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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 000-22681
MEDLEY CREDIT ACCEPTANCE CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3571419
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134
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(Address of principal executive offices)
(305)-443-5002
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date:
NUMBER OF SHARES OUTSTANDING
CLASS ON DECEMBER 5, 1997:
----- ------------------------------
Common Stock, Par Value $.01
Per Share 1,680,000
Transitional Small Business
Disclosure Format: Yes No X
--- ---
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Condensed Balance Sheet at September 30,
1997 (Unaudited) 3
Condensed Statements of Operations for the
Three Months and Nine Months ended
September 30, 1997 and 1996 (Unaudited) 5
Condensed Statements of Cash Flows for the
Nine Months ended September 30, 1997 and 1996
(Unaudited) 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 6 Exhibits 13
SIGNATURES 14
2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash $ 26,242
Accounts receivable, net of allowance for
doubtful accounts of $3,000 84,800
Notes receivable 29,574
Due from affiliates 302,904
Prepaid offering costs 272,534
----------
Total Current Assets 716,054
RENTAL EQUIPMENT, at cost, net of accumulated 253,878
depreciation
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation 11,654
OTHER ASSETS
Due from affiliates 945,563
Rental equipment not in service 65,565
Security deposits 1,799
----------
Total Other Assets 1,012,927
----------
TOTAL ASSETS $1,994,513
----------
See accompanying notes to condensed financial statements.
3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Notes payable $ 150,000
Current portion of long-term debt 660,895
Current portion of obligations to
finance companies 56,717
Accounts payable and accrued expenses 289,765
Dividends payable - preferred stock 349,516
----------
Total Current Liabilities 1,506,893
OTHER LIABILITIES
Long-term debt, net of current portion 30,000
Obligations to finance companies, net
of current portion 36,790
Notes payable - officers 125,483
----------
Total Other Liabilities 192,273
----------
Total Liabilities 1,699,166
COMMITMENTS AND CONTINGENCIES --
REDEEMABLE CONVERTIBLE 10% PREFERRED STOCK
Series A 10% convertible preferred
stock, $.01 par value, 5,000,000
authorized, 2,958,817 shares issued
and outstanding (liquidation value of 820,281
$2,958,817 plus accumulated dividends) ----------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value,
10,000,000 authorized, 1,680,000
shares issued and outstanding 16,800
Additional paid-in capital 1,532,206
Accumulated deficit (2,073,940)
----------
Total Stockholders' Deficit (524,934)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,994,513
----------
See accompanying notes to condensed financial statements.
4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES $ 45,853 $ 29,809 $ 189,020 $ 310,920
COST AND EXPENSES
Depreciation 17,000 23,872 51,000 71,614
Interest expense 25,529 37,682 53,517 111,872
General and
administrative 89,096 98,599 203,859 175,473
expenses -------- --------- ---------- ----------
Total Costs and 131,625 160,153 308,376 358,959
Expenses -------- --------- ---------- ----------
Income (Loss) from (85,772) (130,344) (119,356) (48,039)
Operations --------- --------- ---------- ----------
OTHER INCOME
(EXPENSES)
Interest income 21,191 420 108,310 58,339
Loss on sale of
securities 6,800 -- (33,780) --
Loss on sale of -- 13,500 -- (22,226)
leased equipment -------- --------- ---------- ----------
Total Other Income 27,191 13,920 74,530 36,113
(Expenses) -------- --------- ---------- ----------
NET INCOME (LOSS) $ (57,781) $(116,424) $ (44,826) $ (11,926)
========= ========= ========= =========
NET INCOME (LOSS)
APPLICABLE TO COMMON $(131,752) $(156,737) $(266,674) $(175,932)
SHAREHOLDERS ========= ========= ======== =========
NET INCOME (LOSS) PER $(.08) $(.14) $(.16) $(.16)
COMMON SHARE ========= ========= ======== =========
WEIGHTED AVERAGE
NUMBER OF SHARES 1,680,000 1,120,000 1,680,000 1,120,000
OUTSTANDING ========= ========= ========= =========
See accompanying notes to condensed financial statements
5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
$(52,491) $105,228
Net cash (used) provided by operating activities -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances (to) from affiliates (76,228) 31,612
Purchase of securities (75,010) --
Proceeds from sale of securities 34,401 60,343
27,800 14,890
Proceeds from sale of equipment -------- --------
Net cash (used) provided by investing (89,037) 106,845
activities -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 293,650 --
Repayments of long-term debt (85,627) (161,748)
Repayments of notes payable (60,000) (45,000)
Net proceeds from shareholders loans 28,000 61,200
Repayments of shareholder loans (8,253) --
Payments on preferred dividends -- (75,328)
-- 5,000
Issuance of preferred stock -------- --------
167,770 (215,876)
Net cash provided (used) by financing activity -------- --------
NET (DECREASE) INCREASE IN CASH 26,242 (3,803)
-- 3,803
CASH- BEGINNING OF PERIOD -------- --------
$26,242 $ --
CASH- END OF PERIOD ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
$28,475 $61,962
Interest -------- --------
SUPPLEMENTAL NONCASH INVESTING AND FINANCIAL
ACTIVITIES:
Leased equipment received from affiliated company
as payment on intercompany receivable $87,758 $ --
Obligations to finance companies transferred to
affiliated company 27,807 --
Long-term debt and related accrued interest -- $788,844
converted into convertible preferred stock -------- --------
$111,565 $788,844
======== ========
See accompanying notes to condensed financial statements
6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
necessary for a fair presentation of the results for the interim
periods presented have been included.
These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently
with those used in the preparation of the Company's Annual
Financial Statement for the year ended December 31, 1996.
Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
NOTE 2 - RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment at September 30, 1997 consists of the following:
NOT
IN SERVICE IN SERVICE TOTAL
---------- ---------- -----
Equipment, at cost $528,134 $562,140 $1,090,274
Less: accumulated depreciation 274,256 496,575 756,331
-------- -------- ---------
Net Rental Equipment $253,878 $ 65,565 $333,943
======== ======== ========
The depreciation expense on rental equipment for the nine months
ended September 30, 1997 was $43,500.
7
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 3 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following
at September 30, 1997:
Office equipment $48,571
Automobile 6,955
-------
55,526
Less: Accumulated depreciation 43,872
-------
Net Property and Equipment $11,654
=======
Depreciation expense on property and equipment for the nine
months ended September 30, 1997 was $7,500.
NOTE 4 - NOTES PAYABLE
Notes payable of $150,000 are comprised of the following at
September 30, 1997:
Note Payable to Bank
--------------------
The Company maintains a revolving credit line agreement with a
commercial bank that is used to finance working capital
requirements. At September 30, 1997, the amount outstanding was
$135,000. Borrowings are due on demand, with interest payable
monthly at prime (9.5% at September 30, 1997) plus 2%.
Borrowings under the note are collateralized by certain Company
assets not otherwise pledged and the debt is personally
guaranteed by the Company's principal officers and Medley Group,
Inc.
Notes Payable to Individuals
----------------------------
Included in notes payable is $15,000 due to individuals, bearing
interest at 10% per annum, with due dates in June and October
1997.
NOTE 5 - LONG-TERM DEBT
At September 30, 1997, the Company is obligated to various
individuals for amounts aggregating $690,895. These notes are
for various amounts and mature through January 1999. Interest is
payable at rates ranging from 10% to 13.5% per annum. The
unsecured portion of these notes is $661,873.
8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 6 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and
related rental agreements, consist of:
18.7% obligation payable in monthly installments
of $2,260, including interest, through April 1998 $14,880
23.6% obligation payable in varying monthly
installments, including interest, through
November 1999 21,867
21.2% obligation payable in varying monthly
installments, including interest, through
November 1999 42,663
18.3% obligation payable in varying monthly
installments, including interest, through 14,097
November 1999 -------
93,507
56,717
Less: Current maturities -------
$36,790
Long-Term Obligations -------
NOTE 7 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has accrued $73,970 of dividends on its preferred
stock at September 30, 1997. It is in arrears on the 10%
dividends for the last five quarters due to the Company's
officers.
NOTE 8 - INCOME TAXES
The Company is included in the consolidated federal tax return of
its parent, Medley Group, Inc. Federal and state income taxes
are provided for on a stand-alone basis as if the Companies filed
their own tax returns.
The provision for income taxes at September 30, 1997 is as
follows:
Deferred Income Tax Expense:
Federal $--
State --
Less Valuation Allowance --
Deferred Income Tax $--
===
9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 8 - INCOME TAXES (CONTINUED)
At September 30, 1997, the Company has an unused net operating
loss carryforward of approximately $409,800, expiring in 2010,
which is available for use on its future corporate federal and
state tax returns. The Company's evaluation of the tax benefit
of its net operating loss carryforward is presented in the
following table. The tax amounts have been calculated using a
40% combined effective tax rate.
Deferred Tax Asset:
Tax Benefit of Net Operating Loss $163,900
Less: Valuation Allowance (163,900)
-------
Deferred Tax Asset $ --
=======
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
Federal Statutory Rate (34)%
State Income Tax Rate (6)%
-----
(40)%
Effect of Net Operating Loss Carryforward 40%
and Validation Allowance -----
Effective Income Tax Rate (0)%
=====
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company which,
historically, has been engaged primarily in the financing of (i)
dry cleaning equipment to small dry cleaning businesses
throughout the eastern United States and (ii) refrigeration
equipment sold or leased by Medley Refrigeration, Inc., an
affiliate of the Company ("Medley Refrigeration"). Medley
Refrigeration is engaged in the provision of refrigeration
equipment and services to the food service and hospitality
industries and other businesses throughout central and
southeastern Florida.
Prior to the fiscal year ended December 31, 1996 ("Fiscal
1996"), the Company focused its marketing efforts primarily on
providing financing to creditworthy purchasers of dry cleaning
equipment. Commencing in Fiscal 1996, the Company began de-
emphasizing its dry cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such customers tended to be small entities
with reliable cash flow but without access to sophisticated
financing arrangements. Such customers were typically willing to
pay a premium in terms of interest rates for convenience and
availability of financing.
During December 1996, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues
from, and rights of collection with respect to, refrigeration
equipment leases entered into by Medley Refrigeration with its
customers (the "Assignment"). Excluded from the Assignment,
however, were those equipment leases, the revenues from which,
were previously assigned to collateralize the Company's line of
credit facility with an independent third party lender. Prior to
the Assignment, the Company historically would lend Medley
Refrigeration the capital necessary for Medley Refrigeration to
either purchase or manufacture refrigeration equipment for its
customers. Medley Refrigeration, in turn, would lease this
refrigeration equipment to its customers who, as a condition to
the lease, would grant the Company a security interest in the
leased equipment to collateralize the customer's payment
obligations under the equipment lease. As a result of the
Assignment, lease payments with respect to a majority of the
equipment leases extended to Medley Refrigeration's customers
began, and continue, to be payable directly to the Company. In
addition, commencing in January 1997, the Company began, and
continues, to finance refrigeration equipment leases directly
with Medley Refrigeration's customers. The Company, through the
date of this Report, has continued to focus its marketing efforts
primarily to customers of Medley Refrigeration. Following the
consummation of the Company's initial public offering (the
"IPO"), however, the Company anticipates broadening its leasing
efforts to expand to entities unaffiliated with the Company.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996
For the nine months ended September 30, 1997, the Company
incurred a net loss of $44,826, as compared to a net loss of
$11,926 for the comparable period during 1996. The increase in
net loss was primarily attributable to (i) increases in general
and administrative expenses associated with the IPO, (ii) the
Company's being forced to expend cash flow from operations to
satisfy obligations incurred in connection with the IPO rather
than reinvesting such cash flow into the Company's operations and
(iii) the Company's recognizing lease revenue from Medley
Refrigeration as an increase in the Company's inter-company
receivable due from Medley Refrigeration rather than revenue
received from an unrelated person. The general and
administrative expenses incurred by the Company in connection
with the IPO also had the effect of nullifying the approximate
$50,000 decrease in total costs and expenses incurred by the
Company during the nine months ended September 30, 1997 as
compared to the comparable period during 1996.
During the nine months ended September 30, 1997, the Company
generated leasing revenues of $189,020. This represents a
decrease of approximately $110,000 from leasing revenues of
$310,920 for the nine months ended September 30, 1996. This
decrease in revenues was partially offset, however, by the
approximate $50,000 increase in interest income realized during
the nine months ended September 30, 1997. This increase in
interest income reflects the continuing shift in the Company's
11
<PAGE>
assets from maturing leases of dry cleaning equipment to financed
refrigeration equipment, particularly with Medley Refrigeration
and its affiliates.
The difference between the Company's net loss for each of the
nine month periods ended September 30, 1997 and 1996 as compared
to the Company's net loss applicable to common shareholders for
the same periods is the accrued but unpaid dividend applicable to
shares of the Company's Redeemable Convertible Preferred Stock
(the "Convertible Preferred Stock"). These accrued but unpaid
dividends are payable to affiliates of the Company and will be
paid from a portion of the proceeds raised in the Company's IPO.
The Company's improved results of operations for the three
months ended September 30, 1997 as compared to the three months
ended September 30, 1996 reflect, generally, a slight increase in
revenues coupled with a modest decrease in total costs and
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had total assets of
$1,994,513 as compared to total assets of $1,794,820 at December
31, 1996. This increase in total assets is primarily
attributable to increases in accounts receivable relating to new
equipment leases entered into, the Company's improved cash
position and significantly higher prepaid offering costs
associated with the IPO.
At September 30, 1997, the Company had total liabilities of
$1,699,166 as compared to total liabilities of $1,232,799 at
December 31, 1996. This increase in liabilities was primarily
due to increases in declared but unpaid and accrued Convertible
Preferred Stock dividends and accounts payable and accrued
expenses incurred in connection with the IPO. In addition,
during the third quarter of Fiscal 1997, the Company was required
to incur approximately $140,000 in borrowings from unaffiliated
lenders to support working capital requirements.
At September 30, 1997, the Company had total stockholders'
deficit of $524,934 as compared to total stockholders' deficit of
$258,260 at December 31, 1996. This increase in stockholders'
deficit is primarily attributable to the Company's incurring
increased expenses in connection with the IPO, coupled with the
Company's inability, due to these expenses, to reinvest into its
business, cash flow from operations.
The Company is dependent on the proceeds of its IPO to finance
its ongoing specialty finance business, to commence its
anticipated factoring business and to finance its other working
capital requirements. The Company anticipates, based on its
current proposed plans and assumptions relating to its operations
and expansion, that the proceeds of its IPO will be sufficient to
satisfy the contemplated cash requirements of the Company for
approximately 12 months following the consummation of the IPO.
In the event that the Company's plans change or its assumptions
prove to be inaccurate or the proceeds of the IPO prove to be
insufficient to fund the Company's operations or its expansion
(due to unanticipated expenses, delays, problems or otherwise),
the Company would be required to seek additional funding.
Depending upon the Company's financial strength and the state of
the capital markets, the Company may also determine that it is
advisable to raise additional equity capital. The Company has no
current arrangements with respect to, or sources of, any
additional capital, and there can be no assurance that such
additional capital will be available to the Company, if needed,
on commercially reasonable terms or at all. The inability of the
Company to obtain additional capital would have a material
adverse effect on the Company and could cause the Company to be
unable to implement its business strategy or proposed expansion
or to otherwise significantly curtail or cease its operations.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDLEY CREDIT ACCEPTANCE CORP.
------------------------------
(REGISTRANT)
Date: December 8, 1997 /s/ Robert D. Press
-------------------
Robert D. Press
Chairman of the Board, President,
Chief Executive Officer and Chief
Financial Officer
(Principal Executive and Financial
Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,242
<SECURITIES> 0
<RECEIVABLES> 417,278
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 716,054
<PP&E> 11,654
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,994,513
<CURRENT-LIABILITIES> 1,506,893
<BONDS> 0
0
820,281
<COMMON> 16,800
<OTHER-SE> (541,734)
<TOTAL-LIABILITY-AND-EQUITY> 1,994,513
<SALES> 189,020
<TOTAL-REVENUES> 189,020
<CGS> 0
<TOTAL-COSTS> 308,376
<OTHER-EXPENSES> 308,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,517
<INCOME-PRETAX> (44,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,826)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
