in excess of a reasonable amount;
and (v) the fact that cumulative remedies purport to or would
have the effect of compensating the party entitled to the
benefit thereof in amounts in excess of the loss suffered by
such party.
The opinions set forth in this letter are limited to the specific issues
addressed herein and to statutes, regulations, rules, decisions, decrees and
facts existing on the date hereof. By rendering such opinions, we disclaim any
obligation to advise any party to whom this opinion is addressed of any change
in any of these sources of law or of any subsequent legal or factual
developments which might effect any matters addressed or opinions set forth
herein.
The opinions set forth herein are rendered solely to the parties to whom
this letter is addressed, and for the use by the Company in filing a
Registration Statement on Form SB-1 with the Securities and Exchange Commission,
are solely for the benefit of such parties in connection with the above
transactions, and may not be relied upon by them for any other purpose. This
letter may not be relied upon by any other person or entity, except as
specified
<PAGE>
Page 5
August 12, 1996
above, for any purpose without the prior written consent of this firm.
Yours very truly,
MAGEE, FOSTER, GOLDSTEIN & SAYERS, P.C.
By: /s/ Richard R. Sayers, Vice-President
----------------------------------------
Richard R. Sayers, Vice-President
